Table of Contents

 

 

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

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

 
| ** ** | **For the quarterly period ended****September 30, 2010****.** |
|------------|--------------------------------------------------------------------|

 

**OR**

 
| **o** | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 
| ** ** | **For the transition period from               to                ** |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File Number 000-50923**

 

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**WILSHIRE BANCORP, INC.**

(Exact name of registrant as specified in itscharter)

 

| **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’stelephone number, including area code

 

**No change**

(Former name, former address, and former fiscalyear, if changed since last report)

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x  Noo

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o  Noo

 

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company.  See the definitionsof “large accelerated filer,” “accelerated filer” and “small reporting company”in Rule 12b-2 of the Exchange Act.

 

| Large  accelerated filer | o                                              | Accelerated  filer        | x      |
|--------------------------|------------------------------------------------|---------------------------|--------|
|                     |                                           |                      |   |
| Non-accelerated  filer   | o(Do not check if a smaller reporting company) | Smaller reporting company | o      |

 

Indicate by check mark whether the registrant is a shellcompany (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 asof July 30, 2010 was 29,486,734.

 

 

 

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Table of Contents

 

**FOR 10-Q**

 

**INDEX**

 

**WILSHIRE BANCORP, INC.**

 
| **Part I.  FINANCIAL INFORMATION** | **1**                                                                                           |
|-----------------------------------------|-------------------------------------------------------------------------------------------------|
| ** **                              | ** **                                                                                      |
| **Item 1.**                             | **Financial  Statements**                                                                       | **1** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 2.**                             | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | **22** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 3.**                             | **Quantitative  and Qualitative Disclosures about  Market Risk**                                | **48** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 4.**                             | **Controls and  Procedures**                                                                    | **50** |
|                                    |                                                                                            |   |
| **Part II.OTHER INFORMATION**      | **52**                                                                                          |
| ** **                              | ** **                                                                                      |
| **Item  1.**                            | **Legal Proceedings**                                                                           | **52** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 1A.**                            | **Risk Factors**                                                                                | **52** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 2.**                             | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                | **53** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 3.**                             | **Defaults  Upon Senior Securities**                                                            | **53** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item  4.**                            | **(Removed and Reserved)**                                                                      | **53** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item  5.**                            | **Other Information**                                                                           | **54** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 6.**                             | **Exhibits**                                                                                    | **54** |
| ** **                              | ** **                                                                                      | ** ** |
| **SIGNATURES**                          | **55**                                                                                          |

 

i

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Table of Contents

 

**Part I.  FINANCIAL INFORMATION**

**Item1.****                                                          ****Financial Statements**

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**

**(DOLLARS IN THOUSANDS) (UNAUDITED)**

 
| ** **                                                                                                                                                                                           | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| **ASSETS**                                                                                                                                                                                           | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Cash and due from banks                                                                                                                                                                              |       | $                                | 108,411    |                            | $          | 155,753 |   |
| Federal funds sold and other cash equivalents                                                                                                                                                        |       | 201,006                          |       | 80,004                          |       |
| Cash and cash equivalents                                                                                                                                                                            |       | 309,417                          |       | 235,757                         |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| Securities available for sale, at fair value  (amortized cost of $360,849 and $651,095 at September 30, 2010 and  December 31, 2009, respectively)                                         |       | 367,433                          |       | 651,318                         |       |
| Securities held to maturity, at amortized cost (fair  value of $97 and $109 at September 30, 2010 and December 31, 2009,  respectively)                                                    |       | 91                               |       | 109                             |       |
| Loans receivable (net of allowance for loan losses of  $99,022 and $62,130 at September 30, 2010 and December 31, 2009,  respectively)                                                     |       | 2,303,848                        |       | 2,329,078                       |       |
| Loans held for sale—at the lower of cost or market                                                                                                                                              |       | 41,174                           |       | 36,233                          |       |
| Federal Home Loan Bank Stock                                                                                                                                                                         |       | 19,302                           |       | 20,850                          |       |
| Other real estate owned                                                                                                                                                                              |       | 15,996                           |       | 3,797                           |       |
| Due from customers on acceptances                                                                                                                                                                    |       | 269                              |       | 945                             |       |
| Cash surrender value of bank owned life insurance                                                                                                                                                    |       | 18,510                           |       | 18,037                          |       |
| Investment in affordable housing partnerships                                                                                                                                                        |       | 29,389                           |       | 13,732                          |       |
| Bank premises and equipment                                                                                                                                                                          |       | 13,771                           |       | 12,660                          |       |
| Accrued interest receivable                                                                                                                                                                          |       | 12,839                           |       | 15,266                          |       |
| Deferred income taxes                                                                                                                                                                                |       | 28,138                           |       | 18,684                          |       |
| Servicing assets                                                                                                                                                                                     |       | 7,041                            |       | 6,898                           |       |
| Goodwill                                                                                                                                                                                             |       | 6,675                            |       | 6,675                           |       |
| Core deposits intangibles                                                                                                                                                                            |       | 1,737                            |       | 2,013                           |       |
| FDIC loss share indemnification                                                                                                                                                                      |       | 26,233                           |       | 33,775                          |       |
| Other assets                                                                                                                                                                                         |       | 30,822                           |       | 30,170                          |       |
| TOTAL                                                                                                                                                                                                |       | $                                | 3,232,685  |                            | $          | 3,435,997 |   |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| **LIABILITIES:**                                                                                                                                                                                     |       |                             |       |                            |       |
| Deposits:                                                                                                                                                                                            |       |                             |       |                            |       |
| Non-interest bearing                                                                                                                                                                                 |       | $                                | 453,333    |                            | $          | 385,188 |   |
| Interest bearing:                                                                                                                                                                                    |       |                             |       |                            |       |
| Savings                                                                                                                                                                                              |       | 81,139                           |       | 71,601                          |       |
| Money market and NOW accounts                                                                                                                                                                        |       | 812,055                          |       | 932,063                         |       |
| Time deposits of $100,000 or more                                                                                                                                                                    |       | 731,876                          |       | 795,679                         |       |
| Other time deposits                                                                                                                                                                                  |       | 628,345                          |       | 643,684                         |       |
| Total deposits                                                                                                                                                                                       |       | 2,706,748                        |       | 2,828,215                       |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| Federal Home Loan Bank advances and other borrowings                                                                                                                                                 |       | 131,547                          |       | 232,000                         |       |
| Junior subordinated debentures                                                                                                                                                                       |       | 87,321                           |       | 87,321                          |       |
| Accrued interest payable                                                                                                                                                                             |       | 4,357                            |       | 5,865                           |       |
| Acceptances outstanding                                                                                                                                                                              |       | 269                              |       | 945                             |       |
| Other liabilities                                                                                                                                                                                    |       | 31,115                           |       | 15,515                          |       |
| Total liabilities                                                                                                                                                                                    |       | 2,961,357                        |       | 3,169,861                       |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| **SHAREHOLDERS’ EQUITY:**                                                                                                                                                                       |       |                             |       |                            |       |
| Preferred stock, $1,000 par value—authorized,  5,000,000 shares; issued and outstanding, 62,158 shares at September 30,  2010 and December 31, 2009                                   |       | 60,317                           |       | 59,931                          |       |
| Common stock, no par value—authorized, 80,000,000  shares; issued and outstanding, 29,486,734 shares and 29,415,657 shares at September 30,  2010 and December 31, 2009, respectively |       | 55,513                           |       | 54,918                          |       |
| Accumulated other comprehensive income, net of tax                                                                                                                                                   |       | 4,100                            |       | 326                             |       |
| Retained earnings                                                                                                                                                                                    |       | 151,398                          |       | 150,961                         |       |
| Total shareholders’ equity                                                                                                                                                                      |       | 271,328                          |       | 266,136                         |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| TOTAL                                                                                                                                                                                                |       | $                                | 3,232,685  |                            | $          | 3,435,997 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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Table of Contents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)**

 
| ** **                                                                 | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                                                 | ** ** | ** **                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| INTEREST INCOME:                                                           |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest and  fees on loans                                                |       | $                                                        | 36,452     |                                                    | $          | 39,388 |   | $ | 107,835 |   | $ | 100,818 |   |
| Interest on  investment securities                                         |       | 2,804                                                    |       | 4,876                                                   |       | 13,175 |   | 11,011 |   |
| Interest on  federal funds sold                                            |       | 515                                                      |       | 844                                                     |       | 1,191 |   | 1,910 |   |
| Total  interest income                                                     |       | 39,771                                                   |       | 45,108                                                  |       | 122,201 |   | 113,739 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| INTEREST EXPENSE:                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest on  deposits                                                      |       | 8,688                                                    |       | 12,994                                                  |       | 30,338 |   | 35,952 |   |
| Interest on  FHLB advances and other borrowings                            |       | 758                                                      |       | 1,982                                                   |       | 2,428 |   | 5,262 |   |
| Interest on  junior subordinated debentures                                |       | 673                                                      |       | 719                                                     |       | 1,986 |   | 2,467 |   |
| Total  interest expense                                                    |       | 10,119                                                   |       | 15,695                                                  |       | 34,752 |   | 43,681 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INTEREST  INCOME BEFORE PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS |       | 29,652                                                   |       | 29,413                                                  |       | 87,449 |   | 70,058 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| PROVISION  FOR LOAN LOSSES AND LOAN COMMITMENTS                            |       | 18,000                                                   |       | 24,200                                                  |       | 67,200 |   | 43,000 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  AND LOAN COMMITMENTS  |       | 11,652                                                   |       | 5,213                                                   |       | 20,249 |   | 27,058 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NON-INTEREST INCOME:                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Service  charges on deposit accounts                                       |       | 3,071                                                    |       | 3,315                                                   |       | 9,510 |   | 9,338 |   |
| Gain on sale  of loans                                                     |       | 2,723                                                    |       | 2,235                                                   |       | 4,203 |   | 1,711 |   |
| Gain on sale of securities                                                 |       | 2,600                                                    |       | —                                                  |       | 8,742 |   | 1,588 |   |
| Bargain purchase gain                                                      |       | —                                                   |       | —                                                  |       | — |   | 21,679 |   |
| Loan-related servicing fees                                                |       | 1,149                                                    |       | 958                                                     |       | 2,999 |   | 2,702 |   |
| Other income                                                               |       | 503                                                      |       | 892                                                     |       | 2,256 |   | 2,709 |   |
| Total non-interest income                                                  |       | 10,046                                                   |       | 7,400                                                   |       | 27,710 |   | 39,727 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NON-INTEREST EXPENSES:                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Salaries and  employee benefits                                            |       | 7,458                                                    |       | 7,120                                                   |       | 21,857 |   | 19,315 |   |
| Occupancy  and equipment                                                   |       | 1,921                                                    |       | 1,935                                                   |       | 6,048 |   | 5,294 |   |
| Deposit insurance premiums                                                 |       | 1,154                                                    |       | 982                                                     |       | 3,343 |   | 3,772 |   |
| Professional fees                                                          |       | 960                                                      |       | 659                                                     |       | 3,347 |   | 1,576 |   |
| Data processing                                                            |       | 702                                                      |       | 1,078                                                   |       | 2,029 |   | 2,750 |   |
| Other operating                                                            |       | 2,578                                                    |       | 3,047                                                   |       | 8,972 |   | 8,177 |   |
| Total non-interest expenses                                                |       | 14,773                                                   |       | 14,821                                                  |       | 45,596 |   | 40,884 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAXES                                          |       | 6,925                                                    |       | (2,208                                                  | )          | 2,363 |   | 25,901 |   |
| INCOME TAX PROVISION (BENEFIT)                                             |       | 1,945                                                    |       | (1,451                                                  | )          | (2,268 | ) | 9,853 |   |
| NET INCOME (LOSS)                                                          |       | 4,980                                                    |       | (757                                                    | )          | 4,631 |   | 16,048 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Preferred  stock cash dividend and accretion of preferred stock            |       | 908                                                      |       | 900                                                     |       | 2,717 |   | 2,718 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS                         |       | $                                                        | 4,072      |                                                    | $          | (1,657 | ) | $ | 1,914 |   | $ | 13,330 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| EARNINGS (LOSS) PER COMMON SHARE INFORMATION                               |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                                                      |       | $                                                        | 0.14       |                                                    | $          | (0.06 | ) | $ | 0.06 |   | $ | 0.45 |   |
| Diluted                                                                    |       | $                                                        | 0.14       |                                                    | $          | (0.06 | ) | $ | 0.06 |   | $ | 0.45 |   |
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:                                |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                                                      |       | 29,486,734                                               |       | 29,413,757                                              |       | 29,486,255 |   | 29,413,757 |   |
| Diluted                                                                    |       | 29,509,153                                               |       | 29,413,757                                              |       | 29,530,600 |   | 29,422,528 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| COMMON STOCK CASH DIVIDEND DECLARED:                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Cash dividend declared on common shares                                    |       | $                                                        | —     |                                                    | $          | 1,471 |   | $ | 1,477 |   | $ | 4,412 |   |
| Cash dividend declared per common share                                    |       | $                                                        | —     |                                                    | $          | 0.05 |   | $ | 0.05 |   | $ | 0.15 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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Table of Contents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY**

**(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)**

 
| ** **                                                                   | ** ** | ** **          | ** ** | ** **       | ** ** | ** **         | ** ** | ** ** | ** ** | **Accumulated**        | ** ** | ** **   | ** ** | ** **             | ** ** |
|------------------------------------------------------------------------------|------------|---------------------|------------|------------------|------------|--------------------|------------|------------|------------|------------------------|------------|--------------|------------|------------------------|------------|
| ** **                                                                   | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Other**          | ** ** | ** ** | ** ** | **Total**              | ** ** |
| ** **                                                                   | ** ** | **Numbers**         | ** ** | ** **       | ** ** | **Numbers**        | ** ** | ** ** | ** ** | **Comprehensive**      | ** ** | **Retained** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                   | ** ** | **of Shares**  | ** ** | **Amount**       | ** ** | **of Shares** | ** ** | **Amount** | ** ** | **Income (Loss)** | ** ** | **Earnings** | ** ** | **Equity**             | ** ** |
| BALANCE—January 1, 2009                                            |       | 62,158              |       | $                | 59,443     |               | 29,413,757 |       | $          | 54,038                 |       | $            | 1,239      |                   | $          | 140,340 |   | $ | 255,060 |   |
| Stock options exercised                                                      |       |                |       |             |       |               |       |       |       |                   |       |         |       | —                 |       |
| Cash dividend declared                                                       |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Common stock                                                                 |       |                |       |             |       |               |       |       |       |                   |       | (4,412       | )          | (4,412                 | )          |
| Preferred  stock                                                             |       |                |       |             |       |               |       |       |       |                   |       | (2,331       | )          | (2,331                 | )          |
| Share-based compensation expense                                             |       |                |       |             |       |               |       | 608        |       |                   |       |         |       | 608                    |       |
| Tax benefit from stock options exercised                                     |       |                |       |             |       |               |       |       |       |                   |       |         |       | —                 |       |
| Accretion of  discount on preferred stock                                    |       |                |       | 363              |       |               |       |       |       |                   |       | (387         | )          | (24                    | )          |
| Comprehensive income:                                                        |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Net income                                                                   |       |                |       |             |       |               |       |       |       |                   |       | 16,048       |       | 16,048                 |       |
| Other comprehensive income:                                                  |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Net change in unrealized gain on interest-only strips  (net of tax)          |       |                |       |             |       |               |       |       |       | 44                     |       |         |       | 44                     |       |
| Net change in unrealized gain on securities available  for sale (net of tax) |       |                |       |             |       |               |       |       |       | 7,494                  |       |         |       | 7,494                  |       |
| Comprehensive income                                                         |       |                |       |             |       |               |       |       |       |                   |       |         |       | 23,586                 |       |
| BALANCE—September 30, 2009                                         |       | 62,158              |       | $                | 59,806     |               | 29,413,757 |       | $          | 54,646                 |       | $            | 8,777      |                   | $          | 149,258 |   | $ | 272,487 |   |
|                                                                         |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| BALANCE—January 1, 2010                                            |       | 62,158              |       | $                | 59,931     |               | 29,415,657 |       | $          | 54,918                 |       | $            | 326        |                   | $          | 150,961 |   | $ | 266,136 |   |
| Stock options exercised                                                      |       |                |       |             |       | 71,077             |       | 98         |       |                   |       |         |       | 98                     |       |
| Cash dividend declared                                                       |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Common stock                                                                 |       |                |       |             |       |               |       |       |       |                   |       | (1,477       | )          | (1,477                 | )          |
| Preferred  stock                                                             |       |                |       |             |       |               |       |       |       |                   |       | (2,331       | )          | (2,331                 | )          |
| Share-based compensation expense                                             |       |                |       |             |       |               |       | 495        |       |                   |       |         |       | 495                    |       |
| Tax benefit from stock options exercised                                     |       |                |       |             |       |               |       | 2          |       |                   |       |         |       | 2                      |       |
| Accretion of discount on preferred stock                                     |       |                |       | 386              |       |               |       |       |       |                   |       | (386         | )          | —                 |       |
| Comprehensive income:                                                        |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Net income                                                                   |       |                |       |             |       |               |       |       |       |                   |       | 4,631        |       | 4,631                  |       |
| Other comprehensive income:                                                  |       |                |       |             |       |               |       |       |       |                   |       |         |       |                   |       |
| Net change  in unrealized gain on interest-only strips (net of tax)          |       |                |       |             |       |               |       |       |       | (16                    | )          |         |       | (16                    | )          |
| Net change in unrealized gain on securities available  for sale (net of tax) |       |                |       |             |       |               |       |       |       | 3,790                  |       |         |       | 3,790                  |       |
| Comprehensive income                                                         |       |                |       |             |       |               |       |       |       |                   |       |         |       | 8,405                  |       |
| BALANCE—September 30, 2010                                         |       | 62,158              |       | $                | 60,317     |               | 29,486,734 |       | $          | 55,513                 |       | $            | 4,100      |                   | $          | 151,398 |   | $ | 271,328 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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Table ofContents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(DOLLARS IN THOUSANDS) (UNAUDITED)**

 
| ** **                                                                                  | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2010**                                                | ** ** | **2009** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |       |                                                    |       |   |   |
| Net income                                                                                  |       | $                                                       | 4,631      |   | $ | 16,048 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities:          |       |                                                    |       |   |   |
| Amortization of investment securities                                                       |       | 4,531                                                   |       | 2,866 |   |
| Depreciation and amortization of Bank premises and  equipment                               |       | 1,588                                                   |       | 1,490 |   |
| Accretion of discount on acquired loans                                                     |       | (3,211                                                  | )          | — |   |
| Amortization of core deposit intangibles                                                    |       | 276                                                     |       | 387 |   |
| Amortization of investments in affordable housing  partnerships                             |       | —                                                  |       | 931 |   |
| Provision for losses on loans and loan commitments                                          |       | 67,200                                                  |       | 43,000 |   |
| Provision for other real estate owned losses                                                |       | 36                                                      |       | 359 |   |
| Deferred tax  benefit                                                                       |       | (12,014                                                 | )          | (1,188 | ) |
| Loss on disposition of bank premises and equipment                                          |       | 9                                                       |       | 11 |   |
| Bargain  purchase gain                                                                      |       | —                                                  |       | (21,679 | ) |
| Net realized gain on sale of loans held for sale                                            |       | (4,203                                                  | )          | (1,711 | ) |
| Proceeds from sale of loans                                                                 |       | 25,361                                                  |       | 35,672 |   |
| Origination  of loans held for sale                                                         |       | (90,693                                                 | )          | (45,298 | ) |
| Net realized  gain on sale of available for sale securities                                 |       | (8,742                                                  | )          | (1,588 | ) |
| Change in unrealized appreciation on serving assets                                         |       | 680                                                     |       | 390 |   |
| Net realized  loss (gain) on sale of other real estate owned                                |       | 662                                                     |       | (402 | ) |
| Share-based compensation expense                                                            |       | 495                                                     |       | 608 |   |
| Change in  cash surrender value of life insurance                                           |       | (473                                                    | )          | (489 | ) |
| Servicing  assets capitalized                                                               |       | (824                                                    | )          | (556 | ) |
| Decrease  (increase) in accrued interest receivable                                         |       | 2,427                                                   |       | (1,904 | ) |
| Increase in  other assets                                                                   |       | (27,345                                                 | )          | (1,281 | ) |
| Decrease in accrued interest payable                                                        |       | (1,508                                                  | )          | (2,196 | ) |
| Increase in other liabilities                                                               |       | 19,620                                                  |       | 2,794 |   |
| Net cash (used) provided by operating activities                                            |       | (21,497                                                 | )          | 26,264 |   |
| ** **                                                                                  | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |       |                                                    |       |   |   |
| Proceeds from principal repayment, matured or called  securities held to maturity           |       | 19                                                      |       | 22 |   |
| Purchase of  securities available for sale                                                  |       | (553,054                                                | )          | (430,574 | ) |
| Proceeds from principal repayments, matured, called,  or sold securities available for sale |       | 847,513                                                 |       | 166,117 |   |
| Net increase  in loans receivable                                                           |       | (14,787                                                 | )          | (125,702 | ) |
| Receipt of FDIC loss share indemnification                                                  |       | 14,524                                                  |       | — |   |
| Proceeds from sale of other loans                                                           |       | 23,408                                                  |       | 3,217 |   |
| Proceeds from sale of other real estate owned                                               |       | 6,274                                                   |       | 3,395 |   |
| Purchases of  investments in affordable housing partnerships                                |       | (3,548                                                  | )          | (4,183 | ) |
| Loss of investment in affordable housing partnerships                                       |       | 1,078                                                   |       | — |   |
| Purchases of  premise and equipment                                                         |       | (718                                                    | )          | (2,400 | ) |
| Redemption of Federal Home  Loan Bank Stock                                                 |       | 1,548                                                   |       |   |   |
| Net cash and cash  equivalents acquired from acquisition of Mirae Bank                      |       | —                                                  |       | 5,724 |   |
| Net cash  provided by (used) in investing activities                                        |       | 322,257                                                 |       | (384,384 | ) |
|                                                                                             |            |                                                         |            |  |  |  |  |

 
| See  accompanying notes to consolidated financial statements. |   | (Continued) |
|---------------------------------------------------------------|--------|-------------|

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(DOLLARS IN THOUSANDS) (UNAUDITED)**

 
| ** **                                                            | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                                | ** ** | **2009** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                 |       |                                                    |       |   |   |
| Proceeds from exercise of stock options                               |       | $                                                       | 98         |   | $ | — |   |
| Payment of  cash dividend on common stock                             |       | (2,948                                                  | )          | (4,412 | ) |
| Payment of  cash dividend on preferred stock                          |       | (2,331                                                  | )          | (2,098 | ) |
| Increase in  Federal Home Loan Bank advances and other borrowings     |       | 65,475                                                  |       | — |   |
| Decrease in  Federal Home Loan Bank advances and other borrowings     |       | (165,929                                                | )          | (27,500 | ) |
| Tax benefit from exercise of stock option                             |       | 2                                                       |       | — |   |
| Net (decrease) increase in deposits                                   |       | (121,467                                                | )          | 566,126 |   |
| Net cash (used) provided by financing activities                      |       | (227,100                                                | )          | 532,116 |   |
|                                                                  |       |                                                    |       |   |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                             |       | 73,660                                                  |       | 173,996 |   |
|                                                                  |       |                                                    |       |   |   |
| CASH AND CASH EQUIVALENTS—Beginning of period                    |       | 235,757                                                 |       | 97,541 |   |
| CASH AND CASH EQUIVALENTS—End of period                          |       | $                                                       | 309,417    |   | $ | 271,537 |   |
|                                                                  |       |                                                    |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                    |       |                                                    |       |   |   |
| Interest paid                                                         |       | $                                                       | 36,260     |   | $ | 42,923 |   |
| Income taxes paid                                                     |       | $                                                       | 16,509     |   | $ | 8,885 |   |
|                                                                  |       |                                                    |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND  FINANCING ACTIVITIES: |       |                                                    |       |   |   |
| Real estate acquired through foreclosures                             |       | $                                                       | 18,213     |   | $ | 6,428 |   |
| Note financing for OREO sales                                         |       | $                                                       | —     |   | $ | 6,649 |   |
| Note financing for sale of other loans                                |       | $                                                       | 44,335     |   | $ | 20,286 |   |
| Other assets transferred to Bank premises and equipment               |       | $                                                       | 1,990      |   | $ | 290 |   |
| Common stock cash dividend declared, but not paid                     |       | $                                                       | —     |   | $ | 1,471 |   |
| Preferred stock cash dividend declared, but not paid                  |       | $                                                       | 388        |   | $ | 388 |   |

 
| See  accompanying notes to consolidated financial statements. |   | (Concluded) |
|---------------------------------------------------------------|--------|-------------|

 

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**WILSHIREBANCORP, INC.**

 

**Notes to Consolidated FinancialStatements****(Unaudited)**

 

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

 

WilshireBancorp, Inc. (hereafter, the “Company,”“we,” “us,” or “our”) succeeded to the business and operations of WilshireState Bank, a California state-chartered commercial bank (the “Bank”), uponconsummation of the reorganization of the Bank into a holding companystructure, effective as of August 25, 2004.  The Bank was incorporated under the laws ofthe State of California on May 20, 1980 and commenced operations onDecember 30, 1980.  The Company was incorporated in December 2003 as awholly-owned subsidiary of the Bank for the purpose of facilitating the issuanceof trust preferred securities for the Bank and eventually serving as theholding company of the Bank.  The Bank’sshareholders approved the reorganization into a holding company structure at ameeting held on August 25, 2004.  Asa result of the reorganization, shareholders of the Bank are now shareholdersof the Company, and the Bank is a direct wholly-ownedsubsidiary of the Company.

 

Our corporate headquarters and primary bankingfacilities are located at 3200 Wilshire Boulevard, Los Angeles, California90010.  On June 26, 2009, wepurchased substantially all the assets and assumed substantially all theliabilities of Mirae Bank (“Mirae Bank”) from the Federal Deposit Insurance Corporation (“FDIC”), as receiverof Mirae Bank.  Mirae Bank previouslyoperated five commercial banking branches, all located within southernCalifornia, and these branches were integrated into our existing branch networkfollowing the acquisition. In addition, we alsohave six loan production offices utilized primarily for the origination of loansunder our Small Business Administration (“SBA”) lending program in Colorado,Georgia, Texas (2 offices), Virginia, and New Jersey.

 

**Note 2.   Basis of Presentation**

 

Theconsolidated financial statements have been prepared in accordance with theSecurities and Exchange Commission (“SEC”) rules and regulations forinterim financial reporting and therefore do not necessarily include allinformation and footnote disclosures normally included in annual financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”). Theinformation provided by these interim financial statements reflect alladjustments which are, in the opinion of management, necessary for a fairpresentation of the Company’s consolidatedstatements of financial condition as of September 30, 2010and December 31, 2009, thestatements of operations for the three and nine months ended September 30,2010 and September 30, 2009, and the related statements of shareholders’equity and statements of cash flows for the nine months ended September 30,2010 and September 30, 2009. Operating results for interim periods are notnecessarily indicative of operating results for an entire fiscal year.

 

The Financial Accounting StandardsBoard’s (“FASB’s”) Accounting Standards Codification (“ASC”) became effectiveon July 1, 2009. At that date, the ASC became the FASB’s officiallyrecognized source of authoritative GAAP applicable to all public and non-publicnon-governmental entities, superseding existing FASB, American Institute ofCertified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) andrelated literature. Rules and interpretive releases of the SEC under theauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants. All other accounting literature is considerednon-authoritative. The switch to the ASC affects the way companies refer toGAAP in financial statements and accounting policies. Citing particular contentin the ASC involves specifying the unique numeric path to the content throughthe Topic, Subtopic, Section and Paragraph structure.

 

Theunaudited financial statements should be read in conjunction with the auditedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2009. The effective tax rate for the three months ending September 30,2010 was calculated using actual year to date pretax income in effective taxrate calculations.  In periods prior to June 30,2010, the Company used estimated annualized pretax income to calculate theeffective tax rate.  All other accountingpolicies used in the preparation of these interim financial statements wereconsistent with those used in the preparation of the financial statements forthe year ended December 31, 2009.

 

**Note 3.   FederallyAssisted Acquisition of****Mirae****Bank**

 

The FDIC placed Mirae Bank under receivership uponMirae Bank’s closure by the California Department of Financial Institutions (“DFI”)at the close of business on June 26, 2009. We purchased substantially all of Mirae Bank’s assets and assumed all ofMirae Bank’s deposits and certain other liabilities. Further, we entered intoloss sharing agreements with the FDIC in connection with the Mirae Bank acquisition.Under the loss sharing agreements, the FDIC will share in the losses on assetscovered under the agreement, which generally include loans acquired from Mirae Bankand foreclosed loan collateral existing at June 26, 2009 (referred tocollectively as “covered assets”).

 

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With the acquisition of MiraeBank, the Bank entered into loss-sharing agreements with the FDIC for amountsreceivable under the agreements. The Company accounted for the receivablebalances under the loss-sharing agreements as an FDIC indemnification asset inaccordance with ASC 805 (formerly FAS 141RBusiness Combinations).  The FDICindemnification is accounted for and calculated by adding the present value ofall the cash flows that the Company expected to collect from the FDIC on thedate of the acquisition as stated in the loss-sharing agreement. As expectedand actual cash flows increase and decrease from what was expected at the timeof acquisition, the FDIC indemnification will decrease and increase, respectively.  When covered assets are paid-off and sold,the FDIC indemnification asset is reduced and is offset with interest income.Covered assets that become impaired, increases in the indemnification asset.

 

The table below summarizes the changes to the FDIC lossshare indemnification in the third quarter and first nine months of 2010:

 
| **(Dollars in Thousands)**      | ** ** | **Three Months Ending****September 30, 2010** | ** ** | **Nine Months Ending****September 30, 2010** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
|                                      |       |                                                              |       |                                                             |       |
| Beginning balance of FDIC indemnification |       | $                                                                 | 28,538     |                                                             | $          | 33,775 |   |
| Changes in provision for loan losses      |       | 2,362                                                             |       | 5,053                                                            |       |
| Payments received from FDIC               |       | (6,116                                                            | )          | (16,359                                                          | )          |
| Increase resulting from charge-offs       |       | 1,449                                                             |       | 3,764                                                            |       |
| Ending balance of FDIC indemnification    |       | $                                                                 | 26,233     |                                                             | $          | 26,233 |   |

 

**Note 4.   Fair ValueMeasurement for Financial and Non-Financial Assets and Liabilities**

 

ASC 820 “Fair Value Measurement and Disclosure”(formerly SFAS No. 157, *Fair Value Measurements)*,provides a definitionof fair value, establishes a framework for measuring fair value, and requiresexpanded disclosures about fair value measurements. ASC820 defines fair value asthe price that would be received to sell an asset or paid to transfer aliability in an arm’s length transaction between market participants in themarkets where the Company conducts business. ASC820 clarifies that fairvalue should be based on the assumptions market participants would use whenpricing an asset or liability and establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions. The fair valuehierarchy gives the highest priority to quoted prices available in active marketsand the lowest priority to data lacking transparency.

 

The fair value inputs of the instruments are classified and disclosed in oneof the following categories pursuant to ASC820:

 

Level1 — Unadjusted quoted prices in activemarkets for identical assets or liabilities that the reporting entity has theability to access at the measurement date. The quoted price shall not beadjusted for the blockage factor (i.e., size of the position relative totrading volume).

 

Level2 — Pricing inputs are inputs other than quotedprices included within Level 1 that are observable for the asset or liability,either directly or indirectly. Fair value is determined through the use ofmodels or other valuation methodologies, including the use of pricing matrices.If the asset or liability has a specified (contractual) term, a Level 2 inputmust be observable for substantially the full term of the asset or liability.

 

Level3 — Pricing inputs are inputs unobservable for theasset or liability. Unobservable inputs shall be used to measure fair value tothe extent that observable inputs are not available, thereby allowing forsituations in which there is little, if any, market activity for the asset orliability at the measurement date. The inputs into the determination of fairvalue require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall intodifferent levels of the fair value hierarchy. In such cases, an investment’slevel within the fair value hierarchy is based on the lowest level of inputthat is significant to the fair value measurement. Our assessment of thesignificance of a particular input to the fair value measurement in itsentirety requires judgment and considers factors specific to the investment.

 

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In accordance with ASC 820-10, the Company uses the following methods and assumptions in estimatingour fair value disclosure for financial instruments. Financial assets andliabilities recorded at fair value on a recurring and non-recurring basis arelisted as follows:

 

Securities availablefor sale —Investment in available-for-sale securities are recorded at their fair values pursuant to ASC 320-10 (SFAS No. 115, *Accounting for Certain Investments in Debt and Equity Securities)*.Fair value measurement is based upon quoted prices for similar assets, ifavailable. If quoted prices are not available, fair values are measured usingmatrix pricing models, or other model-based valuation techniques requiringobservable inputs other than quoted prices such as yield curves, prepaymentspeeds, and default rates. The securities available for sale include securitiesof government sponsored enterprises, mortgage-backed securities, collateralizedmortgage obligations, municipal bonds and corporate securities. Our existinginvestment available-for-sale security holdings as of September 30, 2010are measured using matrix pricing models in lieu of direct price quotes andrecorded based on Level 2 measurement inputs.

 

Collateral dependentimpaired loans — A loan is considered to be impaired when it is probable that all ofthe principal and interest due under the original underwriting terms of theloan may not be collected. Fair value of collateral dependent loans is measuredbased on the fair value of the underlying collateral. The fair value isdetermined by management in part through the use of appraisals or by actualselling prices for loans that are under contract to sell. It is the Company’spolicy to update appraisals on all collateral dependent impaired loans everysix months or less.

 

We order appraisals for all loans that have beenidentified by management as non-performing or potentially non-performing atmonth-end following such identification. Thereafter, the Company’s CreditAdministrator Clerk monitors all of our collateral dependent impaired loans andother non-performing loans on a monthly basis to ensure that updated appraisalsare ordered and received at least every six months. Appraisal reports aretypically received by the Company on a timely basis, and we have notexperienced significant delays during this process. Once an appraisal isreceived, if there is a difference between the updated appraisal value and thebalance of the loan, we will either record a special valuation allowance forthat difference, or we will charge-off the difference in accordance with ourloan policy. We do not charge-off or make special allowances for only a portionof the difference between the appraisal value and the balance of the loan.

 

For any loan that has already been partiallycharged-off, after we receive an updated appraisal, there will be no change inthe classification of that loan unless it satisfies our policy guidelines forreturning a non-performing loan to a performing loan.

 

The Company records impairments on all nonaccrual loansand trouble debt restructured loans based on the valuation methods above withthe exception of automobile loans. Automobile loans are assessed based on a homogenous pool of loans andthe Company has established specific reserves which is a component of theallowance for loan losses. The Company records impaired loans as non-recurringwith Level 3 measurement inputs.

 

Other real estateowned (“OREO”) — Other real estate owned or “OREO”,consists principally of properties acquired through foreclosures. The fairvalues of OREOs are recorded at the lower of carrying value of the loan orestimated fair value at the time of foreclosure.  Fair values are determined by management inpart by using third party appraisals and written offers that have beenaccepted. Management periodically performs valuations on OREO properties forfair valuation.  Any subsequent declinesin the fair value of the OREO property after the date of transfer are recordedas a write-down of the asset.  However,in accordance with ASC 820-10 fair value disclosures for financial instruments,OREO is measured at fair value. The Company records OREO as non-recurring withLevel 3 measurement inputs.

 

Servicing assets and interest-only strips —SBAloan servicing assets and interest-only strips represent the value associatedwith servicing SBA loans sold. The value is determined through a discountedcash flow analysis which uses discount rates, prepayment speeds and delinquencyrate assumptions as inputs. All of these assumptions require a significantdegree of management judgment. The fair market valuation is performed on aquarterly basis for servicing assets while interest only strips are measures atthe lower of cost or fair value. The Company classifies SBA loan servicingassets and interest-only strips as recurring with Level 3 measurement inputs.

 

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Servicing liabilities —SBA loan servicingliabilities represent the value associated with servicing SBA loans sold. Thevalue is determined through a discounted cash flow analysis which uses discountrates, prepayment speeds and delinquency rate assumptions as inputs. All ofthese assumptions require a significant degree of management judgment. The fairmarket valuation is performed on a quarterly basis. The Company classifies SBAloan servicing liabilities as recurring with Level 3 measurement inputs.

 

The table below summarizes the valuation of ourfinancial assets and liabilities by the above ASC 820-10 fair value hierarchylevels as of September 30, 2010 and December 31, 2009:

 

**AssetsMeasured at Fair Value on a Recurring Basis**

**(Dollars in Thousands****)**

 
| ** **                                       | ** ** | **Fair  Value Measurements Using:** | ** ** |
|--------------------------------------------------|------------|-------------------------------------|------------|
| **As of September 30, 2010** | ** ** | **Total Fair  Value**          | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** |
| Investments                                      |       |                                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises  |       | $                                   | 54,460     |   | $ | — |   | $ | 54,460 |   | $ | — |   |
| Mortgage backed securities                       |       | 20,788                              |       | — |   | 20,788 |   | — |   |
| Collateralized  mortgage obligations             |       | 254,016                             |       | — |   | 254,016 |   | — |   |
| Corporate securities                             |       | 2,036                               |       | — |   | 2,036 |   | — |   |
| Municipal  bonds                                 |       | 36,133                              |       | — |   | 36,133 |   | — |   |
| Servicing  assets                                |       | 7,041                               |       | — |   | — |   | 7,041 |   |
| Interest-only  strips                            |       | 635                                 |       | — |   | — |   | 635 |   |
| Servicing  liabilities                           |       | (399                                | )          | — |   | — |   | (399 | ) |
|                                                  |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                      | ** ** | **Fair  Value Measurements Using:** | ** ** |
|-------------------------------------------------|------------|-------------------------------------|------------|
| **As of December 31, 2009** | ** ** | **Total Fair  Value**          | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant  Unobservable Inputs  (Level 3)** | ** ** |
| Investments                                     |       |                                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises |       | $                                   | 155,382    |   | $ | — |   | $ | 155,382 |   | $ | — |   |
| Mortgage backed securities                      |       | 131,711                             |       | — |   | 131,711 |   | — |   |
| Collateralized  mortgage obligations            |       | 319,554                             |       | — |   | 319,554 |   | — |   |
| Corporate securities                            |       | 2,017                               |       | — |   | 2,017 |   | — |   |
| Municipal  bonds                                |       | 42,654                              |       | — |   | 42,654 |   | — |   |
| Servicing  assets                               |       | 6,898                               |       | — |   | — |   | 6,898 |   |
| Interest-only  strips                           |       | 724                                 |       | — |   | — |   | 724 |   |
| Servicing  liabilities                          |       | (407                                | )          | — |   | — |   | (407 | ) |
|                                                 |            |                                     |            |  |  |  |  |  |  |  |  |  |  |

 

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Financialinstruments measured at fair value on a recurring basis, which were part of theasset balances that were deemed to have Level 3 fair value inputs whendetermining valuation, are identified in the table below by asset category witha summary of changes in fair value for the three and nine months ended September 30,2010 and September 30, 2009:

 
| **(Dollars in Thousands)** | ** ** | **At June 30,  2010** | ** ** | **Net Realized********Losses in  Net Income** | ** ** | **Unrealized********Loss in Other  Comprehensive********Income** | ** ** | **Net  Purchases,  Sales and  Settlements** | ** ** | **Transfers  In/out of  Level 3** | ** ** | **At September  30, 2010** | ** ** | **Net Cumulative**

**Unrealized********Loss in Other  Comprehensive********Income** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| Servicing  assets                    |       | $                               | 6,655      |                                                         | $          | (128                                                                       | )          | $                                                | —     |                                        | $          | 514                                  |       | $                                                                                                   | —     |   | $ | 7,041 |   | $ | — |   |
| Interest-only  strips                |       | 632                             |       | (18                                                          | )          | 21                                                                         |       | —                                           |       | —                                      |       | 635                                  |       | (284                                                                                                | )          |
| Servicing  liabilities               |       | (406                            | )          | 7                                                            |       | —                                                                     |       | —                                           |       | —                                      |       | (399                                 | )          | —                                                                                              |       |
|                                      |            |                                 |            |                                                              |            |                                                                            |            |                                                  |            |                                             |            |                                      |            |                                                                                                     |            |  |  |  |  |  |  |  |

 
| **(Dollars in Thousands)** | ** ** | **At June 30,  2009** | ** ** | **Net Realized********Losses in  Net Income** | ** ** | **Unrealized********Loss in Other  Comprehensive********Income** | ** ** | **Net   Purchases,  Sales and   Settlements** | ** ** | **Transfers   In/out of  Level 3** | ** ** | **At September  30, 2009** | ** ** | **Net Cumulative  Unrealized********Loss in Other  Comprehensive********Income** | ** ** |
|--------------------------------------|------------|---------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| Servicing  assets                    |       | $                               | 6,677      |                                                         | $          | (335                                                                       | )          | $                                                            | —     |                                              | $          | 556                                  |       | $                                                                                               | —     |   | $ | 6,898 |   | $ | — |   |
| Interest-only strips                 |       | 741                             |       | (31                                                          | )          | 15                                                                         |       | —                                                       |       | —                                            |       | 725                                  |       | (293                                                                                            | )          |
| Servicing  liabilities               |       | (464                            | )          | (136                                                         | )          | —                                                                     |       | —                                                       |       | —                                            |       | (600                                 | )          | —                                                                                          |       |
|                                      |            |                                 |            |                                                              |            |                                                                            |            |                                                              |            |                                                   |            |                                      |            |                                                                                                 |            |  |  |  |  |  |  |  |

 
| **(Dollars in Thousands)** | ** ** | **At December  31, 2009** | ** ** | **Net Realized********Losses in  Net Income** | ** ** | **Unrealized********Loss in Other  Comprehensive********Income** | ** ** | **Net   Purchases,  Sales and   Settlements** | ** ** | **Transfers   In/out of   Level 3** | ** ** | **At September  30, 2010** | ** ** | **Net Cumulative********Unrealized********Loss in Other  Comprehensive********Income** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| Servicing  assets                    |       | $                                   | 6,898      |                                                    | $          | (680                                                                       | )          | $                                                            | —     |                                                    | $          | 823                                  |       | $                                                                                                     | —     |   | $ | 7,041 |   | $ | — |   |
| Interest-only  strips                |       | 724                                 |       | (61                                                     | )          | (28                                                                        | )          | —                                                       |       | —                                                  |       | 635                                  |       | (284                                                                                                  | )          |
| Servicing  liabilities               |       | (407                                | )          | 8                                                       |       | —                                                                     |       | —                                                       |       | —                                                  |       | (399                                 | )          | —                                                                                                |       |
|                                      |            |                                     |            |                                                         |            |                                                                            |            |                                                              |            |                                                         |            |                                      |            |                                                                                                       |            |  |  |  |  |  |  |  |

 
| **(Dollars in Thousands)** | ** ** | **At December  31, 2008** | ** ** | **Net Realized********Losses in   Net Income** | ** ** | **Unrealized********Loss in Other  Comprehensive********Income** | ** ** | **Net   Purchases,  Sales and   Settlements** | ** ** | **Transfers   In/out of   Level 3** | ** ** | **At September  30, 2009** | ** ** | **Net Cumulative  Unrealized********Loss in Other  Comprehensive********Income** | ** ** |
|--------------------------------------|------------|-------------------------------------|------------|--------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| Servicing  assets                    |       | $                                   | 4,838      |                                                               | $          | (390                                                                       | )          | $                                                            | —     |                                                    | $          | 2,450                                |       | $                                                                                               | —     |   | $ | 6,898 |   | $ | — |   |
| Interest-only  strips                |       | 632                                 |       | (86                                                                | )          | 74                                                                         |       | 105                                                          |       | —                                                  |       | 725                                  |       | (293                                                                                            | )          |
| Servicing  liabilities               |       | (328                                | )          | (138                                                               | )          | —                                                                     |       | (134                                                         | )          | —                                                  |       | (600                                 | )          | —                                                                                          |       |
|                                      |            |                                     |            |                                                                    |            |                                                                            |            |                                                              |            |                                                         |            |                                      |            |                                                                                                 |            |  |  |  |  |  |  |  |

 

The following tables present the aggregated balance ofassets measured at estimated fair value on a non-recurring basis at September 30,2010 and December 31, 2009, and the total losses resulting from these fairvalue adjustments for the year-to date periods ended September 30, 2010and December 31, 2009:

 

**As of September 30, 2010**

 
| **(Dollars in Thousands)** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** | **Net YTD Realized  Losses in Net  Income** | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|-----------------------------------------------------------------|------------|
| Collateral  dependent impaired loans |       | $                | —     |             | $          | —           |       | $         | 175,726    |                                                            | $          | 176,726 |   | $ | 2,156 |   |
| OREO                                 |       | —           |       | —           |       | 16,591           |       | 16,591    |       | 595                                                             |       |
| Total                                |       | $                | —     |             | $          | —           |       | $         | 192,317    |                                                            | $          | 192,317 |   | $ | 2,751 |   |

 

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**As ofDecember 31, 2009**

 
| **(Dollars in Thousands)** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** | **Net YTD Realized  Losses in Net Income** | ** ** |
|--------------------------------------|------------|------------------|------------|------------------|------------|------------------|------------|-----------|------------|---------------------------------------------------------------------|------------|
| Collateral  dependent impaired loans |       | $                | —     |             | $          | —           |       | $         | 128,764    |                                                                | $          | 128,764 |   | $ | 10,250 |   |
| OREO                                 |       | —           |       | —           |       | 4,031            |       | 4,031     |       | 435                                                                 |       |
| Total                                |       | $                | —     |             | $          | —           |       | $         | 132,795    |                                                                | $          | 132,795 |   | $ | 10,685 |   |

 

Thetable below is a summary of fair value estimates as of September 30, 2010and December 30, 2009, for financial instruments, as defined by ASC 825-10(formerly SFAS No. 107, *Disclosuresabout Fair Value of Financial Instruments)*, including thosefinancial instruments for which the Company did not elect fair value optionpursuant to ASC 470-20 (SFAS No. 159).

 
| ** **                                                    | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                    | ** ** | **Carrying**                     | ** ** | **Estimated**                   | ** ** | **Carrying** | ** ** | **Estimated** | ** ** |
| **(Dollars in Thousands)**                          | ** ** | **Amount**                       | ** ** | **Fair Value**             | ** ** | **Amount** | ** ** | **Fair Value** | ** ** |
| Assets:                                                       |       |                             |       |                            |       |   |   |   |   |
| Cash  and cash equivalents                                    |       | $                                | 309,417    |                            | $          | 309,417 |   | $ | 235,757 |   | $ | 235,757 |   |
| Investment  securities held to maturity                       |       | 97                               |       | 97                              |       | 109 |   | 109 |   |
| Loans  receivable—net                                    |       | 2,303,848                        |       | 2,302,946                       |       | 2,329,078 |   | 2,326,869 |   |
| Loans  held for sale                                          |       | 41,103                           |       | 41,174                          |       | 36,233 |   | 36,407 |   |
| Cash  surrender value of life insurance                       |       | 18,510                           |       | 18,510                          |       | 18,037 |   | 18,037 |   |
| Federal  Home Loan Bank stock                                 |       | 19,302                           |       | 19,302                          |       | 20,850 |   | 20,850 |   |
| Accrued  interest receivable                                  |       | 12,839                           |       | 12,839                          |       | 15,266 |   | 15,266 |   |
| Due  from customer on acceptances                             |       | 269                              |       | 269                             |       | 945 |   | 945 |   |
|                                                          |       |                             |       |                            |       |   |   |   |   |
| Liabilities:                                                  |       |                             |       |                            |       |   |   |   |   |
| Noninterest-bearing  deposits                                 |       | $                                | 453,333    |                            | $          | 453,333 |   | $ | 385,188 |   | $ | 385,188 |   |
| Interest-bearing  deposits                                    |       | 2,253,415                        |       | 2,259,383                       |       | 2,443,027 |   | 2,444,445 |   |
| Junior  subordinated Debentures                               |       | 87,321                           |       | 87,321                          |       | 87,321 |   | 87,321 |   |
| Short-term  federal fund purchased & FHLB borrowings |       | —                           |       | —                          |       | 122,000 |   | 122,380 |   |
| Federal  Home Loan Bank borrowings                            |       | 110,000                          |       | 112,116                         |       | 110,000 |   | 112,017 |   |
| Accrued  interest payable                                     |       | 4,357                            |       | 4,357                           |       | 5,865 |   | 5,865 |   |
| Acceptances  outstanding                                      |       | 269                              |       | 269                             |       | 945 |   | 945 |   |

 

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**Note 5.  ****Investment Securities**

 

Thefollowing table summarizes the amortized cost, market value, net unrealizedgain (loss), and distribution of our investment securities as of the datesindicated:

 

**Investment Securities Portfolio**

**(Dollars in Thousands)**

 
| ** **                                      | ** ** | **As of September 30, 2010** | ** ** | **As of December 31, 2009** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **Amortized  Cost**                              | ** ** | **Market  Value**                               | ** ** | **Net  Unrealized  Gain** | ** ** | **Amortized  Cost** | ** ** | **Market  Value** | ** ** | **Net  Unrealized  Gain (Loss)** | ** ** |
| Held to  Maturity:                              |       |                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Collateralized  mortgage obligations            |       | $                                                | 91         |                                            | $          | 97 |   | $ | 6 |   | $ | 109 |   | $ | 109 |   | $ | — |   |
| Total  investment securities held to maturity   |       | $                                                | 91         |                                            | $          | 97 |   | $ | 6 |   | $ | 109 |   | $ | 109 |   | $ | — |   |
|                                            |       |                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Available  for Sale:                            |       |                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Securities  of government sponsored enterprises |       | $                                                | 53,902     |                                            | $          | 54,460 |   | $ | 558 |   | $ | 156,879 |   | $ | 155,382 |   | $ | (1,497 | ) |
| Mortgage  backed securities                     |       | 19,972                                           |       | 20,788                                          |       | 816 |   | 131,617 |   | 131,711 |   | 94 |   |
| Collateralized  mortgage obligations            |       | 250,198                                          |       | 254,016                                         |       | 3,818 |   | 318,531 |   | 319,554 |   | 1,023 |   |
| Corporate  securities                           |       | 2,000                                            |       | 2,036                                           |       | 36 |   | 2,000 |   | 2,017 |   | 17 |   |
| Municipal  securities                           |       | 34,777                                           |       | 36,133                                          |       | 1,356 |   | 42,068 |   | 42,654 |   | 586 |   |
| Total  investment securities available for sale |       | $                                                | 360,849    |                                            | $          | 367,433 |   | $ | 6,584 |   | $ | 651,095 |   | $ | 651,318 |   | $ | 223 |   |

 

Thefollowing table summarizes the maturity and repricing schedule of ourinvestment securities at their market values at September 30, 2010:

 

**Investment Maturities andRepricing Schedule********(Dollars in Thousands****)**

 
| ** **                                      | ** ** | **Within One Year** | ** ** | **After One &  Within Five  Years** | ** ** | **After Five &  Within Ten  Years** | ** ** | **After Ten Years** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------|------------|-----------|------------|
| Held to  Maturity:                              |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Collateralized  mortgage obligations            |       | $                             | —     |                                                   | $          | 97                                                     |       | $                             | —     |      | $          | — |   | $ | 97 |   |
| Total  investment securities held to maturity   |       | $                             | —     |                                                   | $          | 97                                                     |       | $                             | —     |      | $          | — |   | $ | 97 |   |
|                                            |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Available  for Sale:                            |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Securities  of government sponsored enterprises |       | $                             | —     |                                                   | $          | —                                                 |       | $                             | 54,460     |      | $          | — |   | $ | 54,460 |   |
| Mortgage  backed securities                     |       | 6,556                         |       | 55                                                     |       | 2,409                                                  |       | 11,768                        |       | 20,788    |       |
| Collateralized  mortgage obligations            |       | 4,092                         |       | 238,688                                                |       | —                                                 |       | 11,236                        |       | 254,016   |       |
| Corporate  securities                           |       | —                        |       | 2,036                                                  |       | —                                                 |       | —                        |       | 2,036     |       |
| Municipal  securities                           |       | 128                           |       | 1,170                                                  |       | 6,068                                                  |       | 28,767                        |       | 36,133    |       |
| Total  investment securities available for sale |       | $                             | 10,776     |                                                   | $          | 241,949                                                |       | $                             | 62,937     |      | $          | 51,771 |   | $ | 367,433 |   |

 

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The following table shows thegross unrealized losses and fair values of our investments, aggregated byinvestment category and length of time that individual securities have been ina continuous unrealized loss positions, at September 30, 2010 and December 31,2009:

 

**As of September 30, 2010**

(Dollars in Thousands)

 
| ** **                                                      | ** ** | **Less than 12 months** | ** ** | **12 months or longer** | ** ** | **Total**           | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|---------------------|------------|
| ** **                                                      | ** ** | ** **                             | ** ** | **Gross**                              | ** ** | ** **          | ** ** | **Gross** | ** ** | ** ** | ** ** | **Gross** | ** ** |
| ** **                                                      | ** ** | ** **                             | ** ** | **Unrealized**                         | ** ** | ** **          | ** ** | **Unrealized** | ** ** | ** ** | ** ** | **Unrealized** | ** ** |
| **Description of Securities (AFS) ****(1)** | ** ** | **Fair Value**                    | ** ** | **Losses**                             | ** ** | **Fair Value** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** | **Losses** | ** ** |
|                                                            |       |                                   |       |                                   |       |                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises                 |       | $                                      | —     |                                   | $          | —              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Mortgage-backed securities                                      |       | —                                 |       | —                                 |       | —              |       | — |   | — |   | — |   |
| Collateralized mortgage  obligations                            |       | 48,065                                 |       | (121                                   | )          | —              |       | — |   | 48,065 |   | (121 | ) |
| Municipal  securities                                           |       | 1,197                                  |       | (87                                    | )          | 339                 |       | (68 | ) | 1,536 |   | (155 | ) |
| Total                                                           |       | $                                      | 49,262     |                                   | $          | (208                | )          | $ | 339 |   | $ | (68 | ) | $ | 49,601 |   | $ | (276 | ) |

** **

**As of December 31, 200****9**

(Dollars in Thousands)

** **
| ** **                                                      | ** ** | **Less than 12 months** | ** ** | **12 months or longer** | ** ** | **Total**           | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|---------------------|------------|
| ** **                                                      | ** ** | ** **                             | ** ** | **Gross**                              | ** ** | ** **          | ** ** | **Gross** | ** ** | ** ** | ** ** | **Gross** | ** ** |
| ** **                                                      | ** ** | ** **                             | ** ** | **Unrealized**                         | ** ** | ** **          | ** ** | **Unrealized** | ** ** | ** ** | ** ** | **Unrealized** | ** ** |
| **Description of Securities (AFS) ****(1)** | ** ** | **Fair Value**                    | ** ** | **Losses**                             | ** ** | **Fair Value** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** | **Losses** | ** ** |
|                                                            |       |                                   |       |                                   |       |                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises                 |       | $                                      | 110,296    |                                   | $          | (1,600              | )          | $ | — |   | $ | — |   | $ | 110,296 |   | $ | (1,600 | ) |
| Mortgage-backed securities                                      |       | 85,313                                 |       | (726                                   | )          | —              |       | — |   | 85,313 |   | (726 | ) |
| Collateralized mortgage  obligations                            |       | 145,622                                |       | (975                                   | )          | —              |       | — |   | 145,622 |   | (975 | ) |
| Municipal  securities                                           |       | 18,783                                 |       | (505                                   | )          | —              |       | — |   | 18,783 |   | (505 | ) |
| Total                                                           |       | $                                      | 360,014    |                                   | $          | (3,806              | )          | $ | — |   | $ | — |   | $ | 360,014 |   | $ | (3,806 | ) |

 

----

(1) TheCompany had no held to maturity investment securities with unrealized losses atSeptember 30, 2010 and December 31, 2009.

 

At September 30, 2010, the totalunrealized losses less than 12 months old were $208,000 and total unrealizedlosses more than 12 months old were $68,000 for the same period.  The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $49.3 million at September 30, 2010 and $339,000 withunrealized losses more than 12 months old. As of December 31, 2009, the total unrealized losses less than 12months old were $3.8 million, and therewere no unrealized losses more than 12 months old. The aggregate related fairvalue of investments with unrealized losses less than 12 months old was $360.0 million at December 31, 2009.

 

Credit related declines in the fair value of securitiesbelow their cost that are deemed to be other than temporary are reflected inearnings as realized losses.  Inestimating other-than-temporary impairment losses, we consider, among otherthings, (i) the length of time and the extent to which the fair value hasbeen less than cost, (ii) the financial condition and near-term prospectsof the issuer, and (iii) our intent and ability to retain our investmentin the issuer for a period of time sufficient to allow for any anticipatedrecovery in fair value. Securities with market value of approximately $351.1million and $629.2 million were pledged to secure public deposits for otherpurposes required or permitted by law at September 30, 2010 and December 31,2009, respectively

 

Management determined that any individual unrealized loss as of September 30, 2010 did notrepresent an other-than-temporary impairment. The unrealized losses on our government-sponsored enterprises (“GSE”)bonds, GSE collateralized mortgage obligations (“CMOs”), and GSE mortgagebacked securities (“MBSs”) were attributable to both changes in interest rate(U.S. Treasury curve) and a repricing of risk (spreads widening againstrisk-fee rate) in the market. We do not own any non-agency MBSs or CMOs. AllGSE bonds, GSE CMOs, and GSE MBSs are backed by U.S. Government Sponsored andFederal Agencies and therefore rated “Aaa/AAA.” We have no exposure to the “Subprime Market” in the form of Asset BackedSecurities, (“ABSs”), and Collateralized Debt Obligations, (“CDOs”) that arebelow investment grade.  We have theintent and ability to hold the securities in an unrealized loss position at September 30,2010 until the market value recovers or the securities mature.

 

Municipal bonds and corporate bonds are evaluated byreviewing the credit-worthiness of the issuer and market conditions. Theunrealized losses on our municipal and corporate securities were primarilyattributable to both changes in interest rates and a repricing of risk in themarket.  We have the intent and abilityto hold the securities in an unrealized loss position at September 30,2010 until the market value recovers or the securities mature.

 

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**Note****6****.   Loans**

 

Theloans in the portfolio as a result of the Mirae Bank acquisition are covered bythe FDIC loss-share agreements and such loans are referred to herein as “covered loans.”  All loans other than the covered loans are referred to herein as “non-covered loans.”  A summary ofcovered and non-covered loans is presented in the table below:

 

**Covered &Non-Covered Loans**

 
| ** **                           | ** ** | **(Dollars in Thousands)** | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|
| ** **                           | ** ** | **September 30, 2010**     | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
| Non-covered  loans:                  | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Construction                         |       | $                                    | 70,808     |   | $ | 48,371 |   | $ | 44,586 |   |
| Real  estate secured                 |       | 1,832,726                            |       | 1,783,638 |   | 1,766,428 |   |
| Commercial  and industrial           |       | 308,277                              |       | 325,034 |   | 348,910 |   |
| Consumer                             |       | 16,937                               |       | 16,626 |   | 15,984 |   |
| Total  loans                         |       | 2,228,748                            |       | 2,173,669 |   | 2,175,908 |   |
| Unearned  Income                     |       | (4,932                               | )          | (5,311 | ) | (5,276 | ) |
| Gross  loans, net of unearned income |       | 2,223,816                            |       | 2,168,358 |   | 2,170,632 |   |
| Allowance  for losses on loans       |       | (91,991                              | )          | (61,377 | ) | (54,735 | ) |
| Net  loans                           |       | $                                    | 2,131,825  |   | $ | 2,106,981 |   | $ | 2,115,897 |   |
|                                 |       |                                 |       |   |   |   |   |
| Covered  loans:                      |       |                                 |       |   |   |   |   |
| Construction                         |       | $                                    | —     |   | $ | — |   | $ | 494 |   |
| Real  estate secured                 |       | 166,490                              |       | 196,066 |   | 206,770 |   |
| Commercial  and industrial           |       | 53,613                               |       | 62,409 |   | 66,829 |   |
| Consumer                             |       | 125                                  |       | 608 |   | 627 |   |
| Total  loans                         |       | 220,228                              |       | 259,083 |   | 274,720 |   |
| Allowance  for losses on loans       |       | (7,031                               | )          | (753 | ) | — |   |
| Net  loans                           |       | $                                    | 213,197    |   | $ | 258,330 |   | $ | 274,720 |   |
|                                 |       |                                 |       |   |   |   |   |
| Total  loans:                        |       |                                 |       |   |   |   |   |
| Construction                         |       | $                                    | 70,808     |   | $ | 48,371 |   | $ | 45,080 |   |
| Real  estate secured                 |       | 1,999,216                            |       | 1,979,704 |   | 1,973,198 |   |
| Commercial  and industrial           |       | 361,890                              |       | 387,443 |   | 415,739 |   |
| Consumer                             |       | 17,062                               |       | 17,234 |   | 16,611 |   |
| Total  loans                         |       | 2,448,976                            |       | 2,432,752 |   | 2,450,628 |   |
| Unearned  Income                     |       | (4,932                               | )          | (5,311 | ) | (5,276 | ) |
| Gross  loans, net of unearned income |       | 2,444,044                            |       | 2,427,441 |   | 2,445,352 |   |
| Allowance  for losses on loans       |       | (99,022                              | )          | (62,130 | ) | (54,735 | ) |
| Net  loans                           |       | $                                    | 2,345,022  |   | $ | 2,365,311 |   | $ | 2,390,617 |   |

 

In accordance with ASC 310-30 (formerly AICPAStatement of Position “SOP 03-3”, *Accounting for Certain Loans orDebt Securities Acquired in a Transfer*)*,*the covered loans were divided into “SOP 03-3 Loans” and “Non-SOP03-3 Loans”, of which SOP 03-3 loans are loans with evidence of deteriorationof credit quality and it was probable, at the time of acquisition, that the Bank would be unable to collect all contractually required paymentsreceivable. In contrast, Non-SOP 03-3loans are all other covered loans that donot qualify as SOP 03-3 loans. In addition, the covered loans are furthercategorized into four different loanpools by loan type: construction, commercial &industrial, real estate secured, and consumer.

 

Thedifference between contractually required payments at acquisition and the cashflows expected to be collected at acquisition is referred to as thenon-accretable difference which is included in the carrying amount of theloans. Subsequent decreases to the expected cash flows will generally result ina provision for loan losses. Subsequent increases in cash flows result in areversal of the provision for loan losses to the extent of prior charges, or areversal of the non-accretable difference with a positive impact on interestincome. Further, any excess of cash flows expected at acquisition over theestimated fair value is referred to as the accretable yield and is recognizedinto interest income over the remaining life of the loan when there is areasonable expectation about the amount and timing of such cash flows.

 

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Thefollowing table represents the carrying value of SOP 03-3 and Non SOP 03-3loans acquired from Mirae Bank at September 30, 2010:

 
| **(Dollars in Thousands)** | ** ** | **September 30, 2010** | ** ** | **December 31,2009** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|---------------------------|------------|
|                                 |       |                             |       |                      |       |
| Non SOP 03-3 loans                   |       | $                                | 216,006    |                      | $          | 248,204 |   |
| SOP 03-3 loans                       |       | 4,222                            |       | 10,879                    |       |
| Total outstanding balance            |       | 220,228                          |       | 259,083                   |       |
| Allowance related to these  loans    |       | (7,031                           | )          | (753                      | )          |
| Carrying amount, net of allowance    |       | $                                | 213,197    |                      | $          | 258,330 |   |

 

Thefollowing table represents the balance of SOP 03-3 acquired loans from MiraeBank for which it was probable at the time of the acquisition that all of thecontractually required payments would not be collected:

 
| **(Dollars in Thousands)** | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                 |       |                             |       |                            |       |
| Breakdown of SOP 03-3 Loans          |       |                             |       |                            |       |
| Real Estate loans                    |       | $                                | 3,373      |                            | $          | 6,881 |   |
| Commercial loans                     |       | $                                | 849        |                            | $          | 3,998 |   |

 

Loansacquired from the acquisition of Mirae Bank were discounted based on estimatedcashflows to be received at June 26, 2009. Discount on acquired loans totaled $54.9 million at acquisition.  In the third quarter and first nine months of2010, discount accretion on acquired loans of $973,000 and $3.4 million,respectively, were recorded as interest income as follows:

 
| ** **                              | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **(Dollars in Thousands)**    | ** ** | **September 30, 2010** | ** ** | **September 30, 2010** | ** ** |
|                                    |       |                             |       |                             |       |
| Beginning balance of  discount on loans |       | $                                | 20,582     |                             | $          | 30,846 |   |
| Discount accretion income  recognized   |       | (973                             | )          | (3,444                           | )          |
| Disposals related to  charge-offs       |       | (1,081                           | )          | (7,210                           | )          |
| Disposals related to loan  sales        |       | (1,234                           | )          | (2,898                           | )          |
| Carrying amount, net of  allowance      |       | $                                | 17,294     |                             | $          | 17,294 |   |

 

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Thetable below summarizes for the periods indicated, changes in the allowance forlosses on loans arising from loans charged-off, recoveries on loans previouslycharged-off, additions to the allowance and certain ratios related to the allowancefor losses on loans and loan commitments:

** **

**Allowance for Losses on Loans andLoan Commitments********(Dollars in Thousands)**

 
| ** **                                                                   | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Balances:**                                                                |       |                                                     |       |                                                    |       |   |   |   |   |
| **Allowance  for loan losses:**                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Balances  at beginning of period                                             |       | $                                                        | 91,419     |                                                    | $          | 38,758 |   | $ | 62,130 |   | $ | 29,437 |   |
| **Actual  charge-offs: ***                                                   |       |                                                     |       |                                                    |       |   |   |   |   |
| Real estate secured                                                          |       | 12,769                                                   |       | 1,888                                                   |       | 30,009 |   | 2,736 |   |
| Commercial and industrial                                                    |       | 1,539                                                    |       | 6,134                                                   |       | 7,094 |   | 14,703 |   |
| Consumer                                                                     |       | 33                                                       |       | 191                                                     |       | 224 |   | 649 |   |
| Total charge-offs                                                            |       | 14,341                                                   |       | 8,213                                                   |       | 37,327 |   | 18,088 |   |
|                                                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| **Recoveries  on loans previously charged off:**                             |       |                                                     |       |                                                    |       |   |   |   |   |
| Real estate secured                                                          |       | 770                                                      |       | 2                                                       |       | 794 |   | 3 |   |
| Commercial and industrial                                                    |       | 179                                                      |       | 189                                                     |       | 1,442 |   | 495 |   |
| Consumer                                                                     |       | 42                                                       |       | 33                                                      |       | 140 |   | 100 |   |
| Total recoveries                                                             |       | 991                                                      |       | 224                                                     |       | 2,376 |   | 598 |   |
|                                                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Net loan charge-offs                                                         |       | 13,350                                                   |       | 7,989                                                   |       | 34,951 |   | 17,490 |   |
|                                                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| FDIC Indemnification                                                         |       | 2,954                                                    |       | —                                                  |       | 5,645 |   | — |   |
| Provision for losses on loan  and loan commitments                           |       | 17,999                                                   |       | 23,966                                                  |       | 66,198 |   | 42,788 |   |
| Balances at end of period                                                    |       | $                                                        | 99,022     |                                                    | $          | 54,735 |   | $ | 99,022 |   | $ | 54,735 |   |
| **Allowance  for loan commitments:**                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| Balances  at beginning of year                                               |       | $                                                        | 3,516      |                                                    | $          | 1,221 |   | $ | 2,515 |   | $ | 1,243 |   |
| Provision for losses  (recovery) on loan commitments                         |       | 1                                                        |       | 234                                                     |       | 1,002 |   | 212 |   |
| Balance at end of period                                                     |       | $                                                        | 3,517      |                                                    | $          | 1,455 |   | $ | 3,517 |   | $ | 1,455 |   |
|                                                                         |       |                                                     |       |                                                    |       |   |   |   |   |
| **Ratios**:                                                                  |       |                                                     |       |                                                    |       |   |   |   |   |
| Net loan charge-offs to average total loans                                  |       | 0.56                                                     | %          | 0.33                                                    | %          | 1.47 | % | 0.80 | % |
| Allowance for loan losses to total loans at end of period                    |       | 4.05                                                     | %          | 2.24                                                    | %          | 4.05 | % | 2.24 | % |
| Net loan charge-offs to allowance for loan losses at  end of period          |       | 13.48                                                    | %          | 14.60                                                   | %          | 35.30 | % | 31.95 | % |
| Net loan charge-offs to provision for losses on loans  and  loan commitments |       | 74.17                                                    | %          | 33.02                                                   | %          | 52.01 | % | 40.67 | % |

 

----

| * |   | Charge-off  amount for the three months ended September 30, 2010 includes net  charge-offs of covered loans amounting to $415,000, which represents gross  covered loan charge-offs of $1.6 million less FDIC receivable portion of $1.2  million. Charge-off amount for the nine months ended September 30, 2010  includes net charge-offs of covered loans amounting to $1.4 million, which  represents gross covered loan charge-offs of $9.3 million less FDIC  receivable portion of $7.9 million |
|---|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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The table below summarizesfor the end of the periods indicated, the balance of our allowance for losseson loans and the percent of such loan balances for each loan type:

 

**Distribution and Percentage Composition of Allowance for Loan Losses**

**(Dollars in Thousands)**

 
| ** **                 | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|----------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                       | ** ** | **Reserve**                      | ** ** | **Gross Loans**            | ** ** | **(%)** | ** ** | **Reserve** | ** ** | **Gross Loans** | ** ** | **(%)** | ** ** |
| Applicable to:        |       |                             |       |                            |       |   |   |   |   |   |   |   |   |
| Construction               |       | $                                | 4,006      |                            | $          | 70,808 |   | 5.66 | % | $ | 411 |   | $ | 48,371 |   | 0.85 | % |
| Real  estate secured       |       | 61,381                           |       | 1,999,216                       |       | 3.07 | % | 34,458 |   | 1,979,704 |   | 1.74 | % |
| Commercial  and industrial |       | 32,151                           |       | 361,890                         |       | 8.88 | % | 27,059 |   | 387,443 |   | 6.98 | % |
| Consumer                   |       | 1,484                            |       | 17,062                          |       | 8.70 | % | 202 |   | 17,234 |   | 1.17 | % |
| Total  allowance           |       | $                                | 99,022     |                            | $          | 2,448,976 |   | 4.04 | % | $ | 62,130 |   | $ | 2,432,752 |   | 2.55 | % |

 

Theallowance for loan losses is comprised of specific loss allowances for impairedloans and general loan loss allowances based on quantitative and qualitativeanalyses.

 

Aloan is impaired when, based on current information and events, it is probablethat the Company will be unable to collect all amounts due according to thecontractual terms of the loan agreement. At September 30, 2010, ourrecorded impaired loans totaled $224.3 million, of which $164.1 million hadspecific reserves of $33.4 million. At December 31, 2009, our recordedimpaired loans totaled $165.2 million, of which $84.2 million had specificreserves of $15.6 million.

 

Ona quarterly basis, we utilize a classification migration model and individualloan impairment as starting points for determining the adequacy of ourallowance for losses on loans. Our loss migration analysis tracks a certainnumber of quarters of loan loss history to determine historical losses byclassification category for each loan type, except for certain loans(automobile, mortgage and credit scored based business loans), which areanalyzed as homogeneous loan pools. These calculated loss factors are thenapplied to outstanding non-impaired loan balances.  Based on a Company defined utilization rateof exposure for unused off-balance sheet loan commitments, such as letters ofcredit, we record a reserve for loancommitments.

 

Duringthe third quarter of 2010, the Company enhanced the overall allowance for loanlosses methodology. The key enhancements to our allowance methodology involvedchanges to our general valuation allowance calculation.  As a result of changes to our loan portfoliosince the initial implementation of our allowance for loan losses methodology,enhancements were made to the migration model and qualitative adjustmentcalculation to better reflect the current environment and risk in the loanportfolio.  The enhancements to ourhistorical loss rate calculation included a change in our analysis period fromfive to three years.  In addition, ourqualitative adjustment matrix was enhanced to include updated risk factors andan enhanced systematic calculation.  As aresult of the enhancements to the allowance methodology, the general valuationallowance component of allowance for loan losses decreased by $804,000 to $64.8million at September 30, 2010 compared to the previous quarter.  The allowance for loan losses methodologyenhancement did not have a significant impact on the ending allowance for loanlosses figures.

 

**Note****7****.****         ****Shareholders’Equity**

 

***Earnings per Share***

 

Basicearnings per share (“EPS”) excludes dilution and is calculated by dividing income available to common shareholders by the weighted-average number ofcommon shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur ifsecurities or other contracts to issue common stock were exercised or convertedinto common stock or resulted in the issuance of common stock that would thenshare in the earnings of the Company.

 

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Thefollowing table provides the basic and diluted EPS computations for the periodsindicated below:

 
| ** **                                                                      | ** ** | **For the Three Months Ended September 30,** | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| **(Dollars in Thousands, Except per Share Data)** | ** ** | **2010**                                                                   | ** ** | **2009**                                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Numerator:                                                                      | ** ** | ** **                                                                 | ** ** | ** **                                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss) available to common shareholders                              |       | $                                                                          | 4,072      |                                                                      | $          | (1,657 | ) | $ | 1,914 |   | $ | 13,330 |   |
| Denominator:                                                                    |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Denominator for basic  earnings per share:                                      |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Weighted-average shares                                                         |       | 29,486,734                                                                 |       | 29,413,757                                                                |       | 29,486,255 |   | 29,413,757 |   |
| Effect of dilutive securities:                                                  |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Stock option dilution                                                           |       | 22,419                                                                     |       | —                                                                    |       | 44,345 |   | 8,771 |   |
| Denominator for diluted earnings per share:                                     |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Adjusted weighted-average shares and assumed  conversions                       |       | 29,509,153                                                                 |       | 29,413,757                                                                |       | 29,530,600 |   | 29,422,528 |   |
| Basic earnings (loss) per share                                                 |       | $                                                                          | 0.14       |                                                                      | $          | (0.06 | ) | $ | 0.06 |   | $ | 0.45 |   |
| Diluted earnings (loss) per share                                               |       | $                                                                          | 0.14       |                                                                      | $          | (0.06 | ) | $ | 0.06 |   | $ | 0.45 |   |

 

**Note****8****.****         ****Business Segment Reporting**

 

Thefollowing disclosure about segments of the Company is made in accordance withthe requirements of ASC 280 (formerly SFAS No. 131, *Disclosures about Segments of an Enterprise andRelated Information)*.  TheCompany segregates its operations into three primary segments:  banking operations, SBA lending services, andtrade finance services (“TFS”).  The Company determines theoperating results of each segment based on an internal management system thatallocates certain expenses to each segment.

 

*Banking Operations (“Operations”)*—**TheCompany raises funds from deposits and borrowings for loans and investments,and provides lending products, including commercial, consumer, and real estateloans to its customers.

 

*Small Business Administration Lending Services*— The SBAdepartment mainly provides customers with access to the U.S. SBA guaranteedlending program.

 

*Trade Finance Services*— Our TFS primarily deals inletters of credit issued to customers whose businesses involve theinternational sale of goods.  A letter ofcredit is an arrangement (usually expressed in letter form) whereby theCompany, at the request of and in accordance with customers instructions,undertakes to reimburse or cause to reimburse a third party,  provided that certain documents are presentedin strict compliance with its terms and conditions.  Simply put, a bank is pledging its credit onbehalf of the customer. The Company’s TFS offers the following types of lettersof credit to customers:

 

·                  Commercial — Anundertaking by the issuing bank to pay for a commercial transaction.

 

·                  Standby — Anundertaking by the issuing bank to pay for the non-performance of applicant.

 

·                  DocumentaryCollections — A means of channeling payment for goods through a bank in orderto facilitate passing of funds. The bank (banks) involved acts as a conduitthrough which the funds and documents are transferred between the buyer andseller of goods.

 

Our TFS services include the issuance and negotiation ofletters of credit, as well as the handling of documentary collections. On theexport side, we provide advising and negotiation of commercial letters ofcredit, and we transfer and issue back-to-back letters of credit. We alsoprovide importers with trade finance lines of credit, which allow for issuanceof commercial letters of credit and financing of documents received under suchletters of credit, as well as documents received under documentary collections.Exporters are assisted through export lines of credit as well as throughimmediate financing of clean documents presented under export letters ofcredit.

 

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Thefollowing are the results of operations of the Company’s segments for the threemonths ended September 30, 2010 and 2009 indicated below:

 
| **(Dollars in Thousands)** | ** ** | **Three Months Ended September 30, 2010** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Business Segments**           | ** ** | **Operations**                                                     | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Company** | ** ** |
| Net interest income                  |       | $                                                                  | 26,349     |   | $ | 790 |   | $ | 2,513 |   | $ | 29,652 |   |
| Less provision for loan losses       |       | 16,402                                                             |       | 1,598 |   | — |   | 18,000 |   |
| Non-interest income                  |       | 6,439                                                              |       | 281 |   | 3,326 |   | 10,046 |   |
| Non-interest expense                 |       | 13,454                                                             |       | 341 |   | 978 |   | 14,773 |   |
| (Loss) income before income taxes    |       | $                                                                  | 2,932      |   | $ | (868 | ) | $ | 4,861 |   | $ | 6,925 |   |
| Total assets                         |       | $                                                                  | 2,994,297  |   | $ | 51,606 |   | $ | 186,782 |   | $ | 3,232,685 |   |

 
| **(Dollars in Thousands)** | ** ** | **Three Months Ended September 30, 2009** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------|------------|
| **Business Segments**           | ** ** | **Operations**                                                     | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Company** | ** ** |
| Net interest income                  |       | $                                                                  | 25,904     |   | $ | 467 |   | $ | 3,042 |   | $ | 29,413 |   |
| Less provision for loan losses       |       | 18,021                                                             |       | 3,999 |   | 2,180 |   | 24,200 |   |
| Non-interest income                  |       | 5,158                                                              |       | (86 | ) | 2,328 |   | 7,400 |   |
| Non-interest expense                 |       | 14,128                                                             |       | 118 |   | 575 |   | 14,821 |   |
| Income (loss) before income taxes    |       | $                                                                  | (1,087     | ) | $ | (3,736 | ) | $ | 2,615 |   | $ | (2,208 | ) |
| Total assets                         |       | $                                                                  | 3,136,284  |   | $ | 51,205 |   | $ | 190,074 |   | $ | 3,377,563 |   |

 

Thefollowing are the results of operations of the Company’s segments for the ninemonths ended September 30, 2010 and 2009 indicated below:

** **
| **(Dollars in Thousands)** | ** ** | **Nine Months Ended September 30, 2010** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------|------------|
| **Business Segments**           | ** ** | **Operations**                                                    | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Company** | ** ** |
| Net interest income                  |       | $                                                                 | 77,801     |   | $ | 2,024 |   | $ | 7,624 |   | $ | 87,449 |   |
| Less provision for loan losses       |       | 60,573                                                            |       | 1,067 |   | 5,560 |   | 67,200 |   |
| Non-interest income                  |       | 20,982                                                            |       | 789 |   | 5,939 |   | 27,710 |   |
| Non-interest expense                 |       | 41,693                                                            |       | 1,247 |   | 2,656 |   | 45,596 |   |
| (Loss) income before income taxes    |       | $                                                                 | (3,483     | ) | $ | 499 |   | $ | 5,347 |   | $ | 2,363 |   |
| Total assets                         |       | $                                                                 | 2,994,297  |   | $ | 51,606 |   | $ | 186,782 |   | $ | 3,232,685 |   |

 
| **(Dollars in Thousands)** | ** ** | **Nine Months Ended September 30, 2009** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------|------------|
| **Business Segments**           | ** ** | **Operations**                                                    | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Company** | ** ** |
| Net interest income                  |       | $                                                                 | 61,172     |   | $ | 1,327 |   | $ | 7,559 |   | $ | 70,058 |   |
| Less provision for loan losses       |       | 31,074                                                            |       | 6,761 |   | 5,165 |   | 43,000 |   |
| Non-interest income                  |       | 35,024                                                            |       | 841 |   | 3,862 |   | 39,727 |   |
| Non-interest expense                 |       | 38,247                                                            |       | 1,064 |   | 1,573 |   | 40,884 |   |
| Income (loss) before income taxes    |       | $                                                                 | 26,875     |   | $ | (5,657 | ) | $ | 4,683 |   | $ | 25,901 |   |
| Total assets                         |       | $                                                                 | 3,136,284  |   | $ | 51,205 |   | $ | 190,074 |   | $ | 3,377,563 |   |

 

**Note****9****.****         ****Commitmentsand Contingencies**

 

Weare a party to financial instruments with off-balance sheet risk in the normalcourse of business to meet the financing needs of our customers.  These financial instruments includecommitments to extend credit, standby letters of credit, and commercial lettersof credit.  These instruments involve, tovarying degrees, elements of credit and interest rate risk in excess of theamount recognized in the consolidated statements offinancial condition.  Our exposure tocredit loss in the event of nonperformance on commitments to extend credit andstandby letters of credit is represented by the contractual notional amount ofthose instruments.  We use the samecredit policies in making commitments and conditional obligations as we do forextending loan facilities to customers. We evaluate each customer’s creditworthiness on a case-by-casebasis.  The amount of collateralobtained, if deemed necessary upon extension of credit, is based on our creditevaluation of the counterparty.  Thetypes of collateral that we hold varies, but may include accounts receivable, inventory, property, plant, andequipment and income-producing properties.

 

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Commitmentsat September 30, 2010 and December 31,2009 are summarized as follows:

 
| **(Dollars in Thousands)**                                    | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
|                                                                    |       |                             |       |                            |       |
| Commitments to extend credit                                            |       | $                                | 279,897    |                            | $          | 238,238 |   |
| Standby letters of credit                                               |       | 10,480                           |       | 13,044                          |       |
| Commercial letters of credit                                            |       | 11,132                           |       | 10,236                          |       |
| Commitments to fund Low  Income Housing Tax Credits (“LIHTC”) |       | 12,866                           |       | 11,492                          |       |
|                                                                         |            |                                  |            |                                 |            |  |  |

 

Inthe normal course of business, we are involved in various legal claims.  We have reviewed all legal claims against uswith counsel and have taken into consideration the views of such counsel as tothe outcome of the claims.  We do notbelieve the final disposition of all such claims will have a material adverseeffect on our financial position or results of operations.

 

**Note****10****.****  ****RecentAccounting Pronouncements**

 

In December 2009, FASB issued ASU 2009-16, “Transfersand Servicing (Topic 860): Accounting for Transfers of Financial Assets.”Update 2009-16 will require more information regarding transferred financialassets, including securitization transactions, and where entities havecontinuing exposure to risks related to transferred financial assets.  The Company adopted this standard as of January 1,2010.  As a result of certain recourseprovisions that are included in the sale of SBA guaranteed loans, of theclassification of sold SBA guarantee portions are recorded as securedborrowings and the gain from the sale of such loans are deferred until suchrecourse provisions are reassessed.

 

In January 2010, FASB issued Accounting StandardsUpdate 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU2010-06 will require reporting entities to make new disclosures about (a) amountsand reasons for significant transfers in and out of Level 1 and Level 2 fairvalue measurements, (b) Input and valuation techniques used to measurefair value for both recurring and nonrecurring fair value measurements thatfall in either Level 2 or Level 3 and (c) information on purchases, sales,issuances and settlements in the roll forward of activity in Level 3 fair valuemeasures. The new and revised disclosures are effective for interim and annualreporting periods beginning after December 15, 2009 except for disclosuresabout purchases, sales, issuances and settlements in the roll forward ofactivity in Level 3 fair value measures, which are effective for fiscal yearsbeginning after December 15, 2010. The adoption of ASU 2010-06 effectivefor reporting periods after December 15, 2009 did not have a materialimpact on the consolidated financial statements. The Company is stillevaluating the impact of the remainder of ASU 2010-06 effective for fiscalyears beginning after December 15, 2010.

 

In February 2010, FASB issued ASU 2010-09, andamendment of ASC 855 (formerly Statement No. 165, Subsequent Events).  ASC 855 was issued to establish generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before the financial statements are issued or areavailable to be issued. ASC Topic 2010-09 amends ASC 855 by adding the “SECfile,” and “revised financial statements” to the ASC Master Glossary whileremoving the definition of “public entity” from the glossary. The amendmentalso exempts SEC filers from disclosing the date through which subsequentevents have been evaluated and require SEC files and conduit debt obligors toevaluate subsequent events through the date the financial statements areissued.  ASU 2010-09 is effective as ofthe issue date for financial statements that are issued, available to beissued, or revised. The adoption of ASU 2010-09 did not have a material impacton the consolidated financial statements.

 

In April 2010, FASB issued ASU 2010-18 “Effect of a Loan Modification When the Loanis Part of a Pool that is Accounted for as a Single Asset,” whichis effective for modifications of loans accounted for within pools underSubtopic 310-30 occurring in the first interim or annual period ending afterJuly 15, 2010. Under the amendments, modifications of loans that areaccounted for within a pool do not result in the removal of those loans from thepool even if the modification of those loans would otherwise be considered atroubled debt restructuring. An entity will continue to be required to considerwhether the pool of assets in which the loan is included is impaired ifexpected cash flows for the pool change. The Company does not expect ASU2010-18 to have a material impact on its consolidated financial statement.

 

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In July 2010, FASB issued ASU 2010-20 “Disclosures about the Credit Quality ofFinancing Receivables and the Allowance for Credit Losses” to improvedisclosures about the credit quality of financing receivables and the allowancefor credit losses.  Companies will berequired to provide more information about the credit quality of theirfinancing receivables in the disclosures to financial statements, such as aginginformation and credit quality indicators. Both new and existing disclosuresmust be disaggregated by portfolio segment or class.  The disaggregation of information is based onhow a company develops its allowance for credit losses and how it manages itscredit exposure.  Required disclosures asof the end of a reporting period are effective for periods ending on or after December 15,2010, while required disclosures about activity that occurs during a reportingperiod are effective for periods beginning on or after December 15, 2010.The Company does not expect ASU 2010-20 to have a material impact on itsconsolidated financial statement.

 

**Note****11****.****  ****Subsequent Events**

 

TheCompany evaluated subsequent events through the date the financial statementswere issued. As of the issue date of this report, the Company did not haveany subsequent events to report.

 

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**Item2.****                                                          ****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

Thisdiscussion presents management’s analysis of our results of operations for thethree and nine months ended September 30, 2010 and September 30,2009, financial condition as of September 30, 2010 and December 31,2009, and includes thestatistical disclosures required by the Securities and Exchange CommissionGuide 3 (“Statistical Disclosure by Bank Holding Companies”).  The discussion should be read in conjunctionwith our financial statements and the notes related thereto which appearelsewhere in this Quarterly Report on Form 10-Q.

 

Statementscontained in this report that are not purely historical are forward-lookingstatements within the meaning of Section 21E of the Securities ExchangeAct of 1934, as amended, including our expectations, intentions, beliefs, orstrategies regarding the future.  Anystatements in this document about expectations, beliefs, plans, objectives,assumptions or future events or performance are not historical facts and areforward-looking statements. These statements are often, but not always, madethrough the use of words or phrases such as “may,” “should,” “could,” “predict,”“potential,” “believe,” “expect,” “anticipate,” “seek,” “estimate,” “intend,” “plan,”“projection,” and “outlook,” and similar expressions.  Accordingly, these statements involveestimates, assumptions and uncertainties, which could cause actual results todiffer materially from those expressed in them. Any forward-looking statements are qualified in their entirety byreference to the factors discussed throughout this document.  All forward-looking statements concerningeconomic conditions, rates of growth, rates of income or values as may beincluded in this document are based on information available to us on the datesnoted, and we assume no obligation to update any such forward-lookingstatements.  It is important to note thatour actual results may differ materially from those in such forward-lookingstatements due to fluctuations in interest rates, inflation, governmentregulations, economic conditions, customer disintermediation, and competitiveproduct and pricing pressures in the geographic and business areas in which weconduct operations, including our plans, objectives, expectations andintentions and other factors discussed under the section entitled “RiskFactors,” in our Annual Report on Form 10-K for the year ended December 31,2009, including the following:

 

·                  If a significant number of clients fail toperform under their loans, our business, profitability, and financial conditionwould be adversely affected.

 

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

 

·                  Banking organizations are subject to interestrate risk and variations in interest rates may negatively affect our financialperformance.

 

·                  Liquidity risk could impair our ability tofund operations, meet our obligations as they become due and jeopardize our financialcondition.

 

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

 

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

 

·                  The holders of debentures and Series APreferred Stock have rights that are senior to those of our commonshareholders.

 

·                  Adverse changes in domestic or globaleconomic conditions, especially in California, could have a material adverseeffect on our business, growth, and profitability.

 

·                  Recent negative developments in the financialindustry and U.S. and global credit markets may affect our operations andresults.

 

·                  Governmental responses to recent marketdisruptions may be inadequate and may have unintended consequences.

 

·                  Our operations may require us to raise additionalcapital in the future, but that capital may not be available or may not be onterms acceptable to us when it is needed.

 

·                  Maintaining or increasing our market sharedepends on market acceptance and regulatory approval of new products and services.

 

·                  Significant reliance on loans secured by realestate may increase our vulnerability to downturns in the California realestate market and other variables impacting the value of real estate.

 

·                  If we fail to retain our key employees, ourgrowth and profitability could be adversely affected.

 

·                  We may be unable to manage future growth.

 

·                  Our expenses will increase as a result ofincreases in FDIC insurance premiums.

 

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·                  We could be liable for breaches of securityin our online banking services.  Fear ofsecurity breaches could limit the growth of our online services.

 

·                  Our directors and executive officers beneficiallyown a significant portion of our outstanding common stock.

 

·                  The market for our common stock is limited,and potentially subject to volatile changes in price.

 

·                  We may experience goodwill impairment.

 

·                  We face substantial competition in our primarymarket area.

 

·                  Anti-takeover provisions of our charterdocuments may have the effect of delaying or preventing changes in control ormanagement.

 

·                  We are subjectto significant government regulation and legislation that may increase the costof doing business and inhibit our ability to compete, including the unexpectedimpact of the Dodd-Frank Wall Street Reform and Consumer Protection Act andBasel III.

 

·                  As participantsin the United States Department of the Treasury’s Capital Purchase Program, weare subject to additional regulations and legislation that may not beapplicable to other financial institution competitors.

 

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

 

·                  Additional shares of our common stock issuedin the future could have a dilutive effect.

 

·                  Shares of our preferredstock previously issued and preferred stock issued in the future could havedilutive and other effects.

 

Thesefactors and the risk factors referred to in our Annual Report on Form 10-Kfor the year ended December 31, 2009 could cause actual results oroutcomes to differ materially from those expressed in any forward-lookingstatements made by us, and you should not place undue reliance on any suchforward-looking statements.  Anyforward-looking statement speaks only as of the date on which it is made and wedo not undertake any obligation to update any forward-looking statement orstatements to reflect events or circumstances after the date on which suchstatement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and itis not possible for us to predict which will arise.  In addition, we cannot assess the impact of eachfactor on our business or the extent to which any factor, or combination offactors, may cause actual results to differ materially from those contained inany forward-looking statements.

 

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**Selected Financial Data**

 

The following table presents selected historicalfinancial information for the three months ended September 30, 2010 and September 30,2009 and the year to date balance ended September 30, 2010, December 31,2009, and September 30, 2009. In the opinion of management, theinformation presented reflects all adjustments considered necessary for a fairpresentation of the results of such periods. The operating results for the interim periods are not necessarilyindicative of our future operating results.

 
| ** **                                                                                       | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **(Dollars in thousands, except per share data) (unaudited)** | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net  (loss) income available to common shareholders                                              |       | $                                                        | 4,072      |                                                    | $          | (1,657 | ) | $ | 1,914 |   | $ | 13,330 |   |
| Net  (loss) income per common share, basic                                                       |       | 0.14                                                     |       | (0.06                                                   | )          | 0.06 |   | 0.45 |   |
| Net  (loss) income per common share, diluted                                                     |       | 0.14                                                     |       | (0.06                                                   | )          | 0.06 |   | 0.45 |   |
| Net  interest income before provision for loan losses and loan commitments                       |       | 29,652                                                   |       | 29,413                                                  |       | 87,449 |   | 70,058 |   |
| ** **                                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| **Average balances:**                                                                            |       |                                                     |       |                                                    |       |   |   |   |   |
| Assets                                                                                           |       | 3,348,434                                                |       | 3,298,328                                               |       | 3,413,486 |   | 2,840,993 |   |
| Cash and  cash equivalents                                                                       |       | 325,851                                                  |       | 262,321                                                 |       | 270,445 |   | 189,314 |   |
| Investment  securities                                                                           |       | 449,154                                                  |       | 488,704                                                 |       | 586,641 |   | 367,260 |   |
| Net  loans                                                                                       |       | 2,372,428                                                |       | 2,393,513                                               |       | 2,366,651 |   | 2,162,801 |   |
| Total  deposits                                                                                  |       | 2,810,176                                                |       | 2,547,303                                               |       | 2,878,455 |   | 2,129,473 |   |
| Shareholders’  equity                                                                       |       | 274,845                                                  |       | 276,770                                                 |       | 274,536 |   | 266,157 |   |
| **Performance Ratios:**                                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Annualized  return on average assets                                                             |       | 0.59                                                     | %          | (0.09                                                   | )%         | 0.18 | % | 0.75 | % |
| Annualized  return on average equity                                                             |       | 7.25                                                     | %          | (1.09                                                   | )%         | 2.25 | % | 8.04 | % |
| Net  interest margin                                                                             |       | 3.93                                                     | %          | 3.87                                                    | %          | 3.77 | % | 3.55 | % |
| Efficiency  ratio                                                                                |       | 37.21                                                    | %          | 40.26                                                   | %          | 39.59 | % | 37.24 | % |
| **Capital Ratios:**                                                                              |       |                                                     |       |                                                    |       |   |   |   |   |
| Tier 1  capital to adjusted total assets                                                         |       | 10.01                                                    | %          | 10.03                                                   | %          |   |   |   |   |
| Tier 1  capital to risk-weighted assets                                                          |       | 14.10                                                    | %          | 14.29                                                   | %          |   |   |   |   |
| Total  capital to risk-weighted assets                                                           |       | 15.56                                                    | %          | 15.82                                                   | %          |   |   |   |   |
|                                                                                                  |            |                                                          |            |                                                         |            |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| **Year to date balances as of:**          |       |                             |       |                            |       |                             |       |
| Total  assets                                                      |       | $                                | 3,232,685  |                            | $          | 3,435,997                        |       | $ | 3,377,563 |   |
| Investment  securities                                             |       | 367,524                          |       | 651,427                         |       | 559,718                          |       |
| Total  loans, net of unearned income and allowance for loan losses |       | 2,345,022                        |       | 2,427,441                       |       | 2,445,352                        |       |
| Total  deposits                                                    |       | 2,706,748                        |       | 2,828,215                       |       | 2,672,102                        |       |
| Junior  subordinated debentures                                    |       | 87,321                           |       | 87,321                          |       | 87,321                           |       |
| FHLB  advances                                                     |       | 110,000                          |       | 232,000                         |       | 322,000                          |       |
| Total  common equity                                               |       | 211,011                          |       | 206,205                         |       | 272,487                          |       |
|                                                               |       |                             |       |                            |       |                             |       |
| **Asset Quality Ratios:**                                          |       |                             |       |                            |       |                             |       |
| *(net of SBA guaranteed portion)*                                  |       |                             |       |                            |       |                             |       |
| Net  charge-off to average total loans for the quarter             |       | 0.56                             | %          | 0.74                            | %          | 0.33                             | %          |
| Non-performing  loans to gross loans                               |       | 3.13                             | %          | 2.92                            | %          | 3.20                             | %          |
| Non-performing  assets to total loans and other real estate owned  |       | 3.77                             | %          | 3.07                            | %          | 6.15                             | %          |
| Allowance  for loan losses to total loans                          |       | 4.05                             | %          | 2.56                            | %          | 2.24                             | %          |
| Allowance  for loan losses to non-performing loans                 |       | 129.18                           | %          | 87.78                           | %          | 70.02                            | %          |
|                                                                    |            |                                  |            |                                 |            |                                  |            |  |  |  |

 

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**Executive Overview**

 

Weoperate within the commercial banking business, with our primary marketencompassing the multi-ethnic population of the Los Angeles metropolitanarea.  Our full-service offices arelocated primarily in areas where a majority of the businesses are owned bydiversified ethnic groups.

 

Wehave also expanded our business with the focus on our commercial and consumerlending divisions. Over the past several years, our network of branches andloan production offices expanded geographically. Pursuantto the acquisition of Mirae Bank on June 26, 2009, five commercial bankingbranches located within southern California were integrated into our branch network,although four of the branches were eventually closed due to their proximity toour existing branches. In the first quarter of 2010, an additional branch inVan Nuys, California was opened.  We also have six loan production offices in Aurora, Colorado; Atlanta, Georgia; Dallas,Texas; Houston, Texas; Annandale, Virginia and Fort Lee, New Jersey.

 

**Critical Accounting Policies**

 

Thediscussion and analysis of our financial condition and results of operations isbased upon our financial statements, which have been prepared in accordancewith GAAP.  The preparation of thesefinancial statements requires management to make estimates and judgments thataffect the reported amounts of assets and liabilities, revenues and expenses,and related disclosures of contingent assets and liabilities at the date of ourfinancial statements.  Actual results maydiffer from these estimates under different assumptions or conditions.

 

Variouselements of our accounting policies, by their nature, are inherently subject toestimation techniques, valuation assumptions, and other subjective assessments.We have identified several accounting policies that, due to judgments,estimates, and assumptions inherent in those policies are critical to anunderstanding of our consolidated financial statements. These policies relateto the classification and valuation of investment securities, the methodologiesthat determine our allowance for losses on loans, the treatment of non-accrualloans, the valuation of retained interests and servicing assets related to thesales of SBA loans, and the accountingfor income tax provisions and the uncertainty in income taxes. In each area, wehave identified the variables most important in the estimation process. Webelieve that we have used the best information available to make the estimates necessary to value the related assets and liabilities. Actualperformance that differs from our estimates and future changes in the keyvariables could change future valuation and could have an impact on our net income.

 

Oursignificant accounting policies are described in greater detail in our 2009 Annual Report on Form 10-K in the “Critical Accounting Policies”section of “Management’s Discussion andAnalysis of Financial Condition and Results of Operations”, which areessential to understanding Management’s Discussion and Analysis of FinancialCondition and Results of Operations. There has been no material modification tothese policies during the quarter ended September 30, 2010.

 

**Results of Operations**

 

**NetInterest Income and Net Interest Margin**

 

Ourprimary source of revenue is net interest income, which is the differencebetween interest and fees derived from earning assets and interest paid onliabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix ofinterest-earning assets and interest-bearing liabilities, referred to as volumechanges.  Our net interest income is alsoaffected by changes in the yields earned on assets and rates paid onliabilities, referred to as rate changes. Interest rates charged on our loans are affected principally by thedemand for such loans, the supply of money available for lending purposes, andother competitive factors.  Those factorsare, in turn, affected by general economic conditions and other factors beyondour control, such as federal economic policies, the general supply of money inthe economy, legislative tax policies, governmental budgetary matters, and theactions of the Federal Reserve Board (“FRB”).

 

Netinterest income before provision for losses on loans and loan commitmentsincreased $239,000 or 0.8%, to $29.7 million in the third quarter of 2010,compared to $29.4 million in the third quarter of 2009.  Net interest margin of 3.93% in the thirdquarter of 2010 was increased by 6 basis points from net interest margin of3.87% in the previous year due to a decrease of 0.67% in total cost of interestbearing deposits during the same period. The slight increase in net interestincome was a result of interest expenses decreasing slightly more than totalinterest income.  On an year to datebasis, net interest income before provision for losses on loans and loancommitments increased $17.4 million to $87.4 million for the first nine monthof 2010 compared to $70.1 million for the first nine months of 2009. Netinterest margin was increased to 3.77% for year to date September 30, 2010from 3.55% for the same period the prior year.

 

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Interestincome decreased by $5.3 million, or 11.8%, to $39.8 million in third quarterof 2010 compared to $45.1 million in the third quarter of 2009.  The decrease in interest income was primarilydue to a decrease in average balances in our loan portfolio and in our U.S.government agency securities portfolio in addition to a decrease in overallloan and investment yields.  Average loanbalances decreased by $21.1 million to $2.37 billion in the third quarter of2010, compared to $2.39 billion in the third quarter of 2009.  This decrease was primarily due to loan salesand a decrease in loan demand throughout 2010 which reduced originations.  The average balances of government sponsoredsecurities decreased from $450.1 million to $404.0 million from the thirdquarter of 2009 to 2010.  Due to thelower rate environment coupled with a decrease in investment spreads totreasuries bonds, the overall tax equivalent yield on investments decreasedfrom 4.16% at the quarter ending September 30, 2009 to 2.76% at September 30,2010.

 

Interestincome for the first nine months of 2010 increased 7.4% or by $8.5 million to$122.2 million at September 30, 2010 compared to $113.7 million for thesame period last year.  The resulted asaverage loan and securities of government sponsored enterprises wasincreased.  Average net loan balanceincreased from $2.2 billion for the nine months ended September 30, 2009to $2.4 billion for the nine months ended September 30, 2010 and averagesbalance for securities of government sponsored enterprises increased from$334.5 million to $541.8 million during the same period.  Although year to date yields for loans andsecurities of government sponsored enterprises decreased from September 30,2009 to September 30, 2010, the increase in average balances resulted inan increase in interest income compared to the previous year.

 

Interestexpense decreased by $5.6 million, or 35.5%, to $10.1 million in the thirdquarter of 2010 compared to $15.7 million in the third quarter of 2009, andaverage balances of our interest bearing liabilities decreased by $22.8 millionto $2.60 billion in the third quarter of 2010 from $2.62 billion at the thirdquarter of 2009.  The decrease ininterest bearing liabilities is attributable to a decrease in FHLB advances andother borrowings, which decreased $222.1 million to $140.2 million at September 30,2010 from $362.2 million at September 30 2009.  Total cost of interest bearing liabilitiesdecreased from 2.40% at the end of the third quarter 2009 to 1.56% at the endof the third quarter of 2010, a decrease of 84 basis points.  The decrease resulted from an improveddeposits mix and interest rate reductions on money market and time deposits.

 

Interestexpense for the first nine months was also decreased to $37.8 million at September 30,2010, a decrease of $8.9 million or 20.4% compared to the first nine months of2009.  Average balances for totalinterest bearing liabilities increased to $2.7 billion for the nine monthsended September 30, 2010 from $2.2 billion for the nine months ended September 30,2009.  Cost of liabilities decreased to1.72% for the first nine months of 2010 compared to 2.60% for the first ninemonths of 2009, a decrease of 88 basis points. This decrease is also attributable to improved deposits mix and interestrate reductions on money market and time deposits.

 

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The following table sets forth, for the periodsindicated, our average balances of assets, liabilities and shareholders’equity, in addition to the major components of net interest income and netinterest margin for the quarter ended September 30, 2010:

 

**Distribution, Yield and RateAnalysis of Net Interest Income**

**(Dollars in Thousands)**

 
| ** **                                       | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                       | ** ** | **2010**                                                 | ** ** | **200****9** | ** ** |
| ** **                                       | ** ** | **Average  Balance**                                     | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Rate/Yield** | ** ** | **Average  Balance** | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Rate/Yield** | ** ** |
| **Assets:**                                      | ** ** | ** **                                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Earning assets:                                  |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Net loans (1)                                    |       | $                                                        | 2,372,428  |   | $ | 36,452 |   | 6.15 | % | $ | 2,393,513 |   | $ | 39,388 |   | 6.58 | % |
| Securities of government sponsored enterprises   |       | 403,962                                                  |       | 2,337 |   | 2.31 | % | 450,116 |   | 4,460 |   | 3.96 | % |
| Other investment securities (2)                  |       | 45,192                                                   |       | 468 |   | 6.73 | % | 38,588 |   | 416 |   | 6.47 | % |
| Federal funds sold                               |       | 227,706                                                  |       | 514 |   | 0.90 | % | 180,490 |   | 844 |   | 1.87 | % |
| Total interest-earning assets                    |       | 3,049,288                                                |       | 39,771 |   | 5.26 | % | 3,062,707 |   | 45,108 |   | 5.92 | % |
| Total non-interest-earning  assets               |       | 299,146                                                  |       |   |   |   |   | 235,531 |   |   |   |   |   |
| Total assets                                     |       | $                                                        | 3,348,434  |   |   |   |   |   | $ | 3,298,238 |   |   |   |   |   |
|                                             |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**  |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                   |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Money market deposits                            |       | $                                                        | 858,437    |   | 2,506 |   | 1.17 | % | $ | 677,234 |   | 4,075 |   | 2.41 | % |
| Super NOW deposits                               |       | 21,706                                                   |       | 23 |   | 0.42 | % | 21,481 |   | 50 |   | 0.93 | % |
| Savings deposits                                 |       | 78,848                                                   |       | 590 |   | 2.99 | % | 62,090 |   | 527 |   | 3.39 | % |
| Time deposits of $100,000 or more                |       | 743,966                                                  |       | 2,455 |   | 1.32 | % | 984,521 |   | 5,611 |   | 2.28 | % |
| Other time deposits                              |       | 668,873                                                  |       | 3,114 |   | 1.86 | % | 427,234 |   | 2,731 |   | 2.56 | % |
| FHLB advances and other  borrowings              |       | 140,156                                                  |       | 758 |   | 2.16 | % | 362,208 |   | 1,982 |   | 2.19 | % |
| Junior  subordinated debenture                   |       | 87,321                                                   |       | 673 |   | 3.08 | % | 87,321 |   | 719 |   | 3.30 | % |
| Total interest-bearing  liabilities              |       | 2,599,307                                                |       | 10,119 |   | 1.56 | % | 2,622,089 |   | 15,695 |   | 2.40 | % |
| Non-interest-bearing  liabilities:               |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing  deposits                   |       | 438,346                                                  |       |   |   |   |   | 374,743 |   |   |   |   |   |
| Other liabilities                                |       | 35,936                                                   |       |   |   |   |   | 24,636 |   |   |   |   |   |
| Total non-interest-bearing liabilities           |       | 474,282                                                  |       |   |   |   |   | 399,379 |   |   |   |   |   |
| Shareholders’ equity                        |       | 274,845                                                  |       |   |   |   |   | 276,770 |   |   |   |   |   |
| Total liabilities and  shareholders’ equity |       | $                                                        | 3,348,434  |   |   |   |   |   | $ | 3,298,238 |   |   |   |   |   |
| Net interest income                              |       |                                                     |       | $ | 29,652 |   |   |   |   |   | $ | 29,413 |   |   |   |
| Net interest spread (3)                          |       |                                                     |       |   |   | 3.70 | % |   |   |   |   | 3.52 | % |
| Net interest margin (4)                          |       |                                                     |       |   |   | 3.93 | % |   |   |   |   | 3.87 | % |

 

----

(1)         Net loan fees are includedin the calculation of interest income. Net loan fees wereapproximately $679,000 and $918,000 for the quarters ended September 30, 2010 and 2009,respectively.  Loans are net of theallowance for loan losses, deferred fees, unearned income, and related directcosts, but include loans placed on non-accrual status.

(2)         Representstax equivalent yields, non-tax equivalent yields for 2010 and 2009 were 4.14%and 4.31%, respectively.

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

(4)         Representsnet interest income as a percentage of average interest-earning assets.

 

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The following table sets forth, for the periodsindicated, our average balances of assets, liabilities and shareholders’equity, in addition to the major components of net interest income and netinterest margin for the nine months ended September 30, 2010:

 

**Distribution, Yield and RateAnalysis of Net Interest Income**

**(Dollars in Thousands)**

** **
| ** **                                       | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                       | ** ** | **2010**                                                | ** ** | **200****9** | ** ** |
| ** **                                       | ** ** | **Average  Balance**                                    | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Rate/Yield** | ** ** | **Average  Balance** | ** ** | **Interest  Income/  Expense** | ** ** | **Average  Rate/Yield** | ** ** |
| **Assets:**                                      |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Earning assets:                                  |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Net loans (1)                                    |       | $                                                       | 2,366,651  |   | $ | 107,835 |   | 6.08 | % | $ | 2,162,801 |   | $ | 100,818 |   | 6.22 | % |
| Securities of government sponsored enterprises   |       | 541,838                                                 |       | 11,766 |   | 2.90 | % | 334,474 |   | 9,938 |   | 3.96 | % |
| Other investment securities (2)                  |       | 44,803                                                  |       | 1,409 |   | 6.82 | % | 32,786 |   | 1,073 |   | 6.27 | % |
| Federal funds sold                               |       | 172,773                                                 |       | 1,191 |   | 0.92 | % | 120,249 |   | 1,910 |   | 2.12 | % |
| Total interest-earning assets                    |       | 3,126,065                                               |       | 122,201 |   | 5.25 | % | 2,650,310 |   | 113,739 |   | 5.75 | % |
| Total non-interest-earning  assets               |       | 287,421                                                 |       |   |   |   |   | 190,683 |   |   |   |   |   |
| Total assets                                     |       | $                                                       | 3,413,486  |   |   |   |   |   | $ | 2,840,993 |   |   |   |   |   |
|                                             |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**  |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                   |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money market deposits                            |       | $                                                       | 928,498    |   | 10,071 |   | 1.45 | % | $ | 493,160 |   | 9,181 |   | 2.48 | % |
| Super NOW deposits                               |       | 22,066                                                  |       | 78 |   | 0.47 | % | 20,066 |   | 141 |   | 0.94 | % |
| Savings deposits                                 |       | 76,210                                                  |       | 1,793 |   | 3.14 | % | 51,347 |   | 1,364 |   | 3.54 | % |
| Time deposits of $100,000 or more                |       | 754,610                                                 |       | 8,264 |   | 1.46 | % | 972,176 |   | 19,031 |   | 2.61 | % |
| Other time deposits                              |       | 682,422                                                 |       | 10,132 |   | 1.98 | % | 277,684 |   | 6,235 |   | 2.99 | % |
| FHLB advances and other  borrowings              |       | 142,292                                                 |       | 2,428 |   | 2.28 | % | 336,944 |   | 5,262 |   | 2.08 | % |
| Junior  subordinated debenture                   |       | 87,321                                                  |       | 1,986 |   | 3.03 | % | 87,321 |   | 2,467 |   | 3.77 | % |
| Total interest-bearing  liabilities              |       | 2,693,419                                               |       | 34,752 |   | 1.72 | % | 2,238,698 |   | 43,681 |   | 2.60 | % |
| Non-interest-bearing  liabilities:               |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |
| Non-interest-bearing  deposits                   |       | 414,649                                                 |       |   |   |   |   | 315,040 |   |   |   |   |   |
| Other liabilities                                |       | 30,882                                                  |       |   |   |   |   | 21,098 |   |   |   |   |   |
| Total non-interest-bearing liabilities           |       | 445,531                                                 |       |   |   |   |   | 336,138 |   |   |   |   |   |
| Shareholders’ equity                        |       | 274,536                                                 |       |   |   |   |   | 266,157 |   |   |   |   |   |
| Total liabilities and  shareholders’ equity |       | $                                                       | 3,413,486  |   |   |   |   |   | $ | 2,840,993 |   |   |   |   |   |
| Net interest income                              |       |                                                    |       | $ | 87,449 |   |   |   |   |   | $ | 70,058 |   |   |   |
| Net interest spread (3)                          |       |                                                    |       |   |   | 3.53 | % |   |   |   |   | 3.15 | % |
| Net interest margin (4)                          |       |                                                    |       |   |   | 3.77 | % |   |   |   |   | 3.55 | % |

 

----

(1)         Net loan fees are includedin the calculation of interest income. Net loan fees wereapproximately $2.1 million and $2.0 million forthe nine months ended September 30, 2010 and 2009, respectively.  Loans are net of the allowance for loanlosses, deferred fees, unearned income, and related direct costs, but includeloans placed on non-accrual status.

(2)         Representstax equivalent yields, non-tax equivalent yields for 2010 and 2009 were 4.19%and 4.36%, respectively.

(3)         Representsthe average rate earned on interest-earning assets less the average rate paidon interest-bearing liabilities.

(4)         Representsnet interest income as a percentage of average interest-earning assets.

 

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The following table sets forth, for the periodsindicated, the dollar amount of changes in interest earned and paid forinterest-earning assets and interest-bearing liabilities, respectively, andthe amount of change attributable to changes in average daily balances (volume)or changes in average daily interest rates (rate). All yields were calculatedwithout the consideration of tax effects, if any, and the variancesattributable to both the volume and rate changes have been allocated to volumeand rate changes in proportion to the relationship of the absolute dollaramount of the changes in each:

 

**Rate/Volume Analysis of NetInterest Income********(Dollars in Thousands)**

 
| ** **                                      | ** ** | **Three Months Ended September 30,  2010 vs. 200****9****Increases (Decreases) Due to Change In** | ** ** | **Nine Months Ended September 30,  2010 vs. 200****9****Increases (Decreases) Due to Change In** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **Volume**                                                                                                                                               | ** ** | **Rate**                                                                                                                                                | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| **Interest  income:**                           |       |                                                                                                                                                     |       |                                                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Net loans(1)                                    |       | $                                                                                                                                                        | (344       | )                                                                                                                                                       | $          | (2,592 | ) | $ | (2,936 | ) | $ | 9,329 |   | $ | (2,312 | ) | $ | 7,017 |   |
| Securities of government  sponsored enterprises |       | (420                                                                                                                                                     | )          | (1,703                                                                                                                                                  | )          | (2,123 | ) | 5,005 |   | (3,177 | ) | 1,828 |   |
| Other Investment securities                     |       | 42                                                                                                                                                       |       | 10                                                                                                                                                      |       | 52 |   | 271 |   | 65 |   | 336 |   |
| Federal funds sold                              |       | 182                                                                                                                                                      |       | (512                                                                                                                                                    | )          | (330 | ) | 629 |   | (1,348 | ) | (719 | ) |
|                                            |       |                                                                                                                                                     |       |                                                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Total interest income                           |       | (540                                                                                                                                                     | )          | (4,797                                                                                                                                                  | )          | (5,337 | ) | 15,234 |   | (6,772 | ) | 8,462 |   |
|                                            |       |                                                                                                                                                     |       |                                                                                                                                                    |       |   |   |   |   |   |   |   |   |
| **Interest  expense:**                          |       |                                                                                                                                                     |       |                                                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Money market deposits                           |       | 898                                                                                                                                                      |       | (2,467                                                                                                                                                  | )          | (1,569 | ) | 5,808 |   | (4,918 | ) | 890 |   |
| Super NOW deposits                              |       | 1                                                                                                                                                        |       | (28                                                                                                                                                     | )          | (27 | ) | 13 |   | (76 | ) | (63 | ) |
| Savings deposits                                |       | 130                                                                                                                                                      |       | (67                                                                                                                                                     | )          | 63 |   | 599 |   | (170 | ) | 429 |   |
| Time deposit of $100,000 or  more               |       | (1,159                                                                                                                                                   | )          | (1,997                                                                                                                                                  | )          | (3,156 | ) | (3,627 | ) | (7,140 | ) | (10,767 | ) |
| Other time deposits                             |       | 1,261                                                                                                                                                    |       | (878                                                                                                                                                    | )          | 383 |   | 6,590 |   | (2,693 | ) | 3,897 |   |
| FHLB  advances and other borrowings             |       | (1,202                                                                                                                                                   | )          | (22                                                                                                                                                     | )          | (1,224 | ) | (3,283 | ) | 449 |   | (2,834 | ) |
| Junior  subordinated debenture                  |       | —                                                                                                                                                   |       | (46                                                                                                                                                     | )          | (46 | ) | — |   | (481 | ) | (481 | ) |
| Total interest expense                          |       | (71                                                                                                                                                      | )          | (5,505                                                                                                                                                  | )          | (5,576 | ) | 6,100 |   | (15,029 | ) | (8,929 | ) |
|                                            |       |                                                                                                                                                     |       |                                                                                                                                                    |       |   |   |   |   |   |   |   |   |
| Change in net interest  income                  |       | $                                                                                                                                                        | (469       | )                                                                                                                                                       | $          | 708 |   | $ | 239 |   | $ | 9,134 |   | $ | 8,257 |   | $ | 17,391 |   |

 

----

(1)         Net loan fees have beenincluded in the calculation of interest income. Net loan fees wereapproximately $679,000 and $918,000 for the quarters ended September 30, 2010 and 2009,respectively.  Loans are net of theallowance for loan losses, deferred fees, unearned income, and related directcosts, but include loans placed on non-accrual status.

 

**P****rovision for Losses on Loans and Loan Commitments**

 

In anticipation of credit risks inherent in our lendingbusiness and ongoing weakness in the local and national economy, we set asideallowances through charges to earnings. Such charges were made not only for our outstanding loan portfolio, butalso for off-balance sheet items, such as commitments to extend credits orletters of credit.  The charges made for ouroutstanding loan portfolio were credited to allowance for loan losses, whereascharges for off-balance sheet items were credited to the reserve foroff-balance sheet items, and are presented as a component of other liabilities.

 

Although we continue to enhanceour loan underwriting standards and maintain proactive credit follow-upprocedures, we experienced a deterioration of credit quality in our loanportfolio throughout 2009 and 2010 because of the weak economy and the declinein the real estate market. We recordeda provision for losseson loans and loancommitmentsof $18.0 million in the third quarterof 2010, as compared with aprovision of $24.2 million for the prioryear’s same quarter.  The decrease in ourprovision for losses on loans and loan commitments compared to the third quarter of 2009 was primarily due to a decrease in overall non-performing loans (see “FinancialCondition — Non-performing Assets” below for further discussion), in addition tothe sale of non-performing and delinquent loans in the third quarter of 2010amounting to $17.4 million. The$18.0 million provision in the third quarter of 2010 includes charge-offs of$14.3 million.

 

Provision for the nine monthsended September 30, 2010 was $67.2 million, an increase of $24.2 millionfrom $43.0 million for the nine months ended September 30, 2009.  The year to date increase in provision forloan losses was a result of credit deterioration in the loan portfolioexperienced in the fourth quarter of 2009 and the first quarter of 2010 whichresult in provision of $24.2 million and $25.6 million, respectively. Our procedures for monitoring the adequacy of our allowance for losses on loans and loan commitments, aswell as detailed information concerning the allowance itself, are described inthe section entitled “Allowancefor Losses on Loans and LoanCommitments” below.  Losses on MiraeBank loans purchased from the FDIC are partially reimbursable as stated in ourloss-sharing agreements withthe FDIC. For the quarter and nine months ending, September 30, 2010, theCompany had a FDIC indemnification of $3.0 million and $5.6 million,respectively, included in the allowance for loan losses calculation.

 

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**Non-interestIncome**

 

Totalnon-interest income was $10.0 million in the third quarter of2010, as compared with $7.4 million in the samequarter a year ago. Non-interest income as a percentage of average assetswas 0.30% for the third quarter of2010 and 0.22% for the third quarter of2009. For the nine months ended September 30, 2010 and 2009, non-interestincome was $27.7 million or 0.81% of average assets and $39.7 million or 1.40%of average assets, respectively. The quarter to date increase in non-interestincome resulted from an increase in gain on sale of securities of $2.6 millionin the third quarter of 2010 compared to no gain onsale of securities for the third quarter of 2009. Non-interest income for thefirst nine months of 2010 decreased from the same period for 2009 primarily dueto the $21.7 million gain from the acquisition of Mirae Bank in the secondquarter of 2009.

 

Thefollowing tables set forth the various components of our non-interest incomefor the periods indicated:

 

**Non-interest Income (Dollars in Thousands)**

 
| ** **                                    | ** ** | **For the Three Months Ended September 30,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2010**                                                                   | ** ** | **2009** | ** ** |
| ** **                                    | ** ** | **(Amount)**                                                               | ** ** | **(%)** | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit  accounts          |       | $                                                                          | 3,071      |   | 30.6 | % | $ | 3,315 |   | 44.8 | % |
| Gain on sale of loans                         |       | 2,723                                                                      |       | 27.1 | % | 2,235 |   | 30.2 | % |
| Gain on sale of securities                    |       | 2,600                                                                      |       | 25.9 | % | — |   | 0 | % |
| Loan-related servicing fees                   |       | 1,149                                                                      |       | 11.4 | % | 958 |   | 12.9 | % |
| Other income                                  |       | 503                                                                        |       | 5.0 | % | 892 |   | 12.1 | % |
| Total                                         |       | $                                                                          | 10,046     |   | 100.0 | % | $ | 7,400 |   | 100.0 | % |
| Average assets                                |       | $                                                                          | 3,348,434  |   |   |   | $ | 3,298,238 |   |   |   |
| Non-interest income as a %  of average assets |       |                                                                       |       | 0.30 | % |   |   | 0.22 | % |

** **
| ** **                                    | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2010**                                                                  | ** ** | **2009** | ** ** |
| ** **                                    | ** ** | **(Amount)**                                                              | ** ** | **(%)** | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit accounts           |       | $                                                                         | 9,510      |   | 34.3 | % | $ | 9,338 |   | 23.5 | % |
| Gain (loss) on sale of loans                  |       | 4,203                                                                     |       | 15.2 | % | 1,711 |   | 4.3 | % |
| Gain on sale of securities                    |       | 8,742                                                                     |       | 31.6 | % | 1,588 |   | 4.0 | % |
| Loan-related servicing fees                   |       | 2,999                                                                     |       | 10.8 | % | 2,702 |   | 6.8 | % |
| Other income                                  |       | 2,256                                                                     |       | 8.1 | % | 2,709 |   | 6.8 | % |
| Gain from acquisition of  Mirae Bank          |       | —                                                          |       | 0.0 | % | 21,679 |   | 54.6 | % |
| Total                                         |       | $                                                                         | 27,710     |   | 100.0 | % | $ | 39,727 |   | 100.0 | % |
| Average assets                                |       | $                                                                         | 3,413,486  |   |   |   | $ | 2,840,993 |   |   |   |
| Non-interest income as a %  of average assets |       |                                                                      |       | 0.81 | % |   |   | 1.40 | % |

 

Ourlargest source of non-interest income in the third quarter of 2010 was servicecharges on deposit accounts, which represented about 30.6% of our totalnon-interest income. Service charge income decreased to $3.1 million in thethird quarter of 2010, as compared with $3.3 million for the prior year’s sameperiod. Year to date service charges on deposits accounts increased to $9.5million or 34.3% of non-interest income at September 30, 2010 from $9.3million at September 30, 2009. The quarterly decrease was a result of adecrease in overall non sufficient funds charges and on a year to date basis,service charges on deposits accounts increased as total analysis charges andcheckbook sale income increased at September 30, 2010 compared to theprevious year. Management constantly reviews service charge rates to maximizeservice charge income while still maintaining a competitive position.

 

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Gainon sale of loans accounted for the second largest source of non-interest incomeand at the end of the third quarter and first nine months of 2010 accounted for$2.7 million, or 27.1%, of non-interest income and $4.2 million, or 15.2%, ofnon-interest income, respectively. Both third quarter and year to date gain onsales of loans increased from prior year balances of $2.2 million and $1.7million, respectively.  Of the total gainon sale of loans for the third quarter and first nine months of 2010, $2.5million and $3.8 million, respectively, were attributable to gains on sale ofSBA loans.

 

Ourthird largest source of non-interest income in the third quarter of 2010 wasgain on sale of securities at $2.6 million, which represented approximately25.9% of our total non-interest income, compared to no gain for the thirdquarter of 2009.  In the first ninemonths of 2010, gain on sale of securities was $8.7 million, or 31.6% of totalnon-interest income, an increase from $1.6 million for the first nine months of2009. Market value of securities has continued to increase as we experiencedecreased volatility in securities markets, changes in the yield curve, andcontraction of interest rates spreads on securities owned by the Bank.  We were able to realize the appreciation inmarket values of our securities while at the same time shortening our overallduration on our investment portfolio.

 

Loanrelated servicing fees accounted for $1.2 million or 11.4% of totalnon-interest income for the third quarter of 2010 and $3.0 million, or 10.8% ofnon-interest income for the nine months ended September 30, 2010.  These figures increased slightly from thequarter and nine months ending September 30, 2009 which were $958,000, and$2.7 million, respectively. This fee income consists of trade-financing feesand servicing fees on SBA loans sold. With the expansion of our trade-financing activities and the growth ofour servicing loan portfolio, related fee income has continued to increase.

 

Othernon-interest income represents income from miscellaneous sources such as loanreferral fees, SBA loan packaging fees, checkbook sales income, excess of insurance proceeds over carrying value of an insured loss,dividends from FHLB stock ownership, and increases in the cash surrender value ofbank owned life insurance (“BOLI”).For the thirdquarter of 2010, this miscellaneous income amounted to $503,000, as compared with $892,000 in the prior year’s same period, and $2.3 million atfor the first nine months of 2010 compared to $2.7 million for the first ninemonths of 2009.  Other non-interestincome as a percentage of total non-interest income was 5.0% and 12.1% for thequarters ending September 30, 2010 and September 30, 2009,respectively and 8.1% and 6.8% for the nine months ending September 30,2010 and September 30, 2009, respectively.

 

**Non-interestExpense**

 

Total non-interest expense was$14.8 million for the quarter ending September 30, 2010, unchanged fromthe quarter ending September 30, 2009. Non-interest expenses as apercentage of average assets decreased to 0.44%, from 0.45% at the thirdquarter of 2010 and 2009, respectively. For the first nine months of 2010 and2009, non-interest expense increased to $45.6 million from $40.9 million. Non-interest expenses as a percentage of average assetsdecreased to 1.34%, from 1.44% for the first nine months of 2010 and 2009,respectively. Our efficiency ratio was 37.21% at the end of the third quarterof 2010, compared with 40.26% at the same period a year ago. Year to dateefficiency ratio was increased from 37.24% at September 30, 2009 to 39.59%at September 30, 2010.  The increasein efficiency ratios from 2009 to 2010 was due to the one-time gainattributable to the acquisition of Mirae Bank in the second quarter of 2009.

 

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Thefollowing tables set forth a summary of non-interest expenses for the periodsindicated:

 
| **Non-interest Expense****s**                  |
|------------------------------------------------|
| **(Dollars in Thousands)**                     |
| ** **                                     |
| ** **                                     | ** ** | **For the Three Months Ended September 30,** | ** ** |
| ** **                                     | ** ** | **2010** | ** ** | **2009** | ** ** |
| ** **                                     | ** ** | **(Amount)** | ** ** | **(%)** | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee  benefits                |   | $ | 7,458 |   | 50.5 | % | $ | 7,120 |   | 48.1 | % |
| Occupancy and equipment                        |   | 1,921 |   | 13.0 | % | 1,935 |   | 13.1 | % |
| Deposit insurance premiums                     |   | 1,154 |   | 7.8 | % | 982 |   | 6.6 | % |
| Professional fees                              |   | 960 |   | 6.5 | % | 659 |   | 4.4 | % |
| Data processing                                |   | 702 |   | 4.8 | % | 1,078 |   | 7.3 | % |
| Advertising and promotional                    |   | 291 |   | 2.0 | % | 308 |   | 2.1 | % |
| Outsourced service for  customer               |   | 286 |   | 1.9 | % | 328 |   | 2.2 | % |
| Office supplies                                |   | 210 |   | 1.4 | % | 258 |   | 1.7 | % |
| Directors’ fees                           |   | 153 |   | 1.0 | % | 103 |   | 0.7 | % |
| Communications                                 |   | 135 |   | 0.9 | % | 151 |   | 1.0 | % |
| Investor relation expenses                     |   | 83 |   | 0.6 | % | 88 |   | 0.6 | % |
| Amortization of other  intangible assets       |   | 92 |   | 0.6 | % | 239 |   | 1.6 | % |
| Other operating                                |   | 1,328 |   | 9.0 | % | 1,572 |   | 10.6 | % |
| Total                                          |   | $ | 14,773 |   | 100.0 | % | $ | 14,821 |   | 100.0 | % |
| Average assets                                 |   | $ | 3,348,434 |   |   |   | $ | 3,298,238 |   |   |   |
| Non-interest expense as a %  of average assets |   |   |   | 0.44 | % |   |   | 0.45 | % |

** **
| ** **                                     | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                     | ** ** | **2010**                                                                  | ** ** | **2009** | ** ** |
| ** **                                     | ** ** | **(Amount)**                                                              | ** ** | **(%)** | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee  benefits                |       | $                                                                         | 21,857     |   | 47.9 | % | $ | 19,315 |   | 47.2 | % |
| Occupancy and equipment                        |       | 6,048                                                                     |       | 13.3 | % | 5,294 |   | 13.0 | % |
| Deposit insurance premiums                     |       | 3,343                                                                     |       | 7.3 | % | 3,772 |   | 9.2 | % |
| Professional fees                              |       | 3,347                                                                     |       | 7.4 | % | 1,576 |   | 3.9 | % |
| Data processing                                |       | 2,029                                                                     |       | 4.4 | % | 2,750 |   | 6.7 | % |
| Advertising and promotional                    |       | 999                                                                       |       | 2.2 | % | 901 |   | 2.2 | % |
| Outsourced service for  customer               |       | 811                                                                       |       | 1.8 | % | 806 |   | 2.0 | % |
| Office supplies                                |       | 715                                                                       |       | 1.6 | % | 591 |   | 1.5 | % |
| Directors’ fees                           |       | 428                                                                       |       | 0.9 | % | 294 |   | 0.7 | % |
| Communications                                 |       | 365                                                                       |       | 0.8 | % | 360 |   | 0.9 | % |
| Investor relation expenses                     |       | 284                                                                       |       | 0.6 | % | 214 |   | 0.5 | % |
| Amortization of other intangible  assets       |       | 276                                                                       |       | 0.6 | % | 387 |   | 0.9 | % |
| Other operating                                |       | 5,093                                                                     |       | 11.2 | % | 4,624 |   | 11.3 | % |
| Total                                          |       | $                                                                         | 45,595     |   | 100.0 | % | $ | 40,884 |   | 100.0 | % |
| Average assets                                 |       | $                                                                         | 3,413,486  |   |   |   | $ | 2,840,993 |   |   |   |
| Non-interest expense as a %  of average assets |       |                                                                      |       | 1.34 | % |   |   | 1.44 | % |

 

Salariesand employee benefits historically represent approximately half of our total non-interest expense and generally increases as our branchnetworks and business volumes expand. These expenses were $7.5 million for thequarter ending September 30, 2010 compared with $7.1 million for the prior year’s same period. For the first ninemonths of 2010, salaries and benefits were $21.9 million compared to $19.3million in the first nine months of 2009. The number of full-time equivalentemployees increased from 389 as of September 30, 2009 to 413 as of September 30, 2010. The increase in salaries and employeebenefits were largely due to wage increases in addition to increases in medicalpremiums and payroll taxes. The increase in employees has decreased our assetsper employee ratio to $7.8 million at September 30, 2010 from $8.7 millionat September 30, 2009.

 

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Occupancyand equipment expenses represented about 13% of our total non-interest expensesfor the quarters ending September 30, 2009 and 2010 and 13% for ninemonths ending September 30, 2009 and 2010. These expenses remainedunchanged at $1.9 million in the thirdquarter of 2010 and 2009. On a year to date basis, occupancy expenses increasedfrom $5.3 million at September 30, 2009 to $6.0 million at September 30,2010.  The increase was primarily attributable to the additional lease expenses forour business growth in the past 12 months with the addition of our Forth Worth,Olympic, and Van Nuys branches, which all opened in 2010.

 

Depositinsurance premium expenses represent The Financing Corporation (“FICO”) andFDIC insurance premium assessments. In the third quarter of 2010, theseexpenses totaled $1.2 million or 7.8% of total non-interest expense, comparedwith $982,000 or 6.6% of total non-interest expenses for the prior year’s sameperiods. Deposit insurance premiums for the nine months ending September 30,2010 were $3.3 million or 7.3% of total non-interest expense, compared to $3.8million, or 9.2%, of total non-interest expense for the same period last year.In the second quarter of 2009, the FDIC imposed a one-time special assessmentof $1.5 million which was primarily the reason for the higher assessmentexpense for the first nine months of 2009 compared to the first nine months of2010.

 

Professional fees generally increase as we grow. Suchfees increased to $960,000 in the third quarter of 2010 and $3.3 million forthe first nine months of 2010, compared to $659,000 and $1.6 million for thesame period of the prior year, respectively. These expenses represented 6.5%and 7.4% for the third quarter and first nine months of 2010, respectively, and4.4% and 3.9% for the third quarter and first nine months of 2009,respectively.  This increase wasprimarily due to increased legal fees resulting from collection of non-performingloans and OREO foreclosures.

 

Data processing expenses decreased to $702,000 in thethird quarter of 2010 from $1.1 million for the same period a year ago.  In the first nine months of 2010, dataprocessing expenses accounted for $2.0 million or 4.4% of total non-interestexpense compared to $2.8 million or 6.7% of total non-interest expense for thesame period in 2009. Total data processing expenses decreased as fees have gonedown slightly since June 30, 2009.

 

Advertising and promotional expensesdecreased by $17,000 to $291,000 at the third quarter of 2010 compared to thesame period in 2009 but increased to $1.0 million for the first nine of 2010from $901,000 for the nine months ending September 30, 2009. These expensesrepresent marketing activities, such as media advertisements and promotionalgifts for customers of newly opened offices, especially in the new areas suchas the east coast market in New York and New Jersey. Theincrease in the year to date figure in 2010 was primarily attributable to ourincreased advertising spending to promote a branch addition in Van Nuys, aswell as a new marketing campaign that began in the first quarter of 2010.

 

Othernon-interest expenses, such as outsourced service costs for customer, officesupplies, communications, director’s fees, investor relation expenses,amortization of intangible assets and other operating expenses were $2.3million for the third quarter of 2010 compared with 2.7 million for the sameperiod a year ago. For the first nine months of 2010, other non-interestexpenses were $8.0 million compared to $7.3 million for the first nine monthsof 2009. The increase represents a normal growth in association with the growthof our business activities and was consistent with our expectations.

** **

**Provisionfor Income Taxes**

 

For the quarter ended September 30, 2010, we had anincome tax provision of $1.9 million on a pretax income of $6.3 million,representing an effective tax rate of 28.1%, as compared with a tax benefit of$1.5 million on pretax net loss of $2.2 million, representing an effective taxbenefit rate of 65.7% for the same quarter in 2009.  For the first nine months of 2010, werecorded an income tax benefit of $2.3 million on a pretax net income of $2.4million representing an effective tax benefit rate of 96.0% compared to a taxprovision of $9.9 million on pretax net income of $25.9 million which resultedin an effective tax rate of 38.0% for the same period in 2009.

 

Due to the high degree of variability of the estimatedannual effective tax rate when considering the range of projected income forthe remainder of the year, the Company has determined that the actualyear-to-date effective tax rate is the best estimate of the annual effectivetax rate.  The effective tax rate for thenine months ending September 30, 2010 was lower than the tax rate forSeptember 30, 2009 due mostly to large permanent differences pertaining tolow income housing tax credits, enterprise zone net interest deductions, andenterprise hiring credit compared to net income. The change in tax provisioncalculation method increased the recognition of tax benefits over a shorterperiod of time, increasing the overall effective tax rate for the first ninemonths of 2010.

 

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**Financial Condition**

** **

**Investment****Portfolio**

 

Investmentsare one of our major sources of interest income and are acquired in accordancewith a written comprehensive investment policy addressing strategies, types and levels of allowableinvestments.  Management of ourinvestment portfolio is set in accordance with strategies developed andoverseen by our Asset/Liability Committee. Investment balances, including cash equivalents and interest-bearingdeposits in other financial institutions, are subject to change over time basedon our asset/liability funding needs and interest rate risk managementobjectives.  Our liquidity levels takeinto consideration anticipated future cash flows and all available sources ofcredit and are maintained at levels management believes are appropriate toassure future flexibility in meeting anticipated funding needs.

* *

*CashEquivalents and Interest-bearing Deposits in other Financial Institutions*

 

Cashand cash equivalents include cash and due from banks, term and overnightfederal funds sold, and securities purchased under agreements to resell, all ofwhich have original maturities of less than 90 days. We buy or sell federalfunds and maintain deposits in interest-bearing accounts in other financialinstitutions to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested.

* *

*InvestmentSecurities*

 

Management of our investment securities portfoliofocuses on providing an adequate level of liquidity and establishing a balancedinterest rate-sensitive position, while earning an adequate level of investmentincome without taking undue risk.  As of September 30, 2010, ourinvestment portfolio was comprised primarily of United States government agencysecurities, which accounted for 90.2% of the entire investment portfolio. Our U.S. government agency securities holdings are all “prime/conforming”mortgage backed securities, or MBSs, and collateralized mortgage obligations,or CMOs, guaranteed by FNMA, FHLMC, or GNMA. GNMAs are considered equivalent toU.S. Treasury securities, as they are backed by the full faith and credit ofthe U.S. government. Currently, there are no subprime mortgages in ourinvestment portfolio. Besides the U.S. government agency securities, we alsohave as a percentage to total investments, a 9.8% investment in municipal debtsecurities and 0.3% investment in corporate debt. Among our investmentportfolio that is not comprised of U.S. government securities, 9.4%, or$34.6 million, carry the two highest “Investment Grade” ratings of“Aaa/AAA” or “Aa/AA”, while 0.6%, or $2.2 million, carry an intermediate“Investment Grade” rating of at least “Baa1/BBB+” or above, and 0.4%, or $1.4million, is unrated.  Our investment portfolio does not contain any governmentsponsored enterprises, or GSE preferred securities or any distressed corporatesecurities that required other-than-temporary-impairment charges as ofSeptember 30, 2010.

 

We classified our investment securities as“held-to-maturity” or “available-for-sale” pursuant to ASC 320-10 (SFAS No. 115).Pursuant to the fair value election option of ASC 470-20, we have chosen tocontinue classifying our existing instruments of investment securities as“held-to-maturity” or “available-for-sale” under ASC 320-10. Investmentsecurities that we intend to hold until maturity are classified as held tomaturity securities, and all other investment securities are classified asavailable-for-sale. The carrying values of available-for-sale investmentsecurities are adjusted for unrealized gains and losses as a valuationallowance and any gain or loss is reported on an after-tax basis as a componentof other comprehensive income. Credit related declines in the fair value ofheld-to-maturity and available-for-sale securities below their cost that aredeemed to be other than temporary are reflected in earnings as realized losses,and there was no such other-than-temporary-impairment in 2009. The fair marketvalues of our held-to-maturity and available-for-sale securities were respectively$0.1 million and $367.4 million as of September 30, 2010.

 

The fair value of investments is accounted for inaccordance with ASC 320-10 (SFAS No. 115,*Accounting for Certain Investments in Debtand Equity Securities)*. The Company currently utilizes an independentthird party bond accounting service for our investment portfolioaccounting.   The third party providesmarket values derived using a proprietary matrix pricing model which utilizesseveral different sources for pricing. The Company uses market values receivedfor investment fair values which are updated on a monthly basis. The marketvalues received is tested annually and is validated using prices received fromanother independent third party source. All of these evaluations are consideredas Level 2 in reference to ASC 820. Asrequired under Financial Accounting Standards Board (“FASB”) ASC 325, weconsider all available information relevant to the collectability of thesecurity, including information about past events, current conditions, and reasonableand supportable forecasts, and we consider factors such as remaining paymentterms of the security, prepayment speeds, the financial condition of theissuer(s), expected defaults, and the value of any underlying collateral.

 

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Thefollowing table summarizes the amortized cost, market value, net unrealizedgain (loss), and distribution of our investment securities as of the datesindicated:

 

**Investment Securities Portfolio**

**(Dollars in Thousands)**

 
| ** **                                      | ** ** | **As of ****September 30, 2010** | ** ** | **As of December 31, 2009** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                      | ** ** | **Amortized  Cost**                                  | ** ** | **Market  Value**                               | ** ** | **Net  Unrealized  Gain** | ** ** | **Amortized  Cost** | ** ** | **Market  Value** | ** ** | **Net  Unrealized  Gain  (Loss)** | ** ** |
| Held to  Maturity:                              |       |                                                 |       |                                            |       |   |   |   |   |   |   |   |   |
| Collateralized  mortgage obligations            |       | $                                                    | 91         |                                            | $          | 97 |   | $ | 6 |   | $ | 109 |   | $ | 109 |   | $ | — |   |
| Total  investment securities held to maturity   |       | $                                                    | 91         |                                            | $          | 97 |   | $ | 6 |   | $ | 109 |   | $ | 109 |   | $ | — |   |
|                                            |       |                                                 |       |                                            |       |   |   |   |   |   |   |   |   |
| Available  for Sale:                            |       |                                                 |       |                                            |       |   |   |   |   |   |   |   |   |
| Securities  of government sponsored enterprises |       | $                                                    | 53,902     |                                            | $          | 54,460 |   | $ | 558 |   | $ | 156,879 |   | $ | 155,382 |   | $ | (1,497 | ) |
| Mortgage  backed securities                     |       | 19,972                                               |       | 20,788                                          |       | 816 |   | 131,617 |   | 131,711 |   | 94 |   |
| Collateralized  mortgage obligations            |       | 250,198                                              |       | 254,016                                         |       | 3,818 |   | 318,531 |   | 319,554 |   | 1,023 |   |
| Corporate  securities                           |       | 2,000                                                |       | 2,036                                           |       | 36 |   | 2,000 |   | 2,017 |   | 17 |   |
| Municipal  securities                           |       | 34,777                                               |       | 36,133                                          |       | 1,356 |   | 42,068 |   | 42,654 |   | 586 |   |
| Total  investment securities available for sale |       | $                                                    | 360,849    |                                            | $          | 367,433 |   | $ | 6,584 |   | $ | 651,095 |   | $ | 651,318 |   | $ | 223 |   |

 

Thefollowing table summarizes the maturity and repricing schedule of ourinvestment securities at their market values at September 30, 2010:

 

**Investment Maturities andRepricing Schedule********(Dollars in Thousands****)**

** **
| ** **                                      | ** ** | **Within One Year** | ** ** | **After One &  Within Five  Years** | ** ** | **After Five &  Within Ten  Years** | ** ** | **After Ten Years** | ** ** | **Total** | ** ** |
|-------------------------------------------------|------------|-------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------|------------|-----------|------------|
| Held to  Maturity:                              |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Collateralized  mortgage obligations            |       | $                             | —     |                                                   | $          | 97                                                     |       | $                             | —     |      | $          | — |   | $ | 97 |   |
| Total  investment securities held to maturity   |       | $                             | —     |                                                   | $          | 97                                                     |       | $                             | —     |      | $          | — |   | $ | 97 |   |
|                                            |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Available  for Sale:                            |       |                          |       |                                                   |       |                                                   |       |                          |       |      |       |
| Securities  of governmentsponsored enterprises  |       | $                             | —     |                                                   | $          | —                                                 |       | $                             | 54,460     |      | $          | — |   | $ | 54,460 |   |
| Mortgage  backed securities                     |       | 6,556                         |       | 55                                                     |       | 2,409                                                  |       | 11,768                        |       | 20,788    |       |
| Collateralized  mortgage obligations            |       | 4,092                         |       | 238,688                                                |       | —                                                 |       | 11,236                        |       | 254,016   |       |
| Corporate  securities                           |       | —                        |       | 2,036                                                  |       | —                                                 |       | —                        |       | 2,036     |       |
| Municipal  securities                           |       | 128                           |       | 1,170                                                  |       | 6,068                                                  |       | 28,767                        |       | 36,133    |       |
| Total  investment securities available for sale |       | $                             | 10,776     |                                                   | $          | 241,949                                                |       | $                             | 62,937     |      | $          | 51,771 |   | $ | 367,433 |   |

 

Holdings of investmentsecurities decreased to $367.5 million at September 30, 2010, as comparedwith holdings of $651.4 million at December 31, 2009.  Totalinvestment securities as a percentage of total assets was 11.4% and 19.0% at September 30, 2010 and December 31,2009, respectively. Securities with market value of approximately $351.1 million and $629.2million were pledged to secure public deposits for other purposes required orpermitted by law at September 30, 2010 and December 31, 2009,respectively

 

Asof September 30, 2010, our investment securities classified asheld-to-maturity, which are carried at their amortized cost, stayed relatively unchanged on adollar basis at $91,000 as compared with $109,000 as of December 31,2009. Our investment securities classified as available-for-sale, which arestated at their fair market values, decreased to $367.4.4 million atSeptember 30, 2010 from $651.3 million atDecember 31, 2009.

 

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Thefollowing table shows the gross unrealized losses and fair value of ourinvestments, aggregated by investment category and the length of time thatindividual securities have been in a continuous unrealized loss position, atSeptember 30, 2010 and December 31, 2009:

 

**As of September 30, 2010**

(Dollars in Thousands)

 
| ** **                                                      | ** ** | **Less than 12 months** | ** ** | **12 months or longer** | ** ** | **Total**           | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|---------------------|------------|
| ** **                                                      | ** ** | ** **                             | ** ** | **Gross**                              | ** ** | ** **          | ** ** | **Gross** | ** ** | ** ** | ** ** | **Gross** | ** ** |
| ** **                                                      | ** ** | ** **                             | ** ** | **Unrealized**                         | ** ** | ** **          | ** ** | **Unrealized** | ** ** | ** ** | ** ** | **Unrealized** | ** ** |
| **Description of Securities (AFS)**** (1)** | ** ** | **Fair Value**                    | ** ** | **Losses**                             | ** ** | **Fair Value** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** | **Losses** | ** ** |
|                                                            |       |                                   |       |                                   |       |                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises                 |       | $                                      | —     |                                   | $          | —              |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Mortgage-backed securities                                      |       | —                                 |       | —                                 |       | —              |       | — |   | — |   | — |   |
| Collateralized mortgage  obligations                            |       | 48,065                                 |       | (121                                   | )          | —              |       | — |   | 48,065 |   | (121 | ) |
| Corporate securities                                            |       | —                                 |       | —                                 |       | —              |       | — |   | — |   | — |   |
| Municipal  securities                                           |       | 1,197                                  |       | (87                                    | )          | 339                 |       | (68 | ) | 1,536 |   | (155 | ) |
| Total                                                           |       | $                                      | 49,262     |                                   | $          | (208                | )          | $ | 339 |   | $ | (68 | ) | $ | 49,601 |   | $ | (276 | ) |

 

**As of December 31, 200****9**

(Dollars in Thousands)

 
| ** **                                                      | ** ** | **Less than 12 months** | ** ** | **12 months or longer** | ** ** | **Total**           | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|---------------------|------------|
| ** **                                                      | ** ** | ** **                             | ** ** | **Gross**                              | ** ** | ** **          | ** ** | **Gross** | ** ** | ** ** | ** ** | **Gross** | ** ** |
| ** **                                                      | ** ** | ** **                             | ** ** | **Unrealized**                         | ** ** | ** **          | ** ** | **Unrealized** | ** ** | ** ** | ** ** | **Unrealized** | ** ** |
| **Description of Securities (AFS)**** (1)** | ** ** | **Fair Value**                    | ** ** | **Losses**                             | ** ** | **Fair Value** | ** ** | **Losses** | ** ** | **Fair Value** | ** ** | **Losses** | ** ** |
|                                                            |       |                                   |       |                                   |       |                |       |   |   |   |   |   |   |
| Securities of government  sponsored enterprises                 |       | $                                      | 110,296    |                                   | $          | (1,600              | )          | $ | — |   | $ | — |   | $ | 110,296 |   | $ | (1,600 | ) |
| Mortgage-backed securities                                      |       | 85,313                                 |       | (726                                   | )          | —              |       | — |   | 85,313 |   | (726 | ) |
| Collateralized mortgage  obligations                            |       | 145,622                                |       | (975                                   | )          | —              |       | — |   | 145,622 |   | (975 | ) |
| Corporate securities                                            |       | —                                 |       | —                                 |       | —              |       | — |   | — |   | — |   |
| Municipal  securities                                           |       | 18,783                                 |       | (505                                   | )          | —              |       | — |   | 18,783 |   | (505 | ) |
| Total                                                           |       | $                                      | 360,014    |                                   | $          | (3,806              | )          | $ | — |   | $ | — |   | $ | 360,014 |   | $ | (3,806 | ) |

 

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(1) There were no held-to-maturity securities withlosses as of September 30, 2010 and December 31, 2009.

 

At September 30, 2010, the totalunrealized losses less than 12 months old were $208,000 and total unrealizedlosses more than 12 months old were $68,000 for the same period.  The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $49.3 million at September 30, 2010, and $339,000 with unrealizedlosses more than 12 months old.  As ofDecember 31, 2009, the total unrealized losses less than 12 months oldwere $3.8 million, and there were nounrealized losses more than 12 months old. The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $360.0 million at December 31, 2009.

 

Credit declines in the fair value of held-to-maturityand available-for-sale investment securities below their cost that are deemedto be other than temporary are reflected in earnings as realized losses. Inaccordance with guidance from FASB, ASC 320-10-65-1 and ASC 958-320 *Recognition and Presentation of Other-Than-Temporary Impairments*,the Company evaluates whether an event or change in circumstances has occurredthat may have a significant adverse effect on the fair value of the investment(an “impairment indicator”). In evaluating an other-than-temporary impairment (“OTTI”), the Companyutilizes a systematic methodology that includes all documentation of thefactors considered.  All availableevidence concerning declines in market values below cost are identified andevaluated in a disciplined manner by management.  The steps taken by the Company in evaluatingOTTI are:

 

·                  The Company first determines whether impairment has occurred.  A security is considered impaired if its fairvalue is less than its amortized cost basis. If a debt security is impaired, the Company must assess whether itintends to sell the security (i.e., whether a decision to sell the security hasbeen made). If the Company intends to sell the security, an OTTI is consideredto have occurred.

 

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·                  Ifthe Company does not intend to sell the security (i.e., a decision to sell thesecurity has not been made), it must assess whether it is more likely than notthat it will be required to sell the security before recovery of the amortizedcost basis of the security.

 

·                  Evenif the Company does not intend to sell the security, an OTTI has occurred ifthe Company does not expect to recover the entire amortized cost basis (i.e.,there is a credit loss).  Under thisanalysis, the Company compares the present value of the cash flows expected tobe collected to the amortized cost basis of the security.

 

·                  The Company believes that impairment exists on securities when their fairvalue is below amortized cost but an impairment loss has not occurred due tothe following reasons:

 

·                  TheCompany does not have any intent to sell any of the securities that are in anunrealized loss position.

 

·                  It ishighly unlikely that the Company will be forced to sell any of the securitiesthat have an unrealized loss position before recovery.  The Company’s Asset/Liability Committeemandated liquidity ratios are well above the minimum targets and secondarysources of liquidity such as borrowings lines, brokered deposits, and juniorsubordinated debenture are easily accessible.

 

·                  TheCompany fully expects to recover the entire amortized cost basis of all thesecurities that are in an unrealized loss position.  The basis of this conclusion is that theunrealized loss positions were caused by changes in interest rates and interestrate spreads and not by default risk.

 

As of September 30, 2010, the net unrealized gainin the investment portfolio was $6.6 million compared to $223,000 in netunrealized gains as of December 31, 2009. The increase in unrealized gains can be attributed to recently improvedmarket stability, which has led to a decrease in treasuries interest ratespreads, and an increase in treasury rates.

 

**LoanPortfolio**

 

Totalloans are the sum of loans receivable and loans held for sale and reported attheir outstanding principal balances net of any unearned income which isunamortized deferred fees and costs and premiums and discounts.  Intereston loans is accrued daily on a simple interest basis. Total loans netof unearned income and allowance for losses onloans decreased to $2.35 billion atSeptember 30, 2010, as compared with $2.37 billion at December 31,2009.  Total loans net of unearned incomeand allowance for loan losses as a percentage of total assets was increased to72.5% at September 30, 2010 from 68.8% at December 31, 2009.

 

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Thefollowing table sets forth the amount of total loans outstanding and thepercentage distributions in each category, as of the dates indicated:

 

**Distribution of Loans andPercentage Composition of Loan Portfolio**

**(Dollars in Thousands)**

** **
| ** **                            | ** ** | **Amount Outstanding**      | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| Construction                          |       | $                                | 70,808     |   | $ | 48,371 |   |
| Real  estate secured                  |       | 1,999,216                        |       | 1,979,704 |   |
| Commercial  and industrial            |       | 361,890                          |       | 387,443 |   |
| Consumer                              |       | 17,062                           |       | 17,234 |   |
| Total  loans(1)                       |       | 2,448,976                        |       | 2,432,752 |   |
| Unearned  Income                      |       | (4,932                           | )          | (5,311 | ) |
| Gross  loans, net of unearned income  |       | 2,444,044                        |       | 2,427,441 |   |
| Allowance  for losses on loans        |       | (99,022                          | )          | (62,130 | ) |
| Net  loans                            |       | $                                | 2,345,022  |   | $ | 2,365,311 |   |
|                                  |       |                             |       |   |   |
| Percentage  breakdown of gross loans: |       |                             |       |   |   |
| Construction                          |       | 2.9                              | %          | 2.0 | % |
| Real  estate secured                  |       | 81.6                             | %          | 81.4 | % |
| Commercial  and industrial            |       | 14.8                             | %          | 15.9 | % |
| Consumer                              |       | 0.7                              | %          | 0.7 | % |

 

----

(1)Includes loans held for sale, which are recorded at the lower of cost ormarket, of $41.2 million and $36.2 million at September 30, 2010 and December 31,2009, respectively.

 

Real estate secured loans consist primarily ofcommercial real estate loans and are extended to finance the purchase and/orimprovement of commercial real estate or businesses thereon.  The properties may be either user owned orheld for investment purposes. Our loan policy adheres to the real estate loanguidelines set forth by the FDIC.  Thepolicy provides guidelines including, among other things, fair review ofappraisal value, limitation on loan-to-value ratio, and minimum cash flowrequirements to service debt. Loans secured by real estate remained unchangedat $2.0 billion both as of September 30, 2010 and December 31, 2009.  Real estate secured loans as a percentage oftotal loans were 81.6% and 81.4% at September 30, 2010and December 31, 2009, respectively.  Home mortgage loans represent a smallfraction of our total real estate secured loan portfolio. Total home mortgageloans outstanding were only $47.8 million at September 30, 2010 and $41.3 million at December 31,2009.

 

Commercialand industrial loans include revolving lines of credit as well as term businessloans.  Commercial and industrial loansat September 30, 2010 decreased to $361.9million, ascompared with $387.4 million at December 31,2009.  Commercial and industrial loans as apercentage of total loans were 14.8% at September 30,2010, decreasing from 15.9% at December 31, 2009.

 

Consumerloans have historically represented less than 5% of our total loanportfolio.  The majority of consumerloans are concentrated in automobile loans, which we provide as a service onlyto existing customers. Because we believe that consumer loans present a higherrisk compared to our other loan products, especially given current economicconditions, we have reduced our efforts in consumerlending since 2007. Accordingly, as of September 30, 2010, our volume ofconsumer loans decreased by $200,000 from the prior year end. As of September 30,2010, the balance of consumer loans was $17.1 million, or 0.7% of total loans, as compared to $17.2 million, or 0.7% of total loansas of December 31, 2009.

 

Constructionloans represented less than 5% of our total loan portfolio as of September 30,2010. In response to the current real estate market, which has been experiencing a downward trend since mid-2007, we have appliedstricter loan underwriting policies when making construction related loans.However, construction loans increased to $70.8 million, or 2.9% of total loans, at the end of the third quarter of 2010, as compared with $48.4 million, or2.0% of total loans at December 31, 2009.

 

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Ourloan terms vary according to loan type. Commercial term loans have typicalmaturities of three to five years and are extended to finance the purchase ofbusiness entities, business equipment, leasehold improvements or to providepermanent working capital.  We generallylimit real estate loan maturities to five to eight years.  Lines of credit, in general, are extended onan annual basis to businesses that need temporary working capital and/orimport/export financing.  We generallyseek diversification in our loan portfolio, and our borrowers are diverse as toindustry, location, and their current and target markets.

 

Thefollowing table shows the contractual maturity distribution and repricingintervals of the outstanding loans in our portfolio, as of September 30,2010.  In addition, the table shows thedistribution of such loans between those with variable or floating interestrates and those with fixed or predetermined interest rates.

** **

**Loan Maturities and RepricingSchedule**

**(Dollars in Thousands)**

** **
| ** **                          | ** ** | **September 30, 2010** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **Within  One Year**        | ** ** | **After One  But within  Five Years** | ** ** | **After  Five Years** | ** ** | **Total** | ** ** |
| Construction                        |       | $                                | 70,808     |   | $ | — |   | $ | — |   | $ | 70,808 |   |
| Real  estate secured                |       | 1,259,351                        |       | 722,466 |   | 17,399 |   | 1,999,216 |   |
| Commercial  and industrial          |       | 353,199                          |       | 8,691 |   | — |   | 361,890 |   |
| Consumer                            |       | 16,299                           |       | 763 |   | — |   | 17,062 |   |
| Gross  loans                        |       | $                                | 1,699,657  |   | $ | 731,920 |   | $ | 17,399 |   | $ | 2,448,976 |   |
|                                |       |                             |       |   |   |   |   |   |   |
| Loans  with variable interest rates |       | $                                | 1,358,945  |   | $ | — |   | $ | — |   | $ | 1,358,945 |   |
| Loans  with fixed interest rates    |       | $                                | 340,712    |   | $ | 731,920 |   | $ | 17,399 |   | $ | 1,090,031 |   |

 

Amajority of the properties that are collateralized against our loans arelocated in Southern California.  Theloans generated by our loan production offices, which are located outside ofour main geographical market, are generally collateralized by properties inclose proximity to those offices.

** **

**Non-performingAssets**

 

Non-performing assets, or NPAs, consist of non-performing loans, or NPLs, and other NPAs.  NPLs are reportedat their outstanding principal balances, net of any portion guaranteed by SBA, and consist of loans on non-accrual status and loans 90 days or more past dueand still accruing interest. Restructured loans are loans for which the termsof repayment have been renegotiated, resulting in a reduction or deferral ofinterest or principal,  OtherNPAs consist of properties, mainly other real estate owned (“OREO”), acquiredby foreclosure or similar means that management intends to offer for sale.

 

On June 26, 2009, we acquired substantially all theassets and assumed substantially all the liabilities of Mirae Bank from theFDIC.  We also entered into loss sharing agreements with theFDIC in connection with the Mirae acquisition. Under the loss sharing agreements, the FDIC willshare in the losses on assets covered under the agreements, which generallyinclude loans acquired from Mirae Bank and foreclosed loan collateral existingat June 26, 2009.  With respect to losses of up to $83.0 millionon the covered assets, the FDIC has agreed to reimburse us for 80 percent ofthe losses.  On losses exceeding $83.0 million, the FDIC has agreedto reimburse us for 95 percent of the losses.  The loss sharingagreements are subject to our following servicing procedures and satisfyingcertain other conditions as specified in the agreements with theFDIC.  The term for the FDIC’s losssharing on residential real estate loans is ten years, and the term for losssharing on non-residential real estate loans is five years with respect tolosses and eight years with respect to loss recoveries.

 

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The following is a summary of total non-performing loansand OREO on the dates indicated:

 

**Non****-****performing Assets and Restructured Loans********(Dollars in Thousands)**

 
| ** **                                                                      | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| **Total Nonaccrual loans:****(1)**                                              |       |                             |       |                            |       |                             |       |
| Real estate secured                                                             |       | $                                | 70,008     |                            | $          | 63,571                           |       | $ | 65,965 |   |
| Commercial and industrial                                                       |       | 6,303                            |       | 5,805                           |       | 11,379                           |       |
| Consumer                                                                        |       | 37                               |       | 70                              |       | 49                               |       |
| Total                                                                           |       | 76,348                           |       | 69,446                          |       | 77,393                           |       |
| **Loans 90 days or  more past due and still accruing:**                         |       |                             |       |                            |       |                             |       |
| Real estate secured                                                             |       | —                           |       | 1,317                           |       | 477                              |       |
| Commercial and industrial                                                       |       | 304                              |       | —                          |       | 295                              |       |
| Consumer                                                                        |       | —                           |       | 19                              |       | —                           |       |
| Total                                                                           |       | 304                              |       | 1,336                           |       | 772                              |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Total non-performing loans                                                      |       | 76,652                           |       | 70,782                          |       | 78,165                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Repossessed vehicles                                                            |       | —                           |       | —                          |       | —                           |       |
| Other real estate owned                                                         |       | 15,996                           |       | 3,797                           |       | 6,238                            |       |
| Total  non-performing assets, net of SBA guarantee                              |       | $                                | 92,648     |                            | $          | 74,579                           |       | $ | 84,403 |   |
|                                                                            |       |                             |       |                            |       |                             |       |
| Performing  troubled debt restructurings                                        |       | 52,182                           |       | 64,612                          |       | 66,257                           |       |
| Impaired  restructured loans (2)                                                |       | 63,752                           |       | —                          |       | —                           |       |
| Performing  troubled debt restructurings & impaired restructured loans |       | 115,934                          |       | 64,612                          |       | 66,257                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Non-performing  loans as a percentage of total loans                            |       | 3.14                             | %          | 2.92                            | %          | 3.20                             | %          |

 

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(1)   During the periods ended September 30, 2010, December 31,2009, and September 30, 2009 no interest income related to these loans wasincluded in interest income.

(2)   Modified loans that have experienced credit deteriorationsubsequent to modification that, and while currently performing, are deemed tobe impaired.

 

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For the purposes of the table below, loans and OREOcovered under the loss-sharing agreements with the FDIC are referred to as “coveredloans” and “covered OREO”, respectively. Covered loans and covered OREO were recorded at estimated fair value on June 26,2009.

 

The following is a summary of covered non-performingloans and OREO on the dates indicated:

 

**Non****-****performing Covered Loans and Covered OREO********(Dollars in Thousands)**

 
| ** **                                                                      | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| **Covered Nonaccrual loans:****(1)**                                            |       |                             |       |                            |       |                             |       |
| Real  estate secured                                                            |       | $                                | 10,568     |                            | $          | 15,554                           |       | $ | 21,496 |   |
| Commercial  and industrial                                                      |       | 3,031                            |       | 2,773                           |       | 3,511                            |       |
| Consumer                                                                        |       | —                           |       | —                          |       | —                           |       |
| Total                                                                           |       | 13,599                           |       | 18,327                          |       | 25,007                           |       |
| **Loans 90 days or more past due and still accruing:**                          |       |                             |       |                            |       |                             |       |
| Real  estate secured                                                            |       | —                           |       | —                          |       | 477                              |       |
| Commercial  and industrial                                                      |       | —                           |       | —                          |       | 295                              |       |
| Consumer                                                                        |       | —                           |       | —                          |       | —                           |       |
| Total                                                                           |       | —                           |       | —                          |       | 772                              |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Total  non-performing loans                                                     |       | 13,599                           |       | 18,327                          |       | 25,779                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Repossessed  vehicles                                                           |       | —                           |       | —                          |       | —                           |       |
| Other  real estate owned                                                        |       | 6,477                            |       | 500                             |       | 500                              |       |
| Total  covered non-performing assets                                            |       | $                                | 20,076     |                            | $          | 18,827                           |       | $ | 26,279 |   |
|                                                                            |       |                             |       |                            |       |                             |       |
| Performing  troubled debt restructurings                                        |       | 2,160                            |       | 9,175                           |       | 10,494                           |       |
| Impaired  restructured loans (2)                                                |       | 8,556                            |       | —                          |       | —                           |       |
| Performing  troubled debt restructurings & impaired restructured loans |       | 10,716                           |       | 9,175                           |       | 10,494                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Covered  non-performing loans as a percentage of total covered loans            |       | 6.17                             | %          | 7.07                            | %          | 9.38                             | %          |

 

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(1)   During the periods ended September 30,2010, December 31, 2009, and September 30, 2009, no interest incomerelated to these loans was included in interest income.

(2)   Modified loans that have experienced credit deteriorationsubsequent to modification that, and while currently performing, are deemed tobe impaired.

 

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The following table provides information with respect tothe components of our non-performing (non-covered)assets as of the dates indicated (the figures in the table are net of theportion guaranteed by SBA, with the total amounts adjusted and reconciled for the SBA guaranteeportion for the gross non-performing assets):

 

**Non****-****performing****Non-covered****Assets and Restructured Loans********(Dollars in Thousands)**

 
| ** **                                                                      | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| **Non-covered Nonaccrual loans:****(1)**                                        |       |                             |       |                            |       |                             |       |
| Real estate secured                                                             |       | $                                | 59,440     |                            | $          | 48,017                           |       | $ | 44,469 |   |
| Commercial and industrial                                                       |       | 3,272                            |       | 3,032                           |       | 7,868                            |       |
| Consumer                                                                        |       | 37                               |       | 70                              |       | 49                               |       |
| Total                                                                           |       | 62,749                           |       | 51,119                          |       | 52,386                           |       |
| **Loans 90 days or  more past due and still accruing:**                         |       |                             |       |                            |       |                             |       |
| Real estate secured                                                             |       | 304                              |       | 1,317                           |       | —                           |       |
| Commercial and industrial                                                       |       | —                           |       | —                          |       | —                           |       |
| Consumer                                                                        |       | —                           |       | 19                              |       | —                           |       |
| Total                                                                           |       | 304                              |       | 1,336                           |       | —                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Total non-performing loans                                                      |       | 63,053                           |       | 52,455                          |       | 52,386                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Repossessed vehicles                                                            |       | —                           |       | —                          |       | —                           |       |
| Other real estate owned                                                         |       | 9,519                            |       | 3,297                           |       | 5,738                            |       |
| Total  non-covered non-performing assets, net of SBA guarantee                  |       | 72,572                           |       | 55,752                          |       | 58,124                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Guaranteed  portion of non-performing SBA loans                                 |       | 13,058                           |       | 13,421                          |       | 11,583                           |       |
| Total  gross non-covered non-performing assets                                  |       | $                                | 85,630     |                            | $          | 69,173                           |       | $ | 69,707 |   |
|                                                                            |       |                             |       |                            |       |                             |       |
| Performing  troubled debt restructurings                                        |       | 50,022                           |       | 55,437                          |       | 55,763                           |       |
| Impaired  restructured loans (2)                                                |       | 55,196                           |       | —                          |       | —                           |       |
| Performing  troubled debt restructurings & impaired restructured loans |       | 105,218                          |       | 55,437                          |       | 55,763                           |       |
|                                                                            |       |                             |       |                            |       |                             |       |
| Non-covered  non-performing loans as a percentage of totalnon-covered loans     |       | 2.84                             | %          | 2.42                            | %          | 2.41                             | %          |

 

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(1)   During the periods ended September 30, 2010 and December 31,2009, and September 30, 2009 no interest income related to these loans wasincluded in interest income.

(2)         Modified loans that have experienced credit deterioration subsequent to modificationthat, and while currently performing, are deemed to be impaired.

 

Loans are generally placed on non-accrual status whenthey become 90 days past due, unless management believes the loan is adequatelycollateralized and in the process of collection.  The past due loans may or may not beadequately collateralized, but collection efforts are continuously pursued.Loans may be restructured by management when a borrower has experienced somechanges in financial status, causing an inability to meet the originalrepayment terms, and where we believe the borrower will eventually overcomethose circumstances and repay the loan in full.

 

As a result of the challenging economic conditions inthe last few years, credit quality has continued to deteriorate in the pastyear. The general economic conditions in the United States as well as the localeconomies in which we do business have experienced a severe downturn in thehousing sector and the transition to below-trend GDP growth has continued. Thedownward movement of the macroeconomic environment affected our borrowers’strength and our total NPLs, net of SBA guaranteed portion, increased to $76.7million, or 3.14% of total loans at the end of the third quarter of 2010, ascompared with $70.8 million, or 2.92% of total loans at December 30, 2009.The $5.9 million increase of NPLs from December 31, 2009 to September 30,2010 was due to a $6.9 million increase in non-accrual loans, offset by a $1.0million decrease in loans 90 days or more past due and still accruing.  Non-performing loans were also decreased inthe third quarter of 2010 as a result of loan sale transactions in which bothnon-performing and delinquent loans with a total book value of $17.4.0 millionwere sold.

 

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No interest income related tonon-accrual loans was included in net income for the quarter and nine monthsending September 30, 2010. Additional interest income of approximately$890,000 and $3.5 million would have been recorded during the quarter and ninemonths ending September 30, 2010, respectively, if these loans had beenpaid in accordance with their original terms and had been outstanding or, ifnot outstanding throughout the period, since origination.

 

Managementalso believes that the reserves provided for non-performing loans, togetherwith the tangible collateral, were adequate as of September 30, 2010.  See “Allowance for Losses on Loans and Loan Commitments” below for further discussion.

 

**A****llowance for Losses on Loans and****LoanCommitments**

 

Basedon the credit risk inherent in our lending business, we set aside allowancesthrough charges to earnings.  Suchcharges were not only made for the outstanding loan portfolio, but also foroff-balance sheet loan commitments, such ascommitments to extend credit or letters of credit.  Charges made for our outstanding loan portfolio were credited to the allowance for losses on loans, whereas charges related to loan commitments were credited to the reserve for loan commitments, which is presented as a component of otherliabilities.

 

Theallowance for losses on loans and loancommitments are maintained at levels that are believed to be adequate by managementto absorb estimated probable losses on loans inherent in the loan portfolio.The adequacy of our allowance is determined through periodic evaluations of theloan portfolio and other pertinent factors, which are inherently subjectivebecause the process calls for various significant estimates and assumptions.Among other factors, the estimates involve the amounts and timing of expectedfuture cash flows and fair value of collateral on impaired loans, estimatedlosses on loans based on historical loss experience, various qualitativefactors, and uncertainties in estimating losses and inherent risks in thevarious credit portfolios, which may be subject to substantial change.

 

Totalcharge-offs for the three months ending September 30, 2010 were $14.3 millioncompared with $8.2 million for the same period in 2009.  Charge-offs for the nine months ending September 30,2010 were $37.3 million, an increase from $18.1 million in charge-offs for thesame period in 2009.  For the first ninemonths of 2010 real estate loan charge-offs increased from $2.7 million at September 30,2009 to $30.0 million at September 30, 2010 while commercial loancharge-offs decreased from $14.7 million to $7.1 million during the sameperiod.  Charge-offs of consumer loansdecreased from $649,000 at September 30, 2009 to $224,000 at September 30,2010. For the quarter ending September 30, 2010 real estate securedcharge-offs were $12.8 million, an increase from $1.9 at the quarter ending September 30,2009.  Both commercial and industrial andconsumer charge-offs were decreased to $1.5 million and $33,000, respectively,at the end of the third quarter of 2010, from $6.1 million and $191,000 at theend of the third quarter of 2009.

 

Ona quarterly basis, we utilize a loan loss migration model and individual loanreview analysis as starting points for determining the adequacy of ourallowance for losses on loans. Our loss migration analysis tracks a certainnumber of quarters of loan losses history to determine historical losses by classificationcategory for each loan type, except certain loans (automobile, mortgage andcredit scored based business loans), which are analyzed as homogeneous loanpools. These calculated loss factors are then applied to outstanding loanbalances.  Based on Company definedutilization rate of exposure for unused off-balance sheet loan commitments,such as letters of credit, we record a reserve for loancommitments.

 

Theindividual loan review analysis is the other part of the allowance allocationprocess, applying specific monitoring policies and procedures in analyzing theexisting loan portfolios. Further allowance assignments are made based ongeneral and specific economic conditions, as well as performance trends withinspecific portfolio segments and individual concentrations of credit.

 

Duringthe third quarter of 2010, the Company enhanced the overall allowance for loanlosses methodology.  The key enhancementsto our allowance methodology involved changes to our general valuationallowance calculation.  As a result ofchanges to our loan portfolio since the initial implementation of our allowancefor loan losses methodology, enhancements were made to the migration model andqualitative adjustment calculation to better reflect the current environmentand risk in the loan portfolio.  Theenhancements to our historical loss rate calculation included a change in ouranalysis period from five to three years. In addition, our qualitative adjustment matrix was enhanced to includeupdated risk factors and a new calculation method.  As a result of the enhancements to theallowance methodology, the general valuation allowance component of allowancefor loan losses decreased by $804,000 to $64.8 million at September 30, 2010compared to the previous quarter. The allowance for loan losses methodologyenhancement did not have a significant impact on the ending allowance for loanlosses figures.

 

We increased our allowance for losses on loans to $99.0 million at September 30, 2010, representing an increaseof 59.4%, or $36.9 million from $62.1 million at December 31, 2009. With the increase of our non-performing loans, wehave increased the ratio of allowance for losses on loans to total gross loans to 4.04% at September 30, 2010, as compared withthe 2.56% at December 31, 2009.  Ourtotal general reserve stands at $64.8 million and represents 2.7% of totalgross loans at the end of September 30, 2010. Althoughmanagement believes our allowance at September 30, 2010 was adequate toabsorb losses from any known and inherent risks in the portfolio at that time,no assurance can be given that economic conditions which adversely affect ourservice areas or other variables will not result in further increased losses inthe loan portfolio in the future.

 

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Our allowance for losses on off-balance sheet itemsincreased to $2.9 million at September 30, 2010, compared to $2.5 millionat December 31, 2009, an increase of $400,000.

 

Thetable below summarizes for the periods indicated, changes in the allowance forlosses on loans arising from loans charged-off, recoveries on loans previouslycharged-off, additions to the allowance and certain ratios related to theallowance for losses on loans and loan commitments:

** **

**Allowance for Loan Losses andLoan Commitments**

**(Dollars in Thousands)**

 
| ** **                                                                   | ** ** | **For the Three Months Ended September 30,** | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2010**                                                                   | ** ** | **2009**                                                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| **Allowance  for loan losses:**                                              |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Balances  at beginning of period                                             |       | $                                                                          | 91,419     |                                                                      | $          | 38,758 |   | $ | 62,130 |   | $ | 29,437 |   |
|                                                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| **Actual  charge-offs:** *                                                   |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Real estate secured                                                          |       | 12,769                                                                     |       | 1,888                                                                     |       | 30,009 |   | 2,736 |   |
| Commercial and industrial                                                    |       | 1,539                                                                      |       | 6,134                                                                     |       | 7,094 |   | 14,703 |   |
| Consumer                                                                     |       | 33                                                                         |       | 191                                                                       |       | 224 |   | 649 |   |
| Total charge-offs                                                            |       | 14,341                                                                     |       | 8,213                                                                     |       | 37,327 |   | 18,088 |   |
|                                                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| **Recoveries  on loans previously charged off:**                             |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Real estate secured                                                          |       | 770                                                                        |       | 2                                                                         |       | 794 |   | 3 |   |
| Commercial and industrial                                                    |       | 179                                                                        |       | 189                                                                       |       | 1,442 |   | 495 |   |
| Consumer                                                                     |       | 42                                                                         |       | 33                                                                        |       | 140 |   | 100 |   |
| Total recoveries                                                             |       | 991                                                                        |       | 224                                                                       |       | 2,376 |   | 598 |   |
|                                                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Net loan charge-offs                                                         |       | 13,350                                                                     |       | 7,989                                                                     |       | 34,951 |   | 17,490 |   |
|                                                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| FDIC Indemnification                                                         |       | 2,954                                                                      |       | —                                                                    |       | 5,645 |   | — |   |
| Provision for losses on loan  and loan commitments                           |       | 17,999                                                                     |       | 23,966                                                                    |       | 66,198 |   | 42,788 |   |
| Balances at end of year                                                      |       | $                                                                          | 99,022     |                                                                      | $          | 54,735 |   | $ | 99,022 |   | $ | 54,735 |   |
| **Allowance  for loan commitments:**                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Balances  at beginning of period                                             |       | $                                                                          | 3,516      |                                                                      | $          | 1,221 |   | $ | 2,515 |   | $ | 1,243 |   |
| Provision (credit) for  losses on loan commitments                           |       | 1                                                                          |       | 234                                                                       |       | 1,002 |   | 212 |   |
| Balance at end of period                                                     |       | $                                                                          | 3,517      |                                                                      | $          | 1,455 |   | $ | 3,517 |   | $ | 1,455 |   |
|                                                                         |       |                                                                       |       |                                                                      |       |   |   |   |   |
| **Ratios**:                                                                  |       |                                                                       |       |                                                                      |       |   |   |   |   |
| Net loan charge-offs to  average total loans                                 |       | 0.56                                                                       | %          | 0.33                                                                      | %          | 1.47 | % | 0.88 | % |
| Allowance for loan losses to  total loans at end of period                   |       | 4.05                                                                       | %          | 2.24                                                                      | %          | 4.05 | % | 2.24 | % |
| Net loan charge-offs to  allowance for loan losses at end of period          |       | 13.48                                                                      | %          | 14.60                                                                     | %          | 35.30 | % | 31.95 | % |
| Net loan charge-offs to  provision for losses on loans and  loan commitments |       | 74.17                                                                      | %          | 33.02                                                                     | %          | 52.01 | % | 40.67 | % |

 

----

*****Charge-off amount for the three monthsended September 30, 2010 includes net charge-offs of covered loansamounting to $415,000, which represents gross covered loan charge-offs of $1.6million less FDIC receivable portion of $1.2 million. Charge-off amount for thenine months ended September 30, 2010 includes net charge-offs of coveredloans amounting to $1.4 million, which represents gross covered loancharge-offs of $9.3 million less FDIC receivable portion of $7.9 million

 

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**ContractualObligations**

 

Thefollowing table represents our aggregate contractual obligations to make futurepayments (principal and interest) as of September 30, 2010:

 
| **(Dollars in Thousands)** | ** ** | **One Year****or Less** | ** ** | **Over One Year   To Three Years** | ** ** | **Over Three Years  To Five Years** | ** ** | **Over Five   Years** | ** ** | **Indeterminate   Maturity** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------|------------|---------------------------------|------------|-----------------------------------|------------|-----------|------------|
| FHLB  advances                       |       | $                                 | 42,282     |                                                        | $          | 70,323                                                  |       | $                               | —     |                              | $          | —    |       | $ | — |   | $ | 112,605 |   |
| Junior  subordinated debentures      |       | 752                               |       | 10,725                                                      |       | —                                                  |       | 77,321                          |       | —                            |       | 88,798    |       |
| Operating  leases                    |       | 3,433                             |       | 5,994                                                       |       | 4,998                                                   |       | 5,264                           |       | —                            |       | 19,689    |       |
| Unrecognized tax benefit             |       | —                            |       | —                                                      |       | —                                                  |       | —                          |       | 398                               |       | 398       |       |
| Time  deposits                       |       | 1,291,900                         |       | 82,669                                                      |       | 19                                                      |       | —                          |       | —                            |       | 1,374,588 |       |
| Total                                |       | $                                 | 1,338,367  |                                                        | $          | 169,711                                                 |       | $                               | 5,017      |                              | $          | 82,585    |       | $ | 398 |   | $ | 1,596,078 |   |

 

**Off-BalanceSheet Arrangements**

 

Duringthe ordinary course of business, we provide various forms of credit lines tomeet the financing needs of our customers. These commitments, which represent a credit risk to us, are not shown orstated in any form on our balance sheets.

 

Asof September 30, 2010 and December 31, 2009, we hadcommitments to extend credit of $280.0 million and $238.2 million, respectively. Obligations under standby letters of credit were $10.5 million and $13.0 million at September 30,2010 and December 31, 2009, respectively,and our obligations under commercial letters of credit were $11.1 million and $10.2 million atsuch dates, respectively.  Commitments tofund Low Income Housing Tax Credit investments were $12.9 million at the end ofthe third quarter of 2010 compared to $11.5 million at the end of the fourthquarter of 2009.

 

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

 

**Depositsand Other Sources of Funds**

 

Depositsare our primary source of funds. Total deposits decreased to $2.71 billion at September 30,2010, compared with $2.83 billion at December 31,2009.

 

Totalnon-time deposits at September 30, 2010 increased to $1.35 billion in thefirst nine months of 2010, from $1.39 billion at December 31, 2009, andtime deposits decreased to $1.36 billion at September 30, 2010 from $1.44billion at December 31, 2009.

 

Thedecrease in deposits was primarily attributable to management’s plannedreduction of higher cost money market and time deposits accounts and a pushtoward demand deposits in the second and third quarter of 2010.  Other time deposits or time deposits under$100,000 also decreased to $628.3 million at September 30, 2010 comparedto $643.7 million at December 31, 2009. Compared to December 31,2010, all deposits except for savings and interest check and demand depositsaccounts were reduced as of September 30, 2010.

 

Theaverage rate that we paid on time deposits in denominations of $100,000 or morefor the third quarter of 2010 decreased to1.32% from 2.28% in the same period of the prior year. In order to keep theinterest expense down, we plan to closely monitor interest rate trends andchanges, and our time deposit rates, in an effort to maximize our net interestmargin and profitability.  In addition weplan to continue to reduce higher cost deposits in the fourth quarter of2010.  Total cost of deposits also decreasedfrom 2.04% for the quarter ending September 30, 2009 to 1.24% for thequarter ending September 30, 2010, a decrease of 80 basis points.

 

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Thefollowing table summarizes the distribution of average daily deposits and theaverage daily rates paid for the quarters indicated:

 

**Average Deposits**

**(Dollars in Thousands)**

 
| ** **                                         | ** ** | **For the Three Months Ended,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **September 30, 2010**                    | ** ** | **December 31, 2009** | ** ** | **September 30, 2009** | ** ** |
| ** **                                         | ** ** | **Average****Balance**                              | ** ** | **Average****Rate** | ** ** | **Average****Balance** | ** ** | **Average****Rate** | ** ** | **Average****Balance** | ** ** | **Average****Rate** | ** ** |
|                                               |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Demand, non-interest-bearing                       |       | $                                                   | 438,346    | ** ** | ** ** |   | $ | 388,549 | ** ** | ** ** |   | $ | 374,744 | ** ** | ** ** | ** ** |
| Money market                                       |       | 858,437                                             |       | 1.17 | % | 853,770 |   | 2.18 | % | 677,234 |   | 2.41 | % |
| Super NOW                                          |       | 21,706                                              |       | 0.42 | % | 21,971 |   | 0.65 | % | 21,481 |   | 0.93 | % |
| Savings                                            |       | 78,848                                              |       | 2.99 | % | 68,373 |   | 3.33 | % | 62,090 |   | 3.39 | % |
| Time deposits in denominations of $100,000 or more |       | 743,966                                             |       | 1.32 | % | 862,805 |   | 1.91 | % | 984,521 |   | 2.28 | % |
| Other time deposits                                |       | 668,873                                             |       | 2.86 | % | 592,336 |   | 2.27 | % | 427,234 |   | 2.56 | % |
| Total deposits                                     |       | $                                                   | 2,810,176  |   | 1.24 | % | $ | 2,787,804 |   | 1.83 | % | $ | 2,547,304 |   | 2.04 | % |

 

Thescheduled maturities of our time deposits in denominations of $100,000 orgreater at September 30, 2010 were asfollows:

 

**Maturities of Time Deposits of$100,000 or More**

**(Dollars in Thousands)**

 
| Three months or less                   |   | $       | 323,096 |   |
|----------------------------------------|--------|---------|---------|--------|
| Over three months through  six months  |   | 217,513 |    |
| Over six months through  twelve months |   | 122,485 |    |
| Over twelve months                     |   | 68,782  |    |
| Total                                  |   | $       | 731,876 |   |

 

Anumber of clients carry deposit balances of more than 1% of our total deposits,but the California State Treasury was the only depositor that had a depositbalance representing more than 5% of our total deposits at September 30,2010 and December 31, 2009.

 

Inaddition to our regular customer base, we also accept brokered deposits on aselective basis at reasonable interest rates to augment deposit growth.  In thefirst nine months of 2010, despite the ongoing weakness in the economy andstiff competition for customer deposits among banks within the markets where wedo business, we were able to increase non-interest bearing demand deposits to$453.3 million at September 30, 2010 from $385.2 million at December 31,2009. We expect that interest rates will trend upward when the Federal ReserveBoard starts increasing the federal funds rate. To improve our net interestmargin as well as to maintain flexibility in our cost of funds, we willconstantly monitor our deposit mix to minimize our cost of funds.

 

Although deposits are the primary source of fundsfor our lending and investment activities and for general business purposes, wemay obtain advances from the FHLB as an alternative to retail depositfunds.  We have historically utilizedborrowings from the FHLB in order to take advantage of their flexibility andcomparatively low cost.  Due to theongoing credit crisis and stiff competition for customer deposits among banks,we have increased FHLB borrowing as an alternative to fund our growing loanportfolio. See “Liquidity Management”below for details relating to the FHLB borrowings program.

 

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Thefollowing table is a summary of FHLB borrowings for the quarters indicated:

 
| **(Dollars in Thousands)**         | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                   | ** ** | ** **                       | ** ** | ** **                      | ** ** |
| Balance at quarter end                       |       | $                                | 110,000    |                            | $          | 232,000 |   |
| Average balance during the  quarter          |       | $                                | 117,913    |                            | $          | 237,341 |   |
| Maximum amount outstanding  at any month-end |       | $                                | 118,000    |                            | $          | 242,000 |   |
| Average interest rate during  the quarter    |       | 2.57                             | %          | 3.05                            | %          |
| Average interest rate at  quarter-end        |       | 2.46                             | %          | 2.22                            | %          |

 

**Asset/LiabilityManagement**

 

Weseek to ascertain optimum and stable utilization of available assets andliabilities as a vehicle to attain our overall business plans andobjectives.  In this regard, we focus onmeasurement and control of liquidity risk, interest rate risk and market risk,capital adequacy, operation risk and credit risk.  See further discussion on these risks in the “RiskFactors” section of our Annual Report on Form 10-K for the year ended December 31,2009.  Information concerning interestrate risk management is set forth under “Item 3 - Quantitative and QualitativeDisclosures about Market Risk.”

 

**LiquidityManagement**

 

Maintenanceof adequate liquidity requires that sufficient resources be available at alltimes to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide fordeposit withdrawals and the credit needs of its customers and to take advantageof investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash orcash equivalents without incurring significant loss, and to raise cash ormaintain funds without incurring excessive additional cost.  For this purpose, we maintain a portion ofour funds in cash and cash equivalents, deposits in other financialinstitutions and loans and securities available for sale.  Our liquid assets at September 30, 2010and December 31, 2009 totaledapproximately $718.1 million and $923.4 million,respectively.  Our liquidity levelsmeasured as the percentage of liquid assets to total assets were 22.2% and 26.9% at September 30, 2010 and December 31, 2009, respectively.

 

Our primary sources of liquidity are derived from ourcore operating activities of accepting customer deposits. This funding sourceis augmented by payments of principal and interest on loans, the routineliquidation of securities from the available-for-sale portfolio andsecuritizations of loans. In addition, government programs, such as TLGP, mayinfluence deposit behavior. Primary use of funds include withdrawal of andinterest payments on deposits, originations and purchases of loans, purchasesof investment securities, and payment of operating expenses.

 

Asa secondary source of liquidity, we accept brokered deposits, federal fundsfacilities, repurchase agreement facilities, and obtain advances from the FHLBto supplement our supply of lendable funds and to meet deposit withdrawalrequirements.  Advances from the FHLB aretypically secured by our loans, securities and stock issued by the FHLB.  Advances are made pursuant to severaldifferent programs.  Each credit programhas its own interest rate and range of maturities.  Depending on the program, limitations on theamount of advances are based either on a fixed percentage of an institution’snet worth or on the FHLB’s assessment of the institution’s creditworthiness. Asof September 30, 2010, our borrowing capacity from the FHLB was about$693.6 million and our outstanding balance was $110.0 million, orapproximately 17.2% of ourborrowing capacity**.**

 

**CapitalResources and Capital Adequacy Requirements**

 

Historically,our primary source of capital has been internally generated operating incomethrough retained earnings.  In order toensure adequate levels of capital, we conduct ongoing assessments of projectedsources and uses of capital in conjunction with projected increases in assetsand level of risks.  We have considered,and we will continue to consider, additional sources of capital as the needarises, whether through the issuance of additional equity, debt or hybridsecurities. In December of 2008, we received a TroubledAssets Relief Program or “TARP”investment from the U.S. Treasury in the amount of $62.2 million.

 

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Weare subject to various regulatory capital requirements administered by federalbanking agencies. Under capital adequacy guidelines and the regulatoryframework for prompt corrective action, we must meet specific capitalguidelines that rely on quantitative measures of our assets, liabilities andcertain off-balance-sheet items as calculated under regulatory accountingpractices.  Failureto meet minimum capital requirements can trigger regulatory actions under theprompt corrective action rules that could have a material adverse effecton our financial condition and operations. Prompt corrective action may include regulatory enforcement actions thatrestrict dividend payments, require the adoption of remedial measures toincrease capital, terminate FDIC deposit insurance, and mandate the appointmentof a conservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status may adverselyaffect the evaluation of regulatory applications for specific transactions andactivities, including acquisitions, continuation and expansion of existingactivities, and commencement of new activities, and could adversely affect ourbusiness relationships with our existing and prospective clients.  The aforementioned regulatory consequencesfor failing to maintain adequate ratios of Tier 1 and Tier 2 capital could havea material adverse effect on our financial condition and results ofoperations.  Our capital amounts andclassification are also subject to qualitative judgments by regulators aboutcomponents, risk weightings, and other factors. See Part I, Item 1 “Description of Business — Regulation andSupervision — Capital Adequacy Requirements” in our Annual Report on Form 10-Kfor the year ended December 31, 2009 for additionalinformation regarding regulatory capital requirements.

 

Asof September 30, 2010, we were qualified as a “well capitalizedinstitution” under the regulatory framework for prompt corrective action.  The following table presents the regulatorystandards for well-capitalized institutions, compared to capital ratios as ofthe dates specified for the Company and the Bank:

 

**WilshireBancorp, Inc.**

 
| ** **                              | ** ** | **Regulatory  Adequately-  Capitalized ** | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Actual ratios for the Company as of:** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                              | ** ** | **Standards**                                  | ** ** | **Standards**                      | ** ** | **September 30, 2010**                                       | ** ** | **December 31, 200****9** | ** ** | **September 30, 2009** | ** ** |
|                                    |       |                                           |       |                               |       |                                                                   |       |   |   |   |   |
| Total capital to  risk-weighted assets  |       | 8                                              | %          | 10                                 | %          | 15.56                                                                  | %          | 15.81 | % | 15.82 | % |
| Tier I capital to  risk-weighted assets |       | 4                                              | %          | 6                                  | %          | 14.10                                                                  | %          | 14.37 | % | 14.29 | % |
| Tier I capital to average  assets       |       | 4                                              | %          | 5                                  | %          | 10.01                                                                  | %          | 9.77 | % | 10.03 | % |

 

**Wilshire State Bank**

 
| ** **                              | ** ** | **Regulatory  Adequately-  Capitalized ** | ** ** | **Regulatory**

**Well-**

**Capitalized ** | ** ** | **Actual ratios for the Bank as of:** | ** ** |
|-----------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                              | ** ** | **Standards**                                  | ** ** | **Standards**                                    | ** ** | **September 30, 2010**                                    | ** ** | **December 31, 200****9** | ** ** | **September 30, 2009** | ** ** |
|                                    |       |                                           |       |                                             |       |                                                                |       |   |   |   |   |
| Total capital to  risk-weighted assets  |       | 8                                              | %          | 10                                               | %          | 15.17                                                               | %          | 15.73 | % | 15.63 | % |
| Tier I capital to  risk-weighted assets |       | 4                                              | %          | 6                                                | %          | 13.71                                                               | %          | 14.29 | % | 14.10 | % |
| Tier I capital to average  assets       |       | 4                                              | %          | 5                                                | %          | 9.73                                                                | %          | 9.71 | % | 9.90 | % |

 

Forthe purposes of our regulatory capital ratio computation, our equity capitalincludes the $62.2 million Series A Preferred Stock issued by the Companyto the U.S. Treasury as part of our participation of the TARP Capital PurchaseProgram. As of September 30, 2010, the Company’s total Tier 1 capital(which includes our equity capital, plus junior subordinated debentures, lessgoodwill and intangibles) was $333.1 million, as compared with $331.4 millionas of December 31, 2009. For the Bank level, Tier 1 capital was $323.6million as of September 30, 2010, compared with $329.3 million as of December 31,2009.

 

As a result of weakness in the economy the Company has experiencedelevated credit costs which have in turn had an impact on income and overallcapital adequacy.  Although the Company’scapital levels currently remain at well above the minimum for a “wellcapitalized” institution, the Board of Directors of Wilshire Bancorp approvedthe temporary suspension of the Company’s common stock dividend in the secondquarter of 2010.  The suspension incommon stock dividend is a cautionary step in the event that credit costsremain elevated in the near future.

 

**Item3.****                                                          ****Quantitative and Qualitative Disclosures****a****bout Market Risk**

 

Marketrisk is the risk of loss from adverse changes in market prices and rates.  Our market risk arises primarily frominterest rate risk inherent in lending, investing and deposit takingactivities.  Our profitability isaffected by fluctuations in interest rates. A sudden and substantial change ininterest rates may adversely impact our earnings to the extent that the interestrates borne by assets and liabilities do not change at the same speed, to thesame extent or on the same basis. We evaluate market risk pursuant to policiesreviewed and approved annually by our Board of Directors.  The Company’s Board delegates responsibilityfor market risk management to the Asset/Liability Management Committee, whichreports monthly to the Board on activities related to market riskmanagement.  As part of the management ofour market risk, Asset/Liability Management Committee may direct changes in themix of assets and liabilities.  To thatend, we actively monitor and manage interest rate risk exposures.

 

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Interestrate risk management involves development, analysis, implementation andmonitoring of earnings to provide stable earnings and capital levels duringperiods of changing interest rates.  Inthe management of interest rate risk, we utilize monthly gap analysis andquarterly simulation modeling to determine the sensitivity of net interestincome and economic value sensitivity of the balance sheet.  These techniques are complementary and areused together to provide a more accurate measurement of interest rate risk.

 

Gapanalysis measures the repricing mismatches between assets and liabilities.  The interest rate sensitivity gap isdetermined by subtracting the amount of liabilities from the amount of assetsthat reprice in a particular time interval. If repricing assets exceed repricing liabilities in any given timeperiod, we would be deemed to be “asset-sensitive” for that period.  Conversely, if repricing liabilities exceedrepricing assets in a given time period, we would be deemed to be “liability-sensitive”for that period.

 

We usually seek to maintain a balanced position over the period of one year toensure net interest margin stability in times of volatile interest rates.  This is accomplished by maintaining a similarlevel of interest-earning assets and interest-paying liabilities available tobe repriced within one year.

 

Thechange in net interest income may not always follow the general expectations ofan “asset-sensitive” or a “liability-sensitive” balance sheet during periods ofchanging interest rates.  This possibilityresults from interest rates earned or paid changing by differing increments andat different time intervals for each type of interest-sensitive asset andliability.  The interest rate gapsreported in the tables arise when assets are funded with liabilities havingdifferent repricing intervals.  Becausethese gaps are actively managed and change daily as adjustments are made ininterest rate views and market outlook, positions at the end of any period maynot reflect our interest rate sensitivity in subsequent periods.  We attempt to balance longer-term economicviews against prospects for short-term interest rate changes.

 

Although the interest rate sensitivity gap is a usefulmeasurement and contributes to effective asset and liability management, it isdifficult to predict the effect of changing interest rates based solely on thatmeasure.  As a result, theAsset/Liability Management Committee also regularly uses simulation modeling asa tool to measure the sensitivity of earnings and net portfolio value, or NPV,to interest rate changes.  The NPV isdefined 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-balancesheet financial instruments and accounts for significant variables that arebelieved to be affected by interest rates. These include prepayment speeds on loans, cash flows of loans anddeposits, principal amortization, call options on securities, balance sheetgrowth assumptions and changes in rate relationships as various rate indicesreact differently to market rates.

 

Although the simulation measures the volatility of netinterest income and net portfolio value under immediate increase or decrease ofmarket interest rate scenarios in 100 basis point increments, our main concernis the negative effect of a reasonably-possible worst scenario.  The Asset/Liability Management Committeepolicy prescribes that for the worst possible rate-changescenario the possible reduction of net interest income and NPV should notexceed 20% of the base net interest income and 25% of the base NPV,respectively.

 

In general, based upon our current mix of deposits,loans and investments, decrease in interest rates would result an increase in ournet interest margin and NPV. An increase in interest rates would be expected tohave opposite effect. However, given in the record low interest rateenvironment, either an increase or decrease in interest rates will result inhigher net interest margin, while either an increase or decrease in interestrates will lower NPV as shown in our simulation measures below.

 

Management believes that the assumptions used toevaluate the vulnerability of our operations to changes in interest ratesapproximate actual experience and considers them reasonable; however, theinterest rate sensitivity of our assets and liabilities and the estimatedeffects of changes in interest rates on our net interest income and NPV couldvary substantially if different assumptions were used or actual experiencediffers from the historical experience on which they are based.

 

Thefollowing table sets forth the interest rate sensitivity of ourinterest-earning assets and interest-bearing liabilities as of September 30,2010 using the interest rate sensitivity gap ratio.  For purposes of the following table, an assetor liability is considered rate-sensitive within a specified period, if it canbe repriced or if it matures within that timeframe. Actual payment patterns maydiffer from contractual payment patterns.

 

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** **

**Interest Rate SensitivityAnalysis********(Dollars in Thousands)**

 
| ** **                                                              | ** ** | **At September 30, 2010**                    | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **Amounts Subject to Repricing Within** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **0-3 months**                                         | ** ** | **3-12 months** | ** ** | **1-5 years** | ** ** | **After 5 years** | ** ** | **Total** | ** ** |
| Interest-earning assets:                                                | ** ** | ** **                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Gross loans                                                             |       | $                                                           | 1,456,808  |   | $ | 242,849 |   | $ | 731,920 |   | $ | 17,399 |   | $ | 2,448,976 |   |
| Investment securities                                                   |       | 1,605                                                       |       | 9,261 |   | 241,949 |   | 114,709 |   | 367,524 |   |
| Federal funds sold and cash  equivalents                                |       | 201,006                                                     |       | — |   | — |   | — |   | 201,006 |   |
| Interest-earning deposits                                               |       | —                                                      |       | — |   | — |   | — |   | — |   |
| Total                                                                   |       | $                                                           | 1,659,419  |   | $ | 252,110 |   | $ | 973,869 |   | $ | 132,108 |   | $ | 3,017,506 |   |
|                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Savings deposits                                                        |       | $                                                           | 81,139     |   | $ | — |   | $ | — |   | $ | — |   | $ | 81,139 |   |
| Time deposits of $100,000 or  more                                      |       | 323,096                                                     |       | 348,762 |   | 60,018 |   | — |   | 731,876 |   |
| Other time deposits                                                     |       | 184,547                                                     |       | 431,176 |   | 12,622 |   | — |   | 628,345 |   |
| Other interest-bearing  deposits                                        |       | 812,055                                                     |       | — |   | — |   | — |   | 812,055 |   |
| FHLB advances and other  borrowings                                     |       | 21,547                                                      |       | 40,000 |   | 70,000 |   | — |   | 131,547 |   |
| Junior Subordinated  Debenture                                          |       | 71,857                                                      |       | 15,464 |   | — |   | — |   | 87,321 |   |
| Total                                                                   |       | $                                                           | 1,494,241  |   | $ | 835,402 |   | $ | 142,640 |   | $ | — |   | $ | 2,472,283 |   |
|                                                                    |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest rate sensitivity  gap                                          |       | $                                                           | 165,178    |   | $ | (583,292 | ) | $ | 831,229 |   | $ | 132,108 |   | $ | 545,223 |   |
| Cumulative interest rate  sensitivity gap                               |       | $                                                           | 165,178    |   | $ | (418,114 | ) | $ | 413,115 |   | $ | 545,223 |   |   |   |
| Cumulative interest rate  sensitivity gap ratio (based on total assets) |       | 5.11                                                        | %          | -12.93 | % | 12.78 | % | 16.87 | % |   |   |

 

Thefollowing table sets forth our estimated net interest income over a 12-monthperiod and NPV based on the indicated changes in market interest rates as of September 30,2010.  All assets presented in this tableare held-to-maturity or available-for-sale. At September 30, 2010, we had no trading investment securities:

 
| **Change********(in basis points)** | ** ** | **Net Interest Income****(next twelve months)****(Dollars in Thousands)** | ** ** | **% Change** | ** ** | **NPV********(Dollars in Thousands)** | ** ** | **% Change** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------------------------------------|------------|-------------------|------------|
| +200                                          |       | $                                                                                                       | 124,838    |              | -0.42      | %                                               | $          | 349,942           |       | -0.92 | % |
| +100                                          |       | 124,279                                                                                                 |       | -0.86             | %          | 358,378                                         |       | 1.47              | %          |
|   0                                      |       | 125,360                                                                                                 |       | —            |       | 353,191                                         |       | —            |       |
| -100                                          |       | 127,500                                                                                                 |       | 1.71              | %          | 326,676                                         |       | -7.51             | %          |
| -200                                          |       | 128,901                                                                                                 |       | 2.82              | %          | 302,636                                         |       | -14.31            | %          |
|                                               |            |                                                                                                         |            |                   |            |                                                 |            |                   |            |  |  |

 

Our strategies in protecting both net interest incomeand economic value of equity from significant movements in interest ratesinvolve restructuring our investment portfolio and using FHLB advances.  Although our policy also permitsus to purchase rate capsand floors and interest rate swaps, we are not currently engaged in any ofthose types of transactions.

 

**Item4.****                                                          ****Controls and Procedures**

 

Asof September 30, 2010, we carried out an evaluation, under the supervisionand with the participation of our management, including our chief executiveofficer and chief financial officer, regardingthe effectiveness of the design and operation of our “disclosurecontrols and procedures,” as defined under Exchange Act Rules 13a-15(e) and15d-15(e).

 

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Basedon this evaluation, our chief executive officer and chief financial officerconcluded that, as of September 30, 2010, such disclosure controls andprocedures were effective to ensure that information required to be disclosedby 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 andforms of the SEC, and accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognized that any controls and procedures, no matter how well designed andoperated, can only provide reasonable assurance in achieving thedesired control objectives and in reaching a reasonable level of assurance ourmanagement necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

Therewere no changes in our internal controls over financial reporting during thequarter ended September 30, 2010 that materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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**Part II.   OTHER INFORMATION**

 

**Item 1.****                          ****Legal Proceedings**

 

Inthe normal course of business, we are involved in various legal claims. We havereviewed all legal claims against us with counsel and have taken intoconsideration the views of such counsel as to the outcome of the claims. We donot believe the final disposition of all such claims will have a materialadverse effect on our financial position or results of operations.

 

**Item 1A. RiskFactors**

 

Certain risks describedbelow update the risk factors in Part 1, Item 1A. Risk Factorsin our Annual Report on Form 10-K for the year ended December 31,2009. The risks and uncertainties described below are not the only ones weface. Additional risks and uncertainties may also impair our businessoperations. This report is qualified in its entirety by these risk factors.

 

*Recently enacted regulatoryreforms could have a significant impact on our business, financial conditionand results of operations.*

 

On July 21, 2010, President Obama signed intolaw the Dodd-Frank Wall Street Reform and Consumer Protection Act (the“Dodd-Frank Act”). Although certain provisions of the Dodd-FrankAct will not apply to banking organizations with less than $10 billion ofassets, such as the Company and the Bank, the changes resulting from thelegislation will impact our business. The Dodd-Frank Act will permit us to pay interest on business checkingaccounts, which could (i) cause the Federal Reserve Board to amend itsRegulation D establishing reserve requirements for depository institutions, and(ii) significantly reduce or eliminate the need for depositoryinstitutions to offer sweep account products. Additionally, effective July 6, 2010, regulatory changes inoverdraft and interchange fee restrictions may reduce our non-interestincome. We are currently in the process of evaluating this regulatory change,but have not fully quantified the full impact. Compliance with the Dodd-Frank Act’s provisions may curtail ourrevenue opportunities, increase our operating costs, requires us to hold higherlevels of regulatory capital and/or liquidity or otherwise adversely affect ourbusiness or financial results in the future. Our management is actively reviewing the provisions of the Dodd-FrankAct and assessing its probable impact on our business, financial condition, andresult of operations. However, because many aspects of the Dodd-Frank Actare subject to future rulemaking, no assurance can be given as to the ultimate effectthat the Dodd-Frank Act or any of its provisions may have on the Company, thefinancial services industry or the nation’s economy.

 

Inaddition, on September 12, 2010, the Group of Governors and Heads ofSupervision, the oversight body of the Basel Committee, announced agreement onthe calibration and phase-in arrangements for a strengthened set ofcapital requirements, known as Basel III. Basel III increases the minimum Tier1 common equity ratio to 4.5%, net of regulatory deductions, and introduces acapital conservation buffer of an additional 2.5% of common equity torisk-weighted assets, raising the target minimum common equity ratio to7%. This capital conservation buffer also increases the minimum Tier 1 capitalratio from 6% to 8.5% and the minimum total capital ratio from 8% to10.5%.  In addition, Basel III introducesa countercyclical capital buffer of up to 2.5% of common equity or other fullyloss absorbing capital for periods of excess credit growth.  Basel III also introduces a non-riskadjusted Tier 1 leverage ratio of 3%, based on a measure of total exposurerather than total assets, and new liquidity standards. The Basel III capitaland liquidity standards will be phased in over a multi-year period. Thefinal package of Basel III reforms will be submitted to the Seoul G20 LeadersSummit in November, 2010 for endorsement by G20 leaders, and then will besubject to individual adoption by member nations, including the United States.The Federal Reserve will likely implement changes to the capital adequacystandards applicable to the Company and the Bank in light of Basel III.

 

*Increases in the level ofnon-performing loans could adversely affect our business, profitability, andfinancial condition.*

 

Increasein non-performing loans could have an adverse effect on our earnings as aresult of related increases in our provisions for loan losses, charge-offs, andother losses related to non-performing loans. The increase in nonperformingloans and resulting decline in earnings could deplete our capital, leaving theCompany undercapitalized. As a result of downturns in the economy in recentyears, our non-performing loans were $78.7 million at September 30, 2009and $70.8 million at December 31, 2009 and $76.7 million at September 30,2010.

 

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*Income that we recognized andcontinue to recognize in connection with our 2009 FDIC-assisted Mirae Bankacquisition may be non-recurring or finite in duration.*

 

On June 26, 2009, we acquired the bankingoperations of Mirae Bank from the FDIC. Through the acquisition, we acquiredapproximately $395.6 million of assets and assumed $374.0 million ofliabilities.  The Mirae Bank acquisitionwas accounted for under the purchase method of accounting and we recorded abargain purchase gain totaling $21.7 million as a result of theacquisition.  This gain was included as acomponent of noninterest income on our statement of income for 2009.  The amount of the gain was equal to theamount by which the fair value of assets purchased exceeded the fair value ofliabilities.  The bargain purchase gainresulting from the acquisition was a one-time, extraordinary gain that is notexpected to be repeated in future periods.

 

In addition, the loans that we acquired from Mirae Bankwere acquired at a $54.9 million discount. This discount is amortized and accreted to interest income on a monthlybasis.  However, as these loans are paid-off, charged-off, sold, ortransferred to non-accrual status, the income from the discount accretion isreduced. As the acquired loans are removed from our books, the related discountwill no longer be available for accretion into income.  During 2009, accretion of $6.7 million onloans purchased at a discount was recorded as interest income.  During the first six months of 2010,accretion of $2.5 million was recorded as interest income.  As of June 30, 2010, the balance of thecarrying value of our discount on loans was $20.6 million, which has decreasedby $10.3 million from its carrying value of $30.9 million as of December 31,2009 and by $34.3 million from its initial value of $54.9 million.  We expect the continued reduction of discountaccretion recorded as interest income in future quarters.

 

*Our decisions regardingthe fair value of assets acquired, including the FDIC loss sharing assets,could be inaccurate which could materially and adversely affect our business,financial condition, results of operations, and future prospects.*

 

We acquired significantportfolios of loans in the Mirae Bank acquisition. Although these loans weremarked down to their estimated fair value, there is no assurance that theacquired loans will not suffer further deterioration in value resulting inadditional charge-offs. The fluctuations in national, regional and localeconomic conditions, including those related to local residential, commercialreal estate and construction markets, may increase the level of charge-offs inthe loan portfolio that we acquired from Mirae Bank and correspondingly reduceour net income. These fluctuations are not predictable, cannot be controlledand may have a material adverse impact on our operations and financialcondition, even if other favorable events occur.

 

Although we have enteredinto loss sharing agreements with the FDIC which provide that a significantportion of losses related to the assets acquired from Mirae Bank will be borneby the FDIC, we are not protected for all losses resulting from charge-offswith respect to those assets. Additionally, the loss sharing agreements havelimited terms.  Therefore, any charge-offof related losses that we experience after the term of the loss sharingagreements will not be reimbursed by the FDIC and will negatively impact ournet income.

 

*Our ability to obtainreimbursement under the loss sharing agreement on covered assets depends on ourcompliance with the terms of the loss sharing agreement.*

 

The Company must certify to the FDIC on a quarterlybasis our compliance with the terms of the FDIC loss sharing agreement as aprerequisite to obtaining reimbursement from the FDIC for realized losses oncovered assets. The required terms of the agreement are extensive and failureto comply with any of the guidelines could result in a specific asset or groupof assets permanently losing their loss sharing coverage. As of June 30,2009, $235.6 million, or 6.86%, of the Company’s assets were covered bythe FDIC loss sharing agreement.  Noassurances can be given that we will manage the covered assets in such a way asto always maintain loss share coverage on all such assets.

 

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

 

None.

 

**Item 3.****                          ****Defaults Upon Senior Securities**

 

None.

 

**Item 4.****                          ****(Removed & Reserved)**

 

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**Item 5.****                          ****Other Information**

 

None.

 

**Item 6.**        **Exhibits**

 
|   | 31.1 | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                    |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 31.2 | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                    |
|   | 32   | Certifications of Chief  Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuant to the requirement of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 
|                        | WILSHIRE BANCORP, INC. |
|-----------------------------|-----------------------------|
|                        |                        |   |
|                        |                        |   |
| Date: November 8, 2010 | By:                         | /s/  Alex Ko |
|                        |                        | Alex Ko |
|                        |                        | Chief Financial Officer |
|                        |                        | (Principal Financial and Accounting Officer) |

 

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**Exhibit Index**

 
| **Reference  Number** | ** ** | **Item**                                                                                                                                                                                    | ** ** |
|-----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **            | ** ** | ** **                                                                                                                                                                                  |
| 31.1                  |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                    |
| 31.2                  |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                                                    |
| 32                    |       | Certifications of Chief  Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.  Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

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