**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**________________________________________________________**




**FORM
      10-Q**


**(Mark
      One)**




x
            **Quarterly
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**




**For the quarterly period ended March 31, 2007.**




**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**Registrant’s
                telephone number, including area code


Securities
      registered pursuant to Section 12(b) of the Act: **None**




Securities
      registered pursuant to Section 12(g) of the Act: **Common
      Stock, no par value**


______________________




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 is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated filer o Accelerated
      filer x Non-accelerated filer
o






Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o
      No x




The
      number of shares of Common Stock of the registrant outstanding as of April
      30,
      2007 was 29,368,896.
















**FORM
      10-Q**




**INDEX**


**WILSHIRE
      BANCORP, INC.**




FINANCIAL
                INFORMATION
            1ITEM
                1.
            Financial
                Statements
            1ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            37ITEM
                4.
            Controls
                and Procedures
            39OTHER
                INFORMATION
            40ITEM
                1.
            Legal
                Proceedings
            40ITEM
                1A.
            Risk
                Factors
            40ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            40ITEM
                3.
            Defaults
                Upon Senior Securities
            40ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            40ITEM
                5.
            Other
                Information
            40ITEM
                6.
            Exhibits
            41


















i


**FINANCIAL
      INFORMATION**




**ITEM
      1.**  **Financial
      Statements**


**WILSHIRE
                  BANCORP, INC.****CONSOLIDATED
                  STATEMENTS OF FINANCIAL CONDITION****(UNAUDITED)****ASSETS**
              
              **March
                  31, 2007**
              
              **December
                  31, 2006**Cash
                  and due from banks
              
              $
              66,217,537
              
              $
              75,243,346Federal
                  funds sold and other cash equivalents
              
              
              74,003,388
              
              
              130,003,268Cash
                  and cash equivalents
              
              
              140,220,925
              
              
              205,246,614Securities
                  available for sale, at fair value (amortized cost of $172,234,545
                  and
                  $168,662,357at
                  March 31, 2007 and December 31, respectively)
              
              
              171,790,560
              
              
              167,837,734Securities
                  held to maturity, at amortized cost (fair value of $14,481,652
                  and
                  $14,445,714at
                  March 31, 2007 and December 31, respectively)
              
              
              14,612,260
              
              
              14,620,870Interest-only
                  strips, at fair value (amortized cost of $886,208 and $1,008,064at
                  March 31, 2007 and December 31, respectively)
              
              
              973,627
              
              
              1,130,006Loans
                  held for sale—at the lower of cost or market
              
              
              10,279,766
              
              
              5,496,421Loans
                  receivable, net of allowance for loan losses of $17,214,156 and
                  $18,654,082at
                  March 31, 2007 and December 31, respectively
              
              
              1,587,861,054
              
              
              1,536,388,815Bank
                  premises and equipment—net
              
              
              10,395,657
              
              
              10,464,600Federal
                  Home Loan Bank stock, at cost—net
              
              
              7,652,000
              
              
              7,541,700Accrued
                  interest receivable
              
              
              9,590,802
              
              
              10,049,265Other
                  real estate owned—net
              
              
              -
              
              
              138,000Deferred
                  income taxes—net
              
              
              7,381,662
              
              
              9,722,008Servicing
                  assets
              
              
              5,126,381
              
              
              5,080,466Due
                  from customers on acceptances
              
              
              2,846,182
              
              
              2,385,134Cash
                  surrender value of life insurance
              
              
              15,783,624
              
              
              15,635,773Goodwill
              
              
              6,674,772
              
              
              6,674,772Core
                  deposit intangible
              
              
              1,489,068
              
              
              1,532,485Favorable
                  lease intangible
              
              
              321,602
              
              
              352,231Other
                  assets
              
              
              8,083,376
              
              
              8,186,927TOTAL
              
              $
              2,001,083,318
              
              $
              2,008,483,821**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**LIABILITIES:Deposits:Noninterest
                  bearing
              
              
              317,533,545
              
              
              319,310,552Interest
                  bearing:Savings
              
              
              29,478,582
              
              
              29,019,943Time
                  deposits of $100,000 or more
              
              
              788,950,257
              
              
              812,105,950Other
                  time deposits
              
              
              154,714,709
              
              
              160,933,032Money
                  market accounts and other
              
              
              445,005,850
              
              
              430,603,175Total
                  deposits
              
              
              1,735,682,943
              
              
              1,751,972,652Federal
                  Home Loan Bank borrowings
              
              
              20,000,000
              
              
              20,000,000Junior
                  subordinated debentures
              
              
              61,547,000
              
              
              61,547,000Accrued
                  interest payable
              
              
              12,272,811
              
              
              12,006,124Acceptances
                  outstanding
              
              
              2,846,183
              
              
              2,385,134Other
                  liabilities
              
              
              11,548,669
              
              
              10,937,886Total
                  liabilities
              
              
              1,843,897,606
              
              
              1,858,848,796COMMITMENTS
                  AND CONTINGENCIES (Note 6)SHAREHOLDERS’
                  EQUITY:Preferred
                  stock, no par value—authorized, 5,000,000 shares; issued and outstanding,
                  noneCommon
                  stock, no par value—authorized, 80,000,000 shares; issued and
                  outstanding,29,368,896
                  shares and 29,197,420 shares at at March 31, 2007 and December
                  31, 2006,respectively
              
              
              50,634,998
              
              
              49,122,537Accumulated
                  other comprehensive loss
              
              
              (136,182
              )
              
              (407,612
              )Retained
                  earnings
              
              
              106,686,896
              
              
              100,920,101Total
                  shareholders’ equity
              
              
              157,185,712
              
              
              149,635,025TOTAL
              
              $
              2,001,083,318
              
              $
              2,008,483,821The
                  accompanying notes are an integral part of these unaudited condensed
                  consolidated financial statements.


1


**WILSHIRE
                    BANCORP, INC.****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****(UNAUDITED)****Three
                    Months Ended March 31,****2007**
                
                **2006**INTEREST
                    INCOME:Interest
                    and fees on loans
                
                $
                33,901,470
                
                $
                27,649,882Interest
                    on investment securities and deposits inother
                    financial institutions
                
                
                2,238,507
                
                
                1,775,772Interest
                    on federal funds sold and other cash equivalents
                
                
                1,509,147
                
                
                1,615,502Total
                    interest income
                
                
                37,649,124
                
                
                31,041,156INTEREST
                    EXPENSE:Deposits
                
                
                17,362,494
                
                
                12,252,883Interest
                    on other borrowings
                
                
                1,313,858
                
                
                1,509,577Total
                    interest expense
                
                
                18,676,352
                
                
                13,762,460NET
                    INTEREST INCOME BEFORE PROVISION FORLOAN
                    LOSSES AND LOAN COMMITMENTS
                
                
                18,972,772
                
                
                17,278,696PROVISION
                    FOR LOSSES ON LOANS ANDLOAN
                    COMMITMENTS
                
                
                1,630,000
                
                
                1,060,000NET
                    INTEREST INCOME AFTER PROVISION FORLOAN
                    LOSSES AND LOAN COMMITMENTS
                
                
                17,342,772
                
                
                16,218,696NONINTEREST
                    INCOME:Service
                    charges on deposit accounts
                
                
                2,287,055
                
                
                2,155,158Gain
                    on sale of loans
                
                
                1,809,352
                
                
                2,349,851Loan-related
                    servicing fees
                
                
                270,894
                
                
                529,081Loan
                    referral fees
                
                
                -
                
                
                47,647Loan
                    packaging fees
                
                
                20,454
                
                
                114,248Income
                    from other earning assets
                
                
                277,101
                
                
                239,876Other
                    income
                
                
                545,483
                
                
                328,168Total
                    noninterest income
                
                
                5,210,339
                
                
                5,764,027NONINTEREST
                    EXPENSES:Salaries
                    and employee benefits
                
                
                5,697,834
                
                
                5,256,005Occupancy
                    and equipment
                
                
                1,270,167
                
                
                895,722Data
                    processing
                
                
                765,014
                
                
                504,799Loan
                    referral fees
                
                
                420,053
                
                
                342,298Outsourced
                    service for customers
                
                
                375,992
                
                
                340,789Advertising
                    and promotional
                
                
                146,373
                
                
                181,917Professional
                    fees
                
                
                314,821
                
                
                242,504Office
                    supplies
                
                
                173,651
                
                
                110,913Directors’
                    fees
                
                
                139,900
                
                
                121,350Communications
                
                
                114,640
                
                
                105,121Investor
                    relations
                
                
                80,750
                
                
                45,011Deposit
                    insurance premiums
                
                
                49,929
                
                
                42,670Amortization
                    of core deposit intangible
                
                
                43,416
                
                
                -Amortization
                    of favorable lease intangible
                
                
                30,629
                
                
                -Other
                    operating
                
                
                879,520
                
                
                674,619Total
                    noninterest expenses
                
                
                10,502,689
                
                
                8,863,719INCOME
                    BEFORE INCOME TAX PROVISION
                
                
                12,050,422
                
                
                13,119,005INCOME
                    TAX PROVISION
                
                
                4,733,216
                
                
                5,296,291NET
                    INCOME
                
                $
                7,317,206
                
                $
                7,822,714EARNINGS
                    PER SHARE:Basic
                
                $
                0.25
                
                $
                0.27Diluted
                
                $
                0.25
                
                $
                0.27The
                    accompanying notes are an integral part of these unaudited condensed
                    consolidated financial statements.
 2
 **WILSHIRE
                      BANCORP, INC.****CONSOLIDATED
                      STATEMENTS OF SHAREHOLDERS’ EQUITY****(UNAUDITED)****Accumulated****Other**
                  
                  
                  
                  **Total****Common
                      Stock**
                  
                  **Comprehensive**
                  
                  **Retained**
                  
                  **Shareholders’****Shares**
                  
                  **Amount**
                  
                  **Income
                      (Loss)**
                  
                  **Earnings**
                  
                  **Equity**BALANCE—January
                      01, 2006
                  
                  
                  28,630,600
                  
                  $
                  41,340,448
                  
                  $
                  (1,026,202
                  )
                  $
                  72,789,622
                  
                  $
                  113,103,868Stock
                      options exercised
                  
                  
                  109,160
                  
                  
                  106,592
                  
                  
                  
                  
                  
                  
                  
                  
                  106,592Cash
                      dividend declared
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,436,989
                  )
                  
                  (1,436,989
                  )Stock
                      compensation expense
                  
                  
                  
                  
                  
                  77,076
                  
                  
                  
                  
                  
                  
                  
                  
                  77,076Tax
                      benefit from stock options exercised
                  
                  
                  
                  
                  
                  688,722
                  
                  
                  
                  
                  
                  
                  
                  
                  688,722Comprehensive
                      income:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,822,714
                  
                  
                  7,822,714Other
                      comprehensive income:Change
                      in unrealized loss oninterest-only
                      strips
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,943
                  )
                  
                  
                  
                  
                  (4,943
                  )Change
                      in unrealized loss onsecurities
                      available for sale
                  
                  
                  
                  
                  
                  
                  
                  
                  (210,197
                  )
                  
                  
                  
                  
                  (210,197
                  )Comprehensive
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  7,607,574BALANCE—March
                      31, 2006
                  
                  
                  28,739,760
                  
                  $
                  42,212,838
                  
                  $
                  (1,241,342
                  )
                  $
                  79,175,347
                  
                  $
                  120,146,843**Accumulated****Other**
                  
                  
                  
                  
                  
                  **Total****Common
                      Stock**
                  
                  **Comprehensive**
                  
                  
                  **Retained**
                  
                  
                  **Shareholders’****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Income
                      (Loss**)****
                  
                  
                  **Earnings**
                  
                  
                  **Equity**BALANCE—January
                      01, 2007
                  
                  
                  29,197,420
                  
                  $
                  49,122,536
                  
                  $
                  (407,612
                  )
                  $
                  100,920,101
                  
                  $
                  149,635,025Stock
                      options exercised
                  
                  
                  171,476
                  
                  
                  107,995
                  
                  
                  
                  
                  
                  
                  
                  
                  107,995Cash
                      dividend declared
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,468,445
                  )
                  
                  (1,468,445
                  )Stock
                      compensation expense
                  
                  
                  
                  
                  
                  118,020
                  
                  
                  
                  
                  
                  
                  
                  
                  118,020Tax
                      benefit from stock options exercised
                  
                  
                  
                  
                  
                  1,286,447
                  
                  
                  
                  
                  
                  
                  
                  
                  1,286,447Cumulative
                      impact of change in accountingfor
                      uncertainties in income taxes(FIN
                      48 - see Note 10)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (161,583
                  )
                  
                  (161,583
                  )Cumulative
                      impact of chage in accountingfor
                      fair valuation method adoption(FAS
                      156 - see Note 10)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  79,617
                  
                  
                  79,617Comprehensive
                      income:Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,317,206
                  
                  
                  7,317,206Other
                      comprehensive income:Change
                      in unrealized loss oninterest-only
                      strips
                  
                  
                  
                  
                  
                  
                  
                  
                  50,663
                  
                  
                  
                  
                  
                  50,663Change
                      in unrealized loss onsecurities
                      available for sale
                  
                  
                  
                  
                  
                  
                  
                  
                  220,767
                  
                  
                  
                  
                  
                  220,767Comprehensive
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  7,588,636BALANCE—March
                      31, 2007
                  
                  
                  29,368,896
                  
                  $
                  50,634,998
                  
                  $
                  (136,182
                  )
                  $
                  106,686,896
                  
                  $
                  157,185,712**Three
                      Months Ended March 31,****2007**
                  
                  
                  **2006**DISCLOSURE
                      OF RECLASSIFICATION AMOUNTSWITHIN
                      ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):Net
                      unrealized gains (losses) on securities availablefor
                      sale arising during period
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  380,637
                  
                  $
                  (362,409
                  )Less
                      income tax expense (benefit)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  159,870
                  
                  
                  (152,212
                  )Net
                      unrealized gains (losses) on securities available for sale
                  
                  
                  
                  
                  
                  
                  $
                  220,767
                  
                  $
                  (210,197
                  )Net
                      unrealized gains (losses) on interest-only stripsarising
                      during period
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  87,419
                  
                  $
                  (74,207
                  )Less
                      reclassification adjustment for impairment
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  (65,685
                  )Less
                      income tax expense (benefit)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  36,756
                  
                  
                  (3,579
                  )Net
                      unrealized gains (losses) on interest-only strips
                  
                  
                  
                  
                  
                  
                  $
                  50,663
                  
                  $
                  (4,943
                  )The
                      accompanying notes are an integral part of these unaudited
                      condensed
                      consolidated financial statements.
  3


**WILSHIRE
                  BANCORP, INC.****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(UNAUDITED)****Three
                  Months Ended March 31,****2007**
              
              **2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              7,317,206
              
              $
              7,822,714Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Accretion
                  and amortization of investment securities
              
              
              (45,570
              )
              
              13,211Depreciation
                  of premises & equipment
              
              
              394,749
              
              
              278,858Amortization
                  of core deposit intangible
              
              
              43,416
              
              
              -Amortization
                  of favorable lease intangible
              
              
              30,629
              
              
              -Provision
                  for losses on loans and loan commitments
              
              
              1,630,000
              
              
              1,060,000Deferred
                  tax (benefit) provision
              
              
              2,085,957
              
              
              863,322Loss
                  on disposition of bank premises and equipment
              
              
              9,268
              
              
              9,630Net
                  gain on sale of loans
              
              
              (1,809,352
              )
              
              (2,349,851
              )Origination
                  of loans held for sale
              
              
              (41,959,648
              )
              
              (43,681,925
              )Proceeds
                  from sale of loans held for sale
              
              
              38,985,655
              
              
              49,660,302Increase
                  in servicing asset per fair valuation
              
              
              (147,607
              )
              
              -Impairment
                  on interest-only strips
              
              
              -
              
              
              65,685Loss
                  on sale of other real estate owned
              
              
              21,673
              
              
              -Loss
                  on sale of repossessed vehicles
              
              
              18,470
              
              
              -Tax
                  benefit from exercise of stock option
              
              
              (1,286,447
              )
              
              (688,722
              )Stock-based
                  compensation cost
              
              
              118,020
              
              
              77,076Change
                  in cash surrender value of life insurance
              
              
              (147,851
              )
              
              (156,059
              )Servicing
                  assets capitalized
              
              
              (455,790
              )
              
              (612,305
              )Servicing
                  assets amortization
              
              
              694,862
              
              
              414,188Decrease
                  in interest-only strips
              
              
              243,798
              
              
              31,074Increase
                  (decrease) in accrued interest receivable
              
              
              458,463
              
              
              (663,929
              )Decrease
                  in other assets
              
              
              (105,916
              )
              
              (436,858
              )Dividends
                  of Federal Home Loan Bank stock
              
              
              (110,300
              )
              
              (72,300
              )Increase
                  in accrued interest payable
              
              
              266,687
              
              
              1,830,388Increase
                  in other liabilities
              
              
              1,352,055
              
              
              2,692,196Net
                  cash provided by operating activities
              
              $
              7,602,427
              
              $
              16,156,695CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of securities available for sale
              
              
              (24,955,650
              )
              
              (35,390,088
              )Proceeds
                  from principal repayment, matured orcalled
                  securities held to maturity
              
              
              8,590
              
              
              15,485Proceeds
                  from matured securities available for sale
              
              
              21,429,052
              
              
              2,517,373Net
                  increase in loans receivable
              
              
              (52,727,220
              )
              
              (53,735,297
              )Proceeds
                  from sale of repossessed vehicles
              
              
              41,825
              
              
              -Proceeds
                  from sale of other real estate owned
              
              
              78,500
              
              
              -Purchases
                  of Bank premises and equipment
              
              
              (148,075
              )
              
              (159,652
              )Net
                  cash used in investing activities
              
              $
              (56,272,978
              )
              $
              (86,752,179
              )The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.(continued)


4


**WILSHIRE
                BANCORP, INC.****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****(UNAUDITED)****Three
                Months Ended March 31,****2007**
            
            **2006**CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from exercise of stock options
            
            $
            107,995
            
            $
            106,592Payment
                of cash dividend
            
            
            (1,459,871
            )
            
            (1,145,224
            )Decrease
                in Federal Home Loan Bank borrowings
            
            
            -
            
            
            (11,000,000
            )Tax
                benefit from exercise of stock options
            
            
            1,286,447
            
            
            688,722Net
                increase in deposits
            
            
            (16,289,709
            )
            
            71,771,697Net
                cash provided by financing activities
            
            $
            (16,355,138
            )
            $
            60,421,787NET
                INCREASE (DECREASE) IN CASH ANDCASH
                EQUIVALENTS
            
            $
            (65,025,689
            )
            $
            (10,173,697
            )CASH
                AND CASH EQUIVALENTS—Beginning of year
            
            
            205,246,614
            
            
            194,208,056CASH
                AND CASH EQUIVALENTS—End of year
            
            $
            140,220,925
            
            $
            184,034,359SUPPLEMENTAL
                DISCLOSURES OF CASHFLOW
                INFORMATION:Interest
                paid
            
            $
            18,409,665
            
            $
            11,932,073Income
                taxes paid
            
            $
            226,462
            
            $
            726,400SUPPLEMENTAL
                SCHEDULE OF NONCASHOPERATING
                AND INVESTING ACTIVITIES:Other
                assets transferred to Bank premisesand
                equipment
            
            $
            187,000
            
            $
            73,000SUPPLEMENTAL
                SCHEDULE OF NONCASHFINANCING
                ACTIVITIES:Cash
                dividend declared, but not paid
            
            $
            1,468,445
            
            $
            1,436,989The
                accompanying notes are an integral part of these condensed consolidated
                financial statements.


5


WILSHIRE
      BANCORP, INC.




**Notes
      to Condensed Consolidated Financial Statements (Unaudited)**




**Note
      1.     Business of Wilshire Bancorp,
      Inc.**




Wilshire
      Bancorp, Inc. (sometimes referred to herein as 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. Wilshire State 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 Bank’s shareholders approved a reorganization into a
      holding company structure at a meeting held on August 25, 2004. As a result
      of
      the reorganization, shareholders of the Bank are now shareholders of the
      Company, and the Bank is a direct subsidiary of the Company.




Our
      Corporate Headquarters and primary banking facilities are located at 3200
      Wilshire Boulevard, Los Angeles, California 90010. In addition, we have 18
      full-service Bank branch offices in Southern California, Texas and New York.
      We
      also have 7 loan production offices utilized primarily for the origination
      of
      loans under our Small Business Administration (“SBA”) lending program in
      Georgia, Washington, Texas, Nevada, Colorado, Virginia and
      California.




**Note
      2.** **Basis
      of Presentation**




The
      financial statements have been prepared in accordance with the Commission 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. The information provided by these
      interim financial statements reflects all adjustments which are, in the opinion
      of management, necessary for a fair presentation of the Company’s financial
      condition as of March 31, 2007 and December 31, 2006, the related statements
      of
      operations and comprehensive income for the three months ended March 31, 2007
      and 2006, and the statements of cash flows for the three months ended March
      31,
      2007 and 2006. Such adjustments are of a normal recurring nature unless
      otherwise disclosed in the Form 10-Q. Operating results for interim periods
      are
      not necessarily indicative of operating results for an entire fiscal
      year.




The
      unaudited financial statements should be read in conjunction with the audited
      financial statements and notes thereto included in the Company’s Annual Report
      on Form 10-K for the year ended December 31, 2006. The accounting policies
      used
      in the preparation of these interim financial statements were consistent with
      those used in the preparation of the financial statements for the year ended
      December 31, 2006, unless otherwise noted.




**Note
      3.** **Earnings
      per Share and Stock Based Compensation**




Basic
      earnings per share (“EPS”) excludes dilution and is computed by dividing income
      available to common shareholders by the weighted-average number of common shares
      outstanding for the period. Diluted EPS reflects the potential dilution that
      could occur if securities or other contracts to issue common stock were
      exercised or converted into common stock or resulted in the issuance of common
      stock that would then share in the earnings of the Company.




6


The
      following table provides the basic and diluted EPS computations for the periods
      indicated below:




**For
                the Quarter Ended**
              **March
                31,****2007**
            
            **2006**Numerator:
              Net
                income - numerator for basic earnings
              per
                share and diluted earnings per share-income
                available to common stockholders
            
            $
            7,317,206
            
            $
            7,822,714Denominator:
              Denominator
                for basic earnings per share:
              Weighted-average
                shares
            
            
            29,346,442
            
            
            28,714,017Effect
                of dilutive securities:
              Stock
                option dilution
            
            
            170,857
            
            
            394,580Denominator
                for diluted earnings per share:
              Adjusted
                weighted-average sharesAnd
                assumed conversions
            
            
            29,517,299
            
            
            29,108,778Basic
                earnings per share
            
            $
            0.25
            
            $
            0.27Diluted
                earnings per share
            
            $
            0.25
            
            $
            0.27


During
      1997, the Bank established a new stock option plan that provides for the
      issuance of up to 6,499,800 shares of its authorized but unissued common stock
      to managerial employees and directors. In connection with the holding company
      reorganization, the options granted under this plan are exercisable into shares
      of the Company’s common stock. Exercise prices may not be less than the fair
      market value at the date of grant. As of March 31, 2007, 566,416 shares were
      outstanding under this option plan. The outstanding stock options granted under
      the Company’s 1990 plan were transferred to this plan. Options granted through
      2005 under the stock option plan expire not more than 10 years after the date
      of
      grant, but options granted after 2005 expire not more than 5 years after the
      date of grant.




The
      adoption of SFAS 123R resulted in incremental stock-based compensation expense
      of $118,020 and $77,076 for the three months ended March 31, 2007 and 2006,
      respectively, and accordingly decreased the periodic income before income taxes
      by the respective amounts and their effects on basic or diluted earnings per
      share was negligible. For the three months ended March 31, 2007 and 2006, cash
      provided by operating activities decreased by $1,286,447 and $688,722,
      respectively, and cash provided by financing activities increased by identical
      amounts for 2006 related to excess tax benefits from stock-based payment
      arrangements.




The
      Company has issued stock options to employees under stock-based compensation
      plans. Stock options are issued at the current market price on the date of
      grant. The vesting period and contractual term are determined at the time of
      grant, but the contractual term may not exceed 10 years from the date of grant.
      The grant date fair value of each option award is estimated on the date of
      grant
      using the Black-Scholes option valuation model that uses the assumptions noted
      below. The expected life (estimated period of time outstanding) of options
      was
      estimated using the simple method in accordance with SFAS 123R. The expected
      volatility was based on historical volatility for a period equal to the stock
      option’s expected life. The risk-free rate is based on the U.S. Treasury yield
      curve in effect at the time of grant.




For
      the
      first quarter of 2007, there were no stock options granted, but 15,000 options
      were granted during the first quarter of 2006. The weighted average fair value
      of options granted for the first quarter of 2006 was $4.73. The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following assumptions:






7




**Three
                Months Ended****March
                31,****2007**
            
            **2006**Expected
                life1
            
            
            -
            
            
            3.5
                yearsExpected
                volatility2
            
            
            -
            
            
            33.3%Expected
                dividend yield
            
            
            -
            
            
            1.17%Risk-free
                interest rate3
            
            
            -
            
            
            4.32%







A
      summary
      of activity for the Company’s stock options as of and for the three months ended
      March 31, 2007 is presented below:




**Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                term**
              **(in
                years)**
            
            **Aggregate**
              **Intrinsic**
              **Value********Shares**Outstanding
                at January 1, 2007
            
            
            737,892
            
            $
            9.48Granted
            
            
            -
            
            
            -Exercised
            
            
            (171,476
            )
            
            0.63Forfeited
            
            
            -
            
            
            -Outstanding
                at March 31, 2007
            
            
            566,416
            
            $
            12.16
            
            
            
            5.83
            
            $
            2,852,158Options
                exercisable at March 31, 2007
            
            
            322,376
            
            $
            8.25
            
            
            
            6.00
            
            $
            2,696,772





The
      following table summarizes information about stock options outstanding as of
      March 31, 2007:




**Options
                Outstanding**
            
            **Options
                Exercisable****Weighted****Weighted**
            
            **Average**
            
            
            
            **Weighted****Number
                of**
            
            **Average**
            
            **Remaining**
            
            **Number
                of**
            
            **Average****Outstanding**
            
            **Exercise**
            
            **Contractual**
            
            **Exercisable**
            
            **Exercise****Range
                of Exercise Prices**
            
            **Options**
            
            **Price**
            
            **Life**
            
            **Options**
            
            **Price**$1.00
                to $1.99
            
            40,000
            
            $
                1.39
            
            3.72
                years
            
            40,000
            
            $
                1.39$2.00
                to $2.99
            
            94,766
            
            2.57
            
            5.15
                years
            
            94,766
            
            2.57$3.00
                to $4.99
            
            52,000
            
            4.53
            
            6.34
                years
            
            52,000
            
            4.53$13.00
                to $14.99
            
            65,000
            
            13.75
            
            8.04
                years
            
            29,400
            
            13.71$15.00
                to $16.99
            
            127,650
            
            15.21
            
            7.96
                years
            
            75,810
            
            15.22$17.00
                to $19.99
            
            187,000
            
            18.80
            
            4.26
                years
            
            30,400
            
            18.68$1.00
                to $19.99
            
            566,416
            
            
            12.16
            
            5.83
                years
            
            322,376
            
            
            8.25




During
      the three months ended March 31, 2007 and 2006, information related to stock
      options are presented as follows:


**Three
                  Months Ended****March
                  31,********2007**
              
              **2006**Total
                  intrinsic value of options exercised
              
              $
              3,071,873
              
              $
              1,767,913Total
                  fair value of options vested
              
              
              73,379
              
              
              79,691Weighted
                  average fair value of options granted during the period
              
              
              -
              
              
              4.73




As
      of
      March 31, 2007, total unrecognized compensation cost related to stock options
      amounted to $481,000, which is expected to be recognized over a weighted average
      period of 1.47 years.







1The
      expected life (estimated period of time outstanding) of stock options granted
      was estimated using the historical exercise behavior of employees.


2The
      expected volatility was based on historical volatility for a period equal to
      the
      stock option’s expected life.


3The
      risk-free rate is based on the U.S. Treasury yield curve in effect at the time
      of grant.






8




A
      summary
      of the status and changes of the Company’s nonvested shares related to the
      Company’s stock plans as of and during the three months ended March 31, 2007 is
      presented below:




******Shares**
            
            **Weighted
                Average**
              **Grant
                date**
              **Fair
                value**Nonvested
                at January 1, 2007
            
            
            274,360
            
            $
            3.99Granted
            
            
            -
            
            
            -Vested
            
            
            (30,320
            )
            
            2.42Forfeited
                on unvested shares
            
            
            -
            
            
            -Nonvested
                at March 31, 2007
            
            
            244,040
            
            $
            4.18




**Note
      4.**  **Goodwill
      and Other Intangible Assets**




In
      July
      2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, *Business
      Combinations* ,
      and
      SFAS No. 142, *Goodwill
      and Other Intangible Assets.* Under
      these standards, goodwill and other intangible assets deemed to have indefinite
      lives are no longer amortized but are subject to annual impairment tests. Other
      intangible assets will continue to be amortized over their useful
      lives.




Prior
      to
      the acquisition of Liberty Bank of New York in May 2006, the Company did not
      have any material intangible assets other than loan servicing rights. The loan
      servicing rights are subject to amortization and were $5,126,000 and
      $4,881,000(net of $1,582,000 and $1,716,000 accumulated amortization,
      respectively) as of March 31, 2007 and 2006, respectively. Amortization expenses
      for servicing rights were $695,000and $414,000 for the three months ended March
      31, 2007 and 2006, respectively. In connection with the acquisition of Liberty
      Bank of New York, the Company recorded core deposit intangibles and favorable
      lease intangibles. As of March 31, 2007, those intangible assets were $1,489,000
      and $322,000, respectively, net of $151,000 and $108,000 accumulated
      amortizations, respectively. Amortization expenses for those intangible assets
      were $43,000 and $31,000 for the three months ended March 31, 2007,
      respectively. We estimate the combined amortization expenses, excluding the
      effect of unexpected reversal of servicing assets, to be approximately $1.4
      million annually for the next five fiscal years. The acquisition also caused
      the
      Company to record goodwill valued at approximately $6.7 million, which is
      subject to annual impairment testing. The Company has selected December 31
      as
      the annual testing date, and there was no amortization that indicated impairment
      as of March 31, 2007.




**Note
      5.**  **Business Segment Information**




The
      following disclosure about segments of the Company is made in accordance with
      the requirements of SFAS No. 131, *Disclosures
      about Segments of an Enterprise and Related Information* .
      The
      Company segregates its operations into three primary segments: Banking
      Operations, Trade Finance Services (“TFS”), and Small Business Administration
      Lending Services. The Company determines the operating results of each segment
      based on an internal management system that allocates certain expenses to each
      segment.




*Banking
      Operations* - ** The
      Company provides lending products, including commercial, consumer and real
      estate loans to its customers.




*Trade
      Finance Services* -
      The
      Trade Finance department allows the Company’s import/export customers to handle
      their international transactions. Trade finance products include, among others,
      the issuance and collection of letters of credit, international collection,
      and
      import/export financing.




*Small
      Business Administration Lending Services* -
      The SBA
      department mainly provides customers of the Company access to the U.S.
      SBA-guaranteed lending program.




The
      following are the results of operations of the Company’s segments for the
      periods indicated below:




**(Dollars
                in Thousands)**
            
            **Three
                Months Ended March 31, 2007**
            
            **Three
                Months Ended March 31, 2006****Business
                Segment**
            
            **Banking**
              **Operations**
            
            **TFS**
            
            **SBA**
            
            **Company**
            
            **Banking****Operations**
            
            **TFS**
            
            **SBA**
            
            **Company**Net
                interest income
            
            $
            14,113
            
            $
            951
            
            $
            3,909
            
            $
            18,973
            
            $
            12,488
            
            $
            980
            
            $
            3,811
            
            $
            17,279Less
                Provision for loan losses
            
            
            1,550
            
            
            (84
            )
            
            164
            
            
            1,630
            
            
            353
            
            
            125
            
            
            582
            
            
            1,060Other
                operating income
            
            
            2,893
            
            
            343
            
            
            1,827
            
            
            5,063
            
            
            2,698
            
            
            397
            
            
            2,669
            
            
            5,764Net
                revenue
            
            
            15,456
            
            
            1,378
            
            
            5,572
            
            
            22,406
            
            
            14,833
            
            
            1,252
            
            
            5,898
            
            
            21,983Other
                operating expenses
            
            
            8,995
            
            
            236
            
            
            1,125
            
            
            10,356
            
            
            7,010
            
            
            232
            
            
            1,622
            
            
            8,864Income
                before taxes
            
            $
            6,461
            
            $
            1,142
            
            $
            4,447
            
            $
            12,050
            
            $
            7,823
            
            $
            1,020
            
            $
            4,276
            
            $
            13,119Total
                assets
            
            $
            1,800,073
            
            $
            50,208
            
            $
            150,802
            
            $
            2,001,083
            
            $
            1,521,710
            
            $
            56,258
            
            $
            160,645
            
            $
            1,738,613






9




**Note** **6.**  **Commitments
      and Contingencies**




We
      are a
      party to financial instruments with off-balance-sheet risk in the normal course
      of business to meet the financing needs of our customers. These financial
      instruments include commitments to extend credit, standby letters of credit,
      and
      commercial letters of credit. These instruments involve, to varying degrees,
      elements of credit and interest rate risk in excess of the amount recognized
      in
      the 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 customer’s
      creditworthiness on a case-by-case basis. The amount of collateral obtained,
      if
      deemed necessary upon extension of credit, is based on our credit evaluation
      of
      the counterparty. Collateral held varies but may include accounts receivable;
      inventory; property, plant, and equipment; and income-producing properties.
      Commitments at March 31, 2007 are summarized as follows:




Commitments
                to extend credit
            $191,090,042Standby
                letters of credit
            $8,965,295Commercial
                letters of credit
            $11,579,943




As
      part
      of our asset and liability management strategy, we may engage in derivative
      financial instruments, such as interest rate swaps, with the overall goal of
      minimizing the impact of interest rate fluctuations on our net interest margin.
      Interest rate swaps involve the exchange of fixed-rate and variable-rate
      interest payment obligations without the exchange of the underlying notional
      amounts.




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. 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.




**Note** **7.**  **Recent
      Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS No. 155, *Accounting
      for Certain Hybrid Financial Instruments* ,
      which
      amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
      Activities, and SFAS No. 140, Accounting for Transfers and Servicing of
      Financial Assets and Extinguishments of Liabilities. This statement also
      resolves issues addressed in Statement 133 Implementation Issue No. D1,
      Application of Statement 133 to Beneficial Interests in Securitized Financial
      Assets. SFAS No. 155 eliminates the exemption from applying SFAS No. 133 to
      interests in securitized financial assets so that similar instruments are
      accounted for similarly regardless of the form of the instruments. SFAS No.
      155
      also allows a preparer to elect fair value measurement at acquisition, at
      issuance, or when a previously recognized financial instrument is subject to
      a
      remeasurement (new basis) event, on an instrument-by-instrument basis, in a
      case
      in which a derivative would otherwise have to be bifurcated. SFAS No. 155 is
      effective for all financial instruments acquired or issued after December 31,
      2006 for the Company. The Company adopted SFAS No. 155 on January 1, 2007,
      and
      this adoption has not had a material impact on the consolidated financial
      statements or results of operations.




In
      March
      2006, the FASB issued SFAS No. 156, *Accounting
      for Servicing of Financial Assets* ,
      which
      amends the guidance in SFAS No. 140. SFAS No. 156 requires that an entity
      separately recognize a servicing asset or a servicing liability when it
      undertakes an obligation to service a financial asset under a servicing contract
      in certain situations. Such servicing assets or servicing liabilities are
      required to be measured initially at fair value, if practicable. SFAS No. 156
      also allows an entity to measure its servicing assets and servicing liabilities
      subsequently using either the amortization method, which existed under SFAS
      No.
      140, or the fair value measurement method. SFAS No. 156 will be effective for
      the Company in the fiscal year beginning January 1, 2007. On January 1, 2007,
      we
      adopted SFAS No. 156. Upon this adoption, the Company selected a fair value
      measurement method to subsequently measure its servicing assets and liabilities
      and recognized the net increase in their fair value of $80,000, net of tax
      effects, as an adjustment to the beginning balance of retained
      earnings.






10




In
      June
      2006, the FASB issued Interpretation No. 48, *Accounting
      for Uncertainty in income taxes* (“FIN
      48”) which supplements SFAS No. 109 by defining the confidence level that a tax
      position must meet in order to be recognized in the financial statements. The
      interpretation requires that the tax effects of a position be recognized only
      if
      it is “more-likely-than-not” to be sustained based solely on its technical
      merits as of the reporting date. The more-likely-than-not threshold represents
      a
      positive assertion by management that a company is entitled to the economic
      benefits of a tax position. If a tax position is not considered
      more-likely-than-not to be sustained based solely on its technical merits,
      no
      benefits of the position are to be recognized. Moreover, the
      more-likely-than-not threshold must continue to be met in each reporting period
      to support continued recognition of a benefit. At adoption, companies must
      adjust their financial statements to reflect only those tax positions that
      are
      more-likely-than-not to be sustained as of the adoption date. Any necessary
      adjustment would be recorded directly to retained earnings in the period of
      adoption and reported as a change in accounting principle. On January 1, 2007,
      we adopted FIN 48. Upon this adoption, the Company recognized an increase in
      the
      liability for unrecognized tax benefit of $162,000, which was accounted for
      as a
      decrease to the beginning balance of retained earnings.




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* ,
      which
      defines fair value, establishes a framework for measuring fair value in
      accounting principles generally accepted in the United States of America
      (“GAAP”), and expands disclosures about fair value measurements. The Company
      will adopt SFAS No. 157 for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods with those fiscal years.
      The transition adjustment, measured as the difference between the carrying
      amounts and the fair values of those financial instruments at the date SFAS
      No.
      157 is initially applied, should be recognized as a cumulative-effect adjustment
      to the opening balance of retained earnings for the fiscal year in which this
      Statement is initially applied. We are in the process of evaluating the impact
      of this adoption on the consolidated financial statements or results of
      operations.




In
      September 2006, the FASB issued SFAS No. 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* ,
      which
      requires an employer to recognize the overfunded or underfunded status of a
      defined benefit postretirement plan as an asset or liability in its statement
      of
      financial position and to recognize changes in that funded status in the year
      in
      which the change occur through comprehensive income of the business entity.
      An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures. We adopted SFAS No. 158 effective on December
      15, 2006, and the adoption of SFAS No. 158 did not have a material impact on
      the
      consolidated financial statements or results of operations.




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin (SAB) No. 108, *Quantifying
      Financial Misstatements* ,
      which
      expresses the Staff’s views regarding the process of quantifying financial
      statement misstatements. Registrants are required to quantify the impact of
      correcting all misstatements, including both the carryover and reversing effects
      of prior year misstatements, on the current year financial statements. The
      techniques most commonly used in practice to accumulate and quantify
      misstatements are generally referred to as the “rollover” (current year income
      statement perspective) and “iron curtain” (year-end balance perspective)
      approaches. The financial statements would require adjustment when either
      approach results in quantifying a misstatement that is material, after
      considering all relevant quantitative and qualitative factors. This guidance
      is
      effective for annual financial statements covering the first fiscal year ending
      after November 15, 2006. The adoption of SAB No. 108 did not have a material
      effect on the consolidated financial statements and results of
      operations.




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      which
      permits all entities to choose to measure eligible items at fair value at
      specified election dates. A business entity shall report unrealized gains and
      losses on items for which the fair value option has been elected in earnings
      at
      each subsequent reporting date. This statement shall be effective as of the
      beginning of each reporting entity’s first fiscal year after November 15, 2007.
      We are in the process of evaluating the impact of this adoption on the
      consolidated financial statements and results of operations.




**Note** **8.**  **Reclassifications**




Certain
      reclassifications, principally related to components of tax benefit from
      exercise of stock option in cash flows, were made to the prior periods’
presentation to conform to the current year’s presentation.






11




**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 and
      financial condition as of and for the three-month periods ended March 31, 2007
      and 2006, respectively, 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,” “will likely result,” “expect,” “will continue,”
“anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” 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, 2006, 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.




·
            Our
                current level of interest rate spread may decline in the future.




·
            The
                holders of recently issued debentures have rights that are senior
                to those
                of our shareholders.




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




·
            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.




·
            Increases
                in our allowance for loan lossescould
                materially adversely affect our earnings.




·
            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.




·
            Additional
                shares of our Common Stock issued in the future could have a dilutive
                effect.




·
            Shares
                of our preferred stock issued in the future could have dilutive and
                other
                effects.




·
            We
                face substantial competition in our primary market
                area.






12




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




·
            Wilshire
                Bancorp relies heavily on the payment of dividends from the Bank.




·
              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
                increases the cost of doing business and inhibits our ability to
                compete.




·
            We
                could be negatively impacted by downturns in the South Korean
                economy.




These
      factors and the risk factors referred to in our Annual Report on Form 10-K
      for
      the year ended December 31, 2006 could cause actual results or outcomes to
      differ materially from those expressed in any forward-looking statements made
      by
      us, and you should not place undue reliance on any such forward-looking
      statements. Any forward-looking statement speaks only as of the date on which
      it
      is made and we do not undertake any obligation to update any forward-looking
      statement or statements to reflect events or circumstances after the date on
      which such statement is made or to reflect the occurrence of unanticipated
      events. New factors emerge from time to time, and it is not possible for us
      to
      predict which will arise. In addition, we cannot assess the impact of each
      factor on our business or the extent to which any factor, or combination of
      factors, may cause actual results to differ materially from those contained
      in
      any forward-looking statements.














13


**Selected
      Financial Data**




The
      following table presents selected historical financial information (unaudited)
      as of and for the three months ended March 31, 2007 and 2006. In the opinion
      of
      our management, the information presented reflects all adjustments considered
      necessary for a fair presentation of the results of such periods. The operating
      results for the interim periods are not necessarily indicative of our future
      operating results.




Executive
      Overview




**(Dollars
                in thousands, except per share data)****As
                of and for the Three Months Ended**
            
            **March
                31,**
              **2007**
            
            **March
                31,**
              **2006**Net
                income
            
            $
            7,317
            
            $
            7,823Net
                income per share, basic
            
            
            0.25
            
            
            0.27Net
                income per share, diluted
            
            
            0.25
            
            
            0.27Net
                interest income
            
            
            18,973
            
            
            17,279**Average
                balances:**Assets
            
            
            1,991,923
            
            
            1,703,524Cash
                and cash equivalents
            
            
            175,918
            
            
            203,344Investment
                debt securities
            
            
            186,563
            
            
            170,643Net
                loans
            
            
            1,551,416
            
            
            1,266,976Total
                deposits
            
            
            1,731,159
            
            
            1,444,595Shareholders’
                equity
            
            
            155,100
            
            
            118,469**Performance
                Ratios:**Annualized
                return on average assets
            
            
            1.47
            %
            
            1.84
            %Annualized
                return on average equity
            
            
            18.87
            %
            
            26.41
            %Net
                interest margin
            
            
            4.10
            %
            
            4.37
            %Efficiency
                ratio1
            
            
            43.43
            %
            
            38.47
            %**Capital
                Ratios:**Tier
                1 capital to adjusted total assets
            
            
            10.00
            %
            
            9.39
            %Tier
                1 capital to risk-weighted assets
            
            
            12.07
            %
            
            11.60
            %Total
                capital to risk-weighted assets
            
            
            13.80
            %
            
            14.41
            %




**Period-end
                balances as of:**
            
            **March
                31,**
              **2007**
            
            **December
                31,**
              **2006**
            
            **March
                31,**
              **2006**Total
                assets
            
            $
            2,001,083
            
            $
            2,008,484
            
            $
            1,738,613Investment
                securities
            
            
            186,403
            
            
            182,459
            
            
            193,992Total
                loans, net of unearned income
            
            
            1,615,355
            
            
            1,560,539
            
            
            1,312,588Total
                deposits
            
            
            1,735,683
            
            
            1,751,973
            
            
            1,481,237Junior
                subordinated debentures
            
            
            61,547
            
            
            61,547
            
            
            61,547FHLB
                borrowings
            
            
            20,000
            
            
            20,000
            
            
            50,000Shareholders’
                equity
            
            
            157,186
            
            
            149,635
            
            
            120,147**Asset
                Quality Ratios:**Net
                (recoveries) charge-off to average total loans for the
                quarter
            
            
            0.17
            %
            
            0.06
            %
            
            0.01
            %Nonperforming
                loans to total loans
            
            
            1.25
            %
            
            0.44
            %
            
            0.17
            %Nonperforming
                assets to total loans and other real estate owned
            
            
            1.25
            %
            
            0.45
            %
            
            0.19
            %Allowance
                for loan losses to total loans
            
            
            1.07
            %
            
            1.20
            %
            
            1.13
            %Allowance
                for loan losses to nonperforming loans
            
            
            85.01
            %
            
            272.38
            %
            
            668.63
            %




**Introduction**




We
      succeeded to the business and operations of Wilshire State Bank (the “Bank”)
      upon consummation of the reorganization of the Bank into a holding company
      structure, effective as of August 25, 2004. Prior to the completion of the
      reorganization, the Bank was subject to the information, reporting and proxy
      statement requirements of the Exchange Act, pursuant to the regulations of
      its
      primary regulator, the FDIC. Accordingly, the Bank filed annual and quarterly
      reports, proxy statements and other information with the FDIC. Pursuant to
      Rule
      12g-3 of the Exchange Act, the Company has succeeded to the reporting
      obligations of the Bank and the reporting obligations of the Bank to the FDIC
      have terminated. Filings by the Company under the Exchange Act, like this Form
      10-Q, are to be made with the SEC. Note that while we refer generally to the
      “Company” throughout this filing, all references to the Company prior to August
      25, 2004, except where otherwise indicated, are to the Bank.




We
      operate community banks in the general commercial banking business, with our
      primary market encompassing the multi-ethnic population of the Los Angeles
      Metropolitan area. Our full-service offices are located primarily in areas
      where
      a majority of the businesses are owned by Korean-speaking immigrants, with
      many
      of the remaining businesses owned by Hispanic and other minority
      groups.







1Represents
      the ratio of noninterest expense to the sum of net interest income before
      provision for loan losses and noninterest income.






14




At
      March
      31, 2007, we had approximately $2.0 billion in assets, $1.62 billion in total
      loans, and $1.74 billion in deposits.




We
      also
      have expanded and diversified our business with the focus on our commercial
      and
      consumer lending divisions. Over the past several years, our network of branches
      and loan production offices has been expanded geographically. We currently
      maintain 18 full-service branch banking offices in Southern California, Texas
      and New York and seven separate loan production offices in Seattle, Washington;
      Milpitas, California (the San Jose area); Annandale, Virginia; Las Vegas,
      Nevada; Aurora, Colorado (the Denver area); Atlanta, Georgia; and Houston,
      Texas.




In
      December 2002, the Bank issued $10 million of 2002 Junior Subordinated
      Debentures. Subsequently, the Company, as a wholly-owned subsidiary in 2003
      and
      as a parent company of the Bank in 2005, issued a total of $51,547,000 of Junior
      Subordinated Debentures in connection with a $50,000,000 trust preferred
      securities issuance by wholly-owned statutory trusts. We believe that the
      supplemental capital raised in connection with the issuance of these debentures
      allowed us to achieve and maintain status as a well-capitalized institution
      and
      sustained our continued loan growth.




As
      evidenced by our past several years of operations, we have experienced
      significant balance sheet growth. In the fourth quarter of 2006, we implemented
      a new strategy, as a response to a slowing national economy and stiff market
      competition, to moderate balance sheet growth. As planned, we initiated a
      deposit campaign to focus on non-time deposits and became more disciplined
      in
      our lending policies. Our management believes that this strategy will improve
      our cost of funds and credit quality and enhance shareholder value.




**First
      Quarter 2007 Key Performance Indicators**




We
      believe the following were key indicators of our performance for operations
      during the first quarter of 2007:




·
            Under
                our new strategy which moderated the growth of our balance sheet,
                the
                total deposits and total assets has been virtually unchanged in the
                first
                quarter of 2007.




·
            Our
                total loans grew in a more controlled way by 4% to $1.62 billion
                at the
                end of the first quarter of 2007, as compared with $1.56 billion
                at the
                end of 2006.




·
            Our
                deposit campaign for non-time deposits improved our fund cost to
                4.98% in
                the first quarter of 2007 from 5.03% in the preceding quarter with
                the
                $13.1 million increase in non-time deposits and the $29.4 million
                decrease
                in time deposits during the first quarter of 2007. However, the loss
                of
                interest income related to the nonperforming loans reduced our net
                interest margin to 4.10% in the first quarter of 2007 as compared
                with
                4.37% in the same quarter of 2006.




·
            Our
                nonperforming assets increased to $20.4 million at the end of the
                first
                quarter of 2007 from $7.1 million at the end of 2006. However, our
                credit
                quality remains at the manageable level with the total delinquent
                loans of
                $24 million which represent 1.5% of total loans at the end of the
                first
                quarter of 2007




·
            Total
                noninterest income decreased to $5.2 million in the first quarter
                of 2007,
                or a decrease of 9.61% from $5.8 million in the first quarter of
                2006 due
                mainly to the reduction of gain on loan
                sales.




·
            Total
                noninterest expense increased to $10.5 million in the first quarter
                of
                2007 from $8.9 million in the first quarter of 2006, reflecting the
                expanded personnel and premises associated with our business growth.
                Despite our remote operation in New York, noninterest expenses as
                a
                percentage of average assets were managed to 0.53% in the first quarter
                of
                2007, comparable to the level in the first quarter of 2006.




Primarily
      due to a substantial rise in nonperforming loans which resulted in a significant
      loss in interest income and a sizable increase in our provision for loan losses,
      our net income decreased to $7.3 million or $0.25 per diluted common share
      for
      the first quarter of 2007, from $7.8 million or $0.27 per diluted common share
      in the first quarter of 2006.






15




**2007
      Outlook**




As
      we
      look ahead to the remainder of 2007, the economies and real estate markets
      in
      our primary market areas will continue to be significant determinants of the
      quality of our assets in future periods and thus our results of operations,
      liquidity and financial condition. We anticipate that the national economy
      is
      headed for a soft landing in 2007 and that this will generally affect asset
      quality negatively. Responding proactively to this anticipated business
      environment, we shifted our focus from growth to asset quality management.
      We
      have already enhanced our loan underwriting standards more stringently and
      made
      it more difficult to allow exceptions from our loan policy. We anticipate these
      changes will result in moderating loan growth, but at the same time improve
      loan
      quality going forward.




Our
      focus
      on net interest margin management will continue. It
      is our
      expectation that the strategic change toward more moderate loan growth will
      make
      our funding needs subside and our reliance on high-cost deposits to decline.
      As
      a result, our net interest margin should improve. We
      also
      believe that these strategic changes and our expansion into the
      East
      Coast market of the United States, together
      with our core deposit campaign that brought some positive results in the first
      quarter of 2007, will benefit our net interest margin going forward.




Notwithstanding
      the overall slower national economy, we believe that there will be continued
      growth in our primary market areas, which includes the Korean-American business
      sectors located in Southern California, Texas, and the greater New York
      metropolitan area, due mainly to the anticipated capital influx from the
      Republic of Korea. Therefore, we believe that we will continue to grow; just
      at
      a more controlled pace than we have experienced in the past few years.




We
      received all necessary approval for the new branch in Fort Lee, New Jersey,
      and
      expect to open this branch around the middle of the year. A new branch in New
      Jersey will allow us to offer greater convenience to both new and existing
      customers in this desirable market. We
      believe that this New Jersey branch, together with the existing New York
      branches, will be a critical part of our expansion strategy, especially in
      the
      East Coast market of the United States due to its high level of small business
      activity and diverse population. We will continue to pursue opportunities for
      growth through *de
      novo* branching and regional loan production offices.




In
      addition, we will continue to focus on streamlining our operations so that
      our
      expenses grow more slowly than the overall growth of our business.




**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
      accounting principles generally accepted in the United States of America. 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.
      In particular, 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 loan losses, the treatment of non-accrual
      loans, the valuation of properties acquired through foreclosure, the valuation
      of retained interests and mortgage servicing assets related to the sales of
      Small Business Administration loans, and the treatment and valuation of
      stock-based compensation and business combination. In each area, we have
      identified the variables most important in the estimation process. We have
      used
      the best information available to make the estimation 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 impact net income.




Our
      significant accounting policies are described in greater detailed in our 2006
      Annual Report on Form 10-K in the “Critical Accounting Policies” section of
      Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial
      Statements-”Significant Accounting Policies” which are essential to understand
      Management’s Discussion and Analysis of Results of Operations and Financial
      Condition. There has been no material modification to these policies during
      the
      quarter ended March 31, 2007.






16




**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 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, or FRB.




Average
      net loans increased by 22.5% to $1.55 billion in the first quarter of 2007,
      as
      compared with $1.27 billion in the same quarter of 2006 and average
      interest-earning assets increased by 17.1% to $1.85 billion in the first quarter
      of 2007, as compared with $1.58 billion in the same quarter of 2006. Our average
      interest-bearing deposits also increased by 22.8% to $1.42 billion in the first
      quarter of 2007, as compared with $1.16 billion in the same quarter of 2006.
      Together with the decrease of other borrowings (see “Financial
      Condition-Deposits and Other Sources of Funds” below), average interest-bearing
      liabilities increased by 17.9% to $1.50 billion in the first quarter of 2007,
      as
      compared with $1.27 billion in the same quarter of 2006.




The
      FRB’s
      continued rate increases since June 2004 increased the average yields on
      interest-earning assets to 8.13% for the first quarter of 2007 from 7.85% for
      the prior year’s same quarter. In the same time periods, the strong competition
      for deposits in our local markets accelerated to a greater extent the increase
      of our average cost on interest-bearing liabilities to 4.98% for the first
      quarter of 2007 from 4.32% for the prior year’s same quarter. As a result,
      interest income grew 21.3% to $37.6 million for the first quarter of 2007,
      as
      compared with $31.0 million for the prior year’s same period, outpaced by a
      35.7% increase in interest expense. Interest expense increased to $18.7 million
      for the first quarter of 2007, as compared with $13.8 million for the prior
      year’s same period.




The
      combined result of our growth and the interest rate increases was an increase
      in
      net interest income. Net interest income increased by $1.7 million (9.8%) to
      $19.0 million in the first quarter of 2007 from $17.3 million in the same
      quarter a year ago. Despite the positive impact of FRB’s rate increases on our
      asset-sensitive position, our net interest margin and spread decreased to 4.10%
      and 3.16%, respectively, for the first quarter of 2007, as compared with 4.37%
      and 3.53% for the prior year’s same period due mainly to the said fund cost
      increase accelerated by the stiff competition for deposits in our niche market.




In
      the
      first quarter of 2007, our continuing deposit campaign for transactional
      accounts brought some positive results and lowered the ratio of time deposits
      over total deposits to 54.4% at the end of the first quarter from 55.5% at
      the
      end of 2006. As a result, our cost of interest-bearing liabilities decreased
      slightly to 4.98% in the first quarter of 2007, from 5.03% in the preceding
      quarter a fter
      rising in each quarter of 2006. However, w e
      were
      not able to improve net interest margin due mainly to the lost interest income,
      in the amount of $1.1 million, on loans placed on nonaccrual status in the
      first
      quarter of 2007 (see “Financial Condition-Nonperforming assets” below).
      Management believes that our expansion into the
      East
      Coast market of the United States will
      help
      improve our fund cost further and eventually our margins.






17




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 (all yields were
      calculated without the consideration of tax effects, if any):




**Distribution,
      Yield and Rate Analysis of Net Interest Income**


**For
                  the Quarter Ended March 31,****2007**
              
              **2006****(Dollars
                  in Thousands)**
              
              **Average
                  Balance**
              
              **Interest
                  Income/ Expense**
              
              **Annualized
                  Average Rate/Yield**
              
              **Average
                  Balance**
              
              **Interest
                  Income/ Expense**
              
              **Annualized
                  Average Rate/Yield****Assets:**Interest-earning
                  assets:Net
                  loans1
              
              $
              1,551,416
              
              $
              33,901
              
              
              8.74%
              
              $
              1,266,976
              
              $
              27,650
              
              
              8.73
              %Securities
                  of U.S. government enterprises
              
              
              161,064
              
              
              1,933
              
              
              4.80%
              
              
              154,308
              
              
              1,583
              
              
              4.10
              %Other
                  investment securities
              
              
              25,499
              
              
              306
              
              
              4.80%
              
              
              16,335
              
              
              188
              
              
              4.59
              %Overnight
                  investments andother
                  cash
              
              
              113,444
              
              
              1,509
              
              
              5.32%
              
              
              143,052
              
              
              1,615
              
              
              4.52
              %Money
                  market preferred securities
              
              
              -
              
              
              -
              
              
              -
              
              
              —
              
              
              —
              
              
              —Interest-earning
                  deposits
              
              
              -
              
              
              -
              
              
              -
              
              
              500
              
              
              5
              
              
              4.19
              %Total
                  interest-earning assets
              
              
              1,851,423
              
              
              37,649
              
              
              8.13%
              
              
              1,581,171
              
              
              31,041
              
              
              7.85
              %Cash
                  and due from banks
              
              
              62,474
              
              
              
              
              
              
              
              
              60,292Other
                  assets
              
              
              78,026
              
              
              
              
              
              
              
              
              62,061Total
                  assets
              
              $
              1,991,923
              
              
              
              
              
              
              
              $
              1,703,524**Liabilities
                  and Shareholders’ Equity:**Interest-bearing
                  liabilities:Money
                  market deposits
              
              $
              405,927
              
              $
              4,598
              
              
              4.53%
              
              $
              315,852
              
              $
              3,114
              
              
              3.94
              %Super
                  NOW deposits
              
              
              20,957
              
              
              58
              
              
              1.11%
              
              
              21,719
              
              
              60
              
              
              1.10
              %Savings
                  deposits
              
              
              29,270
              
              
              141
              
              
              1.93%
              
              
              21,663
              
              
              48
              
              
              0.89
              %Time
                  certificates of deposit indenominations
                  of $100,000 or more
              
              
              803,630
              
              
              10,618
              
              
              5.28%
              
              
              649,306
              
              
              7,483
              
              
              4.61
              %Other
                  time deposits
              
              
              159,946
              
              
              1,948
              
              
              4.87%
              
              
              147,485
              
              
              1,548
              
              
              4.20
              %Other
                  borrowings
              
              
              81,564
              
              
              1,313
              
              
              6.44%
              
              
              117,036
              
              
              1,509
              
              
              5.16
              %Total
                  interest-bearing liabilities
              
              
              1,501,294
              
              
              18,676
              
              
              4.98%
              
              
              1,273,061
              
              
              13,762
              
              
              4.32
              %Demand
                  deposits
              
              
              311,428
              
              
              
              
              
              
              
              
              288,570Other
                  liabilities
              
              
              24,101
              
              
              
              
              
              
              
              
              23,424Shareholders’
                  equity
              
              
              155,100
              
              
              
              
              
              
              
              
              118,469Total
                  liabilities and shareholders’ equity
              
              $
              1,991,923
              
              
              
              
              
              
              
              $
              1,703,524Net
                  interest income
              
              
              
              
              $
              18,973
              
              
              
              
              
              
              
              $
              17,279Net
                  interest spread2
              
              
              
              
              
              
              
              
              3.16%
              
              
              
              
              
              
              
              
              3.53
              %Net
                  interest margin3
              
              
              
              
              
              
              
              
              4.10%
              
              
              
              
              
              
              
              
              4.37
              %
 (1)
                Net
                    loan fees have been included in the calculation of interest income.
                    Loan
                    fees were approximately $1,599,000 and $1,379,000 for the quarters
                    ended
                    March 31, 2007 and 2006, respectively. Loans are net of the allowance
                    for
                    loan losses, deferred fees, unearned income, and related direct
                    costs, but
                    includes those placed on non-accrual status.(2)
                Represents
                    the average rate earned on interest-earning assets less the average
                    rate
                    paid on interest-bearing liabilities.(3)
                Represents
                    net interest income as a percentage of average interest-earning
                    assets.


18




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 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**




**For
                the Quarter Ended March 31,**
              **2007
                vs. 2006****(Dollars
                in Thousands)**
            
            **Increase
                (Decrease) Due to Change In**Volume
            
            Rate
            
            TotalInterest
                income:
              Net
                loans1
            
            $
            6,215
            
            $
            36
            
            $
            6,251Securities
                of government sponsored enterprises
            
            
            72
            
            
            278
            
            
            350Other
                investment securities
            
            
            109
            
            
            9
            
            
            118Overnight
                investments
            
            
            (366
            )
            
            260
            
            
            (106
            )Money
                market preferred securities
            
            
            -
            
            
            -
            
            
            -Interest-earning
                deposits
            
            
            (5
            )
            
            -
            
            
            (5
            )Total
                interest income
            
            
            6,025
            
            
            583
            
            
            6,608Interest
                expense:Money
                market deposits
            
            $
            975
            
            $
            509
            
            $
            1,484Super
                NOW deposits
            
            
            (2
            )
            
            -
            
            
            (2
            )Savings
                deposits
            
            
            22
            
            
            71
            
            
            93Time
                certificates of deposit indenominations
                of $100,000 or more
            
            
            1,940
            
            
            1,195
            
            
            3,135Other
                time deposits
            
            
            138
            
            
            262
            
            
            400Other
                borrowings
            
            
            (520
            )
            
            324
            
            
            (196
            )Total
                interest expense
            
            
            2,553
            
            
            2,361
            
            
            4,914Change
                in net interest income
            
            $
            3,472
            
            $
            (1,778
            )
            $
            1,694









(1)
      Net
      loan fees have been included in the calculation of interest income. Net loan
      fees were approximately $1,599,000 and $1,379,000 for the quarters ended March
      31, 2007 and 2006, respectively. Loans are net of the allowance for loan losses,
      deferred fees, unearned income, and related direct costs, but includes those
      placed on non-accrual status.




**Provision
      for Losses** **on Loan and Loan Commitments**




In
      anticipation of credit risk inherent in our lending business, we set aside
      allowances through charges to earnings. Such charges were not made 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 reserve for off-balance
      sheet items, which are presented as a component of other liabilities.




Our
      stringent loan underwriting standard and proactive credit follow-up procedures
      have helped us successfully curb an increase of the provision for loan losses
      despite our rapid loan growth. **** However,
      the provision for loan losses increased to $1.6 million in the first quarter
      of
      2007 as compared with $1.0 million for the prior year’s same quarter. Such
      increase was made to keep pace with an increase of non-performing loans (see
      “Financial Condition - Nonperforming Assets” below for further discussion) in
      addition to the growth of our loan portfolio. Included in such provision was
      a
      $375,000 provision to the reserve for off-balance-sheet items in the first
      quarter of 2007, as compared with the $111,000 provision to the reserve for
      off-balance-sheet items for the prior year’s same quarter. The procedures for
      monitoring the adequacy of the allowance for loan losses, as well as detailed
      information concerning the allowance itself, are described in the section
      entitled “Allowance for Loan Losses” below.




**Noninterest
      Income**




Total
      noninterest income decreased to $5.2 million in the first quarter of 2007,
      as
      compared with $5.8 million in the same period of 2006, representing a decrease
      of 9.6% during the comparable periods. Noninterest income as a percentage of
      average assets was 0.26% and 0.34% in the first quarter of 2007 and 2006,
      respectively. Such decrease was mainly caused by the reduction of loan sales
      activities. We currently earn non-interest income from various sources,
      including an income stream provided by bank-owned life insurance in the form
      of
      an increase in cash surrender value and gain on sale of residential mortgage
      loans.






19




The
      following table sets forth the various components of our noninterest income
      for
      the periods indicated:




**Noninterest
      Income**




**(Dollars
      in thousands)**




**For
                the Quarter Ended March 31,**
            
            **2007**
            
            **2006****(Amount)**
            
            **(%)**
            
            **(Amount)**
            
            **(%)**Service
                charges on deposit accounts
            
            $
            2,287
            
            
            43.9
            %
            $
            2,155
            
            
            37.4
            %Gain
                on sale of loans
            
            
            1,809
            
            
            34.7
            %
            
            2,350
            
            
            40.8
            %Loan
                related servicing income
            
            
            271
            
            
            5.2
            %
            
            529
            
            
            9.2
            %Referral
                fee income
            
            
            -
            
            
            -
            
            
            48
            
            
            0.8
            %Loan
                packaging fee
            
            
            20
            
            
            0.4
            %
            
            114
            
            
            2.0
            %Income
                from other earning assets
            
            
            277
            
            
            5.3
            %
            
            240
            
            
            4.1
            %Other
                income
            
            
            546
            
            
            10.5
            %
            
            328
            
            
            5.7
            %Total
            
            $
            5,210
            
            
            100.0
            %
            $
            5,764
            
            
            100.0
            %Average
                assets
            
            $
            1,991,923
            
            
            
            
            $
            1,703,524Noninterest
                income as a % of average assets
            
            
            
            
            
            0.26
            %
            
            
            
            
            0.34
            %


Our
      largest source of noninterest income in the first quarter of 2007 was service
      charge income on deposit accounts, representing 43.9% and 37.4% of total
      noninterest income in the first quarter of 2007 and 2006, respectively. This
      revenue source generally increases in accordance with an increase in the number
      of transactional accounts and increased by 6.1% in the first quarter of 2007
      to
      $2.3 million, as compared with $2.2 million in the first quarter of 2006. We
      constantly review service charge rates to maximize service charge income while
      maintaining a competitive position.




Our
      second largest source of noninterest income in the first quarter of 2007 was
      the
      gain on the sale of loans, which decreased to $1.8 million in the first quarter
      of 2007 from $2.4 million in the prior year’s same quarter. The ratio of this
      income as a percentage of total noninterest income was 34.7% in the first
      quarter of 2007, compared to 40.8% during the first quarter of 2006. This
      noninterest income is derived primarily from the sale of the guaranteed portion
      of SBA loans. We regularly sell the guaranteed portion of SBA loans in
      government securities secondary markets and retain servicing rights. While
      SBA
      (7a) loan production in the first quarter of 2007 was $38.8 million which is
      comparable to $39.6 million in the same quarter of 2006, we sold less in
      anticipation of premium increases going forward. We sold $25.6 million and
      $33.0
      million in the first quarter of 2007 and 2006, respectively. This less sales
      volume combined with the lower sales premium decreased the sales gains on the
      guaranteed portions of SBA loans to $1.7 million in the first quarter of 2007
      as
      compared with $2.3 million in the same quarter of 2006. We generally earn this
      source of noninterest income from the sale of the unguaranteed portion of SBA
      loans and residential mortgage loans. Gain on sale of residential mortgage
      loans
      was $59,000 and $53,000, respectively, in the first quarter of 2007 and 2006.
      However, the sale of the unguaranteed portion of SBA loans is not considered
      a
      stable source of income, and we had no such sales in the first quarter of 2007
      or 2006.




The
      third
      largest source of noninterest income was loan-related financing and servicing
      fees. These fees consist of trade-financing fees and servicing fees on SBA
      loans
      sold. With the expansion of our trade financing activities and the growth of
      our
      servicing loan portfolio, this fee income source historically has increased.
      However, it decreased to $271,000 in the first quarter of 2007 from $529,000
      for
      the prior year’s same period. Such decrease was mainly caused by the significant
      reversals of servicing assets on sold SBA loans which were paid off before
      their
      maturities. The servicing fees on sold SBA loans are credited when we collect
      the monthly payments on the sold loans we are servicing, and are charged by
      the
      monthly amortization of servicing assets that we capitalize upon sale of the
      related loan. Such servicing assets are also reversed and charged against the
      fee income account when the sold loans are paid off before the related servicing
      assets are fully amortized. For the first three months of 2007, $607,000 of
      servicing assets were charged back to this income account by the early pay-offs
      as compared to $284,000 for the prior year’s same period. In light of our
      increasing emphasis on trade financing activities and the continuing growth
      of
      our servicing loan portfolio (the servicing portfolio increased to $330.3
      million at March 31, 2007 from $293.4 million a year ago), management believes
      that this income source should continue to increase as prepayments on SBA loans
      slow down. However, there can be no assurance that this will be the
      case.






20




Our
      loan
      referral fee income source includes income derived from our referring to other
      financial institutions loans that did not meet our lending requirements for
      various reasons, including size, availability of funds, credit criteria and
      others. There was no referral fee income in the first quarter of 2007, while
      our
      referral fee income was $48,000 in the same period of 2006. We cannot assure
      you
      that this source of revenue will increase because loan referrals do not
      represent our core banking business and fee income therefrom is not a stable
      source of revenue.




Income
      on
      other earning assets represented income from earning assets other than
      interest-earning assets, such as dividend income from Federal Home Loan Bank
      (the “FHLB”) stock ownership and the increase in cash surrender value of
      bank-owned life insurance. Such income was $277,000 and $240,000 for the first
      quarter of 2007 and 2006, respectively. This increase was primarily attributable
      to the increased acquisition of FHLB stock as required by the new Capital Plan
      of the Federal Home Loan Bank of San Francisco that went into effect on April
      1,
      2004.




Noninterest
      income, other than the categories specifically addressed above, represented
      income from miscellaneous sources, such as check book sales income and operating
      recoveries, and generally increases as our business activities grow. In the
      first quarter of 2007, we recognized $148,000 other income for the increase
      of
      fair value on servicing assets in accordance with FAS 156, which became
      effective on January 1, 2007, and this miscellaneous income therefore increased
      to $566,000 in the first quarter of 2007 from $442,000 in the first quarter
      of
      2006.




**Noninterest
      Expense**




Total
      noninterest expense increased to $10.5 million in the first quarter of 2007
      from
      $8.9 million in the same period of 2006. This increase can be attributed to
      the
      expanded personnel and premises associated with our business growth, including
      the opening of new offices. However, due to continuing efforts to minimize
      operating expenses during our expansion, we were able to maintain noninterest
      expenses as a percentage of average assets at the lower level of 0.53% and
      0.52%
      in the first quarter of 2007 and 2006, respectively. Our commitment to overhead
      management has improved our operational efficiency during our expansion, as
      evidenced by our relatively low efficiency ratio (the ratio of noninterest
      expense to the sum of net interest income before provision for loan losses
      and
      total noninterest income). In
      the
      first quarter of 2007, the efficiency ratio increased to 43.4%, compared to
      38.5% in the same quarter a year ago due mainly to the integration of our New
      York operation. A lthough
      expenses were up relative to the first quarter last year, we expect that
      o ur
      efforts in cost-cutting and revenue diversification will reduce the
      efficiency ratio to around 40% fairly quickly and sustain it going forward.




The
      following table sets forth a summary of noninterest expenses for the periods
      indicated:




**Noninterest
      Expense**


**(Dollars
      in thousands)**




**For
                the Quarter Ended March 31,**
            
            **2007**
            
            **2006****(Amount)**
            
            **(%)**
            
            **(Amount)**
            
            **(%)**Salaries
                and employee benefits
            
            $
            5,698
            
            
            54.2
            %
            $
            5,256
            
            
            59.3
            %Occupancy
                and equipment
            
            
            1,270
            
            
            12.1
            %
            
            896
            
            
            10.1
            %Data
                processing
            
            
            765
            
            
            7.3
            %
            
            505
            
            
            5.7
            %Loan
                referral fee
            
            
            420
            
            
            4.0
            %
            
            342
            
            
            3.9
            %Professional
                fees
            
            
            315
            
            
            3.0
            %
            
            242
            
            
            2.7
            %Directors’
                fees
            
            
            140
            
            
            1.3
            %
            
            121
            
            
            1.4
            %Office
                supplies
            
            
            174
            
            
            1.6
            %
            
            111
            
            
            1.2
            %Advertising
                and promotional expenses
            
            
            146
            
            
            1.4
            %
            
            182
            
            
            2.1
            %Communications
            
            
            115
            
            
            1.1
            %
            
            105
            
            
            1.2
            %Deposit
                insurance premium
            
            
            50
            
            
            0.5
            %
            
            43
            
            
            0.5
            %Outsourced
                service for customer(s)
            
            
            376
            
            
            3.6
            %
            
            341
            
            
            3.8
            %Amortization
                of intangible
            
            
            74
            
            
            0.7
            %
            
            -
            
            
            -Investor
                relation expenses
            
            
            81
            
            
            0.8
            %
            
            45
            
            
            0.5
            %Other
            
            
            879
            
            
            8.4
            %
            
            675
            
            
            7.6
            %Total
            
            $
            10,503
            
            
            100.0
            %
            $
            8,864
            
            
            100.0
            %Average
                assets
            
            $
            1,991,923
            
            
            
            
            $
            1,703,524Noninterest
                expenses as a % of average assets
            
            
            
            
            
            0.53
            %
            
            
            
            
            0.52
            %




21




Salaries
      and employee benefits increased by 8.4% to $5.7 million or 54.2% of total
      noninterest expenses in the first quarters of 2007, as compared with $5.3
      million, or 59.3% for the prior year’s same quarter. Such increase was the
      result of overall compensation increase caused by stiff competition for
      qualified bankers in our niche market in addition to our new office openings
      and
      business growth in the past 12 months that require additional staffing. Our
      efforts to promote efficient operations limited the increase of these expenses
      lower than the growth rate of quarterly average-assets (16.9%) between those
      two
      periods in comparison. Our acquisition of two branches in New York significantly
      increased the number of full-time equivalent employees to 347 as of March 31,
      2007, as compared with 298 as of March 31, 2006, but we were able to retain
      assets per employee at $5.8 million in both periods.




Occupancy
      and equipment expenses increased to $1.3 million, or 12% of total noninterest
      expenses, in the first quarter of 2007 as compared with $896,000, or 10%, for
      the prior year’s same quarter. The increase was primarily due to the additional
      lease expenses for the two New York branches acquired in May 2006.




Data
      processing expenses and office supplies together represent close to 10% of
      total
      noninterest expenses. They increased to $765,000 and $174,000, respectively,
      in
      the first quarters of 2007, as compared with $505,000 and $111,000 for the
      prior
      year’s same quarter. The increases in these expenses were due mainly to the
      integration of two New York branches.




Loan
      referral fees are paid to brokers who refer loans to us, mostly SBA loans.
      Although we also pay referral fees for some qualified commercial loans, referral
      fee expenses generally correspond to our SBA loan production level. Although
      SBA
      loan production level in the first quarter of 2007 was $38.8 million, comparable
      to $39.6 million in the same quarter of the prior year, the severe competition
      in the SBA market increased the referral fee rates we pay to brokers. As a
      result, these referral fees increased to $420,000 in the first quarter of 2007
      as compared with $342,000 in the same period of 2006.




Professional
      fees generally increase as we grow and were $315,000 and $242,000, or 3.0%
      and
      2.7% of total noninterest expenses, in the first quarters of 2007 and 2006,
      respectively. We expect these expenditures will continue to be significant
      as we
      address the enhanced SEC and NASDAQ corporate governance requirements and the
      local regulation of the states into which we recently commenced business
      operations.




Outsourced
      service costs for customers are payments made to third parties who provide
      services that were traditionally provided by banks to their customers, such
      as
      armored car services or bookkeeping services, and are recouped from the earnings
      credits earned by the respective depositors on their balances maintained with
      us. Due mainly to the increase in service activities and the increase in
      depositors demanding such services, such as escrow accounts and brokerage
      accounts, these expenses increased from $341,000 in the first quarter of 2006
      to
      $376,000 in the same period of 2007.




Investor
      relations expenses represent costs for providing services to our existing or
      prospective shareholders, such as NASDAQ listing fees, fees for an outside
      investor relations company and various promotional material costs. With our
      expansion of such activities, these expenses have increased from $45,000 in
      the
      first quarter of 2006 to $81,000 in the same period of 2007.




Noninterest
      expense other than the categories specifically addressed above, such as
      directors’ fees and other miscellaneous expenses, increased to $1.4 million in
      total in the first quarter of 2007 as compared with $1.1 million for the prior
      year’s same quarter. In addition to normal increases in connection with our
      business growth, such increase was also caused by losses on disposition of
      nonperforming assets ($49,000) and the amortization expenses ($74,000) of
      intangibles acquired upon the acquisition of Liberty Bank of New York in May,
      2006.




Generally,
      noninterest expense has increased in recent years as a result of rapid asset
      growth and expansion of our office network and products, all requiring
      substantial increases in staff and premises as well as data processing costs.
      Management anticipates that noninterest expense will continue to increase as
      we
      continue to grow. However, management remains committed to cost-control and
      operational efficiency to keep the increases of these expenses to a minimum
      relative to our rate of growth.






22




**Provision
      for Income Taxes**




For
      the
      quarter ended March 31, 2007, we made a provision for income taxes of $4.7
      million on pretax net income of $12.1 million, representing an effective tax
      rate of 39.3%, as compared with a provision for income taxes of $5.3 million
      on
      pretax net income of $13.1 million, representing an effective tax rate of 40.4%
      for the prior year’s same period.




The
      effective tax rates in the first quarter of 2007 were reasonably consistent
      with
      those for the prior year’s same quarter. Our effective tax rates were one to two
      percentage points lower than statutory rates due to tax benefits derived from
      doing business in an Enterprise Zone or EZ, as well as our purchase of
      bank-owned life insurance policies and low income housing tax credit funds
      (see
“Other Earning Assets” for further discussion). Generally, income tax expense is
      the sum of two components: current tax expense and deferred tax expense
      (benefit). Current tax expense is calculated by applying the current tax rate
      to
      taxable income. Deferred tax expense accounts for the change in deferred tax
      assets (liabilities) from year to year. Deferred income tax assets and
      liabilities represent the tax effects, based on current tax law, of future
      deductible or taxable amounts attributable to events that have been recognized
      in the financial statements. Because we traditionally recognize substantially
      more expenses in our financial statements than we have been allowed to deduct
      for taxes, we generally have a net deferred tax asset. At March 31, 2007 and
      December 31, 2006 we had net deferred tax assets of $7.4 million and $9.7
      million, respectively.




Effective
      on January 1, 2007, we adopted the provisions of FIN. 48, *Accounting
      for Uncertainty in Income Taxes,* on
      January 1, 2007.  As a result of the implementation of Interpretation 48,
      we recognized an increase of approximately $162,000 in the deferred tax
      liability for unrecognized tax benefit. Such unrecognized tax benefit was
      recorded as a cumulative effect accounting adjustment reducing retained
      earnings. If the balance of unrecognized tax benefits were to become recognized,
      it would impact the effective income tax rate. The Company does not believe
      any
      additional material adjustments will be made related to unrecognized tax
      benefits for the remainder of 2007. The Company recognizes potential accrued
      interest and penalties related to unrecognized tax benefits as a component
      of
      income tax expense. Accrued interest payable of approximately $9,000 is included
      in the unrecognized tax benefit amount as of January 1, 2007.




As
      of
      January 1, 2007 the Company is subject to federal income tax examinations for
      the years 2004 through 2006 and non-federal income tax examinations for the
      years 2003 through 2006. We believe that we have adequately provided or paid
      for
      income tax issues not yet resolved with federal, state and foreign tax
      authorities. Based upon consideration of all relevant facts and circumstances,
      we do not believe the ultimate resolution of tax issues for all open tax periods
      will have a materially adverse effect upon our results of operations or
      financial condition.




23


**Financial
      Condition**




**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. Total loans
      net
      of unearned income increased by $54.8 million, or 4.0%, to $1.62 billion at
      March 31, 2007, as compared with $1.56 billion at December 31, 2006. Total
      loans
      net of unearned income as a percentage of total assets as of March 31, 2007
      and
      December 31, 2006 were 80.7% and 77.7%, respectively.




The
      following table sets forth the amount of total loans outstanding (excluding
      unearned income) and the percentage distributions in each category, as of the
      dates indicated:




**Distribution
      of Loans and Percentage Composition of Loan Portfolio**




**Amount
                Outstanding****(Dollars
                in Thousands)****March
                31, 2007**
            
            **December
                31, 2006**Construction
            
            $
            38,717
            
            $
            46,285Real
                estate secured
            
            
            1,229,376
            
            
            1,183,030Commercial
                and industrial
            
            
            299,491
            
            
            278,165Consumer
            
            
            47,771
            
            
            53,059Total
                loans, excluding unearned income
            
            $
            1,615,355
            
            $
            1,560,539Participation
                loans sold and serviced by the Company
            
            $
            329,681
            
            $
            336,652Construction
            
            
            2.4%
            
            
            3.0%Real
                estate secured
            
            
            76.1%
            
            
            75.8%Commercial
                and industrial
            
            
            18.5%
            
            
            17.8%Consumer
            
            
            3.0%
            
            
            3.4%Total
                loans, excluding unearned income
            
            
            100.0%
            
            
            100.0%


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
      and/or businesses thereon. The properties may be either user owned or 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
      equaled $1.23 billion and $1.18 billion as of March 31, 2007 and December 31,
      2006, respectively. The real estate secured loans as a percentage of total
      loans
      were 76.1% and 75.8% at March 31, 2007 and December 31, 2006, respectively.
      Since 2003, we have been actively involved in residential mortgage lending.
      We
      offer a wide selection of residential mortgage programs, including
      non-traditional mortgages such as interest only and payment option adjustable
      rate mortgages. Most of our salable loans are transferred to the secondary
      market while we retain a portion on our books as portfolio loans. Our total
      home
      mortgage loan portfolio outstanding was $40.6 million at December 31, 2006
      and
      $38.7 million at March 31, 2007, and we have deemed its effect on our credit
      risk profile to be immaterial. The residential mortgage loans with
      unconventional terms such as interest only mortgage and option adjustable rate
      mortgage at March 31, 2007 were $2.3 million and $5.1 million, respectively,
      inclusive of loans held temporarily for sale or refinancing. They were $4.6
      million and $1.1 million, respectively, at December 31, 2006.




Commercial
      and industrial loans include revolving lines of credit, as well as term business
      loans. Commercial and industrial loans at March 31, 2007 increased to $299.5
      million, as compared with $278.2 million at December 31, 2006. Commercial and
      industrial loans as a percentage of total loans were 18.5% at March 31, 2007
      and
      17.8% at December 31, 2006. Such increase was mainly caused by our marketing
      strategy targeted for the relationship-based accounts, such as unsecured
      business and commercial loans.




Consumer
      loans have historically represented less than 5% of our total loan portfolio.
      The majority of consumer loans are concentrated in auto loan financing, which
      we
      provide as a service only to existing customers. With our target marketing
      since
      2003, the consumer loans continued to increase to $53.1 million at December
      31,
      2006, but we subsequently slowed down the auto loan financing for credit risk
      management purposes. As a result, this portfolio decreased to $47.8 million
      at
      March 31, 2007. **** Management
      anticipates further increases in other types of consumer loans going forward,
      although no assurance can be given that this increase will occur.






24




Construction
      loans are generally extended as a temporary financing vehicle only. In the
      third
      quarter of 2004, we formed a construction loan department by appointing a
      construction loan specialist as its manager. Since then, construction loans
      increased to $46.3 million at the end of 2006, but temporarily decreased to
      $38.7 million at the end of the first quarter of 2007. Construction loans as
      a
      percentage of total loans represents 2.4% of total loans. We expect to expand
      our construction lending activities with this specialized capacity under the
      guidance of the Commercial Loan Center.




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, and leasehold improvements, or to provide
      permanent working capital. SBA-guaranteed loans usually have longer maturities
      (8 to 25 years). We generally limit real estate loan maturities to five to
      eight
      years. Lines of credit, in general, are extended on an annual basis to
      businesses that need temporary working capital and/or import/export financing.
      We generally seek diversification in our loan portfolio, and our borrowers
      are
      diverse as to industry, location, and their current and target
      markets.




The
      following table shows the contractual maturity distribution and repricing
      intervals of the outstanding loans in our portfolio as of March 31, 2007. 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. The table excludes the gross amount of non-accrual loans of
      $24.2 million, and includes unearned income and deferred fees totaling $8.6
      million at March 31, 2007:




**Loan
      Maturities and Repricing Schedule**




**At
                March 31, 2007****0
                - 1 year**
            
            **1
                - 5 years**
            
            **After
                5 Years**
            
            **Total****(Dollars
                in Thousands)**Construction
            
            $
            38,717
            
            $
            -
            
            $
            -
            
            $
            38,717Real
                estate secured
            
            
            894,201
            
            
            288,118
            
            
            27,663
            
            
            1,209,982Commercial
                and industrial
            
            
            290,391
            
            
            9,239
            
            
            4,046
            
            
            303,676Consumer
            
            
            26,273
            
            
            21,050
            
            
            -
            
            
            47,323Total
                loans, net of unearned income
            
            $
            1,249,582
            
            $
            318,408
            
            $
            31,709
            
            $
            1,599,698Loans
                with variable (floating) interest rates
            
            $
            1,225,039
            
            $
            24,787
            
            $
            1,010
            
            $
            1,250,835Loans
                with predetermined (fixed) interest rates
            
            $
            24,543
            
            $
            293,621
            
            $
            30,699
            
            $
            348,863


The
      majority of the properties taken as collateral are located in Southern
      California. The loans generated by our loan production offices, which are
      located outside of our main geographical market, are generally collateralized
      by
      property in close proximity to those offices. We employ strict guidelines
      regarding the use of collateral located in less familiar market areas. Since
      a
      major real estate recession during the first part of the previous decade,
      property values in Southern California have generally increased. Starting 2006,
      however, we have seen below-trend growth in GDP and a slowdown of the real
      estate market in California. Given the current economic conditions, no assurance
      can be given that property values will not significantly decrease.




**Nonperforming
      Assets**




Nonperforming
      assets (“NPAs”) consist of loans on non-accrual status, loans 90 days or more
      past due and still accruing interest, loans restructured, where the terms of
      repayment have been renegotiated resulting in a reduction or deferral of
      interest or principal, and other nonperforming assets.




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. Other nonperforming assets (“other NPAs”) consist of properties, mainly
      other real estate owned (OREO) and repossessed vehicles, acquired by foreclosure
      or similar means that management intends to offer for sale.






25


Our
      continued emphasis on asset quality control enabled us to maintain a relatively
      low level of nonperforming loans prior to 2007. However, the general economic
      condition of the United States as well as the local economies in which
      we do business has shown a slowdown as the housing sector has cooled in 2006
      and
      the transition to below-trend GDP growth has started. This transition of the
      economy affected our borrowers’ strength and our nonperforming loans increased
      by $13.4 million to $20.3 million at the end of the first quarter of 2007 from
      $6.9 million at December 31, 2006 which previously increased from $2.2 million
      at March 31, 2006. The ratio of nonperforming loans over total loans increased
      to 1.25% at March 31, 2007, as compared with 0.44% at December 31, 2006 and
      0.17% at March 31, 2006.




Such
      increase in nonperforming loans in the first quarter was primarily caused by
      four large loans totaling $13.2 million that became over 90 days past due in
      the
      first quarter of 2007. Three of the large non-performing loans in the amount
      of
      $7.8 million were either brought current or in process of collection through
      insurance proceeds. The other loan is currently under work-out program and
      expected to be fully resolved in the coming few months.  We don’t
      expect any significant principal losses on these four loans since they are
      all
      well-secured by the first deeds of trust on commercial properties with low
      loan
      to value ratio.




At
      March
      31, 2007, we repossessed $112,000 worth of vehicles, in other NPAs, while we
      had
      $233,000 in other NPAs at the end of 2006, which consisted of a few repossessed
      vehicles and one OREO,which was sold at a small loss in January 2007. At March
      31, 2006, we had three OREO in other NPAs, in an amount of $294,400, which
      were
      subsequently sold without significant losses. Together with other NPAs, the
      ratio of NPAs as a percentage of total loans and other NPAs increased to 1.26%
      at March 31, 2007, as compared with 0.45% at December 31, 2006 and 0.19% at
      March 31, 2006.




Management
      believes that the increase of nonperforming loans does not reflect the trend
      nor
      the overall quality of our loan portfolio, considering the total delinquent
      loans over 30 days, excluding the four loans discussed above, were insignificant
      as of March 31, 2007 at $7.2 million or 0.45% of total loans. However, our
      profits in the first quarter of 2007 was significantly tempered by this increase
      of nonperforming loans due to the lost interest income on them and additional
      loan loss provision provided in the quarter.




Management
      also believes that the reserve provided for nonperforming loans, together with
      the tangible collateral, were adequate as of March 31, 2007. See “Allowance for
      Loan Losses” below for further discussion. Except as disclosed above, as of
      March 31, 2007, management was not aware of any material credit problems of
      borrowers that would cause it to have serious doubts about the ability of a
      borrower to comply with the present loan payment terms. However, no assurance
      can be given that credit problems may exist that may not have been brought
      to
      the attention of management.




The
      following table provides information with respect to the components of our
      nonperforming assets as of the dates indicated (the figures in the table are
      net
      of the portion guaranteed by the U.S. Government):




**Nonperforming
      Assets**


**(Dollars
      in Thousands)**




**March
                31, 2007**
            
            **December
                31, 2006**
            
            **March
                31, 2006****Nonaccrual
                loans:****1**Real
                estate secured
            
            $
            15,927
            
            $
            2,530
            
            $
            1,190Commercial
                and industrial
            
            
            1,485
            
            
            2,342
            
            
            310Consumer
            
            
            235
            
            
            930
            
            
            290Total
            
            
            17,647
            
            
            5,802
            
            
            1,790**Loans
                90 days or more past due and still accruing (as to principal****or****interest):**Construction
            
            
            -
            
            
            -
            
            
            -Real
                estate secured
            
            
            2,558
            
            
            209
            
            
            361Commercial
                and industrial
            
            
            6
            
            
            838
            
            
            77Consumer
            
            
            39
            
            
            -
            
            
            -Total
            
            
            2,603
            
            
            1,047
            
            
            438**Restructured
                loans:****2**Real
                estate secured
            
            
            -
            
            
            -
            
            
            -Commercial
                and industrial
            
            
            -
            
            
            -
            
            
            -Consumer
            
            
            -
            
            
            -
            
            
            -TotalTotal
                nonperforming loans
            
            
            20,250
            
            
            6,849
            
            
            2,228Repossessed
                vehicles
            
            
            112
            
            
            95Other
                real estate owned
            
            
            -
            
            
            138
            
            
            294Total
                nonperforming assets (“NPAs”)
            
            $
            20,362
            
            $
            7,082
            
            $
            2,522Nonperforming
                loans as a % of total loans
            
            
            1.25
            %
            
            0.44
            %
            
            0.17
            %NPAs
                as a % of total loans and other NPAs
            
            
            1.26
            %
            
            0.45
            %
            
            0.19
            %Allowance
                for loan losses as a % of nonperforming loans
            
            
            85.01
            %
            
            272.38
            %
            
            667.63
            %




(1)
        During the three months ended March 31, 2007, no interest income related
        to
        these loans was included in net income. Additional interest income of
        approximately $1,112,000 would have been recorded during the three months
        ended
        March 31, 2007, if these loans had been paid in accordance with their original
        terms and had been outstanding throughout the three months ended March 31,
        2007
        or, if not outstanding throughout the three months ended March 31, 2007,
        since
        origination.
  (2)
        A
“restructured loan” is one the terms of which were renegotiated to provide a
        reduction or deferral of interest or principal because of deterioration in
        the
        financial position of the borrower.


26


**Allowance
      for Loan Losses**




In
      anticipation of 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 items, such as
      commitments to extend credit or letters of credit. The charges made for the
      outstanding loan portfolio were credited to the allowance for loan losses,
      whereas charges for off-balance sheet items were credited to the reserve for
      off-balance sheet items, which is presented as a component of other liabilities.
      The rapid growth of our loan portfolio has required more reserves for possible
      loan losses. The provision for loan losses is discussed in the section entitled
      “Provision for Losses on Loan and Loan Commitments” above.




With
      the
      economic transition addressed in “Nonperforming Assets” above, the net
      charge-offs in the first quarter of 2007 increased to $2.7 million compared
      to
      $78,000 in the same quarter of 2006. The net charge-offs in 2007 included
      $928,000 consumer loan charge-offs, the majority of which were the charge-offs
      of automobile loans, including automobile inventory financing, extended in
      connection with two used car dealers who closed down their businesses in the
      middle of 2006. This $2.7 million net charge-offs represents 0.17% of average
      total loans in the first quarter of 2006, substantially higher than 0.06% for
      the preceding quarter and 0.01% for the first quarter of 2006.




In
      order
      to keep pace with the increase of nonperforming loans and our loan portfolio,
      we
      increased our allowance for loan losses by $2.3 million, or 15.8% to $17.2
      million at March 31, 2007, as compared with $14.9 million a year ago. However,
      as compared with $18.7 million at December 31, 2006, it decreased slightly
      due
      to the significant net charge-offs we made in the first quarter of 2007. With
      the continued increase of the allowance for loan losses in recent years, we
      were
      able to maintain the allowance for loan losses above 1% of total loans.
      Management believes that the current ratio of 1.07% is in line with our peer
      group average and adequate for our loan portfolio because our delinquency ratio,
      over 30 days past due loans over total loans, remains at a relatively low level
      (1.5%) at the end of the first quarter of 2007 and we believe that the level
      of
      total non-performing loans will be lowered in near future without significant
      losses (see “Financial condition - nonperforming assets” above.).




Although
      management believes the allowance, at March 31, 2007, was adequate to absorb
      losses from any known and inherent risks in the portfolio, no assurance can
      be
      given that economic conditions which may adversely affect our service areas
      or
      other variables will not result in increased losses in the loan portfolio in
      the
      future.






27




As
      of
      March 31, 2007 and December 31, 2006, our allowance for loan losses consisted
      of
      amounts allocated from three phases of our methodology for assessing loan loss
      allowances, as follows (see details of methodology for assessing allowance
      for
      loan losses in the section entitled “Critical Accounting
      Policies”):


**Phase
                  of Methodology**
              
              **As
                  of:**
              
              **As
                  of:****March
                  31, 2007**
              
              **December
                  31, 2006**Specific
                  review of individual loans
              
              $
              849,074
              
              $
              1,779,560Review
                  of pools of loans with similar characteristics
              
              
              13,196,218
              
              
              13,424,657Judgmental
                  estimate based on various qualitative factors
              
              
              3,168,865
              
              
              3,449,865Total
                  allowance for loan losses
              
              $
              17,214,156
              
              $
              18,654,082


The
      table
      below summarizes, for the periods indicated, loan balances at the end of each
      period, the daily averages during the period, changes in the allowance for
      loan
      losses arising from loans charged off, recoveries on loans previously charged
      off, additions to the allowance and certain ratios related to the allowance
      for
      loan losses:




**Allowance
      for Loan Losses**


**(Dollars
      in thousands)**




**As
                of and for the quarter ended**
            
            **March
                31, 2007**
            
            **December
                31, 2006**
            
            **March
                31, 2006****Balances:**Average
                total loans outstanding during period
            
            $
            1,569,137
            
            $
            1,538,218
            
            $
            1,281,303Total
                loans (net of unearned income)
            
            
            1,615,355
            
            
            1,560,539
            
            
            1,312,588**Allowance
                for loan losses:****Balances
                at beginning of period**
            
            
            18,654
            
            
            18,417
            
            
            13,999**Actual
                charge-offs:**Real
                estate secured
            
            
            163
            
            
            -
            
            
            -Commercial
                and industrial
            
            
            1,655
            
            
            213
            
            
            110Consumer
            
            
            928
            
            
            759
            
            
            70Total
                charge-offs
            
            
            2,746
            
            
            973
            
            
            180**Recoveries
                on loans previously charged off:**Real
                estate secured
            
            
            -
            
            
            1
            
            
            -Commercial
                and industrial
            
            
            10
            
            
            1
            
            
            99Consumer
            
            
            41
            
            
            21
            
            
            3Total
                recoveries
            
            
            51
            
            
            23
            
            
            102Net
                loan charge-offs (recoveries)
            
            
            2,695
            
            
            950
            
            
            78Allowance
                for loan losses acquired in LBNY acquisition
            
            
            
            
            
            -
            
            
            -**Provision
                for loan losses**
            
            
            1,630
            
            
            940
            
            
            1,060**Less:
                Provision for losses in off-balance sheet items**
            
            
            375
            
            
            (247
            )
            
            111**Balances
                at end of period**
            
            $
            17,214
            
            $
            18,654
            
            $
            14,870**Ratios:**Net
                loan charge-offs to average total loans
            
            
            0.17
            %
            
            0.06
            %
            
            0.01
            %Allowance
                for loan losses to total loans at period-end
            
            
            1.07
            %
            
            1.20
            %
            
            1.13
            %Net
                loan charge-offs to allowance for loan losses
            
            
            15.66
            %
            
            5.09
            %
            
            0.53
            %Net
                loan charge-offs to provision for loan losses
            
            
            165.33
            %
            
            101.05
            %
            
            7.43
            %




28




The
      table
      below summarizes, for the periods indicated, the balance of allowance for loan
      losses and the percentage of such balance for each type of loan as of the dates
      indicated: ****




**Distribution
                and Percentage Composition of Allowance for Loan
                Losses**
              **(Dollars
                in thousands)****Balance
                as of**
            
            **March
                31, 2007**
            
            **December
                31, 2006**Applicable
                to:
            
            **Reserve**
              **Amount**
            
            **Total**
              **Loans**
            
            **(%)**
            
            **Reserve**
              **Amount**
            
            **Total**
              **Loans**
            
            **(%)**Construction
                loans
            
            $
            256
            
            $
            38,717
            
            
            0.66
            %
            $
            352
            
            $
            46,285
            
            
            0.76
            %Real
                estate secured
            
            
            10,674
            
            
            1,229,377
            
            
            0.87
            %
            
            9,933
            
            
            1,183,030
            
            
            0.84
            %Commercial
                and industrial
            
            
            5,455
            
            
            299,491
            
            
            1.82
            %
            
            7,164
            
            
            278,165
            
            
            2.58
            %Consumer
            
            
            829
            
            
            47,771
            
            
            1.74
            %
            
            1,205
            
            
            53,059
            
            
            2.27
            %Total
                Allowance
            
            $
            17,214
            
            $
            1,615,355
            
            
            1.07
            %
            $
            18,654
            
            $
            1,560,539
            
            
            1.20
            %


**Contractual
      Obligations**




The
      following table represents our aggregate contractual obligations (principal
      and
      interest) to make future payments as of March 31, 2007:




**(Dollars
                in thousands)**
            
            **One
                Year or Less**
            
            **Over
                One Year To Three Years**
            
            **Over
                Three Years To Five Years**
            
            **Over
                Five Years**
            
            **Total**FHLB
                borrowings
            
            $
            20,583
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            20,583Junior
                subordinated debenture
            
            
            4,239
            
            
            5,560
            
            
            417
            
            
            61,547
            
            
            71,763Operating
                leases
            
            
            2,675
            
            
            4,646
            
            
            2,094
            
            
            2,142
            
            
            11,557Time
                deposits
            
            
            469,239
            
            
            505,681
            
            
            13
            
            
            186
            
            
            975,118Total
            
            $
            496,735
            
            $
            515,887
            
            $
            2,524
            
            $
            63,875
            
            $
            1,079,021


**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 represented in any form on our balance
      sheets. ****




As
      of
      March 31, 2007 and December 31, 2006, we had commitments to extend credit of
      $191.1 million and $141.2 million, respectively. Obligations under standby
      letters of credit were $9.0 million and $9.5 million at March 31, 2007 and
      December 31, 2006, respectively, and the obligations under commercial letters
      of
      credit were $11.6 million and $14.8 million at such dates, respectively. The
      effect on our revenues, expenses, cash flows and liquidity from the unused
      portion of the commitments to provide credit cannot be reasonably predicted
      because there is no guarantee that the lines of credit will be used.




In
      the
      normal course of business, we are involved in various legal claims. We have
      reviewed all legal claims against us with counsel and have taken into
      consideration the views of counsel as to the outcome of the claims. In our
      opinion, the final disposition of all such claims will not have a material
      adverse effect on our financial position and results of operations.




**Investment
      Activities**




Investments
      are one of our major sources of interest income and are acquired in accordance
      with a written comprehensive investment policy addressing strategies, types
      and
      levels of allowable investments. This investment policy is reviewed at least
      annually by the Board of Directors. 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 credits and are maintained at levels
      management believes are appropriate to assure future flexibility in meeting
      anticipated funding needs.




*Cash
      Equivalents and Interest-bearing Deposits in other Financial
      Institutions*




We
      sell
      federal funds, purchase securities under agreements to resell and high-quality
      money market instruments, and deposit interest-bearing accounts in other
      financial institutions to help meet liquidity requirements and provide temporary
      holdings until the funds can be otherwise deployed or invested. As of March
      31,
      2007 and December 31, 2006, we had $74 million and $130 million, respectively,
      in federal funds sold, repurchase agreements, and interest bearing deposits
      in
      other financial institutions.






29




*Investment
      Securities*




Management
      of our investment securities portfolio focuses on providing an adequate level
      of
      liquidity and establishing an interest rate-sensitive position, while earning
      an
      adequate level of investment income without taking undue risk. We classify
      our
      investment securities as “held-to-maturity” or “available-for-sale.” 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 or losses as a valuation allowance
      and any gain or loss is reported on an after-tax basis as a component of other
      comprehensive income.




The
      following table summarizes the book value and market value and distribution
      of
      our investment securities as of the dates indicated:




**Investment
      Securities Portfolio**


**(Dollars
      in Thousands)**


**As
                of March 31, 2007**
            
            **As
                of December 31, 2006****Amortized**
              **Cost**
            
            **Market
                Value**
            
            **Amortized**
              **Cost**
            
            **Market
                Value**Held
                to Maturity:Securities
                of government sponsored enterprises
            
            $
            14,000
            
            $
            13,888
            
            $
            14,000
            
            $13,845Collateralized
                mortgage obligation.
            
            
            187
            
            
            175
            
            
            196
            
            181Municipal
                securities
            
            
            425
            
            
            419
            
            
            425
            
            419Available
                for Sale:Securities
                of government sponsored enterprises
            
            
            90,825
            
            
            90,647
            
            
            87,809
            
            87,511Mortgage
                backed securities
            
            
            19,241
            
            
            19,202
            
            
            21,033
            
            20,917Collateralized
                mortgage obligation
            
            
            37,038
            
            
            36,752
            
            
            38,650
            
            38,260Corporate
                securities
            
            
            17,406
            
            
            17,433
            
            
            13,445
            
            13,387Municipal
                securities
            
            
            7,725
            
            
            7,757
            
            
            7,725
            
            7,763Total
                investment securities
            
            $
            186,847
            
            $
            186,273
            
            $
            183,283
            
            $182,283


The
      following table summarizes the maturity and repricing schedule of our investment
      securities at their carrying values and their weighted average yields (without
      the consideration of tax effects, if any) at March 31, 2007:




**Investment
      Maturities and Repricing Schedule**


**(Dollars
      in Thousands)**


Within
                One Year
            
            After
                One But
              Within
                Five Years
            
            After
                Five But
              Within
                Ten Years
            
            After
                Ten Years
            
            TotalAmount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield**Held
                to Maturity:**
              Securities
                of government sponsored enterprises
            
            $
            -
            
            
            -
            
            $
            12,000
            
            
            4.26
            %
            $
            2,000
            
            
            3.97
            %
            $
            -
            
            
            -
            
            $
            14,000
            
            
            4.22
            %Collateralized
                mortgage obligation.
            
            
            -
            
            
            -
            
            
            187
            
            
            3.97
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            187
            
            
            3.97
            %Municipal
                securities
            
            
            -
            
            
            -
            
            
            425
            
            
            4.12
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            425
            
            
            4.12
            %**Available-for-sale:**
              Securities
                of government sponsored enterprises
            
            
            21,944
            
            
            4.58
            %
            
            68,703
            
            
            5.03
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            90,647
            
            
            4.92
            %Mortgage
                backed securities
            
            
            10,420
            
            
            4.61
            %
            
            6,651
            
            
            4.49
            %
            
            262
            
            
            5.66
            %
            
            1,869
            
            
            5.94
            %
            
            19,202
            
            
            4.71
            %Collateralized
                mortgage obligation
            
            
            -
            
            
            
            
            
            36,752
            
            
            5.15
            %
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            36,752
            
            
            5.15
            %Corporate
                securities
            
            
            5,337
            
            
            4.85
            %
            
            10,155
            
            
            5.48
            %
            
            1,941
            
            
            4.46
            %
            
            -
            
            
            -
            
            
            17,433
            
            
            5.17
            %Municipal
                securities
            
            
            -
            
            
            -
            
            
            397
            
            
            3.66
            %
            
            2,277
            
            
            3.72
            %
            
            5,083
            
            
            4.06
            %
            
            7,757
            
            
            3.94
            %Total
                investment securities
            
            $
            37,701
            
            
            4.63
            %
            $
            135,270
            
            
            4.99
            %
            $
            6,480
            
            
            4.10
            %
            $
            6,952
            
            
            4.57
            %
            $
            186,403
            
            
            4.87
            %




30




Our
      investment securities holdings increased by $3.9 million, or 2.16%, to $186.4
      million at March 31, 2007, compared to holdings of $182.5 million at December
      31, 2006. Total investment securities as a percentage of total assets were
      9.3%
      and 9.1% at March 31, 2007 and December 31, 2006, respectively. As of March
      31,
      2007, investment securities having a carrying value of $160.3 million were
      pledged to secure certain deposits.




Held-to-maturity
      securities, which are carried at their amortized costs, were both at
      approximately $14.6 million at March 31, 2007 and December 31, 2006.
      Available-for-sale securities, which are stated at their fair market values,
      increased to $171.8 million at March 31, 2007 from $167.8 million at December
      31, 2006. These increases reflect a strategy of improving our liquidity level
      using available-for-sale securities, in addition to immediately available funds,
      the majority of which are maintained in the form of overnight
      investments.




The
      following table shows our investments’ gross unrealized losses and fair value,
      aggregated by investment category and length of time that individual securities
      have been in a continuous unrealized loss position, at March 31,
      2007:




**As
                of March 31, 2007**
            
            **(Dollars
                in thousands)****Less
                than 12 months**
            
            **12
                months or longer**
            
            **Total**Description
                of Securities
            
            **Fair
                Value**
            
            **Gross
                Unrealized Losses**
            
            **Fair
                Value**
            
            **Gross
                Unrealized Losses**
            
            **Fair
                Value**
            
            **Gross
                Unrealized Losses**Securities
                of governmentsponsored
                enterprises
            
            $
            30,961
            
            $
            (28
            )
            $
            56,652
            
            $
            (337
            )
            $
            87,612
            
            $
            (365
            )Collateralized
                mortgageobligation
            
            
            -
            
            
            -
            
            
            23,316
            
            
            (318
            )
            
            23,316
            
            
            (318
            )Mortgage
                backed securities
            
            
            552
            
            
            (3
            )
            
            9,081
            
            
            (131
            )
            
            9,633
            
            
            (134
            )Corporate
                securities
            
            
            5,337
            
            
            -
            
            
            1,941
            
            
            (58
            )
            
            7,278
            
            
            (58
            )Municipal
                securities
            
            
            -
            
            
            -
            
            
            3,803
            
            
            (31
            )
            
            3,804
            
            
            (31
            )$
            36,850
            
            $
            (31
            )
            $
            94,793
            
            $
            (875
            )
            $
            131,643
            
            $
            (906
            )




**As
                  of December 31, 2006**
              
              **(Dollars
                  in thousands)****Less
                  than 12 months**
              
              **12
                  months or longer**
              
              **Total**Description
                  of Securities
              
              **Fair
                  Value**
              
              **Gross
                  Unrealized Losses**
              
              **Fair
                  Value**
              
              **Gross
                  Unrealized Losses**
              
              **Fair
                  Value**
              
              **Gross
                  Unrealized Losses**Securities
                  of governmentsponsored
                  enterprises
              
              $
              17,972
              
              $
              (24
              )
              $
              64,484
              
              $
              (497
              )
              $
              82,456
              
              $
              (521
              )Collateralized
                  mortgageobligation
              
              
              12,066
              
              
              (31
              )
              
              17,455
              
              
              (383
              )
              
              29,521
              
              
              (414
              )Mortgage
                  backed securities
              
              
              1,740
              
              
              (5
              )
              
              10,834
              
              
              (204
              )
              
              12,574
              
              
              (209
              )Corporate
                  securities
              
              
              -
              
              
              -
              
              
              3,802
              
              
              (34
              )
              
              3,802
              
              
              (34
              )Municipal
                  securities
              
              
              -
              
              
              -
              
              
              2,929
              
              
              (68
              )
              
              2,929
              
              
              (68
              )$
              31,778
              
              $
              (60
              )
              $
              99,504
              
              $
              (1,186
              )
              $
              131,282
              
              $
              (1,246
              )




31




As
      of
      March 31, 2007, the total unrealized losses less than 12 months old were
      $31,000, and total unrealized losses more than 12 months old were $875,000.
      The
      aggregate related fair value of investments with unrealized losses less than
      12
      months old was $36.9 million at March 31, 2007, and those with unrealized losses
      more than 12 months old were $94.8 million. As of December 31, 2006, the total
      unrealized losses less than 12 months old were $60,000, and total unrealized
      losses more than 12 months old were $1.2 million. The aggregate related fair
      value of investments with unrealized losses less than 12 months old was $31.8
      million at December 31, 2006, and those with unrealized losses more than 12
      months old were $99.5 million.




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. 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.




We
      have
      the ability and intent to hold the securities classified as held to maturity
      until they mature, at which time we expect to receive full value for the
      securities. As of March 31, 2007, we also had the ability and intent to hold
      the
      securities classified as available for sale for a period of time sufficient
      for
      a recovery of cost. The unrealized losses were largely due to increases in
      market interest rates over the yields available at the time the underlying
      securities were purchased. The fair value is expected to recover as the bonds
      approach their maturity date or repricing date or if market yields for such
      investments decline. We do not believe any of the securities are impaired due
      to
      reasons of credit quality. Accordingly, as of March 31, 2007, we believe the
      impairments detailed in the table above were temporary, and no impairment loss
      has been realized in our consolidated statement of operations.




**Other
      Earning Assets**




For
      various business purposes, we make investments in earning assets other than
      the
      interest-earning securities discussed above. Before 2003, the only other earning
      assets held by us were insignificant amounts of Federal Home Loan Bank stock
      and
      the cash surrender value on the bank owned life insurances or BOLI.




In
      an
      effort to provide additional benefits aimed at retaining key employees, while
      generating a tax-exempt noninterest income stream, we purchased $10.5 million
      in
      2003 in BOLI from insurance carriers rated AA or above. In 2005, we purchased
      $3
      million more in BOLI from the same insurance carriers. We are the owner and
      the
      primary beneficiary of the life insurance policies and recognize the increase
      of
      the cash surrender value of the policies as tax-exempt other
      income.




In
      2003,
      we invested in two low-income housing tax credit funds or LIHTCFs to promote
      our
      participation in CRA activities. We committed to invest, over two to three
      years, a total of $3 million to two different LIHTCF - $1 million in Apollo
      California Tax Credit Fund XXII, LP, and $2 million in Hudson Housing Los
      Angeles Revitalization Fund, LP. In 2006, in order to promote our CRA activities
      in each of the assessment areas in Dallas, New York, and Los Angeles, we also
      committed to invest additional $1 million, $2 million, and $3 million in WNC
      Institutional Tax Credit Fund XXI, WNC Institutional Tax Credit Fund X New
      York
      Series 7, and WNC Institutional Tax Credit Fund X California Series 6,
      respectively. We receive the returns on these investments, over the fifteen
      years following the said two to three-year investment periods in the form of
      tax
      credits and tax deductions.




The
      balances of other earning assets as of March 31, 2007 and December 31, 2006
      were
      as follows:




**Type**
            Balance
                as of
              March
                31, 2007
            Balance
                as of
              December
                31, 2006BOLI
            $15,784,000
            $15,636,000LIHTCF
            4,334,000
            4,206,000Federal
                Home Loan Bank Stock
            7,652,000
            7,542,000




32




**Deposits
      and Other Sources of Funds**




*Deposits*




Deposits
      are our primary source of funds. Total deposits at March 31, 2007 and December
      31, 2006, were $1.74 billion and $1.75 billion, respectively, representing
      a
      decrease of $16.3 million, or 0.9% in the first three months of 2007.




Since
      2006, our niche market depositor’s preference in time deposits bearing
      relatively high interest rates decreased the level of deposits in transactional
      accounts. Therefore, our reliance on time deposits to fund our lending continued
      to increase in 2006. In the fourth quarter of 2006, we implemented a new
      strategy to moderate balance sheet growth and initiated a deposit campaign
      to
      increase non-time deposits and improve our fund cost. This campaign increased
      our non-time deposits by $13.1 million in the first quarter of 2007 while
      decreasing time deposits by $29.4 million in the same quarter. Our average
      cost
      of interest-bearing liabilities was slightly lowered to 4.98% in the first
      quarter of 2007 from 5.03% in the preceding quarter after rising in each quarter
      of 2006. We believe that our regional diversification into the Texas and New
      York/New Jersey markets will also help reduce our time deposit reliance level
      going forward.




The
      average rate paid on time deposits in denominations of $100,000 or more for
      the
      first quarter of 2007 increased to 5.28%, as compared with 4.61% for the prior
      year’s same quarter. See “Net Interest Income and Net Interest Margin” for
      further discussion.




The
      following tables summarize the distribution of average daily deposits and the
      average daily rates paid for the periods indicated:




**Average
      Deposits**


**(Dollars
      in Thousands)**




**For
                the quarters ended:**
            
            **March
                31, 2007**
            
            **December
                31, 2006**
            
            **March
                31,2006****Average**
              **Balance**
            
            **Average**
              **Rate**
            
            **Average****Balance**
            
            **Average**
              **Rate**
            
            **Average****Balance**
            
            **Average**
              **Rate**Demand,
                noninterest-bearing
            
            $
            311,428
            
            
            
            
            $
            317,630
            
            
            
            
            $
            288,570Money
                market
            
            
            405,928
            
            
            4.53
            %
            
            385,823
            
            
            4.50
            %
            
            315,852
            
            
            3.94
            %Super
                NOW
            
            
            20,957
            
            
            1.11
            %
            
            19,719
            
            
            1.16
            %
            
            21,719
            
            
            1.10
            %Savings
            
            
            29,270
            
            
            1.93
            %
            
            29,007
            
            
            1.66
            %
            
            21,663
            
            
            0.89
            %Time
                certificates of deposit indenominations
                of $100,000 or more
            
            
            803,630
            
            
            5.28
            %
            
            791,800
            
            
            5.40
            %
            
            649,306
            
            
            4.61
            %Other
                time deposits
            
            
            159,946
            
            
            4.87
            %
            
            162,876
            
            
            4.90
            %
            
            147,485
            
            
            4.20
            %Total
                deposits
            
            $
            1,731,159
            
            
            4.01
            %
            $
            1,706,855
            
            
            4.03
            %
            $
            1,444,595
            
            
            3.39
            %


The
      scheduled maturities of our time deposits in denominations of $100,000 or
      greater at March 31, 2007 are, as follows:




**Maturities
      of Time Deposits of $100,000 or More, at March 31, 2007**


**(Dollars
      in Thousands)**




Three
                months or less
            
            $
            381,846Over
                three months through six months
            
            
            224,515Over
                six months through twelve months
            
            
            180,572Over
                twelve months
            
            
            2,017Total
            
            $
            788,950


Because
      our client base is comprised primarily of commercial and industrial accounts,
      individual account balances are generally higher than those of consumer-oriented
      banks. A number of clients carry deposit balances of more than 1% of our total
      deposits, but the California State Treasury was the only depositor which had
      a
      deposit balance of more than 5% of total deposits at March 31, 2007 and December
      31, 2006.




We
      accept
      brokered deposits on a selective basis at reasonable interest rates to augment
      deposit growth. We have reduced these deposits to $3.1 million at March 31,
      2007
      from $5.2 million at December 31, 2006 in order to limit our reliance on
      non-core funding sources. Most of the brokered deposits will mature within
      one
      year. Since brokered deposits are generally less stable forms of deposits,
      we
      closely monitor growth from this non-core funding source.






33




*FHLB
      Borrowings*




Although
      deposits are the primary source of funds for our lending and investment
      activities and for general business purposes, we may obtain advances from the
      FHLB as an alternative to retail deposit funds. Since 2002, we have increased
      borrowings from FHLB in order to take advantage of the flexibility of the
      program and its reasonably low cost. See “Liquidity Management” below for the
      details on the FHLB borrowings program.




The
      following table is a summary of FHLB borrowings for the quarters
      indicated(dollars in thousands):




For
                the Quarter ended
            
            **March
                31, 2007**
            
            **December
                31, 2006**Balance
                at quarter-end
            
            $
            20,000
            
            $
            20,000Average
                balance during the quarter
            
            $
            20,000
            
            $
            39,108Maximum
                amount outstanding at any month-end
            
            $
            20,000
            
            $
            56,000Average
                interest rate during the quarter
            
            
            3.68
            %
            
            3.83
            %Average
                interest rate at quarter-end
            
            
            3.68
            %
            
            3.68
            %


*Junior
      Subordinated Debentures; Trust Preferred Securities*




In
      December 2002, the Bank issued $10 million of 2002 Junior Subordinated
      Debentures. Subsequently, the Company, as a wholly-owned subsidiary in 2003
      and
      as a parent company of the Bank in 2005, issued a total of $51,547,000 of Junior
      Subordinated Debentures in connection with a $50,000,000 trust preferred
      securities issuance by statutory trusts wholly-owned by the Company.




2002
      Junior Subordinated Debenture .
      In
      December 2002, the Bank issued a $10 million Junior Subordinated Debenture
      (the
“2002 debenture”). The interest rate payable on the 2002 debenture was 8.45% at
      March 31, 2007, which rate adjusts quarterly to the three-month LIBOR plus
      3.10%. The 2002 debenture will mature on December 26, 2012. Interest on the
      2002
      debenture is payable quarterly and no scheduled payments of principal are due
      prior to maturity. The Bank may redeem the 2002 debenture in whole or in part
      at
      par **** prior
      to
      maturity on or after December 26, 2007.




The
      2002
      debenture is treated as Tier 2 capital for Bank regulatory capital purposes.
      Likewise, on a consolidated basis, the 2002 debenture also is treated as Tier
      2
      capital for holding company level capital purposes under current FRB capital
      guidelines.




2003
      Junior Subordinated Debenture; Trust Preferred Securities
      Issuance .
      In
      December 2003, Wilshire Bancorp was formed as a wholly-owned subsidiary of
      the
      Bank, in order to raise additional capital funds through the issuance of trust
      preferred securities. Prior to the completion of the August 2004 bank holding
      company reorganization, Wilshire Bancorp organized its wholly owned subsidiary,
      Wilshire Statutory Trust I, which issued $15 million in trust preferred
      securities. Wilshire Bancorp then purchased all of the common interest in the
      Wilshire Statutory Trust I ($464,000) and issued the 2003 Junior Subordinated
      Debenture (the “2003 debenture”) in the amount of approximately $15.5 million to
      the Wilshire Statutory Trust I with terms substantially similar to the 2003
      trust preferred securities in exchange for the proceeds from the issuance of
      the
      Wilshire Statutory Trust I’s 2003 trust preferred securities and common
      securities. Wilshire Bancorp subsequently deposited the proceeds from the 2003
      debenture in a depository account at the Bank and infused $14.5 million as
      additional equity capital to the Bank immediately following the holding company
      reorganization. The rate of interest on the 2003 debenture and related trust
      preferred securities was 8.20% at March 31, 2007, which adjusts quarterly to
      the
      three-month LIBOR plus 2.85%. The 2003 debenture and related trust preferred
      securities will mature on December 17, 2033. The interest on both the 2003
      debenture and related trust preferred securities is payable quarterly and no
      scheduled payments of principal are due prior to maturity. Wilshire Bancorp
      may
      redeem the 2003 debenture (and in turn the trust preferred securities) in whole
      or in part at par **** prior
      to
      maturity on or after December 17, 2008.




March
      2005 Junior Subordinated Debenture; Trust Preferred Securities
      Issuance .
      In
      March 2005, Wilshire Bancorp organized its wholly owned subsidiary, Wilshire
      Statutory Trust II, which issued $20 million in trust preferred securities.
      Wilshire Bancorp then purchased all of the common interest in the Wilshire
      Statutory Trust II ($619,000) and issued the 2005 Junior Subordinated Debenture
      (the “March 2005 debenture”) in the amount of $20.6 million to the Wilshire
      Statutory Trust II with terms substantially similar to the March 2005 trust
      preferred securities in exchange for the proceeds from the issuance of the
      Wilshire Statutory Trust II’s March 2005 trust preferred securities and common
      securities. Wilshire Bancorp subsequently deposited the proceeds from the March
      2005 debenture in a depository account at the Bank and infused $14 million
      as
      additional equity capital to the Bank. The rate of interest on the March 2005
      debenture and related trust preferred securities was 7.14% at March 31, 2007,
      which adjusts quarterly to the three-month LIBOR plus 1.79%. The March 2005
      debenture and related trust preferred securities will mature on March 17, 2035.
      The interest on both the March 2005 debenture and related trust preferred
      securities are payable quarterly and no scheduled payments of principal are
      due
      prior to maturity. Wilshire Bancorp may redeem the March 2005 debenture (and
      in
      turn the trust preferred securities) in whole or in part at par **** prior
      to
      maturity on or after March 17, 2010.






34




September
      2005 Junior Subordinated Debenture; Trust Preferred Securities
      Issuance .
      In
      September 2005, Wilshire Bancorp organized its wholly owned subsidiary, Wilshire
      Statutory Trust III, which issued $15 million in trust preferred securities.  Wilshire
      Bancorp then purchased all of the common interest in the Wilshire Statutory
      Trust III and issued its Junior Subordinated Debt Securities (the “September
      2005 debenture”) in the amount of $15.5 million to the Wilshire Statutory Trust
      III with terms substantially similar to the September 2005 trust preferred
      securities and common securities. Wilshire Bancorp subsequently deposited the
      proceeds from the September 2005 debenture in a depository account at the Bank.
      Until September 15, 2010, the securities will be fixed at a 6.07% annual
      interest rate, thereafter converting to a floating rate of three-month LIBOR
      plus 1.40%, resetting quarterly. The September 2005 debenture and related trust
      preferred securities will mature on September 15, 2035. The interest on both
      the
      September 2005 debenture and related trust preferred securities are payable
      quarterly and no scheduled payments of principal are due prior to maturity.
      Wilshire Bancorp may redeem the September 2005 debenture (and in turn the trust
      preferred securities) in whole or in part at par **** prior
      to
      maturity on or after September 15, 2010.




On
      March
      1, 2005, the Federal Reserve Board adopted a final rule that allows continued
      inclusion of trust preferred securities in the Tier 1 capital of bank holding
      companies, subject to stricter quantitative limits. Under the final rule, bank
      holding companies may include trust preferred securities in Tier 1 capital
      in an
      amount (together with other restricted core capital elements) equal to 25%
      of
      the sum of core capital elements (including restricted core capital elements)
      net of goodwill less any associated deferred tax liability. Amounts in excess
      of
      these limits will generally be included in Tier 2 capital. For purposes of
      this
      rule, restricted core capital elements are generally to be comprised of
      qualifying cumulative perpetual preferred stock and related surplus, minority
      interest related to qualifying cumulative perpetual preferred stock directly
      issued by a consolidated U.S. depository institution or foreign bank subsidiary,
      minority interest related to qualifying common stock or qualifying cumulative
      perpetual preferred stock directly issued by a consolidated subsidiary that
      is
      neither a U.S. depository institution or a foreign bank and qualifying trust
      preferred securities.




The
      final
      rule provides a transition period for bank holding companies to come into
      compliance with these new capital restrictions. Accordingly, while the final
      rule became effective on April 11, 2005, for practical purposes, bank holding
      companies will have until September 30, 2009 (an extension of the September
      30,
      2007 transition period under the proposed rule) to come into compliance with
      the
      final rule’s capital restrictions due to the transition period. In extending the
      transition period to 2009, the Federal Reserve noted that the extended period
      will provide bank holding companies with existing trust preferred securities
      with call features after the first five years an opportunity to restructure
      their capital elements in order to conform to the limitations of the final
      rule.




Under
      the
      final rule, as of March 31, 2007, Wilshire Bancorp counted the full amount
      ($50.0 million) of trust preferred securities as Tier 1 capital.




**Asset/Liability
      Management**




Management
      seeks 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, management focuses 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 on “Risk Factors” in our Annual
      Report on Form 10-K for the year ended December 31, 2006. 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
      time to meet our cash flow requirements. Liquidity in a banking institution
      is
      required primarily to provide for deposit withdrawals and the credit needs
      of
      its customers and to take advantage of investment opportunities as they arise.
      Liquidity management involves our ability to convert assets into cash or cash
      equivalents without incurring significant loss, and to raise cash or maintain
      funds without incurring excessive additional cost. For this purpose, we maintain
      a portion of our funds in cash and cash equivalents, deposits in other financial
      institutions and loans and securities available for sale. Our liquid assets
      at
      March 31, 2007 and December 31, 2006 totaled approximately $322.3 million and
      $378.6 million, respectively. Our liquidity level measured as the percentage
      of
      liquid assets to total assets was 16.11% and 18.8% at March 31, 2007 and
      December 31, 2006, respectively.






35




As
      a
      secondary source of liquidity, we rely on 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 mortgage loans and stock
      issued by the FHLB. Advances are made pursuant to several different programs.
      Each credit program has its own interest rate and range of maturities. Depending
      on the program, limitations on the amount of advances are based either on a
      fixed percentage of an institution’s net worth or on the FHLB’s assessment of
      the institution’s creditworthiness. While this fund provides flexibility and low
      cost, we limit our use to 50% of borrowing capacity, as such borrowing does
      not
      qualify as core funds. As of March 31, 2007, our borrowing capacity from the
      FHLB was about $446.4 million and the outstanding balance was $20 million,
      or
      approximately 4.5% of our borrowing capacity. As of March 31, 2007, we also
      maintained a guideline to purchase up to $25 million and $10 million in federal
      funds with Bank of the West and Union Bank of California,
      respectively.




**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.




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, 2006 for
      additional information regarding regulatory capital requirements.)




At
      March
      31, 2007, total shareholders’ equity increased by $7.6 million, after declaring
      cash dividends of $1.5 million, to $157.2 million from $149.6 million at
      December 31, 2006. Such additional capital was primarily derived from internally
      generated operating income ($7.3 million). Our equity also increased by the
      share-based compensation, cumulative effects in change of accounting principles,
      and other comprehensive income.




For
      the
      regulatory capital ratio computation purpose, the Junior Subordinated Debentures
      of $61.5 million, which consists of $10 million issued by the Bank and $51.5
      million issued by the Company in connection with the issuance of $50 million
      trust preferred securities, were taken into consideration. As of March 31,
      2007
      and December 31, 2006, Wilshire Bancorp accounted for $50.0 million of such
      securities as Tier 1 capital and $10.0 million as Tier 2 capital. For the Bank
      level, only the $10 million debenture issued by the Bank in 2002 is treated
      as
      Tier 2 capital. See “Deposits and Other Sources of Funds” for further discussion
      regarding the capital treatment of subordinated debentures and the trust
      preferred securities.






36




As
      of
      March 31, 2007 and December 31, 2006, 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 our capital ratios as of the dates specified for
      Wilshire Bancorp, Inc. and Wilshire State Bank:




**Wilshire
                Bancorp, Inc.**
            **Regulatory**
              **Well-**
              **Capitalized****Standards**
            **Regulatory**
              **Adequately-Capitalized****Standards**
            **Actual
                ratios for the Company as of:****March
                31, 2007**
            **December
                31, 2006**
            **March
                31, 2006**Total
                capital to risk-weighted assets
            10%
            8%
            13.80%
            13.63%
            14.43%Tier
                I capital to risk-weighted assets
            6%
            4%
            12.07%
            11.81%
            11.84%Tier
                I capital to adjusted average assets
            5%
            4%
            10.00%
            9.79%
            9.47%







**Wilshire
                State Bank**
            **Regulatory**
              **Well-**
              **Capitalized****Standards**
            **Regulatory**
              **Adequately-Capitalized****Standards**
            **Actual
                ratios for the Bank as of:****March
                31, 2007**
            **December
                31, 2006**
            **March
                31, 2006**Total
                capital to risk-weighted assets
            10%
            8%
            13.71%
            13.51%
            13.20%Tier
                I capital to risk-weighted assets
            6%
            4%
            11.98%
            11.68%
            11.32%Tier
                I capital to adjusted average assets
            5%
            4%
            9.93%
            9.69%
            9.06%


**ITEM
      3.**  **Quantitative
      and Qualitative Disclosures About Market Risk**




Market
      risk is the risk of loss from adverse changes in market prices and rates. Our
      market risk arises primarily from interest rate risk inherent in lending,
      investing and deposit taking activities. We evaluate market risk pursuant to
      policies reviewed and approved annually by our Board of Directors. The Board
      delegates responsibility for market risk management to the Asset & Liability
      Management (“ALM”) Committee, which reports monthly to the Board on activities
      related to market risk management. As part of the management of our market
      risk,
      our ALM committee may direct changes in the mix of assets and liabilities.
      To
      that end, we actively monitor and manage interest rate risk exposures.




Interest
      rate risk management involves development, analysis, implementation and
      monitoring of earnings to provide stable earnings and capital levels during
      periods of changing interest rates. In the management of interest rate risk,
      we
      utilize monthly gap analysis and quarterly simulation modeling to determine
      the
      sensitivity of net interest income and economic value of equity. 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, we would be deemed to be
      “liability-sensitive” for that period.




The
      significant balance of noninterest bearing deposits puts us in an overall
      asset-sensitive position and we strategically plan a significant three-month
      positive gap to meet any unanticipated funding needs by maintaining a large
      portion of funds obtained from non-interest bearing deposits in overnight
      investments and other cash equivalents. In general, based upon our mix of
      deposits, loans and investments, increases in interest rates would be expected
      to increase our net interest margin. Decreases in interest rates would be
      expected to have the opposite effect. However, 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. At March 31, 2007, our
      position appeared balanced for a one-year timeframe with a negligible sensitive
      cumulative gap (minus 6.4% of average interest-earning assets). We do not
      anticipate a major change in our net interest margin as we expect such repricing
      gap, if occurred, to be eliminated within a 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 changing
      by differing increments and at different time intervals for each type of
      interest-sensitive asset and liability. The interest rate sensitivity gaps
      reported in the tables arise when assets are funded with liabilities having
      different repricing intervals. Since 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.






37




Although
      the interest rate sensitivity gap is a useful measurement and contributes to
      effective asset and liability management, it is difficult to predict the effect
      of changing interest rates based solely on that measure. As a result, the ALM
      committee also regularly uses simulation modeling as a tool to measure the
      sensitivity of earnings and net portfolio value (“NPV”) to interest rate
      changes. The NPV is defined as the net present value of an institution’s
      existing assets, liabilities and off-balance sheet instruments. The simulation
      model captures all assets, liabilities and off-balance sheet financial
      instruments and accounts for significant variables that are believed to be
      affected by interest rates. These include prepayment speeds on loans, cash
      flows
      of loans and deposits, principal amortization, call options on securities,
      balance sheet growth assumptions and changes in rate relationships as various
      rate indices react differently to market rates.




Although
      the simulation measures the volatility of net interest income and net portfolio
      value under immediate increase or decrease of market interest rate scenarios
      in
      100 basis point increments, our main concern is the negative effect of a
      reasonably-possible worst scenario. The ALM policy prescribes that for the
      worst
      possible rate decreasing 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.




As
      our
      simulation measures indicate below, the net interest income increases
      (decreases) as market interest rates rise (fall), since we were in an overall
      asset-sensitive position with a 17.5% positive gap for the three-month
      timeframe. The NPV increases (decreases) as interest income increases
      (decreases) since the change in cash flows has a greater impact on the change
      in
      the NPV than does the change in the discount rate. However the extent of such
      changes was within the tolerance level prescribed by our ALM policy due partly
      to the near-balanced cumulative gap for the one-year timeframe.




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 March 31, 2007 using the interest
      rate sensitivity gap ratio. For purposes of the following table, an asset or
      liability is considered rate-sensitive within a specified period when it can
      be
      repriced or matures within its contractual terms. Actual payment patterns may
      differ from contractual payment patterns:




**Interest
      Rate Sensitivity Analysis**




**At
                March 31, 2007****Amounts
                Subject to Repricing Within****0-3
                months**
            
            **3-12
                months**
            
            **1-5
                years**
            
            **After
                5 years**
            
            **Total**Interest-earning
                assets:
            
            **(Dollars
                in Thousands)**Gross
                loans1
            
            $
            1,190,291
            
            $
            59,292
            
            $
            318,407
            
            $
            31,709
            
            $
            1,599,699Investment
                securities
            
            
            13,837
            
            
            23,864
            
            
            135,270
            
            
            13,432
            
            
            186,403Federal
                funds sold and cash equivalentsagreement
                to resell
            
            
            74,003
            
            
            -
            
            
            -
            
            
            -
            
            
            74,003Interest-earning
                deposits
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            1,278,131
            
            $
            83,156
            
            $
            453,677
            
            $
            45,141
            
            $
            1,860,105Interest-bearing
                liabilities:Savings
                deposits
            
            
            29,479
            
            
            -
            
            
            -
            
            
            -
            
            
            29,479Time
                deposits of $100,000 or more
            
            
            383,601
            
            
            403,333
            
            
            1,917
            
            
            100
            
            
            788,951Other
                time deposits
            
            
            50,326
            
            
            102,350
            
            
            2,023
            
            
            15
            
            
            154,714Other
                interest-bearing deposits
            
            
            445,006
            
            
            -
            
            
            -
            
            
            -
            
            
            445,006Other
                borrowingsdemand
                deposits
            
            
            46,083
            
            
            20,000
            
            
            15,464
            
            
            -
            
            
            81,547Total
            
            $
            954,495
            
            $
            525,683
            
            $
            19,404
            
            $
            115
            
            $
            1,499,697Interest
                rate sensitivity gap
            
            $
            323,636
            
            
            ($442,527
            )
            $
            434,273
            
            $
            45,026
            
            $
            360,408Cumulative
                interest rate sensitivity gap
            
            $
            323,636
            
            
            ($118,891
            )
            $
            315,382
            
            $
            360,408Cumulative
                interest rate sensitivity gap ratio
              (based
                on average interest-earning assets)
            
            
            17.45
            %
            
            -6.41
            %
            
            17.01
            %
            
            19.44
            %







1Excludes
      the gross amount of non-accrual loans of approximately $24.2 million at March
      31, 2007.




38




The
      following table sets forth our estimated net interest income over a 12-month
      period and NPV based on the indicated changes in market interest rates as of
      March 31, 2007. All assets presented in this table are held-to-maturity or
      available-for-sale. At March 31, 2007, we had no trading securities:




(Dollars
                in Thousands)**Change**
            
            **Net
                Interest Income****(in
                Basis Points)**
            
            **(next
                twelve months)**
            
            **%
                Change**
            
            **NPV**
            
            **%
                Change**+200
            
            
            $115,434
            
            
            18.7%
            
            
            $306,596
            
            
            7.3%+100
            
            
            106,945
            
            
            10.0%
            
            
            297,924
            
            
            4.3%0
            
            
            97,217
            
            
            -
            
            
            285,751
            
            
            --100
            
            
            97,120
            
            
            -0.1%
            
            
            266,659
            
            
            -6.7%-200
            
            
            88,273
            
            
            -9.2%
            
            
            243,603
            
            
            -14.7%


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 permits
      to purchase rate caps and floors and interest rate swaps, we are not currently
      engaged in any of these types of transactions.




**ITEM
      4.**  **Controls
      and Procedures** ****




**Controls
      and Procedures**




As
      of
      March 31, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our chief executive officer and
      chief
      financial officer, of the effectiveness of the design and operation of our
      “disclosure controls and procedures,” as such term is defined under Exchange Act
      Rules 13a-15(e) and 15d-15(e).




Based
      on
      this evaluation, our chief executive officer and chief financial officer
      concluded that, as of March 31, 2007, 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 Securities and Exchange Commission, 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 provide only reasonable assurance of achieving the desired control
      objectives and in reaching a reasonable level of assurance our management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures.




There
      were no changes in our internal controls over financial reporting during the
      quarter ended March 31, 2007 that materially effected, or are reasonably likely
      to materially effect, our internal controls over financial
      reporting.




39


**OTHER
      INFORMATION**




**ITEM
      1.**  **Legal
      Proceedings**




Not
      applicable.




**ITEM
      1A.**  **Risk
      Factors**




Not
      applicable.




**ITEM
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




None.




**ITEM
      3.**  **Defaults
      Upon Senior Securities**




Not
      applicable.




**ITEM
      4.**  **Submission
      of Matters to a Vote of Security Holders**




None.




**ITEM
      5.**  **Other
      Information**




Not
      applicable.









40


**ITEM
      6.****Exhibits**




**Exhibit
                Table****Reference
                Number**
            **Item**11
            Statement
                Regarding Computation of Net Earnings per Share131.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232
            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







1The
                information required by this Exhibit is incorporated by reference
                from
                Note 3 of the Company’s Financial Statements included
                herein.




41


**SIGNATURES**




Pursuant
      to the requirement of the Securities Exchange Act of 1934, the registrant has
      duly caused this report to be signed on its behalf by the undersigned, thereunto
      duly authorized.




WILSHIRE
              BANCORP,
              INC.Date:
              May 10, 2007
            By:
            /s/ Brian
              E.
              ChoBrian
              E. ChoExecutive
                Vice
                President and Chief Financial Officer
              (Principal
                Financial and Accounting Officer)




42