Table
of Contents
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
September 30
, 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
No
change
(Former
name, former address and former fiscal year, if changed since last report)
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
October 31,
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)
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
141,533
|
|
$
|
67,540
|
|
Federal
funds sold and other cash equivalents
|
|
130,004
|
|
30,001
|
|
Cash
and cash equivalents
|
|
271,537
|
|
97,541
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value (amortized cost of $545,980 and $227,429 at
September 30, 2009 and December 31, 2008, respectively)
|
|
559,602
|
|
229,136
|
|
Securities
held to maturity, at amortized cost (fair value of $117 and $135 at
September 30, 2009 and December 31, 2008, respectively)
|
|
116
|
|
139
|
|
Loans
receivable, net of allowance for loan losses of $54,735 and $29,437 at
September 30, 2009 and December 31, 2008, respectively)
|
|
2,360,639
|
|
2,003,665
|
|
Loans
held for sale - at the lower of cost or market
|
|
29,978
|
|
18,427
|
|
Federal
Home Loan Bank stock - at cost
|
|
21,040
|
|
17,537
|
|
Other
real estate owned
|
|
6,238
|
|
2,663
|
|
Due
from customers on acceptances
|
|
251
|
|
2,213
|
|
Cash
surrender value of bank owned life insurance
|
|
17,884
|
|
17,395
|
|
Investment
in affordable housing partnerships
|
|
12,271
|
|
9,019
|
|
Bank
premises and equipment
|
|
12,454
|
|
11,265
|
|
Accrued
interest receivable
|
|
13,375
|
|
9,975
|
|
Deferred
income taxes
|
|
8,787
|
|
12,051
|
|
Servicing
assets
|
|
6,898
|
|
4,838
|
|
Goodwill
|
|
6,675
|
|
6,675
|
|
Other
intangible assets
|
|
2,231
|
|
1,287
|
|
Interest
only strip - at fair value
|
|
725
|
|
632
|
|
FDIC
loss share indemnification
|
|
40,014
|
|
|
|
Other
assets
|
|
6,848
|
|
5,553
|
|
TOTAL
|
|
$
|
3,377,563
|
|
$
|
2,450,011
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Noninterest
bearing
|
|
$
|
373,332
|
|
$
|
277,542
|
|
Interest
bearing:
|
|
|
|
|
|
Savings
|
|
66,211
|
|
44,452
|
|
Money
market checking and NOW accounts
|
|
777,800
|
|
384,190
|
|
Time
deposits of $100,000 or more
|
|
928,724
|
|
902,804
|
|
Other
time deposits
|
|
526,035
|
|
203,613
|
|
Total
deposits
|
|
2,672,102
|
|
1,812,601
|
|
|
|
|
|
|
|
Federal
Home Loan Bank borrowings
|
|
322,000
|
|
274,000
|
|
Junior
subordinated debentures
|
|
87,321
|
|
87,321
|
|
Accrued
interest payable
|
|
7,715
|
|
6,957
|
|
Acceptances
outstanding
|
|
251
|
|
2,213
|
|
Other
liabilities
|
|
15,687
|
|
11,859
|
|
Total
liabilities
|
|
3,105,076
|
|
2,194,951
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY:
|
|
|
|
|
|
Preferred
stock, $1,000 par valueauthorized, 5,000,000 shares; issued &
outstanding, 62,158 shares and 62,158 shares at September 30, 2009 and
December 31, 2008, respectively
|
|
$
|
59,806
|
|
$
|
59,443
|
|
Common
stock, no par valueauthorized, 80,000,000 shares; issued and outstanding, 29,413,757
shares and 29,413,757 shares at September 30, 2009 and December 31,
2008, respectively
|
|
54,646
|
|
54,038
|
|
Accumulated
other comprehensive income, net of tax
|
|
8,777
|
|
1,239
|
|
Retained
earnings
|
|
149,258
|
|
140,340
|
|
Total
shareholders equity
|
|
272,487
|
|
255,060
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
3,377,563
|
|
$
|
2,450,011
|
|
See accompanying
notes to unaudited 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 September 30
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
39,388
|
|
$
|
34,719
|
|
$
|
100,818
|
|
$
|
104,014
|
|
Interest
on investment securities
|
|
4,876
|
|
2,798
|
|
11,011
|
|
8,021
|
|
Interest
on federal funds sold
|
|
844
|
|
63
|
|
1,910
|
|
192
|
|
Total
interest income
|
|
45,108
|
|
37,580
|
|
113,739
|
|
112,227
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
12,994
|
|
12,469
|
|
35,952
|
|
40,071
|
|
Interest
on FHLB advances and other borrowings
|
|
1,982
|
|
2,570
|
|
5,262
|
|
6,969
|
|
Interest
on junior subordinated debentures
|
|
719
|
|
1,127
|
|
2,467
|
|
3,696
|
|
Total
interest expense
|
|
15,695
|
|
16,166
|
|
43,681
|
|
50,736
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
29,413
|
|
21,414
|
|
70,058
|
|
61,491
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOSSES ON LOANS AND LOAN COMMITMENTS
|
|
24,200
|
|
3,400
|
|
43,000
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
5,213
|
|
18,014
|
|
27,058
|
|
55,291
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
3,315
|
|
3,125
|
|
9,338
|
|
8,916
|
|
Gain
on sale of loans
|
|
2,235
|
|
410
|
|
1,711
|
|
2,192
|
|
Loan-related
servicing fees
|
|
958
|
|
891
|
|
2,702
|
|
2,338
|
|
Income
from other earning assets
|
|
243
|
|
398
|
|
635
|
|
1,108
|
|
Gain
on bargain purchase
|
|
|
|
|
|
21,679
|
|
|
|
Other
income
|
|
649
|
|
521
|
|
3,662
|
|
1,551
|
|
Total
noninterest income
|
|
7,400
|
|
5,345
|
|
39,727
|
|
16,105
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST
EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
7,120
|
|
6,718
|
|
19,315
|
|
21,349
|
|
Occupancy
and equipment
|
|
1,935
|
|
1,576
|
|
5,294
|
|
4,493
|
|
Data
processing
|
|
1,078
|
|
785
|
|
2,750
|
|
2,320
|
|
Outsourced
service for customers
|
|
328
|
|
376
|
|
806
|
|
1,218
|
|
Professional
fees
|
|
659
|
|
605
|
|
1,576
|
|
1,559
|
|
Deposit
insurance premiums
|
|
982
|
|
279
|
|
3,772
|
|
907
|
|
Other
operating expenses
|
|
2,719
|
|
1,968
|
|
7,371
|
|
5,239
|
|
Total
noninterest expenses
|
|
14,821
|
|
12,307
|
|
40,884
|
|
37,085
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
|
(2,208
|
)
|
11,052
|
|
25,901
|
|
34,311
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAXES
|
|
(1,451
|
)
|
4,184
|
|
9,853
|
|
12,964
|
|
|
|
|
|
|
|
|
|
|
|
NET
(LOSS) INCOME
|
|
(757
|
)
|
6,868
|
|
16,048
|
|
21,347
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock cash dividend and accretion of preferred stock discount
|
|
900
|
|
|
|
2,718
|
|
|
|
NET
(LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
(1,657
|
)
|
$
|
6,868
|
|
$
|
13,330
|
|
$
|
21,347
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
$
|
0.23
|
|
$
|
0.45
|
|
$
|
0.73
|
|
Diluted
|
|
$
|
(0.06
|
)
|
$
|
0.23
|
|
$
|
0.45
|
|
$
|
0.73
|
|
WEIGHTED-AVERAGE
SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
29,413,757
|
|
29,397,182
|
|
29,413,757
|
|
29,355,231
|
|
Diluted
|
|
29,413,757
|
|
29,508,503
|
|
29,422,528
|
|
29,402,212
|
|
See accompanying
notes to unaudited consolidated financial statements.
2
Table
of Contents
WILSHIRE
BANCORP, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
(DOLLARS
IN THOUSANDS) (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
|
|
|
|
|
|
148,446
|
|
415
|
|
|
|
|
|
415
|
|
Cash
dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
(4,409
|
)
|
(4,409
|
)
|
Stock
compensation expense
|
|
|
|
|
|
|
|
889
|
|
|
|
|
|
889
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
21,347
|
|
21,347
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on interest-only strips, net of taxes
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
49
|
|
Change
in unrealized gain on securities available for sale, net of taxes
|
|
|
|
|
|
|
|
|
|
(378
|
)
|
|
|
(378
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,018
|
|
BALANCE-September 30,
2008
|
|
|
|
$
|
|
|
29,401,757
|
|
$
|
50,994
|
|
$
|
46
|
|
$
|
136,840
|
|
$
|
187,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE-January 1,
2009
|
|
62,158
|
|
$
|
59,443
|
|
29,413,757
|
|
$
|
54,038
|
|
$
|
1,239
|
|
$
|
140,340
|
|
$
|
255,060
|
|
Stock
options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend declared or accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
|
|
|
|
|
|
|
|
|
(4,412
|
)
|
(4,412
|
)
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
(2,331
|
)
|
(2,331
|
)
|
Stock
compensation expense
|
|
|
|
|
|
|
|
608
|
|
|
|
|
|
608
|
|
Tax
benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
of preferred stock discount
|
|
|
|
363
|
|
|
|
|
|
|
|
(387
|
)
|
(24
|
)
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
16,048
|
|
16,048
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gain on interest-only strips, net of taxes
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
44
|
|
Change
in unrealized gain on securities available for sale, net of taxes
|
|
|
|
|
|
|
|
|
|
7,494
|
|
|
|
7,494
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,586
|
|
BALANCE-September 30,
2009
|
|
62,158
|
|
$
|
59,806
|
|
29,413,757
|
|
$
|
54,646
|
|
$
|
8,777
|
|
$
|
149,258
|
|
$
|
272,487
|
|
See accompanying
notes to unaudited consolidated financial statements.
3
Table
of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) (UNAUDITED)
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
16,048
|
|
$
|
21,347
|
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
Amortization of investment securities
|
|
2,866
|
|
777
|
|
Depreciation of bank premises & equipment
|
|
1,490
|
|
1,340
|
|
Amortization of other intangible assets
|
|
387
|
|
223
|
|
Amortization of investments in affordable housing
partnerships
|
|
931
|
|
574
|
|
Provision for losses on loans and loan commitments
|
|
43,000
|
|
6,200
|
|
Provision for other real estate owned losses
|
|
359
|
|
|
|
Deferred tax benefit
|
|
(1,188
|
)
|
(1,180
|
)
|
Loss on disposition of bank premises and equipment
|
|
11
|
|
3
|
|
Gain on bargain purchase
|
|
(21,679
|
)
|
|
|
Net gain on sale of loans
|
|
(1,711
|
)
|
(2,192
|
)
|
Origination of loans held for sale
|
|
(45,298
|
)
|
(50,989
|
)
|
Proceeds from sale of loans held for sale
|
|
35,672
|
|
50,863
|
|
Gain on sale or call of available for sale
securities
|
|
(1,588
|
)
|
(3
|
)
|
Decrease in fair value of serving rights
|
|
390
|
|
730
|
|
Gain on sale of other real estate owned
|
|
(402
|
)
|
(17
|
)
|
Loss on sale of repossessed vehicles
|
|
|
|
1
|
|
Share-based compensation expense
|
|
608
|
|
889
|
|
Change in cash surrender value of life insurance
|
|
(489
|
)
|
(972
|
)
|
Servicing assets capitalized
|
|
(556
|
)
|
(766
|
)
|
Increase in accrued interest receivable
|
|
(1,904
|
)
|
(106
|
)
|
(Increase) or decrease in other assets
|
|
(1,281
|
)
|
777
|
|
Dividends of Federal Home Loan Bank stock
|
|
|
|
(470
|
)
|
Tax benefit from exercise of stock options
|
|
|
|
(57
|
)
|
Decrease in accrued interest payable
|
|
(2,196
|
)
|
(2,526
|
)
|
Increase in other liabilities
|
|
2,794
|
|
1,587
|
|
Net cash provided by operating activities
|
|
26,264
|
|
26,033
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Proceeds from principal repayment, matured or called
securities held to maturity
|
|
22
|
|
7,241
|
|
Purchase of securities available for sale
|
|
(430,574
|
)
|
(107,599
|
)
|
Proceeds from matured securities available for sale
|
|
166,117
|
|
102,472
|
|
Net increase in loans receivable
|
|
(125,702
|
)
|
(227,728
|
)
|
Proceeds from sale of other loans
|
|
3,217
|
|
|
|
Proceeds from sale of other real estate owned
|
|
3,395
|
|
875
|
|
Proceeds from sale of repossessed vehicles
|
|
|
|
10
|
|
Purchases of investments in affordable housing
partnerships
|
|
(4,183
|
)
|
(2,889
|
)
|
Purchases of Bank premises and equipment
|
|
(2,400
|
)
|
(1,589
|
)
|
Purchases of Federal Home Loan Bank stock
|
|
|
|
(6,080
|
)
|
Proceeds from disposition of Bank equipment
|
|
|
|
3
|
|
Net cash and cash equivalents acquired from
acquisition of former Mirae Bank
|
|
5,724
|
|
|
|
Net cash used in investing activities
|
|
(384,384
|
)
|
(235,284
|
)
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited consolidated financial statements.
|
|
(continued)
|
4
Table
of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) (UNAUDITED)
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
$
|
|
|
$
|
415
|
|
Payment of common stock cash dividend
|
|
(4,412
|
)
|
(4,402
|
)
|
Payment of preferred stock cash dividend
|
|
(2,098
|
)
|
|
|
(Decrease) or increase in Federal Home Loan Bank
borrowings
|
|
(27,500
|
)
|
150,000
|
|
Tax benefit from exercise of stock options
|
|
|
|
57
|
|
Net increase in deposits
|
|
566,126
|
|
24,692
|
|
Net cash provided by financing activities
|
|
532,116
|
|
170,762
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
|
173,996
|
|
(38,489
|
)
|
CASH AND CASH EQUIVALENTSBeginning of year
|
|
97,541
|
|
92,509
|
|
CASH AND CASH EQUIVALENTSEnd of year
|
|
$
|
271,537
|
|
$
|
54,020
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Interest paid
|
|
$
|
42,923
|
|
$
|
53,262
|
|
Income taxes paid
|
|
$
|
8,885
|
|
$
|
13,900
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES:
|
|
|
|
|
|
Transfer of loans to other real estate owned
|
|
$
|
6,428
|
|
$
|
2,177
|
|
Other assets transferred to Bank premises and
equipment
|
|
$
|
290
|
|
$
|
174
|
|
Net assets acquired from Mirae Bank
|
|
|
|
|
|
Assets acquired
|
|
$
|
395,646
|
|
$
|
|
|
Liabilities assumed
|
|
373,967
|
|
|
|
|
|
21,679
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
|
|
|
|
|
|
Common stock cash dividend declared, but not paid
|
|
$
|
1,471
|
|
$
|
1,470
|
|
Preferred stock cash dividend declared, but not
paid
|
|
$
|
388
|
|
$
|
|
|
See
accompanying notes to unaudited consolidated financial statements.
|
|
(Concluded)
|
5
Table
of Contents
WILSHIRE BANCORP, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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 the
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. On June 26, 2009, we
purchased substantially all the assets and assumed substantially all the
liabilities of Mirae Bank (Mirae) from the
Federal Deposit Insurance Corporation (FDIC),
as receiver of Mirae. Mirae previously
operated five commercial banking branches, all located within southern
California, and these branches were integrated into our existing branch network
following the acquisition. In addition, we also have five loan production offices utilized
primarily for the origination of loans under our Small Business Administration
(SBA) lending program in Colorado, Georgia, Texas (2 offices), 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 reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the Companys consolidated statements of financial condition as of September 30,
2009 and December 31, 2008, the statements of operations for the
three months and nine months ended September 30, 2009 and 2008, and the related
statements of shareholders equity and statements of cash flows for the nine months
ended September 30, 2009 and 2008. Operating results for interim periods
are not necessarily indicative of operating results for an entire fiscal year.
The Financial Accounting Standards Boards (FASBs)
Accounting Standards Codification (ASC) became effective on July 1, 2009. At
that date, the ASC became the FASBs officially recognized source of
authoritative GAAP applicable to all public and non-public non-governmental
entities, superseding existing FASB, American Institute of Certified Public
Accountants (AICPA), Emerging Issues Task Force (EITF) and related
literature. Rules and interpretive releases of the SEC under the authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. All other accounting literature is considered non-authoritative.
The switch to the ASC affects the way companies refer to GAAP in financial
statements and accounting policies. Citing particular content in the ASC
involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure.
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. Federally
Assisted Acquisition of
Mirae Bank
The FDIC placed Mirae under receivership upon Miraes
closure by the California Department of Financial Institutions (DFI) at the
close of business on June 26, 2009.
We purchased substantially all of Miraes assets and assumed all of
Miraes deposits and certain other liabilities. Further, we entered into a loss
sharing agreement with the FDIC in connection with the Mirae acquisition. Under
the loss sharing agreement, the FDIC will share in the losses on assets covered
under the agreement, which generally include loans acquired from Mirae and
foreclosed loan collateral existing at June 26, 2009 (referred to
collectively as covered assets). With respect to losses of up to $83.0
million on the covered assets, the FDIC has agreed to reimburse us for 80
percent of the losses. On losses exceeding $83.0 million, the FDIC
has agreed to reimburse us for 95 percent of the losses. The loss
6
Table
of Contents
sharing agreements are subject to our
compliance with servicing procedures and satisfying certain other conditions
specified in the agreements with the FDIC.
The term for the FDICs loss sharing on single family loans is ten
years, and the term for loss sharing on non-single family loans is five years
with respect to losses and eight years with respect to loss recoveries. As a
result of the loss sharing agreement with the FDIC, the Company has recorded an
indemnification asset from the FDIC based on the estimated value of the
indemnification agreement of $40.2 million at June 26, 2009.
The Mirae acquisition was accounted for under
the purchase method of accounting in accordance with FASB ASC Topic 805,
Business Combinations
(formerly SFAS No. 141R). The
statement of net assets and assumed liabilities were recorded at their
respective acquisition date fair values, and identifiable intangible assets
were recorded at fair value. Fair values are preliminary and are subject to
refinements for up to one year after the closing date of an acquisition as
information relative to closing date fair values becomes available. As of September 30,
2009, the fair values for acquired assets and liabilities remained open. A bargain
purchase gain totaling $21.7 million resulted from the acquisition and is
included as a component of noninterest income on the statement of income. The
amount of gain is equal to the amount by which the fair value of assets
purchased exceeded the fair value of liabilities assumed. The Company did not
disclose the pro-forma financial information related to the Mirae Bank
acquisition, as it was not practicable to do so. The estimated fair value of
the assets purchased and liabilities assumed are presented in the following
table:
Statement of Net Assets Acquired
|
|
At June 26, 2009
|
|
|
|
(In thousands)
|
|
Assets
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,724
|
|
Securities
|
|
55,371
|
|
Loans
|
|
285,685
|
|
Core deposit intangible
|
|
1,330
|
|
FDIC loss-sharing receivable
|
|
40,235
|
|
Other assets
|
|
7,301
|
|
Total assets
|
|
395,646
|
|
|
|
|
|
Liabilities
|
|
|
|
Deposits
|
|
$
|
293,375
|
|
FHLB borrowings
|
|
75,500
|
|
Other liabilities
|
|
5,092
|
|
Total Liabilities
|
|
373,967
|
|
|
|
|
|
Net assets acquired
|
|
$
|
21,679
|
|
|
|
|
|
Mirae Banks net assets acquired before fair
valuation adjustments
|
|
$
|
36,928
|
|
Adjustments to reflect assets acquired and
liabilities assumed at fair value:
|
|
|
|
Loans, net
|
|
(54,964
|
)
|
Securities
|
|
(1,829
|
)
|
FDIC loss share indemnification
|
|
40,235
|
|
Core deposit intangible
|
|
1,330
|
|
Deposits
|
|
(375
|
)
|
Servicing rights
|
|
354
|
|
Bargain purchase gain
|
|
$
|
21,679
|
|
7
Table
of Contents
Note 4. 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 FASB ASC 820,
Fair Value Measurements &
Disclosures
(formerly SFAS No. 157)
, and ASC 820-10,
Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active
(formerly Staff
Position SFAS No. 157-3)
,
the
codification 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 ASC 825-10-50-1,
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. ASC 825-10-50-1 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.
In February 2008,
the FASB issued ASC 820-10-55- 23A & 23B (formerly Staff Position SFAS
No. 157-4), 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 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 ASC
820-10-55- 23A & 23B on January 1, 2009, and the adoption of this
FSP did not have a material impact on our consolidated financial statements.
In April 2009, the FASB issued ASC 820-10-65-4
(formerly 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 ASC
820,
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
,
did 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 ASC 820-10-65-4 (formerly FSP SFAS
No.157-4), includes guidance on identifying circumstances that indicate a
transaction is not orderly. We adopted ASC 820-10-65-4 in the second quarter of
2009 and the adoption 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 ASC 820:
Level
1
Unadjusted quoted prices in active markets for identical
assets or liabilities that the reporting entity has the ability to access at
the measurement date. The quoted price shall not be adjusted for the 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 judgments 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:
8
Table
of Contents
Measured on a
R
ecurring Basis
Investment securities
available for sale
Investment in available-for-sale securities are recorded at fair value
pursuant to ASC 320,
Accounting for Certain
Investments in Debt and Equity Securities
(formerly SFAS No. 115).
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 September 30, 2009
are measured using matrix pricing and recorded based on Level 2 measurement
inputs.
Servicing assets and interest-only (I/O) strips
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 with Level 3 measurement inputs.
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 managements
judgment. Adjustments are only made when the discounted cash flows are less
than the carrying value. We classify SBA loan servicing liabilities with Level
3 measurement inputs.
The table below summarizes the valuation of our financial
assets and liabilities by the above ASC 820 fair value hierarchy levels as of September 30,
2009:
Assets Measured at Fair
Value on a Recurring Basis
(dollars in thousands
)
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
Other
|
|
Significant
|
|
|
|
Total Fair
|
|
Active Markets
|
|
Observable
|
|
Unobservable Inputs
|
|
|
|
Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Investment
|
|
|
|
|
|
|
|
|
|
U.S.
agency bonds
|
|
$
|
514,856
|
|
$
|
|
|
$
|
514,856
|
|
$
|
|
|
Municipal
bonds
|
|
42,722
|
|
|
|
42,722
|
|
|
|
Corporate
bonds
|
|
2,024
|
|
|
|
2,024
|
|
|
|
Servicing
assets
|
|
6,898
|
|
|
|
|
|
6,898
|
|
I/O
strips
|
|
725
|
|
|
|
|
|
725
|
|
Servicing
liabilities
|
|
(600
|
)
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 quarter ended September 30,
2009
:
(dollars in thousands)
|
|
At June 30,
2009
|
|
Realized
Losses in Net
Income
|
|
Unrealized Gains
in Other
Comprehensive
Income
|
|
Net Purchases
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At Sept
30, 2009
|
|
Net
Cumulative
Unrealized
Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing assets
|
|
$
|
6,677
|
|
$
|
(335
|
)
|
$
|
|
|
$
|
556
|
|
$
|
|
|
$
|
6,898
|
|
$
|
|
|
I/O strips
|
|
741
|
|
(31
|
)
|
15
|
|
|
|
|
|
725
|
|
(293
|
)
|
Servicing liabilities
|
|
(464
|
)
|
(136
|
)
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Table
of Contents
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 nine months ended September 30, 2009
:
(dollars in thousands)
|
|
At Dec 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 Sept 30,
2009
|
|
Net
Cumulative
Unrealized
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing Assets
|
|
$
|
4,838
|
|
$
|
(390
|
)
|
$
|
|
|
$
|
2,450
|
|
$
|
|
|
$
|
6,898
|
|
$
|
|
|
I/O strips
|
|
632
|
|
(86
|
)
|
74
|
|
105
|
|
|
|
725
|
|
(293
|
)
|
Servicing liabilities
|
|
(328
|
)
|
(138
|
)
|
|
|
(134
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a
Nonrecurring Basis
Impaired loans (collateral dependent 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, less anticipated selling costs. 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
non-accrual loans and trouble debt restructured loans as previously described,
except for automobile loans, where we developed specific reserves on such loans
as a whole based upon historical loss trends and current loss factors. The
reserve for impaired automobile loans is not significant to the operations of
the Company. We record impaired loans as non-recurring with Level 3 measurement
inputs.
REO
Real estate owned (REO) consists principally of
properties acquired through foreclosures and are carried at the lower of cost
or estimated fair value.
The following table
presents the aggregated balance of assets measured at estimated fair value on a
nonrecurring basis through the nine months ended
September 30
, 2009, and the total losses resulting
from these fair value adjustments for the quarter and nine months ended
September 30
, 2009:
Assets Measured at Fair
Value on a Non-Recurring Basis
(dollars in thousands
)
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
Through September 30, 2009
|
|
September 30, 2009
|
|
September 30, 2009
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Total Losses
|
|
Total Losses
|
|
Impaired
loans
|
|
$
|
|
|
$
|
|
|
$
|
137,111
|
|
$
|
137,111
|
|
$
|
7,049
|
|
$
|
8,690
|
|
REO
|
|
|
|
|
|
6,238
|
|
6,238
|
|
|
|
359
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
143,349
|
|
$
|
143,349
|
|
$
|
7,049
|
|
$
|
9,049
|
|
Note 5.
Investment Securities
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 September 30, 2009
|
|
As of December 31, 2008
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
Unrealized
Gain
|
|
Amortized
Cost
|
|
Market
Value
|
|
Unrealized
Gain
(Loss)
|
|
Held
to Maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
116
|
|
$
|
117
|
|
$
|
1
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
Total
investment securities held to maturity
|
|
$
|
116
|
|
$
|
117
|
|
$
|
1
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities of government sponsored enterprises
|
|
$
|
63,960
|
|
$
|
64,509
|
|
$
|
549
|
|
$
|
25,952
|
|
$
|
26,187
|
|
$
|
235
|
|
Mortgage
backed securities
|
|
321,390
|
|
329,936
|
|
8,546
|
|
124,549
|
|
125,513
|
|
964
|
|
Collateralized
mortgage obligations
|
|
117,070
|
|
120,411
|
|
3,341
|
|
62,557
|
|
63,303
|
|
746
|
|
Corporate
securities
|
|
2,000
|
|
2,024
|
|
24
|
|
7,048
|
|
6,953
|
|
(95
|
)
|
Municipal
securities
|
|
41,560
|
|
42,722
|
|
1,162
|
|
7,323
|
|
7,180
|
|
(143
|
)
|
Total
investment securities available for sale
|
|
$
|
545,980
|
|
$
|
559,602
|
|
$
|
13,622
|
|
$
|
227,429
|
|
$
|
229,136
|
|
$
|
1,707
|
|
10
Table
of Contents
The
following table summarizes the maturity and repricing schedule of our
investment securities at their carrying values at September 30, 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
:
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
|
|
$
|
116
|
|
$
|
|
|
$
|
|
|
$
|
116
|
|
Total
investment securities held to maturity
|
|
$
|
|
|
$
|
116
|
|
$
|
|
|
$
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities of government sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
46,315
|
|
$
|
18,194
|
|
$
|
64,509
|
|
Mortgage
backed securities
|
|
7,930
|
|
697
|
|
4,820
|
|
316,489
|
|
329,936
|
|
Collateralized
mortgage obligations
|
|
30,849
|
|
89,562
|
|
|
|
|
|
120,411
|
|
Corporate
securities
|
|
|
|
2,024
|
|
|
|
|
|
2,024
|
|
Municipal
securities
|
|
|
|
300
|
|
|
|
42,422
|
|
42,722
|
|
Total
investment securities available for sale
|
|
$
|
38,779
|
|
$
|
92,583
|
|
$
|
51,135
|
|
$
|
377,105
|
|
$
|
559,602
|
|
The
following table shows the gross unrealized losses and fair value of our
investments, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at September 30,
200
9 and December 31, 2008:
As of September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Collateralized
mortgage obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
58
|
|
|
|
|
|
|
|
58
|
|
|
|
Corporate
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
10,462
|
|
(209
|
)
|
|
|
|
|
10,462
|
|
(209
|
)
|
|
|
$
|
10,520
|
|
$
|
(209
|
)
|
$
|
|
|
$
|
|
|
$
|
10,520
|
|
$
|
(209
|
)
|
As of December 31,
2008
(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 obligations
|
|
$
|
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 September 30,
200
9, the total
unrealized losses less than 12 months old were $209,000 and there were no total
unrealized losses more than 12 months old.
The aggregate related fair value of investments with unrealized losses
less than 12 months old was $10.5 million
at September 30, 2009, and none
with unrealized losses more than 12 months old.
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.
11
Table
of Contents
We evaluate securities for other-than-temporary
impairment at least quarterly, and more frequently when economic or market
concerns warrant such evaluation. Consideration is given to the financial
condition and near-term prospects of the issuer; the length of time and the
extent to which the fair value has been less than the cost, and 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. In analyzing an issuers
financial condition, we consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuers financial condition.
Management determined that the unrealized losses did
not meet the criteria for other-than-temporary impairment at September 30, 2009
because the investments are rated investment grade and there are no credit
quality concerns of the issuer. The market value decline is deemed to be due to
the current market volatility and is not reflective of managements
expectations of our ability to fully recover this investment. For these
reasons, no other-than-temporary impairment was recognized on any of our
investments at September 30, 2009.
Note
6. Loans
The
loans in the portfolio that we purchased in the Mirae Bank acquisition are
covered by the FDIC loss-share agreement and such loans are referred to herein
as
covered loans.
All loans other than the covered
loans are referred to herein as non-covered loans. A summary of covered and non-covered loans is
presented in the table below:
Covered &
Non-Covered Loans
|
|
Amount (in thousands)
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
September 30, 2008
|
|
Non-covered
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
44,586
|
|
$
|
43,180
|
|
$
|
43,161
|
|
Real
estate secured
|
|
1,766,428
|
|
1,599,627
|
|
1,566,813
|
|
Commercial
and industrial
|
|
348,910
|
|
389,217
|
|
407,381
|
|
Consumer
|
|
15,984
|
|
23,669
|
|
21,661
|
|
Total
loans
|
|
2,175,908
|
|
2,055,693
|
|
2,039,016
|
|
Unearned
Income
|
|
(5,276
|
)
|
(4,164
|
)
|
(4,688
|
)
|
Gross
loans, net of unearned income
|
|
2,170,632
|
|
2,051,529
|
|
2,034,328
|
|
Allowance
for losses on loans
|
|
(54,735
|
)
|
(29,437
|
)
|
(25,950
|
)
|
Net
loans
|
|
$
|
2,115,897
|
|
$
|
2,022,092
|
|
$
|
2,008,378
|
|
|
|
|
|
|
|
|
|
Covered
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
494
|
|
$
|
|
|
$
|
|
|
Real
estate secured
|
|
206,770
|
|
|
|
|
|
Commercial
and industrial
|
|
66,829
|
|
|
|
|
|
Consumer
|
|
627
|
|
|
|
|
|
Total
loans
|
|
$
|
274,720
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Total
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
45,080
|
|
$
|
43,180
|
|
$
|
43,161
|
|
Real
estate secured
|
|
1,973,198
|
|
1,599,627
|
|
1,566,813
|
|
Commercial
and industrial
|
|
415,739
|
|
389,217
|
|
407,381
|
|
Consumer
|
|
16,611
|
|
23,669
|
|
21,661
|
|
Total
loans
|
|
2,450,628
|
|
2,055,693
|
|
2,039,016
|
|
Unearned
Income
|
|
(5,276
|
)
|
(4,164
|
)
|
(4,688
|
)
|
Gross
loans, net of unearned income
|
|
2,445,352
|
|
2,051,529
|
|
2,034,328
|
|
Allowance
for losses on loans
|
|
(54,735
|
)
|
(29,437
|
)
|
(25,950
|
)
|
Net
loans
|
|
$
|
2,390,617
|
|
$
|
2,022,092
|
|
$
|
2,008,378
|
|
12
Table
of Contents
I
n accordance with ASC 310-30 (formerly AICPA
Statement of Position
SOP
03-3,
Accounting for Certain Loans or Debt
Securities Acquired in a Transfer
)
,
the covered loans were divided into SOP
03-3 Loans and Non-SOP 03-3 Loans, of which SOP 03-3 loans are loans with
evidence of deterioration of credit quality and that it was probable, at the
time of acquisition, that the Bank
will be unable to collect all contractually required payments receivable. In
contrast, Non-SOP 03-3 loans are
all other covered loans that do
not qualify as SOP 03-3 loans. In addition, the covered loans are further
categorized into four different
loan pools by loan type: construction, commercial & industrial, real estate secured, and consumer. The
covered loans at the acquisition date of June 26, 2009 are presented in the following table:
|
|
SOP 03-3 Loans
|
|
Non SOP 03-3 Loans
|
|
Total Covered Loans
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
494
|
|
$
|
|
|
$
|
494
|
|
Real estate secured
|
|
28,245
|
|
176,941
|
|
205,186
|
|
Commercial and industrial
|
|
4,458
|
|
74,639
|
|
79,097
|
|
Consumer
|
|
115
|
|
793
|
|
908
|
|
|
|
$
|
33,312
|
|
$
|
252,373
|
|
$
|
285,685
|
|
The
following table represents the non SOP 03-3 loans receivable at the acquisition
date of June 26, 2009. The amounts include principal only and do not
reflect accrued interest as of the date of acquisition or beyond.
|
|
(In thousands)
|
|
Gross
contractual loan principal payment receivable
|
|
$
|
280,454
|
|
Fair
value adjustment
|
|
(28,081
|
)
|
Fair
value of Non SOP 03-3
|
|
$
|
252,373
|
|
The
Company applied the cost recovery method to loans subject to ASC 310-30 at the
acquisition date of June 26, 2009 due to the uncertainty as to the timing
of expected cash flows as reflected in the following table.
|
|
(In thousands)
|
|
Gross
contractual loan principal payment receivable
|
|
$
|
280,454
|
|
Estimate
of contractual principal not expected to be collected
|
|
(28,081
|
)
|
Fair
value of Non SOP 03-3
|
|
$
|
252,373
|
|
Changes
in the carrying amount of loans subject to ASC 310-30 were as follows for the
quarter ended September 30, 2009:
|
|
(In thousands)
|
|
Carrying
amount at the beginning of the period
|
|
$
|
32,189
|
|
Reductions
during the period
|
|
(994
|
)
|
Carrying
amount at the end of the period
|
|
$
|
31,195
|
|
Loans
held for sale were $30.0 million, $18.4 million, and $10.2 million at September 30,
2009, December 31, 2008, and September 30, 2008, respectively.
13
Table
of Contents
The
table below summarizes for the periods indicated, 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Allowance
for losses on loans:
|
|
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
38,758
|
|
$
|
23,494
|
|
$
|
29,437
|
|
$
|
21,579
|
|
Actual
charge-offs:
|
|
|
|
|
|
|
|
|
|
Real
estate secured
|
|
1,888
|
|
204
|
|
2,736
|
|
247
|
|
Commercial
and industrial
|
|
6,134
|
|
1,106
|
|
14,703
|
|
3,487
|
|
Consumer
|
|
191
|
|
203
|
|
649
|
|
807
|
|
Total
charge-offs
*
|
|
8,213
|
|
1,513
|
|
18,088
|
|
4,541
|
|
Recoveries on loans previously charged off:
|
|
|
|
|
|
|
|
|
|
Real
estate secured
|
|
2
|
|
38
|
|
3
|
|
38
|
|
Commercial
and industrial
|
|
189
|
|
74
|
|
495
|
|
1,758
|
|
Consumer
|
|
33
|
|
62
|
|
100
|
|
153
|
|
Total
recoveries
|
|
224
|
|
174
|
|
598
|
|
1,949
|
|
Net
loan charge-offs
|
|
7,989
|
|
1,339
|
|
17,490
|
|
2,592
|
|
Provision for losses on loans
┼
|
|
23,966
|
|
3,795
|
|
42,788
|
|
6,963
|
|
Balances at end of period
|
|
$
|
54,735
|
|
$
|
25,950
|
|
$
|
54,735
|
|
$
|
25,950
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on loan commitments:
|
|
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
1,221
|
|
$
|
1,630
|
|
$
|
1,243
|
|
$
|
1,998
|
|
Provision
(credit) for losses on loan commitments
|
|
234
|
|
(395
|
)
|
212
|
|
(763
|
)
|
Balances at end of period
|
|
$
|
1,455
|
|
$
|
1,235
|
|
$
|
1,455
|
|
$
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
Net
loan charge-offs to average total loans
|
|
0.33
|
%
|
0.07
|
%
|
0.80
|
%
|
0.13
|
%
|
Allowance
for losses on loans to total loans at period-end
|
|
2.24
|
%
|
1.28
|
%
|
2.24
|
%
|
1.28
|
%
|
Net
loan charge-offs to allowance for losses on loans at period-end
|
|
14.60
|
%
|
5.16
|
%
|
31.95
|
%
|
9.99
|
%
|
Net
loan charge-offs to provision for losses on loans and loan commitments
|
|
33.02
|
%
|
39.40
|
%
|
40.67
|
%
|
41.81
|
%
|
*
Charge-off amount include net charge-offs
of covered loans amounting to $529 thousand, which represents gross covered
loan charge-offs of $1.9 million less FDIC receivable portion of $1.4 million.
┼
The
provision amount includes net provisions for covered loans amounting to $529
thousand which represents gross covered loan provision of $1.9 million less
FDIC receivable portion of $1.4 million.
The
table below summarizes for the end of the periods indicated, the balance of our
allowance for losses on loans and the percent of such loan balances for each
loan type:
|
|
Distribution and Percentage Composition of Allowance
for Loan Losses
|
|
|
|
(dollars in thousands)
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
|
|
Reserve Amount
|
|
Total Loans
|
|
(%)
|
|
Reserve Amount
|
|
Total Loans
|
|
(%)
|
|
Applicable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
281
|
|
$
|
45,080
|
|
0.62
|
%
|
$
|
190
|
|
$
|
43,180
|
|
0.44
|
%
|
Real
estate secured
|
|
29,206
|
|
1,973,198
|
|
1.48
|
%
|
11,628
|
|
1,599,627
|
|
0.73
|
%
|
Commercial
and industrial
|
|
25,032
|
|
415,739
|
|
6.02
|
%
|
17,209
|
|
389,217
|
|
4.44
|
%
|
Consumer
|
|
216
|
|
16,611
|
|
1.30
|
%
|
410
|
|
23,669
|
|
1.73
|
%
|
Total
allowance
|
|
$
|
54,735
|
|
$
|
2,450,628
|
|
2.24
|
%
|
$
|
29,437
|
|
$
|
2,055,693
|
|
1.43
|
%
|
The allowance for loan losses is comprised of specific
loss allowances for impaired loans and general loan loss allowances based on
quantitative and qualitative analyses.
A loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. At
September 30, 2009, our recorded impaired loans totaled $137.1 million, of
which $73.2 million had specific reserves of $15.9 million. At December 31,
2008, our recorded impaired loans totaled $28.0 million, of which $16.1 million
had specific reserves of $6.2 million.
14
Table
of Contents
On a
quarterly basis, we utilize a classification migration model and individual
loan impairment 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 loss history to determine historical losses by
classification category for each loan type, except for 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 a 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.
Note
7. Shareholders Equity
(Loss)/Earnings per Share
Basic
earnings per share (EPS) excludes dilution and is calculated 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 Company. The following table
provides the basic and diluted EPS computations for the periods indicated
below:
|
|
Three months ended
|
|
Nine months ended
|
|
|
|
September 30,
|
|
September 30,
|
|
(dollars in thousands, except
per share data)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to common shareholders
|
|
$
|
(1,657
|
)
|
$
|
6,868
|
|
$
|
13,330
|
|
$
|
21,347
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
29,413,757
|
|
29,397,182
|
|
29,413,757
|
|
29,355,231
|
|
Effect of dilutive stock option
|
|
|
|
111,321
|
|
7,989
|
|
46,981
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Dilutive weighted-average shares outstanding
|
|
29,413,757
|
|
29,508,503
|
|
29,422,528
|
|
29,402,212
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share
|
|
$
|
(0.06
|
)
|
$
|
0.23
|
|
$
|
0.45
|
|
$
|
0.73
|
|
Diluted (loss) earnings per share
|
|
$
|
(0.06
|
)
|
$
|
0.23
|
|
$
|
0.45
|
|
$
|
0.73
|
|
Note
8
. Business Segment Information
The
following disclosure about segments of the Company is made in accordance with
the requirements of ASC 280 (formerly SFAS No. 131,
Disclosures about Segments of an Enterprise and Related
Information)
. The Company
segregates its operations into three primary segments: banking operations, SBA lending services and
trade finance
department
(TFD). 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.
15
Table
of Contents
The following are the
results of operations of the Companys segments for the periods indicated
below:
|
|
Three Months Ended September 30, 2009
|
|
Three Months Ended September 30, 2008
|
|
(dollars in thousands)
|
|
Banking
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Business Segment
|
|
Operations
|
|
TFD
|
|
SBA
|
|
Company
|
|
Operations
|
|
TFD
|
|
SBA
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
25,904
|
|
$
|
467
|
|
$
|
3,042
|
|
$
|
29,413
|
|
$
|
18,116
|
|
$
|
577
|
|
$
|
2,721
|
|
$
|
21,414
|
|
Less provision (recapture) for credit losses
|
|
18,021
|
|
3,999
|
|
2,180
|
|
24,200
|
|
2,239
|
|
595
|
|
566
|
|
3,400
|
|
Non-interest (loss) income
|
|
5,158
|
|
(86
|
)
|
2,328
|
|
7,400
|
|
4,070
|
|
312
|
|
963
|
|
5,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue (loss)
|
|
13,041
|
|
(3,618
|
)
|
3,190
|
|
12,613
|
|
19,947
|
|
294
|
|
3,118
|
|
23,359
|
|
Non-interest expenses
|
|
14,128
|
|
118
|
|
575
|
|
14,821
|
|
11,148
|
|
293
|
|
866
|
|
12,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(1,087
|
)
|
$
|
(3,736
|
)
|
$
|
2,615
|
|
$
|
(2,208
|
)
|
$
|
8,799
|
|
$
|
1
|
|
$
|
2,252
|
|
$
|
11,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment assets
|
|
$
|
3,136,284
|
|
$
|
51,205
|
|
$
|
190,074
|
|
$
|
3,377,563
|
|
$
|
2,181,042
|
|
$
|
49,825
|
|
$
|
156,268
|
|
$
|
2,387,135
|
|
|
|
Nine Months Ended September 30, 2009
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Banking
|
|
|
|
|
|
|
|
Banking
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
Operations
|
|
TFD
|
|
SBA
|
|
Company
|
|
Operations
|
|
TFD
|
|
SBA
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
61,172
|
|
$
|
1,327
|
|
$
|
7,559
|
|
$
|
70,058
|
|
$
|
50,725
|
|
$
|
1,714
|
|
$
|
9,052
|
|
$
|
61,491
|
|
Less provision (recapture) for loan losses
|
|
31,074
|
|
6,761
|
|
5,165
|
|
43,000
|
|
2,819
|
|
(692
|
)
|
4,073
|
|
6,200
|
|
Non-interest (loss) income
|
|
35,024
|
|
841
|
|
3,862
|
|
39,727
|
|
11,519
|
|
853
|
|
3,733
|
|
16,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue (loss)
|
|
65,122
|
|
(4,593
|
)
|
6,256
|
|
66,785
|
|
59,425
|
|
3,259
|
|
8,712
|
|
71,396
|
|
Non-interest expenses
|
|
38,247
|
|
1,064
|
|
1,573
|
|
40,884
|
|
33,541
|
|
801
|
|
2,743
|
|
37,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
26,875
|
|
$
|
(5,657
|
)
|
$
|
4,683
|
|
$
|
25,901
|
|
$
|
25,884
|
|
$
|
2,458
|
|
$
|
5,969
|
|
$
|
34,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment assets
|
|
$
|
3,136,284
|
|
$
|
51,205
|
|
$
|
190,074
|
|
$
|
3,377,563
|
|
$
|
2,181,042
|
|
$
|
49,825
|
|
$
|
156,268
|
|
$
|
2,387,135
|
|
Note
9
. 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. The types of collateral that we hold varies,
but may include accounts receivable,
inventory, property, plant, and
equipment and income-producing properties.
Commitments at September 30,
2009 are summarized as follows:
(dollars in thousands)
|
|
September 30,
2009
|
|
December 31,
2008
|
|
|
|
|
|
|
|
Commitments to extend
credit
|
|
$
|
219,901
|
|
$
|
153,441
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
12,952
|
|
12,700
|
|
|
|
|
|
|
|
Commercial letters of
credit
|
|
13,298
|
|
15,133
|
|
|
|
|
|
|
|
|
|
16
Table
of Contents
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
10
.
Recent Accounting Pronouncements
In December 2008, the FASB issued ASC 715-20
(formerly 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. ASC 715-20 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 ASC 715-20 will have on our consolidated financial statements.
In April 2009, the FASB issued ASC 820-10-65-4
(formerly 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 ASC
820,
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
, did 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 ASC
820-10-65-4 includes guidance on identifying circumstances that indicate a
transaction is not orderly. We adopted ASC 820-10-65-4 in the second quarter of
2009 and the adoption did not have a material impact on our consolidated
financial statements.
In April 2009, the FASB issued ASC 320-10 (Formerly
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 ASC 320-10 does not amend existing recognition and
measurement guidance related to OTTI of equity securities. This issuance also
requires increased and more timely disclosures sought by investors regarding
expected cash flows, credit losses, and an aging of securities with unrealized
losses. ASC 320-10 is effective for interim and annual reporting periods ending
after June 15, 2009. The adoption of ASC 320-10 did not have a material
impact on our consolidated financial statements.
In April 2009, the FASB issued ASC Topic 825
(formerly FSP SFAS No. 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments)
,
which 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 ASC 825 also amends APB Opinion No. 28,
Interim Financial Reporting
, to
require those disclosures in summarized financial information at interim
reporting periods. ASC Topic 825 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 ASC Topic 825. However,
this does not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, Topic 825
requires comparative disclosures only for periods ending after initial
adoption. The adoption of ASC Topic 825 did not have a material impact on our
consolidated financial statements.
In May 2009,
the FASB issued new authoritative guidance under ASC Topic 855 (formerly
Statement No. 165) Subsequent Events,
to establish general
standards of accounting for and disclosures of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued.
ASC
Topic 855 is to be applied to the accounting for and disclosure of
subsequent events, and is applied to both interim and annual financial
statements. This statement does not apply to subsequent events or transactions
that are within the scope of other applicable GAAP that provide different
guidance on the accounting treatment for subsequent events or transactions. ASC Topic 855 is
effective for interim or annual financial periods ending after June 15, 2009. Events
that occurred subsequent to September 30, 2009 have been evaluated by the
Companys management in accordance with ASC 855 through the time of filing this
report on November 9, 2009. The
adoption of ASC Topic
855 did not have a material impact on our consolidated financial
statements.
17
Table
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In June 2009,
the FASB issued new authoritative guidance under ASC Topic 860 (formerly
Statement No. 166) Transfers and Servicing.
This statement is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position,
financial performance and cash flows; and a transferors continuing
involvement, if any, in transferred financial assets. ASC Topic 860 addresses (1) practices
that have developed since the issuance of SFAS No. 140 that are not
consistent with the original intent and key requirements of that statement, and
(2) concerns of financial statement users that many of the financial
assets (and related obligations) that have been derecognized should continue to
be reported in the financial statements of transferors. ASC Topic 860 is
effective at the beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim periods within
that first annual reporting period, and for interim and annual periods
thereafter. Early adoption is prohibited. This statement must be applied to
transfers occurring on or after the effective date. However, the disclosure
provisions of this statement should be applied to transfers that occurred both
before and after the effective date. Additionally, on and after the effective
date, the concept of qualifying special-purpose entity (SPE) is no longer
relevant for accounting purposes. Therefore, formerly qualifying SPEs, as
defined under previous accounting standards, should be evaluated for
consolidation by reporting entities on and after the effective date in
accordance with the applicable consolidation guidance. We are in the process of
evaluating the impact that the adoption of ASC Topic 860 will have on our
consolidated financial statements.
In June 2009, the FASB issued new authoritative
guidance under SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS 167). Under FASBs Codification at ASC 105-10-65-1d, SFAS 167 will
remain authoritative until integrated into the FASB Codification. SFAS 167
amends FIN 46 (Revised December 2003), Consolidation of Variable
Interest Entities, to change how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is
required to consolidate an entity is based on, among other things, an entitys
purpose and design and a companys ability to direct the activities of the
entity that most significantly impact the entitys economic performance. SFAS
167 requires additional disclosures about the reporting entitys involvement
with variable-interest entities and any significant changes in risk exposure
due to that involvement as well as its affect on the entitys financial
statements. SFAS 167 will be effective January 1, 2010 and w
e are in the process of evaluating the
impact that the adoption of SFAS No. 166 will have on our consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles,
a replacement of SFAS No. 162, which
is now codified in FASB ASC 105,
The Hierarchy
of Generally Accepted Accounting Principles
. The FASB Accounting
Standards Codification (Codification) will become the source of authoritative
U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this statement, the Codification will
supersede all then-existing non-SEC accounting and reporting standards. All
other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative.
ASC 105 is effective for interim and annual financial statements issued
after September 15, 2009. The
adoption of ASC 105 did not have a material impact on our consolidated
financial statements.
In August 2009, the FASB issued Accounting
Standards Update (ASU) 2009-05
Fair Value
Measurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value
(ASU 2009-05) which provides guidance on measuring the fair value of
liabilities under FASB ASC 820,
Fair Value
Measurements and Disclosures
(ASC 820). ASU 2009-05 clarifies that
the unadjusted quoted price for an identical liability, when traded as an asset
in an active market is a Level 1 measurement for the liability and provides
guidance on the valuation techniques to estimate fair value of a liability in
the absence of a Level 1 measurement. ASU 2009-05 is effective for the first
interim or annual reporting period beginning after its issuance. The adoption
of ASU 2009-05 did not have a material effect on our consolidated financial
statements.
In September 2009, ASU 2009-12, Fair Value
Measurements and Disclosures (Topic 820) - Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent),was issued. The issuance allows a company to measure the
fair value of an investment that has no readily determinable fair market value
on the basis of the investees net asset value per share as provided by the
investee. This allowance assumes that the investee has calculated net asset
value in accordance with the GAAP measurement principles of Topic 946 as of the
reporting entitys measurement date. Examples of such investments
include investments in hedge funds, private equity funds, real estate funds and
venture capital funds. The update also provides guidance on how the investment
should be classified within the fair value hierarchy based on the value for
which the investment can be redeemed. The amendment is effective for
interim and annual periods ending after December 15, 2009 with early
adoption permitted. The Company does not have investments in such
entities and, consequently, there will be no impact to our financial
statements.
18
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 and nine months ended September 30, 2009 and 2008, financial
condition as of September 30, 200
9 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
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.
·
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.
20
Table
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·
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.
·
Our failure to meet the challenges
involved in successfully integrating the acquired Mirae assets with ours
or otherwise to realize any of the anticipated benefits of the acquisition
could harm the results of operations of our combined organization. The integration of the business of two
banks can be a complex, time-consuming and expensive process that, without
proper planning and implementation, could disrupt our business. The challenges involved in this integration
include the following:
·
Demonstrating to the customers
of Mirae and the customers of Wilshire State Bank that
the acquisition will not result in adverse changes in client service
standards or business focus and helping customers conduct business easily with
the combined banks;
·
Consolidating and rationalizing corporate
information technology and administrative infrastructures;
·
Coordinating sales and marketing efforts
and strategies to effectively communicate the capabilities of the
combined organization, especially to former Mirae customers;
·
Persuading employees that the business
cultures of Wilshire State Bank and the former Mirae are
compatible, maintaining employee morale and retaining key employees; and
·
Managing a complex integration process.
·
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.
21
Table
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Acquisition
On June 26,
2009, we acquired the banking operations of Mirae from the FDIC. We acquired approximately $395.6 million of
assets and assumed $374.0 million of liabilities. We also entered into loss
sharing agreements with the FDIC in connection with the Mirae acquisition. Under the loss sharing agreements, the FDIC
will share in the losses on assets covered under the agreements, which
generally include loans acquired from Mirae and foreclosed loan collateral
existing at June 26, 2009. With
respect to losses of up to $83.0 million on the covered assets, the FDIC has
agreed to reimburse us for 80 percent of the losses. On losses exceeding
$83.0 million, the FDIC has agreed to reimburse us for 95 percent of the
losses. The loss sharing agreements are subject to our compliance
with servicing procedures and satisfying certain other conditions specified in
the agreements with the FDIC. The
term for the FDICs loss sharing on
single family loans
is ten years, and the term for loss sharing
on non-
single family loans
is five years for losses and eight years for loss recoveries.
The
Mirae acquisition was accounted for under the purchase method of accounting in
accordance to ASC 805 (formerly SFAS No. 1
41
R). The Company recorded a SFAS No. 141R
bargain
purchase
gain totaling
$21.7 million resulting from the acquisition, which is a component of
noninterest income on our statement of income. The amount of the gain is equal
to the amount by which the fair value of assets purchased exceeded the fair
value of liabilities assumed (see note 3 of our Consolidated Financial
Statements).
22
Table
of Contents
Selected Financial Data
The following table presents selected historical
financial information as of September 30, 2009, December 31, 2008,
and September 30, 2008 and for the three and nine months ended September 30,
200
9
and 2008. In the opinion of 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.
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
(Loss)/Net
income available to common shareholders
|
|
$
|
(1,657
|
)
|
$
|
6,868
|
|
$
|
13,330
|
|
$
|
21,347
|
|
Net
(loss) income per common share, basic
|
|
(0.06
|
)
|
0.23
|
|
0.45
|
|
0.73
|
|
Net
(loss) income per common share, diluted
|
|
(0.06
|
)
|
0.23
|
|
0.45
|
|
0.73
|
|
Net
interest income before provision for loan losses and off-balance sheet
commitments
|
|
29,413
|
|
21,414
|
|
70,058
|
|
61,491
|
|
|
|
|
|
|
|
|
|
|
|
Average balances:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
3,298,238
|
|
2,381,999
|
|
2,840,993
|
|
2,299,152
|
|
Cash
and cash equivalents
|
|
262,321
|
|
79,748
|
|
189,314
|
|
77,218
|
|
Investment
securities
|
|
488,704
|
|
228,825
|
|
367,260
|
|
226,727
|
|
Net
loans
|
|
2,393,513
|
|
1,979,435
|
|
2,162,801
|
|
1,906,985
|
|
Total
deposits
|
|
2,547,303
|
|
1,774,451
|
|
2,129,473
|
|
1,735,283
|
|
Shareholders
equity
|
|
276,770
|
|
186,332
|
|
266,157
|
|
181,222
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
Annualized
return on average assets
|
|
(0.09
|
)%
|
1.15
|
%
|
0.75
|
%
|
1.24
|
%
|
Annualized
return on average equity
|
|
(1.09
|
)%
|
14.74
|
%
|
8.04
|
%
|
15.71
|
%
|
Net
interest margin
|
|
3.87
|
%
|
3.87
|
%
|
3.55
|
%
|
3.82
|
%
|
Efficiency
ratio
|
|
40.26
|
%
|
45.99
|
%
|
37.24
|
%
|
47.79
|
%
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
Tier
1 capital to adjusted total assets
|
|
10.03
|
%
|
10.19
|
%
|
|
|
|
|
Tier
1 capital to risk-weighted assets
|
|
14.29
|
%
|
11.68
|
%
|
|
|
|
|
Total
capital to risk-weighted assets
|
|
15.82
|
%
|
14.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2009
|
|
December 31,
2008
|
|
September
30, 2008
|
|
|
|
Period-end balances as of:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,377,563
|
|
$
|
2,450,011
|
|
$
|
2,387,135
|
|
|
|
Investment
securities
|
|
559,718
|
|
229,275
|
|
228,100
|
|
|
|
Total
loans, net of unearned income and allowance for loan losses
|
|
2,445,352
|
|
2,051,528
|
|
2,034,328
|
|
|
|
Total
deposits
|
|
2,672,102
|
|
1,812,601
|
|
1,787,763
|
|
|
|
Junior
subordinated debentures
|
|
87,321
|
|
87,321
|
|
87,321
|
|
|
|
FHLB
borrowings
|
|
322,000
|
|
260,000
|
|
300,000
|
|
|
|
Shareholders
equity
|
|
272,487
|
|
255,060
|
|
187,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
(net of SBA guaranteed portion)
|
|
|
|
|
|
|
|
|
|
Net
charge-off to average total loans for the quarter
|
|
0.33
|
%
|
2.60
|
%
|
0.07
|
%
|
|
|
Non-performing
loans to total loans
|
|
3.20
|
%
|
0.76
|
%
|
0.67
|
%
|
|
|
Non-performing
assets to total loans and other real estate owned
|
|
6.15
|
%
|
0.89
|
%
|
0.75
|
%
|
|
|
Allowance
for loan losses to total loans
|
|
2.24
|
%
|
1.43
|
%
|
1.28
|
%
|
|
|
Allowance
for loan losses to non-performing loans
|
|
70.02
|
%
|
189.27
|
%
|
189.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Table
of Contents
Executive
Overview
We
operate a community bank engaged in the 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.
Pursuant to
the acquisition on June 26, 2009, five commercial banking branches,
operated by Mirae and located within the southern California, were integrated
into our branch network following the acquisition. In the third quarter an additional branch in
Fort Worth, Texas was also opened. In
addition, we also have five loan
production offices in Aurora, Colorado
(the Denver area); Atlanta, Georgia; Dallas, Texas; Houston, Texas; and Annandale,
Virginia.
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 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 September 30,
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).
Net
interest income before provision for losses on loans and loan commitments increased
by $8.0 million or 37.4% to $29.4 million in the third quarter of 2009 compared
to $21.4 million in the third quarter of 2008.
Net interest margin of 3.87% in the third quarter of 2009 was unchanged
from the third quarter of 2008. The
increase in net interest income was primarily due to a corresponding increase
in interest income while interest expense decreased slightly.
Interest
income increased by $7.5 million, or 20.0%, to $45.1 million in third quarter
of 2009 compared to $37.6 million in the third quarter of 2008. The increase in interest income was primarily
due to higher average balances in our loan portfolio and in our US government
agency securities portfolio, and the accretion of discounted loans. Average loan balances increased by $414.1
million to $2.4 billion in the third quarter of 2009, compared to
24
Table
of Contents
$2.0 billion in the third quarter of 2008. This increase was primarily due to loans
acquired from the Mirae on June 26, 2009.
Average balances in our US government agency securities increased by
$235.7 million to $450.1 million in the third quarter of 2009 compared to $214.4
million in the third quarter of 2008.
Increases in the aforementioned average balances compensated for a 44
basis point decrease in average yield in our loan portfolio and a 95 basis
point decrease in average yield in our US government agency securities
portfolio. The decrease in the weighted
average yields on our interest earning assets is consistent with the reduction
of 175 basis points in the federal funds rate during the fourth quarter of
2008.
Interest
expense decreased by $471,000, or 2.9%, to $15.7 million in the third quarter
of 2009 compared to $16.2 million in the third quarter of 2008. The average balances of our interest bearing
liabilities increased by $755.8 million to $2.6 billion in the third quarter of
2009 compared to $1.9 billion in the third quarter of 2008. This increase in average balances was offset
by a 107 basis point reduction in the weighted average yield which is
consistent with the reduction of 175 basis points in the federal funds rate
during the fourth quarter of 2008.
Net
interest income before provision for losses on loans and loan commitments
increased by $8.6 million, or 13.9%, to $70.1 million in the first nine months
of 2009 compared to $61.5 million in the same period a year earlier. Net interest margin decreased by 28 basis
points to 3.55% in the first nine months of 2009 compared to 3.83% in the same
period a year earlier. The increase in
net interest income was primarily due to a corresponding decrease in interest
expense while interest income increased slightly.
Interest
expense decreased by $7.1 million, or 13.9%, to $43.7 million in the first nine
months of 2009 compared to $50.7 million in the same period a year
earlier. The decrease in interest
expense was due to a reduction of 118 basis points in the weighted average
yield of our interest bearing liabilities.
The decrease in the weighted average yield was due to repricing of the
related interest bearing deposits at lower rates, which offset an increase of
$450.0 million in the related average balances.
Interest
income rose slightly by $1.5 million, or 1.4 %, to $113.7 million in the first
nine months of 2009 compared to $112.2 million in the same period a year
earlier. While average balances
increased by $506.6 million to $2.7 billion in the first nine months of 2009
compared to $2.1 billion in the same period a year earlier, the weighted
average yield decreased by 124 basis points, which is consistent with the
reduction of 175 basis points in the federal funds rate during the fourth
quarter of 2008.
25
Table
of Contents
The following table sets
forth, for the periods indicated, our average balances of assets, liabilities
and shareholders equity, in addition to the major components of net interest
income and net interest margin:
Distribution, Yield and Rate Analysis of Net
Interest Income
(dollars in thousands)
|
|
For the Quarter Ended September 30,
|
|
|
|
2009
|
|
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)
|
|
$
|
2,393,513
|
|
$
|
39,388
|
|
6.58%
|
|
$
|
1,979,435
|
|
$
|
34,719
|
|
7.02%
|
|
Investment
securities government sponsored agencies
|
|
450,116
|
|
4,460
|
|
3.96%
|
|
214,400
|
|
2,629
|
|
4.91%
|
|
Other
investment securities
(2)
|
|
38,588
|
|
416
|
|
6.47%
|
|
14,425
|
|
169
|
|
4.69%
|
|
Interest
on federal funds sold
|
|
180,490
|
|
844
|
|
1.87%
|
|
11,485
|
|
63
|
|
2.19%
|
|
Total
interest-earning assets
|
|
3,062,707
|
|
45,108
|
|
5.92%
|
|
2,219,745
|
|
37,580
|
|
6.77%
|
|
Cash
and due from banks
|
|
81,831
|
|
|
|
|
|
68,263
|
|
|
|
|
|
Other
assets
|
|
153,700
|
|
|
|
|
|
93,991
|
|
|
|
|
|
Total
assets
|
|
$
|
3,298,238
|
|
|
|
|
|
$
|
2,381,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposits
|
|
$
|
677,234
|
|
$
|
4,075
|
|
2.41%
|
|
$
|
439,080
|
|
$
|
3,520
|
|
3.21%
|
|
Super
NOW deposits
|
|
21,481
|
|
50
|
|
0.93%
|
|
21,144
|
|
72
|
|
1.36%
|
|
Savings
deposits
|
|
62,090
|
|
527
|
|
3.39%
|
|
41,273
|
|
359
|
|
3.48%
|
|
Time
certificates of deposit in denominations of $100,000 or more
|
|
984,521
|
|
5,611
|
|
2.28%
|
|
770,812
|
|
6,702
|
|
3.48%
|
|
Other
time deposits
|
|
427,234
|
|
2,731
|
|
2.56%
|
|
197,044
|
|
1,816
|
|
3.69%
|
|
FHLB
advances and other borrowings
|
|
362,208
|
|
1,982
|
|
2.19%
|
|
309,576
|
|
2,570
|
|
3.32%
|
|
Junior
subordinated debenture
|
|
87,321
|
|
719
|
|
3.30%
|
|
87,321
|
|
1,127
|
|
5.16%
|
|
Total
interest-bearing liabilities
|
|
2,622,089
|
|
15,695
|
|
2.40%
|
|
1,866,250
|
|
16,166
|
|
3.46%
|
|
Non-interest-bearing
deposits
|
|
374,743
|
|
|
|
|
|
305,098
|
|
|
|
|
|
Total
deposits and other borrowings
|
|
2,996,832
|
|
|
|
|
|
2,171,348
|
|
|
|
|
|
Other
liabilities
|
|
24,636
|
|
|
|
|
|
24,319
|
|
|
|
|
|
Shareholders
equity
|
|
276,770
|
|
|
|
|
|
186,332
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
3,298,238
|
|
|
|
|
|
$
|
2,381,999
|
|
|
|
|
|
Net
interest income
|
|
|
|
$
|
29,413
|
|
|
|
|
|
$
|
21,414
|
|
|
|
Net
interest spread
(3)
|
|
|
|
|
|
3.52%
|
|
|
|
|
|
3.31%
|
|
Net
interest margin
(4)
|
|
|
|
|
|
3.87%
|
|
|
|
|
|
3.87%
|
|
(1)
Net loan fees have been included in the
calculation of interest income. Loan fees were approximately $918,000 and $912,000 for the quarters ended September 30,
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 $209,000 and $39,000 for the
three months ended September 30, 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.
26
Table
of Contents
Distribution, Yield and Rate Analysis of Net
Interest Income
(dollars in thousands)
|
|
For the Nine Months Ended September 30,
|
|
|
|
2009
|
|
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)
|
|
$
|
2,162,801
|
|
$
|
100,818
|
|
6.22%
|
|
$
|
1,906,985
|
|
$
|
104,014
|
|
7.27%
|
|
Investment
securities government sponsored agencies
|
|
334,474
|
|
9,938
|
|
3.96%
|
|
210,905
|
|
7,475
|
|
4.73%
|
|
Other
investment securities
(2)
|
|
32,786
|
|
1,073
|
|
6.27%
|
|
15,822
|
|
546
|
|
4.60%
|
|
Interest
on federal funds sold
|
|
120,249
|
|
1,910
|
|
2.12%
|
|
9,966
|
|
192
|
|
2.57%
|
|
Total
interest-earning assets
|
|
2,650,310
|
|
113,739
|
|
5.75%
|
|
2,143,678
|
|
112,227
|
|
6.98%
|
|
Cash
and due from banks
|
|
69,065
|
|
|
|
|
|
67,252
|
|
|
|
|
|
Other
assets
|
|
121,618
|
|
|
|
|
|
88,222
|
|
|
|
|
|
Total
assets
|
|
$
|
2,840,993
|
|
|
|
|
|
$
|
2,299,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposits
|
|
$
|
493,160
|
|
$
|
9,181
|
|
2.48%
|
|
$
|
409,726
|
|
$
|
10,243
|
|
3.33%
|
|
Super
NOW deposits
|
|
20,066
|
|
141
|
|
0.94%
|
|
22,062
|
|
227
|
|
1.37%
|
|
Savings
deposits
|
|
51,347
|
|
1,364
|
|
3.54%
|
|
36,646
|
|
907
|
|
3.30%
|
|
Time
certificates of deposit in denominations of $100,000 or more
|
|
972,176
|
|
19,031
|
|
2.61%
|
|
784,790
|
|
23,222
|
|
3.95%
|
|
Other
time deposits
|
|
277,684
|
|
6,235
|
|
2.99%
|
|
178,342
|
|
5,472
|
|
4.09%
|
|
FHLB
advances and other borrowings
|
|
336,944
|
|
5,262
|
|
2.08%
|
|
269,818
|
|
6,969
|
|
3.44%
|
|
Junior
subordinated debenture
|
|
87,321
|
|
2,467
|
|
3.77%
|
|
87,321
|
|
3,696
|
|
5.64%
|
|
Total
interest-bearing liabilities
|
|
2,238,698
|
|
43,681
|
|
2.60%
|
|
1,788,705
|
|
50,736
|
|
3.78%
|
|
Non-interest-bearing
deposits
|
|
315,040
|
|
|
|
|
|
303,717
|
|
|
|
|
|
Total
deposits and other borrowings
|
|
2,553,738
|
|
|
|
|
|
2,092,422
|
|
|
|
|
|
Other
liabilities
|
|
21,098
|
|
|
|
|
|
25,608
|
|
|
|
|
|
Shareholders
equity
|
|
266,157
|
|
|
|
|
|
181,122
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
2,840,993
|
|
|
|
|
|
$
|
2,299,152
|
|
|
|
|
|
Net
interest income
|
|
|
|
$
|
70,058
|
|
|
|
|
|
$
|
61,491
|
|
|
|
Net
interest spread
(3)
|
|
|
|
|
|
3.15%
|
|
|
|
|
|
3.20%
|
|
Net
interest margin
(4)
|
|
|
|
|
|
3.55%
|
|
|
|
|
|
3.82%
|
|
(1)
Net loan fees have been included in the calculation of interest income. Loan
fees were approximately $2,010,000 and $3,381,000 for the nine months ended September 30, 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 $469,000 and $122,000 for the
nine months ended September 30, 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.
27
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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009 vs. 2008
|
|
2009 vs. 2008
|
|
|
|
Increase (Decrease) Due to Change In
|
|
Increase (Decrease) Due to Change In
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loans
(1)
|
|
$
|
6,916
|
|
$
|
(2,246
|
)
|
$
|
4,670
|
|
$
|
12,980
|
|
$
|
(16,177
|
)
|
$
|
(3,197
|
)
|
Securities
of U.S. government agencies
|
|
2,418
|
|
(587
|
)
|
1,831
|
|
3,825
|
|
(1,362
|
)
|
2,463
|
|
Other
investment securities
|
|
262
|
|
(15
|
)
|
247
|
|
556
|
|
(29
|
)
|
527
|
|
Interest
on federal fund sold
|
|
791
|
|
(10
|
)
|
781
|
|
1,757
|
|
(39
|
)
|
1,718
|
|
Total
interest income
|
|
10,387
|
|
(2,858
|
)
|
7,529
|
|
19,118
|
|
(17,607
|
)
|
1,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market deposits
|
|
1,583
|
|
(1,028
|
)
|
555
|
|
1,849
|
|
(2,911
|
)
|
(1,062
|
)
|
Super
NOW deposits
|
|
1
|
|
(23
|
)
|
(22
|
)
|
(19
|
)
|
(67
|
)
|
(86
|
)
|
Savings
deposits
|
|
178
|
|
(10
|
)
|
168
|
|
387
|
|
70
|
|
457
|
|
Time
certificates of deposit in denominations of $100,000 or more
|
|
1,573
|
|
(2,664
|
)
|
(1,091
|
)
|
4,768
|
|
(8,959
|
)
|
(4,191
|
)
|
Other
time deposits
|
|
1,606
|
|
(691
|
)
|
915
|
|
2,496
|
|
(1,733
|
)
|
763
|
|
FHLB
advances and other borrowings
|
|
387
|
|
(975
|
)
|
(588
|
)
|
1,469
|
|
(3,177
|
)
|
(1,708
|
)
|
Junior
subordinated debenture
|
|
|
|
(407
|
)
|
(407
|
)
|
|
|
(1,229
|
)
|
(1,229
|
)
|
Total
interest expense
|
|
5,328
|
|
(5,798
|
)
|
(470
|
)
|
10,950
|
|
(18,006
|
)
|
(7,056
|
)
|
Change
in net interest income
|
|
$
|
5,059
|
|
$
|
2,940
|
|
$
|
7,999
|
|
$
|
8,168
|
|
$
|
399
|
|
$
|
8,567
|
|
(1)
Net loan fees have been included in the calculation of interest income. Loan fees were approximately $$918,000 and $1,757,000 for the quarters ended September 30, 2009 and 2008, respectively, and approximately $2,010,000 and $3,381,000 for the nine months ended September 30, 2009 and 2008, respectively. Net loans are net of the allowance for loan
losses, 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 quality in our loan portfolio throughout 2009 because
of the weak economy and the decline in the real estate market. We recorded
a provision for losses on
loans and loan commitments of $24.2 million in the third quarter of 2009, as compared with a provision of $3.4 million for the prior years same quarter. The provision for loan and
off-balance sheet losses in the first nine months of 2009 was $43.0 million, as
compared to $6.2 million in the first nine months of 2008. 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 $24.2 million provision in the third
quarter of 2008 was net of recoveries of $224,000. Our 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. Losses on Mirae loans purchased from the FDIC are partially
reimbursable to us under the loss-sharing agreements with the FDIC.
28
Table
of Contents
Non-interest Income
Total
non-interest income increased to $7.4 million in the third quarter of 200
9, as compared with $5.3 million in the same
quarter a year ago. Non-interest income as a percentage of average
assets was 0.22% for the third quarters of both 2009 and 2008. The increase in
volume of our non-interest income was primarily caused by increases
loan-related services fees and gain on sale of loans.
The
following table sets forth the various components of our non-interest income
for the periods indicated:
Non-interest Income
(dollars in thousands)
|
|
2009
|
|
2008
|
|
For Three Months Ended
September 30,
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Service
charges on deposit accounts
|
|
$
|
3,315
|
|
44.8
|
%
|
$
|
3,125
|
|
58.5
|
%
|
Gain
on sale of loans *
|
|
2,235
|
|
30.2
|
%
|
410
|
|
7.7
|
%
|
Loan-related
servicing fees
|
|
958
|
|
12.9
|
%
|
891
|
|
16.7
|
%
|
Income
from other earning assets
|
|
243
|
|
3.3
|
%
|
398
|
|
7.4
|
%
|
Other
income
|
|
649
|
|
8.8
|
%
|
521
|
|
9.7
|
%
|
Total
|
|
$
|
7,400
|
|
100.0
|
%
|
$
|
5,345
|
|
100.0
|
%
|
Average
assets
|
|
$
|
3,298,238
|
|
|
|
$
|
2,381,999
|
|
|
|
Non-interest
income as a % of average assets
|
|
|
|
0.22
|
%
|
|
|
0.22
|
%
|
|
|
2009
|
|
2008
|
|
For Nine Months Ended
September 30,
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Service
charges on deposit accounts
|
|
$
|
9,338
|
|
23.5
|
%
|
$
|
8,916
|
|
55.4
|
%
|
Gain
on sale of loans
|
|
1,711
|
|
4.3
|
%
|
2,192
|
|
13.6
|
%
|
Loan-related
servicing fees
|
|
2,702
|
|
6.8
|
%
|
2,338
|
|
14.5
|
%
|
Income
from other earning assets
|
|
635
|
|
1.6
|
%
|
1,108
|
|
6.9
|
%
|
Gain
from acquisition of Mirae Bank
|
|
21,679
|
|
54.6
|
%
|
|
|
0.0
|
%
|
Other
income
|
|
3,662
|
|
9.2
|
%
|
1,551
|
|
9.6
|
%
|
Total
|
|
$
|
39,727
|
|
100.0
|
%
|
$
|
16,105
|
|
100.0
|
%
|
Average
assets
|
|
$
|
2,840,993
|
|
|
|
$
|
2,299,152
|
|
|
|
Non-interest
income as a % of average assets
|
|
|
|
1.40
|
%
|
|
|
0.70
|
%
|
*
Figure includes net gain from sale of a covered loan which represents a gain of
$616,000 net of an FDIC indemnification adjustment of $815,000.
Our
largest source of non-interest income in the third quarter of 2009 was service
charges on deposit accounts, which represented about 45% of our total non-interest
income. Service charge income increased to $3.3 million in the third quarter of
2009, as compared with $3.1 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 still maintaining a competitive position.
The
second largest source of non-interest income in the third quarter of 2009 was
gain on sale of loans at $2.2 million, which represented approximately 30% of
our total non-interest income. Gains on
SBA loans sold accounted for $1.6 million and gains resulting from the sales of
non-SBA loans were $622 thousand.
In the
second quarter of 2009, the Bank recorded pre-tax
bargain purchase gain of $21.7 million
in connection with our acquisition of Mirae.
This gain represents about 55% of
our total year to date non-interest income.
Non-interest Expense
Total
noninterest expense increased to $14.8
million in the third quarter of 2009, from $
12.3 million in the same period of 2008. Non-interest expenses as a
percentage of average assets was lowered to 0.45% from 0.52% in the third
quarter of 2009 and 2008, respectively. Our efficiency ratio was 40.3% in the
third quarter of 2009, as compared with 46.0% in the same period a year ago.
29
Table
of Contents
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
September 30,
|
|
2009
|
|
2008
|
|
Salaries
and employee benefits
|
|
$
|
7,120
|
|
48.1
|
%
|
$
|
6,718
|
|
54.6
|
%
|
Occupancy
and equipment
|
|
1,935
|
|
13.1
|
%
|
1,576
|
|
12.8
|
%
|
Data
processing
|
|
1,078
|
|
7.3
|
%
|
785
|
|
6.4
|
%
|
Deposit
insurance premium
|
|
982
|
|
6.6
|
%
|
605
|
|
4.9
|
%
|
Professional
fees
|
|
659
|
|
4.4
|
%
|
376
|
|
3.1
|
%
|
Outsourced
service for customer
|
|
328
|
|
2.2
|
%
|
279
|
|
2.3
|
%
|
Advertising
|
|
308
|
|
2.1
|
%
|
202
|
|
1.6
|
%
|
Office
supplies
|
|
258
|
|
1.7
|
%
|
120
|
|
1.0
|
%
|
Communications
|
|
151
|
|
1.0
|
%
|
242
|
|
2.0
|
%
|
Directors
fees
|
|
103
|
|
0.7
|
%
|
109
|
|
0.9
|
%
|
Investor
relation expenses
|
|
88
|
|
0.6
|
%
|
69
|
|
0.6
|
%
|
Amortization
of investments in affordable housing partnerships
|
|
330
|
|
2.2
|
%
|
225
|
|
1.8
|
%
|
Amortization
of other intangible assets
|
|
239
|
|
1.6
|
%
|
75
|
|
0.6
|
%
|
Other
operating
|
|
1,242
|
|
8.4
|
%
|
926
|
|
7.5
|
%
|
Total
|
|
$
|
14,821
|
|
100.0
|
%
|
$
|
12,307
|
|
100.0
|
%
|
Average
assets
|
|
$
|
3,298,238
|
|
|
|
$
|
2,381,999
|
|
|
|
Non-interest
expenses as a % of average assets
|
|
|
|
0.45
|
%
|
|
|
0.52
|
%
|
For the Nine Months Ended
September 30,
|
|
2009
|
|
2008
|
|
Salaries
and employee benefits
|
|
$
|
19,315
|
|
47.2
|
%
|
$
|
21,349
|
|
57.6
|
%
|
Occupancy
and equipment
|
|
5,294
|
|
13.0
|
%
|
4,493
|
|
12.1
|
%
|
Data
processing
|
|
2,750
|
|
6.7
|
%
|
2,320
|
|
6.3
|
%
|
Deposit
insurance premium
|
|
3,772
|
|
9.2
|
%
|
1,559
|
|
4.2
|
%
|
Professional
fees
|
|
1,576
|
|
3.9
|
%
|
1,218
|
|
3.3
|
%
|
Outsourced
service for customer
|
|
806
|
|
2.0
|
%
|
907
|
|
2.4
|
%
|
Advertising
|
|
901
|
|
2.2
|
%
|
523
|
|
1.4
|
%
|
Office
supplies
|
|
591
|
|
1.5
|
%
|
321
|
|
0.9
|
%
|
Communications
|
|
360
|
|
0.9
|
%
|
594
|
|
1.6
|
%
|
Directors
fees
|
|
294
|
|
0.7
|
%
|
332
|
|
0.9
|
%
|
Investor
relation expenses
|
|
214
|
|
0.5
|
%
|
250
|
|
0.7
|
%
|
Amortization
of investments in affordable housing partnerships
|
|
930
|
|
2.3
|
%
|
574
|
|
1.5
|
%
|
Amortization
of other intangible assets
|
|
387
|
|
0.9
|
%
|
223
|
|
0.6
|
%
|
Other
operating
|
|
3,694
|
|
9.0
|
%
|
2,422
|
|
6.5
|
%
|
Total
|
|
$
|
40,884
|
|
100.0
|
%
|
$
|
37,085
|
|
100.0
|
%
|
Average
assets
|
|
$
|
2,840,993
|
|
|
|
$
|
2,299,152
|
|
|
|
Non-interest
expenses as a % of average assets
|
|
|
|
1.44
|
%
|
|
|
1.61
|
%
|
Salaries
and employee benefits historically represent more than half of
our total non-interest expense and
generally increase as our branch network and business volume expand. These expenses were $7.1 million and $19.3 million in the third
quarter and the first nine months of 2009, respectively, as compared with $6.7 million and $21.3 million for the
prior years same period. The decrease
in the first nine months of 2009 compared to 2008 was the result of our tight control over compensation expense, specifically due to the decrease in
employee benefits
.
Although additional staffing was
necessitated by our third New York office opening in 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 increased to 389 as of September 30, 2009, as compared with 364 as of September 30, 2008. In
addition, our asset growth helped us improve our assets per employee ratio to
$8.7 million at September 30, 2009 from $6.7 million at September 30,
2008.
Occupancy
and equipment expenses represent about 13% of our total non-interest expenses.
These expenses increased to $
1.9 million and $5.3 million in the third quarter and first nine months of
2009, respectively, as compared with $1.6 million and $4.5 million for the same periods a year ago. The increase was primarily attributable to the additional
lease expenses for our business growth in the past 12 months, as our Flushing
branch office opened in March 2009 and we acquired five new California branch offices as a result of the Mirae acquisition in June 2009,
and during the third quarter, four of those branches were closed.
30
Table
of Contents
Data processing expenses increased to $1.1 million and
$2.8 million in the third quarter and first nine months of 2009, respectively,
from $785,000 and $2.3 million for the same periods a year ago. The increase in
data processing corresponded to the growth of our business.
Deposit insurance premium expenses represent The
Financing Corporation (FICO) and FDIC insurance premium assessments. In the
third quarter and first nine month of 2009, these expenses totaled $982,000 and
$3.8 million, respectively, as compared with $605,000 and $1.6 million 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. In addition, in an effort to
improve its liquidity, the FDIC imposed a one-time special assessment of $1.5
million in the second quarter of 2009 which was primarily the reason for substantially
higher expenses in this category for the year.
Professional fees generally increase as we grow. They
increased to $659,000 and $1.6 million in the third quarter and the first nine
months of 2009, respectively, compared to $376,000 and $1.2 million for the
same periods of the prior year. This
increase was primarily due to fees incurred in relation to
our acquisition of Mirae.
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 analysis fee charges from those customers deposit accounts. 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 rose
slightly to $328,000 in the third quarter of 200
9, as compared with $279,000 for the
prior years same period. For the first nine months of 2009, the expenses were
$806,000, as compared to $907,000 for the same period in prior year.
Advertising
and promotional expenses increased to $308,000 and $901,000 in the
third quarter and first nine months of 2009, respectively, as compared with
$202,000 and $523,000 in the same periods a year ago. 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 increases in the current
quarter and first nine months of 2009 were primarily attributable to our
increased advertising spending to promote a branch addition in Flushing, New
York during the first quarter of 2009, and also due to a new branch in Fort
Worth, Texas that opened in the third quarter.
Other
non-interest expenses, such as office supplies, communications, directors
fees, and other miscellaneous expenses, were $2.4 million and $
6.5 million for the third quarter and
the first nine month of 2009, respectively, as compared with $1.8 million and $4.7 million in the same
periods 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 September 30, 2009, we had an income tax benefit of $1.5
million on a pretax net loss of $2.2 million, representing an effective tax
rate of 65.7%, as compared with a provision for income taxes of $4.2 million on
pretax net income of $11.1 million, representing an effective tax rate of 37.9%
for the same quarter in 2008. For the
first nine months of 2009, we made a provision for income taxes of $9.9 million
on pretax net income of $
25.9
million, representing an effective tax rate of 38.0%, as compared with a
provision for income taxes of $13.0 million on pretax net income of $34.3 million, representing an effective
tax rate of 37.8%, for the same
period of 2008.
The
effective tax rate for the three month ending September, 30 2009 was higher
than those for the prior years same
periods, due to a combination of the mitigation of tax effect from the
$21.7 million bargain purchase gain incurred in June 2009 related to the
acquisition of Mirae, and as result of a large increase in low-housing
credits. These factors contributed to a
tax rate decrease in the first nine month of 2009 to 38.0% compared to 40.2%
for the first six month of this year.
31
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 September 30,
2009, our investment portfolio was comprised primarily of United States
government agency securities, which accounted for 92% 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 as a percentage to total
investments, 7.6% investment in municipal debt securities and 0.4% investment
in corporate debt. Among the 8% of our investment portfolio that was not
comprised of U.S. government securities, 89%, or $40.0 million, carry the top
two highest Investment Grade rating of Aaa/AAA or Aa/AA, while 9%, or
$4.2 million, carry an intermediate Investment Grade rating of at least Baa1/BBB+
or above, and 2%, or $622,000 are unrated.
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 September 30,
2009.
We classified our investment securities as held-to-maturity
or available-for-sale pursuant to FASB ASC 320 (formerly 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 third quarter of 2009. The fair market
values of our held-to-maturity and available-for-sale investment securities
were $117 thousand and $559.6 million
, respectively, as of September 30, 2009. We measured and disclosed the fair value of
available-for-sale investment securities pursuant to FASB ASC 820, ASC
820-10-35-15A and ASC 820-10-65-4 (see Note 4).
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) ASC 325 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.
32
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 September 30, 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
|
|
$
|
116
|
|
$
|
117
|
|
$
|
1
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
Total
investment securities held to maturity
|
|
$
|
116
|
|
$
|
117
|
|
$
|
1
|
|
$
|
139
|
|
$
|
135
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities of government sponsored enterprises
|
|
$
|
63,960
|
|
$
|
64,509
|
|
$
|
549
|
|
$
|
25,952
|
|
$
|
26,187
|
|
$
|
235
|
|
Mortgage
backed securities
|
|
321,390
|
|
329,936
|
|
8,546
|
|
124,549
|
|
125,513
|
|
964
|
|
Collateralized
mortgage obligation
|
|
117,070
|
|
120,411
|
|
3,341
|
|
62,557
|
|
63,303
|
|
746
|
|
Corporate
securities
|
|
2,000
|
|
2,024
|
|
24
|
|
7,048
|
|
6,953
|
|
(95
|
)
|
Municipal
securities
|
|
41,560
|
|
42,722
|
|
1,162
|
|
7,323
|
|
7,180
|
|
(143
|
)
|
Total
investment securities available for sale
|
|
$
|
545,980
|
|
$
|
559,602
|
|
$
|
13,622
|
|
$
|
227,429
|
|
$
|
229,136
|
|
$
|
1,707
|
|
The
following table summarizes the maturity and repricing schedule of our
investment securities at their carrying values at September 30, 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
:
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
|
|
$
|
116
|
|
$
|
|
|
$
|
|
|
$
|
116
|
|
Total
investment securities held to maturity
|
|
$
|
|
|
$
|
116
|
|
$
|
|
|
$
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities of government sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
46,315
|
|
$
|
18,194
|
|
$
|
464,509
|
|
Mortgage
backed securities
|
|
7,930
|
|
697
|
|
4,820
|
|
316,489
|
|
329,936
|
|
Collateralized
mortgage obligations
|
|
30,849
|
|
89,562
|
|
|
|
|
|
120,411
|
|
Corporate
securities
|
|
|
|
2,024
|
|
|
|
|
|
2,024
|
|
Municipal
securities
|
|
|
|
300
|
|
|
|
42,422
|
|
42,722
|
|
Total
investment securities available for sale
|
|
$
|
38,779
|
|
$
|
92,583
|
|
$
|
51,135
|
|
$
|
377,105
|
|
$
|
559,602
|
|
Holdings
of investment securities substantially increased to $559.7 million at September 30,
200
9
, as compared
with holdings of $
229.3
million at December 31, 200
8
.
Total investment securities as a percentage of total assets was
16.6
% and
9.4
% at September 30, 2009 and December 31,
200
8
, respectively. As of September 30, 200
9
, investment securities with a carrying value
of $217.8 million were pledged to secure certain deposits.
As of September 30,
200
9, our investment
securities classified as held-to-maturity, which are carried at their amortized
cost, stayed relatively unchanged on a dollar basis at $116,000, as
compared with $139,000 as of December 31, 2008. Our investment securities
classified as available-for-sale, which are stated at their fair market values,
increased to $559.6 million at September 30,
2009 from $229.1 million at December 31, 2008.
33
Table
of Contents
The
following table shows the gross unrealized losses and fair value of our
investments, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at September 30,
200
9 and December 31,
2008:
As of September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Collateralized
mortgage obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
backed securities
|
|
58
|
|
|
|
|
|
|
|
58
|
|
|
|
Corporate
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
10,462
|
|
(209
|
)
|
|
|
|
|
10,462
|
|
(209
|
)
|
|
|
$
|
10,520
|
|
$
|
(209
|
)
|
$
|
|
|
$
|
|
|
$
|
10,520
|
|
$
|
(209
|
)
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 September 30,
200
9, unrealized
losses less than 12 months old were $209,000, and there were no unrealized
losses more than 12 months old. The
aggregate related fair value of investments with unrealized losses less than 12
months old was $10.5 million at September 30,
2009. 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 accordance with guidance from FASB ASC
320-10-65-1 and ASC 958-320
Recognition and
Presentation of Other-Than-Temporary Impairments
, the Company
evaluates whether an event or change in circumstances has occurred that may
have a significant adverse effect on the fair value of the investment (an impairment
indicator). In evaluating an other-than-temporary impairment (OTTI), the Company
utilizes a systematic methodology that includes all documentation of the
factors considered. All available
evidence concerning declines in market values below cost are identified and
evaluated in a disciplined manner by management. The steps taken by the Company in evaluating
OTTI are:
·
The Company first determines whether
impairment has occurred. A security is
considered impaired if its fair value is less than its amortized cost
basis. If a debt security is impaired,
the Company must assess whether it intends to sell the security (i.e., whether
a decision to sell the security has been made). If the Company intends to sell
the security, an OTTI is considered to have occurred.
·
If the Company does not intend to
sell the security (i.e., a decision to sell the security has not been made), it
must assess whether it is more likely than not that it will be required to sell
the security before recovery of the amortized cost basis of the security.
·
Even if the Company does not intend
to sell the security, an OTTI has occurred if the Company does not expect to
recover the entire amortized cost basis (i.e., there is a credit loss). Under this analysis, the Company compares the
present value of the cash flows expected to be collected to the amortized cost
basis of the security.
The Company believes that
impairment exists on securities when their fair value is below amortized cost
but an impairment loss has not occurred due to the following reasons:
·
The Company does not have any intent to sell any of the securities that
are in an unrealized loss position.
34
Table
of Contents
·
It is highly unlikely that the Company will be forced to sell any of
the securities that have an unrealized loss position before recovery. The Companys Asset/Liability Committee
mandated liquidity ratios are well above the minimum targets and secondary
sources of liquidity such as borrowings lines, brokered deposits, junior
subordinated debenture, are excellent.
·
The Company fully expects to recover the entire amortized cost basis of
all the securities that are in an unrealized loss position. The basis of this conclusion is that the
unrealized loss positions were caused by changes in interest rates and interest
rate spreads and not by default risk.
As of September 30,
2009, the unrealized gain in the investment portfolio stood at $13.6 million
compared to $1.7 million in unrealized gains as of December 31, 2008. The increase in unrealized gains can be
attributed to better recent market stability which has led to a decrease in
interest rate spreads to treasuries, and an increase in treasury rates.
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 income and
allowance for losses on loans increased to $2.39 billion at September 30, 2009, as compared with $2.02
billion at December 31, 2008. Total
loans net of unearned income as a percentage of total assets as of September 30, 2009 and December 31, 2008 were
72.4% and 83.7%, respectively.
35
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
|
|
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Construction
|
|
$
|
45,080
|
|
$
|
43,180
|
|
Real
estate secured
|
|
1,973,198
|
|
1,599,627
|
|
Commercial
and industrial
|
|
415,739
|
|
389,217
|
|
Consumer
|
|
16,611
|
|
23,669
|
|
Total
loans
(
1)
|
|
2,450,628
|
|
2,055,693
|
|
Unearned
Income
|
|
(5,276
|
)
|
(4,164
|
)
|
Gross
loans, net of unearned income
|
|
2,445,352
|
|
2,051,529
|
|
Allowance
for losses on loans
|
|
(54,735
|
)
|
(29,437
|
)
|
Net
loans
|
|
$
|
2,390,617
|
|
$
|
2,022,092
|
|
|
|
|
|
|
|
Percentage
breakdown of gross loans:
|
|
|
|
|
|
Construction
|
|
1.8
|
%
|
2.1
|
%
|
Real
estate secured
|
|
80.5
|
%
|
77.8
|
%
|
Commercial
and industrial
|
|
17.0
|
%
|
18.9
|
%
|
Consumer
|
|
0.7
|
%
|
1.2
|
%
|
Total
loans
|
|
100.0
|
%
|
100.0
|
%
|
(1)
Includes loans held for sale, at the lower of
cost or market, of $30.0 million and $18.4 million at September 30, 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 $2.0
0 billion and $1.60 billion as of September 30,
2009 and December 31, 2008, respectively. The increase in real estate secured loans can
be attributed to loans received from the Mirae acquisition, which amounted to
$205 million as of June 30, 2009. The real estate secured loans as a
percentage of total loans were 80.5%
and 77.8% at September 30, 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 $41.1 million at September 30, 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 September
30,
2009 increased to $415.7 million, as compared with $389.2 million at December 31, 2008.
Commercial and industrial loans as a percentage of total loans were 17.0% at September 30, 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. Because we believe that consumer loans present a higher
risk compared to our other loan products, especially given current economic
conditions, we have reduced our effort
s in consumer lending since 2007. Accordingly, as of September 30, 2009, our volume of consumer loans
was down by $7.4 million from the prior year end. As of September 30, 2009, the balance of consumer loans
was $16.3 million, or 0.7% 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 nominal.
36
Table
of Contents
Construction
loans represented less than 5% of our total loan portfolio as of September 30,
2009. In response to the current real estate market, which has been
experiencing 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 $45.1 million, or 1.8% of total loans, at the end of the third
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 September
30, 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 September 30, 2009
|
|
|
|
Within
One Year
|
|
After One
But within
Five Years
|
|
After
Five Years
|
|
Total
|
|
Construction
|
|
$
|
45,080
|
|
$
|
|
|
$
|
|
|
$
|
45,080
|
|
Real
estate secured
|
|
1,036,931
|
|
863,126
|
|
73,141
|
|
1,973,198
|
|
Commercial
and industrial
|
|
402,761
|
|
12,700
|
|
278
|
|
415,739
|
|
Consumer
|
|
13,870
|
|
2,728
|
|
13
|
|
16,611
|
|
Total
loans, net of non-accrual loans
|
|
$
|
1,498,642
|
|
$
|
878,554
|
|
$
|
73,432
|
|
$
|
2,450,628
|
|
Loans
with variable interest rates
|
|
$
|
1,278,274
|
|
$
|
11,059
|
|
$
|
|
|
$
|
1,289,333
|
|
Loans
with fixed interest rates
|
|
$
|
220,368
|
|
$
|
867,495
|
|
$
|
73,432
|
|
$
|
1,161,295
|
|
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.
On June 26, 2009, we acquired substantially all
the assets and assumed substantially all the liabilities of Mirae from the
FDIC.
We also entered into loss sharing agreements
with the FDIC in connection with the Mirae acquisition. Under the loss sharing agreements, the
FDIC will share in the losses on assets covered under the agreements, which
generally include loans acquired from Mirae and foreclosed loan collateral
existing at June 26, 2009. With respect to losses of up to $83.0 million
on the covered assets, the FDIC has agreed to reimburse us for 80 percent of
the losses. On losses exceeding $83.0 million, the FDIC has agreed
to reimburse us for 95 percent of the losses. The loss sharing
agreements are subject to our following servicing procedures and satisfying
certain other conditions as specified in the agreements with the
FDIC. The term for the FDICs loss
sharing on residential real estate loans is ten years, and the term for loss
sharing on non-residential real estate loans is five years with respect to
losses and eight years with respect to loss recoveries.
For the purposes of the table below, loans and OREO
covered under the loss sharing agreements with the FDIC are referred to as covered
loans and covered OREO, respectively.
Covered loans and covered OREO were recorded at estimated fair value on June 26,
2009.
37
Table
of Contents
The following is a summary of covered non-performing loans
and OREO on the dates indicated:
Non
-
performing
Covered Loans and Covered OREO
(dollars in thousands)
|
|
September 30, 2009
|
|
Covered Nonaccrual loans:
(1)
|
|
|
|
Real estate secured
|
|
$
|
21,496
|
|
Commercial and industrial
|
|
3,511
|
|
Consumer
|
|
|
|
Total
|
|
25,007
|
|
Loans 90 days or more past due and
still accruing:
|
|
|
|
Real estate secured
|
|
477
|
|
Commercial and industrial
|
|
295
|
|
Consumer
|
|
|
|
Total
|
|
772
|
|
Total nonperforming loans
|
|
25,779
|
|
Repossessed vehicles
|
|
|
|
Other real estate owned
|
|
500
|
|
Total covered nonperforming assets
|
|
$
|
26,279
|
|
|
|
|
|
Nonperforming loans as a percentage of total
covered loans
|
|
9.38
|
%
|
Performing troubled debt restructurings
(2)
|
|
10,494
|
|
(1)
During the nine months ended September 30, 2009,
no interest income related to these loans was included in interest income.
(2)
The $10,494,000 troubled debt restructurings as of September 30,
2009 represented loans of which terms were renegotiated to provide a reduction
interest or principal because of deterioration in the financial
position of the
borrower. The loans were not included in
total nonperforming assets this quarter due to the sustained performing status
for all covered troubled debt restructured loans.
38
Table
of Contents
The following table provides information with respect
to the components of our non-performing
(non-covered) 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
Non-covered
Assets and Restructured Loans
(dollars in thousands)
|
|
September 30, 2009
|
|
December 31, 2008
|
|
September 30, 2008
|
|
Non-covered Nonaccrual loans:
(1)
|
|
|
|
|
|
|
|
Real
estate secured
|
|
$
|
44,469
|
|
$
|
9,334
|
|
$
|
9,506
|
|
Commercial
and industrial
|
|
7,868
|
|
5,874
|
|
3,593
|
|
Consumer
|
|
49
|
|
131
|
|
134
|
|
Total
|
|
52,386
|
|
15,339
|
|
13,233
|
|
Loans 90 days or more past due and still accruing:
|
|
|
|
|
|
|
|
Real
estate secured
|
|
|
|
|
|
490
|
|
Commercial
and industrial
|
|
|
|
213
|
|
4
|
|
Consumer
|
|
|
|
|
|
2
|
|
Total
|
|
|
|
213
|
|
496
|
|
|
|
|
|
|
|
|
|
Total
nonperforming loans
|
|
52,386
|
|
15,552
|
|
13,729
|
|
Repossessed
vehicles
|
|
|
|
|
|
18
|
|
Other
real estate owned
|
|
5,738
|
|
2,663
|
|
1,453
|
|
Total
non-covered nonperforming assets, net of SBA guarantee
|
|
58,124
|
|
18,215
|
|
15,200
|
|
|
|
|
|
|
|
|
|
Guaranteed
portion of nonperforming SBA loans
|
|
11,583
|
|
7,158
|
|
7,792
|
|
Total
gross non-covered nonperforming assets
|
|
$
|
69,707
|
|
$
|
25,373
|
|
$
|
22,992
|
|
|
|
|
|
|
|
|
|
Performing
troubled debt restructurings
(2)
|
|
55,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a percentage of total non-covered loans
|
|
2.14
|
%
|
0.76
|
%
|
0.75
|
%
|
Allowance
for losses on loans as a percentage of non-covered nonperforming loans
|
|
104.48
|
%
|
189.27
|
%
|
189.01
|
%
|
(1)
During the nine months ended September 30, 2009,
no interest income related to these loans was included in interest income.
(2)
The $58,124,000 troubled debt restructurings as of September 30,
2009 represented loans of which terms were renegotiated to provide a reduction
of interest or principal because of deterioration in the financial
position of the
borrower. All of these loans were
performing as of June 30, 2009 and September 30, 2009. Therefore the
loans are not categorized as nonperforming.
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 September 30, 2009. However, the general economic conditions
in 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
macroeconomic environment affected our
borrowers strength and our NPLs,
net of SBA guaranteed portion, increased to $52.4 million, or 2.14% of the
total loans at the end of the third quarter of 2009, as compared with $15.6
million, or 0.76% of the total loans, at the end of 2008. The $36.8 million
increase of NPLs was due to a $37.0 increase in non-accrual loans, offset by a
$213,000 decrease in loans 90 days or more past due and still accruing.
Management
also believes that the reserve provided for non-performing loans, together with
the tangible collateral, were adequate as of September
30, 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.
39
Table
of Contents
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.
Total
charge-offs for the three month ending September 30, 2009 was $8.2 million
compared with $1.5 million for the same period in 2008. Real estate secured loan charge-offs
increased by $1.7 million compared to the previous year due to increased
charge-offs as a result of loan sales. Other increases were due to charge-offs
of non-accrual loans in the third quarter of 2009. Commercial and industrial loan charge-off
increased to $6.1 million from $1.1 million for the three month ending September 2009
and 2008.
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
$54.7 million
at September 30,
2009, representing an increase of 85.9%, or $25.3 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 to 2.2%, as compared with the 1.43% retained at the year end of 2008. Management
believes that the current ratio of 2.2% is adequate for our loan portfolio.
Our allowance for losses on loan commitments increased
slightly to $1.5 million at September 30, 2009, as compared to $1.2
million at December 31, 2008.
40
Table
of Contents
The
table below summarizes for the periods indicated, 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Allowance
for losses on loans:
|
|
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
38,758
|
|
$
|
23,494
|
|
$
|
29,437
|
|
$
|
21,579
|
|
Actual
charge-offs:
|
|
|
|
|
|
|
|
|
|
Real
estate secured
|
|
1,888
|
|
204
|
|
2,736
|
|
247
|
|
Commercial
and industrial
|
|
6,134
|
|
1,106
|
|
14,703
|
|
3,487
|
|
Consumer
|
|
191
|
|
203
|
|
649
|
|
807
|
|
Total
charge-offs *
|
|
8,213
|
|
1,513
|
|
18,088
|
|
4,541
|
|
Recoveries on loans previously charged off:
|
|
|
|
|
|
3,795
|
|
|
|
Real
estate secured
|
|
2
|
|
38
|
|
3
|
|
38
|
|
Commercial
and industrial
|
|
189
|
|
74
|
|
495
|
|
1,758
|
|
Consumer
|
|
33
|
|
62
|
|
100
|
|
153
|
|
Total
recoveries
|
|
224
|
|
174
|
|
598
|
|
1,949
|
|
Net
loan charge-offs
|
|
7,989
|
|
1,339
|
|
17,490
|
|
2,592
|
|
Provision for losses on loans
┼
|
|
23,966
|
|
3,795
|
|
42,788
|
|
6,963
|
|
Balances at end of period
|
|
$
|
54,735
|
|
$
|
25,950
|
|
$
|
54,735
|
|
$
|
25,950
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for losses on loan commitments:
|
|
|
|
|
|
|
|
|
|
Balances at beginning of period
|
|
$
|
1,221
|
|
$
|
1,630
|
|
$
|
1,243
|
|
$
|
1,998
|
|
Provision
(credit) for losses on loan commitments
|
|
234
|
|
(395
|
)
|
212
|
|
(763
|
)
|
Balances at end of period
|
|
$
|
1,455
|
|
$
|
1,235
|
|
$
|
1,455
|
|
$
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
Net
loan charge-offs to average total loans
|
|
0.33
|
%
|
0.07
|
%
|
0.88
|
%
|
0.13
|
%
|
Allowance
for losses on loans to total loans at period-end
|
|
2.24
|
%
|
1.28
|
%
|
2.24
|
%
|
1.28
|
%
|
Net
loan charge-offs to allowance for losses on loans at period-end
|
|
14.60
|
%
|
5.16
|
%
|
31.95
|
%
|
9.99
|
%
|
Net
loan charge-offs to provision for losses on loans and loan commitments
|
|
33.02
|
%
|
39.40
|
%
|
40.67
|
%
|
41.81
|
%
|
*
Charge-off amount include net charge-offs
of covered loan amounting to $529 thousand, which represents gross covered loan
charge-offs of $1.9 million less FDIC receivable portion of $1.4 million.
┼
Provision amount include net provisions for covered loan amounting to
$529 thousand which represents gross covered loan provision of $1.9 million
less FDIC receivable portion of $1.4 million.
Contractual Obligations
The
following table represents our aggregate contractual obligations to make future
payments
(principal and
interest) as of September 30,
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
|
|
$
|
208,224
|
|
$
|
120,606
|
|
$
|
|
|
$
|
|
|
$
|
328,830
|
|
Junior subordinated debentures
|
|
1,942
|
|
2,623
|
|
10,623
|
|
77,321
|
|
92,509
|
|
Operating leases
|
|
3,252
|
|
5,327
|
|
4,320
|
|
5,951
|
|
18,850
|
|
Time deposits
|
|
1,314,136
|
|
166,193
|
|
1
|
|
18
|
|
1,480,348
|
|
Total
|
|
$
|
1,527,554
|
|
$
|
294,749
|
|
$
|
14,944
|
|
$
|
83,290
|
|
$
|
1,920,537
|
|
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 September 30,
200
9 and December 31,
2008, we had commitments to extend
credit of $219.9 million and $153.4 million, respectively. Obligations under standby letters of credit
were $12.9 million and $12.7 million at September 30, 2009 and December 31, 2008, respectively, and our obligations
under commercial letters of credit were $13.2 million and $15.1
million at such dates, respectively.
41
Table
of Contents
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
are our primary source of funds. Total
deposits increased to $2.67 billion at September 30, 2009
, as compared with $1.81 billion at December 31,
2008.
Total
non-time deposits at September 30, 2009 increased to $1.22 billion in the
first nine months of 2009, from $706.2 million at December 31, 2008, while
time deposits increased to $1.45 billion at September 30, 2009 from $1.10 billion
at December 31, 2008.
The
increase in deposits was a result of a marketing campaign aimed at raising core
deposits, more specifically, time deposits under $100,000. Other time deposits
or time deposits under $100,000 increased to $526.0 million compared to $203.6
million at December 31, 2008.
The
average rate that we paid on time deposits in denominations of $100,000 or more
for the third quarter and first nine months of
2009 decreased to 2.28% and 2.61%,
respectively, from 3.48% and 3.95% in the same periods of the prior year. In order to keep the interest expense down,
we plan to closely monitor interest rate trends and changes, and our time
deposit rates, in an effort to maximize our net interest margin and
profitability.
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)
|
|
September 30, 2009
|
|
December 31, 2008
|
|
September 30, 2008
|
|
For the quarters ended:
|
|
Average Balance
|
|
Average Rate
|
|
Average Balance
|
|
Average Rate
|
|
Average Balance
|
|
Average Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
374,744
|
|
|
|
$
|
281,622
|
|
|
|
$
|
305,098
|
|
|
|
Money market
|
|
677,234
|
|
2.41
|
%
|
380,275
|
|
3.06
|
%
|
439,080
|
|
3.21
|
%
|
Super NOW
|
|
21,481
|
|
0.93
|
%
|
18,989
|
|
1.23
|
%
|
21,144
|
|
1.36
|
%
|
Savings
|
|
62,090
|
|
3.39
|
%
|
43,029
|
|
3.63
|
%
|
41,273
|
|
3.48
|
%
|
Time certificates of deposit in denominations of
$100,000 or more
|
|
984,521
|
|
2.28
|
%
|
834,971
|
|
3.17
|
%
|
770,812
|
|
3.48
|
%
|
Other time deposits
|
|
427,234
|
|
2.56
|
%
|
211,351
|
|
3.54
|
%
|
197,044
|
|
3.69
|
%
|
Total deposits
|
|
$
|
2,547,304
|
|
2.04
|
%
|
$
|
1,770,237
|
|
2.68
|
%
|
$
|
1,774,451
|
|
2.81
|
%
|
42
Table
of Contents
The
scheduled maturities of our time deposits in denominations of $100,000 or
greater at September 30, 200
9 were as follows:
Maturities of Time Deposits of $100,000 or More,
at
September 30
, 200
9
(dollars in thousands)
Three months or less
|
|
$
|
552,103
|
|
Over three months through
six months
|
|
166,415
|
|
Over six months through
twelve months
|
|
187,333
|
|
Over twelve months
|
|
22,873
|
|
Total
|
|
$
|
928,724
|
|
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 September 30,
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 nine 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 $373.3
million at September 30, 2009 from $277.5 million at December 31,
2008. In addition, because of the current low interest rate environment, our
time deposits of $100,000 or more also increased to $928.7 million at September 30,
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 fund
cost.
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.
The following
table is a summary of FHLB borrowings for the quarters indicated:
(dollars in thousands)
|
|
September 30, 2009
|
|
December 31, 2008
|
|
Balance at quarter-end
|
|
$
|
322,000
|
|
$
|
260,000
|
|
Average balance during the quarter
|
|
$
|
335,799
|
|
$
|
286,213
|
|
Maximum amount outstanding at any month-end
|
|
$
|
340,000
|
|
$
|
370,000
|
|
Average interest rate during the quarter
|
|
2.18
|
%
|
3.23
|
%
|
Average interest rate at quarter-end
|
|
2.37
|
%
|
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 September 30, 200
9 and December 31, 2008 totaled approximately $854.9 million
and $345.1 million,
respectively. Our liquidity levels
measured as the percentage of liquid assets to total assets were 25.3% and 14.1% at September 30, 2009 and December 31, 2008, respectively.
44
Table
of Contents
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 brokered 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, securities 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 September 30, 200
9,
our borrowing capacity from the FHLB was about $877.0 million and our outstanding
balance was $322.0 million, or
approximately 36.7% 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 TARP investment from the U.S. Treasury in the amount of $62.2 million.
We are
subject to various regulatory capital requirements administered by federal
banking agencies. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, we must meet specific capital
guidelines that rely on quantitative measures of our assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices.
Failure to meet minimum
capital requirements can trigger regulatory actions under the prompt corrective
action rules that could have a material adverse effect on our financial
condition and operations. Prompt
corrective action may include regulatory enforcement actions that restrict
dividend payments, require the adoption of remedial measures to increase
capital, terminate FDIC deposit insurance, and mandate the appointment of a
conservator or receiver in severe cases.
In addition, failure to maintain a well-capitalized status may adversely
affect the evaluation of regulatory applications for specific transactions and
activities, including acquisitions, continuation and expansion of existing
activities, and commencement of new activities, and could adversely affect our
business relationships with our existing and prospective clients. The aforementioned regulatory consequences
for failing to maintain adequate ratios of Tier 1 and Tier 2 capital could have
a material adverse effect on our financial condition and results of
operations. Our capital amounts
and classification are also subject to qualitative judgments by regulators
about components, risk weightings, and other factors. See Part I, Item 1 Description of
Business Regulation and Supervision Capital Adequacy Requirements in our
Annual Report on Form 10-K for the year ended December 31, 2008 for additional information regarding
regulatory capital requirements.
As of September 30,
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
|
|
September 30
,
2009
|
|
December 31,
2008
|
|
September 30
,
2008
|
|
Total capital to
risk-weighted assets
|
|
8
|
%
|
10
|
%
|
15.82
|
%
|
17.09
|
%
|
14.01
|
%
|
Tier I capital to
risk-weighted assets
|
|
4
|
%
|
6
|
%
|
14.29
|
%
|
15.36
|
%
|
11.68
|
%
|
Tier I capital to
average assets
|
|
4
|
%
|
5
|
%
|
10.03
|
%
|
13.25
|
%
|
10.19
|
%
|
45
Table
of Contents
Wilshire State Bank
|
|
Regulatory
Adequately-
Capitalized
|
|
Regulatory
Well-
Capitalized
|
|
Actual
ratios for the Bank as of:
|
|
|
|
Standards
|
|
Standards
|
|
September
30, 2009
|
|
December
31, 2008
|
|
September
30, 2008
|
|
Total
capital to risk-weighted assets
|
|
8
|
%
|
10
|
%
|
15.63
|
%
|
13.59
|
%
|
13.38
|
%
|
Tier
I capital to risk-weighted assets
|
|
4
|
%
|
6
|
%
|
14.10
|
%
|
11.86
|
%
|
11.65
|
%
|
Tier
I capital to average assets
|
|
4
|
%
|
5
|
%
|
9.90
|
%
|
10.24
|
%
|
10.18
|
%
|
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 TARP Capital Purchase
Program. As of September 30, 2009, the Companys total Tier 1 capital
(which includes our equity capital, plus junior subordinated debentures, less
goodwill and intangibles) was $329.1 million, as compared with $320.4 million
as of December 31, 2008. For the Bank level, Tier 1 capital was $324.7
million as of September 30, 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 Companys Board delegates responsibility
for market risk management to the Asset/Liability Management Committee, which
reports monthly to the Board on activities related to market risk
management. As part of the management of
our market risk, Asset/Liability Management Committee may direct changes in the
mix of assets and liabilities. To that
end, we actively monitor and manage interest rate risk exposures.
Interest rate risk management involves development, analysis,
implementation and monitoring of earnings to provide stable 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
Asset/Liability Management 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.
46
Table
of Contents
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 Asset/Liability Management 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.
The
following table sets forth the interest rate sensitivity of our
interest-earning assets and interest-bearing liabilities as of September 30,
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, if it can
be repriced or if it matures within that timeframe. Actual payment patterns may
differ from contractual payment patterns:
Interest Rate Sensitivity Analysis
(dollars in thousands)
|
|
At September 30, 2009
|
|
|
|
Amounts Subject to Repricing Within
|
|
|
|
0-3 months
|
|
3-12 months
|
|
Over 1 to 5 years
|
|
After 5 years
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Gross
loans
|
|
$
|
1,341,786
|
|
$
|
156,856
|
|
$
|
878,554
|
|
$
|
73,432
|
|
$
|
2,450,628
|
|
Investment
securities
|
|
1,393
|
|
37,386
|
|
92,699
|
|
428,240
|
|
559,718
|
|
Federal
funds sold and cash equivalents
|
|
130,004
|
|
|
|
|
|
|
|
130,004
|
|
Total
|
|
$
|
1,473,183
|
|
$
|
194,242
|
|
$
|
971,253
|
|
$
|
501,672
|
|
$
|
3,140,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
66,211
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
66,211
|
|
Time
deposits of $100,000 or more
|
|
552,003
|
|
353,741
|
|
22,980
|
|
|
|
928,724
|
|
Other
time deposits
|
|
85,168
|
|
299,498
|
|
141,351
|
|
18
|
|
526,035
|
|
Other
interest-bearing deposits
|
|
777,800
|
|
|
|
|
|
|
|
777,800
|
|
FHLB
borrowings
|
|
140,000
|
|
64,000
|
|
118,000
|
|
|
|
322,000
|
|
Junior
Subordinated Debenture
|
|
71,857
|
|
|
|
15,464
|
|
|
|
87,321
|
|
Total
|
|
$
|
1,693,039
|
|
$
|
717,239
|
|
$
|
297,795
|
|
$
|
18
|
|
$
|
2,708,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate sensitivity gap
|
|
$
|
(219,856
|
)
|
$
|
(522,997
|
)
|
$
|
673,458
|
|
$
|
501,654
|
|
$
|
432,259
|
|
Cumulative
interest rate sensitivity gap
|
|
$
|
(219,856
|
)
|
$
|
(742,853
|
)
|
$
|
(69,395
|
)
|
$
|
432,259
|
|
|
|
Cumulative
interest rate sensitivity gap ratio (based on average interest-earning
assets)
|
|
-6.51
|
%
|
-21.99
|
%
|
-2.05
|
%
|
12.80
|
%
|
|
|
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 September 30,
2009. All assets presented in this table
are held-to-maturity or available-for-sale.
At September 30, 2009, we had no trading investment securities:
47
Table
of Contents
Change
(in basis points)
|
|
Net Interest Income
(next twelve months)
(dollars in thousands)
|
|
% Change
|
|
NPV
(dollars in thousands)
|
|
% Change
|
|
+200
|
|
$
|
127,790
|
|
2.03
|
%
|
$
|
273,438
|
|
-10.94
|
|
+100
|
|
126,114
|
|
0.69
|
%
|
286,051
|
|
-6.83
|
%
|
0
|
|
125,244
|
|
|
|
307,036
|
|
|
|
-100
|
|
125,286
|
|
0.03
|
%
|
300,702
|
|
-2.06
|
%
|
-200
|
|
125,397
|
|
0.12
|
%
|
281,333
|
|
-8.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30,
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).
Based
on this evaluation, our chief executive officer and chief financial officer
concluded that, as of September 30, 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 September 30, 2009 that materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
48
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
Although we expect that
the Mirae acquisition will result in benefits to our organization in the
future, we may not realize those benefits because of integration and other
challenges associated with the acquisition.
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.
49
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
|
50
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: November 6,
2009
|
By:
|
/s/ Alex Ko
|
|
|
Alex Ko
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial
and Accounting Officer)
|
51
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