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WIBC > SEC Filings for WIBC > Form 10-Q on 1-May-2013All Recent SEC Filings

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Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

This discussion presents management's analysis of our results of operations for the three months ended March 31, 2013 and March 31, 2012, financial condition as of March 31, 2013 and December 31, 2012, 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 Item 1A of Part II of this report and in our Annual Report on Form 10-K for the year ended December 31, 2012 including the following:

If a significant number of clients fail to perform on their loans, our business, profitability, and financial condition would be adversely affected.

Increases in the level of non-performing loans could adversely affect our business, profitability, and financial condition.

Increases in our allowance for loan losses could materially affect our earnings adversely.

Banking organizations are subject to interest rate risk and variations in interest rates may negatively affect our financial performance.

Liquidity risk could impair our ability to fund operations, meet our obligations as they become due, and jeopardize our financial condition.

The profitability of Wilshire Bancorp will be dependent on the profitability of the Bank.

         Wilshire Bancorp relies heavily on the payment of dividends from the

          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.

Our decisions regarding the fair value of assets acquired, including FDIC loss sharing assets, could be different than initially estimated which could materially and adversely affect our business, financial condition, results of operations, and future prospects.

If actual and expected cash flows from the loans acquired from Mirae Bank continues to improve, we may take further impairments to the FDIC loss-share indemnification asset booked in connection with such acquisition.

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.

We are subject to environmental risks associated with owning real estate or collateral.

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.

Adverse changes in domestic or global economic conditions, especially in California, could have a material adverse effect on our business, growth, and profitability.

Negative developments in the financial industry and U.S. and global credit markets may affect our operations and results.

The effect of the U.S. Government's response to the financial crisis remains uncertain.

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The new CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services including the Bank.

The Bank is subject to federal and state and fair lending laws, and failure to comply with these laws could lead to material penalties.

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 could be liable for breaches of security in our online banking services. Fear of security breaches could limit the growth of our online services.

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.

          We could be negatively impacted by downturns in the South Korean

          Additional shares of our common stock issued in the future could have

a dilutive effect.

We may be obligated to repay the Small Business Administration portions of losses collected from the FDIC from losses on loans acquired through the Mirae acquisition.

Changes in accounting standards may affect how we record and report our financial condition and results of operations.

We are subject to operational risks relating to our technology and information systems.

Our business reputation is important and any damage to it may have a material adverse effect on our business.

          We may experience a future valuation allowance on deferred tax

          Our ability to use net operating losses to offset future taxable

income may be subject to certain limitations.

SBA lending is an important part of our business, and we are dependent upon the Federal government to maintain the SBA loan program.

We have specific risks associated with originating loans under the SBA 7(a) program.

Changes in laws, regulations, rules and standards could have a material impact on our business, results of operations, and financial condition, the effect of which is impossible to predict.

We may be subject to more stringent capital requirements.

Our focus on lending to small to mid-sized community-based businesses may increase our credit risk.

These factors and the risk factors referred to in our Annual Report on Form 10-K for the year ended December 31, 2012, and under Item 1A of Part II of this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and undue reliance should not be placed on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, except as required, 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.

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Selected Financial Data

The following table presents selected historical financial information for the three months ended March 31, 2013, December 31, 2012, and March 31, 2012 and the period end balances at March 31, 2013, December 31, 2012, and March 31, 2012. In the opinion of management, the information presented reflects all adjustments considered necessary for a fair presentation of the results of each period. The operating results for the interim periods are not necessarily indicative of our future operating results.

                                                                                Three months ended,
(Dollars in thousands, except per share data) (unaudited)    March 31, 2013      December 31, 2012     March 31, 2012
Net income available to common shareholders                  $        11,589    $            15,210    $        17,916
Net income per common share, basic                                      0.16                   0.21               0.25
Net income per common share, diluted                                    0.16                   0.21               0.25
Net interest income before provision (credit) for losses
on loans and loan commitments                                         25,552                 25,627             24,439

Average balances:
Assets                                                             2,726,058              2,609,509          2,641,982
Cash and cash equivalents                                            183,387                164,102            318,520
Investment securities                                                324,261                297,205            308,486
Net loans                                                          2,063,649              1,984,434          1,855,310
Total deposits                                                     2,135,445              2,153,976          2,179,151
Shareholders' equity                                                 348,071                334,380            314,980
Performance Ratios:
Annualized return on average assets                                     1.70 %                 2.33 %             2.49 %
Annualized return on average equity                                    13.32 %                18.19 %            20.89 %
Net interest margin                                                     4.09 %                 4.33 %             4.07 %
Efficiency ratio                                                       50.45 %                64.08 %            47.78 %
Capital Ratios:
Tier 1 capital to adjusted total average assets                        14.72 %                14.87 %            12.49 %
Tier 1 capital to risk-weighted assets                                 18.72 %                18.47 %            18.00 %
Total risk based capital to risk-weighted assets                       19.99 %                19.74 %            19.31 %

                                                                   Period End Balance as of:
                                                   March 31, 2013      December 31, 2012      March 31, 2012
Total assets                                      $      2,756,420    $         2,750,863    $      2,662,502
Investment securities                                      336,615                332,554             292,367
Net loans                                                2,125,489              2,089,055           1,850,829
Total deposits                                           2,162,558              2,166,809           2,210,273
Junior subordinated debentures                              61,857                 61,857              87,321
FHLB advances                                              150,000                150,000                   -
Total common equity                                        353,713                342,417             267,773

Asset Quality Ratios:
(Non-performing loans net of SBA guarantee)
Quarter net charge-off to average net loans
(annualized)                                                  0.91 %                 0.09 %              0.68 %
Non-performing loans to total loans                           1.19 %                 1.30 %              2.66 %
Non-performing assets to total loans and OREO                 1.25 %                 1.39 %              2.78 %
Allowance for loan losses to gross loans *                    2.85 %                 3.15 %              5.24 %
Allowance for loan losses to non-performing
loans                                                       224.63 %               226.40 %            192.25 %

* Excluding held-for-sale loans

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Executive Overview

We operate within the commercial banking industry, 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 provide many different products and services to our customers, but our primary focus is on commercial real estate, commercial and industrial, and consumer lending. Although our primary market is in Southern California, we also have full service branch offices in the States of Texas, New Jersey, and New York. In addition to our branch offices, we also have eight loan production offices in Newark, California; Bellevue, Washington; Aurora, Colorado; Atlanta, Georgia; Fort Lee, New Jersey; Dallas, Texas; Houston, Texas; and Annandale, Virginia.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles ("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, the evaluation of goodwill for impairment, valuation of FDIC indemnification asset, accounting for loans held-for-sale, valuation of OREO, and the accounting for income tax provisions. 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 necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in key variables could change future valuations and could have an impact on our net income.

Our significant accounting policies are described in greater detail in our 2012 Annual Report on Form 10-K in the "Critical Accounting Policies" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations," and are essential to understanding Management's Discussion and Analysis of Financial Condition and Results of Operations. There has been no material modification to these policies during the quarter ended March 31, 2013.

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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. 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 changes to market rates, 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 $1.1 million, or 4.6%, to $25.6 million for the first quarter of 2013, compared to $24.4 million for the first quarter of 2012. The increase in net interest income was primarily due to the decline in interest expense on deposit accounts. Net interest margin of 4.09% for the first quarter of 2013 was 2 basis points higher than net interest margin of 4.07% for the previous year's same quarter.

Interest income decreased by $484,000, or 1.7%, to $28.8 million for first quarter of 2013, compared to $29.2 million for the first quarter of 2012. The decrease in interest income was primarily due to a decline in loan yields and also partly due to a decline in interest from federal funds sold. Average net loans increased by $208.3 million to $2.06 billion for the first quarter of 2013, compared to $1.86 billion for the first quarter of 2012. Yield on average net loans decreased to 5.21% for the first quarter of 2013, down from 5.85% for the first quarter of 2012. The decline in loan yields is largely due to new loans that were originated at rates lower than the average weighted rate of the existing loan portfolio. The average balance of investment securities increased from $308.5 million for the first quarter of 2012, to $324.3 million for the first quarter of 2013. Yields on total combined investment securities and other earning assets increased from 1.66% for the quarter ended March 31, 2012, to 1.83% for the quarter ended March 31, 2013, due to the reduction in lower yielding fed funds sold. Federal funds sold balance includes cash kept at the Federal Reserve Bank which yielded just 25 basis points during the quarters ended March 31, 2012 and 2013.

Total interest expense declined $1.6 million, or 33.2%, to $3.2 million for the first quarter of 2013, compared to $4.8 million for the first quarter of 2012. The average balance of our interest bearing liabilities at March 31, 2013 totaled $1.78 billion, down from $1.80 billion for March 31, 2012. Total cost of interest bearing liabilities decreased from 1.07% for the first quarter 2012, to 0.72% for the first quarter of 2013. The decrease resulted from an improved deposits mix, reduced interest rates on deposits, and the redemption of higher costing junior subordinated debentures.

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The following tables sets forth, for the periods indicated, our average balance of assets, liabilities, and shareholders' equity, in addition to the major components of net interest income, net interest expense, and net interest margin:

          Distribution, Yield and Rate Analysis of Net Interest Income

                             (Dollars in Thousands)

                                                Three Months Ended March 31,
                                        2013                                    2012
                                       Interest                                Interest
                          Average      Income/      Average       Average      Income/      Average
                          Balance      Expense     Rate/Yield     Balance      Expense     Rate/Yield
Earning assets:
Net loans (1)           $ 2,063,649   $   26,885         5.21 % $ 1,855,310   $   27,121         5.85 %
Securities of
government sponsored
enterprises                 252,647        1,153         1.83 %     249,030          980         1.57 %
Other investment
securities (2)               71,614          572         4.30 %      59,456          545         5.16 %
Federal funds sold          129,255          153         0.47 %     258,555          601         0.93 %
assets                    2,517,165       28,763         4.60 %   2,422,351       29,247         4.87 %
assets                      208,893                                 219,631
Total assets            $ 2,726,058                             $ 2,641,982

Liabilities and
Shareholders' Equity:
Money market deposits   $   623,471   $      976         0.63 % $   583,711   $    1,223         0.84 %
NOW deposits                 25,958           12         0.18 %      24,215           20         0.33 %
Savings deposits            100,560          464         1.85 %     100,964          675         2.67 %
Time deposits of
$100,000 or more            581,213          924         0.64 %     646,162        1,447         0.90 %
Other time deposits         235,862          473         0.80 %     340,965          890         1.04 %
FHLB advances and
other borrowings            150,044           80         0.21 %      21,132            6         0.11 %
Junior subordinated
debenture                    61,857          282         1.82 %      87,321          547         2.51 %
liabilities               1,778,965        3,211         0.72 %   1,804,470        4,808         1.07 %

deposits                    568,381                                 483,134
Other liabilities            30,641                                  39,398
liabilities                 599,022                                 522,532

Shareholders' equity        348,071                                 314,980
Total liabilities and
shareholders' equity    $ 2,726,058                             $ 2,641,982

Net interest income                   $   25,552                              $   24,439
Net interest spread
(3)                                                      3.88 %                                  3.80 %
Net interest margin
(4)                                                      4.09 %                                  4.07 %

(1) Net loan fees are included in the calculation of interest income and totaled approximately $740,000 and $705,000 for the quarters ended March 31, 2013 and 2012, respectively. Net loans are net of the allowance for loan losses, deferred fees, unearned income, related direct costs, and includes loans placed on non-accrual status.

(2) Represents tax equivalent yields, non-tax equivalent yields for three months ended March 31, 2013 and 2012 were 3.19% and 3.67%, respectively.

(3) Represents the average rate earned on interest-earning assets (tax equivalent) less the average rate paid on interest-bearing liabilities.

(4) Represents net interest income (adjusted for tax equivalent yields) as a percentage of average interest-earning assets.

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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) is represented in the below table. All yields/rates were calculated without the consideration of tax effects, if any, and the variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each:

                  Rate/Volume Analysis of Net Interest Income

                             (Dollars in Thousands)

                                             Three Months Ended March 31, 2013 vs. 2012
                                               Increases (Decreases) Due to Change In
                                             Volume             Rate              Total
Interest Earnings Assets/Interest
Net loans                                 $       2,877    $        (3,113 )  $        (236 )
Securities of government sponsored
enterprises                                          14                159              173
Other Investment securities                         103                (76 )             27
Federal funds sold                                 (226 )             (222 )           (448 )
Total interest income                             2,768             (3,252 )           (484 )

Interest Bearing Liabilities/Interest
Money market deposits                                79               (326 )           (247 )
NOW deposits                                          1                 (9 )             (8 )
Savings deposits                                     (3 )             (208 )           (211 )
Time deposit of $100,000 or more                   (135 )             (388 )           (523 )
. . .
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