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TABLE OF CONTENTS
PART IV
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2011.
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OR
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period
from to
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Commission File Number 000-50923
WILSHIRE BANCORP, INC.
(Exact name of registrant as specified in its charter)
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California
(State or other jurisdiction of
incorporation or organization)
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20-0711133
(I.R.S. Employer
Identification Number)
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3200 Wilshire Blvd.
Los Angeles, California
(Address of principal executive offices)
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90010
(Zip Code)
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(213) 387-3200
(Registrant's telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act
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Common Stock, no par value
(Title of each class)
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The NASDAQ Stock Market, LLC
(Name of Each Exchange on which registered)
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
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No
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The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2011 was approximately
$181.5 million (computed based on the closing sale price of the common stock at $2.94 per share as of such date). Shares of common stock held by each officer and director and each person owning
more than ten percent of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of the affiliate status is not necessarily a conclusive
determination for other purposes.
The
number of shares of Common Stock of the registrant outstanding as of February 29, 2012 was 71,282,518
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the registrant's 2012 Annual Meeting of Shareholders are incorporated by reference into Part III of
this Annual Report on Form 10-K, where indicated.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report on Form 10-K, or the "Report," the other reports, statements, and information that we have
previously filed or that we may subsequently file with the Securities and Exchange Commission ("SEC") and public announcements that we have previously made or may subsequently make include,
incorporate by reference or may incorporate by reference certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are
intended to enjoy the benefits of that act. The forward-looking statements included or incorporated by reference in this Form 10-K and those reports, statements, information and
announcements address activities, events or developments that Wilshire Bancorp, Inc. (together with its subsidiaries hereinafter referred to as "the Company," "we," "us," "our" or "Wilshire
Bancorp," unless the context requires otherwise) expects or anticipates will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or
future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "may," "should,"
"could," "predict," "potential," "believe," "will likely result," "expect," "will continue," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar
expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking
statements are qualified in their entirety by reference to the factors discussed throughout this
document. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations,
economic conditions, customer disintermediation and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, as well as the factors discussed
elsewhere in this Report, including the discussion under the section entitled "Risk Factors."
The
risk factors referred to in this Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should
not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements.
PART I
Item 1. Business
General
Wilshire Bancorp, Inc. is a bank holding company offering a broad range of financial products and services primarily through our
main subsidiary, Wilshire State Bank, a California state-chartered commercial bank, which we sometimes refer to in this report as the "Bank." Our corporate headquarters and primary banking facilities
are located at 3200 Wilshire Boulevard, Los Angeles, California 90010. In addition, the Bank has 24 full-service branch offices in Southern California, Texas, New Jersey, and the greater
New York City metropolitan area. We also have 8 loan production offices, or "LPOs", utilized primarily for the origination of loans under our Small Business Administration, or "SBA", lending program
in California, Colorado, Georgia, Texas (2 offices), New Jersey, Washington, and Virginia. The LPO offices located in Newark, California, and Bellevue, Washington were established in 2011.
Deposits
in Wilshire State Bank are insured up to the maximum limits authorized under the Federal Deposit Insurance Act, as amended, or the "FDIA." Like most state-chartered banks of our
size in California, we are not a member of the Federal Reserve System, but we are a member of
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Federal
Home Loan Bank of San Francisco, a congressionally chartered Federal Home Loan Bank. At December 31, 2011, we had approximately $2.7 billion in assets, $2.0 billion in
total loans (net of deferred fees), and $2.2 billion in deposits.
We
operate a community bank focused on the general commercial banking business, with our primary market encompassing the multi-ethnic populations of Southern California,
Dallas-Fort Worth, New Jersey, and the New York metropolitan area. Our client base reflects the ethnic diversity of these communities.
To
address the needs of our multi-ethnic customers, we have many multilingual employees who are able to converse with our clientele in their native languages. We believe that the ability
to speak the native language of our customers assists us in tailoring products and services for our customers' needs.
Available Information
We maintain an Internet website at www.wilshirebank.com. We post our filings with the SEC on the Investor Relations component of our
website, where such filings are available free of charge, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on
Form 8-K, our proxy and information statements, and any amendments to those reports or statements as soon as reasonably practicable after such reports are filed or furnished under
the Securities Exchange Act of 1934, as amended, or Exchange Act. In addition to our SEC filings, our Code of Professional Conduct, and our Personal and Business Code of Conduct can be found on the
Investor Relations page of our website. In addition, we post separately on our website all filings made by persons pursuant to Section 16 of the Exchange Act. You may also read and copy any
materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0220. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC at www.sec.gov.
Internal Investigation
We previously conducted an internal investigation with the assistance of outside independent professional firms and the Company's
internal audit department. The scope of the Company's internal investigation was extensive and included loan related activities and other matters involving improper activities of a certain loan
officer. This loan officer is no longer with the Company. As a result of the investigation, management discovered a significant deficiency in the operating effectiveness of loan underwriting, approval
and renewal processes for those loan originations and asset sales associated with the former loan officer. Specifically, these processes lacked effective supervision and oversight by the former chief
executive officer, and the procedures and requirements associated with loan underwriting, approvals, renewals and sales were not properly executed or enforced. Our former chief executive officer
resigned following the revelation of these activities to our board of directors. On February 18, 2011, we hired a new president and chief executive officer, Jae Whan Yoo.
In
addition, the internal investigation concerning the improper activities of a former loan officer, lack of supervision and oversight by management, and the deficiencies in loan
underwriting, approvals, renewals and asset sales resulted in a material adjustment of an increase in allowance for loan losses of $3.2 million and an $18.1 million increase in provision
for loan losses for the year ended December 31, 2010, which reduced the net income of the Company by $10.3 million, net of tax benefit within the 2010 annual consolidated financial
statements following the Company's fourth quarter and year-end earnings release, dated January 24, 2011.
Management
determined that these control deficiencies, combined with the material adjustment to the Company's allowance for loan loss and related provision for loan losses, constituted a
material
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weakness
in the Company's internal control over financial reporting for the year ended December 31, 2010. As a result, management undertook remedial measures during 2011 to correct such
deficiencies, including, among others, restructuring its lending department to shift the focus from marketing to credit quality control and enhancing its loan documentation and underwriting
procedures. For more information regarding the material weakness and the Company's remedial actions, see "Item 9A. Management's Report on Internal Controls Over Financial Reporting."
Future Growth
As part of our efforts to achieve stable and long-term profitability and respond to a changing economic environment in
Southern California, we constantly evaluate a variety of options to augment our traditional focus by broadening the services and products we provide. Possible avenues of growth include more branch
locations, expanded days and hours of operation, and new types of lending and deposit products. To date, we have not expanded into areas of brokerage or similar investment products and services but
rather, we have concentrated primarily on the core businesses of accepting deposits, making loans, and extending credit.
Our
expansion plans for 2012 are influenced by the changing conditions in the U.S. economy. The rapid deterioration of the U.S. economy several years ago was triggered by the slowdown of
the housing market and emergence of subprime and credit crisis in mid-2007. The failures of banks, mortgage lenders, insurance companies, and major financial institutions in 2008 further
added pressure to the economy and started a trend of global recession. This "financial crisis" primarily reflects the significant and broad-based illiquidity in the residential real estate and credit
markets. The domino effect of the U.S. financial crisis has now become a global problem, as many institutions worldwide are financially interlinked. Although there have been recent signs of economic
improvement, some analysts predict the current financial crisis will extend into 2012 as well. In addition, we previously revealed some deficiencies in our loan underwriting, origination and renewal
processes. As a result, we will continue to focus on improving our loan portfolio and credit quality control rather than marketing and aggressive expansion.
In
2012, we plan to continue to closely monitor and review the loan production levels of our branches and LPOs. In 2011 we opened two new LPOs in Newark, California, and
Bellevue, Washington to complement our existing network of LPOs across the country. Partially as a result of the 2010 internal investigation, we have taken remedial efforts to improve and
enhance our loan origination and underwriting procedures, including the segregation of personnel and responsibilities related to loan sales from personnel and responsibilities related to loan
underwriting processes. This separation resulted in a renewed focus for 2011 on the underwriting of loans. We will continue to act with prudence in our lending practices and closely follow our
improved underwriting policies and procedures in extending credit. Even with the improvement in credit quality experienced during 2011, we will continue to focus on reducing problem assets while
cautiously looking to grow our balance sheet through increased loan originations.
Business Segments
We operate in three primary business segments: Banking Operations, Trade Finance Services, and Small Business Administration Lending
Services. We determine operating
results of each segment based on an internal management system that allocates certain expenses to each segment. These segments are described in additional detail
below:
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Banking Operations—
The Company raises funds from deposits and
borrowings for loans and investments, and provides lending products, including commercial, consumer, and real estate loans to its customers.
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Small Business Administration ("SBA") Lending Services—
The SBA
department mainly provides customers with access to the U.S. SBA guaranteed lending program. Through the SBA loan program, we are able to offer customers with small businesses a variety of loans to
meet their needs. A portion of SBA loans are guaranteed by the Small Business Administration, with the backing of the U.S. government, making them attractive to both the Company and our customers. A
significant portion of our business entails selling the guaranteed portion of SBA loans that we originate in the secondary market for premium.
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Trade Finance Services ("TFS")—
Our TFS primarily deals in
letters of credit issued to customers whose businesses involve the international sale of goods. A letter of credit is an arrangement (usually expressed in letter form) whereby the Company, at the
request of and in accordance with customers instructions, undertakes to reimburse or cause to reimburse a third party, provided that certain documents are presented in strict compliance with its terms
and conditions. Simply put, a bank is pledging its credit on behalf of the customer. The Company's TFS offers the following types of letters of credit to customers:
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Commercial—An undertaking by the issuing bank to pay for a commercial transaction.
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Standby—An undertaking by the issuing bank to pay for the non-performance of applicant.
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Revocable—Letter of credit that can be modified or cancelled by the issuing bank at any time with notice to
the beneficiary (does not provide beneficiary with a firm promise of payment).
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Irrevocable—Letters of credit that cannot be altered or cancelled without mutual consent of all parties.
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Sight—Letter of credit requiring payment upon presentation of conforming shipping documents.
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Usance—Letter of credit which allows the buyer to delay payment up to a designated number of days after
presentation of shipping documents.
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Import—Letter of credit issued to assist customers in purchasing goods from overseas.
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Export—Letter of credit issued to assist customers selling goods to overseas.
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Transferable—Letter of credit which allows the beneficiary to transfer their right, in part or full, to
another party.
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Non-transferable—Letter of credit which does not allows the beneficiary to transfer their right,
in part or full, to another.
Our
TFS services include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, we provide advising and negotiation of
commercial letters
of credit, and we transfer and issue back-to-back letters of credit. We also provide importers with trade finance lines of credit, which allow for issuance of commercial
letters of credit and financing of documents received under such letters of credit, as well as documents received under documentary collections. Exporters are assisted through export lines of credit
as well as through immediate financing of clean documents presented under export letters of credit.
Lending Activities
Our loan policies set forth the basic guidelines and procedures by which we conduct our lending operations. These policies address the
types of loans available, underwriting and collateral requirements, loan terms, interest rate and yield considerations, compliance with laws and regulations,
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and
our internal lending limits. Our Bank Board of Directors reviews and approves our loan policies on an annual basis. We supplement our own supervision of the loan underwriting and approval process
with periodic loan audits by experienced external loan specialists who review credit quality, loan documentation, and compliance with laws and regulations. We engage in a full complement of lending
activities, including:
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commercial real estate and home mortgage lending,
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commercial business lending and trade finance,
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SBA lending,
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consumer loans, and
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construction lending
Loan Procedures
Loan applications may be approved by the Director Loan Committee of our Bank Board of Directors, by our management, or lending officers
to the extent of their lending authority. Our Bank Board of Directors authorizes our lending limits. The President and Chief Credit Officer of the Bank are responsible for evaluating the lending
authority limits for individual credit officers and recommending lending limits for all other officers to the Bank Board of Directors for approval.
We
grant individual lending authority to the President, Chief Credit Officer, and selected department managers of the Bank. Loans for which direct and indirect borrower liability exceeds
an individual's lending authority are referred to the Senior Loan Committee of the Bank (a five-member committee comprised of the President, Chief Credit Officer, Deputy Chief Credit
Officer, and two Senior Loan Managers) or our Bank Director Loan Committee.
At
December 31, 2011, our authorized legal lending limit was $73.2 million for unsecured loans, plus an additional $48.8 million for specifically secured loans.
Legal lending limits are calculated in conformance with California law, which prohibits a bank from lending to any one individual or entity or its related interests in an aggregate amount which
exceeds 15% of shareholders' equity, plus the allowance for loan losses, and capital notes and debentures, on an unsecured basis, plus an additional 10% on a secured basis. The Bank's shareholders'
equity plus allowance for loan losses, and capital notes and debentures at December 31, 2011 totaled $488.1 million.
We
seek to mitigate the risks inherent in our loan portfolio by adhering to our underwriting policies. The review of each loan application includes analysis of the applicant's prior
credit history, income level, cash flow and financial condition, analysis of tax returns, cash flow projections, the value of any collateral used to secure the loan, and also based upon reports of
independent appraisers and audits of
accounts receivable or inventory pledged as security. In the case of real estate loans over a specified amount, the review of the collateral value includes an appraisal report prepared by an
independent Bank-approved appraiser. From time to time, we purchase participation interests in loans made by other financial institutions. These loans are generally subject to the same
underwriting criteria and approval process as loans made directly by us.
We offer commercial real estate loans to finance the acquisition of, or to refinance the existing mortgages on commercial properties,
which include retail shopping centers, office buildings, industrial buildings, warehouses, hotels, automotive industry facilities, and apartment buildings. Our commercial real estate loans are
typically collateralized by first or junior deeds of trust on specific commercial properties, and, when possible, subject to corporate or individual guarantees from financially capable parties. The
properties collateralizing real estate loans are principally located in the markets where our
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retail
branches are located. These locations include Southern California, Texas, New Jersey, and the greater New York City metropolitan area. However, we also provide commercial real estate loans
through our LPOs. Real estate loans typically bear an interest rate that floats with our base rate, the prime rate, or another established index. We also offer fixed rate commercial mortgage
loans with maturities that generally do not exceed 7 years. At December 31, 2011, real estate loans, including construction loans constituted approximately 85.1% of our loan portfolio.
Commercial
real estate loans typically have 7-year maturities with up to 25-year amortization of principal and interest and loan-to-value
ratios of 60-70% at origination of the appraised value or purchase price, whichever is lower. We usually impose a prepayment penalty during the period within three to five years of the
date of the loan.
Construction
loans are provided to build new structures, or to substantially improve the existing structure of commercial, residential, and income-producing properties. These loans
generally have one to two year terms, with an option to extend the loan for additional periods to complete construction and to accommodate the lease-up period. We usually require a
20-30% equity capital investment by the developer and loan-to-value ratios of not more than 60-70% of the anticipated completion value.
Our
total home mortgage loan portfolio outstanding at the end of 2011 and 2010 was $65.8 million and $47.7 million, respectively. There were no residential mortgage loans
with unconventional terms such as interest only mortgages or option adjustable rate mortgages at December 31, 2011 including loans held temporarily for sale or refinancing. At
December 31, 2010, residential mortgage loans with unconventional terms such as interest only mortgages or option adjustable rate mortgages totaled $944,000 and $1.2 million,
respectively.
We
consider subprime mortgages to be loans secured by real property made to a borrower (or borrowers) with a diminished or impaired credit rating or with a limited credit history. We are
focused on producing loans with only prime rated borrowers which we consider borrowers with FICO scores of at least 660. As of result, our portfolio currently has no subprime exposure.
Our
real estate portfolio is subject to certain risks, including:
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a continued decline in the economies of our primary markets,
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interest rate increases,
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continued reduction in real estate values in our primary markets,
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increased competition in pricing and loan structure, and
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environmental risks, including natural disasters.
We
strive to reduce the exposure to such risks by (a) reviewing each new loan request and renewal individually, (b) using a dual signature approval system for the approval
of each loan request for loans over a certain dollar amount, (c) adherence to written loan policies, including, among other factors, minimum collateral requirements, maximum
loan-to-value ratio
requirements, cash flow requirements, and personal guarantees, (d) independent appraisals, (e) external independent credit review, and (f) conducting environmental reviews, where
appropriate. We review each loan request on the basis of our ability to recover both principal and interest in view of the inherent risks.
We offer commercial business loans to sole proprietorships, partnerships, and corporations. These loans include business lines of
credit and business term loans to finance operations, to provide working capital, or for specific purposes, such as to finance the purchase of assets, equipment, or inventory. Since a borrower's cash
flow from operations is generally the primary source of repayment, our policies provide specific guidelines regarding required debt coverage and other important financial ratios.
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Lines
of credit are extended to businesses or individuals based on the financial strength and integrity of the borrower. These lines of credit are secured primarily by business assets
such as accounts receivable or inventory, and have a maturity of one year or less. Such lines of credit bear an interest rate that floats with our base rate, the prime rate, or another established
index.
Business
term loans are typically made to finance the acquisition of fixed assets, refinance short-term debts, or to finance the purchase of businesses. Business term loans
generally have terms from one to seven years. They may be collateralized by the assets being acquired or other available assets and bear interest rates, which either float with our base rate, prime
rate, another established index, or is fixed for the term of the loan.
We
also provide other banking services tailored to the small business market. We have focused on diversifying our loan portfolio, which has led to an increase in commercial business
loans to small and medium-sized businesses.
Our
portfolio of commercial loans is subject to certain risks, including:
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continued decline in the economy in our primary markets,
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interest rate increases, and
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deterioration of a borrower's or guarantor's financial capabilities.
We
attempt to reduce the exposure to such risks by (a) reviewing each new loan request and renewal individually, (b) relying heavily on our committee approval system where
inputs from experienced committee members with different types and levels of lending experience are fully utilized, (c) strict adherence to written loan policies, and (d) external
independent credit review. In addition, loans based on short-term assets such as account receivables and inventories are monitored on a monthly or at a minimum, on a quarterly basis. In
general, we receive and review financial statements of borrowing customers on an ongoing basis during the term of the relationship and respond to any deterioration noted.
Small Business Administration, or SBA, lending is an important part of our business. Our SBA lending business places an emphasis on
minority-owned businesses. Our SBA market area includes the geographic areas encompassed by our full-service banking offices in Southern California, Texas, New Jersey, and the New York
City metropolitan area, as well as the multi-ethnic population areas surrounding our LPOs in other states. We are an SBA Preferred Lender nationwide, which permits us to approve SBA guaranteed
loans in all our lending areas without further approval from the SBA. As an SBA Preferred Lender, we provide quicker and more efficient service to our clientele, enabling them to obtain SBA loans in
order to acquire new businesses, expand existing businesses, and acquire locations in which to do business, without having to go through the time-consuming SBA approval process that would
be necessary if a prospective SBA borrower were to utilize a lender that is not an SBA Preferred Lender.
SBA
loans continue to remain an important component of our business. The net revenue from our SBA department represented 27.1%, 920.8%, and 8.9% of our total net revenue for 2011, 2010
and 2009, respectively.
Although
our participation in the SBA program is subject to the legislative power of Congress and the continued maintenance of our approved status by the SBA, we have no reason to
believe that this program (and our participation therein) will not continue, particularly in view of the historic longevity of the SBA program nationally.
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Consumer loans include personal loans, auto loans, and other loans typically made by banks to individual borrowers. The majority of
consumer loans are concentrated on personal lines of credit and installment loans to individuals. Since the second half of 2008, we have not made any new auto loans to new customers. However, on
occasion, automobile loans are made to existing loan or deposit customers. Because consumer loans typically present a higher risk potential compared to our other loan products, especially given
current economic conditions, we have reduced our efforts in consumer lending since 2007.
Our
consumer loan production has historically been comparatively small, and has always represented less than 5% of our total loan portfolio. As of December 31, 2011, our consumer
loan portfolio represented 0.8% of the loan portfolio, up from 0.7% at December 31, 2010.
Our
consumer loan portfolio is subject to certain risks, including:
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general economic conditions of the markets we serve,
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interest rate increases, and
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consumer bankruptcy laws which allow consumers to discharge certain debts.
We
attempt to reduce the exposure to such risks through (a) the direct approval of all consumer loans by reviewing each loan request and renewal individually, (b) using a
dual signature system of approval, (c) strict adherence to written credit policies, (d) utilizing external independent credit review and (e) concentrating mostly on cash secured
loans and lines of credits.
Trade Finance Services
Our Trade Finance Department is part of our business and assists our import/export customers with their international business needs.
The department primarily deals in letters of credit issued to customers whose businesses involve the international sale of goods. A letter of credit is an arrangement (usually expressed in letter
form) whereby the Company, at the request of and in accordance with customers instructions, undertakes to reimburse or cause to reimburse a third party, provided that certain documents are presented
in strict compliance with its terms and conditions. Simply put, a bank is pledging its credit on behalf of the customer. The Company's TFS offers the following types of letters of credit to
customers:
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Commercial—An undertaking by the issuing bank to pay for a commercial transaction.
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Standby—An undertaking by the issuing bank to pay for the non-performance of applicant.
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Revocable—Letter of credit that can be modified or cancelled by the issuing bank at any time with notice to
the beneficiary (does not provide beneficiary with a firm promise of payment).
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Irrevocable—Letters of credit that cannot be altered or cancelled without mutual consent of all parties.
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Sight—Letter of credit requiring payment upon presentation of conforming shipping documents.
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Usance—Letter of credit which allows the buyer to delay payment up to a designated number of days after
presentation of shipping documents.
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Import—Letter of credit issued to assist customers in purchasing goods from overseas.
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Export—Letter of credit issued to assist customers selling goods to overseas.
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Transferable—Letter of credit which allows the beneficiary to transfer their right, in part or full, to
another party.
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Non-transferable—Letter of credit which does not allows the beneficiary to transfer their right,
in part or full, to another.
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Documentary Collections—A means of channeling payment for goods through a bank in order to facilitate passing
of funds. The bank (banks) involved acts as a conduit through which the funds and documents are transferred between the buyer and seller of goods.
Services
offered by the Trade Finance Department include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, we
provide advising and negotiation of commercial letters of credit, and we transfer and issue back-to-back letters of credit. We also provide importers with trade finance lines
of credit, which allow for issuance of commercial letters of credit and financing of documents received under such letters of credit, as well as documents received under documentary collections.
Exporters are assisted through export lines of credit as well as through immediate financing of clean documents presented under export letters of credit.
Most
of our revenue from the Trade Finance Department consists of fee income from providing facilities to support import/export customers and interest income from extensions of credit.
Our Trade Finance Department's fee income was $954,000, $985,000, and $1.2 million in 2011, 2010, and 2009, respectively.
Deposit Activities and Other Sources of Funds
Our primary sources of funds are deposits and loan repayments. Scheduled loan repayments are a relatively stable source of funds,
whereas deposit inflows and outflows and unscheduled loan prepayments (which are influenced significantly by general interest rate levels, interest rates available on other investments, competition,
economic conditions, and other factors) are less stable. Customer deposits remain a primary source of funds, but these balances may be influenced by adverse market changes in the industry. Other
borrowings may be used:
-
•
-
on a short-term basis to compensate for reductions in deposit inflows to less than projected levels, and
-
•
-
on a longer-term basis to support expanded lending activities and to match the maturity of repricing intervals
of assets.
We
offer a variety of accounts for depositors which are designed to attract both short-term and long-term deposits. These accounts include certificates of deposit
("CDs"), regular savings accounts, money market accounts, checking and negotiable order of withdrawal ("NOW") accounts, installment savings accounts, and individual retirement accounts ("IRAs"). These
accounts generally earn interest at rates established by management based on competitive market factors and management's desire to increase or decrease certain types or maturities of deposits. As
needed, we augment these customer deposits with brokered deposits. The more significant deposit accounts offered by us and other sources of funds are described below:
We offer several types of CDs with a maximum maturity of five years. The majority of our CDs all have maturities of one to twelve
months and typically pays simple interest credited monthly or at maturity.
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We offer savings accounts that allow for unlimited deposits and withdrawals, provided that depositors maintain a $100 minimum balance.
Interest is compounded daily and credited quarterly.
Money market accounts pay a variable interest rate that is tiered depending on the balance maintained in the account. Minimum opening
balances vary. Interest is compounded daily and paid monthly.
Checking and NOW accounts are generally noninterest and interest bearing accounts, respectively, and may include service fees based on
activity and balances. NOW accounts pay interest, but require a higher minimum balance to avoid service charges.
To supplement our deposits as a source of funds for lending or investment, we borrow funds in the form of advances from the Federal
Home Loan Bank of San Francisco. We may use Federal Home Loan Bank advances as part of our interest rate risk management, primarily to extend the duration of funding to match the longer term fixed
rate loans held in the loan portfolio.
As
a member of the Federal Home Loan Bank "FHLB" system, we are required to invest in Federal Home Loan Bank stock based on a predetermined formula. Federal Home Loan Bank stock is a
restricted investment security that can only be sold to other Federal Home Loan Bank members or redeemed by the Federal Home Loan Bank. As of December 31, 2011, we owned $15.5 million in
FHLB stock.
Advances
from the Federal Home Loan Bank are secured by the Federal Home Loan Bank stock we own and a blanket lien on loans in our portfolio and may be also secured by other assets,
mainly consisting of securities which are obligations of or guaranteed by the U.S. government. At December 31, 2011, our borrowing capacity with the Federal Home Loan Bank was approximately
$645.3 million, with $60.0 million in borrowings outstanding, and $585.3 million in capacity remaining.
Internet Banking
We offer internet banking, which allows our customers to access their deposit and loan accounts through the internet. Customers are
able to obtain transaction history and account information, transfer funds between accounts, make on-line bill payments, and open deposit accounts. We intend to improve and develop our
Internet banking products and other delivery channels as the need arises and our resources permit.
Other Services
We also offer ATMs located at selected branch offices, customer access to an ATM network, and armored carrier services.
Marketing
Our marketing efforts rely principally upon local advertising and promotional activity and upon the personal contacts of our directors,
officers, and shareholders to attract business and to acquaint potential customers with our products and personalized services. We emphasize a high degree of
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personalized
client service in order to be able to satisfy each customer's banking needs. Our marketing approach emphasizes our strength as an independent, locally-managed state chartered bank in
meeting the particular needs of consumers, professionals, and business customers in the community. Our management team continually evaluates all of our banking services with regard to their
profitability and makes conclusions based on these evaluations on whether to continue or modify our business plan, where appropriate.
Competition
We currently operate 24 branch offices, 18 in California, 2 in Texas, 1 in New Jersey, and 3 in the greater New York City metropolitan
area. We consider our Bank to be a community bank focused on the general commercial banking business, with our primary market encompassing the multi-ethnic population of the Los Angeles County area.
Our full-service branch offices are located primarily in areas where a majority of the businesses are owned by immigrants or minority groups. Our client base reflects the ethnic diversity
of these communities.
Our
market has become increasingly competitive in recent years with respect to virtually all products and services that we offer. Although the general banking market is dominated by a
relatively small number of major banks with numerous offices covering a wide geographic area, we compete in our niche market directly with smaller community banks which focus on Korean-American and
other minority consumers and businesses.
We
continue to experience a high level of competition within the ethnic banking market. In the greater Los Angeles metropolitan area, our primary competitors include eight locally-owned
and operated Korean-American banks. These banks have branches located in many of the same neighborhoods in which we operate, provide similar types of products and services, and use the same Korean
language publications and media for their marketing purposes. Unlike many other Korean-ethnic community banks, we also focus a significant portion of our marketing efforts on non-Korean
customers.
A
less significant source of competition in our primary market includes branch offices of major national and international banks which maintain a limited bilingual staff for
Korean-speaking or other language customers. Although these banks have not traditionally focused their marketing efforts on the minority customer base in our market, their competitive influence could
increase should they choose to focus on this market in the future. Large commercial bank competitors have, among other advantages, the ability to finance wide-ranging and effective
advertising campaigns and to allocate their investment resources to areas of highest yield and demand. Many of the major banks operating in our market area offer certain services that we do not offer
directly (but some of which we offer through correspondent institutions). By virtue of their greater total capitalization, such banks likely also have substantially higher lending limits than we do.
In order to compete effectively, we provide quality, personalized service and fast, local decision making which we feel distinguishes us from many of our
major bank competitors. For customers whose loan demands exceed our internal lending limit, we attempt to arrange for such loans on a participation basis with our correspondent banks. Similarly, we
assist customers requiring services that we do not currently offer in obtaining such services from our correspondent banks.
We currently operate LPOs, in Newark, California; Bellevue, Washington; Aurora, Colorado; Atlanta, Georgia; Fort Lee, New
Jersey; Dallas, Texas; Houston, Texas; and Annandale, Virginia. In most of our LPO locations, we are competing with local lenders as well as Los Angeles-based Korean-
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American
community lenders operating out-of-state LPOs. We anticipate more competition from Korean-American community lenders in most of our LPO locations in the
future. In anticipation of stagnation in the U.S. economy and real estate market activity, we plan to maintain a balance of market coverage and operating costs. In 2012, with our expanded coverage
from our newly opened LPOs, our focus will be to cautiously increase loan originations at these offices.
In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking
institutions, such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from
specialized finance and non-finance companies that offer money market and mutual funds, wholesale finance, credit card, and other consumer finance services, including on-line
banking services and personal finance software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers.
The
more general competitive trends in the industry include increased consolidation and competition. Strong competitors, other than financial institutions, have entered banking markets
with focused products targeted at highly profitable customer segments. Many of these competitors are able to
compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products areas. Mergers between financial
institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified
due to the federal and state interstate banking laws, which permit banking organizations to expand geographically.
Technological
innovations have also resulted in increased competition in the financial services industry. Such innovations have, for example, made it possible for
non-depository institutions to offer customers automated transfer payment services that were previously considered traditional banking products. In addition, many customers now expect a
choice of several delivery systems and channels, including telephone, PDA or cellular phones, tablets, mail, home computer, ATMs, self-service branches, and/or in store branches. To some
extent, such competition has had limited effect on us to date because many recent technological advancements do not yet have Korean or other language capabilities. However, as such technology becomes
available, the competitive pressure to be at the forefront of such advancements will be significant.
The
market for the origination of SBA loans, one of our primary revenue sources, is highly competitive. We compete with other small, mid-size and major banks which originate
these loans in the geographic areas in which our full service branches are located, as well as in the areas where we maintain SBA LPOs. In addition, because these loans are largely
broker-driven, we compete to a large extent with banks that originate SBA loans outside of our immediate geographic area. Furthermore, because these loans may be made out of LPOs specifically
set up to make SBA loans rather than out of full service branches, the barriers to entry in this area, after approval of a bank as an SBA lender, are relatively low. In order to succeed in this highly
competitive market, we actively market our SBA loans to minority-owned businesses. However, the resale market for SBA loans may grow, decline or, maintain its current status.
Business Concentration
No individual or single group of related accounts is considered material in relation to our total assets or deposits, or in relation to
our overall business. However, approximately 85.1% of our loan portfolio at December 31, 2011 consisted of real estate-related loans, including construction loans, mini-perm loans,
residential mortgage loans, and commercial loans secured by real estate. Moreover,
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our
business activities are currently focused primarily in Southern California, with the majority of our business concentrated in Los Angeles and Orange County. Consequently, our results of operations
and financial condition are dependent upon the general trends in the Southern California economies and, in particular, the commercial real estate markets. In addition, the concentration of our
operations in Southern California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires, and floods in this
region.
Employees
We had 376 full time equivalent employees (368 full-time employees and 14 part-time employees) as of
December 31, 2011. None of our employees are currently represented by a union or covered by a collective bargaining agreement. Management believes that our employee relations are satisfactory.
Regulation and Supervision
The following is a summary description of the relevant laws, rules, and regulations governing banks and bank holding companies. The
descriptions of, and references to, the statutes and regulations below are brief summaries and do not purport to be complete. The descriptions are qualified in their entirety by reference to the
specific statutes and regulations discussed.
Generally,
the supervision and regulation of bank holding companies and their subsidiaries are intended primarily for the protection of depositors, the deposit insurance funds of the
FDIC and the banking system as a whole, and not for the protection of the bank holding company shareholders or creditors. The banking agencies have broad enforcement power over bank holding companies
and banks, including the power to impose substantial fines and other penalties for violations of laws and regulations.
Various
legislation is from time to time introduced in Congress and California's legislature, including proposals to overhaul the bank regulatory system, expand the powers of depository
institutions, and limit the investments that depository institutions may make with insured funds. Such legislation may change applicable statutes and the operating environment in substantial and
unpredictable ways. We
cannot determine the ultimate effect that future legislation or implementing regulations would have upon our financial condition or upon our results of operations or the results of operations of any
of our subsidiaries.
Wilshire Bancorp
Wilshire Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, or the Bank Holding Company Act, and
is subject to supervision, regulation, and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Bank Holding Company Act and other federal laws
subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory
enforcement actions for violations of laws and regulations.
We are regarded as a legal entity separate and distinct from our other subsidiaries. The principal source of our revenues will be
dividends received from the Bank. Various federal and state statutory provisions limit the amount of dividends the Bank can pay to us without regulatory approval. It is the policy of the Federal
Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the
organization's expected future needs and financial condition. The policy
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provides
that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banking subsidiaries.
Under
Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support.
The Dodd-Frank Act (as defined below) codified this policy as a statutory requirement; however, the Federal Reserve Board has not yet adopted regulations to implement this requirement.
Such support may be required at times when, absent this Federal Reserve Board policy, a holding
company may not be inclined to provide it. As discussed below, a bank holding company, in certain circumstances, could be required to guarantee the capital plan of an undercapitalized banking
subsidiary.
In
the event of a bank holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed, and is required to cure immediately,
any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Pursuant
to a Letter Agreement dated December 12, 2008 and a Securities Purchase Agreement—Standard Terms attached thereto (collectively, the "TARP Agreements"), we
issued to the U.S. Treasury (i) 62,158 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A, having a liquidation preference of $1,000 per share (the
"Series A Preferred Stock") and (ii) a warrant to purchase initially 949,460 shares of our common stock, for an aggregate purchase price of $62,158,000. This resulted from our voluntary
participation in the Capital Purchase Program of the U.S. Treasury's Troubled Asset Relief Program, or "TARP." The TARP Agreements place limits on, among other things, our ability to pay dividends on
our common stock during the time that shares of our Series A Preferred Stock are outstanding. In addition, in connection with its TARP participation, the Federal Reserve Board may require the
Company to defer its dividend payments on its Series A Preferred Stock and trust preferred securities. For more information on restrictions related to the Series A Preferred Stock, see
the section of this report entitled, "Regulation and Supervision—The TARP Capital Purchase Program."
As
a California corporation, Wilshire Bancorp is restricted under the California General Corporation Law ("CGCL") from paying dividends under certain conditions. The
shareholders of Wilshire Bancorp will be entitled to receive dividends when and as declared by the Board of Directors, from funds legally available for the payment of dividends, as provided in the
CGCL and, as mentioned above, consistent with Federal Reserve Board policy. The CGCL provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to
the dividend payout, equals the amount of proposed distribution. In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a
distribution, if it meets both the "quantitative solvency" and the "liquidity" tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least
1
1
/
4
times its liabilities. The liquidity test generally requires that a corporation have current assets at least equal to current liabilities, or, if the average of the earnings of the
corporation before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then
current assets must equal to at least 1
1
/
4
times current liabilities. In certain circumstances, Wilshire Bancorp may be required to obtain prior approval from the Federal Reserve Board
to make capital distributions to its shareholders.
On
June 29, 2011, Wilshire Bancorp entered into a Memorandum of Understanding ("MOU") with its primary federal regulator, the Federal Reserve Bank of San Francisco (the "Reserve
Bank"). The MOU is designed to enhance our holding company's ability to act as a source of strength to the Bank. Under the MOU, we are required to obtain approval from the Reserve Bank before taking
certain actions including but not limited to, declaring or paying any dividends to our shareholders;
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taking
dividends or any other form of payment representing a reduction in capital from the bank; making any distributions of interest, principal or other sums on subordinated debentures or trust
preferred securities; directly or indirectly, incurring, increasing or guaranteeing any debt, and; directly or indirectly, purchasing or redeeming any shares of our stock.
The Bank Holding Company Act prohibits a bank holding company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank or from engaging in any activities other than those of banking, managing or controlling banks and certain other
subsidiaries, or furnishing services to or performing services for its subsidiaries. One principal exception to these prohibitions allows the acquisition of interests in companies whose activities are
found by the Federal Reserve Board, by order or regulation, to be so closely related to banking or managing or controlling banks, as to be a proper incident thereto. Some of the activities that have
been determined by regulation to be closely related to banking are making or servicing loans, performing certain data processing services, acting as an investment or financial advisor to certain
investment trusts and investment companies and providing securities brokerage services. Other activities approved by the Federal Reserve Board include consumer financial counseling, tax planning and
tax preparation, futures and options advisory services, check guaranty services, collection agency and credit bureau services and personal property appraisals. In approving acquisitions by bank
holding companies of companies engaged in banking-related activities, the Federal Reserve Board considers a number of factors, and weighs the expected benefits to the public (such as greater
convenience and increased competition or gains in efficiency) against the risks of possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices). The Federal Reserve Board is also empowered to differentiate between activities commenced de novo and activities commenced through acquisition of a going
concern.
The Gramm-Leach-Bliley Financial Modernization Act, or GLBA, signed into law on November 12, 1999, revised and expanded the
provisions of the Bank Holding Company Act by including a new section that permits a bank holding company to elect to become a financial holding company to engage in a full range of activities that
are "financial in nature." The qualification
requirements and the process for a bank holding company that elects to be treated as a financial holding company require that all of the subsidiary banks controlled by the bank holding company at the
time of election to become a financial holding company must be and remain at all times "well-capitalized" and "well managed." We have not yet made an election to become a financial holding
company, but we may do so at some time in the future.
GLBA
specifically provides that the following activities have been determined to be "financial in nature":
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•
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lending, trust and other banking activities;
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•
-
insurance activities;
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•
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financial or economic advisory services;
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•
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securitization of assets;
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•
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securities underwriting and dealing;
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•
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existing bank holding company domestic activities;
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•
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existing bank holding company foreign activities; and
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•
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merchant banking activities.
In
addition, GLBA specifically gives the Federal Reserve Board the authority, by regulation or order, to expand the list of "financial" or "incidental" activities, but requires
consultation with the U.S. Treasury Department, and gives the Federal Reserve Board authority to allow a financial holding company to engage in any activity that is "complementary" to a financial
activity and does not "pose a substantial risk to the safety and soundness of depository institutions or the financial system generally."
Under GLBA, all financial institutions are required to adopt privacy policies, restrict the sharing of nonpublic customer data with
nonaffiliated parties at the customer's request, and establish procedures and practices to protect customer data from unauthorized access. We have established policies and procedures to strengthen our
compliance with all privacy provisions of GLBA.
Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve Board's
Regulation Y, for example, generally requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration
to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10% or more of the company's consolidated net worth. The Federal Reserve Board
may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. Depending upon the circumstances, the Federal
Reserve Board could take the position that paying a dividend would constitute an unsafe or unsound banking practice.
The
Federal Reserve Board has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices or
which constitute violations of laws or regulations, and can assess civil money penalties for certain activities
conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1 million for each day the activity
continues.
We are required to file annual reports with the Federal Reserve Board, and such additional information as the Federal Reserve Board may
require pursuant to the Bank Holding Company Act. The Federal Reserve Board may examine a bank holding company or any of its subsidiaries, and charge the company for the cost of such examination.
Furthermore, the Bank is subjected to compliance examinations by the FDIC and the California Department of Financial Institutions, or "DFI", and the Company is subject to U.S. Treasury's examination
as part of our agreement with the U.S. Treasury for receiving the TARP investment.
The Federal Reserve Board has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of
certain large bank holding companies. Prior to March 30, 2006, these capital guidelines were applicable to all bank holding companies having $150 million or more in assets on a
consolidated basis. However, effective March 30, 2006, the Federal Reserve Board amended the asset size threshold to $500 million for purposes of determining whether a bank holding
company is subject
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to
the capital adequacy guidelines. We currently have consolidated assets in excess of $500 million, and are therefore subject to the Federal Reserve Board's capital adequacy guidelines.
Under
the guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a "risk-weighted" asset base. The guidelines require a minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is
required to consist of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2 capital. To be considered "well-capitalized," a bank holding company
must maintain, on a consolidated basis, (i) a Tier 1 risk-based capital ratio of at least 6.0%, and (ii) a total risk-based
capital ratio of 10.0% or greater. As of December 31, 2011, our Tier 1 risk-based capital ratio was 19.59% and our total risk-based capital ratio was 20.89%.
Thus, we are considered "well-capitalized" for regulatory purposes.
In
addition to the risk-based capital guidelines, the Federal Reserve Board uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding
companies. The leverage ratio is a company's Tier 1 capital divided by its average total consolidated assets. Certain highly-rated bank holding companies may maintain a minimum leverage ratio
of 3.0%, but other bank holding companies are required to maintain a leverage ratio of at least 4.0%. To be considered well-capitalized, a bank holding company must maintain a leverage
ratio of at least 5%. As of December 31, 2011, our leverage ratio was 13.86%.
The
federal banking agencies' risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified
criteria. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve
Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions, substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Bank regulators are required to take "prompt corrective action" to resolve problems associated with insured depository institutions
whose capital declines below certain levels. In the event an institution becomes "undercapitalized," it must submit a capital restoration plan. The capital restoration plan will not be accepted by the
regulators unless each company having control of the undercapitalized institution guarantees the subsidiary's compliance with the capital restoration plan up to a certain specified amount. Any such
guarantee from a depository institution's holding company is entitled to a priority of payment in bankruptcy.
The
aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution's assets at the time it became undercapitalized or the amount
necessary to cause the institution to be "adequately capitalized." The bank regulators have greater power in situations where an institution becomes "significantly" or "critically" undercapitalized or
fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve Board approval of proposed dividends, or
might be required to consent to a consolidation or to divest itself of the troubled institution or other affiliates.
The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it
may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank. In approving bank
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acquisitions
by bank holding companies, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and the bank
concerned, the convenience and needs of the communities to be served, and various competitive factors. On June 26, 2009 with regulatory approval, Wilshire acquired former Mirae Bank from the
FDIC by purchasing substantially all of Mirae Bank's assets and assuming substantially all of Mirae Bank's deposits and certain liabilities.
The Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more, but less than
25% of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption,
constitute acquisition of control.
In
addition, any company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a
bank holding company) or more of the outstanding common stock of the a bank holding company, or otherwise obtaining control or a "controlling influence" over a bank holding company.
Under the Federal Deposit Insurance Act, or FDIA, a depository institution (which definition includes both banks and savings
associations), the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default
of a commonly controlled FDIC-insured depository institution, or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution
"in danger of default." "Default" is defined generally as the appointment of a conservator or a receiver and "in danger of default" is defined generally as the existence of certain conditions
indicating that default is likely to occur in the absence of regulatory assistance. In some circumstances (depending upon the amount of the loss or anticipated loss suffered by the FDIC),
cross-guarantee liability may result in the ultimate failure or insolvency of one or more insured depository institutions in a holding company structure. Any obligation or liability owed by a
subsidiary bank to its parent company is subordinated to the subsidiary bank's cross-guarantee liability with respect to commonly controlled insured depository institutions. The Bank is currently our
only FDIC-insured depository institution subsidiary.
Because
we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or
reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other dissolution of the Bank, the claims of depositors and other general or
subordinated creditors of the Bank would be entitled to a priority of payment over the claims of holders of any obligation of the Bank to its shareholders, including any depository institution holding
company (such as Wilshire Bancorp) or any shareholder or creditor of such holding company.
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The Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, includes various provisions that affect or may
affect the Bank. Among other matters, FIRREA generally permits bank holding companies to acquire healthy thrifts as well as failed or failing thrifts. FIRREA removed certain cross-marketing
prohibitions previously applicable to thrift and bank subsidiaries of a common holding company. Furthermore, a multi-bank holding company may now be required to indemnify the federal
deposit insurance fund against losses it incurs with respect to such company's affiliated banks, which in effect makes a bank holding company's equity investments in healthy bank subsidiaries
available to the FDIC to assist such company's failing or failed bank subsidiaries.
FIRREA
also expanded and increased civil and criminal penalties available for use by the appropriate regulatory agency against certain "institution-affiliated parties" primarily
including (i) management, employees and agents of a financial institution, as well as (ii) independent contractors, such as attorneys and accountants and others who participate in the
conduct of the financial institution's affairs and who caused or are likely to cause more than minimum financial loss to or a significant adverse effect on the institution, who knowingly or recklessly
violate a law or regulation, breach a fiduciary duty or engage in unsafe or unsound practices. Such practices can include the failure of an institution to timely file
required reports or the submission of inaccurate reports. Furthermore, FIRREA authorizes the appropriate banking agency to issue cease and desist orders that may, among other things, require
affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be
ordered to restrict its growth, dispose of certain assets or take other action as determined by the ordering agency to be appropriate.
On October 26, 2001, The Uniting and Strengthening America by Providing Appropriate Tools Is Required to Intercept and Obstruct
Terrorism Act or USA PATRIOT Act, a comprehensive anti-terrorism legislation was enacted. Title III of the USA PATRIOT Act requires financial institutions to help prevent, detect and
prosecute international money laundering and the financing of terrorism. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any
application submitted by the financial institution under the Bank Merger Act, which applies to the Bank, or the Bank Holding Company Act, which applies to Wilshire Bancorp. We, and our subsidiaries,
including the Bank, have adopted systems and procedures to comply with the USA PATRIOT Act and regulations adopted by the Secretary of the Treasury.
On July 30, 2002, The Sarbanes-Oxley Act of 2002, or "Sarbanes-Oxley Act" was enacted. The Sarbanes-Oxley Act addresses
accounting oversight and corporate governance matters relating to the operations of public companies. During 2003, the SEC issued a number of regulations under the directive of the Sarbanes-Oxley Act
significantly increasing public company governance-related obligations and filing requirements, including:
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•
-
the establishment of an independent public oversight of public company accounting firms by a board that will set auditing,
quality and ethical standards for and have investigative and disciplinary powers over such accounting firms,
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•
-
the enhanced regulation of the independence, responsibilities and conduct of accounting firms which provide auditing
services to public companies,
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•
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the increase of penalties for fraud related crimes,
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-
•
-
the enhanced disclosure, certification, and monitoring of financial statements, internal financial controls and the audit
process, and
-
•
-
the enhanced and accelerated reporting of corporate disclosures and internal governance.
Furthermore,
in November 2003, in response to the directives of the Sarbanes-Oxley Act, NASDAQ adopted substantially expanded corporate governance criteria for the issuers of securities
quoted on the NASDAQ Global Select Market (the market on which our common stock is listed for trading). The new NASDAQ rules govern, among other things, the enhancement and regulation of corporate
disclosure and internal governance of listed companies and of the authority, role and responsibilities of their boards of directors and, in particular, of "independent" members of such boards of
directors, in the areas of nominations, corporate governance, compensation and the monitoring of the audit and internal financial control processes.
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the "EESA") enacted by the
U.S. Congress, which appropriated $700 billion for the purpose of restoring liquidity and stability in the U.S. financial system. On October 14, 2008, the U.S. Treasury established the
TARP Capital Purchase Program under the authority granted by the EESA. Under the Troubled Asset Relief Program's ("TARP") Capital Purchase Program, the U.S. Treasury made $250 billion of
capital available to U.S. financial institutions in the form of senior preferred stock investments. In connection with its purchase of preferred stock, the U.S. Treasury received a warrant entitling
the U.S. Treasury to buy the participating institution's common stock with a market price equal to 15% of the preferred stock.
As
a result of EESA, there have been numerous actions by the Federal Reserve Board, the U.S. Congress, the U.S. Treasury, the FDIC, the SEC and others to further the economic and banking
industry stabilization efforts under the EESA. It remains unclear at this time what further legislative and regulatory measures will be implemented under the EESA that affect us.
Pursuant
to the TARP Agreements dated December 12, 2008, we issued to the U.S. Treasury (i) 62,158 shares of the Series A Preferred Stock, and (ii) a warrant
to purchase initially 949,460 shares of our common stock, for an aggregate purchase price of $62,158,000. Both the Series A Preferred Stock and the Warrant will be accounted for as components
of Tier 1 capital.
On
February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "ARRA") enacted by the U.S. Congress. The ARRA, among other things,
imposed certain new executive compensation and corporate expenditure limits on all current and future recipients of funds under the TARP Capital Purchase Program, including Wilshire, as long as any
obligation arising from the financial assistance provided to the recipient under the TARP Capital Purchase Program remains outstanding, excluding any period during which the U.S. Treasury holds only
warrants to purchase common stock of a TARP participation (the "Covered Period").
The
current terms of participation in the TARP Capital Purchase Program include the following:
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we were required to file with the SEC a registration statement under the Securities Act of 1933 (the "Securities Act")
registering for resale the Series A Preferred Stock and the related warrant;
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as long as shares of the Series A Preferred Stock remain outstanding, unless all accrued and unpaid dividends for
all past dividend periods on the Series A Preferred Stock are fully paid, we will not be permitted to declare or pay dividends on any shares of our common stock, any junior preferred shares or,
generally, any preferred shares ranking pari passu with the Series A Preferred Stock (other than in the case of pari passu preferred shares, dividends on a pro rata
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with the Series A Preferred Stock), nor will we be permitted to repurchase or redeem any of our common stock or preferred stock other than the Series A Preferred Stock, in each
case subject to various exceptions;
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until the Series A Preferred Stock has been transferred or redeemed in whole, until December 12, 2011, the
U.S. Treasury's approval was required for any increase in dividends on our common stock or any share repurchases other than repurchases of the Series A Preferred Stock, repurchases of junior
preferred shares, or repurchases of common stock in connection with the administration of any employee benefit plan in the ordinary course of business and consistent with past practice;
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we must comply with the U.S. Treasury's standards for executive compensation and corporate governance while the U.S.
Treasury holds the securities issued by us. Such standards apply to our Senior Executive Officers (as defined in the ARRA) as well as other employees. The current standards include the
following:
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incentive compensation for Senior Executive Officers must not encourage unnecessary and excessive risks that threaten the
value of the financial institution;
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any bonus or incentive compensation paid (or under a legally binding obligation to pay) to a Senior Executive Officer or
any of our next 20 most highly-compensated employees based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate must be subject to recovery, or
"claw-back", by Wilshire;
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we are prohibited from paying or accruing any bonus, retention award or incentive compensation with respect to our five
most highly-compensated employees or such higher number as the Secretary of the U.S. Treasury may determine is in the public interest, except for grants of restricted stock that do not fully vest
during the Covered Period and do not have a value which exceeds one-third of an employee's total annual compensation;
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severance payments to a Senior Executive Officer and the five next most highly-compensated employees, generally referred
to as "golden parachute" payments, are prohibited, except for payments for services performed or benefits accrued;
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compensation plans that encourage manipulation of reported earnings are prohibited;
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the U.S. Treasury may retroactively review bonuses, retention awards and other compensation previously paid to a Senior
Executive Officer or any of our 20 next most highly-compensated employees that the U.S. Treasury finds to be inconsistent with the purposes of TARP or otherwise contrary to the public interest;
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our Board of Directors must establish a company-wide policy regarding excessive or luxury expenditures;
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proxy statements for our annual shareholder meetings must permit a nonbinding "say on pay" shareholder vote on the
compensation of executives;
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executive compensation in excess of $500,000 for each Senior Executive Officer must not be deducted for federal income tax
purposes; and
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we must comply with the executive compensation reporting and recordkeeping requirements established by the U.S. Treasury.
The
ARRA permits TARP recipients, subject to consultation with the appropriate federal banking agency, to repay any assistance previously provided to such TARP recipient under the TARP,
without regard to whether the TARP recipient has replaced such funds from any source, and without regard to
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any
waiting period. Any TARP recipient that repays its TARP assistance pursuant to this provision would no longer be subject to the executive compensation provisions under ARRA.
Detailed
information regarding the Series A Preferred Stock and the related warrant can be found in Notes 12 and 13 of the Notes to the Consolidated Financial Statements.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")
was signed into law. The Dodd-Frank Act will likely result in dramatic changes across the financial regulatory system, some of which become effective immediately and some of which will not
become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be made by various federal regulatory agencies over the next several years.
Uncertainty remains until final rulemaking is complete as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry
as a whole or on the Bank's business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits,
and interchange fees could increase the costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd-Frank Act includes provisions that,
among other things, will:
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Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection
Bureau ("CFPB"), responsible for implementing, examining, and enforcing compliance with federal consumer financial laws. In addition, the Dodd-Frank Act permits states to adopt consumer
protection laws and regulations that are stricter than those regulations promulgated by the CFPB.
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Create the Financial Stability Oversight Council that will recommend to the Federal Reserve Board increasingly strict
rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.
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Provide mortgage reform provisions regarding a customer's ability to repay, restricting variable-rate lending
by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and
making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.
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Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less
tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions
with assets in excess of $10 billion.
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Make permanent the $250 thousand limit for federal deposit insurance and provide unlimited federal deposit
insurance until January 1, 2013, for noninterest-bearing demand transaction accounts at all insured depository institutions.
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Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks, such as
the Bank, from availing themselves of such preemption.
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Require the Office of the Comptroller of the Currency (the "OCC") to seek to make its capital requirements for national
banks, such as the Bank, countercyclical so that capital requirements increase in times of economic expansion and decrease in times of economic contraction.
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Require financial holding companies, such as the Company, to be well capitalized and well managed as of July 21,
2011. Bank holding companies and banks must also be both well capitalized and well managed in order to acquire banks located outside their home state.
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Mandate certain corporate governance and executive compensation matters be implemented, including (i) an advisory
vote on executive compensation by a public company's stockholders; (ii) enhancement of independence requirements for compensation committee members; (iii) adoption of incentive-based
compensation claw-back policies for executive officers; and (iv) adoption of proxy access rules allowing stockholders of publicly traded companies to nominate candidates for
election as a director and have those nominees included in a company's proxy materials.
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Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions
to pay interest on business transactions accounts.
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Amend the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules
regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be
reasonable and proportional to the actual cost of a transaction to the issuer.
Many
aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the
Company, its customers or the financial industry more generally. Some of the rules that have been proposed and, in
some cases, adopted to comply with the Dodd-Frank Act's mandates are discussed below.
Wilshire State Bank is subject to extensive regulation and examination by the California Department of Financial Institutions, or the
DFI, and the FDIC, which insures its deposits to the maximum extent permitted by law, and is subject to certain Federal Reserve Board regulations of transactions with its affiliates. The federal and
state laws and regulations which are applicable to the Bank regulate, among other things, the scope of its business, its investments, its reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain loans. In addition to the impact of such regulations, commercial banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.
On
May 6, 2011, the Bank entered into an MOU with the FDIC and the California DFI to address certain issues raised in the Bank's most recent regulatory examination by the FDIC and
the California DFI on January 10, 2011. An MOU is characterized by bank regulatory agencies as an informal action that is neither published nor publicly available and is used when circumstances
warrant a milder form of action than a formal supervisory action such as a cease and desist order. Under the terms of the MOU, the Bank is required to take actions required by the MOU within certain
specified time frames. Some of the most significant requirements of the MOU require the Bank to reduce its classified assets (not covered by the FDIC loss-share agreements), as specified
by the FDIC, as a percentage of Tier 1 leverage capital plus reserves to no more than 50% and to maintain a Tier 1 leverage capital ratio of at least 10%. In addition, the Bank may not
declare or pay any cash dividends to Wilshire Bancorp without the prior written approval of the FDIC and the California DFI. The MOU will remain in effect until modified or terminated by the FDIC and
the California DFI. The MOU does not contain any monetary assessments or penalties. During the third quarter of 2011, the Bank completed a visitation from the regulators, during which they recognized
the significant improvements made by the Bank in many different aspects related to the MOU. Visitations are customary for a bank operating under an MOU.
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There are various statutory and regulatory limitations, including those set forth in sections 23A and 23B of the Federal Reserve
Act and the related Federal Reserve Regulation W, governing the extent to which the Bank will be able to purchase assets from or securities of or otherwise finance or transfer funds to us or
our nonbanking affiliates. Among other restrictions, such transactions between the Bank and any one affiliate (including the Company) generally will be limited to 10% of the Bank's capital and
surplus, and transactions between the Bank and all affiliates will be limited to 20% of the Bank's capital and surplus. Furthermore, loans and extensions of credit are required to be secured in
specified amounts and are required to be on terms and conditions consistent with safe and sound banking practices.
In
addition, any transaction by a bank with an affiliate and any sale of assets or provision of services to an affiliate generally must be on terms that are substantially the same, or at
least as favorable, to the bank as those prevailing at the time for comparable transactions with nonaffiliated companies.
Sections 22(g) and (h) of the Federal Reserve Act and its implementing regulation, Regulation O, place
restrictions on loans by a bank to executive officers, directors, and principal shareholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10%
shareholder of a bank and certain of their related interests, or insiders, and insiders of affiliates, may not exceed, together with all other outstanding loans to such person and related interests,
the bank's loans-to-one-borrower limit (generally equal to 15% of the institution's unimpaired capital and surplus). Section 22(h) also requires that loans
to insiders and to insiders of affiliates be made on terms substantially the same as offered in comparable transactions to other persons, unless the loans are made pursuant to a benefit or
compensation program that (i) is widely available to employees of the bank, and (ii) does not give preference to insiders over other employees of the bank. Section 22(h) also
requires prior Board of Directors approval for certain loans, and the aggregate amount of extensions of credit by a bank to all insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive officers.
The
Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of
the definition of "covered transactions" and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction
limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions,
repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on
certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution's board of directors.
The ability of the Bank to pay dividends on its common stock is restricted by the California Financial Code, the FDIA and FDIC
regulations. In general terms, California law provides that the Bank may declare a cash dividend out of net profits up to the lesser of retained earnings or net income for the last three fiscal years
(less any distributions made to shareholders during such period), or, with the prior written approval of the Commissioner of Department of Financial Institutions, in an amount not exceeding the
greatest of:
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net income for the prior fiscal year, or
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net income for the current fiscal year.
The
Bank's ability to pay any cash dividends will depend not only upon its earnings during a specified period, but also on its meeting certain capital requirements. The FDIA and FDIC
regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank.
The
payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as maintenance of adequate capital. If, in the opinion of the regulatory
authority, a
depository institution under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (that, depending on the financial condition of the depository institution, could
include the payment of dividends), such authority may require, after notice and hearing, that such depository institution cease and desist from such practice. The Federal Reserve Board has issued a
policy statement providing that insured banks and bank holding companies should generally pay dividends only out of operating earnings for the current and preceding two years. In addition, all insured
depository institutions are subject to the capital-based limitations required by the Federal Deposit Insurance Corporation Improvement Act of 1991.
The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, made a number of reforms addressing the safety and
soundness of the deposit insurance system, supervision of domestic and foreign depository institutions, and improvement of accounting standards. This statute also limited deposit insurance coverage,
implemented changes in consumer protection laws and provided for least costly resolution and prompt regulatory action with regard to troubled institutions.
FDICIA
requires every bank with total assets in excess of $1 billion to have an annual independent audit made of the bank's financial statements by a certified public accountant
to verify that the financial statements of the bank are presented in accordance with generally accepted accounting principles and comply with such other disclosure requirements as prescribed by the
FDIC.
FDICIA
also divides banks into five different categories, depending on their level of capital. Under regulations adopted by the FDIC, a bank is deemed to be
"well-capitalized" if it has a total Risk-Based Capital Ratio of 10.00% or more, a Tier 1 Capital Ratio of 6.00% or more and a Leverage Ratio of 5.00% or more, and the
bank is not subject to an order or capital directive to meet and maintain a certain capital level. Under such regulations, a bank is deemed to be "adequately capitalized" if it has a total
Risk-Based Capital Ratio of 8.00% or more, a Tier 1 Capital Ratio of 4.00% or more and a Leverage Ratio of 4.00% or more (unless it receives the highest composite rating at its most
recent examination and is not experiencing or anticipating significant growth, in which instance it must maintain a Leverage Ratio of 3.00% or more). Under such regulations, a bank is deemed to be
"undercapitalized" if it has a total Risk-Based Capital Ratio of less than 8.00%, a Tier 1 Capital Ratio of less than 4.00% or a Leverage Ratio of less than 4.00%. Under such
regulations, a bank is deemed to be "significantly undercapitalized" if it has a total Risk-Based Capital Ratio of less than 6.00%, a Tier 1 Capital Ratio of less than 3.00% and a
Leverage Ratio of less than 3.00%. Under such regulations, a bank is deemed to be "critically undercapitalized" if it has a Leverage Ratio of less than or equal to 2.00%. In addition, the FDIC has the
ability to downgrade a bank's classification (but not to "critically undercapitalized") based on other considerations even if the bank meets the capital guidelines. According to these guidelines the
Bank's capital ratios were above the requirements for a "well-capitalized" institution as of December 31, 2011.
In
addition, FDICIA also places certain restrictions on activities of banks depending on their level of capital. If a bank is classified as undercapitalized, the bank is required to
submit a capital restoration
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plan
to the federal banking regulators. Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company
or insured depository institution, or opening or acquiring a new branch office, except under certain circumstances, including the acceptance by the federal banking regulators of a capital restoration
plan for the bank.
Furthermore,
if a bank is classified as undercapitalized, the federal banking regulators may take certain actions to correct the capital position of the bank; if a bank is classified as
significantly undercapitalized or critically undercapitalized, the federal banking regulators would be required to take one or more prompt corrective actions. These actions would include, among other
things, requiring: sales of new securities to bolster capital, improvements in management, limits on interest rates paid, prohibitions on transactions with affiliates, termination of certain risky
activities and restrictions on compensation paid to executive officers. If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or
receivership within 90 days, unless the federal banking regulators determines that other action would better achieve the purposes of FDICIA regarding prompt corrective action with respect to
undercapitalized banks.
The
capital classification of a bank affects the frequency of examinations of the bank and impacts the ability of the bank to engage in certain activities and affects the deposit
insurance premiums paid by such bank. Under FDICIA, the federal banking regulators are required to conduct a full-scope, on-site examination of every bank at least once every
12 months. There is an exception to this rule, however, that provides that banks (i) with assets of less than $100 million, (ii) that are categorized as
"well-capitalized," (iii) were found to be well managed and its composite rating was outstanding, and (iv) have not been subject to a change in control during the last
12 months, need only be examined once every 18 months.
Under FDICIA, banks may be restricted in their ability to accept brokered deposits, depending on their capital classification.
"Well-capitalized" banks are permitted to accept brokered deposits, but all banks that are not well-capitalized are not permitted to accept such deposits. The FDIC may, on a
case-by-case
basis, permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with
respect to the bank. The Bank is currently well-capitalized and therefore is not subject to any limitations with respect to its brokered deposits.
The equity investments and activities as a principal of FDIC-insured state-chartered banks, such as the Bank, are generally
limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity
investment of a type, or in an amount, that is not permissible for a national bank.
Banks must pay assessments to the FDIC for federal deposit insurance protection. The FDIC has adopted a risk-based
assessment system as required by FDICIA. Under this system, FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned
to higher risk classifications (that is, institutions that pose a higher risk of loss to the deposit insurance fund) pay assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. In addition, the FDIC can impose special
assessments in certain instances. The FDIC may terminate its insurance of deposits if it finds that the institution has engaged
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in
unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The Bank's
deposit insurance assessments may increase or decrease depending on the risk assessment classification to which it are assigned by the FDIC. Any increase in insurance assessments could have an adverse
effect on the Bank's earnings.
In
November 2008, the U.S. Treasury, in consultation with the President and upon the recommendation of the Boards of the FDIC and the Federal Reserve Board, invoked the systemic risk
exception of the FDIC Improvement Act of 1991. This action provided the FDIC with flexibility to provide a 100 percent guarantee for newly-issued senior unsecured debt and noninterest bearing
transaction at FDIC insured institutions, which is generally regarded as the Temporary Liquidity Guarantee Program ("TLGP"). Under the TLGP, all newly issued senior unsecured debt issued by eligible
entities on or before June 30, 2009 are 100 percent guaranteed for three years beyond that date, even if the liability has not matured. In October 2009, the TLGP was extended for another
six months to April 30, 2010. The Company did not issue any debt under the TLGP.
Funds
in noninterest-bearing transaction deposit accounts held by FDIC-insured banks are 100 percent insured. All other FDIC-insured depository accounts
are insured up to $250,000 per owner. The Dodd-Frank Act made permanent the $250,000 limit for federal deposit insurance and provides unlimited federal deposit insurance until
January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions.
In
October 2010, the FDIC adopted a new Restoration Plan for the DIF to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the
Dodd-Frank Act. Under the Restoration Plan, the FDIC did not institute the uniform three-basis point increase in assessment rates scheduled to take place on January 1, 2011 and
maintained the current schedule of assessment rates for all depository institutions. At least semi-annually, the FDIC will update its loss and income projections for the DIF and, if
needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required.
As
required by the Dodd-Frank Act, the FDIC also revised the deposit insurance assessment system, effective April 1, 2011, to base assessments on the average total
consolidated assets of insured depository institutions during the assessment period, less the average tangible equity of the institution during the assessment period. Currently, only deposits are
included in determining the premium paid by an institution. This base assessment change necessitated that the FDIC adjust the assessment rates to ensure that the revenue collected under the new
assessment system, will approximately equal that under the existing assessment system.
Pursuant
to this new rule, the assessment base is larger than the current assessment base, but the new rates are lower than current rates, ranging from approximately 2.5 basis points to
45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC's reserve ratio equals 1.15%. Once the FDIC's reserve ratio equals or exceeds
1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points. The Bank's deposit insurance expense has decreased as a result of the changes to the Bank's deposit insurance
premium assessment base implemented by the FDIC pursuant to the Dodd-Frank Act.
Under the Community Reinvestment Act, or CRA, as implemented by the Congress in 1977, a financial institution has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. CRA does not establish
specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its
particular community, consistent with CRA. CRA requires federal
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examiners,
in connection with the examination of a financial institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution. CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank has a Compliance Committee, which oversees the
planning of products and services offered to the community, especially those aimed to serve low and moderate income communities. The FDIC rated the Bank as "outstanding" in meeting community credit
needs under CRA at its latest completed examination for CRA performance.
In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are
designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the
Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement and Procedures Act, the Fair Credit Reporting
Act and the Federal Trade Commission Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with
customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer
relations.
California law permits state-chartered commercial banks to engage in any activity permissible for national banks. Therefore, the Bank
may form subsidiaries to engage in the many so-called "closely related to banking" or "non-banking" activities commonly conducted by national banks in operating subsidiaries,
and further, pursuant to GLBA, the Bank may conduct certain "financial activities in a subsidiary to the same extent as may a national bank, provided the Bank is and remains
"well-capitalized," "well-managed" and in satisfactory compliance with CRA. Presently, the Bank does not have any financial subsidiaries.
In
September 2007, the U.S. Securities and Exchange Commission, or SEC, and the Federal Reserve Board finalized joint rules required by the Financial Services Regulatory Relief Act of
2006 to implement exceptions provided in the GLBA for securities activities that banks may conduct without registering with the SEC as a securities broker or moving such activities to a broker-dealer
affiliate. The Federal Reserve Board's final Regulation R provides exceptions for networking arrangements with third party broker-dealers and authorities, including sweep accounts to money
market funds, and with related trust, fiduciary, custodial and safekeeping needs. The final rules, which were effective starting in 2009, and did not have a material effect on the Bank.
Under current law, California state banks are permitted to establish branch offices throughout California with prior regulatory
approval. In addition, with prior regulatory approval, banks are permitted to acquire branches of existing banks located in California. Finally, California state banks generally may branch across
state lines by merging with banks in other states if allowed by the applicable states' laws. With limited exceptions, California law currently permits branching across state lines through interstate
mergers resulting in the acquisition of a whole California bank that has been in existence for at least five years. The Bank currently has branches located in the States of California, Texas, New
Jersey and New York. Under the Federal Deposit Insurance Act, states may "opt-in" and allow out-of-state banks to branch into their state by establishing a new
start-up branch in the state. California law currently prohibits de novo branching into the state of California. However, under the Dodd-Frank Act, branching requirements have
been relaxed so that state banks have the ability to
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establish
branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state.
The Federal Home Loan Bank system, or the "FHLB", of which the Bank is a member, consists of 12 regional FHLBs governed and regulated
by the Federal Housing Finance Board, or the FHFB. The FHLBs serve as reserve or credit facilities for member institutions within their assigned regions. They are funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB system. They make loans (i.e., advances) to members in accordance with policies and procedures established by the FHLB and the
boards of directors of each regional FHLB.
As
a system member, the Bank is entitled to borrow from the FHLB of San Francisco, or FHLB-SF, and is required to own capital stock in the FHLB-SF in an amount
equal to the greater of 1% of the membership asset value, not exceeding $25 million, or 4.7% of outstanding FHLB-SF advance borrowings. The Bank is in compliance with the stock
ownership rules described above with respect to such advances, commitments and letters of credit and home mortgage loans and similar obligations. All loans, advances and other extensions of credit
made by the FHLB-SF to the Bank are secured by portions of the Bank's loan portfolio, certain other investments, and the capital stock of the FHLB-SF held by the Bank.
The Bank is subject to the rules and regulations of FNMA with respect to originating, processing, selling and servicing mortgage loans
and the issuance and sale of mortgage-backed securities. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for
inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity
Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act, and the regulations promulgated there-under which, among other things, prohibit discrimination
and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. The Bank is also subject to regulation by the California DFI, with respect to, among
other things, the establishment of maximum origination fees on certain types of mortgage loan products. Wilshire State Bank is an approved Housing and Urban Development or ("HUD") lender or
mortgagee and as such we must report to the Department of Housing and Urban Development. On an annual basis we are required to report our annual, audited financial and non-financial
information necessary for HUD to evaluate compliance with the Fair Housing Act or ("FHA") requirements.
We cannot predict what other legislation or economic and monetary policies of the various regulatory authorities might be enacted or
adopted or what other regulations might be adopted or the effects thereof. Future legislation and policies and the effects thereof might have a significant influence on overall growth and distribution
of loans, investments and deposits and affect interest rates charged on loans or paid from time and savings deposits. Such legislation and policies have had a significant effect on the operating
results of commercial banks in the past and are expected to continue.
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At December 31, 2011, the Company's and the Bank's capital ratios exceed the minimum percentage requirements for "well
capitalized" institutions. See Note 17 and Item 7 "
Management's Discussion and Analysis of Financial Condition and Results of Operations—Capital
Resources and Capital Adequacy Requirements
" for further information regarding the regulatory capital guidelines as well as the Company's and the Bank's actual capitalization
as of December 31, 2011.
The
federal banking agencies have adopted risk-based minimum capital guidelines for bank holding companies and banks which are intended to provide a measure of capital that
reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions which are recorded as
off-balance sheet items. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted
categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization's total capital is divided
into three tiers. The first, "Tier I capital" includes common equity, our Series A Preferred Stock, and trust-preferred securities subject to certain criteria and quantitative limits. The
second, "Tier II capital" includes hybrid capital instruments, other
qualifying debt instruments, a limited amount of the allowance for loan and lease losses, and a limited amount of unrealized holding gains on equity securities. Lastly, "Tier III capital"
consists of qualifying unsecured debt. The sum of Tier II and Tier III capital may not exceed the amount of Tier I capital. The risk-based capital guidelines require a
minimum ratio of qualifying total capital to risk-weighted assets of 8.00% and a minimum ratio of Tier I capital to risk-weighted assets of 4.00%.
An
institution's risk-based capital, leverage capital, and tangible capital ratios together determine the institution's capital classification. An institution is treated as
well capitalized if its total capital to risk-weighted assets ratio is 10.00% or more; its core capital to risk-weighted assets ratio is 6.00% or more; and its core capital to
adjusted average assets ratio is 5.00% or more. In addition to the risk-based guidelines, the federal bank regulatory agencies require banking organizations to maintain a minimum amount of
Tier I capital to total assets, referred to as the leverage ratio. For a banking organization rated "well-capitalized," the minimum leverage ratio of Tier I capital to total
assets must be 3.00%.
The
current risk-based capital guidelines are based upon the 1988 capital accord of the International Basel Committee on Banking Supervision. A new international accord,
referred to as Basel II, which emphasizes internal assessment of credit, market and operational risk; supervisory assessment and market discipline in determining minimum capital requirements, became
mandatory for large international banks outside the U.S. in 2008, and was optional for others. In July 2009, the expanded Basel Committee issued a final measure to enhance the three elements of the
Basel II framework, strengthening the rules governing trading book capital issued in 1996. The measure includes enhancements to the Basel II structure and revises the market-risk framework
and guidelines for calculating capital figures. The U.S. banking agencies have indicated, however, that they will retain the minimum leverage requirement for all U.S. banks.
In
December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity, which is referred to as "Basel III." Although Basel III is intended
to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations
applicable to other banks in the United States. Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common
equity. The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking institutions will be required to meet the following minimum capital ratios:
(i) 3.5% Common Equity Tier 1 (generally consisting of common shares and retained earnings) to risk-weighted assets; (ii) 4.5% Tier 1 capital to
risk-weighted assets; and (iii) 8.0% Total capital to risk-weighted assets.
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When
fully phased-in on January 1, 2019, and if implemented by the U.S. banking agencies, Basel III will require banks to
maintain:
-
•
-
a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital
conservation buffer,"
-
•
-
a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital
conservation buffer,
-
•
-
a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation
buffer, and
-
•
-
a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain
off-balance sheet exposures.
Basel
III also includes the following significant provisions:
-
•
-
An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their
discretion, with advance notice.
-
•
-
Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer
zone.
-
•
-
Deduction from common equity of deferred tax assets that depend on future profitability to be realized.
-
•
-
For capital instruments issued on or after January 13, 2013 (other than common equity), a
loss-absorbency requirement that the instrument must be written off or converted to common equity if a triggering event occurs, either pursuant to applicable law or at the direction of the
banking regulator. A triggering event is an event that would cause the banking organization to become nonviable without the write-off or conversion, or without an injection of capital from
the public sector.
Since
the Basel III framework is not self-executing, the rules and standards promulgated under Basel III require that the U.S. federal banking regulators adopt them prior to
becoming effective in the U.S. Although U.S. federal banking regulators have expressed support for Basel III, the timing and scope of its implementation, as well as any potential modifications or
adjustments that may result during the implementation process, are not yet known.
In
addition to Basel III, the Dodd-Frank Act requires or permits the federal banking agencies to adopt regulations affecting banking institutions' capital requirements in a
number of respects, including potentially more stringent capital requirements for systemically important financial institutions. The Dodd-Frank Act requires the Federal Reserve Board, the
OCC and the FDIC to adopt regulations imposing a continuing "floor" of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any
changes in capital regulations resulting from Basel III otherwise would permit lower requirements. In December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed
rulemaking that would implement this requirement.
The
Federal Deposit Insurance Act ("FDIA") gives the federal banking agencies the additional broad authority to take "prompt corrective action" to resolve the problems of insured
depository institutions that fall within any undercapitalized category, including requiring the submission of an acceptable capital restoration plan. The federal banking agencies have also adopted
non-capital safety and soundness standards to assist examiners in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set
forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting,
(iv) asset quality and growth, (v) earnings, (vi) risk management, and (vii) compensation and benefits.
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The Federal Reserve Board, the FDIC and the OCC promulgated guidance governing financial institutions with concentrations in commercial
real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land
represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development, and
other land represent 300% or more of total capital and the Bank's commercial real estate loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present,
management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring
through market analysis and stress testing, and increasing capital requirements. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our
commercial real estate portfolio. Management will continue to undertake controls to monitor the Bank's commercial real estate lending, but we cannot predict the extent to which this guidance will
continue to impact our operations or capital requirements.
On April 5, 2011, the Federal Reserve Board's Final Rule on Loan Originator Compensation and Steering (Regulation Z)
became final. Regulation Z is more commonly known as regulation that implements the Truth in Lending Act. Regulation Z address two components of mortgage lending, i.e., loans
secured by a dwelling, and implements restrictions and guidelines for: (a) prohibited payments to loan originators and (b) prohibitions on steering. Under Regulation Z, a creditor
is prohibited from paying, directly or indirectly, compensation to a mortgage broker or any other loan originator that is based on a mortgage transaction's terms or conditions, except the amount of
credit extended, which is deemed not to be a transaction term or condition. In addition, Regulation Z prohibits a loan originator from "steering" a consumer to a lender or a loan that offers
less favorable terms in order to increase the loan originator's compensation, unless the loan is in the consumer's interest. Regulation Z also contains a record-retention provision requiring
that, for each transaction subject to Regulation Z, the financial institution must maintain records of the compensation it provided to the loan originator for that transaction as well as the
compensation agreement in effect on the date the interest rate was set for the transaction. These records must be maintained for two years.
Recently, banking regulatory agencies have increasingly used a general consumer protection statute to address "unethical" or otherwise
"bad" business practices that may not
necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal
Trade Commission Act—the primary federal law that prohibits unfair or deceptive acts or practices and unfair methods of competition in or affecting commerce ("UDAP" or "FTC Act").
"Unjustified consumer injury" is the principal focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with
the UDAP law. However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to "unfair, deceptive or abusive acts or practices" ("UDAAP"), which has been delegated to
the CFPB for supervision. The CFPB has published its first Supervision and Examination Manual that addresses compliance with and the examination of UDAAP.
Item 1A. Risk Factors
The risks described below could materially and adversely affect our business, financial conditions and results of operations. You
should carefully consider the following risk factors and all other information contained in this Report. In addition, the trading price of our common stock could decline due to any of the events
described in these risks.
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We are subject to various regulatory requirements and certain supervisory action by bank regulatory authorities, and on May 6, 2011, the Bank entered into an MOU with
the California DFI and the FDIC that could have a material adverse effect on our business, financial condition, and the market price of our Common Stock. Lack of compliance could result in additional
actions by regulators.
Under federal and state laws and regulations pertaining to the safety and soundness of insured depository institutions, the California
DFI, the FDIC and the Federal Reserve Board have authority to compel or restrict certain actions if the Bank's or our capital should fall below adequate capital standards as a result of operating
losses, or if such regulators otherwise determine that we or the Bank has insufficient capital or the Bank is otherwise operating in an unsafe and unsound manner. On May 6, 2011, the Bank
entered into the MOU with the FDIC and the California DFI. Under the terms of the MOU, the Bank is required to take actions required by the MOU within certain specified time frames. Some of the most
significant requirements of the MOU require the Bank to reduce its classified assets (not covered by the FDIC loss-share agreements), as specified by the FDIC, as a percentage of
Tier 1 leverage capital plus reserves to no more than 50%
and to maintain a Tier 1 leverage capital ratio of at least 10%. In addition, the Bank may not declare or pay any cash dividends to Wilshire Bancorp without the prior written approval of the
FDIC and the California DFI.
If
the Bank is unable to comply with the requirements of the MOU, the FDIC and the California DFI could take additional actions, including initiating formal enforcement actions, which
would have an adverse effect on our business. In addition, the FDIC has the power to deem the Bank to be only "adequately capitalized" even though its capital ratios meet the well capitalized
standard. In such event, the Bank would be prohibited from using brokered deposits, which have been a source of funds for us in recent years, and rates on deposits would be limited to market rates
determined by the FDIC, potentially adversely affecting our liquidity. The terms of any such corrective action could have a material negative effect on our business, our financial condition and the
market price of our Common Stock.
We are also subject to an MOU with the Reserve Bank which requires us to take certain actions.
On June 29, 2011, Wilshire Bancorp entered into an MOU with its primary federal regulator, the Reserve Bank. The MOU is designed
to enhance our holding company's ability to act as a source of strength to the Bank. Under the MOU, we are required to obtain Reserve Bank approval before taking certain actions, such as declaring or
paying any dividends, including dividends to be paid to the U.S. Treasury under TARP; taking dividends or any other form of payment representing a reduction in capital from the bank; making any
distributions of interest, principal or other sums on subordinated debentures or trust preferred securities; directly or indirectly, incurring, increasing or guaranteeing any debt, and; directly or
indirectly, purchasing or redeeming any shares of our stock. Additionally, we agreed to comply with certain notice provisions when appointing any new director or senior executive officer, or changing
the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position. We have taken action and intend to take such further action as may
be necessary to comply with the requirements of the MOU; however, if we are unable to comply with the requirements of the MOU, the Reserve Bank could take additional actions, including initiating
formal enforcement actions, which would have an adverse effect on our business.
We are subject to a pending derivative lawsuit and may become subject to governmental inquiries, which could have a material adverse effect on our financial condition,
results of operation, and the market price of our Common Stock.
Wilshire Bancorp, and certain of our current and former officers and directors were recently named as defendants in a purported class
action lawsuit alleging among other things, breaches of fiduciary duty laws, as described in "Legal Proceedings," Part I Item 3 of this report. We are unable, at this time, to estimate our
potential liability in this matter, and we may be required to pay judgments,
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settlements,
fines penalties, injunctions or other relief in amounts which may be material, and to incur costs and expenses in connection with the defense of this lawsuit.
We
regularly review our litigation reserves for adequacy considering our litigation risks and probability of incurring losses related to litigation. However, given the preliminary status
of this foregoing, we are not able to assess the likelihood or amount of any liability that may be imposed and, accordingly, we do not have a reserve in respect of this litigation. We cannot be
certain that our current litigation reserves will be adequate over time to cover our losses in this and other litigation due to higher than anticipated settlement costs, prolonged litigation, adverse
judgments, or other factors that are largely outside of our control. In addition, our insurance coverage may not be adequate to cover our losses in the litigation or any investigation that may arise
relating to the facts at issue in the litigation. If our litigation reserves and insurance coverage are not adequate, our business, financial condition, including our liquidity and capital, and
results of operations could be materially adversely affected. Additionally, in the future, we may increase our litigation reserves, which could have a material adverse effect on our capital and
results of operations.
In
addition, the Securities and Exchange Commission has requested information regarding the internal investigation and the adjustment to the Company's allowance for loan losses
("ALLL") and provision for loan losses. The Company is providing this information and cooperating fully with the SEC's inquiry. We are unable to predict at this time the outcome of such
inquiry, and we may become subject to possible administrative or enforcement actions from the SEC as a result.
We
expect the derivative lawsuit and any governmental inquiries that may arise to be time-consuming, and they may divert management's attention and resources from our
ordinary business operations. Claims asserted against our Company, regardless of merit or eventual outcome, may harm our reputation, which could have a material adverse effect on our operating
results, financial condition, and the market price of our Common Stock.
We previously reported a material weakness in our internal control over financial reporting, and determined that our internal controls and procedures were not effective as
of the fiscal year end December 31, 2010. If we are unable to maintain the effectiveness of our internal controls and procedures, our financial results may not be accurately reported.
We conducted an internal investigation with the assistance of outside independent professional firms and our internal audit department.
As a result of the investigation,
management discovered a deficiency in the operating effectiveness of loan underwriting, approval and renewal processes for those loan originations and asset sales associated with our former senior
marketing officer. Specifically, these processes lacked effective supervision and oversight, by the former Chief Executive Officer, and the procedures and requirements associated with loan
underwriting, approvals, renewals, and sales were not properly executed or enforced. Following the fourth quarter of 2010, we conducted an evaluation of the effectiveness of the system of internal
control over financial reporting as of December 31, 2010 and determined that these control deficiencies, combined with the material adjustment to Wilshire Bancorp's allowance for loan loss and
related provision for loan losses discussed in our Annual Report on Form 10-K for the year ended December 31, 2010, constituted a material weakness in Wilshire Bancorp's
internal control over financial reporting, as described in "Item 9A. Controls and Procedures" of our Annual Report on Form 10-K for the year ended December 31, 2010.
Failure
to comply with Section 404 of the Sarbanes-Oxley Act of 2002 or otherwise ineffective internal and disclosure controls could negatively affect our business, the price of
our Common Stock, and market confidence in our reported financial information.
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If we fail to maintain an effective system of internal and disclosure controls, we may not be able to accurately report our financial results or prevent fraud. As a result,
current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our securities.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable
financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results
would be harmed. We continually review and analyze our internal control over financial reporting for Sarbanes-Oxley Section 404 compliance. As part of that process we discovered material
weaknesses and significant deficiencies in our internal control and disclosed the weakness in Controls and Procedures. Material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected in
a timely basis. Significant deficiency is a deficiency or combination of deficiencies, in internal control over financial reporting that is less severe than material weakness, yet important enough to
merit attention by those responsible for the oversight of the Company's financial reporting.
As
a result of weaknesses that may be identified in our internal control, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe
require remediation. If
we discover weaknesses, we will make efforts to improve our internal and disclosure control. However, we may not be successful in such improvements. Any failure to maintain effective controls or
timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to
remain listed with The NASDAQ Global Select Market. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely
have a negative effect on the trading price of our securities.
If a significant number of clients fail to perform under their loans, our business, profitability, and financial condition would be adversely affected.
As a lender, one of the largest risks we face is the possibility that a significant number of our client borrowers will fail to pay
their loans when due. If borrower defaults cause losses in excess of our allowance for loan losses, it could have an adverse effect on our business, profitability, and financial condition. We have
established an evaluation process designed to determine the adequacy of the allowance for loan losses. Although this evaluation process uses historical and other objective information, the
classification of loans and the establishment of loan losses are dependent to a great extent on our experience and judgment. Although we believe that our allowance for loan losses is at a level
adequate to absorb any inherent losses in our loan portfolio, we may find it necessary to further increase the allowance for loan losses or our regulators may require us to increase this allowance.
Increases in the level of non-performing loans could adversely affect our business, profitability, and financial condition.
Increase in non-performing loans could have an adverse effect on our earnings as a result of related increases in our
provisions for loan losses, charge-offs, and other losses related to non-performing loans. The increase in non-performing loans and resulting decline in earnings
could deplete our capital, leaving the Company undercapitalized. Non-performing loans for the year ended December 31, 2011 was $43.8 million, a decrease from
$71.2 million at the end of 2010, and $70.8 million at the end of 2009. Delinquent loans, or loans still accruing but past due by 30 days or more, totaled $15.5 million at
December 31, 2011, representing a decrease of $19.0 million, or 55.1%, from December 31, 2010. The decrease in non-performing and delinquent loans from 2010 to 2011
was
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a
result of management's plan to aggressively reduce problem assets through sales and charge-offs in 2010 and 2011.
Increases in our allowance for loan losses could materially affect our earnings adversely.
Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance.
Our allowance for loan losses is based on prior experience, as well as an evaluation of the risks in the current portfolio. However, actual loan losses could increase significantly as the result of
changes in economic, operating and other conditions, including changes in interest rates, which are generally beyond our control. In addition, actual loan losses could increase significantly as a
result of deficiencies in our internal controls over financial reporting. Thus, such losses could exceed our current allowance estimates. Either of these occurrences could materially affect our
earnings adversely.
In
addition, the FDIC and the DFI, as an integral part of their respective supervisory functions, periodically review our allowance for loan losses. Such regulatory agencies may require
us to increase our provision for losses on loans and loan commitments or to recognize further loan charge-offs, based upon judgments different from those of management. Any increase in our
allowance required by the FDIC or the DFI could adversely affect us.
Banking organizations are subject to interest rate risk and changes in interest rates may negatively affect our financial performance.
A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on
interest-bearing liabilities, such as deposits and other borrowings, and the interest rates we receive on interest-earning assets, such as loans we extend to our clients and securities held in our
investment portfolio. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest earning assets and interest bearing liabilities. In addition,
loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations.
Because
of the declining national economy and continued financial crisis, the credit markets are lacking liquidity. While the federal funds rate and other short-term market
interest rates decreased substantially, the intermediate and long-term market interest rates, which are
used by many banking organizations to guide loan pricing, have not decreased proportionately. This has led to a "steepening" of the market yield curve with short-term rates considerably
lower than long-term notes. We may not be able to minimize our interest rate risk. In addition, while a decrease in the general level of interest rates may improve the ability of certain
borrowers with variable rate loans to pay the interest on and principal of their obligations, it reduces our interest income, and may lead to an increase in competition among banks for deposits.
Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, net interest margin and our overall profitability. Liquidity risk could impair
our ability to fund operations, meet our obligations as they become due and jeopardize our financial condition.
Liquidity risk could impair our ability to fund operations, meet our obligations as they become due and jeopardize our financial condition.
Liquidity is essential to our business. Liquidity risk is the potential that the Bank will be unable to meet its obligations as they
come due because of an inability to liquidate assets or obtain adequate funding. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial
negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us
specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business
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activity
as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory actions against us. Market conditions or other events could also negatively affect the level
or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a
reasonable cost, in a timely manner and without adverse consequences. Although management has implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned as
well as unanticipated changes in assets and liabilities under both normal and adverse conditions, any substantial, unexpected and/or prolonged change in the level or cost of liquidity could have a
material adverse effect on our financial condition and results of operations.
The profitability of Wilshire Bancorp is dependent on the profitability of the Bank.
Because Wilshire Bancorp's principal activity is to act as the holding company of the Bank, the profitability of Wilshire Bancorp is
largely dependent on the profitability of the Bank. The Bank operates in an extremely competitive banking environment, competing with a number of banks and other financial institutions which possess
greater financial resources than those available to the Bank, in addition to other independent banks. In addition, the banking business is affected by general economic and political conditions, both
domestic and international, and by government monetary and fiscal policies. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources,
international terrorism and other disorders as well as other factors beyond the control of the Bank may adversely affect its profitability. Banks are also subject to extensive governmental
supervision, regulation and control, and future legislation and government policy could adversely affect the banking industry and the operations of the Bank.
Wilshire Bancorp relies heavily on the payment of dividends from the Bank.
The Bank is the only source of significant income for Wilshire Bancorp. Accordingly, the ability of Wilshire Bancorp to meet its debt
service requirements and to pay dividends, if permissible, depends on the ability of the Bank to pay dividends to it. However, the Bank is subject to regulations limiting the amount of dividends that
it may pay to Wilshire Bancorp. For example, any payment of dividends by the Bank is subject to the FDIC's capital adequacy guidelines. All banks and bank holding companies are required to maintain a
minimum ratio of qualifying total capital to total risk-weighted assets of 8.00%, at least one-half of which must be in the form of Tier 1 capital, and a ratio of
Tier 1 capital to average adjusted assets of 4.00%. If (i) the FDIC increases any of these required ratios; (ii) the total of risk-weighted assets of the Bank
increases significantly; and/or (iii) the Bank's income decreases significantly, the Bank's Board of Directors may decide or be required to retain a greater portion of the Bank's earnings to
achieve and maintain the required capital or asset ratios. This will reduce the amount of funds available for the payment of dividends by the Bank to Wilshire Bancorp. Further, in some cases, the FDIC
could take the position that it has the power to prohibit the Bank from paying dividends if, in its view, such payments would constitute unsafe or unsound banking practices. Moreover, the Bank's MOU
prohibits the payment of dividends to Wilshire Bancorp without the prior approval of the FDIC and California DFI In addition, whether dividends are paid and their frequency and amount will depend on
the financial condition and performance, and the discretion of the Board of Directors of the Bank. The foregoing restrictions on dividends paid by the Bank may limit Wilshire Bancorp's ability to
obtain funds from such dividends for its cash needs, including funds for payment of its debt service requirements and operating expenses and for payment of cash dividends to Wilshire Bancorp's
shareholders. The amount of dividends the Bank could pay to Wilshire Bancorp as of December 31, 2011 without prior regulatory approval, which is limited by statute to the sum of undivided
profits for the current year plus net profits for the preceding two years (less any distributions made to shareholders during such periods), was zero as undivided cumulative three year net income was
negative, and therefore no dividends can be paid without regulatory approval. If such approval is
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withheld,
the inability of Wilshire Bancorp to receive dividends from the Bank could have a material adverse effect on its operations and financial condition.
The holders of our debentures and Series A Preferred Stock have rights that are senior to those of our common shareholders.
In December 2002, the Bank issued an aggregate of $10 million of Junior Subordinated Debentures, at times referred to in this
Report as the 2002 Junior Subordinated Debentures or the 2002 debentures. In addition, Wilshire Bancorp, as a wholly-owned subsidiary of the Bank in 2003 and as a parent company of the Bank in
2005 and 2007, issued an aggregate of $77,321,000 of Junior Subordinated Debentures as part of the issuance of $75,000,000 in trust preferred securities by statutory trusts wholly-owned by Wilshire
Bancorp. The purpose of these transactions was to raise additional capital. These Junior Subordinated Debentures are senior in liquidation rights to our outstanding shares of common stock and our
Series A Preferred Stock. The terms of these Junior Subordinated Debentures also restrict our ability to pay dividends on our common stock at any time we are in default under, or with respect
to the Junior Subordinated Debentures issued in 2003, 2005 or 2007, have exercised our right to defer interest payments under the indentures governing these Junior Subordinated Debentures. As a
result, in the event of our bankruptcy, dissolution or liquidation, the holder of these Junior Subordinated Debentures must be paid in full before any liquidating distributions may be made to the
holders of our common and preferred stock. The 2002 debentures mature in December 2012. If we default under the terms of these Junior Subordinated Debentures or utilize our right to defer interest
payments on the Junior Subordinated Debentures issued in 2003, 2005 or 2007, no dividends may be paid to holders of our common and preferred stock for so long as we remain in default or have deferred
amounts remaining unpaid.
On
December 12, 2008, the Company issued $62,158,000 in Series A Preferred Stock and a warrant to the U.S. Treasury as part of the U.S. Treasury's Capital Purchase Program
or "CPP". This $62.2 million investment from the U.S. Treasury, which is commonly referred to as Troubled Assets Relief Program ("TARP") investment, was part of the government strategy to
counter the ongoing financial crisis and the possible prolonged economic downturn. The TARP investment was made to us in exchange for our 62,158 shares of our Series A Preferred Stock and a
warrant to purchase initially 949,460 shares of our common stock. The preferred shareholder, the U.S. Treasury, has preference with respect to dividends and liquidation over our common shareholders.
Similar to the Junior Subordinated Debentures, if we default the payment of dividends on our Series A Preferred Stock, no dividends may be paid to holders of our common stock for so long as we
remain in default or have deferred amounts remaining unpaid.
Because
we are substantially dependent on dividends from the Bank in order to make the periodic payments due under the terms of the Junior Subordinated Debentures issued in 2003, 2005
and 2007,
and the terms of the Series A Preferred Stock issued in 2008, in the event that the Bank is unable to pay dividends to Wilshire Bancorp for any significant period of time, then we may be unable
to pay the amounts due to the holders of these Junior Subordinated Debentures and the U.S. Treasury. Currently, the Bank is unable to pay dividends to the Company without prior regulatory approval. If
such approval is withheld, then the Company may not have sufficient funds with which to pay the amounts due to the holders of the Junior Subordinated Debentures and the U.S. Treasury.
Income that we recognized and continue to recognize in connection with our 2009 FDIC-assisted Mirae Bank acquisition may be non-recurring or finite
in duration.
On June 26, 2009, we acquired the banking operations of Mirae Bank from the FDIC. Through the acquisition, we acquired
approximately $395.6 million of assets and assumed $374.0 million of liabilities. The Mirae Bank acquisition was accounted for under the purchase method of accounting and we recorded a
bargain purchase gain totaling $21.7 million as a result of the acquisition. This gain was
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included
as a component of noninterest income on our statement of income for 2009. The amount of the gain was equal to the amount by which the fair value of assets purchased exceeded the fair value of
liabilities. The bargain purchase gain resulting from the acquisition was a one-time, extraordinary gain that is not expected to be repeated in future periods.
In
addition, the loans that we acquired from Mirae Bank were acquired at a $54.9 million discount. This discount is amortized and accreted to interest income on a monthly basis.
However, as these loans are paid-off, charged-off, sold, or transferred to non-accrual status, the income from the discount accretion is reduced. As the acquired
loans are removed from our books, the related discount will no longer be available for accretion into income. During 2010, accretion of $4.0 million on loans purchased at a discount was
recorded as interest income. During 2011, accretion of $2.4 million was recorded as interest income. As of December 31, 2011, the balance of the carrying value of our discount on loans
was $7.0 million, which declined by $6.6 million from its carrying value of $13.6 million as of December 31, 2010 and by $47.9 million from its initial value of
$54.9 million. We expect the continued reduction of discount accretion recorded as interest income in future quarters.
Our decisions regarding the fair value of assets acquired, including the FDIC loss sharing assets, could be different than initially estimated which could materially and
adversely affect our business, financial condition, results of operations, and future prospects.
We acquired significant portfolios of loans in the Mirae Bank acquisition. Although these loans were marked down to their estimated
fair value, the acquired loans may suffer further deterioration in value resulting in additional charge-offs. The fluctuations in national, regional and local economic conditions,
including those related to local residential, commercial real estate and construction markets, may increase the level of charge-offs in the loan portfolio that we acquired from Mirae Bank
and correspondingly reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition, even if other
favorable events occur.
Although
we have entered into loss sharing agreements with the FDIC which provide that a significant portion of losses related to the assets acquired from Mirae Bank will be borne by the
FDIC, we are not protected for all losses resulting from charge-offs with respect to those assets. Additionally, the loss sharing agreements have limited terms. Therefore, any
charge-off of related losses that we experience after the term of the loss sharing agreements will not be reimbursed by the FDIC and will negatively impact our net income.
Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.
In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an
appraisal is only an estimate of the value of the property at the time the appraisal is made, and an error in fact or judgment could adversely affect the reliability of an appraisal. In addition,
events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors, the value of collateral backing a loan may be less than supposed,
and if a default occurs, we may not recover the outstanding balance of the loan.
We are subject to environmental risks associated with owning real estate or collateral.
The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses.
When a borrower defaults on a loan secured by real property, the Bank may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the
management of commercial properties whose owners have defaulted on loans. We may also own and lease premises where branches
and other facilities are located. While we will have lending, foreclosure and facilities guidelines intended to exclude properties
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with
an unreasonable risk of contamination, hazardous substances could exist on some of the properties that the Bank may own, manage or occupy. We face the risk that environmental laws could force us
to clean up the properties at the Company's expense. It may cost much more to clean a property than the property is worth. We could also be liable for pollution generated by a borrower's operations if
the Bank takes a role in managing those operations after a default. The Bank may also find it difficult or impossible to sell contaminated properties.
Our ability to obtain reimbursement under the loss sharing agreement on covered assets depends on our compliance with the terms of the loss sharing agreement.
The Company must certify to the FDIC on a quarterly basis our compliance with the terms of the FDIC loss sharing agreement as a
prerequisite to obtaining reimbursement from the FDIC for realized losses on covered assets. The required terms of the agreement are extensive and failure to comply with any of the guidelines could
result in a specific asset or group of assets permanently losing their loss sharing coverage. As of June 30, 2009, $235.6 million, or 6.86%, of the Company's assets were covered by the
FDIC loss sharing agreement compared to $165.5 million or 6.14% as of December 31, 2011. We may not be able to manage the covered assets in such a way as to always maintain loss share
coverage on all such assets, which may have an adverse effect on our operations and financial condition.
Adverse changes in domestic or global economic conditions, especially in California, could have a material adverse effect on our business, growth, and profitability.
If economic conditions worsen in the domestic or global economy, especially in California, our business, growth and profitability are
likely to be materially adversely affected. A substantial number of our clients are geographically concentrated in California, and adverse economic conditions in California, particularly in the Los
Angeles area, could harm the businesses of a disproportionate number of our clients. To the extent that our clients' underlying businesses are harmed, they are more likely to default on their loans.
The conditions in the California economy and in the economies of other areas where we operate may deteriorate further in the future and such deterioration may adversely affect us.
Continuing negative developments in the financial industry and U.S. and global credit markets may affect our operations and results.
Negative developments in the U.S. financial market, its real estate section, and the securitization markets for the mortgage loans have
resulted in uncertainty in the overall economy both domestically and globally. Commercial as well as consumer loan portfolio performances have deteriorated at many institutions and the competition for
deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have substantially declined and may
continue to further decline. Bank and bank holding company stock prices generally have been negatively affected as has the ability of banks and bank holding companies to raise capital or borrow in the
debt markets compared to recent years. 2009 was a record year for bankruptcies and bank failures. As a result, there is a potential for new federal or state laws and regulations regarding lending and
funding practices and liquidity standards, and bank regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected
issuance of many formal enforcement orders. Negative developments in the financial industry and the impact of new legislation in response to those developments could negatively affect our operations
by restricting our business operations, including our ability to originate or sell loans, and adversely affect our financial performance.
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The effect of the U.S. Government's response to the financial crisis remains uncertain.
In response to the turmoil in the financial services sector and the severe recession in the broader economy, the U.S. Government has
taken legislative and other action intended to restore financial stability and economic growth. On October 3, 2008, then President Bush signed into law the Emergency Economic Stabilization Act
of 2008 (the "EESA"). Among other things, the EESA established the Troubled Asset Relief Program, or TARP. Under TARP, the United States Treasury Department (the "Treasury Department") was given the
authority, among other things, to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions and others for the
purpose of stabilizing and providing liquidity to the U.S. financial markets. On October 14, 2008, the Treasury Department announced a program under EESA pursuant to which it would make senior
preferred stock investments in qualifying financial institutions (the "TARP Capital Purchase Program"). On February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009 (the "ARRA"). The ARRA contained, among other things, a further package of economic stimulus measures and amendments to EESA's restrictions on compensation of executives of
financial institutions and others participating in the TARP. In addition to legislation, the Federal Reserve Board eased short-term interest rates and implemented a series of emergency
programs to furnish liquidity to the financial markets and credit to various participants in those markets. The FDIC created a program to guarantee, on specified conditions, certain indebtedness and
noninterest-bearing transaction accounts of participating insured depository institutions for limited periods. After permitting some of its emergency programs to lapse during the
first half of the year, in November, 2010, the Federal Reserve Board implemented a further program of quantitative easing involving the purchase of an additional $600 billion of
longer-term Treasury securities by the end of the second quarter of 2011. In addition, on December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 (the "2010 Tax Relief Act") which was intended to stimulate the economy. Among other things, the 2010 Tax Relief Act contained two-year
extensions of the Bush era tax cuts and of Alternative Minimum Tax relief, a two-percentage point reduction in employee-paid payroll taxes and self-employment tax
for 2011, new incentives for investment in machinery and equipment, estate tax relief, and a significant number of tax breaks for individuals and businesses.
In
addition, on July 21, 2010, President Obama signed the Dodd-Frank Act, the most comprehensive reform of the regulation of the financial services industry since the
Great Depression of the 1930's. Among many other things, the Dodd-Frank Act provides for increased supervision of financial institutions by regulatory agencies, more stringent capital
requirements for financial institutions, major changes to deposit insurance assessments by the FDIC, heightened regulation of hedging and derivatives activities, a greater focus on consumer protection
issues, in part through the formation of a new Consumer Finance Protection Bureau having powers formerly split among different regulatory agencies, extensive changes to the regulation of mortgage
lending, imposition of limits on interchange transaction and network fees for electronic debit transactions, repeal of the existing prohibition on payment of interest on demand deposits, the effective
winding up of additional expenditures of funds under the TARP, and the imposition of a "sunset date" of December 31, 2012 on expenditures under the ARRA. Many of the Dodd-Frank Act
provisions have delayed effective dates that have not yet occurred, while others require implementing regulations of Federal agencies that have not yet been adopted. There can be no assurance as to
the actual impact of the EESA, the ARRA, the 2010 Tax Relief Act, the Dodd-Frank Act and their respective implementing regulations, the programs of the government agencies, or any further
legislation or regulations, on the financial markets or the broader economy. A failure to stabilize the financial markets, and a continuation or worsening of the current financial market conditions,
could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.
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The new CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business
operations of depository institutions offering consumer financial products or services including the Bank.
The CFPB has broad rulemaking authority to administer and carry out the purposes and objectives of the "Federal consumer financial
laws, and to prevent evasions thereof," with respect to all financial institutions that offer financial products and services to consumers. The
CFPB is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are "unfair, deceptive, or abusive" in connection
with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service ("UDAP authority"). The potential reach of the CFPB's broad
new rulemaking powers and UDAP authority on the operations of financial institutions offering consumer financial products or services including the Bank is currently unknown.
The Bank is subject to federal and state and fair lending laws, and failure to comply with these laws could lead to material penalties.
Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice, CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private
parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. A successful challenge to the Bank's performance under the fair
lending laws and regulations could adversely impact the Bank's rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and
civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact the Bank's reputation,
business, financial condition and results of operations.
Our operations may require us to raise additional capital in the future, but that capital may not be available or may not be on terms acceptable to us when it is needed.
We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. While we believe
our existing capital resources at the Bank are sufficient to satisfy the Bank's capital requirements for the foreseeable future and will be sufficient to offset any problem assets. However, should our
asset quality erode and require significant additional provision, resulting in consistent net operating losses at the Bank, our capital levels will decline and we will need to raise capital to support
the Bank. In addition, we are subject to separate capital requirements and needs at the holding company. While we are in compliance with capital requirements at the holding company, there may be
reasons in the future why we would determine to increase our capital levels at the holding company. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets
at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital if needed or on terms acceptable to us. If
we cannot raise additional capital when needed, our ability to operate in substantially the same manner as we have before, including the payment of dividends at the bank and holding company levels,
could be materially impaired.
Maintaining or increasing our market share depends on market acceptance and regulatory approval of new products and services.
Our success depends, in part, upon our ability to adapt our products and services to evolving industry standards and consumer demand.
There is increasing pressure on financial services companies to provide products and services at lower prices. In addition, the widespread adoption of new technologies, including Internet-based
services, could require us to make substantial expenditures to
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modify
or adapt our existing products or services. A failure to achieve market acceptance of any new products we introduce, or a failure to introduce products that the market may demand, could have an
adverse effect on our business, profitability, or growth prospects.
Significant reliance on loans secured by real estate may increase our vulnerability to downturns in the California real estate market and other variables impacting the value
of real estate.
At December 31, 2011, approximately 85.1% of our loans were secured by real estate, a substantial portion of which consist of
loans secured by real estate in California. Conditions in the California real estate market historically have influenced the level of our non-performing assets. A real estate recession in
Southern California could adversely affect our results of operations. In addition, California has experienced, on occasion, significant natural disasters, including earthquakes, brush fires and
flooding attributed to the weather phenomenon known as "El Nino." In addition to these catastrophes, California has experienced a moderate decline in housing prices beginning in late 2006. The decline
in housing prices subsequently developed into the current financial crisis, characterized by the further decline in the real estate market in many parts of the country, including California, starting
in the second half of 2007, and the failures of many financial institutions between 2008 and 2011. The availability of insurance to compensate for losses resulting from such crises is limited. The
occurrence of one or more of such crises could impair the value of the collateral for our real estate secured loans and adversely affect us.
If we fail to retain our key employees, our growth and profitability could be adversely affected.
Our future success depends in large part upon the continuing contributions of our key management personnel. If we lose the services of
one or more key employees within a short period of time, we could be adversely affected. Our future success is also dependent upon our continuing ability to attract and retain highly qualified
personnel. Competition for such employees among financial institutions in California is intense. Our inability to attract and retain additional key personnel could adversely affect us. Following the
retirement of our former Chief Executive Officer, we promoted our previous Executive Vice President and Chief Lending Officer to the position of President and Chief Executive Officer; and our prior
Executive Vice President and SBA Manager, was promoted to Chief Lending Officer. The Company's Chief Marketing Officer was terminated in December 2010, and the position remains open. Effective
February 18, 2011, our President and Chief Executive Officer resigned after which a new President and Chief Executive Officer was immediately appointed to the position on the same day. In
September 2011, the Company hired a consultant to ultimately fill the position of Chief Credit Officer who went on to formally become the Company's Chief Credit Officer in October of 2011.
For
as long as we have shares of Series A Preferred Stock outstanding in connection with the U.S. Treasury's voluntary TARP Capital Purchase Program, we will be subject to the
limitations on compensation included in EESA and ARRA. These restrictions may make it more difficult for us to retain certain of our key officers and employees because competitors who are not subject
to the same restrictions may be able to offer more competitive salaries and/or benefits to these individuals. More information about the compensation limitations of EESA and AARA can be found in the
section entitled "Supervision and Regulation—TARP Capital Purchase Program" in Item 1 of this Report. In addition, the Bank and Company entered into MOUs with their primary
regulators during 2011, which requires the Bank and the Company to notify the regulators prior to appointing any new executive officers.
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We could be liable for breaches of security in our online banking services. Fear of security breaches could limit the growth of our online services.
We offer various internet-based services to our clients, including online banking services. The secure transmission of confidential
information over the internet is essential to maintain our clients' confidence in our online services. Advances in computer capabilities, new discoveries or other developments could result in a
compromise or breach of the technology we use to protect client transaction data. Although we have developed systems and processes that are designed to
prevent security breaches and periodically test our security, failure to mitigate breaches of security could adversely affect our ability to offer and grow our online services and could harm our
business.
People
generally are concerned with security and privacy on the internet and any publicized security problems could inhibit the growth of the internet as a means of conducting commercial
transactions. Our ability to provide financial services over the internet would be severely impeded if clients became unwilling to transmit confidential information online. As a result, our operations
and financial condition could be adversely affected.
The market for our common stock is limited, and potentially subject to volatile changes in price.
The market price of our common stock may be subject to significant fluctuation in response to numerous factors, including variations in
our annual or quarterly financial results or those of our competitors, changes by financial research analysts in their evaluation of our financial results or those of our competitors, or our failure
or that of our competitors to meet such estimates, conditions in the economy in general or the banking industry in particular, or unfavorable publicity affecting us or the banking industry. In
addition, the equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the
operating performance of those companies. In addition, the sale by any of our large shareholders of a significant portion of that shareholder's holdings could have a material adverse effect on the
market price of our common stock. Further, the issuance or registration by us of any significant amount of additional shares of our common stock will have the effect of increasing the number of
outstanding shares or, in the case of registrations, the number of shares of our common stock that are freely tradable; any such increase may cause the market price of our common stock to decline or
fluctuate significantly. Any such fluctuations may adversely affect the prevailing market price of the common stock.
We may experience impairment on goodwill.
In light of the overall instability of the economy, the continued volatility in the financial markets, the downward pressure on bank
stock prices and expectations of financial performance for the banking industry, including the Company, our estimates of goodwill fair value may be subject to change or adjustment and we may determine
that impairment charges are necessary. The goodwill impairment analysis is a two-step test performed in accordance with Accounting Standards Codification ("ASC") 350. The analysis involves
comparing the East Coast branches' estimated fair value to its carrying value, including goodwill. To measure fair value under the first step, we use a combination of the "Discounted Cash Flow
Method", the "Guideline Public Company Method", and the "Guideline Branch Transaction Method" all of which have management estimates and assumptions used to estimate fair value. If management's
estimates and assumptions are inaccurate, the fair value determined could be inaccurate and impairment may not be recognized in a timely manner. Goodwill may be written down in future periods.
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We face substantial competition in our primary market area.
We conduct our banking operations primarily in Southern California. Increased competition in our market may result in reduced loans and
deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that we offer in our service area. These
competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including without limitation, savings and loan
institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include several major financial
companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns.
Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able
to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided,
including new technology-driven products and services. Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological
advances enable more companies to provide financial services. We also face competition from out-of-state financial intermediaries that have opened low-end
production offices or that solicit deposits in our market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits and our
results of operations and financial condition may otherwise be adversely affected.
Anti-takeover provisions of our charter documents may have the effect of delaying or preventing changes in control or management.
Certain provisions in our Articles of Incorporation and Bylaws could discourage unsolicited takeover proposals not approved by the
Board of Directors in which shareholders could receive a premium for their shares, thereby potentially limiting the opportunity for our shareholders to dispose of their shares at the higher price
generally available in takeover attempts or that may be available under a merger proposal or may have the effect of permitting our current management, including the current Board of Directors, to
retain its position, and place it in a better position to resist changes that shareholders may wish to make if they are dissatisfied with the conduct of our business. The anti-takeover
measures included in our Articles of Incorporation and Bylaws, include, without limitation, the following:
-
•
-
the elimination of cumulative voting,
-
•
-
the adoption of a classified Board of Directors,
-
•
-
super-majority shareholder voting requirements to modify certain provisions of the Articles of Incorporation and Bylaws,
and
-
•
-
restrictions on certain "business combinations" with third parties who may acquire our securities outside of an action
taken by us.
We are subject to significant government regulation and legislation that increases the cost of doing business and inhibits our ability to compete.
We are subject to extensive state and federal regulation, supervision and legislation, all of which is subject to material change from
time to time. These laws and regulations increase the cost of doing business and have an adverse impact on our ability to compete efficiently with other financial service providers that are not
similarly regulated. Changes in regulatory policies or procedures could result in management's determining that a higher provision for loan losses would be necessary and could cause
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higher
loan charge-offs, thus adversely affecting our net earnings. Future regulation or legislation may impose additional requirements and restrictions on us in a manner that could
adversely affect our results of operations, cash flows, financial condition and prospects.
As
a participant in the TARP Capital Purchase Program, we have agreed to various requirements and restrictions imposed by the U.S. Treasury on all participants, which included a
provision that the U. S. Treasury could change the terms of participation at any time. Further information regarding the current requirements and restrictions imposed on TARP participants can be found
under the caption
"Regulation and Supervision—The TARP Capital Purchase Program"
in Item 1 of this Report.
We could be negatively impacted by downturns in the South Korean economy.
Many of our customers are locally based Korean-Americans who also conduct business in South Korea. Although we conduct most of our
business with locally-based customers and rely on domestically located assets to collateralize our loans and credit arrangements, we have historically had some exposure to the economy of South Korea
in connection with certain portions of our loans and credit transactions with Korean banks. Such exposure has consisted of:
-
•
-
discounts of acceptances created by banks in South Korea,
-
•
-
advances made against clean documents presented under sight letters of credit issued by banks in South Korea,
-
•
-
advances made against clean documents held for later presentation under letters of credit issued by banks in South Korea,
and
-
•
-
extensions of credit to borrowers in the U.S. secured by letters of credit issued by banks in South Korea.
We
generally enter into any such loan or credit arrangements, in excess of $200,000 and of longer than 120 days, only with the largest of the Korean banks and spread other lesser
or shorter term loan or credit arrangements among a variety of medium-sized Korean banks.
Management
closely monitors our exposure to the South Korean economy and the activities of Korean banks with which we conduct business. To date, we have not experienced any significant
loss attributable to our exposure to South Korea. Nevertheless, our efforts to minimize exposure to downturns in the South Korean economy may not be successful in the future, and another significant
downturn in the South Korean economy could possibly result in significant credit losses for us.
In
addition, due to our customer base being largely made up of Korean-Americans, our deposit base could significantly decrease as a result of deterioration in the Korean economy. For
example, some of our customers' businesses may rely on funds from South Korea. Further, our customers may temporarily withdraw deposits in order to transfer funds and benefit from gains on foreign
exchange and interest rates, and/or to support their relatives in South Korea during downturns in the Korean economy. A significant decrease in our deposits could also have a material adverse effect
on our financial condition and results of operations.
Additional shares of our common stock issued in the future could have a dilutive effect.
Shares of our common stock eligible for future issuance and sale could have a dilutive effect on the market for our stock. Our Articles
of Incorporation authorizes the issuance of 80,000,000 shares of common stock. As of February 29, 2012, there were approximately 71,282,518 shares of our common stock issued and outstanding,
1,374,150 shares of our authorized but unissued shares of common stock have been granted and are reserved for issuance under the Wilshire Bancorp, Inc. 2008 Stock Option Plan, or the "2008
Stock Option Plan," 949,460 shares of our authorized but unissued shares of common stock are reserved for issuance upon exercise of the warrant that we issued to the U.S.
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Treasury
in connection with our participation in the TARP Capital Purchase Program, plus an additional 143,920 shares of our common stock are reserved for issuance to the holders of stock options
previously granted and still outstanding under the Wilshire State Bank 1997 Stock Option Plan, or the "1997 Stock Option Plan." Thus, approximately 6,592,416 shares of our common stock remain
authorized, not reserved for stock options, and available for future issuance and sale at the discretion of our Board of Directors.
Shares of our preferred stock previously issued and preferred stock issued in the future could have dilutive and other effects.
On December 12, 2008, we received $62,158,000 from the U.S. Treasury as part of the federal government's Capital Purchase
Program. In exchange for the federal funding, we issued 62,158 shares of Series A Preferred Stock, each with a stated liquidation amount of $1,000 per share, to the U.S. Treasury. As of
February 29, 2012, there were of 62,158 shares of our Series A Preferred Stock that were issued and outstanding.
Shares
of our preferred stock eligible for future issuance and sale also could have a dilutive effect on the market for the shares of our common stock, especially because of the fact
that the preferred shares would have seniority with respect to our common stock. In addition to 80,000,000 shares of common stock, our Articles of Incorporation authorize the issuance of 5,000,000
shares of preferred stock. As of December 31, 2011, the total outlook:Personal FoldersSent Itemsnumber of shares of authorized but unissued preferred stock was 4,937,842. The Board of
Directors could authorize the issuance of such preferred shares at any time in the future. If such shares of preferred stock are made convertible into shares of common stock, there could be a dilutive
effect on the shares of common stock then outstanding. In addition, shares of preferred stock may be provided a preference over holders of common stock upon our liquidation or with respect to the
payment of dividends, in respect of voting rights or in the redemption of our capital stock. The rights, preferences, privileges and restrictions applicable to any series of preferred stock may be
determined by resolution of our Board of Directors without the need for shareholder approval.
Item 1B. Unresolved Staff Comments
None.
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Item 2. Properties
Our primary banking facilities (corporate headquarters and various lending offices) are located at 3200 Wilshire Boulevard, Los
Angeles, California and consist of approximately 45,952 square feet as of the date of this report. This lease expires March 31, 2015, but we have an option to extend the lease for two
consecutive five-year periods. The combined monthly rent for the lease is currently $57,092.
We
have 24 full-service branch banking offices in Southern California, Texas, New Jersey, and New York. We also lease 8 separate LPOs in Newark, California; Aurora,
Colorado (the Denver area); Atlanta, Georgia; Dallas, Texas; Houston, Texas; Fort Lee, New Jersey; Bellevue, Washington; and Annandale, Virginia. Information about the properties associated with each
of our banking facilities is set forth in the table below:
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Property
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Ownership
Status
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Square
Feet
|
|
Purchase
Price
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|
Monthly
Rent*
|
|
Use
|
|
Lease
Expiration
|
|
Wilshire Office
|
|
Leased
|
|
|
7,426ft
|
2
|
|
N/A
|
|
$
|
10,990
|
|
Branch Office
|
|
March 2015
|
|
3200 Wilshire Blvd. Suite 103
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|
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[w/right to extend for two
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Los Angeles, CA
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consecutive 5-year periods]
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Rowland Heights Office
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Leased
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2,860ft
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2
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N/A
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$
|
8,525
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Branch Office
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May 2016
|
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19765 E. Colima Road
|
|
|
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|
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|
|
|
|
|
|
|
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[w/right to extend for one
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Rowland Heights, CA
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|
|
|
|
|
consecutive 5-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Office
|
|
Leased
|
|
|
4,950ft
|
2
|
|
N/A
|
|
$
|
26,543
|
|
Branch Office
|
|
June 2015
|
|
841 South Western Ave.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olympic Office
|
|
Leased
|
|
|
9,247ft
|
2
|
|
N/A
|
|
$
|
14,795
|
|
Branch Office
|
|
August 2019
|
|
2140 West Olympic Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley Office
|
|
Leased
|
|
|
7,350ft
|
2
|
|
N/A
|
|
$
|
12,156
|
|
Branch Office
|
|
October 2017
|
|
8401 Reseda Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Northridge, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Van Nuys
|
|
Leased
|
|
|
1,150ft
|
2
|
|
N/A
|
|
$
|
2,288
|
|
Branch Office
|
|
March 2015
|
|
9700 Woodman Ave., # A-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Arleta, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downtown Office
|
|
Leased
|
|
|
5,500ft
|
2
|
|
N/A
|
|
$
|
15,862
|
|
Branch Office
|
|
June 2019
|
|
401 East 11
th
St. Suite 207-211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cerritos Office
|
|
Leased
|
|
|
5,702ft
|
2
|
|
N/A
|
|
$
|
9,000
|
|
Branch Office
|
|
January 2017
|
|
17500 Carmenita Road
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Cerritos, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gardena Office
|
|
Leased
|
|
|
3,325ft
|
2
|
|
N/A
|
|
$
|
4,489
|
|
Branch Office
|
|
November 2021
|
|
1701 W. Redondo Beach Blvd., #A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
|
Gardena, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rancho Cucamonga Office
|
|
Leased
|
|
|
3,000ft
|
2
|
|
N/A
|
|
$
|
5,850
|
|
Branch Office
|
|
November 2015
|
|
8045 Archibald Ave.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Rancho Cucamonga,CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Center Office
|
|
Leased
|
|
|
3,538ft
|
2
|
|
N/A
|
|
$
|
17,690
|
|
Branch Office
|
|
May 2013
|
|
3500 West 6
th
Street #201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for three
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irvine Office
|
|
Leased
|
|
|
1,960ft
|
2
|
|
N/A
|
|
$
|
7,840
|
|
Branch Office
|
|
November 2013
|
|
14451 Red Hill Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for three
|
|
Tustin, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Wilshire Office
|
|
Leased
|
|
|
3,382ft
|
2
|
|
N/A
|
|
$
|
11,435
|
|
Branch Office
|
|
December 2012
|
|
3832 Wilshire Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fashion Town Office
|
|
Leased
|
|
|
3,208ft
|
2
|
|
N/A
|
|
$
|
6,163
|
|
Branch Office
|
|
March 2014
|
|
1300 S. San Pedro Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Los Angeles, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fullerton Office
|
|
Leased
|
|
|
1,440ft
|
2
|
|
N/A
|
|
$
|
4,838
|
|
Branch Office
|
|
July 2013
|
|
5254 Beach Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
50
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Ownership
Status
|
|
Square
Feet
|
|
Purchase
Price
|
|
Monthly
Rent*
|
|
Use
|
|
Lease
Expiration
|
|
Buena Park, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 2-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington Park Office
|
|
Purchased
|
|
|
4,350ft
|
2
|
$
|
710,000
|
|
|
N/A
|
|
Branch Office
|
|
N/A
|
|
6350 Pacific Blvd.
|
|
in 2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huntington Park, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Torrance Office
|
|
Leased
|
|
|
2,360ft
|
2
|
|
N/A
|
|
$
|
7,476
|
|
Branch office
|
|
June 2019
|
|
2390 Crenshaw Blvd. #D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Torrance, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Grove Office
|
|
Purchased
|
|
|
2,549ft
|
2
|
$
|
1,535,500
|
|
|
N/A
|
|
Branch Office
|
|
N/A
|
|
9672 Garden Grove Blvd.
|
|
in 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Grove, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manhattan Office
|
|
Leased
|
|
|
7,544ft
|
2
|
|
N/A
|
|
$
|
32,857
|
|
Branch Office
|
|
September 2019
|
|
308 Fifth Ave.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
|
New York, NY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayside Office
|
|
Leased
|
|
|
2,445ft
|
2
|
|
N/A
|
|
$
|
15,208
|
|
Branch Office
|
|
April 2012
|
|
210-16 Northern Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for three
|
|
Bayside, NY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flushing Office
|
|
Leased
|
|
|
2,300ft
|
2
|
|
N/A
|
|
$
|
14,205
|
|
Branch Office
|
|
July 2018
|
|
150-24 Northern Blvd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for two
|
|
Flushing, NY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consecutive 5-year periods]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Lee Office
|
|
Leased
|
|
|
2,264ft
|
2
|
|
N/A
|
|
$
|
11,117
|
|
Branch Office
|
|
May 2017
|
|
215 Main Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
|
Fort Lee, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas Office
|
|
Purchased
|
|
|
7,000ft
|
2
|
$
|
1,325,000
|
|
|
N/A
|
|
Branch &
|
|
N/A
|
|
2237 Royal Lane
|
|
in 2003
|
|
|
|
|
|
|
|
|
|
|
LPO Office
|
|
|
|
Dallas, Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denver Office
|
|
Leased
|
|
|
1,135ft
|
2
|
|
N/A
|
|
$
|
1,419
|
|
LPO Office
|
|
September 2012
|
|
2821 S. Parker Road #415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aurora, CO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta Office
|
|
Leased
|
|
|
924ft
|
2
|
|
N/A
|
|
$
|
1,800
|
|
LPO Office
|
|
December 2011
|
|
4864 Jimmy Carter Blvd., #202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[w/right to extend for one
|
|
Norcross, GA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-year period]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston Office
|
|
Leased
|
|
|
1,096ft
|
2
|
|
N/A
|
|
$
|
1,713
|
|
LPO Office
|
|
March 2014
|
|
9801 Westheimer #801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Worth Office
|
|
Purchased
|
|
|
3,500ft
|
2
|
$
|
1,100,000
|
|
|
N/A
|
|
Branch Office
|
|
N/A
|
|
7553 Boulevard 26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N. Richland Hills, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annandale Office
|
|
Leased
|
|
|
1,150ft
|
2
|
|
N/A
|
|
$
|
2,190
|
|
LPO Office
|
|
May 2012
|
|
7535 Little River Turnpike #310A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annandale, VA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Office
|
|
Leased
|
|
|
136ft
|
2
|
|
N/A
|
|
$
|
831
|
|
LPO Office
|
|
November 2012
|
|
10900 NE 8
th
Street #1000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellevue, WA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Jersey Office
|
|
Leased
|
|
|
800ft
|
2
|
|
N/A
|
|
$
|
1,850
|
|
LPO Office
|
|
March 2013
|
|
215 Main Street #201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Lee, NJ
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North California Office
|
|
Leased
|
|
|
145ft
|
2
|
|
N/A
|
|
$
|
878
|
|
LPO Office
|
|
November 2012
|
|
39899 Balentine Dr. #200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newark, CA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Monthly
rent is based on figures at December 31, 2011
Management has determined that all of our premises are adequate for our present and anticipated level of business.
51
Table of Contents
Item 3. Legal Proceedings
On March 29, 2011, Wilshire Bancorp Inc., our former Chief Executive Officer, and our current Chief Financial Officer
were named as defendants in a purported class action lawsuit filed in the United States District Court for the Central District of California, in a case entitled Michael Fairservice v. Wilshire
Bancorp, Inc. et al. The complaint arises out of the Company's announcement that it had concluded an internal investigation in connection with the activities of its former senior marketing
officer and implemented remedial procedures in response to that investigation. The internal investigation was conducted by the Company's audit committee with the assistance of outside independent
professional firms and the Company's internal audit department, and was undertaken following questions from the FDIC regarding the loan files originated by that marketing officer and after the
execution of a search warrant related to loan files involving the former officer, as well as to address activities of the former officer that had previously come to the attention of management. The
scope of the Company's internal investigation focused on loan-related and other business activities of the former senior marketing officer. As part of its investigation, management
discovered a deficiency in the operating effectiveness of loan underwriting, approval, and renewal processes for those loan originations and asset sales associated with the former officer.
Specifically, these processes lacked effective supervision and oversight by our former Chief Executive Officer. Our former Chief Executive Officer, who was responsible for overseeing these matters,
resigned following the reporting of these activities to our Board of Directors.
The
purported class action complaint alleges, among other things, that the defendants made false and/or misleading statements and/or failed to disclose that Wilshire Bancorp had
deficiencies in its underwriting, origination, and renewal processes and procedures; was not adhering to its underwriting policies; lacked adequate internal and financial controls; and, as a result,
its financial statements were materially false and misleading. Plaintiffs seek unspecified compensatory damages, among other remedies. Wilshire Bancorp and the other defendants filed motions to
dismiss this complaint, which were granted on February 8, 2012. In connection with the granting of the motions to dismiss, the judge provided the plaintiffs with leave to file an amended
complaint on or before February 29, 2012. Because
the plaintiffs did not file an amended complaint within the specified time period, the judge by minute order, dated March 5, 2012, dismissed the class action lawsuit.
On
May 18, 2011, Wilshire Bancorp was named as a nominal defendant in a purported shareholder derivative lawsuit filed in Los Angeles Superior Court, in a case entitled Seong J.
Kim v. Joanne Kim et al 44A. This case also names our former CEO (Joanne Kim), our current CEO (Jae Whan Yoo), our current CFO (Alex Ko), and our eight (8) directors at the time
(Donald D. Byun, Lawrence Jeon, Kyu-Hyun Kim, Fred F. Mautner, Steven S. Koh, Richard Y. Lim, Young Hi Pak, and Harry Siafaris) as individual defendants.
Subject to a reservation of rights, the defendants are being defended by the Federal Insurance Company pursuant to the Company's Directors and Officers Liability Policy. The purported complaint
alleges, among other things, that the defendants breached their fiduciary duty by permitting the Company to issue public statements that were false and misleading, failing to disclose the conduct of a
former loan officer and that the Company allegedly had deficiencies in its underwriting, origination and renewal processes and procedures, not adhering to its underwriting policies and lacking
adequate internal and financial controls. On February 14, 2012, defendants filed demurrers and a motion to strike the complaint.
In
addition, the Securities and Exchange Commission has informally inquired as to information regarding the internal investigation discussed above and the adjustment to the Company's
allowance for loan losses and provision for loan losses. The Company is providing this information and cooperating fully with the SEC's inquiry.
52
Table of Contents
In
the normal course of business, we are involved in various legal claims. We have reviewed all other legal claims against us with counsel and have taken into consideration the views of
such counsel as to the outcome of the claims. No loss contingency has been recorded in any period presented in the financial statements because such losses are either not probable or reasonably
estimable (or both) at the present time. Management also considers the amount or range of reasonably possible losses and this amount is not material to any of the consolidated financial statements.
Item 4. Mine Safety Disclosures
Not Applicable
53
Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Trading History
Wilshire Bancorp's common stock is listed for trading on the NASDAQ Global Select Market under the symbol "WIBC."
|
|
|
|
|
|
|
|
|
|
|
Closing Sale Price
|
|
|
|
High
|
|
Low
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.01
|
|
$
|
4.77
|
|
|
Second Quarter
|
|
$
|
5.34
|
|
$
|
2.92
|
|
|
Third Quarter
|
|
$
|
3.32
|
|
$
|
2.42
|
|
|
Fourth Quarter
|
|
$
|
3.63
|
|
$
|
2.49
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.83
|
|
$
|
7.85
|
|
|
Second Quarter
|
|
$
|
11.64
|
|
$
|
8.75
|
|
|
Third Quarter
|
|
$
|
8.55
|
|
$
|
6.07
|
|
|
Fourth Quarter
|
|
$
|
7.85
|
|
$
|
6.46
|
|
On
February 29, 2012, the closing sale price for the common stock was $4.35, as reported on the NASDAQ Global Select Market.
Shareholders
As of February 29, 2012, there were 143 shareholders of record of our common stock (not including the number of persons or
entities holding stock in nominee or street name through various brokerage firms).
Dividends
As a California corporation, we are restricted under the California General Corporation Law, or CGCL, from paying dividends under
certain conditions. Our shareholders are entitled to receive dividends when and as declared by our Board of Directors, out of funds legally available for the payment of dividends, as provided in the
CGCL. The CGCL provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout at least equal the amount of proposed distribution.
In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution, if it meets both the "quantitative solvency" and
the "liquidity" tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least 1
1
/
4
times its liabilities. The liquidity test
generally requires that a corporation have current assets at least equal to current liabilities, or, if the average of the earnings of the corporation before taxes on income and before interest
expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then current assets must be equal to at least
1
1
/
4
times current liabilities. In certain circumstances, we may be required to obtain the prior approval of the Federal Reserve Board to make capital distributions to our shareholders.
It
has been our general practice to retain earnings for the purpose of increasing capital to support growth, and no cash dividends were paid to shareholders prior to 2005. However, we
began paying a cash dividend to our common shareholders beginning in the first quarter of 2005. In light of recent increased credit cost associated with the increase in non-performing
loans, the Board of Directors
54
Table of Contents
approved
a temporary suspension of our common stock dividend after the first quarter of 2010. While we currently pay cash dividends to the holders of our Series A Preferred Stock pursuant to
our agreements under the TARP Capital Purchase Program, all dividends are subject to the discretion of our Board of Directors and will depend on a number of factors, including future earnings,
financial condition, cash needs and general business conditions. It is also possible that the Federal Reserve Board may require us to defer, or refuse to allow us to make dividend payments on our
Series A Preferred Stock and trust preferred securities. Any dividend to our common shareholders must also comply with the restrictions in our outstanding Junior Subordinated Debentures and our
Series A Preferred Stock described earlier in this Report, as well as applicable bank regulations. In addition, our MOU with the Reserve Bank prohibits us from paying any dividends, including
TARP dividends or Series A Preferred Stock without the prior approval of the Reserve Bank.
The
following table shows cash dividends to our common shareholders declared by Wilshire Bancorp for the two years ended December 31, 2011:
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Payable Date
|
|
Record Date
|
|
Amount
|
|
February 23, 2010
|
|
April 15, 2010
|
|
March 31, 2010
|
|
$0.05 per share
|
The
following table shows cash dividends to US Treasury for our preferred stock for the two years ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
Date Paid
|
|
Period
|
|
Rate
|
|
Amount Paid
|
|
|
February 16, 2010
|
|
Nov 16, 2009 - Feb 15, 2010
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
May 15, 2010
|
|
Feb 16, 2010 - May 15, 2010
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
August 17, 2010
|
|
May 16, 2010 - Aug 15, 2010
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
November 16, 2010
|
|
Aug 16, 2010 - Nov 15, 2010
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
February 15, 2011
|
|
Nov 16, 2010 - Feb 15, 2011
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
May 16, 2011
|
|
Feb 16, 2011 - May 15, 2011
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
August 15, 2011
|
|
May 16, 2011 - Aug 15, 2011
|
|
|
5.00
|
%
|
$
|
776,975
|
|
|
November 15, 2011
|
|
Aug 16, 2011 - Nov 15, 2011
|
|
|
5.00
|
%
|
$
|
776,975
|
|
Our
ability to pay cash dividends in the future will depend in large part on the ability of the Bank to pay dividends on its capital stock to us. The ability of the Bank to pay dividends
on its common stock is restricted by the California Financial Code, the FDIA, and FDIC regulations. In general terms, California law provides that the Bank may declare a cash dividend out of net
profits up to the lesser of retained earnings or net income for the last three fiscal years (less any distributions made to shareholders during such period), or, with the prior written approval of the
Commissioner of Department of Financial Institutions, in an amount not exceeding the greatest of:
-
•
-
retained earnings,
-
•
-
net income for the prior fiscal year, or
-
•
-
net income for the current fiscal year.
The
Bank's ability to pay any cash dividends will depend not only upon our earnings during a specified period, but also on our meeting certain capital requirements. The FDIA and FDIC
regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank.
The payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as maintenance of adequate capital. If, in the opinion of the regulatory authority, a
depository institution under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could
include the payment of dividends), such authority may require, after notice and hearing, that such depository institution cease
55
Table of Contents
and
desist from such practice. Currently, the Bank is unable to pay dividends to the holding company without prior regulatory approval under the terms of its MOU and also because the Bank's undivided
cumulative three year net income was negative.
Securities Authorized for Issuance under Equity Compensation Plans
In June 2008, we established the 2008 Stock Incentive Plan that provides for the issuance of restricted stock and options to purchase
up to 2,933,200 shares of our authorized but unissued common stock to employees, directors, and consultants. Exercise prices for options may not be less than the fair market value at the date of
grant. Compensation expense for awards is recorded over the vesting period. Under the 2008 Stock Option Plan, there were stock options outstanding to purchase 869,100 shares of our common stock as of
December 31, 2011.
During
1997, the Bank established the 1997 Stock Incentive Plan, which provided for the issuance of up to 6,499,800 shares of the Company's authorized but unissued common stock to
managerial employees and directors. Due to the expiration of the plan in February 2007, no additional options may be granted under the 1997 Stock Option Plan. Accordingly, no shares of our common
stock remain available for future issuance under the 1997 Stock Option Plan. Nonetheless, there are 143,920 shares of our common stock reserved for issuance to the holders of stock options previously
granted and still outstanding under the 1997 Stock Option Plan. The following table summarizes information as of December 31, 2011 relating to the number of securities to be issued upon the
exercise of the outstanding options under the 1997 Plan and the 2008 Plan and their weighted-average exercise price.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants, and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants, and Rights
|
|
Number of Securities
Available for Future
Issuance Under Equity
Compensation Plans*
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity Compensation Plans Approved by Security Holders
|
|
|
1,997,641
|
|
$
|
9.61
|
|
|
2,018,639
|
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Compensation Plans
|
|
|
1,997,641
|
|
$
|
9.61
|
|
|
2,018,639
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Does
not includes securities reflected in column (a)
Future
grants of stock options under the 2008 plan may be subject to the limitations of EESA for as long as shares of our Series A Preferred Stock are outstanding. EESA prohibits
us from accruing any bonus, retention award, or incentive compensation to at least the five most highly compensated employees of the Company (or such higher number of employees as the U.S. Treasury
may determine). Although the interpretation of what specifically constitutes "incentive compensation" is not clear, it is likely that we will not be able to grant additional stock options to at least
our five most highly compensated employees during the time that we have shares of Series A Preferred Stock outstanding.
56
Table of Contents
Performance Graph
The following graph compares the yearly percentage change in cumulative total shareholders' return on our common stock with the
cumulative total return of (i) the NASDAQ market index; (ii) all banks and bank holding companies listed on NASDAQ; and (iii) the SNL Western Bank Index, comprised of banks and
bank holding companies located in California, Oregon, Washington, Montana, Hawaii, Nevada, and Alaska. Both the $1 Billion—$5 Billion Asset-Size Bank Index and
the SNL Western Bank Index were compiled by SNL Securities LP of Charlottesville, Virginia. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is not
necessarily indicative of future price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
|
12/31/10
|
|
12/31/11
|
|
|
Wilshire Bancorp Inc.
|
|
$
|
100.00
|
|
$
|
42.14
|
|
$
|
49.79
|
|
$
|
46.33
|
|
$
|
43.29
|
|
$
|
20.62
|
|
|
NASDAQ© Composite
|
|
|
100.00
|
|
|
110.66
|
|
|
66.42
|
|
|
96.54
|
|
|
114.06
|
|
|
113.16
|
|
|
SNL© $1B - $5B Bank Index
|
|
|
100.00
|
|
|
72.84
|
|
|
60.42
|
|
|
43.31
|
|
|
49.09
|
|
|
44.77
|
|
|
SNL© Western Bank Index
|
|
|
100.00
|
|
|
83.53
|
|
|
81.33
|
|
|
74.68
|
|
|
84.62
|
|
|
76.45
|
|
Source:
SNL Financial LC, Charlottesville, VA
57
Table of Contents
Item 6. Selected Financial Data
The following table presents selected historical financial information as of and for each of the years in the five years ended
December 31, 2011. The selected historical financial information is derived from our audited consolidated financial statements and should be read in conjunction with our financial statements
and the notes thereto which appear elsewhere in this Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Item 7 below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Years Ended December 31,
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
Summary Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
129,964
|
|
$
|
156,420
|
|
$
|
158,354
|
|
$
|
148,633
|
|
$
|
157,636
|
|
|
Interest expense
|
|
|
22,589
|
|
|
42,704
|
|
|
58,891
|
|
|
66,014
|
|
|
76,286
|
|
|
Net interest income before provision for losses on loans and loan commitments
|
|
|
107,375
|
|
|
113,716
|
|
|
99,463
|
|
|
82,619
|
|
|
81,350
|
|
|
Provision for losses on loans and loan commitments
|
|
|
59,100
|
|
|
150,800
|
|
|
68,600
|
|
|
12,110
|
|
|
14,980
|
|
|
Noninterest income
|
|
|
23,805
|
|
|
35,912
|
|
|
57,316
|
|
|
20,646
|
|
|
22,584
|
|
|
Noninterest expenses
|
|
|
68,785
|
|
|
67,376
|
|
|
57,369
|
|
|
48,400
|
|
|
44,839
|
|
|
Income (loss) before income taxes
|
|
|
3,295
|
|
|
(68,548
|
)
|
|
30,810
|
|
|
42,755
|
|
|
44,115
|
|
|
Income taxes (benefit) provision
|
|
|
33,625
|
|
|
(33,790
|
)
|
|
10,686
|
|
|
16,282
|
|
|
17,309
|
|
|
Preferred stock cash dividend and accretion of preferred stock
|
|
|
3,658
|
|
|
3,626
|
|
|
3,620
|
|
|
155
|
|
|
—
|
|
|
Net (loss) income available to common shareholders
|
|
|
(33,988
|
)
|
|
(38,384
|
)
|
|
16,504
|
|
|
26,318
|
|
|
26,806
|
|
|
Per Common Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
$
|
0.90
|
|
$
|
0.91
|
|
|
Diluted
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
$
|
0.90
|
|
$
|
0.91
|
|
|
Book value per common share
|
|
$
|
3.49
|
|
$
|
5.72
|
|
$
|
7.01
|
|
$
|
6.65
|
|
$
|
5.87
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,420,291
|
|
|
29,368,762
|
|
|
29,339,454
|
|
|
Diluted
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,429,299
|
|
|
29,407,388
|
|
|
29,449,211
|
|
|
Year-end common shares outstanding
|
|
|
71,282,518
|
|
|
29,477,638
|
|
|
29,483,307
|
|
|
29,413,757
|
|
|
29,253,311
|
|
58
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Years Ended December 31,
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
Summary Statement of Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income
(1)
|
|
$
|
1,981,486
|
|
$
|
2,326,624
|
|
$
|
2,427,441
|
|
$
|
2,051,528
|
|
$
|
1,809,050
|
|
|
Allowance for loan losses
|
|
|
102,982
|
|
|
110,953
|
|
|
62,130
|
|
|
29,437
|
|
|
21,579
|
|
|
Other real estate owned
|
|
|
8,221
|
|
|
14,983
|
|
|
3,797
|
|
|
2,663
|
|
|
133
|
|
|
Total assets
|
|
|
2,696,854
|
|
|
2,970,525
|
|
|
3,435,997
|
|
|
2,450,011
|
|
|
2,196,705
|
|
|
Total deposits
|
|
|
2,202,309
|
|
|
2,460,940
|
|
|
2,828,215
|
|
|
1,812,601
|
|
|
1,763,071
|
|
|
Federal Home Loan Bank advances
(2)
|
|
|
60,000
|
|
|
135,000
|
|
|
232,000
|
|
|
260,000
|
|
|
150,000
|
|
|
Junior subordinated debentures
|
|
|
87,321
|
|
|
87,321
|
|
|
87,321
|
|
|
87,321
|
|
|
87,321
|
|
|
Total shareholders' equity
|
|
|
309,582
|
|
|
229,162
|
|
|
266,136
|
|
|
255,060
|
|
|
171,786
|
|
|
Performance ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total equity
(3)
|
|
|
-11.46
|
%
|
|
-12.69
|
%
|
|
7.42
|
%
|
|
14.14
|
%
|
|
16.33
|
%
|
|
Return on average common equity
(4)
|
|
|
-16.66
|
%
|
|
-17.96
|
%
|
|
7.80
|
%
|
|
14.30
|
%
|
|
16.33
|
%
|
|
Return on average assets
(5)
|
|
|
-1.10
|
%
|
|
-1.04
|
%
|
|
0.67
|
%
|
|
1.14
|
%
|
|
1.31
|
%
|
|
Net interest margin
(6)
|
|
|
4.34
|
%
|
|
3.76
|
%
|
|
3.60
|
%
|
|
3.81
|
%
|
|
4.28
|
%
|
|
Efficiency ratio
(7)
|
|
|
52.44
|
%
|
|
45.03
|
%
|
|
36.59
|
%
|
|
46.87
|
%
|
|
43.14
|
%
|
|
Net loans to total deposits at year end
|
|
|
85.30
|
%
|
|
90.03
|
%
|
|
83.63
|
%
|
|
111.56
|
%
|
|
101.38
|
%
|
|
Common dividend payout ratio
|
|
|
0.00
|
%
|
|
-3.84
|
%
|
|
35.65
|
%
|
|
22.34
|
%
|
|
21.98
|
%
|
|
Capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shareholders' equity to average total assets
|
|
|
7.39
|
%
|
|
6.39
|
%
|
|
7.08
|
%
|
|
7.89
|
%
|
|
8.01
|
%
|
|
Tier 1 capital to quarter-to-date average total assets
|
|
|
13.86
|
%
|
|
9.18
|
%
|
|
9.77
|
%
|
|
13.25
|
%
|
|
10.36
|
%
|
|
Tier 1 capital to total risk-weighted assets
|
|
|
19.59
|
%
|
|
12.61
|
%
|
|
14.37
|
%
|
|
15.36
|
%
|
|
11.83
|
%
|
|
Total capital to total risk-weighted assets
|
|
|
20.89
|
%
|
|
14.00
|
%
|
|
15.81
|
%
|
|
17.09
|
%
|
|
14.58
|
%
|
|
Asset quality ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to total loans
(8)
|
|
|
2.21
|
%
|
|
3.06
|
%
|
|
2.92
|
%
|
|
0.76
|
%
|
|
0.59
|
%
|
|
Nonperforming asset to total loans and other real estate owned
(9)
|
|
|
2.62
|
%
|
|
3.68
|
%
|
|
3.07
|
%
|
|
0.89
|
%
|
|
0.60
|
%
|
|
Charge-offs (net of recoveries) to average total loans
|
|
|
3.16
|
%
|
|
4.33
|
%
|
|
1.73
|
%
|
|
0.26
|
%
|
|
0.66
|
%
|
|
Allowance for loan losses to total loans at year end
|
|
|
5.20
|
%
|
|
4.77
|
%
|
|
2.56
|
%
|
|
1.43
|
%
|
|
1.19
|
%
|
|
Allowance for loan losses to nonperforming loans
|
|
|
234.95
|
%
|
|
155.76
|
%
|
|
87.78
|
%
|
|
189.27
|
%
|
|
203.55
|
%
|
-
(1)
-
Total
loans is the sum of loans receivable and loans held-for-sale and is reported at their outstanding principal
balances, net of any unearned income (unamortized deferred fees and costs)
-
(2)
-
At
December 31, 2011, our borrowing capacity with the Federal Home Loan Bank was $645.3 million, with $585.3 million in
remaining capacity
-
(3)
-
Net
income divided by average total shareholders' equity
-
(4)
-
Net
income available to common shareholders, divided by average common shareholders' equity
-
(5)
-
Net
income divided by average total assets
-
(6)
-
Represents
net interest income as a percentage of average interest-earning assets
-
(7)
-
Represents
the ratio of noninterest expense to the sum of net interest income before provision for losses on loans and loan commitments and
total noninterest income
-
(8)
-
Nonperforming
loans consist of nonaccrual loans, loans past due 90 days or more, and restructured loans
-
(9)
-
Nonperforming
assets consist of nonperforming loans (see footnote no. 8 above), and other real estate owned
59
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion presents management's analysis of our results of operations and financial condition as of and for each of the years in
the three-year period ended December 31, 2011. The discussion should be read in conjunction with our financial statements and the notes related thereto which appear elsewhere in
this Report.
Executive Overview
Wilshire Bancorp, Inc. succeeded to the business and operations of Wilshire State Bank (the "Bank") upon consummation of the
reorganization of the Bank into a holding company structure, effective as of August 25, 2004. We operate a community bank in the general commercial banking business, with our primary market
encompassing the multi-ethnic population of the Los Angeles metropolitan area. Our full-service offices are located primarily in areas where a majority of the businesses are owned by
Korean-speaking immigrants, with many of the remaining businesses owned by Hispanic and other minority groups.
On
June 26, 2009, we acquired the banking operations of Mirae Bank from the FDIC, which had been named receiver of the institution. We acquired approximately $395.6 million
in assets and assumed $374.0 million in liabilities. This included $285.7 million in loans, and $293.4 million in deposits in addition to five branch offices. The integration of
former Mirae was successfully completed in the third quarter of 2009, during which 4 out of the 5 branches were merged as a result of their close proximity to our existing office locations. Even with
the branch mergers, the retention rate for former Mirae deposit customers remained high.
Over
the past several years, our network of branches and LPOs has expanded geographically. We currently maintain twenty-four branch offices and eight LPOs. We
recently expanded our network of LPOs and established two new offices in Newark, California, and Bellevue, Washington. We believe that our market coverage complements our multi-ethnic small
business focus. We intend to be cautious about our growth strategy in future years regarding opening of additional branches and LPOs. We expect to continue implementing our growth strategy
using strategic planning and market analysis, as our needs and resources permit.
In
December 2008, we issued 62,158 shares of newly designated Series A Preferred Stock, each with a stated liquidation amount of $1,000 per share, and an attached warrant
exercisable initially for 949,460 shares of our common stock, with an exercise price of $9.82 per share, to the U.S. Treasury in exchange for the U.S. Treasury's $62.2 million investment in the
TARP Capital Purchase Program. This additional capital infusion from the United States government further strengthened our capital ratios, allowing us to continue to assist the financial markets with
much needed liquidity via careful lending to qualified borrowers.
At
December 31, 2011, we had approximately $2.67 billion in assets, $1.98 billion in total loans, and $2.02 billion in deposits. We also have expanded and
diversified our business geographically by focusing on the continued development of the East Coast market.
2011 Key Performance Indicators
We believe the following were key indicators of our operations during 2011:
-
•
-
Our total assets decreased to $2.7 billion at the end of 2011, or a decrease of 9.2% from $3.0 billion at
the end of 2010.
-
•
-
Our total deposits decreased to $2.2 billion at the end of 2011, or a decrease of 10.5% from $2.5 billion at
the end of 2010.
60
Table of Contents
-
•
-
Our total loans decreased to $2.0 billion at the end of 2011, or a decrease of 14.8% from $2.3 billion at
the end of 2010.
-
•
-
Total net interest income before provision for loan losses decreased to $107.4 million in 2011, or a decline of
5.6%, from $113.7 million in 2010. The decrease in net interest income was a result of decrease in total loans, our largest source of interest income.
-
•
-
Provision for losses on loans and loan commitments decreased from $150.8 million at December 31, 2010, to
$59.1 million at December 31, 2011, a decrease of $91.7 million or 60.8%.
-
•
-
Total noninterest income decreased to $23.8 million in 2011, a decrease of 33.7% from $35.9 million in 2010.
The decrease in noninterest income was due to the reduction in gains from the sale of investments in addition to an increase in valuation allowance on held-for-sale loans.
-
•
-
Total noninterest expense increased to $68.8 million in 2011 or 2.1% from $67.4 million in 2010. The
increase is mainly due to an increase in professional fees and in particular legal fees related to credit quality issues.
Net
loss available for common shareholders for 2011 increased to a loss of $34.0 million or $0.61 per basic and diluted common share, compared with a net loss of
$38.4 million, or $1.30 per basic and diluted common share in 2010. The increase in net income was primarily attributable to a decrease in provisions for losses on loans and loan commitments in
2011. Compared to 2010, provisions decreased by $91.7 million to $59.1 million in 2011. The decrease in provisions helped to offset the $33.6 million in tax expenses mainly due to
the valuation allowance expense recorded in the first quarter of 2011. The decrease in provisions for losses on loans and loan commitments is a result of improvement in credit quality and a reduction
in problem loan sales in 2011 compared to 2010.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon our financial statements, and has been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments
that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results
may differ from these estimates under different assumptions or conditions.
Various
elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions, and other subjective assessments. In particular, we
have identified several accounting policies that, due to judgments, estimates, and assumptions inherent in those policies are critical to an understanding of our consolidated financial statements.
These policies relate to the classification and valuation of investment securities, the methodologies that determine our allowance for loan losses, the treatment of non-accrual loans, the
valuation of properties acquired through foreclosure, the valuation of retained interests and mortgage servicing assets related to the sales of SBA loans, and the treatment and valuation of
stock-based compensation and business combination. In each area, we have identified the variables most important in the estimation process. We have used the best information available to make the
estimates necessary to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in the key variables could change future valuation and impact net
income.
61
Table of Contents
Investment Securities
Our investment policy seeks to provide and maintain liquidity, and to produce favorable returns on investments without incurring
unnecessary interest rate or credit risk, while complementing our lending activities. Our investment securities portfolio is subject to interest rate risk. Fluctuations in interest rates may cause
actual prepayments to vary from the estimated prepayments over the life of a security. This may result in adjustments to the amortization of premiums or accretion of discounts related to these
instruments, consequently changing the net yield on such securities. Reinvestment risk is also associated with the cash flows from such securities. The unrealized gain/loss on such securities may also
be adversely impacted by changes in interest rates.
Under
ASC 320-10, investment securities that management has the positive intent and ability to hold-to-maturity are classified as
"held-to-maturity" and recorded at amortized cost. Securities not classified as held-to-maturity or trading, with readily determinable fair values, are
classified as "available-for-sale" and recorded at fair value. Purchase premiums and discounts are recognized in interest income using the interest method over the estimated
lives of the securities.
The
classification and accounting for investment securities are discussed in detail in Notes 1 and 4 of the footnotes to the consolidated financial statements presented elsewhere
in this report. Under ASC 320-10, investment securities generally must be classified as held-to-maturity, available-for-sale, or trading.
The appropriate classification is based partially on our ability to hold the securities to maturity and largely on management's intentions with respect to either holding or selling the securities. The
classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities flow
directly through earnings during the periods in which they arise. Investment securities that are classified as held-to-maturity are recorded at amortized cost. Unrealized gains
and losses on available-for-sale securities are recorded as a separate component of shareholders' equity (accumulated other comprehensive income or loss) and do not affect
earnings until realized or deemed to be other-than-temporarily impaired. The fair values of investment securities are generally determined by reference to market prices
obtained from an independent external pricing service provider. In obtaining such valuation information from third parties, we have evaluated the methodologies used to develop the resulting fair
values. We perform an analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited
to,
initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. We ensure whether prices received from independent brokers
represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if
we determine there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. Prices from third party pricing services are
often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions.
We
are obligated to assess, at each reporting date, whether there is an other-than-temporary impairment to our investment securities. Impairments related to
credit issued must be recognized in current earnings rather than in other comprehensive income. The determination of other-than-temporary impairment is a subjective process
involving assessment of valuation and changes in such valuations resulting from deteriorating credit worthiness. We examine all individual securities that are in an unrealized loss position at each
reporting date for other-than-temporary impairment. Specific investment-related factors we examine to assess impairment include the nature of the investment, severity and
duration of the loss, the probability that we will be unable to collect all amounts due, and analysis of the issuers of the securities and whether there has been any cause for default on the
securities and any change in the rating of the securities by the various rating agencies. Additionally, we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash
flows into question. We reexamine the financial resources, intent, and the overall ability of the
62
Table of Contents
Company
to hold the securities until their fair values recover. Management does not believe that there are any investment securities, other than those identified in the current and previous periods,
which are deemed to be other-than-temporarily impaired as of December 31, 2011. Investment securities are discussed in more detail in Note 1 and 4 in the
footnotes to our consolidated financial statements presented later in this report.
As
required under Financial Accounting Standards Board ("FASB") ASC 320-10-35-18, we consider all available information relevant to the collectability
of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of future cash flows and making
other-than-temporary impairment assessment for our portfolio of residual securities and pooled trust preferred securities. We consider factors such as remaining payment terms
of the security, prepayment speeds, and the financial condition of the issuer(s), expected defaults, and the value of any underlying collateral.
As
of December 31, 2011 and December 31, 2010, no investment securities were determined to have any other-than-temporary impairment. The unrealized
losses on our government sponsored enterprises ("GSE") bonds, collateralized mortgage obligations ("CMOs"), and
mortgage-backed securities ("MBS") are attributable to both changes in interest rates and a repricing risk in the market. All GSE bonds, GSE CMO, and GSE MBS securities are backed by U.S. Government
Sponsored and Federal Agencies and therefore rated "AAA." We have no exposure to the "Subprime Market" in the form of Asset Backed Securities ("ABS") and Collateralized Debt Obligations ("CDOs") that
had previously been rated "AAA" but have since been downgraded to below investment grade. We have the intent and ability to hold the securities in an unrealized loss position at December 31,
2011 and 2010 until the market value recovers or the securities mature.
Municipal
bonds and corporate bonds are evaluated by reviewing the creditworthiness of the issuer and general market conditions. The unrealized losses on our investment in municipal and
corporate securities were primarily attributable to both changes in interest rates and a repricing risk in the market. We do not intend to sell the municipal bonds and it is more likely than not that
we will not be required to sell the securities before recovery of the amortized cost basis as of December 31, 2011.
Small Business Administration Loans
Certain SBA loans that may be sold prior to maturity have been designated as held-for-sale at origination and
are recorded at the lower of cost or market value, determined on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are
charged or credited for valuation adjustments. When we sell a loan, we usually sell the guaranteed portion of the loan and retain the non-guaranteed portion. We receive sales proceeds
from: (i) the guaranteed principal of the loan, (ii) the deferred premium for the difference between the book value of the retained portion and the fair value allocated to the retained
portion, and (iii) the loan excess servicing fee ("ESF"). At the time of sale, the deferred premium, which is amortized over the remaining life of the loan as an adjustment to yield, is
recorded for the difference between the book value and the fair value allocated to the retained portion. The sales gain is recognized from the difference between the proceeds and the book value
allocated to the sold portion.
We
allocate the book value of the related loans among three portions on the basis of their relative fair value: (i) the sold portion, (ii) the retained portion, and
(iii) the ESF. We estimate the fair value of each portion based on the following. The amount received for the sale represents the fair value of the sold portion. The fair value of the retained
portion is computed by discounting its future cash flows over the estimated life of the loan. We calculate the fair value of the ESF for the loan from the cash in-flow of the net servicing
fee over the estimated life of the loan, discounted at an above average discount rate and a range of constant prepayment rates of the related loans.
63
Table of Contents
We
capitalize the fair value allocated to ESF in two categories: (i) intangible servicing assets (the contracted servicing fee less normal servicing costs), and
(ii) interest-only strip, or "I/O strip," receivables (excess of ESF over the contracted servicing fee). The servicing asset is recorded based on the present value of the
contractually specified servicing fee, net of servicing cost, over the estimated life of the loan, with an average discount rate and a range of constant prepayment rates of the related loans. Prior to
December 31, 2006, the servicing asset was amortized in proportion to and over the period of estimated servicing income. For purposes of measuring impairment, the servicing assets are
stratified by collateral types. Management periodically evaluates the fair value of servicing assets for impairment. A valuation allowance is recorded when the fair value is below the carrying amount
and a recovery of the valuation allowance is recorded when its fair value exceeds the carrying amount. However, a reversal may not exceed the original valuation allowance recorded. On
January 1, 2007, we adopted ASC 860-50 and selected a fair value measurement method to measure our servicing assets and liabilities and recognized a onetime increase in their fair
value of $80,000, net of tax effects. Any subsequent increase or decrease in fair value of servicing assets and liabilities is to be included in our current earnings in the statement of operations. An
interest-only strip is recorded based on the present value of the excess of future interest income, over the contractually specified servicing fee, calculated using the same assumptions as
noted above. Interest-only strips are accounted for at their estimated fair values, with unrealized gains recorded as an adjustment in accumulated other comprehensive income in
shareholders' equity. If the estimated fair value is less than its carrying value, the loss is considered as other-than-temporary impairment and it is charged to the current
earnings.
Allowance for Loan Losses
Accounting for the allowance for loan losses involves significant judgment and assumptions by management and is based on historical
data and management's view of the current economic environment. At least on a quarterly basis, our management reviews the methodology and adequacy of the allowance for loan losses and reports its
assessment to the Board of Directors for its review and approval.
We
base our allowance for loan losses on an estimate of probable losses in our loan portfolio. Our methodology for assessing loan loss allowances is intended to reduce the differences
between estimated and actual losses and involves a detailed analysis of our loan portfolio in three phases:
-
•
-
the specific review of individual loans in accordance with ASC 310-10
-
•
-
the segmenting and reviewing of loan pools with similar characteristics in accordance with ASC 450-10, and
-
•
-
our judgmental estimate based on various qualitative factors.
The
first phase of our allowance analysis involves the specific review of individual loans to identify and measure impairment. At this phase, we evaluate each loan except for homogeneous
loans, such as automobile loans and home mortgages. Specific risk-rated loans are deemed impaired with respect to all amounts, including principal and interest, which will likely not be
collected in accordance with the contractual terms of the related loan agreement. Impairment for commercial and real estate loans is measured either based on the present value of the loan's expected
future cash flows or, if collection on the loan is collateral dependent, the estimated fair value of the collateral, less selling and holding costs.
The
second phase involves segmenting the remainder of the risk-rated loan portfolio into groups or pools of loans, together with loans with similar characteristics for
evaluation in accordance with ASC 450-10. We perform loss migration analysis and calculate the loss migration ratio for each loan pool based on its historical net losses and benchmark it
against the levels of other peer banks.
In
the third phase, we consider relevant internal and external factors that may affect the collectability of a loan portfolio and each group of loan pools. As a general rule, the factors
listed
64
Table of Contents
below
will be considered to have no impact to our loss migration analysis. However, if information exists to warrant adjustment to the loss migration ratios, the changes will be made in accordance
with the established parameters and supported by narrative and/or statistical analysis. We use a credit risk matrix to determine the impact to the loss migration analysis. This matrix enables
management to adjust the general allocation based on the loss migration ratio. The factors currently considered are, but are not limited to: concentration of credit, delinquency trend, nature and
volume of loan trend, non-accrual and problem loan trends, loss and recovery trend, quality loan review, lending and management staff, lending policies and procedures, and external factors
such as changes in legal and regulatory requirements, on the level of estimated credit losses in the current portfolio. For all factors, the extent of the adjustment will be commensurate with the
severity of the conditions that concern each factor. The evaluation of the inherent loss with respect to these factors is subject to a
higher degree of uncertainty because they are not identified with specific problem credits or portfolio components.
Central
to our credit risk management and our assessment of appropriate loss allowance is our loan risk rating system. Under this system, the originating credit officer assigns borrowers
an initial risk rating based on a thorough analysis of each borrower's financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit
risk specific to the transaction and are reviewed for appropriateness by senior line and credit administration personnel. Credits are monitored by line and credit administration personnel for
deterioration in a borrower's financial condition which may impact the ability of the borrower to perform under the contract. Although management has allocated a portion of the allowance to specific
loans, specific loan pools, including off-balance sheet credit exposures which are reported separately as part of other liabilities, the adequacy of the allowance is considered in its
entirety.
Non-Accrual Loan Policy
Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is discontinued when a
loan is over 90 days delinquent unless management believes the loan is adequately collateralized and in the process of collection. Generally, payments received on nonaccrual loans are recorded
as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest
accruals.
Held-For-Sale Loans
Pursuant to ASC 310-10 a long lived asset to be sold is classified as held-for-sale when all of the
following criteria are met;
-
a.
-
Management
has authority to approve and commit to selling the asset
-
b.
-
The
asset is immediately available-for-sale
-
c.
-
A
plan to sell has been completed including actively locating buyers
-
d.
-
The
sale is probable within 1 year and is expected to qualify as a sale
-
e.
-
The
asset is actively being marketed for sale at a reasonably price
-
f.
-
The
plan to sell indicates it is unlikely that significant change to the plan will be made or the plan will be withdrawn.
If
the Company has the intention to sell a note and if all of the criteria above are met, then the loan is be categorized as held-for-sale as of the date the
decision is made. Once classified as "held-for-sale", the loan is measured at the lower of its carrying amount or fair value. Provisions and reserves are recorded to reflect a
decline in fair value if the fair value is less than the loan carrying amount. Any subsequence decline or increase in fair value for held-for-sale loans are accounted for as
65
Table of Contents
an
increase or decrease in valuation allowance for held-for-sale loans which directly affects earnings. When a classified as held-for-sale, the discount
or premium is not amortized, but interest and expenses related to the note continue to be accrued. Loans transferred to held-for-sale continue to be recorded the same past due
and nonaccrual treatment as other loans, if necessary. A valuation allowance may be recorded on loans categorized as held-for-sale and not sold in subsequent quarters if the
value of the loan or underlying property declines based on quoted prices or appraisals.
Once
a loan has been sold, the difference between the purchase price and the fair value is measured against net income as a gain or loss on sale of loans.
Valuation of Other Real Estate Owned
Other real estate owned ("OREO"), which represents real estate acquired through foreclosure, or deed in lieu of foreclosure in
satisfaction of commercial and real estate loans, is carried at the estimated fair value less the selling costs of the real estate. The fair value of the property is based upon a current appraisal.
The difference between the fair value of the real estate collateral and the loan balance at the time of transfer is recorded as a loan charge-off if fair value is lower than the loan
balance. Subsequent to foreclosure, management periodically performs valuations and the OREO property is carried at the lower of carrying value or fair value, less cost to sell. The determination of a
property's estimated fair value incorporates (i) revenues projected to be realized from disposal of the property, (ii) construction and renovation costs, (iii) marketing and
transaction costs, and (iv) holding costs (
e.g.
, property taxes, insurance and homeowners' association dues). Any subsequent declines in the fair
value of the OREO property after the date of transfer are recorded through a write-down of the asset. Any subsequent operating expenses or income, reduction in estimated fair values, and
gains or losses on disposition of such properties are charged or credited to current operations.
Goodwill and Intangible Assets
We recognized goodwill and intangible assets in connection with the acquisition of Liberty Bank of New York, and from the Mirae Bank
acquisition. As of December 31, 2011 goodwill stood unchanged from the previous year at $6.7 million, all of which is related to the Liberty Bank acquisition located in the East Coast.
$1.6 million and $1.3 million, respectively, in core deposits intangibles were recorded as a result of the Liberty Bank and Mirae Bank acquisition. Core deposit intangibles had cost
bases of $664,000 and $656,000 related to the Liberty Bank and Mirae Bank transaction, respectively.
Goodwill
represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value
of the liabilities assumed. We recognized goodwill of approximately $6.7 million in connection with the acquisition of Liberty Bank of New York in 2006, currently our four East Coast branches.
Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the asset's fair value. The goodwill impairment analysis is a two-step test. The first step, used to identify potential
impairment, involves comparing the East Coast branches' estimated fair value to its carrying value, including goodwill. If the estimated fair value exceeds the carrying value, goodwill is considered
not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure for actual impairment, if any exists.
If
required, the second step involves calculating an implied fair value of goodwill. This fair value amount is determined in a manner similar to the way goodwill is calculated in a
business combination, by measuring the excess of the estimated fair value of the unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities
and identifiable intangibles as if the unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the
66
Table of Contents
carrying
value of goodwill, there is no impairment. If the carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess and a new basis is
established for goodwill. An impairment loss cannot exceed the carrying value of goodwill.
During
the fourth quarter of 2011, management performed an evaluation of goodwill related to the East Coast branches and concluded that there was no impairment of goodwill and that the
fair value of the East Coast branches exceeded its carrying value as of December 31, 2011. The determination was based on the Company's goodwill impairment analysis, which was performed in
accordance with ASC 350-20. The Company performed step 1 of the goodwill impairment which indicated that the fair value of the East Coast branches exceeded the carrying value. However,
certain assumptions used in step 1 of the goodwill impairment analysis had a degree of uncertainty as to future outcomes. Some of these key assumptions used in step 1 of the analysis included: future
growth assumptions of the East Coast branches, equity retention rates, and the estimated allowance for loan losses for the East Coast branches for future periods.
Management
ran sensitivity stress tests on certain assumptions used in step 1 of the goodwill impairment analysis stressing growth assumptions in addition to other factors used in the
step 1 analysis. Even under the stress scenarios, the fair value continued to excess the carry value of equity for the East Coast branches. Therefore, management concluded that goodwill related to the
East Coast branches was not impaired as of December 31, 2011, based on the results of the impairment analysis. The Company will continue to monitor the performance of the East Coast branches
and perform an analysis for goodwill impairment on an annual basis, or more frequently, as needed.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statements and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enacted date.
Generally,
income tax expense is the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is calculated by applying the current tax rate to
taxable income. Deferred tax expense is recorded as deferred tax assets (liabilities) change from year to year. Deferred income tax assets and liabilities represent the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that have been recognized in our financial statements. Because we traditionally recognize substantially more expenses in our
financial statements than we have been allowed to deduct for taxes, we generally have a net deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets when
it is more-likely—than-not that a portion or all of the deferred tax assets will not be realized. At December 31, 2011 we had no deferred tax assets due to
valuation allowance recorded during the year.
In
2007, we adopted the provision of FASB ASC 740-10-25 which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with ASC 740-10, "
Income Taxes".
ASC 740-10-25 provides that a tax benefit from an uncertain tax position
may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical
merits. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.
The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, results in
no tax benefit
67
Table of Contents
being
recorded. The Company recognized an increase in the liability for unrecognized tax benefit of $178,000 and related interest of $23,000 in 2011 and recognized an increase in the liability for
unrecognized tax benefit of $259,000 and related interest of $18,000 in 2010. As of December 31, 2011, the total unrecognized tax benefit that would affect the effective rate if recognized was
$543,000, and related interest was $55,000.
SBA Guaranteed Loan Sales
In December 2009, FASB issued Accounting Standards Update ("ASU") 2009-16
Accounting for Transfers
of Financial Assets
, to codify FASB 166. Statement 166 is revision to Statement No. 140
Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.
Codified at ASC 860-20, the guidance requires more information about transfer of financial assets, including
securitization transactions and where companies have continuing exposure to the risks related to transferred financial assets. The statement is to improve the relevance, representational faithfulness,
and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial
performance and cash flows, and a transferor's continuing involvement, if any, in transferred financial assets.
As
of January 1, 2010 (implementation date), the guidance changed the Company's categorization of SBA guaranteed portions of loans sold to third parties purchasers. Due to the
following recourse provisions, sales accounting was not applied to these transactions:
-
1.
-
If
borrower makes the first three payments required by the note after the warranty date (the date the agreement is settled by the Bank and Registered Holder
through FTA) in which they are due and the payments are the full amounts required by the note, the Bank has no liability to refund the premium.
-
2.
-
If
the borrower prepays the loan for any reason within the 90 days of the warranty date, the Bank must refund any premium received.
-
3.
-
If
the Bank fails to make the first three monthly payments due after the warranty date and the borrower enters uncured default within 275 calendar days from
the warranty date, the Bank shall refund any premium received. Borrower payments must be received by the Bank in the month in which they are due and must be full payments as defined in the Borrower's
note.
If
a transfer of a portion of a loan does not meet the participation definition, the transfer was treated as a secured borrowing with a pledge of collateral. Prior to the issuance of this statement,
SBA guaranteed portions sold to third parties were treated as loans before and after the sale of the loan as sales accounting treatment was applied. However under this guidance, we previously
classified SBA guaranteed portions of loans as secured borrowings and the recognition of gain on sale of SBA guaranteed loans was delayed by at least 90 days until the recourse provisions
expired, and during that
period, the loan balances were grossed-up and payment received were accounted for as secured borrowings.
As
of February 15, 2011, all guaranteed portions of SBA loans sold did not have any warranty or recourse periods. The Small Business Administration made changes to the sale of
guaranteed portions of SBA loans that effectively removed any recourse provisions and thereby immediately qualified any loans sold after February 15, 2011 as sales transactions.
68
Table of Contents
Results of Operations
Net Interest Income and Net Interest Margin
Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and
interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to
as volume changes. Our net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on our loans
are affected principally by the demand for such loans, the supply of money available for lending purposes, and competitive factors. Those factors are, in turn, affected by general economic conditions
and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, the governmental budgetary matters, and the actions of
the Federal Reserve Board.
Our
average net loans were $2.02 billion in 2011, as compared with $2.36 billion in 2010 and $2.22 billion in 2009, representing a decrease of 14.3% in 2011 and an
increase of 6.2% in 2010 from each of the prior annual periods. The decrease in loans in 2011 was largely a result of problem loan sales transaction throughout the year in addition to a decline in
loan originations. Average interest-earning assets were $2.50 billion in 2011, as compared with $3.06 billion in 2010 and $2.78 billion in 2009, representing a decrease of 18.2%
in 2011 and an increase of 9.8% in 2010 from each of the prior annual periods. Our average interest-bearing deposits decreased by 26.9% to $1.74 billion in 2011 and increased by 21.3% to
$2.38 billion in 2010, as compared with $1.96 billion in 2009. Together with other borrowings (see "Financial Condition—Deposits and Other Sources of Funds" below), average
interest-bearing liabilities decreased 23.7% to $1.99 billion in 2011 and increased by 10.5% to $2.61 billion in 2010, as compared with an increase of 29.7% to $2.36 billion in
2009.
Our
yields on interest-earnings assets were 5.24% in 2011, 5.16% in 2010, and 5.72% in 2009. Average yield on interest-earning assets decreased to 5.16% in 2010 compared to 5.72% in 2009
primarily due to loan interest income reversals as a result of an increase in non-accrual loans in 2010. As credit quality improved, total interest income reversal were reduced on
non-accrual loans which helped to increase yield on earnings assets to 5.24% for the twelve months ended December 31, 2011. Total interest income declined 16.9% in 2011 to
$130.0 million and declined 1.2% in 2010 to $156.4 million, down from $158.4 million in 2009. The decrease from 2010 to 2011 was largely related to the overall decline in loan
balances year over year. Interest expense meanwhile has continued to decline, decreasing 47.1% to $22.6 million in 2011 and 27.5% to $42.7 million in 2010, as compared with
$58.9 million in 2009. The decline in interest expense for 2010 and 2011 was attributable to a steady reduction in deposit rates throughout these periods.
The
combined result of our growth particularly in core deposits, and careful monitoring efforts with respect to cost of funds resulted in an increase in our net interest income in 2010.
However in 2011, the decline in total loans during the year resulted in a decline in total interest income resulting in a decline in our net interest income for 2011 compared with the previous year.
Net interest income before provision for losses on loan and loan commitments decreased 5.6%, or $6.3 million, to $107.4 million in 2011 and increased 14.3%, or $14.3 million, to
$113.7 million in 2010, following an increase of 20.4%, or $16.8 million, in 2009 to $99.5 million. As a result of our lowered cost of funds in 2011 and 2010, our net interest
spread increased from 3.22% in 2009 to 3.52% in 2010, and again increased to 4.10% in 2011. Net interest margin increased to 4.34% in 2011 compared to 3.76% in 2010 and 3.60% in 2009.
69
Table of Contents
The
following table sets forth, for the periods indicated, our average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest
income and net interest margin:
Distribution, Yield, and Rate Analysis of Net Income
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/
Yield
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/
Yield
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/
Yield
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
(1)
|
|
$
|
2,020,036
|
|
$
|
121,707
|
|
|
6.02
|
%
|
$
|
2,358,149
|
|
$
|
140,028
|
|
|
5.94
|
%
|
$
|
2,219,675
|
|
$
|
139,295
|
|
|
6.28
|
%
|
|
Securities of government sponsored enterprises
|
|
|
285,039
|
|
|
5,500
|
|
|
1.93
|
%
|
|
484,974
|
|
|
12,928
|
|
|
2.67
|
%
|
|
393,419
|
|
|
15,029
|
|
|
3.82
|
%
|
|
Other investment securities
(2)
|
|
|
43,241
|
|
|
1,677
|
|
|
6.00
|
%
|
|
43,025
|
|
|
1,798
|
|
|
6.79
|
%
|
|
35,786
|
|
|
1,544
|
|
|
6.29
|
%
|
|
Federal funds sold
|
|
|
149,709
|
|
|
1,080
|
|
|
0.72
|
%
|
|
169,461
|
|
|
1,666
|
|
|
0.98
|
%
|
|
133,811
|
|
|
2,486
|
|
|
1.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
2,498,025
|
|
|
129,964
|
|
|
5.24
|
%
|
|
3,055,609
|
|
|
156,420
|
|
|
5.16
|
%
|
|
2,782,691
|
|
|
158,354
|
|
|
5.72
|
%
|
|
Total non-interest-earning assets
|
|
|
260,763
|
|
|
|
|
|
|
|
|
287,803
|
|
|
|
|
|
|
|
|
204,674
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,758,788
|
|
|
|
|
|
|
|
$
|
3,343,412
|
|
|
|
|
|
|
|
$
|
2,987,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
$
|
590,198
|
|
$
|
5,291
|
|
|
0.90
|
%
|
$
|
880,618
|
|
$
|
11,755
|
|
|
1.33
|
%
|
$
|
584,054
|
|
$
|
13,842
|
|
|
2.37
|
%
|
|
Super NOW deposits
|
|
|
23,869
|
|
|
84
|
|
|
0.35
|
%
|
|
22,104
|
|
|
97
|
|
|
0.44
|
%
|
|
20,546
|
|
|
177
|
|
|
0.86
|
%
|
|
Savings deposits
|
|
|
89,582
|
|
|
2,487
|
|
|
2.78
|
%
|
|
77,484
|
|
|
2,380
|
|
|
3.07
|
%
|
|
55,639
|
|
|
1,932
|
|
|
3.47
|
%
|
|
Time deposits of $100,000 or more
|
|
|
658,862
|
|
|
6,345
|
|
|
0.96
|
%
|
|
745,139
|
|
|
10,370
|
|
|
1.39
|
%
|
|
944,012
|
|
|
23,145
|
|
|
2.45
|
%
|
|
Other time deposits
|
|
|
377,491
|
|
|
4,334
|
|
|
1.15
|
%
|
|
654,099
|
|
|
12,495
|
|
|
1.91
|
%
|
|
357,590
|
|
|
9,594
|
|
|
2.68
|
%
|
|
FHLB borrowings and other borrowings
|
|
|
163,227
|
|
|
2,057
|
|
|
1.26
|
%
|
|
142,759
|
|
|
3,124
|
|
|
2.19
|
%
|
|
312,009
|
|
|
7,073
|
|
|
2.27
|
%
|
|
Junior subordinated debenture
|
|
|
87,321
|
|
|
1,991
|
|
|
2.28
|
%
|
|
87,321
|
|
|
2,483
|
|
|
2.84
|
%
|
|
87,321
|
|
|
3,128
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
1,990,550
|
|
|
22,589
|
|
|
1.13
|
%
|
|
2,609,524
|
|
|
42,704
|
|
|
1.64
|
%
|
|
2,361,171
|
|
|
58,891
|
|
|
2.50
|
%
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing deposits
|
|
|
462,443
|
|
|
|
|
|
|
|
|
427,388
|
|
|
|
|
|
|
|
|
333,568
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
41,129
|
|
|
|
|
|
|
|
|
32,605
|
|
|
|
|
|
|
|
|
21,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
|
503,572
|
|
|
|
|
|
|
|
|
459,993
|
|
|
|
|
|
|
|
|
354,997
|
|
|
|
|
|
|
|
|
Shareholders' equity
|
|
|
264,666
|
|
|
|
|
|
|
|
|
273,895
|
|
|
|
|
|
|
|
|
271,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity
|
|
$
|
2,758,788
|
|
|
|
|
|
|
|
$
|
3,343,412
|
|
|
|
|
|
|
|
$
|
2,987,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
$
|
107,375
|
|
|
|
|
|
|
|
$
|
113,716
|
|
|
|
|
|
|
|
$
|
99,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
(3)
|
|
|
|
|
|
|
|
|
4.11
|
%
|
|
|
|
|
|
|
|
3.52
|
%
|
|
|
|
|
|
|
|
3.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin
(4)
|
|
|
|
|
|
|
|
|
4.34
|
%
|
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
loan fees have been included in the calculation of interest income. Net loan fees were approximately $3.41 million,
$2.83 million and, $2.69 million for the years ended December 31, 2011, 2010, and 2009, respectively. Loans are net of the allowance for loan losses, deferred fees, unearned
income, and related direct costs, and include loans placed on non-accrual status.
-
(2)
-
Represents
tax equivalent yields, non-tax equivalent yields for 2011, 2010, and 2009 were 3.88%, 4.18%, and 4.32%, respectively.
-
(3)
-
Represents
the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
-
(4)
-
Represents
net interest income as a percentage of average interest-earning assets.
70
Table of Contents
The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for interest-earning assets
and interest-bearing liabilities and the amount of change attributable to changes in average daily balances (volume) or changes in average daily interest rates (rate). All yields were calculated
without the consideration of tax effects, if any, and the variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amount of the changes in each:
Rate/Volume Analysis of Net Interest Income
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
2011 vs. 2010
Increases (Decreases)
Due to Change In
|
|
For the Year Ended December 31,
2010 vs. 2009
Increases (Decreases)
Due to Change In
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
(1)
|
|
$
|
(24,653
|
)
|
$
|
6,332
|
|
$
|
18,321
|
)
|
$
|
2,418
|
|
$
|
(1,685
|
)
|
$
|
733
|
|
|
Securities of government sponsored enterprises
|
|
|
(4,448
|
)
|
|
(2,980
|
)
|
|
(7,428
|
)
|
|
74
|
|
|
(2,175
|
)
|
|
(2,101
|
)
|
|
Other Investment securities
|
|
|
60
|
|
|
(181
|
)
|
|
(121
|
)
|
|
182
|
|
|
72
|
|
|
254
|
|
|
Federal funds sold
|
|
|
(178
|
)
|
|
(408
|
)
|
|
(586
|
)
|
|
(84
|
)
|
|
(736
|
)
|
|
(820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(29,219
|
)
|
|
2,763
|
|
|
(26,456
|
)
|
|
2,590
|
|
|
(4,524
|
)
|
|
(1,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
|
(3,239
|
)
|
|
(3,226
|
)
|
|
(6,465
|
)
|
|
503
|
|
|
(2,590
|
)
|
|
(2,087
|
)
|
|
Super NOW deposits
|
|
|
40
|
|
|
(53
|
)
|
|
(13
|
)
|
|
(5
|
)
|
|
(75
|
)
|
|
(80
|
)
|
|
Savings deposits
|
|
|
1,199
|
|
|
(1,092
|
)
|
|
107
|
|
|
432
|
|
|
16
|
|
|
448
|
|
|
Time deposit of $100,000 or more
|
|
|
(1,100
|
)
|
|
(2,926
|
)
|
|
(4,026
|
)
|
|
(4,188
|
)
|
|
(8,587
|
)
|
|
(12,775
|
)
|
|
Other time deposits
|
|
|
(4,199
|
)
|
|
(3,960
|
)
|
|
(8,159
|
)
|
|
3,177
|
|
|
(276
|
)
|
|
2,901
|
|
|
FHLB advances and other borrowings
|
|
|
2,408
|
|
|
(3,475
|
)
|
|
(1,067
|
)
|
|
(3,704
|
)
|
|
(245
|
)
|
|
(3,949
|
)
|
|
Junior subordinated debenture
|
|
|
—
|
|
|
(492
|
)
|
|
(492
|
)
|
|
—
|
|
|
(645
|
)
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(4,891
|
)
|
|
(15,224
|
)
|
|
(20,115
|
)
|
|
(3,785
|
)
|
|
(12,402
|
)
|
|
(16,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
(24,328
|
)
|
$
|
17,987
|
|
$
|
(6,341
|
)
|
$
|
6,375
|
|
$
|
7,878
|
|
$
|
14,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Net
loan fees have been included in the calculation of interest income. Net loan fees were $3.41 million, $2.83 million, and
$2.69 million for the years ended December 31, 2011, 2010, and 2009, respectively. Loans are net of the allowance for loan losses, deferred fees, unearned income, and related direct
costs, but include those placed on non-accrual status.
Provision for Loan Losses and Provision for Loan Commitments
In anticipation of credit risks inherent in our lending business and the recent ongoing financial crisis, we set aside allowances
through charges to earnings. Such charges were made not only for our outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of
credit. The charges made for our outstanding loan portfolio were credited to allowance for loan losses, whereas charges for off-balance sheet items were credited to the reserve for
off-balance sheet items, which are presented as a component of other liabilities.
Through
the enhancement of our loan underwriting standards, proactive credit follow-up procedures, and aggressive disposal of problem loans through charge-offs
and note sales, we experienced a substantial improvement in our overall credit quality related to the loan portfolio. Our provision for losses on loan and loan commitments decreased by 60.8% to
$59.1 million in 2011 and
71
Table of Contents
increased
119.8% to $150.8 million in 2010 from $68.6 million in 2009. The increase in provisions from 2009 to 2010 was largely a result of charge-offs related to note sales
as management sought to reduce the number of problem loans in the portfolio through sales transactions. The improvement in credit quality coupled with a reduction in overall loan
charge-offs resulted in a reduction in provision for loan losses from 2010 to 2011. The problem loan sales helped reduce non-performing and potential non-performing
loans from the portfolio reducing the need to continue to dispose of problem loans in the same manner in 2011.
Total
charge-offs in 2011 totaled $72.5 million compared to $109.2 million in 2010 and $36.7 million in 2009. Provision expense of $59.1 million
for 2011 included the recapture of provision for losses for loan commitments totaling $503,000 while the $150.8 million provision in 2010 was inclusive of
$1.4 million provision for losses on loan commitments, and the $68.6 million provision in 2009 included $1.3 million in provisions for loan commitments. The procedures for
monitoring the adequacy of the allowance for loan losses, as well as detailed information concerning the allowance itself, are described in the section entitled "Allowance for Loan Losses and Loan
Commitments" below.
Noninterest Income
Total noninterest income decreased to $23.8 million in 2011, compared to $35.9 million in 2010, and $57.3 million
in 2009. Noninterest income was 0.9% of average assets in 2011, decreased from 1.1% and 1.9% of average assets in 2010 and 2009, respectively. We currently earn noninterest income from various
sources, including deposit fees, gains from the sale of loans and securities, and income stream provided by bank owned life insurance, or BOLI, in the form of an increase in cash surrender value.
The
following table sets forth the various components of our noninterest income for the periods indicated:
Noninterest Income
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
For the Years Ended December 31,
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
|
Gain from acquisition of Mirae Bank
|
|
$
|
—
|
|
|
0.0
|
%
|
$
|
—
|
|
|
0.0
|
%
|
$
|
21,679
|
|
|
37.8
|
%
|
|
Service charges on deposit accounts
|
|
|
12,570
|
|
|
52.8
|
%
|
|
12,545
|
|
|
34.9
|
%
|
|
12,738
|
|
|
22.2
|
%
|
|
Gain on sale of loans, net
|
|
|
5,186
|
|
|
21.8
|
%
|
|
6,261
|
|
|
17.4
|
%
|
|
3,694
|
|
|
6.4
|
%
|
|
Loan-related servicing fees
|
|
|
4,615
|
|
|
19.4
|
%
|
|
4,163
|
|
|
11.6
|
%
|
|
3,703
|
|
|
6.5
|
%
|
|
Gain on sale or call of securities
|
|
|
99
|
|
|
0.4
|
%
|
|
8,782
|
|
|
24.5
|
%
|
|
11,158
|
|
|
19.5
|
%
|
|
Valuation of loans held-for-sale
|
|
|
(3,084
|
)
|
|
-13.0
|
%
|
|
—
|
|
|
0.0
|
%
|
|
—
|
|
|
0.0
|
%
|
|
Other income
|
|
|
4,419
|
|
|
18.6
|
%
|
|
4,161
|
|
|
11.6
|
%
|
|
4,344
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,805
|
|
|
100.0
|
%
|
$
|
35,912
|
|
|
100.0
|
%
|
|
57,316
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
2,758,788
|
|
|
|
|
$
|
3,343,412
|
|
|
|
|
$
|
2,987,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income as a % of average assets
|
|
|
|
|
|
0.9
|
%
|
|
|
|
|
1.1
|
%
|
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our
largest source of noninterest income in 2009 was the gain relating to the acquisition of Mirae Bank, which represented 37.8% of total noninterest income. There were no gains on
acquisition recorded in 2010 or 2011. The $21.7 million acquisition gain was recorded as a bargain purchase gain which resulted from the difference between the total fair value of assets
acquired in the amount of $395.6 million, less $373.9 million in fair value of liabilities acquired from the acquisition of Mirae Bank.
72
Table of Contents
Our
services charges on deposits was the largest source of noninterest income for 2011 and accounted for 52.8% of total noninterest income, and totaled $12.6 million,
$12.5 million and $12.7 million for the twelve months ended December 31, 2011, 2010, and 2009, respectively. Although total deposits declined from 2009 to 2011, service charges on
deposit accounts remained relatively unchanged. Increases in service charge fees in addition to an increase in analysis fee charges on demand deposit accounts helped to maintain consistent levels of
service charge income on deposit accounts. Analysis fees charges increased as total demand deposit accounts have increase year over year from 2009 to 2011. We constantly review service charge rates to
maximize service charge income while maintaining a competitive edge in our markets.
Net
gain on sale of loans, representing approximately 21.8% of our total noninterest income in 2011 was our next largest source of noninterest income. Gain on sale of loans increased
from $3.7 million in 2009 to $6.3 million in 2010, but then decreased to $5.2 million in 2011. The decrease is attributable to losses from the sale of problem loans in 2011 which
are included in gain on sale of loans and is netted out. Historically, this source of noninterest income was derived primarily from the sale of the guaranteed portion of SBA loans which are sold in
the secondary market for government securities while we retain the associated servicing rights. However in recent years, gains and losses from the sale of problem loans and mortgage loans became a
larger portion of the total gain on sale of loans.
Gains
from the sale of guaranteed portions of SBA loans totaled $10.9 million for 2011, compared to $5.7 million at the end of 2010, and $3.9 million at 2009. The
sale of problem loans resulted in a net loss of $6.0 million in 2011, compared to a gain of $105,000 in 2010, and a loss of $206,000 in 2009. Gains
from the sale of mortgage loans totaled $217,000, $425,000 and $35,000 for years ended 2011, 2010, and 2009, respectively.
Our
third largest source of noninterest income in 2011 was loan-related servicing fees, which represented approximately 19.4% of our total noninterest income. This fee income
consists of trade-financing fees and servicing fees on SBA loans sold. With our previous expansion of our trade-financing activities and the growth of our servicing loan portfolio, fee income has
generally increased year over year. In 2011, loan-related servicing fees increased to $4.6 million, as compared to $4.2 million in 2010 and $3.7 million in 2009. The
servicing fee income on sold loans is credited when we collect the monthly payments on the sold loans we are servicing and charged by the monthly amortization of servicing rights and interest only, or
I/O strips that we originally capitalized upon sale of the related loans. Such servicing rights and I/O strips are also charged against the loan service fee income account when the sold loans are paid
off.
Our
liquidity position in 2009 and 2010 was strengthened as a result of strong deposit growth particularly core deposits. Our liquidity strength allowed us to profit from gains on the
sale of securities. Gains from security sales and calls totaled $8.8 million in 2010 down from $11.2 million in 2009. Gain on sale or call of securities for 2011 was much smaller at
$99,000 as there were no investments sold during the year. We did not sell investment in 2011 as the reinvestment rate was very low compared to our portfolio yield and selling investment would have
put significant downward pressure on our net interest margin. As such we felt it more prudent to continue to earn interest income from these investments than to sell them for gains. The $99,000
represents gains that resulted from securities that were called during the year.
Valuation
of loans held-for-sale is recorded on loans previously categorized as held-for-sale which were not sold in subsequent quarters.
If the value of loans, or underlying properties, declines in value based on quoted prices or appraisals, a valuation allowance is recorded to reflect the reduction in value. Valuation allowance on
loans held-for-sale totaled $3.1 million in 2011 or 13.0% of total noninterest income. There was no recorded valuation allowance on loans
held-for-sale during 2010 or 2009. The bulk of the valuation allowance was recorded on problem loans categorized as held-for-sale during 2011.
73
Table of Contents
Other
non-interest income represented income from wire fees, insurance fees, other earning assets income, loan referral fees, SBA loan packaging fees, increase in cash
surrender value of BOLI, and other miscellaneous income. Other income increased to $4.4 million for 2011, compared to $4.2 million in 2010, and $4.3 million in 2009.
Noninterest Expense
Total noninterest expense increased to $68.8 million in 2011 from $67.4 million in 2010 and $57.4 million in 2009.
The increase in 2011 and 2010 compared to 2009 was due largely to increases in OREO expenses and professional fees, specifically audit and legal fees. These fees have increased each period as we
experienced deterioration in credit quality which in turn increased the cost related to OREO provisions and loss on sale of OREO. Legal fees increased due to the costs associated with foreclosures and
legal fees associated with non-performing loans, and legal costs from the internal investigation and class action lawsuit. Noninterest expense as percentage of average assets increased to
2.5% in 2011 from 2.0% in 2010 and 1.9% in 2009. The efficiency ratio at December 31, 2011 was 52.44%, increased from 45.03% for 2010 and 36.6% for 2009. The efficiency ratio for 2009 includes
a gain on purchase of Mirae Bank in noninterest income totaling $21.7 million. Without including the purchase gain in 2009, the efficiency ratio was 42.5%.
The
following table sets forth a summary of noninterest expenses for the periods indicated:
Noninterest Expense
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
For the Years Ended December 31,
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
|
Salaries and employee benefits
|
|
$
|
28,540
|
|
|
41.5
|
%
|
$
|
29,074
|
|
|
43.2
|
%
|
$
|
26,498
|
|
|
46.2
|
%
|
|
Occupancy and equipment
|
|
|
7,826
|
|
|
11.4
|
%
|
|
7,984
|
|
|
11.8
|
%
|
|
7,456
|
|
|
13.0
|
%
|
|
Professional fees
|
|
|
6,709
|
|
|
9.8
|
%
|
|
5,009
|
|
|
7.4
|
%
|
|
2,337
|
|
|
4.1
|
%
|
|
Regulatory assessment fee
|
|
|
3,945
|
|
|
5.7
|
%
|
|
4,523
|
|
|
6.7
|
%
|
|
4,780
|
|
|
8.3
|
%
|
|
Net loss on sale of OREO
|
|
|
3,053
|
|
|
4.4
|
%
|
|
2,073
|
|
|
3.1
|
%
|
|
(416
|
)
|
|
-0.7
|
%
|
|
Data processing
|
|
|
2,892
|
|
|
4.2
|
%
|
|
2,721
|
|
|
4.0
|
%
|
|
3,969
|
|
|
6.9
|
%
|
|
Low income housing tax credit investment losses
|
|
|
2,454
|
|
|
3.6
|
%
|
|
2,282
|
|
|
3.4
|
%
|
|
—
|
|
|
0.0
|
%
|
|
Advertising and promotional
|
|
|
1,222
|
|
|
1.8
|
%
|
|
1,382
|
|
|
2.1
|
%
|
|
1,143
|
|
|
2.0
|
%
|
|
Outsourced service for customer
|
|
|
909
|
|
|
1.3
|
%
|
|
1,028
|
|
|
1.5
|
%
|
|
1,135
|
|
|
2.0
|
%
|
|
Other operating expenses
|
|
|
11,235
|
|
|
16.3
|
%
|
|
11,300
|
|
|
16.8
|
%
|
|
10,467
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
68,785
|
|
|
100.0
|
%
|
|
67,376
|
|
|
100.0
|
%
|
|
57,369
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
2,758,788
|
|
|
|
|
$
|
3,343,412
|
|
|
|
|
$
|
2,987,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense as a % of average assets
|
|
|
|
|
|
2.5
|
%
|
|
|
|
|
2.0
|
%
|
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits historically represented more than half of our total noninterest expense and generally increases as our branch network and business volume expands.
However, in the last few years, salaries and benefits accounted for less than half of total noninterest expense and decreased further to 41.5% in 2011 as other noninterest expense increased.
Additional staffing was necessitated by our new office and branch openings, business growth, and the acquisition of Mirae Bank in 2009 and 2010. However, by 2010, we successfully controlled and
maintained our total number of employees through effective allocation of our human resources. The number of full-time equivalent employees decreased to 376 at the end of 2011, as compared
with 392 and 400 in 2010 and 2009,
74
Table of Contents
respectively.
With decrease in employees in 2011, salaries and employee benefits decreased to $28.5 million for 2011, as compared with $29.1 million for 2010 and $26.5 million for
2009, representing a decrease of 1.8% in 2011. Assets per employee stood at $7.2 million for 2011, a decrease from $7.6 million for 2010 and $8.6 million in 2009.
Occupancy
and equipment expenses represent approximately 11.4% of total noninterest expenses and totaled $7.8 million in 2011, $8.0 million in 2010, and $7.5 million
in 2009. Occupancy and equipment expenses declined by 2.0% in 2011 compared to an increase of 7.1% in 2010 from 2009. The increase in 2010 was attributable to the expansion of our office network and
the additional office space and lease expenses for our new California and New York branch offices opened in 2009 and 2010.
Professional
fees generally increase as we grow and we expect these expenditures continue to be significant, as we address the enhanced SEC and NASDAQ corporate governance requirements
and the local regulation of the states into which we expand our business operations. Professional fees were $6.7 million, $5.0 million, and $2.3 million, or 9.8%, 7.5%, and 4.1%
of total noninterest expense, in 2011, 2010, and 2009, respectively. Professional fees increased by $2.7 million from 2009 to 2010 as a result of an increase in legal fees totaling
$3.0 million. The $1.7 million increase from 2010 to 2011 was mostly due to a large increase in accounting and auditing fees which increased by $1.1 million during 2011. Legal
fees also increased as a result of credit quality issues, our internal investigation, and costs related to the class action lawsuit.
Regulatory
assessment fee expenses represent FDIC insurance premium assessments. In 2011, these expenses decreased to $3.9 million, or 5.7% of total noninterest expense, from
$4.5 million in 2010, and $4.8 million in 2009. Deposit insurance premiums decreased $578,000 in 2011 compared to 2010 due to the decrease in deposits and change in assessment
calculation. As a result of the Dodd Frank Act, the method of calculating the FDIC insurance premium assessment has changed to a calculation which is based on an institution's average consolidated
total assets less average tangible equity, whereas previously the calculation was based on total domestic deposits of an institution.
Net
loss on sale of OREO totaled $3.1 million for 2011, or 4.4% of total non-interest expense. Net loss on sale of OREO for 2010 totaled $2.1 million and there
was a gain on net OREO sales of $416,000 in 2009. The increase in loss on sale of OREO from 2009 to 2010 and then to 2011 is primarily due to the increase in loan foreclosures to OREO and OREO sales
transactions that resulted from the credit deterioration experienced in the loan portfolio. With improvement in credit quality and reduction in OREOs, we expect these expenses to decline in the
subsequent year.
Data
processing expenses increased to $2.9 million which represent 4.2% of total noninterest expense for 2011. This compares to data processing expenses of $2.7 million in
2010 and $4.0 million in 2009. The increase in data processing expenses in 2009 corresponded to the growth of our business as a
result of the acquisition of Mirae Bank. One-time costs associated with the acquisition were expensed in 2009 as well. Data processing fees were decreased in 2010 due to the absence of
further one-time costs in addition to the streamlining of Mirae Bank data. However, these expenses increased by $171,000 in 2011 compared to 2010.
Loss
on investment in low income housing tax credit ("LIHTC") investments represented 3.6% of total noninterest expenses and totaled $2.5 million in 2011. This compares with
$2.3 million in expense for 2010 and no related expense in 2009. The Company uses equity method when accounting for partnership interest. The loss is related to current period losses allocated
from the equity method of valuation in 2011.
Advertising
and promotional expenses decreased to $1.2 million in 2011 after having increased to $1.4 million in 2010 from $1.1 million in 2009. Advertising and
promotional expenses represented 1.8% of total noninterest expense for 2011. These expenses represent marketing activities, such as media advertisements and promotional gifts for customers of newly
opened offices, especially in relatively new
75
Table of Contents
areas
such as the East Coast market in New York and New Jersey. The expenses have remained fairly steady with no large fluctuations from 2009 to 2011.
Outsourced
service costs for customers are payments made to third parties who provide services that were traditionally provided by banks to their customers, such as armored car services
or bookkeeping services, and are recouped from the earnings credits earned by the respective depositors on their balances maintained with us. Due mainly to the increase in service activities and the
increase in depositors demanding such services, our outsourced service costs generally rise in proportion with our business growth. Nonetheless, with our successful cost control measures and decrease
in deposit balances, these expenses decreased to $909,000 in 2011 as compared to $1.0 million in 2010 and $1.1 million in 2009.
All
other noninterest expenses, made up of post-retirement benefit costs, office supplies, loan fees, director fees, and other expenses decreased by $41,000, or 0.4%, to
$11.2 million in 2011 from $11.3 million in 2010. During 2010 other noninterest expense increased $833,000 or 8.0% from $10.5 million in 2009. A portion of the increase in 2010
represents a normal growth in association with the growth of our business activities and was in line with our expectation. However, approximately $900,000 was expensed in 2009 as a result of
operational losses at our branches and in 2010 other loan expenses totaled $860,000, an increase of $780,000 from 2009.
Provision for Income Taxes
For the year ended December 31, 2011, we had an income tax expense of $33.6 million on pretax net income of
$3.3 million, representing an effective tax rate of 1020%, as compared with tax benefits of $33.8 million on pretax net loss of $68.5 million, representing an effective tax rate
of 49.3% for 2010, and a provision of $10.7 million on pretax net income of $30.8 million, representing an effective tax rate of 34.7% for 2009.
The
effective tax rate increased significantly in 2011 compared to 2010 and 2009, due primarily to a deferred tax asset valuation allowance recorded as of December 31, 2011. The
Company did not realize state tax benefits derived from doing business in an enterprise zone and low income housing tax credit funds. The Company, however, was able to partially realize federal tax
benefit from low income housing tax credit funds (see "Other Earning Assets" for further discussion).
Generally,
income tax expense is the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is calculated by applying the current tax rate to
taxable income. Deferred tax expense is recorded as deferred tax assets (liabilities) change from year to year. Deferred income tax assets and liabilities represent the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that have been recognized in our financial statements. Because we traditionally recognize substantially more expenses in our
financial statements than we have been allowed to deduct for taxes, we generally have a net deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets when
it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized.
During
the first quarter of 2011, the Company reviewed its analysis of whether a valuation allowance should be recorded against its deferred tax assets. The determination of whether a
deferred tax asset is realizable is based on weighting all available evidence that can be objectively verified. The estimated realization period for the deferred tax asset based on forecasts of future
earnings extended further into 20-year carry-forward period. This extended realization period, combined with the objective evidence of three-year cumulative loss position
represented significant negative evidence that caused the Company to conclude that a full valuation allowance was required against the deferred tax asset as of March 31, 2011 except for the
portion that could be realized through two year carryback of net operating losses at that time. During the subsequent periods in 2011, the Company realized taxable income which effectively adjusted
the deferred tax valuation allowance. As of December 31, 2011,
76
Table of Contents
valuation
allowance for deferred tax asset was $41.3 million and these remaining deferred tax asset valuation allowance will ultimately reverse through income tax expense if the Company can
demonstrate a sustainable return to profitability that would lead management to conclude that it is more-likely-than-not that the deferred tax asset will be
utilized during the carry-forward period. As of December 31, 2011 the Company has taken full valuation allowance and had net deferred tax assets $0 million. As of December 31,
2010 and 2009, we had net deferred tax assets of $46.4 million and $18.7 million, respectively.
On
January 1, 2007, we adopted the provisions of ASC 740-10, "
Accounting for Uncertainty in Income Taxes
". As a result
of applying the provisions of ASC 740-10, we recognized an increase in the liability for unrecognized tax benefit of $172,000 and no related interest. As of December 31, 2011, the
total unrecognized tax benefit that would affect the effective rate if recognized was $543,000. The adjustment was solely related to the state exposure from California Enterprise Zone net interest
deductions. We do not expect the unrecognized tax benefits to change significantly over the next 12 months.
As
of the December 31, 2011, the total accrued interest related to uncertain tax positions was $55,000. We accounted for interest related to uncertain tax positions as part of our
provision for federal and state income taxes.
We
file United States federal and state income tax returns in jurisdictions with varying statues of limitations. The 2007 through 2011 tax years generally remain subject to examination
by federal and most state tax authorities. As of December 31, 2011 the Company is under examination by the New York State Department of Taxation and Finance for the 2005, 2006, and 2007 tax
years. Examinations for the 2007 and 2008 tax years under the California Franchise Tax Board are ongoing as well. We believe that we have adequately provided or paid for income tax issues not yet
resolved with federal, state and foreign tax authorities. Based upon consideration of all relevant facts and circumstances, we do not expect the examination results will have a material impact on our
consolidated financial statement as of December 31, 2011.
Financial Condition
Investment Portfolio
Investments are one of our major sources of interest income and are acquired in accordance with a comprehensively written investment
policy addressing strategies, categories, and levels of allowable investments. This investment policy is reviewed at least annually by the Board of Directors. Management of our investment portfolio is
set in accordance with strategies developed and overseen by our Asset/Liability Committee. Investment balances, including cash equivalents and interest-bearing deposits in other financial
institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk management objectives. Our liquidity levels take into consideration anticipated future
cash flows and all available sources of credits and is maintained a level management believes is appropriate for future flexibility in meeting anticipated funding needs.
We sell federal funds, purchase securities under agreements to resell and high-quality money market instruments, and
deposit interest-bearing accounts in other financial institutions to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of
December 31, 2011, 2010, and 2009, we had $170.0 million, $130.0 million, and $80.0 million, respectively, in overnight and term federal funds sold. We did not have any
interest bearing deposits in other financial institutions as of December 31, 2011, 2010, or 2009.
77
Table of Contents
Management of our investment securities portfolio focuses on providing an adequate level of liquidity and establishing a balanced
interest rate-sensitive position, while earning an adequate level of investment income without taking undue risks. As of December 31, 2011, our investment portfolio was primarily
comprised of United States government agency securities, accounting for 81.7% of the entire investment portfolio. Our U.S. government agency securities holdings are all "prime/conforming" mortgage
backed securities, or MBS, and collateralized mortgage obligations, or CMOs, guaranteed by FNMA, FHLMC, or GNMA. GNMAs are considered equivalent to U.S. Treasury securities, as they are backed by the
full faith and credit of the U.S. government. Currently, there are no subprime mortgages in our investment portfolio. Besides the U.S. government agency securities, we also have a 7.6% investment in
corporate debt and 10.7% in municipal debt securities. Among this 18.3% of our investment portfolio that was not comprised of U.S. government securities, 55.1%, or $32.3 million carry the top
two highest "Investment Grade" rating of "Aaa/AAA" or "Aa/AA", while 42.5%, or $25.2 million, carry an upper-medium "Investment Grade" rating of at least "A/A", and 2.4%, or
$1.4 million, is unrated. Our investment portfolio does not contain any government sponsored enterprises, or GSE, preferred securities or any distressed corporate securities that had required
other-than-temporary-impairment charges as of December 31, 2011. In accordance with ASC 320-10-65-1,
"Recognition and Presentation of Other-Than-Temporary Impairments",
an other-than-temporary
impairment
("OTTI") is recognized if the fair value
of a debt security is lower than the amortized cost and if the debt security will be sold, it is more-likely-than-not that it will be required to sell the security
before recovering the amortized cost or it is expected that not all of the amortized cost will be recovered. Credit related declines in the fair value of debt securities below their amortized cost
that are deemed to be other-than-temporary are reflected in earnings as realized losses in the consolidated statements of operations. Declines related to factors aside from
credit issues are reflected in other comprehensive income, net of taxes.
We
classified our investment securities as "held-to-maturity" or "available-for-sale" pursuant to ASC 320-10. We adopted ASC
820-10 and ASC 470-20 effective January 1, 2008, and ASC 820-10-35 effective October 10, 2008. Pursuant to the fair value election option
of ASC 470-20, we have chosen to continue classifying our existing instruments of investment securities as "held-to-maturity" or
"available-for-sale" under ASC 320-10. Investment securities that we intend to hold until maturity are classified as held-to-maturity
securities, and all other investment securities are classified as available-for-sale. The carrying values of available-for-sale investment securities
are adjusted for unrealized gains and losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. Credit related
declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses, and there were no such other-than-temporary-impairment in 2011. The fair market
values of our held-to-maturity and available-for-sale securities were respectively $70,000 and $320.1 million as of December 31, 2011.
78
Table of Contents
The
following table summarizes the book value and market value and distribution of our investment securities as of the dates indicated:
Investment Securities Portfolio
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
Amortized
Cost
|
|
Market
Value
|
|
Amortized
Cost
|
|
Market
Value
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
66
|
|
$
|
70
|
|
$
|
85
|
|
$
|
89
|
|
$
|
109
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities held-to-maturity
|
|
$
|
66
|
|
$
|
70
|
|
$
|
85
|
|
$
|
89
|
|
$
|
109
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government sponsored enterprises
|
|
$
|
—
|
|
$
|
—
|
|
$
|
35,953
|
|
$
|
36,220
|
|
$
|
156,879
|
|
$
|
155,382
|
|
|
Mortgage backed securities
|
|
|
13,659
|
|
|
14,475
|
|
|
18,129
|
|
|
18,907
|
|
|
131,617
|
|
|
131,711
|
|
|
Collateralized mortgage obligations
|
|
|
241,635
|
|
|
246,881
|
|
|
222,778
|
|
|
225,114
|
|
|
318,531
|
|
|
319,554
|
|
|
Corporate securities
|
|
|
24,646
|
|
|
24,414
|
|
|
2,000
|
|
|
2,021
|
|
|
2,000
|
|
|
2,017
|
|
|
Municipal securities
|
|
|
32,411
|
|
|
34,294
|
|
|
34,779
|
|
|
34,360
|
|
|
42,068
|
|
|
42,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
312,351
|
|
$
|
320,064
|
|
$
|
313,639
|
|
$
|
316,622
|
|
$
|
651,095
|
|
$
|
651,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes the maturity and repricing schedule of our investment securities at their carrying values at December 31, 2011:
Investment Maturities and Repricing Schedule
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within One Year
|
|
After One &
Within Five Years
|
|
After Five &
Within Ten Years
|
|
After Ten Years
|
|
Total
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
—
|
|
$
|
70
|
|
$
|
—
|
|
$
|
—
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities held-to-maturity
|
|
$
|
—
|
|
$
|
70
|
|
$
|
—
|
|
$
|
—
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
5,576
|
|
$
|
1,141
|
|
$
|
264
|
|
$
|
7,494
|
|
$
|
14,475
|
|
|
Collateralized mortgage obligations
|
|
|
19,951
|
|
|
226,930
|
|
|
—
|
|
|
—
|
|
|
246,881
|
|
|
Corporate securities
|
|
|
—
|
|
|
24,414
|
|
|
—
|
|
|
—
|
|
|
24,414
|
|
|
Municipal securities
|
|
|
—
|
|
|
1,823
|
|
|
4,572
|
|
|
27,899
|
|
|
34,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
25,527
|
|
$
|
254,308
|
|
$
|
4,836
|
|
$
|
35,393
|
|
$
|
320,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
Table of Contents
Our
investment securities holdings increased by $3.4 million, or 1.1%, to $320.1 million at December 31, 2011, compared to holdings of $316.7 million at
December 31, 2010. Holdings at December 31, 2009 were $651.4 million. Total investment securities as a percentage of total assets were 11.9% and 10.7% at December 31, 2011
and 2010, respectively, compared to 19.0% at December 31, 2009. As of December 31, 2011, investment securities having a carrying value of $218.7 million were pledged to secure
certain deposits. In addition to securing deposits, $37.6 million in investments was pledged at the Federal Reserve Bank Discount Window and $40.2 million was pledged at the Federal Home
Loan Bank. The remainder was pledged against secured borrowing lines available at our correspondent banks.
As
of December 31, 2011, held-to-maturity ("HTM") securities, which are carried at their amortized costs, decreased from $85,000 in 2010 to $66,000 in
2011. The $19,000 HTM securities reduction in 2011 was due to pay-downs in principal.
Available-for-sale securities, which are stated at their fair market values, increased to $320.1 million at December 31, 2011 from $316.6 million and
$651.3 million at December 31, 2010 and 2009, respectively. The $3.4 million increase in investments in 2011 represented $140.8 million in purchases, $142.2 million
in calls, maturities, and amortizations, and $4.8 million in changes to unrealized and realized gains. Meanwhile, the $334.7 million decrease in 2010 represented $553.1 million in
purchases, $893.0 million in maturities, calls and, pay-downs, and $5.2 million in accretion, amortization, and changes to unrealized gain on investments.
The
following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2011 and 2010, respectively:
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
|
(Dollars in Thousands)
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
11,513
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
11,513
|
|
|
(53
|
)
|
|
Corporate securities
|
|
|
24,414
|
|
|
(232
|
)
|
|
—
|
|
|
—
|
|
|
24,414
|
|
|
(232
|
)
|
|
Municipal securities
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
(12
|
)
|
|
799
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
35,927
|
|
$
|
(285
|
)
|
$
|
799
|
|
$
|
(12
|
)
|
$
|
36,726
|
|
$
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
|
(Dollars in Thousands)
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
27,650
|
|
|
(117
|
)
|
|
—
|
|
|
—
|
|
|
27,650
|
|
|
(117
|
)
|
|
Corporate securities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Municipal securities
|
|
|
20,281
|
|
|
(448
|
)
|
|
1,450
|
|
|
(264
|
)
|
|
21,731
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
47,931
|
|
$
|
(565
|
)
|
$
|
1,450
|
|
$
|
(264
|
)
|
$
|
49,381
|
|
$
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
Company did not have any held-to-maturity investment securities with unrealized losses at December 31, 2011
and December 31, 2010.
80
Table of Contents
As
of December 31, 2011, the total unrealized losses less than 12 months old were $285,000 and unrealized losses more than 12 months old totaled
$12,000. The aggregate related fair value of investments with unrealized losses less than 12 months old was $35.9 million at December 31, 2011 and the aggregate fair value of
investments with unrealized losses more than 12 months old was $799,000. As of December 31, 2010, the total unrealized losses less than 12 months old were $565,000 and unrealized
losses more than 12 months old totaled $264,000. The aggregate related fair value of investments with unrealized losses less than 12 months old was $47.9 million at
December 31, 2010 and the fair value of investments with unrealized losses more than 12 months old totaled $49.4 million for the same period.
Declines
in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, we consider, among other
things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and
(iii) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
We
performed detailed evaluation of the investment portfolio in assessing individual positions that have market values that have declined below cost. In assessing whether there was
other-than-temporary impairment, we considered in a disciplined manner:
-
•
-
Whether or not all contractual cash flows due on a security will be collected; and
-
•
-
Our positive intent and ability to hold the debt security until recovery in fair value or maturity
A
number of factors are considered in the analysis, including but not limited to:
-
•
-
Issuer's credit rating;
-
•
-
Likelihood of the issuer's default or bankruptcy;
-
•
-
Collateral underlying the security;
-
•
-
Industry in which the issuer operates;
-
•
-
Nature of the investment;
-
•
-
Severity and duration of the decline in fair value; and
-
•
-
Analysis of the average life and effective maturity of the security.
We
do not believe that any individual unrealized loss as of December 31, 2011 represented an other-than-temporary impairment. The unrealized losses on our
GSE bonds, GSE CMOs, and GSE MBS were attributable to both changes in interest rate (U.S. Treasury curve) and a repricing of risk (spreads widening against risk-fee rate) in the market. We
did not own any non-agency MBS or CMO. All GSE bonds, GSE CMO, and GSE MBS securities are backed by U.S. Government Sponsored and Federal Agencies and therefore rated "Aaa/AAA." We have no
exposure to the "Subprime Market" in the form of Asset Backed Securities, or ABS, and Collateralized Debt Obligations, or CDOs that had previously been rated "Aaa/AAA" but have since been downgraded
to below investment grade. We have the intent and ability to hold the securities in an unrealized loss position at December 31, 2011 until the market value recovers or the securities mature.
Municipal
bonds and corporate bonds are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. The unrealized losses on our investment in municipal and
corporate securities were primarily attributable to both changes in interest rates and a repricing of risk in the market. We have the intent and ability to hold the securities in an unrealized loss
position at December 31, 2011 until the market value recovers or the securities mature.
81
Table of Contents
Loan Portfolio
Total loans are the sum of loans receivable and loans held-for-sale and reported at their outstanding principal
balances net of any unearned income which is unamortized deferred fees and costs and premiums and discounts. Total loans net of unearned income decreased by $345.1 million, or 14.8%, to
$1.98 billion at December 31, 2011 from $2.33 billion at December 31, 2010. Total loans net of unearned income totaled $2.43 billion, $2.05 billion, and
$1.81 billion, at December 31, 2009, 2008, and 2007, respectively. Total loans net of unearned income as a percentage of total assets were 73.5%, 78.3%, 70.6%, 83.7%, and 82.4%, at
December 31, 2011, 2010, 2009, 2008, and 2007, respectively.
In
the ordinary course of our business, we originate and service our own loans. For held-for-sale loans that we choose to sell in the secondary market, we sell
them with representations and warranties generally consistent with industry practices, but without recourse. The exception was with SBA loans, and it was our practice to resell these loans in the
secondary market for the guaranteed portion with 90-day recourse. However, beginning March 2011, the recourse provision for SBA guaranteed portions sold was removed and no longer a
standard for these transactions. Accordingly, we do not retain a significant amount of the credit risk exposure on the loans sold. And, for all loans we originate and carry, we have not had any
subprime loans in our portfolio.
Real
estate secured loans consist primarily of commercial real estate loans and are extended to finance the purchase and/or improvement of commercial real estate and/or businesses. The
properties may either be user owned or for investment purposes. Our loan policy adheres to the real estate loan guidelines set forth by the FDIC. The policy provides guidelines including, among other
things, fair review of appraisal value, limitation on loan-to-value ratio, and minimum cash flow requirements to service debt. Loans secured by real estate equaled
$1.63 billion, $1.91 billion, $1.98 billion, $1.60 billion, and $1.39 billion, as of December 31, 2011, 2010, 2009, 2008, and 2007, respectively. Real estate
secured loans as a percentage of total loans were 82.0%, 82.3%, 81.4%, 77.8%, and 76.6% at December 31, 2011, 2010, 2009, 2008, and 2007, respectively.
The
decline in the real estate market has caused a few key purchasers in the market to have experienced financial difficulties due to the ongoing credit crisis. Our total home mortgage
loan portfolio outstanding at the end of 2011 and 2010 were $65.8 million and $47.7 million, respectively, and represented only a small fraction of our total loan portfolio at 3.3% in
2011 and 2.1% in 2010. We have deemed the effect of this segment of our portfolio on our credit risk profile to be immaterial. Residential mortgage loans with unconventional terms such as interest
only mortgages and option adjustable rate mortgages at December 31, 2010 were $1.2 million and $944,000, respectively, inclusive of loans held temporarily for sale or refinancing. At
December 31, 2011, we no longer had any residential mortgage loans with unconventional terms previously mentioned.
Commercial
and industrial loans include revolving lines of credit, as well as term business loans. Commercial and industrial loans were $280.6 million, $325.6 million,
$386.0 million, $387.8 million, and $330.1 million at the end of 2011, 2010, 2009, 2008, and 2007, respectively. Commercial and industrial loans were 14.2%, 14.0%, 15.9%, 18.9%,
and 18.2%, as a percentage of total loans at the end of 2011, 2010, 2009, 2008, and 2007, respectively. In the current economic environment, we exercise more due diligence in acquiring new loans, in
particular loans with no collateral. However, with the high concentration of real estate secured loans, we plan to focus more on commercial lending in the short term.
Consumer
loans have historically represented less than 5% of our total loan portfolio. The majority of consumer loans are concentrated in personal lines of credits. As consumer loans
present a higher risk potential compared to our other loan products, especially given current economic conditions, we have reduced our effort in consumer lending since 2007. Accordingly, as of
December 31, 2011, the balance of consumer loans was down by $606,000 to $15.1 million, as compared with $15.7 million, $17.3 million, $23.7 million, and
$33.6 million at the end of 2010, 2009, 2008, and
82
Table of Contents
2007,
respectively. Consumer loans as a percentage of total loans have been less than 1% for the past 3 years.
Construction
loans are generally extended as a temporary financing vehicle only, and historically represented less than 5% of our total loan portfolio. In response to the current real
estate market, we have applied stricter loan underwriting policy when making loans in this category. Construction loans decreased to $61.2 million as of December 31, 2011, as compared
with $71.6 million, $48.4 million, $43.2 million, and $59.4 million at the end of 2010, 2009, 2008, and 2007, respectively.
Our
loan terms vary according to loan type. Commercial term loans have typical maturities of three to five years and are extended to finance the purchase of business entities, business
equipment, and leasehold improvements, or to provide permanent working capital. SBA-guaranteed loans usually have longer maturities (8 to 25 years). We generally limit commercial
real estate loan maturities to five to eight years. Lines of credit, in general, are extended on an annual basis to businesses that need temporary working capital and/or import/export financing. We
generally seek diversification in our loan portfolio, and our borrowers are diverse as to industry, location, and their current and target markets.
The
FDIC placed Mirae Bank under receivership upon Mirae Bank's closure by the California Department of Financial Institutions at the close of business on June 26, 2009. We
purchased substantially all of Mirae's assets and assumed all of Mirae's deposits and certain other liabilities. Further, we entered into a loss sharing agreement with the FDIC in connection with the
Mirae
acquisition. Under the loss sharing agreement, the FDIC will share in the losses on assets covered under the agreement, which generally include loans acquired from Mirae and foreclosed loan collateral
existing at June 26, 2009 (referred to collectively as "covered assets"). With respect to losses of up to $83.0 million on the covered assets, the FDIC has agreed to reimburse us for
80 percent of the losses. On losses exceeding $83.0 million, the FDIC has agreed to reimburse us for 95 percent of the losses. The loss sharing agreements are subject to our
compliance with servicing procedures and satisfying certain other conditions specified in the agreements with the FDIC. The term for the FDIC's loss sharing on single family loans is ten years, and
the term for loss sharing on non-single family loans is five years with respect to losses and eight years with respect to loss recoveries. As a result of the loss sharing agreement with
the FDIC, the Company has recorded an indemnification asset from the FDIC based on the estimated value of the indemnification agreement of $40.2 million at June 26, 2009. The
indemnification asset at December 31, 2011 totaled $21.9 million. The total fair value of loans acquired from Mirae Bank totaled $285.7 million at June 26, 2009.
83
Table of Contents
The
loans in the portfolio that we purchased in the Mirae Bank acquisition are covered by the FDIC loss-share agreement and such loans are referred to herein as "covered
loans." All loans other than the covered loans are referred to herein as "non-covered loans." A summary of covered and non-covered loans is presented in the table below:
Covered & Non-Covered Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
Non-covered loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
61,832
|
|
$
|
72,258
|
|
$
|
48,371
|
|
|
Real estate secured
|
|
|
1,490,504
|
|
|
1,757,328
|
|
|
1,783,638
|
|
|
Commercial and industrial
|
|
|
253,092
|
|
|
276,739
|
|
|
325,034
|
|
|
Consumer
|
|
|
15,001
|
|
|
15,574
|
|
|
16,626
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
1,820,429
|
|
|
2,121,899
|
|
|
2,173,669
|
|
|
Unearned Income
|
|
|
(4,433
|
)
|
|
(4,765
|
)
|
|
(5,311
|
)
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1,815,996
|
|
|
2,117,134
|
|
|
2,168,358
|
|
|
Allowance for losses on loans
|
|
|
(92,640
|
)
|
|
(104,349
|
)
|
|
(61,377
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,723,356
|
|
$
|
2,012,785
|
|
$
|
2,106,981
|
|
|
|
|
|
|
|
|
|
|
|
Covered loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Real estate secured
|
|
|
137,144
|
|
|
159,699
|
|
|
196,066
|
|
|
Commercial and industrial
|
|
|
28,267
|
|
|
49,680
|
|
|
62,409
|
|
|
Consumer
|
|
|
79
|
|
|
111
|
|
|
608
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
165,490
|
|
|
209,490
|
|
|
259,083
|
|
|
Allowance for losses on loans
|
|
|
(10,342
|
)
|
|
(6,604
|
)
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
155,148
|
|
$
|
202,886
|
|
$
|
258,330
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
61,832
|
|
$
|
72,258
|
|
$
|
48,371
|
|
|
Real estate secured
|
|
|
1,627,648
|
|
|
1,917,027
|
|
|
1,979,704
|
|
|
Commercial and industrial
|
|
|
281,359
|
|
|
326,419
|
|
|
387,443
|
|
|
Consumer
|
|
|
15,080
|
|
|
15,685
|
|
|
17,234
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
1,985,919
|
|
|
2,331,389
|
|
|
2,432,752
|
|
|
Unearned Income
|
|
|
(4,433
|
)
|
|
(4,765
|
)
|
|
(5,311
|
)
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
1,981,486
|
|
|
2,326,624
|
|
|
2,427,441
|
|
|
Allowance for losses on loans
|
|
|
(102,982
|
)
|
|
(110,953
|
)
|
|
(62,130
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,878,504
|
|
$
|
2,215,671
|
|
$
|
2,365,311
|
|
|
|
|
|
|
|
|
|
|
In
accordance with ASC 310-30 covered loans were divided into "SOP 03-3 Loans" and "Non-SOP 03-3 Loans", of which
SOP 03-3 loans are loans with evidence of deterioration of credit quality and that it was probable, at the time of acquisition, that the Bank will be unable to collect all
contractually required payments receivable. In contrast, Non-SOP 03-3 loans are all other covered loans that do not qualify as SOP 03-3 loans. In
addition, the covered loans are further categorized into four different loan pools by loan type: construction, commercial & industrial, real estate secured, and
84
Table of Contents
consumer.
The covered loans at the acquisition date of June 26, 2009 are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
SOP 03-3
Loans
|
|
Non-SOP 03-3
Loans
|
|
Total Covered Loans
|
|
|
Construction
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Real estate secured
|
|
|
1,838
|
|
|
135,306
|
|
|
137,144
|
|
|
Commercial and industrial
|
|
|
206
|
|
|
28,061
|
|
|
28,267
|
|
|
Consumer
|
|
|
—
|
|
|
79
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
Total Covered Loans
|
|
$
|
2,044
|
|
$
|
163,446
|
|
$
|
165,490
|
|
|
|
|
|
|
|
|
|
|
The
following table represents the carry value of SOP 03-3 and non-SOP 03-3 loans acquired from Mirae Bank at December 31, 2011,
2010, and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2011
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
Non-SOP 03-3 loans
|
|
$
|
163,446
|
|
$
|
203,701
|
|
$
|
248,204
|
|
|
SOP 03-3 loans
|
|
|
2,044
|
|
|
5,789
|
|
|
10,879
|
|
|
|
|
|
|
|
|
|
|
|
Total outstanding balance
|
|
|
165,490
|
|
|
209,490
|
|
|
259,083
|
|
|
Allowance related to these loans
|
|
|
(10,342
|
)
|
|
(6,604
|
)
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance
|
|
$
|
155,148
|
|
$
|
202,886
|
|
$
|
258,330
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses for covered loan acquired through the acquisition of Mirae Bank was $10.3 million, $6.6 million and $753,000 for the years ended
December 31, 2011, 2010, and 2009, respectively. Total allowance for these loans increased $3.7 million or 56.6% from December 31, 2010 to December 31, 2011. The increase
was due in part due to one loan that became impaired during 2011 which carry value of $8.2 million and impairment balance of $1.5 million. The remaining change was due to an overall rise
in loss rates due to an increase in overall charge-offs in 2010 and 2011.
The
following table represents the current balance of SOP 03-3 acquired from Mirae Bank for which it was probable at the time of the acquisition that all of the
contractually required payments would not be collected:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2011
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
Breakdown of SOP 03-3 Loans
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate loans
|
|
$
|
1,838
|
|
$
|
5,064
|
|
$
|
6,881
|
|
|
Commercial loans
|
|
$
|
206
|
|
$
|
725
|
|
$
|
3,998
|
|
Loan
acquired from the acquisition of Mirae Bank were discounted. Accretion of $2.4 million, $4.0 million, and $6.7 million on loans purchased at discount of
$54.9 million were recorded as interest income for the year ended December 31, 2011, 2010, and 2009, respectively, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31, 2011
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
Beginning balance of discount on loans
|
|
$
|
13,557
|
|
$
|
30,846
|
|
$
|
54,964
|
|
|
Discount accretion income recognized
|
|
|
(2,404
|
)
|
|
(4,000
|
)
|
|
(6,714
|
)
|
|
Disposals related to charge-offs
|
|
|
(4,148
|
)
|
|
(11,356
|
)
|
|
(15,829
|
)
|
|
Disposals related to loan sales
|
|
|
(24
|
)
|
|
(1,933
|
)
|
|
(1,575
|
)
|
|
|
|
|
|
|
|
|
|
|
Carrying amount, net of allowance
|
|
$
|
6,981
|
|
$
|
13,557
|
|
$
|
30,846
|
|
|
|
|
|
|
|
|
|
|
85
Table of Contents
The following table sets forth the amount of total loans net of unearned income and the percentage distributions in each category, as of the dates indicated:
Distribution of Loans and Percentage Composition of Loan Portfolio
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Outstanding At December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
Construction
|
|
$
|
61,213
|
|
$
|
71,596
|
|
$
|
48,371
|
|
$
|
43,180
|
|
$
|
59,443
|
|
|
Real estate secured
|
|
|
1,624,578
|
|
|
1,913,723
|
|
|
1,975,826
|
|
|
1,596,927
|
|
|
1,385,986
|
|
|
Commercial and industrial
|
|
|
280,630
|
|
|
325,634
|
|
|
385,958
|
|
|
387,752
|
|
|
330,052
|
|
|
Consumer
|
|
|
15,065
|
|
|
15,671
|
|
|
17,286
|
|
|
23,669
|
|
|
33,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net of unearned income
(1)
|
|
|
1,981,486
|
|
|
2,326,624
|
|
|
2,427,441
|
|
|
2,051,528
|
|
|
1,809,050
|
|
|
Allowance for losses on loans
|
|
|
(102,982
|
)
|
|
(110,953
|
)
|
|
(62,130
|
)
|
|
(29,437
|
)
|
|
(21,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
1,878,504
|
|
$
|
2,215,671
|
|
$
|
2,365,311
|
|
$
|
2,022,092
|
|
$
|
1,787,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participation loans sold and serviced by the Company
|
|
$
|
488,288
|
|
$
|
463,889
|
|
$
|
432,591
|
|
$
|
314,988
|
|
$
|
338,166
|
|
|
Percentage breakdown of gross loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3.1
|
%
|
|
3.1
|
%
|
|
2.0
|
%
|
|
2.1
|
%
|
|
3.3
|
%
|
|
Real estate secured
|
|
|
82.0
|
%
|
|
82.2
|
%
|
|
81.4
|
%
|
|
77.8
|
%
|
|
76.6
|
%
|
|
Commercial and industrial
|
|
|
14.2
|
%
|
|
14.0
|
%
|
|
15.9
|
%
|
|
18.9
|
%
|
|
18.2
|
%
|
|
Consumer
|
|
|
0.8
|
%
|
|
0.7
|
%
|
|
0.7
|
%
|
|
1.2
|
%
|
|
1.9
|
%
|
-
(1)
-
Includes
loans held-for-sale, which are recorded at the lower of cost or market, of $53.8 million and
$37.9 million at December 31, 2011 and December 31, 2010, respectively.
The
following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio as of December 31, 2011. In addition, the table
below shows the distribution of such loans between those with variable or floating interest rates and those with fixed or predetermined interest rates. The amounts on the table below are the gross
loan balances at December 31, 2011 before netting unearned income totaling $4.4 million:
Loan Maturities and Repricing Schedule
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Within
One Year
|
|
After One
But within
Five Years
|
|
After
Five Years
|
|
Total
|
|
|
Construction
|
|
$
|
61,832
|
|
$
|
—
|
|
$
|
—
|
|
$
|
61,832
|
|
|
Real estate secured
|
|
|
1,108,079
|
|
|
489,053
|
|
|
30,516
|
|
|
1,627,648
|
|
|
Commercial and industrial
|
|
|
278,617
|
|
|
2,742
|
|
|
—
|
|
|
281,359
|
|
|
Consumer
|
|
|
13,797
|
|
|
1,283
|
|
|
—
|
|
|
15,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
1,462,325
|
|
$
|
493,078
|
|
$
|
30,516
|
|
$
|
1,985,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with variable interest rates
|
|
$
|
1,202,940
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,202,940
|
|
|
Loans with fixed interest rates
|
|
$
|
259,385
|
|
$
|
493,078
|
|
$
|
30,516
|
|
$
|
782,979
|
|
86
Table of Contents
The
majority of the properties that we take as collateral are located in Southern California. The loans generated by our loan production offices, which are located outside of our main
geographical market, are generally collateralized by property in close proximity to those offices. We employ strict guidelines regarding the use of collateral located in less familiar market areas.
Since a major real estate recession during the first part of the previous decade, property values in Southern California and around the country had generally increased in the last 10-year
span from 1996 to 2006. Since late 2006, we have started to see below-trend growth in gross domestic product ("GDP") and a gradual decline of the real estate market in Southern California and many
other areas in the country. The financial crisis worsened during the second half of 2008 and the first half of 2009 and we observed further decline in the real estate market across the nation through
2010. Nonetheless, as of year-end 2011, 82.0% of our loans are secured by first mortgages on various types of real estate. We expect to see the decline in real estate values to continue
into the first half of 2012, so with the current economic conditions, property values may decline further in 2012.
Nonperforming Assets
Nonperforming assets, or NPAs, consist of nonperforming loans, or NPLs, restructured loans, and other NPAs. NPLs are reported at their
outstanding balances, net of any portion guaranteed by SBA, and consist of loans on non-accrual status and loans 90 days
or more past due and still accruing interest. Restructured loans are loans of which the terms of repayment have been renegotiated, resulting in a reduction or deferral of interest or principal. Other
NPAs consist of properties, mainly other real estate owned, or OREO, and repossessed vehicles, acquired by foreclosure or similar means that management intends to offer for sale. The treatment of
nonperforming status for held-for-sale loans is the same for as other loans and are accounted for at the lower of cost or fair value.
Our
continued emphasis on asset quality control enabled us to maintain a relatively low level of NPLs prior to 2007. However, the general economic condition of the U.S. as well as the
local economies in which we do business have shown a gradual decline as the housing sector and GDP growth continued to show weakness through 2011. The effect of the unfavorable economy environment
impacted the strength of our borrowers' credit and financial status which elevated NPL levels during 2008 to 2011. However, through note sales and charge-offs and enhanced monitoring of
problem loans, NPLs, net of SBA guaranteed portion decreased to $43.8 million at the end of 2011 compared to $71.2 million, $70.8 million, $15.6 million, and
$10.6 million at the end of 2010, 2009, 2008, and 2007, respectively. At December 31, 2011, the NPLs as a percentage of total loans was 2.21%, compared to 3.06%, 2.92%, 0.76%, and 0.59%
at December 31, 2010, 2009, 2008, and 2007, respectively.
Although
we experience a decline in non-performing loans in 2011, construction non-performing loans increased from $0 at December 31, 2010 to
$12.5 million at December 31, 2011. The increase was a result of one borrower with two construction loans related to low income housing tax credit developments. The Company was made
aware that the tax credits applied for by the borrower was denied, seriously jeopardizing the development related to the loans. Although the loans were still performing in accordance with their
initial terms at December 31, 2011, the denial in tax credits prompted a change in classification of the loans to non-performing.
As
of December 31, 2011, we had $8.2 million in other NPAs, which was comprised of fourteen OREOs, with thirteen of those foreclosed in 2011. We have listed these
properties for sale or are directly selling these properties as of December 31, 2011. Among these fourteen OREOs, we have recorded $3.8 million in provisions for eleven of the
properties. Of the ten OREOs sold in year 2011, the Bank recorded a loss of $3.1 million. As of December 31, 2010, we had $15.0 million as other NPAs, which comprised of eighteen
OREOs, with fifteen of those foreclosed in 2010. Among the eighteen OREOs, we had recorded $1.8 million in provisions for twelve of the properties. Of the seven OREOs sold in year 2010, the
Bank recorded a loss of $2.1 million. At December 31, 2009, we had $3.8 million as other NPAs, which was comprised of fifteen OREOs, with nine of those foreclosed in
87
Table of Contents
2009.
At December 31, 2008, we had $2.7 million as other NPAs, which was comprised of eight OREOs, with seven of those foreclosed in 2008. At the end of 2007, the majority of our OREO
was attributable to a single OREO valued at $133,000, which was foreclosed in the fourth quarter of 2007. Together
with OREO and repossessed vehicles, our ratio of NPAs as a percentage of total loans and other nonperforming assets equaled 2.62%, 3.68%, 2.17%, 0.74%, and 0.60% as of December 31, 2011, 2010,
2009, 2008, and 2007, respectively.
Management
believes that the reserve provided for NPAs, together with the tangible collateral, were adequate as of December 31, 2011. See "Allowance for Loan Losses and Loan
Commitments" below for further discussion.
The
following table provides information with respect to the components of our NPAs as of the dates indicated (the figures in the table are net of the portion guaranteed by SBA, with the
total amounts adjusted and reconciled for the SBA guaranteed portion for the gross NPAs):
Non-performing Assets
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
Total non-accrual loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net of SBA guaranteed portions):
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
12,548
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Real estate secured
|
|
|
29,088
|
|
|
67,576
|
|
|
63,571
|
|
|
9,334
|
|
|
8,154
|
|
|
Commercial and industrial
|
|
|
2,196
|
|
|
3,629
|
|
|
5,805
|
|
|
5,874
|
|
|
1,986
|
|
|
Consumer
|
|
|
—
|
|
|
27
|
|
|
70
|
|
|
131
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43,832
|
|
|
71,232
|
|
|
69,446
|
|
|
15,339
|
|
|
10,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans 90 days or more past due and still accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
|
—
|
|
|
—
|
|
|
1,317
|
|
|
—
|
|
|
117
|
|
|
Commercial and industrial
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213
|
|
|
4
|
|
|
Consumer
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
—
|
|
|
—
|
|
|
1,336
|
|
|
213
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
(2)
|
|
|
43,832
|
|
|
71,232
|
|
|
70,782
|
|
|
15,552
|
|
|
10,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repossessed vehicles
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
Other real estate owned
|
|
|
8,221
|
|
|
14,983
|
|
|
3,797
|
|
|
2,663
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets, net of SBA guarantee
|
|
$
|
52,053
|
|
$
|
86,215
|
|
$
|
74,579
|
|
$
|
18,215
|
|
$
|
10,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings
(3)
|
|
$
|
22,383
|
|
$
|
48,746
|
|
$
|
64,612
|
|
$
|
2,161
|
|
$
|
—
|
|
|
Non-performing loans as a percentage of total loans
|
|
|
2.21
|
%
|
|
3.06
|
%
|
|
2.92
|
%
|
|
0.76
|
%
|
|
0.59
|
%
|
|
Nonperforming assets, net of SBA guarantee, as a percentage of total loans and other nonperforming assets
|
|
|
2.62
|
%
|
|
3.68
|
%
|
|
3.07
|
%
|
|
0.89
|
%
|
|
0.60
|
%
|
|
Allowance for loan losses as a percentage of nonperforming loans
|
|
|
234.95
|
%
|
|
155.76
|
%
|
|
87.78
|
%
|
|
189.27
|
%
|
|
203.55
|
%
|
-
(1)
-
During
the fiscal year ended December 31, 2011, no interest income related to these loans were included in net income. Additional
interest income of approximately $4.6 million would have been recorded during the year ended December 31, 2011, if these loans had been paid in accordance with their original terms and
had been outstanding throughout the fiscal year ended December 31, 2011 or, if not outstanding throughout the fiscal year ended December 31, 2011, since origination.
88
Table of Contents
-
(2)
-
During
the fiscal year ended December 31, 2011, no interest income related to this loan was included in net income. Additional interest
income would be negligible during the year ended December 31, 2011, if this loan had been paid in accordance with its original term and had been outstanding throughout the fiscal year ended
December 31, 2011.
-
(3)
-
Covered
troubled debt restructurings at December 31, 2011 totaled $7.6 million and is included in the table above.
Allowance for Loan Losses and Loan Commitments
Based on the credit risk inherent in our lending business, we set aside allowance for losses on loans and loan commitments which is
charged to earnings. These charges were not only made for the outstanding loan portfolio, but also for off-balance sheet loan commitments, such as commitments to extend credit or letters
of credit. The charges made for the outstanding loan portfolio were credited to the allowance for loan losses, whereas charges related to loan commitments were credited to the reserve for loan
commitments, which is presented as a component of other liabilities. The provision for losses on loans and loan commitments is discussed in the previous section entitled "Provision for Loan Losses and
Loan Commitments".
The
allowance for loan losses is comprised of two components, specific valuation allowance ("SVA") or allowance on impaired loans that are individually evaluated, and general valuation
allowance ("GVA") or allowance on loans that are evaluated as pools based on historical experience and qualitative adjustments ("QA") which are used to estimate losses not captured by historical
experience. Historical loss experience used to calculate GVA may not accurately capture true credit losses and trends. Therefore, management performs a review of the historical loss rates used in GVA
as well as the QA methodology due to the increased significance of GVA when estimating losses in the current economic environment.
To
establish an adequate allowance, we must be able to recognize when loans have become a problem. A risk grade of either pass, special mention, substandard, or doubtful, is assigned to
every loan in the loan portfolio, with the exception of homogeneous loans i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans.
The following is a brief description of the loan classifications or risk grades used in our allowance calculation:
Pass Loans
—Loans that are not past due more than 30 days without signs of credit deterioration. The financial condition of the
borrower is sound as well as the status of any collateral. Loans secured by cash (principal and interest) also fall within this classification.
Watch Loans
—Performing loans with borrowers with adverse financial trends, higher debt/equity ratio, or weak liquidity positions, but not to
the degree of being considered a problem loan.
Special Mention
—Loans that are currently protected but exhibit an increasing degree of risk based on weakening credit strength and/or
repayment sources. Contingent or remedial plans to improve the Bank's risk exposure should be documented.
Substandard
—Loans inadequately protected by the current worth and paying capacity of the obligor or pledged collateral, if any. This grade
is assigned when inherent credit weakness is apparent.
Doubtful
—Loans having all the weakness inherent in a "substandard" classification but with collection or liquidation highly questionable
with the possibility of loss as some future date evident.
We
currently use migration analysis as a factor in calculating our allowance for loan losses in addition to a software program used to produce historical loss rates for our GVA
estimations. A QA matrix is also used to estimate losses not captured by historical experience. For impaired loans, or SVA allowance, we evaluate loans on an individual basis to determine impairment
in accordance with
89
Table of Contents
generally
accepted accounting principles or "GAAP". All these components are added together for a final allowance for loan losses figure on a quarterly basis.
Net
charge-offs in 2011 decreased to $67.6 million compared to $105.6 million in 2010. Total net charge-offs in 2010 were much higher compared to
the previous years and 2011 due to the large amount of note sales transactions in 2010 and the discovery of a material weakness in our internal controls related to loan originations and underwriting,
in addition to the weak business climate adversely impacted the financial condition of a number of our clients. The net charge-offs in 2011 were comprised of $3.8 million in
construction loan charge-offs, $58.0 million of real estate secured net loan charge-offs, $5.6 million of commercial and industrial loans net
charge-offs, and $195,000 consumer loan net charge-offs. The $67.6 million in net charge-offs represents 3.16% of average total loans in 2011, as compared
with 4.33%, 1.57%, 0.26%, and 0.66% in 2010, 2009 2008, and 2007, respectively.
With
the improvement in credit quality experienced in 2011 in addition to the reduction in NPAs, allowance for loan losses declined $8.0 million to $103.0 million at
December 31, 2011 compared to $111.0 million at December 31, 2010. Prior year allowance for loan losses totaled $62.1 million, $29.4 million, and
$21.6 million at December 31, 2009, 2008, and 2007, respectively. Even with the decrease in allowance for loan losses and loan commitments experienced in 2011, we were still able to
maintain the adequate ratio of allowance for loan losses to gross loans at 5.19%, 4.76%, 2.56%, 1.43%, and 1.19% at the end of 2011, 2010, 2009, 2008, and 2007, respectively.
Although
management believes our allowance at December 31, 2011 was adequate to absorb losses from any known and inherent risks in the portfolio, economic conditions which
adversely affect our service areas or other variables may result in further increased losses in the loan portfolio in the future.
Information
on impaired loans is listed in the following table for December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balances For Year Ended
|
|
|
(Dollars in Thousands)
|
|
December 31,
2011
|
|
December 31,
2010
|
|
|
With Specific Reserves
|
|
|
|
|
|
|
|
|
Without Charge-Offs
|
|
$
|
36,529
|
|
$
|
77,076
|
|
|
With Charge-Offs
|
|
|
57,173
|
|
|
50,008
|
|
|
Without Specific Reserves
|
|
|
|
|
|
|
|
|
Without Charge-Offs
|
|
|
28,157
|
|
|
19,692
|
|
|
With Charge-Offs
|
|
|
22,362
|
|
|
60,225
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
|
144,221
|
|
|
207,001
|
|
|
Allowance on Impaired Loans
|
|
|
(14,055
|
)
|
|
(14,031
|
)
|
|
|
|
|
|
|
|
|
Impaired Loans Net of Allowance
|
|
$
|
130,166
|
|
$
|
192,970
|
|
|
|
|
|
|
|
|
|
Impaired Loans Average Balance
|
|
$
|
146,217
|
|
$
|
211,711
|
|
|
|
|
|
|
|
|
-
*
-
Impaired
loans at December 31, 2011 and December 31, 2010 had SBA guarantee portion and discount on acquired loans totaling $73.6 million
and $87.0 million, respectively.
90
Table of Contents
The
table below summarizes, for the years indicated, loan balances at the end of each period, the daily averages during the period, changes in the allowance for loan losses and loan
commitments arising from loans charged off, recoveries on loans previously charged off, additions to the allowance and certain ratios related to the allowance for loan losses and loan commitments:
Allowance for Loan Losses and Loan Commitments
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
110,953
|
|
$
|
62,130
|
|
$
|
29,437
|
|
$
|
21,579
|
|
$
|
18,654
|
|
|
Actual charge-offs:*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
|
62,265
|
|
|
90,976
|
|
|
11,231
|
|
|
1,070
|
|
|
785
|
|
|
Commercial and industrial
|
|
|
9,930
|
|
|
17,986
|
|
|
24,820
|
|
|
5,174
|
|
|
8,752
|
|
|
Consumer
|
|
|
260
|
|
|
267
|
|
|
692
|
|
|
903
|
|
|
1,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
72,455
|
|
|
109,229
|
|
|
36,743
|
|
|
7,147
|
|
|
11,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries on loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
|
488
|
|
|
1,073
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Commercial and industrial
|
|
|
4,329
|
|
|
2,393
|
|
|
1,112
|
|
|
1,927
|
|
|
119
|
|
|
Consumer
|
|
|
65
|
|
|
144
|
|
|
140
|
|
|
213
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
4,882
|
|
|
3,610
|
|
|
1,252
|
|
|
2,140
|
|
|
323
|
|
|
Net loan charge-offs
|
|
|
67,573
|
|
|
105,619
|
|
|
35,491
|
|
|
5,007
|
|
|
10,948
|
|
|
FDIC Indemnification
|
|
|
—
|
|
|
5,053
|
|
|
856
|
|
|
—
|
|
|
—
|
|
|
Provision for loan losses
|
|
|
59,603
|
|
|
149,389
|
|
|
67,328
|
|
|
12,865
|
|
|
13,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at end of period
|
|
$
|
102,982
|
|
$
|
110,953
|
|
$
|
62,130
|
|
$
|
29,437
|
|
$
|
21,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at beginning of year
|
|
$
|
3,926
|
|
$
|
2,515
|
|
$
|
1,243
|
|
$
|
1,998
|
|
$
|
891
|
|
|
Provision for losses on loan commitments
|
|
|
(503
|
)
|
|
1,411
|
|
|
1,272
|
|
|
(755
|
)
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
3,423
|
|
$
|
3,926
|
|
$
|
2,515
|
|
$
|
1,243
|
|
$
|
1,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to average total loans
|
|
|
3.16
|
%
|
|
4.33
|
%
|
|
1.57
|
%
|
|
0.26
|
%
|
|
0.66
|
%
|
|
Allowance for loan losses to gross loans at end of period
|
|
|
5.19
|
%
|
|
4.76
|
%
|
|
2.56
|
%
|
|
1.43
|
%
|
|
1.19
|
%
|
|
Net loan charge-offs to allowance for loan losses at end of period
|
|
|
65.62
|
%
|
|
95.19
|
%
|
|
57.12
|
%
|
|
17.01
|
%
|
|
50.73
|
%
|
|
Net loan charge-offs to provision for losses on loans and loan commitments
|
|
|
114.34
|
%
|
|
70.04
|
%
|
|
51.74
|
%
|
|
41.35
|
%
|
|
73.08
|
%
|
-
*
-
Charge-off
amount for the year ended December 31, 2011 includes net charge-offs of covered loans amounting to
$2.1 million which represents gross covered loan charge-offs of $9.0 million less FDIC receivable portions totaling $6.9 million.
91
Table of Contents
Impairment
unpaid principal balances (not net active principal balances as shown in the allowance tables) with specific reserve and those without specific reserves as of
December 31, 2011 and December 31, 2010 are listed in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
Unpaid
Principal
Balance*
|
|
Related
Allowance
|
|
Average
Balance
|
|
Unpaid
Principal
Balance*
|
|
Related
Allowance
|
|
Average
Balance
|
|
|
With Specific Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
4,563
|
|
$
|
183
|
|
$
|
4,563
|
|
$
|
9,985
|
|
$
|
1,112
|
|
$
|
9,985
|
|
|
Carwash
|
|
|
12,012
|
|
|
935
|
|
|
12,022
|
|
|
20,580
|
|
|
2,197
|
|
|
20,626
|
|
|
Hotel/Motel
|
|
|
5,163
|
|
|
529
|
|
|
5,276
|
|
|
16,669
|
|
|
323
|
|
|
18,295
|
|
|
Land
|
|
|
281
|
|
|
83
|
|
|
281
|
|
|
2,211
|
|
|
433
|
|
|
2,212
|
|
|
Other
|
|
|
18,519
|
|
|
2,472
|
|
|
18,628
|
|
|
33,713
|
|
|
909
|
|
|
33,499
|
|
|
Construction
|
|
|
1,245
|
|
|
114
|
|
|
1,246
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Residential Real Estate
|
|
|
8,188
|
|
|
2,304
|
|
|
8,188
|
|
|
2,773
|
|
|
142
|
|
|
2,777
|
|
|
SBA Real Estate
|
|
|
30,354
|
|
|
1,363
|
|
|
30,499
|
|
|
21,687
|
|
|
590
|
|
|
21,766
|
|
|
SBA Commercial
|
|
|
7,636
|
|
|
1,473
|
|
|
7,989
|
|
|
10,379
|
|
|
2,115
|
|
|
10,663
|
|
|
Commercial
|
|
|
5,741
|
|
|
4,599
|
|
|
6,240
|
|
|
9,087
|
|
|
6,210
|
|
|
9,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total With Related Allowance
|
|
|
93,702
|
|
|
14,055
|
|
|
94,932
|
|
|
127,084
|
|
|
14,031
|
|
|
129,295
|
|
|
Without Specific Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
|
8,576
|
|
|
—
|
|
|
8,669
|
|
|
8,942
|
|
|
—
|
|
|
8,961
|
|
|
Carwash
|
|
|
1,299
|
|
|
—
|
|
|
1,312
|
|
|
6,119
|
|
|
—
|
|
|
6,123
|
|
|
Hotel/Motel
|
|
|
8,703
|
|
|
—
|
|
|
8,779
|
|
|
2,441
|
|
|
—
|
|
|
2,443
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,066
|
|
|
—
|
|
|
16,066
|
|
|
Other
|
|
|
11,539
|
|
|
—
|
|
|
11,626
|
|
|
23,148
|
|
|
—
|
|
|
24,451
|
|
|
Residential Real Estate
|
|
|
563
|
|
|
—
|
|
|
566
|
|
|
4,790
|
|
|
—
|
|
|
4,816
|
|
|
Construction
|
|
|
4,359
|
|
|
—
|
|
|
4,359
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
14,984
|
|
|
—
|
|
|
15,458
|
|
|
17,260
|
|
|
—
|
|
|
18,181
|
|
|
SBA Commercial
|
|
|
424
|
|
|
—
|
|
|
429
|
|
|
651
|
|
|
—
|
|
|
871
|
|
|
Commercial
|
|
|
72
|
|
|
—
|
|
|
87
|
|
|
500
|
|
|
—
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Without Related Allowance
|
|
|
50,519
|
|
|
—
|
|
|
51,285
|
|
|
79,917
|
|
|
—
|
|
|
82,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,221
|
|
$
|
14,055
|
|
$
|
146,217
|
|
$
|
207,001
|
|
$
|
14,031
|
|
$
|
211,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Recorded
investment adjustment is deemed not material in this presentation
92
Table of Contents
Delinquent
loans by days past due as of December 31, 2011 and December 31, 2010 are presented in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
30 - 59 Days
Past Due
|
|
60 - 89 Days
Past Due
|
|
Greater Than
90 Days Past Due
|
|
Total Past Due*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
327
|
|
$
|
—
|
|
$
|
3,851
|
|
$
|
4,178
|
|
|
Carwash
|
|
|
937
|
|
|
1,457
|
|
|
4,792
|
|
|
7,186
|
|
|
Hotel/Motel
|
|
|
—
|
|
|
454
|
|
|
2,784
|
|
|
3,238
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
1,255
|
|
|
8,310
|
|
|
9,994
|
|
|
19,559
|
|
|
Residential Real Estate
|
|
|
1,039
|
|
|
1,017
|
|
|
976
|
|
|
3,032
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,069
|
|
|
1,087
|
|
|
1,894
|
|
|
4,050
|
|
|
SBA Commercial
|
|
|
914
|
|
|
196
|
|
|
48
|
|
|
1,158
|
|
|
Commercial
|
|
|
1,360
|
|
|
402
|
|
|
1,224
|
|
|
2,986
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,901
|
|
$
|
12,923
|
|
$
|
25,563
|
|
$
|
45,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans Listed Above
|
|
$
|
1,657
|
|
$
|
2,648
|
|
$
|
25,563
|
|
$
|
29,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
30 - 59 Days
Past Due
|
|
60 - 89 Days
Past Due
|
|
Greater Than
90 Days Past Due
|
|
Total Past Due*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
5,237
|
|
$
|
4,730
|
|
$
|
5,275
|
|
$
|
15,242
|
|
|
Carwash
|
|
|
4,535
|
|
|
1,344
|
|
|
2,919
|
|
|
8,798
|
|
|
Hotel/Motel
|
|
|
5,819
|
|
|
2,564
|
|
|
1,625
|
|
|
10,008
|
|
|
Land
|
|
|
281
|
|
|
573
|
|
|
9,948
|
|
|
10,802
|
|
|
Other
|
|
|
3,044
|
|
|
6,114
|
|
|
15,446
|
|
|
24,604
|
|
|
Residential Real Estate
|
|
|
602
|
|
|
3,446
|
|
|
3,542
|
|
|
7,590
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,808
|
|
|
1,807
|
|
|
1,744
|
|
|
5,359
|
|
|
SBA Commercial
|
|
|
1,188
|
|
|
716
|
|
|
25
|
|
|
1,929
|
|
|
Commercial
|
|
|
937
|
|
|
932
|
|
|
2,106
|
|
|
3,975
|
|
|
Consumer/Other
|
|
|
41
|
|
|
5
|
|
|
27
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,492
|
|
$
|
22,231
|
|
$
|
42,657
|
|
$
|
88,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans Listed Above
|
|
$
|
3,596
|
|
$
|
7,658
|
|
$
|
42,657
|
|
$
|
53,911
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Balances
are net of SBA guaranteed portions.
93
Table of Contents
Loans
with classification of special mention, substandard, and doubtful at December 31, 2011 and December 31, 2010 are presented in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
675
|
|
$
|
17,795
|
|
$
|
2,520
|
|
$
|
20,990
|
|
|
Carwash
|
|
|
10,075
|
|
|
14,400
|
|
|
1,115
|
|
|
25,590
|
|
|
Hotel/Motel
|
|
|
20,919
|
|
|
12,175
|
|
|
2,784
|
|
|
35,878
|
|
|
Land
|
|
|
3,861
|
|
|
281
|
|
|
—
|
|
|
4,142
|
|
|
Other
|
|
|
86,699
|
|
|
75,973
|
|
|
7,855
|
|
|
170,527
|
|
|
Residential Real Estate
|
|
|
896
|
|
|
1,521
|
|
|
326
|
|
|
2,743
|
|
|
Construction
|
|
|
—
|
|
|
12,548
|
|
|
—
|
|
|
12,548
|
|
|
SBA Real Estate
|
|
|
3,442
|
|
|
7,545
|
|
|
1,121
|
|
|
12,108
|
|
|
SBA Commercial
|
|
|
1,133
|
|
|
2,995
|
|
|
—
|
|
|
4,128
|
|
|
Commercial
|
|
|
9,173
|
|
|
13,809
|
|
|
627
|
|
|
23,609
|
|
|
Consumer/Other
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,873
|
|
$
|
159,045
|
|
$
|
16,348
|
|
$
|
312,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
12,952
|
|
$
|
21,591
|
|
$
|
531
|
|
$
|
35,074
|
|
|
Carwash
|
|
|
6,618
|
|
|
27,925
|
|
|
802
|
|
|
35,345
|
|
|
Hotel/Motel
|
|
|
33,001
|
|
|
50,716
|
|
|
0
|
|
|
83,717
|
|
|
Land
|
|
|
6,035
|
|
|
7,605
|
|
|
4,888
|
|
|
18,528
|
|
|
Other
|
|
|
38,067
|
|
|
82,549
|
|
|
7,140
|
|
|
127,756
|
|
|
Residential Real Estate
|
|
|
904
|
|
|
6,988
|
|
|
—
|
|
|
7,892
|
|
|
Construction
|
|
|
—
|
|
|
20,597
|
|
|
—
|
|
|
20,597
|
|
|
SBA Real Estate
|
|
|
2,830
|
|
|
9,431
|
|
|
244
|
|
|
12,505
|
|
|
SBA Commercial
|
|
|
2,530
|
|
|
3,210
|
|
|
374
|
|
|
6,114
|
|
|
Commercial
|
|
|
11,517
|
|
|
16,476
|
|
|
221
|
|
|
28,214
|
|
|
Consumer/Other
|
|
|
4,107
|
|
|
31
|
|
|
27
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,561
|
|
$
|
247,119
|
|
$
|
14,227
|
|
$
|
379,907
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Balances
are net of SBA guaranteed portions
94
Table of Contents
The table below summarizes, for the periods indicated, the balance of the allowance for loan losses and the percentage of such balance for each type of loan as of
the dates indicated:
Distribution and Percentage Composition of Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Outstanding At December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(Dollars in Thousands)
|
|
|
Applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
4,218
|
|
$
|
7,262
|
|
$
|
411
|
|
$
|
190
|
|
$
|
557
|
|
|
Real estate secured
|
|
|
79,221
|
|
|
79,441
|
|
|
34,458
|
|
|
11,628
|
|
|
13,445
|
|
|
Commercial and industrial
|
|
|
19,391
|
|
|
24,069
|
|
|
27,059
|
|
|
17,209
|
|
|
7,023
|
|
|
Consumer
|
|
|
152
|
|
|
181
|
|
|
202
|
|
|
410
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance
|
|
$
|
102,982
|
|
$
|
110,953
|
|
$
|
62,130
|
|
$
|
29,437
|
|
$
|
21,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage breakdown of allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
4.09
|
%
|
|
6.55
|
%
|
|
0.66
|
%
|
|
0.65
|
%
|
|
2.58
|
%
|
|
Real estate secured
|
|
|
76.93
|
%
|
|
71.60
|
%
|
|
55.46
|
%
|
|
39.50
|
%
|
|
62.30
|
%
|
|
Commercial and industrial
|
|
|
18.83
|
%
|
|
21.69
|
%
|
|
43.55
|
%
|
|
58.46
|
%
|
|
32.55
|
%
|
|
Consumer
|
|
|
0.15
|
%
|
|
0.16
|
%
|
|
0.33
|
%
|
|
1.39
|
%
|
|
2.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance
|
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following tables represents the breakdown of the allowance for loan losses at December 31, 2011 and December 31, 2010 by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
|
SBA
Real Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
(Dollars In Thousands)
|
|
Gas Station
|
|
Carwash
|
|
Hotel/Motel
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Year
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
Total Charge-Off
|
|
|
4,143
|
|
|
8,779
|
|
|
21,127
|
|
|
3,430
|
|
|
17,760
|
|
|
2,258
|
|
|
3,805
|
|
|
963
|
|
|
2,869
|
|
|
7,061
|
|
|
260
|
|
|
72,455
|
|
|
Total Recoveries
|
|
|
—
|
|
|
87
|
|
|
2
|
|
|
107
|
|
|
119
|
|
|
3
|
|
|
—
|
|
|
170
|
|
|
146
|
|
|
4,182
|
|
|
65
|
|
|
4,881
|
|
|
Provision For Loan Losses
|
|
|
5,027
|
|
|
9,476
|
|
|
13,810
|
|
|
2,301
|
|
|
25,894
|
|
|
3,092
|
|
|
761
|
|
|
1,384
|
|
|
1,232
|
|
|
(3,540
|
)
|
|
166
|
|
|
59,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Year End
|
|
$
|
4,816
|
|
$
|
7,003
|
|
$
|
11,768
|
|
$
|
1,616
|
|
$
|
48,043
|
|
$
|
3,453
|
|
$
|
4,218
|
|
$
|
2,522
|
|
$
|
3,859
|
|
$
|
15,532
|
|
$
|
152
|
|
$
|
102,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
|
SBA
Real Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
(Dollars In Thousands)
|
|
Gas Station
|
|
Carwash
|
|
Hotel/Motel
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at beginning of year
|
|
$
|
2,109
|
|
$
|
3,835
|
|
$
|
4,631
|
|
$
|
1,202
|
|
$
|
18,329
|
|
$
|
806
|
|
$
|
411
|
|
$
|
3,535
|
|
$
|
5,425
|
|
$
|
21,615
|
|
$
|
232
|
|
$
|
62,130
|
|
|
Total Charge-Off
|
|
|
4,363
|
|
|
6,585
|
|
|
18,473
|
|
|
11,045
|
|
|
44,968
|
|
|
1,829
|
|
|
401
|
|
|
3,314
|
|
|
2,902
|
|
|
15,080
|
|
|
266
|
|
|
109,226
|
|
|
Total recoveries
|
|
|
82
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
200
|
|
|
45
|
|
|
5
|
|
|
719
|
|
|
421
|
|
|
1,981
|
|
|
143
|
|
|
3,607
|
|
|
FDIC Indemnification
|
|
|
432
|
|
|
529
|
|
|
130
|
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
|
—
|
|
|
373
|
|
|
290
|
|
|
3,313
|
|
|
65
|
|
|
5,053
|
|
|
Provision For Loan Losses
|
|
|
5,672
|
|
|
8,440
|
|
|
32,784
|
|
|
12,481
|
|
|
66,308
|
|
|
3,594
|
|
|
7,247
|
|
|
618
|
|
|
2,116
|
|
|
10,122
|
|
|
7
|
|
|
149,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance At December 31st
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
Table of Contents
The table below presents the breakdown of allowance by specific valuation and general valuation allowance at December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
|
SBA
Real Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
(Dollars In Thousands)
|
|
Gas Station
|
|
Carwash
|
|
Hotel/Motel
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
8,572
|
|
$
|
7,330
|
|
$
|
8,570
|
|
$
|
281
|
|
$
|
21,748
|
|
$
|
1,502
|
|
$
|
12,548
|
|
$
|
14,166
|
|
$
|
1,909
|
|
$
|
5,242
|
|
$
|
—
|
|
$
|
81,868
|
|
|
Specific Allowance
|
|
$
|
183
|
|
$
|
935
|
|
$
|
529
|
|
$
|
83
|
|
$
|
2,472
|
|
$
|
114
|
|
$
|
2,304
|
|
$
|
1,363
|
|
$
|
1,473
|
|
$
|
4,599
|
|
$
|
—
|
|
$
|
14,055
|
|
|
Loss Coverage Ratio
|
|
|
2.13
|
%
|
|
12.76
|
%
|
|
6.17
|
%
|
|
29.54
|
%
|
|
11.37
|
%
|
|
7.59
|
%
|
|
18.36
|
%
|
|
9.62
|
%
|
|
77.16
|
%
|
|
87.73
|
%
|
|
0.00
|
%
|
|
17.17
|
%
|
|
Non-Impaired Loans
|
|
$
|
102,457
|
|
$
|
47,321
|
|
$
|
132,252
|
|
$
|
17,568
|
|
$
|
1,048,248
|
|
$
|
114,364
|
|
$
|
49,284
|
|
$
|
103,269
|
|
$
|
38,861
|
|
$
|
235,347
|
|
$
|
15,080
|
|
$
|
1,904,051
|
|
|
General Valuation Allowance
|
|
$
|
4,633
|
|
$
|
6,068
|
|
$
|
11,239
|
|
$
|
1,533
|
|
$
|
45,571
|
|
$
|
3,339
|
|
$
|
1,914
|
|
$
|
1,159
|
|
$
|
2,386
|
|
$
|
10,933
|
|
$
|
152
|
|
$
|
88,927
|
|
|
Loss Coverage Ratio
|
|
|
4.52
|
%
|
|
12.82
|
%
|
|
8.50
|
%
|
|
8.73
|
%
|
|
4.35
|
%
|
|
2.92
|
%
|
|
3.88
|
%
|
|
1.12
|
%
|
|
6.14
|
%
|
|
4.65
|
%
|
|
1.01
|
%
|
|
4.67
|
%
|
|
Gross Loans
|
|
$
|
111,029
|
|
$
|
54,651
|
|
$
|
140,822
|
|
$
|
17,849
|
|
$
|
1,069,996
|
|
$
|
115,866
|
|
$
|
61,832
|
|
$
|
117,435
|
|
$
|
40,770
|
|
$
|
240,589
|
|
$
|
15,080
|
|
$
|
1,985,919
|
|
|
Total Allowance For Loan Losses
|
|
$
|
4,816
|
|
$
|
7,003
|
|
$
|
11,768
|
|
$
|
1,616
|
|
$
|
48,043
|
|
$
|
3,453
|
|
$
|
4,218
|
|
$
|
2,522
|
|
$
|
3,859
|
|
$
|
15,532
|
|
$
|
152
|
|
$
|
102,982
|
|
|
Loss Coverage Ratio
|
|
|
4.34
|
%
|
|
12.81
|
%
|
|
8.36
|
%
|
|
9.05
|
%
|
|
4.49
|
%
|
|
2.98
|
%
|
|
6.82
|
%
|
|
2.15
|
%
|
|
9.47
|
%
|
|
6.46
|
%
|
|
1.01
|
%
|
|
5.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
Real Estate
|
|
|
|
SBA
Real Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
(Dollars In Thousands)
|
|
Gas Station
|
|
Carwash
|
|
Hotel/Motel
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
17,508
|
|
$
|
20,427
|
|
$
|
15,729
|
|
$
|
12,212
|
|
$
|
37,927
|
|
$
|
6,954
|
|
$
|
—
|
|
$
|
12,966
|
|
$
|
2,697
|
|
$
|
6,733
|
|
$
|
—
|
|
$
|
133,153
|
|
|
Specific Allowance
|
|
$
|
1,112
|
|
$
|
2,197
|
|
$
|
323
|
|
$
|
433
|
|
$
|
909
|
|
$
|
142
|
|
$
|
—
|
|
$
|
590
|
|
$
|
2,115
|
|
$
|
6,210
|
|
$
|
—
|
|
$
|
14,031
|
|
|
Loss Coverage Ratio
|
|
|
6.35
|
%
|
|
10.76
|
%
|
|
2.05
|
%
|
|
3.55
|
%
|
|
2.40
|
%
|
|
2.04
|
%
|
|
0.00
|
%
|
|
4.55
|
%
|
|
78.42
|
%
|
|
92.23
|
%
|
|
0.00
|
%
|
|
10.54
|
%
|
|
Non-Impaired Loans
|
|
$
|
115,630
|
|
$
|
70,810
|
|
$
|
238,692
|
|
$
|
25,594
|
|
$
|
1,165,778
|
|
$
|
79,179
|
|
$
|
72,258
|
|
$
|
97,621
|
|
$
|
40,641
|
|
$
|
276,348
|
|
$
|
15,685
|
|
$
|
2,198,236
|
|
|
General Valuation Allowance
|
|
$
|
2,820
|
|
$
|
4,022
|
|
$
|
18,760
|
|
$
|
2,205
|
|
$
|
38,881
|
|
$
|
2,474
|
|
$
|
7,262
|
|
$
|
1,341
|
|
$
|
3,235
|
|
$
|
15,741
|
|
$
|
181
|
|
$
|
96,922
|
|
|
Loss Coverage Ratio
|
|
|
2.44
|
%
|
|
5.68
|
%
|
|
7.86
|
%
|
|
8.62
|
%
|
|
3.34
|
%
|
|
3.12
|
%
|
|
10.05
|
%
|
|
1.37
|
%
|
|
7.96
|
%
|
|
5.70
|
%
|
|
1.15
|
%
|
|
4.41
|
%
|
|
Gross Loans
|
|
$
|
133,138
|
|
$
|
91,237
|
|
$
|
254,421
|
|
$
|
37,806
|
|
$
|
1,203,705
|
|
$
|
86,133
|
|
$
|
72,258
|
|
$
|
110,587
|
|
$
|
43,338
|
|
$
|
283,081
|
|
$
|
15,685
|
|
$
|
2,331,389
|
|
|
Total Allowance For Loan Losses
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
Loss Coverage Ratio
|
|
|
2.95
|
%
|
|
6.82
|
%
|
|
7.50
|
%
|
|
6.98
|
%
|
|
3.31
|
%
|
|
3.04
|
%
|
|
10.05
|
%
|
|
1.75
|
%
|
|
12.34
|
%
|
|
7.75
|
%
|
|
1.15
|
%
|
|
4.76
|
%
|
A restructuring of a debt constitutes a troubled debt restructuring ("TDR") if the Company for economic or legal reasons related to the borrower's
financial difficulties grants a concession to the borrower that it would not otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not able to
perform according to the original contractual terms. Loans that are reported as TDRs are accounted for in accordance with ASC 310-10-35 and are considered impaired and measured
for impairment. The following table summarizes TDR balances net of SBA guaranteed portions for December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Construction
|
|
$
|
—
|
|
$
|
—
|
|
|
Real Estate Secured
|
|
|
17,837
|
|
|
43,302
|
|
|
Commercial & Industrial
|
|
|
4,546
|
|
|
5,444
|
|
|
Consumer
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
TOTAL TDRS
|
|
$
|
22,383
|
|
$
|
48,746
|
|
|
|
|
|
|
|
|
Loans
that are considered TDRs are classified as performing, unless they are on nonaccrual status or greater than 90 days delinquent as of the end of the most recent quarter. All
TDRs are considered impaired by the Company. At December 31, 2011 the balance of non-accrual TDR loans totaled $7.3 million and TDRs performing in accordance with their
modified terms totaled $15.1 million for the same period. There were no non-accrual loans considered TDR at December 31, 2010.
96
Table of Contents
The
following table represents the recorded investment in TDRs at year end by types of concessions made, broken out by loan type for the years ended December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
Payment
|
|
Term/Maturity
|
|
Interest Rate
|
|
Total
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
4,052
|
|
$
|
—
|
|
$
|
1,332
|
|
$
|
5,384
|
|
|
Carwash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Hotel/Motel
|
|
|
480
|
|
|
—
|
|
|
1,923
|
|
|
2,403
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
281
|
|
|
Other
|
|
|
6,074
|
|
|
462
|
|
|
1,789
|
|
|
8,325
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
3,051
|
|
|
385
|
|
|
—
|
|
|
3,436
|
|
|
SBA Commercial
|
|
|
2,616
|
|
|
1,489
|
|
|
—
|
|
|
4,105
|
|
|
Commercial
|
|
|
2,728
|
|
|
723
|
|
|
—
|
|
|
3,451
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,001
|
|
$
|
3,059
|
|
$
|
5,325
|
|
$
|
27,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
Payment
|
|
Term/Maturity
|
|
Interest Rate
|
|
Total
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
7,645
|
|
$
|
—
|
|
$
|
2,230
|
|
$
|
9,875
|
|
|
Carwash
|
|
|
—
|
|
|
7,936
|
|
|
2,614
|
|
|
10,550
|
|
|
Hotel/Motel
|
|
|
7,852
|
|
|
—
|
|
|
1,950
|
|
|
9,802
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
11,643
|
|
|
—
|
|
|
795
|
|
|
12,438
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,430
|
|
|
—
|
|
|
—
|
|
|
1,430
|
|
|
SBA Commercial
|
|
|
978
|
|
|
393
|
|
|
—
|
|
|
1,371
|
|
|
Commercial
|
|
|
3,555
|
|
|
1,062
|
|
|
—
|
|
|
4,617
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,103
|
|
$
|
9,391
|
|
$
|
7,589
|
|
$
|
50,083
|
|
|
|
|
|
|
|
|
|
|
|
|
97
Table of Contents
The
following tables present by loan type, the balance of TDRs at December 31, 2011 and December 31, 2010 and TDRs which were recorded during the previous year which had
payment defaults within the twelve months ended December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Recorded Investment in TDR Loans
|
|
TDRs With Payment Defaults
During the Past Year*
|
|
|
(Dollars In Thousands)
|
|
Pre-Modification
|
|
Post-
Modification
|
|
Number of
Loans
|
|
Unpaid Principal
Balance
|
|
Number of
Loans
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
7,415
|
|
$
|
5,384
|
|
|
3
|
|
$
|
4,895
|
|
|
2
|
|
|
Carwash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,551
|
|
|
2
|
|
|
Hotel/Motel
|
|
|
2,849
|
|
|
2,403
|
|
|
2
|
|
|
7,852
|
|
|
2
|
|
|
Land
|
|
|
281
|
|
|
281
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
9,353
|
|
|
8,325
|
|
|
9
|
|
|
11,098
|
|
|
3
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
3,915
|
|
|
3,436
|
|
|
13
|
|
|
473
|
|
|
2
|
|
|
SBA Commercial
|
|
|
2,881
|
|
|
4,105
|
|
|
36
|
|
|
776
|
|
|
8
|
|
|
Commercial
|
|
|
4,211
|
|
|
3,451
|
|
|
33
|
|
|
2,955
|
|
|
15
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,905
|
|
$
|
27,385
|
|
|
97
|
|
$
|
38,600
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Payment
defaults on TDRs recorded during the twelve months ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Recorded Investment in TDR Loans
|
|
TDRs With Payment Defaults
During the Past Year*
|
|
|
(Dollars In Thousands)
|
|
Pre-Modification
|
|
Post-
Modification
|
|
Number of
Loans
|
|
Unpaid Principal
Balance
|
|
Number of
Loans
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
9,902
|
|
$
|
9,875
|
|
|
4
|
|
$
|
5,481
|
|
|
4
|
|
|
Carwash
|
|
|
10,563
|
|
|
10,550
|
|
|
2
|
|
|
7,150
|
|
|
2
|
|
|
Hotel/Motel
|
|
|
9,854
|
|
|
9,802
|
|
|
3
|
|
|
2,419
|
|
|
1
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
12,504
|
|
|
12,438
|
|
|
5
|
|
|
39,119
|
|
|
8
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,434
|
|
|
1,430
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
SBA Commercial
|
|
|
1,388
|
|
|
1,371
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Commercial
|
|
|
4,767
|
|
|
4,617
|
|
|
29
|
|
|
449
|
|
|
1
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,412
|
|
$
|
50,083
|
|
|
62
|
|
$
|
54,618
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Payment
defaults on TDRs recorded during the twelve months ended December 31, 2009
98
Table of Contents
Contractual Obligations
The following table represents our aggregate contractual obligations (principal and interest) to make future payments as of
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
One Year
or Less
|
|
Over One Year To
Three Years
|
|
Over Three Years To
Five Years
|
|
Over Five
Years
|
|
Indeterminate
Maturity
|
|
Total
|
|
|
FHLB Advances
|
|
$
|
60,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
60,000
|
|
|
Junior Subordinated Debentures
(1)
|
|
|
10,724
|
|
|
—
|
|
|
—
|
|
|
77,321
|
|
|
—
|
|
|
88,045
|
|
|
Operating Leases
|
|
|
3,445
|
|
|
6,253
|
|
|
3,928
|
|
|
3,539
|
|
|
—
|
|
|
17,165
|
|
|
Unrecognized Tax Benefit
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
835
|
|
|
835
|
|
|
Investments in Affordable Housing Partnerships
|
|
|
9,502
|
|
|
5,605
|
|
|
271
|
|
|
187
|
|
|
—
|
|
|
15,565
|
|
|
Time Deposits
|
|
|
897,405
|
|
|
107,427
|
|
|
142
|
|
|
—
|
|
|
—
|
|
|
1,004,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
981,076
|
|
$
|
119,285
|
|
$
|
4,341
|
|
$
|
81,047
|
|
|
835
|
|
$
|
1,186,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
See
detailed disclosure of junior subordinated debentures, including interest rates, in the following subsection "Junior Subordinated
Debenture; Trust Preferred Securities"
Off-Balance Sheet Arrangements
During the ordinary course of business, we provide various forms of credit lines to meet the financing needs of our customers. These
commitments, which represent a credit risk to us, are not represented in any form on our balance sheets.
As
of December 31, 2011, 2010, and 2009, we had commitments to extend credit of $227.5 million, $267.8 million, and $238.2 million, respectively. Obligations
under standby letters of credit were $15.9 million, $15.8 million, and $13.1 million at for the years ended 2011, 2010, and 2009, respectively, and the obligations under
commercial letters of credit were $9.6 million, $5.4 million, and $10.2 million, respectively, for the same periods.
The
effect on our revenues, expenses, cash flows, and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee
that the lines of credit will be used.
The
Company has invested in certain limited partnerships that were formed to develop and operate apartment complexes designed as high-quality affordable housing for lower
income tenants throughout the United States. As of December 31, 2011, the Company had thirteen investments, with a net carrying value of $22.1 million. Commitments to fund investments in
affordable housing partnerships totaled $15.6 million at December 31, 2011 with the last of the commitments ending in 2026. At December 31, 2010 we have a total of eleven
investments in affordable housing partnerships with a net carrying value of $12.0 million with commitments to fund an additional $16.2 million with the last of the commitments ending in
2016.
In
the normal course of business, we are involved in various legal claims. We have reviewed all legal claims against us with counsel and have taken into consideration the views of
counsel as to the outcome of the claims. At this time, we are unable to determine the effect that the final disposition of all such claims will have on our financial position and results of
operations.
99
Table of Contents
Other Earning Assets
For various business purposes, we make investments in earning assets other than the interest-earning assets discussed above. Before
2003, the only other earning assets held by us were insignificant amounts of Federal Home Loan Bank stock and the cash surrender value of the BOLI.
In
an effort to provide additional benefits aimed at retaining key employees, while generating a tax-exempt noninterest income stream, we purchased $10.5 million and
$3.0 million in BOLI during 2003 and 2005, respectively, from insurance carriers rated AA or above. In 2008, 2009, 2010, and 2011, we purchased $532,000, $96,000, $0, and $618,599,
respectively, more in BOLI from the same insurance carriers. We are the owner and the primary beneficiary of the life insurance policies and recognize the increase of the cash surrender value of the
policies as tax-exempt other income.
In
2003, we also invested in several low-income housing tax credit funds ("LIHTCF") to promote our participation in CRA activities. We committed to invest, over two to three
years, a total of $3.0 million to two different LIHTCF—$1.0 million in Apollo California Tax Credit Fund XXII, LP, and $2.0 million in Hudson Housing Los
Angeles Revitalization Fund, LP. In 2006, in order to promote our CRA activities in each of the assessment areas in Dallas, New York, and Los Angeles, we also committed to invest additional
$1.0 million, $2.0 million, and $3.0 million in WNC Institutional Tax Credit Fund XXI, WNC Institutional Tax Credit Fund X New York Series 7, and WNC Institutional Tax
Credit Fund X California Series 6, respectively. We then made $4.0 million additional commitment to invest in Hudson Housing Los Angeles Revitalization Fund IV LP in 2007. We
receive the returns on these investments, over the fifteen years following the said two to three-year investment periods in the form of tax credits and tax deductions. In 2008, we
committed to invest $3.0 million in WNC Institutional Tax Credit Fund X New York Series 9 in order to promote our CRA activities in the assessment area in New York and $3 million
in WNC Institutional Tax Credit Fund 26 in order to promote our CRA activities in the assessment area in Dallas. In 2009, we committed to invest $5.0 million in NHT 28 Tax Credit Fund and
$5.0 million in Enterprise Green Communities West Fund in order to promote our CRA activities in the assessment area in Los Angeles, California. In 2010, we committed to invest
$4.9 million Milan Town Homes in order to promote our CRA activities in the assessment area of Los Angeles, California. In 2011, we made $7.0 million and $5.0 million commitments
to invest in WNC Institutional Tax Credit Fund X California Series 9 and Enterprise CalGreen Fund, respectively, in order to promote our CRA activities in the assessment area in California.
As
collateral for our FHLB borrowings, we are required by FHLB to invest in FHLB stock. Our total investment in FHLB stock was $15.5 million at December 31, 2011, down
$3.0 million from $18.5 million for the previous year. Total cash dividends received from FHLB stock holding amounted to $52,000, $69,000, and $43,000 for the years ended
December 31, 2011, 2010, and 2009, respectively.
The
balances of other earning assets as of December 31, 2011 and December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Balances At December 31,
|
|
|
(Dollars In Thousands)
|
|
2011
|
|
2010
|
|
|
Type
|
|
|
|
|
|
|
|
|
BOLI
|
|
$
|
19,888
|
|
$
|
18,662
|
|
|
LIHTCF
|
|
|
37,676
|
|
|
28,186
|
|
|
Federal Home Loan Bank Stock
|
|
|
15,523
|
|
|
18,531
|
|
100
Table of Contents
Deposits and Other Sources of Funds
Deposits are our primary source of funds. Total deposits at December 31, 2011, 2010, and 2009, were $2.2 billion,
$2.5 billion, and $2.8 billion, respectively, representing a decrease of $258.6 million, or 10.5% in 2011 and $367.3 million, or 13.0%, in 2010 from the previous year.
The
average deposits for the years ended December 31, 2011, 2010, and 2009 were $2.2 billion, $2.8 billion, and $2.3 billion, respectively. The average total
deposit balances increased by 22.3%, or $511.4 million, in 2010.The average total deposit balances decreased 21.5%, or $604.4 million, in 2011. The decrease in deposits in 2011 was a
result of management's planned deposit run-off of higher-costing time deposits and savings accounts. As a result of the capital raise in the second quarter of 2011 and note sales
throughout the year, the Company experienced a large inflow of excess liquidity. In order to limit the net interest margin compression from the excess liquidity, management implemented a strategy to
reduce high-cost deposits, particularly time deposits and savings accounts. This was achieved through the gradual reduction in deposits rates for these accounts throughout the year. Our
primary focus for 2011 was to improve our deposit mix and increase overall demand deposits accounts and balances. This strategy will continue into 2012 as well.
Due
to our efforts in controlling the growth of expensive time deposits, the percentage of the average time deposits divided by average total deposits decreased to 47.1% in 2011 from
49.9% in 2010 and 56.7% in 2009. This trend was evident again in 2011 with jumbo time deposits (time deposits with balances of $100,000 or greater) continuing to decrease along with other time
deposits. We will continue to promote our core-deposit campaign in order to achieve the assigned core deposit goals and to reduce our level of time deposit reliance going forward.
The
average rate paid on time deposits in denominations of $100,000 or more decreased to 0.96% in 2011, compared to 1.39% in 2010 and 2.45% in 2009. Please see "Net Interest Income and
Net Interest Margin" for further discussions.
The
following tables summarize the distribution of average daily deposits and the average daily rates paid for the years indicated:
Average Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
2009
|
|
|
|
Average Balance
|
|
Average Rate
|
|
Average Balance
|
|
Average Rate
|
|
Average Balance
|
|
Average Rate
|
|
|
|
(Dollars in Thousands)
|
|
|
Demand, non-interest-bearing
|
|
$
|
462,443
|
|
|
—
|
|
$
|
427,388
|
|
|
—
|
|
$
|
333,568
|
|
|
—
|
|
|
Money market
|
|
|
590,198
|
|
|
0.90
|
%
|
|
880,618
|
|
|
1.33
|
%
|
|
584,054
|
|
|
2.37
|
%
|
|
Super NOW
|
|
|
23,869
|
|
|
0.35
|
%
|
|
22,104
|
|
|
0.44
|
%
|
|
20,546
|
|
|
0.86
|
%
|
|
Savings
|
|
|
89,582
|
|
|
2.78
|
%
|
|
77,484
|
|
|
3.07
|
%
|
|
55,639
|
|
|
3.47
|
%
|
|
Time deposits of $100,000 or more
|
|
|
658,862
|
|
|
0.96
|
%
|
|
745,139
|
|
|
1.39
|
%
|
|
944,012
|
|
|
2.45
|
%
|
|
Other time deposits
|
|
|
377,491
|
|
|
1.15
|
%
|
|
654,099
|
|
|
1.91
|
%
|
|
357,590
|
|
|
2.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
2,202,445
|
|
|
0.84
|
%
|
$
|
2,806,832
|
|
|
1.32
|
%
|
$
|
2,295,409
|
|
|
2.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
Table of Contents
The
scheduled maturities of our time deposits in denominations of $100,000 or greater at December 31, 2011 are, as follows:
Maturities of Time Deposits of $100,000 or More, at December 31, 2011
(Dollars in Thousands)
|
|
|
|
|
|
|
Three months or less
|
|
$
|
220,415
|
|
|
Over three months through six months
|
|
|
175,641
|
|
|
Over six months through twelve months
|
|
|
173,952
|
|
|
Over twelve months
|
|
|
77,529
|
|
|
|
|
|
|
|
Total
|
|
$
|
647,537
|
|
|
|
|
|
|
Because
our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. A number of
clients' carry deposit balances that were more than 1% of our total deposits, but at December 31, 2011, 2010, and 2009, the California State Treasury was the only depositor whose deposit
balance was more than 3% of our total deposits.
In
addition to our regular customer base, we also accept brokered deposits on a selective basis at reasonable interest rates to augment deposit growth. With our continued strength in
liquidity, we were able to decrease these deposits to $1.5 million at December 31, 2011 from $7.1 million and $24.0 million, at December 31, 2010 and 2009,
respectively, in order to improve our net interest margin and to limit our reliance on non-core sources of funding. All of the brokered deposits will mature within one year.
Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may
obtain advances from the FHLB as an alternative to retail deposit funds. We have historically utilized borrowings from FHLB in order to take advantage of the flexibility and comparatively low cost.
Due to the ongoing financial crisis and stiff competition for customer deposits among banks in our market, we occasionally used FHLB borrowings
as an alternative to fund our loan portfolio in the past. See "Liquidity Management" below for the details on the FHLB borrowings program.
The
following table is a summary of FHLB borrowings for fiscal years 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
December 31,
2011
|
|
December 31,
2010
|
|
|
Balance at year-end
|
|
$
|
60,000
|
|
$
|
135,000
|
|
|
Average balance during the year
|
|
$
|
157,192
|
|
$
|
125,214
|
|
|
Maximum amount outstanding at any month-end
|
|
$
|
255,000
|
|
$
|
142,000
|
|
|
Average interest rate during the year
|
|
|
1.31
|
%
|
|
2.49
|
%
|
|
Average interest rate at year-end
|
|
|
0.10
|
%
|
|
2.03
|
%
|
On December 12, 2008, we issued to the U.S. Treasury 62,158 shares of Series A Preferred Stock and a warrant to purchase
initially 949,460 shares of our common stock, for an aggregate purchase price of $62.2 million. The warrant has an exercise price of $9.82 per share. The $62.2 million of Series A
Preferred Stock qualifies as Tier 1 capital and carries an initial 5% coupon for the first 5 years, which will adjust to 9% thereafter. Dividends are cumulative, computed on the basis of
a
102
Table of Contents
360-day
year or 30-day months, and payable quarterly in arrears on the 15th day of February, May, August and November of each year. We are permitted, subject to
consultation with the appropriate federal banking agency, to repay to the U.S. Treasury any financial assistance received under the TARP Capital Purchase Program without penalty, delay or the need to
raise additional replacement capital. The U.S. Treasury is to promulgate regulations to implement the procedures under which a TARP participant may repay any assistance received.
In December 2002, the Bank issued $10.0 million of the 2002 Junior Subordinated Debentures. Subsequently, the Company, as
a wholly-owned subsidiary in 2003 and as a parent company of the Bank in 2005 and 2007, issued a total of $77.3 million of Junior Subordinated Debentures in connection with a
$75.0 million trust preferred securities issuance by statutory trusts wholly-owned by the Company.
2002 Bank Level Junior Subordinated Debenture.
In December 2002, the Bank issued a $10.0 million Junior Subordinated Debenture (the
"2002
debenture"). The interest rate payable on the 2002 debenture was 3.67% at December 31, 2011, which rate adjusts quarterly to the three-month LIBOR plus 3.10%. The 2002 debenture will mature on
December 26, 2012. Interest on the 2002 debenture is payable quarterly and no scheduled payments of principal are due prior to maturity. The entire $10.0 million debenture, in whole or
in part, was callable upon the Bank's option on any March 26, June 26, September 26 or December 26 on or after December 26, 2007 (the "Redemption Date") pursuant to
Section 10.1 of the Debenture agreement. Depending on the level of interest rate difference and our level of fund sources, we may decide to exercise and call the debenture in 2012.
The
2002 debenture is treated as Tier 2 capital for Bank regulatory capital purposes. Likewise, on a consolidated basis, the 2002 debenture also is treated as Tier 2
capital for holding company level capital purposes under current Federal Reserve Board capital guidelines.
2003 Junior Subordinated Debenture; Trust Preferred Securities Issuance.
In December 2003, Wilshire Bancorp was formed as a
wholly-owned
subsidiary of the Bank, in order to raise additional capital funds through the issuance of trust preferred securities. Prior to the completion of the August 2004 bank holding company reorganization,
Wilshire Bancorp organized its wholly owned subsidiary, Wilshire
Statutory Trust I, which issued $15.0 million in trust preferred securities. Wilshire Bancorp then purchased all of the common interest in the Wilshire Statutory Trust I ($464,000) and issued
the 2003 Junior Subordinated Debenture (the "2003 debenture") in the amount of approximately $15.5 million to the Wilshire Statutory Trust I with terms substantially similar to the 2003
trust preferred securities in exchange for the proceeds from the issuance of the Wilshire Statutory Trust I's 2003 trust preferred securities and common securities. Wilshire Bancorp subsequently
deposited the proceeds from the 2003 debenture in a depository account at the Bank and infused $14.5 million as additional equity capital to the Bank immediately following the holding company
reorganization. The rate of interest on the 2003 debenture and related trust preferred securities was 3.41% at December 31, 2011, which adjusts quarterly to the three-month LIBOR plus 2.85%.
The 2003 debenture and related trust preferred securities will mature on December 17, 2033. The interest on both the 2003 debenture and related trust preferred securities is payable quarterly
and no scheduled payments of principal are due prior to maturity. The entire $15.0 million trust preferred securities, in whole or in part, was callable upon the Company's option on any
March 17, June 17, September 17 or December 17 on or after December 17, 2008 (the "Redemption Date") pursuant to Section 10.1 of the trust preferred
securities agreement. Depending on the level of discount rate difference and our level of fund sources, we may decide to exercise and call the trust preferred securities in 2012.
March 2005 Junior Subordinated Debenture; Trust Preferred Securities Issuance.
In March 2005, Wilshire Bancorp organized its
wholly owned
subsidiary, Wilshire Statutory Trust II, which issued
103
Table of Contents
$20.0 million
in trust preferred securities. Wilshire Bancorp then purchased all of the common interest in the Wilshire Statutory Trust II ($619,000) and issued the 2005 Junior
Subordinated Debenture (the "March 2005 debenture") in the amount of $20.6 million to the Wilshire Statutory Trust II with terms substantially similar to the March 2005 trust preferred
securities in exchange for the proceeds from the issuance of the Wilshire Statutory Trust II's March 2005 trust preferred securities and common securities. Wilshire Bancorp subsequently deposited the
proceeds from the March 2005 debenture in a depository account at the Bank and infused $14.0 million as additional equity capital to the Bank. The rate of interest on the March 2005 debenture
and related trust preferred securities was 2.35% at December 31, 2011, which adjusts quarterly to the three-month LIBOR plus 1.79%. The March 2005 debenture and related trust preferred
securities will mature on March 17, 2035. The interest on both the March 2005 debenture and related trust preferred securities are payable quarterly and no scheduled payments of principal are
due prior to maturity. Wilshire Bancorp may redeem the March 2005 debenture (and in turn the trust preferred securities) in whole or in part at par prior to maturity on or after March 17, 2012.
September 2005 Junior Subordinated Debenture; Trust Preferred Securities Issuance.
In September 2005, Wilshire Bancorp organized
its wholly
owned subsidiary, Wilshire Statutory Trust III, which issued
$15.0 million in trust preferred securities. Wilshire Bancorp then purchased all of the common interest in the Wilshire Statutory Trust III and issued its Junior Subordinated Debt Securities
(the "September 2005 debenture") in the amount of $15.5 million to the Wilshire Statutory Trust III with terms substantially similar to the September 2005 trust preferred securities and common
securities. Wilshire Bancorp subsequently deposited the proceeds from the September 2005 debenture in a depository account at the Bank. Until September 15, 2010, the securities were fixed at a
6.07% annual interest rate, thereafter converting to a floating rate of three-month LIBOR plus 1.40%, resetting quarterly. The rate of interest on the September 2005 debenture and related trust
preferred securities was 1.95% at December 31, 2011. The September 2005 debenture and related trust preferred securities will mature on September 15, 2035. The interest on both the
September 2005 debenture and related trust preferred securities are payable quarterly and no scheduled payments of principal are due prior to maturity. Wilshire Bancorp may redeem the September 2005
debenture (and in turn the trust preferred securities) in whole or in part at par prior to maturity on or after September 15, 2012.
July 2007 Junior Subordinated Debenture; Trust Preferred Securities Issuance.
In July 2007, Wilshire Bancorp organized its wholly
owned
subsidiary, Wilshire Statutory Trust IV, which issued $25.0 million in trust preferred securities. Wilshire Bancorp then purchased all of the common interest in the Wilshire Statutory Trust IV
($774,000) and issued the 2007 Junior Subordinated Debenture (the "July 2007 debenture") in the amount of $25.8 million to the Wilshire Statutory Trust IV with terms substantially
similar to the July 2007 trust preferred securities in exchange for the proceeds from the issuance of the Wilshire Statutory Trust IV's July 2007 trust preferred securities and common securities.
Wilshire Bancorp subsequently deposited the proceeds from the July 2007 debenture in a depository account at the Bank. The rate of interest on the July 2007 debenture and related trust preferred
securities was 1.93% at December 31, 2011, which adjusts quarterly to the three-month LIBOR plus 1.38%. The July 2007 debenture and related trust preferred securities will mature on
September 15, 2037. The interest on both the July 2007 debenture and related trust preferred securities are payable quarterly and no scheduled payments of principal are due prior to maturity.
Wilshire Bancorp may redeem the July 2007 debenture (and in turn the trust preferred securities) in whole or in part at par prior to maturity on or after September 15, 2012.
Payments
of distributions on the trust preferred securities and payments on redemption of the trust preferred securities are guaranteed by Wilshire Bancorp. The junior subordinated
debentures are senior to our shares of common stock and Series A Preferred Stock. As a result, in the event of our bankruptcy, dissolution or liquidation, the holder of the junior subordinated
debentures must be satisfied before any distributions can be made to the holders of our common stock or Series A
104
Table of Contents
Preferred
Stock. We have the right to defer distributions on the junior subordinated debentures and related trust preferred securities for up to five years, during which time no dividends may be paid
to holders of our common stock.
On
March 1, 2005, the Federal Reserve Board adopted a final rule that allows continued inclusion of trust preferred securities in the Tier 1 capital of bank holding
companies, subject to stricter quantitative limits. Under the final rule, bank holding companies may include trust preferred securities in Tier 1 capital in an amount (together with other
restricted core capital elements) equal to 25% of the sum of core capital elements (including restricted core capital elements) net of goodwill less any associated deferred tax liability. Amounts in
excess of these limits will generally be included in Tier 2 capital. For purposes of this rule, restricted core capital elements are generally to be comprised of qualifying cumulative perpetual
preferred stock and related surplus, minority interest related to qualifying cumulative perpetual preferred stock directly issued by a consolidated U.S. depository institution or foreign bank
subsidiary, minority interest related to qualifying common stock or qualifying cumulative perpetual preferred stock directly issued by a consolidated subsidiary that is neither a U.S. depository
institution or a foreign bank and qualifying trust preferred securities.
The
final rule provides a transition period for bank holding companies to come into compliance with the new required capital restrictions. Accordingly, while the final rule became
effective on April 11, 2005, for practical purposes, bank holding companies had until March 31, 2011 to come into compliance with the final rule's capital restrictions due to the
transition period. In extending the transition period to 2009, the Federal Reserve noted that the extended period will provide bank holding companies with existing trust preferred securities with call
features after the first five years an opportunity to restructure their capital elements in order to conform to the limitations of the final rule. Under the final rule, as of December 31, 2011,
Wilshire Bancorp categorized all $75.0 million trust preferred securities as Tier 1 capital.
Asset/Liability Management
Management seeks to ascertain optimum and stable utilization of available assets and liabilities as a vehicle to attain our overall
business plans and objectives. In this regard, management focuses on measurement and control of liquidity risk, interest rate risk and market risk, capital adequacy, operation risk and credit risk.
See "Risk Factors" for further discussion on these risks. Information concerning interest rate risk management is set forth under "Item 7A—Quantitative and Qualitative Disclosures
about Market Risk."
Liquidity Management
Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of
daily operations, which include funding of securities purchases, providing for customers' credit needs and ongoing repayment of borrowings. Maintenance of adequate liquidity requires that sufficient
resources be available at all time to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit
withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash or cash
equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive additional cost. Our liquidity is actively managed on a daily basis and reviewed
periodically by the Asset/Liability Committee and the Board of Directors. This process is intended to ensure the maintenance of sufficient funds to meet the needs of the Company, including adequate
cash flow for off-balance sheet instruments.
Our
primary sources of liquidity are derived from financing activities which include the acceptance of customer and brokered deposits, federal funds facilities, repurchase agreement
facilities, advances from the FHLB of San Francisco, and issuance of long-term debt. These funding sources are
105
Table of Contents
augmented
by payments of principal and interest on loans, the routine liquidation of securities from the available-for-sale portfolio and securitizations of loans. In addition,
government programs, such as FDIC's TLGP, may influence deposit behavior. Primary use of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases
of investment securities, and payment of operating expenses.
During
the years ended December 31, 2011, 2010, and 2009, we experienced net cash inflows from operating activities of $74.3 million, net cash outflows of
$31.2 million, and cash inflows of $617,000, respectively. In 2011, net cash provided by operating activities was primarily attributable to the large inflow of funds from the proceeds related
to the sale of held-for-sale loans. Proceeds from the sale of held-for-sale loans totaled $426.8 million in 2011, an increase of
$294.7 million compared to $132.1 million in December 31, 2010. At December 31, 2010 and 2009, "Loss on investments in affordable housing partnerships" was included in cash
flows from investing activities but was moved to cash flows from operating activities in the consolidated cash flow statement for 2011.
Net
cash inflows from investing activities totaled $280.5 million in 2011, while 2010 and 2009 experienced net cash inflows of $441.2 million and cash outflows of
$458.4 million, respectively. During 2011, net cash inflows were primarily related to the net increases in loans receivables and proceeds from investment pay-downs, maturities,
calls, and sales of securities available for sale. However, in 2010, proceeds from investment pay-downs, maturities, calls, and sales along with proceeds from the sale of other loans were
the largest contributors to the cash provided by investing activities. Largest cash outflows for 2009 were attributed to purchases of securities available for sale.
Net
cash outflows from financing activities totaled $228.0 million in 2011 and $447.2 million in 2010 and cash inflows from financing activities were $596.0 million
for 2009. The net cash used by financing activities in 2011 was primarily due to decreases in FHLB borrowings and net decrease in deposits. The primary use of funds in 2010 was net decrease in
deposits. In 2009, however, net cash provided by financing activities was primarily due to the net increase in deposits totaling $722.2 million.
For
purpose of having liquid cash available for emergencies, we maintain a portion of our funds in cash and cash equivalents and loans and securities available for sale. Our liquid
assets at December 31, 2011, 2010, and 2009 totaled approximately $699.2 million, $532.3 million, and $923.3 million, respectively. Our liquidity level measured as the
percentage of liquid assets to total assets was 25.9%, 17.9%, and 26.9% at December 31, 2011, 2010, and 2009, respectively. The increase in liquid assets in 2011 is a result of funds received
from the sale of problems loans and proceeds from the capital raise during the second quarter of 2011.
As
a secondary source of liquidity, we have a combination of available borrowing sources comprised of the Federal Reserve Bank's discount window, FHLB advances, federal funds lines with
various corresponding banks, and several master repurchase agreements with major brokerage companies. Among all these sources, we prefer advances from the FHLB to supplement our supply of lendable
funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by our loans, investments, and stock issued by the FHLB. Advances are made pursuant to several different
programs. Each credit program has its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an
institution's net worth or on the FHLB's assessment of the institution's creditworthiness. While this fund provides flexibility and reasonable cost, we intend to limit our use to 80% of our borrowing
capacity as such borrowing does not qualify as core funds.
As
of December 31, 2011, our borrowing capacity from the FHLB was approximately $645.3 million and the outstanding balance was $60.0 million, or approximately 9.3%
of our borrowing capacity. As of December 31, 2011, we also maintained a guideline to purchase up to a combined $60.0 million in federal funds through lines with three correspondent
banks. Borrowing capacity at the FRB Discount Window stood at $43.1 million, with $37.6 million in securities pledged at December 31,
106
Table of Contents
2011.
It is management's belief that our liquidity is sufficient to meet the Company's short-term and long-term cash flow needs as they arise.
Capital Resources and Capital Adequacy Requirements
Historically, our primary source of capital has been internally generated operating income through retained earnings. In order to
ensure adequate levels of capital, we conduct ongoing assessments of projected sources and uses of capital in conjunction with projected increases in assets and level of risks. We have considered, and
we will continue to consider, additional sources of capital as the need arises, whether through the issuance of additional equity, debt or hybrid securities. When the U.S. Treasury made TARP funds
available to financial institutions in October 2008, our Board of Directors decided to take advantage of this opportunity and increased our capital by participating in the program. In December 2008,
we received a TARP investment from the U.S. Treasury in the amount of $62.2 million.
We
are subject to various regulatory capital requirements administered by federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, we must meet specific capital guidelines that rely on quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting
practices. Failure to meet minimum capital requirements can trigger regulatory actions under the prompt corrective action rules that could have a material adverse effect on our financial condition and
operations. Prompt corrective action may include regulatory enforcement actions that restrict dividend payments, require the adoption of remedial measures to increase capital, terminate FDIC deposit
insurance, and mandate the appointment of a conservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status may adversely affect the evaluation of
regulatory applications for specific transactions and activities, including acquisitions, continuation and expansion of existing activities, and commencement of new activities, and could adversely
affect our business relationships with our existing and prospective clients. The aforementioned regulatory consequences for failing to maintain adequate ratios of Tier 1 and Tier 2
capital could have a material adverse effect on our financial condition and results of operations. Our capital amounts and classification are also subject to qualitative judgments by regulators about
components, risk weightings, and other factors. See Part I, Item 1 "Description of Business—Regulation and Supervision—Capital Adequacy Requirements" in this
Annual Report on Form 10-K for additional information regarding regulatory capital requirements.
As
of December 31, 2011, we were qualified as a "well-capitalized institution" under the regulatory framework for prompt corrective action. The following table
presents the regulatory standards for well-capitalized institutions, compared to our capital ratios as of the dates specified for Wilshire Bancorp, Inc. and Wilshire State Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual capital ratios as of:
|
|
|
|
Regulatory
Adequately-
Capitalized
Standards
|
|
Regulatory
Well-
Capitalized
Standards
|
|
December 31, 2011
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
Capital Ratios
|
|
Wilshire Bancorp & Wilshire State Bank
|
|
Bancorp
|
|
Bank
|
|
Bancorp
|
|
Bank
|
|
Bancorp
|
|
Bank
|
|
|
Total capital to risk-weighted assets
|
|
|
8.00
|
%
|
|
10.00
|
%
|
|
13.86
|
%
|
|
13.53
|
%
|
|
14.00
|
%
|
|
13.72
|
%
|
|
15.81
|
%
|
|
15.73
|
%
|
|
Tier I capital to risk-weighted assets
|
|
|
4.00
|
%
|
|
6.00
|
%
|
|
19.59
|
%
|
|
19.12
|
%
|
|
12.61
|
%
|
|
12.34
|
%
|
|
14.37
|
%
|
|
14.29
|
%
|
|
Tier I capital to average assets
|
|
|
4.00
|
%
|
|
5.00
|
%
|
|
20.89
|
%
|
|
20.42
|
%
|
|
9.18
|
%
|
|
8.98
|
%
|
|
9.77
|
%
|
|
9.71
|
%
|
At
December 31, 2011, total shareholders' equity increased by $80.4 million, after declaring cash dividends of $3.1 million to preferred shareholders, to
$309.6 million from $229.2 million at December 31, 2010. The increase in capital was a result of our second quarter issuance of common stock through our capital raise. After
subtracting fees and costs associated with the capital raise, a total of $108.7 million in common stock was raised during the second quarter of 2011. The increase of $80.4 million in
shareholders' equity in 2011 consisted primarily of funds from the capital raise partially
107
Table of Contents
offset
by net loss for the year. At December 31, 2010, total shareholders' equity decreased by $37.0 million, after declaring cash dividends of $4.6 million ($1.5 million
to common shareholders and $3.1 million to preferred shareholders), to $229.2 million from $266.1 million at December 31, 2009. The capital decline was primarily a result
of a net loss of $34.8 million in 2010.
As
of December 31, 2010, we considered the Junior Subordinated Debentures of $87.3 million, which consists of $10.0 million issued by the Bank and
$77.3 million issued by the Company in connection with the issuance of $75.0 million trust preferred securities for the regulatory capital ratio computation purposes. At
December 31, 2008, as the result of issuance of the Series A Preferred Stock in December 2008, the portion qualified for Tier 1 capital increased to $134.4 million
($59.4 million TARP preferred stock and $75.0 million trust preferred securities), decreasing the portion for Tier 2 capital to $10.0 million. See "Deposits and Other
Sources of Funds" for further discussion regarding the capital treatment of subordinated debentures and the trust preferred securities. At December 31, 2011, we did not include any qualifying
subordinated debt in our calculation of Tier 2 and total capital.
Recent Accounting Pronouncements
In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310), "
A Creditor's
Determination of Whether a Restructuring is a Troubled Debt Restructuring
." The provisions of ASU No. 2011-02 provide additional guidance related to
determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is
insignificant, prohibits creditors from using the borrower's effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining
whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB's deferral of the additional disclosures about troubled debt
restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Company's reporting period ending September 30,
2011. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
On
April 29, 2011, the FASB issued ASU 2011-03, which eliminates from U.S. GAAP the requirement for entities to consider whether a transferor
(i.e., seller) has the ability to repurchase the financial assets in a repurchase agreement ("repo"). This requirement was one of the criteria under ASC 860 that entities used to determine
whether the transferor maintained effective control. Although entities must consider all the effective-control criteria under ASC 860, the elimination of this requirement may lead to more conclusions.
The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.
In
May, 2011, the FASB issued ASU No. 2011-04, "
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs
." The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or
requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for
disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are
effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption of this pronouncement is not expected to have
a material impact on the Company's consolidated financial statements.
In
June, 2011, the FASB issued ASU No. 2011-05, "
Amendments to Topic 220, Comprehensive Income
." ASU
2011-05 requires all non-owner changes in stockholders' equity to be presented either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. Under the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should
present total other
108
Table of Contents
comprehensive
income, the components of other comprehensive income, and the total of comprehensive income. The pronouncement should be applied retrospectively and effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company's
consolidated financial statements.
In
September 2011, the FASB issued ASU 2011-08, "
Intangibles—Goodwill and Other
," which allows for an entity to
first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity
determines that it is more likely than not that its fair value is less than its carrying amount. The pronouncement is effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial
statements.
In
December 2011, the FASB issued ASU 2011-12, "
Comprehensive Income (Topic 220).
" This guidance defers the effective date for
amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. This guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial
statements.
Impact of Inflation; Seasonality
Inflation primarily impacts us through its effect on interest rates. Our primary source of income is net interest income, which is
affected by changes in interest rates. We attempt to limit the impact of inflation on our net interest margin through management of rate-sensitive assets and liabilities and the analysis
of interest rate sensitivity. The effect of inflation on premises and equipment as well as noninterest expenses has not been significant for the periods covered in this report. Our business is
generally not seasonal.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate
risk inherent in lending, investing, and deposit taking activities. Our profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely
impact our earnings to the extent that the interest rates borne by assets and liabilities do not change at the same speed, to the same extent, or on the same basis. We evaluate market risk pursuant to
policies reviewed and approved annually by our Board of Directors. The Company's Board delegates responsibility for market risk management to the Asset/Liability Management Committee, which reports
monthly to the Board on activities related to market risk management. As part of the management of our market risk, the Asset/Liability Management Committee may direct changes in the mix of assets and
liabilities. To that end, we actively monitor and manage interest rate risk exposures.
Interest
rate risk management involves development, analysis, implementation, and monitoring of earnings to provide stable income and capital levels during periods of changing interest
rates. In the management of interest rate risk, we utilize gap analysis and simulation modeling to determine the sensitivity of net interest income and economic value of equity. These techniques are
complementary and are used together to provide a more accurate measurement of interest rate risk.
Gap
analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is determined by subtracting the amount of liabilities from the amount of
assets that
109
Table of Contents
reprice
in a particular time interval. If repricing assets exceed repricing liabilities in any given time period, we would be deemed to be "asset-sensitive" for that period. Conversely, if repricing
liabilities exceed repricing assets in a given time period, we would be deemed to be "liability-sensitive" for that period.
We
usually seek to maintain a balanced position over the period of one year to ensure net interest income stability in times of volatile interest rates. This is accomplished by
maintaining a similar level of interest-earning assets and interest-paying liabilities available to be repriced within one year.
The
change in net interest income may not always follow the general expectations of an "asset-sensitive" or a "liability-sensitive" balance sheet during periods of changing interest
rates. This possibility results from interest rates earned or paid changing by differing increments and at different time intervals for each type of interest-sensitive asset and liability. The
interest rate gaps arise when assets are funded with liabilities that have different repricing intervals. Because these gaps are actively managed and change daily as adjustments are made in interest
rate views and market outlook, positions at the end of any period may not reflect our interest rate sensitivity in subsequent periods. We attempt to balance longer-term economic views
against prospects for short-term interest rate changes.
Although
the interest rate sensitivity gap is a useful measurement and contributes to effective asset and liability management, it is difficult to predict the effect of changing interest
rates based solely on that measure. As a result, the Asset/Liability Management Committee also regularly uses simulation modeling as a tool to measure the sensitivity of earnings and economic value of
equity ("EVE") to interest rate changes. The EVE is defined as the net present value of an institution's existing assets less liabilities. The simulation model captures all assets and liabilities, and
accounts for significant variables that are believed to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans and deposits, principal amortization, call options
on securities, balance sheet growth assumptions, and changes in rate relationships as various rate indices react differently to market rates.
Although
the simulation measures the volatility of net interest income and EVE under immediate increase or decrease of market interest rate scenarios in 100 basis point increments, our
main concern is the negative effect of a reasonably-possible worst case scenario. The Asset/Liability Management Committee policy prescribes that for the modeled reasonably-possible worst
rate-change scenario, the expected reduction of net interest income and EVE should not exceed 40% of the base net interest income and 40% of the base EVE, respectively.
In
general, based upon our current mix of deposits, loans, and investments, a decrease in interest rates would result in a very small increase in our net interest income but lower our
EVE. An increase in interest rates would increase both net interest income and EVE.
Management
believes that the assumptions used to evaluate the vulnerability of our operations to changes in interest rates approximate actual experience and considers them reasonable;
however, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and EVE, could vary substantially if different
assumptions are used or actual experience differs from the historical experience on which they are based.
The
following table sets forth the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities as of December 31, 2011 using the interest rate
sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or matures within its
contractual terms. Actual payment patterns may differ from contractual payment patterns.
110
Table of Contents
Interest Rate Sensitivity Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011
|
|
|
|
Amounts Subject to Repricing Within
|
|
|
|
0-3 months
|
|
3-12 months
|
|
1-5 years
|
|
After 5 years
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
1,133,145
|
|
$
|
329,181
|
|
$
|
493,077
|
|
$
|
30,516
|
|
$
|
1,985,919
|
|
|
Investment securities
|
|
|
522
|
|
|
25,005
|
|
|
254,374
|
|
|
40,229
|
|
|
320,130
|
|
|
Federal funds sold and cash equivalents
|
|
|
60,005
|
|
|
110,000
|
|
|
—
|
|
|
—
|
|
|
170,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,193,672
|
|
$
|
464,186
|
|
$
|
747,451
|
|
$
|
70,745
|
|
$
|
2,476,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
99,106
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
99,106
|
|
|
Time deposits of $100,000 or more
|
|
|
220,415
|
|
|
349,593
|
|
|
77,529
|
|
|
—
|
|
|
647,537
|
|
|
Other time deposits
|
|
|
58,420
|
|
|
261,798
|
|
|
27,584
|
|
|
—
|
|
|
347,802
|
|
|
Other interest-bearing deposits
|
|
|
596,397
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
596,397
|
|
|
FHLB advances and other borrowings
|
|
|
60,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
60,000
|
|
|
Junior Subordinated Debenture
|
|
|
87,321
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,121,659
|
|
$
|
611,391
|
|
$
|
105,113
|
|
$
|
—
|
|
$
|
1,838,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity gap
|
|
$
|
72,013
|
|
$
|
(147,205
|
)
|
$
|
642,338
|
|
$
|
70,745
|
|
$
|
637,891
|
|
|
Cumulative interest rate sensitivity gap
|
|
$
|
72,013
|
|
$
|
(75,192
|
)
|
$
|
567,146
|
|
$
|
637,891
|
|
|
|
|
|
Cumulative interest rate sensitivity gap ratio (based on total assets)
|
|
|
2.67
|
%
|
|
-2.79
|
%
|
|
21.03
|
%
|
|
23.65
|
%
|
|
23.65
|
%
|
The
following table sets forth our estimated net interest income over a twelve months period and EVE based on the indicated changes in market interest rates as of December 31,
2011.
(Dollars In Thousands)
|
|
|
|
|
|
|
|
|
|
|
Change
(In Basis Points)
|
|
Net Interest Income
Change (%)
|
|
Economic Value of
Equity (EVE) Change (%)
|
|
|
|
+400
|
|
|
22.02
|
%
|
|
5.20
|
%
|
|
|
+300
|
|
|
14.58
|
%
|
|
5.30
|
%
|
|
|
+200
|
|
|
8.79
|
%
|
|
5.21
|
%
|
|
|
+100
|
|
|
4.12
|
%
|
|
4.20
|
%
|
|
|
0
|
|
|
—
|
|
|
—
|
|
|
|
-100
|
|
|
0.96
|
%
|
|
-6.55
|
%
|
|
|
-200
|
|
|
1.91
|
%
|
|
-8.71
|
%
|
|
|
-300
|
|
|
1.81
|
%
|
|
-8.20
|
%
|
Our
strategies in protecting both net interest income and economic value of equity from significant movements in interest rates involve restructuring our investment portfolio and using
FHLB advances. Although our policy also permits us to purchase rate caps and floors and interest rate swaps, we are not currently engaged in any of those types of transactions.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in Part IV, Item 15(a)(1) and are presented beginning on
Page F-1.
111
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2011, we carried out an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our "disclosure controls and procedures," as defined under Exchange Act
Rules 13a-15(e) and 15d-15(e).
Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2011, such disclosure controls and procedures were effective
to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in
the rules and forms of the SEC, and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our
internal control over financial reporting includes those policies and procedures that:
-
•
-
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets;
-
•
-
provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial
statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of
our management and our directors; and
-
•
-
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
our assets that could have a material effect on the financial statements.
Because
of its inherent limitations, our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance in
achieving the desired control objectives and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness as to future periods are subject to risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. In
addition, in reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
112
Table of Contents
Our
management conducted an evaluation of the system of internal control over financial reporting as of December 31, 2011, using the criteria set forth by the
"
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework
," and concluded that our system of internal
control over financial reporting was effective as of December 31, 2011.
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010, management conducted an
evaluation of the effectiveness of the system of internal control over financial reporting as of December 31, 2010. Based on that evaluation, management determined that, as of
December 31, 2010, the Company's internal control over financial reporting was not effective because certain control deficiencies that management identified, combined with the material
adjustment to the Company's allowance for loan loss and related provision for loan losses discussed in our Annual Report on Form 10-K for the year ended December 31, 2010,
constituted a material weakness in the Company's internal control over financial reporting. Management discovered a deficiency in the operating effectiveness of loan underwriting, approval, and
renewal processes for certain loan originations and asset sales associated with the Company's former senior marketing officer. Specifically, these processes lacked effective supervision and oversight
by the
Company's former Chief Executive Officer, and the procedures and requirements associated with loan underwriting, approvals, renewals, and sales were not properly executed or enforced.
In
order to remediate the material weakness, management undertook certain remedial actions during 2011 that were designed to strengthen oversight of the Bank's loan origination, internal
loan review, underwriting, and renewal processes. As part of such remedial measures, management restructured the Bank's lending department by segregating personnel and responsibilities relating to
loan production, from personnel and responsibilities relating to loan underwriting processes, created a new position of Deputy Chief Credit Officer to monitor problem assets and credit risk
management, and shifted management's focus from marketing to credit quality control. Additional specific actions the Company has taken to remediate the material weakness are summarized below:
In
addition to the steps taken above, management intends to continue to take the following action:
-
•
-
strengthened corporate oversight of loan origination, internal loan review, underwriting, and renewal processes;
-
•
-
enhanced loan documentation and underwriting procedures;
-
•
-
improved and increased and increasing the frequency of the loan appraisal and review process, including the independence
of such appraisal and review;
-
•
-
reinforced loan review and classification policies and procedures;
-
•
-
engaged third-party loan review firms to assist loan with evaluations; and
-
•
-
improved management oversight of policy and procedures governing the loan approval process.
Management
also created and adopted, with the approval of the audit committee, a loan sale policy that sets forth guidelines relating to (i) selection of notes for sale,
(ii) purchaser qualifications, (iii) methods of accounting, and (iv) reporting requirements.
Management completed its remediation of the material weaknesses as of December 31, 2011. As a result of the Company's remedial
actions described above, management has determined that there were no changes in our internal controls over financial reporting during the quarter ended December 31, 2011 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
113
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Wilshire Bancorp, Inc.
Los Angeles, California
We
have audited the internal control over financial reporting of Wilshire Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 2011, based on criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year
ended December 31, 2011, of the Company, and our report dated March 14, 2012 expressed an unqualified opinion on those financial statements.
/s/
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 14, 2012
114
Table of Contents
Item 9B. Other Information
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this item is incorporated herein by reference to the Company's proxy statement (Schedule 14A) for its
2012 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after December 31, 2011.
Item 11. Executive Compensation
On January 30, 2012, the Human Resources Committee of the Board of Directors of the Company approved the modification of an
aggregate of 430,000 stock options outstanding under the 2008 Stock Incentive Plan for the following seven (7) directors: Steven Koh, with respect to 150,000 shares of common stock; Harry
Siafaris, with respect to 50,000 shares of common stock; Kyu Hyun Kim, with respect to 50,000 shares of common stock; Richard Kim, with respect to 40,000 shares of common stock; Young Hi Pak, with
respect to 40,000 shares of common stock; Lawrence Jeon, with respect to 50,000 shares of common stock; and Donald Byun, with respect to 50,000 shares of common stock. In connection with the
modifications, (a) the former exercise prices (ranging from $6.61 per share to $9.32 per share) were modified to $3.50 per share, which was the closing price for the Company's common stock on
Nasdaq on January 30, 2012; (b) the former vesting periods were modified such that the modified options will vest 25% annually with the initial 25% vesting on the date of the
modifications; and (c) the former expiration dates for such modified options (which previously would have expired, depending on the option in question, in between June 25, 2018 and
December 9, 2019) were modified to expire on January 30, 2022. The modifications were made in accordance with the 2008 Stock Incentive Plan, which expressly allows modifications to be
made by such committee. The estimated stock based compensation cost associated with the modification for each director is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
|
|
Options
Shares
|
|
Vested
Percentage
|
|
Original
Exercise Price
|
|
Fair Value of
Modified
Options
|
|
Fair Value of
Previous
Options
|
|
Estimated
Stock Based
Compensation
Expense
|
|
|
Steven Koh
|
|
|
140,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
238,000
|
|
|
Steven Koh
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Harry Siafaris
|
|
|
40,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
68,000
|
|
|
Harry Siafaris
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Kyu Hyun Kim
|
|
|
40,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
68,000
|
|
|
Kyu Hyun Kim
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Richard Lim
|
|
|
30,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
51,000
|
|
|
Richard Lim
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Young Hi Park
|
|
|
30,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
51,000
|
|
|
Young Hi Park
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Lawrence Jeon
|
|
|
40,000
|
|
|
100
|
%
|
$
|
9.320
|
|
$
|
2.238
|
|
$
|
0.538
|
|
$
|
68,000
|
|
|
Lawrence Jeon
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
|
Donald Byun
|
|
|
40,000
|
|
|
75
|
%
|
$
|
6.610
|
|
$
|
2.238
|
|
$
|
1.159
|
|
$
|
43,160
|
|
|
Donald Byun
|
|
|
10,000
|
|
|
75
|
%
|
$
|
7.430
|
|
$
|
2.238
|
|
$
|
1.222
|
|
$
|
10,160
|
|
Also,
on January 30, 2012, the Board of Directors of the Company approved an increase in initial base death benefits under the Director Survivor Income Plan ("SIP") of the each of
the Company's directors who had been a director for 5 years or more. This increase was in addition to the annual increase provided for under the terms of the SIP. The initial benefit to be paid
to the beneficiaries of
115
Table of Contents
Harry
Siafaris' upon his death was increased $90,000 to a total benefit at January 30, 2012 of $390,000. The initial benefit to be paid to the beneficiaries of Kyu Hyun Kim upon his death was
increased $90,000 to a total benefit at January 30, 2012 of $390,000. The initial benefit to be paid to the beneficiaries of Richard Lim upon his death was increased $85,000 to a total benefit
at January 30, 2012 of $385,000. The initial benefit to be paid to the beneficiaries of Steven Koh upon his death was increased $198,000 to a total benefit at January 30, 2012 of
$1.5 million. Because Messrs. Siafaris, Kim, Lim and Koh have reached the age of 65, their death benefits will not be eligible for additional increases under the terms of the SIP. The
initial benefit to be paid to the beneficiaries of Young Hi Pak's upon her death was increased $74,000 to a total benefit at January 30, 2012 of $454,000. Ms. Pak has not yet attained
the age of 65; accordingly, her death benefit is subject to additional annual increases under the terms of the SIP.
Information
required by this item is incorporated herein by reference to the Company's proxy statement (Schedule 14A) for its 2012 Annual Meeting of Shareholders, which will be
filed with the SEC not later than 120 days after December 31, 2011.
Item 12. Security Ownership of Certain Beneficial Owners, and Management and Related Shareholder Matters
Information required by this item is incorporated herein by reference to the Company's proxy statement (Schedule 14A) for its
2012 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after December 31, 2011.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this item is incorporated herein by reference to the Company's proxy statement (Schedule 14A) for its
2012 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after December 31, 2011.
Item 14. Principal Accounting Fees and Services
Information required by this item is incorporated herein by reference to the Company's proxy statement (Schedule 14A) for its
2012 Annual Meeting of Shareholders, which will be filed with the SEC not later than 120 days after December 31, 2011.
116
Table of Contents
PART IV
Item 15. Exhibits, Financial Statement Schedules
-
(a)
-
List
of documents filed as part of this report
-
(1)
-
Financial
Statements
The
following financial statements of Wilshire Bancorp, Inc. are filed as a part of this Form 10-K on the pages indicated:
-
(2)
-
Financial
Statement Schedules
Schedules
to the financial statements are omitted because the required information is not applicable or the information is presented in the Company's financial statements or related
notes.
Exhibit Table
|
|
|
|
|
Reference
Number
|
|
Item
|
|
|
3.1
|
|
Articles of Incorporation, as amended and restated
1
|
|
|
3.2
|
|
Second Amended and Restated Bylaws of Wilshire Bancorp, Inc. effective December 12, 2008
2
|
|
|
3.3
|
|
Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock, Series A
2
|
|
|
3.4
|
|
Certificate of Amendment to Articles of Incorporation
16
|
|
|
4.1
|
|
Specimen of Common Stock Certificate
3
|
|
|
4.2
|
|
Indenture of Subordinated Debentures dated as of September 19, 2002
9
|
|
|
4.3
|
|
Indenture by and between Wilshire Bancorp, Inc. and U.S. Bank National Association dated as of December 17, 2003
4
|
|
|
4.4
|
|
Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., U.S. Bank National Association, Soo Bong Min and Brian E. Cho dated as of December 17, 2003
4
|
|
|
4.5
|
|
Guarantee Agreement by and between Wilshire Bancorp, Inc. and U.S. Bank National Association dated as of December 17, 2003
4
|
|
|
4.6
|
|
Indenture by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of March 17, 2005
4
|
|
|
4.7
|
|
Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., Wilmington Trust Company, Soo Bong Min, Brian E. Cho and Elaine Jeon dated as of March 17, 2005
4
|
|
|
4.8
|
|
Guarantee Agreement by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of March 17, 2005
4
|
|
|
4.9
|
|
Indenture by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of September 15, 2005
4
|
|
|
4.10
|
|
Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., Wilmington Trust Company, Brian E. Cho and Elaine Jeon dated as of September 15, 2005
4
|
117
Table of Contents
|
|
|
|
|
Reference
Number
|
|
Item
|
|
|
4.11
|
|
Guarantee Agreement by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of September 15, 2005
4
|
|
|
4.12
|
|
Indenture by and between Wilshire Bancorp, Inc. and LaSalle Bank National Association dated as of July 10, 2007.
5
|
|
|
4.13
|
|
Amended and Restated Declaration of Trust by and among LaSalle National Trust Delaware, LaSalle Bank National Association, Wilshire Bancorp, Inc., Soo Bong Min and Brian E. Cho dated as of July 10,
2007.
5
|
|
|
4.14
|
|
Guarantee Agreement by and between Wilshire Bancorp, Inc. and LaSalle Bank National Association dated as of July 10, 2007.
5
|
|
|
4.15
|
|
Form of Certificate for the Series A Preferred Stock
2
|
|
|
4.16
|
|
Warrant to Purchase Common Stock
2
|
|
|
10.1
|
|
Stock Purchase Agreement by and between Wilshire State Bank and OSB Financial Services, Inc.
9
|
|
|
10.2
|
|
Consulting Agreement with Soo Bong Min dated December 19, 2007
6,
7
|
|
|
10.3
|
|
Letter Agreement, dated as of December 12, 2008, including the Securities Purchase Agreement—Standard Terms incorporated by reference therein, between the Company and the United States Department of the
Treasury
2
|
|
|
10.4
|
|
Additional Letter Agreement, dated as of December 12, 2008, between the Company and the United States Department of the Treasury
2
|
|
|
10.5
|
|
Form of Letter Agreement, executed by each of Joanne Kim, Alex Ko, Sung Soo Han, Seung Hoon Kang, and David Kim
2
|
|
|
10.6
|
|
Form of Waiver, executed by each of Joanne Kim, Alex Ko, Sung Soon Han, Seung Hoon Kang, and David Kim
2
|
|
|
10.7
|
|
Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Mirae Bank, Federal Deposit Insurance Corporation and Wilshire State Bank, dated as of June 26, 2009
13
|
|
|
10.8
|
|
2008 Stock Option Plan of Wilshire Bancorp, Inc.
6,
8
|
|
|
10.9
|
|
Lease dated July 31, 2009 between the Company and AYM Investment LLC, Laurel-Crest Group LLC, and Synchronicity LLC. (Downtown Branch)
12
|
|
|
10.10
|
|
Lease dated January 21, 2010 between the Company and System II LLC. (Cerritos Branch)
12
|
|
|
10.11
|
|
Addendum to Fashion Town Branch Lease, dated May 31, 2009 between the Company and San Pedro Properties LP. (Fashion Town Branch)
12
|
|
|
10.12
|
|
Lease dated July 28, 2009 between the Company and New Hampshire Apartments, Inc.(Torrance Branch)
12
|
|
|
10.13
|
|
Lease dated August 12, 2009 between the Company and KamHing Realty-NYC LLC.(Manhattan Branch)
12
|
|
|
10.14
|
|
Addendum to Denver LPO Lease, dated August 11, 2008 between the Company and RMC/Pavillion Towers, LLC. (Denver, CO LPO)
12
|
|
|
10.15
|
|
Lease dated December 15, 2009 between the Company and NDI Development. (Atlanta, GA LPO)
12
|
|
|
10.16
|
|
Addendum to Denver LPO Lease, dated March 31, 2008 between the Company and YPI 9801 Westheimer, LLC. (Houston, TX LPO)
12
|
|
|
10.17
|
|
Addendum to Annandale, VA LPO Lease, dated February 25, 2010 between the Company and Young H. Lim and InjooBaik.(Annandale, VA LPO)
12
|
|
|
10.18
|
|
Lease dated November 19, 2009 between the Company and Regency Centers, LP.(Van Nuys Branch)
12
|
|
|
10.19
|
|
Lease dated September 2, 2008 between the Company and Roosevelt Avenue Corp. (Flushing, NY Branch)
12
|
118
Table of Contents
|
|
|
|
|
Reference
Number
|
|
Item
|
|
|
10.20
|
|
Lease dated July 31, 2009 between the Company and 2140 Lake, LLC c/o Jamison Services Inc. (Olympic Branch)
12
|
|
|
10.21
|
|
Employment Agreement by and between the Bank and Jae Whan Yoo, effective February 18, 2011
10
|
|
|
10.22
|
|
Form of Restricted Stock Agreement
11
|
|
|
10.23
|
|
Lease dated November 10, 2010 between the Company and LACOLA, INC. (Gardena, CA Branch)
14
|
|
|
10.24
|
|
Underwriting agreement, dated May 11, 2011, by and between Wilshire Bancorp, Inc. and J.P. Morgan Securities LLC, as representative of the underwriters named therein
15
|
|
|
10.25
|
|
Wilshire State Bank Directors Survivor Income Plan, dated July 1, 2005 as amended on December 19, 2007
6
|
|
|
10.26
|
|
Wilshire State Bank Executive Survivor Income Plan, dated July 1, 2005 as amended on December 19, 2007
6
|
|
|
11
|
|
Statement Regarding Computation of Net Earnings per Share
16
|
|
|
12.1
|
|
Statement regarding computation of ratios of earnings to fixed charges
|
|
|
21
|
|
Subsidiaries of the Registrant
|
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
99.1
|
|
Certification Pursuant To Section 111(B)(4) Of The Emergency Economic Stabilization Act Of 2008, As Amended (Principal Executive Officer)
|
|
|
99.2
|
|
Certification Pursuant To Section 111(B)(4) Of The Emergency Economic Stabilization Act Of 2008, As Amended (Principal Financial Officer)
|
|
|
101
|
|
The following materials from the Company's annual report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance
Sheets as of December 31, 2011 and 2010, (ii) Condensed Consolidated Statements of Income for the years ended December 31, 2011, 2010, and 2009, (iii) Condensed Consolidated Statement of Changes in Stockholders' Equity and
Non-controlling Interests for the years ended December 31, 2011, 2010, and 2009, (iv) Condensed Consolidated Statements of Cash Flows, for the years ended December 31, 2011, 2010, and 2009, and (v) Notes to Condensed Consolidated
Financial Statements, tagged as blocks of text.
|
-
1
-
Incorporated
by reference to the Exhibits in the Registration Statement on Form S-4, as filed with the SEC on June 15,
2004.
-
2
-
Incorporated
by reference to the Exhibits in the Company's Form 8-K, as filed with the SEC on December 17, 2008.
-
3
-
Incorporated
by reference to the Exhibits in the Registration Statement on Form S-4, as filed with the SEC on April 1,
2004.
-
4
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 16, 2007.
-
5
-
Incorporated
by reference to the Exhibits to the Company's Form 10-Q, as filed with the SEC on November 9, 2007.
119
Table of Contents
-
6
-
Indicates
compensation or compensatory plan, contract, or arrangement.
-
7
-
Incorporated
by reference to the Exhibits to the Company's Form 8-K, as filed with the SEC on December 20, 2007.
-
8
-
Incorporated
by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A, as filed with the SEC on
May 8, 2008.
-
9
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 12, 2009.
-
10
-
Incorporated
by reference to the Exhibit in the Company's Form 8-K, as filed with the SEC on February 24, 2011.
-
11
-
Incorporated
by reference to the Exhibit in the Company's Form 8-K, as filed with the SEC on December 3, 2009.
-
12
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 1, 2010.
-
13
-
Incorporated
by reference to the Exhibit to the Company's Form 8-K, as filed with the SEC on July 1, 2009.
-
14
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 16, 2011.
-
15
-
Incorporated
by reference to the Exhibits to the Company's Form 8-K, as filed with the SEC on May 12, 2011.
-
16
-
The
information required by this Exhibit is incorporated by reference from Note 19 of the Company's Financial Statements included
herein.
120
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this Amendment
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
Date: March 14, 2012
|
|
WILSHIRE BANCORP, INC.
a California corporation
|
|
|
By:
|
|
/s/ ALEX KO
Alex Ko
Chief Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ STEVEN KOH
Steven Koh
|
|
Chairman and Director
|
|
March 14, 2012
|
/s/ JAE WHAN YOO
Jae Whan Yoo
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
March 14, 2012
|
/s/ LAWRENCE JEON
Lawrence Jeon
|
|
Director
|
|
March 14, 2012
|
/s/ KYU-HYUN KIM
Kyu-Hyun Kim
|
|
Director
|
|
March 14, 2012
|
/s/ RICHARD Y. LIM
Richard Y. Lim
|
|
Director
|
|
March 14, 2012
|
/s/ JOHN TAYLOR
John Taylor
|
|
Director
|
|
March 14, 2012
|
/s/ CRAIG MAUTNER
Craig Mautner
|
|
Director
|
|
March 14, 2012
|
121
Table of Contents
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ YOUNG H. PAK
Young H. Pak
|
|
Director
|
|
March 14, 2012
|
/s/ HARRY SIAFARIS
Harry Siafaris
|
|
Director
|
|
March 14, 2012
|
/s/ DONALD BYUN
Donald Byun
|
|
Director
|
|
March 14, 2012
|
/s/ ALEX KO
Alex Ko
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 14, 2012
|
122
Table of Contents
Wilshire Bancorp, Inc.
Financial Statements as of December 31, 2011
and 2010 and for Each of the Three Years in the
Period Ended December 31, 2011 and
Report of Independent Registered Public
Accounting Firm
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Wilshire Bancorp, Inc.
Los Angeles, California
We
have audited the accompanying consolidated statements of financial condition of Wilshire Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 2011 and 2010,
and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wilshire Bancorp, Inc. and subsidiaries as of
December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting
principles generally accepted in the United States of America.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2011, based on the criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 14, 2012 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/
Deloitte & Touche LLP
Costa
Mesa, California
March 14, 2012
F-1
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
155,245
|
|
$
|
68,530
|
|
|
Federal funds sold and other cash equivalents
|
|
|
170,005
|
|
|
130,005
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
325,250
|
|
|
198,535
|
|
|
Securities available-for-sale, at fair value (amortized cost of $312 million and $314 million at December 31, 2011 and
December 31, 2010, respectively)
|
|
|
320,064
|
|
|
316,622
|
|
|
Securities held-to-maturity, at amortized cost (fair value of $70 thousand and $89 thousand at December 31, 2011 and December 31, 2010,
respectively)
|
|
|
66
|
|
|
85
|
|
|
Loans receivable (net of allowance for loan losses of $103 million and $111 million at December 31, 2011 and December 31, 2010,
respectively)
|
|
|
1,824,690
|
|
|
2,177,768
|
|
|
Loans held-for-sale, at the lower of cost or market
|
|
|
53,814
|
|
|
37,904
|
|
|
Federal Home Loan Bank stock
|
|
|
15,523
|
|
|
18,531
|
|
|
Other real estate owned
|
|
|
8,221
|
|
|
14,983
|
|
|
Due from customers on acceptances
|
|
|
414
|
|
|
368
|
|
|
Cash surrender value of bank owned life insurance
|
|
|
19,888
|
|
|
18,662
|
|
|
Investment in affordable housing partnerships
|
|
|
37,676
|
|
|
28,186
|
|
|
Bank premises and equipment
|
|
|
12,612
|
|
|
13,330
|
|
|
Accrued interest receivable
|
|
|
8,118
|
|
|
10,581
|
|
|
Deferred income taxes
|
|
|
—
|
|
|
46,357
|
|
|
Servicing assets
|
|
|
8,798
|
|
|
7,331
|
|
|
Goodwill
|
|
|
6,675
|
|
|
6,675
|
|
|
Core deposits intangibles
|
|
|
1,320
|
|
|
1,645
|
|
|
FDIC loss-share indemnification
|
|
|
21,922
|
|
|
28,199
|
|
|
Other assets
|
|
|
31,803
|
|
|
44,763
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
2,696,854
|
|
$
|
2,970,525
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
511,467
|
|
$
|
467,067
|
|
|
Interest bearing:
|
|
|
|
|
|
|
|
|
Savings
|
|
|
99,106
|
|
|
83,205
|
|
|
Money market and NOW accounts
|
|
|
596,397
|
|
|
692,395
|
|
|
Time deposits of $100,000 or more
|
|
|
647,537
|
|
|
699,685
|
|
|
Other time deposits
|
|
|
347,802
|
|
|
518,588
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,202,309
|
|
|
2,460,940
|
|
|
Federal Home Loan Bank advances and other borrowings
|
|
|
60,000
|
|
|
158,011
|
|
|
Junior subordinated debentures
|
|
|
87,321
|
|
|
87,321
|
|
|
Accrued interest payable
|
|
|
3,281
|
|
|
4,092
|
|
|
Acceptances outstanding
|
|
|
414
|
|
|
368
|
|
|
Other liabilities
|
|
|
33,947
|
|
|
30,631
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,387,272
|
|
|
2,741,363
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $1,000 par value—authorized, 5,000,000 shares; issued and outstanding, 62,158 shares at December 31, 2011 and December 31,
2010
|
|
|
61,000
|
|
|
60,450
|
|
|
Common stock, no par value—authorized, 80,000,000 shares; issued and outstanding, 71,282,518 shares and 29,477,638 shares at December 31, 2011
and December 31, 2010, respectively
|
|
|
164,711
|
|
|
55,601
|
|
|
Accumulated other comprehensive income, net of tax
|
|
|
6,761
|
|
|
2,012
|
|
|
Retained earnings
|
|
|
77,110
|
|
|
111,099
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
|
309,582
|
|
|
229,162
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
2,696,854
|
|
$
|
2,970,525
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Years
in the Periods Ended December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
121,707
|
|
$
|
140,028
|
|
$
|
139,295
|
|
|
Interest on investment securities
|
|
|
7,177
|
|
|
14,726
|
|
|
16,573
|
|
|
Interest on federal funds sold
|
|
|
1,080
|
|
|
1,666
|
|
|
2,486
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
129,964
|
|
|
156,420
|
|
|
158,354
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits
|
|
|
18,541
|
|
|
37,096
|
|
|
48,690
|
|
|
Interest on FHLB advances and other borrowings
|
|
|
2,057
|
|
|
3,124
|
|
|
7,073
|
|
|
Interest on junior subordinated debentures
|
|
|
1,991
|
|
|
2,484
|
|
|
3,128
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
22,589
|
|
|
42,704
|
|
|
58,891
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
|
107,375
|
|
|
113,716
|
|
|
99,463
|
|
|
PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
|
59,100
|
|
|
150,800
|
|
|
68,600
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
|
48,275
|
|
|
(37,084
|
)
|
|
30,863
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
12,570
|
|
|
12,545
|
|
|
12,738
|
|
|
Gain on sale of loans, net
|
|
|
5,186
|
|
|
6,261
|
|
|
3,694
|
|
|
Valuation of loans held-for-sale
|
|
|
(3,084
|
)
|
|
—
|
|
|
—
|
|
|
Loan-related servicing fees
|
|
|
4,615
|
|
|
4,163
|
|
|
3,703
|
|
|
Gain on sale or call of securities
|
|
|
99
|
|
|
8,782
|
|
|
11,158
|
|
|
Gain from acquisition of Mirae Bank
|
|
|
—
|
|
|
—
|
|
|
21,679
|
|
|
Other income
|
|
|
4,419
|
|
|
4,161
|
|
|
4,344
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
23,805
|
|
|
35,912
|
|
|
57,316
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
28,540
|
|
|
29,074
|
|
|
26,498
|
|
|
Occupancy and equipment
|
|
|
7,826
|
|
|
7,984
|
|
|
7,456
|
|
|
Net loss (gain) on sale of OREO
|
|
|
3,053
|
|
|
2,073
|
|
|
(416
|
)
|
|
Regulatory assessment fee
|
|
|
3,945
|
|
|
4,524
|
|
|
4,780
|
|
|
Professional fees
|
|
|
6,709
|
|
|
5,009
|
|
|
2,337
|
|
|
Data processing
|
|
|
2,892
|
|
|
2,721
|
|
|
3,969
|
|
|
Low income housing tax credit investment losses
|
|
|
2,454
|
|
|
2,282
|
|
|
—
|
|
|
Other operating expenses
|
|
|
13,366
|
|
|
13,709
|
|
|
12,745
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
68,785
|
|
|
67,376
|
|
|
57,369
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
|
3,295
|
|
|
(68,548
|
)
|
|
30,810
|
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
|
33,625
|
|
|
(33,790
|
)
|
|
10,686
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
|
(30,330
|
)
|
|
(34,758
|
)
|
|
20,124
|
|
|
Preferred stock cash dividend and accretion of preferred stock
|
|
|
3,658
|
|
|
3,626
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(33,988
|
)
|
$
|
(38,384
|
)
|
$
|
16,504
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) EARNINGS PER COMMON SHARE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,420,291
|
|
|
Diluted
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,429,299
|
|
|
COMMON STOCK CASH DIVIDEND DECLARED:
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared on common shares
|
|
$
|
—
|
|
$
|
1,478
|
|
$
|
5,883
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per common share
|
|
$
|
—
|
|
$
|
0.05
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
Numbers
of Shares
|
|
Amount
|
|
Numbers
of Shares
|
|
Amount
|
|
Retained
Earnings
|
|
Total
Shareholders'
Equity
|
|
|
BALANCE—January 1, 2009
|
|
|
62,158
|
|
$
|
59,443
|
|
|
29,413,757
|
|
$
|
54,038
|
|
$
|
1,239
|
|
$
|
140,340
|
|
$
|
255,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
1,900
|
|
|
5
|
|
|
|
|
|
|
|
|
5
|
|
|
Restricted stock granted
|
|
|
|
|
|
|
|
|
67,650
|
|
|
25
|
|
|
|
|
|
|
|
|
25
|
|
|
Cash dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,883
|
)
|
|
(5,883
|
)
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,108
|
)
|
|
(3,108
|
)
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
|
850
|
|
|
Accretion of discount on preferred stock
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
(512
|
)
|
|
(24
|
)
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,124
|
|
|
20,124
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on interest-only strips (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
51
|
|
|
Change in net unrealized gain on available-for-sale (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(964
|
)
|
|
|
|
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2009
|
|
|
62,158
|
|
$
|
59,931
|
|
|
29,483,307
|
|
$
|
54,918
|
|
$
|
326
|
|
$
|
150,961
|
|
$
|
266,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
11,800
|
|
|
98
|
|
|
|
|
|
|
|
|
98
|
|
|
Restricted stock forfeited
|
|
|
|
|
|
|
|
|
(18,192
|
)
|
|
(37
|
)
|
|
|
|
|
|
|
|
(37
|
)
|
|
Cash dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
723
|
|
|
(6
|
)
|
|
|
|
|
(1,472
|
)
|
|
(1,478
|
)
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,113
|
)
|
|
(3,113
|
)
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
626
|
|
|
|
|
|
|
|
|
626
|
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
2
|
|
|
Accretion of discount on preferred stock
|
|
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
(519
|
)
|
|
—
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,758
|
)
|
|
(34,758
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on interest-only strips (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
(16
|
)
|
|
Change in net unrealized gain on available-for-sale (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,702
|
|
|
|
|
|
1,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2010
|
|
|
62,158
|
|
$
|
60,450
|
|
|
29,477,638
|
|
$
|
55,601
|
|
$
|
2,012
|
|
$
|
111,099
|
|
$
|
229,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised/forfeited
|
|
|
|
|
|
|
|
|
1,760
|
|
|
5
|
|
|
|
|
|
|
|
|
5
|
|
|
Restricted stock granted/forfeited, net
|
|
|
|
|
|
|
|
|
(15,020
|
)
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
Issuance of additional stock under public offering, net of associated offering costs
|
|
|
|
|
|
|
|
|
41,818,140
|
|
|
108,711
|
|
|
|
|
|
|
|
|
108,711
|
|
|
Cash dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,108
|
)
|
|
(3,108
|
)
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
394
|
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
Accretion of discount on preferred stock
|
|
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
(550
|
)
|
|
—
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,330
|
)
|
|
(30,330
|
)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on interest-only strips (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
12
|
|
|
Change in net unrealized gain on available-for-sale (net of tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,737
|
|
|
|
|
|
4,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE—December 31, 2011
|
|
|
62,158
|
|
$
|
61,000
|
|
|
71,282,518
|
|
$
|
164,711
|
|
$
|
6,761
|
|
$
|
77,110
|
|
$
|
309,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Years Ended
December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
DISCLOSURE OF RECLASSIFICATION AMOUNTS WITHIN ACCUMULATED OTHER COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on securities available-for-sale arising during year
|
|
$
|
4,828
|
|
$
|
11,542
|
|
$
|
9,674
|
|
|
Reclassification adjustment for gains realized in net income
|
|
|
(99
|
)
|
|
(8,782
|
)
|
|
(11,158
|
)
|
|
Less income tax (benefit) expense
|
|
|
(8
|
)
|
|
1,058
|
|
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
Net change in net unrealized gains on securities available-for-sale
|
|
$
|
4,737
|
|
$
|
1,702
|
|
$
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on interest-only strips arising during period
|
|
$
|
20
|
|
$
|
(28
|
)
|
$
|
84
|
|
|
Less income tax expense (benefit)
|
|
|
8
|
|
|
(12
|
)
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized changes in net gains (losses) on interest-only strips
|
|
$
|
12
|
|
$
|
(16
|
)
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
(Concluded)
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For each of the Three Years in the
Period Ended December 31
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(30,330
|
)
|
$
|
(34,758
|
)
|
$
|
20,124
|
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
Used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of investment securities
|
|
|
5,531
|
|
|
6,307
|
|
|
4,138
|
|
|
Depreciation of Bank premises and equipment
|
|
|
2,257
|
|
|
2,129
|
|
|
2,112
|
|
|
Accretion of discount on acquired loans
|
|
|
(2,404
|
)
|
|
(4,000
|
)
|
|
(8,312
|
)
|
|
Amortization of core deposit intangibles
|
|
|
325
|
|
|
368
|
|
|
605
|
|
|
Amortization of investments in affordable housing partnerships
|
|
|
—
|
|
|
—
|
|
|
1,289
|
|
|
Provision for losses on loans and loan commitments
|
|
|
59,100
|
|
|
150,800
|
|
|
68,600
|
|
|
Provision for other real estate owned losses
|
|
|
1,368
|
|
|
1,358
|
|
|
435
|
|
|
Deferred tax valuation (benefit)
|
|
|
32,910
|
|
|
(28,716
|
)
|
|
(6,146
|
)
|
|
Loss on disposition of bank premises and equipment
|
|
|
38
|
|
|
20
|
|
|
17
|
|
|
Gain from acquisition of Mirae Bank
|
|
|
—
|
|
|
—
|
|
|
(21,679
|
)
|
|
Net realized gain on sale of loans held-for-sale
|
|
|
(5,186
|
)
|
|
(6,261
|
)
|
|
(3,694
|
)
|
|
Proceeds from sale of loans held-for-sale
|
|
|
430,525
|
|
|
111,300
|
|
|
66,232
|
|
|
Origination of loans held-for-sale
|
|
|
(449,545
|
)
|
|
(202,802
|
)
|
|
(80,139
|
)
|
|
Loss on valuation of held-for-sale impaired loans
|
|
|
3,084
|
|
|
—
|
|
|
—
|
|
|
Net realized gain on sale of available-for-sale securities
|
|
|
(99
|
)
|
|
(8,782
|
)
|
|
(11,158
|
)
|
|
Change in unrealized appreciation on servicing assets
|
|
|
692
|
|
|
646
|
|
|
565
|
|
|
Disposition of servicing rights
|
|
|
256
|
|
|
149
|
|
|
265
|
|
|
Net realized loss (gain) on sale of other real estate owned
|
|
|
3,053
|
|
|
2,073
|
|
|
(416
|
)
|
|
Share-based compensation expense
|
|
|
394
|
|
|
583
|
|
|
875
|
|
|
Change in cash surrender value of life insurance
|
|
|
(607
|
)
|
|
(626
|
)
|
|
(546
|
)
|
|
Servicing assets capitalized
|
|
|
(2,415
|
)
|
|
(1,228
|
)
|
|
(995
|
)
|
|
Tax benefit from exercise of stock options
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Decrease (increase) in accrued interest receivable
|
|
|
2,463
|
|
|
4,685
|
|
|
(3,797
|
)
|
|
Loss on investments in affordable housing partnerships
|
|
|
2,454
|
|
|
2,282
|
|
|
—
|
|
|
(Increase) decrease in other assets
|
|
|
21,012
|
|
|
(44,356
|
)
|
|
(25,274
|
)
|
|
Dividends of Federal Home Loan Bank stock
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
Decrease in accrued interest payable
|
|
|
(811
|
)
|
|
(1,774
|
)
|
|
(4,045
|
)
|
|
Increase in other liabilities
|
|
|
210
|
|
|
19,367
|
|
|
1,561
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
74,327
|
|
|
(31,236
|
)
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from principal repayment, matured or called securities held-to-maturity
|
|
|
20
|
|
|
24
|
|
|
29
|
|
|
Purchase of securities available-for-sale
|
|
|
(140,849
|
)
|
|
(553,055
|
)
|
|
(866,880
|
)
|
|
Proceeds from principal repayments, matured, called, or sold securities available-for-sale
|
|
|
136,703
|
|
|
892,985
|
|
|
505,605
|
|
|
Net increase (decrease) in loans receivable
|
|
|
159,296
|
|
|
(56,914
|
)
|
|
(121,041
|
)
|
|
Payment of FDIC loss share indemnification
|
|
|
12,284
|
|
|
14,525
|
|
|
7,737
|
|
|
Proceeds from sale of other loans
|
|
|
95,909
|
|
|
130,313
|
|
|
16,824
|
|
|
Proceeds from sale of other real estate owned
|
|
|
23,686
|
|
|
16,647
|
|
|
2,946
|
|
|
Purchases of investments in affordable housing partnerships
|
|
|
(8,391
|
)
|
|
(4,780
|
)
|
|
(6,002
|
)
|
|
Purchases of bank premises and equipment
|
|
|
(636
|
)
|
|
(829
|
)
|
|
(3,234
|
)
|
|
Redemption of Federal Home Loan Bank stock
|
|
|
3,008
|
|
|
2,319
|
|
|
—
|
|
|
Purchases of bank owned life insurance
|
|
|
(619
|
)
|
|
—
|
|
|
(96
|
)
|
|
Net cash and cash equivalents acquired from acquisition of Mirae Bank
|
|
|
—
|
|
|
—
|
|
|
5,724
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
280,411
|
|
|
441,235
|
|
|
(458,388
|
)
|
|
|
|
|
|
|
|
|
|
(Continued)
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For each of the
Three Years in the Period Ended
December 31,
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
$
|
5
|
|
$
|
98
|
|
$
|
5
|
|
|
Proceeds from issuance of additional stock under public offering, net of associated offering costs
|
|
|
108,711
|
|
|
—
|
|
|
—
|
|
|
Payment of cash dividend on common stock
|
|
|
—
|
|
|
(2,949
|
)
|
|
(5,883
|
)
|
|
Payment of cash dividend on preferred stock
|
|
|
(3,108
|
)
|
|
(3,108
|
)
|
|
(2,875
|
)
|
|
Increase in Federal Home Loan Bank advances and other borrowings
|
|
|
190,000
|
|
|
113,496
|
|
|
295,000
|
|
|
Decrease in Federal Home Loan Bank advances and other borrowings
|
|
|
(265,000
|
)
|
|
(187,485
|
)
|
|
(412,500
|
)
|
|
Tax benefit from exercise of stock option
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Net (decrease) increase in deposits
|
|
|
(258,631
|
)
|
|
(367,275
|
)
|
|
722,240
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(228,023
|
)
|
|
(447,221
|
)
|
|
595,987
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
126,715
|
|
|
(37,222
|
)
|
|
138,216
|
|
|
CASH AND CASH EQUIVALENTS—Beginning of period
|
|
|
198,535
|
|
|
235,757
|
|
|
97,541
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS—End of period
|
|
$
|
325,250
|
|
$
|
198,535
|
|
$
|
235,757
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
23,400
|
|
$
|
44,477
|
|
$
|
59,983
|
|
|
Income taxes paid
|
|
$
|
94
|
|
$
|
16,509
|
|
$
|
21,105
|
|
|
Income tax refunds received
|
|
$
|
23,239
|
|
$
|
142
|
|
$
|
43
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired through foreclosures
|
|
$
|
22,875
|
|
$
|
29,191
|
|
$
|
6,428
|
|
|
Note financing for sale of other loans
|
|
$
|
32,681
|
|
$
|
90,054
|
|
$
|
24,857
|
|
|
Note financing for sale of other OREO
|
|
$
|
—
|
|
|
—
|
|
$
|
2,924
|
|
|
Loans transferred to held-for-sale from loans receivable
|
|
$
|
148,489
|
|
$
|
(31,632
|
)
|
$
|
17,806
|
|
|
Net assets acquired from Mirae Bank
|
|
$
|
—
|
|
$
|
—
|
|
$
|
21,679
|
|
|
Loans transferred to loans receivable from held-for-sale
|
|
$
|
16,291
|
|
$
|
—
|
|
$
|
—
|
|
|
Other assets transferred to Bank premises and equipment
|
|
$
|
941
|
|
$
|
1,990
|
|
$
|
290
|
|
|
Transferred to SBA loans sold from other secured borrowings the balance is
|
|
$
|
20,806
|
|
$
|
—
|
|
$
|
—
|
|
|
Transferred to gain on sale of loans from other secured borrowings
|
|
$
|
2,205
|
|
$
|
—
|
|
$
|
—
|
|
|
Common stock cash dividend declared, but not paid
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,471
|
|
|
Preferred stock cash dividend declared, but not paid
|
|
$
|
388
|
|
$
|
388
|
|
$
|
388
|
|
|
Shares issued to underwriters in lieu of associated underwriting fees
|
|
|
2,317,523
|
|
|
—
|
|
|
—
|
|
(Concluded)
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wilshire Bancorp, Inc. (the "Company") succeeded to the business and operations of Wilshire State Bank, a California state-chartered commercial bank (the "Bank"), upon
consummation of the reorganization of the Bank into a holding company structure, effective as of August 25, 2004. Wilshire State Bank was incorporated under the laws of the State of California
on May 20, 1980 and commenced operations on December 30, 1980. The Company was incorporated in December 2003 as a wholly owned subsidiary of the Bank for the purpose of facilitating the
issuance of trust preferred securities for the Bank and eventually serving as the holding company of the Bank. The Bank's shareholders approved reorganization into a holding company structure at a
meeting held on August 25, 2004. As a result of the reorganization, shareholders of the Bank are now shareholders of the Company and the Bank is a direct subsidiary of the Company. The Bank's
primary source of revenue is from providing financing for business working capital, commercial real estate, and trade activities, and its investment portfolio. The accounting and reporting policies of
the Bank are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.
Principles of Consolidation
—The consolidated financial statements include the accounts of the Company and its subsidiaries. Inter-company
transactions
and accounts have been eliminated in consolidation.
Corrections to Amounts Previously Reported
—For the year ended December 31, 2010, $2 million loss (rounded) on investments in affordable
housing partnerships was reclassified from cash flows from investing activities to cashflows from operating activities on the consolidated statements of cash flows. In addition, for the year ended
December 31, 2010, $21 million (rounded) was reclassified from loans receivable (net of allowance for loan losses) to loans held-for-sale, at the lower of cost or market on
the consolidated statements of financial position. There was no impact on the December 31, 2010 total assets, liabilities & shareholders' equity, on the consolidated statements of
financial position. On the consolidated statements of cash flows, cash flow from operating activities decreased to ($31 million) from ($12 million) as a result of $2 million
reflected in loss on investment in affordable housing partnerships and $21 million deducted from proceeds from sale of loans held-for-sale (which decreased from $132 million to
$111 million). Cash flows from investing activities increased from $422 million to $441 million as a result of no longer including $2 million loss on investment in
affordable housing partnerships and increasing $21 million in change in loans receivable (which increased from ($78 million) to ($57 million)).
Cash and Cash Equivalents
—Cash and cash equivalents include cash and due from banks, term and overnight federal funds sold, and securities
purchased
under agreements to resell. As of December 31, 2011, $155.2 million of cash and cash equivalents was from cash and due from banks, while $170.0 million was term federal funds
sold.
Investment Securities
—Investments are classified into three categories and accounted for as follows:
-
(i)
-
Securities
that the Company has the positive intent and ability to hold-to-maturity are classified as
"held-to-maturity" and reported at amortized cost;
-
(ii)
-
Securities
that are bought and held principally for the purpose of selling them in the near future are classified as "trading securities" and reported at
fair value. The Company had no
F-8
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accreted
discounts and amortized premiums on investment securities are included in interest income using the effective interest method, and unrealized and realized gains or losses
related to holding or selling securities are calculated using the specific-identification method.
In
accordance with Accounting Standards Codification ("ASC") 320-10-35-18, "
Recognition and Presentation of
Other-Than-Temporary Impairments",
an other-than-temporary-impairment ("OTTI") is recognized if the fair value of a debt
security is lower than the amortized cost and the debt security will be sold, it is more likely than not, that the Company will be required to sell the security before recovering the amortized cost,
or if it is expected that not all of the amortized cost will be recovered. Credit related declines in the fair value of debt securities below their amortized cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses in the consolidated statements of operations. Declines related to factors aside from credit issues are
reflected in other comprehensive income, net of taxes. The Company did not record any other-than-temporary-impairments on investment securities in 2011, 2010, and 2009. The
accounting treatment for interest-only strips (I/O strips) are similar to debt securities; impairment charges reduces the cost basis of the I/O strips and reduce earnings.
Investment
in available-for-sale securities is recorded at fair value pursuant to ASC 320-10-35-1. Fair value measurement is
based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring
observable inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. The securities available-for-sale includes federal agency securities,
mortgage-backed securities, collateralized mortgage obligations, municipal bonds and corporate debt securities. The Company's existing investment available-for-sale security
holdings as of December 31, 2011 are measured using matrix pricing models in lieu of direct price quotes and is recorded based on Level 2 measurement inputs.
Loans
—Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are
reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans.
Interest
on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is generally discontinued when a loan is over 90 days delinquent
unless management believes principal and interest on the loan is recoverable. Generally, payments received on nonaccrual loans are recorded as principal reductions. Interest income is recognized after
all principal has been repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest accruals.
F-9
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Certain
loans that may be sold prior to maturity have been designated as held-for-sale at origination and are recorded at the lower of cost or market value. A valuation
allowance is established if the market value of such loans is lower than their cost, and is charged against operating income. The premium on the pro-rata principal of Small Business
Administration or "SBA" loans sold is recognized as gain on sale of loans. The remaining portion of the discount related to the unsold principal of SBA loans is presented as unearned income as
discussed in Note 5 and is deferred and amortized over the remaining life of the loan as an adjustment to yield.
-
(ii)
-
Acquired
Loans
In
accordance with ASC 805 "
Business Combinations
", all acquired loans are recorded at fair value as of the date of an acquisition. The loans in the
portfolio that the Company acquired from the Mirae Bank acquisition are covered by the FDIC loss-sharing agreement and such loans are referred to herein as "covered loans." All loans other
than the covered loans are referred to herein as "non-covered loans." Covered loans acquired from Mirae Bank with evidence of credit deterioration with the probability that all
contractually required payments will not be collected, are accounted for in accordance with ASC 310-30, "
Accounting for Certain Loans or Debt Securities Acquired in
a Transfer
" and are hereby referred to as "SOP 03-3 loans". In contrast, "Non-SOP 03-3" loans are all other covered loans that
do not qualify as SOP 03-3 loans. Loans acquired from Mirae Bank were purchased at a discount at the time of acquisition.
For
Non-SOP 03-3 loans, the Company applies the effective interest income method for the discount accretion. The fair value of SOP 03-3 loans,
however, is recorded at the time of acquisition with expected credit losses factored in and incurred over the life of the loan. The Company estimates the amount and timing of expected cash flows for
each purchased loan or pool of loans, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan. Over the life of the loan, expected cash
flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. However, if the present value of expected cash flows is greater than
the carrying amount, it is recognized as part of future interest income.
Nonrefundable
fees, net of incremental costs, associated with the origination of loans are deferred and recognized as an adjustment of the loan yield over the life of the loans using the
interest method. Other loan fees and charges, representing service costs for the prepayment of loans, for delinquent payments, or for miscellaneous loan services, are recorded as income when
collected.
Allowance for Loan Losses
—Accounting for the allowance for loan losses involves significant judgment and assumptions by management and is based on
historical data and estimation of probable losses inherent in the loan portfolio. The Company's methodology for assessing loan loss allowances is intended to reduce the differences between estimated
and actual losses and involves a detailed analysis of the loan portfolio in three phases:
-
•
-
the specific review of individual loans in accordance with ASC 310-10, "
Accounting by
Creditors for Impairment of a Loan"
,
F-10
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
-
•
-
the segmenting of loan pools with similar characteristics and utilizing historical losses on these pools in accordance
with ASC 450-10, "
Accounting for Contingencies"
, and
-
•
-
a judgmental estimate based on various qualitative factors.
In
2010, the Company enhanced the overall allowance for loan losses methodology. The key enhancements to the allowance methodology involved changes to the general valuation allowance
calculation. As a result of changes to the Company's loan portfolio since the initial implementation of the allowance for loan losses methodology, enhancements were made to the migration model and
qualitative adjustment calculation to better reflect the current environment and risk in the loan portfolio. The enhancements to the historical loss rate calculation included a change in the analysis
period from five to three years. In addition, the qualitative adjustment matrix was enhanced to include updated risk factors and an enhanced systematic calculation.
The
first phase of the allowance analysis involves the specific review of individual loans to identify and measure impairment. At this phase, each loan is evaluated except for some
homogeneous loans, such as automobile loans and overdraft loans which are evaluated as a pool based on historical losses. Specific risk-rated loans are deemed impaired with respect to all
amounts, including principal and interest, which will likely not be collected in accordance with the contractual terms of the related loan agreement. Impairment for commercial and real estate loans is
measured either based on the present value of the loan's expected future cash flows or, if collection on the loan is collateral dependent, the estimated fair value of the collateral less estimated
selling costs.
The
second phase involves segmenting the remainder of the risk-rated loan portfolio into groups or pools of loans, together with loans with similar characteristics and loan
grades, for evaluation in accordance with ASC 450-10. Loss migration analysis is performed to calculate the loss migration ratio for each loan pool based on its historical net losses and
benchmark it against the levels of other peer banks. Historical data from the previous 12 quarters is used with more weighting emphasis on recent quarters.
In
the third phase, the Company considers relevant internal and external factors that may affect the collectability of the loan portfolio and each group of loan pools. As a general rule,
the factors listed below will be considered to have insignificant impact to the loss migration analysis. However, if there exists information to warrant adjustment to the loss migration ratios, the
changes will be made in accordance with the established parameters and supported by narrative and/or statistical analysis. A credit risk matrix is used to evaluate the presence, severity, and trends
of each of the qualitative factors. The factors currently considered are, but are not limited to concentration of credit, delinquency trend, nature and volume of loan trend, non-accrual
and problem loan trends, quality loan review, economic conditions, and external factors such as changes in legal and regulatory requirements, on the level of estimated credit losses in the current
portfolio. For all factors, the extent of the adjustment will be commensurate with the severity of the conditions that concern each factor.
Servicing Assets & Interest Only Strips
—Upon sales of SBA guaranteed loans, the Company receives a fee for servicing the loans. A
servicing
asset is recorded based on the present value of the contractually specified servicing fee, net of servicing cost, over the estimated life of the loan, with an average discount rate and a range of
constant prepayment rates of the related loans. For purposes of impairment, the interest only strips are measured by collateral types while serving assets are accounted
F-11
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
for
at fair value. On January 1, 2007, the Company adopted ASC 860-50, "
Accounting for Servicing of Financial Assets"
. Any subsequent
increase or decrease in fair value of servicing assets and liabilities is to be included with loan related servicing income on current earnings in the statement of operations.
An
interest-only strip is recorded based on the present value of the excess future interest income based on the difference in sold and originated loan interest rates, which
generally amounts to 1.00%, over the contractually specified servicing fee, calculated using the same assumptions as noted above.
I/O strips are accounted for at their estimated fair value, with unrealized gains recorded as an adjustment in accumulated other comprehensive income in shareholders' equity. If the estimated fair
value is less than its carrying value, management performs an assessment to determine whether an other-than-temporary impairment charged to the earnings is required. I/O strips
are subsequently amortized over the remaining life of the loan as an adjustment to yield and monitored for impairment.
Bank Premises and Equipment
—Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation on building,
furniture, fixtures, and
equipment is computed on the straight-line method over the estimated useful lives of the related assets, which range from 3 to 30 years. Leasehold improvements are capitalized and
amortized on the straight-line method over the term of the lease or the estimated useful lives of the improvements, whichever is shorter.
Other Real Estate Owned ("OREO")
—Other real estate owned, which represents real estate acquired through foreclosure in satisfaction of commercial
and
real estate loans, is stated at fair value less estimated selling costs of the real estate. The fair value of OREO is determined through appraisals or independent valuation. Loan balances in excess of
the fair value of the real estate acquired at the date of acquisition are charged to the allowance for loan losses.
Covered
Other Real Estate Owned, or OREO covered under the loss sharing agreements with the FDIC in connection with the acquisition of Mirae Bank are reported in relation to the expected
cash flows reimbursements from the FDIC. Once covered loan collateral becomes other real estate owned, the OREO is booked at the fair market value less selling cost. Decrease in fair values on covered
OREOs results in a reduction of the carrying value and increases the estimated reimbursement amount from the FDIC.
Any
subsequent operating expenses or income, reduction in estimated fair values, and gains or losses on disposition of such properties are recorded in current operations.
Impairment of Long-Lived Assets
—The Company reviews its long-lived assets for impairment annually or when events or
circumstances indicate that the carrying amount of these assets may not be recoverable. An asset is considered impaired when the expected undiscounted cash flows over the remaining useful life are
less than the net book value. When impairment is indicated for an asset, the amount of impairment loss is the excess of the net book value over its fair value.
Federal Home Loan Bank ("FHLB") Stock
—The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the
level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and both cash and stock dividends are reported as
income. An impairment analysis of FHLB Stock is performed annually or when events or circumstances indicate possibility of impairment.
F-12
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Bank Owned Life Insurance ("BOLI") Obligation
—ASC 715-60-35, "
Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,
" requires an employer to recognize obligations associated with endorsement split-dollar
life insurance arrangements that extend into the participant's post-employment benefit cost for the continuing life insurance or based on the future death benefit depending on the
contractual terms of the underlying agreement. The Company adopted ASC 715-60-35 on January 1, 2008, using the latter option, i.e., based on the future death
benefit. Upon this adoption, the Company recognized increases in the liability for unrecognized post-retirement obligations of $806,000 and $1,070,000 for directors and officers,
respectively, as a cumulative adjustment to the year's beginning equity. During 2011 and 2010, the increase in BOLI expense and liability related to the adoption of ASC
715-60-35 was $510,000 and $628,000, respectively, which was included as part of the other expenses and other liabilities balances in the consolidated financial statements.
Affordable Housing Investment Partnerships
—The Company has invested in limited partnerships formed to develop and operate affordable housing units
for
lower income tenants throughout the states of California, Texas, and New York. The investments were accounted for using the equity method of accounting. If the partnerships cease to qualify during the
compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken is subject to recapture with interest. The
carrying value of such investments and commitments to fund investment in affordable housing is recorded as "Investment in affordable housing partnerships" in the consolidated statement of financial
condition. Commitment to fund investments in affordable housing is also included in the line items but is also grossed up and recorded in other liabilities.
Goodwill
—The Company recognized goodwill in connection with the acquisition of Liberty Bank of New York. In accordance with ASC 350-20,
"
Goodwill and Other Intangible Assets"
, goodwill is subject to impairment testing at least annually. The goodwill impairment testing involves
significant judgment and assumptions by management to which there is always some degree of uncertainty. The Company tested goodwill for impairment as of December 31, 2011. There was no recorded
impairment of goodwill as of December 31, 2011 (see Note 15).
FDIC Indemnification Asset
—With the acquisition of Mirae Bank, The Bank entered into a loss-sharing agreement with the FDIC for amounts
receivable under the agreement. The Company accounted for the receivable balances under the loss-sharing agreement as an FDIC Indemnification asset in accordance with ASC 805
"
Business Combinations
". The FDIC indemnification was accounted for on the date of the acquisition by adding the present value of all the cash flows
that the Company expected to collect from the FDIC as stated in the loss-sharing agreement. As expected and actual cash flows increase and decreased from what was expected at the time of
acquisition and with payment received from the FDI, the FDIC indemnification will decrease and increase, respectively. When covered loans are paid-off and sold, the FDIC indemnification
asset is reduced and is offset with interest income. Covered loans that become impaired, increases the indemnification asset by the insured amount.
Income Taxes
—The Company accounted for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method,
F-13
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
deferred
tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of a change in tax rates on deferred tax rates for deferred tax assets and liabilities is recognized in income in the period that includes the
enacted date.
The
Company accounts for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the financial reporting and tax basis of its assets and
liabilities. Valuation allowances are established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the deferred
tax assets will not be realized. During the first quarter of 2011, the Company reviewed its analysis of whether a valuation allowance should be recorded against its deferred tax assets. The
determination of whether a deferred tax asset is realizable is based on weighing all available evidence, including both positive and negative evidence. In making such judgments, significant weight is
given to evidence that can be objectively verified. During the first quarter of 2011, the estimated realization period for the deferred tax asset based on forecasts of future earnings extended further
into the 20-year carry-forward period. This extended realization period, combined with the objective evidence of a three-year cumulative loss position, represented significant
negative evidence that caused the Company to conclude that a $38.1 million net deferred tax valuation allowance was necessary during the first quarter of 2011.
To
the extent that the Company can generate taxable income in a given quarter, the valuation allowance may be reduced to fully or partially offset the corresponding income tax expense.
As of
December 31, 2011, valuation allowance for deferred tax asset was $41.3 million and these remaining deferred tax asset valuation allowance will reverse through income tax expense if the
Company can demonstrate a sustainable return to profitability that would lead management to conclude that it is more- likely-than-not that the deferred tax asset
will be utilized during the carry-forward period. As of December 31, 2011, 2010, and 2009, the Company had net deferred tax assets of $0, $46.4 million, and $18.7 million,
respectively.
In
2007, the Company adopted the provision of ASC 740-10-25, "
Accounting for Uncertainty in Income Taxes",
which
clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with 740-10, "
Accounting for Income
Taxes"
. ASC 740-10-25 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position
will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. A tax position is recognized as a benefit only if it is "more
likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company recognized an increase in the liability
for unrecognized tax benefit of $178,000 and related interest of $23,000 in 2011. As of December 31, 2011, the total unrecognized tax benefit was $543,000, and related interest was $55,000.
Earnings per Share
—Basic earnings per share ("EPS") exclude dilution and are computed by dividing earnings available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Company.
F-14
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive (Loss) Income
—Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized
gains and losses on I/O strips and securities available-for-sale. The accumulated change in other comprehensive income, net of tax, was recognized as a separate component of
equity.
Dividend Restrictions
—Banking regulations require maintaining certain capital levels and
may limit the dividends paid by the bank to the Company or by the Company to shareholders. In addition, as part of the TARP agreement, the Company is limited to declare or pay or set apart for
dividend payments on any common shares or shares of any other series of preferred stock rankings prior to fully fulfilling the dividend payment requirement of the TARP.
Stock-Based Compensation
—The Company issued stock-based compensation to certain employees, officers, and directors. The Company accounted for
stock-based compensation in accordance with ASC 718-10, "
Share-Based Payment
". Compensation cost is based on the grant-date fair
value of those awards.
Use of Estimates in the Preparation of Financial Statements
—The preparation of financial statements in conformity with accounting principles
generally
accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Recent Accounting Pronouncements
In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310), "
A Creditor's
Determination of Whether a Restructuring is a Troubled Debt Restructuring
". The provisions of ASU No. 2011-02 provide additional guidance related to
determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is
insignificant, prohibits creditors from using the borrower's effective rate test to evaluate whether a concession has been granted to the borrower, and adds factors for creditors to use in determining
whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB's deferral of the additional disclosures about troubled debt
restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Company's reporting period ending September 30,
2011. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial statements.
On
April 29, 2011, the FASB issued ASU 2011-03, which eliminates from U.S. GAAP the requirement for entities to consider whether a transferor
(i.e., seller) has the ability to repurchase the financial assets in a repurchase agreement ("repo"). This requirement was one of the criteria under ASC 860 that entities used to determine
whether the transferor maintained effective control. Although entities must consider all the effective-control criteria under ASC 860, the elimination of this requirement may lead to more conclusions.
The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.
F-15
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In May, 2011, the FASB issued ASU No. 2011-04, "
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs
." The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or
requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for
disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are
effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The adoption of this pronouncement is not expected to have
a material impact on the Company's consolidated financial statements.
In
June, 2011, the FASB issued ASU No. 2011-05, "
Amendments to Topic 220, Comprehensive Income."
ASU
2011-05 requires all non-owner changes in stockholders' equity to be presented either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. Under the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should
present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The pronouncement should be applied retrospectively and effective for
fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this pronouncement is not expected to have a material
impact on the Company's consolidated financial statements.
In
September 2011, the FASB issued ASU 2011-08, "
Intangibles—Goodwill and Other
", which allows for an entity to
first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity
determines that it is more likely than not that its fair value is less than its carrying amount. The pronouncement is effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011. Early adoption is permitted. The
adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.
In
December 2011, the FASB issued ASU 2011-12, "
Comprehensive Income (Topic 220)
." This guidance defers the effective date for
amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in ASU No. 2011-05. This guidance is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. The adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial
statements.
2. FEDERALLY ASSISTED ACQUISITION OF MIRAE BANK
The FDIC placed Mirae under receivership upon Mirae's closure by the California Department of Financial Institutions ("DFI") at the close of business on June 26, 2009. The Bank
purchased substantially all of Mirae's assets and assumed all of Mirae's deposits and certain other liabilities. Further, the Company entered into a loss sharing agreement with the FDIC in connection
with the Mirae acquisition. Under the loss sharing agreement, the FDIC will share in the losses on assets
F-16
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
2. FEDERALLY ASSISTED ACQUISITION OF MIRAE BANK (Continued)
covered
under the agreement, which generally include loans acquired from Mirae and foreclosed loan collateral existing at June 26, 2009 (referred to collectively as "covered assets"). With
respect to losses of up to $83.0 million on the covered assets, the FDIC has agreed to reimburse the Bank for 80 percent of the losses. On losses exceeding $83.0 million, the FDIC
agreed to reimburse the Bank for 95 percent of the losses. The loss sharing agreements are subject to the Bank's compliance with servicing procedures and satisfying certain other conditions
specified in the agreements with the FDIC. The term for the FDIC's loss sharing on single family loans is ten years, and the term for loss sharing on
non-single family loans is five years with respect to losses and eight years with respect to loss recoveries. As a result of the loss sharing agreement with the FDIC, the Company has
recorded an indemnification asset from the FDIC based on the estimated value of the indemnification agreement of $40.2 million at June 26, 2009.
The
Mirae acquisition was accounted for under the purchase method of accounting in accordance with ASC 805. The statement of net assets and assumed liabilities were recorded at their
respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. A "bargain purchase gain" totaling $21.7 million resulted from the acquisition and is
included as a component of noninterest income on the 2009 statement of income. The amount of gain is equal to the amount by which the fair value of assets purchased exceeded the fair value of
liabilities assumed as no consideration was paid to purchase Mirae Bank.
F-17
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
2. FEDERALLY ASSISTED ACQUISITION OF MIRAE BANK (Continued)
The
estimated fair value of the assets purchased and liabilities assumed are presented in the following table:
Statement of Net Assets Acquired
(Dollars in Thousands)
|
|
|
|
|
|
|
|
At June 26, 2009
|
|
|
Assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,724
|
|
|
Securities
|
|
|
55,371
|
|
|
Loans
|
|
|
285,685
|
|
|
Core deposit intangible
|
|
|
1,330
|
|
|
FDIC loss-sharing receivable
|
|
|
40,235
|
|
|
Other assets
|
|
|
7,301
|
|
|
|
|
|
|
|
Total assets
|
|
|
395,646
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Deposits
|
|
|
293,375
|
|
|
FHLB borrowings
|
|
|
75,500
|
|
|
Other liabilities
|
|
|
5,092
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
373,967
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
21,679
|
|
|
|
|
|
|
|
Mirae Bank's net assets acquired before fair valuation adjustments
|
|
$
|
36,928
|
|
|
Adjustments to reflect assets acquired and liabilities assumed at fair value:
|
|
|
|
|
|
Loans, net
|
|
|
(54,964
|
)
|
|
Securities
|
|
|
(1,829
|
)
|
|
FDIC loss share indemnification
|
|
|
40,235
|
|
|
Core deposit intangible
|
|
|
1,330
|
|
|
Deposits
|
|
|
(375
|
)
|
|
Servicing rights
|
|
|
354
|
|
|
|
|
|
|
|
Bargain purchase gain
|
|
$
|
21,679
|
|
|
|
|
|
|
F-18
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
2. FEDERALLY ASSISTED ACQUISITION OF MIRAE BANK (Continued)
The
table below reflects the FDIC indemnification assets from the date of the acquisition to December 31, 2011:
FDIC Indemnification Asset
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Beginning balance
|
|
$
|
28,199
|
|
$
|
33,775
|
|
$
|
40,235
|
|
|
Additions resulting from charge-offs or impairment
|
|
|
8,251
|
|
|
11,928
|
|
|
4,356
|
|
|
Additions (deletions) from loans transferred to OREO
|
|
|
(73
|
)
|
|
858
|
|
|
—
|
|
|
Payments received from the FDIC
|
|
|
(11,967
|
)
|
|
(14,525
|
)
|
|
(7,725
|
)
|
|
Reimbursement of expense from the FDIC
|
|
|
(317
|
)
|
|
(1,833
|
)
|
|
—
|
|
|
Write-downs resulting from loans sold or paid-off
|
|
|
(2,171
|
)
|
|
(2,004
|
)
|
|
(3,091
|
)
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31,
|
|
$
|
21,922
|
|
$
|
28,199
|
|
$
|
33,775
|
|
|
|
|
|
|
|
|
|
|
Mirae
Bank prior to the acquisition on June 26, 2009 was not a public traded company and therefore did not file any quarterly reports with the SEC. It was determined that Mirae
Bank's financial information for years prior to the acquisition was unreliable. In accordance with ASC 805, proforma requirement were considered, however, due to the lack of information it was deemed
impractical to provide the information required as the Company was unable to substantiate any of the significant assumptions of management prior to the acquisition.
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES
In September 2006, the FASB issued ASC 820 "
Fair Value Measurement and Disclosure
", which provides a definition of fair value, establishes
a framework for measuring fair value, and requires expanded disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an arm's length transaction between market participants in the markets where the Company conducts business. ASC 820 clarifies that fair value should be based on the assumptions
market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy
gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency.
The
fair value inputs of the instruments are classified and disclosed in one of the following categories pursuant to ASC 820:
Level 1—Unadjusted
quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The quoted price
shall not be adjusted for the blockage factor (i.e., size of the position relative to trading volume).
Level 2—Pricing
inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair value
is determined through
F-19
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES (Continued)
the
use of models or other valuation methodologies, including the use of pricing matrices. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for
substantially the full term of the asset or liability.
Level 3—Pricing
inputs are inputs unobservable for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The inputs into the determination of fair value require
significant management judgment or estimation.
In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy
is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its
entirety requires judgment and considers factors specific to the financial instrument.
The
Company adopted ASC 820-10 as of January 1, 2008 and ASC 820-10-35 as of October 10, 2008. It used the following methods and
assumptions in estimating the fair value disclosure for financial instruments. Financial assets and liabilities recorded at fair value on a recurring and non-recurring basis are listed as
follows:
Securities available-for-sale
—Investment in available-for-sale securities is recorded at
fair value pursuant to ASC 320-10, "
Accounting for Certain Investments in Debt and Equity Securities
". Fair value measurement is based upon
quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable
inputs other than quoted prices such as yield curves, prepayment speeds, and default rates. The securities available-for-sale include federal
agency securities, mortgage-backed securities, collateralized mortgage obligations, municipal bonds and corporate debt securities. The Company's existing investment
available-for-sale security holdings as of December 31, 2011 are measured using matrix pricing models in lieu of direct price quotes and recorded based on Level 2
measurement inputs.
Collateral dependent impaired loans
—A loan is considered to be impaired when it is probable that all of the principal and interest due under
the original underwriting terms of the loan may not be collected. Fair value of collateral dependent loans is measured based on the fair value of the underlying collateral. The fair value is
determined by management in part through the use of appraisals or by actual selling prices for loans that are under contract to sell. It is the Company's policy to update appraisals on all collateral
dependent impaired loans every six months or less.
The
Company obtains appraisals for all loans that have been identified by management as non-performing or potentially non-performing at month-end following such
identification. Thereafter, the Company's Credit Administrator Clerk monitors all of the collateral dependent impaired loans and other non-performing loans on a monthly basis to ensure
that updated appraisals are ordered and received at least every six months. Once an appraisal is received by the Bank, the difference between the appraisal value and the balance of the loan will
result in either a special valuation allowance for that difference or charge-off of the difference in accordance with
F-20
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES (Continued)
the
Company's loan policy. The Company does not charge-off or make special allowances for only a portion of the difference between the appraisal value and the balance of the loan.
For
any loan that has already been partially charged-off, there will be no change in the classification of that loan unless it satisfies the Company's policy guidelines for returning a
non-performing loan to a performing loan. The Company records impairments on all nonaccrual loans and trouble debt restructured loans based on the valuation methods above with the
exception of automobile loans. Automobile loans are assessed based on a homogenous pool of loans and the Company has established specific reserves which is a component of the allowance for loan
losses. The Company records impaired loans as non-recurring with Level 3 measurement inputs.
Other real estate owned ("OREO")
—Other real estate owned or ("OREO"), consists principally of properties acquired through foreclosures. The
fair values of OREOs are recorded at the lower of carrying value of the loan or estimated fair value at the time of foreclosure less selling costs which are based on industry standards for estimated
costs to sell OREO. Fair values are derived from third party appraisals less selling costs, which is based on industry standards for estimated costs to sell, and written offers that have been
accepted. Management periodically performs valuations on OREO properties for fair valuation. Any subsequent declines in the fair value of the OREO property after the date of transfer are recorded as a
write-down of the asset. However, in accordance with ASC 820-10, the fair value disclosures for financial instruments and OREOs are recorded at fair value and are presented
based on appraised values and are not adjusted for selling costs. The Company classifies OREO as non-recurring with Level 3 measurement inputs.
Servicing assets and interest-only strips
—Small Business Administration ("SBA") loan servicing assets and
interest-only strips represent the value associated with servicing SBA loans sold. The value is determined through a discounted cash flow analysis which uses discount rates, prepayment
speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management judgment. The fair market valuation is performed on a quarterly basis for
servicing assets while I/O strips are measured by collateral types. The Company classifies SBA loan servicing assets and interest-only strips as recurring with Level 3 measurement
inputs.
Servicing liabilities
—SBA loan servicing liabilities represent the value associated with servicing unguaranteed portions of SBA loans sold.
The value is determined through a discounted cash flow analysis which uses discount rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant
degree of management judgment. The fair market valuation is performed on a quarterly basis. The Company classifies SBA loan servicing liabilities as recurring with Level 3 measurement inputs.
F-21
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES (Continued)
The
tables below summarize the valuation of the Company's financial instruments measured on a recurring basis by the above ASC 820-10 fair value hierarchy levels as of
December 31, 2011 and December 31, 2010:
Financial Instruments Measured at Fair Value on a Recurring Basis
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Total Fair
Value
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government sponsored enterprises
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mortgage backed securities
|
|
|
14,475
|
|
|
—
|
|
|
14,475
|
|
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
246,881
|
|
|
—
|
|
|
246,881
|
|
|
—
|
|
|
Corporate securities
|
|
|
24,414
|
|
|
—
|
|
|
24,414
|
|
|
—
|
|
|
Municipal securities
|
|
|
34,294
|
|
|
—
|
|
|
34,294
|
|
|
—
|
|
|
Servicing assets
|
|
|
8,798
|
|
|
—
|
|
|
—
|
|
|
8,798
|
|
|
Interest-only strips
|
|
|
551
|
|
|
—
|
|
|
—
|
|
|
551
|
|
|
Servicing liabilities
|
|
|
(374
|
)
|
|
—
|
|
|
—
|
|
|
(374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
Total Fair
Value
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government sponsored enterprises
|
|
$
|
36,220
|
|
$
|
—
|
|
$
|
36,220
|
|
$
|
—
|
|
|
Mortgage backed securities
|
|
|
18,907
|
|
|
—
|
|
|
18,907
|
|
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
225,114
|
|
|
—
|
|
|
225,114
|
|
|
—
|
|
|
Corporate securities
|
|
|
2,021
|
|
|
—
|
|
|
2,021
|
|
|
—
|
|
|
Municipal securities
|
|
|
34,360
|
|
|
—
|
|
|
34,360
|
|
|
—
|
|
|
Servicing assets
|
|
|
7,331
|
|
|
—
|
|
|
—
|
|
|
7,331
|
|
|
Interest-only strips
|
|
|
615
|
|
|
—
|
|
|
—
|
|
|
615
|
|
|
Servicing liabilities
|
|
|
(393
|
)
|
|
—
|
|
|
—
|
|
|
(393
|
)
|
F-22
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES (Continued)
Financial
instruments measured at fair value on a recurring basis, which were part of the asset balances that were deemed to have Level 3 fair value inputs when determining
valuation, are identified in the table below by asset category with a summary of changes in fair value for the year ended December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
At
January 1,
2011
|
|
Net
Realized
Gains
(Losses) in
Net
Income
|
|
Unrealized
Gains (Losses)
in Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In or Out of
Level 3
|
|
At
December 31,
2011
|
|
Net
Cumulative
Unrealized
Loss in
Other
Comprehensive
Income
|
|
|
Servicing assets
|
|
$
|
7,331
|
|
|
(692
|
)
|
$
|
—
|
|
$
|
2,159
|
|
$
|
—
|
|
$
|
8,798
|
|
$
|
—
|
|
|
Interest-only strips
|
|
|
615
|
|
|
(83
|
)
|
|
19
|
|
|
—
|
|
|
—
|
|
|
551
|
|
|
(296
|
)
|
|
Servicing liabilities
|
|
|
(393
|
)
|
|
(28
|
)
|
|
—
|
|
|
47
|
|
|
—
|
|
|
(374
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
At
January 1,
2010
|
|
Net
Realized
Gains
(Losses) in
Net
Income
|
|
Unrealized
Gains
(Losses) in
Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In or Out of
Level 3
|
|
At
December 31,
2010
|
|
Net
Cumulative
Unrealized
Loss in
Other
Comprehensive
Income
|
|
|
Servicing assets
|
|
$
|
6,898
|
|
$
|
(406
|
)
|
$
|
—
|
|
$
|
27
|
|
$
|
—
|
|
$
|
7,331
|
|
$
|
—
|
|
|
Interest-only strips
|
|
|
724
|
|
|
(79
|
)
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
615
|
|
|
(284
|
)
|
|
Servicing liabilities
|
|
|
(407
|
)
|
|
14
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(393
|
)
|
|
—
|
|
The
following tables present the aggregated balance of assets measured at estimated fair value on a non-recurring basis at December 31, 2011 and December 31,
2010, and the total losses resulting from these fair value adjustments for the twelve month ended December 31, 2011 and December 31, 2010:
Assets Measured at Fair Value on a Non-Recurring Basis
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
|
|
|
|
Net Realized
Losses in
Net Income
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
Collateral dependent impaired loans
|
|
$
|
—
|
|
$
|
—
|
|
$
|
103,828
|
|
$
|
103,828
|
|
$
|
7,832
|
|
|
OREO
|
|
|
—
|
|
|
—
|
|
|
9,393
|
|
|
9,393
|
|
|
1,368
|
|
|
Impaired loans held-for-sale
|
|
|
—
|
|
|
—
|
|
|
11,083
|
|
|
11,083
|
|
|
4,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
$
|
—
|
|
$
|
124,304
|
|
$
|
124,304
|
|
|
13,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
3. FAIR VALUE OPTION AND MEASUREMENT FOR FINANCIAL ASSETS AND LIABILITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
Net Realized
Losses in
Net Income
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
|
Collateral dependent impaired loans
|
|
$
|
—
|
|
$
|
—
|
|
$
|
110,879
|
|
$
|
110,879
|
|
$
|
5,706
|
|
|
OREO
|
|
|
—
|
|
|
—
|
|
|
19,955
|
|
|
19,955
|
|
|
1,766
|
|
|
Impaired loans held-for-sale
|
|
|
—
|
|
|
—
|
|
|
2,140
|
|
|
2,140
|
|
|
1,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
$
|
—
|
|
$
|
132,974
|
|
$
|
132,974
|
|
$
|
9,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. INVESTMENT SECURITIES
The following is a summary of the investment securities at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
(Dollars in Thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government sponsored enterprises
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Mortgage-backed securities
|
|
|
13,659
|
|
|
816
|
|
|
—
|
|
|
14,475
|
|
|
Collateralized mortgage obligations
|
|
|
241,635
|
|
|
5,299
|
|
|
(53
|
)
|
|
246,881
|
|
|
Corporate securities
|
|
|
24,646
|
|
|
—
|
|
|
(232
|
)
|
|
24,414
|
|
|
Municipal bonds
|
|
|
32,411
|
|
|
1,895
|
|
|
(12
|
)
|
|
34,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
312,351
|
|
$
|
8,010
|
|
$
|
(297
|
)
|
$
|
320,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
66
|
|
$
|
4
|
|
$
|
—
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66
|
|
$
|
4
|
|
$
|
—
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
(Dollars in Thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government sponsored enterprises
|
|
$
|
35,953
|
|
$
|
267
|
|
$
|
—
|
|
$
|
36,220
|
|
|
Mortgage-backed securities
|
|
|
18,129
|
|
|
778
|
|
|
—
|
|
|
18,907
|
|
|
Collateralized mortgage obligations
|
|
|
222,778
|
|
|
2,453
|
|
|
(117
|
)
|
|
225,114
|
|
|
Corporate securities
|
|
|
2,000
|
|
|
21
|
|
|
—
|
|
|
2,021
|
|
|
Municipal bonds
|
|
|
34,779
|
|
|
293
|
|
|
(712
|
)
|
|
34,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
313,639
|
|
$
|
3,812
|
|
$
|
(829
|
)
|
$
|
316,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
$
|
85
|
|
$
|
4
|
|
$
|
—
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85
|
|
$
|
4
|
|
$
|
—
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
4. INVESTMENT SECURITIES (Continued)
As
of December 31, 2011, held-to-maturity ("HTM") securities, which are carried at their amortized costs, decreased from $85,000 in 2010 to $66,000 in
2011. The $19,000 HTM securities reduction in 2011 was due to pay-downs in principal. Available-for-sale securities, stated at their fair market values, increased
to $320.1 million at December 31, 2011 from $316.6 million at December 31, 2010.
Accrued
interest receivable on investment securities totaled $1.4 million and $1.2 million at December 31, 2011 and 2010, respectively.
The
following tables show investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
As of December 31, 2011
(Dollars in Thousands)
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
11,513
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
11,513
|
|
|
(53
|
)
|
|
Corporate securities
|
|
|
24,414
|
|
|
(232
|
)
|
|
—
|
|
|
—
|
|
|
24,414
|
|
|
(232
|
)
|
|
Municipal securities
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
(12
|
)
|
|
799
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
35,927
|
|
$
|
(285
|
)
|
$
|
799
|
|
$
|
(12
|
)
|
$
|
36,726
|
|
$
|
(297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
As of December 31, 2010
(Dollars in Thousands)
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
Gross Unrealized Losses
|
|
|
Mortgage-backed securities
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Collateralized mortgage obligations
|
|
|
27,650
|
|
|
(117
|
)
|
|
—
|
|
|
—
|
|
|
27,650
|
|
|
(117
|
)
|
|
Corporate securities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Municipal securities
|
|
|
20,281
|
|
|
(448
|
)
|
|
1,450
|
|
|
(264
|
)
|
|
21,731
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available-for-sale
|
|
$
|
47,931
|
|
$
|
(565
|
)
|
$
|
1,450
|
|
$
|
(264
|
)
|
$
|
49,381
|
|
$
|
(829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
There
were no held-to-maturity securities with unrealized losses as of December 31, 2011 or December 31,
2010.
Credit
related declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be
other-than-temporary are reflected in earnings as realized losses in the consolidated statements of operations and declines related to all other factors are reflected in other
comprehensive income, net of taxes. In estimating other-than-temporary impairment losses, the Company considers, among other things, (i) the length of time and the
extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the
F-25
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
4. INVESTMENT SECURITIES (Continued)
Company's
intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
The
Company performs an evaluation of the investment portfolio in assessing individual positions that have market values that have declined below cost. In assessing whether there is
other-than-temporary impairment, the Company considers:
-
•
-
Whether or not all contractual cash flows due on a security will be collected
-
•
-
The Company's positive intent and ability to hold the debt security until recovery in fair value or maturity
A
number of factors are considered in the analysis, whether or not all contractual cash flows due on a security will be collected, including but not limited
to:
-
•
-
Issuer's credit rating
-
•
-
Likelihood of the issuer's default or bankruptcy
-
•
-
Collateral underlying the security
-
•
-
Industry in which the issuer operates
-
•
-
Nature of the investment
-
•
-
Severity and duration of the decline in fair value
-
•
-
Analysis of the average life and effective maturity of the security
The
Company does not believe that any individual unrealized loss as of December 31, 2011 represent an other-than-temporary impairment. An
other-than-temporary impairment ("OTTI") is recognized if the fair value of a debt security is lower than the amortized cost and the debt security will be sold, it is more
likely than not, that it will be required to sell the security before recovering the amortized cost, or if it is expected that not all of the amortized cost will be recovered. Credit related declines
in the fair value of debt securities below their amortized cost that are deemed to be other-than-temporary are reflected in earnings as realized losses in the consolidated
statements of operations. Declines related to factors aside from credit issues are reflected in other comprehensive income, net of taxes.
F-26
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
4. INVESTMENT SECURITIES (Continued)
The
amortized cost and estimated fair value of investment securities by their contractual maturities are shown below at December 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
(Dollars in Thousands)
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
—
|
|
$
|
—
|
|
$
|
295
|
|
$
|
300
|
|
|
Due after one year through five years
|
|
|
27,460
|
|
|
27,378
|
|
|
3,132
|
|
|
3,220
|
|
|
Due after five years through ten years
|
|
|
4,559
|
|
|
4,836
|
|
|
43,809
|
|
|
44,303
|
|
|
Due after ten years
|
|
|
280,332
|
|
|
287,850
|
|
|
266,403
|
|
|
268,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
312,351
|
|
$
|
320,064
|
|
$
|
313,639
|
|
$
|
316,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Due after one year through five years
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Due after five years through ten years
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Due after ten years
|
|
|
66
|
|
|
70
|
|
|
85
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66
|
|
$
|
70
|
|
$
|
85
|
|
$
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
with fair values of approximately $304.4 million and $308.7 million were pledged to secure public deposits and for other purposes as required or permitted by law
at December 31, 2011 and 2010, respectively. Of the $304.4 million in pledged investment at December 31, 2011, $218.7 million were pledged to secure certain deposits. In
addition to securing deposits, $37.6 million in investments was pledged at the Federal Reserve Bank Discount Window and $40.2 million was pledged at the Federal Home Loan Bank. The
remainder was pledged against secured borrowing lines available at our correspondent banks.
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of loans as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
(Dollars in Thousands)
|
|
Loans Held
for Sale
|
|
Loans
Receivable
|
|
Loans Held
for Sale
|
|
Loans
Receivable
|
|
|
Commercial loans
|
|
$
|
5,752
|
|
$
|
275,607
|
|
$
|
5,876
|
|
$
|
320,543
|
|
|
Real estate loans
|
|
|
48,062
|
|
|
1,641,418
|
|
|
32,028
|
|
|
1,957,257
|
|
|
Consumer loans
|
|
|
—
|
|
|
15,080
|
|
|
—
|
|
|
15,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
53,814
|
|
|
1,932,105
|
|
|
37,904
|
|
|
2,293,485
|
|
|
Allowance for loan losses
|
|
|
—
|
|
|
(102,982
|
)
|
|
—
|
|
|
(110,953
|
)
|
|
Deferred loan fees
|
|
|
—
|
|
|
315
|
|
|
—
|
|
|
(494
|
)
|
|
Unearned income
|
|
|
—
|
|
|
(4,748
|
)
|
|
—
|
|
|
(4,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
$
|
53,814
|
|
$
|
1,824,690
|
|
$
|
37,904
|
|
$
|
2,177,768
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 2011, 2010, and 2009, the Company serviced loans sold to unaffiliated parties in the amounts of $488.3 million, $463.9 million, and
$432.6 million, respectively.
The
maturity or repricing distribution of the loan portfolio at December 31, 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Loans
Held-for-Sale
|
|
Loans
Receivable
|
|
Total Loans
|
|
|
Less than one year
|
|
$
|
53,186
|
|
$
|
1,409,139
|
|
$
|
1,462,325
|
|
|
One to five years
|
|
|
—
|
|
|
493,078
|
|
|
493,078
|
|
|
After five years
|
|
|
628
|
|
|
29,888
|
|
|
30,516
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
$
|
53,814
|
|
$
|
1,932,105
|
|
$
|
1,985,919
|
|
|
|
|
|
|
|
|
|
|
The
rate composition of the loan portfolio as of December 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Loans
Held-for-Sale
|
|
Loans
Receivable
|
|
Total Loans
|
|
|
Fixed rate loans
|
|
|
2,468
|
|
|
780,511
|
|
|
782,979
|
|
|
Variable rate loans
|
|
|
51,346
|
|
|
1,151,594
|
|
|
1,202,940
|
|
|
|
|
|
|
|
|
|
|
|
Total gross loans
|
|
|
53,814
|
|
|
1,932,105
|
|
|
1,985,919
|
|
|
|
|
|
|
|
|
|
|
The
amounts on the tables above are the gross loan balance at December 31, 2011 before netting deferred loan fees and unearned income totaling $4.4 million.
As
of June 26, 2009, the Company acquired Mirae Bank through the FDIC. Upon acquiring certain assets and liabilities, the Company entered into loss sharing agreements with the
FDIC where the FDIC will share in losses on assets covered under the agreements. With respect to losses of up to $83.0 million on the covered assets, the FDIC has agreed to reimburse the Bank
for 80 percent of the losses. On losses exceeding $83.0 million, the FDIC has agreed to reimburse the Bank for 95 percent of the losses. The term for the FDIC's loss sharing on
single family loans is ten years, and the term for loss sharing on non-single family loans is five years for losses and eight years for loss recoveries. As of December 31, 2011, the
balance of loans which are subject to the single family loss sharing agreement was $320,000 and the balance of loans which are subject to the non-single family loss sharing agreement was
$165.2 million. As of December 31, 2010, the balance of loans which are subject to the single family loss sharing agreement was $1.3 million and the balance of loans which are
subject to the non-single family loss sharing agreement was $208.2 million. For those purchased loans, the Company increased the net allowance for loan losses to
$10.3 million and $6.6 million for 2011 and 2010, respectively.
F-28
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
The
carrying amount of those loans as of December 31 for the years indicated are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Non SOP 03-3 Loans
|
|
$
|
163,446
|
|
$
|
203,701
|
|
$
|
248,204
|
|
|
SOP 03-3 Loans
|
|
|
2,044
|
|
|
5,789
|
|
|
10,879
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding balance
|
|
$
|
165,490
|
|
$
|
209,490
|
|
$
|
259,083
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value, net of allowance for loan losses
|
|
$
|
155,148
|
|
$
|
202,886
|
|
$
|
258,330
|
|
|
|
|
|
|
|
|
|
|
SOP 03-3
loans are purchased loans for which it was probable at acquisition that all contractually required payments would not be collected. Following is the summary
of SOP 03-3 loans as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Breakdown of SOP 03-03 loans:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate loans
|
|
$
|
1,838
|
|
$
|
5,064
|
|
$
|
6,881
|
|
|
Commercial loans
|
|
|
206
|
|
|
725
|
|
|
3,998
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,044
|
|
$
|
5,789
|
|
$
|
10,879
|
|
|
|
|
|
|
|
|
|
|
Loans
acquired from Mirae Bank were purchased at a discount. Accretion of $2.4 million on loans purchased at discount of $54.9 million was recorded as interest income in
2011 and $4.0 million in accretion income was recorded in 2010.
The
Company evaluates credit risks associated with the commitments to extend credit and letters of credit at the same time it evaluates credit risk associated with the loan portfolio.
However, the allowances necessary for the commitments are reported separately in other liabilities in the accompanying statements of financial condition and are not part of the allowance for loan
losses as presented above.
The
activity in the allowance for loan losses was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Balance—beginning of year
|
|
$
|
110,953
|
|
|
62,130
|
|
|
29,437
|
|
|
Provision for loan losses
|
|
|
59,603
|
|
|
148,800
|
|
|
67,328
|
|
|
FDIC receivable
|
|
|
8,092
|
|
|
5,053
|
|
|
856
|
|
|
Loans charged-off
|
|
|
(80,547
|
)
|
|
(109,229
|
)
|
|
(36,743
|
)
|
|
Recoveries of charge-offs
|
|
|
4,881
|
|
|
3,610
|
|
|
1,252
|
|
|
Transferred from off balance sheet item
|
|
|
—
|
|
|
589
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Balance—end of year
|
|
$
|
102,982
|
|
|
110,953
|
|
|
62,130
|
|
|
|
|
|
|
|
|
|
|
F-29
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
The
activity in liabilities for losses on loan commitments was as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Balance—beginning of year
|
|
$
|
3,926
|
|
$
|
2,515
|
|
$
|
1,243
|
|
|
Provision (benefit) for losses on loan commitments
|
|
|
(503
|
)
|
|
2,000
|
|
|
1,272
|
|
|
Transferred to on-balance sheet loan loss provision
|
|
|
—
|
|
|
(589
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Balance—end of year
|
|
$
|
3,423
|
|
$
|
3,926
|
|
$
|
2,515
|
|
|
|
|
|
|
|
|
|
|
The
following tables represent the roll-forward and breakdown by loan type of the allowance for loan losses for the years ended December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Station
|
|
|
|
Hotel/
Motel
|
|
|
|
|
|
Residential
Real
Estate
|
|
|
|
SBA
Real
Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
December 31, 2011
|
|
Carwash
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
(Dollars In Thousands)
|
|
|
Balance at Beginning of Year
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
Total Charge-Off
|
|
|
4,143
|
|
|
8,779
|
|
|
21,127
|
|
|
3,430
|
|
|
17,760
|
|
|
2,258
|
|
|
3,805
|
|
|
963
|
|
|
2,869
|
|
|
7,061
|
|
|
260
|
|
|
72,455
|
|
|
Total Recoveries
|
|
|
—
|
|
|
87
|
|
|
2
|
|
|
107
|
|
|
119
|
|
|
3
|
|
|
—
|
|
|
170
|
|
|
146
|
|
|
4,182
|
|
|
65
|
|
|
4,881
|
|
|
Provision For Loan Losses
|
|
|
5,027
|
|
|
9,476
|
|
|
13,810
|
|
|
2,301
|
|
|
25,894
|
|
|
3,092
|
|
|
761
|
|
|
1,384
|
|
|
1,232
|
|
|
(3,540
|
)
|
|
166
|
|
|
59,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Year End
|
|
$
|
4,816
|
|
$
|
7,003
|
|
$
|
11,768
|
|
$
|
1,616
|
|
$
|
48,043
|
|
$
|
3,453
|
|
$
|
4,218
|
|
$
|
2,522
|
|
$
|
3,859
|
|
$
|
15,532
|
|
$
|
152
|
|
$
|
102,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Station
|
|
|
|
Hotel/
Motel
|
|
|
|
|
|
Residential
Real
Estate
|
|
|
|
SBA
Real
Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
December 31, 2010
|
|
Carwash
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
(Dollars In Thousands)
|
|
|
Balances at beginning of year
|
|
$
|
2,109
|
|
$
|
3,835
|
|
$
|
4,631
|
|
$
|
1,202
|
|
$
|
18,329
|
|
$
|
806
|
|
$
|
411
|
|
$
|
3,535
|
|
$
|
5,425
|
|
$
|
21,615
|
|
$
|
232
|
|
$
|
62,130
|
|
|
Total Charge-Off
|
|
|
4,363
|
|
|
6,585
|
|
|
18,473
|
|
|
11,045
|
|
|
44,968
|
|
|
1,829
|
|
|
401
|
|
|
3,314
|
|
|
2,902
|
|
|
15,080
|
|
|
266
|
|
|
109,226
|
|
|
Total recoveries
|
|
|
82
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
200
|
|
|
45
|
|
|
5
|
|
|
719
|
|
|
421
|
|
|
1,981
|
|
|
143
|
|
|
3,607
|
|
|
FDIC Indemnification
|
|
|
432
|
|
|
529
|
|
|
130
|
|
|
—
|
|
|
(79
|
)
|
|
—
|
|
|
—
|
|
|
373
|
|
|
290
|
|
|
3,313
|
|
|
65
|
|
|
5,053
|
|
|
Provision For Loan Losses
|
|
|
5,672
|
|
|
8,440
|
|
|
32,784
|
|
|
12,481
|
|
|
66,308
|
|
|
3,594
|
|
|
7,247
|
|
|
618
|
|
|
2,116
|
|
|
10,122
|
|
|
7
|
|
|
149,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance At Year End
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below represent the breakdown of allowance by specific valuation and general valuation allowance at December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Station
|
|
|
|
Hotel/
Motel
|
|
|
|
|
|
Residential
Real
Estate
|
|
|
|
SBA
Real
Estate
|
|
SBA
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
December 31, 2011
|
|
Carwash
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
(Dollars In Thousands)
|
|
|
Impaired Loans
|
|
$
|
8,572
|
|
$
|
7,330
|
|
$
|
8,570
|
|
$
|
281
|
|
$
|
21,748
|
|
$
|
1,502
|
|
$
|
12,548
|
|
$
|
14,166
|
|
$
|
1,909
|
|
$
|
5,242
|
|
$
|
—
|
|
$
|
81,868
|
|
|
Specific Allowance
|
|
$
|
183
|
|
$
|
935
|
|
$
|
529
|
|
$
|
83
|
|
$
|
2,472
|
|
$
|
114
|
|
$
|
2,304
|
|
$
|
1,363
|
|
$
|
1,473
|
|
$
|
4,599
|
|
$
|
—
|
|
$
|
14,055
|
|
|
Loss Coverage Ratio
|
|
|
2.13
|
%
|
|
12.76
|
%
|
|
6.17
|
%
|
|
29.54
|
%
|
|
11.37
|
%
|
|
7.59
|
%
|
|
18.36
|
%
|
|
9.62
|
%
|
|
77.16
|
%
|
|
87.73
|
%
|
|
0.00
|
%
|
|
17.17
|
%
|
|
Non-Impaired Loans
|
|
$
|
102,457
|
|
$
|
47,321
|
|
$
|
132,252
|
|
$
|
17,568
|
|
$
|
1,048,248
|
|
$
|
114,364
|
|
$
|
49,284
|
|
$
|
103,269
|
|
$
|
38,861
|
|
$
|
235,347
|
|
$
|
15,080
|
|
$
|
1,904,051
|
|
|
General Valuation Allowance
|
|
$
|
4,633
|
|
$
|
6,068
|
|
$
|
11,239
|
|
$
|
1,533
|
|
$
|
45,571
|
|
$
|
3,339
|
|
$
|
1,914
|
|
$
|
1,159
|
|
$
|
2,386
|
|
$
|
10,933
|
|
$
|
152
|
|
$
|
88,927
|
|
|
Loss Coverage Ratio
|
|
|
4.52
|
%
|
|
12.82
|
%
|
|
8.50
|
%
|
|
8.73
|
%
|
|
4.35
|
%
|
|
2.92
|
%
|
|
3.88
|
%
|
|
1.12
|
%
|
|
6.14
|
%
|
|
4.65
|
%
|
|
1.01
|
%
|
|
4.67
|
%
|
|
Gross Loans
|
|
$
|
111,029
|
|
$
|
54,651
|
|
$
|
140,822
|
|
$
|
17,849
|
|
$
|
1,069,996
|
|
$
|
115,866
|
|
$
|
61,832
|
|
$
|
117,435
|
|
$
|
40,770
|
|
$
|
240,589
|
|
$
|
15,080
|
|
$
|
1,985,919
|
|
|
Total Allowance For Loan Losses
|
|
$
|
4,816
|
|
$
|
7,003
|
|
$
|
11,768
|
|
$
|
1,616
|
|
$
|
48,043
|
|
$
|
3,453
|
|
$
|
4,218
|
|
$
|
2,522
|
|
$
|
3,859
|
|
$
|
15,532
|
|
$
|
152
|
|
$
|
102,982
|
|
|
Loss Coverage Ratio
|
|
|
4.34
|
%
|
|
12.81
|
%
|
|
8.36
|
%
|
|
9.05
|
%
|
|
4.49
|
%
|
|
2.98
|
%
|
|
6.82
|
%
|
|
2.15
|
%
|
|
9.47
|
%
|
|
6.46
|
%
|
|
1.01
|
%
|
|
5.19
|
%
|
F-30
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas
Station
|
|
|
|
Hotel/
Motel
|
|
|
|
|
|
Residential
Real
Estate
|
|
|
|
SBA
Real
Estate
|
|
SBA£
Commercial
|
|
|
|
Consumer/
Other
|
|
|
|
|
December 31, 2010
|
|
Carwash
|
|
Land
|
|
Other
|
|
Construction
|
|
Commercial
|
|
Total
|
|
|
(Dollars In Thousands)
|
|
|
Impaired Loans
|
|
$
|
17,508
|
|
$
|
20,427
|
|
$
|
15,729
|
|
$
|
12,212
|
|
$
|
37,927
|
|
$
|
6,954
|
|
$
|
—
|
|
$
|
12,966
|
|
$
|
2,697
|
|
$
|
6,733
|
|
$
|
—
|
|
$
|
133,153
|
|
|
Specific Allowance
|
|
$
|
1,112
|
|
$
|
2,197
|
|
$
|
323
|
|
$
|
433
|
|
$
|
909
|
|
$
|
142
|
|
$
|
—
|
|
$
|
590
|
|
$
|
2,115
|
|
$
|
6,210
|
|
$
|
—
|
|
$
|
14,031
|
|
|
Loss Coverage Ratio
|
|
|
6.35
|
%
|
|
10.76
|
%
|
|
2.05
|
%
|
|
3.55
|
%
|
|
2.40
|
%
|
|
2.04
|
%
|
|
0.00
|
%
|
|
4.55
|
%
|
|
78.42
|
%
|
|
92.23
|
%
|
|
0.00
|
%
|
|
10.54
|
%
|
|
Non-Impaired Loans
|
|
$
|
115,630
|
|
$
|
70,810
|
|
$
|
238,692
|
|
$
|
25,594
|
|
$
|
1,165,778
|
|
$
|
79,179
|
|
$
|
72,258
|
|
$
|
97,621
|
|
$
|
40,641
|
|
$
|
276,348
|
|
$
|
15,685
|
|
$
|
2,198,236
|
|
|
General Valuation Allowance
|
|
$
|
2,820
|
|
$
|
4,022
|
|
$
|
18,760
|
|
$
|
2,205
|
|
$
|
38,881
|
|
$
|
2,474
|
|
$
|
7,262
|
|
$
|
1,341
|
|
$
|
3,235
|
|
$
|
15,741
|
|
$
|
181
|
|
$
|
96,922
|
|
|
Loss Coverage Ratio
|
|
|
2.44
|
%
|
|
5.68
|
%
|
|
7.86
|
%
|
|
8.62
|
%
|
|
3.34
|
%
|
|
3.12
|
%
|
|
10.05
|
%
|
|
1.37
|
%
|
|
7.96
|
%
|
|
5.70
|
%
|
|
1.15
|
%
|
|
4.41
|
%
|
|
Gross Loans
|
|
$
|
133,138
|
|
$
|
91,237
|
|
$
|
254,421
|
|
$
|
37,806
|
|
$
|
1,203,705
|
|
$
|
86,133
|
|
$
|
72,258
|
|
$
|
110,587
|
|
$
|
43,338
|
|
$
|
283,081
|
|
$
|
15,685
|
|
$
|
2,331,389
|
|
|
Total Allowance For Loan Losses
|
|
$
|
3,932
|
|
$
|
6,219
|
|
$
|
19,083
|
|
$
|
2,638
|
|
$
|
39,790
|
|
$
|
2,616
|
|
$
|
7,262
|
|
$
|
1,931
|
|
$
|
5,350
|
|
$
|
21,951
|
|
$
|
181
|
|
$
|
110,953
|
|
|
Loss Coverage Ratio
|
|
|
2.95
|
%
|
|
6.82
|
%
|
|
7.50
|
%
|
|
6.98
|
%
|
|
3.31
|
%
|
|
3.04
|
%
|
|
10.05
|
%
|
|
1.75
|
%
|
|
12.34
|
%
|
|
7.75
|
%
|
|
1.15
|
%
|
|
4.76
|
%
|
The following is a summary of impaired loans at their unpaid principal balances (not net active principal balances as shown in the previous
allowance table) with and without specific reserves as of December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Unpaid Principal Balances
For Year Ended
|
|
|
(Dollars in Thousands)
|
|
December 31,
2011
|
|
December 31,
2010
|
|
|
With Specific Reserves
|
|
|
|
|
|
|
|
|
Without Charge-Offs
|
|
$
|
36,529
|
|
$
|
77,076
|
|
|
With Charge-Offs
|
|
|
57,173
|
|
|
50,008
|
|
|
Without Specific Reserves
|
|
|
|
|
|
|
|
|
Without Charge-Offs
|
|
|
28,157
|
|
|
19,692
|
|
|
With Charge-Offs
|
|
|
22,362
|
|
|
60,225
|
|
|
|
|
|
|
|
|
|
Total Impaired Loans
|
|
|
144,221
|
|
|
207,001
|
|
|
Allowance on Impaired Loans
|
|
|
(14,055
|
)
|
|
(14,031
|
)
|
|
|
|
|
|
|
|
|
Impaired Loans Net of Allowance
|
|
$
|
130,166
|
|
$
|
192,970
|
|
|
|
|
|
|
|
|
|
Impaired Loans Average Balance
|
|
$
|
146,217
|
|
$
|
211,711
|
|
|
|
|
|
|
|
|
-
*
-
Impaired
loans at December 31, 2011 and December 31, 2010 had SBA guarantee portion and discount on acquired loans totaling $73.6 million
and $87.0 million, respectively.
F-31
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
Impairment
balances with specific reserves and those without specific reserves as of December 31, 2011 and December 31, 2010 are listed in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
Unpaid
Principal
Balance*
|
|
Related
Allowance
|
|
Average
Balance
|
|
Unpaid
Principal
Balance*
|
|
Related
Allowance
|
|
Average
Balance
|
|
|
With Specific Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
4,563
|
|
$
|
183
|
|
$
|
4,563
|
|
$
|
9,985
|
|
$
|
1,112
|
|
$
|
9,985
|
|
|
Carwash
|
|
|
12,012
|
|
|
935
|
|
|
12,022
|
|
|
20,580
|
|
|
2,197
|
|
|
20,626
|
|
|
Hotel/Motel
|
|
|
5,163
|
|
|
529
|
|
|
5,276
|
|
|
16,669
|
|
|
323
|
|
|
18,295
|
|
|
Land
|
|
|
281
|
|
|
83
|
|
|
281
|
|
|
2,211
|
|
|
433
|
|
|
2,212
|
|
|
Other
|
|
|
18,519
|
|
|
2,472
|
|
|
18,628
|
|
|
33,713
|
|
|
909
|
|
|
33,499
|
|
|
Residential Real Estate
|
|
|
1,245
|
|
|
114
|
|
|
1,246
|
|
|
2,773
|
|
|
142
|
|
|
2,777
|
|
|
Construction
|
|
|
8,188
|
|
|
2,304
|
|
|
8,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
30,354
|
|
|
1,363
|
|
|
30,499
|
|
|
21,687
|
|
|
590
|
|
|
21,766
|
|
|
SBA Commercial
|
|
|
7,636
|
|
|
1,473
|
|
|
7,989
|
|
|
10,379
|
|
|
2,115
|
|
|
10,663
|
|
|
Commercial
|
|
|
5,741
|
|
|
4,599
|
|
|
6,240
|
|
|
9,087
|
|
|
6,210
|
|
|
9,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total With Related Allowance
|
|
|
93,702
|
|
|
14,055
|
|
|
94,932
|
|
|
127,084
|
|
|
14,031
|
|
|
129,295
|
|
|
Without Specific Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
|
8,576
|
|
|
—
|
|
|
8,669
|
|
$
|
8,942
|
|
$
|
—
|
|
$
|
8,961
|
|
|
Carwash
|
|
|
1,299
|
|
|
—
|
|
|
1,312
|
|
|
6,119
|
|
|
—
|
|
|
6,123
|
|
|
Hotel/Motel
|
|
|
8,703
|
|
|
—
|
|
|
8,779
|
|
|
2,441
|
|
|
—
|
|
|
2,443
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,066
|
|
|
—
|
|
|
16,066
|
|
|
Other
|
|
|
11,539
|
|
|
—
|
|
|
11,626
|
|
|
23,148
|
|
|
—
|
|
|
24,451
|
|
|
Residential Real Estate
|
|
|
563
|
|
|
—
|
|
|
566
|
|
|
4,790
|
|
|
—
|
|
|
4,816
|
|
|
Construction
|
|
|
4,359
|
|
|
—
|
|
|
4,359
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
14,984
|
|
|
—
|
|
|
15,458
|
|
|
17,260
|
|
|
—
|
|
|
18,181
|
|
|
SBA Commercial
|
|
|
424
|
|
|
—
|
|
|
429
|
|
|
651
|
|
|
—
|
|
|
871
|
|
|
Commercial
|
|
|
72
|
|
|
—
|
|
|
87
|
|
|
500
|
|
|
—
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Without Related Allowance
|
|
|
50,519
|
|
|
—
|
|
|
51,285
|
|
|
79,917
|
|
|
—
|
|
|
82,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
144,221
|
|
$
|
14,055
|
|
$
|
146,217
|
|
$
|
207,001
|
|
$
|
14,031
|
|
$
|
211,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Recorded
investment adjustment is deemed not material in this presentation
The
average recorded investment in impaired loans during the years ended December 31, 2011 and 2010 was $146.2 million and $211.7 million, respectively.
F-32
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
At
December 31, 2011, the Company had loans on non-accrual status of $43.8 million, net of SBA guaranteed portions, as compared with $71.2 million at
December 31, 2010. Troubled debt restructuring ("TDR") at December 31, 2011 totaled $22.4 million, a decrease of $26.3 million, from $48.7 million at
December 31, 2010.
The
following table summarizes TDR balances at December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Construction
|
|
$
|
—
|
|
$
|
—
|
|
|
Real Estate Secured
|
|
|
17,837
|
|
|
43,302
|
|
|
Commercial & Industrial
|
|
|
4,546
|
|
|
5,444
|
|
|
Consumer
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total TDRs
|
|
$
|
22,383
|
|
$
|
48,746
|
|
|
|
|
|
|
|
|
All
TDRs are considered impaired by the Company. At December 31, 2011 the balance of non-accrual TDR loans totaled $7.3 million and TDRs performing in
accordance with their modified terms totaled $15.1 million. There were no non-accrual loans considered TDR at December 31, 2010.
The
following table represents the recorded investment in TDRs at year end by types of concessions made, broken out by loan type for the year ended December 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
Payment
|
|
Term/
Maturity
|
|
Interest
Rate
|
|
Total
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
4,052
|
|
$
|
—
|
|
$
|
1,332
|
|
$
|
5,384
|
|
|
Carwash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Hotel/Motel
|
|
|
480
|
|
|
—
|
|
|
1,923
|
|
|
2,403
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
281
|
|
|
Other
|
|
|
6,074
|
|
|
462
|
|
|
1,789
|
|
|
8,325
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
3,051
|
|
|
385
|
|
|
—
|
|
|
3,436
|
|
|
SBA Commercial
|
|
|
2,616
|
|
|
1,489
|
|
|
—
|
|
|
4,105
|
|
|
Commercial
|
|
|
2,728
|
|
|
723
|
|
|
—
|
|
|
3,451
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,001
|
|
$
|
3,059
|
|
$
|
5,325
|
|
$
|
27,385
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
Payment
|
|
Term/
Maturity
|
|
Interest
Rate
|
|
Total
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
7,645
|
|
$
|
—
|
|
$
|
2,230
|
|
$
|
9,875
|
|
|
Carwash
|
|
|
—
|
|
|
7,936
|
|
|
2,614
|
|
|
10,550
|
|
|
Hotel/Motel
|
|
|
7,852
|
|
|
—
|
|
|
1,950
|
|
|
9,802
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
11,643
|
|
|
—
|
|
|
795
|
|
|
12,438
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,430
|
|
|
—
|
|
|
—
|
|
|
1,430
|
|
|
SBA Commercial
|
|
|
978
|
|
|
393
|
|
|
—
|
|
|
1,371
|
|
|
Commercial
|
|
|
3,555
|
|
|
1,062
|
|
|
—
|
|
|
4,617
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,103
|
|
$
|
9,391
|
|
$
|
7,589
|
|
$
|
50,083
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following tables presents by loan type the balance of TDRs at December 31, 2011 and December 31, 2010 and TDRs for which there were subsequent payment defaults TDRs
within the year ended December 31, 2011 and December 31, 2010.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Recorded Investment in TDR Loans
|
|
TDRs With Payment Defaults
During the Past Year*
|
|
|
(Dollars In Thousands)
|
|
Pre-
Modification
|
|
Post-
Modification
|
|
Number of
Loans
|
|
Unpaid Principal
Balance
|
|
Number of
Loans
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
7,415
|
|
$
|
5,384
|
|
|
3
|
|
$
|
4,895
|
|
|
2
|
|
|
Carwash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10,551
|
|
|
2
|
|
|
Hotel/Motel
|
|
|
2,849
|
|
|
2,403
|
|
|
2
|
|
|
7,852
|
|
|
2
|
|
|
Land
|
|
|
281
|
|
|
281
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
9,353
|
|
|
8,325
|
|
|
9
|
|
|
11,098
|
|
|
3
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
3,915
|
|
|
3,436
|
|
|
13
|
|
|
473
|
|
|
2
|
|
|
SBA Commercial
|
|
|
2,881
|
|
|
4,105
|
|
|
36
|
|
|
776
|
|
|
8
|
|
|
Commercial
|
|
|
4,211
|
|
|
3,451
|
|
|
33
|
|
|
2,955
|
|
|
15
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,905
|
|
$
|
27,385
|
|
|
97
|
|
$
|
38,600
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Payment
defaults on TDRs recorded during the twelve months ended December 31, 2010
F-34
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Recorded Investment in TDR Loans
|
|
TDRs With Payment Defaults
During the Past Year *
|
|
|
(Dollars In Thousands)
|
|
Pre-
Modification
|
|
Post-
Modification
|
|
Number of
Loans
|
|
Unpaid Principal
Balance
|
|
Number of
Loans
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
9,902
|
|
$
|
9,875
|
|
|
4
|
|
$
|
5,481
|
|
|
4
|
|
|
Carwash
|
|
|
10,563
|
|
|
10,550
|
|
|
2
|
|
|
7,150
|
|
|
2
|
|
|
Hotel/Motel
|
|
|
9,854
|
|
|
9,802
|
|
|
3
|
|
|
2,419
|
|
|
1
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
12,504
|
|
|
12,438
|
|
|
5
|
|
|
39,119
|
|
|
8
|
|
|
Residential Real Estate
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,434
|
|
|
1,430
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
SBA Commercial
|
|
|
1,388
|
|
|
1,371
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Commercial
|
|
|
4,767
|
|
|
4,617
|
|
|
29
|
|
|
449
|
|
|
1
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,412
|
|
$
|
50,083
|
|
|
62
|
|
$
|
54,618
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Payment
defaults on TDRs recorded during the twelve months ended December 31, 2009
The
following table provides information on non-accrual loans and loan past due over 90 days and still accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
Non-Accrual
Loans
|
|
Past Due 90 Days
Or More, Still
Accruing
|
|
Total
Non-Performing
Loan*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
3,851
|
|
$
|
—
|
|
$
|
3,851
|
|
|
Carwash
|
|
|
6,250
|
|
|
—
|
|
|
6,250
|
|
|
Hotel/Motel
|
|
|
3,611
|
|
|
—
|
|
|
3,611
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
11,476
|
|
|
—
|
|
|
11,476
|
|
|
Residential Real Estate
|
|
|
1,488
|
|
|
—
|
|
|
1,488
|
|
|
Construction
|
|
|
12,548
|
|
|
—
|
|
|
12,548
|
|
|
SBA Real Estate
|
|
|
2,413
|
|
|
—
|
|
|
2,413
|
|
|
SBA Commercial
|
|
|
173
|
|
|
—
|
|
|
173
|
|
|
Commercial
|
|
|
2,022
|
|
|
—
|
|
|
2,022
|
|
|
Consumer
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,832
|
|
$
|
—
|
|
$
|
43,832
|
|
|
|
|
|
|
|
|
|
|
F-35
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
Non-Accrual
Loans
|
|
Past Due 90 Days
Or More, Still
Accruing
|
|
Total
Non-Performing
Loan*
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
5,275
|
|
$
|
—
|
|
$
|
5,275
|
|
|
Carwash
|
|
|
9,863
|
|
|
—
|
|
|
9,863
|
|
|
Hotel/Motel
|
|
|
5,856
|
|
|
—
|
|
|
5,856
|
|
|
Land
|
|
|
12,212
|
|
|
—
|
|
|
12,212
|
|
|
Other
|
|
|
25,087
|
|
|
—
|
|
|
25,087
|
|
|
Residential Real Estate
|
|
|
6,582
|
|
|
—
|
|
|
6,582
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
2,701
|
|
|
—
|
|
|
2,701
|
|
|
SBA Commercial
|
|
|
940
|
|
|
—
|
|
|
940
|
|
|
Commercial
|
|
|
2,689
|
|
|
—
|
|
|
2,689
|
|
|
Consumer
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,232
|
|
$
|
—
|
|
$
|
71,232
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Balances
are net of SBA guaranteed portions.
No
interest income related to non-accrual loans was included in net income for the years ended December 31, 2011 and 2010. Additional interest income of approximately
$4.6 million and $9.6 million would have been recorded for the years ended December 31, 2011 and 2010, respectively, if these loans had been paid in accordance with their original
terms throughout the periods indicated.
F-36
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
Delinquent
loans by days past due as of December 31, 2011 and December 31, 2010 are presented in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
(Dollars In Thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater Than
90 Days Past Due
|
|
Total Past Due
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
327
|
|
$
|
—
|
|
$
|
3,851
|
|
$
|
4,178
|
|
|
Carwash
|
|
|
937
|
|
|
1,457
|
|
|
4,792
|
|
|
7,186
|
|
|
Hotel/Motel
|
|
|
—
|
|
|
454
|
|
|
2,784
|
|
|
3,238
|
|
|
Land
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
1,255
|
|
|
8,310
|
|
|
9,994
|
|
|
19,559
|
|
|
Residential Real Estate
|
|
|
1,039
|
|
|
1,017
|
|
|
976
|
|
|
3,032
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,069
|
|
|
1,087
|
|
|
1,894
|
|
|
4,050
|
|
|
SBA Commercial
|
|
|
914
|
|
|
196
|
|
|
48
|
|
|
1,158
|
|
|
Commercial
|
|
|
1,360
|
|
|
402
|
|
|
1,224
|
|
|
2,986
|
|
|
Consumer/Other
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,901
|
|
|
12,923
|
|
|
25,563
|
|
|
45,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans Listed Above
|
|
$
|
1,657
|
|
$
|
2,648
|
|
$
|
25,563
|
|
$
|
29,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
(Dollars In Thousands)
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater Than
90 Days Past Due
|
|
Total Past Due
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
5,237
|
|
$
|
4,730
|
|
$
|
5,275
|
|
$
|
15,242
|
|
|
Carwash
|
|
|
4,535
|
|
|
1,344
|
|
|
2,919
|
|
|
8,799
|
|
|
Hotel/Motel
|
|
|
5,819
|
|
|
2,564
|
|
|
1,625
|
|
|
10,008
|
|
|
Land
|
|
|
281
|
|
|
573
|
|
|
9,948
|
|
|
10,802
|
|
|
Other
|
|
|
3,044
|
|
|
6,114
|
|
|
15,446
|
|
|
24,604
|
|
|
Residential Real Estate
|
|
|
602
|
|
|
3,446
|
|
|
3,542
|
|
|
7,590
|
|
|
Construction
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
SBA Real Estate
|
|
|
1,808
|
|
|
1,807
|
|
|
1,744
|
|
|
5,358
|
|
|
SBA Commercial
|
|
|
1,188
|
|
|
716
|
|
|
25
|
|
|
1,929
|
|
|
Commercial
|
|
|
937
|
|
|
932
|
|
|
2,106
|
|
|
3,975
|
|
|
Consumer/Other
|
|
|
41
|
|
|
5
|
|
|
27
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,492
|
|
|
22,231
|
|
|
42,657
|
|
|
88,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans Listed Above
|
|
$
|
3,596
|
|
$
|
7,658
|
|
$
|
42,657
|
|
$
|
53,911
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Balances
are net of SBA guaranteed portions.
F-37
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans with classification of special mention, substandard, and doubtful at December 31, 2011 and December 31, 2010 are presented in the following table by loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
675
|
|
$
|
17,795
|
|
$
|
2,520
|
|
$
|
20,990
|
|
|
Carwash
|
|
|
10,075
|
|
|
14,400
|
|
|
1,115
|
|
|
25,590
|
|
|
Hotel/Motel
|
|
|
20,919
|
|
|
12,175
|
|
|
2,784
|
|
|
35,878
|
|
|
Land
|
|
|
3,861
|
|
|
281
|
|
|
—
|
|
|
4,142
|
|
|
Other
|
|
|
86,699
|
|
|
75,973
|
|
|
7,855
|
|
|
170,527
|
|
|
Residential Real Estate
|
|
|
896
|
|
|
1,521
|
|
|
326
|
|
|
2,743
|
|
|
Construction
|
|
|
—
|
|
|
12,548
|
|
|
—
|
|
|
12,548
|
|
|
SBA Real Estate
|
|
|
3,442
|
|
|
7,545
|
|
|
1,121
|
|
|
12,108
|
|
|
SBA Commercial
|
|
|
1,133
|
|
|
2,995
|
|
|
—
|
|
|
4,128
|
|
|
Commercial
|
|
|
9,173
|
|
|
13,809
|
|
|
627
|
|
|
23,609
|
|
|
Consumer/Other
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
136,873
|
|
$
|
159,045
|
|
$
|
16,348
|
|
$
|
312,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Special Mention
|
|
Substandard
|
|
Doubtful
|
|
Total
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Station
|
|
$
|
12,952
|
|
$
|
21,591
|
|
$
|
531
|
|
$
|
35,074
|
|
|
Carwash
|
|
|
6,618
|
|
|
27,925
|
|
|
802
|
|
|
35,345
|
|
|
Hotel/Motel
|
|
|
33,001
|
|
|
50,716
|
|
|
0
|
|
|
83,717
|
|
|
Land
|
|
|
6,035
|
|
|
7,605
|
|
|
4,888
|
|
|
18,528
|
|
|
Other
|
|
|
38,067
|
|
|
82,549
|
|
|
7,140
|
|
|
127,756
|
|
|
Residential Real Estate
|
|
|
904
|
|
|
6,988
|
|
|
—
|
|
|
7,892
|
|
|
Construction
|
|
|
—
|
|
|
20,597
|
|
|
—
|
|
|
20,597
|
|
|
SBA Real Estate
|
|
|
2,830
|
|
|
9,431
|
|
|
244
|
|
|
12,505
|
|
|
SBA Commercial
|
|
|
2,530
|
|
|
3,210
|
|
|
374
|
|
|
6,114
|
|
|
Commercial
|
|
|
11,517
|
|
|
16,476
|
|
|
221
|
|
|
28,214
|
|
|
Consumer/Other
|
|
|
4,107
|
|
|
31
|
|
|
27
|
|
|
4,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,561
|
|
$
|
247,119
|
|
$
|
14,227
|
|
$
|
379,907
|
|
|
|
|
|
|
|
|
|
|
|
|
-
*
-
Balances
are net of SBA guaranteed portions
The
Company provides residential mortgage lending and offers a wide selection of residential mortgage programs, including non-traditional mortgages such as interest only and
payment option adjustable rate mortgages. Most of the salable loans are transferred to the secondary market while a certain portion was retained on the Company's books as portfolio loans. The total
home mortgage loan
F-38
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
5. LOANS RECEIVABLE, LOANS HELD-FOR-SALE, AND ALLOWANCE FOR LOAN LOSSES (Continued)
portfolio
outstanding at the end of 2011 and 2010 was $65.8 million and $47.7 million, respectively. There were no residential mortgage loans with unconventional terms such as interest
only mortgages or option adjustable rate mortgages at December 31, 2011 including loans held temporarily for sale or refinancing. At December 31, 2010, residential mortgage loans with
unconventional terms such as interest only mortgages or option adjustable rate mortgages totaled $944,000 and $1.2 million, respectively
The
following is an analysis of all loans to officers and directors of the Company and their affiliates as of December 31. All such loans were made under terms that are consistent
with the Company's normal lending policies:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Outstanding balance—beginning of year
|
|
$
|
25,287
|
|
$
|
27,986
|
|
|
Credit granted, including renewals
|
|
|
700
|
|
|
690
|
|
|
Repayments
|
|
|
(1,911
|
)
|
|
(3,390
|
)
|
|
|
|
|
|
|
|
|
Outstanding balance—end of year
|
|
$
|
24,076
|
|
$
|
25,287
|
|
|
|
|
|
|
|
|
Income
from these loans totaled approximately $1.1 million, $1.1 million, and $823,000 for the years ended December 31, 2011, 2010, and 2009, respectively, and is
reflected in the accompanying consolidated statements of operations.
6. LOAN SERVICING ASSETS
The principal balance of SBA loans serviced for others at 2011 year end was $485.0 million, which consisted of $379.7 million in real estate loans and
$105.4 million in commercial loans. SBA loans serviced for others at December 31, 2010 totaled $455.7 million, $341.8 million in real estate loans and $113.9 million
in commercial loans. Total mortgage loans serviced for other at December 31, 2011 totaled $3.2 million. There were no mortgage loans serviced for others in previous years.
The
following is a summary of activity for servicing assets and the related valuation allowance in the consolidated statements of financial condition at December 31, 2011 and
2010, respectively:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Beginning of year
|
|
$
|
7,331
|
|
$
|
6,898
|
|
|
Additions through assumptions of servicing assets
|
|
|
2,415
|
|
|
1,228
|
|
|
Disposals through pay-off of loans previously serviced
|
|
|
(256
|
)
|
|
(1,201
|
)
|
|
Changes in fair value
|
|
|
(692
|
)
|
|
406
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
8,798
|
|
$
|
7,331
|
|
|
|
|
|
|
|
|
The
fair valuation of servicing assets in accordance ASC 860-50 was determined based on the present value of the contractually specified servicing fee, net of servicing cost,
over the estimated life of the loan, with an average discount rate and a range of constant prepayment rates.
F-39
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
6. LOAN SERVICING ASSETS (Continued)
The
servicing fee income which is reported on the statement of operations as "Loan-related servicing fee" is recorded for fees earned for servicing loans. The fees are based
on a contractual percentage of the outstanding principal and other ancillary fee incomes. Servicing fees totaled $4.6 million, $4.2 million, and $3.7 million for the years ended
December 31, 2011, 2010, and 2009, respectively. Late fees and ancillary fees related to loan servicing are not material.
Servicing
assets represent the fair value associated with servicing loans sold and is determined by discounted cash flow analysis using a discount rate based on the related loan rate,
prepayment speed, and adequate compensation assumptions.
The
following table is a summary of weighted average discount rates and constant prepayment rates of the Company's servicing SBA loan portfolio as of December 31, 2011 and 2010,
respectively:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
|
Average Discount Rate:
|
|
|
5.80
|
%
|
|
5.82
|
%
|
|
Constant Prepayment Rate:
|
|
|
14.24
|
%
|
|
15.89
|
%
|
|
Weighted Average Life:
|
|
|
20 Years
|
|
|
17 Years
|
|
7. BANK PREMISES AND EQUIPMENT
The following is a summary of the major components of Bank premises and equipment as of December 31:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Land
|
|
$
|
2,968
|
|
$
|
2,968
|
|
|
Building
|
|
|
2,744
|
|
|
2,744
|
|
|
Furniture and equipment
|
|
|
8,066
|
|
|
7,935
|
|
|
Leasehold improvements
|
|
|
12,501
|
|
|
11,736
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26,279
|
|
|
25,383
|
|
|
Accumulated depreciation and amortization
|
|
|
(13,667
|
)
|
|
(12,053
|
)
|
|
|
|
|
|
|
|
|
Total net of depreciation and amortization
|
|
$
|
12,612
|
|
$
|
13,330
|
|
|
|
|
|
|
|
|
8. INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS
The Company has invested in certain limited partnerships that were formed to develop and operate apartment complexes designed as high-quality affordable housing for lower
income tenants throughout the United States. As of December 31, 2011, the Company had thirteen investments, with a net carrying value of $22.1 million. Commitments to fund investments in
affordable housing partnerships totaled $15.6 million at December 31, 2011 with the last of the commitments ending in 2015. Total investment in affordable housing recorded on the balance
at December 31, 2011 (including commitments to fund) was $37.7 at December 31, 2011. The investments were accounted for using the equity method of accounting. Each of the partnerships
must meet the regulatory requirements for affordable housing for a minimum 15-year compliance period to fully utilize the tax credits. If the
F-40
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
8. INVESTMENTS IN AFFORDABLE HOUSING PARTNERSHIPS (Continued)
partnerships
ceased to qualify during the compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken may be
subject to recapture with interest.
The
remaining federal tax credits to be utilized over a maximum of 13 years are $36.7 million as of December 31, 2011. The Company's usage of federal tax credits
approximated $3.0 million, $2.3 million, and $1.5 million during 2011, 2010, and 2009, respectively. Loss on investments in affordable housing amounted to $2.5 million,
$2.3 million, and $1.3 million for the years ended December 31, 2011, 2010, and 2009, respectively.
9. DEPOSITS
Time deposits by maturity dates are as follows at December 31:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Less than three months
|
|
$
|
278,835
|
|
$
|
529,526
|
|
|
After three to six months
|
|
|
248,305
|
|
|
213,025
|
|
|
After six months to twelve months
|
|
|
363,086
|
|
|
374,150
|
|
|
After twelve months
|
|
|
105,113
|
|
|
101,572
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
995,339
|
|
$
|
1,218,273
|
|
|
|
|
|
|
|
|
The
scheduled maturities of time deposits as of December 31, 2011 and December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
2011
|
|
$
|
—
|
|
$
|
1,116,701
|
|
|
2012
|
|
|
890,226
|
|
|
87,154
|
|
|
2013
|
|
|
87,196
|
|
|
14,400
|
|
|
2014
|
|
|
17,778
|
|
|
—
|
|
|
2015
|
|
|
139
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
995,339
|
|
$
|
1,218,273
|
|
|
|
|
|
|
|
|
The
scheduled maturities of total time deposits in denominations of $100,000 or greater at December 31, 2011 are as follows:
|
|
|
|
|
|
|
(Dollars In Thousands)
|
|
December 31, 2011
|
|
|
Three months or less
|
|
$
|
220,415
|
|
|
Over three months through six months
|
|
|
175,641
|
|
|
Over six months through twelve months
|
|
|
173,952
|
|
|
Over twelve months
|
|
|
77,529
|
|
|
|
|
|
|
|
Total
|
|
$
|
647,537
|
|
|
|
|
|
|
F-41
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
10. COMMITMENTS AND CONTINGENCIES
The following tables represent future commitments and contingencies related to lease payments and investments in affordable housing partnerships at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
Year
|
|
Investments Affordable
Housing Partnerships
|
|
Lease Payments
|
|
|
2012
|
|
$
|
9,502
|
|
$
|
3,445
|
|
|
2013
|
|
|
1,683
|
|
|
3,198
|
|
|
2014
|
|
|
3,922
|
|
|
3,055
|
|
|
2015
|
|
|
202
|
|
|
2,211
|
|
|
2016
|
|
|
69
|
|
|
1,717
|
|
|
2017
|
|
|
6
|
|
|
1,472
|
|
|
Thereafter
|
|
|
181
|
|
|
2,067
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,565
|
|
$
|
17,165
|
|
|
|
|
|
|
|
|
Rental
expense recorded under such leases amounted to approximately $3.8 million, $4.2 million, and $3.6 million for the years ended December 31, 2011, 2010,
and 2009, respectively.
In
the normal course of business, we are involved in various legal claims. No loss contingency has been recorded in any period presented in the financial statements because such losses
are either not probable or reasonably estimable (or both) at the present time. Management also considers the amount or range of reasonably possible losses and this amount is not material to any of the
consolidated financial statements.
The
Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated statements of financial condition. The Company's exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for
extending loan facilities to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Company upon extension of credit, is based on management's credit evaluation of the counterparty.
Collateral
held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing properties. The Company had commitments to extend credit of
approximately $227.5 million and $267.8 million at December 31, 2011 and 2010, respectively. Obligations under standby letters of credit and commercial letters of credit together
totaled $25.6 million and $21.2 million at December 31, 2011 and 2010, respectively.
The
Company has invested in certain limited partnerships that were formed to develop and operate apartment complexes designed as high-quality affordable housing for lower
income tenants throughout the United States. As of December 31, 2011, the Company had thirteen investments, with a net carrying value of $22.1 million. Commitments to fund investments in
affordable housing partnerships totaled $15.6 million at December 31, 2011, with the last of the commitments ending in
F-42
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
10. COMMITMENTS AND CONTINGENCIES (Continued)
2026.
Total investment in affordable housing recorded on the consolidated statements of financial condition at December 31, 2011 was $37.7 at December 31, 2011. The $37.7 million
includes the carrying value and commitments to fund investments.
11. FHLB BORROWINGS AND JUNIOR SUBORDINATED DEBENTURES
At December 31, 2011, the Company had approved financing with the Federal Home Loan Bank ("FHLB") for a maximum advance of up to 30% of total assets based on qualifying
collateral. The Company's actual borrowing capacity under the FHLB standard credit program per the Company's pledged loan collateral was approximately $608.2 million, with $35.0 million
borrowing outstanding and $573.2 million capacity remaining as of December 31, 2011. The Company also participates in the Securities-Backed Credit Program (SBC Program) as well. The
Company's borrowing capacity under the SBC program with pledged collateral (included in the capacity above) was approximately $37.1 million, with $25.0 million in borrowings outstanding
and $12.1 million capacity remaining as of December 31, 2011.
The
following table indicates the Company's outstanding advances from FHLB at December 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
Amount
(Dollars in Thousands)
|
|
Issue Date
|
|
Maturity Date
|
|
Rate
|
|
|
$
|
20,000
|
|
December 7, 2011
|
|
Daily Advance (Open Maturity)
|
|
|
0.11
|
%
|
|
|
15,000
|
|
July 7, 2011
|
|
Daily Advance (Open Maturity)
|
|
|
0.11
|
%
|
|
|
25,000
|
|
February 10, 2011
|
|
Daily Advance (Open Maturity)
|
|
|
0.09
|
%
|
|
|
|
|
|
|
|
|
|
|
$
|
60,000
|
|
|
|
|
|
|
0.10
|
%
|
|
|
|
|
|
|
|
|
|
The
following table summarizes information relating to the Company's FHLB advances for the periods or dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Average balance during the year
|
|
$
|
157,192
|
|
$
|
125,214
|
|
$
|
310,982
|
|
|
Average interest rate during the year
|
|
|
1.31
|
%
|
|
2.49
|
%
|
|
2.27
|
%
|
|
Maximum month-end balance during the year
|
|
$
|
255,000
|
|
$
|
142,000
|
|
$
|
387,000
|
|
|
Loans collateralizing the agreements at year-end
|
|
$
|
911,760
|
|
$
|
1,038,936
|
|
$
|
1,005,310
|
|
|
Securities collateralizing the agreements at year-end
|
|
$
|
40,224
|
|
$
|
50,010
|
|
$
|
379,209
|
|
Total
junior subordinated debentures at December 31, 2011 totaled $87.3 million, unchanged from December 31, 2010. In December 2002, the Bank issued an aggregate of
$10 million of Junior Subordinated Debentures, at times referred to in this Report as the 2002 Junior Subordinated Debentures or the 2002 debentures. In addition, Wilshire Bancorp, as a
wholly-owned subsidiary of the Bank in 2003 and as a parent company of the Bank in 2005 and 2007, issued an aggregate of $77.3 million of Junior Subordinated Debentures as part of the issuance
of $75.0 million in trust
F-43
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
11. FHLB BORROWINGS AND JUNIOR SUBORDINATED DEBENTURES (Continued)
preferred
securities by statutory trusts wholly-owned by Wilshire Bancorp. The purpose of these transactions was to raise additional capital. These Junior Subordinated Debentures are senior in
liquidation rights to the Company's outstanding shares of common stock and the Company's Series A Preferred Stock.
The
following table summarizes the Company's outstanding Subordinated Debentures at December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Issued Date
|
|
Amount of Debenture Issued
|
|
Interest Rate
|
|
Current Rate
|
|
Callable Date
|
|
Maturity Date
|
|
|
Wilshire State Bank Junior Subordinated Debentures
|
|
|
12/19/2002
|
|
$
|
10,000
|
|
3 Month LIBOR
+ 3.10%
|
|
|
3.674
|
%
|
|
03/26/2012
|
(1)
|
|
12/26/2012
|
|
|
Wilshire Statutory Trust I
|
|
|
12/17/2003
|
|
|
15,464
|
|
3 Month LIBOR
+ 2.85%
|
|
|
3.409
|
%
|
|
03/17/2012
|
(2)
|
|
12/17/2033
|
|
|
Wilshire Statutory Trust II
|
|
|
03/17/2005
|
|
|
20,619
|
|
3 Month LIBOR
+ 1.79%
|
|
|
2.349
|
%
|
|
03/17/2012
|
(3)
|
|
03/17/2035
|
|
|
Wilshire Statutory Trust III
|
|
|
09/15/2005
|
|
|
15,464
|
|
3 Month LIBOR
+ 1.40%
|
|
|
1.946
|
%
|
|
03/15/2012
|
(4)
|
|
09/15/2035
|
|
|
Wilshire Statutory Trust IV
|
|
|
07/10/2007
|
|
|
25,774
|
|
3 Month LIBOR
+ 1.38%
|
|
|
1.926
|
%
|
|
09/15/2012
|
|
|
09/15/2037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
The
Bank has the right to redeem the $10.0 million debentures, in whole or in part, on any March 26, June 26,
September 26, or December 26 on or after December 26, 2007. The next callable date as of this report is March 26, 2012.
-
(2)
-
The
Company has the right to redeem the $15.0 million debentures, in whole or in part, on any March 17, June 17,
September 17, or December 17 on or after December 17, 2008. The next callable date as of this report is March 17, 2012.
-
(3)
-
The
Company has the right to redeem the $20.0 million debentures, in whole or in part, on any March 17, June 17,
September 17, or December 17 on or after March 17, 2010. The next callable date as of this report is March 17, 2012.
-
(4)
-
The
Company has the right to redeem the $15.0 million debentures, in whole or in part, on any March 15, June 15,
September 15, or December 15 on or after September 15, 2010. The next callable date as of this report is March 15, 2012.
12. TROUBLED ASSETS RELIEF PROGRAM ("TARP") SERIES A PREFERRED STOCK AND WARRANTS
On December 12, 2008, the Company issued $62.2 million in preferred stocks and warrants to the United States Department of the Treasury ("U.S. Treasury") as part of the
U.S. Treasury's Capital Purchase
Program ("CPP"). The funding of this $62.2 million of preferred stock investment from the U.S. Treasury, which is commonly referred to as TARP investment, marks the completion of the sale to
F-44
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
12. TROUBLED ASSETS RELIEF PROGRAM ("TARP") SERIES A PREFERRED STOCK AND WARRANTS (Continued)
the
U.S. Treasury of 62,158 shares of newly designated Fixed Rate Cumulative Perpetual Preferred Stock, Series A (each with a stated liquidation amount of $1,000 per share) and a warrant (100%
vesting at grant, with 10-year term) exercisable initially for 949,460 shares of the Company's common stock, with an exercise price of $9.82 per share (see Note 13). The preferred
stock will pay cumulative dividends at a rate of 5% per year for the first 5 years, and 9% thereafter. The Company is restricted for a period of three years from the closing date, in the
buyback of company stock and in increasing the quarterly dividend in excess of the current level. As of December 31, 2011, the amount of TARP preferred stock was $61.0 million and the
TARP warrant was $2.7 million, of which, 100% were qualified for Tier 1 capital.
TARP Stock Warrant
On December 12, 2008, as an attached term to the TARP agreement, the Company granted to the U.S. Treasury 949,460 warrants to
purchase shares of the Company's common stock at an exercise price determined at $9.82. The warrant carries a 10-year term and was 100% vested at grant. Based on the present value of
future cash flows of the TARP preferred stock investment, the Company determined the market value of the TARP preferred shares (i.e., TARP preferred shares without attached warrants) at its
receipt date. In addition, the Company utilized the Black-Scholes model to obtain the fair value of the TARP warrants. The allocated warrant value was calculated based on the proportional fair value
of the warrant in comparison with the total fair values of the TARP preferred stock and TARP warrant. The value allocated to TARP warrant was recorded as a discount to the TARP preferred stock, which
was determined to be amortized using effective yield method. As of December 31, 2011, the unamortized TARP preferred discount was $1.2 million. To determine the warrant allocation ratio
in accordance to ASC 470-20, the Company uses the fair value of the warrant divided by the sum of the fair value of warrants plus the fair value of the straight preferred stock. This ratio
is then multiplied by the total amount of TARP capital issued to arrive at the value to be allocated to the warrant.
13. STOCK OPTION AND RESTRICTED STOCK PLANS
Stock Option Plan
The Company has issued stock options to employees under share-based compensation plans. Stock options are issued at the current market
price on the date of grant. The vesting period and contractual term are determined at the time of grant, but the contractual term may not exceed 10 years from the date of grant. The grant date
fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The expected life (estimated period of time outstanding) of options was estimated
using the simplified method. The expected volatility was based on historical volatility for a period equal to the stock option's expected life. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant.
F-45
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
13. STOCK OPTION AND RESTRICTED STOCK PLANS (Continued)
During 1997, the Bank established the 1997 stock option plan ("1997 Plan") that provided for the issuance of options to purchase up to 6,499,800 shares of its authorized but unissued
common stock to managerial employees and directors. The options granted under the 1997 Plan are exercisable into shares of the Company's common stock. Exercise prices may not be less than the fair
market value at the date of grant. This 1997 Plan completed its ten-year term and expired in May 2007. In accordance with the terms of the 1997 Plan, options granted under the 1997 Plan
will remain outstanding according to their respective terms, despite expiration of the 1997 Plan. Options granted through 2005 under this stock option plan expire not more than 10 years after
the date of grant, but options granted after 2005 expire not more than 5 years after the date of grant. As of December 31, 2011, 143,920 shares were previously granted and outstanding
under this option plan.
In
June 2008, the Company established the 2008 stock option plan ("2008 Plan") that provides for the issuance of restricted stock and options to purchase up to 2,933,200 shares of its
authorized but unissued common shares to employees, directors, and consultants. Exercise prices for options may not be less than the fair market value at the date of grant. Compensation expense for
awards is recorded over the vesting period. Under the 2008 Plan, there were options outstanding to purchase 869,100 shares of the Company's common stock as of December 31, 2011.
Total
stock-based compensation expense was $394,000 and $583,000 for 2011 and 2010, respectively.
For
2011, 2010, and 2009, 40,000, 29,000, and 216,500 shares were granted, respectively. The weighted average fair value of options granted during 2011, 2010 and 2009 was $2.99, $3.84
and $2.73 per share, respectively. They were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Expected life
|
|
|
6.0 years
|
|
|
4.9 years
|
|
|
3.5 - 6 years
|
|
|
Expected volatility
|
|
|
65.85
|
%
|
|
53.78
|
%
|
|
54.41
|
%
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
2.13
|
%
|
|
2.86
|
%
|
|
Risk-free interest rate
|
|
|
1.19
|
%
|
|
2.28
|
%
|
|
2.17
|
%
|
The
expected life of stock options granted was estimated using the historical exercise behavior of employees. The expected volatility was based on historical volatility for a period
equal to the stock option's expected life. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.
F-46
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
13. STOCK OPTION AND RESTRICTED STOCK PLANS (Continued)
Activity
in the stock option plan is presented as follows for the year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(Dollars in
Thousands)
|
|
|
Outstanding at January 1, 2011
|
|
|
1,302,480
|
|
$
|
9.87
|
|
|
|
|
|
|
|
Granted
|
|
|
40,000
|
|
|
2.99
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,760
|
)
|
|
2.57
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(74,000
|
)
|
|
8.66
|
|
|
|
|
|
|
|
Expired
|
|
|
(253,700
|
)
|
|
10.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
1,013,020
|
|
$
|
9.51
|
|
4.21 years
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2011
(1)
|
|
|
989,912
|
|
$
|
9.57
|
|
4.20 years
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercisable at December 31, 2011
|
|
|
855,820
|
|
$
|
9.94
|
|
4.14 years
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes
vested shares and non-vested shares after forfeiture rate is applied
The
following table summarizes information about stock options outstanding as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Number
Exercisable
|
|
Weighted-
Average
Exercise
Price
|
|
|
$2.00 - $2.99
|
|
|
49,320
|
|
$
|
2.91
|
|
|
8.10
|
|
|
19,320
|
|
$
|
2.79
|
|
|
$6.00 - $10.99
|
|
|
829,100
|
|
|
8.72
|
|
|
4.39
|
|
|
701,900
|
|
|
8.81
|
|
|
$13.00 - $14.99
|
|
|
17,000
|
|
|
13.94
|
|
|
3.26
|
|
|
17,000
|
|
|
13.94
|
|
|
$15.00 - $16.99
|
|
|
53,100
|
|
|
15.27
|
|
|
3.06
|
|
|
53,100
|
|
|
15.27
|
|
|
$17.00 - $19.99
|
|
|
64,500
|
|
|
18.93
|
|
|
0.00
|
|
|
64,500
|
|
|
18.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
1,013,020
|
|
|
9.51
|
|
|
4.21
|
|
|
855,820
|
|
|
9.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activities
related to stock options are presented as follows for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except Weighted Average Fair Value Price)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Total intrinsic value of options exercised
|
|
$
|
—
|
|
$
|
34
|
|
$
|
11
|
|
|
Total fair value of options vested
|
|
$
|
505
|
|
$
|
768
|
|
$
|
864
|
|
|
Weighted average fair value of options granted during the year
|
|
$
|
1.78
|
|
$
|
1.03
|
|
$
|
2.73
|
|
As
of December 31, 2011, total unrecognized compensation cost related to stock options and restricted shares that have been granted prior to the end of 2011 amounted to $126,000
and $122,000, respectively. These costs are expected to be recognized over a weighted average period of 1.03 years and 1.91 years, respectively.
F-47
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
13. STOCK OPTION AND RESTRICTED STOCK PLANS (Continued)
A
summary of the status and changes of the Company's non-vested shares related to the Company's stock plans as of and during 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Non vested at January 1, 2011
|
|
$
|
392,300
|
|
$
|
2.53
|
|
|
Granted
|
|
|
40,000
|
|
|
1.78
|
|
|
Vested
|
|
|
(201,100
|
)
|
|
2.72
|
|
|
Forfeited on unvested shares
|
|
|
(74,000
|
)
|
|
2.54
|
|
|
|
|
|
|
|
|
|
Non vested at December 31, 2011
|
|
$
|
157,200
|
|
$
|
2.36
|
|
|
|
|
|
|
|
|
14. INCOME TAXES
A summary of income tax expense (benefit) for 2011, 2010, and 2009 is shown in as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Current
|
|
Deferred
|
|
Total
|
|
|
2011:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
391
|
|
$
|
20,107
|
|
$
|
20,498
|
|
|
State
|
|
|
324
|
|
|
12,803
|
|
|
13,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
715
|
|
$
|
32,910
|
|
$
|
33,625
|
|
|
|
|
|
|
|
|
|
|
|
2010
:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,677
|
)
|
$
|
(20,509
|
)
|
$
|
(24,186
|
)
|
|
State
|
|
|
(1,394
|
)
|
|
(8,210
|
)
|
|
(9,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,071
|
)
|
$
|
(28,719
|
)
|
$
|
(33,790
|
)
|
|
|
|
|
|
|
|
|
|
|
2009
:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,561
|
|
$
|
(4,927
|
)
|
$
|
8,634
|
|
|
State
|
|
|
3,842
|
|
|
(1,790
|
)
|
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,403
|
|
$
|
(6,717
|
)
|
$
|
10,686
|
|
|
|
|
|
|
|
|
|
|
The
following is a summary of the income taxes receivable. The $15.1 million and $19.0 million federal income taxes receivables were included in other assets as of
December 31, 2011 and December 31, 2010, respectively. The $0.7 million and $7.2 million state taxes receivable were included in other assets as of December 31, 2011
and 2010, respectively.
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Current income taxes receivable:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
15,129
|
|
$
|
19,034
|
|
|
State
|
|
|
712
|
|
|
7,222
|
|
|
|
|
|
|
|
|
|
Total income taxes receivable
|
|
$
|
15,841
|
|
$
|
26,256
|
|
|
|
|
|
|
|
|
F-48
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
14. INCOME TAXES (Continued)
The
cumulative temporary differences, as tax affected, are as follows at December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
(Dollars in Thousands)
|
|
Federal
|
|
State
|
|
Total
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
Statutory bad debt deduction less than
|
|
|
|
|
|
|
|
|
|
|
|
financial statement provision
|
|
$
|
35,628
|
|
$
|
11,034
|
|
$
|
46,662
|
|
|
Tax depreciation (greater) less than financial
|
|
|
|
|
|
|
|
|
|
|
|
statement depreciation
|
|
|
(584
|
)
|
|
326
|
|
|
(258
|
)
|
|
Net operating loss
|
|
|
—
|
|
|
3,632
|
|
|
3,632
|
|
|
OREO reserve
|
|
|
(391
|
)
|
|
(121
|
)
|
|
(512
|
)
|
|
ASC 718-10 non-qualified stock options
|
|
|
579
|
|
|
179
|
|
|
758
|
|
|
Charitable Contributions
|
|
|
43
|
|
|
13
|
|
|
56
|
|
|
Unrealized loss on loans held-for-sale
|
|
|
872
|
|
|
270
|
|
|
1,142
|
|
|
Low income housing tax credit
|
|
|
2,895
|
|
|
395
|
|
|
3,290
|
|
|
Restricted stocks
|
|
|
103
|
|
|
32
|
|
|
135
|
|
|
CA Enterprise Zone tax credits
|
|
|
—
|
|
|
1,570
|
|
|
1,570
|
|
|
Accrued professional fees
|
|
|
333
|
|
|
103
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
39,478
|
|
|
17,433
|
|
|
56,911
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
352
|
|
|
109
|
|
|
461
|
|
|
Deferred loan origination costs
|
|
|
1,419
|
|
|
439
|
|
|
1,858
|
|
|
Unrealized gain on securities available-for-sale
|
|
|
2,700
|
|
|
497
|
|
|
3,197
|
|
|
Intangible related to business combination
|
|
|
(145
|
)
|
|
(45
|
)
|
|
(190
|
)
|
|
ASC 860-50 adjustment
|
|
|
944
|
|
|
292
|
|
|
1,236
|
|
|
Gain from acquisition of Mirae Bank
|
|
|
6,199
|
|
|
1,920
|
|
|
8,119
|
|
|
Others
|
|
|
720
|
|
|
215
|
|
|
935
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
12,189
|
|
|
3,427
|
|
|
15,616
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
$
|
(27,289
|
)
|
$
|
(14,006
|
)
|
$
|
(41,295
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
F-49
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
14. INCOME TAXES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
(Dollars in Thousands)
|
|
Federal
|
|
State
|
|
Total
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
Statutory bad debt deduction less than
|
|
|
|
|
|
|
|
|
|
|
|
financial statement provision
|
|
$
|
38,699
|
|
$
|
11,986
|
|
$
|
50,685
|
|
|
Tax depreciation (greater) less than financial
|
|
|
|
|
|
|
|
|
|
|
|
statement depreciation
|
|
|
(28
|
)
|
|
251
|
|
|
223
|
|
|
Net operating loss
|
|
|
7,660
|
|
|
2,671
|
|
|
10,331
|
|
|
Deferred rent
|
|
|
45
|
|
|
14
|
|
|
59
|
|
|
OREO reserve
|
|
|
(8
|
)
|
|
(2
|
)
|
|
(10
|
)
|
|
ASC 718-10 non-qualified stock options
|
|
|
537
|
|
|
166
|
|
|
703
|
|
|
Unrealized loss on loans held-for-sale
|
|
|
382
|
|
|
118
|
|
|
500
|
|
|
Low income housing tax credit
|
|
|
2,609
|
|
|
170
|
|
|
2,779
|
|
|
Restricted stocks
|
|
|
46
|
|
|
14
|
|
|
60
|
|
|
CA Enterprise Zone tax credits
|
|
|
—
|
|
|
843
|
|
|
843
|
|
|
Accrued professional fees
|
|
|
58
|
|
|
18
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
50,000
|
|
|
16,249
|
|
|
66,249
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
219
|
|
|
68
|
|
|
287
|
|
|
Deferred loan origination costs
|
|
|
1,619
|
|
|
501
|
|
|
2,120
|
|
|
Unrealized gain on securities available-for-sale
|
|
|
1,038
|
|
|
162
|
|
|
1,200
|
|
|
Intangible related to business combination
|
|
|
(31
|
)
|
|
(10
|
)
|
|
(41
|
)
|
|
ASC 860-50 adjustment
|
|
|
738
|
|
|
229
|
|
|
967
|
|
|
Gain from acquisition of Mirae Bank
|
|
|
7,630
|
|
|
2,363
|
|
|
9,993
|
|
|
State deferred tax and others
|
|
|
5,160
|
|
|
206
|
|
|
5,366
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
16,373
|
|
|
3,519
|
|
|
19,892
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
33,627
|
|
$
|
12,730
|
|
$
|
46,357
|
|
|
|
|
|
|
|
|
|
|
In
assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization is dependent upon the generating of sufficient future taxable income during the periods temporary differences become deductible. As of December 31, 2011 the
Company has taken full valuation allowance and had net deferred tax asset of $0. As of December 31, 2010 and 2009, the Company had net deferred tax assets of $46.4 million and
$18.7 million, respectively.
As
a result of the significant loss incurred during the first quarter of 2011, management assessed the future reversal of all temporary differences as to determine which deductions would
be available to carry back to tax years with taxable income or could be utilized by projected future taxable income. As a result of this analysis, management determined that a portion of the Company's
net deferred tax asset did not meet the more-likely-than-not criteria for realization at March 31, 2011. Accordingly, the Company recorded a full valuation
allowance as of March 31, 2011. During the subsequent periods in 2011, the Company realized taxable income which effectively reduced the deferred tax valuation allowance. As of
December 31, 2011, valuation allowance for deferred tax asset was $41.3 million, and
F-50
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
14. INCOME TAXES (Continued)
the
remaining deferred tax asset valuation allowance will reverse through income tax expense if the Company can demonstrate a sustainable return to profitability that would lead management to conclude
that it is more-likely-than-not that the deferred tax asset will be utilized during the carry-forward period.
A
reconciliation of the difference between the federal statutory income tax rate and the effective tax rate is shown in the following table for the three years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
Statutory tax rate
|
|
|
35
|
%
|
|
-35
|
%
|
|
35
|
%
|
|
State taxes—net of California Enterprise Zone tax credit
|
|
|
2
|
%
|
|
-9
|
%
|
|
6
|
%
|
|
Valuation Allowance
|
|
|
1019
|
%
|
|
0
|
%
|
|
0
|
%
|
|
Officer Life Insurance
|
|
|
-6
|
%
|
|
0
|
%
|
|
-1
|
%
|
|
Municipal Bonds
|
|
|
-15
|
%
|
|
1
|
%
|
|
-2
|
%
|
|
Tax credits
|
|
|
-26
|
%
|
|
-4
|
%
|
|
-5
|
%
|
|
Other items
|
|
|
11
|
%
|
|
-2
|
%
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1020
|
%
|
|
-49
|
%
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
The
effective tax rate for 2011 represents tax liabilities associated with current year operating income along with deferred tax asset valuation allowance compared to tax benefits
reflecting operating losses for the years 2010.
On
January 1, 2007, the Company adopted the provisions of ASC 740-10. As a result of applying the provisions of ASC 740-10, the Company recorded an
increase in liabilities for an unrecognized tax benefit of $178,000 and related interest of $23,000 in 2011.
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2011
|
|
2010
|
|
|
Unrecognized tax benefit:
|
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
$
|
657
|
|
$
|
398
|
|
|
Increases related to current year tax positions
|
|
|
178
|
|
|
259
|
|
|
Expiration of the statute of limitations for assessment of taxes
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
835
|
|
$
|
657
|
|
|
|
|
|
|
|
|
As
of December 31, 2011, the total unrecognized tax benefit that would affect the effective rate if recognized was $543,000, which was solely related to the state exposure from
California Enterprise Zone net interest deductions. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
As
of December 31, 2011, the total accrued interest related to uncertain tax positions was $55,000. The Company accounted for interest related to uncertain tax positions as part
of the Company's provision for federal and state income taxes. Accrued interest was included as part of the current tax payable in the consolidated financial statements.
The
Company files United States federal and state income tax returns in jurisdictions with varying statues of limitations. The 2008 through 2011 tax years remain subject to examination
by federal tax
F-51
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
14. INCOME TAXES (Continued)
authorities,
and 2007 through 2011 tax years remain subject to examination by most state tax authorities. The Company is under examination by the New York State Department of Taxation and Finance for
the 2005, 2006, and 2007 tax years. Examinations for the 2007 and 2008 tax years under the California Franchise Tax Board are ongoing as well. The Company believes that we have adequately provided or
paid for income tax issues not yet resolved with federal, state and foreign tax authorities. Based upon consideration of all relevant facts and circumstances, the Company does not expect the
examination results will have a material impact on the Company's consolidated financial statement as of December 31, 2011.
15. GOODWILL & OTHER INTANGIBLE ASSETS
The Company recorded goodwill of $6.7 million from the acquisition of Liberty Bank of New York in May 2006. The carrying amount of goodwill amounted to $6.7 million at both
December 31, 2011 and 2010 since no impairment losses were recorded during those years. The Company also recorded $1.6 million in core deposit premiums and $346,000 of favorable lease
intangibles as a result of the Liberty Bank acquisition in 2006. With the acquisition of Mirae Bank in June 2009, the Bank recorded additional core deposit premiums amounting to $1.3 million
but recorded no goodwill from the transaction. As of December 31, 2011, core deposit premiums related to Liberty Bank and Mirae Bank had cost bases of $664,000 and $656,000, respectively. Core
deposit premiums related to Mirae Bank and Liberty Bank are both amortized on an accelerated basis using the attrition cash flow method for 10 years. Favorable lease intangibles related to
Liberty Bank has been fully amortized since December 2009.
Goodwill
represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value
of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An
impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. The goodwill
impairment analysis is a two-step test performed in accordance with ASC 820. The first step, used to identify potential impairment, involves comparing the East Coast branches' estimated
fair value to its carrying value, including goodwill. To measure fair value under the first step, the Company uses a combination of the "Discounted Cash Flow Method", the "Guideline Public Company
Method", and the "Guideline Branch Transaction Method". If the estimated fair value exceeds the carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair
value, there is an indication of potential impairment and the second step is performed to measure for actual impairment, if any exists.
If
required, the second step involves calculating an implied fair value of goodwill. This fair value amount is determined in a manner similar to the way goodwill is calculated in a
business combination, by measuring the excess of the estimated fair value of the unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities
and identifiable intangibles as if the unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill, there is no impairment. If the
carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess and a new basis is established for goodwill. An impairment loss cannot exceed
the carrying value of goodwill.
F-52
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
15. GOODWILL & OTHER INTANGIBLE ASSETS (Continued)
As
of December 31, 2011, management performed an annual evaluation of goodwill related to the East Coast branches and concluded that there was no impairment of goodwill and that
the fair value of the East Coast branches exceeded its carrying value as of December 31, 2011.
The
gross carrying amount and accumulated amortization for core deposit intangibles that resulted from the acquisition of Liberty Bank and Mirae Bank at December 31, 2011 and
December 31, 2010 are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
(Dollars in Thousands)
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposits—Mirae Bank
|
|
$
|
1,330
|
|
|
(674
|
)
|
$
|
1,330
|
|
$
|
(522
|
)
|
|
Core deposits—Liberty Bank of New York
|
|
|
1,640
|
|
|
(976
|
)
|
|
1,640
|
|
|
(802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,970
|
|
|
(1,650
|
)
|
$
|
2,970
|
|
$
|
(1,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The
amortization schedule for intangible assets, specifically core deposit intangibles for the next five years as of December 31, 2011 is show in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
2012
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
|
Other Intangible assets amortization
|
|
$
|
284
|
|
$
|
280
|
|
$
|
274
|
|
$
|
267
|
|
$
|
125
|
|
16. RETIREMENT PLAN
In 1996, the Company established a 401(k) savings plan, which is open to all eligible employees who are 21 years old or over and have completed six months of service. The plan
provides for the
Company's matching contribution up to 6% of participants' compensation during the plan year. Vesting in employer contributions is 25% after two years of service and 25% per year thereafter. Total
employer contributions to the plan amounted to approximately $629,000, $692,000, and $520,000 for the years ended December 31, 2011, 2010, and 2009, respectively.
17. REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Company to maintain minimum ratios (set forth in the table below) of total and Tier I
capital to risk-weighted
F-53
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
17. REGULATORY MATTERS (Continued)
assets
(as defined) and Tier I capital (as defined) to quarterly average assets. Management believes that, as of December 31, 2011 and 2010, the Company met all capital adequacy
requirements to which it is subject.
Federal
Reserve Board rules provide that a bank holding company may count proceeds from a trust preferred securities issuance as Tier 1 capital in an amount up to 25% of its total
Tier 1 capital. Under the current Federal Reserve Board capital guidelines, as of December 31, 2011 and 2010, the Company is able to include all of the TARP preferred investment from the
U.S. Treasury as Tier 1 capital. In addition, part of the proceeds from the previously issued trust preferred securities was also classified as Tier 1 capital. As of December 31,
2011, the Company's Tier 1 risk-weighted capital ratio and Tier 1 capital ratio were 19.59% and 13.86%, respectively, as compared with 12.61% and 9.18%, as of
December 31, 2010.
As
of December 31, 2011, all of the Company and Bank's capital ratios were in excess of the regulatory requirements for a "well-capitalized institution". To be
categorized as well capitalized, the Company must maintain minimum total risk-based ratio of 10.0%, Tier I risk-based ratio of 6.0% and a Tier I leverage ratio of
5.0%.
The
Company's and Bank's actual capital amounts and ratios are presented in the table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
For Capital Adequacy Purposes
|
|
|
(Dollars In Thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
|
|
Ratio
|
|
|
As of December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
393,520
|
|
|
20.89
|
%
|
$
|
150,697
|
|
³
|
|
|
8.00
|
%
|
|
Wilshire State Bank
|
|
$
|
383,963
|
|
|
20.42
|
%
|
$
|
150,442
|
|
³
|
|
|
8.00
|
%
|
|
Tier 1 Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
368,951
|
|
|
19.59
|
%
|
$
|
75,348
|
|
³
|
|
|
4.00
|
%
|
|
Wilshire State Bank
|
|
$
|
359,463
|
|
|
19.12
|
%
|
$
|
75,221
|
|
³
|
|
|
4.00
|
%
|
|
Tier 1 Capital (to quarterly average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
368,951
|
|
|
13.86
|
%
|
$
|
106,447
|
|
³
|
|
|
4.00
|
%
|
|
Wilshire State Bank
|
|
$
|
359,463
|
|
|
13.53
|
%
|
$
|
106,285
|
|
³
|
|
|
4.00
|
%
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
316,921
|
|
|
14.00
|
%
|
$
|
181,099
|
|
³
|
|
|
8.00
|
%
|
|
Wilshire State Bank
|
|
$
|
310,592
|
|
|
13.72
|
%
|
$
|
181,089
|
|
³
|
|
|
8.00
|
%
|
|
Tier 1 Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
285,556
|
|
|
12.61
|
%
|
$
|
90,549
|
|
³
|
|
|
4.00
|
%
|
|
Wilshire State Bank
|
|
$
|
279,228
|
|
|
12.34
|
%
|
$
|
90,545
|
|
³
|
|
|
4.00
|
%
|
|
Tier 1 Capital (to quarterly average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wilshire Bancorp, Inc.
|
|
$
|
285,556
|
|
|
9.18
|
%
|
$
|
124,477
|
|
³
|
|
|
4.00
|
%
|
|
Wilshire State Bank
|
|
$
|
279,228
|
|
|
8.98
|
%
|
$
|
124,383
|
|
³
|
|
|
4.00
|
%
|
F-54
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
17. REGULATORY MATTERS (Continued)
For
the purposes of regulatory capital ratio computation, the Company's equity capital includes the $62.2 million Series A Preferred Stock issued by the Company to the U.S.
Treasury as part of the Company's participation of the TARP Capital Purchase Program. It also includes capital from the Company's public offering conducted in the second quarter of 2011. In the public
offering, the Company raised approximately $115.0 million in equity capital through the issuance of common stock. After associated underwriting fees and costs and other expenses related to the
offering, the Company's net equity increase was approximately $108.7 million.
As
a holding company whose only significant asset is the common stock of the Bank, the Company's ability to pay dividends on its common stock and to conduct business activities directly
or in non-banking subsidiaries depends significantly on the receipt of dividends or other distributions from the Bank. The Bank's ability to pay any cash dividends will depend not only
upon its earnings during a specified period, but also on its meeting certain capital requirements. The Federal Deposit Insurance Act and FDIC regulations restrict the payment of dividends when a bank
is
undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank.
The
payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as maintenance of adequate capital. If, in the opinion of the regulatory
authority, a depository institution under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (that, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may require, after notice and hearing, that such depository institution cease and desist from such practice. The Federal Reserve
Board has issued a policy statement that provides that insured banks and bank holding companies should generally pay dividends only out of operating earnings for the current and preceding two years.
In addition, all insured depository institutions are subject to the capital-based limitations required by the Federal Deposit Insurance Corporation Improvement Act of 1991. In addition to the
regulation of dividends and other capital distributions, there are various statutory and regulatory limitations on the extent to which the Bank can finance or otherwise transfer funds to the Company
or any of its non-banking subsidiaries, whether in the form of loans, extensions of credit, investments or asset purchases. The Federal Reserve Act and Regulation may further restrict
these transactions in the interest of safety and soundness. The foregoing restrictions on dividends paid by the Bank may limit Wilshire Bancorp's ability to obtain funds from such dividends for its
cash needs, including funds for payment of its debt service requirements and operating expenses and for payment of cash dividends to Wilshire Bancorp's shareholders. Furthermore, as part of the TARP
agreement, the Company is limited to declare or pay or set apart for dividend payments on any common shares or shares of any other series of preferred stock rankings prior to fully fulfilling the
dividend payment requirement of the TARP. The amount of dividends the Bank could pay to Wilshire Bancorp as of December 31, 2011 without prior regulatory approval, which is limited by statute
to the sum of undivided profits for the current year plus net profits for the preceding two years (less any distributions made to shareholders during such periods), was zero as undivided cumulative
three year net income was negative, and therefore no dividends can be paid without regulatory approval. In addition, the Bank is prohibited from paying dividends to the holding company without prior
regulatory approval under the terms of its MOU with the FDIC and the California DFI, and Wilshire Bancorp is restricted from paying dividends without the prior regulatory approval under the terms of
its MOU with the Federal Reserve Bank of San Francisco.
F-55
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The table below is a summary of fair value estimates as of December 31, 2011 and 2010, for financial instruments, as defined by ASC 825-10,
"
Disclosures about Fair Value of Financial Instruments,"
including those financial instruments for which the Company did not elect fair value option. In
addition, the provisions of ASC 825-10 do not require the disclosure of the fair value of lease financing instruments and nonfinancial instruments, including goodwill and intangible
assets. The estimated fair value of financial instruments has been determined by the Company using available market information and other valuation methodologies. However, considerable judgment is
required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
(Dollars in Thousands)
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
325,250
|
|
$
|
325,250
|
|
$
|
198,535
|
|
$
|
198,535
|
|
|
Investment securities held-to-maturity
|
|
|
66
|
|
|
70
|
|
|
85
|
|
|
89
|
|
|
Loans receivable—net
|
|
|
1,824,690
|
|
|
1,826,358
|
|
|
2,177,768
|
|
|
2,175,194
|
|
|
Loans held-for-sale
|
|
|
53,814
|
|
|
56,356
|
|
|
37,904
|
|
|
39,027
|
|
|
Cash surrender value of life insurance
|
|
|
19,888
|
|
|
19,888
|
|
|
18,662
|
|
|
18,662
|
|
|
Federal Home Loan Bank stock
|
|
|
15,523
|
|
|
15,523
|
|
|
18,531
|
|
|
18,531
|
|
|
Accrued interest receivable
|
|
|
8,118
|
|
|
8,118
|
|
|
10,581
|
|
|
10,581
|
|
|
Due from customer on acceptances
|
|
|
414
|
|
|
414
|
|
|
368
|
|
|
368
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
511,467
|
|
|
511,467
|
|
$
|
467,067
|
|
$
|
467,067
|
|
|
Interest-bearing deposits
|
|
|
1,690,842
|
|
|
1,700,253
|
|
|
1,993,873
|
|
|
1,983,734
|
|
|
Junior subordinated debentures
|
|
|
87,321
|
|
|
87,321
|
|
|
87,321
|
|
|
87,321
|
|
|
Short-term federal fund purchased & FHLB borrowings
|
|
|
60,000
|
|
|
59,999
|
|
|
135,000
|
|
|
136,519
|
|
|
Accrued interest payable
|
|
|
3,281
|
|
|
3,281
|
|
|
4,902
|
|
|
4,902
|
|
|
Acceptances outstanding
|
|
|
414
|
|
|
414
|
|
|
368
|
|
|
368
|
|
The
methods and assumptions used to estimate the fair value of each class of financial statements for which it is practicable to estimate that value are explained below:
Cash and Cash Equivalents
—The carrying amounts approximate fair value due to the short-term nature of these investments.
Investment Securities Held-to-maturity
—The fair value of investment securities
held-to-maturity is generally obtained from market bids from similar or identical securities, or obtained from independent securities brokers or dealers.
Loans Receivable-Net
—Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed
and adjustable rate interest terms. The fair values of fixed rate
F-56
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
mortgage
loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the market pricing of similar fixed rate loans, as well as anticipated repayment
schedules as of December 31, 2011 and 2010, respectively. The fair values of adjustable rate commercial loans are based on the estimated discounted cash flows as of the year ends of 2011 and
2010 utilizing the discount rates that approximate the pricing of loans collateralized by similar commercial properties. The estimated fair values are net of allowance for loan losses.
Loans Held-for-Sale
—Similar fair valuation as to
Loans
Receivable-Net
. Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The
fair values of fixed rate mortgage loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing of similar fixed rate loans, as well
as anticipated repayment schedules. The fair value of adjustable rate commercial loans is based on the estimated discounted cash flows utilizing the discount rates that approximate the pricing of
loans collateralized by similar commercial properties.
Cash Surrender Value of Life Insurance
—The carrying amounts approximate fair value since the carrying amount represents the cash surrender
value.
Federal Home Loan Bank Stock
—The carrying amounts approximate fair value, as the stock may be sold back to the FHLB at the carrying value.
Accrued Interest Receivable
—The carrying amount of accrued interest receivable approximates its fair value due to the short-term
nature of this asset.
Deposits
—The fair values of non-maturity deposits are equal to the carrying values of such deposits. Non-maturity
deposits include noninterest-bearing demand deposits, savings accounts, super NOW accounts, and money market demand accounts. Discounted cash flows have been used to value term deposits, such as CDs.
The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term. The carrying amount of accrued interest payable approximates its
fair value.
Junior Subordinated Debentures, Federal Home Loan Bank Borrowings and Federal Funds Purchased
—The fair value of debt is based on discounted
cash flows. The discount rate used is based on the current market rate.
Accrued Interest Payable
—The carrying amount of accrued interest payable approximates its fair value due the short-term nature
of this liability.
Due from Customer on Acceptances and Acceptances Outstanding
—The carrying amount approximates fair value due to the short-term
maturities of these instruments.
Loan Commitments and Standby Letters of Credit
—The fair value of loan commitments and standby letters of credit is based upon the difference
between the current value of similar loans and the price at which the Company has committed to make the loans. The fair value of loan commitments and standby letters of credit is not material at
December 31, 2011 and 2010.
The
fair value estimates presented herein are based on pertinent information available to management at December 31, 2011 and 2010. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such amounts have not been
F-57
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
comprehensively
revalued for purposes of these financial statements since that date, and therefore, current estimates of fair value may differ significantly from the amounts presented herein.
19. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations at December 31, 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Thousands, Except Per Share Data)
|
|
2011
|
|
2010
|
|
2009
|
|
|
Numerator—Net (loss) income available to common shareholders
|
|
$
|
(33,988
|
)
|
$
|
(38,384
|
)
|
$
|
16,504
|
|
|
Denominator—Basic weighted-average shares
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,420,291
|
|
|
Effect of dilutive securities—Stock option dilution
(1)
|
|
|
—
|
|
|
—
|
|
|
8,975
|
|
|
Stock warrant dilution
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Denominator—Adjusted weighted-average shares
|
|
|
55,710,377
|
|
|
29,486,351
|
|
|
29,429,266
|
|
|
Basic earnings per share
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
|
Diluted earnings per share
|
|
$
|
(0.61
|
)
|
$
|
(1.30
|
)
|
$
|
0.56
|
|
-
(1)
-
Excludes
869,100 options outstanding at December 31, 2009 for which the exercise price exceeded the average market price of the
Company's common stock. Therefore, these stock options were deemed anti-dilutive, and were excluded from the diluted earnings per share calculation. In addition 855,820 and 910,180 vested
options outstanding at December 31, 2011 and 2010, respectively, were excluded as the options were deemed anti-dilutive due to the net loss recorded for available to common
shareholders for these years.
-
(2)
-
There
were 949,460 warrants outstanding at December 31, 2011, 2010, and 2009. The warrants' exercise price exceeded the average market
price of the Company's common stock as of December 31, 2011. Therefore, the stock warrants were deemed anti-dilutive, and were excluded from the diluted earnings per share
calculation.
20. BUSINESS SEGMENT INFORMATION
The following disclosure about segments of the Company is made in accordance with the requirements of ASC 280-10
"Disclosures about Segments of an
Enterprise and Related Information"
Wilshire Bancorp operates in three primary business segments: Banking Operations, Trade Finance Services, and Small Business Administration
Lending Services. The Company determines operating
results of each segment based on an internal management system that allocates certain expenses to each segment. These segments are described in additional detail
below:
-
•
-
Banking Operations ("Operations")—
The Company raises funds
from deposits and borrowings for loans and investments, and provides lending products, including commercial, consumer, and real estate loans to its customers.
-
•
-
Small Business Administration Lending Services—
The SBA
department mainly provides customers with access to the U.S. SBA guaranteed lending program.
F-58
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
20. BUSINESS SEGMENT INFORMATION (Continued)
-
•
-
Trade Finance Services—
The Company's TFS primarily deals in
letters of credit issued to customers whose businesses involve the international sale of goods. A letter of credit is an arrangement (usually expressed in letter form) whereby the Company, at the
request of and in accordance with customers instructions, undertakes to reimburse or cause to reimburse a third party, provided that certain documents are presented in strict compliance with its terms
and conditions. Simply put, a bank is pledging its credit on behalf of the customer. The Company's TFS offers the following types of letters of credit to customers:
-
•
-
Commercial—An undertaking by the issuing bank to pay for a commercial transaction.
-
•
-
Standby—An undertaking by the issuing bank to pay for the non-performance of applicant.
-
•
-
Documentary Collections—A means of channeling payment for goods through a bank in order to facilitate passing
of funds. The bank (banks) involved acts as a conduit through which the funds and documents are transferred between the buyer and seller of goods.
The
Company's TFS services include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, the Company provides
advising and negotiation of commercial letters of credit, and the Company transfers and issue back-to-back letters of credit. Wilshire Bancorp also provides importers with
trade finance lines of credit, which allow for issuance of commercial letters of credit and financing of documents received under such letters of credit, as well as documents received under
documentary collections. Exporters are assisted through export lines of credit as well as through immediate financing of clean documents presented under export letters of credit.
The
following are the results of operations of the Company's segments for the year-ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments
|
|
|
|
|
2011
(Dollars in Thousands)
|
|
Banking
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
|
Net interest income
|
|
$
|
95,394
|
|
$
|
2,372
|
|
$
|
9,609
|
|
$
|
107,375
|
|
|
Less provision for (recapture of) loan losses
|
|
|
56,299
|
|
|
(1,352
|
)
|
|
4,153
|
|
|
59,100
|
|
|
Other operating income
|
|
|
8,851
|
|
|
857
|
|
|
14,097
|
|
|
23,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
47,946
|
|
|
4,581
|
|
|
19,553
|
|
|
72,080
|
|
|
Other operating expenses
|
|
|
60,237
|
|
|
1,519
|
|
|
7,029
|
|
|
68,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
$
|
(12,291
|
)
|
$
|
3,062
|
|
$
|
12,524
|
|
$
|
3,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,472,456
|
|
$
|
63,255
|
|
$
|
161,143
|
|
$
|
2,696,854
|
|
|
|
|
|
|
|
|
|
|
|
|
F-59
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
20. BUSINESS SEGMENT INFORMATION (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments
|
|
|
|
|
2010
(Dollars in Thousands)
|
|
Banking
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
|
Net interest income
|
|
$
|
100,875
|
|
$
|
2,979
|
|
$
|
9,862
|
|
$
|
113,716
|
|
|
Less provision for loan losses
|
|
|
139,185
|
|
|
3,794
|
|
|
7,821
|
|
|
150,800
|
|
|
Other operating income
|
|
|
26,132
|
|
|
1,029
|
|
|
8,751
|
|
|
35,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) revenue
|
|
|
(12,178
|
)
|
|
214
|
|
|
10,792
|
|
|
(1,172
|
)
|
|
Other operating expenses
|
|
|
61,737
|
|
|
1,631
|
|
|
4,008
|
|
|
67,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes
|
|
$
|
(73,915
|
)
|
$
|
(1,417
|
)
|
$
|
6,784
|
|
$
|
(68,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,728,602
|
|
$
|
43,562
|
|
$
|
198,361
|
|
$
|
2,970,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments
|
|
|
|
|
2009
(Dollars in Thousands)
|
|
Banking Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
|
Net interest income
|
|
$
|
86,616
|
|
$
|
2,750
|
|
$
|
10,097
|
|
$
|
99,463
|
|
|
Less provision for loan losses
|
|
|
48,924
|
|
|
10,972
|
|
|
8,704
|
|
|
68,600
|
|
|
Other operating income
|
|
|
49,707
|
|
|
1,112
|
|
|
6,497
|
|
|
57,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue (loss)
|
|
|
87,399
|
|
|
(7,110
|
)
|
|
7,890
|
|
|
88,179
|
|
|
Other operating expenses
|
|
|
53,306
|
|
|
2,244
|
|
|
1,819
|
|
|
57,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
$
|
34,093
|
|
$
|
(9,354
|
)
|
$
|
6,071
|
|
$
|
30,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,209,129
|
|
$
|
44,210
|
|
$
|
182,658
|
|
$
|
3,435,997
|
|
|
|
|
|
|
|
|
|
|
|
|
21. RELATED PARTIES TRANSACTION
All related party transactions are and will continue to be on terms no less favorable to the Company than those which could be obtained with non-affiliated parties.
Management believes that such loans were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other parties and do not involve more than the normal risk of collectability or present other unfavorable features (see footnote 5).
F-60
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
22. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The following presents the unconsolidated financial statements of only the parent company, Wilshire Bancorp, Inc., as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
|
|
(Dollars in Thousands)
|
|
|
STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,804
|
|
$
|
6,676
|
|
|
Investment in subsidiary
|
|
|
377,416
|
|
|
298,280
|
|
|
Prepaid income taxes
|
|
|
3,143
|
|
|
1,982
|
|
|
Other assets
|
|
|
2
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
387,365
|
|
$
|
306,940
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
$
|
77,321
|
|
$
|
77,321
|
|
|
Accounts payable and other liabilities
|
|
|
72
|
|
|
69
|
|
|
Cash dividend payable
|
|
|
390
|
|
|
388
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
77,783
|
|
|
77,778
|
|
|
Shareholders' equity
|
|
|
309,582
|
|
|
229,162
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
387,365
|
|
$
|
306,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
(Dollars in Thousands)
|
|
|
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
1,645
|
|
$
|
2,134
|
|
$
|
2,725
|
|
|
Other operating expense
|
|
|
1,283
|
|
|
1,394
|
|
|
1,617
|
|
|
|
|
|
|
|
|
|
|
|
Total expense
|
|
|
2,928
|
|
|
3,528
|
|
|
4,342
|
|
|
Other income
|
|
|
49
|
|
|
64
|
|
|
105
|
|
|
Undistributed (losses) earnings of subsidiary
|
|
|
(28,612
|
)
|
|
(32,750
|
)
|
|
22,951
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income tax provision
|
|
|
(31,491
|
)
|
|
(36,214
|
)
|
|
18,714
|
|
|
Income tax benefit
|
|
|
1,161
|
|
|
1,456
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(30,330
|
)
|
$
|
(34,758
|
)
|
$
|
20,124
|
|
|
|
|
|
|
|
|
|
|
F-61
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
22. CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
|
|
(Dollars In Thousands)
|
|
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(30,330
|
)
|
$
|
(34,758
|
)
|
$
|
20,124
|
|
|
Adjustments to reconcile net earnings to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in accounts payable and other liabilities
|
|
|
3
|
|
|
(28
|
)
|
|
(45
|
)
|
|
Stock compensation expense
|
|
|
396
|
|
|
583
|
|
|
875
|
|
|
Decrease (increase) in prepaid income taxes
|
|
|
(1,161
|
)
|
|
(778
|
)
|
|
1,030
|
|
|
Increase in other assets
|
|
|
—
|
|
|
526
|
|
|
(229
|
)
|
|
Undistributed earnings (loss) of subsidiary
|
|
|
28,612
|
|
|
32,750
|
|
|
(22,951
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(2,480
|
)
|
|
(1,704
|
)
|
|
(1,196
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Payment from and (investments in) subsidiary
|
|
|
(103,000
|
)
|
|
12,000
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(103,000
|
)
|
|
12,000
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds From issuance of common stock
|
|
|
108,711
|
|
|
—
|
|
|
—
|
|
|
Proceeds from exercise of stock options
|
|
|
5
|
|
|
98
|
|
|
5
|
|
|
Payments of cash dividend
|
|
|
—
|
|
|
(2,948
|
)
|
|
(5,883
|
)
|
|
Payments of preferred stock cash dividend
|
|
|
(3,108
|
)
|
|
(3,108
|
)
|
|
(2,875
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
105,608
|
|
|
(5,959
|
)
|
|
(8,753
|
)
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
128
|
|
|
4,337
|
|
|
(69,949
|
)
|
|
Cash and cash equivalents, beginning of year
|
|
|
6,676
|
|
|
2,339
|
|
|
72,288
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
6,804
|
|
$
|
6,676
|
|
$
|
2,339
|
|
|
|
|
|
|
|
|
|
|
F-62
Table of Contents
WILSHIRE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2011
23. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended,
|
|
|
2011
(Dollars in Thousands, Except Share Data)
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
YTD Total
|
|
|
Net interest income
|
|
$
|
29,295
|
|
$
|
27,335
|
|
$
|
25,522
|
|
$
|
25,223
|
|
$
|
107,375
|
|
|
Provision for loan losses
|
|
|
44,800
|
|
|
10,300
|
|
|
2,500
|
|
|
1,500
|
|
|
59,100
|
|
|
Net income (loss)
|
|
|
(51,193
|
)
|
|
3,026
|
|
|
11,102
|
|
|
6,735
|
|
|
(30,330
|
)
|
|
Net income (loss) available to common shareholders
|
|
|
(52,105
|
)
|
|
2,113
|
|
|
10,186
|
|
|
5,818
|
|
|
(33,988
|
)
|
|
Basic earnings (loss) per common share
|
|
$
|
(1.77
|
)
|
$
|
0.04
|
|
$
|
0.14
|
|
$
|
0.08
|
|
$
|
(0.61
|
)
|
|
Diluted earnings (loss) per common share
|
|
$
|
(1.77
|
)
|
$
|
0.04
|
|
$
|
0.14
|
|
$
|
0.08
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
28,558
|
|
$
|
29,239
|
|
$
|
29,652
|
|
$
|
26,267
|
|
$
|
113,716
|
|
|
Provision for loan losses
|
|
|
17,000
|
|
|
32,200
|
|
|
18,000
|
|
|
83,600
|
|
|
150,800
|
|
|
Net income (loss)
|
|
|
3,315
|
|
|
(3,664
|
)
|
|
4,980
|
|
|
(39,389
|
)
|
|
(34,758
|
)
|
|
Net income (loss) available to common shareholders
|
|
|
2,412
|
|
|
(4,570
|
)
|
|
4,072
|
|
|
(40,299
|
)
|
|
(38,385
|
)
|
|
Basic earnings per common share
|
|
$
|
0.08
|
|
$
|
(0.15
|
)
|
$
|
0.14
|
|
$
|
(1.37
|
)
|
$
|
(1.30
|
)
|
|
Diluted earnings per common share
|
|
$
|
0.08
|
|
$
|
(0.15
|
)
|
$
|
0.14
|
|
$
|
(1.37
|
)
|
$
|
(1.30
|
)
|
24. SUBSEQUENT EVENTS
On January 30, 2012, the Board of Directors for Wilshire Bancorp, Inc. (the "Company") approved the modification of stock options awards for the following directors; Steven
Koh, Harry Siafaris, Kyu Hyun Kim, Richard Kim, Young Hi Park, Lawrence Jeon, and Donald Byun. The stock option awards were previously issued to the Directors under the 2008 Stock Incentive Plan (the
"2008 Plan") which provides for a reserve of 2,933,200 shares of the Company's common stock, no par value per share, to be issued to the terms of the 2008 Plan. A total of 430,000 shares were modified
as of January 30, 2012. The exercise price of the modified shares was set at $3.50 per share based on the market closing price of the Company's shares of common stock on January 30,
2012. The vesting period for the modified stock option grants began on January 30, 2012, at which time 25% was immediately vested and the remainder will be vested in 25% annual increments. The
modified stock option awards expire 10 years from the date of the modification, or on January 30, 2022. After January 30, 2022, please add the following sentence: The Company
expects to incur approximately $346,000 in compensation expenses related to the modification in 2012.
The
Company has evaluated all other events and transactions occurring through the date of filing this report on Form 10-K. Except for the aforementioned modification
of stock options for the Company's Directors, the Company did not have any other subsequent events as the of the issue date of this report.
F-63
Table of Contents
Exhibit Table
|
|
|
|
|
Reference
Number
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Item
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|
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3.1
|
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Articles of Incorporation, as amended and restated
1
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3.2
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Second Amended and Restated Bylaws of Wilshire Bancorp, Inc. effective December 12, 2008
2
|
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3.3
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Certificate of Determination of Fixed Rate Cumulative Perpetual Preferred Stock, Series A
2
|
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3.4
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Certificate of Amendment to Articles of Incorporation
16
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4.1
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Specimen of Common Stock Certificate
3
|
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4.2
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Indenture of Subordinated Debentures dated as of September 19, 2002
9
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4.3
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Indenture by and between Wilshire Bancorp, Inc. and U.S. Bank National Association dated as of December 17, 2003
4
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4.4
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Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., U.S. Bank National Association, Soo Bong Min and Brian E. Cho dated as of December 17, 2003
4
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4.5
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Guarantee Agreement by and between Wilshire Bancorp, Inc. and U.S. Bank National Association dated as of December 17, 2003
4
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4.6
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Indenture by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of March 17, 2005
4
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4.7
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Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., Wilmington Trust Company, Soo Bong Min, Brian E. Cho and Elaine Jeon dated as of March 17, 2005
4
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4.8
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Guarantee Agreement by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of March 17, 2005
4
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4.9
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Indenture by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of September 15, 2005
4
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4.10
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Amended and Restated Declaration of Trust by and among Wilshire Bancorp, Inc., Wilmington Trust Company, Brian E. Cho and Elaine Jeon dated as of September 15, 2005
4
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4.11
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Guarantee Agreement by and between Wilshire Bancorp, Inc. and Wilmington Trust Company dated as of September 15, 2005
4
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4.12
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Indenture by and between Wilshire Bancorp, Inc. and LaSalle Bank National Association dated as of July 10, 2007.
5
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4.13
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Amended and Restated Declaration of Trust by and among LaSalle National Trust Delaware, LaSalle Bank National Association, Wilshire Bancorp, Inc., Soo Bong Min and Brian E. Cho dated as of July 10,
2007.
5
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4.14
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Guarantee Agreement by and between Wilshire Bancorp, Inc. and LaSalle Bank National Association dated as of July 10, 2007.
5
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4.15
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Form of Certificate for the Series A Preferred Stock
2
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4.16
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Warrant to Purchase Common Stock
2
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10.1
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Stock Purchase Agreement by and between Wilshire State Bank and OSB Financial Services, Inc.
9
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|
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10.2
|
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Consulting Agreement with Soo Bong Min dated December 19, 2007
6,
7
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10.3
|
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Letter Agreement, dated as of December 12, 2008, including the Securities Purchase Agreement—Standard Terms incorporated by reference therein, between the Company and the United States Department of the
Treasury
2
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10.4
|
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Additional Letter Agreement, dated as of December 12, 2008, between the Company and the United States Department of the Treasury
2
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10.5
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|
Form of Letter Agreement, executed by each of Joanne Kim, Alex Ko, Sung Soo Han, Seung Hoon Kang, and David Kim
2
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10.6
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Form of Waiver, executed by each of Joanne Kim, Alex Ko, Sung Soon Han, Seung Hoon Kang, and David Kim
2
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|
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10.7
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Purchase and Assumption Agreement among Federal Deposit Insurance Corporation, Receiver of Mirae Bank, Federal Deposit Insurance Corporation and Wilshire State Bank, dated as of June 26, 2009
13
|
Table of Contents
|
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Reference
Number
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Item
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10.8
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2008 Stock Option Plan of Wilshire Bancorp, Inc.
6,
8
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10.9
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Lease dated July 31, 2009 between the Company and AYM Investment LLC, Laurel-Crest Group LLC, and Synchronicity LLC. (Downtown Branch)
12
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10.10
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Lease dated January 21, 2010 between the Company and System II LLC. (Cerritos Branch)
12
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10.11
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Addendum to Fashion Town Branch Lease, dated May 31, 2009 between the Company and San Pedro Properties LP. (Fashion Town Branch)
12
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|
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10.12
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Lease dated July 28, 2009 between the Company and New Hampshire Apartments, Inc.(Torrance Branch)
12
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|
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10.13
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Lease dated August 12, 2009 between the Company and KamHing Realty-NYC LLC.(Manhattan Branch)
12
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|
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10.14
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Addendum to Denver LPO Lease, dated August 11, 2008 between the Company and RMC/Pavillion Towers, LLC. (Denver, CO LPO)
12
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|
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10.15
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Lease dated December 15, 2009 between the Company and NDI Development. (Atlanta, GA LPO)
12
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|
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10.16
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|
Addendum to Denver LPO Lease, dated March 31, 2008 between the Company and YPI 9801 Westheimer, LLC. (Houston, TX LPO)
12
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|
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10.17
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Addendum to Annandale, VA LPO Lease, dated February 25, 2010 between the Company and Young H. Lim and InjooBaik.(Annandale, VA LPO)
12
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|
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10.18
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Lease dated November 19, 2009 between the Company and Regency Centers, LP.(Van Nuys Branch)
12
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|
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10.19
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Lease dated September 2, 2008 between the Company and Roosevelt Avenue Corp. (Flushing, NY Branch)
12
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|
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10.20
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Lease dated July 31, 2009 between the Company and 2140 Lake, LLC c/o Jamison Services Inc. (Olympic Branch)
12
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10.21
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Employment Agreement by and between the Bank and Jae Whan Yoo, effective February 18, 2011
10
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|
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10.22
|
|
Form of Restricted Stock Agreement
11
|
|
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10.23
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|
Lease dated November 10, 2010 between the Company and LACOLA, INC. (Gardena, CA Branch)
14
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|
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10.24
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Underwriting agreement, dated May 11, 2011, by and between Wilshire Bancorp, Inc. and J.P. Morgan Securities LLC, as representative of the underwriters named therein
15
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|
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10.25
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|
Wilshire State Bank Directors Survivor Income Plan, dated July 1, 2005 as amended on December 19, 2007
6
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|
|
10.26
|
|
Wilshire State Bank Executive Survivor Income Plan, dated July 1, 2005 as amended on December 19, 2007
6
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|
|
11
|
|
Statement Regarding Computation of Net Earnings per Share
16
|
|
|
12.1
|
|
Statement regarding computation of ratios of earnings to fixed charges
|
|
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21
|
|
Subsidiaries of the Registrant
|
|
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23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
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31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
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31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
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32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
99.1
|
|
Certification Pursuant To Section 111(B)(4) Of The Emergency Economic Stabilization Act Of 2008, As Amended (Principal Executive Officer)
|
|
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99.2
|
|
Certification Pursuant To Section 111(B)(4) Of The Emergency Economic Stabilization Act Of 2008, As Amended (Principal Financial Officer)
|
Table of Contents
|
|
|
|
|
Reference
Number
|
|
Item
|
|
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101
|
|
The following materials from the Company's annual report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance
Sheets as of December 31, 2011 and 2010, (ii) Condensed Consolidated Statements of Income for the years ended December 31, 2011, 2010, and 2009, (iii) Condensed Consolidated Statement of Changes in Stockholders' Equity and
Non-controlling Interests for the years ended December 31, 2011, 2010, and 2009, (iv) Condensed Consolidated Statements of Cash Flows, for the years ended December 31, 2011, 2010, and 2009, and (v) Notes to Condensed Consolidated
Financial Statements, tagged as blocks of text.
|
-
1
-
Incorporated
by reference to the Exhibits in the Registration Statement on Form S-4, as filed with the SEC on June 15,
2004.
-
2
-
Incorporated
by reference to the Exhibits in the Company's Form 8-K, as filed with the SEC on December 17, 2008.
-
3
-
Incorporated
by reference to the Exhibits in the Registration Statement on Form S-4, as filed with the SEC on April 1,
2004.
-
4
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 16, 2007.
-
5
-
Incorporated
by reference to the Exhibits to the Company's Form 10-Q, as filed with the SEC on November 9, 2007.
-
6
-
Indicates
compensation or compensatory plan, contract, or arrangement.
-
7
-
Incorporated
by reference to the Exhibits to the Company's Form 8-K, as filed with the SEC on December 20, 2007.
-
8
-
Incorporated
by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A, as filed with the SEC on
May 8, 2008.
-
9
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 12, 2009.
-
10
-
Incorporated
by reference to the Exhibit in the Company's Form 8-K, as filed with the SEC on February 24, 2011.
-
11
-
Incorporated
by reference to the Exhibit in the Company's Form 8-K, as filed with the SEC on December 3, 2009.
-
12
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 1, 2010.
-
13
-
Incorporated
by reference to the Exhibit to the Company's Form 8-K, as filed with the SEC on July 1, 2009.
-
14
-
Incorporated
by reference to the Exhibits to the Company's Form 10-K, as filed with the SEC on March 16, 2011.
-
15
-
Incorporated
by reference to the Exhibits to the Company's Form 8-K, as filed with the SEC on May 12, 2011.
-
16
-
The
information required by this Exhibit is incorporated by reference from Note 19 of the Company's Financial Statements included
herein.
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