Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-Q**

** **

**(Mark One)**

 
| x      | ** ** | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934**                                                                |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ** ** | ** **                                                                                                                                                             |
|   | ** ** | **For the quarterly period ended****September 30****, 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**

 

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**WILSHIRE BANCORP, 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 telephonenumber, 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**

 

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

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “small reporting company” in Rule 12b-2 ofthe 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 October 31, 2008 was 29,401,757.

 

 

 

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**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** | **14** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 3.**                            | **Quantitative  and Qualitative Disclosures about  Market Risk**                                | **39** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 4.**                            | **Controls and  Procedures**                                                                    | **42** |
|                                   |                                                                                            |   |
| **Part II. OTHER  INFORMATION**   | **43**                                                                                          |
|                                   |                                                                                            |   |
| **Item 1.**                            | **Legal Proceedings**                                                                           | **43** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 1A.**                           | **Risk Factors**                                                                                | **43** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 2.**                            | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                | **43** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 3.**                            | **Defaults  Upon Senior Securities**                                                            | **43** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 4.**                            | **Submission  of Matters to a Vote of Security Holders**                                        | **43** |
| ** **                             | ** **                                                                                      | ** ** |
| **Item 5.**                            | **Other Information**                                                                           | **43** |
| ** **                             | ** **                                                                                      |
| **SIGNATURES**                         | **45**                                                                                          |

 

i

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Table of Contents

 

# **Part I.  FINANCIAL INFORMATION**

 

**Item 1.    FinancialStatements**

** **

**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS INTHOUSANDS)**

 
| ** **                                                                                                                                                                                           | ** ** | **September 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                                           |       |                             |       |                            |       |
| Cash and due from banks                                                                                                                                                                              |       | $                                | 54,017     |                            | $          | 82,506 |   |
| Federal funds sold and other cash  equivalents                                                                                                                                                       |       | 3                                |       | 10,003                          |       |
| Cash and cash equivalents                                                                                                                                                                            |       | 54,020                           |       | 92,509                          |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| Securities available for sale, at fair  value (amortized cost of $228,287 and $223,933 at September 30, 2008 and  December 31, 2007, respectively)                                         |       | 227,957                          |       | 224,256                         |       |
| Securities held to maturity, at amortized  cost (fair value of $134 and $7,372 at September 30, 2008 and  December 31, 2007, respectively)                                                 |       | 143                              |       | 7,384                           |       |
| Loans receivable, net of allowance for loan  losses of $25,950 and $21,579 at September 30, 2008 and  December 31, 2007, respectively                                                      |       | 1,998,147                        |       | 1,779,558                       |       |
| Loans held for sale—at the lower of cost or  market                                                                                                                                             |       | 10,231                           |       | 7,912                           |       |
| Federal Home Loan Bank stock, at cost                                                                                                                                                                |       | 15,245                           |       | 8,695                           |       |
| Other real estate owned                                                                                                                                                                              |       | 1,453                            |       | 133                             |       |
| Due from customers on acceptances                                                                                                                                                                    |       | 2,896                            |       | 3,377                           |       |
| Cash surrender value of bank owned life  insurance                                                                                                                                                   |       | 17,200                           |       | 16,228                          |       |
| Investment in affordable housing  partnerships                                                                                                                                                       |       | 8,538                            |       | 6,222                           |       |
| Bank premises and equipment                                                                                                                                                                          |       | 11,377                           |       | 10,960                          |       |
| Accrued interest receivable                                                                                                                                                                          |       | 10,168                           |       | 10,062                          |       |
| Deferred income taxes                                                                                                                                                                                |       | 10,570                           |       | 9,151                           |       |
| Servicing assets                                                                                                                                                                                     |       | 4,986                            |       | 4,950                           |       |
| Goodwill                                                                                                                                                                                             |       | 6,675                            |       | 6,675                           |       |
| Other intangible assets                                                                                                                                                                              |       | 1,363                            |       | 1,587                           |       |
| Other assets                                                                                                                                                                                         |       | 6,166                            |       | 7,046                           |       |
| TOTAL                                                                                                                                                                                                |       | $                                | 2,387,135  |                            | $          | 2,196,705 |   |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                        |       |                             |       |                            |       |
| LIABILITIES:                                                                                                                                                                                         |       |                             |       |                            |       |
| Deposits:                                                                                                                                                                                            |       |                             |       |                            |       |
| Noninterest bearing                                                                                                                                                                                  |       | $                                | 295,451    |                            | $          | 314,114 |   |
| Interest bearing:                                                                                                                                                                                    |       |                             |       |                            |       |
| Savings                                                                                                                                                                                              |       | 42,677                           |       | 31,812                          |       |
| Money market checking and NOW accounts                                                                                                                                                               |       | 469,288                          |       | 485,547                         |       |
| Time deposits of $100,000 or more                                                                                                                                                                    |       | 765,311                          |       | 788,883                         |       |
| Other time deposits                                                                                                                                                                                  |       | 215,036                          |       | 142,715                         |       |
| Total deposits                                                                                                                                                                                       |       | 1,787,763                        |       | 1,763,071                       |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| Federal Home Loan Bank borrowings                                                                                                                                                                    |       | 300,000                          |       | 150,000                         |       |
| Junior subordinated debentures                                                                                                                                                                       |       | 87,321                           |       | 87,321                          |       |
| Accrued interest payable                                                                                                                                                                             |       | 7,914                            |       | 10,440                          |       |
| Acceptances outstanding                                                                                                                                                                              |       | 2,896                            |       | 3,377                           |       |
| Other liabilities                                                                                                                                                                                    |       | 13,361                           |       | 10,710                          |       |
| Total liabilities                                                                                                                                                                                    |       | 2,199,255                        |       | 2,024,919                       |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| COMMITMENTS AND CONTINGENCIES (Note 7)                                                                                                                                                               |       |                             |       |                            |       |
|                                                                                                                                                                                                 |       |                             |       |                            |       |
| 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, 29,401,757 shares and 29,253,311  shares at September 30, 2008 and December 31, 2007, respectively |       | 52,256                           |       | 50,895                          |       |
| Accumulated other comprehensive income, net  of tax expense                                                                                                                                          |       | 46                               |       | 375                             |       |
| Retained earnings                                                                                                                                                                                    |       | 136,840                          |       | 121,778                         |       |
|                                                                                                                                                                                                 |       | 189,142                          |       | 173,048                         |       |
| Less: Treasury stock, at cost, 127,425  shares at September 30, 2008 and December 31, 2007                                                                                                 |       | (1,262                           | )          | (1,262                          | )          |
| Total shareholders’ equity                                                                                                                                                                      |       | 187,880                          |       | 171,786                         |       |
| TOTAL                                                                                                                                                                                                |       | $                                | 2,387,135  |                            | $          | 2,196,705 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

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

 
| ** **                                                                 | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| INTEREST INCOME:                                                           |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest and fees on loans                                                 |       | $                                                        | 34,719     |                                                    | $          | 37,093 |   | $ | 104,014 |   | $ | 107,578 |   |
| Interest on investment securities                                          |       | 2,798                                                    |       | 2,698                                                   |       | 8,021 |   | 7,334 |   |
| Interest on federal funds sold                                             |       | 63                                                       |       | 678                                                     |       | 192 |   | 2,766 |   |
| Total interest income                                                      |       | 37,580                                                   |       | 40,469                                                  |       | 112,227 |   | 117,678 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| INTEREST EXPENSE:                                                          |       |                                                     |       |                                                    |       |   |   |   |   |
| Interest on deposits                                                       |       | 12,469                                                   |       | 17,763                                                  |       | 40,071 |   | 52,369 |   |
| Interest on FHLB advances and other  borrowings                            |       | 2,570                                                    |       | 212                                                     |       | 6,969 |   | 598 |   |
| Interest on junior subordinated debentures                                 |       | 1,127                                                    |       | 1,556                                                   |       | 3,696 |   | 3,829 |   |
| Total interest expense                                                     |       | 16,166                                                   |       | 19,531                                                  |       | 50,736 |   | 56,796 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INTEREST INCOME BEFORE PROVISION FOR  LOAN LOSSES AND LOAN COMMITMENTS |       | 21,414                                                   |       | 20,938                                                  |       | 61,491 |   | 60,882 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| PROVISION FOR LOSSES ON LOANS AND LOAN COMMITMENTS                         |       | 3,400                                                    |       | 4,100                                                   |       | 6,200 |   | 10,230 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INTEREST INCOME AFTER PROVISION FOR  LOAN LOSSES AND LOAN COMMITMENTS  |       | 18,014                                                   |       | 16,838                                                  |       | 55,291 |   | 50,652 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NON-INTEREST INCOME:                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Service charges on deposit accounts                                        |       | 3,125                                                    |       | 2,398                                                   |       | 8,916 |   | 7,189 |   |
| Gain on sale of loans                                                      |       | 410                                                      |       | 1,584                                                   |       | 2,192 |   | 5,727 |   |
| Loan-related servicing fees                                                |       | 891                                                      |       | 517                                                     |       | 2,338 |   | 1,502 |   |
| Income from other earning assets                                           |       | 398                                                      |       | 293                                                     |       | 1,108 |   | 846 |   |
| Other income                                                               |       | 521                                                      |       | 436                                                     |       | 1,551 |   | 1,429 |   |
| Total noninterest income                                                   |       | 5,345                                                    |       | 5,228                                                   |       | 16,105 |   | 16,693 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NON-INTEREST EXPENSES:                                                     |       |                                                     |       |                                                    |       |   |   |   |   |
| Salaries and employee benefits                                             |       | 6,718                                                    |       | 5,827                                                   |       | 21,349 |   | 17,228 |   |
| Occupancy and equipment                                                    |       | 1,576                                                    |       | 1,317                                                   |       | 4,493 |   | 3,887 |   |
| Data processing                                                            |       | 785                                                      |       | 817                                                     |       | 2,320 |   | 2,327 |   |
| Outsourced service for customer                                            |       | 376                                                      |       | 492                                                     |       | 1,218 |   | 1,315 |   |
| Professional fees                                                          |       | 605                                                      |       | 391                                                     |       | 1,559 |   | 970 |   |
| Deposit insurance premiums                                                 |       | 279                                                      |       | 276                                                     |       | 907 |   | 648 |   |
| Other operating                                                            |       | 1,968                                                    |       | 1,927                                                   |       | 5,239 |   | 5,780 |   |
| Total noninterest expenses                                                 |       | 12,307                                                   |       | 11,047                                                  |       | 37,085 |   | 32,155 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                                 |       | 11,052                                                   |       | 11,019                                                  |       | 34,311 |   | 35,190 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| INCOME TAXES                                                               |       | 4,184                                                    |       | 4,375                                                   |       | 12,964 |   | 13,883 |   |
|                                                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| NET INCOME                                                                 |       | $                                                        | 6,868      |                                                    | $          | 6,644 |   | $ | 21,347 |   | $ | 21,307 |   |
| EARNINGS PER SHARE:                                                        |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                                                      |       | $                                                        | 0.23       |                                                    | $          | 0.23 |   | $ | 0.73 |   | $ | 0.73 |   |
| Diluted                                                                    |       | $                                                        | 0.23       |                                                    | $          | 0.23 |   | $ | 0.73 |   | $ | 0.72 |   |
| WEIGHTED-AVERAGE SHARES OUTSTANDING:                                       |       |                                                     |       |                                                    |       |   |   |   |   |
| Basic                                                                      |       | 29,397,182                                               |       | 29,350,499                                              |       | 29,355,231 |   | 29,355,694 |   |
| Diluted                                                                    |       | 29,508,503                                               |       | 29,454,770                                              |       | 29,402,212 |   | 29,469,717 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**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                                                       |       |                  |       |            |       |            |       |       |       |                   |       | (4,403 | ) |   |   | (4,403 | ) |
| Share-based  compensation expense                                             |       |                  |       |            |       |            |       | 287        |       |                   |       |   |   |   |   | 287 |   |
| Tax benefit from  stock options exercised                                     |       |                  |       |            |       |            |       | 1,286      |       |                   |       |   |   |   |   | 1,286 |   |
| Stock repurchase                                                              |       |                  |       | (39,625         | )          | (39,625         | )          |       |       |                   |       |   |   | (410 | ) | (410 | ) |
| 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                                                                    |       |                  |       |            |       |            |       |       |       |                   |       | 21,307 |   |   |   | 21,307 |   |
| Other  comprehensive income:                                                  |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Change in  unrealized gain on interest-only strips                            |       |                  |       |            |       |            |       |       |       | 95                     |       |   |   |   |   | 95 |   |
| Change in  unrealized gain on securities available for sale                   |       |                  |       |            |       |            |       |       |       | 318                    |       |   |   |   |   | 318 |   |
| Comprehensive  income                                                         |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   | $ | 21,720 |   |
| BALANCE—September 30,  2007                                         |       | 29,371,696            |       | (39,625         | )          | 29,332,071      |       | $          | 50,811     |                   | $          | 5 |   | $ | 117,742 |   | $ | (410 | ) | $ | 168,148 |   |

 
| ** **                                                                            | ** ** | **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                                                              |       | 148,446               |       |            |       | 148,446         |       | 415        |       |                   |       |   |   |   |   | 415 |   |
| Cash dividend  declared                                                               |       |                  |       |            |       |            |       |       |       |                   |       | (4,409 | ) |   |   | (4,409 | ) |
| Share-based  compensation expense                                                     |       |                  |       |            |       |            |       | 889        |       |                   |       |   |   |   |   | 889 |   |
| 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                                                                            |       |                  |       |            |       |            |       |       |       |                   |       | 21,347 |   |   |   | 21,347 |   |
| Other  comprehensive income:                                                          |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   |   |   |
| Change in  unrealized gain on interest-only strips                                    |       |                  |       |            |       |            |       |       |       | 49                     |       |   |   |   |   | 49 |   |
| Change in  unrealized gain on securities available for sale                           |       |                  |       |            |       |            |       |       |       | (378                   | )          |   |   |   |   | (378 | ) |
| Comprehensive  income                                                                 |       |                  |       |            |       |            |       |       |       |                   |       |   |   |   |   | $ | 21,018 |   |
| BALANCE—September 30,  2008                                                 |       | 29,529,182            |       | (127,425        | )          | 29,401,757      |       | $          | 52,256     |                   | $          | 46 |   | $ | 136,840 |   | $ | (1,262 | ) | $ | 187,880 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                                                          | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                          | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                               |       |                                                    |       |   |   |
| Net income                                                                          |       | $                                                       | 21,347     |   | $ | 21,307 |   |
| Adjustments to reconcile net income to net  cash provided  by operating activities: |       |                                                    |       |   |   |
| Amortization (accretion) of investment  securities                                  |       | 777                                                     |       | (114 | ) |
| Depreciation of bank premises &  equipment                                 |       | 1,340                                                   |       | 1,205 |   |
| Amortization of other intangible assets                                             |       | 223                                                     |       | 223 |   |
| Amortization of investments in affordable  housing partnerships                     |       | 574                                                     |       | 377 |   |
| Provision for losses on loans and loan  commitments                                 |       | 6,200                                                   |       | 10,230 |   |
| Deferred tax benefit                                                                |       | (1,180                                                  | )          | (24 | ) |
| Loss on disposition of bank premises and  equipment                                 |       | 3                                                       |       | 9 |   |
| Net gain on sale of loans                                                           |       | (2,192                                                  | )          | (5,727 | ) |
| Origination of loans held for sale                                                  |       | (50,989                                                 | )          | (115,685 | ) |
| Proceeds from sale of loans held for sale                                           |       | 50,863                                                  |       | 115,171 |   |
| Gain on sale or call of available for sale  securities                              |       | (3                                                      | )          | — |   |
| Decrease in fair value of serving assets                                            |       | 730                                                     |       | 1,508 |   |
| Gain on sale of other real estate owned                                             |       | (17                                                     | )          | (125 | ) |
| Loss on sale of repossessed vehicles                                                |       | 1                                                       |       | 32 |   |
| Share-based compensation expense                                                    |       | 889                                                     |       | 287 |   |
| Change in cash surrender value of life  insurance                                   |       | (972                                                    | )          | (444 | ) |
| Servicing assets capitalized                                                        |       | (766                                                    | )          | (1,351 | ) |
| Increase in accrued interest receivable                                             |       | (106                                                    | )          | (345 | ) |
| Decrease (increase) in other assets                                                 |       | 777                                                     |       | (3,450 | ) |
| Dividends of Federal Home Loan Bank stock                                           |       | (470                                                    | )          | (308 | ) |
| Tax benefit from exercise of stock options                                          |       | (57                                                     | )          | (1,286 | ) |
| Decrease in accrued interest payable                                                |       | (2,526                                                  | )          | (472 | ) |
| Increase in other liabilities                                                       |       | 1,587                                                   |       | 593 |   |
| Net cash provided by operating activities                                           |       | 26,033                                                  |       | 21,611 |   |
|                                                                                |       |                                                    |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                               | ** ** | ** **                                              | ** ** | ** ** | ** ** |
| Proceeds from principal repayment, matured  or called  securities held to maturity  |       | 7,241                                                   |       | 3,231 |   |
| Purchase of securities available for sale                                           |       | (107,599                                                | )          | (83,110 | ) |
| Proceeds from matured, sale, or called  securities available for sale               |       | 102,472                                                 |       | 56,278 |   |
| Net increase in loans receivable                                                    |       | (227,728                                                | )          | (171,295 | ) |
| Proceeds from sale of other loans                                                   |       | —                                                  |       | 5,385 |   |
| Proceeds from sale of other real estate  owned                                      |       | 875                                                     |       | 871 |   |
| Proceeds from sale of repossessed vehicles                                          |       | 10                                                      |       | 90 |   |
| Purchases of investments in affodable  housing partnerships                         |       | (2,889                                                  | )          | (1,555 | ) |
| Purchases of bank premises and equipment                                            |       | (1,589                                                  | )          | (1,318 | ) |
| Purchases of Federal Home Loan Bank stock                                           |       | (6,080                                                  | )          | (732 | ) |
| Proceeds from disposition of bank equipment                                         |       | 3                                                       |       | 166 |   |
| Net cash used in investing activities                                               |       | (235,284                                                | )          | (191,989 | ) |
|                                                                                     |            |                                                         |            |  |  |  |  |

 

Seeaccompanying notes to consolidated financial statements.

 

(Continued)

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(UNAUDITED)**

 
| ** **                                              | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                              | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES:                   |       |                                                    |       |   |   |
| Proceeds from exercise of stock options                 |       | $                                                       | 415        |   | $ | 115 |   |
| Payment of cash dividend                                |       | (4,402                                                  | )          | (4,397 | ) |
| Increase in Federal Home Loan Bank  borrowings          |       | 150,000                                                 |       | 50,000 |   |
| Tax benefit from exercise of stock options              |       | 57                                                      |       | 1,286 |   |
| Net increase (decrease) in deposits                     |       | 24,692                                                  |       | (3,815 | ) |
| Increase in junior subordinated debentures              |       | —                                                  |       | 25,774 |   |
| Cash paid to acquire treasury stock                     |       | —                                                  |       | (410 | ) |
| Net cash provided by financing activities               |       | 170,762                                                 |       | 68,553 |   |
|                                                    |       |                                                    |       |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS               |       | (38,489                                                 | )          | (101,825 | ) |
|                                                    |       |                                                    |       |   |   |
| CASH AND CASH EQUIVALENTS—Beginning of  period     |       | 92,509                                                  |       | 205,247 |   |
| CASH AND CASH EQUIVALENTS—End of period            |       | $                                                       | 54,020     |   | $ | 103,422 |   |
|                                                    |       |                                                    |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH                        |       |                                                    |       |   |   |
| FLOW INFORMATION:                                       |       |                                                    |       |   |   |
| Interest paid                                           |       | $                                                       | 53,262     |   | $ | 57,267 |   |
| Income taxes paid                                       |       | $                                                       | 13,900     |   | $ | 14,510 |   |
|                                                    |       |                                                    |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:  |       |                                                    |       |   |   |
| Transfer of loans to other real estate  owned           |       | $                                                       | 2,177      |   | $ | 1,258 |   |
| Other assets transferred to bank premises and equipment |       | $                                                       | 174        |   | $ | 140 |   |
|                                                    |       |                                                    |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING  ACTIVITIES: |       |                                                    |       |   |   |
| Cash dividend declared, but not paid                    |       | $                                                       | 1,470      |   | $ | 1,467 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

(Concluded)

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**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 onDecember 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 onAugust 25, 2004.  As a result of thereorganization, shareholders of the Bank are now shareholders of the Company,and the Bank is a direct wholly-owned subsidiaryof the Company.

 

Our corporate headquarters and primary bankingfacilities are located at 3200 Wilshire Boulevard, Los Angeles, California90010.  In addition, we have 21 full-serviceBank branch offices in Southern California, Texas, New York and NewJersey.  We also have 6 loan production offices utilizedprimarily for the origination of loans under our Small Business Administration(“SBA”) lending program in Colorado, Georgia, Texas, Virginia, and Washington.

 

**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 September 30, 2008and December 31, 2007, therelated statements of operations and shareholders’ equity for the three monthsand nine months ended September 30, 2008 and 2007, and the statements ofcash flows for nine months ended September 30, 2008 and 2007. Operatingresults for interim periods are not necessarily indicative of operating resultsfor an entire fiscal year. To conform to the consolidated financial statementsof the prior period to the current period’s presentation, we have (i) reclassifiedchange in the fair valuation of servicing assets and liabilities of $333,000from other non-interest income to loan-related servicing income, and(ii) separately disclosed investment in affordable housing partnershipsfrom other assets, increasing the net cash provided by operating activities andnet cash used in investing activities by $1,555,000.

 

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.**   Fair ValueOption and Measurement for Financial Assets and Liabilities

** **

InFebruary 2007, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 159, *The Fair Value Option for Financial Assets and Financial Liabilities*,which permits all entities to choose to measure eligible items at fair value atspecified election dates.  A businessentity shall report unrealized gains and losses on items for which the fairvalue option has been elected in earnings at each subsequent reporting date.Under the statement, thefair value option may be applied instrument by instrument, with only a fewexceptions, but may only apply to entire instruments and not to portions ofinstruments. The fair value option is a one-time election for existinginstruments and is irrevocable. The Company adopted SFAS No. 159 as ofJanuary 1, 2008. All assets and liabilities are evaluated for eligibilityof the fair value option under the statement. Based on the analysis performed,the Company concluded that the fair value option provided by this statement isnot elected for any of the existing instruments under its current asset andliability balances. The Company will constantly review the new asset andliability additions on an ongoing basis, and will elect fair value optionpursuant to SFAS No. 159 for any new instruments that fall in line withthe fair value accounting and reporting.

 

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InSeptember 2006, the FASB issued SFAS No. 157, *Fair ValueMeasurements*, which provides a definition of fair value,establishes a framework for measuring fair value, and requires expanded disclosuresabout fair value measurements. The standard applies when GAAP requires or allowsassets or liabilities to be measured at fair value, and therefore, does notexpand the use of fair value in any new circumstance. SFAS No. 157 definesfair value as the price that would be received to sell an asset or paid totransfer a liability in an arm’s length transaction between market participantsin the markets where we conduct business. SFAS No. 157 clarifies that fairvalue should be based on the assumptions market participants would use whenpricing an asset or liability and establishes a fair value hierarchy thatprioritizes the information used to develop those assumptions. The fair valuehierarchy gives the highest priority to quoted prices available in activemarkets and the lowest priority to data lacking transparency.

 

InOctober 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No.157-3, *Determining the Fair Value of a Financial Asset When the Market forThat Asset Is Not Active,*which clarifies the application of SFASNo. 157, *Fair Value Measurements*, in amarket that is not active and provides an example to illustrate keyconsiderations in determining the fair value of a financial asset when themarket for the financial asset is not active. This FSP is effective uponissuance, including prior periods for which financial statements have not beenissued. Revisions resulting for as a change in the valuation technique or itsapplication shall be accounted for as a change in accounting estimate under SFASNo. 154, *Accounting Changes and Error Corrections*.However, such revisions shall be exempt from SFAS No. 154 disclosurerequirement. The Company adopted FSP SFAS No. 157-3 on its issuance date,October 10, 2008. The adoption of this FSP did not have a material impacton the Company’s fair value determination and its consolidated financialstatements.

 

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

 

Level 1 – Unadjusted quotedprices in active markets for identical assets or liabilities that thereporting entity has the ability to access at the measurement date. The quotedprice 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.

 

The Company adopted SFAS No. 157 as ofJanuary 1, 2008 and FSP SFAS No.157-3 as of October 10, 2008. It used the following methods and assumptionsin estimating our fair value disclosure for financial instruments. Financialassets and liabilities recorded at fair value on a recurring basis are listedas follows:

 

Securities available for sale – Investment in available-for-sale securities is recorded at fairvalue pursuant to SFAS No. 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 September 30, 2008 are measured using matrixpricing models in lieu of direct price quotes and recorded based on Level 2measurement inputs.

 

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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.

 

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 and troubledebt restructured loans, except automobile loans, for which it has establishedspecific reserves as part of the specific allocated allowance component of theallowance for loan losses. The Company records impaired loans as nonrecurringwith Level 3 measurement inputs.

 

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

 

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

 
| ** **                     | ** ** | **As of September 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 sale securities |       | $                                                | 227,957    |   | $ | — |   | $ | 227,957 |   | $ | — |   |
|                           |       |                                             |       |   |   |   |   |   |   |
| Servicing  assets              |       | 4,986                                            |       | — |   | — |   | 4,986 |   |
|                           |       |                                             |       |   |   |   |   |   |   |
| Interest-only  strips          |       | 658                                              |       | — |   | — |   | 658 |   |
|                           |       |                                             |       |   |   |   |   |   |   |
| Servicing  liabilities         |       | (330                                             | )          | — |   | — |   | (330 | ) |
|                           |       |                                             |       |   |   |   |   |   |   |
| Impaired  loans                |       | 26,592                                           |       | — |   | — |   | 26,592 |   |
|                                |            |                                                  |            |  |  |  |  |  |  |  |  |  |  |

 

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

 
| ** **           | ** ** | **At June   30, 2008** | ** ** | **Realized********Losses in**

**Net Income** | ** ** | **Unrealized  Gains in Other  Comprehensive  Income** | ** ** | **Net  Purchases  Sales and  Settlements** | ** ** | **Transfers  In/out of  Level 3** | ** ** | **At  September   30, 2008** | ** ** | **Net  Cumulative  Unrealized  Gains** | ** ** |
|----------------------|------------|---------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Servicingassets      |       | $                                     | 5,039      |                                                    | $          | (197                                                            | )          | $                                               | —     |                                        | $          | 144                                    |       | $                                      | —     |   | $ | 4,986 |   | $ | — |   |
|                 |       |                                  |       |                                                    |       |                                                            |       |                                            |       |                                        |       |                                   |       |                                   |       |
| Interest-onlystrips  |       | 702                                   |       | (62                                                     | )          | 18                                                              |       | —                                          |       | —                                      |       | 658                                    |       | 237                                    |       |
|                 |       |                                  |       |                                                    |       |                                                            |       |                                            |       |                                        |       |                                   |       |                                   |       |
| Servicingliabilities |       | (349                                  | )          | 19                                                      |       | —                                                          |       | —                                          |       | —                                      |       | (330                                   | )          | —                                 |       |
|                      |            |                                       |            |                                                         |            |                                                                 |            |                                                 |            |                                             |            |                                        |            |                                        |            |  |  |  |  |  |  |  |

 

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 nine months ended September 30,2008 (dollars in thousands):

 
| ** **           | ** ** | **At  December   31, 2007** | ** ** | **Realized**

**Losses in  Net Income** | ** ** | **Unrealized**

**Gains in Other  Comprehensive  Income** | ** ** | **Net   Purchases  Sales and  Settlements** | ** ** | **Transfers  In/out of  Level 3** | ** ** | **At  September  30, 2008** | ** ** | **Net  Cumulative  Unrealized  Gains** | ** ** |
|----------------------|------------|---------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------|------------|----------------------------------------|------------|
| Servicingassets      |       | $                                     | 4,950      |                                              | $          | (730                                                                | )          | $                                                     | —     |                                        | $          | 766                              |       | $                                      | —     |   | $ | 4,986 |   | $ | — |   |
|                 |       |                                  |       |                                              |       |                                                                |       |                                                  |       |                                        |       |                             |       |                                   |       |   |   |   |   |   |   |   |
| Interest-onlystrips  |       | 753                                   |       | (180                                              | )          | 85                                                                  |       | —                                                |       | —                                      |       | 658                              |       | 237                                    |       |
|                 |       |                                  |       |                                              |       |                                                                |       |                                                  |       |                                        |       |                             |       |                                   |       |
| Servicingliabilities |       | (379                                  | )          | 49                                                |       | —                                                              |       | —                                                |       | —                                      |       | (330                             | )          | —                                 |       |

** **

**Note 4.**   Bank OwnedLife 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 deathbenefit depending on the contractual terms of the underlying agreement. EITF06-4 is effective as of the beginning of the entity’s first fiscal year afterDecember 15, 2007. We adopted EITF 06-4 on January 1, 2008 using thelater option, i.e., based on the future death benefit. Upon this adoption, werecognized increases in the liability for unrecognized post-retirementobligations of $806,000 and $1,070,000 for directors and officers,respectively, as a cumulative adjustment to the current year’s beginningequity. During the third quarter and the first nine months of 2008, theincreases in BOLI expense and liability related to the adoption of EITF 06-4were $36,000 and $108,000, respectively, which wereincluded as part of the other expense and other liabilities balances in theconsolidated financial statements.

 

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** **

**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**** ****September 30,** | ** ** | **Nine months ended********September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                                    | ** ** | **2008**                                                         | ** ** | **2007**                                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Numerator:                                                                                                                    |       |                                                             |       |                                                      |       |   |   |   |   |
| Net income - numerator for basic earnings  per share and diluted earnings per share- income available to common  stockholders |       | $                                                                | 6,868      |                                                      | $          | 6,644 |   | $ | 21,347 |   | $ | 21,307 |   |
| Denominator:                                                                                                                  |       |                                                             |       |                                                      |       |   |   |   |   |
| Denominator for basic earnings per share:                                                                                     |       |                                                             |       |                                                      |       |   |   |   |   |
| Weighted-average shares                                                                                                       |       | 29,397,182                                                       |       | 29,350,499                                                |       | 29,355,231 |   | 29,355,694 |   |
| Effect of dilutive securities:                                                                                                |       |                                                             |       |                                                      |       |   |   |   |   |
| Stock option dilution                                                                                                         |       | 111,321                                                          |       | 104,271                                                   |       | 46,981 |   | 114,023 |   |
| Denominator for diluted earnings  per share:                                                                                  |       |                                                             |       |                                                      |       |   |   |   |   |
| Adjusted weighted-average sharesAnd assumed conversions                                                                       |       | 29,508,503                                                       |       | 29,454,770                                                |       | 29,402,212 |   | 29,469,717 |   |
| Basic earnings per share                                                                                                      |       | $                                                                | 0.23       |                                                      | $          | 0.23 |   | $ | 0.73 |   | $ | 0.73 |   |
| Diluted earnings per share                                                                                                    |       | $                                                                | 0.23       |                                                      | $          | 0.23 |   | $ | 0.73 |   | $ | 0.72 |   |

* *

***StockRepurchase Program***

* *

InJuly 2007, the Company’sBoard of Directors authorized a stock repurchase program to repurchase up to $10 million of the Company’s common stock untilJuly 31, 2008.  During 2008, there were no suchrepurchases. This program completed its term and expired as of July 31,2008.

 

**Note**6.   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.

 

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

 

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

 
| ** **                                                  | ** ** | **Three Months Ended September 30, 200****8** | ** ** | **Three Months Ended September 30, 200****7** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| **(dollars in thousands)  Business Segment** | ** ** | **Banking  Operations**                                                | ** ** | **TFS**                                                                | ** ** | **SBA** | ** ** | **Total** | ** ** | **Banking  Operations** | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Total** | ** ** |
| Net interest  income                                        |       | $                                                                      | 18,116     |                                                                   | $          | 577 |   | $ | 2,721 |   | $ | 21,414 |   | $ | 16,020 |   | $ | 758 |   | $ | 4,160 |   | $ | 20,938 |   |
| Less provision  (recapture) for credit losses               |       | 2,239                                                                  |       | 595                                                                    |       | 566 |   | 3,400 |   | 1,693 |   | 1,549 |   | 858 |   | 4,100 |   |
| Non-interest  income                                        |       | 4,070                                                                  |       | 312                                                                    |       | 963 |   | 5,345 |   | 3,165 |   | 275 |   | 1,788 |   | 5,228 |   |
| Net revenue                                                 |       | 19,947                                                                 |       | 294                                                                    |       | 3,118 |   | 23,359 |   | 17,492 |   | (516 | ) | 5,090 |   | 22,066 |   |
| Non-interest  expenses                                      |       | 11,148                                                                 |       | 293                                                                    |       | 866 |   | 12,307 |   | 9,390 |   | 287 |   | 1,370 |   | 11,047 |   |
| Incomebefore taxes                                          |       | $                                                                      | 8,799      |                                                                   | $          | 1 |   | $ | 2,252 |   | $ | 11,052 |   | $ | 8,102 |   | $ | (803 | ) | $ | 3,720 |   | $ | 11,019 |   |
| Business segment  assets                                    |       | $                                                                      | 2,181,042  |                                                                   | $          | 49,825 |   | $ | 156,268 |   | $ | 2,387,135 |   | $ | 1,882,810 |   | $ | 46,871 |   | $ | 171,126 |   | $ | 2,100,807 |   |

 
| ** **                                                  | ** ** | **Nine Months Ended September 30, 200****8** | ** ** | **Nine Months Ended September 30, 200****7** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| **(dollars in thousands)  Business Segment** | ** ** | **Banking  Operations**                                               | ** ** | **TFS**                                                               | ** ** | **SBA** | ** ** | **Total** | ** ** | **Banking  Operations** | ** ** | **TFS** | ** ** | **SBA** | ** ** | **Total** | ** ** |
| Net interest  income                                        |       | $                                                                     | 50,725     |                                                                  | $          | 1,714 |   | $ | 9,052 |   | $ | 61,491 |   | $ | 45,839 |   | $ | 2,460 |   | $ | 12,583 |   | $ | 60,882 |   |
| Less provision  (recapture) for credit losses               |       | 2,819                                                                 |       | (692                                                                  | )          | 4,073 |   | 6,200 |   | 5,822 |   | 3,135 |   | 1,273 |   | 10,230 |   |
| Non-interest  income                                        |       | 11,519                                                                |       | 853                                                                   |       | 3,733 |   | 16,105 |   | 9,626 |   | 987 |   | 6,080 |   | 16,693 |   |
| Net revenue                                                 |       | 59,425                                                                |       | 3,259                                                                 |       | 8,712 |   | 71,396 |   | 49,643 |   | 312 |   | 17,390 |   | 67,345 |   |
| Non-interest  expenses                                      |       | 33,541                                                                |       | 801                                                                   |       | 2,743 |   | 37,085 |   | 27,694 |   | 760 |   | 3,701 |   | 32,155 |   |
| Incomebefore taxes                                          |       | $                                                                     | 25,884     |                                                                  | $          | 2,458 |   | $ | 5,969 |   | $ | 34,311 |   | $ | 21,949 |   | $ | (448 | ) | $ | 13,689 |   | $ | 35,190 |   |
| Business segment  assets                                    |       | $                                                                     | 2,181,042  |                                                                  | $          | 49,825 |   | $ | 156,268 |   | $ | 2,387,135 |   | $ | 1,882,810 |   | $ | 46,871 |   | $ | 171,126 |   | $ | 2,100,807 |   |

 

**Note**7.   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 September 30,2008 are summarized as follows(dollars in thousands):

 
| Commitments  to extend credit |   | $ | 168,508 |   |
|-------------------------------|--------|---|---------|--------|
| Standby letters of credit     |   | $ | 11,345  |   |
| Commercial letters of credit  |   | $ | 11,257  |   |

 

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.

 

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**Note**8.   RecentAccounting 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 FSP SFASNo.157-2, which delays the effective date of SFAS No. 157, fornonfinancial 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 FSPSFAS No.157-2 will 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 do not expect the adoption of SFAS No. 161 wouldhave a material impact on our consolidated financial statements (In September 2008,FASB issued FSP SFAS No.133-1 and FASB Interpretation No. (“FIN”) 45-4 toclarify the effective date of SFAS No. 161, see detail for FSP SFASNo.133-1 and FIN 45 below).

 

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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, “TheMeaning of Present Fairly in Conformity with Generally Accepted AccountingPrinciples”, which is currently under SEC review. We are currently assessingthe impact that the adoption of SFAS No. 162 will have on our consolidatedfinancial statements.

 

In May 2008, the FASB issued SFAS No. 163, *Accounting for Financial Gurantee 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 do not expect the adoption of SFAS No. 163would have a material impact on our consolidated financial statements.

 

In June 2008, the FASB issued FSP No. EITF03-6-1, *Determining Whether Instruments Granted inShared-Based Payment Transactions Are Participating Securities,*whichaddresses whether instruments granted in share-based payment transactions areparticipating securities prior to vesting and, therefore, need to be includedin the earnings allocation in computing earnings per share (EPS) under thetwo-class method described in paragraphs 60 and 61 of SFAS No. 128, *Earnings per Share.*FSP No. EITF 03-6-1 is effectivefor financial statements issued for fiscal years beginning after December 15,2008, and interim periods within those years. All prior-period EPS datapresented are adjusted retrospectively (including interim financial statements,summaries of earnings, and selected financial data) to conform with theprovisions of this FSP. Early adoption is not permitted. We do not expect theadoption of FSP No. EITF 03-6-1 would have a material impact on our consolidatedfinancial statements.

 

In September 2008, the FASB issued FSP SFASNo.133-1 and FIN 45-4, *Disclosure about CreditDerivatives and Certain Guarantees: An Amendment of SFAS No. 133 and FIN45; and Clarification of the Effective Date of SFAS No. 161.*ThisFSP is to address the potential adverse effects of changes in credit risk onthe financial position, financial performance, and cash flows of the sellers ofcredit derivatives and certain guarantees. FSP SFAS No.133-1 and FIN 45-4amends SFAS No. 133 to require disclosures by sellers of creditderivatives, including credit derivatives embedded in a hybrid instrument. ThisFSP also amends FIN 45, *Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others*, to require an additional disclosure aboutthe current status of the payment/performance risk of guarantee. Further, thisFSP clarifies FASB’s intent about the effective date of SFAS No. 161.While Paragraph 7 of SFAS No. 161 states, “this Statement shall beeffective for financial statements issued for fiscal years and interim periodsbeginning after November 15, 2008,” this FSP clarifies the FASB’s intentthat the disclosures required by SFAS No. 161 should be provided for anyreporting period, annual or quarterly interim, beginning after November 15,2008. Similarly, the provisions of this FSP that amend SFAS No. 133 andFIN 45 are effective for financial statements issued for reporting periods,annual or interim, ending after November 15, 2008. This FSP encouragesamendments applied in periods earlier than the required initial adoption tofacilitate comparison. In periods after initial adoption, this FSP requirescomparative disclosures only for periods ending subsequent to initial adoption.We do not expect the adoption of FSP SFAS No.133-1 would have a material impacton our consolidated financial statements.

 

In October 2008, the FASB issued FSP SFASNo.157-3, *Determining the Fair Value of a Financial AssetWhen the Market for That Asset Is Not Active,*which clarifies theapplication of SFAS No. 157, *Fair Value Measurements*,in a market that is not active and provides an example to illustrate keyconsiderations in determining the fair value of a financial asset when themarket for the financial asset is not active. This FSP is effective uponissuance, including prior periods for which financial statements have not beenissued. Revisions resulting for as a change in the valuation technique or itsapplication shall be accounted for as a change in accounting estimate underSFAS No. 154, *Accounting Changes andError Corrections*. However, such revisions shall be exempt from SFASNo. 154 disclosure requirement. We utilized and followed this FSP in ourfair valuation procedures pursuant SFAS No. 157 (refer to Note 3 above).

 

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## **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 nine months ended September 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 “Risk Factors,”in our Annual Report on Form 10-K for the year ended December 31, 2007, including the following:

 

·                  If a significantnumber of customers fail to perform under their loans, our business,profitability, and financial condition would be adversely affected.

 

·                  Increases in ourallowance for loan losses could materially affect our earnings adversely.

 

·                  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.

 

·                  The holders ofrecently issued debentures have rights that are senior to those of our commonshareholders.

 

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

 

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

 

·                  Our operationsmay require us to raise additional capital in the future, but that capital maynot be available or may not be on terms acceptable to us when it is needed.

 

·                  The short-termand long-term impact of the new Basel II capital standards and the forthcomingnew capital rules to be proposed for non-Basel II U.S. banks is uncertain.

 

·                  Maintaining orincreasing 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.

 

·                  If we fail toretain our key employees, our growth and profitability could be adverselyaffected.

 

·                  We may be unableto manage future growth.

 

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

 

·                  We could beliable for breaches of security in our online banking services.  Fear of security breaches could limit thegrowth of our online services.

 

·                  Our directorsand executive officers beneficially own a significant portion of ouroutstanding common stock.

 

·                  The market forour common stock is limited, and potentially subject to volatile changes inprice.

 

·                  We facesubstantial competition in our primary market area.

 

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

 

·                  We are subjectto significant government regulation and legislation that increase the cost ofdoing business and inhibits our ability to compete.

 

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

 

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

 

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

 

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.

 

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**Selected Financial Data**

** **

The following table presents selected historicalfinancial information (unaudited) as of and for the three and nine months ended September 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   September 30,**                      | ** ** | **Nine months ended   September 30,** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                | ** ** | **(dollars in thousands, except per share data)** | ** ** |
| ** **                                                                | ** ** | **200****8**                                                                    | ** ** | **200****7**                                              | ** ** | **2008** | ** ** | **200****7** | ** ** |
| Net income                                                           |       | $                                                                               | 6,868      |                                                      | $          |  6,644 |   | $ |  21,347 |   | $ |  21,307 |   |
| Net income per  share, basic                                              |       | 0.23                                                                            |       | 0.23                                                      |       | 0.73 |   | 0.73 |   |
| Net income per  share, diluted                                            |       | 0.23                                                                            |       | 0.23                                                      |       | 0.73 |   | 0.72 |   |
| Net interest income before provision for loan losses and loan commitments |       | 21,414                                                                          |       | 20,938                                                    |       | 61,491 |   | 60,882 |   |
|                                                                      |       |                                                                            |       |                                                      |       |   |   |   |   |
| **Average  balances:**                                                    |       |                                                                            |       |                                                      |       |   |   |   |   |
| Assets                                                                    |       | 2,381,999                                                                       |       | 2,075,790                                                 |       | 2,299,152 |   | 2,021,416 |   |
| Cash and cash  equivalents                                                |       | 79,748                                                                          |       | 116,849                                                   |       | 77,218 |   | 132,561 |   |
| Investment debt  securities                                               |       | 228,826                                                                         |       | 206,974                                                   |       | 226,726 |   | 193,982 |   |
| Net loans                                                                 |       | 1,979,435                                                                       |       | 1,667,899                                                 |       | 1,906,985 |   | 1,613,867 |   |
| Total deposits                                                            |       | 1,774,451                                                                       |       | 1,772,434                                                 |       | 1,735,283 |   | 1,742,712 |   |
| Shareholders’  equity                                                |       | 186,332                                                                         |       | 167,015                                                   |       | 181,122 |   | 161,367 |   |
| **Performance  Ratios:**                                                  |       |                                                                            |       |                                                      |       |   |   |   |   |
| Annualized  return on average assets                                      |       | 1.15                                                                            | %          | 1.28                                                      | %          | 1.24 | % | 1.41 | % |
| Annualized  return on average equity                                      |       | 14.74                                                                           | %          | 15.91                                                     | %          | 15.71 | % | 17.61 | % |
| Net interest  margin                                                      |       | 3.86                                                                            | %          | 4.35                                                      | %          | 3.82 | % | 4.32 | % |
| Efficiency ratio                                                          |       | 45.99                                                                           | %          | 42.22                                                     | %          | 47.79 | % | 41.45 | % |
| **Capital  Ratios:**                                                      |       |                                                                            |       |                                                      |       |   |   |   |   |
| Tier 1 capital  to adjusted total assets                                  |       | 10.19                                                                           | %          | 10.41                                                     | %          |   |   |   |   |
| Tier 1 capital  to risk-weighted assets                                   |       | 11.68                                                                           | %          | 12.18                                                     | %          |   |   |   |   |
| Total capital to  risk-weighted assets                                    |       | 14.01                                                                           | %          | 15.06                                                     | %          |   |   |   |   |
|                                                                           |            |                                                                                 |            |                                                           |            |  |  |  |  |  |  |  |  |

 
| ** **                                                        | ** ** | **September 30,   200****8** | ** ** | **December 31,  2007** | ** ** | **September 30,   200****7** | ** ** |   |      |
|-------------------------------------------------------------------|------------|----------------------------------------|------------|-----------------------------|------------|----------------------------------------|------------|--------|-----------|
| **Period-end balances as of:**                     |       |                                   |       |                        |       |                                   |       |   |      |
| Total assets                                                      |       | $                                      | 2,387,135  |                        | $          | 2,196,705                              |       | $      | 2,100,807 |   |   |   |
| Securities  investments                                           |       | 228,100                                |       | 231,640                     |       | 206,723                                |       |   |      |
| Total loans, net  of unearned income                              |       | 2,034,328                              |       | 1,809,050                   |       | 1,724,625                              |       |   |      |
| Total deposits                                                    |       | 1,787,763                              |       | 1,763,071                   |       | 1,748,158                              |       |   |      |
| Junior subordinated debentures                                    |       | 87,321                                 |       | 87,321                      |       | 87,321                                 |       |   |      |
| FHLB borrowings                                                   |       | 300,000                                |       | 150,000                     |       | 70,000                                 |       |   |      |
| Shareholders’  equity                                        |       | 187,879                                |       | 171,786                     |       | 168,148                                |       |   |      |
| **Asset  Quality Ratios:**                                        |       |                                   |       |                        |       |                                   |       |   |      |
| Net charge-offs to average total loans for the  quarter           |       | 0.07                                   | %          | 0.23                        | %          | 0.14                                   | %          |   |      |
| Non-performing  loans to total loans                              |       | 0.67                                   | %          | 0.59                        | %          | 0.48                                   | %          |   |      |
| Non-performing  assets to total loans and other real estate owned |       | 0.75                                   | %          | 0.60                        | %          | 0.52                                   | %          |   |      |
| Allowance for  loan losses to total loans                         |       | 1.28                                   | %          | 1.19                        | %          | 1.21                                   | %          |   |      |
| Allowance for  loan losses to non-performing loans                |       | 189.01                                 | %          | 203.55                      | %          | 251.48                                 | %          |   |      |
|                                                                   |            |                                        |            |                             |            |                                        |            |        |           |  |  |  |

 

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, such as 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 diversified ethnic groups.

 

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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 21 full-service branch banking offices in Southern California,Texas, New Jersey, and New York, and 6 separate loan production offices in Aurora, Colorado (the Denver area); Atlanta,Georgia; Dallas, Texas; Houston, Texas; Annandale, Virginia, and Seattle,Washington.

 

**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 believe that we have used the best informationavailable to make the estimatesnecessary to value the related assets and liabilities. Actual performance thatdiffers from our estimates and future changes in the key variables could changefuture valuation and could have an impact on our 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 Results 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 September 30,2008.

 

**Results of Operations**

 

**NetInterest Income and Net Interest Margin**

** **

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

 

Ouraverage interest-earning assets increased to $2.22 billion in the third quarter of 2008, as compared with $1.93 billion in the same quarter of 2007, and average net loans increased to $1.98 billion in the third quarter of 2008, as compared with $1.67 billion in the same quarter of 2007. Average interest-bearing depositsslightly increased to $1.47billion in the third quarter of 2008,as compared with $1.45 billion inthe same quarter of 2007. FHLB advancesand other borrowings have significantly increased to $309.6 million in thethird quarter of 2008 from $24.3 million in the same quarter of lastyear (see “Financial Condition-Deposits and Other Sources of Funds” below), andaverage balance on our junior subordinated debentures has slightly increased to$87.3 million in the third quarter of 2008 from $84.8 million in the thirdquarter of 2007. As a result, total interest bearing liabilities increased to$1.87 billion in the third quarter of 2008, as compared with $1.56 billion inthe third quarter of 2007.

 

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The federal funds rate reductions of 200 and 25 basispoints in the first quarter of 2008 and second quarter of 2008, respectively,have resulted in a decreasein our earning-asset yields as well as our cost of funds. The averageyields on our interest-earning assets decreased to 6.77% for the third quarter of 2008 from 8.40% for the third quarterof the prior year. Consistent with thedecrease in average yields on interest-earning assets, the cost of funds foraverage yields on interest-earning liabilities also decreased to 3.46% for thethird quarter of 2008 from 5.01% for the prior year’s same quarter. Althoughour earning-asset yields have decreasedrelatively more compared to our costof funds, our net interest income increased because our average net loanbalance significantly increased to $1.98 billion for the third quarter of 2008,as compared to $1.67 billion for the same quarter a year ago. As a result,although interest income decreased to $37.6 million for the third quarter of2008, as compared with $40.5 million for the prior year’s same period, interestexpense decreased faster than interest income to more than offset the loss inincome. Interest expense decreased to $16.2 million for the third quarter of2008, as compared with $19.5 million for the prior year’s same period. As aresult, our net interest income increased to 21.4 million for the third quarterof 2008, as compared with $20.9 million for the same quarter a year ago.

 

 Ourinterest-earning assets increased to $2.22 billion for the third quarter of2008 from $1.93 billion for the same quarter a year ago, while ourinterest-bearing liabilities were $1.87 billion and $1.56 billion for the thirdquarter of 2008 and 2007, respectively. Due to the slightly faster increase inour interest-bearing liabilities compared to our interest-earning assets, ournet interest spread and margin were both lowered. The decreases were alsoattributable to stiff deposit competition among financial institutions and thecombined 225 basis point federal funds rate cuts during the first two quartersof 2008. Our net interest spread and net interest margin have compressed in thethird quarter of 2008 to 3.31% and 3.86%, respectively, lowered from 3.39% and4.35%, in the same quarter a year ago. When compared to the prior quarter,however, net interest spread and net interest margin, have increased by 14basis points and 8 basis points from 3.17% and 3.78%, respectively.

 

For the first nine months of 2008,average interest-earning assets and average net loans increased to $2.14billion and $1.91 billion,respectively, as compared with $1.88billion and $1.61 billion for theprior year’s same period.  For the first nine months of 2008, averageinterest-bearing liabilities also increased to $1.79 billion from $1.52 billion, while the average interest-bearingdeposit portfolio remained relatively unchanged at $1.43 billion from the sameperiod a year ago.  The average yields oninterest-earning assets decreased to 6.98% for the first nine months of 2008 from 8.36% for the prior year’s same period, while our cost of funds decreased to 3.78% for the first nine months of 2008 from 5.00% for the prior year’s sameperiod.  Our business growth resulted in a slight increase in our net interestincome to $61.5 million in thefirst nine months of 2008 as compared with $60.9 million for the prior year’s sameperiod.

 

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The following table sets forth, for the periods indicated,our average balances of assets, liabilities and shareholders’ equity, inaddition to the major components of net interest income and net interest margin(all yields were calculated without the consideration of tax effects, if any):

 

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

 
| ** **                                                         | ** ** | **For the Quarter Ended September 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)                                                       |       | $                                                                | 1,979,435  |   | $ | 34,719 |   | 7.02 | % | $ | 1,667,899 |   | $ | 37,093 |   | 8.90 | % |
| Securities of  U.S. government agencies                            |       | 214,400                                                          |       | 2,629 |   | 4.91 | % | 181,787 |   | 2,353 |   | 5.18 | % |
| Other investment  securities                                       |       | 14,425                                                           |       | 169 |   | 4.69 | % | 27,433 |   | 344 |   | 5.02 | % |
| Interest on federal fund sold                                      |       | 11,485                                                           |       | 63 |   | 2.19 | % | 49,601 |   | 679 |   | 5.47 | % |
| Total  interest-earning assets                                     |       | 2,219,745                                                        |       | 37,580 |   | 6.77 | % | 1,926,720 |   | 40,469 |   | 8.40 | % |
| Cash and due  from banks                                           |       | 68,263                                                           |       |   |   |   |   | 67,248 |   |   |   |   |   |
| Other assets                                                       |       | 93,991                                                           |       |   |   |   |   | 81,822 |   |   |   |   |   |
| Total assets                                                       |       | $                                                                | 2,381,999  |   |   |   |   |   | $ | 2,075,790 |   |   |   |   |   |
|                                                               |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**                    |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                     |       |                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Money market  deposits                                             |       | $                                                                | 439,080    |   | 3,520 |   | 3.21 | % | $ | 474,122 |   | 5,475 |   | 4.62 | % |
| Super NOW  deposits                                                |       | 21,144                                                           |       | 72 |   | 1.36 | % | 22,317 |   | 70 |   | 1.26 | % |
| Savings deposits                                                   |       | 41,273                                                           |       | 359 |   | 3.48 | % | 29,790 |   | 186 |   | 2.50 | % |
| Time  certificates of deposit in denominations of $100,000 or more |       | 770,812                                                          |       | 6,702 |   | 3.48 | % | 780,463 |   | 10,276 |   | 5.27 | % |
| Other time  deposits                                               |       | 197,044                                                          |       | 1,816 |   | 3.69 | % | 142,877 |   | 1,756 |   | 4.92 | % |
| FHLB advances and other borrowings                                 |       | 309,576                                                          |       | 2,570 |   | 3.32 | % | 24,249 |   | 212 |   | 3.50 | % |
| Junior subordinated debenture                                      |       | 87,321                                                           |       | 1,127 |   | 5.16 | % | 84,800 |   | 1,556 |   | 7.34 | % |
| Total  interest-bearing liabilities                                |       | 1,866,250                                                        |       | 16,166 |   | 3.46 | % | 1,558,618 |   | 19,531 |   | 5.01 | % |
| Non-interest-bearing deposits                                      |       | 305,098                                                          |       |   |   |   |   | 322,865 |   |   |   |   |   |
| Total deposits and other borrowings                                |       | 2,171,348                                                        |       |   |   |   |   | 1,881,483 |   |   |   |   |   |
| Other  liabilities                                                 |       | 24,319                                                           |       |   |   |   |   | 27,292 |   |   |   |   |   |
| Shareholders’  equity                                         |       | 186,332                                                          |       |   |   |   |   | 167,015 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity                   |       | $                                                                | 2,381,999  |   |   |   |   |   | $ | 2,075,790 |   |   |   |   |   |
| Net interest  income                                               |       |                                                             |       | $ | 21,414 |   |   |   |   |   | $ | 20,938 |   |   |   |
| Net interest  spread(2)                                            |       |                                                             |       |   |   | 3.31 | % |   |   |   |   | 3.39 | % |
| Net interest  margin(3)                                            |       |                                                             |       |   |   | 3.86 | % |   |   |   |   | 4.35 | % |

 

----

 

(1) Net loan fees have beenincluded in the calculation of interest income. Net loan fees wereapproximately $912,000 and $1,757,000 for the quarters ended September 30, 2008 and 2007,respectively. Net loans are net of the allowance for loan losses, deferredfees, 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.

 

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** **

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

 
| ** **                                                         | ** ** | **For the Nine Months Ended September 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)                                                       |       | $                                                                         | 1,906,985  |   | $ | 104,014 |   | 7.27 | % | $ | 1,613,867 |   | $ | 107,578 |   | 8.89 | % |
| Securities of  U.S. government agencies                            |       | 210,905                                                                   |       | 7,475 |   | 4.73 | % | 168,580 |   | 6,320 |   | 5.00 | % |
| Other investment  securities                                       |       | 15,822                                                                    |       | 546 |   | 4.60 | % | 27,184 |   | 1,014 |   | 4.97 | % |
| Interest on federal fund sold                                      |       | 9,966                                                                     |       | 192 |   | 2.57 | % | 68,190 |   | 2,766 |   | 5.41 | % |
| Total  interest-earning assets                                     |       | 2,143,678                                                                 |       | 112,227 |   | 6.98 | % | 1,877,821 |   | 117,678 |   | 8.36 | % |
| Cash and due  from banks                                           |       | 67,252                                                                    |       |   |   |   |   | 64,371 |   |   |   |   |   |
| Other assets                                                       |       | 88,222                                                                    |       |   |   |   |   | 79,224 |   |   |   |   |   |
| Total assets                                                       |       | $                                                                         | 2,299,152  |   |   |   |   |   | $ | 2,021,416 |   |   |   |   |   |
|                                                               |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity:**                    |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                     |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Money market  deposits                                             |       | $                                                                         | 409,726    |   | 10,243 |   | 3.33 | % | $ | 434,001 |   | 14,796 |   | 4.55 | % |
| Super NOW  deposits                                                |       | 22,062                                                                    |       | 227 |   | 1.37 | % | 21,803 |   | 195 |   | 1.19 | % |
| Savings deposits                                                   |       | 36,646                                                                    |       | 907 |   | 3.30 | % | 29,368 |   | 492 |   | 2.23 | % |
| Time  certificates of deposit in denominations of $100,000 or more |       | 784,790                                                                   |       | 23,222 |   | 3.95 | % | 789,478 |   | 31,284 |   | 5.28 | % |
| Other time  deposits                                               |       | 178,342                                                                   |       | 5,472 |   | 4.09 | % | 151,310 |   | 5,602 |   | 4.94 | % |
| FHLB advances and other borrowings                                 |       | 269,818                                                                   |       | 6,969 |   | 3.44 | % | 21,951 |   | 598 |   | 3.63 | % |
| Junior subordinated debenture                                      |       | 87,321                                                                    |       | 3,696 |   | 5.64 | % | 69,383 |   | 3,829 |   | 7.36 | % |
| Total  interest-bearing liabilities                                |       | 1,788,705                                                                 |       | 50,736 |   | 3.78 | % | 1,517,294 |   | 56,796 |   | 5.00 | % |
| Non-interest-bearing deposits                                      |       | 303,717                                                                   |       |   |   |   |   | 316,752 |   |   |   |   |   |
| Total deposits and other borrowings                                |       | 2,092,422                                                                 |       |   |   |   |   | 1,834,046 |   |   |   |   |   |
| Other  liabilities                                                 |       | 25,608                                                                    |       |   |   |   |   | 26,003 |   |   |   |   |   |
| Shareholders’  equity                                         |       | 181,122                                                                   |       |   |   |   |   | 161,367 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity                   |       | $                                                                         | 2,299,152  |   |   |   |   |   | $ | 2,021,416 |   |   |   |   |   |
| Net interest  income                                               |       |                                                                      |       | $ | 61,491 |   |   |   |   |   | $ | 60,882 |   |   |   |
| Net interest  spread(2)                                            |       |                                                                      |       |   |   | 3.20 | % |   |   |   |   | 3.36 | % |
| Net interest  margin(3)                                            |       |                                                                      |       |   |   | 3.82 | % |   |   |   |   | 4.32 | % |

 

----

(1) Net loan fees have beenincluded in the calculation of interest income. Net loan fees were approximately $3,381,000 and $5,281,000 for the nine monthsended September 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.

 

(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.

 

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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 September 30,  200****8**** vs. 200****7** | ** ** | **Nine Months Ended September 30,  2008 vs. 200****7** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Increase (Decrease) Due to Change In**                             | ** ** | **Increase (Decrease) Due to Change In**                    | ** ** |
| ** **                                                         | ** ** | **Volume**                                                                                    | ** ** | **Rate**                                                                             | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| **Interest income:**                                               |       | $                                                                                             | 6,241      |                                                                                 | (8,615     | ) | $ | (2,374 | ) | $ | 17,764 |   | $ | (21,328 | ) | $ | (3,564 | ) |
| Net loans(1)                                                       |       |                                                                                          |       |                                                                                 |       |   |   |   |   |   |   |   |   |
| Securities of U.S. government agencies                             |       | 405                                                                                           |       | (129                                                                                 | )          | 276 |   | 1,516 |   | (361 | ) | 1,155 |   |
| Other investment securities                                        |       | (154                                                                                          | )          | (21                                                                                  | )          | (175 | ) | (397 | ) | (71 | ) | (468 | ) |
| Interest on federal fund sold                                      |       | (346                                                                                          | )          | (270                                                                                 | )          | (616 | ) | (1,594 | ) | (980 | ) | (2,574 | ) |
| Total interest income                                              |       | 6,146                                                                                         |       | (9,035                                                                               | )          | (2,889 | ) | 17,289 |   | (22,740 | ) | (5,451 | ) |
|                                                               |       |                                                                                          |       |                                                                                 |       |   |   |   |   |   |   |   |   |
| **Interest expense:**                                              |       |                                                                                          |       |                                                                                 |       |   |   |   |   |   |   |   |   |
| Money market deposits                                              |       | (380                                                                                          | )          | (1,575                                                                               | )          | (1,955 | ) | (789 | ) | (3,764 | ) | (4,553 | ) |
| Super NOW deposits                                                 |       | (4                                                                                            | )          | 6                                                                                    |       | 2 |   | 2 |   | 30 |   | 32 |   |
| Savings deposits                                                   |       | 85                                                                                            |       | 88                                                                                   |       | 173 |   | 142 |   | 273 |   | 415 |   |
| Time certificates of deposit in  denominations of $100,000 or more |       | (126                                                                                          | )          | (3,448                                                                               | )          | (3,574 | ) | (185 | ) | (7,877 | ) | (8,062 | ) |
| Other time deposits                                                |       | 565                                                                                           |       | (505                                                                                 | )          | 60 |   | 913 |   | (1,043 | ) | (130 | ) |
| FHLB advances and other borrowings                                 |       | 2,369                                                                                         |       | (11                                                                                  | )          | 2,358 |   | 6,404 |   | (33 | ) | 6,371 |   |
| Junior subordinated debenture                                      |       | 45                                                                                            |       | (474                                                                                 | )          | (429 | ) | 869 |   | (1,002 | ) | (133 | ) |
| Total interest expense                                             |       | 2,554                                                                                         |       | (5,919                                                                               | )          | (3,365 | ) | 7,356 |   | (13,416 | ) | (6,060 | ) |
|                                                               |       |                                                                                          |       |                                                                                 |       |   |   |   |   |   |   |   |   |
| Change in net interest income                                      |       | $                                                                                             | 3,592      |                                                                                 | $          | (3,116 | ) | $ | 476 |   | $ | 9,933 |   | $ | (9,324 | ) | $ | 609 |   |
|                                                                    |            |                                                                                               |            |                                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(1) Net loan fees have beenincluded in the calculation of interest income. Loan fees were approximately $912,000 and $1,757,000 for the quartersended September 30, 2008 and2007, respectively, and approximately $3,381,000 and $5,281,000 for the nine months ended September 30, 2008 and 2007,respectively.  Net loans are net of theallowance for loan losses, deferred fees, unearned income, and related directcosts, but include those loans placed on non-accrual status.

 

**P**rovision for Loan Losses and Provisionfor Loan Commitments

** **

Due to the credit risk inherent in our lendingbusiness, we set aside allowances through charges to earnings.  Such charges are made not only for our outstanding loan portfolio, but also foroff-balance sheet items, such as commitments to extend credits or letters ofcredit.  The charges made for ouroutstanding loan portfolio were credited to allowance for loan losses, whereascharges for off-balance sheet items were credited to reserve for off-balancesheet items, which is presented asa component of other liabilities.

 

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We recordeda provision for loanlosses and loan commitments of $3.4 million in the third quarterof 2008 as compared to a provision of $4.1 million for the prior year’s samequarter. The provision for loan losses and loan commitments in the first ninemonths of 2008 was $6.2 million, as compared to $10.2 million in the first ninemonths of 2007. The decrease in the provision for loan losses and loan commitments was in line with ourenhanced lending policy and our strategy of improving loan quality (see“Financial Condition – Allowance for LoanLosses and Loan Commitments” belowfor further discussion).  The $3.4 million provision in the thirdquarter of 2008 was net of a recovery of $395,000 to the reserve for loancommitments, while the $4.1 million provision in the third quarter of 2007included $220,000 provision to the reserve for loan commitments. The procedures for monitoring the adequacy of theallowance for loan losses and loan commitments, as well as detailedinformation concerning the allowance itself, are described in the sectionentitled “Allowance for Loan Losses and Loan Commitments”below.

 

**Non-interest Income**

** **

Totalnon-interest income remained relatively unchanged at $5.3 million in the thirdquarter of 2008 compared tothe same quarter a year ago. However, non-interest income as apercentage of average assets decreasedto 0.22% for the third quarter of2008 from 0.25% for the prior year’s same period, primarily due to $306.2million, or 14.75%, increase in average assets between the two periods. For thefirst nine months of 2008, total non-interest income decreased to $16.1 million as compared with $16.7 million in the same period of 2007, and such nine-month non-interestincome of 2008 and 2007 represent 0.70% and 0.83% of average assets,respectively.

 

Thefollowing table sets forth the various components of our non-interest incomefor the periods indicated:

 

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

 
| ** **                                    | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|-----------------------------------------------|------------|--------------|------------|--------------|------------|
| **For Three Months Ended September 30,**      | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit accounts           |       | $            | 3,125      |         | 58.4       | % | $ | 2,398 |   | 45.9 | % |
| Loan-related servicing fees                   |       | 891          |       | 16.7         | %          | 517 |   | 9.9 | % |
| Gain on sale of loans                         |       | 410          |       | 7.7          | %          | 1,584 |   | 30.3 | % |
| Income from other earning assets              |       | 398          |       | 7.4          | %          | 293 |   | 5.6 | % |
| Other income                                  |       | 521          |       | 9.8          | %          | 436 |   | 8.3 | % |
| Total                                         |       | $            | 5,345      |         | 100.0      | % | $ | 5,228 |   | 100.0 | % |
| Average assets                                |       | $            | 2,381,999  |         |       |   | $ | 2,075,790 |   |   |   |
| Non-interest income as a % of average  assets |       |         |       | 0.22         | %          |   |   | 0.25 | % |

 
| ** **                                    | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|-----------------------------------------------|------------|--------------|------------|--------------|------------|
| **For Nine Months Ended September 30,**       | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service charges on deposit accounts           |       | $            | 8,916      |         | 55.4       | % | $ | 7,189 |   | 43.0 | % |
| Loan-related servicing fees                   |       | 2,338        |       | 14.5         | %          | 1,502 |   | 9.0 | % |
| Gain on sale of loans                         |       | 2,192        |       | 13.6         | %          | 5,727 |   | 34.3 | % |
| Income from other earning assets              |       | 1,108        |       | 6.9          | %          | 846 |   | 5.1 | % |
| Other income                                  |       | 1,551        |       | 9.6          | %          | 1,429 |   | 8.6 | % |
| Total                                         |       | $            | 16,105     |         | 100.0      | % | $ | 16,693 |   | 100.0 | % |
| Average assets                                |       | $            | 2,299,152  |         |       |   | $ | 2,021,416 |   |   |   |
| Non-interest income as a % of average  assets |       |         |       | 0.70         | %          |   |   | 0.83 | % |

 

Ourlargest source of non-interest income in the third quarter of 2008 was service charge income on depositaccounts, which represented over 55% ofour total non-interest income. Service charge income increased to $3.1 millionin the third quarter of 2008 and $8.9 million in the first nine months of 2008,as compared with $2.4 million and $7.2 million, respectively, for the prioryear’s same periods. The increase in service charge income was mainly due toour increase of over 20% during February 2008 in the service charges weapply to our customers’ deposit accounts. We constantly review service chargerates and the managers’ authority to waive those rates to maximize servicecharge income while maintaining a competitive position.

 

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Oursecond largest source of non-interest income was trade finance and loanservicing income, which represented approximately 15% of the total non-interestincome.  This fee income consists oftrade-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 third quarter of 2008, it increasedto $891,000 as compared with$517,000 for the prior year’s sameperiod.  Such increase wasprimarily attributable to an additional $184,000 in income related to thedisposal of servicing assets and interest-only (“I/O”) strips in the thirdquarter of 2008, as compared with the same quarter a year ago.  For thefirst nine months of 2008, servicing income increased to $2.3 million from $1.5million in the prior year’s same period. The servicing fee income onsold loans is credited when wecollect the monthly payments on the sold loans we are servicing and charged bythe monthly amortization of servicing rights and I/O strips that we originallycapitalized upon sale of therelated 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 nine months of2008, $613,000 of servicing assets and I/O strips were charged back to thisloan service fee income account by the early pay-offs as compared with $1.4 million in the prior year’s sameperiod.

 

Our third largest source of non-interestincome for the third quarter of 2008was the gain on the sale of loans. It has substantially decreased to $0.4 million and$2.2 million in the third quarterand the first nine months of 2008from $1.6 million and $5.7million, 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.  Due to 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 $10.2 millionand $54.1 million, respectively, for the third quarter and the first ninemonths of 2008, as compared with $39.7 million and $120.8 million,respectively, for the prior year’s same periods.  Such reduction of 7(a) guarantee loanproduction, coupled with the lowered sales premium on SBA loans, decreased thegain on sale of the guaranteedportions of SBA loans to $0.4 millionand $2.2 million in the thirdquarter and the first nine months of 2008, as compared with $1.6 million and $5.7 million, respectively, for the prior year’s same periods.

 

Incomefrom other earning assets mainly represents dividend income on FHLB stockownership and increases in the cash surrender value of BOLI.  For the third quarter and first nine monthsof 2008, the balance increasedto $398,000 and $1.1 millionrespectively, as compared with $293,000 and $846,000, respectively inthe prior year’s same periods.These increases were primarily attributable to $96,000 and $237,000 increasesin FHLB stock dividend income in the third quarter and first nine months of2008, respectively, which were due to $6.7 million increase in FHLB stockcorresponding to our increase in FHLB borrowings from the third quarter end of2007.

 

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 third quarterand the first nine months of 2008, this miscellaneous income amountedto $521,000 and $1.6 million, respectively, as compared with $436,000 and $1.4 million in the prioryear’s same periods.

 

**Non-interestExpense**

** **

Totalnoninterest expense increased to $12.3 million and $37.1 million in the third quarter and the firstnine months of 2008, respectively, from $11.0 million and $32.2 million, respectively, in the same periods of2007. These increases were mainly attributable to the increase in stock compensationexpenses for new stock options granted in June 2008 and various expensesassociated with the integration of our new Los Angeles offices opened in December of2007 and August of 2008. 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 0.52% and1.61% in the third quarter and first nine months of 2008, respectively,as compared with 0.53% and 1.59% in the prior year’s same periods.  Our efficiency ratio was 46.0% and 47.8% inthe third quarter and the first nine months of 2008, respectively, compared to42.2% and 41.5% in the same periods a year ago. The increase was primarily dueto an increase in stock compensation expenses and various expenses related tothe integration of our new Los Angeles offices that were opened in December of2007 and August of 2008.

 

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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  September 30,**                   | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee benefits                                  |       | $            | 6,718      |         | 54.6       | % | $ | 5,827 |   | 52.7 | % |
| Occupancy and equipment                                         |       | 1,576        |       | 12.8         | %          | 1,317 |   | 11.9 | % |
| Data processing                                                 |       | 785          |       | 6.4          | %          | 817 |   | 7.4 | % |
| Professional fees                                               |       | 605          |       | 4.9          | %          | 391 |   | 3.5 | % |
| Outsourced service for customer                                 |       | 376          |       | 3.1          | %          | 492 |   | 4.5 | % |
| Deposit insurance premium                                       |       | 279          |       | 2.3          | %          | 276 |   | 2.5 | % |
| Office supplies                                                 |       | 202          |       | 1.6          | %          | 150 |   | 1.4 | % |
| Directors’ fees                                            |       | 120          |       | 1.0          | %          | 146 |   | 1.3 | % |
| Advertising                                                     |       | 242          |       | 2.0          | %          | 255 |   | 2.3 | % |
| Communications                                                  |       | 109          |       | 0.9          | %          | 119 |   | 1.1 | % |
| Investor relation expenses                                      |       | 69           |       | 0.6          | %          | 55 |   | 0.5 | % |
| Amortization of investments in affordable  housing partnerships |       | 225          |       | 1.8          | %          | 142 |   | 1.3 | % |
| Amortization of other intangible  assets                        |       | 75           |       | 0.6          | %          | 75 |   | 0.7 | % |
| Other operating                                                 |       | 926          |       | 7.4          | %          | 985 |   | 8.9 | % |
| Total                                                           |       | $            | 12,307     |         | 100.0      | % | $ | 11,047 |   | 100.0 | % |
| Average assets                                                  |       | $            | 2,381,999  |         |       |   | $ | 2,075,790 |   |   |   |
| Non-interest expenses as a % of average  assets                 |       |         |       | 0.52         | %          |   |   | 0.53 | % |

 
| ** **                                                      | ** ** | **200****8** | ** ** | **200****7** | ** ** |
|-----------------------------------------------------------------|------------|--------------|------------|--------------|------------|
| **For the Nine Months Ended  September 30,**               | ** ** | **(Amount)** | ** ** | **(%)**      | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Salaries and employee benefits                                  |       | $            | 21,349     |         | 57.6       | % | $ | 17,228 |   | 53.6 | % |
| Occupancy and equipment                                         |       | 4,493        |       | 12.1         | %          | 3,887 |   | 12.1 | % |
| Data processing                                                 |       | 2,320        |       | 6.3          | %          | 2,327 |   | 7.2 | % |
| Professional fees                                               |       | 1,559        |       | 4.2          | %          | 970 |   | 3.0 | % |
| Outsourced service for customer                                 |       | 1,218        |       | 3.3          | %          | 1,315 |   | 4.1 | % |
| Deposit insurance premium                                       |       | 907          |       | 2.4          | %          | 648 |   | 2.0 | % |
| Office supplies                                                 |       | 523          |       | 1.4          | %          | 470 |   | 1.5 | % |
| Directors’ fees                                            |       | 321          |       | 0.9          | %          | 419 |   | 1.3 | % |
| Advertising                                                     |       | 594          |       | 1.6          | %          | 653 |   | 2.0 | % |
| Communications                                                  |       | 332          |       | 0.9          | %          | 354 |   | 1.1 | % |
| Investor relation expenses                                      |       | 250          |       | 0.7          | %          | 239 |   | 0.7 | % |
| Amortization of investments in affordable  housing partnerships |       | 574          |       | 1.5          | %          | 377 |   | 1.2 | % |
| Amortization of other intangible  assets                        |       | 223          |       | 0.6          | %          | 223 |   | 0.7 | % |
| Other operating                                                 |       | 2,422        |       | 6.5          | %          | 3,045 |   | 9.5 | % |
| Total                                                           |       | $            | 37,085     |         | 100.0      | % | $ | 32,155 |   | 100.0 | % |
| Average assets                                                  |       | $            | 2,299,152  |         |       |   | $ | 2,021,416 |   |   |   |
| Non-interest expenses as a % of average  assets                 |       |         |       | 1.61         | %          |   |   | 1.59 | % |

 

Salariesand employee benefits historically represent more than half of totalnon-interest expense and generally increase as our branch network and businessvolume expand. These expenses increased to $6.7 million and $21.3 million in thethird quarter and the first nine months of 2008, respectively, as compared with$5.8 million and $17.2 million forthe prior year’s same periods.  Suchincreases were the result of overall compensation increases, coupled with $0.6million increase in stock compensation expense resulting from the optionsgranted in June 2008 under the 2008 stock option plan. Although additionalstaffing was necessitated by our new office openings and business growth in thepast 12 months, we have successfully controlled and maintained the total numberof employee headcount through effective allocation of our human resources. Thenumber of full-time equivalent employees remained roughly unchanged at 357 asof September 30, 2008, as compared with 358 as of September 30, 2007. Nonetheless, our asset growthhelped us improve our assets per employee ratio to $6.7 million at September 30,2008 from $5.9 million at September 30, 2007.

 

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Occupancyand equipment expenses represent about 12% of total noninterest expenses. Theseexpenses increased to $1.6million and $4.5 million in the third quarter and first nine months of2008, respectively, as compared with $1.3 million and $3.9 million for the same periods a year ago.  The increases were primarily attributable to the additional office space and leaseexpenses for our additional California branch offices opened in December 2007and August 2008, respectively.

 

Data processing expenses and office supplies togetherrepresent about 8% of total noninterest expenses in the third quarter and firstnine months of 2008. These expenses increased to $987,000 and $2,843,000 in the thirdquarter of 2008 and the first nine months of 2008, respectively, as comparedwith $967,000 and $2,797,000 for the prior year’s same periods. Such relativelysmall increases in these two expense categories compared to the extent of ourbusiness growth correspond to oureffort of effectively managing and monitoring on overhead expenses to enhanceprofitability.

 

Professional fees generally increase as we grow. Theyincreased to $605,000 and $1,559,000 in the third quarter and the first ninemonths of 2008,respectively, as compared with $391,000and $970,000 for the prior year’s same periods. The $214,000 increase betweenthe current quarter and the same quarter a year ago was mainly attributable tothe $205,000 increase in legal fees related to loan collection, propertyforeclosure and repossession, and various other legal consultations. The$589,000 increase from the first nine months of 2007 to the first nine monthsof 2008 was mainly attributable to the $375,000 increase in legal fees relatedto loan collection, property foreclosure and repossession, and various otherlegal consultations, and the $289,000 increase in fees related to consulting,system test, and various accounting and auditing services.

 

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 generally rise in proportion with ourbusiness growth. Nonetheless, with our successful cost control measures, theseexpenses decreased to $376,000 and $1,2 million in the third quarter and thefirst nine months of 2008,respectively, as compared with $492,000and $1.3 million for the prior year’s same periods.

 

Deposit insurance premium expenses represent TheFinancing Corporation (“FICO”) and FDIC insurance premium assessments. In thethird quarter and first nine months of 2008, these expenses totaled $279,000and $907,000, respectively, as compared with $276,000 and $648,000 for theprior year’s same periods. The difference of $259,000 between the first ninemonths’ balances of 2008 and 2007 was primarily attributable to the new$251,000 FDIC risk insurance premium assessment beginning in the second quarterof 2007. Prior to the second quarter of 2007, only FICO premium of $50,000 wasassessed.

 

Othernon-interest expenses, such as director’s fees, advertising, communications,and other miscellaneous expenses, were $1.8 million and $4.7 million for thethird quarter 2008 and the first nine months of 2008, respectively, as comparedwith $1.8 million and $5.3 million for the same periods in 2007.

 

**Provisionfor Income Taxes**

** **

Forthe quarter ended September 30, 2008, we made a provision for income taxesof $4.2 million onpretax net income of $11.1 million,representing an effective tax rate of 37.9%,as compared with a provision for income taxes of $4.4 million on pretax net income of $11.0 million, representing an effective tax rate of 39.7% for thesame quarter in 2007. For the first nine months of 2008, we made a provisionfor income taxes of $13.0 millionon pretax net income of $34.3 million,representing an effective tax rate of 37.8%,as compared with a provision for income taxes of $13.9 million on pretax net income of $35.2 million, representing an effective tax rate of 39.5%, for the same period of 2007.

 

Theeffective tax rates in the third quarter and the first nine months 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.

 

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**Financial Condition**

** **

**Investment**Portfolio

** **

Investmentsare one of our major sources of interest income and are acquired in accordancewith a written comprehensive investment 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 financialinstitutions, are subject to change over time based on our asset/liabilityfunding needs and interest rate risk management objectives.  Our liquidity levels take into considerationanticipated future cash flows and all available sources of credits and aremaintained at levels management believes are appropriate to assure futureflexibility in meeting anticipated 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 a balanced interest rate-sensitive position,while earning an adequate level of investment income without taking unduerisk.  As of September 30, 2008, ourinvestment portfolio is primarily comprised of United States government agencysecurities, 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 investment portfolio.  Besides the U.S. government agencysecurities, we also have a 3% investment in corporate debt and 3% in municipaldebt securities. Among all of our corporate and municipal debt securities, themajority are “Triple A” rated, and all are considered investment grade.  We adopted SFAS No. 157 and SFAS No. 159effective January 1, 2008, and we adopted FSP SFAS No.157-3 effective October 10,2008. Pursuant to the fair value elective option of SFAS No. 159, we havechosen to continue classifying our existing instruments of investmentsecurities as “held-to-maturity” or “available-for-sale” under SFAS No. 115.Investment securities 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 $0.1 million and $228.0 million as of September 30, 2008 (SeeNote 3).

 

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

 

**Investment Securities Portfolio**

**(dollars in thousands)**

 
| ** **                                    | ** ** | **As of September 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.            |       | 143                                              |       | 134                                             |       | (9 | ) | 164 |   | 151 |   | (13 | ) |
| Municipal securities                          |       | —                                           |       | —                                          |       | — |   | 220 |   | 220 |   | — |   |
| Total held to maturitysecurities              |       | $143                                             |       | $134                                            |       | $(9 | ) | $7,384 |   | $7,372 |   | $(12 | ) |
|                                          |       |                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Available for Sale:                           |       |                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Securities of governmentsponsored enterprises |       | $27,968                                          |       | $27,967                                         |       | $(1 | ) | $64,932 |   | $65,175 |   | $243 |   |
| Mortgage backedsecurities                     |       | 125,217                                          |       | 124,990                                         |       | (227 | ) | 60,470 |   | 60,557 |   | 87 |   |
| Collateralized mortgageobligation             |       | 60,722                                           |       | 61,027                                          |       | 305 |   | 73,416 |   | 73,286 |   | (130 | ) |
| Corporate securities                          |       | 7,056                                            |       | 7,041                                           |       | (15 | ) | 17,390 |   | 17,484 |   | 94 |   |
| Municipal securities                          |       | 7,324                                            |       | 6,932                                           |       | (392 | ) | 7,725 |   | 7,754 |   | 29 |   |
| Total available forsale securities            |       | $228,287                                         |       | $227,957                                        |       | $(330 | ) | $223,933 |   | $224,256 |   | $323 |   |

** **

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Thefollowing table summarizes the maturity and repricing schedule of our investmentsecurities at their carrying values and their weighted average yields (withoutthe consideration of tax effects, if any) at September 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                     |       | $                         | —     |                                         | $          | 143                                          |       | $                         | —     |       | $          | — |   | $ | 143 |   |
|                                           |       |                      |       |                                         |       |                                         |       |                      |       |       |       |
| **Available-for-sale:******                    |       |                      |       |                                         |       |                                         |       |                      |       |       |       |
| Securities of government sponsored enterprises |       | 2,005                     |       | 17,042                                       |       | 8,920                                        |       | —                    |       | 27,967     |       |
| Mortgage backed securities                     |       | 9,229                     |       | 1,235                                        |       | 524                                          |       | 114,002                   |       | 124,990    |       |
| Collateralized mortgage obligation   |       | 9,211                     |       | 51,816                                       |       | —                                       |       | —                    |       | 61,027     |       |
| Corporate securities                      |       | —                    |       | 7,041                                        |       | —                                       |       | —                    |       | 7,041      |       |
| Municipal securities                           |       | —                    |       | —                                       |       | 4,366                                        |       | 2,566                     |       | 6,932      |       |
| Total investment Securities                    |       | $                         | 20,445     |                                         | $          | 77,277                                       |       | $                         | 13,810     |       | $          | 116,568 |   | $ | 228,100 |   |

 

Ourinvestment securities holdings decreased to $228.1 million at September 30, 2008, compared to holdings of $231.6 million at December 31, 2007. Total investment securities as a percentage of total assets were 9.6% and 10.5% at September 30, 2008 and December 31, 2007,respectively.  As of September 30,2008, investment securities with acarrying value of $213.6 millionwere pledged to secure certain deposits.

 

As of September 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 $0.1 million at September 30, 2008from $7.4 million at December 31,2007. Our available-for-salesecurities, which are stated at their fair market values, increased to $228.0 million at September 30, 2008 from $224.3 million at December 31, 2007.

 

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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 September 30, 2008 and December 31, 2007:

 
| **As of****September 30****, 200****8**    | ** ** | **(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 |       | $                                      | 17,883     |   | $ | (117 | ) | $ | — |   | $ | — |   | $ | 17,883 |   | $ | (117 | ) |
| Collateralized  mortgage obligation             |       | 4,401                                  |       | (163 | ) | 2,909 |   | (124 | ) | 7,310 |   | (287 | ) |
| Mortgage backed  securities                     |       | 69,001                                 |       | (559 | ) | 542 |   | (2 | ) | 69,543 |   | (561 | ) |
| Corporate  securities                           |       | —                                 |       | — |   | 1,951 |   | (49 | ) | 1,951 |   | (49 | ) |
| Municipal  securities                           |       | 5,877                                  |       | (401 | ) | — |   | — |   | 5,877 |   | (401 | ) |
|                                            |       | $                                      | 97,162     |   | $ | (1,240 | ) | $ | 5,402 |   | $ | (175 | ) | $ | 102,564 |   | $ | (1,415 | ) |

 
| **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 September 30,2008, the totalunrealized losses less than 12 months old were $1.2 million, and total unrealized losses more than 12 months oldwere $175,000.  The aggregate related fair value ofinvestments with unrealized losses less than 12 months old was $97.2 million at September 30, 2008, and those with unrealized losses morethan 12 months old were $5.4million.  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.

 

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The Company performs adetailed evaluation of the investment portfolio in assessing individual positionsthat have market values that have declined below cost.  In assessing whether there isother-than-temporary impairment, the Company considers in a disciplined manner:

 

·                  Whether or not all contractual cashflows due on a security will be collected

·                  The Company’s positive intent andability to hold the debt security until recovery in fair value or maturity

 

A number of factors areconsidered in the analysis, including but not limited to:

 

·                  Issuer’s credit rating

·                  Likelihood of the issuer’s default orbankruptcy

·                  Collateral underlying the security

·                  Industry in which the issuer operates

·                  Nature of the investment

·                  Severity and duration of the declinein fair value

·                  Analysis of the average life andeffective maturity of the security

 

The Company does notbelieve that any individual unrealized loss as of September 30, 2008represents an other-than-temporary impairment. The unrealized losses on our government sponsored enterprises (“GSE”)bonds, collateralized mortgage obligations (“CMOs”), and mortgage-backedsecurities (“MBS”) are attributable to both changes in interest rates and arepricing of risk in the market.  All GSEbonds, GSE CMO, and GSE MBS securities are backed by U.S. Government Sponsoredand Federal Agencies and therefore rated “AAA.” The Company has no exposure to the “Subprime Market” in the form ofAsset Backed Securities (“ABS”) and Collateralized Debt Obligations (“CDOs”)that had previously been rated “AAA” but has since been downgraded to belowinvestment grade.  The Company has theintent and ability to hold the securities in an unrealized loss position at September 30,2008 until the market value recovers or the securities mature.

 

Municipal bonds andcorporate bonds are evaluated by reviewing the credit-worthiness of the issuerand general market conditions.  Theunrealized losses on our investment in municipal and corporate securities wereprimarily attributable to both changes in interest rates and a repricing ofrisk in the market.  The Company has theintent and ability to hold the securities in an unrealized loss position at September 30,2008 until the market value recovers or the securities mature.

 

**LoanPortfolio**

** **

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 to $2.01 billion at September 30,2008, as compared with $1.79billion at December 31, 2007.  Totalloans net of unearned income as a percentage of total assets as of September 30, 2008 and December 31,2007 were 85.2% and 82.4%, respectively.

 

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

 

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

 
| ** **                           | ** ** | **Amount Outstanding**          | ** ** |
|--------------------------------------|------------|--------------------------------------|------------|
| ** **                           | ** ** | **(dollars in thousands)** | ** ** |
| ** **                           | ** ** | **September 30, 2008**     | ** ** | **December 31, 2007** | ** ** |
| Construction                         |       | $                                    | 43,161     |   | $ | 59,443 |   |
| Real estate secured                  |       | 1,566,813                            |       | 1,386,622 |   |
| Commercial and industrial            |       | 407,381                              |       | 335,332 |   |
| Consumer                             |       | 21,661                               |       | 33,569 |   |
| Total loans(1)                       |       | 2,039,016                            |       | 1,814,966 |   |
| Unearned Income                      |       | (4,688                               | )          | (5,917 | ) |
| Gross loans, net of unearned income  |       | 2,034,328                            |       | 1,809,049 |   |
| Allowance for loan losses            |       | (25,950                              | )          | (21,579 | ) |
| Net loans                            |       | $                                    | 2,008,378  |   | $ | 1,787,470 |   |
|                                 |       |                                 |       |   |   |
| Percentage breakdown of gross loans: |       |                                 |       |   |   |
| Construction                         |       | 2.1                                  | %     | 3.3 | % |
| Real estate secured                  |       | 76.8                                 | %          | 76.4 | % |
| Commercial and industrial            |       | 20.0                                 | %          | 18.4 | % |
| Consumer                             |       | 1.1                                  | %          | 1.9 | % |
| Total loans                          |       | 100.00                               | %          | 100.0 | % |

 

----

(1) Includes loans held for sale, at the lower of cost or market, of $10.2million and $7.9 million at September 30, 2008 and December 31, 2007,respectively

 

Real estate secured loans consist primarily ofcommercial real estate loans and are extended to finance the purchase orimprovement of commercial real estate or businesses thereon.  The properties may be either user owned orheld for investment purposes.  Loans securedby real estate totaled $1.57billion and $1.39 billion as of September 30, 2008 and December 31, 2007, respectively.  The real estate secured loans as a percentageof total loans were 76.8% and 76.4% at September 30, 2008 andDecember 31, 2007,respectively.  Home mortgage loansrepresent a small fraction of our total real estate secured loan portfolio.Total home mortgage loans outstanding were only $40.9 million at September 30, 2008 and $38.0 million at December 31, 2007. Due to the higher risk exposure of thoseresidential mortgage loans compared to other classes of loans in our loanportfolio, we limited ourselves fromoriginating such loans starting 2007.

 

Commercialand industrial loans include revolving lines of credit as well as term businessloans.  Commercial and industrial loansat September 30,2008 increased to $407.4 million, as compared with $335.3 million at December 31, 2007. Commercial and industrial loans as a percentage of total loans were 20.0% at September 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.Accordingly, as of September 30,2008, our volume of consumer loans was down by $11.9 million from the prior year end. As of September 30, 2008, the balance of consumer loans was $21.7 million, or 1.1% of total loans, as compared to $33.6 million, or 1.9% of totalloans as of December 31, 2007. Consumer loans as a percentage of total loans have historically been minimal.

 

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Constructionloans are extended as a temporary financing vehicle only.  Construction loans decreasedto $43.2 million, or 2.1% of total loans, at the end of thethird quarter of 2008, as compared with$59.4 million, or 3.3% of totalloans at the end of 2007.  The $16.2 million decrease in loan balancebetween September 30, 2008 and December 31, 2007 was primarily aresult of our stricter loan underwriting policy.

 

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 provide permanentworking capital.  We generally limit realestate loan maturities to five to eight years. Lines of credit, in general, are extended on an annual basis tobusinesses that need temporary working capital and/or import/exportfinancing.  We generally seekdiversification in our loan portfolio, and our borrowers are diverse as toindustry, location, and their current and target markets.

 

Thefollowing table shows the contractual maturity distribution and repricingintervals of the outstanding loans in our portfolio, as of September 30, 2008. In addition, the table shows the distribution of such loans betweenthose with variable or floating interest rates and those with fixed orpredetermined interest rates.  The tableexcludes the gross amount of non-accrual loans of $21.0 million:

 

**Loan Maturities and Repricing Schedule**

 
| ** **                                       | ** ** | **At September 30, 200****8** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                       | ** ** | **Within  One Year**                    | ** ** | **After One  But Within  Five Years** | ** ** | **After  Five Years** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(dollars in thousands)**         | ** ** |
| Construction                                     |       | $                                            | 43,161     |   | $ | — |   | $ | — |   | $ | 43,161 |   |
| Real estate  secured                             |       | 621,043                                      |       | 837,088 |   | 95,176 |   | 1,553,307 |   |
| Commercial and  industrial                       |       | 384,706                                      |       | 14,329 |   | 967 |   | 400,002 |   |
| Consumer                                         |       | 14,781                                       |       | 6,739 |   | — |   | 21,520 |   |
| Total loans, net  of non-accrual loans           |       | $                                            | 1,063,691  |   | $ | 858,156 |   | $ | 96,143 |   | $ | 2,017,990 |   |
| Loans with  variable (floating) interest rates   |       | $                                            | 902,225    |   | $ | 21,606 |   | $ | — |   | $ | 923,831 |   |
| Loans with  predetermined (fixed) interest rates |       | $                                            | 161,466    |   | $ | 836,550 |   | $ | 96,143 |   | $ | 1,094,159 |   |

 

Amajority of the properties that we have taken as collateral are located inSouthern California.  The loans generatedby our loan production offices, which are located outside of our maingeographical market, are generally collateralized by properties in closeproximity to those offices.

 

**Non-performingAssets**

** **

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.

 

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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)

 
| ** **                                                                          | ** ** | **September 30, ****200****8** | ** ** | **December 31, ****200****7** | ** ** | **September 30, ****200****7** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------|------------|
| **Nonaccrual  loans:****(1)**                                                       |       |                                     |       |                                    |       |                                     |       |
| Real estate  secured                                                                |       | $                                        | 9,506      |                                    | $          | 8,154                                    |       | $ | 6,014 |   |
| Commercial and  industrial                                                          |       | 3,593                                    |       | 1,986                                   |       | 2,037                                    |       |
| Consumer                                                                            |       | 134                                      |       | 154                                     |       | 126                                      |       |
| Total                                                                               |       | 13,233                                   |       | 10,294                                  |       | 8,177                                    |       |
| **Loans  90 days or more past due and still accruing:**                             |       |                                     |       |                                    |       |                                     |       |
| Real estate  secured                                                                |       | 490                                      |       | 117                                     |       | —                                   |       |
| Commercial and  industrial                                                          |       | 4                                        |       | 4                                       |       | 5                                        |       |
| Consumer                                                                            |       | 2                                        |       | 187                                     |       | 130                                      |       |
| Total                                                                               |       | 496                                      |       | 308                                     |       | 135                                      |       |
| Total  nonperforming loans                                                          |       | 13,729                                   |       | 10,602                                  |       | 8,312                                    |       |
| Repossessed vehicles                                                                |       | 18                                       |       | 50                                      |       | 58                                       |       |
| Other real  estate owned                                                            |       | 1,453                                    |       | 133                                     |       | 612                                      |       |
| Total  nonperforming assets, net  of SBA guarantee                                  |       | 15,200                                   |       | 10,785                                  |       | 8,982                                    |       |
|                                                                                |       |                                     |       |                                    |       |                                     |       |
| Guaranteed portion of nonperforming SBA loans                                       |       | 7,792                                    |       | 4,424                                   |       | 7,705                                    |       |
| Guaranteed portion of other real estate owned                                       |       | —                                   |       | 5                                       |       | —                                   |       |
| Total gross nonperforming assets                                                    |       | 22,992                                   |       | 15,214                                  |       | 16,687                                   |       |
| Restructured  loans (2)                                                             |       | 2,542                                    |       | —                                  |       | —                                   |       |
| Total gross nonperforming assets and restructured loans                             |       | $                                        | 25,534     |                                    | $          | 15,214                                   |       | $ | 16,687 |   |
|                                                                                |       |                                     |       |                                    |       |                                     |       |
| Nonperforming  loans as a percentage of total loans                                 |       | 0.67                                     | %          | 0.59                                    | %          | 0.48                                     | %          |
| Nonperforming  assets as a percentage of total loans and other nonperforming assets |       | 0.75                                     | %          | 0.60                                    | %          | 0.52                                     | %          |
| Allowance for loan losses as a percentage of nonperformingloans                     |       | 189.01                                   | %          | 203.55                                  | %          | 251.48                                   | %          |

 

----

(1) During thenine months ended September 30, 2008, no interest income related to these loans was included in interest income.  Additional interest income of approximately $1,838,000 would have been recordedduring the nine months ended September 30, 2008, if these loans had been paid in accordance with their originalterms and had been outstanding throughout the quarter ended September 30,2008 or, if not outstandingthroughout the nine months ended September 30,2008, since origination.

 

(2) A “restructuredloan” is one the terms of which were renegotiated to provide a reduction ordeferral of interest or principal because of deterioration in the financial position of the borrower.

 

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 September 30, 2008. However, the general economiccondition of the United States as well as the local economies in which we dobusiness have experienced a severe downturn in the housing sector and thetransition to below-trend GDP growth continued. The downward movement of themacro economic environment affected our borrowers’ strength and ourNPLs, net of SBA guaranteed portion, increased to $13.7 million, or 0.67% ofthe total loans at the end of the third quarter of 2008, as compared with $10.6million, or 0.59% of the total loans, at the end of 2007. The $3.1 millionincrease of NPLs was comprised of a $2.9 million net increase in non-accrualloans, and a $0.2 million net increase in delinquent loans.

 

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Managementalso believes that the reserve provided for non-performing loans, together withthe tangible collateral, were adequate as of September 30, 2008.  See “Allowance for Loan Losses and Loan Commitments” below for furtherdiscussion.  Except for the $13.7 milliondisclosed in the table above, as of September 30,2008, management was not aware of any material credit problems of borrowersthat would cause it to have serious doubts about the ability of a borrower tocomply with the present loan payment terms.

 

Overall, total NPAs increased to $15.2 millionat September 30, 2008,as compared with $10.8 million and $9.0 million at December 31, 2007 and September 30, 2007, respectively.

 

**A**llowance for Loan Losses and Loan Commitments

** **

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

 

Theallowance for loan losses and allowance for loan commitments are maintained atlevels that are believed to be adequate by management to absorb estimatedprobable loan losses inherent in the loan portfolio. The adequacy of theallowances is determined through periodic evaluations of the loan portfolio andother pertinent factors, which are inherently subjective as the process callsfor various significant estimates and assumptions. Among other factors, theestimates involve the amounts and timing of expected future cash flows and fairvalue 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 scored based business loans), which are analyzed ashomogeneous loan pools. These calculated loss factors are then applied tooutstanding loan balances based on Company defined utilization rate of exposurefor unused off-balance sheet loan commitments, such as letters of credit, werecord a reserve for loancommitments.

 

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

 

We increased our allowance for loan losses to $26.0 million at September 30, 2008, representing an increase of 24.2%, or $5.1 million from $20.9 million at September 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 1.28%, slightlyhigher than 1.21% retained at the third quarter-end of 2007. Managementbelieves that the current ratio of 1.28%is adequate for our loan portfolio.

 

Our allowance for losses on loan commitments decreasedto $1.2 million at September 30, 2008, as compared to $2.1 million at September 30,2007. The $0.9 million decrease was primarily related to a net recovery of$763,000 in the first nine months of 2008.

 

In thethird quarter and first nine months of 2008, both charge-offs and loan lossprovision were lowered compared to the same periods of 2007.

 

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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)**                                                                                   | ** ** |
| ** **                 | ** ** | **September 30, 200****8**                                                                                   | ** ** | **December 31, 200****7** | ** ** |
| **Balance as of**          | ** ** | **Reserve  Amount**                                                                                                    | ** ** | **Total  Loans** | ** ** | **(%)** | ** ** | **Reserve  Amount** | ** ** | **Total  Loans** | ** ** | **(%)** | ** ** |
| Applicable to:             | ** ** | ** **                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Construction  loans        |       | $                                                                                                                      | 201        |   | $ | 43,161 |   | 0.47 | % | $ | 557 |   | $ | 59,443 |   | 0.94 | % |
| Real estate  secured       |       | 11,205                                                                                                                 |       | 1,566,813 |   | 0.72 | % | 13,445 |   | 1,386,622 |   | 0.97 | % |
| Commercial and  industrial |       | 14,065                                                                                                                 |       | 407,381 |   | 3.45 | % | 7,023 |   | 335,332 |   | 2.09 | % |
| Consumer                   |       | 479                                                                                                                    |       | 21,661 |   | 2.21 | % | 554 |   | 33,569 |   | 1.65 | % |
| Total Allowance            |       | $                                                                                                                      | 25,950     |   | $ | 2,039,016 |   | 1.28 | % | $ | 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:

 

**Allowancefor****Loanlosses and Loan Commitments********(dollarsin thousands)**

 
| ** **                                                              | ** ** | **Three ****m****onths ****e****nded September 30,** | ** ** | **Nine ****m****onths ****e****nded September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| **As of and for the period of**                                         | ** ** | **2008**                                                                 | ** ** | **2007**                                                                | ** ** | **200****8** | ** ** | **200****7** | ** ** |
| ** **                                                              | ** ** | ** **                                                               | ** ** | ** **                                                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Allowance for  loan losses:                                             |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Balances at  beginning of period                                        |       | $                                                                        | 23,494     |                                                                    | $          | 19,378 |   | $ | 21,579 |   | $ | 18,654 |   |
| Actual  charge-offs:                                                    |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Real estate  secured                                                    |       | 204                                                                      |       | 99                                                                      |       | 247 |   | 262 |   |
| Commercial and  industrial                                              |       | 1,106                                                                    |       | 2,131                                                                   |       | 3,487 |   | 5,383 |   |
| Consumer                                                                |       | 203                                                                      |       | 251                                                                     |       | 807 |   | 1,370 |   |
| Total  charge-offs                                                      |       | 1,513                                                                    |       | 2,481                                                                   |       | 4,541 |   | 7,015 |   |
| Recoveries on  loans previously charged off:                            |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Real estate  secured                                                    |       | 38                                                                       |       | —                                                                  |       | 38 |   | — |   |
| Commercial and  industrial                                              |       | 74                                                                       |       | 2                                                                       |       | 1,758 |   | 18 |   |
| Consumer                                                                |       | 62                                                                       |       | 123                                                                     |       | 153 |   | 189 |   |
| Total recoveries                                                        |       | 174                                                                      |       | 125                                                                     |       | 1,949 |   | 207 |   |
| Net charge-offs  (recoveries)                                           |       | 1,339                                                                    |       | 2,356                                                                   |       | 2,592 |   | 6,808 |   |
| Provision for  loan losses                                              |       | 3,795                                                                    |       | 3,880                                                                   |       | 6,963 |   | 9,056 |   |
| Balances at end  of period                                              |       | $                                                                        | 25,950     |                                                                    | $          | 20,902 |   | $ | 25,950 |   | $ | 20,902 |   |
|                                                                    |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Allowance for loan commitments:                                         |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Balances at  beginning of period                                        |       | $                                                                        | 1,630      |                                                                    | $          | 1,845 |   | $ | 1,998 |   | $ | 891 |   |
| (Recovery) provision for losses in loan commitments                     |       | (395                                                                     | )          | 220                                                                     |       | (763 | ) | 1,174 |   |
| Balances at end  of period                                              |       | $                                                                        | 1,235      |                                                                    | $          | 2,065 |   | $ | 1,235 |   | $ | 2,065 |   |
|                                                                    |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Ratios:                                                                 |       |                                                                     |       |                                                                    |       |   |   |   |   |
| Net loan charge-offs to average total  loans                            |       | 0.07                                                                     | %          | 0.14                                                                    | %          | 0.13 | % | 0.42 | % |
| Allowance for  loan losses to total loans at period-end                 |       | 1.28                                                                     | %          | 1.21                                                                    | %          | 1.28 | % | 1.21 | % |
| Net loan charge-offs to allowance for loan  losses                      |       | 5.16                                                                     | %          | 11.27                                                                   | %          | 9.99 | % | 32.57 | % |
| Net loan charge-offs to provision for loan  losses and loan commitments |       | 39.40                                                                    | %          | 57.46                                                                   | %          | 41.81 | % | 66.55 | % |

 

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### **Contractual Obligations**

### ** **

Thefollowing table represents our aggregate contractual obligations to make futurepayments (principal andinterest) as of September 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                      |       | $                               | 175,128    |                                                  | $          | 132,083                                                 |       | $                         | —     |      | $          | — |   | $ | 307,211 |   |
| Junior  subordinated debentures      |       | 3,251                           |       | 4,392                                                 |       | 11,558                                                  |       | 77,321                    |       | 96,522    |       |
| Operating leases                     |       | 3,161                           |       | 4,205                                                 |       | 2,768                                                   |       | 2,461                     |       | 12,595    |       |
| Time deposits                        |       | 982,926                         |       | 18,052                                                |       | —                                                  |       | 10                        |       | 1,000,988 |       |
| Total                                |       | $                               | 1,164,466  |                                                  | $          | 158,732                                                 |       | $                         | 14,326     |      | $          | 79,792 |   | $ | 1,417,316 |   |

 

**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 not shown orstated in any form on our balance sheets.

 

As of September 30,2008 and December 31,2007, we had commitments to extendcredit of $168.5 million and $284.9 million, respectively.  Obligations under standby letters of creditwere $11.3 million and $10.0 million at September 30, 2008 and December 31, 2007, respectively, and our obligationsunder commercial letters of credit were $11.3 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.

 

**Depositsand Other Sources of Funds**

** **

*Deposits*

* *

Depositsare our primary source of funds.  Totaldeposits increased to $1.79 billion at September 30, 2008, as compared with $1.76 billion at December 31,2007.

 

Totalnon-time deposits at September 30, 2008 decreased to $807.4 million overthe last nine months from $831.5 million at December 31, 2007, while timedeposits increased to $980.3 million at September 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 thethird quarter and the first nine months of 2008 decreased to 3.48% and 3.95%, respectively, from 5.27% and 5.28% in the same periods ofthe prior year.

 

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

 

**Average Deposits**

**(dollars in thousands)**

 
| ** **                                                         | ** ** | **September ****3****0****, 2008** | ** ** | **December 31, 2007** | ** ** | **September ****3****0****,**** ****2007** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------|------------|------------------------------------------------------|------------|
| **For the quarters ended:**                         | ** ** | **Average  Balance**                         | ** ** | **Average  Rate**               | ** ** | **Average  Balance**                                 | ** ** | **Average  Rate** | ** ** | **Average  Balance** | ** ** | **Average  Rate** | ** ** |
|                                                               |       |                                         |       |                            |       |                                                 |       |   |   |   |   |   |   |
| Demand,  non-interest-bearing                                      |       | $                                            | 305,098    |                            |       |                                                 | $          | 310,502 | ** ** | ** ** | ** ** | $ | 322,865 | ** ** | ** ** | ** ** |
| Money market                                                       |       | 439,080                                      |       | 3.21                            | %          | 478,153                                              |       | 4.43 | % | 474,122 |   | 4.62 | % |
| Super NOW                                                          |       | 21,144                                       |       | 1.36                            | %          | 24,613                                               |       | 1.65 | % | 22,317 |   | 1.26 | % |
| Savings                                                            |       | 41,273                                       |       | 3.48                            | %          | 31,144                                               |       | 2.80 | % | 29,790 |   | 2.50 | % |
| Time  certificates of deposit in denominations of $100,000 or more |       | 770,812                                      |       | 3.48                            | %          | 738,769                                              |       | 5.00 | % | 780,463 |   | 5.27 | % |
| Other time  deposits                                               |       | 197,044                                      |       | 3.69                            | %          | 133,567                                              |       | 4.65 | % | 142,877 |   | 4.92 | % |
| Total deposits                                                     |       | $                                            | 1,774,451  |                            | 2.81       | %                                                    | $          | 1,716,748 |   | 3.82 | % | $ | 1,772,434 |   | 4.01 | % |

** **

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

 

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

**(dollars in thousands)**

 
| Three months or  less                  |   | $       | 452,500 |   |
|----------------------------------------|--------|---------|---------|--------|
| Over three  months through six months  |   | 159,561 |    |
| Over six months  through twelve months |   | 139,717 |    |
| Over twelve  months                    |   | 13,533  |    |
| Total                                  |   | $       | 765,311 |   |

 

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 September 30, 2008 and December 31, 2007.

 

Weaccept brokered deposits on a selective basis at reasonable interest rates toaugment deposit growth.  In the first nine months of 2008, the ongoingcredit crisis and stiff competition for customer deposits among banks withinthe markets where we do business has driven up interest rates of variousdeposit products. As a result, brokered deposits have been lower in costcompared to other time deposits. We have increased these deposits to $132.6 million at September 30, 2008 from $62.6 million at December 31, 2007 in order to limitour reliance on high interest 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):

 
| ** **                                   | ** ** | **September 30****, 2008** | ** ** | **December 31, ****2007** | ** ** |
|----------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| Balance at  quarter-end                      |       | $                                    | 300,000    |                                | $          | 150,000 |   |
| Average balance  during the quarter          |       | $                                    | 308,478    |                                | $          | 46,890 |   |
| Maximum amount  outstanding at any month-end |       | $                                    | 320,000    |                                | $          | 155,000 |   |
| Average interest  rate during the quarter    |       | 3.32                                 | %          | 4.24                                | %          |
| Average interest  rate at quarter-end        |       | 3.33                                 | %          | 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.”

 

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**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 financial institutionsand loans and securities available for sale. Our liquid assets at September 30, 2008 and December 31, 2007 totaled approximately $292.2 million and $324.7 million, respectively.  Our liquidity levels measured as thepercentage of liquid assets to total assets were 12.2% and 14.8% at September 30,2008 and December 31, 2007, respectively.

 

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’s creditworthiness. Asof September 30, 2008,our borrowing capacity from the FHLB was about $553.8 million and the outstanding balance was $300.0 million, or approximately 54.2% of our borrowing capacity.

 

On October 32008, Congress passed and President signed into law the Emergency EconomicStabilization Act of 2008 (“EESA”), which authorizes the United StatesDepartment of Treasury (“Treasury”) to establish and manage the TreasuryCapital Purchase Program (“CPP”). The program provides direct equity investmentof perpetual preferred stock by the Treasury in qualified financialinstitutions. The program is voluntary and requires institutions to comply witha number of restrictions and provisions, including limits on executivecompensation, stock redemptions and declarations of dividends. Applicationsmust be submitted by November 14, 2008 and are subject to approval by theTreasury. The CPP provides for a minimum investment of 1% of risk-weightedassets, with maximum investment equal to the lesser of 3% of totalrisk-weighted assets or $25 billion. The perpetual preferred stock investmentwill have a dividend rate of 5% per year, until the fifth anniversary of theinitial investment, and a dividend rate of 9% thereafter. The CPP also requiresthe Treasury to receive warrants for common stock equal to 15% of the capitalinvested by the Treasury. We filed our application to participate in thisprogram on October 29, 2008.

 

**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.

 

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We aresubject to various regulatory capital requirements administered by federalbanking agencies. Under capital adequacy guidelines and the regulatoryframework for prompt corrective action, we must meet specific capitalguidelines that rely on quantitative measures of our assets, liabilities andcertain off-balance-sheet items as calculated under regulatory accountingpractices.  Failure to meet minimumcapital requirements can trigger regulatory actions under the prompt correctiveaction rules that could have a material adverse effect on our financialcondition and operations.  Promptcorrective action may include regulatory enforcement actions that restrictdividend payments, require the adoption of remedial measures to increasecapital, terminate FDIC deposit insurance, and mandate the appointment of aconservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status may adverselyaffect the evaluation of regulatory applications for specific transactions andactivities, including acquisitions, continuation and expansion of existingactivities, and commencement of new activities, and could adversely affect ourbusiness relationships with our existing and prospective clients.  The aforementioned regulatory consequencesfor failing to maintain adequate ratios of Tier 1 and Tier 2 capital could havea material adverse effect on our financial condition and results ofoperations.  Our capital amountsand classification are also subject to qualitative judgments by regulatorsabout components, risk weightings, and other factors.  See Part I, Item 1 “Description ofBusiness — Regulation and Supervision — Capital Adequacy Requirements” in ourAnnual Report on Form 10-K for the year ended December 31, 2007 for additional information regardingregulatory capital requirements.

 

As of September 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 theCompany and the Bank:

 

**Wilshire Bancorp, Inc.**

 
| ** **                                 | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Regulatory  Adequately-  Capitalized** | ** ** | **Actual ratios for the Company as of:** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **Standards**                      | ** ** | **Standards**                            | ** ** | **September 30****, 2008**                                   | ** ** | **December 31, 2007** | ** ** | **September 30****, 2007** | ** ** |
| Total capital to  risk-weighted assets     |       | 10                                 | %          | 8                                        | %          | 14.01                                                                  | %          | 14.58 | % | 15.06 | % |
| Tier I capital  to risk-weighted assets    |       | 6                                  | %          | 4                                        | %          | 11.68                                                                  | %          | 11.83 | % | 12.18 | % |
| Tier I capital  to adjusted average assets |       | 5                                  | %          | 4                                        | %          | 10.19                                                                  | %          | 10.36 | % | 10.41 | % |

 

**Wilshire State Bank**

 
| ** **                                 | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Regulatory  Adequately-  Capitalized** | ** ** | **Actual ratios for the Bank as of:** | ** ** |
|--------------------------------------------|------------|------------------------------------|------------|------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                 | ** ** | **Standards**                      | ** ** | **Standards**                            | ** ** | **September 30****, 2008**                                | ** ** | **December 31, 2007** | ** ** | **September 30****, 2007** | ** ** |
| Total capital to  risk-weighted assets     |       | 10                                 | %          | 8                                        | %          | 13.38                                                               | %          | 13.59 | % | 13.84 | % |
| Tier I capital  to risk-weighted assets    |       | 6                                  | %          | 4                                        | %          | 11.65                                                               | %          | 11.80 | % | 12.03 | % |
| Tier I capital  to adjusted average assets |       | 5                                  | %          | 4                                        | %          | 10.18                                                               | %          | 10.33 | % | 10.29 | % |

 

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.  At September 30, 2008, the portion qualified for Tier 1 capital increasedto $62.6 million and the portion for Tier 2 decreased to $22.4 million. Forthe Bank level, only the $10million debenture issued by the Bank in 2002 is treated as Tier 2 capital.

 

## **Item 3.**                                                           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 takingactivities.  Our profitability isaffected by fluctuations in interest rates. A sudden and substantial change ininterest rates may adversely impact our earnings to the extent that theinterest rates borne by assets and liabilities do not change at the same speed,to the same extent or on the same basis. We evaluate market risk pursuant topolicies reviewed 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.

 

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

 

Gapanalysis measures the repricing mismatches between assets and liabilities.  The interest rate sensitivity gap isdetermined by subtracting the amount of liabilities from the amount of assets thatreprice 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 any unanticipatedfunding needs by maintaining a large portion of funds obtained fromnon-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 September 30,2008, our position appearedbalanced for a one-year timeframe with a negligible sensitive cumulative gap(minus 28.3% 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 ofearnings and 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.

 

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 12.3% negative gap in the short run forthe three-month timeframe and 16.4% cumulative positive gap for our wholeportfolio.  The NPV increases (decreases)as interest income increases (decreases) because the change in cash flows has agreater impact on the change in the NPV than does the change in the discountrate.  However, the extent of suchchanges was within the tolerance level prescribed by our ALCO policy, duepartly to the near-balanced cumulative gap for the one-year timeframe.

 

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

 

Thefollowing table sets forth the interest rate sensitivity of ourinterest-earning assets and interest-bearing liabilities as of September 30,2008 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 in thousands)

 
| ** **                                                                                  | ** ** | **At September 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)                                                                              |       | $                                                           | 954,683    |   | $ | 109,008 |   | $ | 858,156 |   | $ | 96,143 |   | $ | 2,017,990 |   |
| Investment  securities                                                                      |       | 3,632                                                       |       | 16,813 |   | 77,277 |   | 130,378 |   | 228,100 |   |
| Federal funds  sold and cash equivalents                                                    |       | 3                                                           |       | — |   | — |   | — |   | 3 |   |
| Interest-earning  deposits                                                                  |       | —                                                      |       | — |   | — |   | — |   | — |   |
| Total                                                                                       |       | $                                                           | 958,318    |   | $ | 125,821 |   | $ | 935,433 |   | $ | 226,521 |   | $ | 2,246,093 |   |
|                                                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Interest-bearing  liabilities:**                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Savings deposits                                                                            |       | $                                                           | 42,677     |   | $ | — |   | $ | — |   | $ | — |   | $ | 42,677 |   |
| Time deposits of  $100,000 or more                                                          |       | 452,500                                                     |       | 299,278 |   | 13,533 |   | — |   | 765,311 |   |
| Other time  deposits                                                                        |       | 86,266                                                      |       | 124,759 |   | 4,006 |   | 5 |   | 215,036 |   |
| Other  interest-bearing deposits                                                            |       | 469,288                                                     |       | — |   | — |   | — |   | 469,288 |   |
| FHLB borrowings                                                                             |       | 110,000                                                     |       | 60,000 |   | 130,000 |   | — |   | 300,000 |   |
| Junior  Subordinated Debentures                                                             |       | 71,857                                                      |       | — |   | 15,464 |   | — |   | 87,321 |   |
| Total                                                                                       |       | $                                                           | 1,232,588  |   | $ | 484,037 |   | $ | 163,003 |   | $ | 5 |   | $ | 1,879,633 |   |
|                                                                                        |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest rate  sensitivity gap                                                              |       | $                                                           | (274,270   | ) | $ | (358,216 | ) | $ | 772,430 |   | $ | 226,516 |   | $ | 366,460 |   |
| Cumulative  interest rate sensitivity gap                                                   |       | $                                                           | (274,270   | ) | $ | (632,486 | ) | $ | 139,944 |   | $ | 366,460 |   |   |   |
| Cumulative  interest rate sensitivity gap ratio (based on average interest-earning  assets) |       | -12.27                                                      | %          | -28.30 | % | 6.26 | % | 16.40 | % |   |   |

 

----

(1) Excludes the gross amount ofnon-accrual loans of approximately $21.0million at September 30, 2008.

 

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

 
| **Change**                      | ** ** | **Net Interest Income**  | ** ** | ** **        | ** ** | ** ** | ** ** | ** **        | ** ** |
|---------------------------------|------------|------------------------------------|------------|-------------------|------------|------------|------------|-------------------|------------|
| **(in Basis Points)** | ** ** | **(next twelve months)** | ** ** | **% Change** | ** ** | **NPV**    | ** ** | **% Change** | ** ** |
| +200                            |       | $                                  | 90,603     |              | 1.9        | %          | $          | 240,001           |       | -6.8 | % |
| +100                            |       | 89,974                             |       | 0.6               | %          | 250,041    |       | -2.9              | %          |
| 0                               |       | 89,450                             |       | —            |       | 257,551    |       | —            |       |
| -100                            |       | 87,187                             |       | -2.5              | %          | 247,310    |       | -4.0              | %          |
| -200                            |       | 83,530                             |       | -6.6              | %          | 232,292    |       | -9.8              | %          |
|                                 |            |                                    |            |                   |            |            |            |                   |            |  |  |

 

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 those types of transactions.

 

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## **Item 4.**                                                           Controlsand Procedures

## ** **

As of September 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 September 30, 2008, such disclosure controls and procedureswere effective to ensure that information required to be disclosed by us in thereports we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the SEC, and accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognized that any controls and procedures, no matter how well designed andoperated, can only provide reasonable assurance in achieving 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 September 30, 2008 that materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

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# **Part II.   OTHER INFORMATION**

# ** **

## **Item 1.**                           LegalProceedings

## ** **

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.”

 

## **Item 2.**                           UnregisteredSales of Equity Securities and Use of Proceeds

## ** **

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.  During 2008,there were no such repurchases. This program completed its term and expired asof July 31, 2008.

 

## **Item 3.**                           DefaultsUpon Senior Securities

## ** **

None.

 

## **Item 4.**                           Submissionof Matters to a Vote of Security Holders

## ** **

None.

 

## **Item 5.**                           OtherInformation

## ** **

None.

 

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EXHIBITS

 

**Exhibit Table**

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

** **

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** **

**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: November 7,  2008 | By:                    | /s/ Alex Ko |
|                         |                   | Alex Ko |
|                         |                   | Chief Financial Officer |
|                         |                   | (Principal Financial  and Accounting Officer) |

 

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