**SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 
  **FORM
10-Q**
 
 **(Mark
One)**
 **x**
    **Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934****For the
      quarterly period ended March 31,
2005.**
 
 **OR**
 
 o
    **Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934****For the
      transition period from
                  
      to**
 **Commission
File Number 000-50923**
 **__________________________**
  **WILSHIRE
BANCORP, INC.**
 (Exact
name of registrant as specified in its charter)
 **California**
    
    **20-0711133**State
      or other jurisdiction of incorporation or organization
    
    I.R.S.
      Employer Identification Number**3200
      Wilshire Blvd.****Los
      Angeles, California**
    
    **90010**Address
      of principal executive offices
    
    Zip
      Code
  **(213)
      387-3200**Registrant’s
      telephone number, including area codeSecurities
      registered pursuant to Section 12(b) of the Act: **None**Securities
      registered pursuant to Section 12(g) of the Act:**Common
      Stock, no par value**
 ______________________
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes x No o
  Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).  Yes x No o
  The
number of shares of Common Stock of the registrant outstanding as of April 30,
2005 was 28,571,080.
 
 
 
  **FORM
10-Q**
  **INDEX**
 **WILSHIRE
BANCORP, INC.**
  Part I. FINANCIAL
      INFORMATION
    1Item 1.  Financial
    Statements
    1Item 2.  Management’s Discussion and
      Analysis of Financial Condition and Results of Operations
    9Item 3.  Quantitative and Qualitative
      Disclosures About Market Risk
    34Item 4. Controls
      and Procedures
    37Part II. OTHER
    INFORMATION
    38Item
      1.  Legal Proceedings
    38Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
    38Item
      3.  Defaults Upon Senior Securities
    38Item
      4.  Submission of Matters to a Vote of Security
      Holders
    38Item
      5.  Other Information
    38Item
      6.  Exhibits
    39SIGNATURES
    40
 
 
 i
 
   **Part
I.      FINANCIAL INFORMATION**
 Item
1.Financial
Statements
  **WILSHIRE
BANCORP, INC.**
 **CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION**
 **(UNAUDITED)**
  March 31, 2005
    
    
    December 31, 2004**ASSETS:**Cash
      and due from banks
    
    $
    51,815,488
    
    $
    53,903,163Federal
      funds sold and other cash equivalents
    
    
    125,000,000
    
    
    45,000,000Cash
      and cash equivalents
    
    
    176,815,488
    
    
    98,903,163Interest-bearing
      deposits in other financial institutions
    
    
    2,642
    
    
    2,573Securities
      available for sale - at fair value (amortized cost of $92,316,321
      and$86,121,349
      at March 31, 2005 and December 31, 2004, respectively)
    
    
    91,378,368
    
    
    85,712,485Securities
      held to maturity - at amortized cost (fair value of $28,818,564
      and$29,161,100
      at March 31, 2005 and December 31, 2004, respectively)
    
    
    29,129,377
    
    
    29,262,188Interest
      only strip - at fair value (amortized cost of $1,749,485and
      $1,550,444 at March 31, 2005 and December 31, 2004,
      respectively)
    
    
    1,924,534
    
    
    1,494,176Loans
      held for sale, at the lower of cost or market
    
    
    13,492,123
    
    
    21,144,128Loans
      receivable, net of allowance for loan losses of $11,669,090 and
      $11,111,092at
      March, 31, 2005 and December 31, 2004, respectively
    
    
    1,019,803,078
    
    
    988,468,142Bank
      premises and equipment, net
    
    
    6,928,870
    
    
    5,479,776Federal
      Home Loan Bank stock, at cost
    
    
    4,317,700
    
    
    4,371,500Accrued
      interest receivable
    
    
    4,630,623
    
    
    3,867,005Other
      real estate owned - net
    
    
    308,200
    
    
    —Deferred
      income taxes - net
    
    
    4,953,658
    
    
    4,839,346Servicing
      asset
    
    
    4,663,103
    
    
    4,373,974Due
      from customers on acceptances
    
    
    2,120,901
    
    
    2,041,023Cash
      surrender value of life insurance
    
    
    11,703,132
    
    
    11,536,476Other
      assets
    
    
    5,125,414
    
    
    4,145,368TOTAL
    
    $
    1,377,297,211
    
    $
    1,265,641,323**LIABILITIES
      AND SHAREHOLDERS’ EQUITY**LIABILITIES:Deposits
      :Noninterest-bearing
    
    $
    281,716,761
    
    $
    273,940,106Interest-bearing:Savings
    
    
    24,206,211
    
    
    22,946,077Time
      deposits of $100,000 or more
    
    
    492,815,524
    
    
    448,526,610Other
      time deposits
    
    
    107,631,860
    
    
    115,728,483Money
      markets and nows
    
    
    253,501,890
    
    
    237,564,098Total
      deposits
    
    
    1,159,872,246
    
    
    1,098,705,374Federal
      Home Loan Bank borrowings
    
    
    61,000,000
    
    
    41,000,000Junior
      subordinated debentures
    
    
    46,083,000
    
    
    25,464,000Accrued
      interest payable
    
    
    3,239,412
    
    
    2,891,707Acceptances
      outstanding
    
    
    2,120,901
    
    
    2,041,023Other
      liabilities
    
    
    9,803,852
    
    
    7,231,601Total
      liabilities
    
    
    1,282,119,411
    
    
    1,177,333,705COMMITMENTS
      AND CONTINGENCIES (Note 7)SHAREHOLDERS’
      EQUITY:Preferred
      stock, no par value; authorized, 1,000,000 shares; issued and outstanding,
      none
    
    
    —
    
    
    —Common
      stock, no par value; authorized, 80,000,000 shares;issued
      and outstanding, 28,571,080 and 28,142,470 shares atMarch
      31, 2005 and December 31, 2004, respectively
    
    
    41,042,333
    
    
    38,926,430Accumulated
      other comprehensive loss
    
    
    (396,411
    )
    
    (223,703
    )Retained
      earnings
    
    
    54,531,878
    
    
    49,604,891Total
      shareholders’ equity
    
    
    95,177,800
    
    
    88,307,618TOTAL
    
    $
    1,377,297,211
    
    $
    1,265,641,323
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
   1
  
 **WILSHIRE
      BANCORP, INC.**
      **CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**
      **(UNAUDITED)****Three
      Months Ended March 31,**INTEREST
      INCOME:
    
    **2005**
    
    **2004**Interest
      and fees on loans
    
    $
    18,229,969
    
    $
    11,847,604Interest
      on investment securities and deposits in other financial
      institutions
    
    
    871,556
    
    
    690,415Interest
      on federal funds sold and other cash equivalents
    
    
    426,727
    
    
    114,866Total
      interest income
    
    
    19,528,252
    
    
    12,652,885INTEREST
      EXPENSE:Deposits
    
    
    5,110,481
    
    
    3,180,866Interest
      on other borrowings
    
    
    777,720
    
    
    367,106Total
      interest expense
    
    
    5,888,201
    
    
    3,547,972NET
      INTEREST INCOME BEFOREPROVISION
      FOR LOAN LOSSES
    
    
    13,640,051
    
    
    9,104,913PROVISION
      FOR LOSSES ON LOANS AND LOAN COMMITMENTS
    
    
    500,000
    
    
    896,711NET
      INTEREST INCOME AFTERPROVISION
      FOR LOAN LOSSES
    
    
    13,140,051
    
    
    8,208,202NONINTEREST
      INCOME:Service
      charges on deposit accounts
    
    
    1,719,810
    
    
    1,822,527Gain
      on sale of loans
    
    
    2,023,077
    
    
    2,137,613Loan-related
      servicing income
    
    
    657,798
    
    
    505,306Loan
      referral fee income
    
    
    100,789
    
    
    72,020Loan
      packaging fee
    
    
    65,716
    
    
    122,471Income
      from other earning assets
    
    
    126,879
    
    
    157,044Other
      income
    
    
    241,886
    
    
    254,314Total
      noninterest income
    
    
    4,935,955
    
    
    5,071,295NONINTEREST
      EXPENSES:Salaries
      and employee benefits
    
    
    4,375,363
    
    
    3,442,831Occupancy
      and equipment
    
    
    833,231
    
    
    608,575Data
      processing
    
    
    414,867
    
    
    369,127Loan
      referral fees
    
    
    262,535
    
    
    290,096Professional
      fees
    
    
    446,006
    
    
    243,947Directors’
      fees
    
    
    123,250
    
    
    103,500Office
      supplies
    
    
    108,523
    
    
    112,401Advertising
    
    
    245,593
    
    
    123,532Communications
    
    
    92,716
    
    
    82,182Deposit
      insurance premiums
    
    
    37,054
    
    
    29,753Outsourced
      service for customers
    
    
    321,615
    
    
    304,965Other
      operating
    
    
    578,422
    
    
    390,722Total
      noninterest expenses
    
    
    7,839,175
    
    
    6,101,631INCOME
      BEFORE INCOME TAX PROVISION
    
    
    10,236,831
    
    
    7,177,865INCOME
      TAX PROVISION
    
    
    4,167,000
    
    
    2,833,000NET
      INCOME
    
    $
    6,069,831
    
    $
    4,344,866EARNINGS
      PER SHAREBasic
    
    $
    0.21
    
    $
    0.16Diluted
    
    $
    0.21
    
    $
    0.15
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
 
 
 2
  ******WILSHIRE
      BANCORP, INC.**CONDENSED CONSOLIDATED STATEMENTS OF
      COMPREHENSIVE
    INCOME**(UNAUDITED)**
  **Three
      Months Ended March 31,****2005**
    
    
    **2004**Net
      income
    
    $
    6,069,831
    
    $
    4,344,866Other
      comprehensive income, net of tax:Unrealized
      (losses) gains on securities available for sale and interest-only
      strip:Unrealized
      holding (losses) gains on securities available for sale arising during
      period,
 
 net
      of tax benefit of $222,217 for the three months ended March 31,2005 andnet
      of tax expense of $183,982 for the three months ended March 31, 2004
    
    
    (306,872
    )
    
    254,071Unrealized
      holding gains (losses) on interest only strips arising during
      period,net
      of tax expense of $97,153 for the three months ended March 31, 2005 andnet
      of tax benefit of $14,222 for the three months ended March 31, 2004
    
    
    134,164
    
    
    (19,640
    )Unrealized
      holding gains on interest of swap arising during period,net
      of tax expense of $25,308 for the three months ended March 31,
      2004
    
    
    
    
    
    37,962Other
      comprehensive income (expense), net of tax:
    
    
    (172,708
    )
    
    272,393Comprehensive
      income
    
    $
    5,897,123
    
    $
    4,617,259
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
   3
   ****WILSHIRE
      BANCORP, INC.**
      **CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**(UNAUDITED)**
 
 **Three
      Months Ended March 31,****2005**
    
    **2004****CASH
      FLOWS FROM OPERATING ACTIVITIES:**Net
      income
    
    $
    6,069,831
    
    $
    4,344,866Adjustments
      to reconcile net income to net cash provided byoperating
      activities:Amortization
      and accretion of premiums and discounts
    
    
    17,787
    
    
    84,179Depreciation
      of premises & equipment
    
    
    224,606
    
    
    185,972Provision
      for losses on loans and loan commitments
    
    
    500,000
    
    
    896,711Deferred
      tax provision (benefit)
    
    
    10,752
    
    
    23,956Loss
      (gain) on disposition of bank premises, equipment and
      securities
    
    
    902
    
    
    (3,967
    )Gain
      on sale of loans
    
    
    (2,023,077
    )
    
    (2,137,612
    )Origination
      of loans held for sale
    
    
    (29,660,698
    )
    
    (16,648,064
    )Tax
      benefit from exercise of stock options
    
    
    1,724,074
    
    
    8,288,040Proceeds
      from sale of loans held for sale
    
    
    39,335,780
    
    
    21,238,998Gain
      on sale of AFS securities
    
    
    
    
    
    (4,420
    )Loss
      on sale of other real estate owned
    
    
    —
    
    
    3,967Change
      in cash surrender value of life insurance
    
    
    (166,656
    )
    
    (124,807
    )Servicing
      assets capitalization
    
    
    (537,275
    )
    
    (451,054
    )Servicing
      assets amortization
    
    
    248,147
    
    
    259,767Increase
      in interest-only strip
    
    
    (199,041
    )
    
    (266,364
    )Increase
      in accrued interest receivable
    
    
    (763,618
    )
    
    (335,213
    )Increase
      in other assets
    
    
    (980,046
    )
    
    (6,811,142
    )Dividends
      of FHLB Stock
    
    
    —
    
    
    (14,500
    )Increase
      (decrease) in accrued interest payable
    
    
    347,705
    
    
    (51,166
    )Increase
      (decrease) in other liabilities
    
    
    1,431,642
    
    
    (3,306,085
    )Net
      cash provided by operating activities
    
    
    15,580,815
    
    
    5,172,062**CASH
      FLOWS FROM INVESTING ACTIVITIES:**Net
      (increase) decrease in interest-bearing deposits in other financial
      institutions
    
    
    (69
    )
    
    98,917Purchases
      of investment securities available for sale
    
    
    (19,889,491
    )
    
    (17,101,915
    )Purchases
      of investment securities held to maturity
    
    
    (1,999,000
    )
    
    —Proceeds
      from matured or called securities (AFS)
    
    
    13,670,224
    
    
    22,214,241Proceeds
      from matured or called securities (HTM)
    
    
    2,138,318
    
    
    2,593,894Net
      increase in loans receivable
    
    
    (32,145,370
    )
    
    (86,488,910
    )Proceeds
      from sale of other loans
    
    
    —
    
    
    5,891,427Proceeds
      from sale of other real estate owned
    
    
    —
    
    
    373,233Purchases
      of premises and equipment
    
    
    (1,674,602
    )
    
    (87,785
    )Purchase
      of FHLB stock
    
    
    53,800
    
    
    (490,500
    )Net
      cash used in investing activities
    
    
    (39,846,190
    )
    
    (72,997,398
    )**CASH
      FLOWS FROM FINANCING ACTIVITIES:**Net
      increase in deposits
    
    
    61,166,871
    
    
    60,951,627Increase
      in Federal Home Loan Bank borrowing
    
    
    20,000,000
    
    
    11,000,000Increase
      in junior subordinated debentures
    
    
    20,619,000
    
    
    —Proceeds
      from exercise of stock options
    
    
    391,829
    
    
    1,212,698Net
      cash provided by financing activities
    
    
    102,177,700
    
    
    73,164,325NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    77,912,325
    
    
    5,338,989CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    98,903,163
    
    
    112,486,069CASH
      AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    176,815,488
    
    $
    117,825,058SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid
    
    $
    5,540,495
    
    $
    3,599,138Income
      taxes paid
    
    $
    939,500
    
    $
    2,100,000NONCASH
      FINANCING ACTIVITIESCash
      dividend declared
    
    $
    1,142,843Transfer
      of loans to OREO
    
    $
    308,200
 The
accompanying notes are an integral part of these condensed consolidated
financial statements.
 
 4
 
  **WILSHIRE
BANCORP, INC.**
  **Notes
to Condensed Consolidated Financial Statements (Unaudited)**
  **Note
1.**  **Business
of Wilshire Bancorp, Inc.**
  Wilshire
Bancorp, Inc. (the “Company,” “we,” “us,” or “our,” hereafter) succeeded to the
business and operations of Wilshire State Bank, a California state-chartered
commercial bank (the “Bank”), upon consummation of the reorganization of the
Bank into a holding company structure, effective as of August 25, 2004. Wilshire
State Bank was incorporated under the laws of the State of California on May 20,
1980 and commenced operations on December 30, 1980. The Company was
incorporated in December 2003 as a wholly owned subsidiary of the Bank for the
purpose of facilitating the issuance of trust preferred securities for the Bank
and eventually serving as the holding company of the Bank. The Bank’s
shareholders approved a reorganization into a holding company structure at a
meeting held on August 25, 2004. As a result of the reorganization, shareholders
of the Bank are now shareholders of the Company and the Bank is a direct
subsidiary of the Company.
  Prior to
the completion of the reorganization, the Bank was subject to the information,
reporting and proxy statement requirements of the Securities Exchange Act of
1934, as amended, or the Exchange Act, pursuant to the regulations of its
primary regulator, the Federal Deposit Insurance Corporation, or FDIC.
Accordingly, the Bank filed annual and quarterly reports, proxy statements and
other information with the FDIC. Pursuant to Rule 12g-3 of the Exchange Act, the
Company has succeeded to the reporting obligations of the Bank and the reporting
obligations of the Bank to the FDIC have terminated. Filings by the Company
under the Exchange Act, like this Form 10-Q, are to be made with the Securities
and Exchange Commission, or the Commission. Although we refer generally to the
“Company” throughout this filing, all references to the Company prior to August
25, 2004, except where otherwise indicated, are to the Bank.
  Our
Corporate Headquarters and primary banking facilities are located at 3200
Wilshire Boulevard, Los Angeles, California 90010. In addition , we
have  13
full-service Bank branch offices in southern California and one branch office in
Texas. We also have eight loan production offices utilized primarily for the
origination of loans under our Small Business Administration (“SBA”) lending
program in Oklahoma City, Seattle, San Antonio, Las Vegas, the San Jose area
(Milpitas, California), Atlanta, Houston, and Denver.
  **Note
2.**  **Basis
of Presentation**
  The
accompanying unaudited condensed consolidated financial statements include the
accounts of the Company (the Bank for periods prior to August 25, 2004) and its
wholly owned subsidiary. The financial statements have been prepared in
accordance with the Securities and Exchange Commission (“SEC”) rules and
regulations for interim financial reporting and therefore do not necessarily
include all information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America. The information provided by these
interim financial statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the Company’s financial
condition as of March 31, 2005 and December 31, 2004, the related statements of
operations and comprehensive income for the three months ended March 31, 2005
and 2004, and the statements of cash flows for the three months ended March 31,
2005 and 2004. Such adjustments are of a normal recurring nature unless
otherwise disclosed in the Form 10-Q. Operating results for interim periods are
not necessarily indicative of operating results for an entire fiscal
year.
  The
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto included in Bank’s Annual Report on Form
10-K for the year ended December 31, 2004. The accounting policies used in the
preparation of these interim financial statements were consistent with those
used in the preparation of the financial statements for the year ended December
31, 2004, unless otherwise noted.
  5
  **Note
3.**  **Earnings
per Share**
  Basic
earnings per share (“EPS”) exclude dilution and are computed by dividing
earnings available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings. There was a two-for-one
stock split of the Company’s common shares for the shareholders of record at the
close of business on December 3, 2004, which was effective on December 14, 2004.
All basic and diluted earnings per share in this report have been retroactively
restated for the stock split.
  The
following is a reconciliation of the numerators and denominators of the basic
and diluted per share computations for the specified periods **.**
  **Three
      months ended March 31, 2005**
    
    **Three
      months ended March 31, 2004**Income(Numerator)
    
    Shares(Denominator)
    
    Per
      ShareAmount
    
    Income(Numerator)
    
    Shares(Denominator)
    
    Per
      ShareAmountBasic
      EPS
    
    $
    6,069,831
    
    
    28,423,693
    
    $
    0.21
    
    $
    4,344,866
    
    
    26,475,744
    
    $
    0.16Effect
      of dilution
    
    
    —
    
    
    440,402
    
    
    —
    
    
    —
    
    
    2,540,265
    
    
    (0.01
    )Diluted
      EPS
    
    $
    6,069,831
    
    
    28,864,095
    
    $
    0.21
    
    $
    4,344,866
    
    
    29,016,009
    
    $
    0.15
 There
were 130,600 anti-dilutive stock options outstanding for the three months ended
March 31, 2005 for which the exercise price exceeded the average market price of
the Company’s common stock during the period. No such options were outstanding
for the three months ended March 31, 2004.
  **Note
4.**  **Goodwill
and Other Intangible Assets**
  In July
2001, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 141, *Business
Combinations* , and
SFAS No. 142, *Goodwill
and Other Intangible Assets.* Under
this rule, goodwill and other intangible assets deemed to have indefinite lives
are no longer amortized but are subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful
lives.
  The
Company adopted the new rules on accounting for goodwill and other intangible
assets on January 1, 2002. At adoption and as of March 31, 2005, the Company
does not have any intangible assets that will be subject to annual impairment
testing in accordance with these Statements. The Company’s intangible assets
that continue to be subject to amortization, loan servicing rights, were
$4,663,103 and $3,473,670 (net of $1,450,567 and $1,161,723 accumulated
amortization, respectively) as of March 31, 2005 and 2004, respectively.
Amortization expense for intangible assets subject to amortization was $248,146
and $259,767 for the three months ended March 31, 2005 and 2004,
respectively, and it is estimated that it will be approximately $636,000
annually for the next five fiscal years.
  **Note
5.**  **Business Segment Information**
  The
following disclosure about segments of the Company is made in accordance with
the requirements of SFAS No. 131, *Disclosures
about Segments of an Enterprise and Related Information* . The
Company segregates its operations into three primary segments: Banking
Operations, Trade Finance Services (“TFS”), and Small Business Administration
Lending Services. The Company determines the operating results of each segment
based on an internal management system that allocates certain expenses to each
segment.
  *Banking
Operations* - ** The
Company provides lending products, including commercial, consumer and real
estate loans to its customers.
  *Trade
Finance Services* - The
Trade Finance department allows the Company’s import/export customers to handle
their international transactions. Trade finance products include, among others,
the issuance and collection of letters of credit, international collection, and
import/export financing.
 
 6
  *Small
Business Administration Lending Services* - The SBA
department mainly provides customers of the Company access to the U.S.
SBA-guaranteed lending program.
  The
following are the results of operations of the Company’s segments for the
periods indicated below:
  **(Dollars
      in Thousands)**
    
    
    **Three
      Months Ended March 31, 2005**
    
    
    **Three
      Months Ended March 31, 2004****Business
      Segment**
    
    
    ****Banking****Operations****
    
    
    **TFS**
    
    
    **SBA**
    
    
    **Company**
    
    
    **Banking****Operations**
    
    
    **TFS**
    
    
    **SBA**
    
    
    **Company**Net
      interest income
    
    $
    10,141
    
    $
    667
    
    $
    2,832
    
    $
    13,640
    
    $
    6,466
    
    $
    360
    
    $
    2,279
    
    $
    9,105Less
      Provision for loan losses
    
    
    631
    
    
    (88
    )
    
    (43
    )
    
    500
    
    
    1,008
    
    
    10
    
    
    (121
    )
    
    897Other
      operating income
    
    
    2,141
    
    
    398
    
    
    2,397
    
    
    4,936
    
    
    2,269
    
    
    420
    
    
    2,382
    
    
    5,071Net
      revenue
    
    
    11,651
    
    
    1,153
    
    
    5,272
    
    
    18,076
    
    
    7,727
    
    
    770
    
    
    4,782
    
    
    13,279Other
      operating expenses
    
    
    6,501
    
    
    205
    
    
    1,133
    
    
    7,839
    
    
    5,060
    
    
    154
    
    
    887
    
    
    6,101Income(loss)
      before taxes
    
    $
    5,150
    
    $
    948
    
    $
    4,139
    
    $
    10,237
    
    $
    2,667
    
    $
    616
    
    $
    3,895
    
    $
    7,178Business
      segment assets
    
    $
    866,396
    
    $
    43,270
    
    $
    145,181
    
    $
    1,054,847
    
    $
    684,209
    
    $
    33,744
    
    $
    124,701
    
    $
    842,654Non-business
      segment assets
    
    
    
    
    
    
    
    
    
    
    
    322,450
    
    
    
    
    
    
    
    
    
    
    
    223,591Total
      assets
    
    
    
    
    
    
    
    
    
    
    $
    1,377,297
    
    
    
    
    
    
    
    
    
    
    $
    1,066,245
 **Note
6.**  **Stock
Option Plan**
  During
1997, the Bank established a new stock option plan that provides for the
issuance of up to 6,499,800 shares of its authorized but unissued common stock
to managerial employees and directors. In connection with the holding company
reorganization, the options granted under this plan are exercisable into shares
of the Company’s common stock. Exercise prices may not be less than the fair
market value at the date of grant. As of March 31, 2005, 845,622 shares were
outstanding under this option plan. The outstanding stock options granted under
the Company’s 1990 plan were transferred to this plan. Options granted under the
stock option plans expire not more than 10 years after the date of grant.
  For the
first three months of 2005, 173,600 shares in total were granted and no stock
options were granted in the first three months of 2004. The average estimated
fair values of options was $1.97.28. The fair value was estimated on the date of
grant using the Black-Scholes option pricing model under the following
assumptions - dividend yield of 1.16%, expected volatility of 24%, average
expected life of 2 years and average risk-free interest rate of 2.72. Had
compensation cost for the Company’s stock option plan been determined based on
the fair values at the grant dates for awards under the plan consistent with the
fair value method of SFAS No. 123, the Company’s net income and earnings per
share for the three months ended March 31 would have been reduced to the
pro forma amounts indicated below:
  **Three
      Months Ended**
      **March
      31,****2005**
    
    **2004**Net
      income - as reported
    
    $
    6,069,831
    
    $
    4,344,866Deduct:
      Total stock-based employee compensation expenses determined under fair
      value-based method for all awards - net of related tax
    effects
    
    
    (21,349
    )
    
    (36,443
    )Pro
      forma net income
    
    $
    6,048,482
    
    $
    4,308,423Earnings
      per share:Basic
      - as reported
    
    $
    0.21
    
    $
    0.16Basic
      - pro forma
    
    $
    0.21
    
    $
    0.16Diluted
      - as reported
    
    $
    0.21
    
    $
    0.15Diluted
      - pro forma
    
    $
    0.21
    
    $
    0.15
 
 7
 
 **Note
7.**  **Commitments
and Contingencies**
  We are a
party to financial instruments with off-balance-sheet risk in the normal course
of business to meet the financing needs of our customers. These financial
instruments include commitments to extend credit, standby letters of credit, and
commercial letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statements of financial condition. Our exposure to credit loss in the event
of nonperformance on commitments to extend credit and standby letters of credit
is represented by the contractual notional amount of those instruments. We use
the same credit policies in making commitments and conditional obligations as we
do for extending loan facilities to customers. We evaluate each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on our credit evaluation of
the counterparty. Collateral held varies but may include accounts receivable;
inventory; property, plant, and equipment; and income-producing properties.
Commitments at March 31. 2005 are summarized as follows:
  Commitments
      to extend credit
    
    $
    86,284,000Standby
      letters of credit
    
    $
    3,391,000Commercial
      letters of credit
    
    $
    10,000,000
 As part
of our asset and liability management strategy, we may engage in derivative
financial instruments, such as interest rate swaps, with the overall goal of
minimizing the impact of interest rate fluctuations on our net interest margin.
Interest rate swaps involve the exchange of fixed-rate and variable-rate
interest payment obligations without the exchange of the underlying notional
amounts. In September 2003, we entered into one interest rate swap agreement,
under which we receive a fixed rate and pay a variable rate based on three-month
LIBOR on the notional amount of $3 million. In January 2004, the swap
arrangement was terminated without any gain or loss by mutual agreement between
us and the brokerage company.
  In the
normal course of business, we are involved in various legal claims. We have
reviewed all legal claims against us with counsel and have taken into
consideration the views of such counsel as to the outcome of the claims. In our
opinion, the final disposition of all such claims will not have a material
adverse effect on our financial position and results of operations.
  **Note
8.**  **Recent
Accounting Pronouncements**
  In
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which replaces SFAS
No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion
No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS No. 123 no longer will be an
alternative to financial statement recognition. SFAS No. 123R is effective as of
the beginning of the first fiscal year that begins after June 15, 2005. The
Company thus is required to adopt SFAS No. 123R effective January 1, 2006.
In adopting SFAS No. 123R, the Company may apply the “modified prospective
application” method, which requires that compensation expense be recorded for
all unvested stock options and restricted stock at the beginning of the first
quarter of adoption of SFAS No. 123R. In addition, the Company may apply
“modified retrospective application,” which would require the recording of
compensation expense for all unvested stock options beginning with the first
period restated. The Company does not expect the adoption of SFAS No. 123R to
result in amounts that are materially different from the current pro forma
disclosures under SFAS No. 123.
  **Note
9.**  **Reclassifications**
  Certain
reclassifications were made to the prior periods’ presentation to conform to the
current year’s presentation.
  8
  **Item
2.** **Management’s
Discussion and Analysis of Financial Condition and Results of
Operations**
  This
discussion presents management’s analysis of our results of operations and
financial condition as of and for the three-month periods ended March 31, 2005
and 2004, respectively. All per share amounts and number of shares outstanding
in this item have been retroactively adjusted and restated to give effect to a
two-for-one stock split (effected in the form of a 100% stock dividend) in
December 2004. The discussion should be read in conjunction with our financial
statements and the notes related thereto which appear elsewhere in this
Quarterly Report on Form 10-Q. Statements contained in this report that are not
purely historical are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, including our
expectations, intentions, beliefs, or strategies regarding the future. Any
statements in this document about expectations, beliefs, plans, objectives,
assumptions or future events or performance are not historical facts and are
forward-looking statements. These statements are often, but not always, made
through the use of words or phrases such as “may,” “should,” “could,” “predict,”
“potential,” “believe,” “will likely result,” “expect,” “will continue,”
“anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and
“outlook,” and similar expressions. Accordingly, these statements involve
estimates, assumptions and uncertainties, which could cause actual results to
differ materially from those expressed in them. Any forward-looking statements
are qualified in their entirety by reference to the factors discussed throughout
this document. All
forward-looking statements concerning economic conditions, rates of growth,
rates of income or values as may be included in this document are based on
information available to us on the dates noted, and we assume no obligation to
update any such forward-looking statements. It is important to note that our
actual results may differ materially from those in such forward-looking
statements due to fluctuations in interest rates, inflation, government
regulations, economic conditions, customer disintermediation and competitive
product and pricing pressures in the geographic and business areas in which we
conduct operations, including our plans, objectives, expectations and intentions
and other factors discussed under the section entitled “Risk Factors,” in our
Annual Report on Form 10-K for the year ended December 31, 2004, including the
following:
  ·
    If
      a significant number of clients fail to perform under their loans, our
      business, profitability, and financial condition would be adversely
      affected.
  ·
    The
      holders of recently issued debentures have rights that are senior to those
      of our shareholders.
  ·
    Adverse
      changes in domestic or global economic conditions, especially in
      California, could have a material adverse effect on our business, growth,
      and profitability.
  ·
    Maintaining
      or increasing our market share depends on market acceptance and regulatory
      approval of new products and services.
  ·
    Significant
      reliance on loans secured by real estate may increase our vulnerability to
      downturns in the California real estate market and other variables
      impacting the value of real estate.
  ·
    If
      we fail to retain our key employees, our growth and profitability could be
      adversely affected.
  ·
    We
      may be unable to manage future growth.
  ·
    Increases
      in our allowance for loan lossescould
      materially adversely affect our earnings.
  ·
    We
      could be liable for breaches of security in our online banking services.
      Fear of security breaches could limit the growth of our online services.
  ·
    Our
      directors and executive officers beneficially own a significant portion of
      our outstanding common stock.
  ·
    The
      market for our common stock is limited, and potentially subject to
      volatile changes in price.
  ·
    Additional
      shares of our Common Stock issued in the future could have a dilutive
      effect.
  ·
    Shares
      of our preferred stock issued in the future could have dilutive and other
      effects.
  ·
    We
      face substantial competition in our primary market
area.
  ·
    The
      profitability of Wilshire Bancorp will be dependent on the profitability
      of the Bank.
  9
  ·
    The
      Company relies heavily on the payment of dividends from the Bank.
  ·
    Anti-takeover
      provisions of our charter documents may have the effect of delaying or
      preventing changes in control or management.
  ·
    We
      are subject to significant government regulation and legislation that
      increases the cost of doing business and inhibits our ability to
      compete.
  ·
    We
      could be negatively impacted by downturns in the South Korean
      economy.
  These
factors and the risk factors referred to in our Annual Report on Form 10-K for
the year ended December 31, 2004 could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, and you should not place undue reliance on any such forward-looking
statements. Any forward-looking statement speaks only as of the date on which it
is made and we do not undertake any obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for us to
predict which will arise. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
 
 
 10
  **Selected
Financial Data**
  The
following table presents selected historical financial information (unaudited)
as of and for the three months ended March 31, 2005 and 2004. All per share
amounts have been retroactively adjusted and restated to give effect to a
two-for-one stock split (effected in the form of a 100% stock dividend) in
December 2004. In the opinion of our management, the information presented
reflects all adjustments considered necessary for a fair presentation of the
results of such periods. The operations results of the interim periods are not
necessarily indicative of our future operating results.
 
 **(Dollars
      in thousands, except per share data)****As
      of and for the Three Months Ended**
    
    **March
      31, 2005**
    
    **March
      31, 2004**Net
      income
    
    $
    6,070
    
    $
    4,345Net
      income per share, basic
    
    
    0.21
    
    
    0.16Net
      income per share, diluted
    
    
    0.21
    
    
    0.15Net
      interest income
    
    
    13,640
    
    
    9,105**Average
      balances:**Assets
    
    
    1,298,900
    
    
    987,768Cash
      and cash equivalents
    
    
    120,167
    
    
    92,461Investment
      debt securities
    
    
    104,605
    
    
    79,041Net
      loans
    
    
    1,026,188
    
    
    777,503Total
      deposits
    
    
    1,105,393
    
    
    853,018Shareholders’
      equity
    
    
    92,349
    
    
    63,260**Performance
      Ratios:**Annualized
      return on average assets
    
    
    1.87
    %
    
    1.76
    %Annualized
      return on average equity
    
    
    26.29
    %
    
    27.47
    %Net
      interest margin
    
    
    4.54
    %
    
    4.03
    %Efficiency
      ratio1.
    
    
    42.20
    %
    
    43.04
    %**Capital
      Ratios:**Tier
      1 capital to adjusted total assets
    
    
    9.81
    %
    
    7.33
    %Tier
      1 capital to risk-weighted assets
    
    
    11.74
    %
    
    8.32
    %Total
      capital to risk-weighted assets
    
    
    14.08
    %
    
    12.39
    %**Period-end
      balances as of:**
    
    
    **March
      31, 2005**
    
    
    **December
      31, 2004**
    
    
    **March
      31, 2004**Total
      assets
    
    $
    1,377,297
    
    $
    1,265,641
    
    $
    1,066,245Investment
      securities
    
    
    120,508
    
    
    104,975
    
    
    81,075Total
      loans, net of unearned income
    
    
    1,044,964
    
    
    1,020,723
    
    
    835,156Total
      deposits
    
    
    1,159,872
    
    
    1,098,973
    
    
    917,454Subordinated
      Debenture
    
    
    46,083
    
    
    25,464
    
    
    25,464FHLB
      borrowings
    
    
    61,000
    
    
    41,000
    
    
    40,000Shareholders’
      equity
    
    
    95,178
    
    
    88,307
    
    
    72,859**Asset
      Quality Ratios:**Net
      (recoveries) charge-off to average total loans for the
    quarter
    
    
    (0.01
    )%
    
    0.05
    %
    
    0.00
    %Nonperforming
      loans to total loans
    
    
    0.21
    %
    
    0.26
    %
    
    0.44
    %Nonperforming
      assets to total loans and other real estate owned
    
    
    0.24
    %
    
    0.26
    %
    
    0.44
    %Allowance
      for loan losses to total loans
    
    
    1.12
    %
    
    1.09
    %
    
    1.14
    %Allowance
      for loan losses to nonperforming loans
    
    
    521
    %
    
    412
    %
    
    256
    %
 ****
 **Executive
Overview**
  **Introduction**
  Wilshire
Bancorp, Inc. (the “Company,” “we,” “us,” or “our,” hereafter) succeeded to the
business and operations of Wilshire State Bank (the “Bank”) upon consummation of
the reorganization of the Bank into a holding company structure, effective as of
August 25, 2004. Prior to the completion of the reorganization, the Bank was
subject to the information, reporting and proxy statement requirements of the
Exchange Act, pursuant to the regulations of its primary regulator, the Federal
Deposit Insurance Corporation, or FDIC. Accordingly, the Bank filed annual and
quarterly reports, proxy statements and other information with the FDIC.
Pursuant to Rule 12g-3 of the Exchange Act, the Company has succeeded to the
reporting obligations of the Bank and the reporting obligations of the Bank to
the FDIC have terminated. Filings by the Company under the Exchange Act, like
this Form 10-Q, are to be made with the SEC. Note that while we refer generally
to the “Company” throughout this filing, all references to the Company prior to
August 25, 2004, except where otherwise indicated, are to the Bank.
  ____________________
 1Represents
the ratio of noninterest expense to the sum of net interest income before
provision for loan losses and noninterest income.
 11
 
 We
operate community banks in the general commercial banking business, with our
primary market encompassing the multi-ethnic population of the Los Angeles
Metropolitan area. Our full-service offices are located primarily in areas where
a majority of the businesses are owned by Korean-speaking immigrants, with many
of the remaining businesses owned by Hispanic and other minority
groups.
  At March
31, 2005, we had approximately $1.38 billion in assets, $1.04 billion in total
loans, and $1.16 billion in deposits.
  We also
have expanded and diversified our business growth by focusing on the continued
development of our commercial and consumer lending divisions. Over the past
several years, our network of branches and loan production offices has been
expanded geographically. We currently maintain 14 branch offices and eight loan
production offices. In the first quarter of 2005, we opened three loan
production offices in Atlanta, Georgia, Houston, Texas and the Denver area
(Aurora, Colorado). In 2004, we converted the loan production office in Dallas,
Texas into a branch office. We also opened two branch offices in downtown Los
Angeles and the City of Buena Park, California, and three loan production
offices in Oklahoma City, Oklahoma, Las Vegas, Nevada and San Antonio, Texas.
Our expansion in these areas complements our multi-ethnic small business focus.
We intend to continue our growth strategy in future years through the opening of
additional branches and loan production offices as our needs and resources
permit.
  The Bank
issued a $10 million Junior Subordinated Debenture in December 2002 and
subsequently in March 2005 and December 2003, we issued additional Junior
Subordinated Debentures in an amount of $20.619 million and $15.464 million,
respectively, to the Wilshire Statutory Trusts (Wilshire Statutory Trust I and
Wilshire Statutory Trust II), our wholly owned subsidiaries, which in turn
issued the trust preferred securities of $20 million and $15 million,
respectively. We believe that the supplemental capital raised in connection with
the issuance of these debentures and trust preferred securities allowed us to
achieve and maintain status as a well-capitalized institution and sustained our
continued loan growth.
  As
evidenced by our past several years of operations, we have experienced
significant balance sheet growth. We have implemented a strategy of building our
core banking foundation by focusing on commercial loans and business transaction
accounts. Our management believes that this strategy has created recurring
revenue streams, diversified our product portfolio and enhanced shareholder
value.
  **First
Quarter 2005 Key Performance Indicators**
  We
believe the following were key indicators of our performance for operations
during the first quarter of 2005:
  ·
    our
      total assets grew to $1.38 billion at the end of the first quarter of
      2005, or an increase of 8.8% from $1.27 billion at the end of
      2004.
  ·
    our
      total deposits grew to $1.16 billion at the end of the first quarter of
      2005, or an increase of 5.5% from $1.10 billion at the end of
      2004.
  ·
    our
      total loans grew to $1.04 billion at the end of the first quarter of 2005,
      or an increase of 2.37% from $1.02 billion at the end of
    2004.
  ·
    our
      ratio of total non-performing loans to total loans improved to 0.21% at
      the end of the first quarter of 2005 from 0.26% at the end of
      2004.
  ·
    total
      noninterest income decreased to $4.9 million in the first quarter of 2005,
      or a decrease of 2.7% from $5.1 million in the first quarter of 2004. Such
      decrease was primarily attributable to the fact that we had no sales of
      unguaranteed SBA loans in the first quarter of 2005, compared to a gain of
      $596,000 on such sales in the first quarter of 2004.
  12
  ·
    total
      noninterest expense increased from $6.1 million in the first quarter of
      2004 to $7.8 million in the first quarter of 2005, reflecting the expanded
      personnel and premises associated with our business growth. Due to
      continuing efforts to minimize operating expenses, noninterest expenses as
      a percentage of average assets were lowered to 0.60% in the first quarter
      of 2005 from 0.62% in the first quarter of 2004. Management believes that
      its efforts in cost-cutting and revenue diversification have improved our
      operational efficiency, as evidenced by the improvement in our efficiency
      ratio (the ratio of noninterest expense to the sum of net interest income
      before provision for loan losses and total noninterest income) from 43.04%
      in the first quarter of 2004 to 42.20% in the first quarter of
      2005.
  These
items, as well as other factors, contributed to the increase in net income for
the first quarter of 2005 to $6.1 million or $0.21 per diluted common share,
from $4.3 million, or $0.15 per diluted common share, in the first quarter of
2004 and are discussed in further detail throughout “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
  **2005
Outlook**
  As we
look ahead to the remainder of 2005, we anticipate continued good financial
performance. We will continue to pursue opportunities for growth in our existing
markets, as well as opportunities to expand into new markets through *de
novo* branching and regional loan production offices. Further, we expect that our
portfolio of unsecured business loans and consumer loans will continue to grow
as a result of target marketing efforts in these areas.
  We intend
to continue our focus on loan and deposit growth and managing our net interest
margin, while attempting to control expenses and credit losses to achieve our
net income and other objectives. We will continue to strive to be more efficient
and focus on controlling the growth of other operating expenses so that they
grow more slowly than our business.
  Although
interest rates decreased in 2003, 2002 and 2001, compressing our interest
margins, we continued to exhibit growth in net interest income. As interest
rates increased in 2004, our yield on earning assets increased. Should interest
rates increase further, our yield on earnings assets will likely increase
further although we cannot be certain as to the extent of such increases, if
any. If interest rates continue to increase, we will decide whether to increase
the interest rates we pay on our deposit accounts or change our
promotional or other interest rates on new deposits in certain marketing
activation programs to attempt to achieve a desirable net interest margin. Any
increases in the rates we charge on our borrowing customers could have an
adverse effect on our efforts to attract new customers and grow loans,
particularly with the continuing competition in the commercial and consumer
lending industry. The economies and real estate markets in our primary market
areas will continue to be significant determinants of the quality of our assets
in future periods and, thus, our results of operations, liquidity and financial
condition. Current economic indicators suggest that the national economy and the
economies in our primary market areas are improving from the downturn
experienced in the past few years.
  Finally,
we completed the reorganization into a holding company structure during the
third quarter of 2004. In the reorganization, each of the Bank’s outstanding
shares of common stock were converted into an equal number of shares of common
stock in the Company, which now owns the Bank as its wholly-owned subsidiary.
Management believes that operating within a holding company structure will,
among other things:
  ·
    allow
      us to use the portion of proceeds from the issuance of our trust preferred
      securities as Tier 1 capital (within regulatory
    guidelines).
  ·
    provide
      greater operating flexibility;
  ·
    facilitate
      the acquisition of related businesses as opportunities
    arise;
  ·
    improve
      our ability to diversify;
  ·
    enhance
      our ability to remain competitive in the future with other companies in
      the financial services industry that are organized in a holding company
      structure; and
  ·
    enhance
      our ability to raise capital to support
growth.
  13
  For the
remainder of 2005, management will be focused on the above challenges and
opportunities and other factors affecting the business similar to the factors
driving the results of the first quarter of 2005, as discussed in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
  **Critical
Accounting Policies**
  The
discussion and analysis of our financial condition and results of operations is
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
  Various
elements of our accounting policies, by their nature, are inherently subject to
estimation techniques, valuation assumptions and other subjective assessments.
In particular, we have identified six accounting policies that, due to
judgments, estimates and assumptions inherent in those policies are critical to
an understanding of our consolidated financial statements. These policies relate
to the classification and valuation of investment securities, the methodologies
that determine our allowance for loan losses, the treatment of non-accrual
loans, the valuation of properties acquired through foreclosure, the valuation
of retained interests and mortgage servicing assets related to the sales of
Small Business Administration loans, and the treatment and valuation of
stock-based compensation. In each area, we have identified the variables most
important in the estimation process. We have used the best information available
to make the estimation necessary to value the related assets and liabilities.
Actual performance that differs from our estimates and future changes in the key
variables could change future valuation and impact net income.
  Our
significant accounting policies are described in greater detailed in our 2004
Annual Report on Form 10-K in the “Critical Accounting Policies” section of
Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial
Statements-”Significant Accounting Policies” which are essential to
understanding Management’s Discussion and Analysis of Results of Operations and
Financial Condition. There has been no material modification to these policies
during the quarter ended March 31, 2005.
  **Results
of Operations**
  **Net
Interest Income and Net Interest Margin**
  Our
primary source of revenue is net interest income, which is the difference
between interest and fees derived from earning assets and interest paid on
liabilities obtained to fund those assets. Our net interest income is affected
by changes in the level and mix of interest-earning assets and interest-bearing
liabilities, referred to as volume changes. Our net interest income is also
affected by changes in the yields earned on assets and rates paid on
liabilities, referred to as rate changes. Interest rates charged on our loans
are affected principally by the demand for such loans, the supply of money
available for lending purposes and competitive factors. Those factors are, in
turn, affected by general economic conditions and other factors beyond our
control, such as federal economic policies, the general supply of money in the
economy, legislative tax policies, governmental budgetary matters and the
actions of the Federal Reserve Board (“FRB”).
  Average
interest-earning assets increased by 33.1% to $1.20 billion in the first quarter
of 2005, as compared with $903.1 million in the same quarter of 2004. **** Average
net loans also increased by 32.0% to $1.03 billion in the first quarter of 2005,
as compared with $777.5 million in the same quarter of 2004. The FRB has raised
the Fed Fund target rate by an aggregate of 175 basis points since June 2004,
giving us additional benefits on yields on our earning assets, most of which
bear variable interest rates. The average yields on interest-earning assets
increased to 6.50% for the first quarter of 2005, as compared with 5.60% for the
prior year’s same period. This increase of interest-earning assets and their
yields significantly increased our total interest income by 54.3% to $19.5
million for the first quarter of 2005, as compared with $12.7 million for the
prior year’s same period.
  14
 Average
interest-bearing liabilities increased by 35.8% to $929.9 million in the first
quarter of 2005, as compared with $684.8 million in the same quarter of 2004.
Our average interest-bearing deposit portfolio also increased by 34.9% to $842.2
million in the first quarter of 2005, as compared with $624.6 million in the
same quarter of 2004. We also increased other borrowings over the last 12 months
(see “Deposits and Other Sources of Funds” below). Due to the volume increase of
interest-bearing liabilities together with the rate increase, total interest
expense increased by $2.3 million to $5.9 million for the first quarter of 2005,
as compared with $3.5 million for the prior year’s same period. Due to the
increase in interest-bearing liabilities and overall fund cost, the average
interest rate we paid for interest-bearing liabilities for the first quarter of
2005 increased to 2.53% from 2.07% in the same quarter a year ago.
  Since
June 30, 2004, the FRB raised its overnight lending rate seven times by an
aggregate 175 basis points to 2.75%. The Wall Street Journal Prime Rate was
correspondingly increased to 5.75%. We are in an asset-sensitive position,
meaning that these rate increases positively affected our net interest income
because more earning assets were immediately re-priced than interest-bearing
deposits. Although we price deposits competitively with the goal to continue to
fund our growing loan portfolio, our models indicate that our margin should
expand in a rising interest rate environment.
  The
combined result of our growth and the interest rate increases was an increase in
net interest income. Net interest income increased by $4.5 million (49.8%) to
$13.6 million in the first quarter of 2005 from $9.1 million in the same quarter
a year ago. Due mainly to the positive impact of FRB’s rate increases on our
asset-sensitive position, our net interest margin significantly increased to
4.54% for the first quarter of 2005, as compared with 4.03% for the prior year’s
same period. The net interest spread also improved in the first quarter of 2005
to 3.97% from 3.53% for the prior year’s same period.
 
 15
  The
following table sets forth, for the periods indicated, our average balances of
assets, liabilities and shareholders’ equity, in addition to the major
components of net interest income and net interest margin (all yields were
calculated without the consideration of tax effects, if any):
  **Distribution,
Yield and Rate Analysis of Net Interest Income**
 **For
      the Quarter Ended March 31,****2005**
    
    
    
    
    
    **2004****(Dollars
      in Thousands)**
    
    **Average****Balance**
    
    ****Interest**
      **Income/**
      **Expense****
    
    **Annualized
      Average**
      **Rate/Yield**
    
    **Average**
      **Balance**
    
    **Interest**
      **Income/**
      **Expense**
    
    **Annualized
      Average******
      **Rate/Yield****Assets**:Interest-earning
      assets:Net
      loans1
    
    $
    1,026,188
    
    $
    18,230
    
    
    7.11
    %
    $
    777,503
    
    $
    11,848
    
    
    6.10
    %Securities
      of U.S. government agencies
    
    
    99,767
    
    
    814
    
    
    3.26
    %
    
    63,135
    
    
    471
    
    
    2.99
    %Other
      investment securities
    
    
    4,838
    
    
    58
    
    
    4.82
    %
    
    15,906
    
    
    205
    
    
    5.17
    %Overnight
      Investments
    
    
    66,848
    
    
    406
    
    
    2.43
    %
    
    42,744
    
    
    115
    
    
    1.07
    %Money
      Market Preferred Securities
    
    
    3,911
    
    
    20
    
    
    2.08
    %
    
    3,648
    
    
    13
    
    
    1.39
    %Interest-earning
      deposits
    
    
    2
    
    
    0
    
    
    0.00
    %
    
    146
    
    
    1
    
    
    2.56
    %Total
      interest-earning assets
    
    
    1,201,554
    
    
    19,528
    
    
    6.50
    %
    
    903,082
    
    
    12,653
    
    
    5.60
    %Cash
      and due from banks
    
    
    53,319
    
    
    
    
    
    
    
    
    49,717Other
      assets
    
    
    44,027
    
    
    
    
    
    
    
    
    34,969Total
      assets
    
    $
    1,298,900
    
    
    
    
    
    
    
    $
    987,768**Liabilities
      and Shareholders’ Equity:**Interest-bearing
      liabilities:Money
      market deposits
    
    $
    218,640
    
    $
    1,113
    
    
    2.04
    %
    $
    148,885
    
    $
    643
    
    
    1.73
    %Super
      NOW deposits
    
    
    21,204
    
    
    40
    
    
    0.75
    %
    
    19,582
    
    
    37
    
    
    0.75
    %Savings
      deposits
    
    
    23,753
    
    
    43
    
    
    0.73
    %
    
    26,452
    
    
    49
    
    
    0.74
    %Time
      certificates of deposit in
      denominations
      of $100,000 or more
    
    
    466,728
    
    
    3,188
    
    
    2.73
    %
    
    317,431
    
    
    1,771
    
    
    2.23
    %Other
      time deposits
    
    
    111,900
    
    
    726
    
    
    2.60
    %
    
    112,203
    
    
    681
    
    
    2.43
    %Other
      borrowings
    
    
    87,678
    
    
    778
    
    
    3.55
    %
    
    60,244
    
    
    367
    
    
    2.44
    %Total
      interest-bearing liabilities
    
    
    929,903
    
    
    5,888
    
    
    2.53
    %
    
    684,797
    
    
    3,548
    
    
    2.07
    %Demand
      deposits
    
    
    263,167
    
    
    
    
    
    
    
    
    228,465Other
      liabilities
    
    
    13,481
    
    
    
    
    
    
    
    
    11,246Shareholders’
      equity
    
    
    92,349
    
    
    
    
    
    
    
    
    63,260Total
      liabilities and shareholders’ equity
    
    $
    1,298,900
    
    
    
    
    
    
    
    $
    987,768Net
      interest income
    
    
    
    
    $
    13,640
    
    
    
    
    
    
    
    $
    9,105Net
      interest spread2
    
    
    
    
    
    
    
    
    3.97
    %
    
    
    
    
    
    
    
    3.53
    %Net
      interest margin3
    
    
    
    
    
    
    
    
    4.54
    %
    
    
    
    
    
    
    
    4.03
    %
 _______________
 (1)  Loan fees
have been included in the calculation of interest income. Loan fees were
approximately $945,000 and $847,000 for the quarters ended March 31, 2005 and
2004, respectively. Loans are net of the allowance for loan losses, deferred
fees, unearned income, and related direct costs, but includes those placed on
non-accrual status.
 (2)  Represents
the average rate earned on interest-earning assets less the average rate paid on
interest-bearing liabilities.
 (3)  Represents
net interest income as a percentage of average interest-earning
assets.
  16
 The
following table sets forth, for the periods indicated, the dollar amount of
changes in interest earned and paid for interest-earning assets and
interest-bearing liabilities and the amount of change attributable to changes in
average daily balances (volume) or changes in average daily interest rates
(rate). All yields were calculated without the consideration of tax effects, if
any, and the variances attributable to both the volume and rate changes have
been allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amount of the changes in each:
  **Rate/Volume
Analysis of Net Interest Income**
  **For
      the Quarter Ended March 31,**
      **2005
      vs. 2004**(Dollars
      in Thousands)
    
    **Increase
      (Decrease) Due to Change In**Volume
    
    Rate
    
    TotalInterest income:Net
      loans1
    
    $
    4,203
    
    $
    2,179
    
    $
    6,382Securities
      of U.S. government agencies
    
    
    295
    
    
    47
    
    
    342Other
      investment securities
    
    
    (134
    )
    
    (13
    )
    
    (147
    )Overnight
      Investments
    
    
    90
    
    
    201
    
    
    291Money
      Market Preferred Securities
    
    
    1
    
    
    6
    
    
    7Interest-earning
      deposits
    
    
    (1
    )
    
    1
    
    
    —Total
      interest income
    
    
    4,454
    
    
    2,421
    
    
    6,875Interest
      expense:Money
      market deposits
    
    $
    340
    
    $
    130
    
    $
    470Super
      NOW deposits
    
    
    3
    
    
    —
    
    
    3Savings
      deposits
    
    
    (5
    )
    
    (1
    )
    
    (6
    )Time
      certificates of deposit in
      denominations
      of $100,000 or more
    
    
    959
    
    
    458
    
    
    1,417Other
      time deposits
    
    
    (2
    )
    
    47
    
    
    45Other
      borrowings
    
    
    205
    
    
    206
    
    
    411Total
      interest expense
    
    
    1,500
    
    
    840
    
    
    2,340Change
      in net interest income
    
    $
    2,954
    
    $
    1,581
    
    $
    4,535
 **_______________**
  (1) Loan fees
have been included in the calculation of interest income. Loan fees were
approximately $945,000 and $847,000 for the quarters ended March 31, 2005 and
2004, respectively. Loans are net of the allowance for loan losses, deferred
fees, unearned income, and related direct costs, but includes those placed on
non-accrual status.
  **Provision
for Loan Losses**
  In
anticipation of credit risk inherent in our lending business, we set aside
allowances through charges to earnings. Such charges were not made only for our
outstanding loan portfolio, but also for off-balance sheet items, such as
commitments to extend credits or letters of credit. The charges made for our
outstanding loan portfolio were credited to allowance for loan losses, whereas
charges for off-balance sheet items were credited to reserve for off-balance
sheet items, which is presented as a component of other liabilities.
  Even
though the economy displayed improvement in 2004, management continued to
respond to potential loan losses proactively by identifying problem loans in a
timely manner and by taking immediate actions and successfully curbed the
increase of the level of non-performing assets (see “nonperforming assets” below
for further discussion) and controlled net charge-offs. **** The
provision for loan losses was $500,000 and $897,000 in the first quarter of 2005
and 2004, respectively. In the first quarter of 2004 we started to apply the
higher calculated loss migration ratio for the off-balance-sheet item reserve
calculation. Such change required us to provide additional provision in the
first quarter of 2004 for the off-balance-sheet item. As a result, we provided a
$427,000 provision for the credit risk of off-balance sheet items in the first
quarter of 2004, as compared with the reversal of $2,000 for the first quarter
of 2005. The procedures for monitoring the adequacy of the allowance for loan
losses, as well as detailed information concerning the allowance itself, are
described in the section entitled “Allowance for Loan Losses”
below.
  17
  **Noninterest
Income**
  Total
noninterest income slightly decreased to $4.9 million in the first quarter of
2005, as compared with $5.1 million in the same period of 2004, representing a
decrease of 2.7% during the comparable periods. Noninterest income as a
percentage of average assets decreased to 0.38% in the first quarter of 2005
from 0.51% in the same period of 2004. These decreases were primarily due to the
decrease in gains from loan sales discussed below. We currently earn
non-interest income from various sources, including an income stream provided by
the bank owned life insurance in the form of an increase in cash surrender value
and gain on sale of mortgage loans.
  The
following table sets forth the various components of our noninterest income for
the periods indicated:
  **Noninterest
Income** **(Dollars
in thousands)**
 **For
      the Quarter Ended March 31,**
    
    **2005**
    
    **2004****(Amount)**
    
    **(%)**
    
    **(Amount)**
    
    **(%)**Gain
      on sale of loans
    
    $
    2,023
    
    
    41.0
    %
    $
    2,138
    
    
    42.2
    %Service
      charges on deposit accounts
    
    
    1,720
    
    
    34.9
    %
    
    1,823
    
    
    35.9
    %Loan
      related servicing income
    
    
    658
    
    
    13.3
    %
    
    505
    
    
    10.0
    %Loan
      referral fee income
    
    
    101
    
    
    2.0
    %
    
    72
    
    
    1.4
    %Loan
      packaging fee
    
    
    66
    
    
    1.3
    %
    
    122
    
    
    2.4
    %Income
      from other earning Assets
    
    
    127
    
    
    2.6
    %
    
    157
    
    
    3.1
    %Other
      income
    
    
    241
    
    
    4.9
    %
    
    254
    
    
    5.0
    %Total
    
    $
    4,936
    
    
    100.0
    %
    $
    5,071
    
    
    100.0
    %Average
      assets
    
    $
    1,298,900
    
    
    
    
    $
    987,768Noninterest
      income as a % of average assets
    
    
    
    
    
    0.38
    %
    
    
    
    
    0.51
    %
  Our
largest noninterest income source for the first quarter of 2005 is the gain on
the sale of loans, representing approximately 41% of our total noninterest
income. Income in this category was mainly derived from the sale of the
guaranteed portion of SBA loans to government securities secondary markets.
Income in this category also includes the sales gains of residential mortgage
loans and unguaranteed portions of SBA loans. Since the inception of our Home
Loan Center in the fourth quarter of 2003, the sales of residential mortgage
loans became a stable noninterest income source and such gain was $107,000 and
$109,000 in the first quarter of 2005 and 2004, respectively. However, the gain
on sales of the unguaranteed portion of SBA loans, the third source in this
category, is not considered stable and recurring and we had no such sales in the
first quarter of 2005, as compared with realized gain of $596,000 for the prior
year’s same period. In the first quarter of 2005, an increase of $500,000 in the
gain on sales of the guaranteed portion of SBA loans ($1.9 million in the first
quarter of 2005 as compared with $1.4 million in the first quarter of 2004)
offset most of the decrease in gains from the sale of unguaranteed SBA loans.
The combined gain on the sale of loans was $2.0 million and $2.1 million in the
first quarters of 2005 and 2004, respectively.
  Our
second largest noninterest income source is service charge income on deposit
accounts, representing 34.9% and 35.9% of total noninterest income in the first
quarter of 2005 and 2004, respectively. This income source slightly decreased
from $1.8 million in the first quarter of 2004 to $1.7 million in the first
quarter of 2005, despite the increase in our number of transactional accounts.
Such decrease was due primarily to our efforts to comply with the Bank Secrecy
Act and protect us from the potential loss. For such purposes, we imposed more
rigid requirements on money service business (“MSB”) accounts and more closely
monitored their transactions. As a result, the number of MSB accounts was
reduced and fee income therefrom was also reduced. We constantly review service
charge rates and the manager’s authority to waive them to maximize service
charge income while maintaining a competitive position.
  18
 The third
largest source of noninterest income is loan-related servicing income. This fee
income consists of trade-financing fees and servicing fees on SBA loans sold,
and increased to $658,000 in the first quarter of 2005 from $505,000 for the
prior year’s same period. Such increase was mainly caused by the growth of our
servicing loan portfolio ($252.5 million and $191.0 million at the end of first
quarter of 2005 and 2004, respectively). After the restructure of our SBA
department into a marketing-oriented one, we continued to increase SBA loan
production level and accordingly the SBA loans we serviced after their sales.
  Our loan
referral fee income source includes income derived from our referring to other
financial institutions loans that did not meet our lending requirements for
various reasons, including size, availability of funds, credit criteria and
others. Our referral fee income was $101,000 in the first quarter of 2005 and
$72,000 in the same period of 2004, representing 2.0% and 1.4% of total
noninterest income in the first quarter of 2005 and 2004, respectively. We
cannot assure you that this source of revenue will continue to increase because
loan referrals do not represent our core banking business and fee income
therefrom is not a stable source of revenue. Income on other earning assets
represented income from earning assets other than interest-earning assets, such
as dividend income on Federal Home Loan Bank (the “FHLB”) stock ownership and
the increase in cash surrender value of bank owned life insurance. Such income
often fluctuates depending on the timing of the payment of stock dividend on
FHLB stock and was $127,000 and $157,000 for the first quarter of 2005 and 2004,
respectively. Other income represents income from miscellaneous sources, such as
gain on sale of investment securities and the excess of insurance proceeds over
the carrying value of an insured loss. Other income slightly decreased to
$241,000 in the first quarter of 2005 from $254,000 in the first quarter of
2004, due mainly to the insurance proceeds of $25,000 we collected in the first
quarter of 2004 on the operation loss we expensed in 2003.
  **Noninterest
Expense**
  Total
noninterest expense increased to $7.8 million in the first quarter of 2005 from
$6.1 million in the same period of 2004. This increase can be attributed to the
expanded personnel and premises associated with our business growth, including
the recent openings of new offices, and departments such as Auto Loan Center and
Home Loan Center. However, due to continuing efforts to minimize operating
expenses, noninterest expenses as a percentage of average assets decreased
slightly to 0.38% in the first quarter of 2005 from 0.51% in the same period of
2004. Management believes that its efforts in cost-cutting and revenue
diversification have improved our operational efficiency, as evidenced by the
decrease in our efficiency ratio (the ratio of noninterest expense to the sum of
net interest income before provision for loan losses and total noninterest
income) from 43.0% in the first quarter of 2004 to 42.2% in the same period of
2005.
  
 
 The
following table sets forth a summary of noninterest expenses for the periods
indicated:
  **Noninterest
Expense** **(Dollars
in thousands)**
  **For
      the Quarter Ended March 31,**
    
    **2005**
    
    **2004****(Amount)**
    
    **(%)**
    
    **(Amount)**
    
    **(%)**Salaries
      and employee benefits
    
    $
    4,375
    
    
    55.8
    %
    $
    3,443
    
    
    56.5
    %Occupancy
      and equipment
    
    
    833
    
    
    10.6
    %
    
    609
    
    
    10.0
    %Data
      processing
    
    
    415
    
    
    5.3
    %
    
    369
    
    
    6.1
    %Loan
      referral fee
    
    
    263
    
    
    3.3
    %
    
    290
    
    
    4.7
    %Professional
      fees
    
    
    446
    
    
    5.7
    %
    
    244
    
    
    4.0
    %Directors’
      fees
    
    
    123
    
    
    1.6
    %
    
    104
    
    
    1.7
    %Office
      supplies
    
    
    108
    
    
    1.4
    %
    
    112
    
    
    1.8
    %Advertising
      and promotional expenses
    
    
    246
    
    
    3.1
    %
    
    124
    
    
    2.0
    %Communications
    
    
    93
    
    
    1.2
    %
    
    82
    
    
    1.3
    %Deposit
      insurance premium
    
    
    37
    
    
    0.5
    %
    
    30
    
    
    0.5
    %Outsourced
      service for customer
    
    
    322
    
    
    4.1
    %
    
    305
    
    
    5.0
    %Investor
      relation expenses
    
    
    155
    
    
    2.0
    %
    
    50
    
    
    0.8
    %Other
    
    
    423
    
    
    5.4
    %
    
    340
    
    
    5.6
    %Total
    
    $
    7,839
    
    
    100.0
    %
    $
    6,102
    
    
    100.0
    %Average
      assets
    
    $
    1,298,900
    
    
    
    
    $
    987,768Noninterest
      expenses as a % of average assets
    
    
    
    
    
    0.60
    %
    
    
    
    
    0.62
    %
 Salaries
and employee benefits increased by 27.1% to $4.4 million or 55.8% of total
noninterest expenses in the first quarters of 2005, as compared with $3.4
million, or 56.4% for the prior year’s same quarter. Such increase was the
result of our new office openings and significant asset growth in the past 12
months. Our efforts to promote efficient operations limited the increase of
these expenses lower than the growth rate of quarterly average-assets (31.5%)
between those two periods in comparison. The number of full-time equivalent
employees was 247 as of March 31, 2005, compared with 224 as of March 31, 2004
and assets per employee increased to $5.6 million at March 31, 2005 from $4.8
million at March 31, 2004.
  Occupancy
and equipment expenses totaled $833,000 and $609,000, or 10.6% and 10.0% of
total noninterest expenses, in the first quarters of 2005 and 2004,
respectively. This increase was attributable primarily to the expansion of our
office network.
  Data
processing expenses were $415,000 and $369,000, or 5.3% and 6.1% of total
noninterest expenses in the first quarters of 2005 and 2004, respectively. The
increase was caused by the growth of our business, but far lower than the growth
rate of quarterly average-assets (31.5%) between those two periods in
comparison.
  Loan
referral fees generally are paid to brokers who refer loans to us. These loans
are SBA loans in most cases, although we recently began paying referral fees for
qualified commercial loans. These referral fees decreased from $290,000 in the
first quarter of 2004 to $263,000 in the same period of 2005, despite the SBA
loan production level being comparable between two periods. Such decrease was
mainly the result of the fact that more SBA loans in the first quarter of 2005
were referred from outside of Los Angeles. We pay a higher referral fee for loan
referrals in Los Angeles because of more competition in such area.
  Professional
fees were $446,000 and $244,000, or 5.7% and 4.0% of total noninterest expenses,
in the first quarters of 2005 and 2004, respectively. These increases were
attributable to our efforts to comply with the additional legal and accounting
requirements imposed on us by the Sarbanes-Oxley Act and the formation of the
bank holding company. We expect that expenditures in this area will continue to
be significant, as we address the enhanced SEC regulations and Nasdaq corporate
governance requirements.
  Advertising
and promotional expense significantly increased from $124,000 in the first
quarter of 2004 to $246,000 in the same period of 2005. This increase can be
attributed to the expanded marketing activities, such as media advertisements
and promotional gifts for customers of newly opened offices and departments and
for new products like residential mortgage loans.
  20
 Outsourced
service costs for customers are paid to outside parties who provide services
that were traditionally provided by banks to their customers, such as armored
car services or bookkeeping services, and are recouped from the earnings credits
earned by the respective depositors on their balances maintained with us. These
expenses increased from $305,000 in the first quarter of 2004 to $322,000 in the
same period of 2005. Such increases were mainly the result of an increase in
depositors demanding such services, such as escrow accounts or brokerage
accounts.
  Investor
relations expenses represent costs for providing services to our existing or
prospective shareholders, such as Nasdaq listing fees, fees to an outside
investor relations company and to various promotional material costs. These
expenses have increased significantly from $50,000 in the first quarter of 2004
to $155,000 in the same period of 2005. Such increases were mainly the result of
increased activities in this area in addition to the increase in the number of
shareholders.
  Noninterest
expenses other than the categories specifically addressed above, such as office
supplies and communication expenses, increased by $116,000, or 17.4%, to
$784,000 in the first quarter of 2005 from $668,000 in the first quarter of
2004. Such increase was due mainly to the normal increase following our business
growth, which was far lower than the 31.5% increase in the growth rate of
quarterly average-assets between two periods in comparison.
  Generally,
noninterest expense has increased in recent years as a result of rapid asset
growth and expansion of our office network and products, all requiring
substantial increases in staff, as well as additional occupancy and data
processing costs. Management anticipates that noninterest expense will continue
to increase as we continue to grow. However, management remains committed to
cost-control and efficiency, and we expect to keep these increases to a minimum
relative to growth.
  **Provision
for Income Taxes**
  For the
quarter ended March 31, 2005, we made a provision for income taxes of $4.2
million on pretax net income of $10.2 million, representing an effective tax
rate of 40.7%, as compared with a provision for income taxes of $2.8 million on
pretax net income of $7.2 million, representing an effective tax rate of 39.5%
for the same period of 2004.
  The
effective tax rates in the first quarter of 2005 were reasonably consistent with
those for the prior year’s same quarter. Our effective tax rates were one to two
percentage points lower than statutory rates due to state tax benefits derived
from doing business in an Enterprise Zone (“EZ”) and our ownership of bank owned
life insurances and Low Income Housing Tax Credit Funds (see “Other Earning
Assets” for further discussion). Generally, income tax expense is the sum of two
components: current tax expense and deferred tax expense (benefit). Current tax
expense is calculated by applying the current tax rate to taxable income.
Deferred tax expense accounts for the change in deferred tax assets
(liabilities) from year to year. Deferred income tax assets and liabilities
represent the tax effects, based on current tax law, of future deductible or
taxable amounts attributable to events that have been recognized in the
financial statements. Because we traditionally recognize substantially more
expenses in our financial statements than we have been allowed to deduct for
taxes, we generally have a net deferred tax asset. At March 31, 2005 and
December 31, 2004 we had net deferred tax assets of $5.0 million and $4.8
million, respectively.
  We
believe that we have adequately provided for income tax issues not yet resolved
with federal, state and foreign tax authorities. In March 2005, we prepaid
$515,000 to the California Franchise Tax Board for unresolved tax matters in
order to avoid the new potential penalty imposed by the State of California for
any tax balances owed for years prior to 2003. Such prepayment was made from the
reserve we previously accrued, the balance of which was $532,000 at December 31,
2004. Based upon a consideration of all relevant facts and circumstances, we do
not believe the ultimate resolution of tax issues for all open tax periods will
have a material adverse effect upon our results of operations or financial
condition.
  21
  **Financial
Condition**
  **Loan
Portfolio**
  Total
loans net of unearned income increased by $24.2 million, or 2.4%, to $1.04
billion at March 31, 2005, as compared with $1.02 billion at December 31, 2004.
Total loans net of unearned income as a percentage of total assets as of March
31, 2005 and December 31, 2004 were 75.9% and 80.6%, respectively.
  The
following table sets forth the amount of total loans outstanding (excluding
unearned income) and the percentage distributions in each category, as of the
dates indicated:
  **Distribution
of Loans and Percentage Composition of Loan Portfolio**
  **Amount
      Outstanding****(Dollars
      in Thousands)****March
      31, 2005**
    
    **December
      31, 2004**Construction
    
    $
    5,493
    
    $
    6,972Real
      estate secured
    
    
    871,226
    
    
    858,998Commercial
      and industrial
    
    
    144,481
    
    
    135,943Consumer
    
    
    23,764
    
    
    18,810Total
      loans, net of unearned income
    
    $
    1,044,964
    
    $
    1,020,723Participation
      loans sold and serviced by the Company
    
    $
    252,468
    
    $
    235,534Construction
    
    
    0.5
    %
    
    0.7
    %Real
      estate secured
    
    
    83.4
    %
    
    84.2
    %Commercial
      and industrial
    
    
    13.8
    %
    
    13.3
    %Consumer
    
    
    2.3
    %
    
    1.8
    %Total
      loans, net of unearned income
    
    
    100.0
    %
    
    100.0
    %
 Real
estate secured loans consist primarily of commercial real estate loans and are
extended to finance the purchase and/or improvement of commercial real estate
and/or businesses thereon. The properties may be either user owned or for
investment purposes. Our loan policy adheres to the real estate loan guidelines
set forth by the FDIC in 1993. The policy provides guidelines including, among
other things, fair review of appraisal value, limitation on loan-to-value ratio
and minimum cash flow requirements to service debt. Loans secured by real estate
equaled $871.2 million and $859.0 million as of March 31, 2005 and December 31,
2004, respectively. The robust California real estate market in the last few
years and our increased involvement in the residential mortgage loan market have
increased the composition of real estate secured loans. Total loans and real
estate secured loans as a percentage of total loans were 83.4% and 84.2% at
March 31, 2005 and December 31, 2004, respectively.
  Commercial
and industrial loans include revolving lines of credit, as well as term business
loans. Commercial and industrial loans at March 31, 2005 slightly increased to
$144.5 million, as compared with $135.9 million at December 31, 2004. Commercial
and industrial loans as a percentage of total loans slightly increased to 13.8%
at March 31, 2005, from 13.3% at December 31, 2004. Consumer loans have
historically represented less than 5% of our total loan portfolio. The majority
of consumer loans are concentrated in automobile loans, which we formerly
provided as a service only to existing customers. However, in 2003, we initiated
a business plan to increase our consumer loan portfolio, and introduced an Auto
Loan Center. Consumer loans increased from $18.8 million at December 31, 2004 to
$23.8 million at March 31, 2005. **** Management
anticipates further increases in consumer loans going forward, although no
assurance can be given that this increase will occur.
  Construction
loans generally have represented 5% or less of our total loan portfolio and are
extended as a temporary financing vehicle only. In the third quarter of 2004, we
formed a construction loan department in the Commercial Loan Center and
appointed a construction loan specialist as its manager. We expect to expand our
construction loans with the specialized capacity under the guidance of the
Commercial Loan Center.
  22
 Our loan
terms vary according to loan type. Commercial term loans have typical maturities
of three to five years and are extended to finance the purchase of business
entities, business equipment, leasehold improvements or to provide permanent
working capital. SBA guaranteed loans usually have longer maturities (8 to 25
years). We generally limit real estate loan maturities to five to eight years.
Lines of credit, in general, are extended on an annual basis to businesses that
need temporary working capital and/or import/export financing. We generally seek
diversification in our loan portfolio, and our borrowers are diverse as to
industry, location, and their current and target markets.
  The
following table shows the contractual maturity distribution and repricing
intervals of the outstanding loans in our portfolio, as of March 31, 2005. In
addition, the table shows the distribution of such loans between those with
variable or floating interest rates and those with fixed or predetermined
interest rates. The table excludes the gross amount of non-accrual loans of $6.4
million, and includes unearned income and deferred fees totaling $9.9 million at
March 31, 2005:
  **Loan
Maturities and Repricing Schedule**
  **At
      March 31, 2005,****Within**
      **One
      Year**
    
    **After
      One**
      **But
      Within**
      **Five
      Years**
    
    **After**
      **Five
      Years**
    
    **Total****(Dollars
      in Thousands)**Construction
    
    $
    5,493
    
    $
    —
    
    $
    —
    
    $
    5,493Real
      estate secured
    
    
    797,968
    
    
    18,767
    
    
    51,328
    
    
    868,063Commercial
      and industrial
    
    
    150,929
    
    
    127
    
    
    92
    
    
    151,148Consumer
    
    
    9,137
    
    
    14,586
    
    
    6
    
    
    23,729Total
      loans, net of unearned income
    
    $
    963,527
    
    $
    33,480
    
    $
    51,426
    
    $
    1,048,433Loans
      with variable (floating) interest rates
    
    $
    941,395
    
    $
    —
    
    $
    —
    
    $
    941,395Loans
      with predetermined (fixed) interest rates
    
    $
    22,132
    
    $
    33,480
    
    $
    51,426
    
    $
    107,038
 The
majority of the properties taken as collateral are located in Southern
California. The loans generated by our loan production offices, which are
located outside of our main geographical market, are generally collateralized by
property in close proximity to those offices. We employ strict guidelines
regarding the use of collateral located in less familiar market areas. Since a
major real estate recession during the first part of the previous decade,
property values in Southern California, where most of our loan collateral is
located, have generally increased. However, no assurance can be given that this
trend will continue or that property values will not significantly
decrease.
  **Nonperforming
Assets**
  Nonperforming
assets consist of loans on non-accrual status, loans 90 days or more past due
and still accruing interest, loans restructured, where the terms of repayment
have been renegotiated resulting in a reduction or deferral of interest or
principal, and other real estate owned (“OREO”).
  Loans are
generally placed on non-accrual status when they become 90 days past due, unless
management believes the loan is adequately collateralized and in the process of
collection. The past due loans may or may not be adequately collateralized, but
collection efforts are continuously pursued. Loans may be restructured by
management when a borrower has experienced some changes in financial status,
causing an inability to meet the original repayment terms, and where we believe
the borrower will eventually overcome those circumstances and repay the loan in
full. OREO consists of properties acquired by foreclosure or similar means and
which management intends to offer for sale.
  Despite
the recent economic downturn and the significant growth of our loan portfolio,
management’s continued emphasis on asset quality control has reduced the level
of nonperforming loans. Our nonperforming loans decreased to $2.2 million or
0.21% of total loans, compared to $2.7 million, or 0.26% at the end of 2004 and
$3.7 million, or 0.44%, at the end of the first quarter of 2004.
  23
 As of
March 31, 2005, we possessed one OREO, a $308,000 commercial property, which
subsequently sold in April 2005 at a small loss. Together with our OREO, the
ratio of nonperforming assets as a percentage of total loans and OREO improved
to 0.24% at March 31, 2005, as compared with 0.26% at the end of 2004 and 0.44%
at the end of the first quarter of 2004.
  The
following table provides information with respect to the components of our
nonperforming assets as of the dates indicated (The figures in the table are net
of the portion guaranteed by the U.S. Government):
  **Nonperforming
Assets**
 **(Dollars
in Thousands)**
 **March
      31,2005**
    
    **December
      31,2004**
    
    **March
      31,2004****Nonaccrual
      loans:1**.Real
      estate secured
    
    $
    1,767
    
    $
    2,242
    
    $
    3,065Commercial
      and industrial
    
    
    375
    
    
    401
    
    
    480Consumer
    
    
    —
    
    
    —
    
    
    —Total
    
    
    2,142
    
    
    2,643
    
    
    3,545**Loans
      90 days or more past due and still accruing (as to principal****or****interest):**Construction
    
    
    —
    
    
    —
    
    
    —Real
      estate secured
    
    
    —
    
    
    —
    
    
    44Commercial
      and industrial
    
    
    15
    
    
    —
    
    
    55Consumer
    
    
    81
    
    
    42
    
    
    46Total
    
    
    96
    
    
    42
    
    
    145**Restructured
      loans:2,3**Real
      estate secured
    
    
    —
    
    
    —
    
    
    —Commercial
      and industrial
    
    
    —
    
    
    14
    
    
    21Consumer
    
    
    —
    
    
    —
    
    
    —Total
    
    
    —
    
    
    14
    
    
    21Total
      nonperforming loans
    
    
    2,238
    
    
    2,699
    
    
    3,711Other
      real estate owned
    
    
    308
    
    
    —
    
    
    —Total
      nonperforming assets
    
    $
    2,546
    
    $
    2,699
    
    $
    3,711Nonperforming
      loans as a percentage of total loans
    
    
    0.21
    %
    
    0.26
    %
    
    0.44
    %Nonperforming
      assets as a percentage of total loans
      and
      other real estate owned
    
    
    0.24
    %
    
    0.26
    %
    
    0.44
    %Allowance
      for loan losses as a percentage of
      nonperforming
      loans
    
    
    521.38
    %
    
    411.63
    %
    
    255.64
    %____________________
 1 During
the three months ended March 31, 2005, no interest income related to these loans
was included in net income. Additional interest income of approximately $105,000
would have been recorded during the three months ended March 31, 2005, if these
loans had been paid in accordance with their original terms and had been
outstanding throughout the three months ended March 31, 2005 or, if not
outstanding throughout the three months ended March 31, 2005, since
origination.
 2 A
“restructured loan” is one the terms of which were renegotiated to provide a
reduction or deferral of interest or principal because of deterioration in the
financial position of the borrower.
 3 During
the three months ended March 31, 2004, additional interest income of $2,000
would be recognized during the three months ended March 31, 2004, if these loans
had been paid in accordance with their original terms and had been outstanding
throughout the three months ended March 31, 2004.
  24
 Management believes that the reserve provided for nonperforming loans,
together with the tangible collateral, were adequate as of March 31, 2005. See
“Allowance for Loan Losses” below for further discussion. Except as
disclosed above, as of March 31, 2005, management was not aware of any material
credit problems of borrowers that would cause it to have serious doubts about
the ability of a borrower to comply with the present loan payment terms.
However, no assurance can be given that credit problems may exist that may not
have been brought to the attention of management.
  **Allowance
for Loan Losses**
  In
anticipation of credit risk inherent in our lending business, we set aside
allowances through charges to earnings. Such charges were not only made for the
outstanding loan portfolio, but also for off—balance sheet items, such as
commitment to extend credits or letters of credit. The charges made for
outstanding loan portfolio was credited to allowance for loan losses, whereas
charges for off-balance sheet items were credited to reserve for off-balance
sheet items, which is presented as a component of other liability. The rapid
growth of our loan portfolio has required more reserves for possible loan
losses. The provision for loan losses is discussed in the section entitled
“Provision for Loan Losses” above.
  The table
below summarizes, for the periods indicated, loan balances at the end of each
period, the daily averages during the period, changes in the allowance for loan
losses arising from loans charged off, recoveries on loans previously charged
off, additions to the allowance and certain ratios related to the allowance for
loan losses:
  **Allowance
for Loan Losses**
 **(Dollars
in thousands)**
 **As of and for the quarter
      ended**
    
    **March
      31,2005**
    
    **December
      31,2004**
    
    **March
      31, 2004****Balances:**Average
      total loans outstanding during period
    
    $
    1,037,623
    
    $
    989,549
    
    $
    786,937Total
      loans (net of unearned income)
    
    $
    1,044,964
    
    $
    1,020,723
    
    $
    835,156**Allowance
      for loan losses:****Balances
      at beginning of period**
    
    $
    11,111
    
    $
    11,131
    
    $
    9,011**Actual
      charge-offs:**Real
      estate secured
    
    
    24
    
    
    —
    
    
    —Commercial
      and industrial
    
    
    48
    
    
    601
    
    
    7Consumer
    
    
    —
    
    
    58
    
    
    32Total
      charge-offs
    
    
    72
    
    
    659
    
    
    39**Recoveries
      on loans previously charged off:**Real
      estate secured
    
    
    1
    
    
    —
    
    
    —Commercial
      and industrial
    
    
    126
    
    
    174
    
    
    39Consumer
    
    
    1
    
    
    18
    
    
    7Total
      recoveries
    
    
    128
    
    
    192
    
    
    46Net
      loan charge-offs (recoveries)
    
    
    (56
    )
    
    467
    
    
    (7
    )**Provision
      for loan losses**
      **Less:
      Provision for losses in off-balance sheet items**
    
    
    500
      (2
    )
    
    550
      103
    
    
    896
      427**Balances
      at end of period**
    
    $
    11,669
    
    $
    11,111
    
    $
    9,487**Ratios:**Net
      loan charge-offs to average total loans
    
    
    -0.01
    %
    
    0.05
    %
    
    0.00
    %Allowance
      for loan losses to total loans at period-end
    
    
    1.12
    %
    
    1.09
    %
    
    1.14
    %Net
      loan charge-offs to allowance for loan losses
    
    
    -0.48
    %
    
    4.20
    %
    
    -0.07
    %Net
      loan charge-offs to provision for loan losses
    
    
    -11.20
    %
    
    84.91
    %
    
    -0.78
    %
 The
allowance for loan losses slightly increased by 5.02%, or $502,000, to $11.7
million at March 31, 2005, as compared with $11.1 million at December 31, 2004,
which increased from $9.5 million at March 31, 2004. Although management
believes the allowance, at March 31, 2005, was adequate to absorb losses from
any known and inherent risks in the portfolio, no assurance can be given that
economic conditions which may adversely affect our service areas or other
variables will not result in increased losses in the loan portfolio in the
future. Management’s continued emphasis on asset quality control has maintained
the lower level of net loan charge-offs and resulted in a net recovery of
$56,000 in the first quarter of 2005, as compared with a $467,000 net charge-off
in the previous quarter and $7,000 net recovery in the first quarter of 2004.
  25
  As of
March 31, 2005 and December 31, 2004, our allowance for loan losses consisted of
amounts allocated to three phases of our methodology for assessing loan loss
allowances, as follows (see details of methodology for assessing allowance for
loan losses in the section entitled “Critical Accounting
Policies”):
  **Phase
      of Methodology**
    
    
    **As of:**
    
    
    **As of:**March
      31, 2005
    
    
    December
      31, 2004Specific
      review of individual loans
    
    $
    450,146
    
    $
    541,260Review
      of pools of loans with similar characteristics
    
    
    9,428,448
    
    
    8,954,465Judgmental
      estimate based on various subjective factors
    
    
    1,790,496
    
    
    1,615,367Total
      allowance for loan losses
    
    $
    11,669,090
    
    $
    11,111,092
 The table
below summarizes, for the periods indicated, the balance of allowance for loan
losses and its percent of such loan balance for each type of loan at the end of
each period: ****
 **Distribution
      and Percentage Composition of Allowance for Loan
      Losses**
      **(Dollars
      in thousands)****Balance
      as of**
    
    **March
      31, 2005**
    
    
    **December
      31, 2004****Reserve**
      **Amount**
    
    **Total**
      **Loans**
    
    **(%)**
    
    
    **Reserve**
      **Amount**
    
    **Total**
      **Loans**
    
    **(%)**Applicable
      to:Construction
      loans
    
    $
    55
    
    $
    5,493
    
    
    1.00
    %
    
    $
    66
    
    $
    6,972
    
    
    0.95
    %Real
      estate secured
    
    $
    8,508
    
    $
    871,226
    
    
    0.98
    %
    
    $
    8,081
    
    $
    858,998
    
    
    0.94
    %Commercial
      and industrial
    
    $
    2,939
    
    $
    144,481
    
    
    2.03
    %
    
    $
    2,796
    
    $
    135,943
    
    
    2.06
    %Consumer
    
    $
    168
    
    $
    23,764
    
    
    0.71
    %
    
    $
    168
    
    $
    18,810
    
    
    0.89
    %Total
      Allowance
    
    $
    11,669
    
    $
    1,044,964
    
    
    1.12
    %
    
    $
    11,111
    
    $
    1,020,723
    
    
    1.09
    %
 **Contractual
Obligations**
  The
following table represents our aggregate contractual obligations to make future
payments as of March 31, 2005:
  **(Dollars
      in thousands)**
    
    **One
      Year****or Less**
    
    **Over
      One Year To****Three Years**
    
    **Over
      Three Years To Five****Years**
    
    **Over
      Five****Years**
    
    **Total**FHLB
      borrowings
    
    $
    32,286
    
    $
    31,383
    
    $
    —
    
    $
    —
    
    $
    63,669Junior
      subordinated debenture
    
    
    2,487
    
    
    4,809
    
    
    2,533
    
    
    46,083
    
    
    55,912Operating
      leases
    
    
    1,477
    
    
    2,394
    
    
    1,791
    
    
    2,892
    
    
    8,554Time
      deposits
    
    
    596,491
    
    
    26,801
    
    
    129
    
    
    20
    
    
    623,441Total
    
    $
    632,741
    
    $
    65,387
    
    $
    4,453
    
    $
    48,995
    
    $
    751,576
 **Off-Balance
Sheet Arrangements**
  During
the ordinary course of business, we provide various forms of credit lines to
meet the financing needs of our customers. These commitments, which represent a
credit risk to us, are not represented in any form on our balance
sheets. ****
  26
  As of
March 31, 2005 and December 31, 2004, we had commitments to extend credit of
$86.3 million and $69.5 million, respectively. Obligations under standby letters
of credit were $3.4 million and $2.8 million at March 31, 2005 and December
31, 2004, respectively, and the obligations under commercial letters of credit
were $10.0 million and $9.3 million at such dates, respectively. The effect on
our revenues, expenses, cash flows and liquidity from the unused portion of the
commitments to provide credit cannot be reasonably predicted because there is no
guarantee that the lines of credit will be used.
  In the
normal course of business, we are involved in various legal claims. We have
reviewed all legal claims against us with counsel and have taken into
consideration the views of counsel as to the outcome of the claims. In our
opinion, the final disposition of all such claims will not have a material
adverse effect on our financial position and results of operations.
  **Investment
Activities**
  Investments
are one of our major sources of interest income and are acquired in accordance
with a written comprehensive Investment Policy addressing strategies, types and
levels of allowable investments. This Investment Policy is reviewed at least
annually by the Board of Directors. Management of our investment portfolio is
set in accordance with strategies developed and overseen by our Asset/Liability
Committee. Investment balances, including cash equivalents and interest-bearing
deposits in other financial institutions, are subject to change over time based
on our asset/liability funding needs and interest rate risk management
objectives. Our liquidity levels take into consideration anticipated future cash
flows and all available sources of credits and are maintained at levels
management believes are appropriate to assure future flexibility in meeting
anticipated funding needs.
  *Cash
Equivalents and Interest-bearing Deposits in other Financial
Institutions*
  We sell
federal funds, purchase securities under agreements to resell and high-quality
money market instruments, and deposit interest-bearing accounts in other
financial institutions to help meet liquidity requirements and provide temporary
holdings until the funds can be otherwise deployed or invested. As of March 31,
2005 and December 31, 2004, we had $125 million and $45 million, respectively,
in federal funds sold and repurchase agreements, and $3,000 at each of March 31,
2005 and December 31, 2004 in interest bearing deposits in other financial
institutions.
  *Real
Estate Investment Trust*
  On April
1, 2003, we established the Wilshire Capital Trust, a Maryland real estate
investment trust, for the primary purpose of investing in our real estate
related assets, and to enhance and strengthen our capital position, increase our
earnings, and realize certain tax benefits. We initially funded the trust with
the contribution of $180 million in real estate-secured loans. As of
December 31, 2003, our trust had assets of approximately $185 million. The
formation and capitalization of our real estate investment trust has had no
substantial impact on our estimated tax accruals, since we determined not to
recognize the proposed tax savings until realized.
  In
December 2003, the State of California Franchise Tax Board clarified its
position and management believes that the proposed tax benefits through our
subsidiary trust are no longer realizable in the future. Responding to this
change, we dissolved the trust in March 2004. The dissolution of our trust did
not or will not have a material impact on our existing or future
operations.
  *Investment
Securities*
  Management
of our investment securities portfolio focuses on providing an adequate level of
liquidity and establishing an interest rate-sensitive position, while earning an
adequate level of investment income without taking undue risk. We classify our
investment securities as “held-to-maturity” or “available-for-sale.” Investment
securities that we intend to hold until maturity are classified as
held-to-maturity securities, and all other investment securities are classified
as available-for-sale. The carrying values of available-for-sale investment
securities are adjusted for unrealized gains or losses as a valuation allowance
and any gain or loss is reported on an after-tax basis as a component of other
comprehensive income. At March 31, 2005 and December 31, 2004, we had $0 and $10
million, respectively, in money market preferred stock (“MMPS”), which is
classified as available-for-sale securities. MMPS is a form of equity security
having characteristics similar to money market investments such as commercial
paper and offers attractive tax-equivalent yields with a 70% dividend received
deduction. MMPS is re-auctioned every 49 or 90 days.
  27
  The
following table summarizes the book value and market value and distribution of
our investment securities as of the dates indicated:
  **Investment
Securities Portfolio**
 **(Dollars
in Thousands)**
 **As
      of March 31, 2005**
    
    
    **As
      of December 31, 2004****Amortized**
      **Cost**
    
    
    **Market
      Value**
    
    
    **Amortized**
      **Cost**
    
    
    **Market
      Value**Held to Maturity:Securities
      of government sponsored enterprises
    
    $
    25,979
    
    $
    25,692
    
    $
    28,073
    
    $
    27,976Collateralized
      mortgage obligation.
    
    
    341
    
    
    323
    
    
    379
    
    
    371Municipal
      securities
    
    
    2,809
    
    
    2,804
    
    
    810
    
    
    814Corporate
      securities
    
    
    —
    
    
    —
    
    
    —
    
    
    —Available-for-Sale:Securities
      of government sponsored enterprises
    
    
    54,812
    
    
    54,241
    
    
    39,945
    
    
    39,732Mortgage
      backed securities
    
    
    33,508
    
    
    33,227
    
    
    32,183
    
    
    32,031Corporate
      Securities
    
    
    3,996
    
    
    3,910
    
    
    3,994
    
    
    3,950Money
      market preferred stock
    
    
    —
    
    
    —
    
    
    10,000
    
    
    10,000Total
      investment securities
    
    $
    121,445
    
    $
    120,197
    
    $
    115,384
    
    $
    114,874
 The
following table summarizes the maturity and repricing schedule of our investment
securities at their carrying values and their weighted average yields (without
the consideration of tax effects, if any) at March 31, 2005:
 ****
 **Investment
Maturities and Repricing Schedule**
 ****
 **(Dollars
in Thousands)**
 Within
      One Year
    
    After
      One But
      Within
      Five Years
    
    
    After
      Five But
      Within
      Ten Years
    
    After
      Ten Years
    
    
    TotalAmount
    
    Yield
    
    Amount
    
    Yield
    
    
    Amount
    
    Yield
    
    Amount
    
    Yield
    
    
    Amount
    
    Yield**Held
      to Maturity:**Securities
      of government sponsored enterprises
    
    $
    8,000
    
    
    2.84
    %
    $
    17,979
    
    
    3.27
    %
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    $
    25,979
    
    
    3.14
    %Collateralized
      mortgage obligation.
    
    
    —
    
    
    —
    
    
    341
    
    
    3.95
    %
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    341
    
    
    3.95
    %Municipal
      securities
    
    
    —
    
    
    —
    
    
    2,809
    
    
    4.08
    %
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    2,809
    
    
    4.08
    %Corporate
      securities
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    —
    
    
    —**Available-for-sale:**Securities
      of government sponsored enterprises
    
    
    7,944
    
    
    2.97
    %
    
    46,297
    
    
    3.49
    %
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    54,241
    
    
    3.41
    %Mortgage
      backed securities
    
    
    13,422
    
    
    3.31
    %
    
    19,805
    
    
    3.90
    %
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    
    33,227
    
    
    3.66
    %Corporate
      securities
    
    
    —
    
    
    —
    
    
    988
    
    
    4.20
    %
    
    
    1,924
    
    
    4.46
    %
    
    998
    
    
    6.71
    %
    
    
    3,910
    
    
    4.97
    %Total
      investment securities
    
    $
    29,366
    
    
    3.09
    %
    $
    88,219
    
    
    3.56
    %
    
    $
    1,924
    
    
    4.46
    %
    $
    998
    
    
    6.71
    %
    
    $
    120,507
    
    
    3.49
    %
 Our
investment securities holdings increased by $5.5 million, or 4.8%, to $120.5
million at March 31, 2005, compared to holdings of $115.0 million at December
31, 2004. Total investment securities as a percentage of total assets were 8.7%
and 9.1% at March 31, 2005 and December 31, 2004, respectively. As of March 31,
2005, investment securities having a carrying value of $92.9 million were
pledged to secure certain deposits.
  28
 As of
March 31, 2005, held-to-maturity securities, which are carried at their
amortized costs, decreased to $29.1 million from $29.3 million at December 31,
2004. Available-for-sale securities, which are stated at their fair market
values, increased to $91.4 million at March 31, 2005 from $85.7 million at
December 31, 2004. These increases reflect a strategy of improving our liquidity
level using available-for-sale securities, in addition to immediately available
funds, the majority of which are maintained in the form of overnight
investments.
  The
following table shows our investments’ gross unrealized losses and fair value,
aggregated by investment category and length of time that individual securities
have been in a continuous unrealized loss position, at March 31,
2005:
  **As
      of March 31, 2005**
    
    **(Dollars
      in thousands)****Less
      than 12 months**
    
    **12
      months or longer**
    
    **Total**Description
      of Securities
    
    **Fair
      Value**
    
    **Gross
      Unrealized Losses**
    
    **Fair
      Value**
    
    **Gross
      Unrealized Losses**
    
    **Fair
      Value**
    
    **Gross
      Unrealized Losses**Securities
      of government
      sponsored
      enterprises
    
    $
    64,159
    
    $
    (760
    )
    $
    3,892
    
    $
    (108
    )
    $
    68,051
    
    $
    (868
    )Collateralized
      mortgage
      obligation
    
    
    1,591
    
    
    (50
    )
    
    2,607
    
    
    (113
    )
    
    4,198
    
    
    (163
    )Mortgage
      backed securities
    
    
    13,067
    
    
    (202
    )
    
    2,267
    
    
    (25
    )
    
    15,334
    
    
    (227
    )Municipal
      securities
    
    
    805
    
    
    (5
    )
    
    —
    
    
    —
    
    
    805
    
    
    (5
    )Corporate
      securities
    
    
    3,910
    
    
    (86
    )
    
    —
    
    
    —
    
    
    3,910
    
    
    (86
    )$
    83,532
    
    $
    (1,103
    )
    $
    8,766
    
    $
    (246
    )
    $
    92,298
    
    $
    (1,349
    )
 Declines
in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. In estimating other-than-temporary impairment losses,
management considers, among other things, (i) the length of time and the extent
to which the fair value has been less than cost, (ii) the financial condition
and near-term prospects of the issuer, and (iii) our intent and ability to
retain our investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value.
  Management
has the ability and intent to hold the securities classified as held to maturity
until they mature, at which time we expect to receive full value for the
securities. Furthermore, as of March 31, 2005, management also had the ability
and intent to hold the securities classified as available for sale for a period
of time sufficient for a recovery of cost. The unrealized losses were largely
due to increases in market interest rates over the yields available at the time
the underlying securities were purchased. The fair value is expected to recover
as the bonds approach their maturity date or repricing date or if market yields
for such investments decline. Management does not believe any of the securities
are impaired due to reasons of credit quality. Accordingly, as of March 31,
2005, management believes the impairments detailed in the table above are
temporary, and no impairment loss has been realized in our consolidated
statement of operations.
  **Other
Earning Assets**
  For
various business purposes, we make investments in earning assets other than the
interest-earning securities discussed above. Before 2003, the only other earning
assets held by us were insignificant amounts of Federal Home Loan Bank stock and
the cash surrender value on the Bank Owned Life Insurances
(“BOLI”).
  During
2003, in an effort to provide additional benefits aimed at retaining key
employees, while generating a tax-exempt noninterest income stream, we purchased
$10.5 million in BOLI from insurance carriers rated AA or above. We are the
owner and the primary beneficiary of the life insurance policies and recognize
the increase of the cash surrender value of the policies as tax-exempt other
income.
  We also
invested in two low-income housing tax credit funds (“LIHTCF”) to promote our
participation in CRA activities. We committed to invest, over the next two to
three years, a total of $3 million to two different LIHTCF - $1 million in
Apollo California Tax Credit Fund XXII, LP, and $2 million in Hudson Housing Los
Angeles Revitalization Fund, LP. We anticipate receiving the return following
this two to three year period in the form of tax credits and tax deductions over
the next fifteen years.
  29
 
 The
balances of other earning assets as of March 31, 2005 and December 31, 2004 were
as follows:
  **Type**
    
    **Balance
      as of**
      **March
      31, 2005**
    
    **Balance
      as of**
      **December
      31, 2004**BOLI
    
    $
    11,703,000
    
    $
    11,536,000LIHTCF
    
    $
    1,740,000
    
    $
    1,784,000Federal
      Home Loan Bank Stock
    
    $
    4,318,000
    
    $
    4,372,000
 **Deposits
and Other Sources of Funds**
  *Deposits*
  Deposits
are our primary source of funds. Total deposits at March 31, 2005 and December
31, 2004, were $1.16 billion and $1.10 billion, respectively, representing an
increase of $61.2 million, or 5.6% in the first quarter of 2005.
  Due to
the heightend competition for core deposits, our time deposit reliance level
increased and the percentage of the average time deposit over the average total
deposit in the first quarter of 2005 was increased to 52.3% from 50.4% for the
prior year’s same quarter. The average time deposits for the quarter ended March
31, 2005 increased by $149.0 million or 34.7% to $578.6 million from $429.6
million a year ago, while the average total deposits for the quarter ended March
31, 2005 increased by $252.4 million or 29.6% to $1,105.4 million for the
quarter ended March 31, 2005 from $853.0 million a year ago
  The
average rate paid on time deposits in denominations of $100,000 or more for
first quarter of 2005 increased to 2.73%, as compared with 2.23% of same period
of prior year. See “Net Interest Income and Net Interest Margin” for further
discussion.
  The
following tables summarize the distribution of average daily deposits and the
average daily rates paid for the quarters indicated:
  **Average
Deposits**
  **(Dollars
in Thousands)**
  **For
      the quarters ended:**
    
    **March
      31, 2005**
    
    
    **December
      31, 2004**
    
    
    **March
      31,2004****Average**
      **Balance**
    
    **Average**
      **Rate**
    
    
    **Average**
      **Balance**
    
    **Average**
      **Rate**
    
    
    **Average****Balance**
    
    **Average**
      **Rate**Demand,
      noninterest-bearing
    
    $
    263,168
    
    
    
    
    
    $
    268,559
    
    
    
    
    
    $
    228,465Money
      market
    
    
    218,640
    
    
    2.04
    %
    
    
    212,207
    
    
    1.87
    %
    
    
    148,885
    
    
    1.73
    %Super
      NOW
    
    
    21,204
    
    
    0.75
    %
    
    
    22,877
    
    
    0.77
    %
    
    
    19,582
    
    
    0.75
    %Savings
    
    
    23,753
    
    
    0.73
    %
    
    
    23,913
    
    
    0.75
    %
    
    
    26,452
    
    
    0.74
    %Time
      certificates of deposit in
      denominations
      of $100,000 or more
    
    
    466,728
    
    
    2.73
    %
    
    
    425,900
    
    
    2.33
    %
    
    
    317,431
    
    
    2.23
    %Other
      time deposits
    
    
    111,900
    
    
    2.60
    %
    
    
    118,296
    
    
    2.54
    %
    
    
    112,203
    
    
    2.43
    %Total
      deposits
    
    $
    1,105,393
    
    
    1.85
    %
    
    $
    1,071,752
    
    
    1.59
    %
    
    $
    853,018
    
    
    1.49
    %
 
 
 30
 
 The
scheduled maturities of our time deposits in denominations of $100,000 or
greater at March 31, 2005 are, as follows:
  **Maturities
of Time Deposits of $100,000 or More, at March 31, 2005**
  **(Dollars
in Thousands)**
 Three
      months or less
    
    $
    220,793Over
      three months through six months
    
    
    148,854Over
      six months through twelve months
    
    
    120,933Over
      twelve months
    
    
    2,236Total
    
    $
    492,816
 Because
our client base is comprised primarily of commercial and industrial accounts,
individual account balances are generally higher than those of consumer-oriented
banks. A number of clients carry deposit balances of more than 1% of our total
deposits, but only two customers, including the California State Treasury, had a
deposit balance of more than 3% of total deposits at March 31, 2005 and December
31, 2004.
  In order
to take advantage of historically low fund costs, we also accepted brokered
deposits on a selective basis at reasonable interest rates to augment deposit
growth in the past few years. The broker deposits have grown to $47.3 million at
December 31, 2004 from $4.2 million at the end of 2001, but we controlled their
growth and reduced these deposits to $43.4 million at March 31, 2005 in order to
limit our reliance on non-core funding source. Most of the brokered deposits
will mature within one year. Since brokered deposits are generally less stable
forms of deposits, management closely monitors fund growth from this non-core
funding source.
  *FHLB
Borrowings*
  Although
deposits are the primary source of funds for our lending and investment
activities and for general business purposes, we may obtain advances from the
Federal Home Loan Bank of San Francisco (“FHLB”) as an alternative to retail
deposit funds. Since 2002, we have increased borrowings from FHLB in order to
take advantage of the flexibility of the program and its reasonably low cost.
See “Liquidity Management” below for the details on the FHLB borrowings program.
  The
following table is a summary of FHLB borrowings for the quarters
indicated:
  For
      the Quarter ended
    
    **March
      31, 2005**
    
    **December
      31, 2004**Balance
      at quarter-end
    
    $
    61,000,000
    
    $
    41,000,000Average
      balance during the quarter
    
    $
    58,555,556
    
    $
    41,184,783Maximum
      amount outstanding at any month-end
    
    $
    61,000,000
    
    $
    41,000,000Average
      interest rate during the quarter
    
    
    2.82
    %
    
    2.05
    %Average
      interest rate at quarter-end
    
    
    2.84
    %
    
    2.08
    %
 *Junior
Subordinated Debentures; Trust Preferred Securities*
  The Bank
issued a $10 million Junior Subordinated Debenture in December 2002 and
subsequently in March 2005 and December 2003, we issued additional Junior
Subordinated Debentures in an amount of $20.619 million and $15.464 million,
respectively, to the Wilshire Statutory Trusts (Wilshire Statutory Trust I and
Wilshire Statutory Trust II), our wholly owned subsidiaries, which in turn
issued the trust preferred securities of $20 million and $15 million,
respectively.
  2002
Bank Level Junior Subordinated Debenture . In
December 2002, the Bank issued a $10 million Junior Subordinated Debenture (the
“2002 debenture”). The interest rate payable on the 2002 debenture was 6.19% at
March 31, 2005, which rate adjusts quarterly to the three-month LIBOR plus
3.10%. The 2002 debenture will mature on December 26, 2012. Interest on the 2002
debenture is payable quarterly and no scheduled payments of principal are due
prior to maturity. The Bank may redeem the 2002 debenture in whole or in part
prior to maturity on or after December 26, 2007.
  31
 The 2002
debenture is treated as Tier 2 capital for Bank regulatory capital purposes.
Likewise, on a consolidated basis, the 2002 debenture also is treated as Tier 2
capital for Company-level capital purposes under current Federal Reserve Board
capital guidelines.
  2003
Junior Subordinated Debenture; Trust Preferred Securities
Issuance . In
December 2003, the Company initially was formed as a wholly-owned subsidiary of
the Bank, in order to raise additional capital funds through the issuance of
trust preferred securities. In turn and prior to the completion of the August
2004 bank holding company reorganization, the Company organized its wholly owned
subsidiary, Wilshire Statutory Trust I, which issued $15 million in trust
preferred securities. The Company then purchased all of the common interest in
the Wilshire Statutory Trust I ($464,000) and issued the 2003 Junior
Subordinated Debenture (the “2003 debenture”) in the amount of $15.464 million
to the Wilshire Statutory Trust I with terms substantially similar to the 2003
trust preferred securities in exchange for the proceeds from the issuance of the
Wilshire Statutory Trust I’s 2003 trust preferred securities and common
securities. The Company subsequently deposited the proceeds from the 2003
debenture in a depository account at the Bank and infused $14.5 million as
additional equity capital to the Bank immediately following the holding company
reorganization. The rate of interest on the 2003 debenture and related trust
preferred securities was 5.88% at March 31, 2005, which adjusts quarterly to the
three-month LIBOR plus 2.85%. The 2003 debenture and related trust preferred
securities will mature on December 17, 2033. The interest on both the 2003
debenture and related trust preferred securities is payable quarterly and no
scheduled payments of principal are due prior to maturity. The Company may
redeem the 2003 debenture (and in turn the trust preferred securities) in whole
or in part prior to maturity on or after December 17, 2008.
  2005
Junior Subordinated Debenture; Trust Preferred Securities
Issuance . In
March 2005, the Company organized its wholly owned subsidiary, Wilshire
Statutory Trust II, which issued $20 million in trust preferred securities. The
Company then purchased all of the common interest in the Wilshire Statutory
Trust ($619,000) and issued the 2005 Junior Subordinated Debenture (the “2005
debenture”) in the amount of $20.6 million to the Wilshire Statutory Trust II
with terms substantially similar to the 2005 trust preferred securities in
exchange for the proceeds from the issuance of the Wilshire Statutory Trust II’s
2005 trust preferred securities and common securities. The Company subsequently
deposited the proceeds from the 2005 debenture in a depository account at the
Bank and infused $14 million as additional equity capital to the Bank. The rate
of interest on the 2005 debenture and related trust preferred securities was
4.76% at March 31, 2005, which adjusts quarterly to the three-month LIBOR plus
1.79%. The 2005 debenture and related trust preferred securities will mature on
March 17, 2035. The interest on both the 2005 debenture and related trust
preferred securities is payable quarterly and no scheduled payments of principal
are due prior to maturity. The Company may redeem the 2005 debenture (and in
turn the trust preferred securities) in whole or in part prior to maturity on or
after March 17, 2010.
  Payments
of distributions on the trust preferred securities and payments on redemption of
the trust preferred securities are guaranteed by the Company. The junior
subordinated debentures are senior to our shares of common stock. As a result,
we must make payments on the junior subordinated debentures before any dividends
can be paid on our common stock and in the event of our bankruptcy, dissolution
or liquidation, the holder of the junior subordinated debentures must be
satisfied before any distributions can be made to the holders of our common
stock. We have the right to defer distributions on the junior subordinated
debentures and related trust preferred securities for up to five years, during
which time no dividends may be paid to holders of our common stock.
  On March
1, 2005, the Federal Reserve Board adopted a final rule that allows continued
inclusion of trust preferred securities in the Tier 1 capital of bank holding
companies, subject to stricter quantitative limits. Under the final rule, bank
holding companies may include trust preferred securities in Tier 1 capital in an
amount (together with other restricted core capital elements) equal to 25% of
the sum of core capital elements (including restricted core capital elements)
net of goodwill less any associated deferred tax liability. Amounts in excess of
these limits will generally be included in Tier 2 capital. For purposes of this
rule, restricted core capital elements are generally to be comprised of
qualifying cumulative perpetual preferred stock and related surplus, minority
interest related to qualifying cumulative perpetual preferred stock directly
issued by a consolidated U.S. depository institution or foreign bank subsidiary,
minority interest related to qualifying common stock or qualifying cumulative
perpetual preferred stock directly issued by a consolidated subsidiary that is
neither a U.S. depository institution or a foreign bank and qualifying trust
preferred securities.
  32
 The final
rule provides a transition period for bank holding companies to come into
compliance with these new capital restrictions. Accordingly, while the final
rule became effective on April 11, 2005, for practical purposes, bank holding
companies will have until March 31, 2009 (an extension of the March 31, 2007
transition period under the proposed rule) to come into compliance with the
final rule’s capital restrictions due to the transition period. In extending the
transition period to 2009, the Federal Reserve noted that the extended period
will provide bank holding companies with existing trust preferred securities
with call features after the first five years an opportunity to restructure
their capital elements in order to conform to the limited of the final rule.
  Under the
final rule, as of March 31, 2005, Wilshire Bancorp would have been able to count
$31.9 million of total trust preferred securities as Tier 1 capital, leaving
$3.1 million as Tier 2 capital.
  **Asset/Liability
Management**
  Management
seeks to ascertain optimum and stable utilization of available assets and
liabilities as a vehicle to attain our overall business plans and objectives. In
this regard, management focuses on measurement and control of liquidity risk,
interest rate risk and market risk, capital adequacy, operation risk and credit
risk. See further discussion on these risks on “Risk Factors” in our Annual
Report on Form 10-K for the year ended December 31, 2004. Information concerning
interest rate risk management is set forth under “Item 3 - Quantitative and
Qualitative Disclosures about Market Risk.”
  **Liquidity
Management**
  Maintenance
of adequate liquidity requires that sufficient resources be available at all
time to meet our cash flow requirements. Liquidity in a banking institution is
required primarily to provide for deposit withdrawals and the credit needs of
its customers and to take advantage of investment opportunities as they arise.
Liquidity management involves our ability to convert assets into cash or cash
equivalents without incurring significant loss, and to raise cash or maintain
funds without incurring excessive additional cost. For this purpose, we maintain
a portion of our funds in cash and cash equivalents, deposits in other financial
institutions and loans and securities available for sale. Our liquid assets at
March 31, 2005 and December 31, 2004 totaled approximately $281.7 million and
$205.8 million, respectively. Our liquidity level measured as the percentage of
liquid assets to total assets was 20.4% and 16.3% at March 31, 2005 and December
31, 2004, respectively.
  As a
secondary source of liquidity, we rely on advances from the FHLB to supplement
our supply of lendable funds and to meet deposit withdrawal requirements.
Advances from the FHLB are typically secured by our mortgage loans and stock
issued by the FHLB. Advances are made pursuant to several different programs.
Each credit program has its own interest rate and range of maturities. Depending
on the program, limitations on the amount of advances are based either on a
fixed percentage of an institution’s net worth or on the FHLB’s assessment of
the institution’s creditworthiness. While this fund provides flexibility and low
cost, we limit our use to 70% of borrowing capacity, as such borrowing does not
qualify as core funds. As of March 31, 2005, our borrowing capacity from the
FHLB was about $309 million and the outstanding balance was $61 million, or
approximately 20% of our borrowing capacity. We also maintain a guideline to
purchase up to $10 million in federal funds with Union Bank of
California.
  **Capital
Resources and Capital Adequacy Requirements**
  Historically,
our primary source of capital has been internally generated operating income
through retained earnings. In order to ensure adequate levels of capital, we
conduct ongoing assessments of projected sources and uses of capital in
conjunction with projected increases in assets and level of risks. We have
considered, and we will continue to consider, additional sources of capital as
the need arises, whether through the issuance of additional securities, debt or
otherwise.
  33
  We are
subject to various regulatory capital requirements administered by federal
banking agencies. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, we must meet specific capital guidelines that rely
on quantitative measures of our assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. Failure
to meet minimum capital requirements can trigger regulatory actions under the
prompt corrective action rules that
could have a material adverse effect on our financial statements and
operations. Prompt
corrective action may include regulatory enforcement actions that restrict
dividend payments, require the adoption of remedial measures to increase
capital, terminate FDIC deposit insurance, and mandate the appointment of a
conservator or receiver in severe cases. In addition, failure to maintain a
well-capitalized status may adversely affect the evaluation of regulatory
applications for specific transactions and activities, including acquisitions,
continuation and expansion of existing activities, and commencement of new
activities, and could adversely affect our business relationships with our
existing and prospective clients. The aforementioned regulatory consequences for
failing to maintain adequate ratios of Tier 1 and Tier 2 capital could have a
material adverse effect on our financial condition and results of
operations. Our
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors. (See PART
I, Item 1 “Description of Business -- Regulation and Supervision -- Capital
Adequacy Requirements” in our Annual Report on Form 10-K for the year ended
December 31, 2004 for exact definitions and regulatory capital
requirements.)
  At March
31, 2005, total shareholders’ equity increased to $95.2 million from $88.3
million at December 31, 2004, representing an increase of $6.9 million,
primarily from internally generated operating income ($6.1 million), increased
by stock option exercises ($392,000 proceeds from stock option exercises and the
$ 1.7 million tax benefits therefrom) and decreased by the cash dividend of $1.1
million, which was declared during the first quarter of 2005 to be paid on April
12, 2005.
  In
addition, during the first quarter of 2005, we issued $20.6 million in Junior
Subordinated Debentures to Wilshire Statutory Trust II, our wholly owned
subsidiary, which in turn issued the trust preferred securities of $20 million
and we subsequently infused $14 million as additional equity capital to the
Bank. As a result, our Tier I capital and Tier 2 capital increased further by
$16.9 million and $3.1 million, respectively. For the Bank level, the Tier 1
capital also increased by $14 million with the capital infusion. See “Deposits
and Other Sources of Funds” for further discussion for the subordinated
debentures and the trust preferred securities. As of March 31, 2005, we had no
material commitments for capital expenditures.
  As of
March 31, 2005, we were qualified as a “well capitalized institution” under the
regulatory framework for prompt corrective action. The following table presents
the regulatory standards for well-capitalized institutions, compared to our
capital ratios as of the dates specified for Wilshire Bancorp, Inc. and Wilshire
State Bank:
  **Wilshire
      Bancorp, Inc.**
    
    
    
    
    
    
    
    
    **Actual
      ratios for the Company as of:******Regulatory**
      **Well-**
      **Capitalized****Standards****
    
    
    **Regulatory**
      **Adequately-Capitalized****Standards**
    
    
    **March
      31, 2005**
    
    
    **December
      31, 2004**
    
    
    **March
      31, 2004**Total
      capital to risk-weighted assets
    
    
    10
    %
    
    8
    %
    
    14.08
    %
    
    11.95
    %
    
    N/ATier
      I capital to risk-weighted assets
    
    
    6
    %
    
    4
    %
    
    11.74
    %
    
    9.87
    %
    
    N/ATier
      I capital to adjusted average assets
    
    
    5
    %
    
    4
    %
    
    9.81
    %
    
    8.35
    %
    
    N/A
 
  **Wilshire
      State Bank**
    
    
    
    
    
    
    
    
    **Actual
      ratios for the Bank as of:****Regulatory**
      **Well-**
      **Capitalized****Standards**
    
    
    **Regulatory**
      **Adequately-Capitalized****Standards**
    
    
    **March
      31, 2005**
    
    
    **December
      31, 2004**
    
    
    **March
      31, 2004**Total
      capital to risk-weighted assets
    
    
    10
    %
    
    8
    %
    
    13.43
    %
    
    11.92
    %
    
    12.39
    %Tier
      I capital to risk-weighted assets
    
    
    6
    %
    
    4
    %
    
    11.38
    %
    
    9.84
    %
    
    8.32
    %Tier
      I capital to adjusted average assets
    
    
    5
    %
    
    4
    %
    
    9.50
    %
    
    8.33
    %
    
    7.33
    %
 
 Item 3.     **Quantitative
and Qualitative Disclosures About Market
Risk**
  Market
risk is the risk of loss from adverse changes in market prices and rates. Our
market risk arises primarily from interest rate risk inherent in lending,
investing and deposit taking activities. Management evaluates market risk
pursuant to policies reviewed and approved annually by our Board of Directors.
The Board delegates responsibility for market risk management to the Asset &
Liability Management Committee (“ALCO”), which reports monthly to the Board on
activities related to market risk management. As part of the management of our
market risk, ALCO may direct changes in the mix of assets and liability and the
use of derivatives. To that end, management actively monitors and manages its
interest rate risk exposures.
  34
 Interest
rate risk management involves development, analysis, implementation and
monitoring of earnings to provide stable earnings and capital levels during
periods of changing interest rates. In the management of interest rate risk, we
utilize monthly gap analysis and quarterly simulation modeling to determine the
sensitivity of net interest income and economic value sensitivity of the balance
sheet. These techniques are complementary and are used together to provide a
more accurate measurement of interest rate risk.
  Gap
analysis measures the repricing mismatches between assets and liabilities. The
interest rate sensitivity gap is determined by subtracting the amount of
liabilities from the amount of assets that reprice in a particular time
interval. If repricing assets exceed repricing liabilities in any given time
period, we would be deemed to be “asset-sensitive” for that period. Conversely,
if repricing liabilities exceed repricing assets in a given time period, we
would be deemed to be “liability-sensitive” for that period.
  We
normally seek to maintain a balanced position over the period of one year to
ensure net interest margin stability in times of volatile interest rates. This
is accomplished by maintaining a similar level of loans and investment
securities and deposits available to be repriced within one year. At March 31,
2005, we were asset-sensitive, with a positive cumulative one-year gap of $175.5
million or 12.7% of total assets. In general, based upon our mix of deposits,
loans and investments, increases in interest rates would be expected to increase
our net interest margin. Decreases in interest rates would be expected to have
the opposite effect, which was the case in the past three years. We
intentionally maintain a significant three-month positive gap of $410.9 million
or 29.8% of total assets. This positive gap is strategically planned to meet any
unanticipated funding needs by maintaining a large portion of funds obtained
from non-interest bearing deposits in overnight investments and other cash
equivalents.
  The
change in net interest income may not always follow the general expectations of
an “asset-sensitive” or a “liability-sensitive” balance sheet during periods of
changing interest rates. This possibility results from interest rates earned or
paid changing by differing increments and at different time intervals for each
type of interest-sensitive asset and liability. The interest rate gaps reported
in the tables arise when assets are funded with liabilities having different
repricing intervals. Since these gaps are actively managed and change daily as
adjustments are made in interest rate views and market outlook, positions at the
end of any period may not reflect our interest rate sensitivity in subsequent
periods. We attempt to balance longer-term economic views against prospects for
short-term interest rate changes.
  Although
the interest rate sensitivity gap is a useful measurement and contributes to
effective asset and liability management, it is difficult to predict the effect
of changing interest rates based solely on that measure. As a result, the ALCO
also regularly uses simulation modeling as a tool to measure the sensitivity of
earnings and net portfolio value (“NPV”) to interest rate changes. The NPV is
defined as the net present value of an institution’s existing assets,
liabilities and off-balance sheet instruments. The simulation model captures all
assets, liabilities and off-balance sheet financial instruments accounting for
significant variables, that are believed to be affected by interest rates. These
include prepayment speeds on loans, cash flows of loans and deposits, principal
amortization, call options on securities, balance sheet growth assumptions and
changes in rate relationships as various rate indices react differently to
market rates.
  The
following table sets forth the interest rate sensitivity of our interest-earning
assets and interest-bearing liabilities as of March 31, 2005 using the interest
rate sensitivity gap ratio. For purposes of the following table, an asset or
liability is considered rate-sensitive within a specified period when it can be
repriced or matures within its contractual terms. Actual payment patterns may
differ from contractual payment patterns:
 
 35
  **Interest
Rate Sensitivity Analysis**
 **At
      March 31, 2005****Amounts
      Subject to Repricing Within****0-3
      months**
    
    
    
    **3-12
      months**
    
    
    
    **1-5
      years**
    
    
    
    **After
      5 years**
    
    
    
    **Total**Interest-earning
      assets:
    
    
    
    
    
    
    **(Dollars
      in Thousands)**Gross
      loans1
    
    $
    953,093
    
    
    $
    10,435
    
    
    $
    33,480
    
    
    $
    51,426
    
    
    $
    1,048,433Investment
      securities
    
    
    7,082
    
    
    
    22,284
    
    
    
    88,220
    
    
    
    2,921
    
    
    
    120,508Federal
      funds sold and cash equivalentsagreement
      to resell
    
    
    125,000
    
    
    
    —
    
    
    
    —
    
    
    
    —
    
    
    
    125,000Interest-earning
      deposits
    
    
    3
    
    
    
    —
    
    
    
    —
    
    
    
    —
    
    
    
    3Total
    
    $
    1,085,178
    
    
    $
    32,719
    
    
    $
    121,700
    
    
    $
    54,347
    
    
    $
    1,293,944Interest-bearing
      liabilities:Savings
      deposits
    
    
    24,206
    
    
    
    —
    
    
    
    —
    
    
    
    —
    
    
    
    24,206Time
      deposits of $100,000 or more
    
    
    278,067
    
    
    
    212,612
    
    
    
    2,136
    
    
    
    —
    
    
    
    492,815Other
      time deposits
    
    
    47,395
    
    
    
    49,550
    
    
    
    10,672
    
    
    
    15
    
    
    
    107,632Other
      interest-bearing deposits
    
    
    253,502
    
    
    
    —
    
    
    
    —
    
    
    
    —
    
    
    
    253,502Other
      borrowingsdemand
      deposits
    
    
    71,083
    
    
    
    6,000
    
    
    
    30,000
    
    
    
    —
    
    
    
    107,083Total
    
    $
    674,253
    
    
    $
    268,162
    
    
    $
    42,808
    
    
    $
    15
    
    
    $
    985,238Interest
      rate sensitivity gap
    
    $
    410,925
    
    
    
    ($235,443
    )
    
    $
    78,892
    
    
    $
    54,332
    
    
    $
    308,706Cumulative
      interest rate sensitivity gap
    
    $
    410,925
    
    
    $
    175,482
    
    
    $
    254,374
    
    
    $
    308,706Cumulative
      interest rate sensitivity gap ratio (based on total
assets)
    
    
    29.84
    %
    
    
    12.74
    %
    
    
    18.47
    %
    
    
    22.41
    %
 The
following table sets forth our estimated net interest income over a 12-month
period and NPV based on the indicated changes in market interest rates as of
March 31, 2005. All assets presented in this table are held-to-maturity or
available-for-sale. At March 31, 2005, we had no trading securities:
 ****
    
    **********(Dollars
      in Thousands****)**Change**(in
      Basis Points)**
    
    ****Net
      Interest Income**(next twelve
      months)**
    
    **%
      Change**
    
    **NPV**
    
    **%
      Change**+200
    
    $
    78,848
    
    
    19.0
    %
    $
    216,729
    
    
    13.5
    %+100
    
    $
    71,923
    
    
    8.6
    %
    $
    204,492
    
    
    7.1
    %0
    
    $
    66,248
    
    
    —
    
    $
    190,927
    
    
    —-100
    
    $
    61,371
    
    
    -7.4
    %
    $
    173,553
    
    
    -9.1
    %-200
    
    $
    53,353
    
    
    -19.5
    %
    $
    153,373
    
    
    -19.7
    %
 Although
the simulation measures the volatility of net interest income and net portfolio
value under immediate rising or falling market interest rate scenarios in 100
basis point increments, our main concern is the negative effect for the
reasonably possible worst scenario. The ALCO policy prescribes that, for the
worst possible rate drop scenario, the possible reduction of net interest income
and NPV, should not exceed 20% of the base net interest income and 25% of the
base NPV.
  As
indicated above, the net interest income increases (decreases) as market
interest rates rise (fall), since we are positively gapped by $175.5 million for
a time horizon of one year. This is also due to the fact that a substantial
portion of the interest earning assets reprice immediately after the rate
change, that interest-bearing liabilities reprice slower than interest-earning
assets and that interest-bearing liabilities do not reprice to the same degree
as interest earning assets, given a stated change in the interest rate. The NPV
increases (decreases) as the interest income increases (decreases) since the
change in the cash flows has a greater impact on the change in the NPV than does
the change in the discount rate.
  1 Excludes
the gross amount of non-accrual loans of approximately $6.4 million at March 31,
2005.
   36
  Management
believes that the assumptions used by it to evaluate the vulnerability of our
operations to changes in interest rates approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of our assets
and liabilities and the estimated effects of changes in interest rates on our
net interest income and NPV could vary substantially if different assumptions
were used or actual experience differs from the historical experience on which
they are based.
  Our
strategies in protecting both net interest income and economic value of equity
from significant movements in interest rates involve restructuring our
investment portfolio and using FHLB advances. We also permit the purchase of
rate caps and floors, and engaging in interest rate swaps, although we have not
yet engaged in either of these activities, other than an interest rate swap
agreement arranged in September 2003 on the notional amount of $3 million and
subsequently terminated without any gain or loss by mutual agreement between us
and a brokerage company in January 2004.
 
 Item 4.      
**Controls
and Procedures******
  **Controls
and Procedures**
  As of
March 31, 2005, we carried out an evaluation, under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer, of the effectiveness of the design and operation of our
“disclosure controls and procedures,” as such term is defined under Exchange Act
Rules 13a-15(e) and 15d-15(e).
  Based on
this evaluation, our chief executive officer and chief financial officer
concluded that, as of March 31, 2005, such disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission, and accumulated and communicated to
our management, including our chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.
  In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
  There
were no changes in our internal controls over financial reporting during the
quarter ended March 31, 2005 that materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
  37
  Part II.     **OTHER
INFORMATION**
  **Item
      1.**
    **Legal
      Proceedings**
  Not
applicable.
  **Item
      2.**
    **Unregistered
      Sales of Equity****Securities and Use of Proceeds**
  None.
  **Item
      3.**
    **Defaults
      Upon Senior Securities**
  Not
applicable.
  **Item
      4.**
    **Submission
      of Matters to a Vote of Security
Holders**
  None.
  **Item
      5.**
    **Other
      Information**
  Not
applicable.
  **Item
      6.**
    **Exhibits******
  38
   **Exhibit
      Table****Reference
      Number**
    **Item**3.1
    Articles
      of Incorporation, as amended and restated13.2
    Bylaws,
      as amended and restated24.1
    Specimen
      of Common Stock Certificate34.2
    Indenture
      of Subordinated Debentures44.3
    Indenture
      by and between Wilshire Bancorp, Inc. and U.S. Bank National Association
      dated as of December 17, 2003511
    Statement
      Regarding Computation of Net Earnings per Share631.1
    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
    Certifications
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 __________________________________
  1.
    Incorporated
      herein by reference to Exhibit 3.1 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on June 15,
      2004.2.
    Incorporated
      herein by reference to Exhibit 3.2 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on June 15,
      2004.3.
    Incorporated
      herein by reference to Exhibit 4.1 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.4.
    Incorporated
      herein by reference to Exhibit 4.2 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.5.
    Incorporated
      herein by reference to Exhibit 4.3 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.6.
    The
      information required by this Exhibit isincorporatedby
      reference from Note [3] of the Company’s Financial Statements included
      herein.
 
 39
 ****
 **SIGNATURES**
  Pursuant
to the requirement of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
  WILSHIRE BANCORP,
      INC.Date: May 9, 2005
    By:
    /s/ Brian E. ChoBrian E. ChoExecutive Vice President and
      Chief Financial Officer
      (Principal Financial and Accounting
    Officer)
 
 
 40
  
 **INDEX
      TO EXHIBITS****Exhibit
      Table****Reference
      Number**
    **Item**3.1
    Articles
      of Incorporation, as amended and restated13.2
    Bylaws,
      as amended and restated24.1
    Specimen
      of Common Stock Certificate34.2
    Indenture
      of Subordinated Debentures44.3
    Indenture
      by and between Wilshire Bancorp, Inc. and U.S. Bank National Association
      dated as of December 17, 2003511
    Statement
      Regarding Computation of Net Earnings per Share631.1
    Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
    Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
    Certifications
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 __________________________________
 
 1.
    Incorporated
      herein by reference to Exhibit 3.1 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on June 15,
      2004.2.
    Incorporated
      herein by reference to Exhibit 3.2 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on June 15,
      2004.3.
    Incorporated
      herein by reference to Exhibit 4.1 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.4.
    Incorporated
      herein by reference to Exhibit 4.2 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.5.
    Incorporated
      herein by reference to Exhibit 4.3 in the Registration Statement on Form
      S-4 filed with the Securities and Exchange Commission on April 1,
      2004.6.
    The
      information required by this Exhibit is incorporated by reference from
      Note [3] of the Company’s Financial Statements included
    herein
  41