Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
|
|
|
|
For the quarterly period ended
March 31
, 200
9
.
|
OR
o
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
|
|
|
|
For the transition period from
to
|
Commission File Number 000-50923
WILSHIRE
BANCORP, INC.
(Exact name of registrant as
specified in its charter)
California
|
20-0711133
|
State
or other jurisdiction of incorporation or organization
|
I.R.S.
Employer Identification Number
|
|
|
3200 Wilshire Blvd.
|
|
Los Angeles, California
|
90010
|
Address
of principal executive offices
|
Zip
Code
|
(213) 387-3200
Registrants
telephone number, including area code
Securities registered
pursuant to Section 12(b) of the Act:
Common Stock, no par value
Securities registered
pursuant to Section 12(g) of the Act:
None
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
x
No
o
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
o
No
o
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 small
reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
o
|
|
|
Accelerated filer
|
x
|
|
|
|
|
|
|
Non-accelerated filer
|
o
|
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company
|
o
|
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
The number of shares of Common Stock of the registrant
outstanding as of
April 30,
2009 was 29,413,757.
Table of Contents
Part I. FINANCIAL
INFORMATION
Item 1. Financial Statements
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS IN
THOUSANDS) (UNAUDITED)
|
|
March 31, 2009
|
|
December 31, 2008
|
|
ASSETS
|
|
|
|
|
|
Cash and due
from banks
|
|
$
|
61,268
|
|
$
|
67,540
|
|
Federal
funds sold and other cash equivalents
|
|
85,001
|
|
30,001
|
|
Cash and
cash equivalents
|
|
146,269
|
|
97,541
|
|
|
|
|
|
|
|
Investment
securities available for sale, at fair value (amortized cost of $315,541 and
$227,430 at March 31, 2009 and December 31, 2008, respectively)
|
|
320,055
|
|
229,136
|
|
Investment
securities held to maturity, at amortized cost (fair value of $133 and $135
at March 31, 2009 and December 31, 2008, respectively)
|
|
133
|
|
139
|
|
Loans
receivable, net of allowance for loan losses of $34,156 and $29,437 at
March 31, 2009 and December 31, 2008, respectively)
|
|
2,019,667
|
|
2,003,665
|
|
Loans held
for saleat the lower of cost or market
|
|
20,178
|
|
18,427
|
|
Federal Home
Loan Bank stock, at cost
|
|
17,537
|
|
17,537
|
|
Other real
estate owned
|
|
6,282
|
|
2,663
|
|
Due from
customers on acceptances
|
|
312
|
|
2,213
|
|
Cash
surrender value of bank owned life insurance
|
|
17,559
|
|
17,395
|
|
Investment
in affordable housing partnerships
|
|
11,214
|
|
9,019
|
|
Bank
premises and equipment
|
|
11,475
|
|
11,265
|
|
Accrued
interest receivable
|
|
10,122
|
|
9,975
|
|
Deferred
income taxes
|
|
11,815
|
|
12,051
|
|
Servicing
assets
|
|
4,790
|
|
4,838
|
|
Goodwill
|
|
6,675
|
|
6,675
|
|
Other assets
|
|
7,199
|
|
7,472
|
|
TOTAL
|
|
$
|
2,611,282
|
|
$
|
2,450,011
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
298,044
|
|
$
|
277,542
|
|
Interest
bearing:
|
|
|
|
|
|
Savings
|
|
44,118
|
|
44,452
|
|
Money market
checking and NOW accounts
|
|
396,461
|
|
384,190
|
|
Time
deposits of $100,000 or more
|
|
969,001
|
|
902,804
|
|
Other time
deposits
|
|
197,823
|
|
203,613
|
|
Total
deposits
|
|
1,905,447
|
|
1,812,601
|
|
|
|
|
|
|
|
Federal Home
Loan Bank advances and other borrowings
|
|
340,000
|
|
274,000
|
|
Junior
subordinated debentures
|
|
87,321
|
|
87,321
|
|
Accrued
interest payable
|
|
7,330
|
|
6,957
|
|
Acceptances
outstanding
|
|
312
|
|
2,213
|
|
Other
liabilities
|
|
13,166
|
|
11,859
|
|
Total
liabilities
|
|
2,353,576
|
|
2,194,951
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY:
|
|
|
|
|
|
Preferred
stock, $1,000 par valueauthorized, 5,000,000 shares; issued and outstanding,
62,158 shares and 62,158 shares at March 31, 2009 and December 31,
2008, respectively
|
|
59,562
|
|
59,443
|
|
Common
stock, no par valueauthorized, 80,000,000 shares; issued and outstanding,
29,413,757 shares and 29,413,757 shares at March 31, 2009 and
December 31, 2008, respectively
|
|
54,238
|
|
54,038
|
|
Accumulated
other comprehensive income, net of tax
|
|
2,898
|
|
1,239
|
|
Retained
earnings
|
|
141,008
|
|
140,340
|
|
Total
shareholders equity
|
|
257,706
|
|
255,060
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
2,611,282
|
|
$
|
2,450,011
|
|
See accompanying notes to consolidated
financial statements.
1
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
INTEREST INCOME:
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
30,193
|
|
$
|
35,318
|
|
Interest on investment securities
|
|
2,942
|
|
2,584
|
|
Interest on federal funds sold
|
|
289
|
|
80
|
|
Total interest income
|
|
33,424
|
|
37,982
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
Interest on deposits
|
|
11,181
|
|
14,738
|
|
Interest on FHLB advances and other
borrowings
|
|
1,658
|
|
2,043
|
|
Interest on junior subordinated debentures
|
|
921
|
|
1,457
|
|
Total interest expense
|
|
13,760
|
|
18,238
|
|
|
|
|
|
|
|
NET INTEREST INCOME BEFORE PROVISION FOR LOSSES
ON LOANS AND LOAN COMMITMENTS
|
|
19,664
|
|
19,744
|
|
|
|
|
|
|
|
PROVISION FOR LOSSES ON LOANS AND LOAN
COMMITMENTS
|
|
6,700
|
|
1,400
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOSSES
ON LOANS AND LOAN COMMITMENTS
|
|
12,964
|
|
18,344
|
|
|
|
|
|
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
Service charges on deposit accounts
|
|
2,899
|
|
2,748
|
|
(Loss) Gain on sale of loans
|
|
(831
|
)
|
864
|
|
Loan-related servicing fees
|
|
964
|
|
675
|
|
Other income
|
|
705
|
|
867
|
|
Total noninterest income
|
|
3,737
|
|
5,154
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES:
|
|
|
|
|
|
Salaries and employee benefits
|
|
6,207
|
|
6,976
|
|
Occupancy and equipment
|
|
1,676
|
|
1,425
|
|
Data processing
|
|
827
|
|
764
|
|
Professional fees
|
|
342
|
|
500
|
|
Other operating
|
|
2,935
|
|
2,559
|
|
Total noninterest expenses
|
|
11,987
|
|
12,224
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
4,714
|
|
11,274
|
|
INCOME TAXES
|
|
1,655
|
|
4,224
|
|
NET INCOME
|
|
$
|
3,059
|
|
$
|
7,050
|
|
|
|
|
|
|
|
Preferred stock cash dividend accrued and
accretion of preferred stock discount
|
|
920
|
|
|
|
|
|
|
|
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
2,139
|
|
$
|
7,050
|
|
|
|
|
|
|
|
PER COMMON SHARE INFORMATION
|
|
|
|
|
|
Basic
|
|
$
|
0.07
|
|
$
|
0.24
|
|
Diluted
|
|
$
|
0.07
|
|
$
|
0.24
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
Basic
|
|
29,413,757
|
|
29,276,871
|
|
Diluted
|
|
29,422,290
|
|
29,341,080
|
|
See accompanying notes to consolidated
financial statements.
2
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
|
|
Preferred Stock
|
|
Common Stock
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
Comprehensive
|
|
Retained
|
|
Shareholders
|
|
|
|
Outstanding
|
|
Amount
|
|
Outstanding
|
|
Amount
|
|
Income
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE-January 1, 2008
|
|
|
|
$
|
|
|
29,253,311
|
|
$
|
49,633
|
|
$
|
375
|
|
$
|
121,778
|
|
$
|
171,786
|
|
Stock options exercised
|
|
|
|
|
|
137,866
|
|
391
|
|
|
|
|
|
391
|
|
Cash dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(1,469
|
)
|
(1,469
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
56
|
|
|
|
|
|
56
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
57
|
|
Cumulative impact of change in accounting for
bank owned life insurance
|
|
|
|
|
|
|
|
|
|
|
|
(1,876
|
)
|
(1,876
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
7,050
|
|
7,050
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on interest-only
strips, net of taxes
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Change in unrealized gain on securities
available for sale, net of taxes
|
|
|
|
|
|
|
|
|
|
1,527
|
|
|
|
1,527
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,591
|
|
BALANCE-March 31, 2008
|
|
|
|
$
|
|
|
29,391,177
|
|
$
|
50,137
|
|
$
|
1,916
|
|
$
|
125,483
|
|
$
|
177,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE-January 1, 2009
|
|
62,158
|
|
$
|
59,443
|
|
29,413,757
|
|
$
|
54,038
|
|
$
|
1,239
|
|
$
|
140,340
|
|
$
|
255,060
|
|
Cash dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(1,471
|
)
|
(1,471
|
)
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
(777
|
)
|
(777
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
200
|
|
Accretion of preferred stock discount
|
|
|
|
119
|
|
|
|
|
|
|
|
(143
|
)
|
(24
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
3,059
|
|
3,059
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on interest-only
strips, net of taxes
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
Change in unrealized gain on securities
available for sale, net of taxes
|
|
|
|
|
|
|
|
|
|
1,628
|
|
|
|
1,628
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,718
|
|
BALANCE-March 31, 2009
|
|
62,158
|
|
$
|
59,562
|
|
29,413,757
|
|
$
|
54,238
|
|
$
|
2,898
|
|
$
|
141,008
|
|
$
|
257,706
|
|
See accompanying notes to consolidated
financial statements.
3
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
CASH FLOWS
FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
3,059
|
|
$
|
7,050
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
Amortization of investment securities
|
|
823
|
|
271
|
|
Depreciation of bank premises &
equipment
|
|
487
|
|
441
|
|
Amortization of investments in affordable
housing partnerships
|
|
288
|
|
174
|
|
Provision for losses on loans and loan
commitments
|
|
6,700
|
|
1,400
|
|
Provision for other real estate owned
losses
|
|
204
|
|
|
|
Deferred tax (benefit) expense
|
|
(966
|
)
|
929
|
|
Loss on disposition of bank premises and
equipment
|
|
11
|
|
1
|
|
Loss (gain) on sale of loans
|
|
831
|
|
(864
|
)
|
Origination of loans held for sale
|
|
(3,422
|
)
|
(23,083
|
)
|
Proceeds from sale of loans held for sale
|
|
1,671
|
|
21,547
|
|
Gain on sale or call of available for sale
investment securities
|
|
(13
|
)
|
(3
|
)
|
Decrease in fair value of serving rights
|
|
49
|
|
332
|
|
Loss on sale of other real estate owned
|
|
247
|
|
|
|
Share-based compensation expense
|
|
200
|
|
56
|
|
Change in cash surrender value of life
insurance
|
|
(165
|
)
|
(139
|
)
|
Servicing assets capitalized
|
|
|
|
(304
|
)
|
(Increase) decrease in accrued interest
receivable
|
|
(147
|
)
|
230
|
|
Decrease in other assets
|
|
14
|
|
1,612
|
|
Dividends of Federal Home Loan Bank stock
|
|
|
|
(118
|
)
|
Tax benefit from exercise of stock options
|
|
|
|
(57
|
)
|
Increase (decrease) in accrued interest
payable
|
|
374
|
|
(102
|
)
|
Increase in other liabilities
|
|
1,382
|
|
2,887
|
|
Net cash provided by operating activities
|
|
11,627
|
|
12,260
|
|
|
|
|
|
|
|
CASH FLOWS
FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Proceeds from principal repayment, matured
or called securities held to maturity
|
|
5
|
|
7,007
|
|
Purchase of investment securities available
for sale
|
|
(130,591
|
)
|
(46,165
|
)
|
Proceeds from sale, principal repayment,
matured or
|
|
|
|
|
|
called investment securities available for
sale
|
|
41,671
|
|
54,281
|
|
Net increase in loans receivable
|
|
(30,030
|
)
|
(73,068
|
)
|
Proceeds from sale of other loans
|
|
1,168
|
|
|
|
Proceeds from sale of other real estate
owned
|
|
949
|
|
|
|
Purchases of investments in affordable
housing partnerships
|
|
(2,484
|
)
|
(470
|
)
|
Purchases of Bank premises and equipment
|
|
(418
|
)
|
(160
|
)
|
Purchases of Federal Home Loan Bank stock
|
|
|
|
(2,467
|
)
|
Proceeds from disposition of Bank equipment
|
|
|
|
1
|
|
Net cash used in investing activities
|
|
(119,730
|
)
|
(61,041
|
)
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
4
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
2008
|
|
CASH FLOWS
FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
$
|
|
|
$
|
391
|
|
Payment of cash dividend on common stock
|
|
(1,471
|
)
|
(1,463
|
)
|
Payment of cash dividend on preferred stock
|
|
(544
|
)
|
|
|
Increase in Federal Home Loan Bank advances
|
|
66,000
|
|
90,000
|
|
Tax benefit from exercise of stock options
|
|
|
|
57
|
|
Net increase (decrease) in deposits
|
|
92,846
|
|
(35,484
|
)
|
Net cash provided by financing activities
|
|
156,831
|
|
53,501
|
|
|
|
|
|
|
|
NET INCREASE
IN CASH AND CASH EQUIVALENTS
|
|
48,728
|
|
4,720
|
|
|
|
|
|
|
|
CASH AND
CASH EQUIVALENTSBeginning of period
|
|
97,541
|
|
92,509
|
|
CASH AND
CASH EQUIVALENTSEnd of period
|
|
$
|
146,269
|
|
$
|
97,229
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Interest paid
|
|
$
|
13,387
|
|
$
|
18,339
|
|
Income taxes paid
|
|
$
|
149
|
|
$
|
37
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
|
|
|
|
|
|
Transfer of loans to other real estate
owned
|
|
$
|
5,019
|
|
$
|
|
|
Other assets transferred to Bank premises
and equipment
|
|
$
|
290
|
|
$
|
150
|
|
|
|
|
|
|
|
SUPPLEMENTAL
SCHEDULE OF NONCASH FINANCING ACTIVITIES:
|
|
|
|
|
|
Common stock cash dividend declared, but
not paid
|
|
$
|
1,471
|
|
$
|
1,469
|
|
Preferred stock cash dividend declared, but
not paid
|
|
$
|
388
|
|
$
|
|
|
See accompanying notes to
consolidated financial statements.
5
Table of Contents
WILSHIRE BANCORP, INC.
Notes to Consolidated
Financial Statements
Note 1. Business
of Wilshire Bancorp, Inc.
Wilshire
Bancorp, Inc. (hereafter
, the Company, we, us, or our) 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. The 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 Banks shareholders approved a
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 wholly-owned subsidiary of
the Company.
Our corporate headquarters and primary banking
facilities are located at 3200 Wilshire Boulevard, Los Angeles, California
90010. In addition
, we have 21 full-service
Bank branch offices in Southern California, Texas, New York and New
Jersey. We also have 5 loan
production offices utilized primarily for the origination of loans under our
Small Business Administration (SBA) lending program in Colorado, Georgia,
Texas, and Virginia.
Note 2. Basis
of Presentation
The
consolidated financial statements have been prepared in accordance with the
Securities and Exchange Commission (SEC) rules and regulations for
interim financial reporting and therefore do not necessarily include all
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America
(GAAP). The information
provided by these interim financial statements reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
Companys consolidated statements of financial
condition as of March 31, 2009
and December 31, 2008, the
related statements of operations and shareholders equity for the three months
ended March 31, 2009 and 2008, and the statements of cash flows for three
months ended March 31, 2009 and 2008. Operating results for interim periods
are not necessarily indicative of operating results for an entire fiscal year.
The
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 200
8.
The accounting policies used in the preparation of these interim
financial statements were consistent with those used in the preparation of the
financial statements for the year ended December 31, 2008.
Note 3. Fair
Value Measurement for Financial and Non-Financial Assets and Liabilities
We record at fair value various financial and
non-financial instruments for financial reporting, and loan or goodwill
impairment purposes. Pursuant to Statement of Financial Accounting Standard
(SFAS) No. 157,
Fair Value Measurements
, and Financial Accounting Standards
Board (FASB) Statement of Positions (FSP) SFAS No.157-3,
Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active,
FASB provides a definition of fair value, establishes a framework for
measuring fair value, and requires expanded disclosures about fair value
measurements. The standard applies when GAAP requires or allows assets or liabilities to
be measured at fair value, and therefore, does not expand the use of fair value
in any new circumstance, and SFAS No. 157 amends, but does not supersede SFAS No. 107,
Disclosure about Fair Value of Financial Instruments.
SFAS No. 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an arms length transaction between market
participants in the markets where we conduct business. SFAS No. 157
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. FSP SFAS No. 157-3 further clarifies the application of SFAS
No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a
financial asset when the market for the financial asset is not active.
6
Table of Contents
In February 2008,
the FASB issued FSP SFAS No.157-2, which delays the effective date of SFAS No. 157,
for nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a
recurring basis. The delay is intended to allow the FASB and constituents
additional time to consider the effect of various implementation issues that
have arisen, or that may arise, from the application of SFAS No. 157. This
FSP applies to various nonfinancial assets and liabilities, including goodwill
and nonfinancial long-lived assets, and it defers the effective date of SFAS No. 157
to such nonfinancial assets and liabilities to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years for items within the scope
of this FSP. We adopted FSP SFAS No. 157-2 on January 1, 2009, and
the adoption of this FSP did not have a material impact on our consolidated
financial statements.
The
fair value inputs of the instruments are classified and disclosed in one of the
following categories pursuant to SFAS No. 157:
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 position size.
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 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 unobservable inputs 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 investments level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement. Our
assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and considers factors specific to
the investment.
We
used the following methods and assumptions in estimating our fair value
disclosure for financial instruments. Financial assets and liabilities recorded
at fair value on a recurring basis are listed as follows:
Investment securities available for sale
Investment in available-for-sale
securities are recorded at fair value pursuant to SFAS No. 115,
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 investment securities available for sale include
federal agency securities, mortgage-backed securities, collateralized mortgage
obligations, municipal bonds and corporate debt securities. Our existing
investment securities available-for-sale holdings as of March 31, 2009 are
measured using matrix pricing models in lieu of direct price quotes and
recorded based on Level 2 measurement inputs.
Servicing assets
and interest-only (I/O) 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 interest rates, prepayment
speeds and delinquency rate assumptions as inputs. All of these assumptions
require a significant degree of management judgment. Adjustments are only made
when the discounted cash flows are less than the carrying value. We classify
SBA loan servicing assets and I/O strips as recurring with Level 3 measurement
inputs.
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. Impairment is measured based on the fair value of the underlying
collateral. The fair value is determined through appraisals and other matrix
pricing models, which require a significant degree of management judgment. We
measure impairment on all nonaccrual loans and trouble debt restructured loans,
except automobile loans, for which we have established specific reserves as
part of the specific allocated allowance component of the allowance for losses
on loans. We record impaired loans as recurring with Level 3 measurement
inputs.
7
Table of Contents
Servicing
liabilities
SBA loan servicing liabilities represent the
value associated with servicing SBA loans sold. The value is determined through
a discounted cash flow analysis which uses interest rates, prepayment speeds
and delinquency rate assumptions as inputs. All of these assumptions require a
significant degree of management judgment. Adjustments are only made when the
discounted cash flows are less than the carrying value. We classify SBA loan
servicing liabilities as recurring with Level 3 measurement inputs.
The table below summarizes the valuation of our
financial assets and liabilities by the above SFAS No. 157 fair value
hierarchy levels as of March 31, 2009:
Assets Measured at Fair
Value
(dollars in thousands
)
|
|
As of March 31, 2009
|
|
|
|
|
|
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)
|
|
Investment securities available for sale
|
|
$
|
320,055
|
|
$
|
|
|
$
|
320,055
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing assets
|
|
4,790
|
|
|
|
|
|
4,790
|
|
|
|
|
|
|
|
|
|
|
|
I/O strips
|
|
661
|
|
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
56,170
|
|
|
|
|
|
56,170
|
|
|
|
|
|
|
|
|
|
|
|
Servicing liabilities
|
|
(333
|
)
|
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F
inancial 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 three months ended March 31, 2009
:
(dollars in thousands)
|
|
At December
31, 2008
|
|
Realized
Losses in
Net Income
|
|
Unrealized
Gains in Other
Comprehensive
Income
|
|
Net
Purchases
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At March
31, 2009
|
|
Net
Cumulative
Unrealized
Gains
|
|
Servicing assets
|
|
$
|
4,838
|
|
$
|
(48
|
)
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
4,790
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I/O strips
|
|
632
|
|
(25
|
)
|
54
|
|
|
|
|
|
661
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
27,955
|
|
(4,849
|
)
|
|
|
33,064
|
|
|
|
56,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing liabilities
|
|
(328
|
)
|
(5
|
)
|
|
|
|
|
|
|
(333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Table of Contents
Note 4. Shareholders
Equity
Earnings per Share
Basic
earnings per share (EPS) excludes dilution and is computed by dividing
income 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 entity. The following table
provides the basic and diluted EPS computations for the periods indicated
below:
|
|
For the Quarter Ended
March 31,
|
|
|
|
(dollars in thousands, except
per share data)
|
|
(dollars in thousands, except per share data)
|
|
2009
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
2,139
|
|
$
|
7,050
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
Weighted-average shares
|
|
29,413,757
|
|
29,276,871
|
|
Effect of dilutive stock option
|
|
8,533
|
|
64,209
|
|
Denominator for diluted earnings
per share:
|
|
|
|
|
|
Dilutive weighted-average shares
outstanding
|
|
29,422,290
|
|
29,341,080
|
|
Basic earnings per share
|
|
$
|
0.07
|
|
$
|
0.24
|
|
Diluted earnings per share
|
|
$
|
0.07
|
|
$
|
0.24
|
|
Note
5
. Business Segment Information
The
following disclosure about segments of the Company is made in accordance with
the requirements of SFAS No. 131,
Disclosures
about Segments of an Enterprise and Related Information
. The Company segregates its operations into
three primary segments: banking
operations, Small Business Administration (SBA) lending services and trade
finance services (TFS). The Company
determines the operating results of each segment based on an internal management
system that allocates certain expenses to each segment.
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.
Small
Business Administration Lending Services -
The SBA department
mainly provides customers with access to the U.S. SBA guaranteed lending
program.
Trade
Finance Services -
The trade finance department allows the
Companys import/export customers to handle their international
transactions. Trade finance products
include, among others, the issuance and collection of letters of credit,
international collection, and import/export financing.
9
Table of Contents
The
following are the results of operations of the Companys segments for the
periods indicated below:
|
|
Three Months Ended March 31, 200
9
|
|
Three Months Ended March 31, 2008
|
|
(dollars in thousands)
|
|
Banking
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Business Segment
|
|
Operations
|
|
SBA
|
|
TFS
|
|
Total
|
|
Operations
|
|
SBA
|
|
TFS
|
|
Total
|
|
Net interest
income
|
|
$
|
17,060
|
|
$
|
2,163
|
|
$
|
441
|
|
$
|
19,664
|
|
$
|
15,901
|
|
$
|
3,223
|
|
$
|
620
|
|
$
|
19,744
|
|
Less provision
(recapture) for credit losses
|
|
4,007
|
|
1,864
|
|
829
|
|
6,700
|
|
(1,014
|
)
|
1,992
|
|
422
|
|
1,400
|
|
Non-interest
income
|
|
2,774
|
|
679
|
|
284
|
|
3,737
|
|
3,528
|
|
1,351
|
|
275
|
|
5,154
|
|
Net revenue
|
|
15,827
|
|
978
|
|
(104
|
)
|
16,701
|
|
20,443
|
|
2,582
|
|
473
|
|
23,498
|
|
Non-interest
expenses
|
|
11,278
|
|
437
|
|
272
|
|
11,987
|
|
10,896
|
|
1,068
|
|
260
|
|
12,224
|
|
Income
before taxes
|
|
$
|
4,549
|
|
$
|
541
|
|
$
|
(376
|
)
|
$
|
4,714
|
|
$
|
9,547
|
|
$
|
1,514
|
|
$
|
213
|
|
$
|
11,274
|
|
Business segment
assets
|
|
$
|
2,403,788
|
|
$
|
155,385
|
|
$
|
52,109
|
|
$
|
2,611,282
|
|
$
|
2,063,297
|
|
$
|
154,751
|
|
$
|
42,387
|
|
$
|
2,260,435
|
|
Note 6. Commitments and Contingencies
We are
a party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of our customers. These financial instruments include
commitments to extend credit, standby letters of credit, and commercial 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.
Our exposure to credit loss in the event of nonperformance on
commitments to extend credit and standby letters of credit is represented by
the contractual notional amount of those instruments. We use the same credit policies in making
commitments and conditional obligations as we do for extending loan facilities
to customers. We evaluate each
customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary upon extension of credit, is based on our credit evaluation of the
counterparty. Collateral held varies but
may include accounts receivable,
inventory, property, plant, and
equipment and income-producing properties.
Commitments at March 31,
2009 are summarized as follows:
(dollars in thousands)
|
|
|
|
Commitments
to extend credit
|
|
$
|
146,381
|
|
Standby letters of credit
|
|
12,751
|
|
Commercial letters of credit
|
|
7,827
|
|
|
|
|
|
|
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 such counsel as to
the outcome of the claims. We do not
believe the final disposition of all such claims will have a material adverse
effect on our financial position or results of operations.
Note 7. Recent Accounting Pronouncements
In December 2008, the FASB issued FSP SFAS
No.132R-1,
Employers Disclosures about Postretirement Benefit
Plan Asset
, which amends SFAS No. 132R,
Employers Disclosures about Pensions and Other Postretirement
Benefits
, to provide guidance on employers disclosures about plan
assets of a defined benefit pension or other postretirement plan. The
objectives of the disclosures are to provide users of financial statements with
an understanding of the plan investment policies and strategies regarding
investment allocation, major categories of plan assets, use of fair valuation
inputs and techniques, effect of fair value measurements using significant
unobservable inputs (i.e., level 3 inputs), and significant concentrations of
risk within plan assets. FSP SFAS No. 132R-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2009, with
early adoption permitted. This FSP does not require comparative disclosures for
earlier periods. We are in the process of evaluating the impact that the
adoption of FSP SFAS No. 132R-1 will have on our consolidated financial
statements.
10
Table of Contents
In April 2009, the FASB issued FSP SFAS
No.141R-1,
Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
,
which amends and clarifies FASB Statement No. 141 (revised 2007),
Business Combinations
, to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. This FSP is effective for assets
or liabilities arising from contingencies in business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of FSP SFAS No. 141R-1
did not have a material impact on our consolidated financial statements.
In April 2009, the FASB issued FSP SFAS No.157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
, to provide additional guidance
for estimating fair value in accordance with SFAS No. 157,
Fair Value Measurements
, when the volume and level of activity for the
asset or liability have significantly decreased. As some constituents indicated
that SFAS No. 157 and FSP SFAS No. 157-3,
Determining the Fair Value of a Financial Asset When the Market for
That Asset Is Not Active
, do not provide sufficient guidance on how
to determine whether a market for a financial asset that historically was
active is no longer active and whether a transaction is not orderly. Therefore,
this FSP includes guidance on identifying circumstances that indicate a
transaction is not orderly. FSP SFAS No. 157-4 is effective for interim
and annual reporting periods ending after June 15, 2009. If a reporting
entity elects to adopt early either FSP SFAS No. 115-2 and SFAS No. 124-2
or FSP SFAS No. 107-1 and Accounting Principles Board (APB) 28-1, the
reporting entity also is required to adopt early this FSP. This FSP does not
require disclosures for earlier periods presented for comparative purposes at
initial adoption. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial adoption. We will
adopt FSP SFAS No. 157-4 in the second quarter of 2009 and are in the
process of evaluating the impact that the adoption will have on our
consolidated financial statements.
In April 2009, the FASB issued FSP SFAS No.115-2
and SFAS No. 124-2,
Recognition and
Presentation of Other-Than-Temporary Impairments
, which amends the
other-than-temporary impairment (OTTI) guidance in the U.S. GAAP for debt
securities to make the guidance more operational and to improve the
presentation and disclosure of OTTI on debt and equity securities in the
financial statements. This FSP does not amend existing recognition and
measurement guidance related to OTTI of equity securities. This FSP also
requires increased and more timely disclosures sought by investors regarding expected
cash flows, credit losses, and an aging of securities with unrealized losses.
FSP SFAS No. 115-2 and SFAS No. 124-2 is effective for interim and
annual reporting periods ending after June 15, 2009. If a reporting entity
elects to adopt early either FSP SFAS No. 157-4 or FSP SFAS No. 107-1
and APB 28-1, the reporting entity also is required to adopt early this FSP.
This FSP does not require disclosures for earlier periods presented for
comparative purposes at initial adoption. In periods after initial adoption,
this FSP requires comparative disclosures only for periods ending after initial
adoption. We will adopt FSP SFAS No. 115-2 and SFAS No. 124-2 in the
second quarter of 2009 and are in the process of evaluating the impact that the
adoption will have on our consolidated financial statements.
In April 2009, the FASB issued FSP SFAS No. 107-1
and APB 28-1,
Interim Disclosures about Fair
Value of Financial Instruments
, amends SFAS No. 107,
Disclosure about Fair Value of Financial Instruments
,
to require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. This FSP also amends APB
Opinion No. 28,
Interim Financial
Reporting
, to require those disclosures in summarized financial
information at interim reporting periods. FSP SFAS No. 107-1 and APB 28-1
is effective for interim and annual reporting periods ending after June 15,
2009. If a reporting entity elects to adopt early either FSP SFAS No. 157-4
or FSP SFAS No. 115-2 and SFAS No. 124-2, the reporting entity also
is required to adopt early this FSP. This FSP does not require disclosures for
earlier periods presented for comparative purposes at initial adoption. In
periods after initial adoption, this FSP requires comparative disclosures only
for periods ending after initial adoption. We will adopt FSP SFAS No. 107-1
and APB 28-1 in the second quarter of 2009 and are in the process of evaluating
the impact that the adoption will have on our consolidated financial
statements.
11
Table of Contents
Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations
This
discussion
presents
managements
analysis
of
our
results
of
operations
for
the
three
months
ended
March
31,
2009
and
2008,
financial
condition
as
of
March
31,
2009
and
December
31,
2008,
and
includes
the
statistical
disclosures
required
by
the
Securities
and
Exchange
Commission
Guide
3
(Statistical
Disclosure
by
Bank
Holding
Companies).
The
discussion
should
be
read
in
conjunction
with
our
financial
statements
and
the
notes
related
thereto
which
appear
elsewhere
in
this
Quarterly
Report
on
Form
10-Q.
Statements
contained in this report that are not purely historical are forward-looking
statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, including our expectations, intentions, beliefs, or
strategies regarding 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, expect, anticipate, seek, estimate, intend,
plan, projection, 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. All forward-looking statements concerning
economic conditions, rates of growth, rates of income or values as may be
included in this document are based on information available to us on the dates
noted, and we assume no obligation to update any such forward-looking
statements. 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, including our plans, objectives, expectations and
intentions and other factors discussed under the section entitled Risk
Factors, in our Annual Report on Form 10-K for the year ended December 31,
200
8, including the
following:
·
If a significant
number of clients fail to perform under their loans, our business,
profitability, and financial condition would be adversely affected.
·
Increases in our
allowance for loan losses could materially affect our earnings adversely.
·
Banking
organizations are subject to interest rate risk and variations in interest
rates may negatively affect our financial performance.
·
Liquidity risk
could impair our ability to fund operations, meet our obligations as they
become due and jeopardize our financial condition.
·
The profitability of Wilshire Bancorp will be dependent on
the profitability of the Bank.
·
Wilshire Bancorp relies heavily on the payment of dividends
from the Bank.
·
The holders of
recently issued debentures and Series A Preferred Stock have rights that
are senior to those of our common shareholders.
·
Adverse changes
in domestic or global economic conditions, especially in California, could have
a material adverse effect on our business, growth, and profitability.
·
Recent negative
developments in the financial industry and U.S. and global credit markets may
affect our operations and results.
·
Governmental
responses to recent market disruptions may be inadequate and may have
unintended consequences.
·
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.
·
The short-term
and long-term impact of the new Basel II capital standards and the forthcoming
new capital rules to be proposed for non-Basel II U.S. banks is uncertain.
·
Maintaining or
increasing our market share depends on market acceptance and regulatory
approval of new products and services.
12
Table of Contents
·
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.
·
If we fail to
retain our key employees, our growth and profitability could be adversely
affected.
·
We may be unable
to manage future growth.
·
Our expenses
will increase as a result of increases in FDIC insurance premiums.
·
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.
·
Our directors
and executive officers beneficially own a significant portion of our
outstanding common stock.
·
The market for
our common stock is limited, and potentially subject to volatile changes in
price.
·
We may
experience goodwill impairment.
·
We face
substantial competition in our primary market area.
·
Anti-takeover
provisions of our charter documents may have the effect of delaying or
preventing changes in control or management.
·
We are subject
to significant government regulation and legislation that increase the cost of
doing business and inhibits our ability to compete.
·
As participants
in the United States Department of the Treasurys Capital Purchase Program, we
are subject to additional regulations and legislation that may not be
applicable to other financial institution competitors.
·
We could be
negatively impacted by downturns in the South Korean economy.
·
Additional
shares of our common stock issued in the future could have a dilutive effect.
·
Shares of our
preferred stock previously issued and preferred stock issued in the future
could have dilutive and other effects.
These
factors and the risk factors referred to in our Annual Report on Form 10-K
for the year ended December 31, 2008 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. Any
forward-looking statement speaks only as of the date on which it is made and we
do not undertake any obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. 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.
13
Table
of Contents
Selected Financial Data
The following table presents selected historical
financial information for the three months ended March 31, 200
9, December 31, 2008 and March 31, 2008. In the
opinion of our management, the information presented reflects all adjustments
considered necessary for a fair presentation of the results of such
periods. The operating results for the
interim periods are not necessarily indicative of our future operating results.
Executive
Overview
|
|
As of and for the Three Months Ended
|
|
|
|
(dollars in thousands, except per share data)
|
|
March 31, 2009
|
|
March 31, 2008
|
|
|
|
Net income for
common shareholders
|
|
$
|
2,139
|
|
$
|
7,050
|
|
|
|
Net income per
common share, basic
|
|
0.07
|
|
0.
24
|
|
|
|
Net income per
common share, diluted
|
|
0.07
|
|
0.
24
|
|
|
|
Net interest
income before provision for losses on loans and loan commitments
|
|
19,664
|
|
19,744
|
|
|
|
|
|
|
|
|
|
|
|
Average
balances:
|
|
|
|
|
|
|
|
Assets
|
|
2,525,225
|
|
2,211,860
|
|
|
|
Cash and cash
equivalents
|
|
105,417
|
|
76,202
|
|
|
|
Investments
securities
|
|
286,553
|
|
222,525
|
|
|
|
Net loans
|
|
2,030,595
|
|
1,
828,889
|
|
|
|
Total deposits
|
|
1,832,479
|
|
1,
704,820
|
|
|
|
Common
shareholders equity
|
|
199,582
|
|
175,332
|
|
|
|
Performance
Ratios:
|
|
|
|
|
|
|
|
Annualized
return on average assets
|
|
0.48
|
%
|
1.28
|
%
|
|
|
Annualized
return on average total equity
|
|
4.72
|
%
|
16.08
|
%
|
|
|
Annualized
return on average common equity
|
|
4.29
|
%
|
16.08
|
%
|
|
|
Net interest
margin
|
|
3.33
|
%
|
3.83
|
%
|
|
|
Efficiency ratio
|
|
51.22
|
%
|
49.10
|
%
|
|
|
Capital
Ratios:
|
|
|
|
|
|
|
|
Tier 1 capital
to average total assets
|
|
12.79
|
%
|
10.24
|
%
|
|
|
Tier 1 capital
to total risk-weighted assets
|
|
15.15
|
%
|
11.75
|
%
|
|
|
Total capital to
total risk-weighted assets
|
|
16.69
|
%
|
14.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 200
9
|
|
December 31, 2008
|
|
March 31, 200
8
|
|
Period-end
balances as of:
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,611,282
|
|
$
|
2,450,011
|
|
$
|
2,260,435
|
|
Investment
securities
|
|
320,188
|
|
229,275
|
|
218,882
|
|
Total loans, net
of unearned income
|
|
2,074,001
|
|
2,051,528
|
|
1,
883,500
|
|
Total deposits
|
|
1,905,447
|
|
1,812,601
|
|
1,
727,587
|
|
Junior
subordinated debentures
|
|
87,321
|
|
87,321
|
|
87,321
|
|
FHLB advances
and other borrowings
|
|
340,000
|
|
274,000
|
|
240,000
|
|
Total common
shareholders equity
|
|
198,144
|
|
195,617
|
|
177,536
|
|
Asset
Quality Ratios:
|
|
|
|
|
|
|
|
Net charge-off
s to average total loans for the
quarter
|
|
0.11
|
%
|
0.12
|
%
|
0.06
|
%
|
Non-performing
loans to total loans
|
|
1.43
|
%
|
0.76
|
%
|
0.64
|
%
|
Non-performing
assets to total loans and other real estate owned
|
|
1.73
|
%
|
0.89
|
%
|
0.72
|
%
|
Allowance for
losses on loans to total loans
|
|
1.65
|
%
|
1.43
|
%
|
1.17
|
%
|
Allowance for
losses on loans to non-performing loans
|
|
114.84
|
%
|
189.27
|
%
|
184.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
We
operate community banks doing a 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 diversified ethnic groups.
We
have also expanded and diversified our business with the focus on our commercial
and consumer lending divisions. Over the
past several years, our network of branches and loan production offices has
been expanded geographically. We
currently maintain
21 full-service
branch banking offices in Southern California, Texas, New Jersey, and New York,
and 5 separate loan production offices in Aurora,
Colorado (the Denver area); Atlanta, Georgia; Dallas, Texas; Houston, Texas;
and Annandale, Virginia.
14
Table
of Contents
Critical Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
GAAP. 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.
We have particularly 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 losses on loans, the treatment
of non-accrual loans, the valuation of retained interests and servicing assets
related to the sales of
SBA
loans, and the accounting for income tax provisions and the uncertainty in
income taxes. In each area, we have identified the variables most important in
the estimation process. We believe that 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 could have an impact on our net income.
Our
significant accounting policies are described in greater detail in our 200
8 Annual Report on Form 10-K in the
Critical Accounting Policies section of Managements Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to
the Consolidated Financial Statements (Summary of Significant Accounting
Policies) of this report, which are essential to understanding Managements
Discussion and Analysis of Results of Operations and Financial Condition. There
has been no material modification to these policies during the quarter ended March 31,
2009.
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
other 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, governmental budgetary matters and the
actions of the Federal Reserve Board (FRB).
Our
average interest-earning assets increased to $
2.36 billion in the first quarter of 2009, as compared with $2.06 billion in the same quarter of 2008, and average net loans increased to $2.03 billion in the first quarter of 2009, as compared with $1.83 billion in the same quarter of 2008.
Average interest-bearing deposits
slightly increased to $1.56
billion in the first quarter of 2009,
as compared with $1.40 billion in
the same quarter of 2008. Average FHLB
advances and other borrowings have significantly increased to $327.3 million in
the first quarter of 2009 from $217.6 million in the same quarter of
last year (see Financial Condition-Deposits and Other Sources of Funds below),
while the average balance on our junior subordinated debentures stayed
unchanged at $87.3 million for the first quarter of 2009 and 2008. As a result,
average interest bearing liabilities increased to $1.97 billion in the first
quarter of 2009, as compared with $1.71 billion in the first quarter of 2008.
The federal funds rate reductions of 25 and 175 basis
points in second quarter and fourth quarter of 2008, respectively, have
resulted in a
decrease in
our earning-asset yields as well as our cost of funds. The average yields on
our interest-earning assets decreased to 5.67% for the first quarter of 2009 from 7.38% for the first quarter
of the prior year. Consistent with the
decrease in average yields on interest-earning assets, the cost of funds for
average yields on interest-earning liabilities also decreased to 2.79% for the
first quarter of 2009 from 4.27% for the prior years same quarter.
Consequently, our net interest spread and net interest margin decreased to
2.88% and 3.35%, respectively, for the first quarter of 2009, as compared with
3.11% and 3.84% for the first quarter of the prior year.
15
Table
of Contents
Our
earning-asset yields have decreased in line with our cost of funds. Interest income
decreased to $33.4 million for the first quarter of 2009, as compared with
$38.0 million for the prior years same period, while interest expense
decreased to $13.8 million for the first quarter of 2009, as compared with
$18.2 million for the quarter a year ago. As a result, net interest income
stayed unchanged at $19.7 million for the first quarter in 2009 and 2008.
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
Interest Income
(dollars in thousands)
|
|
For the Quarter Ended March 31,
|
|
|
|
200
9
|
|
2008
|
|
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Annualized
Average
Rate/Yield
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Annualized
Average
Rate/Yield
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans(1)
|
|
$
|
2,030,595
|
|
$
|
30,193
|
|
5.95
|
%
|
$
|
1,828,889
|
|
$
|
35,318
|
|
7.72
|
%
|
Investment
securities government sponsored agencies
|
|
261,629
|
|
2,66
8
|
|
4.08
|
%
|
204,313
|
|
2,378
|
|
4.66
|
%
|
Other investment
securities(2)
|
|
24,924
|
|
274
|
|
5.97
|
%
|
18,211
|
|
206
|
|
5.45
|
%
|
Interest on federal fund sold
|
|
45,639
|
|
289
|
|
2.53
|
%
|
9,851
|
|
80
|
|
3.27
|
%
|
Total
interest-earning assets
|
|
2,362,787
|
|
33,424
|
|
5.67
|
%
|
2,061,264
|
|
37,982
|
|
7.38
|
%
|
Cash and due
from banks
|
|
59,778
|
|
|
|
|
|
66,351
|
|
|
|
|
|
Other assets
|
|
102,660
|
|
|
|
|
|
84,245
|
|
|
|
|
|
Total assets
|
|
$
|
2,525,225
|
|
|
|
|
|
$
|
2,211,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
deposits
|
|
$
|
362,733
|
|
2,331
|
|
2.57
|
%
|
$
|
396,595
|
|
$
|
3,725
|
|
3.76
|
%
|
Super NOW
deposits
|
|
19,557
|
|
46
|
|
0.94
|
%
|
22,520
|
|
79
|
|
1.41
|
%
|
Savings deposits
|
|
43,241
|
|
393
|
|
3.63
|
%
|
32,617
|
|
249
|
|
3.05
|
%
|
Time
certificates of deposit in denominations of $100,000 or more
|
|
933,494
|
|
6,668
|
|
2.86
|
%
|
788,630
|
|
8,799
|
|
4.46
|
%
|
Other time
deposits
|
|
196,714
|
|
1,743
|
|
3.54
|
%
|
163,993
|
|
1,886
|
|
4.60
|
%
|
FHLB advances and other borrowings
|
|
327,344
|
|
1,658
|
|
2.03
|
%
|
217,593
|
|
2,043
|
|
3.76
|
%
|
Junior subordinated debenture
|
|
87,321
|
|
921
|
|
4.22
|
%
|
87,321
|
|
1,457
|
|
6.68
|
%
|
Total interest-bearing
liabilities
|
|
1,970,404
|
|
13,760
|
|
2.79
|
%
|
1,709,269
|
|
18,238
|
|
4.27
|
%
|
Non-interest-bearing
deposits
|
|
276,740
|
|
|
|
|
|
300,465
|
|
|
|
|
|
Total
deposits and other borrowings
|
|
2,247,144
|
|
|
|
|
|
2,009,734
|
|
|
|
|
|
Other
liabilities
|
|
19,006
|
|
|
|
|
|
26,794
|
|
|
|
|
|
Shareholders
equity
|
|
259,075
|
|
|
|
|
|
175,332
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
2,525,225
|
|
|
|
|
|
$
|
2,211,860
|
|
|
|
|
|
Net interest
income
|
|
|
|
$
|
19,664
|
|
|
|
|
|
$
|
19,744
|
|
|
|
Net interest
spread(
3)
|
|
|
|
|
|
2.88
|
%
|
|
|
|
|
3.11
|
%
|
Net interest
margin(
4)
|
|
|
|
|
|
3.35
|
%
|
|
|
|
|
3.84
|
%
|
(1)
Net loan fees have been
included in the calculation of interest income. Loan fees were approximately $569,000 and $1,282,000 for the quarters ended March 31, 2009
and 2008, respectively. Loans are net of the allowance
for losses on loans, deferred fees, unearned income and related direct costs,
but include those loans placed on non-accrual
status.
(2) Interest income on a tax equivalent
basis for tax-advantaged income of $97,000 and $42,000 for the three months
ended March 31, 2009 and 2008, respectively, were not included in the
computation of yields.
(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.
16
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
, respectively, 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)
|
|
Three Months Ended
March
3
1
,
200
9
vs. 200
8
|
|
|
|
Increase (Decrease) Due to Change In
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
Interest income:
|
|
$
|
3,605
|
|
$
|
(8,730
|
)
|
$
|
(5,125
|
)
|
Net loans(1)
|
|
|
|
|
|
|
|
Investment
securities of government sponsored enterprises
|
|
611
|
|
(321
|
)
|
290
|
|
Other investment
securities
|
|
73
|
|
(5
|
)
|
68
|
|
Interest on federal fund sold
|
|
230
|
|
(21
|
)
|
209
|
|
Total interest
income
|
|
4,519
|
|
(9,077
|
)
|
(4,558
|
)
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
Money market
deposits
|
|
(298
|
)
|
(1,096
|
)
|
(1,394
|
)
|
Super NOW
deposits
|
|
(9
|
)
|
(24
|
)
|
(33
|
)
|
Savings deposits
|
|
91
|
|
53
|
|
144
|
|
Time
certificates of deposit in denominations of $100,000 or more
|
|
1,420
|
|
(3,551
|
)
|
(2,131
|
)
|
Other time
deposits
|
|
336
|
|
(479
|
)
|
(143
|
)
|
FHLB advances
and other borrowings
|
|
782
|
|
(1,167
|
)
|
(385
|
)
|
Junior
subordinated debenture
|
|
|
|
(536
|
)
|
(536
|
)
|
Total interest
expense
|
|
2
,322
|
|
(6,800
|
)
|
(4,478
|
)
|
|
|
|
|
|
|
|
|
Change in net
interest income
|
|
$
|
2,197
|
|
$
|
(2,277
|
)
|
$
|
(80
|
)
|
(1)
Net loan fees have been included in the calculation
of interest income. Loan fees were approximately $569,000 and $1,282,000 for the quarters ended March 31, 2009
and 2008, respectively. Loans are net of the allowance
for losses on loans, deferred fees, unearned income and related direct costs,
but include those loans placed on non-accrual
status.
P
rovision for Losses on Loans and Loan
Commitments
Given
the credit risk inherent in our lending business, we set aside
allowances through charges to earnings.
Such charges
are made
not only for our outstanding loan portfolio, but also for off-balance sheet
items, such as commitments to extend credit or letters of credit. The charges made for our outstanding loan portfolio
are credited to allowance for losses on loans, whereas charges for off-balance
sheet items are credited to reserve for off-balance sheet items, which is presented as a component of other
liabilities.
Although we continue to enhance our loan underwriting
standards and maintain proactive credit follow-up procedures, we experienced a
deterioration of credit in our loan portfolio because of the weak economy, the
decline in the real estate market, and the unprecedented nationwide increase in
loan defaults and foreclosures. We recorded
a provision for losses on loans and loan commitments of $6.7 million in the first quarter of 2009, as compared with a provision of $1.4 million for the prior years same quarter. The increase in the
provision for losses on loans and loan
commitments was primarily to keep pace with the continued growth of our
loan portfolio and an increase of non-performing loans (see Financial
Condition - Nonperforming Assets below for further discussion). The $6.7 million and $1.4 million in the first
quarter of 2009 and 2008 were net of recoveries of $309,000 and $112,000 to the
reserves for loan commitments, respectively. The procedures for
monitoring the adequacy of the allowance for losses on loans and loan
commitments, as well as detailed information concerning the allowance
itself, are described in the section entitled Allowance for Losses on Loans and Loan Commitments
below.
17
Table
of Contents
Non-interest Income
Total
non-interest income decreased to $3.7 million in the first quarter of 200
9, as compared with $5.2 million in the same
quarter a year ago. Non-interest income as a percentage of average assets
was 0.15% and 0.23% in the first quarter of 2009 and 2008, respectively. Such
decrease was primarily caused by the reduction in our loan sales activities.
The
following table sets forth the various components of our non-interest income
for the periods indicated:
Non-interest Income
(dollars in thousands)
|
|
For Three Months Ended
March
3
1
,
|
|
|
|
200
9
|
|
200
8
|
|
Service charges
on deposit accounts
|
|
$
|
2,899
|
|
77.5
|
%
|
$
|
2,748
|
|
53.3
|
%
|
Loan-related
servicing fees
|
|
964
|
|
25.8
|
%
|
675
|
|
13.1
|
%
|
Gain on sale of
loans
|
|
(831
|
)
|
(22.2
|
)%
|
864
|
|
16.8
|
%
|
Income from
other earning assets
|
|
195
|
|
5.2
|
%
|
319
|
|
6.2
|
%
|
Other income
|
|
510
|
|
13.7
|
%
|
548
|
|
10.6
|
%
|
Total
|
|
$
|
3,737
|
|
100.0
|
%
|
$
|
5,154
|
|
100.0
|
%
|
Average assets
|
|
$
|
2,525,225
|
|
|
|
$
|
2,211,860
|
|
|
|
Non-interest
income as a % of average assets
|
|
|
|
0.15
|
%
|
|
|
0.23
|
%
|
Our
largest source of non-interest income
in the first quarter of 2009 was service charge income on deposit
accounts, which represented about 78% of
our total non-interest income. Service charge income increased to $2.9 million
in the first quarter of 2009, as compared with $2.7 million for the prior years
same period. The increase in service charge income was primarily due to our
increase of over 20% in the service charge rates we apply to our customers
deposit accounts. We constantly review service charge rates to maximize service
charge income while maintaining a competitive position.
The second largest source of non-interest
income was loan-related servicing fees, which represented approximately 26% of
our total non-interest income. This fee
income consists of trade-financing fees and servicing fees on SBA loans
sold. With the expansion of our
trade-financing activities and the growth of our servicing loan portfolio, this
fee income has generally increased.
In the first quarter of 2009,
it increased to $964,000,
as compared with $675,000 for the prior
years same period. Such increase
was primarily attributable to $91,000 valuation increase of servicing rights,
and $129,000 higher income related to a smaller disposal of servicing assets
and I/O strips of $15,000. 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 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.
We
recorded a net loss on the sale of loans of $831,000 in the first quarter of
2009, as compared with $864,000 gain in the same quarter a year ago. We sell the guaranteed portion of SBA loans
in government securities in the secondary markets and retain servicing rights. Due to the weakened economy and ongoing
financial crisis, we had no SBA loan sales in the first quarter of 2009, as
compared with $864,000 gain primarily from the sale of SBA loans in the first
quarter a year ago. Besides SBA loans, we also sell commercial and residential
loans. For the first quarter of 2009, the commercial and residential loan sales
were $1.2 million and $1.7 million, respectively, which resulted in a net loss
of $831,000 (representing a $832,000 loss from a commercial loan sale, net of a
$1,000 gain from residential loan sales).
Income
from other earning assets represents income from earning assets other than
interest-earning assets, such as dividend income from FHLB stock ownership and
the increase in the cash surrender value of BOLI. For the first quarter of 2009
, the balance decreased to $195,000, as compared with $319,000 in the prior
years same period. The $124,000
decrease was primarily attributable to a temporary cessation of FHLB dividend
payments. Our FHLB dividend income was $138,000 during the first quarter of
2008.
18
Table
of Contents
Other
non-interest income represents income from miscellaneous sources, such as loan
referral fees, SBA loan packaging fees, checkbook sales income,
gain on sales of investment securities, excess
of insurance proceeds over carrying value of an insured loss, and are
generally stable period over period. For
the first quarter of 2009, this miscellaneous
income amounted to $510,000, as
compared with $547,000 in the
prior years same period.
Non-interest Expense
In
line with noninterest income, total noninterest expense decreased to $
12.0 million in the first quarter of
2009, from $12.2 million in the
same period of 2008. The decrease was due to our continued effort to minimize
operating expenses as a method addressing the ongoing financial difficulties in
our economy. Non-interest expenses as a
percentage of average assets were maintained at low levels of 0.47% and 0.55% in
the first quarter of 2009 and 2008, respectively. Our efficiency ratio was
51.2% in the first quarter of 2009, as compared with 49.1% in the same period a
year ago. The higher efficiency ratio was primarily due to a lower total income
in the first quarter of 2009 because of the $831,000 net loss on loan sales
(see Non-interest Income above for detail).
The
following table sets forth a summary of non-interest expenses for the periods
indicated:
Non-interest Expense
s
(dollars in thousands)
|
|
For the Quarter Ended
March
3
1
,
|
|
|
|
2009
|
|
2008
|
|
Salaries and
employee benefits
|
|
$
|
6,207
|
|
51.8
|
%
|
$
|
6,976
|
|
57.1
|
%
|
Occupancy and
equipment
|
|
1,676
|
|
14.0
|
%
|
1,425
|
|
11.7
|
%
|
Data processing
|
|
827
|
|
6.9
|
%
|
764
|
|
6.2
|
%
|
Deposit
insurance premium
|
|
611
|
|
5.1
|
%
|
330
|
|
2.7
|
%
|
Professional
fees
|
|
342
|
|
2.9
|
%
|
500
|
|
4.1
|
%
|
Outsourced
service for customer
|
|
268
|
|
2.2
|
%
|
449
|
|
3.7
|
%
|
Advertising
|
|
233
|
|
1.9
|
%
|
177
|
|
1.5
|
%
|
Office supplies
|
|
161
|
|
1.3
|
%
|
217
|
|
1.8
|
%
|
Communications
|
|
103
|
|
0.9
|
%
|
123
|
|
1.0
|
%
|
Directors fees
|
|
93
|
|
0.8
|
%
|
96
|
|
0.8
|
%
|
Investor
relation expenses
|
|
52
|
|
0.4
|
%
|
79
|
|
0.6
|
%
|
Amortization of
investments in affordable housing partnerships
|
|
288
|
|
2.4
|
%
|
174
|
|
1.4
|
%
|
Amortization of other intangible assets
|
|
74
|
|
0.6
|
%
|
74
|
|
0.6
|
%
|
Othe
r operating
|
|
1,052
|
|
8.8
|
%
|
840
|
|
6.8
|
%
|
Total
|
|
$
|
11,987
|
|
100.0
|
%
|
$
|
12,224
|
|
100.0
|
%
|
Average assets
|
|
$
|
2,525,225
|
|
|
|
$
|
2,211,860
|
|
|
|
Non-interest
expenses as a % of average assets
|
|
|
|
0.47
|
%
|
|
|
0.55
|
%
|
Salaries
and employee benefits historically represent more than half of total
non-interest expense and generally increase as our branch network and business
volume expand. However, due to our dedicated efforts to streamline our work
force in the second half of 2008, these expenses decreased to $
6.2 million in the first quarter of
2009, as compared with $7.0 million for
the prior years same period. The
decrease was the result of overall compensation reduction. Although additional
staffing was necessitated by our new office opening in Flushing, New York,
during March 2009, we have successfully controlled and maintained the
total number of employee headcount through effective allocation of our human
resources. The number of full-time equivalent employees was reduced to 347 as
of March 31, 2009, as compared with 352 as of March 31, 2008. In addition, our asset growth helped
us improve our assets per employee ratio to $7.5 million at March 31, 2009
from $6.4 million at March 31, 2008.
Occupancy
and equipment expenses represent about 14% of our total noninterest expenses.
These expenses increased to $
1.7 million in the first quarter of 2009, as compared with $1.4
million for the same period a year
ago. The increase was primarily attributable to the additional
lease expenses for our business growth in the past 12 months and our new
Flushing branch office which opened in March 2009.
19
Table
of Contents
Data processing expenses increased to $827,000 in the
first quarter of 2009, from $764,000 in the first quarter of 2008. The increase
in data processing in the past 12 months corresponded to the growth of our
business.
Deposit insurance premium expenses represent The
Financing Corporation (FICO) and FDIC insurance premium assessments. In the
first quarter of 2009, these expenses totaled $611,000, as compared with
$330,000 for the prior years same periods. Recent bank failures coupled with
deteriorating economic conditions have significantly reduced the FDICs deposit
insurance fund reserves. As a result,
the FDIC has significantly increased its deposit assessment premiums for
federally insured financial institutions.
There have also been increases in FDIC assessments resulting from its
Temporary Liquidity Guaranty Program (TLGP), which temporarily increases the
deposit coverage amount for depositors until the end of 2009.
Professional fees generally increase as we grow.
However, these expenses decreased to $342,000
, as compared with $500,000 for the prior years same
period. The $158,000 decrease between the current quarter and the same quarter
a year ago was mainly attributable to a $66,000 decrease in legal fees and a
$92,000 decrease in fees related to consulting, accounting and auditing
services.
Outsourced service costs for customers are payments
made to third parties who provide services that were traditionally paid by the
Banks customers, such as armored car services or bookkeeping services, and are
recouped from their deposit 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, as a result of our cost control measures, these
expenses decreased to $268,000 in the first quarter of 200
9, as compared with $449,000
for the prior years same period.
Advertising
and promotional expenses increased to $233,000 in the first quarter of 2009 from $177,000 in the same
period a year ago, representing
1.9% and 1.5% of total noninterest expenses for the two periods, respectively.
These expenses represent marketing activities, such as media advertisements and
promotional gifts for customers of newly opened offices, especially in the new
areas such as the east coast market in New York and New Jersey. The expenses increased in the current quarter primarily
attributable to our increased advertising spending to promote our latest branch
addition in Flushing, New York in March 2009.
Other
non-interest expenses, such as office supplies, communications, directors
fees, and other miscellaneous expenses, were $1.8 million in first quarter
2009, as compared with $1.6 million in the same quarter a year ago. The
increase represents a normal growth in association with the growth of our
business activities and was consistent with our expectations.
Provision for Income
Taxes
For
the quarter ended March 31, 2009, we made a provision for income taxes of
$
1.7 million on
pretax net income of $4.7 million,
representing an effective tax rate of 35.1%,
as compared with a provision for income taxes of $4.2 million on pretax net income of $11.3 million, representing an effective tax rate of 37.5% for the
same quarter in 2008.
Our
effective tax rates in the first quarter of 200
9 were lower than those for the prior
years same period, due mainly to
additional investments in low income housing partnership funds. Our lower effective tax rates compared to
statutory rates were mainly due to state tax benefits derived from doing
business in an enterprise zone, our ownership of BOLI and low income housing
tax credit funds.
20
Table of Contents
Financial Condition
Investment
Portfolio
Investments
are one of our major sources of interest income and are acquired in accordance
with a written comprehensive
investment policy
addressing strategies, types and levels of allowable investments. 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 credit and are
maintained at levels management believes are appropriate to assure future
flexibility in meeting anticipated funding needs.
Cash Equivalents and
Interest-bearing Deposits in other Financial Institutions
We buy
or sell federal funds and high
quality money market instruments, and maintain deposits in
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.
Investment Securities
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 risk. As of March 31,
2009, our investment portfolio is primarily comprised of United States
government agency securities, which account for 89% 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 9% investment in municipal debt
securities and 2% investment in corporate debt. Among this 11% of our
investment portfolio that was not comprised of U.S. government securities, 74%
carry the top two highest Investment Grade rating of Aaa/AAA or Aa/AA,
while the remaining 26%, or $9.4 million, carry an intermediate Investment
Grade rating of at least Baa1/BBB+ or above. Our investment portfolio does
not contain any government sponsored enterprises, or GSE, preferred securities
or any distressed corporate securities that required
other-than-temporary-impairment charges as of March 31, 2009. We
classified our investment securities as held-to-maturity or
available-for-sale pursuant to SFAS No. 115. 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. Declines in the
fair value of held-to-maturity and available-for-sale investment 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 the first quarter of 2009. The fair market values of our held-to-maturity
and available-for-sale investment securities were respectively $0.1 million and
$320.1 million as of March 31, 2009.
We measured and disclosed the fair value of available-for-sale
investment securities pursuant to SFAS No. 157 and FSP SFAS No. 157-3
(see Note 3).
Prices from third party pricing services are often
unavailable for investment securities that are rarely traded or are traded only
in privately negotiated transactions. As a result, certain investment
securities are priced via independent broker quotations which utilize inputs
that may be difficult to corroborate with observable market based data.
Additionally, the majority of these independent broker quotations are
non-binding. Therefore, we will individually examine those investment
securities for the appropriate valuation methodology based on combination of
market approach reflecting current broker prices and a discounted cash flow
approach. As required under Financial
Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) 99-20,
Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interest in Securitized Financial Assets
,
and EITF 99-20-1,
Amendments to the
Impairment Guidance of EITF Issue No. 99-20
, we consider all
available information relevant to the collectability of the security, including
information about past events, current conditions, and reasonable and
supportable forecasts, and we consider factors such as remaining payment terms
of the security, prepayment speeds, the financial condition of the issuer(s),
expected defaults, and the value of any underlying collateral.
21
Table of Contents
The
following table summarizes the book value, market value and distribution of our
investment securities as of the dates indicated:
Investment
Securities Portfolio
(dollars
in thousands)
|
|
As of March 31, 2009
|
|
As of December 31, 2008
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
Unrealized
Gain (Loss)
|
|
Amortized
Cost
|
|
Market
Value
|
|
Unrealized
Gain (Loss)
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligation.
|
|
$
|
133
|
|
$
|
133
|
|
$
|
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
Total investment
securities held to maturity
|
|
$
|
133
|
|
$
|
133
|
|
$
|
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities of
government sponsored enterprises
|
|
$
|
2,967
|
|
$
|
3,089
|
|
$
|
122
|
|
$
|
25,952
|
|
$
|
26,187
|
|
$
|
235
|
|
Mortgage backed
securities
|
|
1
85,206
|
|
1
88,804
|
|
3,598
|
|
124,549
|
|
125,513
|
|
964
|
|
Collateralized mortgage
obligation
|
|
91,644
|
|
93,001
|
|
1,357
|
|
62,557
|
|
63,303
|
|
746
|
|
Corporate securities
|
|
7,04
0
|
|
6,95
0
|
|
(90
|
)
|
7,048
|
|
6,953
|
|
(95
|
)
|
Municipal securities
|
|
28,684
|
|
28,211
|
|
(473
|
)
|
7,323
|
|
7,180
|
|
(143
|
)
|
Total investment
securities available for sale
|
|
$
|
315,541
|
|
$
|
320,055
|
|
$
|
4,514
|
|
$
|
227,429
|
|
$
|
229,136
|
|
$
|
1,707
|
|
22
Table of Contents
The
following table summarizes the maturity and repricing schedule of our
investment securities at their carrying values at March 31, 200
9:
Investment Maturities and Repricing Schedule
(dollars in thousands
)
|
|
Within
One Year
|
|
After
One But
Within
Five
Years
|
|
After
Five But
Within
Ten
Years
|
|
After Ten
Years
|
|
Total
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
|
$
|
|
|
$
|
133
|
|
$
|
|
|
$
|
|
|
$
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities
of Government sponsored enterprises
|
|
2,050
|
|
1,039
|
|
|
|
|
|
3,089
|
|
Mortgage backed securities
|
|
8,961
|
|
891
|
|
496
|
|
178,456
|
|
188,804
|
|
Collateralized mortgage obligation
|
|
58,218
|
|
34,783
|
|
|
|
|
|
93,001
|
|
Corporate securities
|
|
|
|
6,950
|
|
|
|
|
|
6,950
|
|
Municipal securities
|
|
|
|
|
|
4,703
|
|
23,508
|
|
28,211
|
|
Total investment
securities
|
|
$
|
69,229
|
|
$
|
43,796
|
|
$
|
5,199
|
|
$
|
201,964
|
|
$
|
320,188
|
|
Our
investment securities holdings substantially increased to $
320.2 million at March 31, 2009, compared to holdings of $229.3 million at December 31, 2008.
Total investment securities as a percentage of total assets were 12.3% and 9.4% at March 31, 2009 and December 31, 2008, respectively. As of March 31, 2009, investment securities with a carrying
value of $299.2 million were
pledged to secure certain deposits.
As of March 31,
200
9, our investment
securities held-to-maturity, which are carried at their amortized costs, stayed
fairly unchanged at $133,000, as compared with $139,000 as of December 31,
2008. Our investment securities available-for-sale, which are stated at their
fair market values, increased to $320.1
million at March 31, 2009
from $229.2 million at December 31,
2008.
23
Table of Contents
The
following table shows 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 March 31, 200
9 and December 31, 2008:
As of
March 31, 2009
|
|
|
|
(dollars in thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligation
|
|
$
|
8,337
|
|
$
|
(5
|
)
|
$
|
133
|
|
$
|
|
|
$
|
8,470
|
|
$
|
(5
|
)
|
Mortgage backed securities
|
|
2,047
|
|
(19
|
)
|
2,569
|
|
(31
|
)
|
4,616
|
|
(50
|
)
|
Corporate securities
|
|
|
|
|
|
1,816
|
|
(184
|
)
|
1,816
|
|
(184
|
)
|
Municipal securities
|
|
15,150
|
|
(896
|
)
|
|
|
|
|
15,150
|
|
(896
|
)
|
|
|
$
|
25,534
|
|
$
|
(920
|
)
|
$
|
4,518
|
|
$
|
(215
|
)
|
$
|
30,052
|
|
$
|
(1,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31
, 200
8
|
|
|
|
(dollars in thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligation
|
|
$
|
2,642
|
|
$
|
(65
|
)
|
$
|
1,591
|
|
$
|
(17
|
)
|
$
|
4,233
|
|
$
|
(82
|
)
|
Mortgage backed securities
|
|
12,287
|
|
(300
|
)
|
536
|
|
(3
|
)
|
12,823
|
|
(303
|
)
|
Corporate securities
|
|
5,000
|
|
(49
|
)
|
1,953
|
|
(47
|
)
|
6,953
|
|
(96
|
)
|
Municipal securities
|
|
5,712
|
|
(157
|
)
|
|
|
|
|
5,712
|
|
(157
|
)
|
|
|
$
|
25,641
|
|
$
|
(571
|
)
|
$
|
4,080
|
|
$
|
(67
|
)
|
$
|
29,721
|
|
$
|
(638
|
)
|
As of March 31,
200
9, the total
unrealized losses less than 12 months old were $920,000, and total unrealized losses more than 12 months old were $215,000.
The aggregate related fair value of investments with unrealized losses
less than 12 months old was $25.5 million
at March 31, 2009, and those
with unrealized losses more than 12 months old were $4.5 million. As of December 31, 2008, the total unrealized losses less than
12 months old were $571,000 and
total unrealized losses more than 12 months old were $67,000. The aggregate related
fair value of investments with unrealized losses less than 12 months old was $25.6 million at December 31, 2008,
and those with unrealized losses more than 12 months old were $4.1 million.
Declines
in the fair value of held-to-maturity and available-for-sale investment
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.
24
Table of Contents
We performed a detailed evaluation of the investment portfolio to
assess individual positions that have market values that have declined below
cost. In determining whether there is
other-than-temporary impairment, we carefully considered:
·
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:
·
Issuers credit rating;
·
Likelihood of the issuers 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 March 31, 2009 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 rates (U.S. Treasury curve) and a repricing of risk
(spreads widening against risk-fee rate) in the market. We do 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 are 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 our
securities that were in an unrealized loss position at March 31, 2009
until the market value recovers or until 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 investment 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 our
securities that were an unrealized loss position at March 31, 2009 until
the market value recovers or until the securities mature.
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.
Interest on loans is accrued daily on a simple interest basis. Total
loans net of unearned loans and allowance
for losses on loans increased to $2.07 billion at March 31, 2009, as compared with $2.05 billion
at December 31, 2008. Total loans
net of unearned income as a percentage of total assets as of March 31, 2009 and December 31,
2008 were 79.4% and 83.7%, respectively.
25
Table
of Contents
The
following table sets forth the amount of total loans outstanding 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
|
|
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Construction
|
|
$
|
42,075
|
|
$
|
43,180
|
|
Real estate secured
|
|
1,639,578
|
|
1,599,627
|
|
Commercial and industrial
|
|
377,211
|
|
389,217
|
|
Consumer
|
|
18,854
|
|
23,669
|
|
Total loans(
1)
|
|
2,077,718
|
|
2,055,693
|
|
Unearned Income
|
|
(3,717
|
)
|
(4,164
|
)
|
Gross loans, net of unearned
income
|
|
2,074,001
|
|
2,051,529
|
|
Allowance for losses on loans
|
|
(34,156
|
)
|
(29,437
|
)
|
Net loans
|
|
$
|
2,039,845
|
|
$
|
2,022,092
|
|
|
|
|
|
|
|
Percentage breakdown of gross loans:
|
|
|
|
|
|
Construction
|
|
2.0
|
%
|
2.1
|
%
|
Real estate secured
|
|
78.9
|
%
|
77.8
|
%
|
Commercial and industrial
|
|
18.2
|
%
|
18.9
|
%
|
Consumer
|
|
0.9
|
%
|
1.2
|
%
|
Total loans
|
|
100.0
|
%
|
100.0
|
%
|
(1)
Includes loans held for sale, at the lower of cost or market, of $20.0
million and $18.0 million at March 31, 2009 and December 31, 2008,
respectively
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 or businesses thereon. The properties may be either user owned or
held 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 totaled $
1.64 billion and $1.60 billion as of March 31, 2009 and December 31, 2008,
respectively. The real estate secured
loans as a percentage of total loans were 78.9% and 77.8% at March 31, 2009 and December 31, 2008, respectively. Home mortgage loans represent a small
fraction of our total real estate secured loan portfolio. Total home mortgage
loans outstanding were only $42.9 million at March 31, 2009 and $42.4
million at December 31, 2008.
Commercial
and industrial loans include revolving lines of credit as well as term business
loans. Commercial and industrial loans
at
March 31,
2009 decreased to $377.2 million, as compared with $389.2 million at December 31, 2008.
Commercial and industrial loans as a percentage of total loans were 18.2% at March 31, 2009,
decreasing from 18.9% at December 31,
2008.
Consumer
loans have historically represented less than 5% of our total loan
portfolio. The majority of consumer
loans are concentrated in automobile loans, which we provide as a service only
to existing customers. 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
March 31,
2009, our volume of consumer loans was down by $4.8 million from the prior year end. As of March 31, 2009, the balance of consumer loans was $18.9 million, or 0.9% of total loans, as compared to $23.7 million, or 1.2% of total
loans as of December 31, 2008.
Consumer loans as a percentage of total loans have historically been minimal.
26
Table
of Contents
Construction
loans represented less than 5% of our total loan portfolio as of March 31,
2009. In response to the current real estate market, which has been on a
downward trend since mid-2007, we have applied stricter loan underwriting
policies when making loans in this category. As a result,
construction loans decreased to $42.1 million, or 2.0%
of total loans, at the end of the first quarter of 2009, as compared with $43.2 million, or 2.1% of total loans at the end of 2008.
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, leasehold improvements or to provide
permanent working capital. We generally
limit 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
following table shows the contractual maturity distribution and repricing
intervals of the outstanding loans in our portfolio, as of
March 31, 2009.
In addition, the table shows the distribution of such loans between
those with variable or floating interest rates and those with fixed or predetermined
interest rates.
Loan Maturities and Repricing Schedule
(dollars in thousands)
|
|
At March 31, 2009
|
|
|
|
Within
One Year
|
|
After One
But Within
Five Years
|
|
After
Five Years
|
|
Total
|
|
Construction
|
|
$
|
42,075
|
|
$
|
|
|
$
|
|
|
$
|
42,075
|
|
Real estate secured
|
|
817,899
|
|
727,190
|
|
94,536
|
|
1,639,625
|
|
Commercial and industrial
|
|
363,847
|
|
12,748
|
|
305
|
|
376,900
|
|
Consumer
|
|
14,693
|
|
4,425
|
|
|
|
19,118
|
|
Total loans, net of non-accrual loans
|
|
$
|
1,238,514
|
|
$
|
744,363
|
|
$
|
94,841
|
|
$
|
2,077,718
|
|
Loans with variable (floating) interest
rates
|
|
$
|
1,009,624
|
|
$
|
18,358
|
|
$
|
|
|
$
|
1,027,982
|
|
Loans with predetermined (fixed) interest
rates
|
|
$
|
228,890
|
|
$
|
726,005
|
|
$
|
94,841
|
|
$
|
1,049,736
|
|
A
majority of the properties that we have taken 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 properties in close proximity to those
offices.
Non-performing Assets
Non-performing assets, or NPAs, consist of
non-performing loans, or NPLs, restructured
loans, and other NPAs. NPLs are reported at their outstanding
principal 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
(OREO), acquired by foreclosure or similar means that management intends to
offer for sale.
27
Table
of Contents
The
following table provides information with respect to the components of our
non-performing assets 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
guarantee portion for the gross nonperforming assets):
Non
-
performing
Assets and Restructured Loans
(dollars in thousands)
|
|
March 31,
200
9
|
|
December 31,
200
8
|
|
March 31,
200
8
|
|
Nonaccrual loans:
(1)
|
|
|
|
|
|
|
|
Real estate secured
|
|
$
|
23,185
|
|
$
|
9,334
|
|
$
|
8,061
|
|
Commercial and industrial
|
|
5,774
|
|
5,874
|
|
2,914
|
|
Consumer
|
|
307
|
|
131
|
|
250
|
|
Total
|
|
29,266
|
|
15,339
|
|
11,225
|
|
Loans 90 days or more past due and still
accruing:
|
|
|
|
|
|
|
|
Real estate secured
|
|
240
|
|
|
|
503
|
|
Commercial and industrial
|
|
235
|
|
213
|
|
56
|
|
Consumer
|
|
|
|
|
|
189
|
|
Total
|
|
475
|
|
213
|
|
748
|
|
Total nonperforming loans
|
|
29,741
|
|
15,552
|
|
11,973
|
|
Troubled
debt restructurings (2)
|
|
|
|
|
|
1,393
|
|
Repossessed vehicles
|
|
|
|
|
|
21
|
|
Other real estate owned
|
|
6,282
|
|
2,663
|
|
133
|
|
Total nonperforming assets
, net of SBA guarantee
|
|
36,023
|
|
18,215
|
|
13,520
|
|
|
|
|
|
|
|
|
|
Guaranteed portion of
nonperforming SBA loans
|
|
8,387
|
|
7,158
|
|
6,90
6
|
|
Total
gross nonperforming assets
|
|
$
|
44,410
|
|
$
|
25,373
|
|
$
|
20,426
|
|
|
|
|
|
|
|
|
|
Restructured loans
(3)
|
|
$
|
7,962
|
|
$
|
2,161
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percentage of
total loans
|
|
1.43
|
%
|
0.76
|
%
|
0.64
|
%
|
Allowance for losses on loans as
a percentage of
nonperforming
loans
|
|
114.84
|
%
|
189.27
|
%
|
184.35
|
%
|
(1)
During the
three months ended March 31, 200
9, no interest income related to these loans was included in interest income.
(2)
The
$1,393,000 troubled debt restructurings as of March 31, 2008 represented
loans of which terms were renegotiated to provide a reduction or deferral of
interest or principal because of deterioration in the financial
position of the borrower.
(3)
The
$7,962,000 and $2,161,000 restructured loans as of March 31, 2009 and December 31,
2008, respectively, represent loans that were renegotiated to provide a
temporary reduction or deferral of interest or principal because of
deterioration in the financial
position
of the borrower. These loans were still in accrual status.
Loans are generally placed on non-accrual status when
they become 90 days past due, unless management believes the loan is adequately
collateralized and in the process of collection. The past due loans may or may not be
adequately collateralized, but collection efforts are continuously
pursued. Loans may be restructured by
management when a borrower has experienced some changes in financial status,
causing an inability to meet the original repayment terms, and where we believe
the borrower will eventually overcome those circumstances and repay the loan in
full.
Despite the fact that our loan portfolio continued to
grow, our emphasis on asset quality control enabled us to maintain a relatively
low level of NPLs as of March 31, 2009. However, the general economic
condition of the United States as well as the local economies in which we do
business have experienced a severe downturn in the housing sector and the
transition to below-trend GDP growth has continued. The downward movement of
the macro economic environment affected our
borrowers strength and our
NPLs, net of SBA guaranteed portion, increased to $29.7 million, or 1.43% of
the total loans at the end of the first quarter of 2009, as compared with $15.6
million, or 0.76% of the total loans, at the end of 2008. The $14.2 million
increase of NPLs was comprised of a $13.9 million net increase in non-accrual
loans, and a $0.3 million net increase in delinquent loans.
28
Table
of Contents
Management
also believes that the reserve provided for non-performing loans, together with
the tangible collateral, were adequate as of
March 31, 2009. See Allowance for Losses on Loans and Loan Commitments below for further
discussion.
A
llowance for Losses on Loans and
Loan Commitments
Based
on the credit risk inherent in our lending business, we set aside allowances
through charges to earnings. Such
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. Charges made for our outstanding loan portfolio were credited to the allowance
for losses on loans, whereas charges related to loan commitments were credited to the reserve for loan
commitments, which is presented as a component of other liabilities.
The
allowance for losses on loans and
loan commitments are maintained at levels that are believed to be
adequate by management to absorb estimated probable losses on loans inherent in
the loan portfolio. The adequacy of our allowance is determined through
periodic evaluations of the loan portfolio and other pertinent factors, which
are inherently subjective because the process calls for various significant
estimates and assumptions. Among other factors, the estimates involve the
amounts and timing of expected future cash flows and fair value of collateral
on impaired loans, estimated losses on loans based on historical loss
experience, various qualitative factors, and uncertainties in estimating losses
and inherent risks in the various credit portfolios, which may be subject to
substantial change.
On a
quarterly basis, we utilize a classification migration model and individual
loan review analysis as starting points for determining the adequacy of our
allowance for losses on loans. Our loss migration analysis tracks a certain
number of quarters of loan losses history to determine historical losses by
classification category for each loan type, except certain loans (automobile,
mortgage and credit scored based business loans), which are analyzed as homogeneous
loan pools. These calculated loss factors are then applied to outstanding loan
balances. Based on Company defined
utilization rate of exposure for unused off-balance sheet loan commitments,
such as letters of credit, we record a reserve for
loan commitments.
The
individual loan review analysis is the other part of the allowance allocation
process, applying specific monitoring policies and procedures in analyzing the
existing loan portfolios. Further allowance assignments are made based on
general and specific economic conditions, as well as performance trends within
specific portfolio segments and individual concentrations of credit.
We increased our
allowance for losses on loans
to $
34.2 million at March 31, 2009, representing an
increase of 16.03%, or $4.7
million from $29.4 million at December 31, 2008. With the increase of our non-performing loans, we have increased the
ratio of allowance for losses on loans to total loans at 1.65%, as compared with 1.43% retained at the year end of 2008. Management
believes that the current ratio of 1.65%
is adequate for our loan portfolio.
Our allowance for losses on loan commitments decreased
to $0.9 million at March 31, 2009, as compared to $1.2 million at December 31,
2008.
The
beginning balances of allowance for losses on loans and loan commitments for
the first quarter of 2009 and fourth quarter of 2008 were $29.4 million and
$26.0 million, respectively. During the first quarter of 2009, the provision
for losses on loans and loan commitments were $6.7 million, increased from $5.9
million in the fourth quarter of 2008, while actual charge-offs were lowered in
the first quarter of 2009 at $2.4 million from $2.6 million in the previous
quarter. As a result, the total allowance for losses on loans and loan commitments
increased $4.4 million to $35.1 million as of March 31, 2009, as compared
with $30.7 million as of December 31, 2008.
29
Table
of Contents
The
table below summarizes for the end of the periods indicated, the balance of
allowance for losses on loans and its percent of such loan balance for each
type of loan:
|
|
Distribution and Percentage Composition of Allowance for Losses on Loans
|
|
|
|
(dollars in thousands)
|
|
|
|
March 31, 200
9
|
|
December 31, 200
8
|
|
Balance as of
|
|
Reserve
Amount
|
|
Total
Loans
|
|
(%)
|
|
Reserve
Amount
|
|
Total
Loans
|
|
(%)
|
|
Applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction loans
|
|
$
|
215
|
|
$
|
42,075
|
|
0.51
|
%
|
$
|
190
|
|
$
|
43,180
|
|
0.44
|
%
|
Real estate secured
|
|
14,303
|
|
1,639,578
|
|
0.87
|
%
|
11,628
|
|
1,599,627
|
|
0.73
|
%
|
Commercial and industrial
|
|
19,171
|
|
377,211
|
|
5.10
|
%
|
17,209
|
|
389,217
|
|
4.44
|
%
|
Consumer
|
|
467
|
|
18,854
|
|
2.48
|
%
|
410
|
|
23,669
|
|
1.73
|
%
|
Total allowance
|
|
$
|
34,156
|
|
$
|
2,077,718
|
|
1.65
|
%
|
$
|
29,437
|
|
$
|
2,055,693
|
|
1.43
|
%
|
The
table below summarizes for the periods indicated, loan balances at the end of
each period, the daily averages during the period, changes in the allowance for
losses on loans arising from loans charged off, recoveries on loans previously
charged off, additions to the allowance and certain ratios related to the
allowance for losses on loans and loan commitments:
Allowance for Losses on Loans and Loan
Commitments
(dollars
in thousands)
|
|
Three Months
Ended
March 31, 200
9
|
|
Year ended
December 31, 200
8
|
|
Three Months
Ended
March 31, 200
8
|
|
Allowance for losses on loans:
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
29,437
|
|
$
|
21,579
|
|
$
|
21,579
|
|
Actual charge-offs:
|
|
|
|
|
|
|
|
Real estate secured
|
|
672
|
|
1,070
|
|
3
|
|
Commercial and industrial
|
|
1,629
|
|
5,174
|
|
826
|
|
Consumer
|
|
102
|
|
903
|
|
310
|
|
Total charge-offs
|
|
2,403
|
|
7,147
|
|
1,139
|
|
Recoveries on loans previously charged off:
|
|
|
|
|
|
|
|
Real estate secured
|
|
|
|
|
|
1
|
|
Commercial and industrial
|
|
70
|
|
1,927
|
|
92
|
|
Consumer
|
|
43
|
|
213
|
|
27
|
|
Total recoveries
|
|
113
|
|
2,140
|
|
120
|
|
Net loan charge-offs
|
|
2,290
|
|
5,007
|
|
1,019
|
|
Provision for losses on loans
|
|
6,700
|
|
12,110
|
|
1,400
|
|
Add: credit for losses on loan commitments
|
|
(309
|
)
|
(755
|
)
|
(112
|
)
|
Balances at end of period
|
|
$
|
34,156
|
|
$
|
29,437
|
|
$
|
22,072
|
|
|
|
|
|
|
|
|
|
Allowance for losses on loan commitments:
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
1,243
|
|
$
|
1,998
|
|
$
|
1,998
|
|
Credit for losses on loan commitments
|
|
(309
|
)
|
(755
|
)
|
(112
|
)
|
Balances at end of period
|
|
$
|
934
|
|
$
|
1,243
|
|
$
|
1,886
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
Net loan charge-offs to average total loans
|
|
0.11
|
%
|
0.26
|
%
|
0.06
|
%
|
Allowance for losses on loans to total
loans at period-end
|
|
1.65
|
%
|
1.43
|
%
|
1.17
|
%
|
Net loan charge-offs to allowance for
losses on loans at period-end
|
|
6.70
|
%
|
17.01
|
%
|
4.62
|
%
|
Net loan charge-offs to provision for
losses on loans and loan commitments
|
|
34.18
|
%
|
41.35
|
%
|
72.79
|
%
|
30
Table of Contents
Contractual Obligations
The
following table represents our aggregate contractual obligations to make future
payments
(principal and
interest) as of March 31, 2009:
(
dollars in thousands
)
|
|
One Year
or Less
|
|
Over One Year
To Three Years
|
|
Over Three Years
To Five Years
|
|
Over Five
Years
|
|
Total
|
|
FHLB borrowings
|
|
$
|
235,231
|
|
$
|
113,963
|
|
$
|
|
|
$
|
|
|
$
|
349,194
|
|
Junior subordinated debenture
s
|
|
2,773
|
|
3,791
|
|
11,252
|
|
77,321
|
|
95,137
|
|
Operating leases
|
|
3,049
|
|
4,115
|
|
2,882
|
|
2,832
|
|
12,878
|
|
Time deposits
|
|
1,174,660
|
|
11,304
|
|
|
|
|
|
1,185,964
|
|
Total
|
|
$
|
1,415,713
|
|
$
|
133,173
|
|
$
|
14,134
|
|
$
|
80,153
|
|
$
|
1,643,173
|
|
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 shown or
stated in any form on our balance sheets.
As of March 31,
200
9 and December 31,
2008, we had commitments to extend
credit of $146.4 million and $153.4 million, respectively. Obligations under standby letters of credit
were $12.8 million and $12.7 million at March 31, 2009 and December 31, 2008, respectively, and our obligations
under commercial letters of credit were $7.8 million and $15.1
million at such dates, respectively.
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. In our opinion, the final disposition of all
such claims will not have a material adverse effect on our financial position
and results of operations.
Deposits and Other
Sources of Funds
Deposits
Deposits
are our primary source of funds. Total
deposits increased to $1.91 billion at March 31, 2009
, as compared with $1.81 billion at December 31,
2008.
Total
non-time deposits at March 31, 2009 increased to $738.6 million over the
last three months from $706.2 million at December 31, 2008, while time
deposits increased to $1.17 billion at March 31, 2009 from $1.11 billion
at December 31, 2008.
The
increase in time deposits was largely due to the success of our marketing
campaign. We took advantage of the low interest rate environment to reduce the
interest rates on our time deposits. The average rate that we paid on time
deposits in denominations of $100,000 or more for the first quarter of
2009 decreased to 2.86%, from 4.46% in the same periods of the prior year. However, in order to
keep the interest expense down, we plan to closely monitor interest rate trends
and changes as well as our time deposit rates to maximize our net interest
margin and profitability.
31
Table
of Contents
The
following table summarizes the distribution of average daily deposits and the
average daily rates paid for the quarters indicated:
Average
Deposits
(dollars
in thousands)
|
|
March
3
1
, 200
9
|
|
December 31, 200
8
|
|
For the quarters ended:
|
|
Average
Balance
|
|
Average
Rate
|
|
Average
Balance
|
|
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
276,740
|
|
|
|
$
|
281,622
|
|
|
|
Money market
|
|
362,733
|
|
2.57
|
%
|
380,275
|
|
3.06
|
%
|
Super NOW
|
|
19,557
|
|
0.94
|
%
|
18,989
|
|
1.23
|
%
|
Savings
|
|
43,241
|
|
3.63
|
%
|
43,029
|
|
3.63
|
%
|
Time certificates of deposit in
denominations of $100,000 or more
|
|
933,494
|
|
2.86
|
%
|
834,971
|
|
3.17
|
%
|
Other time deposits
|
|
196,714
|
|
3.54
|
%
|
211,351
|
|
3.54
|
%
|
Total deposits
|
|
$
|
1,832,479
|
|
2.44
|
%
|
$
|
1,770,237
|
|
2.68
|
%
|
The
scheduled maturities of our time deposits in denominations of $100,000 or
greater at March 31, 200
9 were as follows:
Maturities of Time Deposits of $100,000 or More,
at
March
3
1
,
200
9
(dollars in thousands)
Three months or less
|
|
$
|
545,330
|
|
Over three months through six months
|
|
278,159
|
|
Over six months through twelve months
|
|
139,065
|
|
Over twelve months
|
|
6,447
|
|
Total
|
|
$
|
969,001
|
|
A
number of clients carry deposit balances of more than 1% of our total deposits,
but the California State Treasury was the only depositor that had a deposit
balance representing more than 5% of our total deposits at March 31, 200
9 and December 31, 2008.
In
addition to our regular customer base, we also accept brokered deposits on a
selective basis at reasonable interest rates to augment deposit growth. In the
first three months of 2009, in spite of the ongoing financial crisis and stiff
competition for customer deposits among banks within the markets where we do
business, we were able to increase non-interest bearing demand deposits to
$298.0 million at March 31, 2009 from $277.5 million at December 31,
2008, At the same time, we decreased broker deposits to $
106.3 million at March 31, 2009 from $147.9 million at December 31,
2008. Most of the $106.3 million
brokered deposits will mature within one year. In addition, because of the current low interest rate environment, our
time deposits of $100,000 or more also increased to $969.0 million at March 31,
2009 from $902.8 million at December 31, 2008. We expect that interest rates will trend
upward when the Federal Reserve Board starts increasing the federal funds rate.
To improve our net interest margin as well as to maintain flexibility in our
cost of funds, we will constantly monitor our deposit mix to minimize risk of
fund cost.
FHLB
Borrowings
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 the FHLB in order to take advantage of their
flexibility and comparatively low cost.
Due to the ongoing credit crisis and stiff competition for customer
deposits among banks, we have increased FHLB borrowing as an alternative to
fund our growing loan portfolio. See Liquidity
Management below for details relating to the FHLB borrowings program.
32
Table of Contents
The following
table is a summary of FHLB borrowings for the quarters indicated:
(dollars in thousands)
|
|
March 31
, 2009
|
|
December 31,
2008
|
|
Balance at quarter-end
|
|
$
|
340,000
|
|
$
|
260,000
|
|
Average balance
during the quarter
|
|
$
|
325,300
|
|
$
|
338,739
|
|
Maximum amount
outstanding at any month-end
|
|
$
|
340,000
|
|
$
|
370,000
|
|
Average interest
rate during the quarter
|
|
1.95
|
%
|
2.73
|
%
|
Average interest
rate at quarter-end
|
|
1.94
|
%
|
3.16
|
%
|
Asset/Liability Management
We
seek 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, we focus on
measurement and control of liquidity risk, interest rate risk and market risk,
capital adequacy, operation risk and credit risk. See further discussion on these risks in the Risk
Factors section of our Annual Report on Form 10-K for the year ended December 31,
2008. Information concerning interest
rate risk management is set forth under Item 3 - Quantitative and Qualitative
Disclosures about Market Risk.
Liquidity Management
Maintenance
of adequate liquidity requires that sufficient resources be available at all
times 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. For this purpose, we maintain a portion of our
funds in cash and cash equivalents, deposits in other financial institutions
and loans and securities available for sale.
Our liquid assets at March 31, 200
9 and December 31, 2008 totaled approximately $486.5 million and $345.1 million, respectively. Our liquidity levels measured as the percentage
of liquid assets to total assets were 18.6%
and 14.1% at March 31, 2009 and December 31, 2008, respectively.
Our primary sources of liquidity are derived from our
core operating activities of accepting customer deposits. This funding source
is 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 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.
As a
secondary source of liquidity, we accept broker deposits, federal funds facilities,
repurchase agreement facilities, and obtain 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 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 institutions
net worth or on the FHLBs assessment of the institutions creditworthiness. As
of March 31, 200
9,
our borrowing capacity from the FHLB was about $687.6 million and the outstanding balance was $340.0 million, or approximately 49.4% of our borrowing capacity.
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. In December of 2008, we received
a Troubled
Asset Relief Program (TARP) investment
from the U.S. Treasury in the amount of
$62.2 million.
33
Table of Contents
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 our Annual Report on Form 10-K for the year ended December 31,
2008 for additional information
regarding regulatory capital requirements.
As of March 31,
2009, 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 capital ratios as of
the dates specified for the Company and the Bank:
Wilshire Bancorp, Inc.
|
|
Regulatory
Adequately-
Capitalized
|
|
Regulatory
Well-
Capitalized
|
|
Actual ratios for the Company as of:
|
|
|
|
Standards
|
|
Standards
|
|
March 31
, 2009
|
|
December 31, 2008
|
|
March 31
, 2008
|
|
Total capital to
risk-weighted assets
|
|
8
|
%
|
10
|
%
|
16.69
|
%
|
17.09
|
%
|
14.37
|
%
|
Tier I capital
to risk-weighted assets
|
|
4
|
%
|
6
|
%
|
15.15
|
%
|
15.36
|
%
|
11.75
|
%
|
Tier I capital
to average assets
|
|
4
|
%
|
5
|
%
|
12.79
|
%
|
13.25
|
%
|
10.24
|
%
|
Wilshire State Bank
|
|
Regulatory
Adequately-
Capitalized
|
|
Regulatory
Well-
Capitalized
|
|
Actual ratios for the Bank as of:
|
|
|
|
Standards
|
|
Standards
|
|
March 31
, 2009
|
|
December 31, 2008
|
|
March 31
, 2008
|
|
Total capital to
risk-weighted assets
|
|
8
|
%
|
10
|
%
|
16.21
|
%
|
13.59
|
%
|
13.50
|
%
|
Tier I capital
to risk-weighted assets
|
|
4
|
%
|
6
|
%
|
14.67
|
%
|
11.86
|
%
|
11.73
|
%
|
Tier I capital
to average assets
|
|
4
|
%
|
5
|
%
|
12.39
|
%
|
10.24
|
%
|
10.24
|
%
|
For
the purposes of our regulatory capital ratio computation, our equity capital
includes the $62.2 million Series A Preferred Stock issued by the Company
to the U. S. Treasury as part of our participation of the CPP. As of March 31,
2009, the Companys total Tier 1 capital (which includes our equity capital,
plus junior subordinated debentures, less goodwill and intangibles) was $321.4
million, as compared with $320.4 million as of December 31, 2008. For the
Bank level, Tier 1 capital was $311.1 million as of March 31, 2009, as compared
with $247.3 million as of December 31, 2008.
Item 3.
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 Board delegates responsibility for market
risk management to the Asset & Liability Management (ALM) Committee,
which reports monthly to the Board on activities related to market risk
management. As part of the management of
our market risk, ALM committee may direct changes in the mix of assets and
liabilities. To that end, we actively
monitor and manage interest rate risk exposures.
34
Table of Contents
Interest
rate risk management involves development, analysis, implementation and
monitoring of earnings to provide stable earnings and capital levels during
periods of changing interest rates. In
the management of interest rate risk, we utilize monthly gap analysis and
quarterly simulation modeling to determine the sensitivity of net interest
income and economic value sensitivity of the balance sheet. 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 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 margin 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
reported in the tables arise when assets are funded with liabilities having
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 ALM committee
also regularly uses simulation modeling as a tool to measure the sensitivity of
earnings and net portfolio value, or NPV, to interest rate changes. The NPV is defined as the net present value
of an institutions existing assets, liabilities and off-balance sheet
instruments. The simulation model
captures all assets, liabilities and off-balance sheet financial instruments
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 net portfolio value 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 scenario. The ALM committee policy prescribes that for
the worst possible rate
-change
scenario the possible reduction of net interest income and NPV should not
exceed 20% of the base net interest income and 25% of the base NPV,
respectively.
In general, based upon our current mix of deposits,
loans and investments, decrease in interest rates would result an increase in
our net interest margin and NPV. An increase in interest rates would be
expected to have opposite effect. However, given in the record low interest
rate environment, either an increase or decrease in interest rates will result
in higher net interest margin, while either an increase or decrease in interest
rates will lower NPV as shown in our simulation measures below.
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 NPV could
vary substantially if different assumptions were used or actual experience
differs from the historical experience on which they are based.
35
Table of Contents
The
following table sets forth the interest rate sensitivity of our
interest-earning assets and interest-bearing liabilities as of March 31,
2009 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:
Interest Rate Sensitivity Analysis
(dollars in thousands)
|
|
At March 31, 2009
|
|
|
|
Amounts Subject to Repricing Within
|
|
|
|
0-3 months
|
|
3-12 months
|
|
Over 1 to 5 years
|
|
After 5 years
|
|
Total
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans(
1)
|
|
$
|
1,055,360
|
|
$
|
147,906
|
|
$
|
741,957
|
|
$
|
94,842
|
|
$
|
2,040,065
|
|
Investment
securities
|
|
15,927
|
|
53,302
|
|
43,796
|
|
207,163
|
|
320,188
|
|
Federal funds
sold and cash equivalents
|
|
85,001
|
|
|
|
|
|
|
|
85,001
|
|
Interest-earning
deposits
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,156,288
|
|
$
|
201,208
|
|
$
|
785,753
|
|
$
|
302,005
|
|
$
|
2,445,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
44,118
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
44,118
|
|
Time deposits of
$100,000 or more
|
|
545,331
|
|
417,223
|
|
6,447
|
|
|
|
969,001
|
|
Other time
deposits
|
|
84,143
|
|
109,122
|
|
4,558
|
|
|
|
197,823
|
|
Other
interest-bearing deposits
|
|
396,461
|
|
|
|
|
|
|
|
396,461
|
|
FHLB borrowings
|
|
140,000
|
|
130,000
|
|
70,000
|
|
|
|
340,000
|
|
Junior
Subordinated Debentures
|
|
71,857
|
|
|
|
15,464
|
|
|
|
87,321
|
|
Total
|
|
$
|
1,281,910
|
|
$
|
656,345
|
|
$
|
96,469
|
|
$
|
|
|
$
|
2,034,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate
sensitivity gap
|
|
$
|
(125,622
|
)
|
$
|
(455,137
|
)
|
$
|
689,284
|
|
$
|
302,005
|
|
$
|
410,530
|
|
Cumulative
interest rate sensitivity gap
|
|
(125,622
|
)
|
(580,759
|
)
|
108,525
|
|
410,530
|
|
|
|
Cumulative
interest rate sensitivity gap ratio (based on average interest-earning
assets)
|
|
-5.22
|
%
|
-24.13
|
%
|
4.51
|
%
|
17.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Excludes the gross amount of
non-accrual loans of approximately $
37.7
million at March 31, 2009.
The
following table sets forth our estimated net interest income over a 12-month
period and NPV based on the indicated changes in market interest rates as of March 31,
2009. All assets presented in this table
are held-to-maturity or available-for-sale.
At March 31, 2009, we had no trading investment securities:
|
|
Net Interest Income
|
|
|
|
|
|
|
|
Change
(in basis points)
|
|
(next twelve months)
(dollars in thousands)
|
|
%
Change
|
|
NPV
(dollars in thousands)
|
|
%
Change
|
|
+200
|
|
$
|
93,410
|
|
0.6
|
%
|
$
|
280,468
|
|
-3.9
|
%
|
+100
|
|
93,532
|
|
0.7
|
%
|
290,189
|
|
-0.6
|
%
|
0
|
|
92,852
|
|
|
|
291,941
|
|
|
|
-100
|
|
98,561
|
|
6.1
|
%
|
283,901
|
|
-2.8
|
%
|
-200
|
|
104,567
|
|
12.6
|
%
|
274,354
|
|
-6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
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 permit
s us to purchase rate caps and floors and interest rate swaps, we are
not currently engaged in any of those types of transactions.
Item 4.
Controls and Procedures
As of March 31,
2009, 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).
36
Table of Contents
Based
on this evaluation, our chief executive officer and chief financial officer
concluded that, as of March 31, 2009, 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.
In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can only provide reasonable assurance
in achieving the desired control
objectives and 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.
There
were no changes in our internal controls over financial reporting during the
quarter ended March 31, 2009 that materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
37
Table of Contents
Part II.
OTHER
INFORMATION
Item 1.
Legal
Proceedings
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 such counsel as to the outcome of the claims. We do
not believe the final disposition of all such claims will have a material
adverse effect on our financial position or results of operations.
Item 1A.
Risk Factors
There
are no material changes to our risk factors as presented in the Companys 2008 Form 10-K
under the heading Item 1A. Risk Factors.
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
None
.
Item 3.
Defaults
Upon Senior Securities
None
.
Item 4.
Submission
of Matters to a Vote of Security Holders
None.
Item 5.
Other
Information
None.
38
Table of Contents
EXHIBITS
Exhibit Table
Reference
Number
|
|
Item
|
|
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
|
|
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
|
39
Table of Contents
SIGNATURES
Pursuant to the
requirement of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
WILSHIRE BANCORP, INC.
|
|
|
|
|
Date: May 8, 2009
|
By:
|
/s/ Alex Ko
|
|
|
Alex Ko
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial
and Accounting Officer)
|
40
Wilshire Bancorp, Inc. (MM) (NASDAQ:WIBC)
Historical Stock Chart
From May 2024 to Jun 2024
Wilshire Bancorp, Inc. (MM) (NASDAQ:WIBC)
Historical Stock Chart
From Jun 2023 to Jun 2024