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, 2010
.
|
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
July 30, 2010
was
29,486,734
.
Table of Contents
Part I. FINANCIAL INFORMATION
Item
1.
Financial Statements
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS) (UNAUDITED)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
ASSETS
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
108,411
|
|
$
|
155,753
|
|
Federal funds sold and other cash equivalents
|
|
201,006
|
|
80,004
|
|
Cash and cash equivalents
|
|
309,417
|
|
235,757
|
|
|
|
|
|
|
|
Securities available for sale, at fair value
(amortized cost of $360,849 and $651,095 at September 30, 2010 and
December 31, 2009, respectively)
|
|
367,433
|
|
651,318
|
|
Securities held to maturity, at amortized cost (fair
value of $97 and $109 at September 30, 2010 and December 31, 2009,
respectively)
|
|
91
|
|
109
|
|
Loans receivable (net of allowance for loan losses of
$99,022 and $62,130 at September 30, 2010 and December 31, 2009,
respectively)
|
|
2,303,848
|
|
2,329,078
|
|
Loans held for saleat the lower of cost or market
|
|
41,174
|
|
36,233
|
|
Federal Home Loan Bank Stock
|
|
19,302
|
|
20,850
|
|
Other real estate owned
|
|
15,996
|
|
3,797
|
|
Due from customers on acceptances
|
|
269
|
|
945
|
|
Cash surrender value of bank owned life insurance
|
|
18,510
|
|
18,037
|
|
Investment in affordable housing partnerships
|
|
29,389
|
|
13,732
|
|
Bank premises and equipment
|
|
13,771
|
|
12,660
|
|
Accrued interest receivable
|
|
12,839
|
|
15,266
|
|
Deferred income taxes
|
|
28,138
|
|
18,684
|
|
Servicing assets
|
|
7,041
|
|
6,898
|
|
Goodwill
|
|
6,675
|
|
6,675
|
|
Core deposits intangibles
|
|
1,737
|
|
2,013
|
|
FDIC loss share indemnification
|
|
26,233
|
|
33,775
|
|
Other assets
|
|
30,822
|
|
30,170
|
|
TOTAL
|
|
$
|
3,232,685
|
|
$
|
3,435,997
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
453,333
|
|
$
|
385,188
|
|
Interest bearing:
|
|
|
|
|
|
Savings
|
|
81,139
|
|
71,601
|
|
Money market and NOW accounts
|
|
812,055
|
|
932,063
|
|
Time deposits of $100,000 or more
|
|
731,876
|
|
795,679
|
|
Other time deposits
|
|
628,345
|
|
643,684
|
|
Total deposits
|
|
2,706,748
|
|
2,828,215
|
|
|
|
|
|
|
|
Federal Home Loan Bank advances and other borrowings
|
|
131,547
|
|
232,000
|
|
Junior subordinated debentures
|
|
87,321
|
|
87,321
|
|
Accrued interest payable
|
|
4,357
|
|
5,865
|
|
Acceptances outstanding
|
|
269
|
|
945
|
|
Other liabilities
|
|
31,115
|
|
15,515
|
|
Total liabilities
|
|
2,961,357
|
|
3,169,861
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
Preferred stock, $1,000 par valueauthorized,
5,000,000 shares; issued and outstanding, 62,158 shares at September 30,
2010 and December 31, 2009
|
|
60,317
|
|
59,931
|
|
Common stock, no par valueauthorized, 80,000,000
shares; issued and outstanding, 29,486,734 shares and 29,415,657 shares at September 30,
2010 and December 31, 2009, respectively
|
|
55,513
|
|
54,918
|
|
Accumulated other comprehensive income, net of tax
|
|
4,100
|
|
326
|
|
Retained earnings
|
|
151,398
|
|
150,961
|
|
Total shareholders equity
|
|
271,328
|
|
266,136
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
3,232,685
|
|
$
|
3,435,997
|
|
See
accompanying notes to consolidated financial statements.
1
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
Interest and
fees on loans
|
|
$
|
36,452
|
|
$
|
39,388
|
|
$
|
107,835
|
|
$
|
100,818
|
|
Interest on
investment securities
|
|
2,804
|
|
4,876
|
|
13,175
|
|
11,011
|
|
Interest on
federal funds sold
|
|
515
|
|
844
|
|
1,191
|
|
1,910
|
|
Total
interest income
|
|
39,771
|
|
45,108
|
|
122,201
|
|
113,739
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE:
|
|
|
|
|
|
|
|
|
|
Interest on
deposits
|
|
8,688
|
|
12,994
|
|
30,338
|
|
35,952
|
|
Interest on
FHLB advances and other borrowings
|
|
758
|
|
1,982
|
|
2,428
|
|
5,262
|
|
Interest on
junior subordinated debentures
|
|
673
|
|
719
|
|
1,986
|
|
2,467
|
|
Total
interest expense
|
|
10,119
|
|
15,695
|
|
34,752
|
|
43,681
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST
INCOME BEFORE PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
29,652
|
|
29,413
|
|
87,449
|
|
70,058
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES AND LOAN COMMITMENTS
|
|
18,000
|
|
24,200
|
|
67,200
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
AND LOAN COMMITMENTS
|
|
11,652
|
|
5,213
|
|
20,249
|
|
27,058
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
3,071
|
|
3,315
|
|
9,510
|
|
9,338
|
|
Gain on sale
of loans
|
|
2,723
|
|
2,235
|
|
4,203
|
|
1,711
|
|
Gain on sale of securities
|
|
2,600
|
|
|
|
8,742
|
|
1,588
|
|
Bargain purchase gain
|
|
|
|
|
|
|
|
21,679
|
|
Loan-related servicing fees
|
|
1,149
|
|
958
|
|
2,999
|
|
2,702
|
|
Other income
|
|
503
|
|
892
|
|
2,256
|
|
2,709
|
|
Total non-interest income
|
|
10,046
|
|
7,400
|
|
27,710
|
|
39,727
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES:
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits
|
|
7,458
|
|
7,120
|
|
21,857
|
|
19,315
|
|
Occupancy
and equipment
|
|
1,921
|
|
1,935
|
|
6,048
|
|
5,294
|
|
Deposit insurance premiums
|
|
1,154
|
|
982
|
|
3,343
|
|
3,772
|
|
Professional fees
|
|
960
|
|
659
|
|
3,347
|
|
1,576
|
|
Data processing
|
|
702
|
|
1,078
|
|
2,029
|
|
2,750
|
|
Other operating
|
|
2,578
|
|
3,047
|
|
8,972
|
|
8,177
|
|
Total non-interest expenses
|
|
14,773
|
|
14,821
|
|
45,596
|
|
40,884
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
6,925
|
|
(2,208
|
)
|
2,363
|
|
25,901
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
1,945
|
|
(1,451
|
)
|
(2,268
|
)
|
9,853
|
|
NET INCOME (LOSS)
|
|
4,980
|
|
(757
|
)
|
4,631
|
|
16,048
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock cash dividend and accretion of preferred stock
|
|
908
|
|
900
|
|
2,717
|
|
2,718
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
4,072
|
|
$
|
(1,657
|
)
|
$
|
1,914
|
|
$
|
13,330
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER COMMON SHARE INFORMATION
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.14
|
|
$
|
(0.06
|
)
|
$
|
0.06
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.14
|
|
$
|
(0.06
|
)
|
$
|
0.06
|
|
$
|
0.45
|
|
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
29,486,734
|
|
29,413,757
|
|
29,486,255
|
|
29,413,757
|
|
Diluted
|
|
29,509,153
|
|
29,413,757
|
|
29,530,600
|
|
29,422,528
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK CASH DIVIDEND DECLARED:
|
|
|
|
|
|
|
|
|
|
Cash dividend declared on common shares
|
|
$
|
|
|
$
|
1,471
|
|
$
|
1,477
|
|
$
|
4,412
|
|
Cash dividend declared per common share
|
|
$
|
|
|
$
|
0.05
|
|
$
|
0.05
|
|
$
|
0.15
|
|
See
accompanying notes to consolidated financial statements.
2
Table of Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Other
|
|
|
|
Total
|
|
|
|
Numbers
|
|
|
|
Numbers
|
|
|
|
Comprehensive
|
|
Retained
|
|
Shareholders
|
|
|
|
of Shares
|
|
Amount
|
|
of Shares
|
|
Amount
|
|
Income (Loss)
|
|
Earnings
|
|
Equity
|
|
BALANCEJanuary 1, 2009
|
|
62,158
|
|
$
|
59,443
|
|
29,413,757
|
|
$
|
54,038
|
|
$
|
1,239
|
|
$
|
140,340
|
|
$
|
255,060
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(4,412
|
)
|
(4,412
|
)
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
(2,331
|
)
|
(2,331
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
608
|
|
|
|
|
|
608
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of
discount on preferred stock
|
|
|
|
363
|
|
|
|
|
|
|
|
(387
|
)
|
(24
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
16,048
|
|
16,048
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain on interest-only strips
(net of tax)
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
44
|
|
Net change in unrealized gain on securities available
for sale (net of tax)
|
|
|
|
|
|
|
|
|
|
7,494
|
|
|
|
7,494
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,586
|
|
BALANCESeptember 30, 2009
|
|
62,158
|
|
$
|
59,806
|
|
29,413,757
|
|
$
|
54,646
|
|
$
|
8,777
|
|
$
|
149,258
|
|
$
|
272,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEJanuary 1, 2010
|
|
62,158
|
|
$
|
59,931
|
|
29,415,657
|
|
$
|
54,918
|
|
$
|
326
|
|
$
|
150,961
|
|
$
|
266,136
|
|
Stock options exercised
|
|
|
|
|
|
71,077
|
|
98
|
|
|
|
|
|
98
|
|
Cash dividend declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
(1,477
|
)
|
(1,477
|
)
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
(2,331
|
)
|
(2,331
|
)
|
Share-based compensation expense
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
495
|
|
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
2
|
|
Accretion of discount on preferred stock
|
|
|
|
386
|
|
|
|
|
|
|
|
(386
|
)
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
4,631
|
|
4,631
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
in unrealized gain on interest-only strips (net of tax)
|
|
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Net change in unrealized gain on securities available
for sale (net of tax)
|
|
|
|
|
|
|
|
|
|
3,790
|
|
|
|
3,790
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,405
|
|
BALANCESeptember 30, 2010
|
|
62,158
|
|
$
|
60,317
|
|
29,486,734
|
|
$
|
55,513
|
|
$
|
4,100
|
|
$
|
151,398
|
|
$
|
271,328
|
|
See
accompanying notes to consolidated financial statements.
3
Table of
Contents
WILSHIRE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) (UNAUDITED)
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
4,631
|
|
$
|
16,048
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Amortization of investment securities
|
|
4,531
|
|
2,866
|
|
Depreciation and amortization of Bank premises and
equipment
|
|
1,588
|
|
1,490
|
|
Accretion of discount on acquired loans
|
|
(3,211
|
)
|
|
|
Amortization of core deposit intangibles
|
|
276
|
|
387
|
|
Amortization of investments in affordable housing
partnerships
|
|
|
|
931
|
|
Provision for losses on loans and loan commitments
|
|
67,200
|
|
43,000
|
|
Provision for other real estate owned losses
|
|
36
|
|
359
|
|
Deferred tax
benefit
|
|
(12,014
|
)
|
(1,188
|
)
|
Loss on disposition of bank premises and equipment
|
|
9
|
|
11
|
|
Bargain
purchase gain
|
|
|
|
(21,679
|
)
|
Net realized gain on sale of loans held for sale
|
|
(4,203
|
)
|
(1,711
|
)
|
Proceeds from sale of loans
|
|
25,361
|
|
35,672
|
|
Origination
of loans held for sale
|
|
(90,693
|
)
|
(45,298
|
)
|
Net realized
gain on sale of available for sale securities
|
|
(8,742
|
)
|
(1,588
|
)
|
Change in unrealized appreciation on serving assets
|
|
680
|
|
390
|
|
Net realized
loss (gain) on sale of other real estate owned
|
|
662
|
|
(402
|
)
|
Share-based compensation expense
|
|
495
|
|
608
|
|
Change in
cash surrender value of life insurance
|
|
(473
|
)
|
(489
|
)
|
Servicing
assets capitalized
|
|
(824
|
)
|
(556
|
)
|
Decrease
(increase) in accrued interest receivable
|
|
2,427
|
|
(1,904
|
)
|
Increase in
other assets
|
|
(27,345
|
)
|
(1,281
|
)
|
Decrease in accrued interest payable
|
|
(1,508
|
)
|
(2,196
|
)
|
Increase in other liabilities
|
|
19,620
|
|
2,794
|
|
Net cash (used) provided by operating activities
|
|
(21,497
|
)
|
26,264
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Proceeds from principal repayment, matured or called
securities held to maturity
|
|
19
|
|
22
|
|
Purchase of
securities available for sale
|
|
(553,054
|
)
|
(430,574
|
)
|
Proceeds from principal repayments, matured, called,
or sold securities available for sale
|
|
847,513
|
|
166,117
|
|
Net increase
in loans receivable
|
|
(14,787
|
)
|
(125,702
|
)
|
Receipt of FDIC loss share indemnification
|
|
14,524
|
|
|
|
Proceeds from sale of other loans
|
|
23,408
|
|
3,217
|
|
Proceeds from sale of other real estate owned
|
|
6,274
|
|
3,395
|
|
Purchases of
investments in affordable housing partnerships
|
|
(3,548
|
)
|
(4,183
|
)
|
Loss of investment in affordable housing partnerships
|
|
1,078
|
|
|
|
Purchases of
premise and equipment
|
|
(718
|
)
|
(2,400
|
)
|
Redemption of Federal Home
Loan Bank Stock
|
|
1,548
|
|
|
|
Net cash and cash
equivalents acquired from acquisition of Mirae Bank
|
|
|
|
5,724
|
|
Net cash
provided by (used) in investing activities
|
|
322,257
|
|
(384,384
|
)
|
|
|
|
|
|
|
|
|
See
accompanying notes to 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,
|
|
|
|
2010
|
|
2009
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
$
|
98
|
|
$
|
|
|
Payment of
cash dividend on common stock
|
|
(2,948
|
)
|
(4,412
|
)
|
Payment of
cash dividend on preferred stock
|
|
(2,331
|
)
|
(2,098
|
)
|
Increase in
Federal Home Loan Bank advances and other borrowings
|
|
65,475
|
|
|
|
Decrease in
Federal Home Loan Bank advances and other borrowings
|
|
(165,929
|
)
|
(27,500
|
)
|
Tax benefit from exercise of stock option
|
|
2
|
|
|
|
Net (decrease) increase in deposits
|
|
(121,467
|
)
|
566,126
|
|
Net cash (used) provided by financing activities
|
|
(227,100
|
)
|
532,116
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
73,660
|
|
173,996
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTSBeginning of period
|
|
235,757
|
|
97,541
|
|
CASH AND CASH EQUIVALENTSEnd of period
|
|
$
|
309,417
|
|
$
|
271,537
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Interest paid
|
|
$
|
36,260
|
|
$
|
42,923
|
|
Income taxes paid
|
|
$
|
16,509
|
|
$
|
8,885
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
Real estate acquired through foreclosures
|
|
$
|
18,213
|
|
$
|
6,428
|
|
Note financing for OREO sales
|
|
$
|
|
|
$
|
6,649
|
|
Note financing for sale of other loans
|
|
$
|
44,335
|
|
$
|
20,286
|
|
Other assets transferred to Bank premises and equipment
|
|
$
|
1,990
|
|
$
|
290
|
|
Common stock cash dividend declared, but not paid
|
|
$
|
|
|
$
|
1,471
|
|
Preferred stock cash dividend declared, but not paid
|
|
$
|
388
|
|
$
|
388
|
|
See
accompanying notes to 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 Bank) from the
Federal Deposit Insurance Corporation (FDIC), as receiver
of Mirae Bank. Mirae Bank 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
six
loan production offices utilized primarily for the origination of loans
under our Small Business Administration (SBA) lending program in Colorado,
Georgia, Texas (2 offices), Virginia, and New Jersey.
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, 2010
and December 31, 200
9
, the
statements of operations for the three and nine months ended September 30,
2010 and September 30, 2009, and the related statements of shareholders
equity and statements of cash flows for the nine months ended September 30,
2010 and September 30, 2009. 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
9
. The effective tax rate for the three months ending September 30,
2010 was calculated using actual year to date pretax income in effective tax
rate calculations. In periods prior to June 30,
2010, the Company used estimated annualized pretax income to calculate the
effective tax rate. All other 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, 2009.
Note 3. Federally
Assisted Acquisition of
Mirae
Bank
The FDIC placed Mirae Bank under receivership upon
Mirae Banks closure by the California Department of Financial Institutions (DFI)
at the close of business on June 26, 2009.
We purchased substantially all of Mirae Banks assets and assumed all of
Mirae Banks deposits and certain other liabilities. Further, we entered into
loss sharing agreements with the FDIC in connection with the Mirae Bank acquisition.
Under the loss sharing agreements, the FDIC will share in the losses on assets
covered under the agreement, which generally include loans acquired from Mirae Bank
and foreclosed loan collateral existing at June 26, 2009 (referred to
collectively as covered assets).
6
Table of Contents
With the acquisition of Mirae
Bank, the Bank entered into loss-sharing agreements with the FDIC for amounts
receivable under the agreements. The Company accounted for the receivable
balances under the loss-sharing agreements as an FDIC indemnification asset in
accordance with
ASC 805 (formerly FAS 141R
Business Combinations). The FDIC
indemnification is accounted for and calculated by adding the present value of
all the cash flows that the Company expected to collect from the FDIC on the
date of the acquisition as stated in the loss-sharing agreement. As expected
and actual cash flows increase and decrease from what was expected at the time
of acquisition, the FDIC indemnification will decrease and increase, respectively. When covered assets are paid-off and sold,
the FDIC indemnification asset is reduced and is offset with interest income.
Covered assets that become impaired, increases in the indemnification asset.
The table below summarizes the changes to the FDIC loss
share indemnification in the third quarter and first nine months of 2010:
(Dollars in Thousands)
|
|
Three Months Ending
September 30, 2010
|
|
Nine Months Ending
September 30, 2010
|
|
|
|
|
|
|
|
Beginning balance of FDIC indemnification
|
|
$
|
28,538
|
|
$
|
33,775
|
|
Changes in provision for loan losses
|
|
2,362
|
|
5,053
|
|
Payments received from FDIC
|
|
(6,116
|
)
|
(16,359
|
)
|
Increase resulting from charge-offs
|
|
1,449
|
|
3,764
|
|
Ending balance of FDIC indemnification
|
|
$
|
26,233
|
|
$
|
26,233
|
|
Note 4. Fair Value
Measurement for Financial and Non-Financial Assets and Liabilities
ASC 820 Fair Value Measurement and Disclosure
(formerly SFAS No. 157,
Fair Value Measurements)
,
provides a definition
of fair value, establishes a framework for measuring fair value, and requires
expanded disclosures about fair value measurements.
ASC
820
defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability in an arms length transaction between market participants in the
markets where the Company conducts business.
ASC
820
clarifies that fair
value should be based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The fair value
hierarchy gives the highest priority to quoted prices available in active markets
and the lowest priority to data lacking transparency
.
The
fair value inputs of the instruments are classified and disclosed in one
of the following categories pursuant to
ASC
820
:
Level
1 Unadjusted quoted prices in
active
markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date. The quoted price shall not be
adjusted for the blockage factor (i.e., size of the position relative to
trading volume).
Level
2 Pricing inputs are
inputs other than quoted
prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Fair value is determined through the use of
models or other valuation methodologies, including the use of pricing matrices.
If the asset or liability has a specified (contractual) term, a Level 2 input
must be observable for substantially the full term of the asset or liability.
Level
3 Pricing inputs are
inputs unobservable for the
asset or liability. Unobservable inputs shall be used to measure fair value to
the extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or
liability at the measurement date. The inputs into the determination of fair
value require significant management judgment or estimation.
In
certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, an 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.
7
Table of Contents
In accordance with ASC 820-10, the Company uses 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 and non-recurring basis are
listed as follows:
Securities available
for sale
Investment in available-for-sale securities are recorded at their
fair values pursuant to ASC 320-10 (SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities)
.
Fair value measurement is based upon quoted prices for similar assets, if
available. If quoted prices are not available, fair values are measured using
matrix pricing models, or other model-based valuation techniques requiring
observable inputs other than quoted prices such as yield curves, prepayment
speeds, and default rates. The securities available for sale include securities
of government sponsored enterprises, mortgage-backed securities, collateralized
mortgage obligations, municipal bonds and corporate securities. Our existing
investment available-for-sale security holdings as of September 30, 2010
are measured using matrix pricing models in lieu of direct price quotes and
recorded based on Level 2 measurement inputs.
Collateral dependent
impaired
loans
A loan is considered to be impaired when it is probable that all of
the principal and interest due under the original underwriting terms of the
loan may not be collected. Fair value of collateral dependent loans is measured
based on the fair value of the underlying collateral. The fair value is
determined by management in part through the use of appraisals or by actual
selling prices for loans that are under contract to sell. It is the Companys
policy to update appraisals on all collateral dependent impaired loans every
six months or less.
We order appraisals for all loans that have been
identified by management as non-performing or potentially non-performing at
month-end following such identification. Thereafter, the Companys Credit
Administrator Clerk monitors all of our collateral dependent impaired loans and
other non-performing loans on a monthly basis to ensure that updated appraisals
are ordered and received at least every six months. Appraisal reports are
typically received by the Company on a timely basis, and we have not
experienced significant delays during this process. Once an appraisal is
received, if there is a difference between the updated appraisal value and the
balance of the loan, we will either record a special valuation allowance for
that difference, or we will charge-off the difference in accordance with our
loan policy. We do not charge-off or make special allowances for only a portion
of the difference between the appraisal value and the balance of the loan.
For any loan that has already been partially
charged-off, after we receive an updated appraisal, there will be no change in
the classification of that loan unless it satisfies our policy guidelines for
returning a non-performing loan to a performing loan.
The Company records impairments on all nonaccrual loans
and trouble debt restructured loans based on the valuation methods above with
the exception of automobile loans.
Automobile loans are assessed based on a homogenous pool of loans and
the Company has established specific reserves which is a component of the
allowance for loan losses. The Company records impaired loans as non-recurring
with Level 3 measurement inputs.
Other real estate
owned (OREO)
Other real estate owned or OREO,
consists principally of properties acquired through foreclosures. The fair
values of OREOs are recorded at the lower of carrying value of the loan or
estimated fair value at the time of foreclosure. Fair values are determined by management in
part by using third party appraisals and written offers that have been
accepted. Management periodically performs valuations on OREO properties for
fair valuation. Any subsequent declines
in the fair value of the OREO property after the date of transfer are recorded
as a write-down of the asset. However,
in accordance with ASC 820-10 fair value disclosures for financial instruments,
OREO is measured at fair value. The Company records OREO as non-recurring with
Level 3 measurement inputs.
Servicing
assets and interest-only 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 discount rates, prepayment speeds and delinquency
rate assumptions as inputs. All of these assumptions require a significant
degree of management judgment. The fair market valuation is performed on a
quarterly basis for servicing assets while interest only strips are measures at
the lower of cost or fair value. The Company classifies SBA loan servicing
assets and interest-only strips as recurring with Level 3 measurement inputs.
8
Table of Contents
Servicing
liabilities
SBA loan servicing
liabilities represent the value associated with servicing SBA loans sold. The
value is determined through a discounted cash flow analysis which uses discount
rates, prepayment speeds and delinquency rate assumptions as inputs. All of
these assumptions require a significant degree of management judgment. The fair
market valuation is performed on a quarterly basis. The Company classifies SBA
loan servicing liabilities as recurring with Level 3 measurement inputs.
The table below summarizes the valuation of our
financial assets and liabilities by the above ASC 820-10 fair value hierarchy
levels as of September 30, 2010 and December 31, 2009:
Assets
Measured at Fair Value on a Recurring Basis
(Dollars in Thousands
)
|
|
Fair
Value Measurements Using:
|
|
As of September 30, 2010
|
|
Total Fair
Value
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored enterprises
|
|
$
|
54,460
|
|
$
|
|
|
$
|
54,460
|
|
$
|
|
|
Mortgage backed securities
|
|
20,788
|
|
|
|
20,788
|
|
|
|
Collateralized
m
ortgage
obligations
|
|
254,016
|
|
|
|
254,016
|
|
|
|
Corporate securities
|
|
2,036
|
|
|
|
2,036
|
|
|
|
Municipal
bonds
|
|
36,133
|
|
|
|
36,133
|
|
|
|
Servicing
assets
|
|
7,041
|
|
|
|
|
|
7,041
|
|
Interest-only
strips
|
|
635
|
|
|
|
|
|
635
|
|
Servicing
liabilities
|
|
(399
|
)
|
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using:
|
|
As of December 31, 2009
|
|
Total Fair
Value
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Investments
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored
e
nterprises
|
|
$
|
155,382
|
|
$
|
|
|
$
|
155,382
|
|
$
|
|
|
Mortgage backed securities
|
|
131,711
|
|
|
|
131,711
|
|
|
|
Collateralized
m
ortgage
obligations
|
|
319,554
|
|
|
|
319,554
|
|
|
|
Corporate securities
|
|
2,017
|
|
|
|
2,017
|
|
|
|
Municipal
bonds
|
|
42,654
|
|
|
|
42,654
|
|
|
|
Servicing
assets
|
|
6,898
|
|
|
|
|
|
6,898
|
|
Interest-only
strips
|
|
724
|
|
|
|
|
|
724
|
|
Servicing
liabilities
|
|
(407
|
)
|
|
|
|
|
(407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three and nine months ended September 30,
2010 and September 30, 2009
:
(Dollars in Thousands)
|
|
At June 30,
2010
|
|
Net Realized
Losses in
Net Income
|
|
Unrealized
Loss in Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At September
30, 2010
|
|
Net Cumulative
Unrealized
Loss in Other
Comprehensive
Income
|
|
Servicing
assets
|
|
$
|
6,655
|
|
$
|
(128
|
)
|
$
|
|
|
$
|
514
|
|
$
|
|
|
$
|
7,041
|
|
$
|
|
|
Interest-only
strips
|
|
632
|
|
(18
|
)
|
21
|
|
|
|
|
|
635
|
|
(284
|
)
|
Servicing
liabilities
|
|
(406
|
)
|
7
|
|
|
|
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
At June 30,
2009
|
|
Net Realized
Losses in
Net Income
|
|
Unrealized
Loss in Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At September
30, 2009
|
|
Net Cumulative
Unrealized
Loss in Other
Comprehensive
Income
|
|
Servicing
assets
|
|
$
|
6,677
|
|
$
|
(335
|
)
|
$
|
|
|
$
|
556
|
|
$
|
|
|
$
|
6,898
|
|
$
|
|
|
Interest-only strips
|
|
741
|
|
(31
|
)
|
15
|
|
|
|
|
|
725
|
|
(293
|
)
|
Servicing
liabilities
|
|
(464
|
)
|
(136
|
)
|
|
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
At December
31, 2009
|
|
Net Realized
Losses in
Net Income
|
|
Unrealized
Loss in Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At September
30, 2010
|
|
Net Cumulative
Unrealized
Loss in Other
Comprehensive
Income
|
|
Servicing
assets
|
|
$
|
6,898
|
|
$
|
(680
|
)
|
$
|
|
|
$
|
823
|
|
$
|
|
|
$
|
7,041
|
|
$
|
|
|
Interest-only
strips
|
|
724
|
|
(61
|
)
|
(28
|
)
|
|
|
|
|
635
|
|
(284
|
)
|
Servicing
liabilities
|
|
(407
|
)
|
8
|
|
|
|
|
|
|
|
(399
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
At December
31, 2008
|
|
Net Realized
Losses in
Net Income
|
|
Unrealized
Loss in Other
Comprehensive
Income
|
|
Net
Purchases,
Sales and
Settlements
|
|
Transfers
In/out of
Level 3
|
|
At September
30, 2009
|
|
Net Cumulative
Unrealized
Loss in Other
Comprehensive
Income
|
|
Servicing
assets
|
|
$
|
4,838
|
|
$
|
(390
|
)
|
$
|
|
|
$
|
2,450
|
|
$
|
|
|
$
|
6,898
|
|
$
|
|
|
Interest-only
strips
|
|
632
|
|
(86
|
)
|
74
|
|
105
|
|
|
|
725
|
|
(293
|
)
|
Servicing
liabilities
|
|
(328
|
)
|
(138
|
)
|
|
|
(134
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the aggregated balance of
assets measured at estimated fair value on a non-recurring basis at September 30,
2010 and December 31, 2009, and the total losses resulting from these fair
value adjustments for the year-to date periods ended September 30, 2010
and December 31, 2009:
As of September 30, 2010
(Dollars in Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Net YTD Realized
Losses in Net
Income
|
|
Collateral
dependent impaired loans
|
|
$
|
|
|
$
|
|
|
$
|
175,726
|
|
$
|
176,726
|
|
$
|
2,156
|
|
OREO
|
|
|
|
|
|
16,591
|
|
16,591
|
|
595
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
192,317
|
|
$
|
192,317
|
|
$
|
2,751
|
|
10
Table of Contents
As of
December 31, 2009
(Dollars in Thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Net YTD Realized
Losses in Net Income
|
|
Collateral
dependent impaired loans
|
|
$
|
|
|
$
|
|
|
$
|
128,764
|
|
$
|
128,764
|
|
$
|
10,250
|
|
OREO
|
|
|
|
|
|
4,031
|
|
4,031
|
|
435
|
|
Total
|
|
$
|
|
|
$
|
|
|
$
|
132,795
|
|
$
|
132,795
|
|
$
|
10,685
|
|
The
table below is a summary of fair value estimates as of September 30, 2010
and December 30, 2009, for financial instruments, as defined by ASC 825-10
(formerly SFAS No. 107,
Disclosures
about Fair Value of Financial Instruments)
, including those
financial instruments for which the Company did not elect fair value option
pursuant to ASC 470-20 (SFAS No. 159).
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
(Dollars in Thousands)
|
|
Amount
|
|
Fair Value
|
|
Amount
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
309,417
|
|
$
|
309,417
|
|
$
|
235,757
|
|
$
|
235,757
|
|
Investment
securities held to maturity
|
|
97
|
|
97
|
|
109
|
|
109
|
|
Loans
receivablenet
|
|
2,303,848
|
|
2,302,946
|
|
2,329,078
|
|
2,326,869
|
|
Loans
held for sale
|
|
41,103
|
|
41,174
|
|
36,233
|
|
36,407
|
|
Cash
surrender value of life insurance
|
|
18,510
|
|
18,510
|
|
18,037
|
|
18,037
|
|
Federal
Home Loan Bank stock
|
|
19,302
|
|
19,302
|
|
20,850
|
|
20,850
|
|
Accrued
interest receivable
|
|
12,839
|
|
12,839
|
|
15,266
|
|
15,266
|
|
Due
from customer on acceptances
|
|
269
|
|
269
|
|
945
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
deposits
|
|
$
|
453,333
|
|
$
|
453,333
|
|
$
|
385,188
|
|
$
|
385,188
|
|
Interest-bearing
deposits
|
|
2,253,415
|
|
2,259,383
|
|
2,443,027
|
|
2,444,445
|
|
Junior
subordinated Debentures
|
|
87,321
|
|
87,321
|
|
87,321
|
|
87,321
|
|
Short-term
federal fund purchased & FHLB borrowings
|
|
|
|
|
|
122,000
|
|
122,380
|
|
Federal
Home Loan Bank borrowings
|
|
110,000
|
|
112,116
|
|
110,000
|
|
112,017
|
|
Accrued
interest payable
|
|
4,357
|
|
4,357
|
|
5,865
|
|
5,865
|
|
Acceptances
outstanding
|
|
269
|
|
269
|
|
945
|
|
945
|
|
11
Table
of Contents
Note 5.
Investment Securities
The
following table summarizes the amortized cost, market value, net unrealized
gain (loss), and distribution of our investment securities as of the dates
indicated:
Investment Securities Portfolio
(Dollars in Thousands)
|
|
As of September 30, 2010
|
|
As of December 31, 2009
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
Net
Unrealized
Gain
|
|
Amortized
Cost
|
|
Market
Value
|
|
Net
Unrealized
Gain (Loss)
|
|
Held to
Maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
91
|
|
$
|
97
|
|
$
|
6
|
|
$
|
109
|
|
$
|
109
|
|
$
|
|
|
Total
investment securities held to maturity
|
|
$
|
91
|
|
$
|
97
|
|
$
|
6
|
|
$
|
109
|
|
$
|
109
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government sponsored enterprises
|
|
$
|
53,902
|
|
$
|
54,460
|
|
$
|
558
|
|
$
|
156,879
|
|
$
|
155,382
|
|
$
|
(1,497
|
)
|
Mortgage
backed securities
|
|
19,972
|
|
20,788
|
|
816
|
|
131,617
|
|
131,711
|
|
94
|
|
Collateralized
mortgage obligations
|
|
250,198
|
|
254,016
|
|
3,818
|
|
318,531
|
|
319,554
|
|
1,023
|
|
Corporate
securities
|
|
2,000
|
|
2,036
|
|
36
|
|
2,000
|
|
2,017
|
|
17
|
|
Municipal
securities
|
|
34,777
|
|
36,133
|
|
1,356
|
|
42,068
|
|
42,654
|
|
586
|
|
Total
investment securities available for sale
|
|
$
|
360,849
|
|
$
|
367,433
|
|
$
|
6,584
|
|
$
|
651,095
|
|
$
|
651,318
|
|
$
|
223
|
|
The
following table summarizes the maturity and repricing schedule of our
investment securities at their market values at September 30, 2010:
Investment Maturities and
Repricing Schedule
(Dollars in Thousands
)
|
|
Within One Year
|
|
After One &
Within Five
Years
|
|
After Five &
Within Ten
Years
|
|
After Ten Years
|
|
Total
|
|
Held to
Maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
|
|
$
|
97
|
|
$
|
|
|
$
|
|
|
$
|
97
|
|
Total
investment securities held to maturity
|
|
$
|
|
|
$
|
97
|
|
$
|
|
|
$
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
54,460
|
|
$
|
|
|
$
|
54,460
|
|
Mortgage
backed securities
|
|
6,556
|
|
55
|
|
2,409
|
|
11,768
|
|
20,788
|
|
Collateralized
mortgage obligations
|
|
4,092
|
|
238,688
|
|
|
|
11,236
|
|
254,016
|
|
Corporate
securities
|
|
|
|
2,036
|
|
|
|
|
|
2,036
|
|
Municipal
securities
|
|
128
|
|
1,170
|
|
6,068
|
|
28,767
|
|
36,133
|
|
Total
investment securities available for sale
|
|
$
|
10,776
|
|
$
|
241,949
|
|
$
|
62,937
|
|
$
|
51,771
|
|
$
|
367,433
|
|
12
Table of
Contents
The following table shows the
gross unrealized losses and fair values of our investments, aggregated by
investment category and length of time that individual securities have been in
a continuous unrealized loss positions, at September 30, 2010
and December 31,
2009:
As of September 30, 2010
(Dollars in Thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
48,065
|
|
(121
|
)
|
|
|
|
|
48,065
|
|
(121
|
)
|
Municipal
securities
|
|
1,197
|
|
(87
|
)
|
339
|
|
(68
|
)
|
1,536
|
|
(155
|
)
|
Total
|
|
$
|
49,262
|
|
$
|
(208
|
)
|
$
|
339
|
|
$
|
(68
|
)
|
$
|
49,601
|
|
$
|
(276
|
)
|
As of December 31, 200
9
(Dollars in Thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored enterprises
|
|
$
|
110,296
|
|
$
|
(
1,600
|
)
|
$
|
|
|
$
|
|
|
$
|
110,296
|
|
$
|
(
1,600
|
)
|
Mortgage-backed securities
|
|
85,313
|
|
(
726
|
)
|
|
|
|
|
85,313
|
|
(
726
|
)
|
Collateralized mortgage
obligations
|
|
145,622
|
|
(975
|
)
|
|
|
|
|
145,622
|
|
(975
|
)
|
Municipal
securities
|
|
18,783
|
|
(505
|
)
|
|
|
|
|
18,783
|
|
(505
|
)
|
Total
|
|
$
|
360,014
|
|
$
|
(
3,806
|
)
|
$
|
|
|
$
|
|
|
$
|
360,014
|
|
$
|
(
3,806
|
)
|
(1)
The
Company had no held to maturity investment securities with unrealized losses at
September 30, 2010 and December 31, 2009.
At
September 30, 2010, the total
unrealized losses less than 12 months old were $208,000 and total unrealized
losses more than 12 months old were $68,000 for the same period. The aggregate related fair value of
investments with unrealized losses less than 12 months old was $49.3
million
at September 30, 2010 and $339,000 with
unrealized losses more than 12 months old.
As of December 31, 2009, the total unrealized losses less than 12
months old were $
3.8 million
, 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 $
360.0
million at December 31, 2009.
Credit related declines in the fair value of securities
below their cost that are deemed to be other than temporary are reflected in
earnings as realized losses. In
estimating other-than-temporary impairment losses, we consider, among other
things, (i) the length of time and the extent to which the fair value has
been less than cost, (ii) the financial condition and near-term prospects
of the issuer, and (iii) our intent and ability to retain our investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value. Securities with market value of approximately $351.1
million and $629.2 million were pledged to secure public deposits for other
purposes required or permitted by law at September 30, 2010 and December 31,
2009, respectively
Management determined that any
individual unrealized loss as of September 30, 2010 did not
represent an other-than-temporary impairment.
The unrealized losses on our government-sponsored enterprises (GSE)
bonds, GSE collateralized mortgage obligations (CMOs), and GSE mortgage
backed securities (MBSs) were attributable to both changes in interest rate
(U.S. Treasury curve) and a repricing of risk (spreads widening against
risk-fee rate) in the market. We do not own any non-agency MBSs or CMOs. All
GSE bonds, GSE CMOs, and GSE MBSs are backed by U.S. Government Sponsored and
Federal Agencies and therefore rated Aaa/AAA.
We have no exposure to the Subprime Market in the form of Asset Backed
Securities, (ABSs), and Collateralized Debt Obligations, (CDOs) that are
below investment grade. We have the
intent and ability to hold the securities in an unrealized loss position at September 30,
2010 until the market value recovers or the securities mature.
Municipal bonds and corporate bonds are evaluated by
reviewing the credit-worthiness of the issuer and market conditions. The
unrealized losses on our municipal and corporate securities were primarily
attributable to both changes in interest rates and a repricing of risk in the
market. We have the intent and ability
to hold the securities in an unrealized loss position at September 30,
2010 until the market value recovers or the securities mature.
13
Table of
Contents
Note
6
. Loans
The
loans in the portfolio as a result of the Mirae Bank acquisition are covered by
the FDIC loss-share agreements and such loans are referred to herein as
c
overed
l
oans. All loans other than the
covered
loans are referred to herein as
n
on-
c
overed loans. A summary of
covered and non-covered loans is presented in the table below:
Covered &
Non-Covered Loans
|
|
(Dollars in Thousands)
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Non-covered
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
70,808
|
|
$
|
48,371
|
|
$
|
44,586
|
|
Real
estate secured
|
|
1,832,726
|
|
1,783,638
|
|
1,766,428
|
|
Commercial
and industrial
|
|
308,277
|
|
325,034
|
|
348,910
|
|
Consumer
|
|
16,937
|
|
16,626
|
|
15,984
|
|
Total
loans
|
|
2,228,748
|
|
2,173,669
|
|
2,175,908
|
|
Unearned
Income
|
|
(4,932
|
)
|
(5,311
|
)
|
(5,276
|
)
|
Gross
loans, net of unearned income
|
|
2,223,816
|
|
2,168,358
|
|
2,170,632
|
|
Allowance
for losses on loans
|
|
(91,991
|
)
|
(61,377
|
)
|
(54,735
|
)
|
Net
loans
|
|
$
|
2,131,825
|
|
$
|
2,106,981
|
|
$
|
2,115,897
|
|
|
|
|
|
|
|
|
|
Covered
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
|
|
$
|
|
|
$
|
494
|
|
Real
estate secured
|
|
166,490
|
|
196,066
|
|
206,770
|
|
Commercial
and industrial
|
|
53,613
|
|
62,409
|
|
66,829
|
|
Consumer
|
|
125
|
|
608
|
|
627
|
|
Total
loans
|
|
220,228
|
|
259,083
|
|
274,720
|
|
Allowance
for losses on loans
|
|
(7,031
|
)
|
(753
|
)
|
|
|
Net
loans
|
|
$
|
213,197
|
|
$
|
258,330
|
|
$
|
274,720
|
|
|
|
|
|
|
|
|
|
Total
loans:
|
|
|
|
|
|
|
|
Construction
|
|
$
|
70,808
|
|
$
|
48,371
|
|
$
|
45,080
|
|
Real
estate secured
|
|
1,999,216
|
|
1,979,704
|
|
1,973,198
|
|
Commercial
and industrial
|
|
361,890
|
|
387,443
|
|
415,739
|
|
Consumer
|
|
17,062
|
|
17,234
|
|
16,611
|
|
Total
loans
|
|
2,448,976
|
|
2,432,752
|
|
2,450,628
|
|
Unearned
Income
|
|
(4,932
|
)
|
(5,311
|
)
|
(5,276
|
)
|
Gross
loans, net of unearned income
|
|
2,444,044
|
|
2,427,441
|
|
2,445,352
|
|
Allowance
for losses on loans
|
|
(99,022
|
)
|
(62,130
|
)
|
(54,735
|
)
|
Net
loans
|
|
$
|
2,345,022
|
|
$
|
2,365,311
|
|
$
|
2,390,617
|
|
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 it was probable, at the time of acquisition, that the
B
ank would be unable to collect all contractually required payments
receivable. In contrast,
N
on-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 f
our
different loan
pools by loan type: construction, commercial
&
industrial
, real estate
secured
, and consumer.
The
difference between contractually required payments at acquisition and the cash
flows expected to be collected at acquisition is referred to as the
non-accretable difference which is included in the carrying amount of the
loans. Subsequent decreases to the expected cash flows will generally result in
a provision for loan losses. Subsequent increases in cash flows result in a
reversal of the provision for loan losses to the extent of prior charges, or a
reversal of the non-accretable difference with a positive impact on interest
income. Further, any excess of cash flows expected at acquisition over the
estimated fair value is referred to as the accretable yield and is recognized
into interest income over the remaining life of the loan when there is a
reasonable expectation about the amount and timing of such cash flows.
14
Table
of Contents
The
following table represents the carrying value of SOP 03-3 and Non SOP 03-3
loans acquired from Mirae Bank at September 30, 2010:
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31,2009
|
|
|
|
|
|
|
|
Non SOP 03-3 loans
|
|
$
|
216,006
|
|
$
|
248,204
|
|
SOP 03-3 loans
|
|
4,222
|
|
10,879
|
|
Total outstanding balance
|
|
220,228
|
|
259,083
|
|
Allowance related to these
loans
|
|
(7,031
|
)
|
(753
|
)
|
Carrying amount, net of allowance
|
|
$
|
213,197
|
|
$
|
258,330
|
|
The
following table represents the balance of SOP 03-3 acquired loans from Mirae
Bank for which it was probable at the time of the acquisition that all of the
contractually required payments would not be collected:
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Breakdown of SOP 03-3 Loans
|
|
|
|
|
|
Real Estate loans
|
|
$
|
3,373
|
|
$
|
6,881
|
|
Commercial loans
|
|
$
|
849
|
|
$
|
3,998
|
|
Loans
acquired from the acquisition of Mirae Bank were discounted based on estimated
cashflows to be received at June 26, 2009.
Discount on acquired loans totaled $54.9 million at acquisition. In the third quarter and first nine months of
2010, discount accretion on acquired loans of $973,000 and $3.4 million,
respectively, were recorded as interest income as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(Dollars in Thousands)
|
|
September 30, 2010
|
|
September 30, 2010
|
|
|
|
|
|
|
|
Beginning balance of
discount on loans
|
|
$
|
20,582
|
|
$
|
30,846
|
|
Discount accretion income
recognized
|
|
(973
|
)
|
(3,444
|
)
|
Disposals related to
charge-offs
|
|
(1,081
|
)
|
(7,210
|
)
|
Disposals related to loan
sales
|
|
(1,234
|
)
|
(2,898
|
)
|
Carrying amount, net of
allowance
|
|
$
|
17,294
|
|
$
|
17,294
|
|
15
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,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Balances:
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
Balances
at beginning of
period
|
|
$
|
91,419
|
|
$
|
38,758
|
|
$
|
62,130
|
|
$
|
29,437
|
|
Actual
charge-offs: *
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
12,769
|
|
1,888
|
|
30,009
|
|
2,736
|
|
Commercial and industrial
|
|
1,539
|
|
6,134
|
|
7,094
|
|
14,703
|
|
Consumer
|
|
33
|
|
191
|
|
224
|
|
649
|
|
Total charge-offs
|
|
14,341
|
|
8,213
|
|
37,327
|
|
18,088
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
on loans previously charged off:
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
770
|
|
2
|
|
794
|
|
3
|
|
Commercial and industrial
|
|
179
|
|
189
|
|
1,442
|
|
495
|
|
Consumer
|
|
42
|
|
33
|
|
140
|
|
100
|
|
Total recoveries
|
|
991
|
|
224
|
|
2,376
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
13,350
|
|
7,989
|
|
34,951
|
|
17,490
|
|
|
|
|
|
|
|
|
|
|
|
FDIC Indemnification
|
|
2,954
|
|
|
|
5,645
|
|
|
|
Provision for losses on loan
and loan commitments
|
|
17,999
|
|
23,966
|
|
66,198
|
|
42,788
|
|
Balances at end of
period
|
|
$
|
99,022
|
|
$
|
54,735
|
|
$
|
99,022
|
|
$
|
54,735
|
|
Allowance
for loan commitments:
|
|
|
|
|
|
|
|
|
|
Balances
at beginning of
year
|
|
$
|
3,516
|
|
$
|
1,221
|
|
$
|
2,515
|
|
$
|
1,243
|
|
Provision for losses
(recovery) on loan commitments
|
|
1
|
|
234
|
|
1,002
|
|
212
|
|
Balance at end of period
|
|
$
|
3,517
|
|
$
|
1,455
|
|
$
|
3,517
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
:
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to average total loans
|
|
0.56
|
%
|
0.33
|
%
|
1.47
|
%
|
0.80
|
%
|
Allowance for loan losses to total loans at end of
period
|
|
4.05
|
%
|
2.24
|
%
|
4.05
|
%
|
2.24
|
%
|
Net loan charge-offs to allowance for loan losses at
end of
period
|
|
13.48
|
%
|
14.60
|
%
|
35.30
|
%
|
31.95
|
%
|
Net loan charge-offs to provision for losses on loans
and
loan commitments
|
|
74.17
|
%
|
33.02
|
%
|
52.01
|
%
|
40.67
|
%
|
*
|
|
Charge-off
amount for the three months ended September 30, 2010 includes net
charge-offs of covered loans amounting to $415,000, which represents gross
covered loan charge-offs of $1.6 million less FDIC receivable portion of $1.2
million. Charge-off amount for the nine months ended September 30, 2010
includes net charge-offs of covered loans amounting to $1.4 million, which
represents gross covered loan charge-offs of $9.3 million less FDIC
receivable portion of $7.9 million
|
16
Table of
Contents
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, 2010
|
|
December 31, 2009
|
|
|
|
Reserve
|
|
Gross Loans
|
|
(%)
|
|
Reserve
|
|
Gross Loans
|
|
(%)
|
|
Applicable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
4,006
|
|
$
|
70,808
|
|
5.66
|
%
|
$
|
411
|
|
$
|
48,371
|
|
0.85
|
%
|
Real
estate secured
|
|
61,381
|
|
1,999,216
|
|
3.07
|
%
|
34,458
|
|
1,979,704
|
|
1.74
|
%
|
Commercial
and industrial
|
|
32,151
|
|
361,890
|
|
8.88
|
%
|
27,059
|
|
387,443
|
|
6.98
|
%
|
Consumer
|
|
1,484
|
|
17,062
|
|
8.70
|
%
|
202
|
|
17,234
|
|
1.17
|
%
|
Total
allowance
|
|
$
|
99,022
|
|
$
|
2,448,976
|
|
4.04
|
%
|
$
|
62,130
|
|
$
|
2,432,752
|
|
2.55
|
%
|
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 the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. At September 30, 2010, our
recorded impaired loans totaled $224.3 million, of which $164.1 million had
specific reserves of $33.4 million. At December 31, 2009, our recorded
impaired loans totaled $165.2 million, of which $84.2 million had specific
reserves of $15.6 million.
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 non-impaired 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
.
During
the third quarter of 2010, the Company enhanced the overall allowance for loan
losses methodology. The key enhancements to our allowance methodology involved
changes to our general valuation allowance calculation. As a result of changes to our loan portfolio
since the initial implementation of our allowance for loan losses methodology,
enhancements were made to the migration model and qualitative adjustment
calculation to better reflect the current environment and risk in the loan
portfolio. The enhancements to our
historical loss rate calculation included a change in our analysis period from
five to three years. In addition, our
qualitative adjustment matrix was enhanced to include updated risk factors and
an enhanced systematic calculation. As a
result of the enhancements to the allowance methodology, the general valuation
allowance component of allowance for loan losses decreased by $804,000 to $64.8
million at September 30, 2010 compared to the previous quarter. The allowance for loan losses methodology
enhancement did not have a significant impact on the ending allowance for loan
losses figures.
Note
7
.
Shareholders
Equity
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 earning
s
of the Company.
17
Table of Contents
The
following table provides the basic and diluted EPS computations for the periods
indicated below:
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
(Dollars in Thousands, Except per Share Data)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
4,072
|
|
$
|
(1,657
|
)
|
$
|
1,914
|
|
$
|
13,330
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic
earnings per share:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
29,486,734
|
|
29,413,757
|
|
29,486,255
|
|
29,413,757
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock option dilution
|
|
22,419
|
|
|
|
44,345
|
|
8,771
|
|
Denominator for diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares and assumed
conversions
|
|
29,509,153
|
|
29,413,757
|
|
29,530,600
|
|
29,422,528
|
|
Basic earnings (loss) per share
|
|
$
|
0.14
|
|
$
|
(0.06
|
)
|
$
|
0.06
|
|
$
|
0.45
|
|
Diluted earnings (loss) per share
|
|
$
|
0.14
|
|
$
|
(0.06
|
)
|
$
|
0.06
|
|
$
|
0.45
|
|
Note
8
.
Business Segment Reporting
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
services
(TF
S
). The Company determines the
operating results of each segment based on an internal management system that
allocates certain expenses to each segment.
Banking Operations (Operations)
The
Company raises funds from deposits and borrowings for loans and investments,
and provides lending products, including commercial, consumer, and real estate
loans to its customers.
Small Business Administration Lending Services
The SBA
department mainly provides customers with access to the U.S. SBA guaranteed
lending program.
Trade Finance Services
Our TFS primarily deals in
letters of credit issued to customers whose businesses involve the
international sale of goods. A letter of
credit is an arrangement (usually expressed in letter form) whereby the
Company, at the request of and in accordance with customers instructions,
undertakes to reimburse or cause to reimburse a third party, provided that certain documents are presented
in strict compliance with its terms and conditions. Simply put, a bank is pledging its credit on
behalf of the customer. The Companys TFS offers the following types of letters
of credit to customers:
·
Commercial An
undertaking by the issuing bank to pay for a commercial transaction.
·
Standby An
undertaking by the issuing bank to pay for the non-performance of applicant.
·
Documentary
Collections A means of channeling payment for goods through a bank in order
to facilitate passing of funds. The bank (banks) involved acts as a conduit
through which the funds and documents are transferred between the buyer and
seller of goods.
Our TFS services include the issuance and negotiation of
letters of credit, as well as the handling of documentary collections. On the
export side, we provide advising and negotiation of commercial letters of
credit, and we transfer and issue back-to-back letters of credit. We also
provide importers with trade finance lines of credit, which allow for issuance
of commercial letters of credit and financing of documents received under such
letters of credit, as well as documents received under documentary collections.
Exporters are assisted through export lines of credit as well as through
immediate financing of clean documents presented under export letters of
credit.
18
Table of Contents
The
following are the results of operations of the Companys segments for the three
months ended September 30, 2010 and 2009 indicated below:
(Dollars in Thousands)
|
|
Three Months Ended September 30, 2010
|
|
Business Segments
|
|
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
Net interest income
|
|
$
|
26,349
|
|
$
|
790
|
|
$
|
2,513
|
|
$
|
29,652
|
|
Less provision for loan losses
|
|
16,402
|
|
1,598
|
|
|
|
18,000
|
|
Non-interest income
|
|
6,439
|
|
281
|
|
3,326
|
|
10,046
|
|
Non-interest expense
|
|
13,454
|
|
341
|
|
978
|
|
14,773
|
|
(Loss) income before income taxes
|
|
$
|
2,932
|
|
$
|
(868
|
)
|
$
|
4,861
|
|
$
|
6,925
|
|
Total assets
|
|
$
|
2,994,297
|
|
$
|
51,606
|
|
$
|
186,782
|
|
$
|
3,232,685
|
|
(Dollars in Thousands)
|
|
Three Months Ended September 30, 2009
|
|
Business Segments
|
|
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
Net interest income
|
|
$
|
25,904
|
|
$
|
467
|
|
$
|
3,042
|
|
$
|
29,413
|
|
Less provision for loan losses
|
|
18,021
|
|
3,999
|
|
2,180
|
|
24,200
|
|
Non-interest income
|
|
5,158
|
|
(86
|
)
|
2,328
|
|
7,400
|
|
Non-interest expense
|
|
14,128
|
|
118
|
|
575
|
|
14,821
|
|
Income (loss) before income taxes
|
|
$
|
(1,087
|
)
|
$
|
(3,736
|
)
|
$
|
2,615
|
|
$
|
(2,208
|
)
|
Total assets
|
|
$
|
3,136,284
|
|
$
|
51,205
|
|
$
|
190,074
|
|
$
|
3,377,563
|
|
The
following are the results of operations of the Companys segments for the nine
months ended September 30, 2010 and 2009 indicated below:
(Dollars in Thousands)
|
|
Nine Months Ended September 30, 2010
|
|
Business Segments
|
|
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
Net interest income
|
|
$
|
77,801
|
|
$
|
2,024
|
|
$
|
7,624
|
|
$
|
87,449
|
|
Less provision for loan losses
|
|
60,573
|
|
1,067
|
|
5,560
|
|
67,200
|
|
Non-interest income
|
|
20,982
|
|
789
|
|
5,939
|
|
27,710
|
|
Non-interest expense
|
|
41,693
|
|
1,247
|
|
2,656
|
|
45,596
|
|
(Loss) income before income taxes
|
|
$
|
(3,483
|
)
|
$
|
499
|
|
$
|
5,347
|
|
$
|
2,363
|
|
Total assets
|
|
$
|
2,994,297
|
|
$
|
51,606
|
|
$
|
186,782
|
|
$
|
3,232,685
|
|
(Dollars in Thousands)
|
|
Nine Months Ended September 30, 2009
|
|
Business Segments
|
|
Operations
|
|
TFS
|
|
SBA
|
|
Company
|
|
Net interest income
|
|
$
|
61,172
|
|
$
|
1,327
|
|
$
|
7,559
|
|
$
|
70,058
|
|
Less provision for loan losses
|
|
31,074
|
|
6,761
|
|
5,165
|
|
43,000
|
|
Non-interest income
|
|
35,024
|
|
841
|
|
3,862
|
|
39,727
|
|
Non-interest expense
|
|
38,247
|
|
1,064
|
|
1,573
|
|
40,884
|
|
Income (loss) before income taxes
|
|
$
|
26,875
|
|
$
|
(5,657
|
)
|
$
|
4,683
|
|
$
|
25,901
|
|
Total assets
|
|
$
|
3,136,284
|
|
$
|
51,205
|
|
$
|
190,074
|
|
$
|
3,377,563
|
|
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.
19
Table of Contents
Commitments
at
September 30, 2010 and December 31,
2009
are summarized as follows:
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Commitments to extend credit
|
|
$
|
279,897
|
|
$
|
238,238
|
|
Standby letters of credit
|
|
10,480
|
|
13,044
|
|
Commercial letters of credit
|
|
11,132
|
|
10,236
|
|
Commitments to fund Low
Income Housing Tax Credits (LIHTC)
|
|
12,866
|
|
11,492
|
|
|
|
|
|
|
|
|
|
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 2009, FASB issued ASU 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets.
Update 2009-16 will require more information regarding transferred financial
assets, including securitization transactions, and where entities have
continuing exposure to risks related to transferred financial assets. The Company adopted this standard as of January 1,
2010. As a result of certain recourse
provisions that are included in the sale of SBA guaranteed loans, of the
classification of sold SBA guarantee portions are recorded as secured
borrowings and the gain from the sale of such loans are deferred until such
recourse provisions are reassessed.
In January 2010, FASB issued Accounting Standards
Update 2010-06, Improving Disclosures about Fair Value Measurements. ASU
2010-06 will require reporting entities to make new disclosures about (a) amounts
and reasons for significant transfers in and out of Level 1 and Level 2 fair
value measurements, (b) Input and valuation techniques used to measure
fair value for both recurring and nonrecurring fair value measurements that
fall in either Level 2 or Level 3 and (c) information on purchases, sales,
issuances and settlements in the roll forward of activity in Level 3 fair value
measures. The new and revised disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009 except for disclosures
about purchases, sales, issuances and settlements in the roll forward of
activity in Level 3 fair value measures, which are effective for fiscal years
beginning after December 15, 2010. The adoption of ASU 2010-06 effective
for reporting periods after December 15, 2009 did not have a material
impact on the consolidated financial statements. The Company is still
evaluating the impact of the remainder of ASU 2010-06 effective for fiscal
years beginning after December 15, 2010.
In February 2010, FASB issued ASU 2010-09, and
amendment of ASC 855 (formerly Statement No. 165, Subsequent Events). ASC 855 was issued to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. ASC Topic 2010-09 amends ASC 855 by adding the SEC
file, and revised financial statements to the ASC Master Glossary while
removing the definition of public entity from the glossary. The amendment
also exempts SEC filers from disclosing the date through which subsequent
events have been evaluated and require SEC files and conduit debt obligors to
evaluate subsequent events through the date the financial statements are
issued. ASU 2010-09 is effective as of
the issue date for financial statements that are issued, available to be
issued, or revised. The adoption of ASU 2010-09 did not have a material impact
on the consolidated financial statements.
In April 2010, FASB issued ASU 2010-18 Effect of a Loan Modification When the Loan
is Part of a Pool that is Accounted for as a Single Asset, which
is effective for modifications of loans accounted for within pools under
Subtopic 310-30 occurring in the first interim or annual period ending after
July 15, 2010. Under the amendments, modifications of loans that are
accounted for within a pool do not result in the removal of those loans from the
pool even if the modification of those loans would otherwise be considered a
troubled debt restructuring. An entity will continue to be required to consider
whether the pool of assets in which the loan is included is impaired if
expected cash flows for the pool change. The Company does not expect ASU
2010-18 to have a material impact on its consolidated financial statement.
20
Table of Contents
In July 2010, FASB issued ASU 2010-20 Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses to improve
disclosures about the credit quality of financing receivables and the allowance
for credit losses. Companies will be
required to provide more information about the credit quality of their
financing receivables in the disclosures to financial statements, such as aging
information and credit quality indicators. Both new and existing disclosures
must be disaggregated by portfolio segment or class. The disaggregation of information is based on
how a company develops its allowance for credit losses and how it manages its
credit exposure. Required disclosures as
of the end of a reporting period are effective for periods ending on or after December 15,
2010, while required disclosures about activity that occurs during a reporting
period are effective for periods beginning on or after December 15, 2010.
The Company does not expect ASU 2010-20 to have a material impact on its
consolidated financial statement.
Note
11
.
Subsequent Events
The
Company evaluated subsequent events through the date the financial statements
were issued. As of the issue date of this report, the Company did not have
any subsequent events to report.
21
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, 2010 and September 30,
2009, financial condition as of September 30, 2010 and December 31,
200
9
, 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
9
, 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
rel
ies
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.
·
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.
·
We may be unable to manage future growth.
·
Our expenses will increase as a result of
increases in FDIC insurance premiums.
22
Table
of Contents
·
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 may increase the cost
of doing business and inhibit our ability to compete, including the unexpected
impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and
Basel III.
·
As participants
in the United States Department of the Treasurys Capital Purchase Program, we
are subject to additional regulations and legislation that may not be
applicable to other financial institution competitors.
·
We could be negatively impacted by downturns
in the South Korean economy.
·
Additional shares of our common stock issued
in the future could have a dilutive effect.
·
Shares of our preferred
stock previously issued and preferred stock issued in the future could have
dilutive and other effects.
These
factors and the risk factors referred to in our Annual Report on Form 10-K
for the year ended December 31, 2009 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.
23
Table of
Contents
Selected Financial Data
The following table presents selected historical
financial information for the three months ended September 30, 2010 and September 30,
2009 and the year to date balance ended September 30, 2010, December 31,
2009, and September 30, 2009. 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) (unaudited)
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net
(loss) income available to common shareholders
|
|
$
|
4,072
|
|
$
|
(1,657
|
)
|
$
|
1,914
|
|
$
|
13,330
|
|
Net
(loss) income per common share, basic
|
|
0.14
|
|
(0.06
|
)
|
0.06
|
|
0.45
|
|
Net
(loss) income per common share, diluted
|
|
0.14
|
|
(0.06
|
)
|
0.06
|
|
0.45
|
|
Net
interest income before provision for loan losses and loan commitments
|
|
29,652
|
|
29,413
|
|
87,449
|
|
70,058
|
|
|
|
|
|
|
|
|
|
|
|
Average balances:
|
|
|
|
|
|
|
|
|
|
Assets
|
|
3,348,434
|
|
3,298,328
|
|
3,413,486
|
|
2,840,993
|
|
Cash and
cash equivalents
|
|
325,851
|
|
262,321
|
|
270,445
|
|
189,314
|
|
Investment
securities
|
|
449,154
|
|
488,704
|
|
586,641
|
|
367,260
|
|
Net
loans
|
|
2,372,428
|
|
2,393,513
|
|
2,366,651
|
|
2,162,801
|
|
Total
deposits
|
|
2,810,176
|
|
2,547,303
|
|
2,878,455
|
|
2,129,473
|
|
Shareholders
equity
|
|
274,845
|
|
276,770
|
|
274,536
|
|
266,157
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
Annualized
return on average assets
|
|
0.59
|
%
|
(0.09
|
)%
|
0.18
|
%
|
0.75
|
%
|
Annualized
return on average equity
|
|
7.25
|
%
|
(1.09
|
)%
|
2.25
|
%
|
8.04
|
%
|
Net
interest margin
|
|
3.93
|
%
|
3.87
|
%
|
3.77
|
%
|
3.55
|
%
|
Efficiency
ratio
|
|
37.21
|
%
|
40.26
|
%
|
39.59
|
%
|
37.24
|
%
|
Capital Ratios:
|
|
|
|
|
|
|
|
|
|
Tier 1
capital to adjusted total assets
|
|
10.01
|
%
|
10.03
|
%
|
|
|
|
|
Tier 1
capital to risk-weighted assets
|
|
14.10
|
%
|
14.29
|
%
|
|
|
|
|
Total
capital to risk-weighted assets
|
|
15.56
|
%
|
15.82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Year to date balances as of:
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,232,685
|
|
$
|
3,435,997
|
|
$
|
3,377,563
|
|
Investment
securities
|
|
367,524
|
|
651,427
|
|
559,718
|
|
Total
loans, net of unearned income and allowance for loan losses
|
|
2,345,022
|
|
2,427,441
|
|
2,445,352
|
|
Total
deposits
|
|
2,706,748
|
|
2,828,215
|
|
2,672,102
|
|
Junior
subordinated debentures
|
|
87,321
|
|
87,321
|
|
87,321
|
|
FHLB
advances
|
|
110,000
|
|
232,000
|
|
322,000
|
|
Total
common equity
|
|
211,011
|
|
206,205
|
|
272,487
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
(net of SBA guaranteed portion)
|
|
|
|
|
|
|
|
Net
charge-off to average total loans for the quarter
|
|
0.56
|
%
|
0.74
|
%
|
0.33
|
%
|
Non-performing
loans to gross loans
|
|
3.13
|
%
|
2.92
|
%
|
3.20
|
%
|
Non-performing
assets to total loans and other real estate owned
|
|
3.77
|
%
|
3.07
|
%
|
6.15
|
%
|
Allowance
for loan losses to total loans
|
|
4.05
|
%
|
2.56
|
%
|
2.24
|
%
|
Allowance
for loan losses to non-performing loans
|
|
129.18
|
%
|
87.78
|
%
|
70.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
24
Table of
Contents
Executive Overview
We
operate within 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 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 expanded geographically.
Pursuant
to the acquisition of Mirae Bank on June 26, 2009, five commercial banking
branches located within southern California were integrated into our branch network,
although four of the branches were eventually closed due to their proximity to
our existing branches. In the first quarter of 2010, an additional branch in
Van Nuys, California was opened.
We also have
six
loan production offices in Aurora, Colorado; Atlanta, Georgia; Dallas,
Texas; Houston, Texas; Annandale, Virginia and Fort Lee, New Jersey.
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 estimat
es
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
9
Annual Report on Form 10-K in the Critical Accounting Policies
section of
Managements Discussion and
Analysis
of Financial Condition and Results of Operations
, which are
essential to understanding Managements Discussion and Analysis of Financial
Condition and Results of Operations. There has been no material modification to
these policies during the quarter ended September 30, 2010
.
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 $239,000 or 0.8%, to $29.7 million in the third quarter of 2010,
compared to $29.4 million in the third quarter of 2009. Net interest margin of 3.93% in the third
quarter of 2010 was increased by 6 basis points from net interest margin of
3.87% in the previous year due to a decrease of 0.67% in total cost of interest
bearing deposits during the same period. The slight increase in net interest
income was a result of interest expenses decreasing slightly more than total
interest income. On an year to date
basis, net interest income before provision for losses on loans and loan
commitments increased $17.4 million to $87.4 million for the first nine month
of 2010 compared to $70.1 million for the first nine months of 2009. Net
interest margin was increased to 3.77% for year to date September 30, 2010
from 3.55% for the same period the prior year.
25
Table
of Contents
Interest
income decreased by $5.3 million, or 11.8%, to $39.8 million in third quarter
of 2010 compared to $45.1 million in the third quarter of 2009. The decrease in interest income was primarily
due to a decrease in average balances in our loan portfolio and in our U.S.
government agency securities portfolio in addition to a decrease in overall
loan and investment yields. Average loan
balances decreased by $21.1 million to $2.37 billion in the third quarter of
2010, compared to $2.39 billion in the third quarter of 2009. This decrease was primarily due to loan sales
and a decrease in loan demand throughout 2010 which reduced originations. The average balances of government sponsored
securities decreased from $450.1 million to $404.0 million from the third
quarter of 2009 to 2010. Due to the
lower rate environment coupled with a decrease in investment spreads to
treasuries bonds, the overall tax equivalent yield on investments decreased
from 4.16% at the quarter ending September 30, 2009 to 2.76% at September 30,
2010.
Interest
income for the first nine months of 2010 increased 7.4% or by $8.5 million to
$122.2 million at September 30, 2010 compared to $113.7 million for the
same period last year. The resulted as
average loan and securities of government sponsored enterprises was
increased. Average net loan balance
increased from $2.2 billion for the nine months ended September 30, 2009
to $2.4 billion for the nine months ended September 30, 2010 and averages
balance for securities of government sponsored enterprises increased from
$334.5 million to $541.8 million during the same period. Although year to date yields for loans and
securities of government sponsored enterprises decreased from September 30,
2009 to September 30, 2010, the increase in average balances resulted in
an increase in interest income compared to the previous year.
Interest
expense decreased by $5.6 million, or 35.5%, to $10.1 million in the third
quarter of 2010 compared to $15.7 million in the third quarter of 2009, and
average balances of our interest bearing liabilities decreased by $22.8 million
to $2.60 billion in the third quarter of 2010 from $2.62 billion at the third
quarter of 2009. The decrease in
interest bearing liabilities is attributable to a decrease in FHLB advances and
other borrowings, which decreased $222.1 million to $140.2 million at September 30,
2010 from $362.2 million at September 30 2009. Total cost of interest bearing liabilities
decreased from 2.40% at the end of the third quarter 2009 to 1.56% at the end
of the third quarter of 2010, a decrease of 84 basis points. The decrease resulted from an improved
deposits mix and interest rate reductions on money market and time deposits.
Interest
expense for the first nine months was also decreased to $37.8 million at September 30,
2010, a decrease of $8.9 million or 20.4% compared to the first nine months of
2009. Average balances for total
interest bearing liabilities increased to $2.7 billion for the nine months
ended September 30, 2010 from $2.2 billion for the nine months ended September 30,
2009. Cost of liabilities decreased to
1.72% for the first nine months of 2010 compared to 2.60% for the first nine
months of 2009, a decrease of 88 basis points.
This decrease is also attributable to improved deposits mix and interest
rate reductions on money market and time deposits.
26
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 for the quarter ended September 30, 2010:
Distribution, Yield and Rate
Analysis of Net Interest Income
(Dollars in Thousands)
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
200
9
|
|
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/Yield
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/Yield
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
(1)
|
|
$
|
2,372,428
|
|
$
|
36,452
|
|
6.15
|
%
|
$
|
2,393,513
|
|
$
|
39,388
|
|
6.58
|
%
|
Securities of government sponsored
e
nterprises
|
|
403,962
|
|
2,337
|
|
2.31
|
%
|
450,116
|
|
4,460
|
|
3.96
|
%
|
Other investment securities
(2)
|
|
45,192
|
|
468
|
|
6.73
|
%
|
38,588
|
|
416
|
|
6.47
|
%
|
Federal funds sold
|
|
227,706
|
|
514
|
|
0.90
|
%
|
180,490
|
|
844
|
|
1.87
|
%
|
Total interest-earning assets
|
|
3,049,288
|
|
39,771
|
|
5.26
|
%
|
3,062,707
|
|
45,108
|
|
5.92
|
%
|
Total non-interest-earning
assets
|
|
299,146
|
|
|
|
|
|
235,531
|
|
|
|
|
|
Total assets
|
|
$
|
3,348,434
|
|
|
|
|
|
$
|
3,298,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
$
|
858,437
|
|
2,506
|
|
1.17
|
%
|
$
|
677,234
|
|
4,075
|
|
2.41
|
%
|
Super NOW deposits
|
|
21,706
|
|
23
|
|
0.42
|
%
|
21,481
|
|
50
|
|
0.93
|
%
|
Savings deposits
|
|
78,848
|
|
590
|
|
2.99
|
%
|
62,090
|
|
527
|
|
3.39
|
%
|
Time deposits of $100,000 or more
|
|
743,966
|
|
2,455
|
|
1.32
|
%
|
984,521
|
|
5,611
|
|
2.28
|
%
|
Other time deposits
|
|
668,873
|
|
3,114
|
|
1.86
|
%
|
427,234
|
|
2,731
|
|
2.56
|
%
|
FHLB advances and other
borrowings
|
|
140,156
|
|
758
|
|
2.16
|
%
|
362,208
|
|
1,982
|
|
2.19
|
%
|
Junior
subordinated debenture
|
|
87,321
|
|
673
|
|
3.08
|
%
|
87,321
|
|
719
|
|
3.30
|
%
|
Total interest-bearing
liabilities
|
|
2,599,307
|
|
10,119
|
|
1.56
|
%
|
2,622,089
|
|
15,695
|
|
2.40
|
%
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
deposits
|
|
438,346
|
|
|
|
|
|
374,743
|
|
|
|
|
|
Other liabilities
|
|
35,936
|
|
|
|
|
|
24,636
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
474,282
|
|
|
|
|
|
399,379
|
|
|
|
|
|
Shareholders equity
|
|
274,845
|
|
|
|
|
|
276,770
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
3,348,434
|
|
|
|
|
|
$
|
3,298,238
|
|
|
|
|
|
Net interest income
|
|
|
|
$
|
29,652
|
|
|
|
|
|
$
|
29,413
|
|
|
|
Net interest spread
(3)
|
|
|
|
|
|
3.70
|
%
|
|
|
|
|
3.52
|
%
|
Net interest margin
(4)
|
|
|
|
|
|
3.93
|
%
|
|
|
|
|
3.87
|
%
|
(1
)
Net l
oan fees are included
in the calculation of interest income.
Net l
oan fees were
approximately $679,000 and $
918,000
for the quarters ended September 30, 2010 and 2009,
respectively. Loans are net of the
allowance for loan losses, deferred fees, unearned income, and related direct
costs, but include loans placed on non-accrual status.
(2)
Represents
tax equivalent yields, non-tax equivalent yields for 2010 and 2009 were 4.14%
and 4.31%, respectively.
(3)
Represents the average rate earned on interest-earning assets less the
average rate paid on interest-bearing liabilities.
(4)
Represents
net interest income as a percentage of average interest-earning assets.
27
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 for the nine months ended September 30, 2010:
Distribution, Yield and Rate
Analysis of Net Interest Income
(Dollars in Thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
200
9
|
|
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/Yield
|
|
Average
Balance
|
|
Interest
Income/
Expense
|
|
Average
Rate/Yield
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
(1)
|
|
$
|
2,366,651
|
|
$
|
107,835
|
|
6.08
|
%
|
$
|
2,162,801
|
|
$
|
100,818
|
|
6.22
|
%
|
Securities of government sponsored
e
nterprises
|
|
541,838
|
|
11,766
|
|
2.90
|
%
|
334,474
|
|
9,938
|
|
3.96
|
%
|
Other investment securities
(2)
|
|
44,803
|
|
1,409
|
|
6.82
|
%
|
32,786
|
|
1,073
|
|
6.27
|
%
|
Federal funds sold
|
|
172,773
|
|
1,191
|
|
0.92
|
%
|
120,249
|
|
1,910
|
|
2.12
|
%
|
Total interest-earning assets
|
|
3,126,065
|
|
122,201
|
|
5.25
|
%
|
2,650,310
|
|
113,739
|
|
5.75
|
%
|
Total non-interest-earning
assets
|
|
287,421
|
|
|
|
|
|
190,683
|
|
|
|
|
|
Total assets
|
|
$
|
3,413,486
|
|
|
|
|
|
$
|
2,840,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
$
|
928,498
|
|
10,071
|
|
1.45
|
%
|
$
|
493,160
|
|
9,181
|
|
2.48
|
%
|
Super NOW deposits
|
|
22,066
|
|
78
|
|
0.47
|
%
|
20,066
|
|
141
|
|
0.94
|
%
|
Savings deposits
|
|
76,210
|
|
1,793
|
|
3.14
|
%
|
51,347
|
|
1,364
|
|
3.54
|
%
|
Time deposits of $100,000 or more
|
|
754,610
|
|
8,264
|
|
1.46
|
%
|
972,176
|
|
19,031
|
|
2.61
|
%
|
Other time deposits
|
|
682,422
|
|
10,132
|
|
1.98
|
%
|
277,684
|
|
6,235
|
|
2.99
|
%
|
FHLB advances and other
borrowings
|
|
142,292
|
|
2,428
|
|
2.28
|
%
|
336,944
|
|
5,262
|
|
2.08
|
%
|
Junior
subordinated debenture
|
|
87,321
|
|
1,986
|
|
3.03
|
%
|
87,321
|
|
2,467
|
|
3.77
|
%
|
Total interest-bearing
liabilities
|
|
2,693,419
|
|
34,752
|
|
1.72
|
%
|
2,238,698
|
|
43,681
|
|
2.60
|
%
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
deposits
|
|
414,649
|
|
|
|
|
|
315,040
|
|
|
|
|
|
Other liabilities
|
|
30,882
|
|
|
|
|
|
21,098
|
|
|
|
|
|
Total non-interest-bearing liabilities
|
|
445,531
|
|
|
|
|
|
336,138
|
|
|
|
|
|
Shareholders equity
|
|
274,536
|
|
|
|
|
|
266,157
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
3,413,486
|
|
|
|
|
|
$
|
2,840,993
|
|
|
|
|
|
Net interest income
|
|
|
|
$
|
87,449
|
|
|
|
|
|
$
|
70,058
|
|
|
|
Net interest spread
(3)
|
|
|
|
|
|
3.53
|
%
|
|
|
|
|
3.15
|
%
|
Net interest margin
(4)
|
|
|
|
|
|
3.77
|
%
|
|
|
|
|
3.55
|
%
|
(1)
Net l
oan fees are included
in the calculation of interest income.
Net l
oan fees were
approximately $2.1 million and $
2.0 million
for
the nine months ended September 30, 2010 and 2009, respectively. Loans are net of the allowance for loan
losses, deferred fees, unearned income, and related direct costs, but include
loans placed on non-accrual status.
(2)
Represents
tax equivalent yields, non-tax equivalent yields for 2010 and 2009 were 4.19%
and 4.36%, respectively.
(3)
Represents
the average rate earned on interest-earning assets less the average rate paid
on interest-bearing liabilities.
(4)
Represents
net interest income as a percentage of average interest-earning assets.
28
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,
2010 vs. 200
9
Increases (Decreases) Due to Change In
|
|
Nine Months Ended September 30,
2010 vs. 200
9
Increases (Decreases) Due to Change In
|
|
|
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
(1)
|
|
$
|
(344
|
)
|
$
|
(2,592
|
)
|
$
|
(2,936
|
)
|
$
|
9,329
|
|
$
|
(2,312
|
)
|
$
|
7,017
|
|
Securities of government
sponsored enterprises
|
|
(420
|
)
|
(1,703
|
)
|
(2,123
|
)
|
5,005
|
|
(3,177
|
)
|
1,828
|
|
Other Investment securities
|
|
42
|
|
10
|
|
52
|
|
271
|
|
65
|
|
336
|
|
Federal funds sold
|
|
182
|
|
(512
|
)
|
(330
|
)
|
629
|
|
(1,348
|
)
|
(719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
(540
|
)
|
(4,797
|
)
|
(5,337
|
)
|
15,234
|
|
(6,772
|
)
|
8,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market deposits
|
|
898
|
|
(2,467
|
)
|
(1,569
|
)
|
5,808
|
|
(4,918
|
)
|
890
|
|
Super NOW deposits
|
|
1
|
|
(28
|
)
|
(27
|
)
|
13
|
|
(76
|
)
|
(63
|
)
|
Savings deposits
|
|
130
|
|
(67
|
)
|
63
|
|
599
|
|
(170
|
)
|
429
|
|
Time deposit of $100,000 or
more
|
|
(1,159
|
)
|
(1,997
|
)
|
(3,156
|
)
|
(3,627
|
)
|
(7,140
|
)
|
(10,767
|
)
|
Other time deposits
|
|
1,261
|
|
(878
|
)
|
383
|
|
6,590
|
|
(2,693
|
)
|
3,897
|
|
FHLB
advances and other borrowings
|
|
(1,202
|
)
|
(22
|
)
|
(1,224
|
)
|
(3,283
|
)
|
449
|
|
(2,834
|
)
|
Junior
subordinated debenture
|
|
|
|
(46
|
)
|
(46
|
)
|
|
|
(481
|
)
|
(481
|
)
|
Total interest expense
|
|
(71
|
)
|
(5,505
|
)
|
(5,576
|
)
|
6,100
|
|
(15,029
|
)
|
(8,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest
income
|
|
$
|
(469
|
)
|
$
|
708
|
|
$
|
239
|
|
$
|
9,134
|
|
$
|
8,257
|
|
$
|
17,391
|
|
(1)
Net l
oan fees have been
included in the calculation of interest income.
Net l
oan fees were
approximately $679,000 and $
918,000
for the quarters ended September 30, 2010 and 2009,
respectively. Loans are net of the
allowance for loan losses, deferred fees, unearned income, and related direct
costs, but include loans placed on non-accrual status.
P
rovision for Losses on Loans and Loan Commitments
In anticipation of credit risks inherent in our lending
business and ongoing weakness in the local and national economy, we set aside
allowances through charges to earnings.
Such charges were made not only for our outstanding loan portfolio, but
also for off-balance sheet items, such as commitments to extend credits or
letters of credit. The charges made for our
outstanding loan portfolio were credited to allowance for loan losses, whereas
charges for off-balance sheet items were credited to the reserve for
off-balance sheet items, and are 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 and 2010 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
$18.0 million in the
third
quarter
of 2010, as compared with
a
provision of
$24.2 million for the prior
years same quarter
. The decrease in
our
provision for losses on loans and
loan commitments compared to the third quarter of 2009
was primarily due to a decrease in overall non-performing loans (see Financial
Condition Non-performing Assets below for further discussion), in addition to
the sale of non-performing and delinquent loans in the third quarter of 2010
amounting to $17.4 million.
The
$18.0 million provision in the third quarter of 2010 includes charge-offs of
$14.3 million.
Provision for the nine months
ended September 30, 2010 was $67.2 million, an increase of $24.2 million
from $43.0 million for the nine months ended September 30, 2009. The year to date increase in provision for
loan losses was a result of credit deterioration in the loan portfolio
experienced in the fourth quarter of 2009 and the first quarter of 2010 which
result in provision of $24.2 million and $25.6 million, respectively. Our
procedures for monitoring the adequacy of our allowance for
l
osses 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
Bank loans purchased from the FDIC are partially reimbursable as stated in our
loss-sharing agreements
with
the FDIC. For the quarter and nine months ending, September 30, 2010, the
Company had a FDIC indemnification of $3.0 million and $5.6 million,
respectively, included in the allowance for loan losses calculation.
29
Table
of Contents
Non-interest
Income
Total
non-interest income was $10.0 million in the
third
quarter of
2010
, as compared with $7.4 million in the same
quarter a year ago. N
on-interest income as a percentage of average assets
was 0.30% for the
third
quarter of
2010 and 0.22% for the
third
quarter of
2009. For the nine months ended September 30, 2010 and 2009, non-interest
income was $27.7 million or 0.81% of average assets and $39.7 million or 1.40%
of average assets, respectively. The quarter to date increase in non-interest
income resulted from an increase in gain on sale of securities of $2.6 million
in the
third quarter of 2010 compared to no gain on
sale of securities for the third quarter of 2009. Non-interest income for the
first nine months of 2010 decreased from the same period for 2009
primarily due
to the $21.7 million gain from the acquisition of Mirae Bank in the second
quarter of 2009.
The
following tables set forth the various components of our non-interest income
for the periods indicated:
Non-interest Income
(Dollars in Thousands)
|
|
For the Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Service charges on deposit
accounts
|
|
$
|
3,071
|
|
30.6
|
%
|
$
|
3,315
|
|
44.8
|
%
|
Gain on sale of loans
|
|
2,723
|
|
27.1
|
%
|
2,235
|
|
30.2
|
%
|
Gain on sale of securities
|
|
2,600
|
|
25.9
|
%
|
|
|
0
|
%
|
Loan-related servicing fees
|
|
1,149
|
|
11.4
|
%
|
958
|
|
12.9
|
%
|
Other income
|
|
503
|
|
5.0
|
%
|
892
|
|
12.1
|
%
|
Total
|
|
$
|
10,046
|
|
100.0
|
%
|
$
|
7,400
|
|
100.0
|
%
|
Average assets
|
|
$
|
3,348,434
|
|
|
|
$
|
3,298,238
|
|
|
|
Non-interest income as a %
of average assets
|
|
|
|
0.30
|
%
|
|
|
0.22
|
%
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Service charges on deposit accounts
|
|
$
|
9,510
|
|
34.3
|
%
|
$
|
9,338
|
|
23.5
|
%
|
Gain (loss) on sale of loans
|
|
4,203
|
|
15.2
|
%
|
1,711
|
|
4.3
|
%
|
Gain on sale of securities
|
|
8,742
|
|
31.6
|
%
|
1,588
|
|
4.0
|
%
|
Loan-related servicing fees
|
|
2,999
|
|
10.8
|
%
|
2,702
|
|
6.8
|
%
|
Other income
|
|
2,256
|
|
8.1
|
%
|
2,709
|
|
6.8
|
%
|
Gain from acquisition of
Mirae Bank
|
|
|
|
0.0
|
%
|
21,679
|
|
54.6
|
%
|
Total
|
|
$
|
27,710
|
|
100.0
|
%
|
$
|
39,727
|
|
100.0
|
%
|
Average assets
|
|
$
|
3,413,486
|
|
|
|
$
|
2,840,993
|
|
|
|
Non-interest income as a %
of average assets
|
|
|
|
0.81
|
%
|
|
|
1.40
|
%
|
Our
largest source of non-interest income in the third quarter of 2010 was service
charges on deposit accounts, which represented about 30.6% of our total
non-interest income. Service charge income decreased to $3.1 million in the
third quarter of 2010, as compared with $3.3 million for the prior years same
period. Year to date service charges on deposits accounts increased to $9.5
million or 34.3% of non-interest income at September 30, 2010 from $9.3
million at September 30, 2009. The quarterly decrease was a result of a
decrease in overall non sufficient funds charges and on a year to date basis,
service charges on deposits accounts increased as total analysis charges and
checkbook sale income increased at September 30, 2010 compared to the
previous year. Management constantly reviews service charge rates to maximize
service charge income while still maintaining a competitive position.
30
Table of
Contents
Gain
on sale of loans accounted for the second largest source of non-interest income
and at the end of the third quarter and first nine months of 2010 accounted for
$2.7 million, or 27.1%, of non-interest income and $4.2 million, or 15.2%, of
non-interest income, respectively. Both third quarter and year to date gain on
sales of loans increased from prior year balances of $2.2 million and $1.7
million, respectively. Of the total gain
on sale of loans for the third quarter and first nine months of 2010, $2.5
million and $3.8 million, respectively, were attributable to gains on sale of
SBA loans.
Our
third largest source of non-interest income in the third quarter of 2010 was
gain on sale of securities at $2.6 million, which represented approximately
25.9% of our total non-interest income, compared to no gain for the third
quarter of 2009. In the first nine
months of 2010, gain on sale of securities was $8.7 million, or 31.6% of total
non-interest income, an increase from $1.6 million for the first nine months of
2009. Market value of securities has continued to increase as we experience
decreased volatility in securities markets, changes in the yield curve, and
contraction of interest rates spreads on securities owned by the Bank. We were able to realize the appreciation in
market values of our securities while at the same time shortening our overall
duration on our investment portfolio.
Loan
related servicing fees accounted for $1.2 million or 11.4% of total
non-interest income for the third quarter of 2010 and $3.0 million, or 10.8% of
non-interest income for the nine months ended September 30, 2010. These figures increased slightly from the
quarter and nine months ending September 30, 2009 which were $958,000, and
$2.7 million, respectively. This fee income consists of trade-financing fees
and servicing fees on SBA loans sold.
With the expansion of our trade-financing activities and the growth of
our servicing loan portfolio, related fee income has continued to increase.
Other
non-interest income represents income from miscellaneous sources such as loan
referral fees, SBA loan packaging fees, checkbook sales income,
excess of insurance proceeds over carrying value of an insured loss,
dividends from FHLB stock ownership, and increases
in the cash surrender value of
bank owned life insurance (BOLI).
For the third
quarter of 2010, this miscella
n
eous income
amounted
to $503,000, as compared with $
892,000
in the prior years same period, and $2.3 million at
for the first nine months of 2010 compared to $2.7 million for the first nine
months of 2009. Other non-interest
income as a percentage of total non-interest income was 5.0% and 12.1% for the
quarters ending September 30, 2010 and September 30, 2009,
respectively and 8.1% and 6.8% for the nine months ending September 30,
2010 and September 30, 2009, respectively.
Non-interest
Expense
Total
non-interest expense was
$14.8 million for the quarter ending September 30, 2010, unchanged from
the quarter ending September 30, 2009. Non-interest expenses as a
percentage of average assets decreased to 0.44%, from 0.45% at the third
quarter of 2010 and 2009, respectively. For the first nine months of 2010 and
2009, non-interest expense increased to $45.6 million from $
40.9
million. Non-interest expenses as a percentage of average assets
decreased to 1.34%, from 1.44% for the first nine months of 2010 and 2009,
respectively. Our efficiency ratio was 37.21% at the end of the third quarter
of 2010, compared with 40.26% at the same period a year ago. Year to date
efficiency ratio was increased from 37.24% at September 30, 2009 to 39.59%
at September 30, 2010. The increase
in efficiency ratios from 2009 to 2010 was due to the one-time gain
attributable to the acquisition of Mirae Bank in the second quarter of 2009.
31
Table of
Contents
The
following tables set forth a summary of non-interest expenses for the periods
indicated:
Non-interest Expense
s
|
(Dollars in Thousands)
|
|
|
|
For the Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Salaries and employee
benefits
|
|
$
|
7,458
|
|
50.5
|
%
|
$
|
7,120
|
|
48.1
|
%
|
Occupancy and equipment
|
|
1,921
|
|
13.0
|
%
|
1,935
|
|
13.1
|
%
|
Deposit insurance premiums
|
|
1,154
|
|
7.8
|
%
|
982
|
|
6.6
|
%
|
Professional fees
|
|
960
|
|
6.5
|
%
|
659
|
|
4.4
|
%
|
Data processing
|
|
702
|
|
4.8
|
%
|
1,078
|
|
7.3
|
%
|
Advertising and promotional
|
|
291
|
|
2.0
|
%
|
308
|
|
2.1
|
%
|
Outsourced service for
customer
|
|
286
|
|
1.9
|
%
|
328
|
|
2.2
|
%
|
Office supplies
|
|
210
|
|
1.4
|
%
|
258
|
|
1.7
|
%
|
Directors fees
|
|
153
|
|
1.0
|
%
|
103
|
|
0.7
|
%
|
Communications
|
|
135
|
|
0.9
|
%
|
151
|
|
1.0
|
%
|
Investor relation expenses
|
|
83
|
|
0.6
|
%
|
88
|
|
0.6
|
%
|
Amortization of other
intangible assets
|
|
92
|
|
0.6
|
%
|
239
|
|
1.6
|
%
|
Other operating
|
|
1,328
|
|
9.0
|
%
|
1,572
|
|
10.6
|
%
|
Total
|
|
$
|
14,773
|
|
100.0
|
%
|
$
|
14,821
|
|
100.0
|
%
|
Average assets
|
|
$
|
3,348,434
|
|
|
|
$
|
3,298,238
|
|
|
|
Non-interest expense as a %
of average assets
|
|
|
|
0.44
|
%
|
|
|
0.45
|
%
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
|
|
(Amount)
|
|
(%)
|
|
(Amount)
|
|
(%)
|
|
Salaries and employee
benefits
|
|
$
|
21,857
|
|
47.9
|
%
|
$
|
19,315
|
|
47.2
|
%
|
Occupancy and equipment
|
|
6,048
|
|
13.3
|
%
|
5,294
|
|
13.0
|
%
|
Deposit insurance premiums
|
|
3,343
|
|
7.3
|
%
|
3,772
|
|
9.2
|
%
|
Professional fees
|
|
3,347
|
|
7.4
|
%
|
1,576
|
|
3.9
|
%
|
Data processing
|
|
2,029
|
|
4.4
|
%
|
2,750
|
|
6.7
|
%
|
Advertising and promotional
|
|
999
|
|
2.2
|
%
|
901
|
|
2.2
|
%
|
Outsourced service for
customer
|
|
811
|
|
1.8
|
%
|
806
|
|
2.0
|
%
|
Office supplies
|
|
715
|
|
1.6
|
%
|
591
|
|
1.5
|
%
|
Directors fees
|
|
428
|
|
0.9
|
%
|
294
|
|
0.7
|
%
|
Communications
|
|
365
|
|
0.8
|
%
|
360
|
|
0.9
|
%
|
Investor relation expenses
|
|
284
|
|
0.6
|
%
|
214
|
|
0.5
|
%
|
Amortization of other intangible
assets
|
|
276
|
|
0.6
|
%
|
387
|
|
0.9
|
%
|
Other operating
|
|
5,093
|
|
11.2
|
%
|
4,624
|
|
11.3
|
%
|
Total
|
|
$
|
45,595
|
|
100.0
|
%
|
$
|
40,884
|
|
100.0
|
%
|
Average assets
|
|
$
|
3,413,486
|
|
|
|
$
|
2,840,993
|
|
|
|
Non-interest expense as a %
of average assets
|
|
|
|
1.34
|
%
|
|
|
1.44
|
%
|
Salaries
and employee benefits historically represent approximately half of
our
total non-interest expense and generally increases as our branch
networks and business volumes expand.
These expenses were $7.5
million
for the
quarter ending September 30, 2010 compared with $
7.1 million
for the prior years same period. For the first nine
months of 2010, salaries and benefits were $21.9 million compared to $19.3
million in the first nine months of 2009. The number of full-time equivalent
employees increased from 389 as of September 30, 2009 to
413
as of September 30, 2010. The increase in salaries and employee
benefits were largely due to wage increases in addition to increases in medical
premiums and payroll taxes. The increase in employees has decreased our assets
per employee ratio to $7.8 million at September 30, 2010 from $8.7 million
at September 30, 2009.
32
Table of
Contents
Occupancy
and equipment expenses represented about 13% of our total non-interest expenses
for the quarters ending September 30, 2009 and 2010 and 13% for nine
months ending September 30, 2009 and 2010. These expenses remained
unchanged at $
1.9 million in the third
quarter of
2010 and 2009. On a year to date basis, occupancy expenses increased
from $5.3 million at September 30, 2009 to $6.0 million at September 30,
2010. The increase was
primarily
attributable to the additional lease expenses for
our business growth in the past 12 months with the addition of our Forth Worth,
Olympic, and Van Nuys branches, which all opened in 2010.
Deposit
insurance premium expenses represent The Financing Corporation (FICO) and
FDIC insurance premium assessments. In the third quarter of 2010, these
expenses totaled $1.2 million or 7.8% of total non-interest expense, compared
with $982,000 or 6.6% of total non-interest expenses for the prior years same
periods. Deposit insurance premiums for the nine months ending September 30,
2010 were $3.3 million or 7.3% of total non-interest expense, compared to $3.8
million, or 9.2%, of total non-interest expense for the same period last year.
In the second quarter of 2009, the FDIC imposed a one-time special assessment
of $1.5 million which was primarily the reason for the higher assessment
expense for the first nine months of 2009 compared to the first nine months of
2010.
Professional fees generally increase as we grow. Such
fees increased to $960,000 in the third quarter of 2010 and $3.3 million for
the first nine months of 2010, compared to $659,000 and $1.6 million for the
same period of the prior year, respectively. These expenses represented 6.5%
and 7.4% for the third quarter and first nine months of 2010, respectively, and
4.4% and 3.9% for the third quarter and first nine months of 2009,
respectively. This increase was
primarily due to increased legal fees resulting from collection of non-performing
loans and OREO foreclosures.
Data processing expenses decreased to $702,000 in the
third quarter of 2010 from $1.1 million for the same period a year ago. In the first nine months of 2010, data
processing expenses accounted for $2.0 million or 4.4% of total non-interest
expense compared to $2.8 million or 6.7% of total non-interest expense for the
same period in 2009. Total data processing expenses decreased as fees have gone
down slightly since June 30, 2009.
Advertising
and promotional
expenses
decreased by $17,000 to $291,000 at the third quarter of 2010 compared to the
same period in 2009 but increased to $1.0 million for the first nine of 2010
from $901,000 for the nine months ending September 30, 2009
.
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
increase in the year to date figure in 2010 was primarily attributable to our
increased advertising spending to promote a branch addition in Van Nuys, as
well as a new marketing campaign that began in the first quarter of 2010.
Other
non-interest expenses, such as outsourced service costs for customer, office
supplies, communications, directors fees, investor relation expenses,
amortization of intangible assets and other operating expenses were $2.3
million for the third quarter of 2010 compared with 2.7 million for the same
period a year ago. For the first nine months of 2010, other non-interest
expenses were $8.0 million compared to $7.3 million for the first nine months
of 2009. 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, 2010, we had an
income tax provision of $1.9 million on a pretax income of $6.3 million,
representing an effective tax rate of 28.1%, as compared with a tax benefit of
$1.5 million on pretax net loss of $2.2 million, representing an effective tax
benefit rate of 65.7% for the same quarter in 2009. For the first nine months of 2010, we
recorded an income tax benefit of $2.3 million on a pretax net income of $2.4
million representing an effective tax benefit rate of 96.0% compared to a tax
provision of $9.9 million on pretax net income of $25.9 million which resulted
in an effective tax rate of 38.0% for the same period in 2009.
Due to the high degree of variability of the estimated
annual effective tax rate when considering the range of projected income for
the remainder of the year, the Company has determined that the actual
year-to-date effective tax rate is the best estimate of the annual effective
tax rate. The effective tax rate for the
nine months ending September 30, 2010 was lower than the tax rate for
September 30, 2009 due mostly to large permanent differences pertaining to
low income housing tax credits, enterprise zone net interest deductions, and
enterprise hiring credit compared to net income. The change in tax provision
calculation method increased the recognition of tax benefits over a shorter
period of time, increasing the overall effective tax rate for the first nine
months of 2010.
33
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
i
nvestment
p
olicy 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
Cash
and cash equivalents include cash and due from banks, term and overnight
federal funds sold, and securities purchased under agreements to resell, all of
which have original maturities of less than 90 days. We buy or sell federal
funds and maintain deposits in interest-bearing accounts in other financial
institutions to help meet liquidity requirements and provide temporary holding
s
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, 2010, our
investment portfolio was comprised primarily of United States government agency
securities, which accounted for 90.2% of the entire investment portfolio.
Our U.S. government agency securities holdings are all prime/conforming
mortgage backed securities, or MBSs, 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, a 9.8% investment in municipal debt
securities and 0.3% investment in corporate debt. Among our investment
portfolio that is not comprised of U.S. government securities, 9.4%, or
$34.6 million, carry the two highest Investment Grade ratings of
Aaa/AAA or Aa/AA, while 0.6%, or $2.2 million, carry an intermediate
Investment Grade rating of at least Baa1/BBB+ or above, and 0.4%, or $1.4
million, is unrated. Our investment portfolio does not contain any government
sponsored enterprises, or GSE preferred securities or any distressed corporate
securities that required other-than-temporary-impairment charges as of
September 30, 2010.
We classified our investment securities as
held-to-maturity or available-for-sale pursuant to ASC 320-10 (SFAS No. 115).
Pursuant to the fair value election option of ASC 470-20, we have chosen to
continue classifying our existing instruments of investment securities as
held-to-maturity or available-for-sale under ASC 320-10. Investment
securities that we intend to hold until maturity are classified as held to
maturity securities, and all other investment securities are classified as
available-for-sale. The carrying values of available-for-sale investment
securities are adjusted for unrealized gains and losses as a valuation
allowance and any gain or loss is reported on an after-tax basis as a component
of other comprehensive income. Credit related declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses,
and there was no such other-than-temporary-impairment in 2009. The fair market
values of our held-to-maturity and available-for-sale securities were respectively
$0.1 million and $367.4 million as of September 30, 2010.
The fair value of investments is accounted for in
accordance with ASC 320-10
(SFAS No. 115,
Accounting for Certain Investments in Debt
and Equity Securities)
. The Company currently utilizes an independent
third party bond accounting service for our investment portfolio
accounting. The third party provides
market values derived using a proprietary matrix pricing model which utilizes
several different sources for pricing. The Company uses market values received
for investment fair values which are updated on a monthly basis. The market
values received is tested annually and is validated using prices received from
another independent third party source. All of these evaluations are considered
as Level 2 in reference to ASC 820.
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.
34
Table
of Contents
The
following table summarizes the amortized cost, market value, net unrealized
gain (loss), and distribution of our investment securities as of the dates
indicated:
Investment Securities Portfolio
(Dollars in Thousands)
|
|
As of
September 30, 2010
|
|
As of December 31, 2009
|
|
|
|
Amortized
Cost
|
|
Market
Value
|
|
Net
Unrealized
Gain
|
|
Amortized
Cost
|
|
Market
Value
|
|
Net
Unrealized
Gain
(Loss)
|
|
Held to
Maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
91
|
|
$
|
97
|
|
$
|
6
|
|
$
|
109
|
|
$
|
109
|
|
$
|
|
|
Total
investment securities held to maturity
|
|
$
|
91
|
|
$
|
97
|
|
$
|
6
|
|
$
|
109
|
|
$
|
109
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government sponsored enterprises
|
|
$
|
53,902
|
|
$
|
54,460
|
|
$
|
558
|
|
$
|
156,879
|
|
$
|
155,382
|
|
$
|
(1,497
|
)
|
Mortgage
backed securities
|
|
19,972
|
|
20,788
|
|
816
|
|
131,617
|
|
131,711
|
|
94
|
|
Collateralized
mortgage obligations
|
|
250,198
|
|
254,016
|
|
3,818
|
|
318,531
|
|
319,554
|
|
1,023
|
|
Corporate
securities
|
|
2,000
|
|
2,036
|
|
36
|
|
2,000
|
|
2,017
|
|
17
|
|
Municipal
securities
|
|
34,777
|
|
36,133
|
|
1,356
|
|
42,068
|
|
42,654
|
|
586
|
|
Total
investment securities available for sale
|
|
$
|
360,849
|
|
$
|
367,433
|
|
$
|
6,584
|
|
$
|
651,095
|
|
$
|
651,318
|
|
$
|
223
|
|
The
following table summarizes the maturity and repricing schedule of our
investment securities at their market values at September 30, 2010:
Investment Maturities and
Repricing Schedule
(Dollars in Thousands
)
|
|
Within One Year
|
|
After One &
Within Five
Years
|
|
After Five &
Within Ten
Years
|
|
After Ten Years
|
|
Total
|
|
Held to
Maturity
:
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
mortgage obligations
|
|
$
|
|
|
$
|
97
|
|
$
|
|
|
$
|
|
|
$
|
97
|
|
Total
investment securities held to maturity
|
|
$
|
|
|
$
|
97
|
|
$
|
|
|
$
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for Sale
:
|
|
|
|
|
|
|
|
|
|
|
|
Securities
of government
sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
54,460
|
|
$
|
|
|
$
|
54,460
|
|
Mortgage
backed securities
|
|
6,556
|
|
55
|
|
2,409
|
|
11,768
|
|
20,788
|
|
Collateralized
mortgage obligations
|
|
4,092
|
|
238,688
|
|
|
|
11,236
|
|
254,016
|
|
Corporate
securities
|
|
|
|
2,036
|
|
|
|
|
|
2,036
|
|
Municipal
securities
|
|
128
|
|
1,170
|
|
6,068
|
|
28,767
|
|
36,133
|
|
Total
investment securities available for sale
|
|
$
|
10,776
|
|
$
|
241,949
|
|
$
|
62,937
|
|
$
|
51,771
|
|
$
|
367,433
|
|
Holdings of investment
securities decreased to $367.5 million at September 30, 2010, as compared
with holdings of $
651.4
million at December 31, 200
9
. Total
investment securities as a percentage of total assets was
11.4
% and
19.0
% at September 30, 2010 and December 31,
200
9
, respectively.
Securities with market value of approximately $351.1 million and $629.2
million were pledged to secure public deposits for other purposes required or
permitted by law at September 30, 2010 and December 31, 2009,
respectively
As
of September 30, 2010, our investment securities classified as
held-to-maturity, which are carried at their amortized cost, stayed
relatively
unchanged
on a
dollar basis
at $91,000 as compared with $109,000 as of December 31,
2009. Our investment securities classified as available-for-sale, which are
stated at their fair market values, decreased to $
367.4.4
million at
September 30, 2010 from $
651.3
million at
December 31, 200
9
.
35
Table of
Contents
The
following table shows the gross unrealized losses and fair value of our
investments, aggregated by investment category and the length of time that
individual securities have been in a continuous unrealized loss position, at
September 30, 2010
and December 31, 2009:
As of September 30, 2010
(Dollars in Thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored enterprises
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage
obligations
|
|
48,065
|
|
(121
|
)
|
|
|
|
|
48,065
|
|
(121
|
)
|
Corporate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
1,197
|
|
(87
|
)
|
339
|
|
(68
|
)
|
1,536
|
|
(155
|
)
|
Total
|
|
$
|
49,262
|
|
$
|
(208
|
)
|
$
|
339
|
|
$
|
(68
|
)
|
$
|
49,601
|
|
$
|
(276
|
)
|
As of December 31, 200
9
(Dollars in Thousands)
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
Description of Securities (AFS)
(1)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities of government
sponsored enterprises
|
|
$
|
110,296
|
|
$
|
(
1,600
|
)
|
$
|
|
|
$
|
|
|
$
|
110,296
|
|
$
|
(
1,600
|
)
|
Mortgage-backed securities
|
|
85,313
|
|
(
726
|
)
|
|
|
|
|
85,313
|
|
(
726
|
)
|
Collateralized mortgage
obligations
|
|
145,622
|
|
(975
|
)
|
|
|
|
|
145,622
|
|
(975
|
)
|
Corporate securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
securities
|
|
18,783
|
|
(505
|
)
|
|
|
|
|
18,783
|
|
(505
|
)
|
Total
|
|
$
|
360,014
|
|
$
|
(
3,806
|
)
|
$
|
|
|
$
|
|
|
$
|
360,014
|
|
$
|
(
3,806
|
)
|
(1)
There were no held-to-maturity securities with
losses as of September 30, 2010 and December 31, 2009.
At
September 30, 2010, the total
unrealized losses less than 12 months old were $208,000 and total unrealized
losses more than 12 months old were $68,000 for the same period. The aggregate related fair value of
investments with unrealized losses less than 12 months old was $49.3
million
at September 30, 2010, and $339,000 with unrealized
losses more than 12 months old. As of
December 31, 2009, the total unrealized losses less than 12 months old
were $
3.8 million
, 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 $
360.0
million at December 31, 2009.
Credit 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.
36
Table of
Contents
·
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.
·
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, and junior
subordinated debenture are easily accessible.
·
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, 2010, the net unrealized gain
in the investment portfolio was $6.6 million compared to $223,000 in net
unrealized gains as of December 31, 2009.
The increase in unrealized gains can be attributed to recently improved
market stability, which has led to a decrease in treasuries interest rate
spreads, 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
decreased to $
2.35
billion at
September 30, 2010, as compared with $2.37 billion at December 31,
2009. Total loans net of unearned income
and allowance for loan losses as a percentage of total assets was increased to
72.5% at September 30, 2010 from 68.8% at December 31, 2009.
37
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, 2010
|
|
December 31, 2009
|
|
Construction
|
|
$
|
70,808
|
|
$
|
48,371
|
|
Real
estate secured
|
|
1,999,216
|
|
1,979,704
|
|
Commercial
and industrial
|
|
361,890
|
|
387,443
|
|
Consumer
|
|
17,062
|
|
17,234
|
|
Total
loans
(1)
|
|
2,448,976
|
|
2,432,752
|
|
Unearned
Income
|
|
(4,932
|
)
|
(5,311
|
)
|
Gross
loans, net of unearned income
|
|
2,444,044
|
|
2,427,441
|
|
Allowance
for losses on loans
|
|
(99,022
|
)
|
(62,130
|
)
|
Net
loans
|
|
$
|
2,345,022
|
|
$
|
2,365,311
|
|
|
|
|
|
|
|
Percentage
breakdown of gross loans:
|
|
|
|
|
|
Construction
|
|
2.9
|
%
|
2.0
|
%
|
Real
estate secured
|
|
81.6
|
%
|
81.4
|
%
|
Commercial
and industrial
|
|
14.8
|
%
|
15.9
|
%
|
Consumer
|
|
0.7
|
%
|
0.7
|
%
|
(1)
Includes loans held for sale, which are recorded at the lower of cost or
market, of $41.2 million and $36.2 million at September 30, 2010 and December 31,
2009, 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 remained unchanged
at $2.0
billion
both as of September 30, 2010 and December 31, 200
9
. Real estate secured loans as a percentage of
total loans were
81.6
% and
81.4
% at September 30, 2010
and December 31, 200
9
, respectively. Home mortgage loans represent a small
fraction of our total real estate secured loan portfolio. Total home mortgage
loans outstanding were
only
$47.8 million at September 30, 2010 and $
41.3
million at
December 31
,
2009.
Commercial
and industrial loans include revolving lines of credit as well as term business
loans. Commercial and industrial loans
at September 30, 2010 decreased to $361.9
million, as
compared with $
387.4
million at December 31,
200
9
. Commercial and industrial loans as a
percentage of total loans were
14.8
% at September 30,
20
10
, decreasing from
15.9
% at December 31, 200
9
.
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, 2010, our volume of
consumer loans decreased by $200,000 from the prior year end. As of September 30,
2010, the balance of consumer loans was $
17.1
million, or
0.7
% of total loans, as compared to $17.2 million, or 0.7% of total loans
as of December 31, 2009.
Construction
loans represented less than 5% of our total loan portfolio as of September 30,
2010. 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 construction related loans.
However,
c
onstruction loans
increased
to $
70.8
million, or 2.9
%
of total loans, at the end of the third quarter of 2010, as
compared with
$
48.4
million, or
2.0% of total loans at December 31, 2009.
38
Table of
Contents
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,
2010. 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)
|
|
September 30, 2010
|
|
|
|
Within
One Year
|
|
After One
But within
Five Years
|
|
After
Five Years
|
|
Total
|
|
Construction
|
|
$
|
70,808
|
|
$
|
|
|
$
|
|
|
$
|
70,808
|
|
Real
estate secured
|
|
1,259,351
|
|
722,466
|
|
17,399
|
|
1,999,216
|
|
Commercial
and industrial
|
|
353,199
|
|
8,691
|
|
|
|
361,890
|
|
Consumer
|
|
16,299
|
|
763
|
|
|
|
17,062
|
|
Gross
loans
|
|
$
|
1,699,657
|
|
$
|
731,920
|
|
$
|
17,399
|
|
$
|
2,448,976
|
|
|
|
|
|
|
|
|
|
|
|
Loans
with variable interest rates
|
|
$
|
1,358,945
|
|
$
|
|
|
$
|
|
|
$
|
1,358,945
|
|
Loans
with fixed interest rates
|
|
$
|
340,712
|
|
$
|
731,920
|
|
$
|
17,399
|
|
$
|
1,090,031
|
|
A
majority of the properties that are collateralized against our loans 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,
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 for 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 Bank 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 Bank 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.
39
Table of Contents
The following is a summary of total non-performing loans
and OREO on the dates indicated:
Non
-
performing Assets and Restructured Loans
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Total Nonaccrual loans:
(1)
|
|
|
|
|
|
|
|
Real estate secured
|
|
$
|
70,008
|
|
$
|
63,571
|
|
$
|
65,965
|
|
Commercial and industrial
|
|
6,303
|
|
5,805
|
|
11,379
|
|
Consumer
|
|
37
|
|
70
|
|
49
|
|
Total
|
|
76,348
|
|
69,446
|
|
77,393
|
|
Loans 90 days or
more past due and still accruing:
|
|
|
|
|
|
|
|
Real estate secured
|
|
|
|
1,317
|
|
477
|
|
Commercial and industrial
|
|
304
|
|
|
|
295
|
|
Consumer
|
|
|
|
19
|
|
|
|
Total
|
|
304
|
|
1,336
|
|
772
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
76,652
|
|
70,782
|
|
78,165
|
|
|
|
|
|
|
|
|
|
Repossessed vehicles
|
|
|
|
|
|
|
|
Other real estate owned
|
|
15,996
|
|
3,797
|
|
6,238
|
|
Total
non-performing assets, net of SBA guarantee
|
|
$
|
92,648
|
|
$
|
74,579
|
|
$
|
84,403
|
|
|
|
|
|
|
|
|
|
Performing
troubled debt restructurings
|
|
52,182
|
|
64,612
|
|
66,257
|
|
Impaired
restructured loans
(2)
|
|
63,752
|
|
|
|
|
|
Performing
troubled debt restructurings & impaired restructured loans
|
|
115,934
|
|
64,612
|
|
66,257
|
|
|
|
|
|
|
|
|
|
Non-performing
loans as a percentage of total loans
|
|
3.14
|
%
|
2.92
|
%
|
3.20
|
%
|
(1) During the periods ended September 30, 2010, December 31,
2009, and September 30, 2009 no interest income related to these loans was
included in interest income.
(2) Modified loans that have experienced credit deterioration
subsequent to modification that, and while currently performing, are deemed to
be impaired.
40
Table of
Contents
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.
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, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Covered Nonaccrual loans:
(1)
|
|
|
|
|
|
|
|
Real
estate secured
|
|
$
|
10,568
|
|
$
|
15,554
|
|
$
|
21,496
|
|
Commercial
and industrial
|
|
3,031
|
|
2,773
|
|
3,511
|
|
Consumer
|
|
|
|
|
|
|
|
Total
|
|
13,599
|
|
18,327
|
|
25,007
|
|
Loans 90 days or more past due and still accruing:
|
|
|
|
|
|
|
|
Real
estate secured
|
|
|
|
|
|
477
|
|
Commercial
and industrial
|
|
|
|
|
|
295
|
|
Consumer
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
Total
non-performing loans
|
|
13,599
|
|
18,327
|
|
25,779
|
|
|
|
|
|
|
|
|
|
Repossessed
vehicles
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
6,477
|
|
500
|
|
500
|
|
Total
covered non-performing assets
|
|
$
|
20,076
|
|
$
|
18,827
|
|
$
|
26,279
|
|
|
|
|
|
|
|
|
|
Performing
troubled debt restructurings
|
|
2,160
|
|
9,175
|
|
10,494
|
|
Impaired
restructured loans
(2)
|
|
8,556
|
|
|
|
|
|
Performing
troubled debt restructurings & impaired restructured loans
|
|
10,716
|
|
9,175
|
|
10,494
|
|
|
|
|
|
|
|
|
|
Covered
non-performing loans as a percentage of total covered loans
|
|
6.17
|
%
|
7.07
|
%
|
9.38
|
%
|
(1)
During the periods ended September 30,
2010, December 31, 2009, and September 30, 2009, no interest income
related to these loans was included in interest income.
(2) Modified loans that have experienced credit deterioration
subsequent to modification that, and while currently performing, are deemed to
be impaired.
41
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 non-performing assets):
Non
-
performing
Non-covered
Assets and Restructured Loans
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
Non-covered Nonaccrual loans:
(1)
|
|
|
|
|
|
|
|
Real estate secured
|
|
$
|
59,440
|
|
$
|
48,017
|
|
$
|
44,469
|
|
Commercial and industrial
|
|
3,272
|
|
3,032
|
|
7,868
|
|
Consumer
|
|
37
|
|
70
|
|
49
|
|
Total
|
|
62,749
|
|
51,119
|
|
52,386
|
|
Loans 90 days or
more past due and still accruing:
|
|
|
|
|
|
|
|
Real estate secured
|
|
304
|
|
1,317
|
|
|
|
Commercial and industrial
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
19
|
|
|
|
Total
|
|
304
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans
|
|
63,053
|
|
52,455
|
|
52,386
|
|
|
|
|
|
|
|
|
|
Repossessed vehicles
|
|
|
|
|
|
|
|
Other real estate owned
|
|
9,519
|
|
3,297
|
|
5,738
|
|
Total
non-covered non-performing assets, net of SBA guarantee
|
|
72,572
|
|
55,752
|
|
58,124
|
|
|
|
|
|
|
|
|
|
Guaranteed
portion of non-performing SBA loans
|
|
13,058
|
|
13,421
|
|
11,583
|
|
Total
gross non-covered non-performing assets
|
|
$
|
85,630
|
|
$
|
69,173
|
|
$
|
69,707
|
|
|
|
|
|
|
|
|
|
Performing
troubled debt restructurings
|
|
50,022
|
|
55,437
|
|
55,763
|
|
Impaired
restructured loans
(2)
|
|
55,196
|
|
|
|
|
|
Performing
troubled debt restructurings & impaired restructured loans
|
|
105,218
|
|
55,437
|
|
55,763
|
|
|
|
|
|
|
|
|
|
Non-covered
non-performing loans as a percentage of total
non-covered loans
|
|
2.84
|
%
|
2.42
|
%
|
2.41
|
%
|
(1) During the periods ended September 30, 2010 and December 31,
2009, and September 30, 2009 no interest income related to these loans was
included in interest income.
(2)
Modified loans that have experienced credit deterioration subsequent to modification
that, and while currently performing, are deemed to be impaired.
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.
As a result of the challenging economic conditions in
the last few years, credit quality has continued to deteriorate in the past
year. 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 total NPLs, net of SBA guaranteed portion, increased to $76.7
million, or 3.14% of total loans at the end of the third quarter of 2010, as
compared with $70.8 million, or 2.92% of total loans at December 30, 2009.
The $5.9 million increase of NPLs from December 31, 2009 to September 30,
2010 was due to a $6.9 million increase in non-accrual loans, offset by a $1.0
million decrease in loans 90 days or more past due and still accruing. Non-performing loans were also decreased in
the third quarter of 2010 as a result of loan sale transactions in which both
non-performing and delinquent loans with a total book value of $17.4.0 million
were sold.
42
Table of Contents
No interest income related to
non-accrual loans was included in net income for the quarter and nine months
ending September 30, 2010. Additional interest income of approximately
$890,000 and $3.5 million would have been recorded during the quarter and nine
months ending September 30, 2010, respectively, if these loans had been
paid in accordance with their original terms and had been outstanding or, if
not outstanding throughout the period, since origination.
Management
also believes that the reserves provided for non-performing loans, together
with the tangible collateral, were adequate as of September 30, 2010. 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.
C
harge
s
made for our outstanding loan portfolio
were
credited to
the
allowance for losses on loans, whereas charges related to
loan commitments were
credited to
the
reserve for
loan commitments
, which is presented as a component of other
liabilities.
The
allowance for losses on loans and
loan
commitments
are maintained at levels that are believed to be adequate by management
to absorb estimated probable losses on loans inherent in the loan portfolio.
The adequacy of our allowance is determined through periodic evaluations of the
loan portfolio and other pertinent factors, which are inherently subjective
because the process calls for various significant estimates and assumptions.
Among other factors, the estimates involve the amounts and timing of expected
future cash flows and fair value of collateral on impaired loans, estimated
losses on loans based on historical loss experience, various qualitative
factors, and uncertainties in estimating losses and inherent risks in the
various credit portfolios, which may be subject to substantial change.
Total
charge-offs for the three months ending September 30, 2010 were $14.3 million
compared with $8.2 million for the same period in 2009. Charge-offs for the nine months ending September 30,
2010 were $37.3 million, an increase from $18.1 million in charge-offs for the
same period in 2009. For the first nine
months of 2010 real estate loan charge-offs increased from $2.7 million at September 30,
2009 to $30.0 million at September 30, 2010 while commercial loan
charge-offs decreased from $14.7 million to $7.1 million during the same
period. Charge-offs of consumer loans
decreased from $649,000 at September 30, 2009 to $224,000 at September 30,
2010. For the quarter ending September 30, 2010 real estate secured
charge-offs were $12.8 million, an increase from $1.9 at the quarter ending September 30,
2009. Both commercial and industrial and
consumer charge-offs were decreased to $1.5 million and $33,000, respectively,
at the end of the third quarter of 2010, from $6.1 million and $191,000 at the
end of the third quarter of 2009.
On
a quarterly basis, we utilize a loan loss 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.
During
the third quarter of 2010, the Company enhanced the overall allowance for loan
losses methodology. The key enhancements
to our allowance methodology involved changes to our general valuation
allowance calculation. As a result of
changes to our loan portfolio since the initial implementation of our allowance
for loan losses methodology, enhancements were made to the migration model and
qualitative adjustment calculation to better reflect the current environment
and risk in the loan portfolio. The
enhancements to our historical loss rate calculation included a change in our
analysis period from five to three years.
In addition, our qualitative adjustment matrix was enhanced to include
updated risk factors and a new calculation method. As a result of the enhancements to the
allowance methodology, the general valuation allowance component of allowance
for loan losses decreased by $804,000 to $64.8 million at September 30, 2010
compared to the previous quarter. The allowance for loan losses methodology
enhancement did not have a significant impact on the ending allowance for loan
losses figures.
We increased our
allowance for losses on loans to $99.0 million
at September 30, 2010, representing an increase
of 59.4
%, or $36.9 million
from $62.1 million
at
December 31,
200
9.
With
the increase of our non-performing loans
,
we
have increased
the ratio of allowance for losses on loans to total gross loans
to 4.04% at September 30, 2010, as compared with
the 2.56% at December 31, 2009. Our
total general reserve stands at $64.8 million and represents 2.7% of total
gross loans at the end of September 30, 2010. A
lthough
management believes our allowance at September 30, 2010 was adequate to
absorb losses from any known and inherent risks in the portfolio at that time,
no assurance can be given that economic conditions which adversely affect our
service areas or other variables will not result in further increased losses in
the loan portfolio in the future.
43
Table of Contents
Our allowance for losses on off-balance sheet items
increased to $2.9 million at September 30, 2010, compared to $2.5 million
at December 31, 2009, an increase of $400,000.
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 Loan Losses and
Loan Commitments
(Dollars in Thousands)
|
|
For the Three Months Ended September 30,
|
|
For the Nine Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
Balances
at beginning of
period
|
|
$
|
91,419
|
|
$
|
38,758
|
|
$
|
62,130
|
|
$
|
29,437
|
|
|
|
|
|
|
|
|
|
|
|
Actual
charge-offs:
*
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
12,769
|
|
1,888
|
|
30,009
|
|
2,736
|
|
Commercial and industrial
|
|
1,539
|
|
6,134
|
|
7,094
|
|
14,703
|
|
Consumer
|
|
33
|
|
191
|
|
224
|
|
649
|
|
Total charge-offs
|
|
14,341
|
|
8,213
|
|
37,327
|
|
18,088
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
on loans previously charged off:
|
|
|
|
|
|
|
|
|
|
Real estate secured
|
|
770
|
|
2
|
|
794
|
|
3
|
|
Commercial and industrial
|
|
179
|
|
189
|
|
1,442
|
|
495
|
|
Consumer
|
|
42
|
|
33
|
|
140
|
|
100
|
|
Total recoveries
|
|
991
|
|
224
|
|
2,376
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs
|
|
13,350
|
|
7,989
|
|
34,951
|
|
17,490
|
|
|
|
|
|
|
|
|
|
|
|
FDIC Indemnification
|
|
2,954
|
|
|
|
5,645
|
|
|
|
Provision for losses on loan
and loan commitments
|
|
17,999
|
|
23,966
|
|
66,198
|
|
42,788
|
|
Balances at end of
year
|
|
$
|
99,022
|
|
$
|
54,735
|
|
$
|
99,022
|
|
$
|
54,735
|
|
Allowance
for loan commitments:
|
|
|
|
|
|
|
|
|
|
Balances
at beginning of
period
|
|
$
|
3,516
|
|
$
|
1,221
|
|
$
|
2,515
|
|
$
|
1,243
|
|
Provision (credit) for
losses on loan commitments
|
|
1
|
|
234
|
|
1,002
|
|
212
|
|
Balance at end of period
|
|
$
|
3,517
|
|
$
|
1,455
|
|
$
|
3,517
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
:
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs to
average total loans
|
|
0.56
|
%
|
0.33
|
%
|
1.47
|
%
|
0.88
|
%
|
Allowance for loan losses to
total loans at end of
period
|
|
4.05
|
%
|
2.24
|
%
|
4.05
|
%
|
2.24
|
%
|
Net loan charge-offs to
allowance for loan losses at end of
period
|
|
13.48
|
%
|
14.60
|
%
|
35.30
|
%
|
31.95
|
%
|
Net loan charge-offs to
provision for losses on loans and
loan commitments
|
|
74.17
|
%
|
33.02
|
%
|
52.01
|
%
|
40.67
|
%
|
*
Charge-off amount for the three months
ended September 30, 2010 includes net charge-offs of covered loans
amounting to $415,000, which represents gross covered loan charge-offs of $1.6
million less FDIC receivable portion of $1.2 million. Charge-off amount for the
nine months ended September 30, 2010 includes net charge-offs of covered
loans amounting to $1.4 million, which represents gross covered loan
charge-offs of $9.3 million less FDIC receivable portion of $7.9 million
44
Table of Contents
Contractual
Obligations
The
following table represents our aggregate contractual obligations to make future
payments
(principal and interest)
as of
September 30, 2010:
(Dollars in Thousands)
|
|
One Year
or Less
|
|
Over One Year
To Three Years
|
|
Over Three Years
To Five Years
|
|
Over Five
Years
|
|
Indeterminate
Maturity
|
|
Total
|
|
FHLB
advances
|
|
$
|
42,282
|
|
$
|
70,323
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
112,605
|
|
Junior
subordinated debentures
|
|
752
|
|
10,725
|
|
|
|
77,321
|
|
|
|
88,798
|
|
Operating
leases
|
|
3,433
|
|
5,994
|
|
4,998
|
|
5,264
|
|
|
|
19,689
|
|
Unrecognized tax benefit
|
|
|
|
|
|
|
|
|
|
398
|
|
398
|
|
Time
deposits
|
|
1,291,900
|
|
82,669
|
|
19
|
|
|
|
|
|
1,374,588
|
|
Total
|
|
$
|
1,338,367
|
|
$
|
169,711
|
|
$
|
5,017
|
|
$
|
82,585
|
|
$
|
398
|
|
$
|
1,596,078
|
|
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, 2010 and December 31, 200
9
, we had
commitments to extend credit of $
280.0
million and $
238.2
million, respectively.
Obligations under standby letters of credit were $
10.5
million and $
13.0
million at September 30,
2010 and December 31, 200
9
, respectively,
and our obligations under commercial letters of credit were $
11.1
million and $
10.2
million at
such dates, respectively. Commitments to
fund Low Income Housing Tax Credit investments were $12.9 million at the end of
the third quarter of 2010 compared to $11.5 million at the end of the fourth
quarter of 2009.
In
the normal course of business, we are involved in various legal claims. We have
reviewed with counsel all legal claims against us 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 decreased to $2.71 billion at September 30,
2010
, compared with $2.83 billion at
December 31,
200
9.
Total
non-time deposits at September 30, 2010 increased to $1.35 billion in the
first nine months of 2010, from $1.39 billion at December 31, 2009, and
time deposits decreased to $1.36 billion at September 30, 2010 from $1.44
billion at December 31, 2009.
The
decrease in deposits was primarily attributable to managements planned
reduction of higher cost money market and time deposits accounts and a push
toward demand deposits in the second and third quarter of 2010. Other time deposits or time deposits under
$100,000 also decreased to $628.3 million at September 30, 2010 compared
to $643.7 million at December 31, 2009. Compared to December 31,
2010, all deposits except for savings and interest check and demand deposits
accounts were reduced as of September 30, 2010.
The
average rate that we paid on time deposits in denominations of $100,000 or more
for the third quarter of
2010
decreased to
1.32% from 2.28% in the same period 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. In addition we
plan to continue to reduce higher cost deposits in the fourth quarter of
2010. Total cost of deposits also decreased
from 2.04% for the quarter ending September 30, 2009 to 1.24% for the
quarter ending September 30, 2010, a decrease of 80 basis points.
45
Table of
Contents
The
following table summarizes the distribution of average daily deposits and the
average daily rates paid for the quarters indicated:
Average Deposits
(Dollars in Thousands)
|
|
For the Three Months Ended,
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
September 30, 2009
|
|
|
|
Average
Balance
|
|
Average
Rate
|
|
Average
Balance
|
|
Average
Rate
|
|
Average
Balance
|
|
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, non-interest-bearing
|
|
$
|
438,346
|
|
|
|
$
|
388,549
|
|
|
|
$
|
374,744
|
|
|
|
Money market
|
|
858,437
|
|
1.17
|
%
|
853,770
|
|
2.18
|
%
|
677,234
|
|
2.41
|
%
|
Super NOW
|
|
21,706
|
|
0.42
|
%
|
21,971
|
|
0.65
|
%
|
21,481
|
|
0.93
|
%
|
Savings
|
|
78,848
|
|
2.99
|
%
|
68,373
|
|
3.33
|
%
|
62,090
|
|
3.39
|
%
|
Time deposits in denominations of $100,000 or more
|
|
743,966
|
|
1.32
|
%
|
862,805
|
|
1.91
|
%
|
984,521
|
|
2.28
|
%
|
Other time deposits
|
|
668,873
|
|
2.86
|
%
|
592,336
|
|
2.27
|
%
|
427,234
|
|
2.56
|
%
|
Total deposits
|
|
$
|
2,810,176
|
|
1.24
|
%
|
$
|
2,787,804
|
|
1.83
|
%
|
$
|
2,547,304
|
|
2.04
|
%
|
The
scheduled maturities of our time deposits in denominations of $100,000 or
greater at September 30, 20
10
were as
follows:
Maturities of Time Deposits of
$100,000 or More
(Dollars in Thousands)
Three months or less
|
|
$
|
323,096
|
|
Over three months through
six months
|
|
217,513
|
|
Over six months through
twelve months
|
|
122,485
|
|
Over twelve months
|
|
68,782
|
|
Total
|
|
$
|
731,876
|
|
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,
2010 and December 31, 200
9
.
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 2010, despite the ongoing weakness in the economy 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
$453.3 million at September 30, 2010 from $385.2 million at December 31,
2009. 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 our cost of funds.
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.
46
Table of
Contents
The
following table is a summary of FHLB borrowings for the quarters indicated:
(Dollars in Thousands)
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Balance at quarter end
|
|
$
|
110,000
|
|
$
|
232,000
|
|
Average balance during the
quarter
|
|
$
|
117,913
|
|
$
|
237,341
|
|
Maximum amount outstanding
at any month-end
|
|
$
|
118,000
|
|
$
|
242,000
|
|
Average interest rate during
the quarter
|
|
2.57
|
%
|
3.05
|
%
|
Average interest rate at
quarter-end
|
|
2.46
|
%
|
2.22
|
%
|
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,
2009. 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, 2010
and December 31, 200
9
totaled
approximately $718.1 million and $
923.4
million,
respectively. Our liquidity levels
measured as the percentage of liquid assets to total assets were 22.2% and
26.9
% at September 30, 2010 and December 31, 200
9
, respectively.
Our primary sources of liquidity are derived from our
core operating activities of accepting customer deposits. This funding source
is augmented by payments of principal and interest on loans, the routine
liquidation of securities from the available-for-sale portfolio and
securitizations of loans. In addition, government programs, such as TLGP, may
influence deposit behavior. Primary use of funds include withdrawal of and
interest payments on deposits, originations and purchases of loans, purchases
of investment securities, and payment of operating expenses.
As
a secondary source of liquidity, we accept 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, 2010, our borrowing capacity from the FHLB was about
$693.6 million and our outstanding balance was $
110.0
million, or
approximately
17.2
% of our
borrowing capacity
.
Capital
Resources and Capital Adequacy Requirements
Historically,
our primary source of capital has been internally generated operating income
through retained earnings. In order to
ensure adequate levels of capital, we conduct ongoing assessments of projected
sources and uses of capital in conjunction with projected increases in assets
and level of risks. We have considered,
and we will continue to consider, additional sources of capital as the need
arises, whether through the issuance of additional equity, debt or hybrid
securities. In December of 2008, we received
a
Troubled
Assets Relief Program or TARP
investment
from the U.S. Treasury
in the amount of $62.2 million
.
47
Table of
Contents
We
are subject to various regulatory capital requirements administered by federal
banking agencies. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, we must meet specific capital
guidelines that rely on quantitative measures of our assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices.
Failure
to meet minimum capital requirements can trigger regulatory actions under the
prompt corrective action rules that could have a material adverse effect
on our financial condition and operations.
Prompt corrective action may include regulatory enforcement actions that
restrict dividend payments, require the adoption of remedial measures to
increase capital, terminate FDIC deposit insurance, and mandate the appointment
of a conservator or receiver in severe cases.
In addition, failure to maintain a well-capitalized status may adversely
affect the evaluation of regulatory applications for specific transactions and
activities, including acquisitions, continuation and expansion of existing
activities, and commencement of new activities, and could adversely affect our
business relationships with our existing and prospective clients. The aforementioned regulatory consequences
for failing to maintain adequate ratios of Tier 1 and Tier 2 capital could have
a material adverse effect on our financial condition and results of
operations.
Our capital amounts and
classification are also subject to qualitative judgments by regulators about
components, risk weightings, and other factors.
See Part I, Item 1 Description of Business Regulation and
Supervision Capital Adequacy Requirements in our Annual Report on Form 10-K
for the year ended December 31, 200
9
for additional
information regarding regulatory capital requirements.
As
of September 30, 2010, 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, 2010
|
|
December 31, 200
9
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to
risk-weighted assets
|
|
8
|
%
|
10
|
%
|
15.56
|
%
|
15.81
|
%
|
15.82
|
%
|
Tier I capital to
risk-weighted assets
|
|
4
|
%
|
6
|
%
|
14.10
|
%
|
14.37
|
%
|
14.29
|
%
|
Tier I capital to average
assets
|
|
4
|
%
|
5
|
%
|
10.01
|
%
|
9.77
|
%
|
10.03
|
%
|
Wilshire State Bank
|
|
Regulatory
Adequately-
Capitalized
|
|
Regulatory
Well-
Capitalized
|
|
Actual ratios for the Bank as of:
|
|
|
|
Standards
|
|
Standards
|
|
September 30, 2010
|
|
December 31, 200
9
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to
risk-weighted assets
|
|
8
|
%
|
10
|
%
|
15.17
|
%
|
15.73
|
%
|
15.63
|
%
|
Tier I capital to
risk-weighted assets
|
|
4
|
%
|
6
|
%
|
13.71
|
%
|
14.29
|
%
|
14.10
|
%
|
Tier I capital to average
assets
|
|
4
|
%
|
5
|
%
|
9.73
|
%
|
9.71
|
%
|
9.90
|
%
|
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, 2010, the Companys total Tier 1 capital
(which includes our equity capital, plus junior subordinated debentures, less
goodwill and intangibles) was $333.1 million, as compared with $331.4 million
as of December 31, 2009. For the Bank level, Tier 1 capital was $323.6
million as of September 30, 2010, compared with $329.3 million as of December 31,
2009.
As a result of weakness in the economy the Company has experienced
elevated credit costs which have in turn had an impact on income and overall
capital adequacy. Although the Companys
capital levels currently remain at well above the minimum for a well
capitalized institution, the Board of Directors of Wilshire Bancorp approved
the temporary suspension of the Companys common stock dividend in the second
quarter of 2010. The suspension in
common stock dividend is a cautionary step in the event that credit costs
remain elevated in the near future.
Item
3.
Quantitative and Qualitative Disclosures
a
bout 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.
48
Table of
Contents
Interest
rate risk management involves development, analysis, implementation and
monitoring of earnings to provide stable earnings and capital levels during
periods of changing interest rates. In
the management of interest rate risk, we utilize monthly gap analysis and
quarterly simulation modeling to determine the sensitivity of net interest
income and economic value sensitivity of the balance sheet. These techniques are complementary and are
used together to provide a more accurate measurement of interest rate risk.
Gap
analysis measures the repricing mismatches between assets and liabilities. The interest rate sensitivity gap is
determined by subtracting the amount of liabilities from the amount of assets
that reprice in a particular time interval.
If repricing assets exceed repricing liabilities in any given time
period, we would be deemed to be asset-sensitive for that period. Conversely, if repricing liabilities exceed
repricing assets in a given time period, we would be deemed to be liability-sensitive
for that period.
We
usually
seek to maintain a balanced position over the period of one year to
ensure net interest margin stability in times of volatile interest rates. This is accomplished by maintaining a similar
level of interest-earning assets and interest-paying liabilities available to
be repriced within one year.
The
change in net interest income may not always follow the general expectations of
an asset-sensitive or a liability-sensitive balance sheet during periods of
changing interest rates. This possibility
results from interest rates earned or paid changing by differing increments and
at different time intervals for each type of interest-sensitive asset and
liability. The interest rate gaps
reported in the tables arise when assets are funded with liabilities having
different repricing intervals. Because
these gaps are actively managed and change daily as adjustments are made in
interest rate views and market outlook, positions at the end of any period may
not reflect our interest rate sensitivity in subsequent periods. We attempt to balance longer-term economic
views against prospects for short-term interest rate changes.
Although the interest rate sensitivity gap is a useful
measurement and contributes to effective asset and liability management, it is
difficult to predict the effect of changing interest rates based solely on that
measure. As a result, the
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.
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,
2010 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.
49
Table of Contents
Interest Rate Sensitivity
Analysis
(Dollars in Thousands)
|
|
At September 30, 2010
|
|
|
|
Amounts Subject to Repricing Within
|
|
|
|
|
|
0-3 months
|
|
3-12 months
|
|
1-5 years
|
|
After 5 years
|
|
Total
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
$
|
1,456,808
|
|
$
|
242,849
|
|
$
|
731,920
|
|
$
|
17,399
|
|
$
|
2,448,976
|
|
Investment securities
|
|
1,605
|
|
9,261
|
|
241,949
|
|
114,709
|
|
367,524
|
|
Federal funds sold and cash
equivalents
|
|
201,006
|
|
|
|
|
|
|
|
201,006
|
|
Interest-earning deposits
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,659,419
|
|
$
|
252,110
|
|
$
|
973,869
|
|
$
|
132,108
|
|
$
|
3,017,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
81,139
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
81,139
|
|
Time deposits of $100,000 or
more
|
|
323,096
|
|
348,762
|
|
60,018
|
|
|
|
731,876
|
|
Other time deposits
|
|
184,547
|
|
431,176
|
|
12,622
|
|
|
|
628,345
|
|
Other interest-bearing
deposits
|
|
812,055
|
|
|
|
|
|
|
|
812,055
|
|
FHLB advances and other
borrowings
|
|
21,547
|
|
40,000
|
|
70,000
|
|
|
|
131,547
|
|
Junior Subordinated
Debenture
|
|
71,857
|
|
15,464
|
|
|
|
|
|
87,321
|
|
Total
|
|
$
|
1,494,241
|
|
$
|
835,402
|
|
$
|
142,640
|
|
$
|
|
|
$
|
2,472,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate sensitivity
gap
|
|
$
|
165,178
|
|
$
|
(583,292
|
)
|
$
|
831,229
|
|
$
|
132,108
|
|
$
|
545,223
|
|
Cumulative interest rate
sensitivity gap
|
|
$
|
165,178
|
|
$
|
(418,114
|
)
|
$
|
413,115
|
|
$
|
545,223
|
|
|
|
Cumulative interest rate
sensitivity gap ratio (based on total assets)
|
|
5.11
|
%
|
-12.93
|
%
|
12.78
|
%
|
16.87
|
%
|
|
|
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,
2010. All assets presented in this table
are held-to-maturity or available-for-sale.
At September 30, 2010, we had no trading investment securities:
Change
(in basis points)
|
|
Net Interest Income
(next twelve months)
(Dollars in Thousands)
|
|
% Change
|
|
NPV
(Dollars in Thousands)
|
|
% Change
|
|
+200
|
|
$
|
124,838
|
|
-0.42
|
%
|
$
|
349,942
|
|
-0.92
|
%
|
+100
|
|
124,279
|
|
-0.86
|
%
|
358,378
|
|
1.47
|
%
|
0
|
|
125,360
|
|
|
|
353,191
|
|
|
|
-100
|
|
127,500
|
|
1.71
|
%
|
326,676
|
|
-7.51
|
%
|
-200
|
|
128,901
|
|
2.82
|
%
|
302,636
|
|
-14.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 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).
50
Table of
Contents
Based
on this evaluation, our chief executive officer and chief financial officer
concluded that, as of September 30, 2010, 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, 2010 that materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
51
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
Certain risks described
below update the risk factors in Part 1, Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31,
2009. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties may also impair our business
operations. This report is qualified in its entirety by these risk factors.
Recently enacted regulatory
reforms could have a significant impact on our business, financial condition
and results of operations.
On July 21, 2010, President Obama signed into
law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act). Although certain provisions of the Dodd-Frank
Act will not apply to banking organizations with less than $10 billion of
assets, such as the Company and the Bank, the changes resulting from the
legislation will impact our business.
The Dodd-Frank Act will permit us to pay interest on business checking
accounts, which could (i) cause the Federal Reserve Board to amend its
Regulation D establishing reserve requirements for depository institutions, and
(ii) significantly reduce or eliminate the need for depository
institutions to offer sweep account products.
Additionally, effective July 6, 2010, regulatory changes in
overdraft and interchange fee restrictions may reduce our non-interest
income. We are currently in the process of evaluating this regulatory change,
but have not fully quantified the full impact.
Compliance with the Dodd-Frank Acts provisions may curtail our
revenue opportunities, increase our operating costs, requires us to hold higher
levels of regulatory capital and/or liquidity or otherwise adversely affect our
business or financial results in the future.
Our management is actively reviewing the provisions of the Dodd-Frank
Act and assessing its probable impact on our business, financial condition, and
result of operations. However, because many aspects of the Dodd-Frank Act
are subject to future rulemaking, no assurance can be given as to the ultimate effect
that the Dodd-Frank Act or any of its provisions may have on the Company, the
financial services industry or the nations economy.
In
addition, on September 12, 2010, the Group of Governors and Heads of
Supervision, the oversight body of the Basel Committee, announced agreement on
the calibration and phase-in arrangements for a strengthened set of
capital requirements, known as Basel III. Basel III increases the minimum Tier
1 common equity ratio to 4.5%, net of regulatory deductions, and introduces a
capital conservation buffer of an additional 2.5% of common equity to
risk-weighted assets, raising the target minimum common equity ratio to
7%. This capital conservation buffer also increases the minimum Tier 1 capital
ratio from 6% to 8.5% and the minimum total capital ratio from 8% to
10.5%. In addition, Basel III introduces
a countercyclical capital buffer of up to 2.5% of common equity or other fully
loss absorbing capital for periods of excess credit growth. Basel III also introduces a non-risk
adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure
rather than total assets, and new liquidity standards. The Basel III capital
and liquidity standards will be phased in over a multi-year period. The
final package of Basel III reforms will be submitted to the Seoul G20 Leaders
Summit in November, 2010 for endorsement by G20 leaders, and then will be
subject to individual adoption by member nations, including the United States.
The Federal Reserve will likely implement changes to the capital adequacy
standards applicable to the Company and the Bank in light of Basel III.
Increases in the level of
non-performing loans could adversely affect our business, profitability, and
financial condition.
Increase
in non-performing loans could have an adverse effect on our earnings as a
result of related increases in our provisions for loan losses, charge-offs, and
other losses related to non-performing loans. The increase in nonperforming
loans and resulting decline in earnings could deplete our capital, leaving the
Company undercapitalized. As a result of downturns in the economy in recent
years, our non-performing loans were $78.7 million at September 30, 2009
and $70.8 million at December 31, 2009 and $76.7 million at September 30,
2010.
52
Table of Contents
Income that we recognized and
continue to recognize in connection with our 2009 FDIC-assisted Mirae Bank
acquisition may be non-recurring or finite in duration.
On June 26, 2009, we acquired the banking
operations of Mirae Bank from the FDIC. Through the acquisition, we acquired
approximately $395.6 million of assets and assumed $374.0 million of
liabilities. The Mirae Bank acquisition
was accounted for under the purchase method of accounting and we recorded a
bargain purchase gain totaling $21.7 million as a result of the
acquisition. This gain was included as a
component of noninterest income on our statement of income for 2009. The amount of the gain was equal to the
amount by which the fair value of assets purchased exceeded the fair value of
liabilities. The bargain purchase gain
resulting from the acquisition was a one-time, extraordinary gain that is not
expected to be repeated in future periods.
In addition, the loans that we acquired from Mirae Bank
were acquired at a $54.9 million discount.
This discount is amortized and accreted to interest income on a monthly
basis. However, as these loans are paid-off, charged-off, sold, or
transferred to non-accrual status, the income from the discount accretion is
reduced. As the acquired loans are removed from our books, the related discount
will no longer be available for accretion into income. During 2009, accretion of $6.7 million on
loans purchased at a discount was recorded as interest income. During the first six months of 2010,
accretion of $2.5 million was recorded as interest income. As of June 30, 2010, the balance of the
carrying value of our discount on loans was $20.6 million, which has decreased
by $10.3 million from its carrying value of $30.9 million as of December 31,
2009 and by $34.3 million from its initial value of $54.9 million. We expect the continued reduction of discount
accretion recorded as interest income in future quarters.
Our decisions regarding
the fair value of assets acquired, including the FDIC loss sharing assets,
could be inaccurate which could materially and adversely affect our business,
financial condition, results of operations, and future prospects.
We acquired significant
portfolios of loans in the Mirae Bank acquisition. Although these loans were
marked down to their estimated fair value, there is no assurance that the
acquired loans will not suffer further deterioration in value resulting in
additional charge-offs. The fluctuations in national, regional and local
economic conditions, including those related to local residential, commercial
real estate and construction markets, may increase the level of charge-offs in
the loan portfolio that we acquired from Mirae Bank and correspondingly reduce
our net income. These fluctuations are not predictable, cannot be controlled
and may have a material adverse impact on our operations and financial
condition, even if other favorable events occur.
Although we have entered
into loss sharing agreements with the FDIC which provide that a significant
portion of losses related to the assets acquired from Mirae Bank will be borne
by the FDIC, we are not protected for all losses resulting from charge-offs
with respect to those assets. Additionally, the loss sharing agreements have
limited terms. Therefore, any charge-off
of related losses that we experience after the term of the loss sharing
agreements will not be reimbursed by the FDIC and will negatively impact our
net income.
Our ability to obtain
reimbursement under the loss sharing agreement on covered assets depends on our
compliance with the terms of the loss sharing agreement.
The Company must certify to the FDIC on a quarterly
basis our compliance with the terms of the FDIC loss sharing agreement as a
prerequisite to obtaining reimbursement from the FDIC for realized losses on
covered assets. The required terms of the agreement are extensive and failure
to comply with any of the guidelines could result in a specific asset or group
of assets permanently losing their loss sharing coverage. As of June 30,
2009, $235.6 million, or 6.86%, of the Companys assets were covered by
the FDIC loss sharing agreement. No
assurances can be given that we will manage the covered assets in such a way as
to always maintain loss share coverage on all such assets.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
.
Item 3.
Defaults Upon Senior Securities
None
.
Item 4.
(Removed & Reserved)
53
Table of
Contents
Item 5.
Other Information
None.
Item 6.
Exhibits
|
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
|
54
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 8, 2010
|
By:
|
/s/
Alex Ko
|
|
|
Alex Ko
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial and Accounting Officer)
|
55
Table of Contents
Exhibit Index
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
|
56
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