Tableof Contents

 

 

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

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** **

**FORM 10-Q**

** **

**(Mark One)**

 

| **x**  | **Quarterly report pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934**                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                      |
|   | **For the quarterly period ended****September 30****, 200****9****.**                                                                                                                |
|   |                                                                                                                                                                                      |
| **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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**WILSHIREBANCORP, INC.**

(Exact name of registrant asspecified in its charter)

 

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

 

**(213) 387-3200**

Registrant’stelephone number, including area code

 

**Nochange**

(Formername, former address and former fiscal year, if changed since last report)

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o    No o

 

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

 

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

 

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

 

The number of shares of Common Stock of the registrantoutstanding as of October 31,2009 was 29,413,757.

 

 

 

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Tableof Contents

 

**FOR 10-Q**

** **

**INDEX**

** **

**WILSHIRE BANCORP, INC.**

 
| **Part I.  FINANCIAL INFORMATION** | **1**                                                                                           |
|-----------------------------------------|-------------------------------------------------------------------------------------------------|
| ** **                              | ** **                                                                                      | ** ** |
| **Item 1.**                             | **Financial  Statements**                                                                       | **1** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 2.**                             | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** | **20** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 3.**                             | **Quantitative  and Qualitative Disclosures about  Market Risk**                                | **46** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item  4.**                            | **Controls  and Procedures**                                                                    | **48** |
| ** **                              | ** **                                                                                      | ** ** |
| **Part II.  OTHER INFORMATION**    | **49**                                                                                          |
| ** **                              | ** **                                                                                      | ** ** |
| **Item  1.**                            | **Legal  Proceedings**                                                                          | **49** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 1A**                             | **Risk Factors**                                                                                | **49** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 2.**                             | **Unregistered  Sales of Equity Securities and Use of Proceeds**                                | **49** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 3.**                             | **Defaults Upon  Senior Securities**                                                            | **49** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item 4.**                             | **Submission of  Matters to a Vote of Security Holders**                                        | **49** |
| ** **                              | ** **                                                                                      | ** ** |
| **Item  5.**                            | **Other  Information**                                                                          | **49** |
|                                    |                                                                                            |   |
| **SIGNATURES**                          | **51**                                                                                          |

 

i

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Tableof Contents

 

# **Part I. FINANCIAL INFORMATION**

# ** **

## **Item 1.**                                                           FinancialStatements

 

**WILSHIREBANCORP, INC.**

**CONSOLIDATEDSTATEMENTS OF FINANCIAL CONDITION (DOLLARS IN THOUSANDS)**

 
| ** **                                                                                                                                                                                                 | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                 | ** ** | **(Unaudited)**             | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                                                 |       |                        |       |                       |       |
| Cash  and due from banks                                                                                                                                                                                   |       | $                           | 141,533    |                       | $          | 67,540 |   |
| Federal  funds sold and other cash equivalents                                                                                                                                                             |       | 130,004                     |       | 30,001                     |       |
| Cash  and cash equivalents                                                                                                                                                                                 |       | 271,537                     |       | 97,541                     |       |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| Securities  available for sale, at fair value (amortized cost of $545,980 and $227,429 at  September 30, 2009 and December 31, 2008, respectively)                                               |       | 559,602                     |       | 229,136                    |       |
| Securities  held to maturity, at amortized cost (fair value of $117 and $135 at  September 30, 2009 and December 31, 2008, respectively)                                                         |       | 116                         |       | 139                        |       |
| Loans  receivable, net of allowance for loan losses of $54,735 and $29,437 at  September 30, 2009 and December 31, 2008, respectively)                                                           |       | 2,360,639                   |       | 2,003,665                  |       |
| Loans  held for sale - at the lower of cost or market                                                                                                                                                      |       | 29,978                      |       | 18,427                     |       |
| Federal  Home Loan Bank stock - at cost                                                                                                                                                                    |       | 21,040                      |       | 17,537                     |       |
| Other  real estate owned                                                                                                                                                                                   |       | 6,238                       |       | 2,663                      |       |
| Due  from customers on acceptances                                                                                                                                                                         |       | 251                         |       | 2,213                      |       |
| Cash  surrender value of bank owned life insurance                                                                                                                                                         |       | 17,884                      |       | 17,395                     |       |
| Investment  in affordable housing partnerships                                                                                                                                                             |       | 12,271                      |       | 9,019                      |       |
| Bank  premises and equipment                                                                                                                                                                               |       | 12,454                      |       | 11,265                     |       |
| Accrued  interest receivable                                                                                                                                                                               |       | 13,375                      |       | 9,975                      |       |
| Deferred  income taxes                                                                                                                                                                                     |       | 8,787                       |       | 12,051                     |       |
| Servicing  assets                                                                                                                                                                                          |       | 6,898                       |       | 4,838                      |       |
| Goodwill                                                                                                                                                                                                   |       | 6,675                       |       | 6,675                      |       |
| Other  intangible assets                                                                                                                                                                                   |       | 2,231                       |       | 1,287                      |       |
| Interest  only strip - at fair value                                                                                                                                                                       |       | 725                         |       | 632                        |       |
| FDIC  loss share indemnification                                                                                                                                                                           |       | 40,014                      |       | —                     |       |
| Other  assets                                                                                                                                                                                              |       | 6,848                       |       | 5,553                      |       |
| TOTAL                                                                                                                                                                                                      |       | $                           | 3,377,563  |                       | $          | 2,450,011 |   |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                              |       |                        |       |                       |       |
| LIABILITIES:                                                                                                                                                                                               |       |                        |       |                       |       |
| Deposits:                                                                                                                                                                                                  |       |                        |       |                       |       |
| Noninterest  bearing                                                                                                                                                                                       |       | $                           | 373,332    |                       | $          | 277,542 |   |
| Interest  bearing:                                                                                                                                                                                         |       |                        |       |                       |       |
| Savings                                                                                                                                                                                                    |       | 66,211                      |       | 44,452                     |       |
| Money  market checking and NOW accounts                                                                                                                                                                    |       | 777,800                     |       | 384,190                    |       |
| Time  deposits of $100,000 or more                                                                                                                                                                         |       | 928,724                     |       | 902,804                    |       |
| Other  time deposits                                                                                                                                                                                       |       | 526,035                     |       | 203,613                    |       |
| Total  deposits                                                                                                                                                                                            |       | 2,672,102                   |       | 1,812,601                  |       |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| Federal  Home Loan Bank borrowings                                                                                                                                                                         |       | 322,000                     |       | 274,000                    |       |
| Junior  subordinated debentures                                                                                                                                                                            |       | 87,321                      |       | 87,321                     |       |
| Accrued  interest payable                                                                                                                                                                                  |       | 7,715                       |       | 6,957                      |       |
| Acceptances  outstanding                                                                                                                                                                                   |       | 251                         |       | 2,213                      |       |
| Other  liabilities                                                                                                                                                                                         |       | 15,687                      |       | 11,859                     |       |
| Total  liabilities                                                                                                                                                                                         |       | 3,105,076                   |       | 2,194,951                  |       |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| COMMITMENTS  AND CONTINGENCIES                                                                                                                                                                             |       |                        |       |                       |       |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| SHAREHOLDERS’  EQUITY:                                                                                                                                                                                |       |                        |       |                       |       |
| Preferred  stock, $1,000 par value—authorized, 5,000,000 shares; issued &  outstanding, 62,158 shares and 62,158 shares at September 30, 2009 and  December 31, 2008, respectively |       | $                           | 59,806     |                       | $          | 59,443 |   |
| Common  stock, no par value—authorized, 80,000,000 shares; issued and outstanding, 29,413,757  shares and 29,413,757 shares at September 30, 2009 and December 31,  2008, respectively      |       | 54,646                      |       | 54,038                     |       |
| Accumulated  other comprehensive income, net of tax                                                                                                                                                        |       | 8,777                       |       | 1,239                      |       |
| Retained  earnings                                                                                                                                                                                         |       | 149,258                     |       | 140,340                    |       |
| Total  shareholders’ equity                                                                                                                                                                           |       | 272,487                     |       | 255,060                    |       |
|                                                                                                                                                                                                       |       |                        |       |                       |       |
| TOTAL                                                                                                                                                                                                      |       | $                           | 3,377,563  |                       | $          | 2,450,011 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

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**WILSHIREBANCORP, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(DOLLARSIN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)**

 
| ** **                                                                 | ** ** | **Three Months Ended September 30** | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                                 | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                       | ** ** | ** **                               | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| INTEREST  INCOME:                                                          |       |                                     |       |                                     |       |   |   |   |   |
| Interest  and fees on loans                                                |       | $                                        | 39,388     |                                     | $          | 34,719 |   | $ | 100,818 |   | $ | 104,014 |   |
| Interest  on investment securities                                         |       | 4,876                                    |       | 2,798                                    |       | 11,011 |   | 8,021 |   |
| Interest  on federal funds sold                                            |       | 844                                      |       | 63                                       |       | 1,910 |   | 192 |   |
| Total  interest income                                                     |       | 45,108                                   |       | 37,580                                   |       | 113,739 |   | 112,227 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| INTEREST  EXPENSE:                                                         |       |                                     |       |                                     |       |   |   |   |   |
| Interest  on deposits                                                      |       | 12,994                                   |       | 12,469                                   |       | 35,952 |   | 40,071 |   |
| Interest  on FHLB advances and other borrowings                            |       | 1,982                                    |       | 2,570                                    |       | 5,262 |   | 6,969 |   |
| Interest  on junior subordinated debentures                                |       | 719                                      |       | 1,127                                    |       | 2,467 |   | 3,696 |   |
| Total  interest expense                                                    |       | 15,695                                   |       | 16,166                                   |       | 43,681 |   | 50,736 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| NET  INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS |       | 29,413                                   |       | 21,414                                   |       | 70,058 |   | 61,491 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| PROVISION  FOR LOSSES ON LOANS AND LOAN COMMITMENTS                        |       | 24,200                                   |       | 3,400                                    |       | 43,000 |   | 6,200 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| NET  INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES AND LOAN COMMITMENTS  |       | 5,213                                    |       | 18,014                                   |       | 27,058 |   | 55,291 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| NON-INTEREST  INCOME:                                                      |       |                                     |       |                                     |       |   |   |   |   |
| Service  charges on deposit accounts                                       |       | 3,315                                    |       | 3,125                                    |       | 9,338 |   | 8,916 |   |
| Gain  on sale of loans                                                     |       | 2,235                                    |       | 410                                      |       | 1,711 |   | 2,192 |   |
| Loan-related  servicing fees                                               |       | 958                                      |       | 891                                      |       | 2,702 |   | 2,338 |   |
| Income  from other earning assets                                          |       | 243                                      |       | 398                                      |       | 635 |   | 1,108 |   |
| Gain  on bargain purchase                                                  |       | —                                   |       | —                                   |       | 21,679 |   | — |   |
| Other  income                                                              |       | 649                                      |       | 521                                      |       | 3,662 |   | 1,551 |   |
| Total  noninterest income                                                  |       | 7,400                                    |       | 5,345                                    |       | 39,727 |   | 16,105 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| NON-INTEREST  EXPENSES:                                                    |       |                                     |       |                                     |       |   |   |   |   |
| Salaries  and employee benefits                                            |       | 7,120                                    |       | 6,718                                    |       | 19,315 |   | 21,349 |   |
| Occupancy  and equipment                                                   |       | 1,935                                    |       | 1,576                                    |       | 5,294 |   | 4,493 |   |
| Data  processing                                                           |       | 1,078                                    |       | 785                                      |       | 2,750 |   | 2,320 |   |
| Outsourced  service for customers                                          |       | 328                                      |       | 376                                      |       | 806 |   | 1,218 |   |
| Professional  fees                                                         |       | 659                                      |       | 605                                      |       | 1,576 |   | 1,559 |   |
| Deposit  insurance premiums                                                |       | 982                                      |       | 279                                      |       | 3,772 |   | 907 |   |
| Other  operating expenses                                                  |       | 2,719                                    |       | 1,968                                    |       | 7,371 |   | 5,239 |   |
| Total  noninterest expenses                                                |       | 14,821                                   |       | 12,307                                   |       | 40,884 |   | 37,085 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| INCOME  (LOSS) BEFORE INCOME TAXES                                         |       | (2,208                                   | )          | 11,052                                   |       | 25,901 |   | 34,311 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| INCOME  TAXES                                                              |       | (1,451                                   | )          | 4,184                                    |       | 9,853 |   | 12,964 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| NET  (LOSS) INCOME                                                         |       | (757                                     | )          | 6,868                                    |       | 16,048 |   | 21,347 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| Preferred  stock cash dividend and accretion of preferred stock discount   |       | 900                                      |       | —                                   |       | 2,718 |   | — |   |
| NET  (LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS                        |       | $                                        | (1,657     | )                                        | $          | 6,868 |   | $ | 13,330 |   | $ | 21,347 |   |
|                                                                       |       |                                     |       |                                     |       |   |   |   |   |
| EARNINGS  (LOSS) PER COMMON SHARE:                                         |       |                                     |       |                                     |       |   |   |   |   |
| Basic                                                                      |       | $                                        | (0.06      | )                                        | $          | 0.23 |   | $ | 0.45 |   | $ | 0.73 |   |
| Diluted                                                                    |       | $                                        | (0.06      | )                                        | $          | 0.23 |   | $ | 0.45 |   | $ | 0.73 |   |
| WEIGHTED-AVERAGE  SHARES OUTSTANDING:                                      |       |                                     |       |                                     |       |   |   |   |   |
| Basic                                                                      |       | 29,413,757                               |       | 29,397,182                               |       | 29,413,757 |   | 29,355,231 |   |
| Diluted                                                                    |       | 29,413,757                               |       | 29,508,503                               |       | 29,422,528 |   | 29,402,212 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

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**WILSHIREBANCORP, INC.**

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY**

**(DOLLARSIN THOUSANDS) (UNAUDITED)**

 
| ** **                                                                | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------|------------|---------------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                | ** ** | ** **          | ** ** | ** **       | ** ** | ** **      | ** ** | ** ** | ** ** | **Other** | ** ** | ** ** | ** ** | **Total** | ** ** |
| ** **                                                                | ** ** | **Shares**          | ** ** | ** **       | ** ** | **Shares**      | ** ** | ** ** | ** ** | **Comprehensive** | ** ** | **Retained** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                | ** ** | **Outstanding**     | ** ** | **Amount**       | ** ** | **Outstanding** | ** ** | **Amount** | ** ** | **Income** | ** ** | **Earnings** | ** ** | **Equity** | ** ** |
|                                                                      |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| BALANCE-January 1,  2008                                             |       | —              |       | $                | —     |            | 29,253,311 |       | $          | 49,633 |   | $ | 375 |   | $ | 121,778 |   | $ | 171,786 |   |
| Stock  options exercised                                                  |       |                |       |             |       | 148,446         |       | 415        |       |   |   |   |   | 415 |   |
| Cash  dividend declared or accrued                                        |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Common  stock                                                             |       |                |       |             |       |            |       |       |       |   |   | (4,409 | ) | (4,409 | ) |
| Stock  compensation expense                                               |       |                |       |             |       |            |       | 889        |       |   |   |   |   | 889 |   |
| Tax  benefit from stock options exercised                                 |       |                |       |             |       |            |       | 57         |       |   |   |   |   | 57 |   |
| Cumulative  impact of change in accounting for bank owned life insurance  |       |                |       |             |       |            |       |       |       |   |   | (1,876 | ) | (1,876 | ) |
| Comprehensive  income:                                                    |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Net  income                                                               |       |                |       |             |       |            |       |       |       |   |   | 21,347 |   | 21,347 |   |
| Other  comprehensive income:                                              |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Change  in unrealized gain on interest-only strips, net of taxes          |       |                |       |             |       |            |       |       |       | 49 |   |   |   | 49 |   |
| Change  in unrealized gain on securities available for sale, net of taxes |       |                |       |             |       |            |       |       |       | (378 | ) |   |   | (378 | ) |
| Comprehensive  income                                                     |       |                |       |             |       |            |       |       |       |   |   |   |   | 21,018 |   |
| BALANCE-September 30,  2008                                          |       | —              |       | $                | —     |            | 29,401,757 |       | $          | 50,994 |   | $ | 46 |   | $ | 136,840 |   | $ | 187,880 |   |
|                                                                      |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| BALANCE-January 1,  2009                                             |       | 62,158              |       | $                | 59,443     |            | 29,413,757 |       | $          | 54,038 |   | $ | 1,239 |   | $ | 140,340 |   | $ | 255,060 |   |
| Stock  options exercised                                                  |       |                |       |             |       |            |       |       |       |   |   |   |   | — |   |
| Cash  dividend declared or accrued                                        |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Common  stock                                                             |       |                |       |             |       |            |       |       |       |   |   | (4,412 | ) | (4,412 | ) |
| Preferred  stock                                                          |       |                |       |             |       |            |       |       |       |   |   | (2,331 | ) | (2,331 | ) |
| Stock  compensation expense                                               |       |                |       |             |       |            |       | 608        |       |   |   |   |   | 608 |   |
| Tax  benefit from stock options exercised                                 |       |                |       |             |       |            |       |       |       |   |   |   |   | — |   |
| Accretion  of preferred stock discount                                    |       |                |       | 363              |       |            |       |       |       |   |   | (387 | ) | (24 | ) |
| Comprehensive  income:                                                    |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Net  income                                                               |       |                |       |             |       |            |       |       |       |   |   | 16,048 |   | 16,048 |   |
| Other  comprehensive income:                                              |       |                |       |             |       |            |       |       |       |   |   |   |   |   |   |
| Change  in unrealized gain on interest-only strips, net of taxes          |       |                |       |             |       |            |       |       |       | 44 |   |   |   | 44 |   |
| Change  in unrealized gain on securities available for sale, net of taxes |       |                |       |             |       |            |       |       |       | 7,494 |   |   |   | 7,494 |   |
| Comprehensive  income                                                     |       |                |       |             |       |            |       |       |       |   |   |   |   | 23,586 |   |
| BALANCE-September 30,  2009                                          |       | 62,158              |       | $                | 59,806     |            | 29,413,757 |       | $          | 54,646 |   | $ | 8,777 |   | $ | 149,258 |   | $ | 272,487 |   |

 

See accompanyingnotes to unaudited consolidated financial statements.

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

 
| ** **                                                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |       |                                     |       |   |   |
| Net income                                                                         |       | $                                        | 16,048     |   | $ | 21,347 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities: |       |                                     |       |   |   |
| Amortization of investment securities                                              |       | 2,866                                    |       | 777 |   |
| Depreciation of bank premises & equipment                                 |       | 1,490                                    |       | 1,340 |   |
| Amortization of other intangible assets                                            |       | 387                                      |       | 223 |   |
| Amortization of investments in affordable housing  partnerships                    |       | 931                                      |       | 574 |   |
| Provision for losses on loans and loan commitments                                 |       | 43,000                                   |       | 6,200 |   |
| Provision for other real estate owned losses                                       |       | 359                                      |       | — |   |
| Deferred tax benefit                                                               |       | (1,188                                   | )          | (1,180 | ) |
| Loss on disposition of bank premises and equipment                                 |       | 11                                       |       | 3 |   |
| Gain on bargain purchase                                                           |       | (21,679                                  | )          | — |   |
| Net gain on sale of loans                                                          |       | (1,711                                   | )          | (2,192 | ) |
| Origination of loans held for sale                                                 |       | (45,298                                  | )          | (50,989 | ) |
| Proceeds from sale of loans held for sale                                          |       | 35,672                                   |       | 50,863 |   |
| Gain on sale or call of available for sale  securities                             |       | (1,588                                   | )          | (3 | ) |
| Decrease in fair value of serving rights                                           |       | 390                                      |       | 730 |   |
| Gain on sale of other real estate owned                                            |       | (402                                     | )          | (17 | ) |
| Loss on sale of repossessed vehicles                                               |       | —                                   |       | 1 |   |
| Share-based compensation expense                                                   |       | 608                                      |       | 889 |   |
| Change in cash surrender value of life insurance                                   |       | (489                                     | )          | (972 | ) |
| Servicing assets capitalized                                                       |       | (556                                     | )          | (766 | ) |
| Increase in accrued interest receivable                                            |       | (1,904                                   | )          | (106 | ) |
| (Increase) or decrease in other assets                                             |       | (1,281                                   | )          | 777 |   |
| Dividends of Federal Home Loan Bank stock                                          |       | —                                   |       | (470 | ) |
| Tax benefit from exercise of stock options                                         |       | —                                   |       | (57 | ) |
| Decrease in accrued interest payable                                               |       | (2,196                                   | )          | (2,526 | ) |
| Increase in other liabilities                                                      |       | 2,794                                    |       | 1,587 |   |
| Net cash provided by operating activities                                          |       | 26,264                                   |       | 26,033 |   |
| ** **                                                                         | ** ** | ** **                               | ** ** | ** ** | ** ** |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |       |                                     |       |   |   |
| Proceeds from principal repayment, matured or called  securities held to maturity  |       | 22                                       |       | 7,241 |   |
| Purchase of securities available for sale                                          |       | (430,574                                 | )          | (107,599 | ) |
| Proceeds from matured securities available for sale                                |       | 166,117                                  |       | 102,472 |   |
| Net increase in loans receivable                                                   |       | (125,702                                 | )          | (227,728 | ) |
| Proceeds from sale of other loans                                                  |       | 3,217                                    |       | — |   |
| Proceeds from sale of other real estate owned                                      |       | 3,395                                    |       | 875 |   |
| Proceeds from sale of repossessed vehicles                                         |       | —                                   |       | 10 |   |
| Purchases of investments in affordable housing  partnerships                       |       | (4,183                                   | )          | (2,889 | ) |
| Purchases of Bank premises and equipment                                           |       | (2,400                                   | )          | (1,589 | ) |
| Purchases of Federal Home Loan Bank stock                                          |       | —                                   |       | (6,080 | ) |
| Proceeds from disposition of Bank equipment                                        |       | —                                   |       | 3 |   |
| Net cash and cash equivalents acquired from  acquisition of former Mirae Bank      |       | 5,724                                    |       | — |   |
| Net cash used in investing activities                                              |       | (384,384                                 | )          | (235,284 | ) |
|                                                                                    |            |                                          |            |  |  |  |  |

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

 

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**WILSHIRE BANCORP, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

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

 
| ** **                                                   | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                   | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| CASH FLOWS FROM FINANCING ACTIVITIES:                        |       |                                     |       |   |   |
| Proceeds from exercise of stock options                      |       | $                                        | —     |   | $ | 415 |   |
| Payment of common stock cash dividend                        |       | (4,412                                   | )          | (4,402 | ) |
| Payment of preferred stock cash dividend                     |       | (2,098                                   | )          | — |   |
| (Decrease) or increase in Federal Home Loan Bank  borrowings |       | (27,500                                  | )          | 150,000 |   |
| Tax benefit from exercise of stock options                   |       | —                                   |       | 57 |   |
| Net increase in deposits                                     |       | 566,126                                  |       | 24,692 |   |
| Net cash provided by financing activities                    |       | 532,116                                  |       | 170,762 |   |
|                                                         |       |                                     |       |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS        |       | 173,996                                  |       | (38,489 | ) |
| CASH AND CASH EQUIVALENTS—Beginning of year             |       | 97,541                                   |       | 92,509 |   |
| CASH AND CASH EQUIVALENTS—End of year                   |       | $                                        | 271,537    |   | $ | 54,020 |   |
|                                                         |       |                                     |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:           |       |                                     |       |   |   |
| Interest paid                                                |       | $                                        | 42,923     |   | $ | 53,262 |   |
| Income taxes paid                                            |       | $                                        | 8,885      |   | $ | 13,900 |   |
|                                                         |       |                                     |       |   |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING  ACTIVITIES:      |       |                                     |       |   |   |
| Transfer of loans to other real estate owned                 |       | $                                        | 6,428      |   | $ | 2,177 |   |
| Other assets transferred to Bank premises and  equipment     |       | $                                        | 290        |   | $ | 174 |   |
| Net assets acquired from Mirae Bank                          |       |                                     |       |   |   |
| Assets acquired                                              |       | $                                        | 395,646    |   | $ | — |   |
| Liabilities assumed                                          |       | 373,967                                  |       | — |   |
|                                                         |       | 21,679                                   |       | — |   |
| SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING  ACTIVITIES:      |       |                                     |       |   |   |
| Common stock cash dividend declared, but not paid            |       | $                                        | 1,471      |   | $ | 1,470 |   |
| Preferred stock cash dividend declared, but not  paid        |       | $                                        | 388        |   | $ | — |   |

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

 

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**WILSHIRE BANCORP, INC.**

 

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

** **

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

** **

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

 

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

 

**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 information provided by these interim financialstatements reflect all adjustments which are, in the opinion of management,necessary for a fair presentation of the Company’s consolidated statements of financial condition as of September 30,2009 and December 31, 2008, the statements of operations for thethree months and nine months ended September 30, 2009 and 2008, and the relatedstatements of shareholders’ equity and statements of cash flows for the nine monthsended September 30, 2009 and 2008. Operating results for interim periodsare not necessarily indicative of operating results for an entire fiscal year.

 

The Financial Accounting Standards Board’s (“FASB’s”)Accounting Standards Codification (“ASC”) became effective on July 1, 2009. Atthat date, the ASC became the FASB’s officially recognized source ofauthoritative GAAP applicable to all public and non-public non-governmentalentities, superseding existing FASB, American Institute of Certified PublicAccountants (“AICPA”), Emerging Issues Task Force (“EITF”) and relatedliterature. Rules and interpretive releases of the SEC under the authority offederal securities laws are also sources of authoritative GAAP for SECregistrants. All other accounting literature is considered non-authoritative.The switch to the ASC affects the way companies refer to GAAP in financialstatements and accounting policies. Citing particular content in the ASCinvolves specifying the unique numeric path to the content through the Topic,Subtopic, Section and Paragraph structure.

 

Theunaudited financial statements should be read in conjunction with the auditedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2008. 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, 2008.

 

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

** **

The FDIC placed Mirae under receivership upon Mirae’sclosure by the California Department of Financial Institutions (“DFI”) at theclose of business on June 26, 2009. We purchased substantially all of Mirae’s assets and assumed all ofMirae’s deposits and certain other liabilities. Further, we entered into a losssharing agreement with the FDIC in connection with the Mirae acquisition. Underthe loss sharing agreement, the FDIC will share in the losses on assets coveredunder the agreement, which generally include loans acquired from Mirae andforeclosed loan collateral existing at June 26, 2009 (referred tocollectively as “covered assets”). With respect to losses of up to $83.0million on the covered assets, the FDIC has agreed to reimburse us for 80percent of the losses.  On losses exceeding $83.0 million, the FDIChas agreed to reimburse us for 95 percent of the losses.  The loss 

 

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sharing agreements are subject to ourcompliance with servicing procedures and satisfying certain other conditionsspecified in the agreements with the FDIC. The term for the FDIC’s loss sharing on single family loans is tenyears, and the term for loss sharing on non-single family loans is five yearswith respect to losses and eight years with respect to loss recoveries. As aresult of the loss sharing agreement with the FDIC, the Company has recorded anindemnification asset from the FDIC based on the estimated value of theindemnification agreement of $40.2 million at June 26, 2009.

 

The Mirae acquisition was accounted for underthe purchase method of accounting in accordance with FASB ASC Topic 805, *Business Combinations*(formerly SFAS No. 141R). Thestatement of net assets and assumed liabilities were recorded at theirrespective acquisition date fair values, and identifiable intangible assetswere recorded at fair value. Fair values are preliminary and are subject torefinements for up to one year after the closing date of an acquisition asinformation relative to closing date fair values becomes available. As of September 30,2009, the fair values for acquired assets and liabilities remained open. A “bargainpurchase gain” totaling $21.7 million resulted from the acquisition and isincluded as a component of noninterest income on the statement of income. Theamount of gain is equal to the amount by which the fair value of assetspurchased exceeded the fair value of liabilities assumed. The Company did notdisclose the pro-forma financial information related to the Mirae Bankacquisition, as it was not practicable to do so. The estimated fair value ofthe assets purchased and liabilities assumed are presented in the followingtable:

 

**Statement of Net Assets Acquired**

 
| ** **                                                                     | ** ** | **At June 26, 2009** | ** ** |
|--------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                     | ** ** | **(In thousands)**        | ** ** |
| **Assets**                                                                     |       |                      |       |
| Cash and cash equivalents                                                      |       | $                         | 5,724      |   |
| Securities                                                                     |       | 55,371                    |       |
| Loans                                                                          |       | 285,685                   |       |
| Core deposit intangible                                                        |       | 1,330                     |       |
| FDIC loss-sharing receivable                                                   |       | 40,235                    |       |
| Other assets                                                                   |       | 7,301                     |       |
| Total assets                                                                   |       | 395,646                   |       |
|                                                                           |       |                      |       |
| **Liabilities**                                                                |       |                      |       |
| Deposits                                                                       |       | $                         | 293,375    |   |
| FHLB borrowings                                                                |       | 75,500                    |       |
| Other liabilities                                                              |       | 5,092                     |       |
| Total Liabilities                                                              |       | 373,967                   |       |
|                                                                           |       |                      |       |
| Net assets acquired                                                            |       | $                         | 21,679     |   |
|                                                                           |       |                      |       |
| Mirae Bank’s net assets acquired before fair  valuation adjustments       |       | $                         | 36,928     |   |
| Adjustments to reflect assets acquired and  liabilities assumed at fair value: |       |                      |       |
| Loans, net                                                                     |       | (54,964                   | )          |
| Securities                                                                     |       | (1,829                    | )          |
| FDIC loss share indemnification                                                |       | 40,235                    |       |
| Core deposit intangible                                                        |       | 1,330                     |       |
| Deposits                                                                       |       | (375                      | )          |
| Servicing rights                                                               |       | 354                       |       |
| Bargain purchase gain                                                          |       | $                         | 21,679     |   |

 

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**Note 4.   FairValue Measurement for Financial and Non-Financial Assets and Liabilities**

** **

We record at fair value various financial andnon-financial instruments for financial reporting, and loan or goodwillimpairment purposes. Pursuant to FASB ASC 820, *Fair Value Measurements &Disclosures*(formerly SFAS No. 157), and ASC 820-10, *Determining the Fair Value of a FinancialAsset When the Market for That Asset Is Not Active*(formerly StaffPosition SFAS No. 157-3)*,*thecodification providesa definition of fair value, establishes a framework for measuring fair value,and requires expanded disclosures about fair value measurements. Thestandard applies when GAAP requires or allows assets or liabilities to be measured at fair value,and therefore, does not expand the use of fair value in any new circumstance,and SFAS No. 157 amends, but does not supersede ASC 825-10-50-1, *Disclosureabout Fair Value of Financial Instruments.* SFAS No. 157 defines fair valueas the price that would be received to sell an asset or paid to transfer aliability in an arm’s length transaction between market participants in themarkets where we conduct business. SFAS No. 157 clarifies that fair valueshould be based on the assumptions market participants would use when pricingan asset or liability and establishes a fair value hierarchy that prioritizesthe information used to develop those assumptions. The fair value hierarchygives the highest priority to quoted prices available in active markets and thelowest priority to data lacking transparency. ASC 825-10-50-1 further clarifiesthe application of SFAS No. 157 in a market that is not active and providesan example to illustrate key considerations in determining the fairvalue of a financial asset when the market for the financial asset is notactive.

 

In February 2008,the FASB issued ASC 820-10-55- 23A & 23B (formerly Staff Position SFASNo. 157-4), 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 arisen, or that may arise, from the application of SFAS No. 157. ThisFSP applies to various nonfinancial assets and liabilities and it defers theeffective date of SFAS No. 157 to such nonfinancial assets and liabilitiesto fiscal years beginning after November 15, 2008, and interim periodswithin those fiscal years for items within the scope of this FSP. We adopted ASC820-10-55- 23A & 23B on January 1, 2009, and the adoption of thisFSP did not have a material impact on our consolidated financial statements.

 

In April 2009, the FASB issued ASC 820-10-65-4(formerly FSP SFAS No.157-4), *Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*,to provide additional guidance for estimating fair value in accordance with ASC820, *Fair Value Measurements*,when the volume and level of activity for the asset or liability havesignificantly decreased. As some constituents indicated that SFAS No. 157 andFSPSFAS No. 157-3, *Determining theFair Value of a Financial Asset When the Market for That Asset Is Not Active*,did not provide sufficient guidance on how to determine whether a market for afinancial asset that historically was active is no longer active and whether atransaction is not orderly. Therefore, this ASC 820-10-65-4 (formerly FSP SFASNo.157-4), includes guidance on identifying circumstances that indicate atransaction is not orderly. We adopted ASC 820-10-65-4 in the second quarter of2009 and the adoption did not have a material impact on our consolidatedfinancial statements.

 

Thefair value inputs of the instruments are classified and disclosed in one of thefollowing categories pursuant to ASC 820:

 

Level1 — Unadjusted quoted prices in active markets for identicalassets or liabilities that the reporting entity has the ability to access atthe measurement date. The quoted price shall not be adjusted for the positionsize.

 

Level2 — Pricing inputs are inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directlyor indirectly. Fair value is determined through the use of models or othervaluation methodologies, including the use of pricing matrices. If the asset orliability has a specified (contractual) term, a Level 2 input must beobservable for substantially the full term of the asset or liability.

 

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

 

In certain cases,the inputs used to measure fair value may fall into different levels of thefair value hierarchy. In such cases, an investment’s level within the fairvalue hierarchy is based on the lowest level of input that is significant tothe fair value measurement. Our assessment of the significance of a particularinput to the fair value measurement in its entirety requires judgment andconsiders factors specific to the investment.

 

We used the following methods and assumptions inestimating our fair value disclosure for financial instruments. Financialassets and liabilities recorded at fair value on a recurring basis are listedas follows:

 

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Measured on a Recurring Basis

 

Investment securitiesavailable for sale —Investment in available-for-sale securities are recorded at fair valuepursuant to ASC 320, *Accounting for CertainInvestments in Debt and Equity Securities* (formerly SFAS No. 115).Fair value measurement is based upon quoted prices for similar assets, ifavailable. If quoted prices are not available, fair values are measured usingmatrix pricing models, or other model-based valuation techniques requiring observableinputs other than quoted prices such as yield curves, prepayment speeds, anddefault rates. The investment securities available for sale include federalagency securities, mortgage-backed securities, collateralized mortgageobligations, municipal bonds and corporate debt securities. Our existinginvestment securities available-for-sale holdings as of September 30, 2009are measured using matrix pricing and recorded based on Level 2 measurementinputs.

 

Servicing assets and interest-only (“I/O”) strips— 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. We classify SBA loanservicing assets and I/O strips with Level 3 measurement inputs.

 

Servicing liabilities — SBA loanservicing liabilities represent the value associated with servicing SBA loanssold. The value is determined through a discounted cash flow analysis whichuses interest rates, prepayment speeds and delinquency rate assumptions asinputs. All of these assumptions require a significant degree of management’sjudgment. Adjustments are only made when the discounted cash flows are lessthan the carrying value. We classify SBA loan servicing liabilities with Level3 measurement inputs.

 

The table below summarizes the valuation of our financialassets and liabilities by the above ASC 820 fair value hierarchy levels as of September 30,2009:

 

**Assets Measured at FairValue on a Recurring Basis**(dollars in thousands)

** **
| ** **             | ** ** | **Fair Value Measurements Using:** | ** ** |
|------------------------|------------|------------------------------------|------------|
| ** **             | ** ** | ** **                         | ** ** | ** ** | ** ** | **Significant** | ** ** | ** ** | ** ** |
| ** **             | ** ** | ** **                         | ** ** | **Quoted Prices in** | ** ** | **Other** | ** ** | **Significant** | ** ** |
| ** **             | ** ** | **Total Fair**                     | ** ** | **Active Markets** | ** ** | **Observable** | ** ** | **Unobservable Inputs** | ** ** |
| ** **             | ** ** | **Value**                          | ** ** | **(Level 1)** | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Investment             |       |                               |       |   |   |   |   |   |   |
| U.S.  agency bonds     |       | $                                  | 514,856    |   | $ | — |   | $ | 514,856 |   | $ | — |   |
| Municipal  bonds       |       | 42,722                             |       | — |   | 42,722 |   | — |   |
| Corporate  bonds       |       | 2,024                              |       | — |   | 2,024 |   | — |   |
| Servicing  assets      |       | 6,898                              |       | — |   | — |   | 6,898 |   |
| I/O  strips            |       | 725                                |       | — |   | — |   | 725 |   |
| Servicing  liabilities |       | (600                               | )          | — |   | — |   | (600 | ) |
|                        |            |                                    |            |  |  |  |  |  |  |  |  |  |  |

 

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 30,2009:

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

 

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Financial instrumentsmeasured at fair value on a recurring basis, which were part of the assetbalances that were deemed to have Level 3 fair value inputs when determiningvaluation, are identified in the table below by asset category with a summaryof changes in fair value for the nine months ended September 30, 2009:

 
| **(dollars in thousands)** | ** ** | **At Dec 31,  2008** | ** ** | **Realized  Losses in Net  Income** | ** ** | **Unrealized Gains  in Other  Comprehensive  Income** | ** ** | **Net Purchases  Sales and  Settlements** | ** ** | **Transfers  In/out of  Level 3** | ** ** | **At Sept 30,  2009** | ** ** | **Net  Cumulative  Unrealized  (Losses)** | ** ** |
|----------------------------|------------|----------------------|------------|-------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------|------------|-----------------------|------------|-------------------------------------------|------------|
|                       |       |                 |       |                                |       |                                                  |       |                                      |       |                              |       |                  |       |                                      |       |
| Servicing Assets           |       | $                    | 4,838      |                                | $          | (390                                                  | )          | $                                         | —     |                              | $          | 2,450                 |       | $                                         | —     |   | $ | 6,898 |   | $ | — |   |
| I/O strips                 |       | 632                  |       | (86                                 | )          | 74                                                    |       | 105                                       |       | —                            |       | 725                   |       | (293                                      | )          |
| Servicing liabilities      |       | (328                 | )          | (138                                | )          | —                                                |       | (134                                      | )          | —                            |       | (600                  | )          | —                                    |       |
|                            |            |                      |            |                                     |            |                                                       |            |                                           |            |                                   |            |                       |            |                                           |            |  |  |  |  |  |  |  |

 

Measured on aNonrecurring Basis

 

Impaired loans (collateral dependent 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, less anticipated selling costs. The fair value isdetermined through appraisals and other matrix pricing models, which require asignificant degree of management judgment. We measure impairment on allnon-accrual loans and trouble debt restructured loans as previously described,except for automobile loans, where we developed specific reserves on such loansas a whole based upon historical loss trends and current loss factors. Thereserve for impaired automobile loans is not significant to the operations ofthe Company. We record impaired loans as non-recurring with Level 3 measurementinputs.

 

REO —Real estate owned (REO) consists principally ofproperties acquired through foreclosures and are carried at the lower of costor estimated fair value.

 

The following tablepresents the aggregated balance of assets measured at estimated fair value on anonrecurring basis through the nine months ended September 30, 2009, and the total losses resultingfrom these fair value adjustments for the quarter and nine months ended September 30, 2009:

 

**Assets Measured at FairValue on a Non-Recurring Basis**(dollars in thousands)

 
| ** **      | ** ** | ** **                          | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** ** | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------|------------|-------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------|------------|----------------------------------|------------|----------------------------|------------|
| ** **      | ** ** | **Through September 30, 2009** | ** ** | **September 30, 2009** | ** ** | **September 30, 2009** | ** ** |
| ** **      | ** ** | **Level 1**                    | ** ** | **Level 2**            | ** ** | **Level 3**            | ** ** | **Total**  | ** ** | **Total Losses**            | ** ** | **Total Losses**      | ** ** |
| Impaired  loans |       | $                                   | —     |                        | $          | —                      |       | $          | 137,111    |                             | $          | 137,111                    |       | $ | 7,049 |   | $ | 8,690 |   |
| REO             |       | —                              |       | —                      |       | 6,238                       |       | 6,238      |       | —                           |       | 359                        |       |
| Total           |       | $                                   | —     |                        | $          | —                      |       | $          | 143,349    |                             | $          | 143,349                    |       | $ | 7,049 |   | $ | 9,049 |   |

 

**Note 5.  **Investment Securities

 

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, 2009** | ** ** | **As of December 31, 2008** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **Amortized  Cost**               | ** ** | **Market  Value**                | ** ** | **Unrealized  Gain** | ** ** | **Amortized  Cost** | ** ** | **Market  Value** | ** ** | **Unrealized  Gain  (Loss)** | ** ** |
| Held  to Maturity:                                         |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Collateralized  mortgage obligations                       |       | $                                 | 116        |                             | $          | 117 |   | $ | 1 |   | $ | 139 |   | $ | 135 |   | $ | (4 | ) |
| Total  investment securities held to maturity              |       | $                                 | 116        |                             | $          | 117 |   | $ | 1 |   | $ | 139 |   | $ | 135 |   | $ | (4 | ) |
|                                                       |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Available  for Sale:                                       |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Investment  securities of government sponsored enterprises |       | $                                 | 63,960     |                             | $          | 64,509 |   | $ | 549 |   | $ | 25,952 |   | $ | 26,187 |   | $ | 235 |   |
| Mortgage  backed securities                                |       | 321,390                           |       | 329,936                          |       | 8,546 |   | 124,549 |   | 125,513 |   | 964 |   |
| Collateralized  mortgage obligations                       |       | 117,070                           |       | 120,411                          |       | 3,341 |   | 62,557 |   | 63,303 |   | 746 |   |
| Corporate  securities                                      |       | 2,000                             |       | 2,024                            |       | 24 |   | 7,048 |   | 6,953 |   | (95 | ) |
| Municipal  securities                                      |       | 41,560                            |       | 42,722                           |       | 1,162 |   | 7,323 |   | 7,180 |   | (143 | ) |
| Total  investment securities available for sale            |       | $                                 | 545,980    |                             | $          | 559,602 |   | $ | 13,622 |   | $ | 227,429 |   | $ | 229,136 |   | $ | 1,707 |   |

 

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Thefollowing table summarizes the maturity and repricing schedule of ourinvestment securities at their carrying values at September 30, 2009:

 

**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:                                         |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Collateralized  mortgage obligations                       |       | $                   | —     |                                  | $          | 116                                  |       | $                   | —     |      | $          | — |   | $ | 116 |   |
| Total  investment securities held to maturity              |       | $                   | —     |                                  | $          | 116                                  |       | $                   | —     |      | $          | — |   | $ | 116 |   |
|                                                       |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Available  for Sale:                                       |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Investment  securities of government sponsored enterprises |       | $                   | —     |                                  | $          | —                               |       | $                   | 46,315     |      | $          | 18,194 |   | $ | 64,509 |   |
| Mortgage  backed securities                                |       | 7,930               |       | 697                                   |       | 4,820                                |       | 316,489             |       | 329,936   |       |
| Collateralized  mortgage obligations                       |       | 30,849              |       | 89,562                                |       | —                               |       | —              |       | 120,411   |       |
| Corporate  securities                                      |       | —              |       | 2,024                                 |       | —                               |       | —              |       | 2,024     |       |
| Municipal  securities                                      |       | —              |       | 300                                   |       | —                               |       | 42,422              |       | 42,722    |       |
| Total  investment securities available for sale            |       | $                   | 38,779     |                                  | $          | 92,583                               |       | $                   | 51,135     |      | $          | 377,105 |   | $ | 559,602 |   |

 

**Thefollowing table shows the gross unrealized losses and fair value of ourinvestments, aggregated by investment category and length of time thatindividual securities have been in a continuous unrealized loss position, at September 30,200**9 and December 31, 2008:

 
| **As of September 30, 2009**               | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **     | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|-------------------------------|------------|----------------|------------|
| **(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 |       | $                       | —     |                          | $          | —         |       | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Collateralized  mortgage obligation             |       | —                  |       | —                        |       | —         |       | — |   | — |   | — |   |
| Mortgage  backed securities                     |       | 58                      |       | —                        |       | —         |       | — |   | 58 |   | — |   |
| Corporate  securities                           |       | —                  |       | —                        |       | —         |       | — |   | — |   | — |   |
| Municipal  securities                           |       | 10,462                  |       | (209                          | )          | —         |       | — |   | 10,462 |   | (209 | ) |
|                                            |       | $                       | 10,520     |                          | $          | (209           | )          | $ | — |   | $ | — |   | $ | 10,520 |   | $ | (209 | ) |

 
| **As of December 31,  2008  (dollars in thousands)** | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **                    | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|-------------------------------|------------|----------------|------------|-------------------------------|------------|----------------|------------|-------------------------------|------------|
| ** **                                                | ** ** | **Less than 12 months** | ** ** | **12 months or longer**       | ** ** | **Total**      | ** ** |
| **Description of Securities**                             | ** ** | **Fair Value**          | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Gross  Unrealized  Losses** | ** ** |
| ** **                                                | ** ** | ** **              | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **                    | ** ** |
| Collateralized  mortgage obligations                      |       | $                       | 2,642      |                          | $          | (65            | )          | $                             | 1,591      |           | $          | (17                           | )          | $ | 4,233 |   | $ | (82 | ) |
| Mortgage  backed securities                               |       | 12,287                  |       | (300                          | )          | 536            |       | (3                            | )          | 12,823         |       | (303                          | )          |
| Corporate  securities                                     |       | 5,000                   |       | (49                           | )          | 1,953          |       | (47                           | )          | 6,953          |       | (96                           | )          |
| Municipal  securities                                     |       | 5,712                   |       | (157                          | )          | —         |       | —                        |       | 5,712          |       | (157                          | )          |
|                                                      |       | $                       | 25,641     |                          | $          | (571           | )          | $                             | 4,080      |           | $          | (67                           | )          | $ | 29,721 |   | $ | (638 | ) |

 

As of September 30,2009, the totalunrealized losses less than 12 months old were $209,000 and there were no totalunrealized losses more than 12 months old. The aggregate related fair value of investments with unrealized lossesless than 12 months old was $10.5 millionat September 30, 2009, and nonewith unrealized losses more than 12 months old. As of December 31, 2008, the total unrealized losses less than12 months old were $571,000 andtotal unrealized losses more than 12 months old were $67,000.  The aggregate relatedfair value of investments with unrealized losses less than 12 months old was $25.6 million at December 31, 2008,and those with unrealized losses more than 12 months old were $4.1 million.

 

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We evaluate securities for other-than-temporaryimpairment at least quarterly, and more frequently when economic or marketconcerns warrant such evaluation. Consideration is given to the financialcondition and near-term prospects of the issuer; the length of time and theextent to which the fair value has been less than the cost, and our intent andability to retain our investment in the issuer for a period of time sufficientto allow for any anticipated recovery in fair value. In analyzing an issuer’sfinancial condition, we consider whether the securities are issued by thefederal government or its agencies, whether downgrades by bond rating agencieshave occurred, and the results of reviews of the issuer’s financial condition.

 

Management determined that the unrealized losses didnot meet the criteria for other-than-temporary impairment at September 30, 2009because the investments are rated investment grade and there are no creditquality concerns of the issuer. The market value decline is deemed to be due tothe current market volatility and is not reflective of management’sexpectations of our ability to fully recover this investment. For thesereasons, no other-than-temporary impairment was recognized on any of ourinvestments at September 30, 2009.

 

**Note**6.   Loans

** **

Theloans in the portfolio that we purchased in the Mirae Bank acquisition arecovered by the FDIC loss-share agreement and such loans are referred to hereinas “covered loans.” All loans other than the coveredloans are referred to herein as “non-covered loans.”  A summary of covered and non-covered loans ispresented in the table below:

 

**Covered &Non-Covered Loans**

 
| ** **                           | ** ** | **Amount (in thousands)**   | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** | **September 30, 2008** | ** ** |
| Non-covered  loans:                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Construction                         |       | $                           | 44,586     |   | $ | 43,180 |   | $ | 43,161 |   |
| Real  estate secured                 |       | 1,766,428                   |       | 1,599,627 |   | 1,566,813 |   |
| Commercial  and industrial           |       | 348,910                     |       | 389,217 |   | 407,381 |   |
| Consumer                             |       | 15,984                      |       | 23,669 |   | 21,661 |   |
| Total  loans                         |       | 2,175,908                   |       | 2,055,693 |   | 2,039,016 |   |
| Unearned  Income                     |       | (5,276                      | )          | (4,164 | ) | (4,688 | ) |
| Gross  loans, net of unearned income |       | 2,170,632                   |       | 2,051,529 |   | 2,034,328 |   |
| Allowance  for losses on loans       |       | (54,735                     | )          | (29,437 | ) | (25,950 | ) |
| Net  loans                           |       | $                           | 2,115,897  |   | $ | 2,022,092 |   | $ | 2,008,378 |   |
|                                 |       |                        |       |   |   |   |   |
| Covered  loans:                      |       |                        |       |   |   |   |   |
| Construction                         |       | $                           | 494        |   | $ | — |   | $ | — |   |
| Real  estate secured                 |       | 206,770                     |       | — |   | — |   |
| Commercial  and industrial           |       | 66,829                      |       | — |   | — |   |
| Consumer                             |       | 627                         |       | — |   | — |   |
| Total  loans                         |       | $                           | 274,720    |   | $ | — |   | $ | — |   |
|                                 |       |                        |       |   |   |   |   |
| Total  loans:                        |       |                        |       |   |   |   |   |
| Construction                         |       | $                           | 45,080     |   | $ | 43,180 |   | $ | 43,161 |   |
| Real  estate secured                 |       | 1,973,198                   |       | 1,599,627 |   | 1,566,813 |   |
| Commercial  and industrial           |       | 415,739                     |       | 389,217 |   | 407,381 |   |
| Consumer                             |       | 16,611                      |       | 23,669 |   | 21,661 |   |
| Total  loans                         |       | 2,450,628                   |       | 2,055,693 |   | 2,039,016 |   |
| Unearned  Income                     |       | (5,276                      | )          | (4,164 | ) | (4,688 | ) |
| Gross  loans, net of unearned income |       | 2,445,352                   |       | 2,051,529 |   | 2,034,328 |   |
| Allowance  for losses on loans       |       | (54,735                     | )          | (29,437 | ) | (25,950 | ) |
| Net  loans                           |       | $                           | 2,390,617  |   | $ | 2,022,092 |   | $ | 2,008,378 |   |

 

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In accordance with ASC 310-30 (formerly AICPAStatement of Position “SOP03-3”, **Accounting for Certain Loans or DebtSecurities Acquired in a Transfer****)****,** the covered loans were divided into “SOP03-3 Loans” and “Non-SOP 03-3 Loans”, of which SOP 03-3 loans are loans withevidence of deterioration of credit quality and that it was probable, at thetime of acquisition, that the Bankwill be unable to collect all contractually required payments receivable. Incontrast, Non-SOP 03-3 loans areall other covered loans that donot qualify as SOP 03-3 loans. In addition, the covered loans are furthercategorized into four differentloan pools by loan type: construction, commercial & industrial, real estate secured, and consumer. Thecovered loans at the acquisition date of June 26, 2009 are presented in the following table:

 
| ** **                | ** ** | **SOP 03-3 Loans**         | ** ** | **Non SOP 03-3 Loans** | ** ** | **Total Covered Loans** | ** ** |
|---------------------------|------------|----------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                | ** ** | **(dollars in thousands)** | ** ** |
|                      |       |                       |       |                   |       |                    |       |
| Construction              |       | $                          | 494        |                   | $          | —                  |       | $ | 494 |   |
| Real estate secured       |       | 28,245                     |       | 176,941                |       | 205,186                 |       |
| Commercial and industrial |       | 4,458                      |       | 74,639                 |       | 79,097                  |       |
| Consumer                  |       | 115                        |       | 793                    |       | 908                     |       |
|                      |       | $                          | 33,312     |                   | $          | 252,373                 |       | $ | 285,685 |   |

 

Thefollowing table represents the non SOP 03-3 loans receivable at the acquisitiondate of June 26, 2009. The amounts include principal only and do notreflect accrued interest as of the date of acquisition or beyond.

 
| ** **                                           | ** ** | **(In thousands)** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|
| Gross  contractual loan principal payment receivable |       | $                  | 280,454    |   |
| Fair  value adjustment                               |       | (28,081            | )          |
| Fair  value of Non SOP 03-3                          |       | $                  | 252,373    |   |

 

TheCompany applied the cost recovery method to loans subject to ASC 310-30 at theacquisition date of June 26, 2009 due to the uncertainty as to the timingof expected cash flows as reflected in the following table.

 
| ** **                                                      | ** ** | **(In thousands)** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|
| Gross  contractual loan principal payment receivable            |       | $                  | 280,454    |   |
| Estimate  of contractual principal not expected to be collected |       | (28,081            | )          |
| Fair  value of Non SOP 03-3                                     |       | $                  | 252,373    |   |

 

Changesin the carrying amount of loans subject to ASC 310-30 were as follows for thequarter ended September 30, 2009:

 
| ** **                                      | ** ** | **(In thousands)** | ** ** |
|-------------------------------------------------|------------|--------------------|------------|
| Carrying  amount at the beginning of the period |       | $                  | 32,189     |   |
| Reductions  during the period                   |       | (994               | )          |
| Carrying  amount at the end of the period       |       | $                  | 31,195     |   |

 

Loansheld for sale were $30.0 million, $18.4 million, and $10.2 million at September 30,2009, December 31, 2008, and September 30, 2008, respectively.

 

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

 

**Allowancefor Losses on Loans and Loan Commitments********(dollars in thousands)**

** **
| ** **                                                                  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Allowance  for losses on loans:                                             |       |                                      |       |                                     |       |   |   |   |   |
| **Balances at beginning of period**                                         |       | $                                         | 38,758     |                                     | $          | 23,494 |   | $ | 29,437 |   | $ | 21,579 |   |
| Actual  charge-offs:                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Real  estate secured                                                        |       | 1,888                                     |       | 204                                      |       | 2,736 |   | 247 |   |
| Commercial  and industrial                                                  |       | 6,134                                     |       | 1,106                                    |       | 14,703 |   | 3,487 |   |
| Consumer                                                                    |       | 191                                       |       | 203                                      |       | 649 |   | 807 |   |
| Total  charge-offs *                                                        |       | 8,213                                     |       | 1,513                                    |       | 18,088 |   | 4,541 |   |
| **Recoveries on loans previously charged off:**                             |       |                                      |       |                                     |       |   |   |   |   |
| Real  estate secured                                                        |       | 2                                         |       | 38                                       |       | 3 |   | 38 |   |
| Commercial  and industrial                                                  |       | 189                                       |       | 74                                       |       | 495 |   | 1,758 |   |
| Consumer                                                                    |       | 33                                        |       | 62                                       |       | 100 |   | 153 |   |
| Total  recoveries                                                           |       | 224                                       |       | 174                                      |       | 598 |   | 1,949 |   |
| Net  loan charge-offs                                                       |       | 7,989                                     |       | 1,339                                    |       | 17,490 |   | 2,592 |   |
| **Provision for losses on loans**┼                                    |       | 23,966                                    |       | 3,795                                    |       | 42,788 |   | 6,963 |   |
| **Balances at end of period**                                               |       | $                                         | 54,735     |                                     | $          | 25,950 |   | $ | 54,735 |   | $ | 25,950 |   |
| ** **                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| Allowance  for losses on loan commitments:                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Balances at beginning of period**                                         |       | $                                         | 1,221      |                                     | $          | 1,630 |   | $ | 1,243 |   | $ | 1,998 |   |
| Provision  (credit) for losses on loan commitments                          |       | 234                                       |       | (395                                     | )          | 212 |   | (763 | ) |
| **Balances at end of period**                                               |       | $                                         | 1,455      |                                     | $          | 1,235 |   | $ | 1,455 |   | $ | 1,235 |   |
| ** **                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Ratios:**                                                                 |       |                                      |       |                                     |       |   |   |   |   |
| Net  loan charge-offs to average total loans                                |       | 0.33                                      | %          | 0.07                                     | %          | 0.80 | % | 0.13 | % |
| Allowance  for losses on loans to total loans at period-end                 |       | 2.24                                      | %          | 1.28                                     | %          | 2.24 | % | 1.28 | % |
| Net  loan charge-offs to allowance for losses on loans at period-end        |       | 14.60                                     | %          | 5.16                                     | %          | 31.95 | % | 9.99 | % |
| Net  loan charge-offs to provision for losses on loans and loan commitments |       | 33.02                                     | %          | 39.40                                    | %          | 40.67 | % | 41.81 | % |

 

----

*****Charge-off amount include net charge-offsof covered loans amounting to $529 thousand, which represents gross coveredloan charge-offs of $1.9 million less FDIC receivable portion of $1.4 million.

┼  Theprovision amount includes net provisions for covered loans amounting to $529thousand which represents gross covered loan provision of $1.9 million lessFDIC receivable portion of $1.4 million.

 

Thetable below summarizes for the end of the periods indicated, the balance of ourallowance for losses on loans and the percent of such loan balances for eachloan type:

 
| ** **                 | ** ** | **Distribution and Percentage Composition of Allowance  for Loan Losses** | ** ** |
|----------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                 | ** ** | **(dollars in thousands)**                                                | ** ** |
| ** **                 | ** ** | **September 30, 2009**                                               | ** ** | **December 31, 2008** | ** ** |
| ** **                 | ** ** | **Reserve Amount**                                                        | ** ** | **Total Loans** | ** ** | **(%)** | ** ** | **Reserve Amount** | ** ** | **Total Loans** | ** ** | **(%)** | ** ** |
| Applicable  to:            |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction               |       | $                                                                         | 281        |   | $ | 45,080 |   | 0.62 | % | $ | 190 |   | $ | 43,180 |   | 0.44 | % |
| Real  estate secured       |       | 29,206                                                                    |       | 1,973,198 |   | 1.48 | % | 11,628 |   | 1,599,627 |   | 0.73 | % |
| Commercial  and industrial |       | 25,032                                                                    |       | 415,739 |   | 6.02 | % | 17,209 |   | 389,217 |   | 4.44 | % |
| Consumer                   |       | 216                                                                       |       | 16,611 |   | 1.30 | % | 410 |   | 23,669 |   | 1.73 | % |
| Total  allowance           |       | $                                                                         | 54,735     |   | $ | 2,450,628 |   | 2.24 | % | $ | 29,437 |   | $ | 2,055,693 |   | 1.43 | % |

 

The allowance for loan losses is comprised of specificloss allowances for impaired loans and general loan loss allowances based onquantitative and qualitative analyses.

 

A loan is impaired when, based on current informationand events, it is probable that a creditor will be unable to collect allamounts due according to the contractual terms of the loan agreement. AtSeptember 30, 2009, our recorded impaired loans totaled $137.1 million, ofwhich $73.2 million had specific reserves of $15.9 million. At December 31,2008, our recorded impaired loans totaled $28.0 million, of which $16.1 millionhad specific reserves of $6.2 million.

 

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

 

**Note**7.   Shareholders’ Equity

** **

***(Loss)/Earnings per Share***

** **

Basicearnings per share (“EPS”) excludes dilution and is calculated 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 Company. The following tableprovides the basic and diluted EPS computations for the periods indicatedbelow:

 
| ** **                                         | ** ** | **Three months ended** | ** ** | **Nine months ended**  | ** ** |
|----------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| **(dollars in thousands, except  per share data)** | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Numerator:                                         |       |                   |       |                   |       |   |   |   |   |
| Net (loss) income available to common shareholders |       | $                      | (1,657     | )                      | $          | 6,868 |   | $ | 13,330 |   | $ | 21,347 |   |
| Denominator:                                       |       |                   |       |                   |       |   |   |   |   |
| Denominator for basic earnings per share:          |       |                   |       |                   |       |   |   |   |   |
| Weighted-average shares                            |       | 29,413,757             |       | 29,397,182             |       | 29,413,757 |   | 29,355,231 |   |
| Effect of dilutive stock option                    |       | —                 |       | 111,321                |       | 7,989 |   | 46,981 |   |
| Denominator for diluted earnings per share:        |       |                   |       |                   |       |   |   |   |   |
| Dilutive weighted-average shares outstanding       |       | 29,413,757             |       | 29,508,503             |       | 29,422,528 |   | 29,402,212 |   |
|                                               |       |                   |       |                   |       |   |   |   |   |
| Basic (loss) earnings per share                    |       | $                      | (0.06      | )                      | $          | 0.23 |   | $ | 0.45 |   | $ | 0.73 |   |
| Diluted (loss) earnings per share                  |       | $                      | (0.06      | )                      | $          | 0.23 |   | $ | 0.45 |   | $ | 0.73 |   |

 

**Note**8.   Business Segment Information

 

Thefollowing disclosure about segments of the Company is made in accordance withthe requirements of ASC 280 (formerly SFAS No. 131, *Disclosures about Segments of an Enterprise and RelatedInformation)*.  The Companysegregates its operations into three primary segments:  banking operations, SBA lending services andtrade finance department(“TFD”).  The Company determines the operating resultsof each segment based on an internal management system that allocates certainexpenses to each segment.

 

*BankingOperations*-**The Companyraises funds from deposits and borrowings for loans and investments, andprovides lending products, including commercial, consumer and real estate loansto its customers.

 

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

 

*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.

 

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The following are theresults of operations of the Company’s segments for the periods indicatedbelow:

 
| ** **                                   | ** ** | **Three Months Ended September 30, 2009** | ** ** | **Three Months Ended September 30, 2008** | ** ** |
|----------------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| **(dollars in thousands)**                   | ** ** | **Banking**                                    | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | **Banking** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Business Segment**                         | ** ** | **Operations**                                 | ** ** | **TFD**                                        | ** ** | **SBA** | ** ** | **Company** | ** ** | **Operations** | ** ** | **TFD** | ** ** | **SBA** | ** ** | **Company** | ** ** |
|                                         |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                          |       | $                                              | 25,904     |                                           | $          | 467 |   | $ | 3,042 |   | $ | 29,413 |   | $ | 18,116 |   | $ | 577 |   | $ | 2,721 |   | $ | 21,414 |   |
| Less provision (recapture) for credit losses |       | 18,021                                         |       | 3,999                                          |       | 2,180 |   | 24,200 |   | 2,239 |   | 595 |   | 566 |   | 3,400 |   |
| Non-interest (loss) income                   |       | 5,158                                          |       | (86                                            | )          | 2,328 |   | 7,400 |   | 4,070 |   | 312 |   | 963 |   | 5,345 |   |
|                                         |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenue (loss)                           |       | 13,041                                         |       | (3,618                                         | )          | 3,190 |   | 12,613 |   | 19,947 |   | 294 |   | 3,118 |   | 23,359 |   |
| Non-interest expenses                        |       | 14,128                                         |       | 118                                            |       | 575 |   | 14,821 |   | 11,148 |   | 293 |   | 866 |   | 12,307 |   |
|                                         |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes            |       | $                                              | (1,087     | )                                              | $          | (3,736 | ) | $ | 2,615 |   | $ | (2,208 | ) | $ | 8,799 |   | $ | 1 |   | $ | 2,252 |   | $ | 11,052 |   |
|                                         |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Business segment assets                      |       | $                                              | 3,136,284  |                                           | $          | 51,205 |   | $ | 190,074 |   | $ | 3,377,563 |   | $ | 2,181,042 |   | $ | 49,825 |   | $ | 156,268 |   | $ | 2,387,135 |   |

 
| ** **                                 | ** ** | **Nine Months Ended September 30, 2009** | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **Banking**                                   | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | **Banking** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(dollars in thousands)**                 | ** ** | **Operations**                                | ** ** | **TFD**                                       | ** ** | **SBA** | ** ** | **Company** | ** ** | **Operations** | ** ** | **TFD** | ** ** | **SBA** | ** ** | **Company** | ** ** |
|                                       |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest income                        |       | $                                             | 61,172     |                                          | $          | 1,327 |   | $ | 7,559 |   | $ | 70,058 |   | $ | 50,725 |   | $ | 1,714 |   | $ | 9,052 |   | $ | 61,491 |   |
| Less provision (recapture) for loan losses |       | 31,074                                        |       | 6,761                                         |       | 5,165 |   | 43,000 |   | 2,819 |   | (692 | ) | 4,073 |   | 6,200 |   |
| Non-interest (loss) income                 |       | 35,024                                        |       | 841                                           |       | 3,862 |   | 39,727 |   | 11,519 |   | 853 |   | 3,733 |   | 16,105 |   |
|                                       |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net revenue (loss)                         |       | 65,122                                        |       | (4,593                                        | )          | 6,256 |   | 66,785 |   | 59,425 |   | 3,259 |   | 8,712 |   | 71,396 |   |
| Non-interest expenses                      |       | 38,247                                        |       | 1,064                                         |       | 1,573 |   | 40,884 |   | 33,541 |   | 801 |   | 2,743 |   | 37,085 |   |
|                                       |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes          |       | $                                             | 26,875     |                                          | $          | (5,657 | ) | $ | 4,683 |   | $ | 25,901 |   | $ | 25,884 |   | $ | 2,458 |   | $ | 5,969 |   | $ | 34,311 |   |
|                                       |       |                                          |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Business segment assets                    |       | $                                             | 3,136,284  |                                          | $          | 51,205 |   | $ | 190,074 |   | $ | 3,377,563 |   | $ | 2,181,042 |   | $ | 49,825 |   | $ | 156,268 |   | $ | 2,387,135 |   |

 

**Note**9.   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 each customer’screditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension ofcredit, is based on our credit evaluation of the counterparty.  The types of collateral that we hold varies,but may include accounts receivable,inventory, property, plant, andequipment and income-producing properties. Commitments at September 30,2009 are summarized as follows:

 
| **(dollars in thousands)**    | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                          |       |                         |       |                        |       |
| Commitments to extend  credit |       | $                            | 219,901    |                        | $          | 153,441 |   |
|                          |       |                         |       |                        |       |
| Standby letters of credit     |       | 12,952                       |       | 12,700                      |       |
|                          |       |                         |       |                        |       |
| Commercial letters of  credit |       | 13,298                       |       | 15,133                      |       |
|                               |            |                              |            |                             |            |  |  |

 

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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.

 

**Note**10.Recent Accounting Pronouncements

 

In December 2008, the FASB issued ASC 715-20(formerly FSP SFAS No.132R-1, *Employer’s Disclosuresabout Postretirement Benefit Plan Asset)*, which amends SFAS No. 132R,*Employer’s Disclosures about Pensions andOther Postretirement Benefits*, to provide guidance on employers’disclosures about plan assets of a defined benefit pension or otherpostretirement plan. The objectives of the disclosures are to provide users offinancial statements with an understanding of the plan investment policies andstrategies regarding investment allocation, major categories of plan assets,use of fair valuation inputs and techniques, effect of fair value measurementsusing significant unobservable inputs (i.e., level 3 inputs), and significantconcentrations of risk within plan assets. ASC 715-20 is effective forfinancial statements issued for fiscal years beginning after December 15,2009, with early adoption permitted. This FSP does not require comparative disclosuresfor earlier periods. We are in the process of evaluating the impact that theadoption of ASC 715-20 will have on our consolidated financial statements.

 

In April 2009, the FASB issued ASC 820-10-65-4(formerly FSP SFAS No.157-4), *Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*,to provide additional guidance for estimating fair value in accordance with ASC820, *Fair Value Measurements*,when the volume and level of activity for the asset or liability havesignificantly decreased. As some constituents indicated that SFAS No. 157and FSP SFAS No. 157-3, *Determiningthe Fair Value of a Financial Asset When the Market for That Asset Is NotActive*, did not provide sufficient guidance on how to determinewhether a market for a financial asset that historically was active is nolonger active and whether a transaction is not orderly. Therefore, this ASC820-10-65-4 includes guidance on identifying circumstances that indicate atransaction is not orderly. We adopted ASC 820-10-65-4 in the second quarter of2009 and the adoption did not have a material impact on our consolidatedfinancial statements.

 

In April 2009, the FASB issued ASC 320-10 (FormerlyFSP SFAS No.115-2 and SFAS No. 124-2, *Recognition andPresentation of Other-Than-Temporary Impairments)*, which amends theother-than-temporary impairment (“OTTI”) guidance in the U.S. GAAP for debtsecurities to make the guidance more operational and to improve thepresentation and disclosure of OTTI on debt and equity securities in thefinancial statements. This ASC 320-10 does not amend existing recognition andmeasurement guidance related to OTTI of equity securities. This issuance alsorequires increased and more timely disclosures sought by investors regardingexpected cash flows, credit losses, and an aging of securities with unrealizedlosses. ASC 320-10 is effective for interim and annual reporting periods endingafter June 15, 2009. The adoption of ASC 320-10 did not have a materialimpact on our consolidated financial statements.

 

In April 2009, the FASB issued ASC Topic 825(formerly FSP SFAS No. 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments)*,which amends SFAS No. 107, *Disclosureabout Fair Value of Financial Instruments*, to require disclosuresabout fair value of financial instruments for interim reporting periods ofpublicly traded companies as well as in annual financial statements.  This ASC 825 also amends APB Opinion No. 28,*Interim Financial Reporting*, torequire those disclosures in summarized financial information at interimreporting periods. ASC Topic 825 is effective for interim and annual reportingperiods ending after June 15, 2009. If a reporting entity elects to adoptearly either FSP SFAS No. 157-4 or FSP SFAS No. 115-2 and SFAS No. 124-2,the reporting entity also is required to adopt early this ASC Topic 825. However,this does not require disclosures for earlier periods presented for comparativepurposes at initial adoption. In periods after initial adoption, Topic 825requires comparative disclosures only for periods ending after initialadoption. The adoption of ASC Topic 825 did not have a material impact on ourconsolidated financial statements.

 

In May 2009,the FASB issued new authoritative guidance under ASC Topic 855 (formerlyStatement No. 165) “Subsequent Events,” to establish generalstandards of accounting for and disclosures of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued. ASCTopic 855 is to be applied to the accounting for and disclosure ofsubsequent events, and is applied to both interim and annual financialstatements. This statement does not apply to subsequent events or transactionsthat are within the scope of other applicable GAAP that provide differentguidance on the accounting treatment for subsequent events or transactions. ASC Topic 855 iseffective for interim or annual financial periods ending after June 15, 2009. Eventsthat occurred subsequent to September 30, 2009 have been evaluated by theCompany’s management in accordance with ASC 855 through the time of filing thisreport on November 9, 2009. Theadoption of ASC Topic855 did not have a material impact on our consolidated financialstatements.

 

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In June 2009,the FASB issued new authoritative guidance under ASC Topic 860 (formerlyStatement No. 166) “Transfers and Servicing.”  This statement is to improve the relevance,representational faithfulness, and comparability of the information that areporting entity provides in its financial statements about a transfer offinancial assets; the effects of a transfer on its financial position,financial performance and cash flows; and a transferor’s continuinginvolvement, if any, in transferred financial assets. ASC Topic 860 addresses (1) practicesthat have developed since the issuance of SFAS No. 140 that are notconsistent with the original intent and key requirements of that statement, and(2) concerns of financial statement users that many of the financialassets (and related obligations) that have been derecognized should continue tobe reported in the financial statements of transferors. ASC Topic 860 iseffective at the beginning of each reporting entity’s first annual reportingperiod that begins after November 15, 2009, for interim periods withinthat first annual reporting period, and for interim and annual periodsthereafter. Early adoption is prohibited. This statement must be applied totransfers occurring on or after the effective date. However, the disclosureprovisions of this statement should be applied to transfers that occurred bothbefore and after the effective date. Additionally, on and after the effectivedate, the concept of qualifying special-purpose entity (“SPE”) is no longerrelevant for accounting purposes. Therefore, formerly qualifying SPEs, asdefined under previous accounting standards, should be evaluated forconsolidation by reporting entities on and after the effective date inaccordance with the applicable consolidation guidance. We are in the process ofevaluating the impact that the adoption of ASC Topic 860 will have on ourconsolidated financial statements.

 

In June 2009, the FASB issued new authoritativeguidance under SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”(SFAS 167). Under FASB’s Codification at ASC 105-10-65-1d, SFAS 167 willremain authoritative until integrated into the FASB Codification. SFAS 167amends FIN 46 (Revised December 2003), “Consolidation of VariableInterest Entities,” to change how a company determines when an entity that isinsufficiently capitalized or is not controlled through voting (or similarrights) should be consolidated. The determination of whether a company isrequired to consolidate an entity is based on, among other things, an entity’spurpose and design and a company’s ability to direct the activities of theentity that most significantly impact the entity’s economic performance. SFAS167 requires additional disclosures about the reporting entity’s involvementwith variable-interest entities and any significant changes in risk exposuredue to that involvement as well as its affect on the entity’s financialstatements. SFAS 167 will be effective January 1, 2010 and we are in the process of evaluating theimpact that the adoption of SFAS No. 166 will have on our consolidatedfinancial statements.

 

In June 2009, the FASB issued SFAS No. 168, *The FASB Accounting Standards Codification and theHierarchy of Generally Accepted Accounting Principles,*a replacement of SFAS No. 162, whichis now codified in FASB ASC 105, *The Hierarchyof Generally Accepted Accounting Principles*. The FASB AccountingStandards Codification (“Codification”) will become the source of authoritativeU.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules andinterpretive releases of the Securities and Exchange Commission (“SEC”) underauthority of federal securities laws are also sources of authoritative GAAP forSEC registrants. On the effective date of this statement, the Codification willsupersede all then-existing non-SEC accounting and reporting standards. Allother nongrandfathered non-SEC accounting literature not included in theCodification will become nonauthoritative. ASC 105 is effective for interim and annual financial statements issuedafter September 15, 2009.  Theadoption of ASC 105 did not have a material impact on our consolidatedfinancial statements.

 

In August 2009, the FASB issued AccountingStandards Update (“ASU”) 2009-05 *Fair ValueMeasurements and Disclosures (Topic 820): Measuring Liabilities at Fair Value*(“ASU 2009-05”) which provides guidance on measuring the fair value ofliabilities under FASB ASC 820,*Fair ValueMeasurements and Disclosures* (“ASC 820”). ASU 2009-05 clarifies thatthe unadjusted quoted price for an identical liability, when traded as an assetin an active market is a Level 1 measurement for the liability and providesguidance on the valuation techniques to estimate fair value of a liability inthe absence of a Level 1 measurement. ASU 2009-05 is effective for the firstinterim or annual reporting period beginning after its issuance. The adoptionof ASU 2009-05 did not have a material effect on our consolidated financialstatements.

 

In September 2009, ASU 2009-12, “Fair ValueMeasurements and Disclosures (Topic 820) - Investments in Certain Entities ThatCalculate Net Asset Value per Share (or Its Equivalent),”was issued.  The issuance allows a company to measure thefair value of an investment that has no readily determinable fair market valueon the basis of the investee’s net asset value per share as provided by theinvestee. This allowance assumes that the investee has calculated net assetvalue in accordance with the GAAP measurement principles of Topic 946 as of thereporting entity’s measurement date.  Examples of such investmentsinclude investments in hedge funds, private equity funds, real estate funds andventure capital funds. The update also provides guidance on how the investmentshould be classified within the fair value hierarchy based on the value forwhich the investment can be redeemed.  The amendment is effective forinterim and annual periods ending after December 15, 2009 with earlyadoption permitted.  The Company does not have investments in suchentities and, consequently, there will be no impact to our financialstatements.

 

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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 for thethree and nine months ended September 30, 2009 and 2008, financialcondition as of September 30, 2009 and December 31, 2008,and includes the statistical disclosures required by the Securities andExchange Commission Guide 3 (“Statistical Disclosure by Bank Holding Companies”).  The discussion should be read in conjunctionwith our financial statements and the notes related thereto which appearelsewhere in this Quarterly Report on Form 10-Q.

 

Statementscontained in this report that are not purely historical are forward-lookingstatements within the meaning of Section 21E of the Securities ExchangeAct of 1934, as amended, including our expectations, intentions, beliefs, orstrategies regarding the future.  Anystatements in this document about expectations, beliefs, plans, objectives,assumptions or future events or performance are not historical facts and areforward-looking statements. These statements are often, but not always, madethrough the use of words or phrases such as “may,” “should,” “could,” “predict,”“potential,” “believe,” “expect,” “anticipate,” “seek,” “estimate,” “intend,” “plan,”“projection,” and “outlook,” and similar expressions.  Accordingly, these statements involveestimates, assumptions and uncertainties, which could cause actual results todiffer materially from those expressed in them. Any forward-looking statements are qualified in their entirety byreference to the factors discussed throughout this document.  All forward-looking statements concerningeconomic conditions, rates of growth, rates of income or values as may beincluded in this document are based on information available to us on the datesnoted, and we assume no obligation to update any such forward-lookingstatements.  It is important to note thatour actual results may differ materially from those in such forward-lookingstatements due to fluctuations in interest rates, inflation, governmentregulations, economic conditions, customer disintermediation and competitiveproduct and pricing pressures in the geographic and business areas in which weconduct operations, including our plans, objectives, expectations andintentions and other factors discussed under the section entitled “RiskFactors,” in our Annual Report on Form 10-K for the year ended December 31,2008, including thefollowing:

 

·                  If a significantnumber of clients 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.

 

·                  Liquidity riskcould impair our ability to fund operations, meet our obligations as theybecome due and jeopardize our financial condition.

 

·                  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 ofdebentures and Series A Preferred Stock have rights that are senior tothose of our common shareholders.

 

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

 

·                  Recent negativedevelopments in the financial industry and U.S. and global credit markets mayaffect our operations and results.

 

·                  Governmentalresponses to recent market disruptions may be inadequate and may haveunintended consequences.

 

·                  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.

 

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·                  We may be unableto manage future growth.

 

·                  Our expenseswill increase as a result of increases in FDIC insurance premiums.

 

·                  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 mayexperience goodwill impairment.

 

·                  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.

 

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

 

·                  Our failure to meet the challengesinvolved in successfully integrating the acquired Mirae assets with oursor otherwise to realize any of the anticipated benefits of the acquisitioncould harm the results of operations of our combined organization.  The integration of the business of twobanks can be a complex, time-consuming and expensive process that, withoutproper planning and implementation, could disrupt our business.  The challenges involved in this integrationinclude the following:

 

·                  Demonstrating to the customersof Mirae and the customers of Wilshire State Bank thatthe acquisition will not result in adverse changes in client servicestandards or business focus and helping customers conduct business easily withthe combined banks;

 

·                  Consolidating and rationalizing corporateinformation technology and administrative infrastructures;

 

·                  Coordinating sales and marketing effortsand strategies to effectively communicate the capabilities of thecombined organization, especially to former Mirae customers;

 

·                  Persuading employees that the businesscultures of Wilshire State Bank and the former Mirae arecompatible, maintaining employee morale and retaining key employees; and

 

·                  Managing a complex integration process.

 

·                  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 previously issued and preferred stock issued in the futurecould 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, 2008 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 or statementsto reflect events or circumstances after the date on which such statement ismade 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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**Acquisition**

** **

**On June 26,2009, we acquired the banking operations of Mirae from the FDIC.  We acquired approximately $395.6 million ofassets and assumed $374.0 million of liabilities. We also entered into losssharing agreements with the FDIC in connection with the Mirae acquisition.  Under the loss sharing agreements, the FDICwill share in the losses on assets covered under the agreements, whichgenerally include loans acquired from Mirae and foreclosed loan collateralexisting at June 26, 2009.  Withrespect to losses of up to $83.0 million on the covered assets, the FDIC hasagreed to reimburse us for 80 percent of the losses.  On losses exceeding$83.0 million, the FDIC has agreed to reimburse us for 95 percent of thelosses.  The loss sharing agreements are subject to our compliancewith servicing procedures and satisfying certain other conditions specified inthe agreements with the FDIC.  Theterm for the FDIC’s loss sharing on**single family loans is ten years, and the term for loss sharingon non-single family loans is five years for losses and eight years for loss recoveries.

** **

**TheMirae acquisition was accounted for under the purchase method of accounting inaccordance to ASC 805 (formerly SFAS No. 1**41R). The Company recorded a SFAS No. 141Rbargainpurchase gain totaling$21.7 million resulting from the acquisition, which is a component ofnoninterest income on our statement of income. The amount of the gain is equalto the amount by which the fair value of assets purchased exceeded the fairvalue of liabilities assumed (see note 3 of our Consolidated FinancialStatements).

 

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**Selected Financial Data**

** **

The following table presents selected historicalfinancial information as of September 30, 2009, December 31, 2008,and September 30, 2008 and for the three and nine months ended September 30,2009and 2008.  In the opinion of management, the informationpresented reflects all adjustments considered necessary for a fair presentationof the results of such periods.  Theoperating results for the interim periods are not necessarily indicative of ourfuture operating results.

 
| ** **                                                                               | ** ** | **Three months ended September 30,**         | ** ** | **Nine months ended September 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                               | ** ** | **(Dollars in thousands, except per share data)** | ** ** |
| ** **                                                                               | ** ** | **2009**                                          | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| (Loss)/Net  income available to common shareholders                                      |       | $                                                 | (1,657     | )                                        | $          | 6,868 |   | $ | 13,330 |   | $ | 21,347 |   |
| Net  (loss) income per common share, basic                                               |       | (0.06                                             | )          | 0.23                                     |       | 0.45 |   | 0.73 |   |
| Net  (loss) income per common share, diluted                                             |       | (0.06                                             | )          | 0.23                                     |       | 0.45 |   | 0.73 |   |
| Net  interest income before provision for loan losses and off-balance sheet  commitments |       | 29,413                                            |       | 21,414                                   |       | 70,058 |   | 61,491 |   |
| ** **                                                                               |       |                                              |       |                                     |       |   |   |   |   |
| **Average balances:**                                                                    |       |                                              |       |                                     |       |   |   |   |   |
| Assets                                                                                   |       | 3,298,238                                         |       | 2,381,999                                |       | 2,840,993 |   | 2,299,152 |   |
| Cash  and cash equivalents                                                               |       | 262,321                                           |       | 79,748                                   |       | 189,314 |   | 77,218 |   |
| Investment  securities                                                                   |       | 488,704                                           |       | 228,825                                  |       | 367,260 |   | 226,727 |   |
| Net  loans                                                                               |       | 2,393,513                                         |       | 1,979,435                                |       | 2,162,801 |   | 1,906,985 |   |
| Total  deposits                                                                          |       | 2,547,303                                         |       | 1,774,451                                |       | 2,129,473 |   | 1,735,283 |   |
| Shareholders’  equity                                                               |       | 276,770                                           |       | 186,332                                  |       | 266,157 |   | 181,222 |   |
| **Performance Ratios:**                                                                  |       |                                              |       |                                     |       |   |   |   |   |
| Annualized  return on average assets                                                     |       | (0.09                                             | )%         | 1.15                                     | %          | 0.75 | % | 1.24 | % |
| Annualized  return on average equity                                                     |       | (1.09                                             | )%         | 14.74                                    | %          | 8.04 | % | 15.71 | % |
| Net  interest margin                                                                     |       | 3.87                                              | %          | 3.87                                     | %          | 3.55 | % | 3.82 | % |
| Efficiency  ratio                                                                        |       | 40.26                                             | %          | 45.99                                    | %          | 37.24 | % | 47.79 | % |
| **Capital Ratios:**                                                                      |       |                                              |       |                                     |       |   |   |   |   |
| Tier  1 capital to adjusted total assets                                                 |       | 10.03                                             | %          | 10.19                                    | %          |   |   |   |   |
| Tier  1 capital to risk-weighted assets                                                  |       | 14.29                                             | %          | 11.68                                    | %          |   |   |   |   |
| Total  capital to risk-weighted assets                                                   |       | 15.82                                             | %          | 14.01                                    | %          |   |   |   |   |
| ** **                                                                               | ** ** | ** **                                        | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                               | ** ** | **September  30, 2009**                           | ** ** | **December 31,  2008**              | ** ** | **September  30, 2008** |   |   |   |
| **Period-end balances as of:**                                                           |       |                                              |       |                                     |       |   |   |   |   |
| Total  assets                                                                            |       | $                                                 | 3,377,563  |                                     | $          | 2,450,011 |   | $ | 2,387,135 |   |   |   |
| Investment  securities                                                                   |       | 559,718                                           |       | 229,275                                  |       | 228,100 |   |   |   |
| Total  loans, net of unearned income and allowance for loan losses                       |       | 2,445,352                                         |       | 2,051,528                                |       | 2,034,328 |   |   |   |
| Total  deposits                                                                          |       | 2,672,102                                         |       | 1,812,601                                |       | 1,787,763 |   |   |   |
| Junior  subordinated debentures                                                          |       | 87,321                                            |       | 87,321                                   |       | 87,321 |   |   |   |
| FHLB  borrowings                                                                         |       | 322,000                                           |       | 260,000                                  |       | 300,000 |   |   |   |
| Shareholders’  equity                                                               |       | 272,487                                           |       | 255,060                                  |       | 187,879 |   |   |   |
|                                                                                     |       |                                              |       |                                     |       |   |   |   |   |
| **Asset Quality Ratios:**                                                                |       |                                              |       |                                     |       |   |   |   |   |
| *(net of SBA guaranteed portion)*                                                        |       |                                              |       |                                     |       |   |   |   |   |
| Net  charge-off to average total loans for the quarter                                   |       | 0.33                                              | %          | 2.60                                     | %          | 0.07 | % |   |   |
| Non-performing  loans to total loans                                                     |       | 3.20                                              | %          | 0.76                                     | %          | 0.67 | % |   |   |
| Non-performing  assets to total loans and other real estate owned                        |       | 6.15                                              | %          | 0.89                                     | %          | 0.75 | % |   |   |
| Allowance  for loan losses to total loans                                                |       | 2.24                                              | %          | 1.43                                     | %          | 1.28 | % |   |   |
| Allowance  for loan losses to non-performing loans                                       |       | 70.02                                             | %          | 189.27                                   | %          | 189.01 | % |   |   |
|                                                                                          |            |                                                   |            |                                          |            |  |  |  |  |  |  |  |  |

 

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**ExecutiveOverview**

 

Weoperate a community bank engaged in the 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.

 

Wehave also expanded and diversified our business with the focus on ourcommercial and consumer lending divisions. Over the past several years, ournetwork of branches and loan production offices has been expandedgeographically. Pursuant tothe acquisition on June 26, 2009, five commercial banking branches,operated by Mirae and located within the southern California, were integratedinto our branch network following the acquisition.  In the third quarter an additional branch inFort Worth, Texas was also opened.  Inaddition, we also have five loanproduction offices in Aurora, Colorado(the Denver area); Atlanta, Georgia; Dallas, Texas; Houston, Texas; and Annandale,Virginia.

 

**Critical Accounting Policies**

** **

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

 

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

 

Oursignificant accounting policies are described in greater detail in our 2008 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 30,2009.

 

**Results of Operations**

** **

**Net Interest Income andNet Interest Margin**

 

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

 

Netinterest income before provision for losses on loans and loan commitments increasedby $8.0 million or 37.4% to $29.4 million in the third quarter of 2009 comparedto $21.4 million in the third quarter of 2008. Net interest margin of 3.87% in the third quarter of 2009 was unchangedfrom the third quarter of 2008.  Theincrease in net interest income was primarily due to a corresponding increasein interest income while interest expense decreased slightly.

 

Interestincome increased by $7.5 million, or 20.0%, to $45.1 million in third quarterof 2009 compared to $37.6 million in the third quarter of 2008.  The increase in interest income was primarilydue to higher average balances in our loan portfolio and in our US governmentagency securities portfolio, and the accretion of discounted loans.  Average loan balances increased by $414.1million to $2.4 billion in the third quarter of 2009, compared to 

 

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$2.0 billion in the third quarter of 2008.  This increase was primarily due to loansacquired from the Mirae on June 26, 2009. Average balances in our US government agency securities increased by$235.7 million to $450.1 million in the third quarter of 2009 compared to $214.4million in the third quarter of 2008. Increases in the aforementioned average balances compensated for a 44basis point decrease in average yield in our loan portfolio and a 95 basispoint decrease in average yield in our US government agency securitiesportfolio.  The decrease in the weightedaverage yields on our interest earning assets is consistent with the reductionof 175 basis points in the federal funds rate during the fourth quarter of2008.

 

Interestexpense decreased by $471,000, or 2.9%, to $15.7 million in the third quarterof 2009 compared to $16.2 million in the third quarter of 2008.  The average balances of our interest bearingliabilities increased by $755.8 million to $2.6 billion in the third quarter of2009 compared to $1.9 billion in the third quarter of 2008.  This increase in average balances was offsetby a 107 basis point reduction in the weighted average yield which isconsistent with the reduction of 175 basis points in the federal funds rateduring the fourth quarter of 2008.

 

Netinterest income before provision for losses on loans and loan commitmentsincreased by $8.6 million, or 13.9%, to $70.1 million in the first nine monthsof 2009 compared to $61.5 million in the same period a year earlier.  Net interest margin decreased by 28 basispoints to 3.55% in the first nine months of 2009 compared to 3.83% in the sameperiod a year earlier.  The increase innet interest income was primarily due to a corresponding decrease in interestexpense while interest income increased slightly.

 

Interestexpense decreased by $7.1 million, or 13.9%, to $43.7 million in the first ninemonths of 2009 compared to $50.7 million in the same period a yearearlier.  The decrease in interestexpense was due to a reduction of 118 basis points in the weighted averageyield of our interest bearing liabilities. The decrease in the weighted average yield was due to repricing of therelated interest bearing deposits at lower rates, which offset an increase of$450.0 million in the related average balances.

 

Interestincome rose slightly by $1.5 million, or 1.4 %, to $113.7 million in the firstnine months of 2009 compared to $112.2 million in the same period a yearearlier.  While average balancesincreased by $506.6 million to $2.7 billion in the first nine months of 2009compared to $2.1 billion in the same period a year earlier, the weightedaverage yield decreased by 124 basis points, which is consistent with thereduction of 175 basis points in the federal funds rate during the fourthquarter of 2008.

 

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The following table setsforth, for the periods indicated, our average balances of assets, liabilitiesand shareholders’ equity, in addition to the major components of net interestincome and net interest margin:

 

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

**(dollars in thousands)**

 
| ** **                                                         | ** ** | **For the Quarter Ended September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                         | ** ** | **2009**                                | ** ** | **2008** | ** ** |
| ** **                                                         | ** ** | **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)                                                      |       | $                                       | 2,393,513  |   | $ | 39,388 |   | 6.58% |   | $ | 1,979,435 |   | $ | 34,719 |   | 7.02% |   |
| Investment  securities government sponsored agencies               |       | 450,116                                 |       | 4,460 |   | 3.96% |   | 214,400 |   | 2,629 |   | 4.91% |   |
| Other  investment securities(2)                                    |       | 38,588                                  |       | 416 |   | 6.47% |   | 14,425 |   | 169 |   | 4.69% |   |
| Interest  on federal funds sold                                    |       | 180,490                                 |       | 844 |   | 1.87% |   | 11,485 |   | 63 |   | 2.19% |   |
| Total  interest-earning assets                                     |       | 3,062,707                               |       | 45,108 |   | 5.92% |   | 2,219,745 |   | 37,580 |   | 6.77% |   |
| Cash  and due from banks                                           |       | 81,831                                  |       |   |   |   |   | 68,263 |   |   |   |   |   |
| Other  assets                                                      |       | 153,700                                 |       |   |   |   |   | 93,991 |   |   |   |   |   |
| Total  assets                                                      |       | $                                       | 3,298,238  |   |   |   |   |   | $ | 2,381,999 |   |   |   |   |   |
|                                                               |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity:**                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                     |       |                                    |       |   |   |   |   |   |   |   |   |   |   |
| Money  market deposits                                             |       | $                                       | 677,234    |   | $ | 4,075 |   | 2.41% |   | $ | 439,080 |   | $ | 3,520 |   | 3.21% |   |
| Super  NOW deposits                                                |       | 21,481                                  |       | 50 |   | 0.93% |   | 21,144 |   | 72 |   | 1.36% |   |
| Savings  deposits                                                  |       | 62,090                                  |       | 527 |   | 3.39% |   | 41,273 |   | 359 |   | 3.48% |   |
| Time  certificates of deposit in denominations of $100,000 or more |       | 984,521                                 |       | 5,611 |   | 2.28% |   | 770,812 |   | 6,702 |   | 3.48% |   |
| Other  time deposits                                               |       | 427,234                                 |       | 2,731 |   | 2.56% |   | 197,044 |   | 1,816 |   | 3.69% |   |
| FHLB  advances and other borrowings                                |       | 362,208                                 |       | 1,982 |   | 2.19% |   | 309,576 |   | 2,570 |   | 3.32% |   |
| Junior  subordinated debenture                                     |       | 87,321                                  |       | 719 |   | 3.30% |   | 87,321 |   | 1,127 |   | 5.16% |   |
| Total  interest-bearing liabilities                                |       | 2,622,089                               |       | 15,695 |   | 2.40% |   | 1,866,250 |   | 16,166 |   | 3.46% |   |
| Non-interest-bearing  deposits                                     |       | 374,743                                 |       |   |   |   |   | 305,098 |   |   |   |   |   |
| Total  deposits and other borrowings                               |       | 2,996,832                               |       |   |   |   |   | 2,171,348 |   |   |   |   |   |
| Other  liabilities                                                 |       | 24,636                                  |       |   |   |   |   | 24,319 |   |   |   |   |   |
| Shareholders’  equity                                         |       | 276,770                                 |       |   |   |   |   | 186,332 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity                   |       | $                                       | 3,298,238  |   |   |   |   |   | $ | 2,381,999 |   |   |   |   |   |
| Net  interest income                                               |       |                                    |       | $ | 29,413 |   |   |   |   |   | $ | 21,414 |   |   |   |
| Net  interest spread(3)                                            |       |                                    |       |   |   | 3.52% |   |   |   |   |   | 3.31% |   |
| Net  interest margin(4)                                            |       |                                    |       |   |   | 3.87% |   |   |   |   |   | 3.87% |   |

 

----

(1)          Net loan fees have been included in thecalculation of interest income. Loan fees were approximately $918,000 and $912,000 for the quarters ended September 30,2009 and 2008,respectively. Loans are net of the allowance for losses on loans, deferredfees, unearned income and related direct costs, but include those loans placed on non-accrual status.

(2)          Interest income on atax equivalent basis for tax-advantaged income of $209,000 and $39,000 for thethree months ended September 30, 2009 and 2008, respectively, were notincluded in the computation of yields.

(3)          Represents the average rate earned oninterest-earning assets less the average rate paid on interest-bearingliabilities.

(4)          Represents net interest income as a percentageof average interest-earning assets.

 

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

**(dollars in thousands)**

** **
| ** **                                                         | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                         | ** ** | **2009**                                    | ** ** | **2008** | ** ** |
| ** **                                                         | ** ** | **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)                                                      |       | $                                           | 2,162,801  |   | $ | 100,818 |   | 6.22% |   | $ | 1,906,985 |   | $ | 104,014 |   | 7.27% |   |
| Investment  securities government sponsored agencies               |       | 334,474                                     |       | 9,938 |   | 3.96% |   | 210,905 |   | 7,475 |   | 4.73% |   |
| Other  investment securities(2)                                    |       | 32,786                                      |       | 1,073 |   | 6.27% |   | 15,822 |   | 546 |   | 4.60% |   |
| Interest  on federal funds sold                                    |       | 120,249                                     |       | 1,910 |   | 2.12% |   | 9,966 |   | 192 |   | 2.57% |   |
| Total  interest-earning assets                                     |       | 2,650,310                                   |       | 113,739 |   | 5.75% |   | 2,143,678 |   | 112,227 |   | 6.98% |   |
| Cash  and due from banks                                           |       | 69,065                                      |       |   |   |   |   | 67,252 |   |   |   |   |   |
| Other  assets                                                      |       | 121,618                                     |       |   |   |   |   | 88,222 |   |   |   |   |   |
| Total  assets                                                      |       | $                                           | 2,840,993  |   |   |   |   |   | $ | 2,299,152 |   |   |   |   |   |
|                                                               |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity:**                     |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  liabilities:                                     |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Money  market deposits                                             |       | $                                           | 493,160    |   | $ | 9,181 |   | 2.48% |   | $ | 409,726 |   | $ | 10,243 |   | 3.33% |   |
| Super  NOW deposits                                                |       | 20,066                                      |       | 141 |   | 0.94% |   | 22,062 |   | 227 |   | 1.37% |   |
| Savings  deposits                                                  |       | 51,347                                      |       | 1,364 |   | 3.54% |   | 36,646 |   | 907 |   | 3.30% |   |
| Time  certificates of deposit in denominations of $100,000 or more |       | 972,176                                     |       | 19,031 |   | 2.61% |   | 784,790 |   | 23,222 |   | 3.95% |   |
| Other  time deposits                                               |       | 277,684                                     |       | 6,235 |   | 2.99% |   | 178,342 |   | 5,472 |   | 4.09% |   |
| FHLB  advances and other borrowings                                |       | 336,944                                     |       | 5,262 |   | 2.08% |   | 269,818 |   | 6,969 |   | 3.44% |   |
| Junior  subordinated debenture                                     |       | 87,321                                      |       | 2,467 |   | 3.77% |   | 87,321 |   | 3,696 |   | 5.64% |   |
| Total  interest-bearing liabilities                                |       | 2,238,698                                   |       | 43,681 |   | 2.60% |   | 1,788,705 |   | 50,736 |   | 3.78% |   |
| Non-interest-bearing  deposits                                     |       | 315,040                                     |       |   |   |   |   | 303,717 |   |   |   |   |   |
| Total  deposits and other borrowings                               |       | 2,553,738                                   |       |   |   |   |   | 2,092,422 |   |   |   |   |   |
| Other  liabilities                                                 |       | 21,098                                      |       |   |   |   |   | 25,608 |   |   |   |   |   |
| Shareholders’  equity                                         |       | 266,157                                     |       |   |   |   |   | 181,122 |   |   |   |   |   |
| Total  liabilities and shareholders’ equity                   |       | $                                           | 2,840,993  |   |   |   |   |   | $ | 2,299,152 |   |   |   |   |   |
| Net  interest income                                               |       |                                        |       | $ | 70,058 |   |   |   |   |   | $ | 61,491 |   |   |   |
| Net  interest spread(3)                                            |       |                                        |       |   |   | 3.15% |   |   |   |   |   | 3.20% |   |
| Net  interest margin(4)                                            |       |                                        |       |   |   | 3.55% |   |   |   |   |   | 3.82% |   |

 

----

(1)          Net loan fees have been included in the calculation of interest income. Loanfees were approximately $2,010,000 and $3,381,000 for the nine months ended September 30, 2009 and 2008, respectively. Loans are net of the allowancefor losses on loans, deferred fees, unearned income and related direct costs,but include those loans placed on non-accrualstatus.

(2)          Interest income on atax equivalent basis for tax-advantaged income of $469,000 and $122,000 for thenine months ended September 30, 2009 and 2008, respectively, were not included inthe computation of yields.

(3)          Represents the average rate earned oninterest-earning assets less the average rate paid on interest-bearingliabilities.

(4)          Represents net interest income as a percentageof average interest-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 calculated without the consideration of tax effects, ifany, and the variances attributable to both the volume and rate changes havebeen allocated to volume and rate changes in proportion to the relationship ofthe absolute dollar amount of the changes in each:

 

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

** **
| ** **                                                         | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **2009 vs. 2008**                         | ** ** | **2009 vs. 2008**                        | ** ** |
| ** **                                                         | ** ** | **Increase (Decrease) Due to Change In**  | ** ** | **Increase (Decrease) Due to Change In** | ** ** |
| ** **                                                         | ** ** | **Volume**                                | ** ** | **Rate**                                 | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| **Interest income:**                                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |
| Net  loans (1)                                                     |       | $                                         | 6,916      |                                     | $          | (2,246 | ) | $ | 4,670 |   | $ | 12,980 |   | $ | (16,177 | ) | $ | (3,197 | ) |
| Securities  of U.S. government agencies                            |       | 2,418                                     |       | (587                                     | )          | 1,831 |   | 3,825 |   | (1,362 | ) | 2,463 |   |
| Other  investment securities                                       |       | 262                                       |       | (15                                      | )          | 247 |   | 556 |   | (29 | ) | 527 |   |
| Interest  on federal fund sold                                     |       | 791                                       |       | (10                                      | )          | 781 |   | 1,757 |   | (39 | ) | 1,718 |   |
| Total  interest income                                             |       | 10,387                                    |       | (2,858                                   | )          | 7,529 |   | 19,118 |   | (17,607 | ) | 1,511 |   |
|                                                               |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |
| **Interest expense:**                                              |       |                                      |       |                                     |       |   |   |   |   |   |   |   |   |
| Money  market deposits                                             |       | 1,583                                     |       | (1,028                                   | )          | 555 |   | 1,849 |   | (2,911 | ) | (1,062 | ) |
| Super  NOW deposits                                                |       | 1                                         |       | (23                                      | )          | (22 | ) | (19 | ) | (67 | ) | (86 | ) |
| Savings  deposits                                                  |       | 178                                       |       | (10                                      | )          | 168 |   | 387 |   | 70 |   | 457 |   |
| Time  certificates of deposit in denominations of $100,000 or more |       | 1,573                                     |       | (2,664                                   | )          | (1,091 | ) | 4,768 |   | (8,959 | ) | (4,191 | ) |
| Other  time deposits                                               |       | 1,606                                     |       | (691                                     | )          | 915 |   | 2,496 |   | (1,733 | ) | 763 |   |
| FHLB  advances and other borrowings                                |       | 387                                       |       | (975                                     | )          | (588 | ) | 1,469 |   | (3,177 | ) | (1,708 | ) |
| Junior  subordinated debenture                                     |       | —                                    |       | (407                                     | )          | (407 | ) | — |   | (1,229 | ) | (1,229 | ) |
| Total  interest expense                                            |       | 5,328                                     |       | (5,798                                   | )          | (470 | ) | 10,950 |   | (18,006 | ) | (7,056 | ) |
| Change  in net interest income                                     |       | $                                         | 5,059      |                                     | $          | 2,940 |   | $ | 7,999 |   | $ | 8,168 |   | $ | 399 |   | $ | 8,567 |   |

 

----

(1)          Net loan fees have been included in the calculation of interest income.  Loan fees were approximately $$918,000 and $1,757,000 for the quarters ended September 30, 2009 and 2008, respectively, and approximately $2,010,000 and $3,381,000 for the nine months ended September 30, 2009 and 2008, respectively.  Net loans are net of the allowance for loanlosses, deferred fees, unearned income, and related direct costs, but include those loans placed on non-accrual status.

 

**P**rovision for Losses on Loans and LoanCommitments

** **

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

 

Although we continue to enhance our loan underwritingstandards and maintain proactive credit follow-up procedures, we experienced adeterioration of credit quality in our loan portfolio throughout 2009 becauseof the weak economy and the decline in the real estate market. We recordeda provision for losses onloans and loan commitments of $24.2 million in the third quarter of 2009, as compared with a provision of $3.4 million for the prior year’s same quarter.  The provision for loan andoff-balance sheet losses in the first nine months of 2009 was $43.0 million, ascompared to $6.2 million in the first nine months of 2008. The increase in theprovision for losses on loans and loancommitments was primarily to keep pace with the continued growth of ourloan portfolio and an increase of non-performing loans (see “FinancialCondition - Nonperforming Assets” below for further discussion). The $24.2 million provision in the thirdquarter of 2008 was net of recoveries of $224,000. Our procedures formonitoring the adequacy of the allowance for losses on loans and loancommitments, as well as detailed information concerning the allowanceitself, are described in the section entitled “Allowance for Losses on Loans and Loan Commitments”below.  Losses on Mirae loans purchased from the FDIC are partiallyreimbursable to us under the loss-sharing agreements with the FDIC.

 

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**Non-interest Income**

** **

Totalnon-interest income increased to $7.4 million in the third quarter of 2009, as compared with $5.3 million in the samequarter a year ago. Non-interest income as a percentage of averageassets was 0.22% for the third quarters of both 2009 and 2008. The increase involume of our non-interest income was primarily caused by increasesloan-related services fees and gain on sale of loans.

 

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

 

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

** **
| ** **                                     | ** ** | **2009**     | ** ** | **2008** | ** ** |
|------------------------------------------------|------------|--------------|------------|----------|------------|
| **For Three Months Ended  September 30,** | ** ** | **(Amount)** | ** ** | **(%)**  | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service  charges on deposit accounts           |       | $            | 3,315      |     | 44.8       | % | $ | 3,125 |   | 58.5 | % |
| Gain  on sale of loans *                       |       | 2,235        |       | 30.2     | %          | 410 |   | 7.7 | % |
| Loan-related  servicing fees                   |       | 958          |       | 12.9     | %          | 891 |   | 16.7 | % |
| Income  from other earning assets              |       | 243          |       | 3.3      | %          | 398 |   | 7.4 | % |
| Other  income                                  |       | 649          |       | 8.8      | %          | 521 |   | 9.7 | % |
| Total                                          |       | $            | 7,400      |     | 100.0      | % | $ | 5,345 |   | 100.0 | % |
| Average  assets                                |       | $            | 3,298,238  |     |       |   | $ | 2,381,999 |   |   |   |
| Non-interest  income as a % of average assets  |       |         |       | 0.22     | %          |   |   | 0.22 | % |

 
| ** **                                    | ** ** | **2009**     | ** ** | **2008** | ** ** |
|-----------------------------------------------|------------|--------------|------------|----------|------------|
| **For Nine Months Ended  September 30,** | ** ** | **(Amount)** | ** ** | **(%)**  | ** ** | **(Amount)** | ** ** | **(%)** | ** ** |
| Service  charges on deposit accounts          |       | $            | 9,338      |     | 23.5       | % | $ | 8,916 |   | 55.4 | % |
| Gain  on sale of loans                        |       | 1,711        |       | 4.3      | %          | 2,192 |   | 13.6 | % |
| Loan-related  servicing fees                  |       | 2,702        |       | 6.8      | %          | 2,338 |   | 14.5 | % |
| Income  from other earning assets             |       | 635          |       | 1.6      | %          | 1,108 |   | 6.9 | % |
| Gain  from acquisition of Mirae Bank          |       | 21,679       |       | 54.6     | %          | — |   | 0.0 | % |
| Other  income                                 |       | 3,662        |       | 9.2      | %          | 1,551 |   | 9.6 | % |
| Total                                         |       | $            | 39,727     |     | 100.0      | % | $ | 16,105 |   | 100.0 | % |
| Average  assets                               |       | $            | 2,840,993  |     |       |   | $ | 2,299,152 |   |   |   |
| Non-interest  income as a % of average assets |       |         |       | 1.40     | %          |   |   | 0.70 | % |

 

----

*Figure includes net gain from sale of a covered loan which represents a gain of$616,000 net of an FDIC indemnification adjustment of $815,000.

** **

Ourlargest source of non-interest income in the third quarter of 2009 was servicecharges on deposit accounts, which represented about 45% of our total non-interestincome. Service charge income increased to $3.3 million in the third quarter of2009, as compared with $3.1 million for the prior year’s same period. Theincrease in service charge income was primarily due to our increase of over 20%in the service charge rates we apply to our customers’ deposit accounts.  We constantly review service charge rates tomaximize service charge income while still maintaining a competitive position.

 

Thesecond largest source of non-interest income in the third quarter of 2009 wasgain on sale of loans at $2.2 million, which represented approximately 30% ofour total non-interest income.  Gains onSBA loans sold accounted for $1.6 million and gains resulting from the sales ofnon-SBA loans were $622 thousand.

 

In thesecond quarter of 2009, the Bank recorded pre-tax bargain purchase gain of $21.7 millionin connection with our acquisition of Mirae. This gain represents about 55% ofour total year to date non-interest income.

 

**Non-interest Expense**

 

Total noninterest expense increased to $14.8million in the third quarter of 2009, from $12.3 million in the same period of 2008. Non-interest expenses as apercentage of average assets was lowered to 0.45% from 0.52% in the thirdquarter of 2009 and 2008, respectively. Our efficiency ratio was 40.3% in thethird quarter of 2009, as compared with 46.0% in the same period a year ago.

 

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

 

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

** **
| **For the Quarter Ended  September 30,**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Salaries  and employee benefits                                 |       | $        | 7,120      |     | 48.1       | % | $ | 6,718 |   | 54.6 | % |
| Occupancy  and equipment                                        |       | 1,935    |       | 13.1     | %          | 1,576 |   | 12.8 | % |
| Data  processing                                                |       | 1,078    |       | 7.3      | %          | 785 |   | 6.4 | % |
| Deposit  insurance premium                                      |       | 982      |       | 6.6      | %          | 605 |   | 4.9 | % |
| Professional  fees                                              |       | 659      |       | 4.4      | %          | 376 |   | 3.1 | % |
| Outsourced  service for customer                                |       | 328      |       | 2.2      | %          | 279 |   | 2.3 | % |
| Advertising                                                     |       | 308      |       | 2.1      | %          | 202 |   | 1.6 | % |
| Office  supplies                                                |       | 258      |       | 1.7      | %          | 120 |   | 1.0 | % |
| Communications                                                  |       | 151      |       | 1.0      | %          | 242 |   | 2.0 | % |
| Directors’  fees                                           |       | 103      |       | 0.7      | %          | 109 |   | 0.9 | % |
| Investor  relation expenses                                     |       | 88       |       | 0.6      | %          | 69 |   | 0.6 | % |
| Amortization  of investments in affordable housing partnerships |       | 330      |       | 2.2      | %          | 225 |   | 1.8 | % |
| Amortization  of other intangible assets                        |       | 239      |       | 1.6      | %          | 75 |   | 0.6 | % |
| Other  operating                                                |       | 1,242    |       | 8.4      | %          | 926 |   | 7.5 | % |
| Total                                                           |       | $        | 14,821     |     | 100.0      | % | $ | 12,307 |   | 100.0 | % |
| Average  assets                                                 |       | $        | 3,298,238  |     |       |   | $ | 2,381,999 |   |   |   |
| Non-interest  expenses as a % of average assets                 |       |     |       | 0.45     | %          |   |   | 0.52 | % |

 
| **For the Nine Months Ended  September 30,**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Salaries  and employee benefits                                 |       | $        | 19,315     |     | 47.2       | % | $ | 21,349 |   | 57.6 | % |
| Occupancy  and equipment                                        |       | 5,294    |       | 13.0     | %          | 4,493 |   | 12.1 | % |
| Data  processing                                                |       | 2,750    |       | 6.7      | %          | 2,320 |   | 6.3 | % |
| Deposit  insurance premium                                      |       | 3,772    |       | 9.2      | %          | 1,559 |   | 4.2 | % |
| Professional  fees                                              |       | 1,576    |       | 3.9      | %          | 1,218 |   | 3.3 | % |
| Outsourced  service for customer                                |       | 806      |       | 2.0      | %          | 907 |   | 2.4 | % |
| Advertising                                                     |       | 901      |       | 2.2      | %          | 523 |   | 1.4 | % |
| Office  supplies                                                |       | 591      |       | 1.5      | %          | 321 |   | 0.9 | % |
| Communications                                                  |       | 360      |       | 0.9      | %          | 594 |   | 1.6 | % |
| Directors’  fees                                           |       | 294      |       | 0.7      | %          | 332 |   | 0.9 | % |
| Investor  relation expenses                                     |       | 214      |       | 0.5      | %          | 250 |   | 0.7 | % |
| Amortization  of investments in affordable housing partnerships |       | 930      |       | 2.3      | %          | 574 |   | 1.5 | % |
| Amortization  of other intangible assets                        |       | 387      |       | 0.9      | %          | 223 |   | 0.6 | % |
| Other  operating                                                |       | 3,694    |       | 9.0      | %          | 2,422 |   | 6.5 | % |
| Total                                                           |       | $        | 40,884     |     | 100.0      | % | $ | 37,085 |   | 100.0 | % |
| Average  assets                                                 |       | $        | 2,840,993  |     |       |   | $ | 2,299,152 |   |   |   |
| Non-interest  expenses as a % of average assets                 |       |     |       | 1.44     | %          |   |   | 1.61 | % |

** **

Salariesand employee benefits historically represent more than half of our total non-interest expense andgenerally increase as our branch network and business volume expand.  These expenses were $7.1 million and $19.3 million in the thirdquarter and the first nine months of 2009, respectively, as compared with $6.7 million and $21.3 million for theprior year’s same period.  The decreasein the first nine months of 2009 compared to 2008 was the result of our tight control over compensation expense, specifically due to the decrease inemployee benefits**.**** **Although additional staffing wasnecessitated by our third New York office opening in March 2009, we havesuccessfully controlled and maintained the total number of employee headcountthrough effective allocation of our human resources. The number of full-time equivalentemployees was increased to 389 as of September 30, 2009, as compared with 364 as of September 30, 2008. Inaddition, our asset growth helped us improve our assets per employee ratio to$8.7 million at September 30, 2009 from $6.7 million at September 30,2008.

 

Occupancyand equipment expenses represent about 13% of our total non-interest expenses.These expenses increased to $1.9 million and $5.3 million in the third quarter and first nine months of2009, respectively, as compared with $1.6 million and $4.5 million for the same periods a year ago. The increase was primarily attributable to the additionallease expenses for our business growth in the past 12 months, as our Flushingbranch office opened in March 2009 and we acquired five new California branch offices as a result of the Mirae acquisition in June 2009,and during the third quarter, four of those branches were closed.

 

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Data processing expenses increased to $1.1 million and$2.8 million in the third quarter and first nine months of 2009, respectively,from $785,000 and $2.3 million for the same periods a year ago. The increase indata processing corresponded to the growth of our business.

 

Deposit insurance premium expenses represent TheFinancing Corporation (“FICO”) and FDIC insurance premium assessments. In thethird quarter and first nine month of 2009, these expenses totaled $982,000 and$3.8 million, respectively, as compared with $605,000 and $1.6 million for theprior year’s same periods. Recent bank failures coupled with deterioratingeconomic conditions have significantly reduced the FDIC’s deposit insurancefund reserves.  As a result, the FDIC hassignificantly increased its deposit assessment premiums for federally insuredfinancial institutions.  There have alsobeen increases in FDIC assessments resulting from its Temporary LiquidityGuaranty Program (“TLGP”), which temporarily increases the deposit coverageamount for depositors until the end of 2009. In addition, in an effort toimprove its liquidity, the FDIC imposed a one-time special assessment of $1.5million in the second quarter of 2009 which was primarily the reason for substantiallyhigher expenses in this category for the year.

 

Professional fees generally increase as we grow. Theyincreased to $659,000 and $1.6 million in the third quarter and the first ninemonths of 2009, respectively, compared to $376,000 and $1.2 million for thesame periods of the prior year.  Thisincrease was primarily due to fees incurred in relation to our acquisition of Mirae.

 

Outsourced service costs for customers are paymentsmade to third parties who provide services that were traditionally paid by theBank’s customers, such as armored car services or bookkeeping services, and arerecouped from analysis fee charges from those customer’s deposit accounts.  Due mainly to the increase in serviceactivities and the increase in depositors demanding such services, ouroutsourced service costs generally rise in proportion with our business growth.Nonetheless, as a result of our cost control measures, these expenses roseslightly to $328,000 in the third quarter of 2009, as compared with $279,000 for theprior year’s same period. For the first nine months of 2009, the expenses were$806,000, as compared to $907,000 for the same period in prior year.

 

Advertising and promotional expenses increased to $308,000 and $901,000 in thethird quarter and first nine months of 2009, respectively, as compared with$202,000 and $523,000 in the same periods a year ago. These expenses represent marketing activities, such as mediaadvertisements and promotional gifts for customers of newly opened offices,especially in the new areas such as the east coast market in New York and New Jersey. The increases in the currentquarter and first nine months of 2009 were primarily attributable to ourincreased advertising spending to promote a branch addition in Flushing, NewYork during the first quarter of 2009, and also due to a new branch in FortWorth, Texas that opened in the third quarter.

 

Othernon-interest expenses, such as office supplies, communications, director’sfees, and other miscellaneous expenses, were $2.4 million and $6.5 million for the third quarter andthe first nine month of 2009, respectively, as compared with $1.8 million and $4.7 million in the sameperiods a year ago. The increase represents a normal growth in association withthe growth of our business activities and was consistent with our expectations.

 

**Provision for IncomeTaxes**

 

Forthe quarter ended September 30, 2009, we had an income tax benefit of $1.5million on a pretax net loss of $2.2 million, representing an effective taxrate of 65.7%, as compared with a provision for income taxes of $4.2 million onpretax net income of $11.1 million, representing an effective tax rate of 37.9%for the same quarter in 2008.  For thefirst nine months of 2009, we made a provision for income taxes of $9.9 millionon pretax net income of $25.9million, representing an effective tax rate of 38.0%, as compared with aprovision for income taxes of $13.0 million on pretax net income of $34.3 million, representing an effectivetax rate of 37.8%, for the sameperiod of 2008.

 

Theeffective tax rate for the three month ending September, 30 2009 was higherthan those for the prior year’s same periods, due to a combination of the mitigation of tax effect from the$21.7 million bargain purchase gain incurred in June 2009 related to theacquisition of Mirae, and as result of a large increase in low-housingcredits.  These factors contributed to atax rate decrease in the first nine month of 2009 to 38.0% compared to 40.2%for the first six month of this year.

 

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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 credit and aremaintained at levels management believes are appropriate to assure futureflexibility in meeting anticipated funding needs.

 

*CashEquivalents and Interest-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.

 

*InvestmentSecurities*

* *

Management of our investment securities portfoliofocuses on providing an adequate level of liquidity and establishing a balancedinterest rate-sensitive position, while earning an adequate level of investmentincome without taking undue risk.  As of September 30,2009, our investment portfolio was comprised primarily of United Statesgovernment agency securities, which accounted for 92% of the entire investmentportfolio.  Our U.S. government agencysecurities holdings are all “prime/conforming” mortgage backed securities, orMBS, and collateralized mortgage obligations, or CMOs, guaranteed by FNMA,FHLMC, or GNMA. GNMAs are considered equivalent to U.S. Treasury securities, asthey are backed by the full faith and credit of the U.S. government. Currently,there are no subprime mortgages in our investment portfolio. Besides the U.S.government agency securities, we also have as a percentage to totalinvestments, 7.6% investment in municipal debt securities and 0.4% investmentin corporate debt. Among the 8% of our investment portfolio that was notcomprised of U.S. government securities, 89%, or $40.0 million, carry the toptwo highest “Investment Grade” rating of “Aaa/AAA” or “Aa/AA”, while 9%, or$4.2 million, carry an intermediate “Investment Grade” rating of at least “Baa1/BBB+”or above, and 2%, or $622,000 are unrated. Our investment portfolio does not contain any government sponsoredenterprises, or GSE preferred securities or any distressed corporate securitiesthat required other-than-temporary-impairment charges as of September 30,2009.

 

We classified our investment securities as “held-to-maturity”or “available-for-sale” pursuant to FASB ASC 320 (formerly SFAS No. 115).  Investment securities that we intend to holduntil maturity are classified as held to maturity securities, and all otherinvestment securities are classified as available-for-sale. The carrying valuesof available-for-sale investment securities are adjusted for unrealized gainsand losses as a valuation allowance and any gain or loss is reported on anafter-tax basis as a component of other comprehensive income. Declines in thefair value of held-to-maturity and available-for-sale investment securitiesbelow their cost that are deemed to be other than temporary are reflected inearnings as realized losses, and there were no suchother-than-temporary-impairment in the third quarter of 2009. The fair marketvalues of our held-to-maturity and available-for-sale investment securitieswere $117 thousand and $559.6 million, respectively, as of September 30, 2009.  We measured and disclosed the fair value ofavailable-for-sale investment securities pursuant to FASB ASC 820, ASC820-10-35-15A and ASC 820-10-65-4 (see Note 4).

 

Prices from third party pricing services are oftenunavailable for investment securities that are rarely traded or are traded onlyin privately negotiated transactions. As a result, certain investmentsecurities are priced via independent broker quotations which utilize inputsthat may be difficult to corroborate with observable market based data.Additionally, the majority of these independent broker quotations arenon-binding. Therefore, we will individually examine those investment securitiesfor the appropriate valuation methodology based on combination of marketapproach reflecting current broker prices and a discounted cash flowapproach.  As required under FinancialAccounting Standards Board (“FASB”) ASC 325 we consider all availableinformation relevant to the collectability of the security, includinginformation about past events, current conditions, and reasonable andsupportable forecasts, and we consider factors such as remaining payment termsof the security, prepayment speeds, the financial condition of the issuer(s),expected defaults, and the value of any underlying collateral.

 

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

 

**InvestmentSecurities Portfolio**

**(dollarsin thousands)**

 
| ** **                                                 | ** ** | **As of September 30, 2009** | ** ** | **As of December 31, 2008** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **Amortized  Cost**               | ** ** | **Market  Value**                | ** ** | **Unrealized  Gain  (Loss)** | ** ** | **Amortized  Cost** | ** ** | **Market  Value** | ** ** | **Unrealized  Gain  (Loss)** | ** ** |
| Held  to Maturity:                                         |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Collateralized  mortgage obligation                        |       | $                                 | 116        |                             | $          | 117 |   | $ | 1 |   | $ | 139 |   | $ | 135 |   | $ | (4 | ) |
| Total  investment securities held to maturity              |       | $                                 | 116        |                             | $          | 117 |   | $ | 1 |   | $ | 139 |   | $ | 135 |   | $ | (4 | ) |
|                                                       |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Available  for Sale:                                       |       |                              |       |                             |       |   |   |   |   |   |   |   |   |
| Investment  securities of government sponsored enterprises |       | $                                 | 63,960     |                             | $          | 64,509 |   | $ | 549 |   | $ | 25,952 |   | $ | 26,187 |   | $ | 235 |   |
| Mortgage  backed securities                                |       | 321,390                           |       | 329,936                          |       | 8,546 |   | 124,549 |   | 125,513 |   | 964 |   |
| Collateralized  mortgage obligation                        |       | 117,070                           |       | 120,411                          |       | 3,341 |   | 62,557 |   | 63,303 |   | 746 |   |
| Corporate  securities                                      |       | 2,000                             |       | 2,024                            |       | 24 |   | 7,048 |   | 6,953 |   | (95 | ) |
| Municipal  securities                                      |       | 41,560                            |       | 42,722                           |       | 1,162 |   | 7,323 |   | 7,180 |   | (143 | ) |
| Total  investment securities available for sale            |       | $                                 | 545,980    |                             | $          | 559,602 |   | $ | 13,622 |   | $ | 227,429 |   | $ | 229,136 |   | $ | 1,707 |   |

** **

Thefollowing table summarizes the maturity and repricing schedule of ourinvestment securities at their carrying values at September 30, 2009:

 

**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:                                         |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Collateralized  mortgage obligations                       |       | $                   | —     |                                  | $          | 116                                  |       | $                   | —     |      | $          | — |   | $ | 116 |   |
| Total  investment securities held to maturity              |       | $                   | —     |                                  | $          | 116                                  |       | $                   | —     |      | $          | — |   | $ | 116 |   |
|                                                       |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Available  for Sale:                                       |       |                |       |                                  |       |                                 |       |                |       |      |       |
| Investment  securities of government sponsored enterprises |       | $                   | —     |                                  | $          | —                               |       | $                   | 46,315     |      | $          | 18,194 |   | $ | 464,509 |   |
| Mortgage  backed securities                                |       | 7,930               |       | 697                                   |       | 4,820                                |       | 316,489             |       | 329,936   |       |
| Collateralized  mortgage obligations                       |       | 30,849              |       | 89,562                                |       | —                               |       | —              |       | 120,411   |       |
| Corporate  securities                                      |       | —              |       | 2,024                                 |       | —                               |       | —              |       | 2,024     |       |
| Municipal  securities                                      |       | —              |       | 300                                   |       | —                               |       | 42,422              |       | 42,722    |       |
| Total  investment securities available for sale            |       | $                   | 38,779     |                                  | $          | 92,583                               |       | $                   | 51,135     |      | $          | 377,105 |   | $ | 559,602 |   |

** **

**Holdingsof investment securities substantially increased to $559.7 million at September 30,200**9, as comparedwith holdings of $229.3 million at December 31, 2008. Total investment securities as a percentage of total assets was 16.6% and 9.4% at September 30, 2009 and December 31,2008, respectively.  As of September 30, 2009, investment securities with a carrying valueof $217.8 million were pledged to secure certain deposits.

** **

As of September 30,2009, our investmentsecurities classified as held-to-maturity, which are carried at their amortizedcost, stayed relatively unchanged on a dollar basis at $116,000, ascompared with $139,000 as of December 31, 2008. Our investment securitiesclassified as available-for-sale, which are stated at their fair market values,increased to $559.6 million at September 30,2009 from $229.1 million at December 31, 2008.

 

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Thefollowing table shows the gross unrealized losses and fair value of ourinvestments, aggregated by investment category and length of time thatindividual securities have been in a continuous unrealized loss position, at September 30,2009 and December 31,2008:

 
| **As of September 30, 2009**               | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|---------------------------------|------------|----------------|------------|---------------------------------|------------|----------------|------------|---------------------------------|------------|
| **(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 |       | $                       | —     |                            | $          | —         |       | $                               | —     |           | $          | —                          |       | $ | — |   | $ | — |   |
| Collateralized  mortgage obligation             |       |                    | —     |                            |       | —         |       |                            | —     |           |       | —                          |       |   | — |   |   | — |   |
| Mortgage  backed securities                     |       | 58                      |       | —                          |       | —         |       | —                          |       | 58             |       | —                          |       |
| Corporate  securities                           |       | —                  |       | —                          |       | —         |       | —                          |       | —         |       | —                          |       |
| Municipal  securities                           |       | 10,462                  |       | (209                            | )          | —         |       | —                          |       | 10,462         |       | (209                            | )          |
|                                            |       | $                       | 10,520     |                            | $          | (209           | )          | $                               | —     |           | $          | —                          |       | $ | 10,520 |   | $ | (209 | ) |

 
| **As of December 31, 2008**    | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** |
|-------------------------------------|------------|-------------------------|------------|---------------------------------|------------|----------------|------------|---------------------------------|------------|----------------|------------|---------------------------------|------------|
| **(dollars in thousands)**          | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** |
| ** **                          | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** |
| ** **                          | ** ** | **Less than 12 months** | ** ** | **12 months or longer**         | ** ** | **Total**      | ** ** |
| **Description of Securities**       | ** ** | **Fair Value**          | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** | **Gross   Unrealized   Losses** | ** ** | **Fair Value** | ** ** | **Gross   Unrealized   Losses** | ** ** |
| ** **                          | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** | ** **     | ** ** | ** **                      | ** ** |
| Collateralized  mortgage obligation |       | $                       | 2,642      |                            | $          | (65            | )          | $                               | 1,591      |           | $          | (17                             | )          | $ | 4,233 |   | $ | (82 | ) |
| Mortgage  backed securities         |       | 12,287                  |       | (300                            | )          | 536            |       | (3                              | )          | 12,823         |       | (303                            | )          |
| Corporate  securities               |       | 5,000                   |       | (49                             | )          | 1,953          |       | (47                             | )          | 6,953          |       | (96                             | )          |
| Municipal  securities               |       | 5,712                   |       | (157                            | )          | —         |       | —                          |       | 5,712          |       | (157                            | )          |
|                                |       | $                       | 25,641     |                            | $          | (571           | )          | $                               | 4,080      |           | $          | (67                             | )          | $ | 29,721 |   | $ | (638 | ) |

 

As of September 30,2009, unrealizedlosses less than 12 months old were $209,000, and there were no unrealizedlosses more than 12 months old.  Theaggregate related fair value of investments with unrealized losses less than 12months old was $10.5 million at September 30,2009. As of December 31, 2008, the total unrealized losses less than12 months old were $571,000 andtotal unrealized losses more than 12 months old were $67,000.  The aggregate relatedfair value of investments with unrealized losses less than 12 months old was $25.6 million at December 31, 2008,and those with unrealized losses more than 12 months old were $4.1 million.

 

Declines in thefair value of held-to-maturity and available-for-sale investment securitiesbelow their cost that are deemed to be other than temporary are reflected inearnings as realized losses. In accordance with guidance from FASB ASC320-10-65-1 and ASC 958-320 *Recognition andPresentation of Other-Than-Temporary Impairments*, the Companyevaluates whether an event or change in circumstances has occurred that mayhave a significant adverse effect on the fair value of the investment (an “impairmentindicator”). In evaluating an other-than-temporary impairment (OTTI), the Companyutilizes a systematic methodology that includes all documentation of thefactors considered.  All availableevidence concerning declines in market values below cost are identified andevaluated in a disciplined manner by management.  The steps taken by the Company in evaluatingOTTI are:

 

·                  The Company first determines whetherimpairment has occurred.  A security isconsidered impaired if its fair value is less than its amortized costbasis.  If a debt security is impaired,the Company must assess whether it intends to sell the security (i.e., whethera decision to sell the security has been made). If the Company intends to sellthe security, an OTTI is considered to have occurred.

 

·                  If the Company does not intend tosell the security (i.e., a decision to sell the security has not been made), itmust assess whether it is more likely than not that it will be required to sellthe security before recovery of the amortized cost basis of the security.

 

·                  Even if the Company does not intendto sell the security, an OTTI has occurred if the Company does not expect torecover the entire amortized cost basis (i.e., there is a credit loss).  Under this analysis, the Company compares thepresent value of the cash flows expected to be collected to the amortized costbasis of the security.

 

The Company believes thatimpairment exists on securities when their fair value is below amortized costbut an impairment loss has not occurred due to the following reasons:

 

·                  The Company does not have any intent to sell any of the securities thatare in an unrealized loss position.

 

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

 

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

 

As of September 30,2009, the unrealized gain in the investment portfolio stood at $13.6 millioncompared to $1.7 million in unrealized gains as of December 31, 2008.  The increase in unrealized gains can beattributed to better recent market stability which has led to a decrease ininterest rate spreads to treasuries, and an increase in treasury rates.

 

**Loan Portfolio**

 

Totalloans are the sum of loans receivable and loans held for sale and reported attheir outstanding principal balances net of any unearned income which isunamortized deferred fees and costs and premiums and discounts.  Interest on loans is accrued daily on a simple interest basis. Totalloans net of unearned income andallowance for losses on loans increased to $2.39 billion at September 30, 2009, as compared with $2.02billion at December 31, 2008.  Totalloans net of unearned income as a percentage of total assets as of September 30, 2009 and December 31, 2008 were72.4% and 83.7%, 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 Loansand Percentage Composition of Loan Portfolio**

**(dollarsin thousands)**

 
| ** **                            | ** ** | **Amount Outstanding**      | ** ** |
|---------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
| Construction                          |       | $                           | 45,080     |   | $ | 43,180 |   |
| Real  estate secured                  |       | 1,973,198                   |       | 1,599,627 |   |
| Commercial  and industrial            |       | 415,739                     |       | 389,217 |   |
| Consumer                              |       | 16,611                      |       | 23,669 |   |
| Total  loans(1)                       |       | 2,450,628                   |       | 2,055,693 |   |
| Unearned  Income                      |       | (5,276                      | )          | (4,164 | ) |
| Gross  loans, net of unearned income  |       | 2,445,352                   |       | 2,051,529 |   |
| Allowance  for losses on loans        |       | (54,735                     | )          | (29,437 | ) |
| Net  loans                            |       | $                           | 2,390,617  |   | $ | 2,022,092 |   |
|                                  |       |                        |       |   |   |
| Percentage  breakdown of gross loans: |       |                        |       |   |   |
| Construction                          |       | 1.8                         | %          | 2.1 | % |
| Real  estate secured                  |       | 80.5                        | %          | 77.8 | % |
| Commercial  and industrial            |       | 17.0                        | %          | 18.9 | % |
| Consumer                              |       | 0.7                         | %          | 1.2 | % |
| Total  loans                          |       | 100.0                       | %          | 100.0 | % |

 

----

(1)       Includes loans held for sale, at the lower ofcost or market, of $30.0 million and $18.4 million at September 30, 2009and December 31, 2008, respectively

 

Real estate secured loans consist primarily ofcommercial real estate loans and are extended to finance the purchase and/orimprovement of commercial real estate or businesses thereon.  The properties may be either user owned orheld for investment purposes. Our loan policy adheres to the real estate loanguidelines set forth by the FDIC.  Thepolicy provides guidelines including, among other things, fair review ofappraisal value, limitation on loan-to-value ratio, and minimum cash flowrequirements to service debt. Loans secured by real estate totaled $2.00 billion and $1.60 billion as of September 30,2009 and December 31, 2008, respectively.  The increase in real estate secured loans canbe attributed to loans received from the Mirae acquisition, which amounted to$205 million as of June 30, 2009. The real estate secured loans as apercentage of total loans were 80.5%and 77.8% at September 30, 2009 and December 31, 2008,respectively.  Home mortgage loansrepresent a small fraction of our total real estate secured loan portfolio.Total home mortgage loans outstanding were only $41.1 million at September 30, 2009 and $42.4 million at December 31, 2008.

 

Commercialand industrial loans include revolving lines of credit as well as term businessloans.  Commercial and industrial loansat September 30,2009 increased to $415.7 million, as compared with $389.2 million at December 31, 2008. Commercial and industrial loans as a percentage of total loans were 17.0% at September 30, 2009, decreasing from 18.9%at December 31, 2008.

 

Consumerloans have historically represented less than 5% of our total loanportfolio.  The majority of consumer loansare concentrated in automobile loans, which we provide as a service only toexisting customers. Because we believe that consumer loans present a higherrisk compared to our other loan products, especially given current economicconditions, we have reduced our efforts in consumer lending since 2007. Accordingly, as of September 30, 2009, our volume of consumer loanswas down by $7.4 million from the prior year end. As of September 30, 2009, the balance of consumer loanswas $16.3 million, or 0.7% of total loans, as compared to$23.7 million, or 1.2% of total loans as of December 31, 2008.  Consumer loans as a percentage of total loanshave historically been nominal.

 

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Constructionloans represented less than 5% of our total loan portfolio as of September 30,2009. In response to the current real estate market, which has been experiencing a downward trend since mid-2007,we have applied stricter loan underwriting policies when making loans in thiscategory. As a result, constructionloans decreased to $45.1 million, or 1.8% of total loans, at the end of the thirdquarter of 2009, as compared with$43.2 million, or 2.1% of totalloans at the end of 2008.

 

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

 

Thefollowing table shows the contractual maturity distribution and repricingintervals of the outstanding loans in our portfolio, as of September 30, 2009.  In addition, the tableshows the distribution of such loans between those with variable or floatinginterest rates and those with fixed or predetermined interest rates.

 

**Loan Maturities and Repricing Schedule**

**(dollars in thousands)**

** **
| ** **                             | ** ** | **At September 30, 2009** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **Within   One Year**          | ** ** | **After One  But within  Five Years** | ** ** | **After   Five Years** | ** ** | **Total** | ** ** |
| Construction                           |       | $                              | 45,080     |   | $ | — |   | $ | — |   | $ | 45,080 |   |
| Real  estate secured                   |       | 1,036,931                      |       | 863,126 |   | 73,141 |   | 1,973,198 |   |
| Commercial  and industrial             |       | 402,761                        |       | 12,700 |   | 278 |   | 415,739 |   |
| Consumer                               |       | 13,870                         |       | 2,728 |   | 13 |   | 16,611 |   |
| Total  loans, net of non-accrual loans |       | $                              | 1,498,642  |   | $ | 878,554 |   | $ | 73,432 |   | $ | 2,450,628 |   |
| Loans  with variable interest rates    |       | $                              | 1,278,274  |   | $ | 11,059 |   | $ | — |   | $ | 1,289,333 |   |
| Loans  with fixed interest rates       |       | $                              | 220,368    |   | $ | 867,495 |   | $ | 73,432 |   | $ | 1,161,295 |   |

** **

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

 

**Non-performing Assets**

 

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

 

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

 

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

 

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

 

**Non**-performingCovered Loans and Covered OREO(dollars in thousands)

 
| ** **                                                  | ** ** | **September 30, 2009** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|
| **Covered Nonaccrual loans:****(1)**                        |       |                        |       |
| Real estate secured                                         |       | $                           | 21,496     |   |
| Commercial and industrial                                   |       | 3,511                       |       |
| Consumer                                                    |       | —                      |       |
| Total                                                       |       | 25,007                      |       |
| **Loans 90 days or more past due and  still accruing:**     |       |                        |       |
| Real estate secured                                         |       | 477                         |       |
| Commercial and industrial                                   |       | 295                         |       |
| Consumer                                                    |       | —                      |       |
| Total                                                       |       | 772                         |       |
| Total nonperforming loans                                   |       | 25,779                      |       |
| Repossessed vehicles                                        |       | —                      |       |
| Other real estate owned                                     |       | 500                         |       |
| Total covered nonperforming assets                          |       | $                           | 26,279     |   |
|                                                        |       |                        |       |
| Nonperforming loans as a percentage of total  covered loans |       | 9.38                        | %          |
| Performing troubled debt restructurings (2)                 |       | 10,494                      |       |

 

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(1)          During the nine months ended September 30, 2009,no interest income related to these loans was included in interest income.

(2)          The $10,494,000 troubled debt restructurings as of September 30,2009 represented loans of which terms were renegotiated to provide a reductioninterest or principal because of deterioration in the financial position of theborrower.  The loans were not included intotal nonperforming assets this quarter due to the sustained performing statusfor all covered troubled debt restructured loans.

 

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

 

**Non**-performing Non-covered Assets and Restructured Loans(dollars in thousands)

 
| ** **                                                                        | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** | **September 30, 2008** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------------------------|------------|
| **Non-covered Nonaccrual loans:****(1)**                                          |       |                        |       |                       |       |                        |       |
| Real  estate secured                                                              |       | $                           | 44,469     |                       | $          | 9,334                       |       | $ | 9,506 |   |
| Commercial  and industrial                                                        |       | 7,868                       |       | 5,874                      |       | 3,593                       |       |
| Consumer                                                                          |       | 49                          |       | 131                        |       | 134                         |       |
| Total                                                                             |       | 52,386                      |       | 15,339                     |       | 13,233                      |       |
| **Loans 90 days or more past due and still accruing:**                            |       |                        |       |                       |       |                        |       |
| Real  estate secured                                                              |       | —                      |       | —                     |       | 490                         |       |
| Commercial  and industrial                                                        |       | —                      |       | 213                        |       | 4                           |       |
| Consumer                                                                          |       | —                      |       | —                     |       | 2                           |       |
| Total                                                                             |       | —                      |       | 213                        |       | 496                         |       |
|                                                                              |       |                        |       |                       |       |                        |       |
| Total  nonperforming loans                                                        |       | 52,386                      |       | 15,552                     |       | 13,729                      |       |
| Repossessed  vehicles                                                             |       | —                      |       | —                     |       | 18                          |       |
| Other  real estate owned                                                          |       | 5,738                       |       | 2,663                      |       | 1,453                       |       |
| Total  non-covered nonperforming assets, net of SBA guarantee                     |       | 58,124                      |       | 18,215                     |       | 15,200                      |       |
|                                                                              |       |                        |       |                       |       |                        |       |
| Guaranteed  portion of nonperforming SBA loans                                    |       | 11,583                      |       | 7,158                      |       | 7,792                       |       |
| Total  gross non-covered nonperforming assets                                     |       | $                           | 69,707     |                       | $          | 25,373                      |       | $ | 22,992 |   |
|                                                                              |       |                        |       |                       |       |                        |       |
| Performing  troubled debt restructurings (2)                                      |       | 55,763                      |       | —                     |       | —                      |       |
|                                                                              |       |                        |       |                       |       |                        |       |
| Nonperforming  loans as a percentage of total non-covered loans                   |       | 2.14                        | %          | 0.76                       | %          | 0.75                        | %          |
| Allowance  for losses on loans as a percentage of non-covered nonperforming loans |       | 104.48                      | %          | 189.27                     | %          | 189.01                      | %          |

 

----

(1)          During the nine months ended September 30, 2009,no interest income related to these loans was included in interest income.

(2)          The $58,124,000 troubled debt restructurings as of September 30,2009 represented loans of which terms were renegotiated to provide a reductionof interest or principal because of deterioration in the financial position of theborrower.  All of these loans wereperforming as of June 30, 2009 and September 30, 2009. Therefore theloans are not categorized as nonperforming.

 

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, 2009. However, the general economic conditionsin the United States as well as the local economies in which we do businesshave experienced a severe downturn in the housing sector and the transition tobelow-trend GDP growth has continued. The downward movement of themacroeconomic environment affected our borrowers’ strength and our NPLs,net of SBA guaranteed portion, increased to $52.4 million, or 2.14% of thetotal loans at the end of the third quarter of 2009, as compared with $15.6million, or 0.76% of the total loans, at the end of 2008. The $36.8 millionincrease of NPLs was due to a $37.0 increase in non-accrual loans, offset by a$213,000 decrease in loans 90 days or more past due and still accruing.

 

Managementalso believes that the reserve provided for non-performing loans, together withthe tangible collateral, were adequate as of September 30, 2009.  See “Allowance for Losses on Loans and Loan Commitments” below for furtherdiscussion.

 

**A**llowance for Losses on Loans 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 for off-balancesheet loan commitments,such as commitments to extendcredit or letters of credit.  Charges made for our outstanding loan portfolio were credited to the allowancefor losses on loans, whereas charges related to loan commitments were credited to the reserve for loancommitments, which is presented as a component of other liabilities.

 

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Theallowance for losses on loans and loan commitments are maintained at levels that are believed to beadequate by management to absorb estimated probable losses on loans inherent inthe loan portfolio. The adequacy of our allowance is determined throughperiodic evaluations of the loan portfolio and other pertinent factors, whichare inherently subjective because the process calls for various significantestimates and assumptions. Among other factors, the estimates involve theamounts and timing of expected future cash flows and fair value of collateralon impaired loans, estimated losses on loans based on historical lossexperience, various qualitative factors, and uncertainties in estimating lossesand inherent risks in the various credit portfolios, which may be subject tosubstantial change.

 

Totalcharge-offs for the three month ending September 30, 2009 was $8.2 millioncompared with $1.5 million for the same period in 2008.  Real estate secured loan charge-offsincreased by $1.7 million compared to the previous year due to increasedcharge-offs as a result of loan sales. Other increases were due to charge-offsof non-accrual loans in the third quarter of 2009.  Commercial and industrial loan charge-offincreased to $6.1 million from $1.1 million for the three month ending September 2009and 2008.

 

On aquarterly basis, we utilize a classification migration model and individualloan review analysis as starting points for determining the adequacy of ourallowance for losses on loans. Our loss migration analysis tracks a certainnumber of quarters of loan losses history to determine historical losses 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 to outstandingloan balances.  Based on Company definedutilization rate of exposure for unused off-balance sheet loan commitments,such as letters of credit, we record a reserve for loan commitments.

 

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 within specificportfolio segments and individual concentrations of credit.

 

We increased our allowance for losses on loans to$54.7 million at September 30,2009, representing an increase of 85.9%, or $25.3 million from $29.4 million at December 31, 2008. With the increase of our non-performing loans, we have increased theratio of allowance for losses on loans to total loans to 2.2%, as compared with the 1.43% retained at the year end of 2008. Managementbelieves that the current ratio of 2.2% is adequate for our loan portfolio.

 

Our allowance for losses on loan commitments increasedslightly to $1.5 million at September 30, 2009, as compared to $1.2million at December 31, 2008.

 

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

 

**Allowancefor Losses on Loans and Loan Commitments**

**(dollarsin thousands)**

 
| ** **                                                                  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                  | ** ** | **2009**                                  | ** ** | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Allowance  for losses on loans:                                             |       |                                      |       |                                     |       |   |   |   |   |
| **Balances at beginning of period**                                         |       | $                                         | 38,758     |                                     | $          | 23,494 |   | $ | 29,437 |   | $ | 21,579 |   |
| Actual  charge-offs:                                                        |       |                                      |       |                                     |       |   |   |   |   |
| Real  estate secured                                                        |       | 1,888                                     |       | 204                                      |       | 2,736 |   | 247 |   |
| Commercial  and industrial                                                  |       | 6,134                                     |       | 1,106                                    |       | 14,703 |   | 3,487 |   |
| Consumer                                                                    |       | 191                                       |       | 203                                      |       | 649 |   | 807 |   |
| Total  charge-offs *                                                        |       | 8,213                                     |       | 1,513                                    |       | 18,088 |   | 4,541 |   |
| **Recoveries on loans previously charged off:**                             |       |                                      |       |                                     |       | 3,795 |   |   |   |
| Real  estate secured                                                        |       | 2                                         |       | 38                                       |       | 3 |   | 38 |   |
| Commercial  and industrial                                                  |       | 189                                       |       | 74                                       |       | 495 |   | 1,758 |   |
| Consumer                                                                    |       | 33                                        |       | 62                                       |       | 100 |   | 153 |   |
| Total  recoveries                                                           |       | 224                                       |       | 174                                      |       | 598 |   | 1,949 |   |
| Net  loan charge-offs                                                       |       | 7,989                                     |       | 1,339                                    |       | 17,490 |   | 2,592 |   |
| **Provision for losses on loans****┼**                                |       | 23,966                                    |       | 3,795                                    |       | 42,788 |   | 6,963 |   |
| **Balances at end of period**                                               |       | $                                         | 54,735     |                                     | $          | 25,950 |   | $ | 54,735 |   | $ | 25,950 |   |
| ** **                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| Allowance  for losses on loan commitments:                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Balances at beginning of period**                                         |       | $                                         | 1,221      |                                     | $          | 1,630 |   | $ | 1,243 |   | $ | 1,998 |   |
| Provision  (credit) for losses on loan commitments                          |       | 234                                       |       | (395                                     | )          | 212 |   | (763 | ) |
| **Balances at end of period**                                               |       | $                                         | 1,455      |                                     | $          | 1,235 |   | $ | 1,455 |   | $ | 1,235 |   |
| ** **                                                                  |       |                                      |       |                                     |       |   |   |   |   |
| **Ratios:**                                                                 |       |                                      |       |                                     |       |   |   |   |   |
| Net  loan charge-offs to average total loans                                |       | 0.33                                      | %          | 0.07                                     | %          | 0.88 | % | 0.13 | % |
| Allowance  for losses on loans to total loans at period-end                 |       | 2.24                                      | %          | 1.28                                     | %          | 2.24 | % | 1.28 | % |
| Net  loan charge-offs to allowance for losses on loans at period-end        |       | 14.60                                     | %          | 5.16                                     | %          | 31.95 | % | 9.99 | % |
| Net  loan charge-offs to provision for losses on loans and loan commitments |       | 33.02                                     | %          | 39.40                                    | %          | 40.67 | % | 41.81 | % |

 

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*****Charge-off amount include net charge-offsof covered loan amounting to $529 thousand, which represents gross covered loancharge-offs of $1.9 million less FDIC receivable portion of $1.4 million.

┼ Provision amount include net provisions for covered loan amounting to$529 thousand which represents gross covered loan provision of $1.9 millionless FDIC receivable portion of $1.4 million.

 

### **Contractual Obligations**

### ** **

Thefollowing table represents our aggregate contractual obligations to make futurepayments (principal andinterest) as of September 30,2009:

 
| **(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                |       | $                     | 208,224    |                              | $          | 120,606                             |       | $                    | —     |      | $          | — |   | $ | 328,830 |   |
| Junior subordinated debentures |       | 1,942                 |       | 2,623                             |       | 10,623                              |       | 77,321               |       | 92,509    |       |
| Operating leases               |       | 3,252                 |       | 5,327                             |       | 4,320                               |       | 5,951                |       | 18,850    |       |
| Time deposits                  |       | 1,314,136             |       | 166,193                           |       | 1                                   |       | 18                   |       | 1,480,348 |       |
| Total                          |       | $                     | 1,527,554  |                              | $          | 294,749                             |       | $                    | 14,944     |      | $          | 83,290 |   | $ | 1,920,537 |   |

 

**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 30,2009 and December 31,2008, we had commitments to extendcredit of $219.9 million and $153.4 million, respectively.  Obligations under standby letters of creditwere $12.9 million and $12.7 million at September 30, 2009 and December 31, 2008, respectively, and our obligationsunder commercial letters of credit were $13.2 million and $15.1million at such dates, respectively.

 

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

 

**Deposits and OtherSources of Funds**

 

Depositsare our primary source of funds.  Totaldeposits increased to $2.67 billion at September 30, 2009, as compared with $1.81 billion at December 31,2008.

 

Totalnon-time deposits at September 30, 2009 increased to $1.22 billion in thefirst nine months of 2009, from $706.2 million at December 31, 2008, whiletime deposits increased to $1.45 billion at September 30, 2009 from $1.10 billionat December 31, 2008.

 

Theincrease in deposits was a result of a marketing campaign aimed at raising coredeposits, more specifically, time deposits under $100,000. Other time depositsor time deposits under $100,000 increased to $526.0 million compared to $203.6million at December 31, 2008.

 

Theaverage rate that we paid on time deposits in denominations of $100,000 or morefor the third quarter and first nine months of 2009 decreased to 2.28% and 2.61%,respectively, from 3.48% and 3.95% in the same periods of the prior year.  In order to keep the interest expense down,we plan to closely monitor interest rate trends and changes, and our timedeposit rates, in an effort to maximize our net interest margin andprofitability.

 

The following table summarizes the distribution of average dailydeposits and the average daily rates paid for the quarters indicated:

 

**AverageDeposits**

**(dollarsin thousands)**

 
| ** **                                                         | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** | **September 30, 2008** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------------------------|------------|
| **For the quarters ended:**                                        | ** ** | **Average Balance**         | ** ** | **Average Rate**           | ** ** | **Average Balance**         | ** ** | **Average Rate** | ** ** | **Average Balance** | ** ** | **Average Rate** | ** ** |
|                                                               |       |                        |       |                       |       |                        |       |   |   |   |   |   |   |
| Demand, non-interest-bearing                                       |       | $                           | 374,744    | ** **                 | ** ** |                        | $          | 281,622 | ** ** | ** ** |   | $ | 305,098 | ** ** | ** ** | ** ** |
| Money market                                                       |       | 677,234                     |       | 2.41                       | %          | 380,275                     |       | 3.06 | % | 439,080 |   | 3.21 | % |
| Super NOW                                                          |       | 21,481                      |       | 0.93                       | %          | 18,989                      |       | 1.23 | % | 21,144 |   | 1.36 | % |
| Savings                                                            |       | 62,090                      |       | 3.39                       | %          | 43,029                      |       | 3.63 | % | 41,273 |   | 3.48 | % |
| Time certificates of deposit in denominations of  $100,000 or more |       | 984,521                     |       | 2.28                       | %          | 834,971                     |       | 3.17 | % | 770,812 |   | 3.48 | % |
| Other time deposits                                                |       | 427,234                     |       | 2.56                       | %          | 211,351                     |       | 3.54 | % | 197,044 |   | 3.69 | % |
| Total deposits                                                     |       | $                           | 2,547,304  |                       | 2.04       | %                           | $          | 1,770,237 |   | 2.68 | % | $ | 1,774,451 |   | 2.81 | % |

 

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Thescheduled maturities of our time deposits in denominations of $100,000 orgreater at September 30, 2009 were as follows:

 

**Maturities of Time Deposits of $100,000 or More,at**September 30, 2009

**(dollars in thousands)**

** **
| Three months or less                   |   | $       | 552,103 |   |
|----------------------------------------|--------|---------|---------|--------|
| Over three months through  six months  |   | 166,415 |    |
| Over six months through  twelve months |   | 187,333 |    |
| Over twelve months                     |   | 22,873  |    |
| Total                                  |   | $       | 928,724 |   |

 

Anumber of clients carry deposit balances of more than 1% of our total deposits,but the California State Treasury was the only depositor that had a depositbalance representing more than 5% of our total deposits at September 30,2009 and December 31,2008.

 

Inaddition to our regular customer base, we also accept brokered deposits on aselective basis at reasonable interest rates to augment deposit growth.  In thefirst nine months of 2009, in spite of the ongoing financial crisis and stiffcompetition for customer deposits among banks within the markets where we dobusiness, we were able to increase non-interest bearing demand deposits to $373.3million at September 30, 2009 from $277.5 million at December 31,2008. In addition, because of the current low interest rate environment, ourtime deposits of $100,000 or more also increased to $928.7 million at September 30,2009 from $902.8 million at December 31, 2008.  We expect that interest rates will trendupward when the Federal Reserve Board starts increasing the federal funds rate.To improve our net interest margin as well as to maintain flexibility in ourcost of funds, we will constantly monitor our deposit mix to minimize fundcost.

 

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.

 

The followingtable is a summary of FHLB borrowings for the quarters indicated:

 
| **(dollars in thousands)**                  | ** ** | **September 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| Balance at quarter-end                      |       | $                           | 322,000    |                       | $          | 260,000 |   |
| Average balance during the quarter          |       | $                           | 335,799    |                       | $          | 286,213 |   |
| Maximum amount outstanding at any month-end |       | $                           | 340,000    |                       | $          | 370,000 |   |
| Average interest rate during the quarter    |       | 2.18                        | %          | 3.23                       | %          |
| Average interest rate at quarter-end        |       | 2.37                        | %          | 3.16                       | %          |

 

**Asset/LiabilityManagement**

 

Weseek to ascertain optimum and stable utilization of available assets andliabilities as a vehicle to attain our overall business plans andobjectives.  In this regard, we focus onmeasurement and control of liquidity risk, interest rate risk and market risk,capital adequacy, operation risk and credit risk.  See further discussion on these risks in the “RiskFactors” section of our Annual Report on Form 10-K for the year ended December 31,2008.  Information concerning interestrate risk management is set forth under “Item 3 - Quantitative and QualitativeDisclosures about Market Risk.”

 

**Liquidity Management**

** **

Maintenanceof adequate liquidity requires that sufficient resources be available at alltimes to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide fordeposit withdrawals and the credit needs of its customers and to take advantageof investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash orcash equivalents without incurring significant loss, and to raise cash ormaintain funds without incurring excessive additional cost.  For this purpose, we maintain a portion ofour funds in cash and cash equivalents, deposits in other financialinstitutions and loans and securities available for sale.  Our liquid assets at September 30, 2009 and December 31, 2008 totaled approximately $854.9 millionand $345.1 million,respectively.  Our liquidity levelsmeasured as the percentage of liquid assets to total assets were 25.3% and 14.1% at September 30, 2009 and December 31, 2008, respectively.

 

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

 

As asecondary source of liquidity, we accept brokered deposits, federal fundsfacilities, repurchase agreement facilities, and obtain advances from the FHLBto supplement our supply of lendable funds and to meet deposit withdrawalrequirements.  Advances from the FHLB aretypically secured by our loans, securities and stock issued by the FHLB.  Advances are made pursuant to severaldifferent programs.  Each credit programhas its own interest rate and range of maturities.  Depending on the program, limitations on theamount of advances are based either on a fixed percentage of an institution’snet worth or on the FHLB’s assessment of the institution’s creditworthiness. Asof September 30, 2009,our borrowing capacity from the FHLB was about $877.0 million and our outstandingbalance was $322.0 million, orapproximately 36.7% of ourborrowing capacity.

 

**Capital Resources andCapital Adequacy Requirements**

** **

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

 

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, 2008 for additional information regardingregulatory capital requirements.

 

As of September 30,2009, we were qualified as a “well capitalized institution” under theregulatory framework for prompt corrective action.  The following table presents the regulatorystandards for well-capitalized institutions, compared to capital ratios as ofthe dates specified for the Company and the Bank:

 

**Wilshire Bancorp, Inc.**

 
| ** **                              | ** ** | **Regulatory  Adequately-  Capitalized** | ** ** | **Regulatory  Well-  Capitalized** | ** ** | **Actual  ratios for the Company as of:** | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|------------------------------------|------------|-------------------------------------------|------------|
| ** **                              | ** ** | **Standards**                            | ** ** | **Standards**                      | ** ** | **September 30****,  2009**          | ** ** | **December 31,  2008** | ** ** | **September 30****,  2008** | ** ** |
| Total capital to  risk-weighted assets  |       | 8                                        | %          | 10                                 | %          | 15.82                                     | %          | 17.09 | % | 14.01 | % |
| Tier I capital to  risk-weighted assets |       | 4                                        | %          | 6                                  | %          | 14.29                                     | %          | 15.36 | % | 11.68 | % |
| Tier I capital to  average assets       |       | 4                                        | %          | 5                                  | %          | 10.03                                     | %          | 13.25 | % | 10.19 | % |

 

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**Wilshire State Bank**

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

**Capitalized** | ** ** | **Regulatory**

**Well-**

**Capitalized** | ** ** | **Actual  ratios for the Bank as of:** | ** ** |
|-----------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **Standards**                                | ** ** | **Standards**                              | ** ** | **September  30, 2009**                | ** ** | **December  31, 2008** | ** ** | **September  30, 2008** | ** ** |
| Total  capital to risk-weighted assets  |       | 8                                            | %          | 10                                         | %          | 15.63                                  | %          | 13.59 | % | 13.38 | % |
| Tier  I capital to risk-weighted assets |       | 4                                            | %          | 6                                          | %          | 14.10                                  | %          | 11.86 | % | 11.65 | % |
| Tier  I capital to average assets       |       | 4                                            | %          | 5                                          | %          | 9.90                                   | %          | 10.24 | % | 10.18 | % |

 

Forthe purposes of our regulatory capital ratio computation, our equity capitalincludes the $62.2 million Series A Preferred Stock issued by the Companyto the U. S. Treasury as part of our participation of the TARP Capital PurchaseProgram. As of September 30, 2009, the Company’s total Tier 1 capital(which includes our equity capital, plus junior subordinated debentures, lessgoodwill and intangibles) was $329.1 million, as compared with $320.4 millionas of December 31, 2008. For the Bank level, Tier 1 capital was $324.7million as of September 30, 2009, as compared with $247.3 million as of December 31,2008.

 

## **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 Company’s Board delegates responsibilityfor market risk management to the Asset/Liability Management Committee, whichreports monthly to the Board on activities related to market riskmanagement.  As part of the management ofour market risk, Asset/Liability Management Committee may direct changes in themix of assets and liabilities.  To thatend, we actively monitor and manage interest rate risk exposures.

 

Interest rate risk management involves development, analysis,implementation and monitoring of earnings to provide stable earnings andcapital levels during periods of changing interest rates.  In the management of interest rate risk, weutilize monthly gap analysis and quarterly simulation modeling to determine thesensitivity of net interest income and economic value sensitivity of thebalance sheet.  These techniques arecomplementary and are used together to provide a more accurate measurement ofinterest rate risk.

 

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

 

We usually seek to maintain a balanced position over the period of oneyear to ensure net interest margin stability in times of volatile interestrates.  This is accomplished bymaintaining a similar level of interest-earning assets and interest-payingliabilities available to be repriced within one year.

 

Thechange in net interest income may not always follow the general expectations ofan “asset-sensitive” or a “liability-sensitive” balance sheet during periods ofchanging interest rates.  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.  Becausethese gaps are actively managed and change daily as adjustments are made ininterest rate views and market outlook, positions at the end of any period maynot reflect our interest rate sensitivity in subsequent periods.  We attempt to balance longer-term economicviews against prospects for short-term interest rate changes.

 

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

 

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Although the simulation measures the volatility of netinterest income and net portfolio value under immediate increase or decrease ofmarket interest rate scenarios in 100 basis point increments, our main concernis the negative effect of a reasonably-possible worst scenario.  The Asset/Liability Management Committeepolicy prescribes that for the worst possible rate-change scenario the possible reductionof net interest income and NPV should not exceed 20% of the base net interestincome and 25% of the base NPV, respectively.

 

In general, based upon our current mix of deposits,loans and investments, decrease in interest rates would result an increase inour net interest margin and NPV. An increase in interest rates would beexpected to have opposite effect. However, given in the record low interestrate environment, either an increase or decrease in interest rates will resultin higher net interest margin, while either an increase or decrease in interestrates will lower NPV as shown in our simulation measures below.

 

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

 

Thefollowing table sets forth the interest rate sensitivity of ourinterest-earning assets and interest-bearing liabilities as of September 30,2009 using the interest rate sensitivity gap ratio.  For purposes of the following table, an assetor liability is considered rate-sensitive within a specified period, if it canbe repriced or if it matures within that timeframe. Actual payment patterns maydiffer from contractual payment patterns:

 

**Interest Rate Sensitivity Analysis**(dollars in thousands)

 
| ** **                                                                                  | ** ** | **At September 30, 2009**          | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                  | ** ** | **Amounts Subject to Repricing Within** | ** ** |
| ** **                                                                                  | ** ** | **0-3 months**                          | ** ** | **3-12 months** | ** ** | **Over 1 to 5 years** | ** ** | **After 5 years** | ** ** | **Total** | ** ** |
| ** **                                                                                  | ** ** | **(Dollars in Thousands)**              | ** ** |
| **Interest-earning assets:**                                                                |       |                                    |       |   |   |   |   |   |   |   |   |
| Gross  loans                                                                                |       | $                                       | 1,341,786  |   | $ | 156,856 |   | $ | 878,554 |   | $ | 73,432 |   | $ | 2,450,628 |   |
| Investment  securities                                                                      |       | 1,393                                   |       | 37,386 |   | 92,699 |   | 428,240 |   | 559,718 |   |
| Federal  funds sold and cash equivalents                                                    |       | 130,004                                 |       | — |   | — |   | — |   | 130,004 |   |
| Total                                                                                       |       | $                                       | 1,473,183  |   | $ | 194,242 |   | $ | 971,253 |   | $ | 501,672 |   | $ | 3,140,350 |   |
|                                                                                        |       |                                    |       |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                                                           |       |                                    |       |   |   |   |   |   |   |   |   |
| Savings  deposits                                                                           |       | $                                       | 66,211     |   | $ | — |   | $ | — |   | $ | — |   | $ | 66,211 |   |
| Time  deposits of $100,000 or more                                                          |       | 552,003                                 |       | 353,741 |   | 22,980 |   | — |   | 928,724 |   |
| Other  time deposits                                                                        |       | 85,168                                  |       | 299,498 |   | 141,351 |   | 18 |   | 526,035 |   |
| Other  interest-bearing deposits                                                            |       | 777,800                                 |       | — |   | — |   | — |   | 777,800 |   |
| FHLB  borrowings                                                                            |       | 140,000                                 |       | 64,000 |   | 118,000 |   |   |   | 322,000 |   |
| Junior  Subordinated Debenture                                                              |       | 71,857                                  |       | — |   | 15,464 |   | — |   | 87,321 |   |
| Total                                                                                       |       | $                                       | 1,693,039  |   | $ | 717,239 |   | $ | 297,795 |   | $ | 18 |   | $ | 2,708,091 |   |
|                                                                                        |       |                                    |       |   |   |   |   |   |   |   |   |
| Interest  rate sensitivity gap                                                              |       | $                                       | (219,856   | ) | $ | (522,997 | ) | $ | 673,458 |   | $ | 501,654 |   | $ | 432,259 |   |
| Cumulative  interest rate sensitivity gap                                                   |       | $                                       | (219,856   | ) | $ | (742,853 | ) | $ | (69,395 | ) | $ | 432,259 |   |   |   |
| Cumulative  interest rate sensitivity gap ratio (based on average interest-earning  assets) |       | -6.51                                   | %          | -21.99 | % | -2.05 | % | 12.80 | % |   |   |

 

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 30,2009.  All assets presented in this tableare held-to-maturity or available-for-sale. At September 30, 2009, we had no trading investment securities:

 

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| **Change********(in basis points)** | ** ** | **Net Interest Income  (next twelve months)********(dollars in thousands)** | ** ** | **% Change** | ** ** | **NPV********(dollars in thousands)** | ** ** | **% Change** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------|------------|---------------------------------------|------------|--------------|------------|
| +200                                |       | $                                                                           | 127,790    |         | 2.03       | %                                     | $          | 273,438      |       | -10.94 |   |
| +100                                |       | 126,114                                                                     |       | 0.69         | %          | 286,051                               |       | -6.83        | %          |
| 0                                   |       | 125,244                                                                     |       | —       |       | 307,036                               |       | —       |       |
| -100                                |       | 125,286                                                                     |       | 0.03         | %          | 300,702                               |       | -2.06        | %          |
| -200                                |       | 125,397                                                                     |       | 0.12         | %          | 281,333                               |       | -8.37        | %          |
|                                     |            |                                                                             |            |              |            |                                       |            |              |            |  |  |

 

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.

 

## **Item 4.**                                                           Controlsand Procedures

## ** **

As of September 30,2009, we carried out an evaluation, under the supervision and with theparticipation of our management, including our chief executive officer andchief financial officer, regardingthe effectiveness of the design and operation of our “disclosurecontrols and procedures,” as defined under Exchange Act Rules 13a-15(e) and15d-15(e).

 

Basedon this evaluation, our chief executive officer and chief financial officerconcluded that, as of September 30, 2009, such disclosure controls andprocedures were effective to ensure that information required to be disclosedby us in the reports we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the rules andforms of the SEC, and accumulated and communicated to our management, includingour chief executive officer and chief financial officer, as appropriate toallow timely decisions regarding required disclosure.

 

Indesigning and evaluating the disclosure controls and procedures, our managementrecognized that any controls and procedures, no matter how well designed andoperated, can only provide reasonable assurance in achieving 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, 2009 that materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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# **Part II.  OTHERINFORMATION**

# ** **

## **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**

 

Although we expect thatthe Mirae acquisition will result in benefits to our organization in thefuture, we may not realize those benefits because of integration and otherchallenges associated with the acquisition.

 

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

## ** **

None.

 

## **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**

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

 

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**SIGNATURES**

 

Pursuant to the requirementof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                         | WILSHIRE BANCORP, INC. |
|------------------------------|------------------------|
|                         |                   |
|                         |                   |
| Date: November 6,  2009 | By:                    | /s/ Alex Ko |
|                         |                   | Alex Ko |
|                         |                   | Chief Financial Officer |
|                         |                   | (Principal Financial  and Accounting Officer) |

 

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