Table of Contents

 

 

 

**UNITED STATES**

**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****June 30****, 200****8****.**                                           |
|   |                                                                                                                               |
| **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**

 

----

 

**WILSHIREBANCORP, INC.**

(Exact name of registrant asspecified in its charter)

 

| **California**                                                | ** ** | **20-0711133**                         |
|---------------------------------------------------------------|------------|----------------------------------------|
| State  or other jurisdiction of incorporation or organization |       | I.R.S.  Employer Identification Number |
|                                                          |       |                                   |
| **3200 Wilshire Blvd.**                                       |       |                                   |
| **Los Angeles, California**                                   | ** ** | **90010**                              |
| Address  of principal executive offices                       |       | Zip  Code                              |

 

**(213) 387-3200**

Registrant’s telephone number, including area code

 

Securities registeredpursuant to Section 12(b) of the Act: **Common Stock, no par value**

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

 

----

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes x    No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”and “small reporting company” in Rule 12b-2 of the Exchange Act.

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o     No x

 

The number of shares of Common Stock of the registrantoutstanding as of July 31, 2008 was 29,391,177.

 

 

 

----

Table of Contents

 

**FORM 10-Q**

** **

**INDEX**

** **

**WILSHIRE BANCORP, INC.**

 
| Part I.   | FINANCIAL  INFORMATION                                                                          | 1          |
|----------------|-------------------------------------------------------------------------------------------------|------------|
|           |                                                                                            |       |
| **Item 1.**    | **Financial Statements**                                                                        | **1**      |
| ** **     | ** **                                                                                      | ** ** |
| **Item 2.**    | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | **15**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 3.**    | **Quantitative  and Qualitative Disclosures about  Market Risk**                                | **39**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 4.**    | **Controls and  Procedures**                                                                    | **41**     |
| ** **     | ** **                                                                                      | ** ** |
| Part II.  | OTHER INFORMATION                                                                               | 42         |
|           |                                                                                            |       |
| **Item 1.**    | **Legal Proceedings**                                                                           | **42**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 1A.**   | **Risk Factors**                                                                                | **42**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 2.**    | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                | **42**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 3.**    | **Defaults  Upon Senior Securities**                                                            | **42**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 4.**    | **Submission  of Matters to a Vote of Security Holders**                                        | **42**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 5.**    | **Other Information**                                                                           | **43**     |
| ** **     | ** **                                                                                      | ** ** |
| **Item 6.**    | **Exhibits**                                                                                    | **44**     |
| ** **     | ** **                                                                                      | ** ** |
| **SIGNATURES** | **45**                                                                                          |

 

i

----

Table of Contents

 

**Part I.  FINANCIALINFORMATION**

 

**Item 1.                    Financial Statements**

 

**WILSHIRE BANCORP, INC.**

 

**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARSIN THOUSANDS)**

 
| ** **                                                                                                                                                                                      | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                      | ** ** | **(Unaudited)**             | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                                      |       |                        |       |                            |       |
| Cash and due from banks                                                                                                                                                                         |       | $                           | 69,497     |                            | $          | 82,506 |   |
| Federal funds sold and other cash  equivalents                                                                                                                                                  |       | 4                           |       | 10,003                          |       |
| Cash and cash equivalents                                                                                                                                                                       |       | 69,501                      |       | 92,509                          |       |
|                                                                                                                                                                                            |       |                        |       |                            |       |
| Securities available for sale, at fair  value (amortized cost of $233,948 and $223,933 at June 30, 2008 and  December 31, 2007, respectively)                                         |       | 232,857                     |       | 224,256                         |       |
| Securities held to maturity, at amortized  cost (fair value of $355 and $7,372 at June 30, 2008 and  December 31, 2007, respectively)                                                 |       | 369                         |       | 7,384                           |       |
| Loans receivable, net of allowance for loan  losses of $23,494 and $21,579 at June 30, 2008 and December 31,  2007, respectively                                                      |       | 1,954,740                   |       | 1,779,558                       |       |
| Loans held for sale—at the lower of cost or  market                                                                                                                                        |       | 8,366                       |       | 7,912                           |       |
| Federal Home Loan Bank stock, at cost                                                                                                                                                           |       | 15,040                      |       | 8,695                           |       |
| Other real estate owned                                                                                                                                                                         |       | 465                         |       | 133                             |       |
| Due from customers on acceptances                                                                                                                                                               |       | 3,366                       |       | 3,377                           |       |
| Cash surrender value of bank owned life  insurance                                                                                                                                              |       | 16,514                      |       | 16,228                          |       |
| Investment in affordable housing  partnerships                                                                                                                                                  |       | 6,428                       |       | 6,222                           |       |
| Bank premises and equipment                                                                                                                                                                     |       | 10,913                      |       | 10,960                          |       |
| Accrued interest receivable                                                                                                                                                                     |       | 9,880                       |       | 10,062                          |       |
| Deferred income taxes                                                                                                                                                                           |       | 9,743                       |       | 9,151                           |       |
| Servicing assets                                                                                                                                                                                |       | 5,039                       |       | 4,950                           |       |
| Goodwill                                                                                                                                                                                        |       | 6,675                       |       | 6,675                           |       |
| Other intangible assets                                                                                                                                                                         |       | 1,438                       |       | 1,587                           |       |
| Other assets                                                                                                                                                                                    |       | 7,978                       |       | 7,046                           |       |
| TOTAL                                                                                                                                                                                           |       | $                           | 2,359,312  |                            | $          | 2,196,705 |   |
|                                                                                                                                                                                            |       |                        |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                   |       |                        |       |                            |       |
| LIABILITIES:                                                                                                                                                                                    |       |                        |       |                            |       |
| Deposits:                                                                                                                                                                                       |       |                        |       |                            |       |
| Noninterest bearing                                                                                                                                                                             |       | $                           | 320,360    |                            | $          | 314,114 |   |
| Interest bearing:                                                                                                                                                                               |       |                        |       |                            |       |
| Savings                                                                                                                                                                                         |       | 38,266                      |       | 31,812                          |       |
| Money market checking and NOW accounts                                                                                                                                                          |       | 433,368                     |       | 485,547                         |       |
| Time deposits of $100,000 or more                                                                                                                                                               |       | 773,176                     |       | 788,883                         |       |
| Other time deposits                                                                                                                                                                             |       | 174,119                     |       | 142,715                         |       |
| Total deposits                                                                                                                                                                                  |       | 1,739,289                   |       | 1,763,071                       |       |
|                                                                                                                                                                                            |       |                        |       |                            |       |
| Federal Home Loan Bank borrowings                                                                                                                                                               |       | 320,000                     |       | 150,000                         |       |
| Junior subordinated debentures                                                                                                                                                                  |       | 87,321                      |       | 87,321                          |       |
| Accrued interest payable                                                                                                                                                                        |       | 9,735                       |       | 10,440                          |       |
| Acceptances outstanding                                                                                                                                                                         |       | 3,366                       |       | 3,377                           |       |
| Other liabilities                                                                                                                                                                               |       | 17,915                      |       | 10,710                          |       |
| Total liabilities                                                                                                                                                                               |       | 2,177,626                   |       | 2,024,919                       |       |
|                                                                                                                                                                                            |       |                        |       |                            |       |
| COMMITMENTS AND CONTINGENCIES (Note 8)                                                                                                                                                          |       |                        |       |                            |       |
|                                                                                                                                                                                            |       |                        |       |                            |       |
| SHAREHOLDERS’ EQUITY:                                                                                                                                                                      |       |                        |       |                            |       |
| Preferred stock, no par value—authorized,  5,000,000 shares; issued and outstanding, none                                                                                                  |       |                        |       |                            |       |
| Common stock, no par value—authorized,  80,000,000 shares; issued and outstanding, 29,391,177 shares and 29,253,311  shares at June 30, 2008 and December 31, 2007, respectively |       | 51,911                      |       | 50,895                          |       |
| Accumulated other comprehensive income, net  of tax (benefit) expense of ($294) and $271 at June 30, 2008 and  December 31, 2007, respectively                                        |       | (406                        | )          | 375                             |       |
| Retained earnings                                                                                                                                                                               |       | 131,443                     |       | 121,778                         |       |
|                                                                                                                                                                                            |       | 182,948                     |       | 173,048                         |       |
| Less Treasury stock, at cost, 127,425  shares at June 30, 2008 and December 31, 2007                                                                                                  |       | (1,262                      | )          | (1,262                          | )          |
| Total shareholders’ equity                                                                                                                                                                 |       | 181,686                     |       | 171,786                         |       |
| TOTAL                                                                                                                                                                                           |       | $                           | 2,359,312  |                            | $          | 2,196,705 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

1

----

Table of Contents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

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

 
| ** **                                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                 | ** ** | **2008**                                            | ** ** | **2007**                                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                 | ** ** | ** **                                          | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| INTEREST INCOME:                                                           |       |                                                |       |                                        |       |   |   |   |   |
| Interest and fees on loans                                                 |       | $                                                   | 33,978     |                                        | $          | 36,584 |   | $ | 69,296 |   | $ | 70,485 |   |
| Interest on investment securities                                          |       | 2,638                                               |       | 2,342                                       |       | 5,222 |   | 4,581 |   |
| Interest on federal funds sold                                             |       | 49                                                  |       | 578                                         |       | 129 |   | 2,087 |   |
| Total interest income                                                      |       | 36,665                                              |       | 39,504                                      |       | 74,647 |   | 77,153 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| INTEREST EXPENSE:                                                          |       |                                                |       |                                        |       |   |   |   |   |
| Interest on deposits                                                       |       | 12,864                                              |       | 17,243                                      |       | 27,602 |   | 34,605 |   |
| Interest on FHLB advances and other  borrowings                            |       | 2,356                                               |       | 204                                         |       | 4,399 |   | 386 |   |
| Interest on junior subordinated debentures                                 |       | 1,112                                               |       | 1,141                                       |       | 2,569 |   | 2,273 |   |
| Total interest expense                                                     |       | 16,332                                              |       | 18,588                                      |       | 34,570 |   | 37,264 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| NET INTEREST INCOME BEFORE PROVISION FOR LOAN  LOSSES AND LOAN COMMITMENTS |       | 20,333                                              |       | 20,916                                      |       | 40,077 |   | 39,889 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| PROVISION FOR LOSSES ON LOANS AND LOAN  COMMITMENTS                        |       | 1,400                                               |       | 4,500                                       |       | 2,800 |   | 6,130 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR LOAN  LOSSES AND LOAN COMMITMENTS  |       | 18,933                                              |       | 16,416                                      |       | 37,277 |   | 33,759 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| NON-INTEREST INCOME:                                                       |       |                                                |       |                                        |       |   |   |   |   |
| Service charges on deposit accounts                                        |       | 3,043                                               |       | 2,505                                       |       | 5,791 |   | 4,792 |   |
| Gain on sale of loans                                                      |       | 918                                                 |       | 2,334                                       |       | 1,782 |   | 4,144 |   |
| Loan-related servicing fees                                                |       | 772                                                 |       | 567                                         |       | 1,448 |   | 985 |   |
| Income from other earning assets                                           |       | 392                                                 |       | 275                                         |       | 710 |   | 552 |   |
| Other income                                                               |       | 482                                                 |       | 630                                         |       | 1,029 |   | 1,049 |   |
| Total noninterest income                                                   |       | 5,607                                               |       | 6,311                                       |       | 10,760 |   | 11,522 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| NON-INTEREST EXPENSES:                                                     |       |                                                |       |                                        |       |   |   |   |   |
| Salaries and employee benefits                                             |       | 7,655                                               |       | 5,703                                       |       | 14,631 |   | 11,401 |   |
| Occupancy and equipment                                                    |       | 1,492                                               |       | 1,300                                       |       | 2,917 |   | 2,570 |   |
| Data processing                                                            |       | 771                                                 |       | 745                                         |       | 1,536 |   | 1,510 |   |
| Outsourced service for customer                                            |       | 392                                                 |       | 447                                         |       | 841 |   | 823 |   |
| Professional fees                                                          |       | 454                                                 |       | 264                                         |       | 954 |   | 579 |   |
| Deposit insurance premiums                                                 |       | 299                                                 |       | 322                                         |       | 629 |   | 372 |   |
| Other operating                                                            |       | 1,491                                               |       | 1,825                                       |       | 3,269 |   | 3,854 |   |
| Total noninterest expenses                                                 |       | 12,554                                              |       | 10,606                                      |       | 24,777 |   | 21,109 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                                 |       | 11,986                                              |       | 12,121                                      |       | 23,260 |   | 24,172 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| INCOME TAXES                                                               |       | 4,557                                               |       | 4,775                                       |       | 8,780 |   | 9,509 |   |
|                                                                       |       |                                                |       |                                        |       |   |   |   |   |
| NET INCOME                                                                 |       | $                                                   | 7,429      |                                        | $          | 7,346 |   | $ | 14,480 |   | $ | 14,663 |   |
| EARNINGS PER SHARE:                                                        |       |                                                |       |                                        |       |   |   |   |   |
| Basic                                                                      |       | $                                                   | 0.25       |                                        | $          | 0.25 |   | $ | 0.49 |   | $ | 0.50 |   |
| Diluted                                                                    |       | $                                                   | 0.25       |                                        | $          | 0.25 |   | $ | 0.49 |   | $ | 0.50 |   |
| WEIGHTED-AVERAGE SHARES OUTSTANDING:                                       |       |                                                |       |                                        |       |   |   |   |   |
| Basic                                                                      |       | 29,391,177                                          |       | 29,370,096                                  |       | 29,334,024 |   | 29,358,335 |   |
| Diluted                                                                    |       | 29,414,674                                          |       | 29,662,046                                  |       | 29,392,621 |   | 29,641,359 |   |

 

See accompanying notes to consolidated financialstatements.

** **

**2**

----

**Table ofContents**

** **

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)**

**(DOLLARS IN THOUSANDS)**

 
| ** **                                                                    | ** ** | **Common Stock** | ** ** | **Accumulated** | ** ** | ** **      | ** ** | ** ** | ** ** | ** **             | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|------------|------------|------------------------|------------|
| ** **                                                                    | ** ** | **Gross Shares** | ** ** | ** **      | ** ** | ** **      | ** ** | ** ** | ** ** | **Other**              | ** ** | ** ** | ** ** | **Treasury** | ** ** | **Total** | ** ** |
| ** **                                                                    | ** ** | **Issued and**   | ** ** | **Treasury**    | ** ** | **Shares**      | ** ** | ** ** | ** ** | **Comprehensive**      | ** ** | **Retained** | ** ** | **Stock,** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                    | ** ** | **Outstanding**       | ** ** | **Shares**      | ** ** | **Outstanding** | ** ** | **Amount** | ** ** | **Income (Loss)** | ** ** | **Earnings** | ** ** | **at Cost** | ** ** | **Equity** | ** ** |
| BALANCE—January 1, 2007                                             |       | 29,197,420            |       | —          |       | 29,197,420      |       | $          | 49,123     |                   | $          | (408 | ) | $ | 100,920 |   | $ | — |   | $ | 149,635 |   |
| Stock options exercised                                                       |       | 174,276               |       |            |       | 174,276         |       | 115        |       |                   |       |   |   |   |   | 115 |   |
| Cash dividend declared                                                        |       |                  |       |            |       |            |       |       |       |                   |       | (2,937 | ) |   |   | (2,937 | ) |
| Share-based compensation expense                                              |       |                  |       |            |       |            |       | 209        |       |                   |       |   |   |   |   | 209 |   |
| Tax benefit from stock options exercised                                      |       |                  |       |            |       |            |       | 1,286      |       |                   |       |   |   |   |   | 1,286 |   |
| Cumulative impact of change in accounting  for uncertainties in income taxes  |       |                  |       |            |       |            |       |       |       |                   |       | (162 | ) |   |   | (162 | ) |
| Cumulative impact of change in accounting  for fair valuation method adoption |       |                  |       |            |       |            |       |       |       |                   |       | 80 |   |   |   | 80 |   |
| Comprehensive income:                                                         |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Net income                                                                    |       |                  |       |            |       |            |       |       |       |                   |       | 14,663 |   |   |   | 14,663 |   |
| Other comprehensive income:                                                   |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Change in unrealized gain on interest-only  strips                            |       |                  |       |            |       |            |       |       |       | 74                     |       |   |   |   |   | 74 |   |
| Change in unrealized gain on securities  available for sale                   |       |                  |       |            |       |            |       |       |       | (376                   | )          |   |   |   |   | (376 | ) |
| Comprehensive income                                                          |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   | $ | 14,361 |   |
| BALANCE—June 30, 2007                                               |       | 29,371,696            |       | —          |       | 29,371,696      |       | $          | 50,733     |                   | $          | (710 | ) | $ | 112,564 |   | $ | — |   | $ | 162,587 |   |

 
| ** **                                                                            | ** ** | **Common Stock** | ** ** | **Accumulated** | ** ** | ** **      | ** ** | ** ** | ** ** | ** **             | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------|------------|-----------------|------------|------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **Gross Shares** | ** ** | ** **      | ** ** | ** **      | ** ** | ** ** | ** ** | **Other**              | ** ** | ** ** | ** ** | **Treasury** | ** ** | **Total** | ** ** |
| ** **                                                                            | ** ** | **Issued and**   | ** ** | **Treasury**    | ** ** | **Shares**      | ** ** | ** ** | ** ** | **Comprehensive**      | ** ** | **Retained** | ** ** | **Stock,** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                            | ** ** | **Outstanding**       | ** ** | **Shares**      | ** ** | **Outstanding** | ** ** | **Amount** | ** ** | **Income (Loss)** | ** ** | **Earnings** | ** ** | **at Cost** | ** ** | **Equity** | ** ** |
| BALANCE—January 1, 2008                                                     |       | 29,380,736            |       | (127,425        | )          | 29,253,311      |       | $          | 50,895     |                   | $          | 375 |   | $ | 121,778 |   | $ | (1,262 | ) | $ | 171,786 |   |
| Stock options exercised                                                               |       | 137,866               |       |            |       | 137,866         |       | 391        |       |                   |       |   |   |   |   | 391 |   |
| Cash dividend declared                                                                |       |                  |       |            |       |            |       |       |       |                   |       | (2,939 | ) |   |   | (2,939 | ) |
| Share-based compensation expense                                                      |       |                  |       |            |       |            |       | 568        |       |                   |       |   |   |   |   | 568 |   |
| Tax benefit from stock options exercised                                              |       |                  |       |            |       |            |       | 57         |       |                   |       |   |   |   |   | 57 |   |
| Cumulative impact of change in accounting  for postretirement split-dollar accounting |       |                  |       |            |       |            |       |       |       |                   |       | (1,876 | ) |   |   | (1,876 | ) |
| Comprehensive income:                                                                 |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Net income                                                                            |       |                  |       |            |       |            |       |       |       |                   |       | 14,480 |   |   |   | 14,480 |   |
| Other comprehensive income:                                                           |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Change in unrealized gain on interest-only  strips                                    |       |                  |       |            |       |            |       |       |       | 39                     |       |   |   |   |   | 39 |   |
| Change in unrealized gain on securities  available for sale                           |       |                  |       |            |       |            |       |       |       | (820                   | )          |   |   |   |   | (820 | ) |
| Comprehensive income                                                                  |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   | $ | 13,699 |   |
| BALANCE—June 30, 2008                                                       |       | 29,518,602            |       | (127,425        | )          | 29,391,177      |       | $          | 51,911     |                   | $          | (406 | ) | $ | 131,443 |   | $ | (1,262 | ) | $ | 181,686 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

----

Tableof Contents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                          | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                               |       |                                              |       |   |   |
| Net income                                                                          |       | $                                                 | 14,480     |   | $ | 14,663 |   |
| Adjustments to reconcile net income to net  cash provided  by operating activities: |       |                                              |       |   |   |
| Amortization (accretion) of investment  securities                                  |       | 572                                               |       | (86 | ) |
| Depreciation of bank premises &  equipment                                 |       | 886                                               |       | 793 |   |
| Amortization of other intangible assets                                             |       | 148                                               |       | 148 |   |
| Amortization of investments in affordable  housing partnerships                     |       | 349                                               |       | 235 |   |
| Provision for losses on loans and loan  commitments                                 |       | 2,800                                             |       | 6,130 |   |
| Deferred tax (benefit) provision                                                    |       | (27                                               | )          | 645 |   |
| Loss on disposition of bank premises and  equipment                                 |       | 3                                                 |       | 9 |   |
| Gain on sale of loans                                                               |       | (1,782                                            | )          | (4,144 | ) |
| Origination of loans held for sale                                                  |       | (40,867                                           | )          | (85,672 | ) |
| Proceeds from sale of loans held for sale                                           |       | 42,195                                            |       | 80,905 |   |
| Gain on sale or call of available for sale  securities                              |       | (3                                                | )          | — |   |
| Decrease in fair value of serving rights                                            |       | 566                                               |       | 1,063 |   |
| Gain on sale of other real estate owned                                             |       | —                                            |       | (125 | ) |
| Loss on sale of repossessed vehicles                                                |       | 1                                                 |       | 26 |   |
| Share-based compensation expense                                                    |       | 568                                               |       | 209 |   |
| Change in cash surrender value of life  insurance                                   |       | (286                                              | )          | (296 | ) |
| Servicing assets capitalized                                                        |       | (622                                              | )          | (910 | ) |
| Decrease in interest-only strips                                                    |       | 119                                               |       | 352 |   |
| Decrease (increase) in accrued interest  receivable                                 |       | 182                                               |       | (47 | ) |
| Increase in other assets                                                            |       | (1,144                                            | )          | (1,980 | ) |
| Dividends of Federal Home Loan Bank stock                                           |       | (265                                              | )          | (202 | ) |
| Tax benefit from exercise of stock options                                          |       | (57                                               | )          | (1,286 | ) |
| (Decrease) increase in accrued interest  payable                                    |       | (705                                              | )          | 515 |   |
| Increase in other liabilities                                                       |       | 5,714                                             |       | 1,837 |   |
| Net cash provided by operating activities                                           |       | 22,825                                            |       | 12,782 |   |
|                                                                                |       |                                              |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from principal repayment, matured  or called  securities held to maturity  |       | 7,015                                             |       | 3,017 |   |
| Purchase of securities available for sale                                           |       | (87,096                                           | )          | (62,977 | ) |
| Proceeds from matured securities available  for sale                                |       | 76,513                                            |       | 35,149 |   |
| Net increase in loans receivable                                                    |       | (178,682                                          | )          | (114,076 | ) |
| Proceeds from sale of other loans                                                   |       | —                                            |       | 5,385 |   |
| Proceeds from sale of other real estate  owned                                      |       | —                                            |       | 871 |   |
| Proceeds from sale of repossessed vehicles                                          |       | 10                                                |       | 73 |   |
| Purchases of investments in affodable  housing partnerships                         |       | (555                                              | )          | (808 | ) |
| Purchases of Bank premises and equipment                                            |       | (695                                              | )          | (403 | ) |
| Purchases of Federal Home Loan Bank stock                                           |       | (6,080                                            | )          | (732 | ) |
| Proceeds from disposition of Bank equipment                                         |       | 3                                                 |       | — |   |
| Net cash used in investing activities                                               |       | (189,567                                          | )          | (134,501 | ) |
|                                                                                     |            |                                                   |            |  |  |  |  |

 

See accompanying notes to consolidatedfinancial statements.

 

(Continued)

 

4

----

Table of Contents

 

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES:                   |       |                                              |       |   |   |
| Proceeds from exercise of stock options                 |       | $                                                 | 391        |   | $ | 115 |   |
| Payment of cash dividend                                |       | (2,932                                            | )          | (2,928 | ) |
| Increase in Federal Home Loan Bank  borrowings          |       | 170,000                                           |       | — |   |
| Tax benefit from exercise of stock options              |       | 57                                                |       | 1,286 |   |
| Net (decrease) increase in deposits                     |       | (23,782                                           | )          | 13,952 |   |
| Net cash provided by financing activities               |       | 143,734                                           |       | 12,425 |   |
|                                                    |       |                                              |       |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS               |       | (23,008                                           | )          | (109,294 | ) |
|                                                    |       |                                              |       |   |   |
| CASH AND CASH EQUIVALENTS—Beginning of  period     |       | 92,509                                            |       | 205,247 |   |
| CASH AND CASH EQUIVALENTS—End of period            |       | $                                                 | 69,501     |   | $ | 95,953 |   |
|                                                    |       |                                              |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      |       |                                              |       |   |   |
| Interest paid                                           |       | $                                                 | 35,275     |   | $ | 36,750 |   |
| Income taxes paid                                       |       | $                                                 | 10,180     |   | $ | 8,501 |   |
|                                                    |       |                                              |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:  |       |                                              |       |   |   |
| Transfer of loans to other real estate  owned           |       | $                                                 | 332        |   | $ | 646 |   |
| Other assets transferred to Bank premises and equipment |       | $                                                 | 150        |   | $ | 140 |   |
|                                                    |       |                                              |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:  |       |                                              |       |   |   |
| Cash dividend declared, but not paid                    |       | $                                                 | 1,470      |   | $ | 1,469 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

(Concluded)

 

5

----

 

**Table of Contents**

** **

**WILSHIRE BANCORP, INC.**

** **

**Notes to Consolidated Financial Statements**

** **

**Note 1.   Businessof Wilshire Bancorp, Inc.**

** **

WilshireBancorp, Inc. (hereafter, the “Company,” “we,” “us,” or “our”) succeeded to the business andoperations of Wilshire State Bank, a California state-chartered commercial bank(the “Bank”), upon consummation of the reorganization of the Bank into aholding company structure, effective as of August 25, 2004.  The Bank was incorporated under the laws ofthe State of California on May 20, 1980 and commenced operations on December 30,1980.  The Company was incorporated in December 2003 as awholly-owned subsidiary of the Bank for the purposeof facilitating the issuance of trust preferred securities for the Bank andeventually serving as the holding company of the Bank.  The Bank’s shareholders approved areorganization 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 adirect wholly-owned subsidiary ofthe Company.

 

Our corporate headquarters and primary bankingfacilities are located at 3200 Wilshire Boulevard, Los Angeles, California90010.  In addition, we have 20 full-serviceBank branch offices in Southern California, Texas, New York and NewJersey.  We also have 7 loan production offices utilizedprimarily for the origination of loans under our Small Business Administration(“SBA”) lending program in Colorado, Georgia, New Jersey, Texas, Virginia, andWashington.

 

**Note 2.   Basisof Presentation**

** **

Theconsolidated financial statements have been prepared in accordance with theSecurities and Exchange Commission (“SEC”) rules and regulations forinterim financial reporting and therefore do not necessarily include allinformation and footnote disclosures normally included in annual financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America (“GAAP”).  The informationprovided by these interim financial statements reflects all adjustments whichare, in the opinion of management, necessary for a fair presentation of theCompany’s consolidated statements of financialcondition as of June 30, 2008and December 31, 2007, therelated statements of operations and shareholders’ equity for the three monthsand six months ended June 30, 2008 and 2007, and the statements of cashflows for six months ended June 30, 2008 and 2007. Operating results forinterim periods are not necessarily indicative of operating results for anentire fiscal year. To conform to the consolidated financial statements of theprior period to the current period’s presentation, we have (i) reclassifiedchange in the fair valuation of servicing assets of $294,000 from non-interestincome to loan servicing income, and (ii) separately disclosed investmentin affordable housing partnerships from other assets, increasing the net cashprovided by operating activities and net cash used in investing activities by$808,000.

 

Theunaudited financial statements should be read in conjunction with the auditedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2007. The accounting policies used in the preparation of these interimfinancial statements were consistent with those used in the preparation of thefinancial statements for the year ended December 31, 2007.

 

**Note 3.   FairValue Option and Measurement for Financial Assets and Liabilities**

** **

In February 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities*, which permits allentities to choose to measure eligible items at fair value at specifiedelection dates.  A business entity shallreport unrealized gains and losses on items for which the fair value option hasbeen elected in earnings at each subsequent reporting date. Under the statement, the fair value option may beapplied instrument by instrument, with only a few exceptions, but may onlyapply to entire instruments and not to portions of instruments. The fair valueoption is a one-time election for existing instruments and is irrevocable. TheCompany adopted SFAS No. 159 as of January 1, 2008. All assets andliabilities are evaluated for eligibility of the fair value option under thestatement. Based on the analysis performed, the Company concluded that the fairvalue option provided by this statement is not elected for any of the existinginstruments under its current asset and liability balances. The Company willconstantly review the new asset and liability additions on an ongoing basis,and will elect fair value option pursuant to SFAS No. 159 for any newinstruments that fall in line with the fair value accounting and reporting.

 

6

----

Tableof Contents

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,whichprovides a definition of fair value, establishes a framework for measuring fairvalue, and requires expanded disclosures about fair value measurements.The standard applies when GAAP requires or allows assets or liabilities to bemeasured at fair value, and therefore, does not expand the use of fair value inany new circumstance. SFAS No. 157 defines fair value as the price thatwould be received to sell an asset or paid to transfer a liability in an arm’slength transaction between market participants in the markets where we conductbusiness. SFAS No. 157 clarifies that fair value should be based on theassumptions market participants would use when pricing an asset or liabilityand establishes a fair value hierarchy that prioritizes the information used todevelop those assumptions. The fair value hierarchy gives the highest priorityto quoted prices available in active markets and the lowest priority to datalacking transparency.

 

The fair value inputs ofthe instruments are classified and disclosed in one of the following categoriespursuant to SFAS No. 157:

 

Level 1 – Unadjustedquoted prices in active markets for identical assets or liabilities thatthe reporting entity has the ability to access at the measurement date. Thequoted price shall not be adjusted for the position size.

 

Level 2 – Pricing inputsare inputs other than quoted prices included within Level 1 that areobservable for the asset or liability, either directly or indirectly. Fairvalue is determined through the use of models or other valuation methodologies,including the use of pricing matrices. If the asset or liability has aspecified (contractual) term, a Level 2 input must be observable forsubstantially the full term of the asset or liability.

 

Level 3 – Pricing inputsare inputs unobservable inputs for the asset or liability. Unobservableinputs shall be used to measure fair value to the extent that observable inputsare not available, thereby allowing for situations in which there is little, ifany, market activity for the asset or liability at the measurement date. Theinputs into the determination of fair value require significant managementjudgment or estimation.

 

In certain cases, the inputs used to measure fairvalue may fall into different levels of the fair value hierarchy. In suchcases, an investment’s level within the fair value hierarchy is based on thelowest level of input that is significant to the fair value measurement. Ourassessment of the significance of a particular input to the fair valuemeasurement in its entirety requires judgment and considers factors specific tothe investment.

 

TheCompany adopted SFAS No. 157 as of January 1, 2008. It used thefollowing methods and assumptions in estimating our fair value disclosure forfinancial instruments. Financial assets and liabilities recorded at fair valueon a recurring basis are listed as follows:

 

Securities available for sale – Investment in available-for-sale securities is recorded at fairvalue pursuant to SFAS 115, *Accounting for CertainInvestments in Debt and Equity Securities*. Fair value measurement isbased upon quoted prices for similar assets, if available. If quoted prices arenot available, fair values are measured using matrix pricing models, or othermodel-based valuation techniques requiring observable inputs other than quotedprices such as yield curves, prepayment speeds, and default rates. Thesecurities available for sale include federal agency securities,mortgage-backed securities, collateralized mortgage obligations, municipalbonds and corporate debt securities. Our existing investment available-for-salesecurity holdings as of June 30, 2008 are measured using matrix pricingmodels in lieu of direct price quotes and recorded based on Level 2 measurementinputs.

 

Servicing assetsand interest-only strips – Small Business Administration(“SBA”) loan servicing assets and interest-only strips represent the valueassociated with servicing SBA loans sold. The value is determined through adiscounted cash flow analysis which uses interest rates, prepayment speeds anddelinquency rate assumptions as inputs. All of these assumptions require asignificant degree of management judgment. Adjustments are only made when thediscounted cash flows are less than the carrying value. The Company classifiesSBA loan servicing assets and interest-only strips as recurring with Level 3measurement inputs.

 

Servicingliabilities – SBA loan servicing liabilities represent thevalue associated with servicing SBA loans sold. The value is determined througha discounted cash flow analysis which uses interest rates, prepayment speedsand delinquency rate assumptions as inputs. All of these assumptions require asignificant degree of management judgment. Adjustments are only made when thediscounted cash flows are less than the carrying value. The Company classifiesSBA loan servicing liabilities as recurring with Level 3 measurement inputs.

 

7

----

Tableof Contents

 

Financial assets andliabilities recorded at fair value on a nonrecurring basis are listed asfollows:

 

Impaired loans– A loan is considered to be impaired when it is probable that all of theprincipal and interest due under the original underwriting terms of the loanmay not be collected. Impairment is measured based on the fair value of theunderlying collateral. The fair value is determined through appraisals andother matrix pricing models, which required a significant degree of managementjudgment. The Company measures impairment on all nonaccrual loans, exceptautomobile loans, for which it has established specific reserves as part of thespecific allocated allowance component of the allowance for loan losses. TheCompany records impaired loans as nonrecurring with Level 3 measurement inputs.

 

The table below summarizes the valuation of ourinvestments by the above SFAS No. 157 fair value hierarchy levels as of June 30,2008:

 

**Assets Measured at FairValue**(dollars in thousands)

 
| ** **                   | ** ** | **As of June 30, 2008** | ** ** |
|------------------------------|------------|---------------------------------------------|------------|
| ** **                   | ** ** | ** **                                  | ** ** | **Fair Value Measurements Using:** | ** ** |
| ** **                   | ** ** | **Total Fair  Value**                  | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Significant Unobservable  Inputs  (Level 3)** | ** ** |
| Available for salesecurities |       | $                                           | 232,857    |   | $ | — |   | $ | 232,857 |   | $ | — |   |
| Servicing assets             |       | 5,039                                       |       | — |   | — |   | 5,039 |   |
| Interest-only strips         |       | 702                                         |       | — |   | — |   | 702 |   |
| Servicing liabilities        |       | (349                                        | )          | — |   | — |   | (349 | ) |
| Impaired loans               |       | 23,391                                      |       | — |   | — |   | 23,391 |   |
|                              |            |                                             |            |  |  |  |  |  |  |  |  |  |  |

 

Financialinstruments measured at fair value on a recurring basis, which were part of theasset balances that were deemed to have Level 3 fair value inputs whendetermining valuation, are identified in the table below by asset category witha summary of changes in fair value for the quarter ended June 30, 2008(dollars in thousands):

 
| ** **           | ** ** | **At March   31, 2008** | ** ** | **Net  Realized  Losses in  Net Income** | ** ** | **Net Unrealized  Gains in Other  Comprehensive  Income** | ** ** | **Net  Purchases   Sales and  Settlements** | ** ** | **Transfers   In/out of  Level 3** | ** ** | **At June  30, 2008** | ** ** | **Net  Cumulative  Unrealized  Gains** | ** ** |
|----------------------|------------|----------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------|------------|----------------------------------------|------------|
| Servicingassets      |       | $                                      | 4,931      |                                               | $          | (211                                                                     | )          | $                                                | —     |                                              | $          | 319                             |       | $                                      | —     |   | $ | 5,039 |   | $ | — |   |
| Interest-onlystrips  |       | 727                                    |       | (68                                                | )          | 43                                                                       |       | —                                           |       | —                                            |       | 702                             |       | 24                                     |       |
| Servicingliabilities |       | (355                                   | )          | 6                                                  |       | —                                                                   |       | —                                           |       | —                                            |       | (349                            | )          | —                                 |       |
|                      |            |                                        |            |                                                    |            |                                                                          |            |                                                  |            |                                                   |            |                                 |            |                                        |            |  |  |  |  |  |  |  |

 

8

----

Table ofContents

 

Financialinstruments measured at fair value on a recurring basis, which were part of theasset balances that were deemed to have Level 3 fair value inputs whendetermining valuation, are identified in the table below by asset category witha summary of changes in fair value for the six months ended June 30, 2008(dollars in thousands):

 
| ** **           | ** ** | **At   December  31, 2007** | ** ** | **Net  Realized  Losses in  Net Income** | ** ** | **Net Unrealized  Gains in Other  Comprehensive  Income** | ** ** | **Net  Purchases  Sales and  Settlements** | ** ** | **Transfers   In/out of  Level 3** | ** ** | **At June  30, 2008** | ** ** | **Net  Cumulative  Unrealized  Gains** | ** ** |
|----------------------|------------|---------------------------------------|------------|----------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------|------------|----------------------------------------|------------|
| Servicingassets      |       | $                                     | 4,950      |                                               | $          | (533                                                                     | )          | $                                               | —     |                                              | $          | 622                             |       | $                                      | —     |   | $ | 5,039 |   | $ | — |   |
| Interest-onlystrips  |       | 753                                   |       | (118                                               | )          | 67                                                                       |       | —                                          |       | —                                            |       | 702                             |       | 226                                    |       |
| Servicingliabilities |       | (379                                  | )          | 30                                                 |       | —                                                                   |       | —                                          |       | —                                            |       | (349                            | )          | —                                 |       |
|                      |            |                                       |            |                                                    |            |                                                                          |            |                                                 |            |                                                   |            |                                 |            |                                        |            |  |  |  |  |  |  |  |

** **

**Note 4.   BankOwned Life Insurance (BOLI) Obligation**

** **

FASB Emerging Issue Task Force (“EITF”) 06-4 requiresan employer to recognize obligations associated with endorsement split-dollarlife insurance arrangements that extend into the participant’s post-employmentbenefit cost for the continuing life insurance or based on the future death benefitdepending on the contractual terms of the underlying agreement. EITF 06-4 iseffective as of the beginning of the entity’s first fiscal year after December 15,2007. We adopted EITF 06-4 on January 1, 2008 using the later option,i.e., based on the future death benefit. Upon this adoption, we recognizedincreases in the liability for unrecognized post-retirement obligations of$806,000 and $1,070,000 for directors and officers, respectively, as acumulative adjustment to the current year’s beginning equity. During the firstthree months and six months of 2008, the increases in BOLI expense andliability related to the adoption of EITF 06-4 were $36,000 and $72,000,respectively, which were included as part of the other expense and otherliabilities balances in the consolidated financial statements.

 

**Note 5.   Shareholder’sEquity**

** **

***Earnings per Share***

** **

Basicearnings per share (“EPS”) excludes dilution and is computed by dividing income available to common shareholdersby the weighted-average number of common shares outstanding for theperiod.  Diluted EPS reflects thepotential dilution that could occur if securities or other contracts to issuecommon stock were exercised or converted into common stock or resulted in theissuance of common stock that would then share in the earnings of the entity. The following tableprovides the basic and diluted EPS computations for the periods indicated below(dollars in thousands, except per share data):

 
| ** **                                                                                                                   | ** ** | **Three months ended**** **

**June 30,** | ** ** | **Six months ended**** **

**June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2008**                                                      | ** ** | **2007**                                                    | ** ** | **2008** | ** ** | **2007** | ** ** |
| Numerator:                                                                                                                   |       |                                                          |       |                                                        |       |   |   |   |   |
| Net income - numerator for basic earnings  per share and diluted earnings per share-income available to common  stockholders |       | $                                                             | 7,429      |                                                        | $          | 7,346 |   | $ | 14,480 |   | $ | 14,663 |   |
| Denominator:                                                                                                                 |       |                                                          |       |                                                        |       |   |   |   |   |
| Denominator for basic earnings per share:                                                                                    |       |                                                          |       |                                                        |       |   |   |   |   |
| Weighted-average shares                                                                                                      |       | 29,391,177                                                    |       | 29,370,096                                                  |       | 29,334,024 |   | 29,358,335 |   |
| Effect of dilutive securities:                                                                                               |       |                                                          |       |                                                        |       |   |   |   |   |
| Stock option dilution                                                                                                        |       | 23,497                                                        |       | 291,950                                                     |       | 58,597 |   | 283,024 |   |
| Denominator for diluted earnings  per share:                                                                                 |       |                                                          |       |                                                        |       |   |   |   |   |
| Adjusted weighted-average sharesAnd assumed conversions                                                                      |       | 29,414,674                                                    |       | 29,662,046                                                  |       | 29,392,621 |   | 29,641,359 |   |
| Basic earnings per share                                                                                                     |       | $                                                             | 0.25       |                                                        | $          | 0.25 |   | $ | 0.49 |   | $ | 0.50 |   |
| Diluted earnings per share                                                                                                   |       | $                                                             | 0.25       |                                                        | $          | 0.25 |   | $ | 0.49 |   | $ | 0.50 |   |

* *

*9*

----

*Table of Contents*

* *

***Stock Repurchase Program***

* *

In July 2007,the Company’s Board ofDirectors authorized a stock repurchase program to repurchase up to $10 million of the Company’s common stock until July 31, 2008.  Duringfirst six months of 2008, there were no such repurchases. Theapproximate dollar value of shares that may yet be purchased under the programas of June 30, 2008 was $8.7 million.

 

**Note 6.   Share-BasedCompensation**

** **

On January 1,2006, the Company adopted the SFAS No. 123R, using the prospective method.The adoption of SFAS No. 123R resulted in incremental stock-based compensation expense of $512,000 and $91,000 for the three months ended June 30, 2008 and 2007, respectively. Forthe first half of 2008 and 2007, the incremental stock-based compensation expense was $568,000 and$209,000, respectively, and accordingly decreased the periodic income before income taxes by the respective amounts and their effects on basic or diluted earnings per share was negligible.

 

The Company has issued stock options to employeesunder share-based compensation plans. Stock options are issued at the current market price on the date ofgrant.  The vesting period andcontractual term are determined at the time of grant, but the contractual termmay not exceed 10 years from the date of grant. The grant date fair value of each option award is estimated on the dateof grant using the Black-Scholes option valuation model.  The expected life (estimated period of timeoutstanding) of options was estimated using the simplified method. The expectedvolatility was based on historical volatility for a period equal to the stockoption’s expected life.  The risk-freerate is based on the U.S. Treasury yield curve in effect at the time of grant.

 

TheCompany has established the 2008 stock option plan (“2008 Plan”) that providesfor the issuance of restricted stock and options to purchase up to 2,933,200shares of its authorized but unissued common employees, directors, andconsultants. Exercise prices for options may not be less than the fair marketvalue at the date of grant. Compensation expense for awards is recorded overthe vesting period. Underthe 2008 Plan, there were options outstanding to purchase 1,001,000 shares ofour common stock as of June 30, 2008.

 

During1997, the Bank established the 1997 stock option plan (“1997 Plan”) thatprovided for the issuance of options to purchase up to 6,499,800 shares of itsauthorized but unissued common stock to managerial employees anddirectors.  The options granted under the1997 Plan are exercisable into shares of the Company’s common stock.  Exercise prices may not be less than the fairmarket value at the date of grant.  This1997 Plan completed its ten-year term and expired in May 2007.  In accordance with the terms of the 1997Plan, options granted under the 1997 Plan will remain outstanding according totheir respective terms, despite expiration of the 1997 Plan. Options granted through 2005 under this stock optionplan expire not more than 10 years after the date of grant, but options grantedafter 2005 expire not more than 5 years after the date of grant.

 

A summary of activity for the Company’s stock optionsas of and for the six monthsended June 30, 2008 ispresented below:

 
| ** **                                | ** ** | **Shares** | ** ** | **Weighted****Average****Exercise  Price** | ** ** | **Weighted****Average  Remaining  Contractual  term  (in years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-------------------------------------------|------------|------------|------------|--------------------------------------------|------------|------------------------------------------------------------------------|------------|---------------------------------|------------|
| Outstanding at January 1, 2008       |       | 522,476    |       | $                                          | 12.16      |                                                                   |       |                            |       |   |
| Granted                                   |       | 1,001,000  |       | 9.14                                       |       |                                                                   |       |                            |       |
| Exercised                                 |       | (137,866   | )          | 2.84                                       |       |                                                                   |       |                            |       |
| Forfeited                                 |       | (79,200    | )          | 17.75                                      |       |                                                                   |       |                            |       |
| Outstanding at June 30, 2008         |       | 1,306,410  |       | 10.49                                      |       | 6.94                                                                   |       | $                               | 204,501    |   |
|                                      |       |       |       |                                       |       |                                                                   |       |                            |       |
| Options exercisable at June 30, 2008 |       | 407,650    |       | 11.36                                      |       | 6.43                                                                   |       | $                               | 204,501    |   |
|                                           |            |            |            |                                            |            |                                                                        |            |                                 |            |  |  |

 

10

----

Tableof Contents

 

Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing model with the following assumptions:

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | **Six ****Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|------------------------------------|------------|
| ** **                  | ** ** | **June ****30,**            | ** ** | **June ****30,**              | ** ** |
| ** **                  | ** ** | **200****8**                     | ** ** | **200****7**                       | ** ** | **2008** | ** ** | **200****7** | ** ** |
| Expected life (1)           |       | 4.0 - 6.0 years                  |       | —                             |       | 4.0 - 6.0 years |   | — |   |
| Expected volatility (2)     |       | 26.4 - 33.9%                     |       | —                             |       | 26.4 - 33.9% |   | — |   |
| Expected dividend yield     |       | 2.2%                             |       | —                             |       | 2.2% |   | — |   |
| Risk-free interest rate (3) |       | 3.4%                             |       | —                             |       | 3.4% |   | — |   |

 

----

(1) The expected life (estimated period of time outstanding) ofstock options granted was estimated using the simplified method.

(2) The expected volatility was based on historical volatility for a periodequal to the stock option’s expected life.

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

 

During the three and the six months ended June 30, 2008 and 2007, information related to stock options is presented as follows:

 
| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Six**** Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------|------------|
| ** **                                                        | ** ** | **June ****30,**            | ** ** | **June ****30,**              | ** ** |
| ** **                                                        | ** ** | **200****8**                     | ** ** | **200****7**                       | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|                                                              |       |                             |       |                               |       |   |   |   |   |
| Total intrinsic value of options exercised                        |       | $                                | —     |                               | $          | 28,649 |   | $ | 618,443 |   | $ | 3,100,522 |   |
| Total fair value of options vested                                |       | 488,670                          |       | 125,393                            |       | 542,786 |   | 197,444 |   |
| Weighted average fair value of  optionsgranted  during the period |       | 2.28                             |       | —                             |       | 2.28 |   | — |   |
|                                                                   |            |                                  |            |                                    |            |  |  |  |  |  |  |  |  |

 

As of June 30, 2008, total unrecognized compensation cost related tostock options amounted to $1,625,966which is expected to be recognized over a weighted average period of 2.19 years.

 

A summary of the status and changes of the Company’snonvested shares related to the Company’s stock plans as of and during the six months ended June 30, 2008 ispresented below:

 
| ** **                        | ** ** | **Shares** | ** ** | **Weighted Average  Grant date  Fair value** | ** ** |
|-----------------------------------|------------|------------|------------|-------------------------------------------------------------|------------|
| Nonvested at January 1, 2008 |       | 164,540    |       | $                                                           | 4.15       |   |
| Granted                           |       | 1,001,000  |       | 2.28                                                        |       |
| Vested                            |       | (233,720   | )          | 2.32                                                        |       |
| Forfeited on unvested shares      |       | (33,060    | )          | 5.29                                                        |       |
| Nonvested at June 30, 2008   |       | 898,760    |       | 2.50                                                        |       |
|                                   |            |            |            |                                                             |            |  |

 

**Note**7.   Business Segment Information

** **

Thefollowing disclosure about segments of the Company is made in accordance withthe requirements of SFAS No. 131, *Disclosuresabout Segments of an Enterprise and Related Information*.  The Company segregates its operations intothree primary segments:  bankingoperations, trade finance services (“TFS”) and Small Business Administrationlending services.  The Company determinesthe operating results of each segment based on an internal management systemthat allocates certain expenses to each segment.

 

*BankingOperations*-**The Companyprovides lending products, including commercial, consumer and real estate loansto its customers.

 

*TradeFinance Services*- The trade finance department allows theCompany’s import/export customers to handle their internationaltransactions.  Trade finance productsinclude, among others, the issuance and collection of letters of credit,international collection, and import/export financing.

 

11

----

Tableof Contents

 

*SmallBusiness Administration Lending Services*- The SBA departmentmainly provides customers with access to the U.S. SBA guaranteed lendingprogram.

 

Thefollowing are the results of operations of the Company’s segments for theperiods indicated below:

 
| ** **                                    | ** ** | **Three Months Ended June 30, 200****8** | ** ** | **Three Months Ended June 30, 200****7** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **(dollars in thousands)**          | ** ** | **Banking**                                                       | ** ** | ** **                                                        | ** ** | ** ** | ** ** | ** ** | ** ** | **Banking** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Business Segment**                     | ** ** | **Operations**                                                    | ** ** | **TFS**                                                           | ** ** | **SBA** | ** ** | **Total** | ** ** | **Operations** | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Total** | ** ** |
| Net interest  income                          |       | $                                                                 | 16,708     |                                                              | $          | 517 |   | $ | 3,108 |   | $ | 20,333 |   | $ | 15,652 |   | $ | 750 |   | $ | 4,514 |   | $ | 20,916 |   |
| Less provision  (recapture) for credit losses |       | 1,630                                                             |       | (1,733                                                            | )     | 1,503 |   | 1,400 |   | 2,579 |   | 1,670 |   | 251 |   | 4,500 |   |
| Non-interest  income                          |       | 3,921                                                             |       | 267                                                               |       | 1,419 |   | 5,607 |   | 3,477 |   | 369 |   | 2,465 |   | 6,311 |   |
| Net revenue                                   |       | 18,999                                                            |       | 2,517                                                             |       | 3,024 |   | 24,540 |   | 16,550 |   | (551 | ) | 6,728 |   | 22,727 |   |
| Non-interest  expenses                        |       | 11,496                                                            |       | 249                                                               |       | 809 |   | 12,554 |   | 9,163 |   | 237 |   | 1,206 |   | 10,606 |   |
| Incomebefore taxes                            |       | $                                                                 | 7,503      |                                                              | $          | 2,268 |   | $ | 2,215 |   | $ | 11,986 |   | $ | 7,387 |   | $ | (788 | ) | $ | 5,522 |   | $ | 12,121 |   |
| Business segment  assets                      |       | $                                                                 | 2,160,678  |                                                              | $          | 45,680 |   | $ | 152,954 |   | $ | 2,359,312 |   | $ | 1,829,901 |   | $ | 51,084 |   | $ | 158,531 |   | $ | 2,039,516 |   |

 
| ** **                                    | ** ** | **Six Months Ended June 30, 200****8** | ** ** | **Six Months Ended June 30, 200****7** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| **(dollars in thousands)**          | ** ** | **Banking**                                                     | ** ** | ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Banking** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Business Segment**                     | ** ** | **Operations**                                                  | ** ** | **TFS**                                                         | ** ** | **SBA** | ** ** | **Total** | ** ** | **Operations** | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Total** | ** ** |
| Net interest  income                          |       | $                                                               | 32,609     |                                                            | $          | 1,137 |   | $ | 6,331 |   | $ | 40,077 |   | $ | 29,764 |   | $ | 1,702 |   | $ | 8,423 |   | $ | 39,889 |   |
| Less provision  (recapture) for credit losses |       | 580                                                             |       | (1,287                                                          | )     | 3,507 |   | 2,800 |   | 4,129 |   | 1,586 |   | 415 |   | 6,130 |   |
| Non-interest  income                          |       | 7,449                                                           |       | 541                                                             |       | 2,770 |   | 10,760 |   | 6,518 |   | 712 |   | 4,292 |   | 11,522 |   |
| Net revenue                                   |       | 39,478                                                          |       | 2,965                                                           |       | 5,594 |   | 48,037 |   | 32,153 |   | 828 |   | 12,300 |   | 45,281 |   |
| Non-interest  expenses                        |       | 22,392                                                          |       | 508                                                             |       | 1,877 |   | 24,777 |   | 18,305 |   | 473 |   | 2,331 |   | 21,109 |   |
| Incomebefore taxes                            |       | $                                                               | 17,086     |                                                            | $          | 2,457 |   | $ | 3,717 |   | $ | 23,260 |   | $ | 13,848 |   | $ | 355 |   | $ | 9,969 |   | $ | 24,172 |   |
| Business segment  assets                      |       | $                                                               | 2,160,678  |                                                            | $          | 45,680 |   | $ | 152,954 |   | $ | 2,359,312 |   | $ | 1,829,901 |   | $ | 51,084 |   | $ | 158,531 |   | $ | 2,039,516 |   |

 

**Note**8.   Commitments and Contingencies

** **

We area party to financial instruments with off-balance sheet risk in the normalcourse of business to meet the financing needs of our customers.  These financial instruments includecommitments to extend credit, standby letters of credit, and commercial lettersof credit.  These instruments involve, tovarying degrees, elements of credit and interest rate risk in excess of theamount recognized in the consolidatedstatements of financial condition. Our exposure to credit loss in the event of nonperformance oncommitments to extend credit and standby letters of credit is represented bythe contractual notional amount of those instruments.  We use the same credit policies in makingcommitments and conditional obligations as we do for extending loan facilitiesto customers.  We evaluate eachcustomer’s creditworthiness on a case-by-case basis.  The amount of collateral obtained, if deemednecessary upon extension of credit, is based on our credit evaluation of thecounterparty.  Collateral held varies butmay include accounts receivable,inventory, property, plant, andequipment and income-producing properties. Commitments at June 30,2008 are summarized as follows(dollars in thousands):

 
| Commitments  to extend credit |   | $ | 182,918 |   |
|-------------------------------|--------|---|---------|--------|
| Standby letters of credit     |   | $ | 9,543   |   |
| Commercial letters of credit  |   | $ | 11,922  |   |

 

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

 

12

----

 

Table of Contents

 

**Note**9.   Recent Accounting Pronouncements

** **

In December 2007, the FASB issued SFAS No. 141R,*Business Combinations.* This new statement revises SFAS No. 141, whichwas issued June 2001. SFAS No. 141R changes multiple aspects of theaccounting for business combinations. Under the guidance in SFAS No. 141R,the acquisition method must be used, which requires the acquirer to recognizemost identifiable assets acquired, liabilities assumed and non-controllinginterests in the acquiree at their full fair value on the acquisition date.Goodwill is to be recognized as the excess of the consideration transferredplus the fair value of the non-controlling interest over the fair values of theidentifiable net assets acquired. Subsequent changes in the fair value ofcontingent consideration classified as a liability are to be recognized inearnings, while contingent consideration classified as equity is not to beremeasured. Costs such as transaction costs are to be excluded from acquisitionaccounting, generally leading to recognizing expense and additionally,restructuring costs that do not meet certain criteria at the acquisition dateare to be subsequently recognized as post-acquisition costs. SFAS No. 141Ris effective for business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008. We are currently assessing the impact that the adoption of SFAS No. 141Rwill have on our consolidated financial statements.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated FinancialStatements*, which amends Accounting Research Bulletin (“ARB”) No. 51,*Consolidated Financial Statements*. SFAS No. 160requires a non-controlling interest or minority interest to be reported by allentities in the same way, which is as equity in the consolidated financialstatements. It also requires income attributable to the non-controllinginterest to be disclosed on the face of the consolidated statement of income.Furthermore, SFAS No. 160 eliminates the diversity that currently existsin accounting for transactions between an entity and non-controlling interestsby requiring they be treated as equity transactions. SFAS No. 160 is effective forfinancial statements issued for fiscal years beginning on or after December 15,2008, and interim periods within those years. Early adoption isprohibited. The provisions of SFAS No. 160 should be appliedprospectively, except for presentation and disclosure requirements. Thepresentation and disclosure requirements should be applied retrospectively forall periods presented. We are currently assessing the impact that theadoption of SFAS No. 160 will have on our consolidated financialstatements.

 

In February 2008, the FASB issued FASB StaffPosition (“FSP”) No. 157-2, which delays the effective date of SFAS No. 157,for nonfinancial assets and nonfinancial liabilities, except for items that arerecognized or disclosed at fair value in the financial statements on arecurring basis. The delay is intended to allow the FASB and constituentsadditional time to consider the effect of various implementation issues thathave arise, or that may arise, from the application of SFAS No. 157. ThisFSP applies to various nonfinancial assets and liabilities, including goodwilland nonfinancial long-lived assets, and it defers the effective date of SFAS No. 157to such nonfinancial assets and liabilities to fiscal years beginning after November 15,2008, and interim periods within those fiscal years for items within the scopeof this FSP. We are currently assessing the impact that the adoption of FSP No. 157-2will have on our consolidated financial statements.

 

In March 2008, the FASB issued SFAS No. 161,*Disclosure about Derivative Instruments and HedgingActivities,*which amends SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities.* This new statement has the same scope as SFAS No. 133.Accordingly, it applies to all entities. SFAS No. 161 is intended toimprove financial reporting about derivative instruments and hedging activitiesby requiring enhanced disclosures to enable investors a better and clearerunderstanding of the derivative instruments and hedging activities. Entitiesare required to provide enhanced disclosures about how and why an entity usesderivative instruments, how derivative instruments and related hedged items areaccounted for under SFAS No. 133 and its related interpretations, and howderivative instruments and related hedged items affect an entity’s financialposition, financial performance, and cash flows. SFAS No. 161 is effectivefor financial statements issued for fiscal years and interim periods beginningafter November 15, 2008, with early adoption encouraged. The statementencourages, but does not require, comparative disclosures for earlier periodsat initial adoption. We are currently assessing the impact that the adoption ofSFAS No. 161 will have on our consolidated financial statements.

 

In May 2008, the FASB issued SFAS No. 162, *The Hierarchy of Generally Accepted Accounting Principles (“GAAP”). *This statement identifies thesources of accounting principles and the framework for selecting the principlesto be used in the preparation of financial statements of nongovernmentalentities that are presented in conformity with GAAP in the United States. SFAS No. 162is effective 60 days following the SEC’s approval of the Public CompanyAccounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaningof Present Fairly in Conformity with Generally Accepted Accounting Principles”,which is currently under SEC review. We are currently assessing the impact thatthe adoption of SFAS No. 162 will have on our consolidated financialstatements.

 

13

----

Table of Contents

 

In May 2008, the FASB issued SFAS No. 163, *Accounting for Financial Guarantee Insurance Contracts,*whichinterprets and clarifies provisions of SFAS No. 60, *Accountingand Reporting by Insurance Enterprises.*This statement reducesdiversity and conflicts, but increases comparability and disclosure infinancial reporting of financial guarantee insurance contracts by insuranceenterprises. SFAS No. 163 is effective for financial statements issued forfiscal years beginning after December 15, 2008, and interim periods withinthose years, except for some disclosures about the insurance enterprise’srisk-management activities. The disclosures about the risk-managementactivities are to be effective for the first period (including interim periods)beginning after issuance of this statement. Except for those disclosures, earlyadoption is not permitted. We are currently assessing the impact that theadoption of SFAS No. 163 will have on our consolidated financialstatements.

 

In June 2008, the FASB issued FSP No. EITF(The Emerging Issues Task Force) 03-6-1, *Determining WhetherInstruments Granted in Shared-Based Payment Transactions Are ParticipatingSecurities,*which addresses whether instruments granted inshare-based payment transactions are participating securities prior to vestingand, therefore, need to be included in the earnings allocation in computingearnings per share (EPS) under the two-class method described in paragraphs 60and 61 of SFAS No. 128, *Earnings per Share.*FSPNo. EITF 03-6-1 is effective for financial statements issued for fiscalyears beginning after December 15, 2008, and interim periods within thoseyears. All prior-period EPS data presented are adjusted retrospectively(including interim financial statements, summaries of earnings, and selectedfinancial data) to conform with the provisions of this FSP. Early adoption isnot permitted. We are currently assessing the impact that the adoption of FSP No. EITF03-6-1 will have on our consolidated financial statements.

 

14

----

Table of Contents

 

## **Item 2.**                                                           Management’sDiscussion and Analysis of Financial Condition and Results of Operations

## ** **

Thisdiscussion presents management’s analysis of our results of operations andfinancial condition as of and for the three and six months ended June 30, 2008 and 2007, respectively, and includes the statistical disclosures requiredby the Securities and Exchange Commission Guide 3 (“Statistical Disclosure byBank Holding Companies”).  The discussionshould be read in conjunction with our financial statements and the notesrelated thereto which appear elsewhere in this Quarterly Report on Form 10-Q.

 

Statementscontained in this report that are not purely historical are forward-lookingstatements within the meaning of Section 21E of the Securities ExchangeAct of 1934, as amended, including our expectations, intentions, beliefs, orstrategies regarding the future.  Anystatements in this document about expectations, beliefs, plans, objectives,assumptions or future events or performance are not historical facts and areforward-looking statements. These statements are often, but not always, madethrough the use of words or phrases such as “may,” “should,” “could,” “predict,”“potential,” “believe,” “expect,” “anticipate,” “seek,” “estimate,” “intend,” “plan,”“projection,” and “outlook,” and similar expressions.  Accordingly, these statements involveestimates, assumptions and uncertainties, which could cause actual results todiffer materially from those expressed in them. Any forward-looking statements are qualified in their entirety byreference to the factors discussed throughout this document.  All forward-looking statements concerningeconomic conditions, rates of growth, rates of income or values as may beincluded in this document are based on information available to us on the datesnoted, and we assume no obligation to update any such forward-lookingstatements.  It is important to note thatour actual results may differ materially from those in such forward-lookingstatements due to fluctuations in interest rates, inflation, governmentregulations, economic conditions, customer disintermediation and competitiveproduct and pricing pressures in the geographic and business areas in which weconduct operations, including our plans, objectives, expectations andintentions and other factors discussed under the section entitled “RiskFactors,” in our Annual Report on Form 10-K for the year ended December 31,2007, including thefollowing:

 

·                  Ifa significant number of customers fail to perform under their loans, ourbusiness, profitability, and financial condition would be adversely affected.

 

·                  Increasesin our allowance for loan losses could materially affect our earningsadversely.

 

·                  Bankingorganizations are subject to interest rate risk and variations in interestrates may negatively affect our financial performance.

 

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

 

·                  Wilshire Bancorp relies heavily on the payment of dividendsfrom the Bank.

 

·                  Theholders of recently issued debentures have rights that are senior to those ofour common shareholders.

 

·                  Adversechanges in domestic or global economic conditions, especially in California,could have a material adverse effect on our business, growth, andprofitability.

 

·                  Recentlynegative development in the financial industry and U.S. and global creditmarkets may affect our operations and results.

 

·                  Ouroperations may require us to raise additional capital in the future, but thatcapital may not be available or may not be on terms acceptable to us when it isneeded.

 

·                  Theshort-term and long-term impact of the new Basel II capital standards and theforthcoming new capital rules to be proposed for non-Basel II U.S. banksis uncertain.

 

·                  Maintainingor increasing our market share depends on market acceptance and regulatoryapproval of new products and services.

 

·                  Significantreliance on loans secured by real estate may increase our vulnerability todownturns in the California real estate market and other variables impactingthe value of real estate.

 

·                  Ifwe fail to retain our key employees, our growth and profitability could beadversely affected.

 

·                  Wemay be unable to manage future growth.

 

15

----

Table of Contents

 

·                  Unexpectedlitigation or unexpected outcomes of pending litigation matters may negativelyaffect our results of operations, financial condition or reputation.

 

·                  Wecould be liable for breaches of security in our online banking services.  Fear of security breaches could limit thegrowth of our online services.

 

·                  Ourdirectors and executive officers beneficially own a significant portion of ouroutstanding common stock.

 

·                  Themarket for our common stock is limited, and potentially subject to volatilechanges in price.

 

·                  Weface substantial competition in our primary market area.

 

·                  Anti-takeoverprovisions of our charter documents may have the effect of delaying orpreventing changes in control or management.

 

·                  Weare subject to significant government regulation and legislation that increasethe cost of doing business and inhibits our ability to compete.

 

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

 

·                  Additionalshares of our common stock issued in the future could have a dilutive effect.

 

·                  Sharesof our preferred stock issued in the future could have dilutive and othereffects.

 

Thesefactors and the risk factors referred to in our Annual Report on Form 10-Kfor the year ended December 31, 2007 could cause actual results oroutcomes to differ materially from those expressed in any forward-lookingstatements made by us, and you should not place undue reliance on any suchforward-looking statements.  Anyforward-looking statement speaks only as of the date on which it is made and wedo not undertake any obligation to update any forward-looking statement orstatements to reflect events or circumstances after the date on which suchstatement is made or to reflect the occurrence of unanticipated events.  New factors emerge from time to time, and itis not possible for us to predict which will arise.  In addition, we cannot assess the impact ofeach factor on our business or the extent to which any factor, or combinationof factors, may cause actual results to differ materially from those containedin any forward-looking statements.

 

16

----

Table of Contents

 

**Selected Financial Data**

** **

The following table presents selected historicalfinancial information (unaudited) as of and for the three and six months ended June 30, 2008 and 2007.  In theopinion of our management, the information presented reflects all adjustmentsconsidered necessary for a fair presentation of the results of suchperiods.  The operating results for theinterim periods are not necessarily indicative of our future operating results.

 
| ** **                                                                             | ** ** | **Three months ended June 30,**                             | ** ** | **Six months ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                             | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| ** **                                                                             | ** ** | **200****8**                                                                    | ** ** | **200****7**                                      | ** ** | **2008** | ** ** | **200****7** | ** ** |
| Net income                                                                             |       | $                                                                               | 7,429      |                                              | $          | 7,346 |   | $ | 14,480 |   | $ | 14,663 |   |
| Net income per  share, basic                                                           |       | 0.25                                                                            |       | 0.25                                              |       | 0.49 |   | 0.50 |   |
| Net income per  share, diluted                                                         |       | 0.25                                                                            |       | 0.25                                              |       | 0.49 |   | 0.50 |   |
| Net interest income before provision for loan losses and off-balance sheet commitments |       | 20,333                                                                          |       | 20,916                                            |       | 40,077 |   | 39,889 |   |
|                                                                                   |       |                                                                            |       |                                              |       |   |   |   |   |
| **Average  balances:**                                                                 |       |                                                                            |       |                                              |       |   |   |   |   |
| Assets                                                                                 |       | 2,303,278                                                                       |       | 1,996,898                                         |       | 2,257,288 |   | 1,994,399 |   |
| Cash and cash  equivalents                                                             |       | 75,677                                                                          |       | 106,708                                           |       | 75,939 |   | 141,122 |   |
| Investment debt  securities                                                            |       | 228,806                                                                         |       | 188,184                                           |       | 225,665 |   | 187,378 |   |
| Net loans                                                                              |       | 1,911,835                                                                       |       | 1,621,006                                         |       | 1,870,362 |   | 1,586,403 |   |
| Total deposits                                                                         |       | 1,726,147                                                                       |       | 1,724,088                                         |       | 1,715,484 |   | 1,727,604 |   |
| Shareholders’  equity                                                             |       | 181,645                                                                         |       | 161,855                                           |       | 178,488 |   | 158,496 |   |
| **Performance  Ratios:**                                                               |       |                                                                            |       |                                              |       |   |   |   |   |
| Annualized  return on average assets                                                   |       | 1.29                                                                            | %          | 1.47                                              | %          | 1.28 | % | 1.47 | % |
| Annualized  return on average equity                                                   |       | 16.36                                                                           | %          | 18.15                                             | %          | 16.22 | % | 18.50 | % |
| Net interest  margin                                                                   |       | 3.78                                                                            | %          | 4.52                                              | %          | 3.81 | % | 4.31 | % |
| Efficiency Ratio                                                                       |       | 48.39                                                                           | %          | 38.95                                             | %          | 48.74 | % | 41.06 | % |
| **Capital  Ratios:**                                                                   |       |                                                                            |       |                                              |       |   |   |   |   |
| Tier 1 capital  to adjusted total assets                                               |       | 10.21                                                                           | %          | 10.28                                             | %          |   |   |   |   |
| Tier 1 capital  to risk-weighted assets                                                |       | 11.55                                                                           | %          | 12.36                                             | %          |   |   |   |   |
| Total capital to  risk-weighted assets                                                 |       | 13.99                                                                           | %          | 14.22                                             | %          |   |   |   |   |
|                                                                                        |            |                                                                                 |            |                                                   |            |  |  |  |  |  |  |  |  |

 
| **Period-end  balances as of:**                                      | ** ** | **June 30,  200****8** | ** ** | **December 31,  2007** | ** ** | **June 30,  200****7** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|
| Total assets                                                         |       | $                           | 2,359,312  |                        | $          | 2,196,705                   |       | $          | 2,039,516  |   |   |   |
| Investment  securities                                               |       | 233,226                     |       | 231,640                     |       | 206,706                     |       |       |       |
| Total loans, net  of unearned income                                 |       | 1,986,601                   |       | 1,809,050                   |       | 1,673,044                   |       |       |       |
| Total deposits                                                       |       | 1,739,289                   |       | 1,763,071                   |       | 1,765,925                   |       |       |       |
| Junior subordinated debentures                                       |       | 87,321                      |       | 87,321                      |       | 61,547                      |       |       |       |
| FHLB borrowings                                                      |       | 320,000                     |       | 150,000                     |       | 20,000                      |       |       |       |
| Shareholders’  equity                                           |       | 181,686                     |       | 171,786                     |       | 162,587                     |       |       |       |
| **Asset  Quality Ratios:**                                           |       |                        |       |                        |       |                        |       |       |       |
| Net charge-offs  (recoveries) to average total loans for the quarter |       | 0.01                        | %          | 0.23                        | %          | 0.11                        | %          |       |       |
| Non-performing  loans to total loans                                 |       | 0.83                        | %          | 0.59                        | %          | 0.50                        | %          |       |       |
| Non-performing  assets to total loans and other real estate owned    |       | 0.85                        | %          | 0.60                        | %          | 0.51                        | %          |       |       |
| Allowance for  loan losses to total loans                            |       | 1.18                        | %          | 1.19                        | %          | 1.16                        | %          |       |       |
| Allowance for  loan losses to non-performing loans                   |       | 142.64                      | %          | 203.55                      | %          | 230.33                      | %          |       |       |
|                                                                      |            |                             |            |                             |            |                             |            |            |            |  |  |  |

 

WilshireBancorp, Inc. succeeded to the business and operations of Wilshire StateBank upon consummation of the reorganization of the Bank into a holding companystructure, effective as of August 25, 2004.  Prior to the completion of the reorganization,the Bank was subject to the information, reporting and proxy statementrequirements of the Exchange Act pursuant to the regulations of its primaryregulator, the Federal Deposit Insurance Corporation, or FDIC.  Accordingly, the Bank filed annual and quarterlyreports, proxy statements and other information with the FDIC.  Pursuant to Rule 12g-3 of the SecuritiesExchange Act of 1934, as amended, or Exchange Act, the Company has succeeded tothe reporting obligations of the Bank and the reporting obligations of the Bankto the FDIC have terminated.  Filings bythe Company under the Exchange Act, like this Form 10-Q, are to be madewith the Securities and Exchange Commission, or 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.

 

Weoperate community banks doing a general commercial banking business, with ourprimary market encompassing the multi-ethnic population of the Los Angelesmetropolitan area.  Our full-serviceoffices are located primarily in areas where a majority of the businesses areowned by Korean-speaking immigrants, and many of the remaining businesses thatwe serve are owned by Hispanic and other minority groups.

 

17

----

Table of Contents

 

Wehave also expanded and diversified our business with the focus on ourcommercial and consumer lending divisions. Over the past several years, our network of branches and loan productionoffices has been expanded geographically. We currently maintain 20 full-service branch banking offices in Southern California,Texas, New Jersey, and New York, and 7separate loan production offices in Aurora,Colorado (the Denver area); Atlanta, Georgia; Palisades Park, New Jersey;Dallas, Texas; Houston, Texas; Annandale, Virginia, and Seattle, Washington.

 

In July 2007,the Company implemented a stock repurchase program whereby the Company mayrepurchase up to an aggregate of $10 million worth of shares of its commonstock from time to time until July 31, 2008.  Thus far, 127,425 shares have beenrepurchased under this program amounting to $1.3 million. We believe this program represents an efficient way to manage capital as well asaffirming our optimism for thelong term value of the Company for shareholders.

 

**Critical Accounting Policies**

** **

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

 

Variouselements of our accounting policies, by their nature, are inherently subject toestimation techniques, valuation assumptions and other subjective assessments.We have particularly identified several accounting policies that, due tojudgments, estimates and assumptions inherent in those policies are critical toan understanding of our consolidated financial statements. These policiesrelate to the classification and valuation of investment securities, themethodologies that determine our allowance for loan losses, the treatment ofnon-accrual loans, the valuation of retained interests and servicing assetsrelated to the sales of SBAloans, and the accounting for income tax provisions and the uncertainty inincome taxes. In each area, we have identified the variables most important inthe estimation process. We have used the best information available to make theestimates necessary to value therelated assets and liabilities. Actual performance that differs from ourestimates and future changes in the key variables could change future valuationand impact net income.

 

Oursignificant accounting policies are described in greater detail in our 2007 Annual Report on Form 10-K in the“Critical Accounting Policies” section of “Management’s Discussion and Analysis of Financial Condition and Result of Operations” and in Note 1 tothe Consolidated Financial Statements (“Summary of Significant AccountingPolicies”) of this report, which are essential to understanding Management’sDiscussion and Analysis of Results of Operations and Financial Condition. Therehas been no material modification to these policies during the quarter ended June 30,2008.

 

**Results of Operations**

** **

**Net Interest Income andNet Interest Margin**

** **

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

 

Averageinterest-earning assets increased 16.08% to $2.15 billionin the second quarter of 2008, as compared with $1.85 billion in the same quarter of 2007, and average net loans increased 17.94% to $1.91 billion in the second quarter of 2008, as compared with $1.62billion in the same quarter of 2007.  Our averageinterest-bearing deposits slightly increased 0.88% to $1.42 billionin the second quarter of 2008, ascompared with $1.41 billion in thesame quarter of 2007. FHLB advances andother borrowings have significantly increased $260.3 million to $281.8 millionin the second quarter of 2008 from $21.5 million in the same quarter oflast year (see “Financial Condition-Deposits and Other Sources of Funds”below), and average balance on our junior subordinated debentures has increased$25.8 million to $87.3 million in the second quarter of 2008 from $61.5 millionin the second quarter of 2007. As a result, total interest bearing liabilitiesincreased 20.01% to $1.79 billion in the second quarter of 2008, as comparedwith $1.49 billion in the second quarter of 2007.

 

18

----

Table of Contents

 

The recent federal funds rate reductions of 75 and 25basis points on March 18, 2008 and April 30, 2008, respectively, havedecreased ourearning-asset yields as well as our cost of funds. Our earning-asset yields have decreased slightly less when compared to our cost of funds.  The average yields on our interest-earningassets decreased to 6.82% for the second quarter of 2008 from 8.53% forthe second quarter of the prior year. Consistent with the decreasein average yields on interest-earning assets, the cost of funds for averageyields on interest-earning liabilities also decreased to 3.65% for thesecond quarter of 2008 from 4.99% for the prior year’s same quarter. Hence,although interest income decreased 7.19% to $36.7 million for the secondquarter of 2008, as compared with $39.5 million for the prior year’s sameperiod, our net interest income has only decreased 2.79% to 20.3 million forthe second quarter of 2008, as compared with $20.9 million for the same quartera year ago. The smaller magnitude in the decrease in net interest incomecompared to gross interest income was because interest expense has decreased ata much higher rate of  12.14% to $16.3 million for the second quarter of 2008, as compared with $18.6 million for the same quarter a yearago.

 

 Consistent withthe $0.6 million decrease of net interest income in the second quarter of 2008,as compared with the same quarter a year ago, our net interest spread andmargin were both lowered. The decrease was due primarily to the stiff depositcompetition among financial institutions and the combined 100 basis pointfederal funds rate cuts in March and April 2008. Our net interestspread and net interest margin have deteriorated in the second quarter of 2008to 3.17% and 3.78%, respectively, lowered from 3.55% and 4.52%, in the samequarter a year ago. When compared to the prior quarter, net interest spreadslightly increased by 7 basis points while net interest margin was furthersqueezed by 5 basis points from 3.10% and 3.83%, respectively. The differencewas due primarily to the fact that our average interest-earning asset balancewas higher than the average interest-bearing liability balance.

 

For the first six months of 2008,average interest-earning assets and average net loans increased to $2.11billion and $1.87 billion,respectively, as compared with $1.85billion and $1.59 billion for theprior year’s same period.  For the first six months of 2008, averageinterest-bearing liabilities also increased to $1.75 billion from $1.50 billion, while the average interest-bearingdeposit portfolio remained fairly unchanged at $1.41 billion from the sameperiod a year ago.  The average yields oninterest-earning assets decreased by 124basis points to 7.09% for the first six months of 2008 from 8.33% for the prior year’s sameperiod, while our cost of fundsdecreased 103 basis points to 3.95% for the first six months of 2008 from4.98% for the prior year’s same period. The combination of our business growthand interest rate increases resulted in a slight increase in our net interestincome of $0.2 million, or 0.47%, to $40.1 million in the first six monthsof 2008 as compared with $39.9 million for the prior year’s sameperiod.

 

19

----

Table of Contents

 

The following table sets forth, for the periodsindicated, our average balances of assets, liabilities and shareholders’ equity,in addition to the major components of net interest income and net interestmargin (all yields were calculated without the consideration of tax effects, ifany):

 

**Distribution, Yield and Rate Analysis of NetInterest Income**

 
| ** **                                                         | ** ** | **For the Quarter Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **200****8**                                                | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | **(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 loans(1)                                                       |       | $                                                           | 1,911,836  |   | $ | 33,978 |   | 7.11 | % | $ | 1,621,006 |   | $ | 36,584 |   | 9.03 | % |
| Securities of  U.S. government agencies                            |       | 213,961                                                     |       | 2,467 |   | 4.61 | % | 162,663 |   | 2,034 |   | 5.00 | % |
| Other investment  securities                                       |       | 14,845                                                      |       | 171 |   | 4.60 | % | 25,521 |   | 308 |   | 4.83 | % |
| Interest on federal fund sold                                      |       | 8,546                                                       |       | 49 |   | 2.27 | % | 42,225 |   | 578 |   | 5.48 | % |
| Total  interest-earning assets                                     |       | 2,149,188                                                   |       | 36,665 |   | 6.82 | % | 1,851,415 |   | 39,504 |   | 8.53 | % |
| Cash and due  from banks                                           |       | 67,131                                                      |       |   |   |   |   | 64,483 |   |   |   |   |   |
| Other assets                                                       |       | 86,959                                                      |       |   |   |   |   | 81,000 |   |   |   |   |   |
| Total assets                                                       |       | $                                                           | 2,303,278  |   |   |   |   |   | $ | 1,996,898 |   |   |   |   |   |
|                                                               |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**                    |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |
| Money market  deposits                                             |       | $                                                           | 393,182    |   | $ | 2,998 |   | 3.05 | % | $ | 421,205 |   | $ | 4,722 |   | 4.48 | % |
| Super NOW  deposits                                                |       | 22,533                                                      |       | 76 |   | 1.35 | % | 22,119 |   | 66 |   | 1.20 | % |
| Savings deposits                                                   |       | 35,995                                                      |       | 299 |   | 3.32 | % | 29,039 |   | 165 |   | 2.28 | % |
| Time  certificates of deposit in denominations of $100,000 or more |       | 795,081                                                     |       | 7,720 |   | 3.88 | % | 783,100 |   | 10,391 |   | 5.31 | % |
| Other time  deposits                                               |       | 173,783                                                     |       | 1,771 |   | 4.08 | % | 152,789 |   | 1,899 |   | 4.97 | % |
| FHLB advances and other borrowings                                 |       | 281,846                                                     |       | 2,356 |   | 3.34 | % | 21,540 |   | 204 |   | 3.79 | % |
| Junior subordinated debenture                                      |       | 87,321                                                      |       | 1,112 |   | 5.09 | % | 61,547 |   | 1,141 |   | 7.42 | % |
| Total interest-bearing  liabilities                                |       | 1,789,741                                                   |       | 16,332 |   | 3.65 | % | 1,491,339 |   | 18,588 |   | 4.99 | % |
| Non-interest-bearing deposits                                      |       | 305,573                                                     |       |   |   |   |   | 315,837 |   |   |   |   |   |
| Total deposits and  other borrowings                               |       | 2,095,314                                                   |       |   |   |   |   | 1,807,176 |   |   |   |   |   |
| Other  liabilities                                                 |       | 26,319                                                      |       |   |   |   |   | 27,867 |   |   |   |   |   |
| Shareholders’  equity                                         |       | 181,645                                                     |       |   |   |   |   | 161,855 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity                   |       | $                                                           | 2,303,278  |   |   |   |   |   | $ | 1,996,898 |   |   |   |   |   |
| Net interest  income                                               |       |                                                        |       | $ | 20,333 |   |   |   |   |   | $ | 20,916 |   |   |   |
| Net interest  spread(2)                                            |       |                                                        |       |   |   | 3.17 | % |   |   |   |   | 3.55 | % |
| Net interest  margin(3)                                            |       |                                                        |       |   |   | 3.78 | % |   |   |   |   | 4.52 | % |

 

----

(1) Net loan fees have beenincluded in the calculation of interest income. Loan fees were approximately $1,187,000 and $1,925,000 for the quartersended June 30, 2008 and 2007, respectively.  Net loans are net of the allowance for loanlosses, deferred fees, unearned income, and related direct costs, but include those loans placed on non-accrual status.

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

(3) Represents net interest income as a percentage of averageinterest-earning assets.

 

20

----

Tableof Contents

 

**Distribution, Yield and Rate Analysis of NetInterest Income**

 
| ** **                                                         | ** ** | **For the Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **200****8**                                                        | ** ** | **2007** | ** ** |
| ** **                                                         | ** ** | **(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 loans(1)                                                       |       | $                                                                   | 1,870,362  |   | $ | 69,296 |   | 7.41 | % | $ | 1,586,403 |   | $ | 70,485 |   | 8.89 | % |
| Securities of U.S. government agencies                             |       | 209,137                                                             |       | 4,845 |   | 4.63 | % | 161,868 |   | 3,967 |   | 4.90 | % |
| Other investment securities                                        |       | 16,528                                                              |       | 377 |   | 4.56 | % | 25,510 |   | 614 |   | 4.81 | % |
| Interest on federal fund sold                                      |       | 9,199                                                               |       | 129 |   | 2.81 | % | 77,638 |   | 2,087 |   | 5.38 | % |
| Total interest-earning assets                                      |       | 2,105,226                                                           |       | 74,647 |   | 7.09 | % | 1,851,419 |   | 77,153 |   | 8.33 | % |
| Cash and due from banks                                            |       | 66,741                                                              |       |   |   |   |   | 63,484 |   |   |   |   |   |
| Other assets                                                       |       | 85,321                                                              |       |   |   |   |   | 79,496 |   |   |   |   |   |
| Total assets                                                       |       | $                                                                   | 2,257,288  |   |   |   |   |   | $ | 1,994,399 |   |   |   |   |   |
|                                                               |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity:**                     |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing liabilities:                                      |       |                                                                |       |   |   |   |   |   |   |   |   |   |   |
| Money market deposits                                              |       | $                                                                   | 394,888    |   | $ | 6,723 |   | 3.40 | % | $ | 413,608 |   | $ | 9,320 |   | 4.51 | % |
| Super NOW deposits                                                 |       | 22,527                                                              |       | 155 |   | 1.38 | % | 21,541 |   | 125 |   | 1.16 | % |
| Savings deposits                                                   |       | 34,306                                                              |       | 548 |   | 3.19 | % | 29,154 |   | 306 |   | 2.10 | % |
| Time certificates of deposit in  denominations of $100,000 or more |       | 791,855                                                             |       | 16,519 |   | 4.17 | % | 794,060 |   | 21,008 |   | 5.29 | % |
| Other time deposits                                                |       | 168,888                                                             |       | 3,657 |   | 4.33 | % | 155,596 |   | 3,846 |   | 4.94 | % |
| FHLB advances and other  borrowings                                |       | 249,720                                                             |       | 4,399 |   | 3.52 | % | 20,783 |   | 386 |   | 3.71 | % |
| Junior subordinated debenture                                      |       | 87,321                                                              |       | 2,569 |   | 5.88 | % | 61,547 |   | 2,273 |   | 7.39 | % |
| Total interest-bearing liabilities                                 |       | 1,749,505                                                           |       | 34,570 |   | 3.95 | % | 1,496,289 |   | 37,264 |   | 4.98 | % |
| Non-interest-bearing  deposits                                     |       | 303,019                                                             |       |   |   |   |   | 313,645 |   |   |   |   |   |
| Total deposits and other borrowings                                |       | 2,052,524                                                           |       |   |   |   |   | 1,809,934 |   |   |   |   |   |
| Other liabilities                                                  |       | 26,276                                                              |       |   |   |   |   | 25,969 |   |   |   |   |   |
| Shareholders’ equity                                          |       | 178,488                                                             |       |   |   |   |   | 158,496 |   |   |   |   |   |
| Total liabilities and shareholders’ equity                    |       | $                                                                   | 2,257,288  |   |   |   |   |   | $ | 1,994,399 |   |   |   |   |   |
| Net interest income                                                |       |                                                                |       | $ | 40,077 |   |   |   |   |   | $ | 39,889 |   |   |   |
| Net interest spread(2)                                             |       |                                                                |       |   |   | 3.14 | % |   |   |   |   | 3.35 | % |
| Net interest margin(3)                                             |       |                                                                |       |   |   | 3.81 | % |   |   |   |   | 4.31 | % |
|                                                                    |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1) Net loan fees have beenincluded in the calculation of interest income. Loan fees were approximately $2,469,000 and $3,524,000 for the six monthsended June 30, 2008 and 2007, respectively.  Net loans are net of the allowance for loanlosses, deferred fees, unearned income, and related direct costs, but include those loans placed on non-accrual status.

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

(3) Represents net interest income as a percentage of averageinterest-earning assets.

 

21

----

Table of Contents

 

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

 

**Rate/Volume Analysis of Net Interest Income********(dollars in thousands)**

 
| ** **                                                         | ** ** | **Three Months Ended June 30,   200****8**** vs. 200****7****   Increase (Decrease) Due to   Change In** | ** ** | **Six Months Ended June 30,   2008 vs. 200****7****   Increase (Decrease) Due to   Change In** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Volume**                                                                                                                                                                | ** ** | **Rate**                                                                                                                                                        | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| **Interest income:**                                               |       |                                                                                                                                                                      |       |                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Net loans(1)                                                       |       | $                                                                                                                                                                         | 5,925      |                                                                                                                                                            | (8,531     | ) | $ | (2,606 | ) | $ | 11,530 |   | $ | (12,719 | ) | $ | (1,189 | ) |
| Securities of U.S. government agencies                             |       | 601                                                                                                                                                                       |       | (168                                                                                                                                                            | )          | 433 |   | 1,105 |   | (227 | ) | 878 |   |
| Other investment securities                                        |       | (123                                                                                                                                                                      | )          | (14                                                                                                                                                             | )          | (137 | ) | (206 | ) | (31 | ) | (237 | ) |
| Interest on federal fund sold                                      |       | (305                                                                                                                                                                      | )          | (224                                                                                                                                                            | )          | (529 | ) | (1,270 | ) | (688 | ) | (1,958 | ) |
| Total interest income                                              |       | 6,098                                                                                                                                                                     |       | (8,937                                                                                                                                                          | )          | (2,839 | ) | 11,159 |   | (13,665 | ) | (2,506 | ) |
|                                                               |       |                                                                                                                                                                      |       |                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| **Interest expense:**                                              |       |                                                                                                                                                                      |       |                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Money market deposits                                              |       | $                                                                                                                                                                         | (297       | )                                                                                                                                                               | $          | (1,427 | ) | $ | (1,724 | ) | $ | (406 | ) | $ | (2,191 | ) | $ | (2,597 | ) |
| Super NOW deposits                                                 |       | 1                                                                                                                                                                         |       | 9                                                                                                                                                               |       | 10 |   | 6 |   | 24 |   | 30 |   |
| Savings deposits                                                   |       | 46                                                                                                                                                                        |       | 88                                                                                                                                                              |       | 134 |   | 61 |   | 181 |   | 242 |   |
| Time certificates of deposit in  denominations of $100,000 or more |       | 149                                                                                                                                                                       |       | (2,820                                                                                                                                                          | )          | (2,671 | ) | (65 | ) | (4,424 | ) | (4,489 | ) |
| Other time deposits                                                |       | 246                                                                                                                                                                       |       | (374                                                                                                                                                            | )          | (128 | ) | 318 |   | (507 | ) | (189 | ) |
| FHLB advances and other borrowings                                 |       | 2,179                                                                                                                                                                     |       | (27                                                                                                                                                             | )          | 2,152 |   | 4,034 |   | (21 | ) | 4,013 |   |
| Junior subordinated debenture                                      |       | 392                                                                                                                                                                       |       | (421                                                                                                                                                            | )          | (29 | ) | 822 |   | (526 | ) | 296 |   |
| Total interest expense                                             |       | 2,716                                                                                                                                                                     |       | (4,972                                                                                                                                                          | )          | (2,256 | ) | 4,770 |   | (7,464 | ) | (2,694 | ) |
|                                                               |       |                                                                                                                                                                      |       |                                                                                                                                                            |       |   |   |   |   |   |   |   |   |
| Change in net interest income                                      |       | $                                                                                                                                                                         | 3,382      |                                                                                                                                                            | $          | (3,965 | ) | $ | (583 | ) | $ | 6,389 |   | $ | (6,201 | ) | $ | 188 |   |

 

----

(1) Net loan fees have beenincluded in the calculation of interest income. Loan fees were approximately $1,187,000 and $1,925,000 for the quartersended June 30, 2008 and 2007, respectively, and approximately $2,469,000 and $3,524,000 for the six months ended June 30, 2008 and2007, respectively.  Net loans are net of the allowance for loanlosses, deferred fees, unearned income, and related direct costs, but include those loans placed on non-accrual status.

 

**P**rovision for Loan Losses and Provisionfor Off-balance Sheet Losses

** **

Due to the credit risk inherent in our lending business, we setaside allowances through charges to earnings. Such charges are madenot only for our outstanding loan portfolio, but also for off-balance sheetitems, such as commitments to extend credits or letters of credit.  The charges made for our outstanding loanportfolio were credited to allowance for loan losses, whereas charges foroff-balance sheet items were credited to reserve for off-balance sheet items,which is presented as a componentof other liabilities.

 

We recordeda provision for loanand off-balance sheet losses of $1.4 million in the second quarter of 2008 as compared to a provision of $4.5million for the prior year’s same quarter.  The provision for loan andoff-balance sheet losses in the first half of 2008 was $2.8 million, ascompared to $6.1 million in the first half of 2007. The decrease in theprovision for credit and off-balance sheet losses was in line with our enhancedlending policy and our strategy of improving loan quality (see “FinancialCondition – Allowance for Loan andOff-Balance Sheet Losses” below for further discussion).  The $1.4million provision in the second quarter of 2008 was net of a recovery of$256,000 provision for off-balance-sheet items, while the $4.5 millionprovision in the second quarter of 2007 included $579,000 provision tothe reserve for off-balance-sheet items.The procedures for monitoring the adequacy of the allowance for loan and off-balance sheet losses, aswell as detailed information concerning the allowance itself, are described inthe section entitled “Allowancefor Loan and Off-Balance SheetLosses” below.

 

22

----

Tableof Contents

 

**Non-interest Income**

** **

Totalnon-interest income decreased by 11.16% to $5.6 million in the second quarterof 2008 as compared to $6.3million for the same quarter a year ago. Non-interest income as apercentage of average assets decreasedto 0.24% for the second quarter of2008 from 0.32% for the prior year’s same period. For the first six months of 2008, total non-interest income decreased by 6.6% to $10.8 million as compared with $11.5 million in the same period of 2007, and such six-month non-interest income of 2008 and 2007 represent 0.48% and 0.58% of average assets,respectively. We currently earn non-interest income from varioussources, including an income stream provided by BOLI in the form of an increasein cash surrender value.

 

The followingtable sets forth the various components of our non-interest income for theperiods indicated:

 

**Non-interest Income**(dollars in thousands)

 
| ** **                                                   | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|--------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **For Three Months Ended June 30,** | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit accounts                          |       | $            | 3,043      |         | 54.3       | % | $ | 2,505 |   | 39.7 | % |
| Gain on sale of loans                                        |       | 918          |       | 16.4         | %          | 2,334 |   | 37.0 | % |
| Trade finance and loan servicing income                      |       | 772          |       | 13.8         | %          | 567 |   | 8.9 | % |
| Income from other earning assets                             |       | 392          |       | 7.0          | %          | 275 |   | 4.4 | % |
| Other income                                                 |       | 482          |       | 8.5          | %          | 630 |   | 10.0 | % |
| Total                                                        |       | $            | 5,607      |         | 100.0      | % | $ | 6,311 |   | 100.0 | % |
| Average assets                                               |       | $            | 2,303,278  |         |       |   | $ | 1,996,898 |   |   |   |
| Non-interest income as a % of average  assets                |       |         |       | 0.24         | %          |   |   | 0.32 | % |

 
| ** **                                                 | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **For Six Months Ended June 30,** | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit accounts                        |       | $            | 5,791      |         | 53.8       | % | $ | 4,792 |   | 41.6 | % |
| Gain on sale of loans                                      |       | 1,782        |       | 16.6         | %          | 4,144 |   | 36.0 | % |
| Trade finance and loan servicing income                    |       | 1,448        |       | 13.5         | %          | 985 |   | 8.5 | % |
| Income from other earning assets                           |       | 710          |       | 6.6          | %          | 552 |   | 4.8 | % |
| Other income                                               |       | 1,029        |       | 9.5          | %          | 1,049 |   | 9.1 | % |
| Total                                                      |       | $            | 10,760     |         | 100.0      | % | $ | 11,522 |   | 100.0 | % |
| Average assets                                             |       | $            | 2,257,288  |         |       |   | $ | 1,994,399 |   |   |   |
| Non-interest income as a % of average  assets              |       |         |       | 0.48         | %          |   |   | 0.58 | % |

 

Ourlargest source of non-interest income in the second quarter of 2008 was the service charge income ondeposit accounts, representing approximately54% of our total non-interest income. The service charge incomeincreased to $3.0 million in the second quarter of 2008 and $5.8 million in thefirst half of 2008, as compared with $2.5 million and $4.8 million,respectively, for the prior year’s same periods. The increase of service chargeincome was mainly due to our increase of over 30% during February 2008 inthe charges we apply to customers for “not sufficient funds” (NSF). Weconstantly review service charge rates and the managers’ authority to waivethem to maximize service charge income while maintaining a competitiveposition.

 

Our second largest source of non-interestincome for the second quarter of 2008was the gain on the sale of loans, representing approximately 17% of the totalnon-interest income. It has substantially decreased to $0.9 million and$1.8 million in the second quarterand the first half of 2008 from $2.3 million and $4.1 million,respectively, for the prior year’s same periods.  This non-interest income is derived primarilyfrom the sale of the guaranteed portion of SBA loans.  We sell the guaranteed portion of SBA loansin government securities secondary markets and retain servicing rights.  Because the weakened economy and ongoingcredit crisis, our SBA loan production levels in 2008 decreased. The productionof loans guaranteed under the SBA 7(a) program decreased to $21.7 millionand $43.9 million, respectively, for the second quarter and the first half of2008, as compared with $42.2 million and $81.0 million, respectively, for theprior year’s same periods, due to the industry trend favoring the SBA 504program loans.  Such reduction of 7(a) guaranteeloan production, coupled with the lowered sales premium on SBA loans, decreasedthe gain on sale of the guaranteedportions of SBA loans to $0.9million and $1.8 million in thesecond quarter and the first half of 2008, as compared with $1.7 million and $3.4 million, respectively, for the prior year’s same periods.

 

23

----

Tableof Contents

 

Thethird largest source of non-interest income was trade finance and loanservicing income.  This fee incomeconsists of trade-financing fees and servicing fees on SBA loans sold.  With the expansion of our trade-financingactivities and the growth of our servicing loan portfolio, this fee income hasgenerally increased. Inthe second quarter of 2008, it increasedto $772,000 as compared with$567,000 for the prior year’s sameperiod.  Such increase wasprimarily attributable to $180,000 income increase related to the disposal ofservicing assets and interest-only (“I/O”) strips between the current quarterand the same quarter a year ago.  For the first half of 2008, servicing incomeincreased to $1,448,000 from $985,000 in the prior year’s same period. Theservicing fee income on sold loans iscredited when we collect the monthly payments on the sold loans we areservicing and charged by the monthly amortization of servicing rights and I/Ostrips that we originally capitalizedupon sale of the related loans.  Such servicing rights and I/O strips are alsocharged against the loan service fee income account when the sold loans arepaid off.  For the first half of 2008, $463,000 of servicing assets and I/O strips were charged back to thisloan service fee income account by the early pay-offs as compared with $1,056,000 in the prior year’s same period.

 

Incomefrom other earning assets mainly represents dividend income on FHLB stockownership and increases in the cash surrender value of BOLI.  For the second quarter and first six monthsof 2008, the balance increasedto $392,000 and $710,000, respectively,as compared with $275,000 and $552,000, respectively in the prior year’ssame periods. These increases wereprimarily attributable to $109,000 and $141,000 increases in FHLB stockdividend income in the second quarter and first six months of 2008,respectively, which were due to $6.3 million increase in FHLB stockcorresponding to our increase in FHLB borrowings.

 

Othernon-interest income represents income from miscellaneous sources, such ascheckbook sales income, gainon sales of investment securities, excess of insurance proceeds over carryingvalue of an insured loss, and generally increases as our businessactivities grow.  For the second quarterand the first half of 2008, this miscellaneous income amountedto $482,000 and $1,029,000, respectively, as compared with $630,000 and $1,049,000 in the prioryear’s same periods.

 

**Non-interest Expense**

** **

Totalnoninterest expense increased to $12.6 million and $24.8 million in the second quarter and the firsthalf of 2008, respectively, from $10.6million and $21.1 million, respectively, in the same periods of 2007. Theseincreases were attributable mainly to the expanded personnel and premisesassociated with our business growth, including the increase in expensesassociated with the integration of our new offices opened in the third andfourth quarters of 2007. However, due to continuing efforts to minimizeoperating expenses during our expansion, we were able to maintain non-interestexpenses as a percentage of average assets at the low level of 0.55% and1.10% in the second quarter and first half of 2008, respectively, ascompared with 0.53% and 1.06% in the prior year’s same periods.  Our efficiency ratio was 48.4% and 48.7% inthe second quarter and the first half of 2008, respectively, compared to 39.0%and 41.1% in the same periods a year ago. The increase was mainly due to thesalaries and employee benefits associated with our branch expansion.

 

24

----

Tableof Contents

 

Thefollowing table sets forth a summary of non-interest expenses for the periodsindicated:

 

**Non-interest Expense**s(dollars in thousands)

 
| ** **                                                      | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|-----------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **For the Quarter Ended June 30,**     | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee benefits                                  |       | $            | 7,655      |         | 61.0       | % | $ | 5,703 |   | 53.7 | % |
| Occupancy and equipment                                         |       | 1,492        |       | 11.9         | %          | 1,300 |   | 12.3 | % |
| Data processing                                                 |       | 771          |       | 6.2          | %          | 745 |   | 7.0 | % |
| Professional fees                                               |       | 454          |       | 3.6          | %          | 264 |   | 2.5 | % |
| Directors’ fees                                            |       | 105          |       | 0.8          | %          | 134 |   | 1.3 | % |
| Office supplies                                                 |       | 104          |       | 0.8          | %          | 147 |   | 1.4 | % |
| Advertising                                                     |       | 174          |       | 1.4          | %          | 251 |   | 2.4 | % |
| Communications                                                  |       | 100          |       | 0.8          | %          | 120 |   | 1.1 | % |
| Deposit insurance premium                                       |       | 299          |       | 2.4          | %          | 322 |   | 3.0 | % |
| Outsourced service for customer                                 |       | 392          |       | 3.1          | %          | 447 |   | 4.2 | % |
| Investor relation expenses                                      |       | 102          |       | 0.8          | %          | 103 |   | 1.0 | % |
| Amortization of investments in affordable  housing partnerships |       | 175          |       | 1.4          | %          | 122 |   | 1.2 | % |
| Amortization of other intangible  assets                        |       | 74           |       | 0.6          | %          | 74 |   | 0.7 | % |
| Other operating                                                 |       | 657          |       | 5.2          | %          | 874 |   | 8.2 | % |
| Total                                                           |       | $            | 12,554     |         | 100.0      | % | $ | 10,606 |   | 100.0 | % |
| Average assets                                                  |       | $            | 2,303,278  |         |       |   | $ | 1,996,898 |   |   |   |
| Non-interest expenses as a % of average  assets                 |       |         |       | 0.55         | %          |   |   | 0.53 | % |

 
| ** **                                                          | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|---------------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **For the Six Months Ended June 30,** | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee benefits                                      |       | $            | 14,631     |         | 59.0       | % | $ | 11,401 |   | 54.0 | % |
| Occupancy and equipment                                             |       | 2,917        |       | 11.8         | %          | 2,570 |   | 12.2 | % |
| Data processing                                                     |       | 1,536        |       | 6.2          | %          | 1,510 |   | 7.2 | % |
| Professional fees                                                   |       | 954          |       | 3.9          | %          | 579 |   | 2.7 | % |
| Directors’ fees                                                |       | 201          |       | 0.8          | %          | 274 |   | 1.3 | % |
| Office supplies                                                     |       | 321          |       | 1.3          | %          | 320 |   | 1.5 | % |
| Advertising                                                         |       | 352          |       | 1.4          | %          | 398 |   | 1.9 | % |
| Communications                                                      |       | 223          |       | 0.9          | %          | 235 |   | 1.1 | % |
| Deposit insurance premium                                           |       | 629          |       | 2.6          | %          | 372 |   | 1.8 | % |
| Outsourced service for customer                                     |       | 841          |       | 3.4          | %          | 823 |   | 3.9 | % |
| Investor relation expenses                                          |       | 181          |       | 0.7          | %          | 184 |   | 0.9 | % |
| Amortization of investments in affordable  housing partnerships     |       | 349          |       | 1.4          | %          | 235 |   | 1.1 | % |
| Amortization of other intangible  assets                            |       | 148          |       | 0.6          | %          | 148 |   | 0.7 | % |
| Other operating                                                     |       | 1,494        |       | 6.0          | %          | 2,060 |   | 9.7 | % |
| Total                                                               |       | $            | 24,777     |         | 100.0      | % | $ | 21,109 |   | 100.0 | % |
| Average assets                                                      |       | 2,257,288    |       |         |       | $ | 1,994,399 |   |   |   |
| Non-interest expenses as a % of average  assets                     |       |         |       | 1.10         | %          |   |   | 1.06 | % |

 

Salariesand employee benefits historically represent more than half of totalnon-interest expense and generally increase as our branch network and businessvolume expand. As a result of our opening new branches in the second half of2007, these expenses increased to $7.7 million and $14.6 million in the second quarter and the firsthalf of 2008, respectively, as compared with $5.7 million and $11.4 million for the prior year’s sameperiods.  Such increases were the resultof overall compensation increases caused by stiff competition for qualifiedbankers in our niche market in addition to additional staffing necessitated byour new office openings and business growth in the past 12 months.  The number of full-time equivalent employeesincreased to 364 as of June 30, 2008, as compared with 352 as of June 30, 2007,Nonetheless, our asset growth helped us improve our assets per employee ratioto $6.5 million at June 30, 2008 from $5.8 million at June 30, 2007.

 

Occupancyand equipment expenses increased to $1.5 million and $2.9 million in the second quarter and first half of2008, respectively, as compared with $1.3 million and $2.6 million for the same periods a year ago.  The increase was primarily attributable to the additional office space and leaseexpenses for our two additional branch offices in New Jersey and California.

 

25

----

Table of Contents

 

Data processing expenses and office supplies togetherrepresent about 7% of total noninterest expenses in the second quarter andfirst half of 2008. These expenses were at $875,000 in the second quarter of 2008,slightly decreased from $892,000 in the same quarter a year ago. The expenseswere at $1,857,000 for the first half of 2008, which remained fairly unchangedfrom $1,830,000 in the first half of 2007. Such slight changes in these two expense categories compared to theextent of our business growth correspondto our effort of cutting back on overhead expenses to enhanceprofitability.

 

Professional fees generally increase as we grow. Theyincreased to $454,000 and $954,000, respectively, in the second quarter and thefirst half of 2008, ascompared with $264,000 and$579,000, respectively, for the prior year’s same periods. The $190,000increase between the current quarter and the same quarter a year ago was mainlyattributable to the $199,000 increase in fees related to state tax creditconsultation, system intrusion tests, and various other accounting and auditingservices. The $375,000 increase from the first half of 2007 to the first halfof 2008 was mainly attributable to the $201,000 increase in accounting feerelated to state tax credit consultation, system intrusion test, and variousother accounting and auditing services, and the $170,000 increase in legal feesrelated to loan collection, property foreclosure and repossession, and variousother legal consultations.

 

Outsourced service costs for customers are paymentsmade to third parties who provide services that were traditionally provided bythe Bank’s customers, such as armored car services or bookkeeping services, andare recouped from their deposit balances maintained with us. Due mainly to theincrease in service activities and the increase in depositors demanding suchservices, our outsourced service costs increased. Nonetheless, with oursuccessful cost control measures, these expenses decreased to $392,000 in thesecond quarter of 2008, as compared to $447,000 in the same quarter a year ago.For the first half of 2008, the expenses were $841,000, which stayed fairlyclose to $823,000 for the same period in prior year.

 

Deposit insurance premium expenses represent TheFinancing Corporation (“FICO”) and FDIC insurance premium assessments. In thesecond quarter and first half of 2008, these expenses totaled $299,000 and$629,000, respectively, as compared with $322,000 and $372,000 for the prioryear’s same periods. The sharp difference of $257,000 between the first sixmonths’ balances of 2008 and 2007 was primarily attributable to the new$251,000 FDIC risk insurance premium assessment. Prior to second quarter of2007, only FICO premium of $50,000 was assessed.

 

Othernon-interest expenses, such as director’s fees, office supplies, advertising,communications, and other miscellaneous expenses, were $1.4 million and $2.9million for the second quarter 2008 and the first half of 2008, respectively,as compared with $1.7 million and $3.5 million for the same periods in 2007.

 

**Provision for IncomeTaxes**

** **

Forthe quarter ended June 30, 2008, we made a provision for income taxes of $4.6 million on pretax net income of $12.0 million, representing an effectivetax rate of 38.0%, as comparedwith a provision for income taxes of $4.8million on pretax net income of $12.1million, representing an effective tax rate of 39.4% for the same quarter in2007. For the first half of 2008, we made a provision for income taxes of $8.8 million on pretax net income of $23.3 million, representing an effectivetax rate of 37.8%, as comparedwith a provision for income taxes of $9.5million on pretax net income of $24.2million, representing an effective tax rate of 39.3%, for the same period of 2007.

 

Theeffective tax rates in the second quarter and the first half of 2008 were lower than those for the prioryear’s same periods, due mainly to anincrease in Low Income Housing Tax Credit Funds.  Our lower effective tax rates compared tostatutory rates were mainly due to state tax benefits derived from doingbusiness in an Enterprise Zone and our ownership of BOLI and Low Income HousingTax Credit Funds.

 

26

----

Table of Contents

 

**Financial Condition**

** **

**Investment**Portfolio

** **

Investmentsare one of our major sources of interest income and are acquired in accordancewith a written comprehensive investment policyaddressing strategies, types and levels of allowable investments.  Management of our investment portfolio is setin accordance with strategies developed and overseen by our Asset/LiabilityCommittee.  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 andinterest rate risk management objectives. Our liquidity levels take into consideration anticipated future cashflows and all available sources of credits and are maintained at levelsmanagement believes are appropriate to assure future flexibility in meetinganticipated funding needs.

 

*Cash Equivalents andInterest-bearing Deposits in other Financial Institutions*

* *

We buyor sell federal funds and high quality money market instruments, and maintain deposits ininterest-bearing accounts in other financial institutions to help meetliquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested.

 

*Investment Securities*

* *

Managementof our investment securities portfolio focuses on providing an adequate levelof liquidity and establishing an interest rate-sensitive position, whileearning an adequate level of investment income without taking undue risk.  As of June 30, 2008, our investmentportfolio is primarily comprised of United States government agency securities,accounting for 94% of our entire investment portfolio.  Our U.S. government agency securitiesholdings are all “prime/conforming” mortgage backed securities, or MBS’s, andcollateralized mortgage obligations, or CMO’s, guaranteed by FNMA, FHLMC, orGNMA. Currently, there are no subprime mortgages in our investmentportfolio.  Besides the U.S. governmentagency securities, we also have a 3% investment in corporate debt and 3% inmunicipal debt securities. Among all of our corporate and municipal debtsecurities, the majority are “Triple A” rated, and all are consideredinvestment grade.  We adopted SFAS No. 157and SFAS No. 159 effective January 1, 2008. Pursuant to the fairvalue elective option of SFAS No. 159, we have chosen to continueclassifying our existing instruments of investment securities as“held-to-maturity” or “available-for-sale” under SFAS No. 115. Investmentsecurities that we intend to hold until maturity are classified asheld-to-maturity securities, and all other investment securities are classifiedas available-for-sale.  The carryingvalues of available-for-sale investment securities are adjusted for unrealizedgains or losses as a valuation allowance and any gain or loss is reported on anafter-tax basis as a component of other comprehensive income. The fair marketvalues of our held-to-maturity and available-for-sale securities wererespectively $0.4 million and $232.9 million as of June 30, 2008.  See Note 3 for adoption of SFAS No. 159 and SFAS No. 157 and the fairvalue measurement input disclosure for SFAS No. 157.

 

27

----

Table of Contents

 

Thefollowing table summarizes the book value, market value and distribution of ourinvestment securities as of the dates indicated:

 

**InvestmentSecurities Portfolio**

**(dollarsin thousands)**

 
| ** **                                    | ** ** | **As of June 30, 2008** | ** ** | **As of December 31, 2007** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                    | ** ** | **Amortized   Cost**                   | ** ** | **Market   Value**                         | ** ** | **Unrealized   Gain (Loss)** | ** ** | **Amortized   Cost** | ** ** | **Market   Value** | ** ** | **Unrealized   Gain (Loss)** | ** ** |
| Held to Maturity:                             |       |                                        |       |                                            |       |   |   |   |   |   |   |   |   |
| Securities of governmentsponsored enterprises |       | $                                           | —     |                                            | $          | — |   | $ | — |   | $ | 7,000 |   | $ | 7,001 |   | $ | 1 |   |
| Collateralized mortgageobligation.            |       | 149                                         |       | 135                                             |       | (14 | ) | 164 |   | 151 |   | (13 | ) |
| Municipal securities                          |       | 220                                         |       | 220                                             |       | — |   | 220 |   | 220 |   | — |   |
| Total held to maturitysecurities              |       | $                                           | 369        |                                            | $          | 355 |   | $ | (14 | ) | $ | 7,384 |   | $ | 7,372 |   | $ | (12 | ) |
|                                          |       |                                        |       |                                            |       |   |   |   |   |   |   |   |   |
| Available for Sale:                           |       |                                        |       |                                            |       |   |   |   |   |   |   |   |   |
| Securities of governmentsponsored enterprises |       | $                                           | 45,984     |                                            | $          | 45,840 |   | $ | (144 | ) | $ | 64,932 |   | $ | 65,175 |   | $ | 243 |   |
| Mortgage backedsecurities                     |       | 109,347                                     |       | 108,438                                         |       | (909 | ) | 60,470 |   | 60,557 |   | 87 |   |
| Collateralized mortgageobligation             |       | 64,228                                      |       | 64,257                                          |       | 29 |   | 73,416 |   | 73,286 |   | (130 | ) |
| Corporate securities                          |       | 7,064                                       |       | 7,121                                           |       | 57 |   | 17,390 |   | 17,484 |   | 94 |   |
| Municipal securities                          |       | 7,325                                       |       | 7,201                                           |       | (124 | ) | 7,725 |   | 7,754 |   | 29 |   |
| Total available forsale securities            |       | $                                           | 233,948    |                                            | $          | 232,857 |   | $ | (1,091 | ) | $ | 223,933 |   | $ | 224,256 |   | $ | 323 |   |

 

28

----

Tableof Contents

 

Thefollowing table summarizes the maturity and repricing schedule of ourinvestment securities at their carrying values and their weighted averageyields (without the consideration of tax effects, if any) at June 30, 2008:

 

**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** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------|------------|-----------|------------|
| **Held to Maturity:**                          |       |                            |       |                                                                 |       |                                                                 |       |                              |       |      |       |
| Mortgage backed securities                     |       | $                               | —     |                                                                 | $          | 149                                                                  |       | $                                 | —     |      | $          | — |   | $ | 149 |   |
| Municipal securities                           |       | 220                             |       | —                                                               |       | —                                                               |       | —                            |       | 220       |       |
|                                           |       |                            |       |                                                                 |       |                                                                 |       |                              |       |      |       |
| **Available-for-sale:******                    |       |                            |       |                                                                 |       |                                                                 |       |                              |       |      |       |
| Securities of government sponsored enterprises |       | 2,019                           |       | 30,056                                                               |       | 13,765                                                               |       | —                            |       | 45,840    |       |
| Mortgage backed securities                     |       | 10,033                          |       | 1,147                                                                |       | 176                                                                  |       | 97,082                            |       | 108,438   |       |
| Collateralized mortgage obligation             |       | 4,086                           |       | 60,171                                                               |       | —                                                               |       | —                            |       | 64,257    |       |
| Corporate securities                           |       | —                          |       | 7,121                                                                |       | —                                                               |       | —                            |       | 7,121     |       |
| Municipal securities                           |       | —                          |       | —                                                               |       | 4,531                                                                |       | 2,670                             |       | 7,201     |       |
| Total investment Securities                    |       | $                               | 16,358     |                                                                 | $          | 98,644                                                               |       | $                                 | 18,472     |      | $          | 99,752 |   | $ | 233,226 |   |

 

Ourinvestment securities holdings increased by $1.6 million, or 0.7%, to $233.2 millionat June 30, 2008, compared toholdings of $231.6 million at December 31,2007.  Total investment securities as a percentageof total assets were 9.9% and 10.5% at June 30, 2008 and December 31, 2007, respectively.  As of June 30, 2008, investment securities with a carryingvalue of $213.1 million werepledged to secure certain deposits.

 

As of June 30,2008, due tosubstantial decreases in short-term interest rates during the first quarter of2008, our held-to-maturity securities, which are carried at their amortizedcosts, were mostly called by the issuers. The investment balance decreased to $0.4 million from $7.4 million at December 31, 2007. In contrast, available-for-salesecurities, which are stated at their fair market values, increased to $232.9 million at June 30, 2008 from $224.3 million at December 31, 2007.

 

Thefollowing table shows our investments’ gross unrealized losses and fair value,aggregated by investment category and length of time that individual securitieshave been in a continuous unrealized loss position, at June 30, 2008 and December 31, 2007:

 
| **As of June 30, 2008**                         | ** ** | **(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 |       | $                                      | 22,745     |   | $ | (297 | ) | $ | — |   | $ | — |   | $ | 22,745 |   | $ | (297 | ) |
| Collateralized mortgage obligation              |       | 15,301                                 |       | (242 | ) | 3,123 |   | (103 | ) | 18,424 |   | (345 | ) |
| Mortgage backed securities                      |       | 82,005                                 |       | (1,082 | ) | 540 |   | (7 | ) | 82,545 |   | (1,089 | ) |
| Corporate securities                            |       | —                                 |       | — |   | 1,979 |   | (21 | ) | 1,979 |   | (21 | ) |
| Municipal securities                            |       | 5,712                                  |       | (158 | ) | — |   | — |   | 5,712 |   | (158 | ) |
|                                            |       | $                                      | 125,763    |   | $ | (1,779 | ) | $ | 5,642 |   | $ | (131 | ) | $ | 131,405 |   | $ | (1,910 | ) |

 

29

----

Table of Contents

 
| **As of****December ****31, 200****7**     | ** ** | **(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 |       | $                                      | —     |   | $ | — |   | $ | 4,993 |   | $ | (7 | ) | $ | 4,993 |   | $ | (7 | ) |
| Collateralized mortgage obligation              |       | 1,749                                  |       | (11 | ) | 9,266 |   | (436 | ) | 11,015 |   | (447 | ) |
| Mortgage backed securities                      |       | 37,967                                 |       | (36 | ) | 2,545 |   | (27 | ) | 40,512 |   | (63 | ) |
| Corporate securities                            |       | 4,972                                  |       | (1 | ) | 1,983 |   | (16 | ) | 6,955 |   | (17 | ) |
| Municipal securities                            |       | 1,392                                  |       | (13 | ) | 2,347 |   | (2 | ) | 3,739 |   | (15 | ) |
|                                            |       | $                                      | 46,080     |   | $ | (61 | ) | $ | 21,134 |   | $ | (488 | ) | $ | 67,214 |   | $ | (549 | ) |

 

As of June 30,2008, the totalunrealized losses less than 12 months old were $1.8 million, and total unrealized losses more than 12 months oldwere $131,000.  The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $125.8 million at June 30, 2008, and those with unrealized losses morethan 12 months old were $5.6million.  As of December 31, 2007,the total unrealized losses less than 12 months old were $61,000 and total unrealized losses morethan 12 months old were $488,000.  The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $46.1 million at December 31, 2007,and those with unrealized losses more than 12 months old were $67.2 million.

 

Declinesin the fair value of held-to-maturity and available-for-sale securities belowtheir cost that are deemed to be other than temporary are reflected in earningsas realized losses.  In estimatingother-than-temporary impairment losses, we consider, among other things, (i) thelength of time and the extent to which the fair value has been less than cost, (ii) thefinancial condition and near-term prospects of the issuer, and (iii) ourintent and ability to retain our investment in the issuer for a period of timesufficient to allow for any anticipated recovery in fair value.

 

The Company does not believe that any individual unrealized loss as of June 30,2008 and December 31, 2007 represents an other-than-temporaryimpairment.  The unrealized losses on ourgovernment sponsored enterprises (“GSE”) bonds, collateralized mortgageobligations (“CMOs”), and mortgage-backed securities (“MBS”) are attributableto both changes in interest rates and a repricing of risk in the market.  All GSE bonds, GSE CMO, and GSE MBSsecurities are backed by U.S. Government Sponsored and Federal Agencies andtherefore rated “AAA.”  The Company hasno exposure to the “Subprime Market” in the form of Asset Backed Securities(“ABS”) and Collateralized Debt Obligations (“CDOs”) that had previously beenrated “AAA” but has since been downgraded to below investment grade.  The Company has the intent and ability tohold the securities in an unrealized loss position at June 30, 2008 and December 31,2007 until the market value recovers or the securities mature.

 

Municipal bonds and corporate bonds are evaluated by reviewing thecredit-worthiness of the issuer and general market conditions.  The unrealized losses on our investment inmunicipal and corporate securities were primarily attributable to both changesin interest rates and a repricing of risk in the market.  The Company has the intent and ability tohold the securities in an unrealized loss position at June 30, 2008 and December 31,2007 until the market value recovers or the securities mature. Accordingly, asof June 30, 2008, we believe the impairments detailed in the table above weretemporary, and no impairment loss has been realized in our consolidatedstatements of operations.

 

**Loan Portfolio**

** **

All loans are carried at face amount, less principalrepayment collected, net of deferred loan fees, and the allowance for loanlosses. Interest on loans is accrued daily on a simple interest basis. Totalloans net of unearned loans andallowance for loan losses increased $175.6 million, or 9.8%,to $1.96 billion at June 30, 2008, as compared with $1.79 billion at December 31,2007.  Total loans net of unearned incomeas a percentage of total assets as of June 30,2008 and December 31, 2007 were 83.2%and 82.4%, respectively.

 

30

----

Table of Contents

 

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

 

**Distribution of Loansand Percentage Composition of Loan Portfolio**

 
| ** **                            | ** ** | **Amount Outstanding**      | ** ** |
|---------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **(dollars in thousands)**  | ** ** |
| ** **                            | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
| Construction                          |       | $                           | 50,562     |   | $ | 59,443 |   |
| Real estate secured                   |       | 1,537,992                   |       | 1,386,622 |   |
| Commercial and industrial             |       | 377,895                     |       | 335,332 |   |
| Consumer                              |       | 25,314                      |       | 33,569 |   |
| Total loans(1)                        |       | 1,991,763                   |       | 1,814,966 |   |
| Unearned Income                       |       | (5,163                      | )          | (5,917 | ) |
| Gross loans, net of unearned  income  |       | 1,986,600                   |       | 1,809,049 |   |
| Allowance for loan losses             |       | (23,494                     | )          | (21,579 | ) |
| Net loans                             |       | $                           | 1,963,106  |   | $ | 1,787,470 |   |
|                                  |       |                        |       |   |   |
| Percentage breakdown of gross  loans: |       |                        |       |   |   |
| Construction                          |       | 2.5%                        |       | 3.3 | % |
| Real estate secured                   |       | 77.3%                       |       | 76.4 | % |
| Commercial and industrial             |       | 18.9%                       |       | 18.4 | % |
| Consumer                              |       | 1.3%                        |       | 1.9 | % |
| Total loans                           |       | 100.0%                      |       | 100.0 | % |

 

----

(1) Includes loans held for sale, at the lower of cost or market, of $8.4million and $7.9 million at June 30, 2008 and December 31, 2007,respectively.

 

Real estate secured loans consist primarily ofcommercial real estate loans and are extended to finance the purchase or improvementof commercial real estate or businesses thereon.  The properties may be either user owned orheld for investment purposes.  Loanssecured by real estate totaled $1.54 billion and $1.39 billion as of June 30, 2008 and December 31, 2007, respectively.  The real estate secured loans as a percentageof total loans were 77.3% and 76.4% at June 30, 2008 and December 31,2007, respectively.  Home mortgage loans represent a smallfraction of our total real estate secured loan portfolio. Total home mortgageloans outstanding were only $39.1 million at June 30, 2008 and $38.0million at December 31, 2007.Due to the higher risk exposure of those residential mortgage loans compared toother classes of loans in our loan portfolio, we limited ourselves from originating such loans starting 2007.

 

Commercialand industrial loans include revolving lines of credit as well as term businessloans.  Commercial and industrial loansat June 30, 2008 increased to $377.9 million, as compared with $335.3 million at December 31, 2007.  Commercial and industrialloans as a percentage of total loans were 18.9% at June 30,2008, increasing from 18.4% at December 31, 2007.

 

Consumerloans have historically represented less than 5% of our total loanportfolio.  The majority of consumerloans are concentrated in automobile loans, which we provide as a service onlyto existing customers. As consumer loans present a higher risk potentialcompared to our other loan products, especially given current economicconditions, we have reduced our effort in consumer lending since 2007. Hence,as of June 30,2008, our volume of consumer loans was down $8.3 million from the prior year end. As of June 30, 2008, the balance of consumer loans was $25.3 million, or 1.3% of total loans, as compared to $33.6 million, or 1.9% of totalloans as of December 31, 2007. Nonetheless, consumer loans as a percentage of total loans have always been minimal.

 

Constructionloans generally have represented 5% or less of our total loan portfolio and areextended as a temporary financing vehicle only. Constructionloans decreased to $50.6 million, or 2.5% of total loans, at the end of the second quarter of 2008, as compared with $59.4 million, or 3.3% of total loans at the end of 2007.  The$8.9 million decrease in loan production in the first half of 2008 wasprimarily a result of our stricter loan underwriting policy.

 

31

----

Table of Contents

 

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

 

Thefollowing table shows the contractual maturity distribution and repricingintervals of the outstanding loans in our portfolio, as of June 30, 2008.  In addition, the tableshows the distribution of such loans between those with variable or floatinginterest rates and those with fixed or predetermined interest rates.  The table excludes the gross amount ofnon-accrual loans of $25.4 million:

 

**Loan Maturities and Repricing Schedule**

 
| ** **                                       | ** ** | **At June 30, 200****8** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                       | ** ** | **Within   One Year**         | ** ** | **After One   But Within   Five Years** | ** ** | **After   Five Years** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(dollars in thousands)**    | ** ** |
| Construction                                     |       | $                                       | 50,562     |   | $ | — |   | $ | — |   | $ | 50,562 |   |
| Real estate secured                              |       | 929,773                                 |       | 486,647 |   | 104,606 |   | 1,521,026 |   |
| Commercial and industrial                        |       | 354,265                                 |       | 11,729 |   | 3,692 |   | 369,686 |   |
| Consumer                                         |       | 16,688                                  |       | 8,361 |   | — |   | 25,049 |   |
| Total loans, net of non-accrual loans            |       | $                                       | 1,351,288  |   | $ | 506,737 |   | $ | 108,298 |   | $ | 1,966,323 |   |
| Loans with variable (floating) interest  rates   |       | $                                       | 1,256,373  |   | $ | 20,319 |   | $ | 401 |   | $ | 1,277,093 |   |
| Loans with predetermined (fixed) interest  rates |       | $                                       | 94,915     |   | $ | 486,418 |   | $ | 107,897 |   | $ | 689,230 |   |

 

Themajority of the properties taken as collateral are located in SouthernCalifornia.  The loans generated by ourloan production offices, which are located outside of our main geographicalmarket, are generally collateralized by properties in close proximity to thoseoffices.

 

**Non-performing Assets**

** **

Non-performing assets, or NPAs, consist of non-performing loans, or NPLs, restructuredloans, and other NPAs.  NPLs are reported at their outstandingprincipal balances, net of any portionguaranteed by SBA, and consist of loans on non-accrual status and loans90 days or more past due and still accruing interest. Restructured loans areloans of which the terms of repayment have been renegotiated, resulting in areduction or deferral of interest or principal,  Other NPAs consist ofproperties, mainly other real estate owned (OREO) and repossessed vehicles,acquired by foreclosure or similar means that management intends to offer forsale.

 

32

----

Table of Contents

 

Thefollowing table provides information with respect to the components of ournon-performing assets as of the dates indicated (the figures in the table arenet of the portion guaranteed by SBA, with the total amounts adjusted and reconciled for the SBAguarantee portion for the gross nonperforming assets):

 

**Non**-performingAssets(dollars in thousands)

 
| ** **                                                                          | ** ** | **June 30, ****200****8** | ** ** | **December 31, ****200****7** | ** ** | **June 30, ****200****7** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|
| **Nonaccrual loans:****(1)**                                                        |       |                                |       |                                    |       |                                |       |
| Real estate secured                                                                 |       | $                                   | 12,405     |                                    | $          | 8,154                               |       | $ | 6,320 |   |
| Commercial and industrial                                                           |       | 3,797                               |       | 1,986                                   |       | 789                                 |       |
| Consumer                                                                            |       | 265                                 |       | 154                                     |       | 227                                 |       |
| Total                                                                               |       | 16,467                              |       | 10,294                                  |       | 7,336                               |       |
| **Loans 90 days or more past due and still  accruing:**                             |       |                                |       |                                    |       |                                |       |
| Real estate secured                                                                 |       | —                              |       | 117                                     |       | 743                                 |       |
| Commercial and industrial                                                           |       | 4                                   |       | 4                                       |       | 334                                 |       |
| Consumer                                                                            |       | —                              |       | 187                                     |       | —                              |       |
| Total                                                                               |       | 4                                   |       | 308                                     |       | 1,077                               |       |
| Total nonperforming loans                                                           |       | 16,471                              |       | 10,602                                  |       | 8,413                               |       |
| Restructured loans (2), (3)                                                         |       | —                              |       | —                                  |       | —                              |       |
| Repossessed vehicles                                                                |       | 11                                  |       | 50                                      |       | 73                                  |       |
| Other real estate owned                                                             |       | 465                                 |       | 133                                     |       | —                              |       |
| Total nonperforming assets, net of SBA guarantee                                    |       | $                                   | 16,947     |                                    | $          | 10,785                              |       | $ | 8,486 |   |
| Guaranteed portion of  nonperforming SBA loans                                      |       | 8,973                               |       | 4,424                                   |       | 8,792                               |       |
| Total gross nonperforming assets                                                    |       | $                                   | 25,920     |                                    | $          | 15,209                              |       | $ | 17,278 |   |
|                                                                                |       |                                |       |                                    |       |                                |       |
| Nonperforming loans as a percentage of  total loans                                 |       | 0.83                                | %          | 0.59                                    | %          | 0.50                                | %          |
| Nonperforming assets as a percentage of  total loans and other nonperforming assets |       | 0.85                                | %          | 0.60                                    | %          | 0.51                                | %          |
| Allowance for loan losses as a  percentage of nonperformingloans                    |       | 142.64                              | %          | 203.55                                  | %          | 230.33                              | %          |

 

----

(1) During thesix months ended June 30, 2008, no interest income related to these loans was included in interest income.  Additional interest income of approximately $1,730,000 would have been recordedduring the six months ended June 30, 2008, if these loans had been paid in accordance with their originalterms and had been outstanding throughout the quarter ended June 30, 2008 or, if not outstanding throughout thesix months ended June 30, 2008, since origination.

(2) A“restructured loan” is one the terms of which were renegotiated to provide areduction or deferral of interest or principal because of deterioration in thefinancial position of theborrower.

(3) During the six months ended June 30, 2008, no interest income related to these loanswas included in interest income. Additionalinterest income would be negligible during the six months ended June 30,2008, if these loans had been paid in accordance with its original term and hadbeen outstanding throughout the six months ended June 30, 2008.

 

Loans are generally placed on non-accrual status whenthey become 90 days past due, unless management believes the loan is adequatelycollateralized and in the process of collection.  The past due loans may or may not beadequately collateralized, but collection efforts are continuouslypursued.  Loans may be restructured bymanagement when a borrower has experienced some changes in financial status,causing an inability to meet the original repayment terms, and where we believethe borrower will eventually overcome those circumstances and repay the loan infull.

 

Despite the fact that our loan portfolio continued togrow, our emphasis on asset quality control enabled us to maintain a relativelylow level of NPLs as of June 30, 2008. However, the general economiccondition of the United States as well as the local economies in which we dobusiness have shown a severe downturn of the housing sector and the transitionto below-trend GDP growth continued. The downward movement of the macroeconomic environment affected our borrowers’ strength and our NPLs, netof SBA guaranteed portion, increased to $16.5 million, or 0.83% of the totalloans at the end of the second quarter of 2008, as compared with $10.6 million,or 0.59% of the total loans, at the end of 2007. The $5.9 million increase ofNPLs was due to a $6.2 million net increase in non-accrual loans, offset by$0.3 million net decrease in delinquent loans.

 

33

----

Table of Contents

 

Managementalso believes that the reserve provided for non-performing loans, together withthe tangible collateral, were adequate as of June 30, 2008.  See “Allowance for Loan and Off-Balance SheetLosses” below for further discussion. Except the $16.9 million disclosed in the table above, as of June 30, 2008, management was notaware of any material credit problems of borrowers that would cause it to haveserious doubts about the ability of a borrower to comply with the present loanpayment terms.

 

Overall, total NPAs increased $6.1 million or57.1%, to $16.9 million at June 30,2008, as compared with $10.8 million at the prior year end. The NPAs were 99.7%higher when compared to $8.5 million at June 30,2007.

 

**A**llowance for Loan andOff-Balance Sheet Losses

** **

Inanticipation of credit risk inherent in our lending business, we set asideallowances through charges to earnings. Such charges were not only made for the outstanding loan portfolio, butalso for off-balance sheet items, such as commitments to extend credit or letters of credit.  Charges made for our outstanding loanportfolio were credited to the allowance for loan losses, whereascharges related to off-balance sheet items were credited to the reservefor off-balance sheet items, which is presented as a component of other liabilities.

 

Theallowance for loan losses and allowance for off-balance sheet items aremaintained at levels that are believed to be adequate by management to absorbestimated probable loan losses inherent in the loan portfolio. The adequacy ofthe allowances is determined through periodic evaluations of the loan portfolioand other pertinent factors, which are inherently subjective as the processcalls for various significant estimates and assumptions. Among other factors,the estimates involve the amounts and timing of expected future cash flows andfair value of collateral on impaired loans, estimated losses on loans based onhistorical loss experience, various qualitative factors, and uncertainties inestimating losses and inherent risks in the various credit portfolios, whichmay be subject to substantial change.

 

On aquarterly basis, we utilize a classification migration model and individualloan review analysis as starting points for determining the adequacy of ourallowance for loan losses. Our loss migration analysis tracks a certain numberof quarters of loan loss history to determine historical losses byclassification category for each loan type, except certain loans (automobile,mortgage and credit cards), which are analyzed as homogeneous loan pools. Thesecalculated loss factors are then applied to outstanding loan balances.  Based on Company defined utilization rate ofunused commitments and off-balance sheet exposures, such as letters of credit,we record a reserve for off-balance sheet losses.

 

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

 

We increased our allowance for loan losses to $23.5 million at June 30, 2008, representing an increase of 8.8%, or $1.9 million from $19.4 million at June 30,2007. With the increase of our non-performing loans,our allowance requirements have increasedand we have maintained the ratio of allowance for loanlosses to total loans at 1.18%, slightlyhigher than 1.16% retained at the second quarter-end of 2007. Managementbelieves that the current ratio of 1.18%is adequate for our loan portfolio.

 

Our allowance for losses on off-balance sheet itemsdecreased $215,000 to $1.6 million at June 30, 2008, as compared to $1.8million at June 30, 2007. The decrease was primarily related to a netrecovery of $256,000 in the second quarter of 2008, as compared to $579,000increase in provision in the second quarter of 2007.

 

In thesecond quarter and first half of 2008, both charge-offs and loan loss provisionwere lowered compared to the same periods of 2007.

 

34

----

Table of Contents

 

Thetable below summarizes for the end of the periods indicated, the balance ofallowance for loan losses and its percent of such loan balance for each type ofloan:

 
| ** **                  | ** ** | **Distribution and Percentage Composition of Allowance for Loan Losses ** | ** ** |
|-----------------------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **(dollars in thousands)**                                                                                   | ** ** |
| ** **                  | ** ** | **June 30, 200****8**                                                                                        | ** ** | **December 31, 200****7** | ** ** |
| **Balance as of** | ** ** | **Reserve   Amount**                                                                                              | ** ** | **Total   Loans** | ** ** | **(%)** | ** ** | **Reserve   Amount** | ** ** | **Total   Loans** | ** ** | **(%)** | ** ** |
| Applicable to:         |       |                                                                                                                   |       |   |   |   |   |   |   |   |   |   |   |
| Construction loans          |       | $                                                                                                                      | 194        |   | $ | 50,562 |   | 0.38 | % | $ | 557 |   | $ | 59,443 |   | 0.94 | % |
| Real estate secured         |       | 9,633                                                                                                                  |       | 1,534,628 |   | 0.63 | % | 13,445 |   | 1,386,622 |   | 0.97 | % |
| Commercial and industrial   |       | 13,074                                                                                                                 |       | 376,096 |   | 3.48 | % | 7,023 |   | 335,332 |   | 2.09 | % |
| Consumer                    |       | 593                                                                                                                    |       | 25,314 |   | 2.34 | % | 554 |   | 33,569 |   | 1.65 | % |
| Total Allowance             |       | $                                                                                                                      | 23,494     |   | $ | 1,986,600 |   | 1.18 | % | $ | 21,579 |   | $ | 1,814,966 |   | 1.19 | % |

 

Thetable below summarizes for the periods indicated, loan balances at the end ofeach period, the daily averages during the period, changes in the allowance forloan losses arising from loans charged off, recoveries on loans previouslycharged off, additions to the allowance and certain ratios related to theallowance for loan losses:

 

**Allowance for****Loan and Off-Balance SheetLosses********(dollarsin thousands)**

 
| ** **                                                    | ** ** | **Three ****m****onths ****e****nded June 30,** | ** ** | **Six ****m****onths ****e****nded June 30,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| **As of and for the period of** | ** ** | **2008**                                                            | ** ** | **2007**                                                          | ** ** | **200****8** | ** ** | **200****7** | ** ** |
| Allowance for loan losses:                                    |       |                                                                |       |                                                              |       |   |   |   |   |
| Balances at beginning of period                               |       | $                                                                   | 22,072     |                                                              | $          | 17,214 |   | $ | 21,579 |   | $ | 18,654 |   |
| Actual charge-offs:                                           |       |                                                                |       |                                                              |       |   |   |   |   |
| Real estate secured                                           |       | 40                                                                  |       | —                                                            |       | 43 |   | 163 |   |
| Commercial and industrial                                     |       | 1,554                                                               |       | 1,597                                                             |       | 2,380 |   | 3,253 |   |
| Consumer                                                      |       | 294                                                                 |       | 191                                                               |       | 605 |   | 1,118 |   |
| Total charge-offs                                             |       | 1,888                                                               |       | 1,788                                                             |       | 3,028 |   | 4,534 |   |
| Recoveries on loans previously charged off:                   |       |                                                                |       |                                                              |       |   |   |   |   |
| Real estate secured                                           |       | —                                                              |       | —                                                            |       | 1 |   | — |   |
| Commercial and industrial                                     |       | 1,591                                                               |       | 6                                                                 |       | 1,684 |   | 16 |   |
| Consumer                                                      |       | 63                                                                  |       | 25                                                                |       | 91 |   | 66 |   |
| Total recoveries                                              |       | 1,654                                                               |       | 31                                                                |       | 1,775 |   | 82 |   |
| Net charge-offs (recoveries)                                  |       | 234                                                                 |       | 1,757                                                             |       | 1,253 |   | 4,452 |   |
| Provision for loan losses                                     |       | 1,656                                                               |       | 3,921                                                             |       | 3,168 |   | 5,176 |   |
| Balances at end of period                                     |       | $                                                                   | 23,494     |                                                              | $          | 19,378 |   | $ | 23,494 |   | $ | 19,378 |   |
| Ratios:                                                       |       |                                                                |       |                                                              |       |   |   |   |   |
|                                                          |       |                                                                |       |                                                              |       |   |   |   |   |
| Allowance for off-balance sheet losses:                       |       |                                                                |       |                                                              |       |   |   |   |   |
| Balances at beginning of period                               |       | $                                                                   | 1,886      |                                                              | $          | 1,266 |   | $ | 1,998 |   | $ | 891 |   |
| Provision for losses in off-balance sheet items               |       | (256                                                                | )          | 579                                                               |       | (368 | ) | 954 |   |
| Balances at end of period                                     |       | $                                                                   | 1,630      |                                                              | $          | 1,845 |   | $ | 1,630 |   | $ | 1,845 |   |
|                                                          |       |                                                                |       |                                                              |       |   |   |   |   |
| Net loan charge-offs to average total  loans                  |       | 0.01                                                                | %          | 0.11                                                              | %          | 0.07 | % | 0.28 | % |
| Allowance for loan losses to total loans at  period-end       |       | 1.18                                                                | %          | 1.16                                                              | %          | 1.18 | % | 1.16 | % |
| Net loan charge-offs to allowance for loan  losses            |       | 0.99                                                                | %          | 9.07                                                              | %          | 5.33 | % | 22.98 | % |
| Net loan charge-offs to provision for loan  losses            |       | 16.71                                                               | %          | 39.05                                                             | %          | 44.74 | % | 72.63 | % |

 

35

----

Table of Contents

 

**ContractualObligations**

 

Thefollowing table represents our aggregate contractual obligations to make futurepayments (principal andinterest) as of June 30, 2008:

 
| **(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                      |       | $                                     | 196,138    |                                                  | $          | 133,156                                                 |       | $                               | —     |      | $          | — |   | $ | 329,294 |   |
| Junior subordinated debentures       |       | 3,443                                 |       | 4,371                                                 |       | 11,541                                                  |       | 77,321                          |       | 96,676    |       |
| Operating leases                     |       | 3,156                                 |       | 4,547                                                 |       | 2,923                                                   |       | 2,734                           |       | 13,360    |       |
| Time deposits                        |       | 954,880                               |       | 13,487                                                |       | —                                                  |       | 10                              |       | 968,377   |       |
| Total                                |       | $                                     | 1,157,617  |                                                  | $          | 155,561                                                 |       | $                               | 14,464     |      | $          | 80,064 |   | $ | 1,407,707 |   |

 

**Off-Balance Sheet Arrangements**

 

Duringthe ordinary course of business, we provide various forms of credit lines tomeet the financing needs of our customers. These commitments, which represent a credit risk to us, are notrepresented in any form on our balance sheets.

 

As of June 30,2008 and December 31,2007, we had commitments to extendcredit of $182.9 million and $284.9 million, respectively.  Obligations under standby letters of creditwere $9.5 million and $10.0 million at June 30, 2008 and December 31, 2007, respectively, and our obligationsunder commercial letters of credit were $11.9 million and $10.8million at such dates, respectively.

 

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

 

**Deposits and OtherSources of Funds**

** **

*Deposits*

* *

Depositsare our primary source of funds.  Totaldeposits at June 30, 2008 and December 31, 2007were $1.74 billion and $1.76 billion, respectively.

 

Totalnon-time deposits at June 30, 2008 decreased 4.7% to $792.0 million overthe last six months from $831.5 million at December 31, 2007, while timedeposits increased 1.7% to $947.3 million at June 30, 2008 from $931.6million at December 31, 2007.

 

Consistentwith our efforts to decrease interest expenses, we have permitted relativelyexpensive time deposits to expire.  Theaverage rate paid on time deposits in denominations of $100,000 or more for thesecond quarter and the first half of 2008 decreased to 3.88%and 4.17%, respectively, from 5.31%and 5.29% in the same periods of the prior year.

 

Thefollowing tables summarize the distribution of average daily deposits and theaverage daily rates paid for the quarters indicated:

 

**AverageDeposits**

**(dollarsin thousands)**

 
| ** **                                                         | ** ** | **June ****3****0****, 2008** | ** ** | **December 31, 2007** | ** ** | **June ****3****0****,**** ****2007** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------|------------|-------------------------------------------------|------------|
| **For the quarters ended:**                         | ** ** | **Average   Balance**              | ** ** | **Average   Rate**         | ** ** | **Average   Balance**                      | ** ** | **Average   Rate** | ** ** | **Average   Balance** | ** ** | **Average   Rate** | ** ** |
|                                                               |       |                                    |       |                            |       |                                            |       |   |   |   |   |   |   |
| Demand, non-interest-bearing                                       |       | $                                       | 305,573    |                            |       |                                            | $          | 310,502 | ** ** | ** ** | ** ** | $ | 315,837 | ** ** | ** ** | ** ** |
| Money market                                                       |       | 393,182                                 |       | 3.05                            | %          | 478,153                                         |       | 4.43 | % | 421,205 |   | 4.48 | % |
| Super NOW                                                          |       | 22,533                                  |       | 1.35                            | %          | 24,613                                          |       | 1.65 | % | 22,119 |   | 1.20 | % |
| Savings                                                            |       | 35,995                                  |       | 3.32                            | %          | 31,144                                          |       | 2.80 | % | 29,038 |   | 2.28 | % |
| Time certificates of deposit in  denominations of $100,000 or more |       | 795,081                                 |       | 3.88                            | %          | 738,769                                         |       | 5.00 | % | 783,100 |   | 5.31 | % |
| Other time deposits                                                |       | 173,783                                 |       | 4.08                            | %          | 133,567                                         |       | 4.65 | % | 152,789 |   | 4.97 | % |
| Total deposits                                                     |       | $                                       | 1,726,147  |                            | 2.98       | %                                               | $          | 1,716,748 |   | 3.82 | % | $ | 1,724,088 |   | 4.00 | % |

 

36

----

 

Tableof Contents

 

Thescheduled maturities of our time deposits in denominations of $100,000 orgreater at June 30, 2008 were as follows:

 

**Maturities of Time Deposits of $100,000 or More,at June 30, 200**8

**(dollars in thousands)**

 
| Three months or  less                  |   | $       | 487,499 |   |
|----------------------------------------|--------|---------|---------|--------|
| Over three  months through six months  |   | 176,860 |    |
| Over six months  through twelve months |   | 97,217  |    |
| Over twelve  months                    |   | 11,600  |    |
| Total                                  |   | $       | 773,176 |   |

 

Anumber of clients carry deposit balances of more than 1% of our total deposits,but the California State Treasury was the only depositor which had a depositbalance of more than 5% of total deposits at June 30, 2008 and December 31, 2007.

 

Weaccept brokered deposits on a selective basis at reasonable interest rates toaugment deposit growth.  In the first half of 2008, the ongoing creditcrisis and stiff competition for customer deposits among banks within themarkets where we do business has driven up interest rates of various depositproducts. Hence, brokered deposits have been lower in cost compared to othertime deposits. We have increasedthese deposits to $119.3million at June 30, 2008 from $62.6 millionat December 31, 2007 in order to limit our reliance on highinterest rate time deposits.

 

*FHLB Borrowings*

* *

Although deposits are the primary source of fundsfor our lending and investment activities and for general businesspurposes, we may obtain advances from the FHLB as an alternative to retaildeposit funds.  We have historicallyutilized borrowings from the FHLB in order to take advantage of theirflexibility and comparatively low cost. Due to the ongoing credit crisis and stiff competition for customerdeposits among banks, we have increased FHLB borrowing as an alternative tofund our growing loan portfolio. See “LiquidityManagement” below for details relating to the FHLB borrowings program.

 

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

 
| ** **                                   | ** ** | **June 30****,  2008** | ** ** | **December 31,****2007** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| Balance at  quarter-end                      |       | $                           | 320,000    |                          | $          | 150,000 |   |
| Average balance  during the quarter          |       | $                           | 280,440    |                          | $          | 46,890 |   |
| Maximum amount  outstanding at any month-end |       | $                           | 320,000    |                          | $          | 155,000 |   |
| Average interest  rate during the quarter    |       | 3.35                        | %          | 4.24                          | %          |
| Average interest  rate at quarter-end        |       | 3.28                        | %          | 4.22                          | %          |

** **

**Asset/Liability Management**

** **

Weseek to ascertain optimum and stable utilization of available assets andliabilities as a vehicle to attain our overall business plans andobjectives.  In this regard, we focus onmeasurement and control of liquidity risk, interest rate risk and market risk,capital adequacy, operation risk and credit risk.  See further discussion on these risks in the “RiskFactors” section of our Annual Report on Form 10-K for the year ended December 31,2007.  Information concerning interest rate riskmanagement is set forth under “Item 3 - Quantitative and QualitativeDisclosures about Market Risk.”

 

**LiquidityManagement**

** **

Maintenanceof adequate liquidity requires that sufficient resources be available at alltimes to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide fordeposit withdrawals and the credit needs of its customers and to take advantageof investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash orcash equivalents without incurring significant loss, and to raise cash ormaintain funds without incurring excessive additional cost.  For this purpose, we maintain a portion ofour funds in cash and cash equivalents, deposits in other financialinstitutions and loans and securities available for sale.  Our liquid assets at June 30, 2008 and December 31, 2007 totaled approximately $310.7 million and $324.7 million, respectively.  Our liquidity levels measured as thepercentage of liquid assets to total assets were 13.2% and 14.8% at June 30,2008 and December 31, 2007, respectively.

 

37

----

Tableof Contents

 

As asecondary source of liquidity, we obtain advances from the FHLB to supplementour supply of lendable funds and to meet deposit withdrawal requirements.  Advances from the FHLB are typically securedby our mortgage loans and stock issued by the FHLB.  Advances are made pursuant to severaldifferent programs.  Each credit programhas its own interest rate and range of maturities.  Depending on the program, limitations on theamount of advances are based either on a fixed percentage of an institution’snet worth or on the FHLB’s assessment of the institution’screditworthiness.  We took advantage ofthe lower interest rate FHLB advances which allowed us to let expensive timedeposit run off. However, while FHLB advances provide flexibility and low costfunds, those advances also constitute borrowings that do not qualify as corefunds. Accordingly, we alsoclosely monitor our usage of FHLB advances against our borrowing capacity.  As of June 30, 2008, our borrowing capacity from the FHLBwas about $492.2 million and theoutstanding balance was $320.0million, or approximately 65.0% ofour borrowing capacity.

 

**CapitalResources and Capital Adequacy Requirements**

** **

Historically,our primary source of capital has been internally generated operating incomethrough retained earnings.  In order toensure adequate levels of capital, we conduct ongoing assessments of projectedsources and uses of capital in conjunction with projected increases in assetsand level of risks.  We have considered,and we will continue to consider, additional sources of capital as the needarises, whether through the issuance of additional equity, debt or hybridsecurities.

 

We aresubject to various regulatory capital requirements administered by federal bankingagencies. Under capital adequacy guidelines and the regulatory framework forprompt corrective action, we must meet specific capital guidelines that rely onquantitative measures of our assets, liabilities and certain off-balance-sheetitems as calculated under regulatory accounting practices.  Failure to meet minimum capital requirements can triggerregulatory actions under the prompt corrective action rules that couldhave a material adverse effect on our financial condition and operations.  Prompt corrective action may includeregulatory enforcement actions that restrict dividend payments, require theadoption of remedial measures to increase capital, terminate FDIC depositinsurance, and mandate the appointment of a conservator or receiver in severecases.  In addition, failure to maintaina well-capitalized status may adversely affect the evaluation of regulatoryapplications for specific transactions and activities, including acquisitions,continuation and expansion of existing activities, and commencement of newactivities, and could adversely affect our business relationships with ourexisting and prospective clients.  Theaforementioned regulatory consequences for failing to maintain adequate ratiosof Tier 1 and Tier 2 capital could have a material adverse effect on ourfinancial condition and results of operations. Our capital amounts and classification are also subject toqualitative judgments by regulators about components, risk weightings, andother factors.  See Part I, Item 1 “Descriptionof Business — Regulation and Supervision — Capital Adequacy Requirements” inour Annual Report on Form 10-K for the year ended December 31, 2007 for additional information regardingregulatory capital requirements.

 

As of June 30,2008, we werequalified as a “well capitalized institution” under the regulatory frameworkfor prompt corrective action.  Thefollowing table presents the regulatory standards for well-capitalizedinstitutions, compared to capital ratios as of the dates specified for the Companyand the Bank:

 
| ** **                                 | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Regulatory  Adequately-Capitalized** | ** ** | **Actual ratios for the Company as of:** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------------|------------|
| **Wilshire Bancorp, Inc.**       | ** ** | **Standards**                      | ** ** | **Standards**                          | ** ** | **June 30****, 2008**                                        | ** ** | **December 31, 2007** | ** ** | **June 30****, 2007** | ** ** |
| Total capital to  risk-weighted assets     |       | 10                                 | %          | 8                                      | %          | 13.99                                                                  | %          | 14.58 | % | 14.22 | % |
| Tier I capital  to risk-weighted assets    |       | 6                                  | %          | 4                                      | %          | 11.55                                                                  | %          | 11.83 | % | 12.36 | % |
| Tier I capital  to adjusted average assets |       | 5                                  | %          | 4                                      | %          | 10.21                                                                  | %          | 10.36 | % | 10.28 | % |

 
| ** **                                 | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Regulatory  Adequately-Capitalized** | ** ** | **Actual ratios for the Bank as of:** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------------|------------|
| **Wilshire State Bank**          | ** ** | **Standards**                      | ** ** | **Standards**                          | ** ** | **June 30****, 2008**                                     | ** ** | **December 31, 2007** | ** ** | **June 30****, 2007** | ** ** |
| Total capital to  risk-weighted assets     |       | 10                                 | %          | 8                                      | %          | 13.26                                                               | %          | 13.59 | % | 14.26 | % |
| Tier I capital  to risk-weighted assets    |       | 6                                  | %          | 4                                      | %          | 11.53                                                               | %          | 11.80 | % | 12.41 | % |
| Tier I capital  to adjusted average assets |       | 5                                  | %          | 4                                      | %          | 10.20                                                               | %          | 10.33 | % | 10.32 | % |

 

38

----

Tableof Contents

 

Forthe purposes of our regulatory capital ratio computation, the JuniorSubordinated Debentures of $87.3 million, which consists of $10 million issuedby the Bank and $77.3 million issued by the Company in connection with theissuance of $75million trust preferred securities, were taken into consideration.  At December 31,2007, the Company accounted for $57.1 million of such securities as Tier1 capital and $27.9 million as Tier 2 capital.  With the improvement in loan quality andhence the improvement in risk-weighted assets, the portion qualified for Tier 1 capital increased to $60.7 million and theportion for Tier 2 decreased to $24.3 million at June 30, 2008. For the Bank level, only the $10 million debenture issued by theBank in 2002 is treated as Tier 2 capital.

 

## **Item3.**                                                           Quantitativeand Qualitative Disclosures aboutMarket Risk

## ** **

Marketrisk is the risk of loss from adverse changes in market prices and rates.  Our market risk arises primarily frominterest rate risk inherent in lending, investing and deposit taking activities.  We evaluate market risk pursuant to policiesreviewed and approved annually by our Board of Directors.  The Board delegates responsibility for marketrisk management to the Asset & Liability Management Committee (“ALCO”),which reports monthly to the Board on activities related to market riskmanagement.  As part of the management ofour market risk, ALCO may direct changes in the mix of assets andliabilities.  To that end, we activelymonitor and manage interest rate risk exposures.

 

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

 

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

 

The significant balance of non-interest-bearingdeposits puts us in an overall asset-sensitive position andwe strategically plan a significant three-month positive gap to meet anyunanticipated funding needs by maintaining a large portion of funds obtainedfrom non-interest-bearing deposits in overnight investments and other cashequivalents.  In general, based upon ourmix of deposits, other borrowings, loans and investments, increases in interestrates would be expected to increase our net interest margin.  Decreasesin interest rates would be expected to have the opposite effect. However, we usually seek tomaintain a balanced position over the period of one year to ensure net interestmargin stability in times of volatile interest rates.  This is accomplished by maintaining a similarlevel of interest-earning assets and interest-paying liabilities available tobe repriced within one year.  At June 30,2008, our position appearedbalanced for a one-year timeframe with a negligible sensitive cumulative gap(minus 14.0% of averageinterest-earning assets).

 

Thechange in net interest income may not always follow the general expectations ofan “asset-sensitive” or a “liability-sensitive” balance sheet during periods ofchanging interest rates.  Thispossibility results from interest rates earned or paid changing by differingincrements and at different time intervals for each type of interest-sensitiveasset and liability.  The interest rategaps reported in the tables arise when assets are funded with liabilitieshaving different repricing intervals. Since these gaps are actively managed and change daily as adjustmentsare made in interest rate views and market outlook, positions at the end of anyperiod may not reflect our interest rate sensitivity in subsequentperiods.  We attempt to balancelonger-term economic views against prospects for short-term interest ratechanges.

 

Although the interest rate sensitivity gap is a usefulmeasurement and contributes to effective asset and liability management, it isdifficult to predict the effect of changing interest rates based solely on thatmeasure.  As a result, the ALCO alsoregularly uses simulation modeling as a tool to measure the sensitivity of earningsand net portfolio value, or NPV, to interest rate changes.  The NPV is defined as the net present valueof an institution’s existing assets, liabilities and off-balance sheetinstruments.  The simulation modelcaptures all assets, liabilities and off-balance sheet financial instrumentsand accounts for significant variables that are believed to be affected byinterest rates.  These include prepaymentspeeds on loans, cash flows of loans and deposits, principal amortization, calloptions on securities, balance sheet growth assumptions and changes in raterelationships as various rate indices react differently to market rates.

 

39

----

Tableof Contents

 

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

 

As our simulation measures indicate below, the netinterest income increases (decreases) as market interest rates rise (fall),since we were in an overall asset-sensitive position with a 4.6% positive gap for the three-monthtimeframe and 16.9% cumulative positive gap for a whole portfolios.  The NPV increases (decreases) as interestincome increases (decreases) since the change in cash flows has a greaterimpact on the change in the NPV than does the change in the discount rate.  However the extent of such changes was withinthe tolerance level prescribed by our ALCO policy due partly to thenear-balanced cumulative gap for the one-year timeframe.

 

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

 

Thefollowing table sets forth the interest rate sensitivity of ourinterest-earning assets and interest-bearing liabilities as of June 30,2008 using theinterest rate sensitivity gap ratio.  Forpurposes of the following table, an asset or liability is consideredrate-sensitive within a specified period when it can be repriced or matureswithin its contractual terms.  Actualpayment patterns may differ from contractual payment patterns:

 

**Interest Rate Sensitivity Analysis**(dollars inthousands)

 
| ** **                                                                                  | ** ** | **At June 30, 200****8**           | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                  | ** ** | **Amounts Subject to Repricing Within** | ** ** |
| ** **                                                                                  | ** ** | **0-3 months**                          | ** ** | **3-12 months** | ** ** | **Over 1 to 5 years** | ** ** | **After 5 years** | ** ** | **Total** | ** ** |
| **Interest-earning  assets:**                                                               |       |                                    |       |   |   |   |   |   |   |   |   |
| Gross loans(1)                                                                              |       | $                                       | 1,278,707  |   | $ | 72,581 |   | $ | 506,737 |   | $ | 108,298 |   | $ | 1,966,323 |   |
| Investment  securities                                                                      |       | 4,955                                   |       | 11,403 |   | 98,644 |   | 118,224 |   | 233,226 |   |
| Federal funds  sold and cash equivalentsagreement to resell                                 |       | 4                                       |       | — |   | — |   | — |   | 4 |   |
| Interest-earning  deposits                                                                  |       | —                                  |       | — |   | — |   | — |   | — |   |
| Total                                                                                       |       | $                                       | 1,283,666  |   | $ | 83,984 |   | $ | 605,381 |   | $ | 226,522 |   | $ | 2,199,553 |   |
|                                                                                        |       |                                    |       |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                          | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Savings deposits                                                                            |       | $                                       | 38,266     |   | $ | — |   | $ | — |   | $ | — |   | 38,266 |   |
| Time deposits of  $100,000 or more                                                          |       | 487,499                                 |       | 274,077 |   | 11,600 |   | — |   | 773,176 |   |
| Other time deposits                                                                         |       | 68,375                                  |       | 104,163 |   | 1,576 |   | 5 |   | 174,119 |   |
| Other  interest-bearing deposits                                                            |       | 433,368                                 |       | — |   | — |   | — |   | 433,368 |   |
| Federal funds purchased and Repos                                                           |       | 5,000                                   |       | — |   | — |   | — |   | 5,000 |   |
| FHLB borrowings                                                                             |       | 80,000                                  |       | 110,000 |   | 130,000 |   | — |   | 320,000 |   |
| Junior  Subordinated Debentures                                                             |       | 71,857                                  |       | — |   | 15,464 |   | — |   | 87,321 |   |
| Total                                                                                       |       | $                                       | 1,184,365  |   | $ | 488,240 |   | $ | 158,640 |   | $ | 5 |   | $ | 1,831,250 |   |
|                                                                                        |       |                                    |       |   |   |   |   |   |   |   |   |
| Interest rate  sensitivity gap                                                              |       | $                                       | 99,301     |   | $ | (404,256 | ) | $ | 446,741 |   | $ | 226,517 |   | $ | 368,303 |   |
| Cumulative  interest rate sensitivity gap                                                   |       | $                                       | 99,301     |   | $ | (304,955 | ) | $ | 141,786 |   | $ | 368,303 |   |   |   |
| Cumulative  interest rate sensitivity gap ratio (based on average interest-earning  assets) |       | 4.55                                    | %          | -13.98 | % | 6.50 | % | 16.89 | % |   |   |

 

----

(1) Excludes the gross amount ofnon-accrual loans of approximately $25.4million at June 30, 2008.

 

40

----

Tableof Contents

 

Thefollowing table sets forth our estimated net interest income over a 12-monthperiod and NPV based on the indicated changes in market interest rates as of June 30,2008.  All assets presented in this table areheld-to-maturity or available-for-sale. At June 30, 2008, wehad no trading securities (dollars in thousand):

 
| **Change**            | ** ** | **Net Interest Income**  | ** ** | ** **   | ** ** | ** ** | ** ** | ** **   | ** ** |
|-----------------------|------------|--------------------------|------------|--------------|------------|------------|------------|--------------|------------|
| **(in Basis Points)** | ** ** | **(next twelve months)** | ** ** | **% Change** | ** ** | **NPV**    | ** ** | **% Change** | ** ** |
| +                     | 200        |                     | 90,478     |         | 5.7        | %          | 308,068    |         | 2.8        | % |
| +                     | 100        |                     | 87,985     |         | 2.8        | %          | 305,627    |         | 2.0        | % |
|                  | 0          |                     | 85,561     |         | —     |       | 299,545    |         | —     |   |
| -                     | 100        |                     | 81,788     |         | -4.4       | %          | 278,717    |         | -7.0       | % |
| -                     | 200        |                     | 77,273     |         | -9.7       | %          | 255,139    |         | -14.8      | % |

 

Our strategies in protecting both net interest incomeand economic value of equity from significant movements in interest ratesinvolve restructuring our investment portfolio and using FHLB advances.  Although our policy also permits us to purchase rate caps and floors and interest rate swaps, we arenot currently engaged in any of these types of transactions.

 

## **Item4.**                                                           Controlsand Procedures

## ** **

As of June 30,2008, we carried outan evaluation, under the supervision and with the participation of ourmanagement, including our chief executive officer and chief financial officer, regarding the effectiveness of thedesign and operation of our “disclosure controls and procedures,” as definedunder Exchange Act Rules 13a-15(e) and 15d-15(e).

 

Basedon this evaluation, our chief executive officer and chief financial officerconcluded that, as of June 30, 2008, such disclosure controls and procedures were effective to ensurethat information required to be disclosed by us in the reports we file orsubmit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the rules and forms of the SEC, andaccumulated and communicated to our management, including our chief executiveofficer and chief financial officer, as appropriate to allow timely decisionsregarding required disclosure.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognized that any controls and procedures, no matter how well designed andoperated, can only provide reasonable assurance in achieving the desired controlobjectives and in reaching a reasonable level of assurance our managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

Therewere no changes in our internal controls over financial reporting during thequarter ended June 30, 2008 that materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

41

----

Tableof Contents

 

# **Part II.   OTHER INFORMATION**

# ** **

## **Item1.**                           Legal Proceedings

## ** **

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

 

## **Item 1A.**                  Risk Factors

## ** **

Thereare no material changes to our risk factors as presented in the Company’s 2007 Form 10-Kunder the heading “Item 1A. Risk Factors.”

 

## **Item2.**                           Unregistered Sales of EquitySecurities and Use of Proceeds

## ** **

In July 2007,the Company’s Board of Directors authorized a stock repurchase program torepurchase up to $10 million of the Company’s common stock until July 31,2008.  During second quarter of 2008, noshares have been repurchased under this program in open-markettransactions.  The total approximatedollar value of shares that may yet be purchased under the plan as of June 30,2008 is shown below (dollars in thousands):

 

**IssuerPurchases of Equity Securities**

 
| **Period**                                     | ** ** | **(a)  Total number of  shares (or units)  purchased** | ** ** | **(b)  Average price paid  per share (or unit)** | ** ** | **(c)  Total number of  shares (or units)  purchased as part of  publicly announced  plans or programs** | ** ** | **(d)****A****pproximate  dollar  value of shares (or  units) that may yet  be purchased under  the plans or  programs** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|
| April 1,  2008 – April 30, 2008 |       | —                                                      |       | —                                           |       | —                                                                                                   |       | $                                                                                                                        | 8,738      |   |
| May 1, 2008  – May 31, 2008     |       | —                                                      |       | —                                           |       | —                                                                                                   |       | $                                                                                                                        | 8,738      |   |
| June 1,  2008 – June 30, 2008   |       | —                                                      |       | —                                           |       | —                                                                                                   |       | $                                                                                                                        | 8,738      |   |

 

## **Item3.**                           Defaults Upon SeniorSecurities

## ** **

None.

 

## **Item4.**                           Submission of Matters to aVote of Security Holders

## ** **

At our Annual Meeting of Shareholdersheld June 11, 2008, the following persons were elected as our Class Idirectors to serve three-year terms expiring at the 2011 Annual Meeting ofShareholders or until their successors are duly elected and qualified:

 

·                  StevenKoh  (25,192,095 votes in favor; 1,272,045 votes withheld)

 

·                  GapsuKim(24,921,017votesin favor; 1,543,173 votes withheld)

 

·                  Lawrence Jeon(25,684,028 votes in favor; 780,162 voteswithheld)

 

·                  Fred Mautner(25,208,551 votes in favor; 1,255,639 voteswithheld)

 

In addition to the foregoing, theterms of the following directors continued after the Annual Meeting:

 

*Class II*

 

·                  MelElliot

 

·                  RichardLim

 

·                  HarrySiafaris

 

42

----

Tableof Contents

 

*Class III*

 

·                  JoanneKim

 

·                  Kyu-Hyun Kim

 

·                  Young Hi Pak

 

In addition toelection of Class I directors in the Annual Meeting,shareholders voted on two proposals:

 

-                 Approved; Proposal to approve and adopt the Wilshire BancorpInc. 2008 Stock Incentive Plan (14,133,107 “For” votes, 6,942,328 “Against”votes, 145,868 “Abstain” votes)

 

-                 Disapproved; To approve ashareholder proposal regarding the classification of our board of directorsthat may be presented at the annual meeting (9,114,701 “For” votes, 12,002,794 “Against”votes, 103,808 “Abstain” votes)

 

## **Item5.**                           Other Information

## ** **

None.

 

43

----

Tableof Contents

 

EXHIBITS

 

**Exhibit Table**

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

 

44

----

Tableof Contents

 

**SIGNATURES**

** **

Pursuant to therequirement of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
|                            | WILSHIRE BANCORP, INC. |
|---------------------------------|------------------------|
|                            |                   |   |
|                            |                   |   |
| Date:  August 8, 2008 | By:               | /s/ Alex Ko |
|                            |                   | Alex Ko |
|                            |                   | Chief Financial Officer |
|                            |                   | (Principal Financial  and Accounting Officer) |

 

45

----