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WIBC > SEC Filings for WIBC > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for WILSHIRE BANCORP INC



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 and six months ended June 30, 2013 and June 30, 2012, financial condition as of June 30, 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.

Acquisitions and the integration of such acquired businesses may have a material adverse effect on our financial condition and results of operations.

Continued bank mergers and acquisitions in our market area would result in fewer, but much larger and stronger competitors.

          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 and six months ended June 30, 2013 and June 30, 2012, and the period end balances at June 30, 2013, December 31, 2012, and June 30, 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 June 30,             Six months ended June 30,
(Dollars in thousands, except per share data) (unaudited)         2013                 2012                  2013              2012
Net income available to common shareholders                  $        11,539    $            22,111    $         23,128    $     40,027
Net income per common share, basic                                      0.16                   0.31                0.33            0.56
Net income per common share, diluted                                    0.16                   0.31                0.32            0.56
Net interest income before provision (credit) for losses
on loans and loan commitments                                         25,754                 24,244              51,306          48,683

Average balances:
Assets                                                             2,770,996              2,570,530           2,747,399       2,606,256
Cash and cash equivalents                                            174,837                254,249             179,088         286,385
Investment securities                                                323,502                291,258             323,879         299,872
Net loans                                                          2,113,955              1,877,716           2,088,941       1,866,513
Total deposits                                                     2,170,628              2,169,831           2,153,134       2,174,491
Shareholders' equity                                                 356,287                276,021             352,202         295,500
Performance Ratios:
Annualized return on average assets                                     1.67 %                 3.45 %              1.68 %          2.96 %
Annualized return on average equity                                    12.95 %                32.14 %             13.13 %         26.14 %
Net interest margin                                                     4.06 %                 4.13 %              4.08 %          4.10 %
Efficiency ratio                                                       50.11 %                62.18 %             50.28 %         55.20 %
Capital Ratios:
Tier 1 capital to adjusted total assets                                14.67 %                13.62 %             14.67 %         13.62 %
Tier 1 capital to risk-weighted assets                                 18.73 %                18.11 %             18.73 %         18.11 %
Total capital to risk-weighted assets                                  20.00 %                19.41 %             20.00 %         19.41 %

                                                              June 30, 2013      December 31, 2012      June 30, 2012
Period End Balance For Dates Indicated:
Total assets                                                 $     2,787,401    $         2,750,863    $      2,591,399
Investment securities                                                303,878                332,554             298,421
Net loans                                                          2,099,917              2,089,055           1,933,957
Total deposits                                                     2,182,298              2,166,809           2,179,998
Junior subordinated debentures                                        61,857                 61,857              87,321
FHLB advances                                                        150,000                150,000                   -
Total common equity                                                  355,334                342,417             289,056

Asset Quality Ratios:
(Non-performing loans net of SBA guaranteed portion)
Quarter to date net charge-off to average net loans
(annualized)                                                            0.67 %                 0.09 %              0.36 %
Non-performing loans to total loans                                     1.24 %                 1.30 %              2.10 %
Non-performing assets to total loans and other real
estate owned                                                            1.29 %                 1.39 %              2.31 %
Allowance for loan losses to gross loans *                              2.62 %                 3.15 %              4.54 %
Allowance for loan losses to non-performing loans                     205.13 %               226.40 %            210.18 %

* 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 June 30, 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 Board of Governors of the Federal Reserve System ("FRB").

Net interest income before provision for losses on loans and loan commitments increased $1.6 million, or 6.2%, to $25.8 million for the second quarter of 2013, compared to $24.2 million for the second quarter of 2012. Net interest income before provision for losses on loans and loan commitments for the six months ended June 30, 2013 was $51.3 million, an increase of $2.6 million or 5.4% from $48.7 million for the six months ended June 30, 2012. The increase in net interest income for the periods in 2013 compared to periods in 2012 was primarily due to the decline in interest expense on deposit accounts. Net interest margin of 4.06% for the second quarter of 2013 was 7 basis points lower than net interest margin of 4.13% for the previous year's same quarter. Net interest margin for the first half of 2013 was 4.08%, down 2 basis points from net interest margin of 4.10% for the first half of 2012.

Interest income for the second quarter of 2013 totaled $28.8 million, unchanged from the second quarter of 2012. Interest income for the six months ended June 30, 2013 totaled $57.6 million, a decline of $425,000 or 0.7% from $58.0 million for the six months ended June 30, 2012. The decrease in interest income was primarily due to a decline in federal funds sold. The average balance of federal funds sold for the first half of 2013 was $123.5 million, down $103.9 million from the average federal funds sold balance of $227.4 million for the first half of 2012. The decrease in fed funds sold balances during this period was to facilitate the origination of new loans. Although loan yields for the three and six months ended June 30, 2013 declined to 5.10% and 5.16%, respectively, from 5.71% and 5.78% for the three and six months ended June 30, 2012, respectively, the increase in average loan balances helped to keep loan interest income from declining.

Total interest expense declined $1.4 million, or 31.9%, to $3.1 million for the second quarter of 2013, compared to $4.5 million for the second quarter of 2012. Total interest expense for the six months ended June 30, 2013 was $6.3 million, a decline of $3.1 million or 32.6% from interest expense of $9.4 million for the six months ended June 30, 2012. The average balance of our interest bearing liabilities for the three months ended June 30, 2013 totaled $1.77 billion, up from $1.76 billion for the same period of the previous year. The average balance of our interest bearing liabilities for the six months ended June 30, 2013 and June 30, 2012 was $1.77 billion and $1.78 billion, respectively. Total cost of interest bearing liabilities decreased from 1.03% for the second quarter 2012, to 0.70% for the second quarter of 2013. For the first half of 2013, cost of interest bearing liabilities was 0.71%, down from 1.05% for the first half of 2012. The decrease in cost of interest bearing liabilities from periods in 2012 to 2013 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 June 30,
                                         2013                                    2012
                                        Interest                                Interest
                           Average      Income/      Average       Average      Income/      Average
                           Balance      Expense     Rate/Yield     Balance      Expense     Rate/Yield
Earning assets:
Net loans (1)            $ 2,113,955   $   26,970         5.10 % $ 1,877,716   $   26,808         5.71 %
Securities of
government sponsored
enterprises                  254,037        1,186         1.87 %     229,046          998         1.74 %
Other investment
securities (2)                69,465          557         4.29 %      62,212          562         4.93 %
Federal funds sold           117,838          136         0.46 %     196,243          423         0.86 %
Total interest-earning
assets                     2,555,295       28,849         4.55 %   2,365,217       28,791         4.90 %
assets                       215,701                                 205,313
Total assets             $ 2,770,996                             $ 2,570,530

Liabilities and
Shareholders' Equity:
Money market deposits    $   617,837   $      971         0.63 % $   612,223   $    1,267         0.83 %
NOW deposits                  27,915           14         0.20 %      25,747           22         0.34 %
Savings deposits             101,263          447         1.77 %     102,348          633         2.47 %
Time deposits of
$100,000 or more             586,136          884         0.60 %     616,612        1,293         0.84 %
Other time deposits          223,256          434         0.78 %     318,400          800         1.01 %
FHLB advances and
other borrowings             150,000           64         0.17 %           -            -         0.00 %
Junior subordinated
debenture                     61,857          281         1.82 %      87,321          532         2.44 %
Total interest-bearing
liabilities                1,768,264   $    3,095         0.70 %   1,762,651   $    4,547         1.03 %

deposits                     614,221                                 494,501
Other liabilities             32,224                                  37,357
liabilities                  646,445                                 531,858

Shareholders' equity         356,287                                 276,021
Total liabilities and
shareholders' equity     $ 2,770,996                             $ 2,570,530

Net interest income                    $   25,754                              $   24,244
Net interest spread
(3)                                                       3.85 %                                  3.87 %
Net interest margin
(4)                                                       4.06 %                                  4.13 %

(1) Net loan fees are included in the calculation of interest income and totaled approximately $760,000 and $394,000 for the quarters ended June 30, 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 June 30, 2013 and 2012 were 3.21% and 3.61%, 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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          Distribution, Yield and Rate Analysis of Net Interest Income

                             (Dollars in Thousands)

                                                   Six Months Ended June 30,
                                         2013                                    2012
                                        Interest                                Interest
                           Average      Income/      Average       Average      Income/      Average
                           Balance      Expense     Rate/Yield     Balance      Expense     Rate/Yield
. . .
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