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TABLE OF CONTENTS
PART IV

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

(Mark One)    

ý

 

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2012.

OR

o

 

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

For the transition period from                   to                 

Commission File Number 000-50923



WILSHIRE BANCORP, INC.
(Exact name of registrant as specified in its charter)

California
(State or other jurisdiction of
incorporation or organization)
  20-0711133
(I.R.S. Employer
Identification Number)

3200 Wilshire Blvd.
Los Angeles, California

(Address of principal executive offices)

 


90010
(Zip Code)

(213) 387-3200
(Registrant's telephone number, including area code)

No change
(Former name, former address, and former fiscal year, if changed since last report)



         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

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

         The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2012 was approximately $338.7 million (computed based on the closing sale price of the common stock at $5.47 per share as of such date). Shares of common stock held by each officer and director and each person owning more than ten percent of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of the affiliate status is not necessarily a conclusive determination for other purposes.

         The number of shares of Common Stock of the registrant outstanding as of March 11, 2013 was 71,296,956.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's Proxy Statement relating to the registrant's 2013 Annual Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K, where indicated.

   


Table of Contents


TABLE OF CONTENTS

Cautionary Statement Regarding Forward-Looking Statements and Information

    3  

PART I

           

Item 1.

 

Business

    3  

Item 1A.

 

Risk Factors

    32  

Item 1B.

 

Unresolved Staff Comments

    42  

Item 2.

 

Properties

    43  

Item 3.

 

Legal Proceedings

    45  

Item 4.

 

Mine Safety Disclosures

    45  

PART II

           

Item 5.

 

Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

    46  

Item 6.

 

Selected Financial Data

    50  

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

    52  

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

    102  

Item 8.

 

Financial Statements and Supplementary Data

    105  

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

    105  

Item 9A.

 

Controls and Procedures

    105  

Item 9B.

 

Other Information

    108  

PART III

           

Item 10.

 

Directors and Executive Officers of the Registrant

    108  

Item 11.

 

Executive Compensation

    108  

Item 12.

 

Security Ownership of Certain Beneficial Owners, Management and Related Shareholder Matters

    108  

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

    108  

Item 14.

 

Principal Accounting Fees and Services

    108  

PART IV

           

Item 15.

 

Exhibits, Financial Statement Schedules

    109  

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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS AND INFORMATION

        This Annual Report on Form 10-K, or the "Report," the other reports, statements, and information that we have previously filed or that we may subsequently file with the Securities and Exchange Commission ("SEC") and public announcements that we have previously made or may subsequently make include, incorporate by reference or may incorporate by reference certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy the benefits of that act. The forward-looking statements included or incorporated by reference in this Form 10-K and those reports, statements, information and announcements address activities, events or developments that Wilshire Bancorp, Inc. (together with its subsidiaries hereinafter referred to as "the Company," "we," "us," "our" unless the context requires otherwise) expects or anticipates will or may occur in the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "will continue," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions, customer disintermediation and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, as well as the factors discussed elsewhere in this Report, including the discussion under the section entitled "Risk Factors."

        The risk factors referred to in this Report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.


PART I

Item 1.    Business

General

        Wilshire Bancorp, Inc. is a bank holding company offering a broad range of financial products and services primarily through our main subsidiary, Wilshire State Bank, a California state-chartered commercial bank, which we sometimes refer to in this report as the "Bank." Our corporate headquarters and primary banking facilities are located at 3200 Wilshire Boulevard, Los Angeles, California 90010. In addition, the Bank has 24 full-service branch offices in Southern California, Texas, New Jersey, and the greater New York City metropolitan area. We also have 8 loan production offices, or "LPOs", utilized primarily for the origination of loans under our Small Business Administration, or "SBA", lending program in California, Colorado, Georgia, Texas (2 offices), New Jersey, Washington, and Virginia.

        Deposits in Wilshire State Bank are insured up to the maximum limits authorized under the Federal Deposit Insurance Act, as amended, or the "FDIA." Like most state-chartered banks of our size in California, we are not a member of the Federal Reserve System, but we are a member of Federal Home Loan Bank of San Francisco, a congressionally chartered Federal Home Loan Bank. At December 31, 2012, we had approximately $2.75 billion in assets, $2.15 billion in total loans (net of deferred fees and including loans held-for-sale), and $2.17 billion in deposits.

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        We operate a community bank focused on the general commercial banking business, with our primary market encompassing the multi-ethnic populations of Southern California, Dallas-Fort Worth, New Jersey, and the New York metropolitan area. Our client base reflects the ethnic diversity of these communities.

        To address the needs of our multi-ethnic customer base, we have many multilingual employees who are able to converse with our clientele in their native languages. We believe that the ability to speak the native language and understanding of different traditions of our customers assists us in tailoring products and services for our customers' needs.

Available Information

        We maintain an Internet website at www.wilshirebank.com. We post our filings with the SEC on the Investor Relations portion of our website, where such filings are available free of charge, including our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy and information statements, and any amendments to those reports or statements as soon as reasonably practicable after such reports are filed or furnished under the Securities Exchange Act of 1934, as amended, or "Exchange Act". In addition to our SEC filings, our Code of Professional Conduct, and our Personal and Business Code of Conduct can be found on the Investor Relations page of our website. In addition, we post separately on our website all filings made by persons pursuant to Section 16 of the Exchange Act. You may also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0220. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

Future Growth

        As part of our efforts to achieve stable and long-term profitability and respond to the changing economic environment in Southern California, we constantly evaluate a variety of options to augment our traditional focus by broadening the services and products we provide. Possible avenues of growth include more branch locations, expanded days and hours of operation, and new types of lending and deposit products. To date, we have not expanded into areas of brokerage or similar investment products and services but rather, we have concentrated primarily on the core businesses of accepting deposits, making loans, and extending credit.

        In 2013, we plan to continue to closely monitor and review the loan production levels of our branches and LPOs, while increasing our marketing efforts in our prime markets. In 2011 we opened two LPOs in Newark, California, and Bellevue, Washington to complement our existing network of LPOs across the country. During 2012, we started construction on another branch office in New Jersey to add to our operations on the East Coast. The branch office in Palisades Park, New Jersey is expected to open during the first half of 2013. We previously underwent efforts to improve and enhance our loan origination and underwriting procedures, including the segregation of personnel and responsibilities related to loan sales from personnel and responsibilities related to loan underwriting processes. This separation resulted in a renewed focus for 2011 and 2012 on the underwriting of loans. We will continue to act with prudence in our lending practices and closely follow our improved underwriting policies and procedures in extending credit.

Business Segments

        We operate in three primary business segments: Banking Operations, Trade Finance Services, and Small Business Administration Lending Services. We determine operating results of each segment based

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on an internal management system that allocates certain expenses to each segment. These segments are described in additional detail below:

        Banking Operations—The Company raises funds from deposits and borrowings for loans and investments, and provides lending products, including commercial, consumer, and real estate loans to its customers.

        Small Business Administration ("SBA") Lending Services—The SBA department mainly provides customers with access to the U.S. SBA guaranteed lending program. Through the SBA loan program, we are able to offer customers with small businesses a variety of loans to meet their needs. A portion of SBA loans are guaranteed by the Small Business Administration, with the backing of the U.S. government, making them attractive to both the Company and our customers. A significant portion of our business entails selling the guaranteed portion of SBA loans that we originate in the secondary market for a premium.

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

    Commercial—An undertaking by the issuing bank to pay for a commercial transaction.

    Standby—An undertaking by the issuing bank to pay for the non-performance of applicant.

    Documentary Collections—A means of channeling payment for goods through a bank in order to facilitate passing of funds. The bank involved acts as a conduit through which the funds and documents are transferred between the buyer and seller of goods.

        Our TFS services include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, we provide advice on and negotiation of commercial letters of credit, and we transfer and issue back-to-back letters of credit. We also provide importers with trade finance lines of credit, which allow for issuance of commercial letters of credit and financing of documents received under such letters of credit, as well as documents received under documentary collections. Exporters are assisted through export lines of credit as well as through immediate financing of clean documents presented under export letters of credit.

Lending Activities

    General

        Our loan policies set forth the basic guidelines and procedures by which we conduct our lending operations. These policies address the types of loans available, underwriting and collateral requirements, loan terms, interest rate and yield considerations, compliance with laws and regulations, and our internal lending limits. Our Bank Board of Directors reviews and approves our loan policies on an annual basis. We supplement our own supervision of the loan underwriting and approval process with periodic loan audits by experienced external loan specialists who review credit quality, loan documentation, and compliance with laws and regulations. We engage in a full complement of lending activities, including:

    commercial real estate and home mortgage lending,

    commercial business lending and trade finance,

    SBA lending,

    consumer loans, and

    construction lending

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    Loan Procedures

        Loan applications may be approved by the Directors Loan Committee of our Bank Board of Directors, by our management, or lending officers to the extent of their lending authority. Our Bank Board of Directors authorizes our lending limits. The President and the Chief Credit Officer of the Bank are responsible for evaluating the lending authority limits for individual credit officers and recommending lending limits for all other officers to the Bank Board of Directors for approval.

        We grant individual lending authority to the President, Chief Credit Officer, and selected department managers of the Bank. Loans for which direct and indirect borrower liability exceeds an individual's lending authority are referred to the Management Loan Committee of the Bank (a six-member committee comprised of the President, Chief Credit Officer, Deputy Chief Credit Officer, and three Senior Credit Managers) or our Bank Directors Loan Committee.

        At December 31, 2012, our authorized legal lending limit was $68.3 million for unsecured loans, plus an additional $45.5 million for specifically secured loans. Legal lending limits are calculated in conformance with California law, which prohibits a bank from lending to any one individual or entity or its related interests in an aggregate amount which exceeds 15% of shareholders' equity, plus the allowance for loan losses, and capital notes and debentures, on an unsecured basis, plus an additional 10% on a secured basis. The Bank's shareholders' equity plus allowance for loan losses, and capital notes and debentures at December 31, 2012 totaled $455.2 million.

        In 2012, we experienced the first increases in overall gross loan balance since early 2010 with new originations focusing primarily on commercial real estate as well as residential mortgage, including warehouse lines of credit and SBA loans. In order to gain market shares in a highly competitive environment, we offered new and refinanced loans at current pricing trends which included low fixed rates for terms of 5 to 7 years.

        We seek to mitigate the risks inherent in our loan portfolio by adhering to our underwriting policies. The review of each loan application includes analysis of the applicant's prior credit history, income level, cash flow and financial condition, analysis of tax returns, cash flow projections, the value of any collateral used to secure the loan, and also based upon reports of independent appraisers and audits of accounts receivable or inventory pledged as security. In the case of real estate loans over a specified amount, the review of the collateral value includes an appraisal report prepared by an independent Bank-approved appraiser. From time to time, we purchase participation interests in loans made by other financial institutions. These loans are generally subject to the same underwriting criteria and approval process as loans made directly by us.

        In 2011, the loan underwriting and monitoring procedures were changed in response to the deficiency in the operating effectiveness of loan underwriting, approval, and renewal processes for certain loan originations and asset sales associated with the Company's former senior marketing officer. In response, three main changes were implemented to help remediate the deficiencies in the operating effectiveness of loan underwriting, approval, and renewal processes for certain loan originations and asset sales as well as to reduce our overall problem loan levels.

    First, loan officers were separated from marketing officers and branch managers who are generally responsible for loan marketing. This was done by establishing three new underwriting centers. The three underwriting centers are overseen by credit individuals whose main job function is to objectively review and underwrite credit requests that are submitted by marketing officers or branch managers. The benefit of having independent underwriting centers is that underwriters can objectively underwrite loans with minimal influence from marketing individuals.

    Second, standard underwriting procedures were revised to include calculating business, property, and global cash flows, and to ascertain business/personal net worth, and providing uniform underwriting templates. Previously, the Company did not include global cash flows in standard

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      underwriting memos. The Company also did not have standard cash flow analysis and underwriting templates. The benefit of standardizing underwriting, especially cash flow analysis and inclusion of the global cash flow analysis, is that credit decision makers are better informed of the borrowers' financial performance and therefore are able to more soundly make credit decisions.

    Finally, an enhanced standard loan monitoring procedure was implemented. This loan monitoring procedure requires underwriters to manage their loans more rigorously by performing periodic assessment of credits. Depending on loan types and risk grades, monitoring is required quarterly, semi-annually, or annually. A standard condensed monitoring form called "Compliance Certificate Memo" (CCM) was also created to effectively monitor credits by focusing on the most essential credit elements such as cash flows, payment history, property tax delinquency status, credit scores, compliance of covenants and conditions, and proper allocation of loan risk grade. The new loan monitoring procedure encourages proactive loan monitoring, and is pivotal in the early identification of problem loans.

        As a result of these measures, in 2012 we experience an improvement in overall credit quality of our loan portfolio, including year over year decreases in delinquent and non-performing loans as well as a decline in loan charge-offs.

    Real Estate Loans and Home Mortgages

        We offer commercial real estate loans to finance the acquisition of, or to refinance the existing mortgages on commercial properties, which include retail shopping centers, office buildings, industrial buildings, warehouses, hotels, automotive industry facilities, apartment buildings, and other commercial properties. Our commercial real estate loans are typically collateralized by first or junior deeds of trust on specific commercial properties, and, when possible, subject to corporate or individual guarantees from financially capable parties. The properties collateralizing real estate loans are principally located in the markets where our retail branches are located. These locations include Southern California, Texas, New Jersey, and the greater New York City metropolitan area. However, we also provide commercial real estate loans through our LPOs. Real estate loans typically bear an interest rate that floats with our base rate, the prime rate, or another established index. Many of new originations of real estate loans, however, bear fixed rather than floating rates due to the highly competitive market environment. As such, we have expanded the number of fixed rate commercial mortgages with maturities that generally do not exceed 7 years. Some refinances of existing real estate loans also had higher LTV ratios because collateral values have decreased since initial origination five to seven years earlier. For these refinances, other factors including but not limited to good payment history, high credit scores, sufficient cash flow, and the guarantor's overall financial strength were considered to mitigate credit risks. At December 31, 2012, real estate loans, including construction loans constituted approximately 85.3% of our loan portfolio.

        Commercial real estate loans typically have 7-year maturities with up to 25-year amortization of principal and interest and loan-to-value ratios of 60-70% at origination of the appraised value or purchase price, whichever is lower. We usually impose a prepayment penalty during the period within three to five years of the date of the loan, but typically waive the prepayment penalty if the property is sold to a third party.

        Construction loans are provided to build new structures, or to substantially improve the existing structure of commercial, residential, and other income-producing properties. These loans generally have one to two year terms, with an option to extend the loan for additional periods to complete construction and to accommodate the lease-up period. We usually require a 20-30% equity capital investment by the developer and loan-to-value ratios of not more than 60-70% of the anticipated completion value.

        Our total home mortgage loan portfolio outstanding at the end of 2012 and 2011 was $111.3 million and $65.8 million, respectively. At December 31, 2012 total residential mortgage loans with interest only payments totaled $1.2 million. There were no residential mortgage loans with unconventional terms such

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as interest only mortgages or option adjustable rate mortgages at December 31, 2011 including loans held temporarily for sale or refinancing. We also provide warehouse lines of credit to mortgage loan originators. The lines of credit are used by these originators to fund mortgages which are then pledged to the Bank as collateral until the mortgage loan is sold and the line of credit are paid down. The typical duration of these lines of credit from funding to pay-down ranges from 10-30 days. At December 31, 2012 the outstanding balance of warehouse lines of credit stood at $73.2 million.

        We consider subprime mortgages to be loans secured by real estate property made to a borrower (or borrowers) with a diminished or impaired credit rating or with a limited credit history. We are focused on producing loans with only prime rated borrowers which we consider borrowers with FICO scores of at least 660. As of result, our loan portfolio currently has no subprime exposure.

        Our real estate loan portfolio is subject to certain risks, including:

    a decline in the economies of our primary markets,

    interest rate increases,

    a reduction in real estate values in our primary markets,

    increased competition in pricing and loan structure, and

    environmental risks, including natural disasters.

        We strive to reduce the exposure to such risks by (a) reviewing each new loan request and renewal individually, (b) using a dual signature approval system for the approval of each loan request for loans over a certain dollar amount, (c) adherence to written loan policies, including, among other factors, minimum collateral requirements, maximum loan-to-value ratio requirements, cash flow requirements, and personal guarantees, (d) independent appraisals, (e) external independent credit review, and (f) conducting environmental reviews, where appropriate. We review each loan request on the basis of our ability to recover both principal and interest in view of the inherent risks.

    Commercial Business Lending

        We offer commercial business loans to sole proprietorships, partnerships, and corporations. These loans include business lines of credit and business term loans to finance operations, to provide working capital, or for specific purposes, such as to finance the purchase of assets, equipment, or inventory. Since a borrower's cash flow from operations is generally the primary source of repayment, our policies provide specific guidelines regarding required debt coverage and other important financial ratios.

        Lines of credit are extended to businesses or individuals based on the financial strength and integrity of the borrower. These lines of credit are secured primarily by business assets such as accounts receivable or inventory, and have a maturity of one year or less. Such lines of credit bear an interest rate that floats with our base rate, the prime rate, or another established index.

        Business term loans are typically made to finance the acquisition of fixed assets, refinance short-term debts, or to finance the purchase of businesses. Business term loans generally have terms from one to seven years. They may be collateralized by the assets being acquired or other available assets and bear interest rates, which either float with our base rate, prime rate, another established index, or is fixed for the term of the loan.

        We also provide other banking services tailored to the small business market. We have focused on diversifying our loan portfolio, which has led to an increase in commercial business loans to small and medium-sized businesses.

        Our portfolio of commercial loans is subject to certain risks, including:

    a decline in the economy in our primary markets,

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    interest rate increases, and

    deterioration of a borrower's or guarantor's financial capabilities.

        We attempt to reduce the exposure to such risks by (a) reviewing each new loan request and renewal individually, (b) relying heavily on our committee approval system where inputs from experienced committee members with different types and levels of lending experience are fully utilized, (c) adherence to written loan policies, and (d) external independent credit review. In addition, loans based on short-term assets such as account receivables and inventories are monitored on a monthly or at a minimum, on a quarterly basis. In general, we receive and review financial statements of borrowing customers on an ongoing basis during the term of the relationship and respond to any deterioration noted.

    Small Business Administration Lending Services

        SBA lending is an important part of our business. Our SBA lending business places an emphasis on minority-owned businesses. Our SBA market area includes the geographic areas encompassed by our full-service banking offices in Southern California, Texas, New Jersey, and the New York City metropolitan area, as well as the multi-ethnic population areas surrounding our LPOs in other states. We are an SBA Preferred Lender nationwide, which permits us to approve SBA guaranteed loans in all our lending areas without further approval from the SBA. As an SBA Preferred Lender, we provide quicker and more efficient service to our clientele, enabling them to obtain SBA loans in order to acquire new businesses, expand existing businesses, and acquire locations in which to do business, without having to go through the time-consuming SBA approval process that would be necessary if a prospective SBA borrower were to utilize a lender that is not an SBA Preferred Lender.

        SBA loans continue to remain an important component of our business. The net revenue from our SBA department represented 11.8%, 27.1%, and 920.8% of our total net revenue for 2012, 2011, and 2010, respectively.

        Although our participation in the SBA program is subject to the legislative power of Congress and the continued maintenance of our approved status by the SBA, we have no reason to believe that this program (and our participation therein) will not continue, particularly in view of the historic longevity of the SBA program nationally.

    Consumer Loans

        Consumer loans include personal loans, auto loans, and other loans typically made by banks to individual borrowers. The majority of consumer loans are concentrated on personal lines of credit and installment loans to individuals. Since the second half of 2008, we have not made any new auto loans to new customers. However, on occasion, automobile loans are made to existing loan or deposit customers. Because consumer loans typically present a higher risk potential compared to our other loan products, especially given current economic conditions, we have reduced our efforts in consumer lending.

        Our consumer loan production has historically been comparatively small, and has always represented less than 5% of our total loan portfolio. As of December 31, 2012, our consumer loan portfolio represented 0.6% of the loan portfolio, down from 0.8% at December 31, 2011.

        Our consumer loan portfolio is subject to certain risks, including:

    general economic conditions of the markets we serve,

    interest rate increases, and

    consumer bankruptcy laws which allow consumers to discharge certain debts.

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        We attempt to reduce the exposure to such risks through (a) the direct approval of all consumer loans by reviewing each loan request and renewal individually, (b) using a dual signature system of approval, (c) adherence to written credit policies, (d) utilizing external independent credit review and (e) concentrating mostly on cash secured loans and lines of credits. .

Trade Finance Services

        Our Trade Finance Department assists our import/export customers with their international business needs. The department primarily deals in letters of credit issued to customers whose businesses involve the international sale of goods. A letter of credit is an arrangement (usually expressed in letter form) whereby the Company, at the request of and in accordance with customers instructions, undertakes to reimburse or cause to reimburse a third party, provided that certain documents are presented in strict compliance with its terms and conditions. Simply put, a bank is pledging its credit on behalf of the customer. The Company's TFS offers the following types of letters of credit to customers:

    Commercial—An undertaking by the issuing bank to pay for a commercial transaction.

    Standby—An undertaking by the issuing bank to pay for the non-performance of applicant.

    Revocable—Letter of credit that can be modified or cancelled by the issuing bank at any time with notice to the beneficiary (does not provide beneficiary with a firm promise of payment).

    Irrevocable—Letters of credit that cannot be altered or cancelled without mutual consent of all parties.

    Sight—Letter of credit requiring payment upon presentation of conforming shipping documents.

    Usance—Letter of credit which allows the buyer to delay payment up to a designated number of days after presentation of shipping documents.

    Import—Letter of credit issued to assist customers in purchasing goods from overseas.

    Export—Letter of credit issued to assist customers selling goods to overseas.

    Transferable—Letter of credit which allows the beneficiary to transfer their right, in part or full, to another party.

    Non-transferable—Letter of credit which does not allows the beneficiary to transfer their right, in part or full, to another party.

    Documentary Collections—A means of channeling payment for goods through a bank in order to facilitate passing of funds. The bank (banks) involved acts as a conduit through which the funds and documents are transferred between the buyer and seller of goods.

        Services offered by the Trade Finance Department include the issuance and negotiation of letters of credit, as well as the handling of documentary collections. On the export side, we provide advice on and negotiation of commercial letters of credit, and we transfer and issue back-to-back letters of credit. We also provide importers with trade finance lines of credit, which allow for issuance of commercial letters of credit and financing of documents received under such letters of credit, as well as documents received under documentary collections. Exporters are assisted through export lines of credit as well as through immediate financing of clean documents presented under export letters of credit.

        Most of our revenue from the Trade Finance Department consists of fee income from providing facilities to support import/export customers and interest income from extensions of credit. Our Trade Finance Department's fee income was $933,000, $954,000, and $985,000 in 2012, 2011, and 2010, respectively.

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Deposit Activities and Other Sources of Funds

        Our primary sources of funds are deposits and loan repayments. Scheduled loan repayments are a relatively predictable source of funds, whereas deposit inflows and outflows and unscheduled loan prepayments (which are influenced significantly by general interest rate levels, interest rates available on other investments, competition, economic conditions, and other factors) are less predictable. Customer deposits remain a primary source of funds, but these balances may be influenced by adverse market changes in the industry. Other borrowings may be used:

    on a short-term basis to compensate for reductions in deposit inflows to less than projected levels, and

    on a longer-term basis to support expanded lending activities and to match the maturity of repricing intervals of assets.

        We offer a variety of accounts for depositors which are designed to attract both short-term and long-term deposits. These accounts include certificates of deposit ("CDs"), regular savings accounts, money market accounts, checking and negotiable order of withdrawal ("NOW") accounts, installment savings accounts, and individual retirement accounts. These accounts generally earn interest at rates established by management based on competitive market factors and management's desire to increase or decrease certain types or maturities of deposits. As needed, we augment these customer deposits with brokered deposits. The more significant deposit accounts offered by us and other sources of funds are described below:

    Certificates of Deposit

        We offer several types of CDs with a maximum maturity of five years. The majority of our CDs all have maturities of one to twelve months and typically pay simple interest credited monthly or at maturity.

    Regular Savings Accounts

        We offer savings accounts that allow for unlimited deposits and withdrawals, provided that depositors maintain a $100 minimum balance. Interest is compounded daily and credited quarterly.

    Money Market Accounts

        Money market accounts pay a variable interest rate that is tiered depending on the balance maintained in the account. Minimum opening balances vary. Interest is compounded daily and paid monthly.

    Checking and NOW Account

        Checking and NOW accounts are generally noninterest and interest bearing accounts, respectively, and may include service fees based on activity and balances. NOW accounts pay interest, but require a higher minimum balance to avoid service charges.

    Federal Home Loan Bank Borrowings

        To supplement our deposits as a source of funds for lending or other investment, we borrow funds in the form of advances from the Federal Home Loan Bank of San Francisco. We may use Federal Home Loan Bank advances as part of our interest rate risk management, primarily to extend the duration of funding to match the longer term fixed rate loans held in the loan portfolio.

        As a member of the Federal Home Loan Bank ("FHLB") system, we are required to invest in Federal Home Loan Bank stock based on a predetermined formula. Federal Home Loan Bank stock is a restricted

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investment that can only be sold to other Federal Home Loan Bank members or redeemed by the Federal Home Loan Bank. As of December 31, 2012, we owned $12.1 million in FHLB stock.

        Advances from the Federal Home Loan Bank are secured by the Federal Home Loan Bank stock. In addition to FHLB stock, advances can be secured by either blanket lien on loans in our portfolio under the standard credit program, and may also be secured by securities which are obligations of or guaranteed by the U.S. government under the securities backed program. At December 31, 2012, our borrowing capacity with the Federal Home Loan Bank was approximately $692.9 million, with $150.0 million in borrowings outstanding, and $542.9 million in capacity remaining.

Internet Banking

        We offer internet banking, which allows our customers to access their deposit and loan accounts through the internet. Customers are able to obtain transaction history and account information, transfer funds between accounts, make on-line bill payments, and open deposit accounts. We intend to improve and develop our Internet banking products and other delivery channels as the need arises and our resources permit.

Other Services

        We also offer ATMs located at selected branch offices, customer access to an ATM network, and armored carrier services.

Marketing

        Our marketing efforts rely principally upon local advertising, promotional activity, and upon the personal contacts of our directors, officers, and shareholders to attract business and to acquaint potential customers with our products and personalized services. We emphasize a high degree of personalized client service in order to be able to satisfy each customer's banking needs. Our marketing approach emphasizes our strength as an independent, locally-managed state chartered bank in meeting the particular needs of consumers, professionals, and business customers in the community. Our management team continually evaluates all of our banking services with regard to their profitability and makes conclusions based on these evaluations on whether to continue or modify our business plan, where appropriate.

Competition

    Regional Branch Competition

        We currently operate 24 branch offices, 18 in California, 2 in Texas, 1 in New Jersey, and 3 in the greater New York City metropolitan area. We consider our Bank to be a community bank focused on the general commercial banking business, with our primary market encompassing the multi-ethnic population of the Los Angeles County area. Our full-service branch offices are located primarily in areas where a majority of the businesses are owned by immigrants or minority groups. Our client base reflects the ethnic diversity of these communities.

        Our market has become increasingly competitive in recent years with respect to virtually all products and services that we offer. Although the general banking market is dominated by a relatively small number of major banks with numerous offices covering a wide geographic area, we compete in our niche market directly with other community banks which focus on Korean-American and other minority consumers and businesses.

        We continue to experience a high level of competition within the ethnic banking market. In the greater Los Angeles metropolitan area, our primary competitors include eight locally-owned and operated Korean-American banks. These banks have branches located in many of the same neighborhoods in which we operate, provide similar types of products and services, and use the same Korean language publications

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and media for their marketing purposes. Unlike many other Korean-ethnic community banks, we also focus a significant portion of our marketing efforts on non-Korean customers as well.

        A less significant source of competition in our primary market includes branch offices of major national and international banks which maintain a limited bilingual staff for Korean-speaking or other language customers. Although these banks have not traditionally focused their marketing efforts on the minority customer base in our market, their competitive influence could increase should they choose to focus on this market in the future. Large commercial bank competitors have, among other advantages, the ability to finance wide-ranging and effective advertising campaigns and to allocate their investment resources to areas of highest yield and demand. Many of the major banks operating in our market area offer certain services that we do not offer directly (but some of which we offer through correspondent institutions). By virtue of their greater total capitalization, such banks likely also have substantially higher lending limits than we do. In order to compete effectively, we provide quality personalized service and fast local decision making which we feel distinguishes us from many of our major bank competitors. For customers whose loan demands exceed our internal lending limit, we attempt to arrange for such loans on a participation basis with our correspondent banks. Similarly, we assist customers requiring services that we do not currently offer in obtaining such services from our correspondent banks.

    Regional Loan Production Office Competition

        We currently operate LPOs, in Newark, California; Bellevue, Washington; Aurora, Colorado; Atlanta, Georgia; Fort Lee, New Jersey; Dallas, Texas; Houston, Texas; and Annandale, Virginia. In most of our LPO locations, we are competing with local lenders as well as Los Angeles-based Korean-American community lenders operating out-of-state LPOs. We anticipate more competition from Korean-American community lenders in most of our LPO locations in the future. In anticipation of stagnation in the U.S. economy and real estate market activity, we plan to maintain a balance of market coverage and operating costs. In 2013, with our expanded coverage from our newly opened LPOs, our focus will be to cautiously increase loan originations at these offices.

    Other Competitive Factors

        In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions, such as finance companies, leasing companies, insurance companies, brokerage firms, and investment banking firms. In recent years, increased competition has also developed from specialized finance and non-finance companies that offer money market and mutual funds, wholesale finance, credit card, and other consumer finance services, including on-line banking services and personal finance software. Strong competition for deposit and loan products affects the rates of those products as well as the terms on which they are offered to customers.

        The more general competitive trends in the industry include increased consolidation and competition. Strong competitors, other than financial institutions, have entered banking markets with focused products targeted at highly profitable customer segments. Many of these competitors are able to compete across geographic boundaries and provide customers increasing access to meaningful alternatives to banking services in nearly all significant products. Mergers between financial institutions have placed additional pressure on banks within the industry to streamline their operations, reduce expenses, and increase revenues to remain competitive. Competition has also intensified due to the federal and state interstate banking laws, which permit banking organizations to expand geographically.

        Technological innovations have also resulted in increased competition in the financial services industry. Such innovations have, for example, made it possible for non-depository institutions to offer customers automated transfer payment services that were previously considered traditional banking products. In addition, many customers now expect a choice of several delivery systems and channels, including telephone, PDA or smartphones, tablets, mail, home computer, ATMs, self-service branches,

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and/or in store branches. To some extent, such competition has had limited effect on us to date because many recent technological advancements do not yet have Korean or other language capabilities. However, as such technology becomes available, the competitive pressure to be at the forefront of such advancements will be significant.

        The market for the origination of SBA loans, one of our primary revenue sources, is highly competitive. We compete with other small, mid-size and major banks which originate these loans in the geographic areas in which our full service branches are located, as well as in the areas where we maintain SBA LPOs. In addition, because these loans are largely broker-driven, we compete to a large extent with banks that originate SBA loans outside of our immediate geographic area. Furthermore, because these loans may be made out of LPOs specifically set up to make SBA loans rather than out of full service branches, the barriers to entry in this area, after approval of a bank as an SBA lender, are relatively low. In order to succeed in this highly competitive market, we actively market our SBA loans to minority-owned businesses. However, the resale market for SBA loans may grow, decline or, maintain its current status.

Business Concentration

        No individual or single group of related accounts is considered material in relation to our total assets or deposits, or in relation to our overall business. However, approximately 85.3% of our loan portfolio at December 31, 2012 consisted of real estate-related loans, including construction loans, mini-perm loans, residential mortgage loans, warehouse loans, and commercial loans secured by real estate. Moreover, our business activities are currently focused primarily in Southern California, with the majority of our business concentrated in Los Angeles and Orange County. Consequently, our results of operations and financial condition are dependent upon the general trends in the Southern California economies and, in particular, the commercial real estate markets. In addition, the concentration of our operations in Southern California exposes us to greater risk than other banking companies with a wider geographic base in the event of catastrophes, such as earthquakes, fires, and floods in this region.

Employees

        We had 412 full time equivalent employees (410 full-time employees and 5 part-time employees) as of December 31, 2012. None of our employees are currently represented by a union or covered by a collective bargaining agreement. Management believes that our employee relations are satisfactory.

Regulation and Supervision

        The following is a summary description of the relevant laws, rules, and regulations governing banks and bank holding companies. The descriptions of, and references to, the statutes and regulations below are brief summaries and do not purport to be complete. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.

        Generally, the supervision and regulation of bank holding companies and their subsidiaries are intended primarily for the protection of depositors, the deposit insurance funds of the FDIC and the banking system as a whole, and not for the protection of the bank holding company shareholders or creditors. The banking agencies have broad enforcement power over bank holding companies and banks, including the power to impose substantial fines and other penalties for violations of laws and regulations.

        Various legislation is from time to time introduced in Congress and California's legislature, including proposals to overhaul the bank regulatory system, expand the powers of depository institutions, and limit the investments that depository institutions may make with insured funds. Such legislation may change applicable statutes and the operating environment in substantial and unpredictable ways. We cannot determine the ultimate effect that future legislation or implementing regulations would have upon our financial condition or upon our results of operations or the results of operations of any of our subsidiaries.

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Wilshire Bancorp

        Wilshire Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, or the Bank Holding Company Act, and is subject to supervision, regulation, and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Bank Holding Company Act and other federal laws subject bank holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

    Regulatory Restrictions on Dividends; Source of Strength

        We are regarded as a legal entity separate and distinct from our subsidiaries. The principal source of our revenues will be dividends received from the Bank. Various federal and state statutory provisions limit the amount of dividends the Bank can pay to us without regulatory approval. It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization's expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company's ability to serve as a source of strength to its banking subsidiaries.

        Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to its banking subsidiaries and commit resources to their support. The Dodd-Frank Act (as defined below) codified this policy as a statutory requirement; however, the Federal Reserve Board has not yet adopted regulations to implement this requirement. Such support may be required at times when, absent this Federal Reserve Board policy, a holding company may not be inclined to provide it. As discussed below, a bank holding company, in certain circumstances, could be required to guarantee the capital plan of an undercapitalized banking subsidiary.

        In the event of a bank holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed, and is required to cure immediately, any deficit under any commitment by the debtor holding company to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for breach of such obligation will generally have priority over most other unsecured claims.

        As a California corporation, Wilshire Bancorp is restricted under the California General Corporation Law ("CGCL") from paying dividends under certain conditions. The shareholders of Wilshire Bancorp will be entitled to receive dividends when and as declared by the Board of Directors, from funds legally available for the payment of dividends, as provided in the CGCL and, as mentioned above, consistent with Federal Reserve Board policy. The CGCL provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout, equals the amount of proposed distribution. In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution, if it meets both the "quantitative solvency" and the "liquidity" tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least 11/4 times its liabilities. The liquidity test generally requires that a corporation have current assets at least equal to current liabilities, or, if the average of the earnings of the corporation before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then current assets must equal to at least 11/4 times current liabilities. In certain circumstances, Wilshire Bancorp may be required to obtain prior approval from the Federal Reserve Board to make capital distributions to its shareholders.

    Activities "Closely Related" to Banking

        The Bank Holding Company Act prohibits a bank holding company, with certain limited exceptions, from acquiring direct or indirect ownership or control of any voting shares of any company which is not a

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bank or from engaging in any activities other than those of banking, managing or controlling banks and certain other subsidiaries, or furnishing services to or performing services for its subsidiaries. One principal exception to these prohibitions allows the acquisition of interests in companies whose activities are found by the Federal Reserve Board, by order or regulation, to be so closely related to banking or managing or controlling banks, as to be a proper incident thereto. Some of the activities that have been determined by regulation to be closely related to banking are making or servicing loans, performing certain data processing services, acting as an investment or financial advisor to certain investment trusts and investment companies and providing securities brokerage services. Other activities approved by the Federal Reserve Board include consumer financial counseling, tax planning and tax preparation, futures and options advisory services, check guaranty services, collection agency and credit bureau services and personal property appraisals. In approving acquisitions by bank holding companies of companies engaged in banking-related activities, the Federal Reserve Board considers a number of factors, and weighs the expected benefits to the public (such as greater convenience and increased competition or gains in efficiency) against the risks of possible adverse effects (such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices). The Federal Reserve Board is also empowered to differentiate between activities commenced de novo and activities commenced through acquisition of a going concern.

    Gramm-Leach-Bliley Act; Financial Holding Companies

        The Gramm-Leach-Bliley Financial Modernization Act, or GLBA, signed into law on November 12, 1999, revised and expanded the provisions of the Bank Holding Company Act by including a new section that permits a bank holding company to elect to become a financial holding company to engage in a full range of activities that are "financial in nature." The qualification requirements and the process for a bank holding company that elects to be treated as a financial holding company require that all of the subsidiary banks controlled by the bank holding company at the time of election to become a financial holding company must be and remain at all times "well-capitalized" and "well managed." We have not yet made an election to become a financial holding company, but we may do so at some time in the future.

        GLBA specifically provides that the following activities have been determined to be "financial in nature":

    lending, trust and other banking activities;

    insurance activities;

    financial or economic advisory services;

    securitization of assets;

    securities underwriting and dealing;

    existing bank holding company domestic activities;

    existing bank holding company foreign activities; and

    merchant banking activities.

        In addition, GLBA specifically gives the Federal Reserve Board the authority, by regulation or order, to expand the list of "financial" or "incidental" activities, but requires consultation with the U.S. Treasury Department, and gives the Federal Reserve Board authority to allow a financial holding company to engage in any activity that is "complementary" to a financial activity and does not "pose a substantial risk to the safety and soundness of depository institutions or the financial system generally."

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    Privacy Policies

        Under GLBA, all financial institutions are required to adopt privacy policies, restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer's request, and establish procedures and practices to protect customer data from unauthorized access. We have established policies and procedures to strengthen our compliance with all privacy provisions of GLBA.

    Safe and Sound Banking Practices

        Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve Board's Regulation Y, for example, generally requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10% or more of the company's consolidated net worth. The Federal Reserve Board may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. Depending upon the circumstances, the Federal Reserve Board could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

        The Federal Reserve Board has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations, and can assess civil money penalties for certain activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1 million for each day the activity continues.

    Annual Reporting; Examinations

        We are required to file annual reports with the Federal Reserve Board, and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board may examine a bank holding company or any of its subsidiaries, and charge the company for the cost of such examination. Furthermore, the Bank is subjected to compliance examinations by the FDIC and the California Department of Financial Institutions, or "DFI".

    Capital Adequacy Requirements

        The Federal Reserve Board has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of certain large bank holding companies. Prior to March 30, 2006, these capital guidelines were applicable to all bank holding companies having $150 million or more in assets on a consolidated basis. However, effective March 30, 2006, the Federal Reserve Board amended the asset size threshold to $500 million for purposes of determining whether a bank holding company is subject to the capital adequacy guidelines. We currently have consolidated assets in excess of $500 million, and are therefore subject to the Federal Reserve Board's capital adequacy guidelines.

        Under the guidelines, specific categories of assets are assigned different risk weights, based generally on the perceived credit risk of the asset. These risk weights are multiplied by corresponding asset balances to determine a "risk-weighted" asset base. The guidelines require a minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is required to consist of Tier 1 capital elements). Total capital is the sum of Tier 1 and Tier 2 capital. To be considered "well-capitalized," a bank holding company must maintain, on a consolidated basis, (i) a Tier 1 risk-based capital ratio of at least 6.0%, and (ii) a total risk-based capital ratio of 10.0% or greater. As of December 31, 2012, our Tier 1 risk-based capital ratio was 18.47% and our total risk-based capital ratio was 19.74%. Thus, we are considered "well-capitalized" for regulatory purposes.

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        In addition to the risk-based capital guidelines, the Federal Reserve Board uses a leverage ratio as an additional tool to evaluate the capital adequacy of bank holding companies. The leverage ratio is a company's Tier 1 capital divided by its average total consolidated assets. Certain highly-rated bank holding companies may maintain a minimum leverage ratio of 3.0%, but other bank holding companies are required to maintain a leverage ratio of at least 4.0%. To be considered well-capitalized, a bank holding company must maintain a leverage ratio of at least 5%. As of December 31, 2012, our leverage ratio was 14.87%.

        The federal banking agencies' risk-based and leverage ratios are minimum supervisory ratios generally applicable to banking organizations that meet certain specified criteria. The federal bank regulatory agencies may set capital requirements for a particular banking organization that are higher than the minimum ratios when circumstances warrant. Federal Reserve Board guidelines also provide that banking organizations experiencing internal growth or making acquisitions will be expected to maintain strong capital positions, substantially above the minimum supervisory levels, without significant reliance on intangible assets. Capital requirements are discussed further with respect to the Company and the Bank below under "Capital Requirements (Holding Company and Bank)".

    Imposition of Liability for Undercapitalized Subsidiaries

        Bank regulators are required to take "prompt corrective action" to resolve problems associated with insured depository institutions whose capital declines below certain levels. In the event an institution becomes "undercapitalized," it must submit a capital restoration plan. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary's compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution's holding company is entitled to a priority of payment in bankruptcy.

        The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution's assets at the time it became undercapitalized or the amount necessary to cause the institution to be "adequately capitalized." The bank regulators have greater power in situations where an institution becomes "significantly" or "critically" undercapitalized or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve Board approval of proposed dividends, or might be required to consent to a consolidation or to divest itself of the troubled institution or other affiliates.

    Anti-tying Restrictions

        Bank holding companies and affiliates are prohibited from tying the provision of services, such as extensions of credit, to other services offered by a holding company or its affiliates.

    Dividends

        Consistent with its policy that bank holding companies should serve as a source of financial strength for their subsidiary banks, the Federal Reserve Board has stated that, as a matter of prudence, a bank holding company generally should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with a bank holding company's capital needs, asset quality and overall financial condition. In addition, we are subject to certain restrictions on the making of distributions as a result of the requirement that the Bank maintain an adequate level of capital as described herein. We are restricted from paying dividends under the Federal Reserve Board's capital adequacy guidelines on a consolidated basis.

        In addition, the Federal Reserve Board issued Supervisory Letter SR 09-4 on February 24, 2009 and revised such letter on March 27, 2009, which provides guidance on the declaration and payment of

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dividends, capital redemptions, and capital repurchases by bank holding company. Supervisory Letter SR 09-4 provides that, as a general matter, a bank holding company should eliminate, defer, or significantly reduce its dividends if: (1) the bank holding company's net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (2) the bank holding company's prospective rate of earnings retention is not consistent with the bank holding company's capital needs and overall current and prospective financial condition, or (3) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory finding that the bank holding company is operating in an unsafe and unsound manner.

        Further, the Bank's limitations on paying dividends could, in turn, affect our ability to pay dividends to our shareholders.

    Acquisitions by Bank Holding Companies

        The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of any voting shares of any bank, if after such acquisition it would own or control, directly or indirectly, more than 5% of the voting shares of such bank. In approving bank acquisitions by bank holding companies, the Federal Reserve Board is required to consider the financial and managerial resources and future prospects of the bank holding company and the bank concerned, the convenience and needs of the communities to be served, and various competitive factors.

    Control Acquisitions

        The Change in Bank Control Act prohibits a person or group of persons from acquiring "control" of a bank holding company unless the Federal Reserve Board has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve Board, the acquisition of 10% or more, but less than 25% of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act would, under the circumstances set forth in the presumption, constitute acquisition of control.

        In addition, any company is required to obtain the approval of the Federal Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of the outstanding common stock of the a bank holding company, or otherwise obtaining control or a "controlling influence" over a bank holding company.

    FIRREA

        The Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA, includes various provisions that affect or may affect the Company and the Bank. Among other matters, FIRREA generally permits bank holding companies to acquire healthy thrifts as well as failed or failing thrifts. FIRREA removed certain cross-marketing prohibitions previously applicable to thrift and bank subsidiaries of a common holding company. Furthermore, a multi-bank holding company may now be required to indemnify the federal deposit insurance fund against losses it incurs with respect to such company's affiliated banks, which in effect makes a bank holding company's equity investments in healthy bank subsidiaries available to the FDIC to assist such company's failing or failed bank subsidiaries.

        FIRREA also expanded and increased civil and criminal penalties available for use by the appropriate regulatory agency against certain "institution-affiliated parties" primarily including (i) management, employees and agents of a financial institution, as well as (ii) independent contractors, such as attorneys and accountants and others who participate in the conduct of the financial institution's affairs and who caused or are likely to cause more than minimum financial loss to or a significant adverse effect on the institution, who knowingly or recklessly violate a law or regulation, breach a fiduciary duty or engage in

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unsafe or unsound practices. Such practices can include the failure of an institution to timely file required reports or the submission of inaccurate reports. Furthermore, FIRREA authorizes the appropriate banking agency to issue cease and desist orders that may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets or take other action as determined by the ordering agency to be appropriate.

    USA PATRIOT Act

        On October 26, 2001, The Uniting and Strengthening America by Providing Appropriate Tools Is Required to Intercept and Obstruct Terrorism Act or USA PATRIOT Act, a comprehensive anti-terrorism legislation was enacted. Title III of the USA PATRIOT Act requires financial institutions to help prevent, detect and prosecute international money laundering and the financing of terrorism. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act, which applies to the Bank, or the Bank Holding Company Act, which applies to Wilshire Bancorp. We, and our subsidiaries, including the Bank, have adopted systems and procedures to comply with the USA PATRIOT Act and regulations adopted by the Secretary of the Treasury.

    The Sarbanes-Oxley Act of 2002

        On July 30, 2002, The Sarbanes-Oxley Act of 2002, or "Sarbanes-Oxley Act" was enacted. The Sarbanes-Oxley Act addresses accounting oversight and corporate governance matters relating to the operations of public companies. During 2003, the SEC issued a number of regulations under the directive of the Sarbanes-Oxley Act significantly increasing public company governance-related obligations and filing requirements, including:

    the establishment of an independent public oversight of public company accounting firms by a board that will set auditing, quality and ethical standards for and have investigative and disciplinary powers over such accounting firms,

    the enhanced regulation of the independence, responsibilities and conduct of accounting firms which provide auditing services to public companies,

    the increase of penalties for fraud related crimes,

    the enhanced disclosure, certification, and monitoring of financial statements, internal financial controls and the audit process, and

    the enhanced and accelerated reporting of corporate disclosures and internal governance.

        Furthermore, in November 2003, in response to the directives of the Sarbanes-Oxley Act, NASDAQ adopted substantially expanded corporate governance criteria for the issuers of securities quoted on the NASDAQ Global Select Market (the market on which our common stock is listed for trading). The new NASDAQ rules govern, among other things, the enhancement and regulation of corporate disclosure and internal governance of listed companies and of the authority, role and responsibilities of their boards of directors and, in particular, of "independent" members of such boards of directors, in the areas of nominations, corporate governance, compensation and the monitoring of the audit and internal financial control processes.

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    The TARP Capital Purchase Program

        On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the "EESA") enacted by the U.S. Congress, which appropriated $700 billion for the purpose of restoring liquidity and stability in the U.S. financial system. On October 14, 2008, the U.S. Treasury established the Troubled Asset Relief Program's ("TARP") Capital Purchase Program under the authority granted by the EESA. Under the TARP Capital Purchase Program, the U.S. Treasury made $250 billion of capital available to U.S. financial institutions in the form of senior preferred stock investments. In connection with its purchase of preferred stock, the U.S. Treasury received a warrant entitling the U.S. Treasury to buy the participating institution's common stock with a market price equal to 15% of the preferred stock.

        As a result of the EESA, there have been numerous actions by the Federal Reserve Board, the U.S. Congress, the U.S. Treasury, the FDIC, the SEC and others to further the economic and banking industry stabilization efforts.

        Pursuant to the TARP Agreements dated December 12, 2008, we issued to the U.S. Treasury (i) 62,158 shares of the Series A Preferred Stock, and (ii) a warrant to purchase initially 949,460 shares of our common stock, for an aggregate purchase price of $62,158,000. Both the Series A Preferred Stock and the Warrant were accounted for as components of Tier 1 capital.

        During the first quarter of 2012, the Company repurchased 60,000 of its 62,158 shares of preferred stock (the "Preferred Shares") from the U.S. Department of the Treasury ("Treasury") in connection with the Company's participation in the TARP Capital Purchase Program (the "CPP"). The shares were repurchased at a discount of 5.6% (or an actual cost of $56.6 million) and resulted in a one-time increase to capital totaling $3.4 million offset by the accretion of $1.1 million in preferred stock discount. The result was a net increase in capital of approximately $2.3 million. The remaining 2,158 Preferred Shares were redeemed during the second quarter of 2012 at par value or $1,000 per share (or an actual cost of $2.2 million). During the second quarter of 2012, the Company also repurchased from Treasury the warrant to purchase 949,460 shares of the Company's common which was issued to the Treasury in connection with the CPP. The warrant was repurchased at a mutually agreed upon price of $760,000.

        On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "ARRA") enacted by the U.S. Congress. The ARRA, among other things, imposed certain new executive compensation and corporate expenditure limits on all current and future recipients of funds under the TARP Capital Purchase Program, as long as any obligation arising from the financial assistance provided to the recipient under the TARP Capital Purchase Program remains outstanding, excluding any period during which the U.S. Treasury holds only warrants to purchase common stock of a TARP participation (the "Covered Period"). We no longer have any outstanding obligation under the TARP Capital Purchase Program.

    Dodd-Frank Act

        On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law. The Dodd-Frank Act has and may continue to result in dramatic changes across the financial regulatory system, some of which become effective and some of which will not become effective until various future dates. Implementation of the Dodd-Frank Act will require many new rules to be made by various federal regulatory agencies over the next several years. Uncertainty remains until final rulemaking is complete as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry as a whole or on ours and the Bank's business, results of operations, and financial condition. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase the

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costs associated with deposits and place limitations on certain revenues those deposits may generate. The Dodd-Frank Act includes provisions that, among other things, will or already has:

    Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau ("CFPB"), responsible for implementing, examining, and enforcing compliance with federal consumer financial laws. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are stricter than those regulations promulgated by the CFPB.

    Create the Financial Stability Oversight Council that will recommend to the Federal Reserve Board increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity.

    Provide mortgage reform provisions regarding a customer's ability to repay, restricting variable-rate lending by requiring that the ability to repay variable-rate loans be determined by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions.

    Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF, and increase the floor on the size of the DIF, which generally will require an increase in the level of assessments for institutions with assets in excess of $10 billion.

    Make permanent the $250 thousand limit for federal deposit insurance

    Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks, such as the Bank, from availing themselves of such preemption.

    Require bank holding companies and banks to be well capitalized and well managed in order to acquire banks located outside their home state.

    Mandate certain corporate governance and executive compensation matters be implemented, including (i) an advisory vote on executive compensation by a public company's stockholders; (ii) enhancement of independence requirements for compensation committee members; (iii) adoption of incentive-based compensation claw-back policies for executive officers; and (iv) adoption of proxy access rules allowing stockholders of publicly traded companies to nominate candidates for election as a director and have those nominees included in a company's proxy materials.

    Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transactions accounts.

    Amend the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

        Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act's mandates are discussed below.

    Wilshire State Bank

        Wilshire State Bank is subject to extensive regulation and examination by the California Department of Financial Institutions, or the DFI, and the FDIC, which insures its deposits to the maximum extent permitted by law, and is subject to certain Federal Reserve Board regulations of transactions with its

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affiliates. The federal and state laws and regulations which are applicable to the Bank regulate, among other things, the scope of its business, its investments, its reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans. In addition to the impact of such regulations, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.

    Transactions with Affiliates

        There are various statutory and regulatory limitations, including those set forth in sections 23A and 23B of the Federal Reserve Act and the related Regulation W implemented by the Federal Reserve Board, governing the extent to which the Bank will be able to purchase assets from or securities of or otherwise finance or transfer funds to us or our nonbanking affiliates. Among other restrictions, such transactions between the Bank and any one affiliate (including the Company) generally will be limited to 10% of the Bank's capital and surplus, and transactions between the Bank and all affiliates will be limited to 20% of the Bank's capital and surplus. Furthermore, loans and extensions of credit are required to be secured in specified amounts and are required to be on terms and conditions consistent with safe and sound banking practices.

        In addition, any transaction by a bank with an affiliate and any sale of assets or provision of services to an affiliate generally must be on terms that are substantially the same, or at least as favorable, to the bank as those prevailing at the time for comparable transactions with nonaffiliated companies.

    Loans to Insiders

        Sections 22(g) and (h) of the Federal Reserve Act and its implementing regulation, Regulation O, place restrictions on loans by a bank to executive officers, directors, and principal shareholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% shareholder of a bank and certain of their related interests, or insiders, and insiders of affiliates, may not exceed, together with all other outstanding loans to such person and related interests, the bank's loans-to-one-borrower limit (generally equal to 25% of the institution's unimpaired capital and surplus). Section 22(h) also requires that loans to insiders and to insiders of affiliates be made on terms substantially the same as offered in comparable transactions to other persons, unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the bank, and (ii) does not give preference to insiders over other employees of the bank. Section 22(h) also requires prior Board of Directors approval for certain loans, and the aggregate amount of extensions of credit by a bank to all insiders cannot exceed the institution's unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers.

        The Dodd-Frank Act generally enhances the restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act, including an expansion of the definition of "covered transactions" and an increase in the amount of time for which collateral requirements regarding covered credit transactions must be satisfied. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivatives transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution's board of directors.

    Dividends

        The ability of the Bank to pay dividends on its common stock is restricted by the California Financial Code, the FDIA and FDIC regulations. In general terms, California law provides that the Bank may

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declare a cash dividend out of net profits up to the lesser of retained earnings or net income for the last three fiscal years (less any distributions made to shareholders during such period), or, with the prior written approval of the Commissioner of Department of Financial Institutions, in an amount not exceeding the greatest of:

    retained earnings,

    net income for the prior fiscal year, or

    net income for the current fiscal year.

        The Bank's ability to pay any cash dividends will depend not only upon its earnings during a specified period, but also on its meeting certain capital requirements. The FDIA and FDIC regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank.

        The payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as maintenance of adequate capital. If, in the opinion of the regulatory authority, a depository institution under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (that, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require, after notice and hearing, that such depository institution cease and desist from such practice. The Federal Reserve Board has issued a policy statement providing that insured banks and bank holding companies should generally pay dividends only out of operating earnings for the current and preceding two years. In addition, all insured depository institutions are subject to the capital-based limitations required by the Federal Deposit Insurance Corporation Improvement Act of 1991.

    Cross-guarantees

        Under the Federal Deposit Insurance Act, or FDIA, a depository institution (which definition includes both banks and savings associations), the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution, or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or a receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that default is likely to occur in the absence of regulatory assistance. In some circumstances (depending upon the amount of the loss or anticipated loss suffered by the FDIC), cross-guarantee liability may result in the ultimate failure or insolvency of one or more insured depository institutions in a holding company structure. Any obligation or liability owed by a subsidiary bank to its parent company is subordinated to the subsidiary bank's cross-guarantee liability with respect to commonly controlled insured depository institutions. The Bank is currently our only FDIC-insured depository institution subsidiary.

        Because we are a legal entity separate and distinct from the Bank, our right to participate in the distribution of assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors. In the event of a liquidation or other dissolution of the Bank, the claims of depositors and other general or subordinated creditors of the Bank would be entitled to a priority of payment over the claims of holders of any obligation of the Bank to its shareholders, including any depository institution holding company (such as Wilshire Bancorp) or any shareholder or creditor of such holding company.

    The FDIC Improvement Act

        The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, made a number of reforms addressing the safety and soundness of the deposit insurance system, supervision of domestic

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and foreign depository institutions, and improvement of accounting standards. This statute also limited deposit insurance coverage, implemented changes in consumer protection laws and provided for least costly resolution and prompt regulatory action with regard to troubled institutions.

        FDICIA requires every bank with total assets in excess of $1 billion to have an annual independent audit made of the bank's financial statements by a certified public accountant to verify that the financial statements of the bank are presented in accordance with generally accepted accounting principles and comply with such other disclosure requirements as prescribed by the FDIC.

        FDICIA also divides banks into five different categories, depending on their level of capital. Under regulations adopted by the FDIC, a bank is deemed to be "well-capitalized" if it has a total Risk-Based Capital Ratio of 10.00% or more, a Tier 1 Capital Ratio of 6.00% or more and a Leverage Ratio of 5.00% or more, and the bank is not subject to an order or capital directive to meet and maintain a certain capital level. Under such regulations, a bank is deemed to be "adequately capitalized" if it has a total Risk-Based Capital Ratio of 8.00% or more, a Tier 1 Capital Ratio of 4.00% or more and a Leverage Ratio of 4.00% or more (unless it receives the highest composite rating at its most recent examination and is not experiencing or anticipating significant growth, in which instance it must maintain a Leverage Ratio of 3.00% or more). Under such regulations, a bank is deemed to be "undercapitalized" if it has a total Risk-Based Capital Ratio of less than 8.00%, a Tier 1 Capital Ratio of less than 4.00% or a Leverage Ratio of less than 4.00%. Under such regulations, a bank is deemed to be "significantly undercapitalized" if it has a total Risk-Based Capital Ratio of less than 6.00%, a Tier 1 Capital Ratio of less than 3.00% and a Leverage Ratio of less than 3.00%. Under such regulations, a bank is deemed to be "critically undercapitalized" if it has a Leverage Ratio of less than or equal to 2.00%. In addition, the FDIC has the ability to downgrade a bank's classification (but not to "critically undercapitalized") based on other considerations even if the bank meets the capital guidelines. According to these guidelines the Bank's capital ratios were above the requirements for a "well-capitalized" institution as of December 31, 2012.

        In addition, FDICIA also places certain restrictions on activities of banks depending on their level of capital. If a bank is classified as undercapitalized, the bank is required to submit a capital restoration plan to the federal banking regulators. Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch office, except under certain circumstances, including the acceptance by the federal banking regulators of a capital restoration plan for the bank.

        Furthermore, if a bank is classified as undercapitalized, the federal banking regulators may take certain actions to correct the capital position of the bank; if a bank is classified as significantly undercapitalized or critically undercapitalized, the federal banking regulators would be required to take one or more prompt corrective actions. These actions would include, among other things, requiring: sales of new securities to bolster capital, improvements in management, limits on interest rates paid, prohibitions on transactions with affiliates, termination of certain risky activities and restrictions on compensation paid to executive officers. If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or receivership within 90 days, unless the federal banking regulators determines that other action would better achieve the purposes of FDICIA regarding prompt corrective action with respect to undercapitalized banks.

        The capital classification of a bank affects the frequency of examinations of the bank and impacts the ability of the bank to engage in certain activities and affects the deposit insurance premiums paid by such bank. Under FDICIA, the federal banking regulators are required to conduct a full-scope, on-site examination of every bank at least once every 12 months. There is an exception to this rule, however, that provides that banks (i) with assets of less than $100 million, (ii) that are categorized as "well-capitalized," (iii) were found to be well managed and its composite rating was outstanding, and (iv) have not been subject to a change in control during the last 12 months, need only be examined once every 18 months.

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    Brokered Deposits

        Under FDICIA, banks may be restricted in their ability to accept brokered deposits, depending on their capital classification. "Well-capitalized" banks are permitted to accept brokered deposits, but all banks that are not well-capitalized are not permitted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized to accept brokered deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank. The Bank is currently well-capitalized and therefore is not subject to any limitations with respect to its brokered deposits.

    Federal Limitations on Activities and Investments

        The equity investments and activities as a principal of FDIC-insured state-chartered banks, such as the Bank, are generally limited to those that are permissible for national banks. Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank.

    FDIC Deposit Insurance Assessments

        Banks must pay assessments to the FDIC for federal deposit insurance protection. The FDIC has adopted a risk-based assessment system as required by FDICIA. Under this system, FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned to higher risk classifications (that is, institutions that pose a higher risk of loss to the deposit insurance fund) pay assessments at higher rates than institutions that pose a lower risk. An institution's risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators. In addition, the FDIC can impose special assessments in certain instances. The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. The Bank's deposit insurance assessments may increase or decrease depending on the risk assessment classification to which it are assigned by the FDIC. Any increase in insurance assessments could have an adverse effect on the Bank's earnings.

        Funds in noninterest-bearing transaction deposit accounts held by FDIC-insured banks are 100 percent insured. All other FDIC-insured depository accounts are insured up to $250,000 per owner. The Dodd-Frank Act made permanent the $250,000 limit for federal deposit insurance.

        In October 2010, the FDIC adopted a new Restoration Plan for the DIF to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act. Under the Restoration Plan, the FDIC did not institute the uniform three-basis point increase in assessment rates scheduled to take place on January 1, 2011 and maintained the current schedule of assessment rates for all depository institutions. At least semi-annually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required.

        As required by the Dodd-Frank Act, the FDIC also revised the deposit insurance assessment system, effective April 1, 2011, to base assessments on the average total consolidated assets of insured depository institutions during the assessment period, less the average tangible equity of the institution during the assessment period. Currently, only deposits are included in determining the premium paid by an institution. This base assessment change necessitated that the FDIC adjust the assessment rates to ensure that the revenue collected under the new assessment system, will approximately equal that under the existing assessment system.

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        Pursuant to this new rule, the assessment base is larger than the current assessment base, but the new rates are lower than current rates, ranging from approximately 2.5 basis points to 45 basis points (depending on applicable adjustments for unsecured debt and brokered deposits) until such time as the FDIC's reserve ratio equals 1.15%. Once the FDIC's reserve ratio equals or exceeds 1.15%, the applicable assessment rates may range from 1.5 basis points to 40 basis points. The Bank's deposit insurance expense has decreased as a result of the changes to the Bank's deposit insurance premium assessment base implemented by the FDIC pursuant to the Dodd-Frank Act.

    Community Reinvestment Act

        Under the Community Reinvestment Act, or CRA, as implemented by the Congress in 1977, a financial institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with CRA. CRA requires federal examiners, in connection with the examination of a financial institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank has a Compliance Committee, which oversees the planning of products and services offered to the community, especially those aimed to serve low and moderate income communities. The FDIC rated the Bank as "satisfactory" in meeting community credit needs under CRA at its latest completed examination for CRA performance.

    Consumer Laws and Regulations

        In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Real Estate Settlement and Procedures Act, the Fair Credit Reporting Act and the Federal Trade Commission Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

    Permissible Activities and Subsidiaries

        California law permits state-chartered commercial banks to engage in any activity permissible for national banks. Therefore, the Bank may form subsidiaries to engage in the many so-called "closely related to banking" or "non-banking" activities commonly conducted by national banks in operating subsidiaries, and further, pursuant to GLBA, the Bank may conduct certain "financial activities in a subsidiary to the same extent as may a national bank, provided the Bank is and remains "well-capitalized," "well-managed" and in satisfactory compliance with CRA. Presently, the Bank does not have any financial subsidiaries.

        In September 2007, the U.S. Securities and Exchange Commission, or SEC, and the Federal Reserve Board finalized joint rules required by the Financial Services Regulatory Relief Act of 2006 to implement exceptions provided in the GLBA for securities activities that banks may conduct without registering with the SEC as a securities broker or moving such activities to a broker-dealer affiliate. The Federal Reserve Board's final Regulation R provides exceptions for networking arrangements with third party broker-dealers and authorities, including sweep accounts to money market funds, and with related trust, fiduciary, custodial and safekeeping needs. The final rules, which were effective starting in 2009, did not have a material effect on the Bank.

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    Interstate Branching

        Under current law, California state banks are permitted to establish branch offices throughout California with prior regulatory approval. In addition, with prior regulatory approval, banks are permitted to acquire branches of existing banks located in California. Finally, California state banks generally may branch across state lines by merging with banks in other states if allowed by the applicable states' laws. With limited exceptions, California law currently permits branching across state lines through interstate mergers resulting in the acquisition of a whole California bank that has been in existence for at least five years. The Bank currently has branches located in the States of California, Texas, New Jersey and New York. Under the FDIA, states may "opt-in" and allow out-of-state banks to branch into their state by establishing a new start-up branch in the state. California law currently prohibits de novo branching into the state of California. However, under the Dodd-Frank Act, branching requirements have been relaxed so that state banks have the ability to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state.

    Federal Home Loan Bank System

        The Federal Home Loan Bank system, or the "FHLB," of which the Bank is a member, consists of 12 regional FHLBs governed and regulated by the Federal Housing Finance Board, or the FHFB. The FHLBs serve as reserve or credit facilities for member institutions within their assigned regions. They are funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system. They make loans (i.e., advances) to members in accordance with policies and procedures established by the FHLB and the boards of directors of each regional FHLB.

        As a system member, the Bank is entitled to borrow from the FHLB of San Francisco, or FHLB-SF, and is required to own capital stock in the FHLB-SF in an amount equal to the greater of 1% of the membership asset value, not exceeding $25 million, or 4.7% of outstanding FHLB-SF advance borrowings. The Bank is in compliance with the stock ownership rules described above with respect to such advances, commitments and letters of credit and home mortgage loans and similar obligations. All loans, advances and other extensions of credit made by the FHLB-SF to the Bank are secured by portions of the Bank's loan portfolio, certain other investments, and the capital stock of the FHLB-SF held by the Bank.

    Mortgage Banking Operations

        The Bank is subject to the rules and regulations of FNMA with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed securities. Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act, and the regulations promulgated there-under which, among other things, prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs. The Bank is also subject to regulation by the California DFI, with respect to, among other things, the establishment of maximum origination fees on certain types of mortgage loan products. Wilshire State Bank is an approved Housing and Urban Development or ("HUD") lender or mortgagee and as such we must report to HUD. On an annual basis we are required to report our annual, audited financial and non-financial information necessary for HUD to evaluate compliance with the Fair Housing Act or ("FHA") requirements.

    Future Legislation and Economic Policy

        We cannot predict what other legislation or economic and monetary policies of the various regulatory authorities might be enacted or adopted or what other regulations might be adopted or the effects thereof.

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Future legislation and policies and the effects thereof might have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid from time and savings deposits. Such legislation and policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue.

    Capital Requirements (Holding Company and Bank)

        At December 31, 2012, the Company's and the Bank's capital ratios exceed the minimum percentage requirements for "well capitalized" institutions. See Footnote 17 and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Capital Adequacy Requirements" for further information regarding the regulatory capital guidelines as well as the Company's and the Bank's actual capitalization as of December 31, 2012.

        The federal banking agencies have adopted risk-based minimum capital guidelines for bank holding companies and banks which are intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off-balance sheet items. The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization's total capital is divided into three tiers. The first, "Tier 1 capital" includes common equity, our Series A Preferred Stock, and trust-preferred securities subject to certain criteria and quantitative limits. The second, "Tier 2 capital" includes hybrid capital instruments, other qualifying debt instruments, a limited amount of the allowance for loan and lease losses, and a limited amount of unrealized holding gains on equity securities. Lastly, "Tier 3 capital" consists of qualifying unsecured debt. The sum of Tier 2 and Tier 3 capital may not exceed the amount of Tier 1 capital. The risk-based capital guidelines require a minimum ratio of qualifying total capital to risk-weighted assets of 8.00% and a minimum ratio of Tier 1 capital to risk-weighted assets of 4.00%.

        An institution's risk-based capital, leverage capital, and tangible capital ratios together determine the institution's capital classification. An institution is treated as well capitalized if its total capital to risk-weighted assets ratio is 10.00% or more; its core capital to risk-weighted assets ratio is 6.00% or more; and its core capital to adjusted average assets ratio is 5.00% or more. In addition to the risk-based guidelines, the federal bank regulatory agencies require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated "well-capitalized," the minimum leverage ratio of Tier 1 capital to total assets must be 3.00%.

        The current risk-based capital guidelines are based upon the 1988 capital accord of the International Basel Committee on Banking Supervision. A new international accord, referred to as Basel II, which emphasizes internal assessment of credit, market and operational risk; supervisory assessment and market discipline in determining minimum capital requirements, became mandatory for large international banks outside the U.S. in 2008, and was optional for others. In July 2009, the expanded Basel Committee issued a final measure to enhance the three elements of the Basel II framework, strengthening the rules governing trading book capital issued in 1996. The measure includes enhancements to the Basel II structure and revises the market-risk framework and guidelines for calculating capital figures. The U.S. banking agencies have indicated, however, that they will retain the minimum leverage requirement for all U.S. banks.

        In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity, which is referred to as "Basel III." Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States. Basel III will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity. The implementation of the Basel III final framework will commence January 1, 2013. On that date, banking institutions will be required to meet the

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following minimum capital ratios: (i) 3.5% Common Equity Tier 1 (generally consisting of common shares and retained earnings) to risk-weighted assets; (ii) 4.5% Tier 1 capital to risk-weighted assets; and (iii) 8.0% Total capital to risk-weighted assets.

        When fully phased-in on January 1, 2019, and if implemented by the U.S. banking agencies, Basel III will require banks to maintain:

    a minimum ratio of Common Equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer,"

    a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer,

    a minimum ratio of Total capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, and

    a minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.

        Basel III also includes the following significant provisions:

    An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice.

    Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.

    Deduction from common equity of deferred tax assets that depend on future profitability to be realized.

    For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement that the instrument must be written off or converted to common equity if a triggering event occurs, either pursuant to applicable law or at the direction of the banking regulator. A triggering event is an event that would cause the banking organization to become nonviable without the write-off or conversion, or without an injection of capital from the public sector.

        Since the Basel III framework is not self-executing, the rules and standards promulgated under Basel III require that the U.S. federal banking regulators adopt them prior to becoming effective in the U.S. Although U.S. federal banking regulators have expressed support for Basel III, the timing and scope of its implementation, as well as any potential modifications or adjustments that may result during the implementation process, are not yet known.

        In addition to Basel III, the Dodd-Frank Act requires or permits the federal banking agencies to adopt regulations affecting banking institutions' capital requirements in a number of respects, including potentially more stringent capital requirements for systemically important financial institutions. The Dodd-Frank Act requires the Federal Reserve Board, the OCC and the FDIC to adopt regulations imposing a continuing "floor" of the Basel I-based capital requirements in cases where the Basel II-based capital requirements and any changes in capital regulations resulting from Basel III otherwise would permit lower requirements. In December 2010, the Federal Reserve Board, the OCC and the FDIC issued a joint notice of proposed rulemaking that would implement this requirement.

        The FDIA gives the federal banking agencies the additional broad authority to take "prompt corrective action" to resolve the problems of insured depository institutions that fall within any undercapitalized category, including requiring the submission of an acceptable capital restoration plan. The federal banking agencies have also adopted non-capital safety and soundness standards to assist examiners in identifying and addressing potential safety and soundness concerns before capital becomes

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impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset quality and growth, (v) earnings, (vi) risk management, and (vii) compensation and benefits.

    Concentrated Commercial Real Estate Lending Regulations

        The Federal Reserve Board, the FDIC and the OCC promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development, and other land represent 300% or more of total capital and the Bank's commercial real estate loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and increasing capital requirements. We cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio. Management will continue to undertake controls to monitor the Bank's commercial real estate lending, but we cannot predict the extent to which this guidance will continue to impact our operations or capital requirements.

    Regulation Z

        On April 5, 2011, the Federal Reserve Board's Final Rule on Loan Originator Compensation and Steering (Regulation Z) became final. Regulation Z is more commonly known as regulation that implements the Truth in Lending Act. Regulation Z addresses two components of mortgage lending, i.e., loans secured by a dwelling, and implements restrictions and guidelines for: (a) prohibited payments to loan originators and (b) prohibitions on steering. Under Regulation Z, a creditor is prohibited from paying, directly or indirectly, compensation to a mortgage broker or any other loan originator that is based on a mortgage transaction's terms or conditions, except the amount of credit extended, which is deemed not to be a transaction term or condition. In addition, Regulation Z prohibits a loan originator from "steering" a consumer to a lender or a loan that offers less favorable terms in order to increase the loan originator's compensation, unless the loan is in the consumer's interest. Regulation Z also contains a record-retention provision requiring that, for each transaction subject to Regulation Z, the financial institution must maintain records of the compensation it provided to the loan originator for that transaction as well as the compensation agreement in effect on the date the interest rate was set for the transaction. These records must be maintained for two years.

    UDAP and UDAAP

        Recently, banking regulatory agencies have increasingly used a general consumer protection statute to address "unethical" or otherwise "bad" business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act—the primary federal law that prohibits unfair or deceptive acts or practices and unfair methods of competition in or affecting commerce ("UDAP" or "FTC Act"). "Unjustified consumer injury" is the principal focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with the UDAP law. However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to "unfair, deceptive or abusive acts or practices" ("UDAAP"), which has been delegated to the CFPB for supervision. The CFPB has published its first Supervision and Examination Manual that addresses compliance with and the examination of UDAAP.

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Item 1A.    Risk Factors

        The risks described below could materially and adversely affect our business, financial conditions and results of operations. You should carefully consider the following risk factors and all other information contained in this Report. In addition, the trading price of our common stock could decline due to any of the events described in these risks.

If a significant number of clients fail to perform under their loans, our business, profitability, and financial condition would be adversely affected.

        As a lender, one of the largest risks we face is the possibility that a significant number of our client borrowers will fail to pay their loans when due. If borrower defaults cause losses in excess of our allowance for loan losses, it could have an adverse effect on our business, profitability, and financial condition. We have established an evaluation process designed to determine the adequacy of the allowance for loan losses. Although this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan losses are dependent to a great extent on our experience and judgment. Although we believe that our allowance for loan losses is at a level adequate to absorb any inherent losses in our loan portfolio, we may find it necessary to further increase the allowance for loan losses or our regulators may require us to increase this allowance. If we are unable to effectively measure and limit the risk of default associated with our loan portfolio, our business, financial condition, and profitability may be adversely impacted.

Increases in the level of non-performing loans could adversely affect our business, profitability, and financial condition.

        Increase in non-performing loans could have an adverse effect on our earnings as a result of related increases in our provisions for loan losses, charge-offs, and other losses related to non-performing loans. An increase in non-performing loans could potentially lead to a decline in earnings could deplete our capital, leaving the Company undercapitalized. Non-performing loans for the year ended December 31, 2012 were $28.0 million, compared to $43.8 million, at the end of 2011, and $71.2 million at the end of 2010.

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

        Like all financial institutions, we maintain an allowance for loan losses to provide for loan defaults and non-performance. Our allowance for loan losses is based on prior experience, as well as an evaluation of the risks in the current portfolio. However, actual loan losses could increase significantly as the result of changes in economic, operating and other conditions, including changes in interest rates, which are generally beyond our control. In addition, actual loan losses could increase significantly as a result of deficiencies in our internal controls over financial reporting. Thus, such losses could exceed our current allowance estimates. Either of these occurrences could materially affect our earnings adversely.

        In addition, the FDIC and the DFI, as an integral part of their respective supervisory functions, periodically review our allowance for loan losses. Such regulatory agencies may require us to increase our provision for losses on loans and loan commitments or to recognize further loan charge-offs, based upon judgments different from those of management. Any increase in our allowance required by the FDIC or the DFI could adversely affect us.

Banking organizations are subject to interest rate risk and changes in interest rates may negatively affect our financial performance.

        A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates we receive on interest-earning assets, such as loans we extend to our clients and

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securities held in our investment portfolio. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest earning assets and interest bearing liabilities. In addition, loan volume and yields are affected by market interest rates on loans, and rising interest rates generally are associated with a lower volume of loan originations.

        While the federal funds rate and other short-term market interest rates was previously decreased substantially, the intermediate and long-term market interest rates, which are used by many banking organizations to guide loan pricing, have not decreased proportionately. This has led to a "steepening" of the market yield curve with short-term rates considerably lower than long-term notes. We may not be able to minimize our interest rate risk. In addition, while a decrease in the general level of interest rates may improve the ability of certain borrowers with variable rate loans to pay the interest on and principal of their obligations, it reduces our interest income, and may lead to an increase in competition among banks for deposits. Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, net interest margin and our overall profitability. Liquidity risk could impair our ability to fund operations, meet our obligations as they become due and jeopardize our financial condition.

Liquidity risk could impair our ability to fund operations, meet our obligations as they become due and jeopardize our financial condition.

        Liquidity is essential to our business. Liquidity risk is the potential that the Bank will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory actions against us. Market conditions or other events could also negatively affect the level or cost of funding, affecting our ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences. Although management has implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned as well as unanticipated changes in assets and liabilities under both normal and adverse conditions, any substantial, unexpected and/or prolonged change in the level or cost of liquidity could have a material adverse effect on our financial condition and results of operations.

The profitability of Wilshire Bancorp is dependent on the profitability of the Bank.

        Because Wilshire Bancorp's principal activity is to act as the holding company of the Bank, the profitability of Wilshire Bancorp is largely dependent on the profitability of the Bank. The Bank operates in an extremely competitive banking environment, competing with a number of banks and other financial institutions which possess greater financial resources than those available to the Bank, in addition to other independent banks. In addition, the banking business is affected by general economic and political conditions, both domestic and international, and by government monetary and fiscal policies. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international terrorism and other disorders as well as other factors beyond the control of the Bank may adversely affect its profitability. Banks are also subject to extensive governmental supervision, regulation and control, and future legislation and government policy could adversely affect the banking industry and the operations of the Bank.

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

        The Bank is the only source of significant income for Wilshire Bancorp. Accordingly, the ability of Wilshire Bancorp to meet its debt service requirements and to pay dividends depends on the ability of the

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Bank to pay dividends to it. However, the Bank is subject to regulations limiting the amount of dividends that it may pay to Wilshire Bancorp. For example, any payment of dividends by the Bank is subject to the FDIC's capital adequacy guidelines. All banks and bank holding companies are required to maintain a minimum ratio of qualifying total capital to total risk-weighted assets of 8.00%, at least one-half of which must be in the form of Tier 1 capital, and a ratio of Tier 1 capital to average adjusted assets of 4.00%. If (i) the FDIC increases any of these required ratios; (ii) the total of risk-weighted assets of the Bank increases significantly; and/or (iii) the Bank's income decreases significantly, the Bank's Board of Directors may decide or be required to retain a greater portion of the Bank's earnings to achieve and maintain the required capital or asset ratios. This will reduce the amount of funds available for the payment of dividends by the Bank to Wilshire Bancorp. Further, in some cases, the FDIC could take the position that it has the power to prohibit the Bank from paying dividends if, in its view, such payments would constitute unsafe or unsound banking practices. In addition, whether dividends are paid and their frequency and amount will depend on the financial condition and performance, and the discretion of the Board of Directors of the Bank. The foregoing restrictions on dividends paid by the Bank may limit Wilshire Bancorp's ability to obtain funds from such dividends for its cash needs, including funds for payment of its debt service requirements and operating expenses and for payment of cash dividends to Wilshire Bancorp's shareholders. As of December 31, 2012, the Bank is unable to pay dividends to the Company without prior regulatory approval.

Income that we recognized and continue to recognize in connection with our 2009 FDIC-assisted Mirae Bank acquisition may be non-recurring or finite in duration.

        On June 26, 2009, we acquired the banking operations of Mirae Bank from the FDIC. Through the acquisition, we acquired approximately $395.6 million of assets and assumed $374.0 million of liabilities. The Mirae Bank acquisition was accounted for under the purchase method of accounting and we recorded a bargain purchase gain totaling $21.7 million as a result of the acquisition. This gain was included as a component of noninterest income on our statement of income for 2009. The amount of the gain was equal to the amount by which the fair value of assets purchased exceeded the fair value of liabilities. The bargain purchase gain resulting from the acquisition was a one-time, extraordinary gain that is not expected to be repeated in future periods.

        In addition, the loans that we acquired from Mirae Bank were acquired at a $54.9 million discount. This discount is amortized and accreted to interest income on a monthly basis. However, as these loans are paid-off, charged-off, sold, or transferred to non-accrual status, the income from the discount accretion is reduced. As the acquired loans are removed from our books, the related discount will no longer be available for accretion into income. Accretion of $1.9 million, $2.4 million, and $4.0 million on loans purchased at a discount was recorded as interest income during 2012, 2011, and 2010, respectively. As of December 31, 2012, the balance of the carrying value of our discount on loans was $3.4 million, which declined by $3.6 million from its carrying value of $7.0 million as of December 31, 2011 and by $51.5 million from its initial value of $54.9 million. We expect the continued reduction of discount accretion recorded as interest income in future quarters.

Our decisions regarding the fair value of assets acquired, including the FDIC loss sharing assets, could be different than initially estimated which could materially and adversely affect our business, financial condition, results of operations, and future prospects.

        We acquired significant portfolios of loans in the Mirae Bank acquisition. Although these loans were marked down to their estimated fair value, the acquired loans may suffer further deterioration in value resulting in additional charge-offs. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the level of charge-offs in the loan portfolio that we acquired from Mirae Bank and correspondingly

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reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition, even if other favorable events occur.

        Although we have entered into loss sharing agreements with the FDIC which provide that a significant portion of losses related to the assets acquired from Mirae Bank will be borne by the FDIC, we are not protected for all losses resulting from charge-offs with respect to those assets. Additionally, the loss sharing agreements have limited terms. Therefore, any charge-off of related losses that we experience after the term of the loss sharing agreements will not be reimbursed by the FDIC and will negatively impact our net income.

If actual and expected cash flows from the loans acquired from Mirae Bank continues to improve, we may take further impairments to the FDIC loss-share indemnification asset booked in connection with such acquisition.

        In connection with our acquisition of the covered loans from the FDIC, as receiver for Mirae Bank, and the indemnification agreement we entered into with the FDIC as part of such acquisition, we recorded an FDIC indemnification asset in accordance with ASC 805 (Business Combinations). In 2012, the Company recorded $7.9 million in total impairment charges to the FDIC indemnification asset as a result of overall improved credit quality in the covered loan portfolio. If actual and expected cash flows from the covered loan portfolio continues to improve over the foreseeable future, we may be required to take further impairments to the FDIC loss-share indemnification asset.

Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.

        In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and an error in fact or judgment could adversely affect the reliability of an appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors, the value of collateral backing a loan may be less than supposed, and if a default occurs, we may not recover the outstanding balance of the loan.

We are subject to environmental risks associated with owning real estate or collateral.

        The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. When a borrower defaults on a loan secured by real property, the Bank may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We may also own and lease premises where branches and other facilities are located. While we will have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties that the Bank may own, manage or occupy. We face the risk that environmental laws could force us to clean up the properties at the Company's expense. It may cost much more to clean a property than the property is worth. We could also be liable for pollution generated by a borrower's operations if the Bank takes a role in managing those operations after a default. The Bank may also find it difficult or impossible to sell contaminated properties.

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Our ability to obtain reimbursement under the loss sharing agreement on covered assets depends on our compliance with the terms of the loss sharing agreement.

        The Company must certify to the FDIC on a quarterly basis our compliance with the terms of the FDIC loss sharing agreement as a prerequisite to obtaining reimbursement from the FDIC for realized losses on covered assets. The required terms of the agreement are extensive and failure to comply with any of the guidelines could result in a specific asset or group of assets permanently losing their loss sharing coverage. As of June 30, 2009, $235.6 million, or 6.86%, of the Company's assets were covered by the FDIC loss sharing agreement compared to $113.0 million or 4.11% as of December 31, 2012. We may not be able to manage the covered assets in such a way as to always maintain loss share coverage on all such assets, which may have an adverse effect on our operations and financial condition.

Adverse changes in domestic or global economic conditions, especially in California, could have a material adverse effect on our business, growth, and profitability.

        If economic conditions worsen in the domestic or global economy, especially in California, our business, growth and profitability are likely to be materially adversely affected. A substantial number of our clients are geographically concentrated in California, and adverse economic conditions in California, particularly in the Los Angeles area, could harm the businesses of a disproportionate number of our clients. To the extent that our clients' underlying businesses are harmed, they are more likely to default on their loans. The conditions in the California economy and in the economies of other areas where we operate may deteriorate further in the future and such deterioration may adversely affect us.

Continuing negative developments in the financial industry and U.S. and global credit markets may affect our operations and results.

        Negative developments in the U.S. financial market, its real estate section, and the securitization markets for the mortgage loans have resulted in uncertainty in the overall economy both domestically and globally. Commercial as well as consumer loan portfolio performances have deteriorated at many institutions and the competition for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue to further decline. Bank and bank holding company stock prices generally have been negatively affected as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. 2009 was a record year for bankruptcies and bank failures. As a result, there is a potential for new federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and the impact of new legislation in response to those developments could negatively affect our operations by restricting our business operations, including our ability to originate or sell loans, and adversely affect our financial performance.

The effect of the U.S. Government's response to the financial crisis remains uncertain.

        In response to the turmoil in the financial services sector and the severe recession in the broader economy, the U.S. Government has taken legislative and other action intended to restore financial stability and economic growth. On October 3, 2008, then President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the "EESA"). Among other things, the EESA established the Troubled Asset Relief Program, or TARP. Under TARP, the United States Treasury Department (the "Treasury Department") was given the authority, among other things, to purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions and others for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On October 14, 2008, the Treasury Department announced a program under EESA pursuant to which it would make senior

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preferred stock investments in qualifying financial institutions (the "TARP Capital Purchase Program"). On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "ARRA"). The ARRA contained, among other things, a further package of economic stimulus measures and amendments to EESA's restrictions on compensation of executives of financial institutions and others participating in the TARP. In addition to legislation, the Federal Reserve Board eased short-term interest rates and implemented a series of emergency programs to furnish liquidity to the financial markets and credit to various participants in those markets. The FDIC created a program to guarantee, on specified conditions, certain indebtedness and noninterest-bearing transaction accounts of participating insured depository institutions for limited periods. After permitting some of its emergency programs to lapse during the first half of the year, in November, 2010, the Federal Reserve Board implemented a further program of quantitative easing involving the purchase of an additional $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. In addition, on December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "2010 Tax Relief Act") which was intended to stimulate the economy. Among other things, the 2010 Tax Relief Act contained two-year extensions of the Bush era tax cuts and of Alternative Minimum Tax relief, a two-percentage point reduction in employee-paid payroll taxes and self-employment tax for 2011, new incentives for investment in machinery and equipment, estate tax relief, and a significant number of tax breaks for individuals and businesses.

        In addition, on July 21, 2010, President Obama signed the Dodd-Frank Act, the most comprehensive reform of the regulation of the financial services industry since the Great Depression of the 1930's. Among many other things, the Dodd-Frank Act provides for increased supervision of financial institutions by regulatory agencies, more stringent capital requirements for financial institutions, major changes to deposit insurance assessments by the FDIC, heightened regulation of hedging and derivatives activities, a greater focus on consumer protection issues, in part through the formation of a new Consumer Finance Protection Bureau having powers formerly split among different regulatory agencies, extensive changes to the regulation of mortgage lending, imposition of limits on interchange transaction and network fees for electronic debit transactions, repeal of the existing prohibition on payment of interest on demand deposits, the effective winding up of additional expenditures of funds under the TARP, and the imposition of a "sunset date" of December 31, 2012 on expenditures under the ARRA. Many of the Dodd-Frank Act provisions have delayed effective dates that have not yet occurred, while others require implementing regulations of Federal agencies that have not yet been adopted. There can be no assurance as to the actual impact of the EESA, the ARRA, the 2010 Tax Relief Act, the Dodd-Frank Act and their respective implementing regulations, the programs of the government agencies, or any further legislation or regulations, on the financial markets or the broader economy. A failure to stabilize the financial markets, and a continuation or worsening of the current financial market conditions, could materially and adversely affect our business, financial condition, results of operations, and access to credit or the trading price of our common stock.

The new CFPB may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services including the Bank.

        The CFPB has broad rulemaking authority to administer and carry out the purposes and objectives of the "Federal consumer financial laws, and to prevent evasions thereof," with respect to all financial institutions that offer financial products and services to consumers. The CFPB is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are "unfair, deceptive, or abusive" in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service ("UDAP authority"). The potential reach of the CFPB's broad new rulemaking powers and UDAP authority on the operations of financial institutions offering consumer financial products or services including the Bank is currently unknown.

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The Bank is subject to federal and state and fair lending laws, and failure to comply with these laws could lead to material penalties.

        Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The Department of Justice, CFPB and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution's performance under fair lending laws in private class action litigation. A successful challenge to the Bank's performance under the fair lending laws and regulations could adversely impact the Bank's rating under the Community Reinvestment Act and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on merger and acquisition activity and restrictions on expansion activity, which could negatively impact the Bank's reputation, business, financial condition and results of operations.

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

        We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. While we believe our existing capital resources at the Bank are sufficient to satisfy the Bank's capital requirements for the foreseeable future and will be sufficient to offset any problem assets. However, should our asset quality erode and require significant additional provision, resulting in consistent net operating losses at the Bank, our capital levels will decline and we will need to raise capital to support the Bank. In addition, we are subject to separate capital requirements and needs at the holding company. While we are in compliance with capital requirements at the holding company, there may be reasons in the future why we would determine to increase our capital levels at the holding company. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to operate in substantially the same manner as we have before, including the payment of dividends at the bank and holding company level, could be materially impaired.

Maintaining or increasing our market share depends on market acceptance and regulatory approval of new products and services.

        Our success depends, in part, upon our ability to adapt our products and services to evolving industry standards and consumer demand. There is increasing pressure on financial services companies to provide products and services at lower prices. In addition, the widespread adoption of new technologies, including internet-based services, could require us to make substantial expenditures to modify or adapt our existing products or services. A failure to achieve market acceptance of any new products we introduce, or a failure to introduce products that the market may demand, could have an adverse effect on our business, profitability, or growth prospects.

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

        At December 31, 2012, approximately 85.3% of our loans were secured by real estate, a substantial portion of which consist of loans secured by real estate in California. Conditions in the California real estate market historically have influenced the level of our non-performing assets. A real estate recession in Southern California could adversely affect our results of operations. In addition, California has experienced, on occasion, significant natural disasters, including earthquakes, brush fires and flooding attributed to the weather phenomenon known as "El Nino." In addition to these catastrophes, California has experienced a moderate decline in housing prices beginning in late 2006. The decline in housing prices subsequently developed into the current financial crisis, characterized by the further decline in the real

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estate market in many parts of the country, including California, starting in the second half of 2007, and the failures of many financial institutions between 2008 and 2011. The availability of insurance to compensate for losses resulting from such crises is limited. The occurrence of one or more of such crises could impair the value of the collateral for our real estate secured loans and adversely affect us.

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

        Our future success depends in large part upon the continuing contributions of our key management personnel. If we lose the services of one or more key employees within a short period of time, we could be adversely affected. Our future success is also dependent upon our continuing ability to attract and retain highly qualified personnel. Competition for such employees among financial institutions in California is intense. Our inability to attract and retain additional key personnel could adversely affect us.

We could be liable for breaches of security in our online banking services. Fear of security breaches could limit the growth of our online services.

        We offer various internet-based services to our clients, including online banking services. The secure transmission of confidential information over the internet is essential to maintain our clients' confidence in our online services. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology we use to protect client transaction data. Although we have developed systems and processes that are designed to prevent security breaches and periodically test our security, failure to mitigate breaches of security could adversely affect our ability to offer and grow our online services and could harm our business.

        People generally are concerned with security and privacy on the internet and any publicized security problems could inhibit the growth of the internet as a means of conducting commercial transactions. Our ability to provide financial services over the internet would be severely impeded if clients became unwilling to transmit confidential information online. As a result, our operations and financial condition could be adversely affected.

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

        The market price of our common stock may be subject to significant fluctuation in response to numerous factors, including variations in our annual or quarterly financial results or those of our competitors, changes by financial research analysts in their evaluation of our financial results or those of our competitors, or our failure or that of our competitors to meet such estimates, conditions in the economy in general or the banking industry in particular, or unfavorable publicity affecting us or the banking industry. In addition, the equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. In addition, the sale by any of our large shareholders of a significant portion of that shareholder's holdings could have a material adverse effect on the market price of our common stock. Further, the issuance or registration by us of any significant amount of additional shares of our common stock will have the effect of increasing the number of outstanding shares or, in the case of registrations, the number of shares of our common stock that are freely tradable; any such increase may cause the market price of our common stock to decline or fluctuate significantly. Any such fluctuations may adversely affect the prevailing market price of the common stock.

We may experience impairment of goodwill.

        The Company recognized goodwill in connection with the acquisition of Liberty Bank of New York. Goodwill is presumed to have an indefinite useful life and is tested for impairment, rather than amortized, at least annually. In addition, the Company tests on an interim basis for triggering events that would indicate impairment. The goodwill impairment analysis is a two-step test. However, under ASU 2011-08, a

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company can first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Therefore it would not be required to calculate the fair value unless we determined, based on a qualitative assessment, that it was more likely than not that its fair value was less than its carrying amount. If management's assumptions used to evaluate goodwill are inaccurate, the fair value determined could be inaccurate and impairment may not be recognized in a timely manner. Goodwill may be written down in future periods.

We face substantial competition in our primary market area.

        We conduct our banking operations primarily in Southern California. Increased competition in our market may result in reduced loans and deposits. Ultimately, we may not be able to compete successfully against current and future competitors. Many competitors offer the same banking services that we offer in our service area. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including without limitation, savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In particular, our competitors include several major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous banking locations and mount extensive promotional and advertising campaigns. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger customers. Areas of competition include interest rates for loans and deposits, efforts to obtain deposits, and range and quality of products and services provided, including new technology-driven products and services. Technological innovation continues to contribute to greater competition in domestic and international financial services markets as technological advances enable more companies to provide financial services. We also face competition from out-of-state financial intermediaries that have opened low-end production offices or that solicit deposits in our market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits and our results of operations and financial condition may otherwise be adversely affected.

Anti-takeover provisions of our charter documents may have the effect of delaying or preventing changes in control or management.

        Certain provisions in our Articles of Incorporation and Bylaws could discourage unsolicited takeover proposals not approved by the Board of Directors in which shareholders could receive a premium for their shares, thereby potentially limiting the opportunity for our shareholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal or may have the effect of permitting our current management, including the current Board of Directors, to retain its position, and place it in a better position to resist changes that shareholders may wish to make if they are dissatisfied with the conduct of our business. The anti-takeover measures included in our Articles of Incorporation and Bylaws, include, without limitation, the following:

    the elimination of cumulative voting,

    the adoption of a classified Board of Directors,

    super-majority shareholder voting requirements to modify certain provisions of the Articles of Incorporation and Bylaws, and

    restrictions on certain "business combinations" with third parties who may acquire our securities outside of an action taken by us.

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We are subject to significant government regulation and legislation that increases the cost of doing business and inhibits our ability to compete.

        We are subject to extensive state and federal regulation, supervision and legislation, all of which is subject to material change from time to time. These laws and regulations increase the cost of doing business and have an adverse impact on our ability to compete efficiently with other financial service providers that are not similarly regulated. Changes in regulatory policies or procedures could result in management's determining that a higher provision for loan losses would be necessary and could cause higher loan charge-offs, thus adversely affecting our net earnings. Future regulation or legislation may impose additional requirements and restrictions on us in a manner that could adversely affect our results of operations, cash flows, financial condition and prospects.

We could be negatively impacted by downturns in the South Korean economy.

        Many of our customers are locally based Korean-Americans who also conduct business in South Korea. Although we conduct most of our business with locally-based customers and rely on domestically located assets to collateralize our loans and credit arrangements, we have historically had some exposure to the economy of South Korea in connection with certain portions of our loans and credit transactions with Korean banks. Such exposure has consisted of:

    discounts of acceptances created by banks in South Korea,

    advances made against clean documents presented under sight letters of credit issued by banks in South Korea,

    advances made against clean documents held for later presentation under letters of credit issued by banks in South Korea, and

    extensions of credit to borrowers in the U.S. secured by letters of credit issued by banks in South Korea.

        We generally enter into any such loan or credit arrangements, in excess of $200,000 and of longer than 120 days, only with the largest of the Korean banks and spread other lesser or shorter term loan or credit arrangements among a variety of medium-sized Korean banks.

        Management closely monitors our exposure to the South Korean economy and the activities of Korean banks with which we conduct business. To date, we have not experienced any significant loss attributable to our exposure to South Korea. Nevertheless, our efforts to minimize exposure to downturns in the South Korean economy may not be successful in the future, and another significant downturn in the South Korean economy could possibly result in significant credit losses for us.

        In addition, due to our customer base being largely made up of Korean-Americans, our deposit base could significantly decrease as a result of deterioration in the Korean economy. For example, some of our customers' businesses may rely on funds from South Korea. Further, our customers may temporarily withdraw deposits in order to transfer funds and benefit from gains on foreign exchange and interest rates, and/or to support their relatives in South Korea during downturns in the Korean economy. A significant decrease in our deposits could also have a material adverse effect on our financial condition and results of operations.

Additional shares of our common stock issued in the future could have a dilutive effect.

        Shares of our common stock eligible for future issuance and sale could have a dilutive effect on the market for our stock. Our Articles of Incorporation authorizes the issuance of 200,000,000 shares of common stock. As of February 28, 2013, there were approximately 71,295,706 shares of our common stock issued and outstanding, 1,499,486 shares of our authorized but unissued shares of common stock have been granted and are reserved for issuance under the Wilshire Bancorp, Inc. 2008 Stock Option Plan, or the

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"2008 Stock Option Plan," plus an additional 38,550 shares of our common stock are reserved for issuance to the holders of stock options previously granted and still outstanding under the Wilshire State Bank 1997 Stock Option Plan, or the "1997 Stock Option Plan." Thus, approximately 127,039,833 shares of our common stock remain authorized, not reserved for stock options, and available for future issuance and sale at the discretion of our Board of Directors.

We may be obligated to repay the Small Business Administration portions of losses collected from the FDIC from losses on loans acquired through the Mirae acquisition.

        Recently financial institutions that have previously acquired failed banks through FDIC assisted loss-shares transactions have been receiving communications from the Small Business Administration stating that they are entitled to proportionate shares of loss-share reimbursements pay by the FDIC on acquired SBA loan losses. According to the SBA, any loss-share reimbursement on acquired SBA loans must be divided with the SBA. Although the Company has not received any such communication from the SBA as of this report date, we may be contacted by the SBA in the future and may be required to share a portion of the FDIC reimbursement on acquired SBA loan losses.

Changes in accounting standards may affect how we record and report our financial condition and results of operations.

        Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes and their impacts on us can be hard to predict and may result in unexpected and materially adverse impacts on our reported financial condition and results of operations.

We are subject to operational risks relating to our technology and information systems.

        The continued efficacy of our technology and information systems, related operational infrastructure and relationships with third party vendors in our ongoing operations is integral to our performance. Failure of any of these resources, including but not limited to operational or systems failures, interruptions of client service operations and ineffectiveness of or interruption in third party data processing or other vendor support, may cause material disruptions in our business, impairment of customer relations and exposure to liability for our customers, as well as action by bank regulatory authorities.

Our business reputation is important and any damage to it may have a material adverse effect on our business.

        Our reputation is very important for our business, as we rely on our relationships with our current, former and potential clients and stockholders, and in the communities we serve. Any damage to our reputation, whether arising from regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and exchange listing requirements, negative publicity, our conduct of our business or otherwise may have a material adverse effect on our business.

Item 1B.    Unresolved Staff Comments

        None.

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Item 2.    Properties

        Our primary banking facilities (corporate headquarters and various lending offices) are located at 3200 Wilshire Boulevard, Los Angeles, California and consist of approximately 49,767 square feet as of the date of this report. This lease expires March 31, 2015, but we have an option to extend the lease for two consecutive five-year periods. The combined monthly rent for the lease is currently $63,517.

        We have 24 full-service branch banking offices in Southern California, Texas, New Jersey, and New York. We also lease 8 separate LPOs in Newark, California; Aurora, Colorado (the Denver area); Atlanta, Georgia; Dallas, Texas; Houston, Texas; Fort Lee, New Jersey; Bellevue, Washington; and Annandale, Virginia. Information about the properties associated with each of our banking facilities is set forth in the table below:

Property
  Ownership
Status
  Square
Feet
  Purchase
Price
  Monthly
Rent*
  Use   Lease
Expiration
Wilshire Office   Leased     7,426ft 2   N/A   $ 11,213   Branch Office   March 2015
3200 Wilshire Boulevard, Suite 103                             [w/right to extend for two
Los Angeles, California                             consecutive 5-year periods]
  
                             
Rowland Heights Office   Leased     2,860ft 2   N/A   $ 8,711   Branch Office   May 2016
19765 East Colima Road                             [w/right to extend for two
Rowland Heights, California                             consecutive 5-year period]
  
                             
Western Office   Leased     4,950ft 2   N/A   $ 26,444   Branch Office   June 2015
841 South Western Avenue                             [w/right to extend for two
Los Angeles, California                             5-year period]
  
                             
Olympic Office   Leased     9,247ft 2   N/A   $ 15,258   Branch Office   August 2019
2140 West Olympic Boulevard                             [w/right to extend for two
Los Angeles, California                             5-year periods]
  
                             
Valley Office   Leased     7,350ft 2   N/A   $ 12,056   Branch Office   October 2017
8401 Reseda Boulevard                             [w/right to extend for one
Northridge, California                             consecutive 10-year period]
  
                             
Van Nuys   Leased     1,150ft 2   N/A   $ 2,334   Branch Office   March 2015
9700 Woodman Avenue, # A-6                             [w/right to extend for two
Arleta, California                             5-year periods]
 
                             
Downtown Office   Leased     5,500ft 2   N/A   $ 16,338   Branch Office   June 2019
401 East 11th Street, Suite 207-211                             [w/right to extend for two
Los Angeles, California                             5-year periods]
  
                             
Cerritos Office   Leased     5,702ft 2   N/A   $ 10,500   Branch Office   January 2017
17500 Carmenita Road                             [w/right to extend for two
Cerritos, California                             5-year periods]
 
                             
Gardena Office   Leased     3,325ft 2   N/A   $ 3,907   Branch Office   November 2021
1701 W. Redondo Beach Boulevard, #A                             [w/right to extend for two
Gardena, California                             5-year periods]
 
                             
Rancho Cucamonga Office   Leased     3,000ft 2   N/A   $ 5,885   Branch Office   November 2015
8045 Archibald Avenue                             [w/right to extend for three
Rancho Cucamonga, California                             consecutive 5-year periods]
 
                             
City Center Office   Leased     3,538ft 2   N/A   $ 18,461   Branch Office   May 2013
3500 West 6th Street, #201                             [w/right to extend for three
Los Angeles, California                             consecutive 5-year periods]
 
                             
Irvine Office   Leased     1,960ft 2   N/A   $ 7,840   Branch Office   November 2013
14451 Red Hill Avenue                             [w/right to extend for three
Tustin, California                             5-year periods]
  
                             
Mid-Wilshire Office   Leased     3,382ft 2   N/A   $ 11,795   Branch Office   December 2016
3832 Wilshire Boulevard                             [w/right to extend for one
Los Angeles, California                             4-year period]
  
                             
Fashion Town Office   Leased     3,208ft 2   N/A   $ 6,163   Branch Office   March 2014
1300 South San Pedro Street                             [w/right to extend for two
Los Angeles, California                             consecutive 5-year periods]
  
                             

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Property
  Ownership
Status
  Square
Feet
  Purchase
Price
  Monthly
Rent*
  Use   Lease
Expiration
Fullerton Office   Leased     1,440ft 2   N/A   $ 4,939   Branch Office   July 2013
5254 Beach Boulevard                             [w/right to extend for one
Buena Park, California                             consecutive 2-year period]
  
                             
Huntington Park Office   Purchased     4,350ft 2 $ 710,000     N/A   Branch Office   N/A
6350 Pacific Boulevard   in 2005                          
Huntington Park, California                              
  
                             
Torrance Office   Leased     2,360ft 2   N/A   $ 7,648   Branch office   June 2019
2424 Sepulveda Boulevard                             [w/right to extend for two
Torrance, California                             consecutive 5-year periods]
  
                             
Garden Grove Office   Purchased     2,549ft 2 $ 1,535,500     N/A   Branch Office   N/A
9672 Garden Grove Boulevard   in 2005                          
Garden Grove, California                              
 
                             
Manhattan Office   Leased     7,544ft 2   N/A   $ 33,843   Branch Office   September 2019
308 Fifth Avenue                             [w/right to extend for one
New York, New York                             consecutive 5-year period]
  
                             
Bayside Office   Leased     2,445ft 2   N/A   $ 11,000   Branch Office   April 2017
210-16 Northern Boulevard                             [w/right to extend for three
Bayside, New York                             consecutive 5-year periods]
 
                             
Flushing Office   Leased     2,300ft 2   N/A   $ 14,632   Branch Office   July 2018
150-24 Northern Boulevard                             [w/right to extend for two
Flushing, New York                             5-year periods]
  
                             
Fort Lee Office   Leased     2,264ft 2   N/A   $ 11,451   Branch Office   May 2017
215 Main Street                             [w/right to extend for one
Fort Lee, New Jersey                             5-year period]
 
                             
Dallas Office   Purchased     7,000ft 2 $ 1,325,000     N/A   Branch &   N/A
2237 Royal Lane   in 2003                     LPO Office    
Dallas, Texas                              
 
                             
Denver Office   Leased     1,135ft 2   N/A   $ 1,466   LPO Office   September 2015
2821 South Parker Road, #415                             [w/right to extend for one
Aurora, Colorado                             3-year period]
 
                             
Georgia Office   Leased     1,436ft 2   N/A   $ 1,765   LPO Office   March 2015
3483 Satellite Boulevard, #309 South                             [w/right to extend for one
Duluth, Georgia                             3-year period]
 
                             
Houston Office   Leased     1,096ft 2   N/A   $ 1,758   LPO Office   March 2014
9801 Westheimer, #801                              
Houston, Texas                              
  
                             
Fort Worth Office   Purchased     3,500ft 2 $ 1,100,000     N/A   Branch Office   N/A
7553 Boulevard, #26   in 2009                          
North Richland Hills, Texas                              
  
                             
Virginia Office   Leased     1,150ft 2   N/A   $ 2,190   LPO Office   May 2014
7535 Little River Turnpike, #310A                             [w/right to extend for one
Annandale, Virginia                             2-year period]
  
                             
Washington Office   Leased     136ft 2   N/A   $ 831   LPO Office   November 2013
10900 Northeast 8th Street, #1000                             [auto renewal with
Bellevue, Washington                             initial terms]
  
                             
New Jersey Office   Leased     800ft 2   N/A   $ 1,650   LPO Office   March 2013
215 Main Street, #201                             [w/right to extend for one
Fort Lee, New Jersey                             2-year period]
  
                             
Northern California Office   Leased     145ft 2   N/A   $ 878   LPO Office   May 2014
39899 Balentine Drive, #200                             [auto renewal with
Newark, California                             Initial terms]
  
                             
Palisades Park Office**   Leased     3,405ft 2   N/A   $ 9,956   Branch Office   October 2019
303 Broad Avenue                             [w/right to extend for two
Palisades Park, New Jersey                             5-year period]

*
Monthly rent is based on figures at December 31, 2012

**
Palisades Park branch office is currently under construction is expected to open during the first half of 2013

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        The Company has three primary business segments: Banking Operations, Trade Finance Services, and Small Business Administration Lending Services (see footnote 20). Our LPO office properties are part of our Small Business Administration Lending Services, while the rest of the branch offices are used by our Banking Operations. Trade Finance Services is located in our primary banking facilities. Management has determined that all of our premises are adequate for our present and anticipated level of business.

Item 3.    Legal Proceedings

        The Securities and Exchange Commission previously informally inquired as to information regarding the internal investigation discussed in the Company's Annual Report on Form 10-K filed with the SEC on March 15, 2012 and the adjustment to the Company's allowance for loan losses and provision for loan losses. On October 31, 2012, the Company was informed that the Securities and Exchange Commission was ending its informal investigation in the matters above, with no actions to be taken.

        In the normal course of business, we are involved in various legal claims. We have reviewed all other legal claims against us with counsel and have taken into consideration the views of such counsel as to the outcome of the claims. Accrued loss contingencies for all legal claims totaled $265,000 at December 31, 2012. There were no accruals for loss contingencies related to legal claims at December 31, 2011. It is reasonably possible we may incur losses in addition to the amounts we have accrued. However, at this time, we are unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, we believe have little to no merit. Management has considered these and other possible loss contingencies and does not expect the amounts to be material to any of the consolidated financial statements.

Item 4.    Mine Safety Disclosures

    Not Applicable

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PART II

Item 5.    Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities

Trading History

        Wilshire Bancorp's common stock is listed for trading on the NASDAQ Global Select Market under the symbol "WIBC."

 
  Closing Sale
Price
 
 
  High   Low  

Year Ended December 31, 2012

             

First Quarter

  $ 4.98   $ 3.50  

Second Quarter

  $ 5.47   $ 4.51  

Third Quarter

  $ 6.67   $ 5.37  

Fourth Quarter

  $ 6.55   $ 5.59  

Year Ended December 31, 2011

             

First Quarter

  $ 8.01   $ 4.77  

Second Quarter

  $ 5.34   $ 2.92  

Third Quarter

  $ 3.32   $ 2.42  

Fourth Quarter

  $ 3.63   $ 2.49  

        On March 11, 2013, the closing sale price for the common stock was $6.38, as reported on the NASDAQ Global Select Market.

Shareholders

        As of March 11, 2013, there were 130 shareholders of record of our common stock (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms).

Dividends

        As a California corporation, we are restricted under the California General Corporation Law ("CGCL") from paying dividends under certain conditions. Our shareholders are entitled to receive dividends when and as declared by our Board of Directors, out of funds legally available for the payment of dividends, as provided in the CGCL. The CGCL provides that a corporation may make a distribution to its shareholders if retained earnings immediately prior to the dividend payout at least equals the amount of proposed distribution. In the event that sufficient retained earnings are not available for the proposed distribution, a corporation may, nevertheless, make a distribution, if it meets both the "quantitative solvency" and the "liquidity" tests. In general, the quantitative solvency test requires that the sum of the assets of the corporation equal at least 11/4 times its liabilities. The liquidity test generally requires that a corporation have current assets at least equal to current liabilities, or, if the average of the earnings of the corporation before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the interest expense of the corporation for such fiscal years, then current assets must be equal to at least 11/4 times current liabilities. In certain circumstances, we may be required to obtain the prior approval of the Federal Reserve Board to make capital distributions to our shareholders.

        It has been our general practice to retain earnings for the purpose of increasing capital to support growth, and no cash dividends were paid to shareholders prior to 2005. However, we began paying a cash dividend to our common shareholders beginning in the first quarter of 2005. In light of increased credit cost associated with the increase in non-performing loans, the Board of Directors approved a temporary suspension of our common stock dividend in 2010. We continued to pay cash dividends to the holders of our Series A Preferred Stock pursuant to our agreements under the TARP Capital Purchase Program

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through July 2012, after which dividends were no longer paid as the Company redeemed all of its outstanding TARP preferred stock. All dividends are subject to the discretion of our Board of Directors and will depend on a number of factors, including future earnings, financial condition, cash needs and general business conditions. Any dividend to our common shareholders must also comply with the restrictions associated with our Junior Subordinated Debentures as well as applicable bank regulations.

        The last cash dividend paid to our common shareholders was declared on February 23, 2010 and paid on April 15, 2010. Cash dividends to our common shareholders have since been suspended. The following table shows cash dividends to US Treasury for our previously held preferred stock for the two years ended December 31, 2012:

DATE PAID
  PERIOD   RATE   AMOUNT PAID  

February 15, 2011

  Nov 16, 2010 - Feb 15, 2011     5.00 % $ 776,975  

May 16, 2011

  Feb 16, 2011 - May 15, 2011     5.00 % $ 776,975  

August 15, 2011

  May 16, 2011 - Aug 15, 2011     5.00 % $ 776,975  

November 15, 2011

  Aug 16, 2011 - Nov 15, 2011     5.00 % $ 776,975  

February 15, 2012

  Nov 16, 2011 - Feb 15, 2012     5.00 % $ 776,975  

April 3, 2012

  Feb 16, 2012 - April 3, 2012     5.00 % $ 400,200  

May 15, 2012

  Feb 16, 2012 - May 15, 2012     5.00 % $ 26,975  

July 5, 2012

  May 16, 2011 - July 5, 2012     5.00 % $ 15,279  

*
The Company redeemed 60,000 shares of preferred stock during the first quarter of 2012 and redeemed the remaining 2,158 shares during the second quarter of 2012.

        Our ability to pay cash dividends in the future will depend in large part on the ability of the Bank to pay dividends on its capital stock to us. The ability of the Bank to pay dividends on its common stock is restricted by the California Financial Code, the FDIA, and FDIC regulations. In general terms, California law provides that the Bank may declare a cash dividend out of net profits up to the lesser of retained earnings or net income for the last three fiscal years (less any distributions made to shareholders during such period), or, with the prior written approval of the Commissioner of Department of Financial Institutions, in an amount not exceeding the greatest of:

    retained earnings,

    net income for the prior fiscal year, or

    net income for the current fiscal year.

        The Bank's ability to pay any cash dividends will depend not only upon our earnings during a specified period, but also on our meeting certain capital requirements. The FDIA and FDIC regulations restrict the payment of dividends when a bank is undercapitalized, when a bank has failed to pay insurance assessments, or when there are safety and soundness concerns regarding a bank. The payment of dividends by the Bank may also be affected by other regulatory requirements and policies, such as maintenance of adequate capital. If, in the opinion of the regulatory authority, a depository institution under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require, after notice and hearing, that such depository institution cease and desist from such practice.

Securities Authorized for Issuance under Equity Compensation Plans

        In June 2008, we established the 2008 Stock Incentive Plan that provides for the issuance of restricted stock and options to purchase up to 2,933,200 shares of our authorized but unissued common stock to employees, directors, and consultants. Exercise prices for options may not be less than the fair value at the date of grant. Compensation expense for awards is recorded over the vesting period. Under the 2008 Stock

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Incentive Plan, there were stock options outstanding to purchase 1,466,412 shares of our common stock as of December 31, 2012.

        During 1997, the Bank established the 1997 Stock Option Plan, which provided for the issuance of up to 6,499,800 shares of the Company's authorized but unissued common stock to managerial employees and directors. Due to the expiration of the plan in May 2007, no additional options may be granted under the 1997 Stock Option Plan. Accordingly, no shares of our common stock remain available for future issuance under the 1997 Stock Option Plan. Nonetheless, there are 38,550 shares of our common stock reserved for issuance to the holders of stock options previously granted and still outstanding under the 1997 Stock Option Plan. The following table summarizes information as of December 31, 2012 relating to the number of securities to be issued upon the exercise of the outstanding options under the 1997 Plan and the 2008 Plan and their weighted-average exercise price.

 
  Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants, and Rights*
  Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants, and Rights
  Number of
Securities
Available for
Future
Issuance Under
Equity
Compensation
Plans**
 
 
  (a)
  (b)
  (c)
 

Equity Compensation Plans Approved by Security Holders

    1,540,123   $ 5.63     1,413,701  

Equity Compensation Plans Not Approved by Security Holders

             
               

Total Equity Compensation Plans

    1,540,123   $ 5.63     1,413,701  
               

*
Includes restricted stock awards

**
Does not includes securities reflected in column (a)

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Performance Graph

        The following graph compares the yearly percentage change in cumulative total shareholders' return on our common stock with the cumulative total return of (i) the NASDAQ market index; (ii) all banks and bank holding companies listed on NASDAQ; and (iii) the SNL Western Bank Index, comprised of banks and bank holding companies located in California, Oregon, Washington, Montana, Hawaii, Nevada, and Alaska. Both the SNL $1 Billion—$5 Billion Asset-Size Bank Index and the SNL Western Bank Index were compiled by SNL Securities LP of Charlottesville, Virginia. The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is not necessarily indicative of future price performance.

GRAPHIC

 
  12/31/2007   12/31/2008   12/31/2009   12/31/2010   12/31/2011   12/31/2012  

Wilshire Bancorp Inc. 

  $ 100.00   $ 118.17   $ 109.96   $ 102.74   $ 48.94   $ 79.15  

NASDAQ© Composite

    100.00     60.02     87.24     103.08     102.26     120.42  

SNL© $1B - $5B Bank Index

    100.00     82.94     59.45     67.39     61.46     75.78  

SNL© Western Bank Index

    100.00     97.37     89.41     101.31     91.53     115.50  

Source:
SNL Financial LC, Charlottesville, VA 

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Item 6.    Selected Financial Data

        The following table presents selected historical financial information as of and for each of the five years ended December 31, 2012. The selected historical financial information is derived from our audited consolidated financial statements and should be read in conjunction with our financial statements and the notes thereto which appear elsewhere in this Annual Report and "Management's Discussion and Analysis of Financial Condition and Results of Operation" in Item 7 below:

 
  As of and For the Years Ended December 31,  
(Dollars in Thousands)
  2012   2011   2010   2009   2008  

Summary Statement of Operations Data:

                               

Interest income

  $ 116,957   $ 129,964   $ 156,420   $ 158,354   $ 148,633  

Interest expense

    17,055     22,589     42,704     58,891     66,014  

Net interest income before (credit) provision for losses on loans and loan commitments

    99,902     107,375     113,716     99,463     82,619  

(Credit) provision for losses on loans and loan commitments

    (34,000 )   59,100     150,800     68,600     12,110  

Noninterest income

    28,249     23,805     35,912     57,316     20,646  

Noninterest expenses

    74,179     68,785     67,376     57,369     48,400  

Income (loss) before income taxes

    87,972     3,295     (68,548 )   30,810     42,755  

Income taxes (benefit) provision

    (4,333 )   33,625     (33,790 )   10,686     16,282  

Preferred stock cash dividend, accretion of preferred stock, and one-time adjustment from repurchase of preferred stock

    1,401     (3,658 )   (3,626 )   (3,620 )   (155 )

Net income (loss) available to common shareholders

    93,706     (33,988 )   (38,384 )   16,504     26,318  

Per Common Share Data:

                               

Net income (loss) available to common shareholders:

                               

Basic

  $ 1.31   $ (0.61 ) $ (1.30 ) $ 0.56   $ 0.90  

Diluted

  $ 1.31   $ (0.61 ) $ (1.30 ) $ 0.56   $ 0.90  

Book value per common share

  $ 4.80   $ 3.49   $ 5.72   $ 7.01   $ 6.65  

Weighted average common shares outstanding:

                               

Basic

    71,288,484     55,710,377     29,486,351     29,420,291     29,368,762  

Diluted

    71,375,150     55,710,377     29,486,351     29,429,299     29,407,388  

Year-end common shares outstanding

    71,295,144     71,282,518     29,477,638     29,483,307     29,413,757  

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  As of and For the Years Ended December 31,  
(Dollars in Thousands)
  2012   2011   2010   2009   2008  

Summary Statement of Financial Condition Data:

                               

Total loans, net of unearned income(1)

  $ 2,152,340   $ 1,981,486   $ 2,326,624   $ 2,427,441   $ 2,051,528  

Allowance for loan losses

    63,285     102,982     110,953     62,130     29,437  

Other real estate owned

    2,080     8,221     14,983     3,797     2,663  

Total assets

    2,750,863     2,696,854     2,970,525     3,435,997     2,450,011  

Total deposits

    2,166,809     2,202,309     2,460,940     2,828,215     1,812,601  

Federal Home Loan Bank advances(2)

    150,000     60,000     135,000     232,000     260,000  

Junior subordinated debentures

    61,857     87,321     87,321     87,321     87,321  

Total shareholders' equity

    342,417     309,582     229,162     266,135     255,060  

Performance ratios:

                               

Return on average total equity(3)

    30.18 %   -11.46 %   -12.69 %   7.42 %   14.14 %

Return on average common equity(4)

    30.18 %   -16.66 %   -17.96 %   7.80 %   14.30 %

Return on average assets(5)

    3.55 %   -1.10 %   -1.04 %   0.67 %   1.14 %

Net interest margin(6)

    4.22 %   4.34 %   3.76 %   3.60 %   3.81 %

Efficiency ratio(7)

    57.88 %   52.44 %   45.03 %   36.59 %   46.87 %

Net loans to total deposits at year end

    96.41 %   85.30 %   90.03 %   83.63 %   111.56 %

Common dividend payout ratio

    0.00 %   0.00 %   -3.84 %   35.65 %   22.34 %

Capital ratios:

                               

Average common shareholders' equity to average total assets

    11.76 %   7.39 %   6.39 %   7.08 %   7.89 %

Tier 1 capital to quarter-to-date average total assets

    14.87 %   13.86 %   9.18 %   9.77 %   13.25 %

Tier 1 capital to total risk-weighted
assets

    18.47 %   19.59 %   12.61 %   14.37 %   15.36 %

Total capital to total risk-weighted assets

    19.74 %   20.89 %   14.00 %   15.81 %   17.09 %

Asset quality ratios:

                               

Non-performing loans to total loans(8)

    1.30 %   2.21 %   3.06 %   2.92 %   0.76 %

Non-performing assets to total loans and other real estate owned(9)

    1.39 %   2.62 %   3.68 %   3.07 %   0.89 %

Net charge-offs to average total loans

    0.40 %   3.16 %   4.33 %   1.57 %   0.26 %

Allowance for loan losses to total loans at year end

    2.94 %   5.20 %   4.77 %   2.56 %   1.43 %

Allowance for loan losses to non-performing loans

    226.40 %   234.95 %   155.76 %   87.78 %   189.27 %

(1)
Total loans is the sum of loans receivable and loans held-for-sale and is reported at their outstanding principal balances, net of any unearned income (unamortized deferred fees and costs)

(2)
At December 31, 2012, our borrowing capacity with Federal Home Loan Bank was $692.9 million, with $542.9 million in remaining capacity

(3)
Net income divided by average total shareholders' equity

(4)
Net income available to common shareholders, divided by average common shareholders' equity

(5)
Net income divided by average total assets

(6)
Represents net interest income as a percentage of average interest-earning assets

(7)
Represents the ratio of noninterest expense to the sum of net interest income before provision for losses on loans and loan commitments and total noninterest income

(8)
Non-performing loans consist of non-accrual loans, loans past due 90 days or more, and restructured loans

(9)
Non-performing assets consist of non-performing loans (see note no. 8 above), and other real estate owned

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        This discussion presents management's analysis of our results of operations and financial condition as of and for each of the years in the three-year period ended December 31, 2012. The discussion should be read in conjunction with our consolidated financial statements and the notes related thereto which appear elsewhere in this Report.

Executive Overview

    Introduction

        Wilshire Bancorp, Inc. ("the Company") succeeded to the business and operations of the Bank upon consummation of the reorganization of the Bank into a holding company structure, effective as of August 25, 2004. We operate a community bank in the general commercial banking business, with our primary market encompassing the multi-ethnic population of the Los Angeles metropolitan area. Our full-service offices are located primarily in areas where a majority of the businesses are owned by Korean-speaking immigrants, with many of the remaining businesses owned by Hispanic and other minority groups.

        On June 26, 2009, we acquired the banking operations of Mirae Bank from the FDIC, which had been named receiver of the institution. We acquired approximately $395.6 million in assets and assumed $374.0 million in liabilities. This included $285.7 million in loans, and $293.4 million in deposits in addition to five branch offices. The integration of former Mirae was successfully completed in the third quarter of 2009, during which 4 out of the 5 branches were merged as a result of their close proximity to our existing office locations. Even with the branch mergers, the retention rate for former Mirae deposit customers remained high.

        In 2010 and 2011, we experienced significant losses due primarily to an increase in provision for loans losses and loan commitments that resulted from deterioration in the loan portfolio. Management was successful in reversing this trend in 2012 and returning the Company to its most profitable year in history. During 2012, we experienced significant improvement in overall credit quality of our loan portfolio.

        Over the past several years, our network of branches and LPOs has expanded geographically. We currently maintain twenty-four branch offices and eight LPOs. We expanded our network of LPOs and established two new offices in Newark, California, and Bellevue, Washington in 2011. In 2012 we started construction on a branch office in Palisades Park, New Jersey which will expand our presence in our East Coast market. The Palisades Park branch is expected to be open during the first half of 2013. We believe that our market coverage complements our multi-ethnic small business focus. We intend to be cautious about our growth strategy in future years regarding opening of additional branches and LPOs. We expect to continue implementing our growth strategy using strategic planning and market analysis, as our needs and resources permit.

        At December 31, 2012, we had approximately $2.75 billion in assets, $2.15 billion in total loans (net of deferred fees and including loans held-for-sale), and $2.17 billion in deposits. We also have expanded and diversified our business geographically by focusing on the continued development of the East Coast market.

2012 Key Performance Indicators

        We believe the following were key indicators of our operations during 2012:

    Our total assets increased to $2.75 billion at the end of 2012, an increase of 2.0% from $2.70 billion at the end of 2011.

    Our total deposits decreased to $2.17 billion at the end of 2012, or a decrease of 1.6% from $2.20 billion at the end of 2011.

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    Our total loans increased to $2.15 billion at the end of 2012, an increase of 8.6% from $1.98 billion at the end of 2011.

    Total net interest income before credit for loan losses decreased to $99.9 million in 2012, or a decline of 7.0%, from $107.4 million in 2011.

    We had a negative provision for loss on loans and loan commitments totaling ($34.0) million in 2012, compared to a provision for losses on loans and loan commitments of $59.1 million in 2011.

    Total noninterest income increased to $28.2 million in 2012, an increase of 18.7% from $23.8 million in 2011.

    Total noninterest expense increased to $74.2 million or 7.8% in 2012, compared to $68.8 million in 2011. The increase is mainly due to the impairment charge of $7.9 million taken on the FDIC loss-share indemnification asset during 2012.

        Net income available for common shareholders for 2012 increased to $93.7 million, or $1.31 per basic and diluted common share, compared with a net loss available to common shareholders of $34.0 million, or $0.61 per basic and diluted common share in 2011. The increase in net income was primarily attributable to the negative provision for losses on loans and loan commitments in 2012 in addition to the deferred tax asset valuation reversal during the year. Compared to 2011, provision for losses on loans and loan commitments declined $93.1 million to a negative provision for losses on loans and loan commitments of $34.0 million in 2012. In addition, the deferred tax assets valuation allowance recorded in 2011 was reversed during 2012 significantly reducing our total tax expense. The decrease in provisions for losses on loans and loan commitments was a result of significant improvements in credit quality of the loan portfolio.

Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations is based upon our financial statements, and has been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

        Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions, and other subjective assessments. We have identified several accounting policies that, due to judgments, estimates, and assumptions inherent in those policies are critical to an understanding of our consolidated financial statements. These policies relate to the classification and valuation of investment securities, the methodologies that determine our allowance for losses on loans, the treatment of non-accrual loans, the valuation of retained interests and servicing assets related to the sales of SBA loans, valuation of held-for-sale loans, valuation of OREO, the evaluation of goodwill for impairment and intangible assets, evaluation of FDIC loss-share indemnification impairment, and the accounting for income tax provisions. In each area, we have identified the variables most important in the estimation process. We believe that we have used the best information available to make the necessary estimates to value the related assets and liabilities. Actual performance that differs from our estimates and future changes in key variables could change future valuations and could have an impact on our net income.

Investment Securities

        Our investment policy seeks to provide and maintain liquidity, and to produce favorable returns on investments without incurring unnecessary interest rate or credit risk, while complementing our lending activities. Our investment securities portfolio is subject to interest rate risk. Fluctuations in interest rates

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may cause actual prepayments to vary from the estimated prepayments over the life of a security. This may result in adjustments to the amortization of premiums or accretion of discounts related to these instruments, consequently changing the net yield on such securities. Reinvestment risk is also associated with the cash flows from such securities. The unrealized gain/loss on such securities may also be adversely impacted by changes in interest rates.

        Under ASC 320-10, investment securities that management has the positive intent and ability to hold-to-maturity are classified as "held-to-maturity" and recorded at amortized cost. Securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading securities". Securities not classified as held-to-maturity or trading securities are classified as "available-for-sale" and recorded at fair value. Purchase premiums and discounts are recognized in interest income using the interest method over the estimated lives of the securities.

        The classification and accounting for investment securities are discussed in detail in Notes 1 and 4 of the footnotes to the consolidated financial statements presented later in this report. Under ASC 320-10, investment securities generally must be classified as held-to-maturity, available-for-sale, or trading. The appropriate classification is based partially on our ability to hold the securities to maturity and largely on management's intentions with respect to either holding or selling the securities. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise. Investment securities that are classified as held-to-maturity are recorded at amortized cost. Unrealized gains and losses on available-for-sale securities are recorded as a separate component of shareholders' equity (accumulated other comprehensive income or loss) and do not affect earnings until realized or deemed to be other-than-temporarily impaired.

        The Company currently utilizes an independent third party bond accounting service for our investment portfolio accounting. The third party provides fair values derived from a proprietary matrix pricing model which utilizes several different sources for pricing. The fair values for our investment securities are updated on a monthly basis. The values received are tested annually and are validated using prices received from another independent third party source. We also perform an analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. We ensure whether prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if we determine there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.

        We are obligated to assess, at each reporting date, whether there is an other-than-temporary impairment to our investment securities. Impairments related to credit issued must be recognized in current earnings rather than in other comprehensive income. The determination of other-than-temporary impairment is a subjective process involving assessment of valuation and changes in such valuations resulting from deteriorating credit worthiness. We examine all individual securities that are in an unrealized loss position at each reporting date for other-than-temporary impairment. Specific investment-related factors we examine to assess impairment include the nature of the investment, severity and duration of the loss, the probability that we will be unable to collect all amounts due, and analysis of the issuers of the securities and whether there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies. Additionally, we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash flows into question. We reexamine the financial resources, intent, and the overall ability of the Company to hold the securities until their fair values recover. Management does not believe that there are any investment securities, other than those identified in the current and previous periods, which are deemed to be other-than-temporarily impaired as

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of December 31, 2012. Investment securities are discussed in more detail in Note 1 and 4 in the footnotes to our consolidated financial statements presented later in this report.

        As required under Financial Accounting Standards Board ("FASB") ASC 320-10-35-18, we consider all available information relevant to the collectability of the security, including information about past events, current conditions, and reasonable and supportable forecasts, when developing the estimate of future cash flows and making other-than-temporary impairment assessment for our portfolio of residual securities. We consider factors such as remaining payment terms of the security, prepayment speeds, and the financial condition of the issuer(s), expected defaults, and the value of any underlying collateral.

        As of December 31, 2012 and December 31, 2011, no investment securities were determined to have any other-than-temporary impairment. The unrealized losses on our government sponsored enterprises ("GSE") bonds, residential collateralized mortgage obligations ("CMOs"), and mortgage-backed securities ("MBS") are attributable to both changes in interest rates and a repricing risk in the market. All GSE bonds, GSE CMO, and GSE MBS securities are backed by U.S. Government Sponsored and Federal Agencies and therefore rated "AAA." We have no exposure to the "Subprime Market" in the form of Asset Backed Securities ("ABS") and Collateralized Debt Obligations ("CDOs") that had previously been rated "AAA" but have since been downgraded to below investment grade. We have the intent and ability to hold the securities in an unrealized loss position at December 31, 2012 and 2011 until the fair value recovers or the securities mature.

        Municipal bonds and corporate bonds are evaluated by reviewing the creditworthiness of the issuer and general market conditions. There were no unrealized losses on our investment in municipal and corporate securities at December 31, 2012.

Small Business Administration Loans

        Certain SBA loans that may be sold prior to maturity have been designated as held-for-sale at origination and are recorded at the lower of cost or market value, determined on an aggregate basis. A valuation allowance is established if the market value of such loans is lower than their cost, and operations are charged or credited for valuation adjustments. When we sell a loan, we usually sell the guaranteed portion of the loan and retain the non-guaranteed portion. We receive sales proceeds from: (i) the guaranteed principal of the loan, (ii) the deferred premium for the difference between the book value of the retained portion and the fair value allocated to the retained portion, and (iii) the loan excess servicing fee ("ESF"). At the time of sale, the deferred premium, which is amortized over the remaining life of the loan as an adjustment to yield, is recorded for the difference between the book value and the fair value allocated to the retained portion. The sales gain is recognized from the difference between the proceeds and the book value allocated to the sold portion in accordance with ASC 860 (Transfers and Servicing).

        We allocate the book value of the related loans among three portions on the basis of their relative fair value: (i) the sold portion, (ii) the retained portion, and (iii) the ESF. We estimate the fair value of each portion based on the following: The amount received from the sale represents the fair value of the sold portion. The fair value of the retained portion is computed by discounting its future cash flows over the estimated life of the loan. We calculate the fair value of the ESF for the loan from the cash in-flow of the net servicing fee over the estimated life of the loan, discounted at an above average discount rate and a range of constant prepayment rates of the related loans.

        We capitalize the fair value allocated to ESF in two categories: (i) intangible servicing assets (the contracted servicing fee less normal servicing costs), and (ii) interest-only strip, or "I/O strip," receivables (excess of ESF over the contracted servicing fee). The servicing asset is recorded based on the present value of the contractually specified servicing fee, net of servicing cost, over the estimated life of the loan, with an average discount rate and a range of constant prepayment rates of the related loans. Prior to December 31, 2006, the servicing asset was amortized in proportion to and over the period of estimated servicing income. For purposes of measuring impairment, the servicing assets are stratified by collateral

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types. Management periodically evaluates the fair value of servicing assets for impairment. A valuation allowance is recorded when the fair value is below the carrying amount and a recovery of the valuation allowance is recorded when its fair value exceeds the carrying amount. Any subsequent increase or decrease in fair value of servicing assets and liabilities is to be included in our current earnings in the statement of operations. An interest-only strip is recorded based on the present value of the excess of future interest income, over the contractually specified servicing fee, calculated using the same assumptions as noted above. Interest-only strips are accounted for at their estimated fair values, with unrealized gains recorded as an adjustment in accumulated other comprehensive income in shareholders' equity. If the estimated fair value is less than its carrying value, the loss is considered as other-than-temporary impairment and it is charged to the current earnings.

Allowance for Loan Losses

        Based on the credit risk inherent in our lending business, we set aside an allowance for losses on loans and a reserve for unfunded loan commitments which is established by a periodic provision for loan losses charged to earnings. These charges are not only made for the outstanding loan portfolio, but also for off-balance sheet loan commitments, such as commitments to extend credit or letters of credit. The charges made for the outstanding loan portfolio were credited to the allowance for loan losses, whereas charges related to loan commitments were credited to the reserve for loan commitments, which is presented as a component of other liabilities.

        The allowance for loan losses is comprised of two components, specific valuation allowance ("SVA") or allowance on impaired loans that are individually evaluated, and general valuation allowance ("GVA") or loans that are evaluated for losses in pools based on historical experience and qualitative adjustments ("QA"), or estimated losses from factors not captured by historical experience. Historical loss experience used to calculate GVA may not entirely capture all expected credit losses and trends. Therefore, management performs a review of the historical loss rates used in GVA as well as the factors in our QA methodology on a quarterly basis due to the increased significance of GVA when estimating losses in the current economic environment.

        To establish an adequate allowance, we must be able to recognize when loans have become a problem. A risk grade of either pass, watch, special mention, substandard, or doubtful, is assigned to every loan in the loan portfolio, with the exception of homogeneous loans, or loans that are evaluated together in pools of similar loans (i.e., home mortgage loans, home equity lines of credit, overdraft loans, express business loans, and automobile loans). The following is a brief description of the loan classifications or risk grades used in our allowance calculation:

    Pass Loans—Loans that are past due less than 30 days that do not exhibit signs of credit deterioration. The financial condition of the borrower is sound as well as the status of any collateral. Loans secured by cash (principal and interest) also fall within this classification.

    Watch Loans—Performing loans with borrowers that have experienced adverse financial trends, higher debt/equity ratio, or weak liquidity positions, but not to the degree that the loan is considered a problem.

    Special Mention—Loans that are currently protected but exhibit an increasing degree of risk based on weakening credit strength and/or repayment sources. Contingent or remedial plans to improve the Bank's risk exposure should be documented.

    Substandard—Loans inadequately protected by the current worth and paying capacity of the borrower or pledged collateral, if any. This grade is assigned when inherent credit weakness is apparent.

    Doubtful—Loans having all the weakness inherent in a "substandard" classification but collection or liquidation is highly questionable with the possibility of loss at some future date.

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        We currently use migration analysis as a factor in calculating our allowance for loan losses in addition to a software program used to produce historical loss rates for different loan classes used in our GVA estimations. The Company also utilizes a QA matrix to estimate losses not captured by historical experience. The QA matrix takes into consideration both internal and external factors, and includes forecasted economic environments (unemployment & GDP), problem loan trends (non-accrual, delinquency, and impaired loans), trends in real estate value, and other factors. Although the QA takes into consideration different loan segments and loan classes, the adjustments made are to the loan portfolio as a whole. For impaired loans, or SVA allowance, we evaluate loans on an individual basis to determine impairment in accordance with generally accepted accounting principles or "GAAP". All these components are combined for a final allowance for loan losses figure on a quarterly basis.

Non-Accrual Loan Policy

        Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is discontinued when a loan is over 90 days or more delinquent unless management believes the loan is adequately collateralized and in the process of collection. Generally, payments received on non-accrual loans are recorded as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest accruals.

Loans Held-For-Sale

        Pursuant to ASC 310-10 a long lived asset to be sold is classified as held-for-sale when all of the following criteria are met;

    a.
    Management has authority to approve and commit to selling the asset

    b.
    The asset is immediately available-for-sale

    c.
    A plan to sell has been completed including actively locating buyers

    d.
    The sale is probable within 1 year and is expected to qualify as a sale

    e.
    The asset is actively being marketed for sale at a reasonably price

    f.
    The plan to sell indicates it is unlikely that significant change to the plan will be made or the plan will be withdrawn.

        If the Company has the intention to sell a note and if all of the criteria above are met, then the loan is be categorized as held-for-sale as of the date the decision is made. Once classified as "held-for-sale", the loan is measured at the lower of its carrying amount or fair value. Provisions and reserves are recorded to reflect a decline in fair value if the fair value is less than the loan carrying amount. Any subsequence decline or increase in fair value for held-for-sale loans are accounted for as an increase or decrease in valuation allowance for held-for-sale loans which directly affects earnings. When loans are classified as held-for-sale, the discount or premium is not amortized, but interest and expenses related to the note continue to be accrued. Loans transferred to held-for-sale continue to be recorded the same past due and non-accrual treatment as other loans, if necessary. A valuation allowance may be recorded on loans categorized as held-for-sale and not sold in subsequent quarters if the fair value of the loan or underlying property declines based on quoted prices or appraisals.

        Once a loan has been sold, the difference between the purchase price and the fair value is measured against net income as a gain or loss on sale of loans.

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Valuation of Other Real Estate Owned

        Other real estate owned ("OREO"), which represents real estate acquired through foreclosure, or deed in lieu of foreclosure in satisfaction of commercial and real estate loans, is carried at the estimated fair value less the selling costs of the real estate. The fair value of the property is based upon a current appraisal. The difference between the fair value of the real estate collateral and the loan balance at the time of transfer is recorded as a loan charge-off if fair value is lower than the loan balance. Subsequent to foreclosure, management periodically performs valuations and the OREO property is carried at the lower of carrying value or fair value, less cost to sell. The determination of a property's estimated fair value incorporates (i) revenues projected to be realized from disposal of the property, (ii) construction and renovation costs, (iii) marketing and transaction costs, and (iv) holding costs (e.g., property taxes, insurance and homeowners' association dues). Any subsequent declines in the fair value of the OREO property after the date of transfer are recorded through a write-down of the asset. Any subsequent operating expenses or income, reduction in estimated fair values, and gains or losses on disposition of such properties are charged or credited to current operations.

Goodwill and Intangible Assets

        We recognized goodwill and intangible assets in connection with the acquisition of Liberty Bank of New York in 2006, and intangible assets from the FDIC assisted acquisition of Mirae Bank in 2009. As of December 31, 2012 goodwill stood unchanged from the previous year at $6.7 million, all of which is related to the Liberty Bank acquisition located in the East Coast. $1.6 million and $1.3 million, respectively, in core deposits intangibles were recorded as a result of the Liberty Bank and Mirae Bank acquisition. Unamortized core deposit intangibles at December 31, 2012 totaled $491,000 and $546,000 related to the Liberty and Mirae Bank transaction, respectively.

        Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. We recognized goodwill of approximately $6.7 million in connection with the acquisition of Liberty Bank of New York in 2006, currently comprised of our four East Coast branches. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. The goodwill impairment analysis is a two-step test. The first step, used to identify potential impairment, involves comparing the East Coast branches' estimated fair value to its carrying value, including goodwill. If the estimated fair value exceeds the carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure for actual impairment, if any exists.

        If required, the second step involves calculating an implied fair value of goodwill. This fair value amount is determined in a manner similar to the way goodwill is calculated in a business combination, by measuring the excess of the estimated fair value of the unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill, there is no impairment. If the carrying value of goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess and a new basis is established for goodwill. An impairment loss cannot exceed the carrying value of goodwill.

        Under ASU 2011-08, a Company is given the choice of assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

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        During the fourth quarter of 2012, management assessed the qualitative factors to determine whether it was more likely than not that the fair value of the East Coast unit was less than its carrying amount. Based on the analysis of these factors, management determined that it was more likely than not that test, the fair value exceeded the carrying amount and therefore conclude that the two-step goodwill impairment test did not need to be performed. The Company will continue to monitor the performance of the East Coast branches and perform an analysis for goodwill impairment on an annual basis, or more frequently, as needed.

FDIC Indemnification Asset

        With the acquisition of Mirae Bank, the Bank entered into a loss-sharing agreement with the FDIC for amounts receivable under the agreement. The Company accounted for the receivable balances under the loss-sharing agreement as an FDIC Indemnification asset in accordance with ASC 805 "Business Combinations". The FDIC indemnification asset was accounted for on the date of the acquisition at fair value by adding the present value of all the cash flows that the Company expected to collect from the FDIC based on expected losses to be incurred on the covered loan portfolio based on the terms of the loss-sharing agreement. As expected and actual cash flows increase and decrease from what was estimated at the time of acquisition, the FDIC indemnification and the impact to the allowance for loan losses will decrease and increase, respectively. When covered loans are paid-off, the FDIC indemnification asset is offset with interest income and the corresponding allowance for loan losses is reversed. Covered loans that become impaired with losses in excess of initially estimated, results in an increase in the allowance for loan losses and an increase in the indemnification asset by the insured amount.

        In 2012, we recorded an impairment of $7.9 million on the FDIC loss-share indemnification asset as expected cashflows had increased from cashflows estimated at acquisition. No impairment charges were recorded on the indemnification asset prior to 2012. The remaining balance of the FDIC loss-share indemnification, net of impairment, was $5.4 million at December 31, 2012.

Income Taxes

        We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enacted date.

        Generally, income tax expense is the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is calculated by applying the current tax rate to taxable income. Deferred tax expense is recorded as deferred tax assets (liabilities) change from year to year. Deferred income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in our financial statements. Because we traditionally recognize substantially more expenses in our financial statements than we have been allowed to deduct for taxes, we generally have a net deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized.

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        ASC 740-10-25 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. Tax positions not meeting the "more likely than not" test results in no tax benefit being recorded. The Company recognized an increase in the liability for unrecognized tax benefit of $751,000 and related interest of $50,000 in 2012 and recognized an increase in the liability for unrecognized tax benefit of $178,000 and related interest of $23,000 in 2011. As of December 31, 2012, the total unrecognized tax benefit that would affect the effective rate if recognized was $1.3 million, which is comprised of the state exposure from California Enterprise Zone net interest deductions and anticipated adjustments from currently on-going IRS examination.


Results of Operations

Net Interest Income and Net Interest Margin

        Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on our loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, the governmental budgetary matters, and the actions of the Federal Reserve Board.

        Our average net loans (gross loans including held-for-sale, less allowance for loan losses and deferred fees and costs) were $1.92 billion in 2012, compared with $2.02 billion in 2011, and $2.36 billion in 2010, representing a decrease of 5.1% in 2012, and a decrease of 14.3% in 2011 from each of the prior annual periods. The decrease in loans in 2012 was due to higher pay-downs and pay-offs in 2012 than origination. Average interest-earning assets were $2.39 billion in 2012, compared with $2.50 billion in 2011 and $3.06 billion in 2010, representing a decrease of 4.5% in 2012 and a decrease of 18.3% in 2011 from each of the prior annual periods. Our average interest-bearing deposits decreased 4.8%, to $1.66 billion in 2012, and decreased by 26.9%, to $1.74 billion in 2011, compared with $2.38 billion in 2010. Together with other borrowings (see "Financial Condition—Deposits and Other Sources of Funds" below), average interest-bearing liabilities decreased 12.2% to $1.75 billion in 2012, and decreased by 23.7% to $1.99 billion in 2011, compared to $2.61 billion in 2010.

        Our yields on interest-earnings assets were 4.94% in 2012, 5.24% in 2011, and 5.16% in 2010. Average yield on interest-earning assets increased 8 basis points to 5.24% during 2011 largely due to improvements in credit quality which reduced the amount of non-accrual interest reversals. In 2012, average yield on interest earning assets was reduced to 4.94%, or 30 basis points, from the previous year as a result of the decline in loan yields. In 2012, loans were originated at rates that were lower than the average weighted rate of the existing loan portfolio. This contributed to the reduction in loan yields, and ultimately yields on interest earning assets. Total interest income declined 10.0% in 2012 to $117.0 million and declined 16.9% in 2011 to $130.0 million, down from $156.4 million in 2010. The decrease from 2011 to 2012 was again related to new loans being originated at lower rates. Interest expense meanwhile has continued to decline, decreasing 24.5% to $17.1 million in 2012 and 47.1% to $22.6 million in 2011, compared with $42.7 million in 2010. The decline in interest expense for 2011 and 2012 was attributable to a steady reduction in deposit rates, a the reduction in higher costing time deposits, and a reduction in in the cost of other borrowings throughout these periods.

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        Although interest expense has continued to decline from 2010 to 2012, net interest income before credit or provision for loan losses and loan commitments declined from $113.7 million in 2010, to $107.4 million in 2011, and $99.9 million in 2012. This represents a net interest income decline of 5.6% in 2011, and a 7.0% decline in 2012, compared to the previous years' figures. As a result of our lowered cost of funds in 2011, our net interest spread increased from 3.52% in 2010, to 4.11% in 2011, but declined to 3.96% in 2012 as a result of the 30 basis point decline in yield on average earning assets. The net interest margin improved from 3.76% in 2010, to 4.34% in 2011, but declined in 2012 to 4.22%.

        The following table sets forth, for the periods indicated, average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest income and net interest margin:


Distribution, Yield, and Rate Analysis of Net Income

(Dollars in Thousands)

 
  For the Year Ended December 31,  
 
  2012   2011   2010  
 
  Average
Balance
  Interest
Income/
Expense
  Average
Rate/
Yield
  Average
Balance
  Interest
Income/
Expense
  Average
Rate/
Yield
  Average
Balance
  Interest
Income/
Expense
  Average
Rate/
Yield
 

Assets:

                                                       

Earning assets:

                                                       

Net loans(1)

  $ 1,917,423   $ 109,367     5.70 % $ 2,020,036   $ 121,707     6.02 % $ 2,358,149   $ 140,028     5.94 %

Securities of government sponsored enterprises

    231,535     4,011     1.73 %   285,039     5,500     1.93 %   484,974     12,928     2.67 %

Other investment securities(2)

    66,325     2,155     4.49 %   43,241     1,677     6.00 %   43,025     1,798     6.79 %

Federal funds sold

    170,754     1,424     0.83 %   149,709     1,080     0.72 %   169,461     1,666     0.98 %
                                       

Total interest-earning assets

    2,386,037     116,957     4.94 %   2,498,025     129,964     5.24 %   3,055,609     156,420     5.16 %

Total noninterest-earning assets

    214,236                 260,763                 287,803              

Total assets

  $ 2,600,273                 2,758,788               $ 3,343,412              
                                                   

Liabilities and Shareholders' Equity:

                                                       

Interest-bearing liabilities:

                                                       

Money market deposits

  $ 621,638   $ 4,768     0.77 % $ 590,198   $ 5,291     0.90 % $ 880,618   $ 11,755     1.33 %

Super NOW deposits

    26,154     71     0.27 %   23,869     84     0.35 %   22,104     97     0.44 %

Savings deposits

    100,740     2,371     2.35 %   89,582     2,487     2.78 %   77,484     2,380     3.07 %

Time deposits of $100,000 or more

    611,922     4,968     0.81 %   658,862     6,345     0.96 %   745,139     10,370     1.39 %

Other time deposits

    295,305     2,843     0.96 %   377,491     4,334     1.15 %   654,099     12,495     1.91 %

FHLB borrowings and other borrowings

    8,806     16     0.18 %   163,227     2,057     1.26 %   142,759     3,124     2.19 %

Junior subordinated debenture

    83,883     2,018     2.41 %   87,321     1,991     2.28 %   87,321     2,483     2.84 %
                                       

Total interest-bearing liabilities

    1,748,448     17,055     0.98 %   1,990,550     22,589     1.13 %   2,609,524     42,704     1.64 %

Noninterest-bearing liabilities:

                                                       

Noninterest-bearing deposits

    510,544                 462,443                 427,388              

Other liabilities

    35,448                 41,129                 32,605              
                                                   

Total noninterest-bearing liabilities

    545,992                 503,572                 459,993              

Shareholders' equity

    305,833                 264,666                 273,895              
                                                   

Total liabilities and shareholders' equity

  $ 2,600,273               $ 2,758,788               $ 3,343,412              
                                                   

Net interest income

        $ 99,902               $ 107,375               $ 113,716        
                                                   

Net interest spread(3)

                3.96 %               4.11 %               3.52 %
                                                   

Net interest margin(4)

                4.22 %               4.34 %               3.76 %
                                                   

(1)
Net loan fees have been included in the calculation of interest income. Net loan fees were approximately $2.80 million, $3.41 million, and $2.83 million for the years ended December 31, 2012, 2011, and 2010, respectively. Loans are net of the allowance for loan losses, deferred fees, unearned income, and related direct costs, and include loans placed on non-accrual status.

(2)
Represents tax equivalent yields, non-tax equivalent yields for 2012, 2011, and 2010 were 3.25%, 3.88%, and 4.18%, respectively.

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

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

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        The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for interest-earning assets and interest-bearing liabilities and the amount of change attributable to changes in average daily balances (volume) or changes in average daily interest rates (rate). All yields were calculated without the consideration of tax effects, if any, and the variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each:


Rate/Volume Analysis of Net Interest Income

(Dollars in Thousands)

 
  For the Year Ended
December 31,
2012 vs. 2011
Increases (Decreases)
Due to Change In
  For the Year Ended
December 31,
2011 vs. 2010
Increases (Decreases)
Due to Change In
 
 
  Volume   Rate   Total   Volume   Rate   Total  

Interest income:

                                     

Net loans

  $ (6,022 ) $ (6,318 ) $ (12,340 ) $ (24,653 ) $ 6,332   $ (18,321 )

Securities of government sponsored enterprises

    (964 )   (525 )   (1,489 )   (4,448 )   (2,980 )   (7,428 )

Other Investment securities

    784     (306 )   478     60     (181 )   (121 )

Federal funds sold

    163     181     344     (178 )   (408 )   (586 )
                           

Total interest income

    (6,039 )   (6,968 )   (13,007 )   (29,219 )   2,763     (26,456 )
                           

Interest expense:

                                     

Money market deposits

    271     (794 )   (523 )   (3,239 )   (3,226 )   (6,465 )

Super NOW deposits

    7     (20 )   (13 )   40     (53 )   (13 )

Savings deposits

    289     (405 )   (116 )   1,199     (1,092 )   107  

Time deposit of $100,000 or more

    (430 )   (947 )   (1,377 )   (1,100 )   (2,926 )   (4,026 )

Other time deposits

    (856 )   (635 )   (1,491 )   (4,199 )   (3,960 )   (8,159 )

FHLB advances and other borrowings

    (1,072 )   (969 )   (2,041 )   2,408     (3,475 )   (1,067 )

Junior subordinated debenture

    (80 )   107     27         (492 )   (492 )
                           

Total interest expense

    (1,871 )   (3,663 )   (5,534 )   (4,891 )   (15,224 )   (20,115 )
                           

Change in net interest income

  $ (4,168 ) $ (3,305 ) $ (7,473 ) $ (24,328 ) $ 17,987   $ (6,341 )
                           

Provision for Loan Losses and Provision for Loan Commitments

        In anticipation of credit risks inherent in our lending business and the recent ongoing financial crisis, we set aside allowances through charges to earnings. Such charges were made not only for our outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit. The charges made for our outstanding loan portfolio were credited to allowance for loan losses, whereas charges for off-balance sheet items were credited to the reserve for off-balance sheet items, which are presented as a component of other liabilities.

        Through the enhancement of our loan underwriting standards, proactive credit follow-up procedures, and aggressive disposal of problem loans through charge-offs and note sales, we experienced a substantial improvement in our overall credit quality of our loans in 2011 and again in 2012. Our provision for losses on loan and loan commitments declined $93.1 million which resulted in an overall credit for loan losses and loan commitments of $34.0 million in 2012, and a decrease of 60.8% to $59.1 million in provision for loan losses in 2011, from $150.8 million provision for loan losses in 2010. The improvement in credit quality coupled with a reduction in overall loan charge-offs resulted in continued reductions in credit costs from 2010 to 2012. The sales of problems loans contributed to the reduction of non-performing and potential non-performing loans in 2010 and 2011. Total non-performing loans were reduced to manageable levels in 2012, thereby reducing problem note sales during the year.

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        In 2011, problem loans with a carrying balance of approximately $83.5 million were sold to help resolve and reduce our problem loans and potential problem loans. The problem loans sold in 2011 were all secured by real estates and $47.3 million were on non-accrual status, while $11.3 million were classified as TDR loans at the time of the sale. The loans that were sold in 2011 were sold at an average weighted discount to principal balance of 33.6%. With improvement in credit quality and a reduction in non-performing loan experienced in 2012, the carrying balance of problem loans sold was reduced to $12.7 million. Of the loans sold in 2012, $6.4 million were non-accrual loans, and $805,000 were TDR loans when sold. Loan secured by shopping centers and multifamily residential properties made up the bulk of the problem loans sold in 2012. The average weighted discount to principal balance of loan sold in 2012 was 39.8%.

        Total charge-offs in 2012 totaled $13.9 million compared to $72.5 million in 2011, and $109.2 million in 2010. Included in the total credit or provision for loan losses and loan commitments was the recapture of losses on loan commitments of $2.4 million in 2012, recapture of losses on loan commitments of $503,000 in 2011, and provision for losses on loan commitments of $1.4 million in 2010. The procedures for monitoring the adequacy of the allowance for loan losses, as well as detailed information concerning the allowance itself, are described in the section entitled "Allowance for Loan Losses and Loan Commitments" below.

Noninterest Income

        Total noninterest income increased to $28.2 million in 2012 and decreased to $23.8 million in 2011 from $35.9 million in 2010. Noninterest income was 1.1% of average assets in 2012, 0.9% of average assets in 2011, and 1.1% of average assets in 2010. We currently earn noninterest income from various sources, including deposit fees, gains from the sale of loans and securities, fee derived from servicing loans, and the income stream provided by bank owned life insurance, or BOLI, in the form of an increase in cash surrender value.

        The following table sets forth the various components of our noninterest income for the periods indicated:


Noninterest Income

(Dollars in Thousands)

 
  2012   2011   2010  
For the Years Ended December 31,
  (Amount)   (%)   (Amount)   (%)   (Amount)   (%)  

Service charge on deposit accounts

  $ 12,672     44.9 % $ 12,570     52.8 % $ 12,545     34.9 %

Net gain on sale of loans

    6,393     22.6 %   2,102     8.8 %   6,261     17.4 %

Loan-related servicing fees

    5,267     18.6 %   4,615     19.4 %   4,163     11.6 %

Gain on sale or call of securities

    3     0.0 %   99     0.4 %   8,782     24.5 %

Other income

    3,914     13.9 %   4,419     18.6 %   4,161     11.6 %
                           

Total

  $ 28,249     100.0 % $ 23,805     100.0 % $ 35,912     100.0 %
                           

Average assets

  $ 2,600,273         $ 2,758,788         $ 3,343,412        
                                 

Noninterest income as a % of average assets

          1.1 %         0.9 %         1.1 %
                                 

        Services charge on deposits continues to be the largest source of noninterest income and accounted for 44.9% of total noninterest income in 2012. Service charges on deposit accounts totaled $12.7 million, $12.6 million and $12.5 million for the twelve months ended December 31, 2012, 2011, and 2010, respectively. Although total deposits declined year over year from 2010 to 2012, service charges on deposit accounts remained stable increasing slightly each year. Increases in service charge fees in addition to an

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increase in analysis fee charges on demand deposit accounts helped to maintain consistent levels of service charge income on deposit accounts. Analysis fees charges increased as total demand deposit accounts have increased year over year from 2010 to 2012. We constantly review service charge rates to maximize service charge income while maintaining a competitive edge in our markets.

        Net gain on sale of loans, representing approximately 22.6% of our total noninterest income in 2012 was our next largest source of noninterest income. Net gain on sale of loans declined from $6.3 million in 2010 to $2.1 million in 2011, but then increased to $6.4 million in 2012. The decrease in net gain sale of loans in 2011 compared to 2010 was largely due the losses recorded from the sale of problem CRE loans. With the improvements in credit quality experienced in 2011 and 2012, the number of problems loans sold has significantly declined resulting in a decrease in loss on sale of loans. Gains from the sale of guaranteed portions of SBA loans totaled $5.7 million in 2012, $10.9 million in 2011, and $5.7 million in 2010. The sale of problem loans resulted in a net gain of $1.1 million in 2012, a net loss of $6.0 million in 2011, and a gain of $105,000 in 2010. Gains from the sale of mortgage loans totaled $295,000, $217,000, and $425,000 for years ended December 31, 2012, 2011, and 2010, respectively. Also included in net gain on sale of loans is the valuation of loans held-for-sale. The valuation expense on loans held-for-sale totaled $690,000 for the year ended December 31, 2012, and $3.1 million in 2011. We did not have any valuations on held-for-sale loans in 2010.

        Our third largest source of noninterest income in 2012 was loan-related servicing fees, which represented approximately 18.6% of our total noninterest income. Loan related servicing fee income consists of trade-financing fees, servicing fees related to mortgage and warehouse loans sold, and servicing fees on SBA loans sold. In 2012, loan-related servicing fees increased to $5.3 million, compared to $4.6 million in 2011, and $4.2 million in 2010. The servicing fee income on sold loans is credited when we collect the monthly payments on the sold loans we are servicing and charged by the monthly amortization of servicing rights and interest only strips ("I/O strip) that we originally capitalized upon sale of the related loans. Such servicing rights and I/O strips are also charged against the loan service fee income account when the sold loans are paid off.

        Gains from sales or calls of securities totaled $3,000 in 2012 and $99,000 in 2011. These gains represented gains from the call of investments securities during those periods. Total gains from the sale of securities totaled $8.8 million in 2010. The reduction in gains from the sale or call of securities declined in 2011 and 2012 as there were no sales of investment securities during these periods.

        Other noninterest income represented income from wire fees, insurance fees, other earning assets income, loan referral fees, SBA loan packaging fees, increase in cash surrender value of BOLI, and other miscellaneous income. Other income decreased to $3.9 million for 2012, compared to $4.4 million in 2011, and $4.2 million in 2010.

Noninterest Expense

        Total noninterest expense increased to $74.2 million in 2012, from $68.8 million in 2011, and $67.4 million in 2010. The increase in 2011 was due largely to increases in OREO expenses and professional fees, specifically audit and legal fees. The increase in noninterest expense in 2012 was primarily due to the FDIC indemnification asset impairment of $7.9 million and an increase in salaries and employee benefits of $5.9 million offset by a reduction in professional fees of $2.3 million. Noninterest expense as percentage of average assets increased to 2.9% in 2012, from 2.5% in 2011, and 2.0% in 2010. The efficiency ratio at December 31, 2012 was 57.88%, increased from 52.44% for 2011, and 45.03% for 2010.

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        The following table sets forth a summary of noninterest expenses for the periods indicated:


Noninterest Expense

(Dollars in Thousands)

 
  2012   2011   2010  
For the Years Ended December 31,
  (Amount)   (%)   (Amount)   (%)   (Amount)   (%)  

Salaries and employee benefits

  $ 34,475     46.5 % $ 28,540     41.5 % $ 29,074     43.2 %

FDIC Indemnification Impairment

    7,900     10.6 %       0.0 %       0.0 %

Occupancy and equipment

    7,875     10.6 %   7,826     11.4 %   7,984     11.8 %

Professional fees

    4,421     6.0 %   6,709     9.8 %   5,009     7.4 %

Low income housing tax credit investment losses

    3,240     4.4 %   2,454     3.6 %   2,282     3.4 %

Data processing

    2,817     3.8 %   2,892     4.2 %   2,721     4.0 %

Regulatory assessment fee

    2,147     2.9 %   3,945     5.7 %   4,523     6.7 %

Advertising and promotional

    1,742     2.3 %   1,222     1.8 %   1,382     2.1 %

Outsourced service for customer

    821     1.1 %   909     1.3 %   1,028     1.5 %

Net (gain)/loss on sale of OREO

    (616 )   -0.8 %   3,053     4.4 %   2,073     3.1 %

Other operating expenses

    9,357     12.6 %   11,235     16.3 %   11,300     16.8 %
                           

Total

  $ 74,179     100.0 % $ 68,785     100.0 % $ 67,376     100.0 %
                           

Average assets

  $ 2,600,273         $ 2,758,788         $ 3,343,412        
                                 

Noninterest expense as a % of average assets

          2.9 %         2.5 %         2.0 %
                                 

        Salaries and employee benefits historically represented approximately half of our total noninterest expense and generally increase as our branch network and business volume expands. However, in the last few years, salaries and benefits accounted for less than half of total noninterest expense and stood at 46.5% of total noninterest expense for 2012. Additional staffing was necessitated by our branch and LPO openings, and business growth in 2011 and 2012. The number of full-time equivalent employees increased to 412 at the end of 2012, compared with 376 and 392, at the end of 2011 and 2010, respectively. With the decrease in the number of employees in 2011, salaries and employee benefits decreased to $28.5 million, compared with $29.1 million for 2010. However salaries and benefits increased to $34.5 million in 2012 due to the increase in total number of employees and also due to employee bonuses that were paid in 2012 in light of the improved financial performance during the year. Assets per employee stood at $6.7 million for 2012, $7.2 million for 2011, and $7.6 million for 2010.

        FDIC indemnification impairment was the second largest source of noninterest expense at $7.9 million, or 10.6% of total noninterest expense, in 2012. In connection with our acquisition of the covered loans from the FDIC, as receiver for Mirae Bank, and the indemnification agreement we entered into with the FDIC as part of such acquisition, we recorded an FDIC indemnification asset in accordance with ASC 805. In essence, the FDIC indemnification asset represents the present value of the total amounts that we expected to recover from the FDIC on covered loan losses. The FDIC indemnification impairment reflected overall improved credit quality in the covered loan portfolio and reflected the reduction in total expected loss-share reimbursement from the FDIC under the loss-sharing agreement. The balance of the FDIC indemnification asset after impairment charges at December 31, 2012 was $5.4 million. We had no FDIC indemnification impairment expenses in years prior to 2012. Although we experienced an impairment expense of $7.9 million in 2012, because the impairment reflects an improvement in covered loan credit quality, the expensed amount is partially offset by increased interest income from and lower credit costs.

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        Occupancy and equipment expenses represent approximately 10.6% of total noninterest expenses and totaled $7.9 million in 2012, $7.8 million in 2011, and $8.0 million in 2010. Occupancy and equipment expenses remained fairly consistent from 2010 to 2012, declining $158,000 in 2011, and increasing $49,000 in 2012. The reopening of our LPO offices in 2011 did not have a significant impact on the occupancy and equipment expense in 2012.

        Professional fees were $4.4 million, $6.7 million, and $5.0 million, or 6.0%, 9.8%, and 7.5% of total noninterest expense, in 2012, 2011, and 2010, respectively. Professional fees increased $1.7 million in 2011 largely due to a $1.1 million increase in accounting and auditing fees. Legal fees also increased in 2011 as a result of credit quality issues and costs related to the class action lawsuit. In 2012, professional fees declined $2.3 million mostly due to a decrease in legal fees as litigation related to credit related issues declined compared to the previous year. Accounting and auditing fees also declined in 2012 compared to the previous year.

        Loss on investment in low income housing tax credit ("LIHTC") investments represented 4.4% of total noninterest expense, or $3.2 million, in 2012 compared to $2.5 million in 2011, and $2.3 million in 2010. The Company uses equity method to account for partnership interest. Therefore the increase in losses on LIHTC investments is linked to the financial performance of the investment projects.

        Data processing expenses totaled $2.8 million which represented 3.8% of total noninterest expense in 2012. This compares to data processing expenses of $2.9 million in 2011 and $2.7 million in 2010. Although we experienced a slight decline in data processing expense in 2012, these expenses have not fluctuated significantly since 2010. The changes to data process expense have largely been a result of changes to the total number of accounts and number of transactions during the year.

        Regulatory assessment fee expenses represent FDIC insurance premium assessments. In 2012, this expense decreased to $2.1 million, or 2.9% of total noninterest expense, from $3.9 million in 2011, and $4.5 million in 2010. Regulatory assessment fees decreased $1.8 million in 2012 compared to 2011 largely due to the Bank's improved regulatory risk rating. The decrease in 2011 was due to the change in the method of calculating the FDIC premium assessment as a result of the Dodd Frank Act.

        Advertising and promotional expenses increased to $1.7 million in 2012 after having decreased to $1.2 million in 2011, from $1.4 million in 2010. Advertising and promotional expenses represented 2.3% of total noninterest expense for 2012. These expenses represent marketing activities, such as media advertisements and promotional gifts for customers, especially in relatively new areas such as the East Coast market in New York and New Jersey. The increase in 2012 was largely due to an increase in advertising expenses and promotional expenses related to the increase focus on loan marketing and production.

        Outsourced service costs for customers are payments made to third parties who provide services that were traditionally provided by banks for their customers, such as armored car services or bookkeeping services, and are recouped from the fees and charges on the respective depositors on their balances maintained with us. As a result of our cost control measures and decrease in deposit balances, these expenses decreased to $821,000 in 2012, compared to $909,000 in 2011 and $1.0 million in 2010.

        We had a net gain on the sale of OREO which totaled $616,000 in 2012, and represented -0.8% of total noninterest expense. There was a net loss on the sale of OREO for 2011 of $3.1 million compared to $2.1 million in 2010. These OREO related expenses declined in 2012 as a result of the overall improvement in credit quality and reduction in OREO and OREO sales.

        All other noninterest expenses, made up of post-retirement benefit costs, office supplies, loan fees, director fees, OREO expense, and other expenses decreased by $1.9 million, to $9.4 million, or 12.6% of total noninterest expense in 2012 from $11.2 million in 2011, and $11.3 million in 2010. The decline in other noninterest expense in 2012 was mostly attributable to a decline in expense related to OREO, which decreased $2.1 million in 2012 compared to 2011.

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Provision for Income Taxes

        For the year ended December 31, 2012, we had an income tax benefit of $4.3 million on pretax net income of $88.0 million, representing an effective tax rate of -4.9%, compared with tax expense of $33.6 million on pretax net income of $3.3 million, representing an effective tax rate of 1,020% for 2011, and tax benefits of $33.8 million on pretax net loss of $68.5 million, representing an effective tax rate of -49.3% for 2010. The effective tax rate decreased significantly in 2012 compared to 2011, due primarily to the reversal of the deferred tax asset valuation allowance established in 2011.

        Generally, income tax expense is the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is calculated by applying the current tax rate to taxable income. Deferred tax expense is recorded as deferred tax assets (liabilities) change from year to year. Deferred income tax assets and liabilities represent the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in our financial statements. Because we traditionally recognize substantially more expenses in our financial statements than we have been allowed to deduct for taxes, we generally have a net deferred tax asset. Valuation allowances are established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the deferred tax assets will not be realized.

        In assessing the future realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization is dependent upon the generating of sufficient future taxable income during the periods temporary differences become deductible. As of December 31, 2012 the Company has no valuation allowance and had net deferred tax asset of $20.9 million. At December 31, 2011 the Company had valuation allowance of $41.3 million and no valuation allowance at December 31, 2010. As of December 31, 2011 and 2010, the Company had net deferred tax assets of $0 and $46.4 million, respectively.

        The Company recorded a valuation allowance during the first quarter of 2011 against its entire net deferred tax asset, primarily due to accumulated taxable losses and the absence of clear and objective positive where that future taxable income would be sufficient enough to realize the tax benefits of its deferred tax assets. During the third quarter of 2012, management performed a critical evaluation of all positive and negative evidence supporting a reversal of the valuation allowance. Positive evidence included, but not limited to, 12 quarters (three years) of cumulative positive pre-tax income, seven continuous quarters of positive earnings, strengthening capital, significantly improved asset quality, and removal of regulatory orders. Negative evidence included uncertainty in recovery or slow growth of U.S. economy, increased regulatory scrutiny that can adversely affect future earnings, and further impairment of FDIC indemnification assets. Based on the evaluation, management concluded that aforementioned available positive evidence outweighed the negative evidence and those deferred tax assets were more-likely-than-not to be realized, thus maintaining a valuation allowance was no longer required. Management reversed the $41.3 million deferred tax valuation allowance during the year 2012.

        In accordance with ASC 740-10, "Accounting for Uncertainty in Income Taxes," the Company recognized an increase in the liability for unrecognized tax benefit of $751,000 and $50,000 in related interest in 2012. As of December 31, 2012, the total unrecognized tax benefit that would affect the effective rate if recognized was $1.3 million, which is comprised of the state exposure from California Enterprise Zone net interest deductions and anticipated adjustments from currently on-going IRS examination. We do not expect the unrecognized tax benefits to change significantly over the next 12 months.

        As of December 31, 2012, the total accrued interest related to uncertain tax positions was $114,000. We accounted for interest related to uncertain tax positions as part of our provision for federal and state income taxes.

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        The Company files United States federal and state income tax returns in jurisdictions with varying statues of limitations. The 2008 through 2012 tax years remain subject to examination by federal tax authorities, and 2008 through 2012 tax years remain subject to examination by most state tax authorities. The Company is under examination by Internal Revenue Services for the years 2009 and 2010. Examination for the 2008, 2009, and 2010 tax years are under the New York State Department and Finance are ongoing as well. The Company believes that we have adequately provided or paid income tax issues not yet resolved with federal, state, and foreign tax authorities. Based upon consideration of all relevant facts and circumstances, the Company does not expect the examination results will have a material impact on the Company's consolidated financial statement as of December 31, 2012.


Financial Condition

Investment Portfolio

        Investments are one of our major sources of interest income and are acquired in accordance with a comprehensively written investment policy addressing strategies, categories, and levels of allowable investments. This investment policy is reviewed at least annually by the Board of Directors. Management of our investment portfolio is set in accordance with strategies developed and overseen by our Asset/Liability Committee. Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk management objectives. Our liquidity levels take into consideration anticipated future cash flows and all available sources of credits and is maintained a level management believes is appropriate for future flexibility in meeting anticipated funding needs.

    Cash Equivalents and Interest-bearing Deposits in other Financial Institutions

        We sell federal funds, purchase securities under agreements to resell and high-quality money market instruments, and deposit interest-bearing accounts in other financial institutions to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of December 31, 2012, 2011, and 2010, we had $55.0 million, $170.0 million, and $130.0 million, respectively, in overnight and term federal funds sold.

    Investment Securities

        Management of our investment securities portfolio focuses on providing an adequate level of liquidity and establishing a balanced interest rate-sensitive position, while earning an adequate level of investment income without taking undue risks. As of December 31, 2012, our investment portfolio was primarily comprised of United States government agency securities, accounting for 78.5% of the entire investment portfolio. Our U.S. government agency securities holdings are all "prime/conforming" residential mortgage-backed securities, or MBS, and residential collateralized mortgage obligations, or CMOs, guaranteed by FNMA, FHLMC, or GNMA. GNMAs are considered equivalent to U.S. Treasury securities, as they 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 a 12.1% investment in corporate bonds and 9.4% in municipal bonds. Among the 21.5% of our investment portfolio that was not comprised of U.S. government securities, 41.0%, or $29.3 million carry the top two highest "Investment Grade" rating of "Aaa/AAA" or "Aa/AA", while 57.1%, or $40.9 million, carry an upper-medium "Investment Grade" rating of at least "A/A", and 1.9%, or $1.4 million, is unrated. Our investment portfolio does not contain any government sponsored enterprises, or GSE, preferred securities or any distressed corporate securities that had required other-than-temporary-impairment charges as of December 31, 2012. In accordance with ASC 320-10-65-1, "Recognition and Presentation of Other-Than-Temporary Impairments", an other-than-temporary impairment ("OTTI") is recognized if the fair value of a debt security is lower than the amortized cost and if the debt security will be sold, it is more-likely-than-not that it will be required to sell the security before recovering the amortized cost or it is

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expected that not all of the amortized cost will be recovered. Credit related declines in the fair value of debt securities below their amortized cost that are deemed to be other-than-temporary are reflected in earnings as realized losses in the consolidated statements of operations. Declines related to factors aside from credit issues are reflected in other comprehensive income, net of taxes.

        We classified our investment securities as "held-to-maturity" or "available-for-sale" pursuant to ASC 320-10. We adopted ASC 820-10 and ASC 470-20 effective January 1, 2008, and ASC 820-10-35 effective October 10, 2008. Pursuant to the fair value election option of ASC 470-20, we have chosen to continue classifying our existing instruments of investment securities as "held-to-maturity" or "available-for-sale" under ASC 320-10. Investment securities that we intend to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale. The carrying values of available-for-sale investment securities are adjusted for unrealized gains and losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income. Credit related declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. There were no securities with other-than-temporary-impairments in 2012. The fair values of our held-to-maturity and available-for-sale securities were respectively, $54,000 and $332.5 million, as of December 31, 2012.

        The following table summarizes the book value and fair value and distribution of our investment securities as of the dates indicated:


Investment Securities Portfolio

(Dollars in Thousands)

 
  For the Years Ended December 31,  
 
  2012   2011   2010  
 
  Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
  Amortized
Cost
  Fair
Value
 

Held-to-Maturity:

                                     

Collateralized mortgage obligations (residential)

  $ 50   $ 54   $ 66   $ 70   $ 85   $ 89  
                           

Total investment securities held-to-maturity

  $ 50   $ 54   $ 66   $ 70   $ 85   $ 89  
                           

Available-for-Sale:

                                     

Securities of government sponsored enterprises

  $ 28,000   $ 27,919   $   $   $ 35,953   $ 36,220  

Mortgage-backed securities (residential)

    59,697     60,427     13,659     14,475     18,129     18,907  

Collateralized mortgage obligations (residential)

    168,819     172,532     241,635     246,881     222,778     225,114  

Corporate securities

    39,015     40,370     24,646     24,414     2,000     2,021  

Municipal bonds

    28,612     31,256     32,411     34,294     34,779     34,360  
                           

Total investment securities available-for-sale

  $ 324,143   $ 332,504   $ 312,351   $ 320,064   $ 313,639   $ 316,622  
                           

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        The following table summarizes the maturity and repricing schedule of our investment securities at their carrying values at December 31, 2012:


Investment Maturities and Repricing Schedule

(Dollars in Thousands)

 
  Within One Year   After One &
Within Five Years
  After Five &
Within Ten Years
  After Ten Years   Total  

Held-to-Maturity:

                               

Collateralized mortgage obligations (residential)

  $   $ 50   $   $   $ 50  
                       

Total investment securities held-to-maturity

  $   $ 50   $   $   $ 50  
                       

Available-for-Sale:

                               

Securities of government sponsored enterprises

  $   $   $ 27,919   $   $ 27,919  

Mortgage-backed securities (residential)

    4,835     670     221     54,701     60,427  

Collateralized mortgage obligations (residential)

    26,713     145,819             172,532  

Corporate securities

    7,858     32,512             40,370  

Municipal bonds

        4,213     2,118     24,925     31,256  
                       

Total investment securities available-for-sale

  $ 39,406   $ 183,214   $ 30,258   $ 79,626   $ 332,504  
                       

        Our investment securities holdings increased by $12.4 million, or 3.9%, to $332.6 million at December 31, 2012, compared to holdings of $320.1 million at December 31, 2011. Holdings at December 31, 2010 were $316.7 million. Total investment securities as a percentage of total assets were 12.1% and 11.9% at December 31, 2012 and 2011, respectively, compared to 10.7% at December 31, 2010. As of December 31, 2012, investment securities with a carrying value of $215.3 million were pledged to secure certain deposits. In addition to securing deposits, $23.6 million in investments were pledged at the Federal Reserve Bank Discount Window and $54.7 million were pledged at the Federal Home Loan Bank. The remaining pledged securities were collateralized against secured borrowing lines available at our correspondent banks.

        As of December 31, 2012, held-to-maturity ("HTM") securities, which are carried at their amortized costs, decreased from $85,000 in 2010 to $66,000 in 2011, and 50,000 in 2012. The $16,000 HTM securities reduction in 2012 was due to the normal pay-downs of principal. Available-for-sale securities, which are stated at their fair market values, increased to $332.5 million at December 31, 2012, from $320.1 million and $316.6 million, at December 31, 2011 and 2010, respectively. The $12.4 million increase in investments in 2012 was comprised of $126.8 million in purchases, $111.2 million in pay-downs and amortizations or accretions, $3.8 million in called investments, and $649,000 in changes to fair value. The $3.4 million increase in investments in 2011 represented $140.8 million in purchases, $142.2 million in calls, maturities, and amortizations, and $4.8 million in changes to unrealized and realized gains.

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        The following tables show our investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2012 and 2011, respectively:

As of December 31, 2012

 
  Less than 12 months   12 months or longer   Total  
Description of Securities (AFS)(1)
  Fair Value   Gross
Unrealized
Losses
  Fair Value   Gross
Unrealized
Losses
  Fair Value   Gross
Unrealized
Losses
 
 
  (Dollars in Thousands)
 

Securities of government sponsored enterprises

  $ 27,919   $ (81 ) $   $   $ 27,919   $ (81 )

Mortgage-backed securities

    28,984     (51 )           28,984     (51 )

Collateralized mortgage obligations

    32,389     (180 )           32,389     (180 )
                           

Total investment securities available-for-sale

  $ 89,292   $ (312 ) $   $   $ 89,292   $ (312 )
                           

As of December 31, 2011

 
  Less than 12 months   12 months or longer   Total  
Description of Securities (AFS)(1)
  Fair Value   Gross
Unrealized
Losses
  Fair Value   Gross
Unrealized
Losses
  Fair Value   Gross
Unrealized
Losses
 
 
  (Dollars in Thousands)
 

Collateralized mortgage obligations

  $ 11,513   $ (53 ) $   $   $ 11,513   $ (53 )

Corporate securities

    24,414     (232 )           24,414     (232 )

Municipal bonds

            799     (12 )   799     (12 )
                           

Total investment securities available-for-sale

  $ 35,927   $ (285 ) $ 799   $ (12 ) $ 36,726   $ (297 )
                           

(1)
The Company did not have any held-to-maturity investment securities with unrealized losses at December 31, 2012 and December 31, 2011.

        Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, we consider, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

        We performed detailed evaluations of the investment portfolio to assess individual investment positions that have fair values that have declined below cost. In assessing whether there was other-than-temporary impairment, we consider the following:

    Whether or not all contractual cash flows due on a security will be collected; and

    Our positive intent and ability to hold the debt security until recovery in fair value or maturity

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

    Issuer's credit rating;

    Likelihood of the issuer's default or bankruptcy;

    Collateral underlying the security;

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    Industry in which the issuer operates;

    Nature of the investment;

    Severity and duration of the decline in fair value; and

    Analysis of the average life and effective maturity of the security.

        We do not believe that any individual unrealized loss as of December 31, 2012 represented an other-than-temporary impairment. The unrealized losses on our GSE bonds, GSE CMOs, and GSE MBS were attributable to both changes in interest rate (U.S. Treasury curve) and a repricing of risk (spreads widening against risk-fee rate) in the market. We did not own any non-agency MBS or CMO. All GSE bonds, GSE CMO, and GSE MBS securities are backed by U.S. Government Sponsored and Federal Agencies and therefore rated "Aaa/AAA." We have no exposure to the "Subprime Market" in the form of Asset Backed Securities, or ABS, and Collateralized Debt Obligations, or CDOs. We have the intent and ability to hold the securities in an unrealized loss position at December 31, 2012 until the fair value recovers or the securities mature.

        Municipal bonds and corporate bonds are evaluated by reviewing the credit-worthiness of the issuer and general market conditions. At December 31, 2012, we had no unrealized losses on any of our investments in municipal and corporate securities.

Loan Portfolio

        Total loans are the sum of loans receivable and loans held-for-sale and reported at their outstanding principal balances net of any unearned income which is unamortized deferred fees, costs, premiums and discounts. Total loans net of unearned income increased $170.9 million, or 8.6%, to $2.15 billion in 2012 from $1.98 billion in 2011. Total loans net of unearned income totaled $2.33, $2.43 billion, and $2.05 billion, at December 31, 2010, 2009, and 2008, respectively. Total loans net of unearned income as a percentage of total assets were 78.2%, 73.5%, 78.3%, 70.6%, and 83.7% at December 31, 2012, 2011, 2010, 2009, and 2008, respectively.

        In the ordinary course of our business, we originate and service our own loans. For held-for-sale loans that we choose to sell in the secondary market, we sell them with representations and warranties generally consistent with industry practices, but without recourse. The exception was with SBA loans, and it was our practice to resell these loans in the secondary market for the guaranteed portion with 90-day recourse. However, beginning March 2011, the recourse provision for SBA guaranteed portions sold was removed and no longer a standard for these transactions. Accordingly, we do not retain a significant amount of the credit risk exposure on the loans sold. And, for all loans we originate and carry, we have not had any subprime loans in our portfolio.

        Real estate secured loans consist primarily of commercial real estate loans and are extended to finance the purchase and/or improvement of commercial real estate and/or businesses and also includes mortgage loans. The properties may either be user owned or for investment purposes. Our loan policy adheres to the real estate loan guidelines set forth by the FDIC. The policy provides guidelines including, among other things, fair review of appraisal value, limitation on loan-to-value ratio, and minimum cash flow requirements to service debt. Loans secured by real estate equaled $1.82 billion, $1.63 billion, $1.91 billion, $1.98 billion, and $1.60 billion, as of December 31, 2012, 2011, 2010, 2009, and 2008, respectively. Real estate secured loans as a percentage of total loans were 84.3%, 82.0%, 82.3%, 81.4%, and 77.8% at December 31, 2012, 2011, 2010, 2009, and 2008, respectively.

        Our total home mortgage loan portfolio outstanding at the end of 2012 and 2011 were $111.3 million and $65.8 million, respectively, and represented only a small fraction of our total loan portfolio at 5.2% in 2012 and 3.3% in 2011. We have deemed the effect of this segment of our portfolio on our credit risk profile to be immaterial.

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        Commercial and industrial loans include revolving lines of credit, as well as term business loans. Commercial and industrial loans were $303.3 million, $280.6 million, $325.6 million, $386.0 million, and $387.8 million at the end of 2012, 2011, 2010, 2009, and 2008, respectively. Commercial and industrial loans were 14.1%, 14.2%, 14.0%, 15.9%, and 18.9%, as a percentage of total loans at the end of 2012, 2011, 2010, 2009, and 2008, respectively. In the current economic environment, we exercise more due diligence in acquiring new loans, in particular loans with no collateral. However, with the high concentration of real estate secured loans, we plan to focus more on commercial lending in the short term.

        Consumer loans have historically represented less than 5% of our total loan portfolio. The majority of consumer loans are concentrated in personal lines of credits. As consumer loans present a higher risk potential compared to our other loan products, especially given current economic conditions, we have reduced our effort in consumer lending since 2007. Accordingly, as of December 31, 2012, the balance of consumer loans was down by $1.4 million to $13.7 million, compared with $15.1 million, $15.7 million, $17.3 million, and $23.7 million at the end of 2011, 2010, 2009, and 2008, respectively. Consumer loans as a percentage of total loans have been less than 1% for the past 4years.

        Construction loans are generally extended as a temporary financing vehicle only, and historically represented less than 5% of our total loan portfolio. In response to the current real estate market, we have applied stricter loan underwriting policy when making loans in this category. Construction loans decreased to $20.9 million as of December 31, 2012, compared with $61.8 million, $71.6 million, $48.4 million, and $43.2 million at the end of 2011, 2010, 2009, and 2008, respectively.

        Our loan terms vary according to loan type. Commercial term loans have typical maturities of three to five years and are extended to finance the purchase of business entities, business equipment, and leasehold improvements, or to provide permanent working capital. SBA-guaranteed loans usually have longer maturities (8 to 25 years). We generally limit commercial real estate loan maturities to five to eight years. Lines of credit, in general, are extended on an annual basis to businesses that need temporary working capital and/or import/export financing. We generally seek diversification in our loan portfolio, and our borrowers are diverse as to industry, location, and their current and target markets.

        The FDIC placed Mirae Bank under receivership upon Mirae Bank's closure by the California Department of Financial Institutions at the close of business on June 26, 2009. We purchased substantially all of Mirae's assets and assumed all of Mirae's deposits and certain other liabilities. Further, we entered into a loss sharing agreement with the FDIC in connection with the Mirae acquisition. Under the loss sharing agreement, the FDIC will share in the losses on assets covered under the agreement, which generally include loans acquired from Mirae and foreclosed loan collateral existing at June 26, 2009 (referred to collectively as "covered assets"). With respect to losses of up to $83.0 million on the covered assets, the FDIC has agreed 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 the losses. The loss sharing agreements are subject to our compliance with servicing procedures and satisfying certain other conditions specified in the agreements with the FDIC. The term for the FDIC's loss sharing on single family loans is ten years, and the term for loss sharing on non-single family loans is five years with respect to losses and eight years with respect to loss recoveries. As a result of the loss sharing agreement with the FDIC, the Company initially recorded an indemnification asset from the FDIC based on the estimated value of the indemnification agreement of $40.2 million at June 26, 2009. The indemnification asset at December 31, 2012 totaled $5.4 million. The total fair value of loans acquired from Mirae Bank totaled $113.0 million at December 31, 2012.

        The loans in the portfolio that we purchased in the Mirae Bank acquisition are covered by the FDIC loss-share agreement and such loans are referred to herein as "covered loans." All loans other than the

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covered loans are referred to herein as "non-covered loans." A summary of covered and non-covered loans is presented in the table below:

Covered & Non-Covered Loans

 
  (Dollars in Thousands)  
 
  December 31, 2012   December 31, 2011   December 31, 2010  

Non-covered loans:

                   

Construction

  $ 20,928   $ 61,832   $ 72,258  

Real estate secured

    1,719,762     1,490,504     1,757,328  

Commercial and industrial

    289,782     253,092     276,739  

Consumer

    13,665     15,001     15,574  
               

Gross loans

    2,044,137     1,820,429     2,121,899  

Unearned Income

    (4,826 )   (4,433 )   (4,765 )
               

Total loans

    2,039,311     1,815,996     2,117,134  

Allowance for losses on loans

    (59,446 )   (92,640 )   (104,349 )
               

Net loans

  $ 1,979,865   $ 1,723,356   $ 2,012,785  
               

Covered loans:

                   

Construction

  $   $   $  

Real estate secured

    99,534     137,144     159,699  

Commercial and industrial

    13,486     28,267     49,680  

Consumer

    9     79     111  
               

Gross loans

    113,029     165,490     209,490  

Allowance for losses on loans

    (3,839 )   (10,342 )   (6,604 )
               

Net loans

  $ 109,190   $ 155,148   $ 202,886  
               

Total loans:

                   

Construction

  $ 20,928   $ 61,832   $ 72,258  

Real estate secured

    1,819,296     1,627,648     1,917,027  

Commercial and industrial

    303,268     281,359     326,419  

Consumer

    13,674     15,080     15,685  
               

Gross loans

    2,157,166     1,985,919     2,331,389  

Unearned Income

    (4,826 )   (4,433 )   (4,765 )
               

Total loans

    2,152,340     1,981,486     2,326,624  

Allowance for losses on loans

    (63,285 )   (102,982 )   (110,953 )
               

Net loans*

  $ 2,089,055   $ 1,878,504   $ 2,215,671  
               

*
Includes loans held-for-sale, recorded at the lower of cost or fair value, totaling $146.0 million, $53.8 million, and $17.1 million, at December 31, 2012, December 31, 2011, and December 31, 2010, respectively

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        In accordance with ASC 310-30 covered loans were divided into "SOP 03-3 Loans" and "Non-SOP 03-3 Loans", of which SOP 03-3 loans are loans with evidence of deterioration of credit quality and that it was probable, at the time of acquisition, that the Bank will be unable to collect all contractually required payments receivable. In contrast, Non-SOP 03-3 loans are all other covered loans that do not qualify as SOP 03-3 loans. In addition, the covered loans are further categorized into four different loan pools by loan segments: construction, commercial and industrial, real estate secured, and consumer. The balance of covered loans at December 31, 2012 is presented as follows:

(Dollars in Thousands)
  SOP 03-3
Loans
  Non-SOP 03-3
Loans
  Total Covered Loans  

Real estate secured

  $ 869   $ 98,665   $ 99,534  

Commercial and industrial

    138     13,348     13,486  
               

Total Covered Loans

  $ 1,007   $ 112,022   $ 113,029  
               

        The following table represents the carrying value, net of allowance for loan losses, of SOP 03-3 and non-SOP 03-3 loans acquired from Mirae Bank at December 31, 2012, 2011, and 2010:

(Dollars in Thousands)
  December 31, 2012   December 31, 2011   December 31, 2010  

Non-SOP 03-3 loans

  $ 112,022   $ 163,446   $ 203,701  

SOP 03-3 loans

    1,007     2,044     5,789  
               

Total outstanding balance

    113,029     165,490     209,490  

Allowance related to these loans

    (3,839 )   (10,342 )   (6,604 )
               

Carrying amount, net of allowance

  $ 109,190   $ 155,148   $ 202,886  
               

        Allowance for loan losses for covered loan acquired through the acquisition of Mirae Bank was $3.8 million, $10.3 million and $6.6 million for the years ended December 31, 2012, 2011, and 2010, respectively. Total allowance for these loans decreased $6.5 million or 62.9% from December 31, 2011 to December 31, 2012. The decrease was due to the improved credit quality of the covered loan portfolio in 2012 which has yielded a low level of charge-offs.

        The following table represents the current balance of SOP 03-3 acquired from Mirae Bank for which it was probable at the time of the acquisition that all of the contractually required payments would not be collected:

(Dollars in Thousands)
  December 31, 2012   December 31, 2011   December 31, 2010  

Breakdown of SOP 03-3 Loans

                   

Real Estate loans

  $ 869   $ 1,838   $ 5,064  

Commercial and industrial

  $ 138   $ 206   $ 725  

        Loans acquired from the acquisition of Mirae Bank were discounted. Accretion of $1.9 million, $2.4 million, and $4.0 million, on loans purchased at a total discount of $54.9 million were recorded as interest income for the year ended December 31, 2012, 2011, and 2010, respectively, as follows:

(Dollars in Thousands)
  December 31, 2012   December 31, 2011   December 31, 2010  

Balance at beginning of period

  $ 6,981   $ 13,557   $ 30,846  

Discount accretion income recognized

    (1,943 )   (2,404 )   (4,000 )

Disposals related to charge-offs

    (791 )   (4,148 )   (11,356 )

Disposals related to loan sales

    (799 )   (24 )   (1,933 )
               

Balance at end of period

  $ 3,448   $ 6,981   $ 13,557  
               

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        The following table is a breakdown of changes to the accretable portion of the discount related to covered loans for periods indicated:

(Dollars in Thousands)
  December 31, 2012   December 31, 2011   December 31, 2010  

Balance at beginning of period

  $ 6,419   $ 11,914   $ 24,227  

Discount accretion income recognized

    (1,925 )   (2,390 )   (3,794 )

Disposals related to charge-offs

    (420 )   (3,067 )   (6,406 )

Disposals related to loan sales

    (799 )   (38 )   (2,113 )
               

Balance at end of period

  $ 3,275   $ 6,419   $ 11,914  
               

        The following table sets forth the amount of total loans net of unearned income and the percentage distributions in each category, as of the dates indicated:


Distribution of Loans and Percentage Composition of Loan Portfolio

(Dollars in Thousands)

 
  Amount Outstanding At December 31,  
 
  2012   2011   2010   2009   2008  

Construction

  $ 20,254   $ 61,213   $ 71,596   $ 48,371   $ 43,180  

Real estate secured

    1,815,953     1,624,578     1,913,723     1,975,826     1,596,928  

Commercial and industrial

    302,475     280,630     325,634     385,958     387,752  

Consumer

    13,658     15,065     15,671     17,286     23,669  
                       

Total loans, net of unearned income

    2,152,340     1,981,486     2,326,624     2,427,441     2,051,529  

Allowance for losses on loans

    (63,285 )   (102,982 )   (110,953 )   (62,130 )   (29,437 )
                       

Net loans

  $ 2,089,055   $ 1,878,504   $ 2,215,671   $ 2,365,311   $ 2,022,092  
                       

Held-for-sale loans included in total loans above

  $ 145,973   $ 53,814   $ 17,098   $ 36,233   $ 18,427  

Participation loans sold and serviced by the Company

  $ 482,891   $ 488,288   $ 463,889   $ 432,591   $ 314,988  

Percentage breakdown of gross loans:

                               

Construction

    0.9 %   3.1 %   3.1 %   2.0 %   2.1 %

Real estate secured

    84.4 %   82.0 %   82.2 %   81.4 %   77.8 %

Commercial and industrial

    14.1 %   14.2 %   14.0 %   15.9 %   18.9 %

Consumer

    0.6 %   0.7 %   0.7 %   0.7 %   1.2 %

        Loans held-for-sale at December 31, 2012 increased to $146.0 million compared to $53.8 million at December 31, 2011. Loans held-for-sale totaled $17.1 million, $36.2 million and $18.4 million at the end of 2010, 2009, and 2008 respectively. The increase in loans held-for-sale in 2011 and 2012 compared to prior years was primarily due to the increase in warehouse loans held-for-sale. Warehouse loans held-for-sale totaled $73.2 million, $19.7 million, and $3.5 million at December 31, 2012, 2011, and 2010, respectively. We did not offer warehouse loans before 2010. SBA loans held-for-sale totaled $72.8 million at December 31, 2012 compared to $22.8 million at December 31, 2011. The $50.0 million increase in SBA loans held-for-sale in 2012 also contributed to the increase in total held-for-sale loans.

        The following table shows the contractual maturity distribution and repricing intervals of the outstanding loans in our portfolio as of December 31, 2012. In addition, the table below shows the distribution of such loans between those with variable or floating interest rates and those with fixed or

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predetermined interest rates. The amounts on the table below are the gross loan balances (including held-for-sale) at December 31, 2012 before netting unearned income and allowance for loan losses:


Loan Maturities and Repricing Schedule

(Dollars in Thousands)

 
  December 31, 2012  
 
  Within
One Year
  After One
But within
Five Years
  After
Five Years
  Total  

Construction

  $ 20,928   $   $   $ 20,928  

Real estate secured

    1,096,262     612,268     110,766     1,819,296  

Commercial and industrial

    289,227     13,536     505     303,268  

Consumer

    12,599     1,075         13,674  
                   

Gross loans

  $ 1,419,016   $ 626,879   $ 111,271   $ 2,157,166  
                   

Loans with variable interest rates

  $ 1,208,436   $   $   $ 1,208,436  

Loans with fixed interest rates

  $ 210,580   $ 626,879   $ 111,271   $ 948,730  

        The majority of the properties that we take as collateral are located in Southern California. The loans generated by our loan production offices, which are located outside of our main geographical market, are generally collateralized by property in close proximity to those offices. We employ strict guidelines regarding the use of collateral located in less familiar market areas. Since a major real estate recession during the first part of the previous decade, property values in Southern California and around the country had generally increased in the last 10-year span from 1996 to 2006. Since late 2006, we have started to see below-trend growth in gross domestic product ("GDP") and a gradual decline of the real estate market in Southern California and many other areas in the country. The financial crisis worsened during the second half of 2008 and the first half of 2009 and we observed further decline in the real estate market across the nation through 2010. Nonetheless, as of year-end 2012, 82.0% of our loans are secured by first mortgages on various types of real estate. In 2012 we experienced some increases in market values of certain commercial real estate properties, but still maintain a cautious outlook for 2013.

Non-performing Assets

        Non-performing assets, or NPAs, consist of non-performing loans, or NPLs, restructured loans, and other NPAs. NPLs are reported at their outstanding balances, net of any portion guaranteed by SBA, and consist of loans on non-accrual status and loans 90 days or more past due and still accruing interest. Restructured loans are loans of which the terms of repayment have been renegotiated, resulting in a reduction or deferral of interest or principal. Other NPAs consist of properties, mainly other real estate owned, or OREO, acquired by foreclosure or by similar means that management intends to offer for sale. The treatment of non-performing status for held-for-sale loans is the same for as other loans and are accounted for at the lower of cost or fair value.

        Our continued emphasis on asset quality control enabled us to maintain a relatively low level of NPLs prior to 2007. The effect of the unfavorable economic environment impacted the strength of our borrowers' credit and financial status which elevated NPL levels during 2008 to 2011. However, through note sales and charge-offs and enhanced monitoring of problem loans, NPLs, net of SBA guaranteed portion decreased to $28.0 million, at the end of 2012 compared to $43.8 million, $71.3 million, $70.8 million, and $15.6 million at the end of 2011, 2010, 2009, and 2008, respectively. At December 31, 2012, the NPLs as a percentage of total loans was 1.30%, compared to 2.21%, 3.06%, 2.92%, and 0.76% at December 31, 2011, 2010, 2009, and 2008, respectively.

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        As of December 31, 2012, we had $2.1 million in other NPAs, which was comprised of six OREO properties. We have listed these properties for sale or are in the process of directly selling these properties as of December 31, 2012. We recorded $157,000 in provisions related to OREO in 2012. Of the 23 OREOs sold in year 2012, the Bank recorded a net loss of $616,000. As of December 31, 2011, we had $8.2 million as other NPAs, which comprised of fourteen OREOs, with thirteen of those foreclosed in 2011. In 2011 recorded $3.8 million in provisions related to OREO. Of the ten OREOs sold during 2011, the Bank recorded a loss of $3.1 million. As of December 31, 2010, we had $15.0 million as other NPAs, which comprised of eighteen OREOs, with fifteen of those foreclosed in 2010. In 2010 we recorded $1.8 million in OREO provisions. Of the seven OREOs sold during 2010, the Bank recorded a loss of $2.1 million. At December 31, 2009, we had $3.8 million as other NPAs, which was comprised of fifteen OREOs, with nine of those foreclosed in 2009. Including OREO, our ratio of NPAs as a percentage of total loans and other non-performing assets equaled 1.39%, 2.62%, and 3.68%, at December 31, 2012, 2011, and 2010, respectively.

        Management believes that the reserve provided for NPAs, together with the tangible collateral, were adequate as of December 31, 2012. See "Allowance for Loan Losses and Loan Commitments" below for further discussion.

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        The following table provides information with respect to the components of our NPAs as of the dates indicated (the figures in the table are net of the portion guaranteed by SBA, with the total amounts adjusted and reconciled for the SBA guaranteed portion for the gross NPAs):


Non-performing Assets

(Dollars in Thousands)

 
  For the Years Ended December 31,  
 
  2012   2011   2010   2009   2008  

Total non-accrual loans

                               

(Net of SBA guaranteed portions):

                               

Construction

  $ 5,644   $ 12,548   $   $   $  

Real estate secured

    21,007     29,088     67,576     63,571     9,334  

Commercial and industrial

    1,302     2,196     3,629     5,805     5,874  

Consumer

            27     70     131