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Wilshire Bancorp Reports Financial Results for First Quarter 2011

/ Source: GlobeNewswire

LOS ANGELES, April 26, 2011 (GLOBE NEWSWIRE) -- Wilshire Bancorp, Inc. (Nasdaq:WIBC), the holding company for Wilshire State Bank, today reported a net loss to common shareholders of $52.1 million, or ($1.77) per basic and diluted share, for the quarter ended March 31, 2011. This compares to net income available to common shareholders of $2.4 million, or $0.08 per basic and diluted share, for the same period of the prior year. The net loss reported for the first quarter of 2011 is attributable to tax expenses of $38.1 million that resulted from a deferred tax asset valuation allowance recorded in the first quarter of 2011, in addition to an increase in provision for loan losses as a result of reclassifying $93.4 million in loans to loans held-for-sale and marking the loans to their expected fair value.

Jae Whan (J.W.) Yoo, President and CEO of Wilshire Bancorp, said, "My highest priority since joining Wilshire Bancorp in February of this year has been to ensure sound credit administration practices and conservative underwriting standards. As part of this process, we have separated the loan production and underwriting functions. We have taken and will continue to take aggressive steps to reduce our level of problem assets, which includes future loan sales.

"Although the Bank's recent financial performance has declined due in part to the disposition of problem assets, we believe we still have an attractive franchise with strong earnings power. The Bank has steadily reduced its funding costs, resulting in positive trends in net interest income and net interest margin, while generating increasing non-interest income through the production and sale of SBA loans. We are now working on streamlining our operations, which should enhance efficiencies, reduce our non-interest expense levels, and further increase our earnings power. As we make steady progress on improving our asset quality and reducing credit costs, we believe we can return to being the high-performing bank that our customers and shareholders deserve."

FIRST QUARTER 2011 SUMMARY:

  • Increase in net interest margin – Net interest margin increased 81 basis points to 4.53% for the first quarter of 2011, compared to 3.72% for the quarter ending December 31, 2010.
  • Increase in allowance coverage – Allowance for loan loss coverage of gross loans increased to 5.02% at March 31, 2011, compared to 4.76% at December 31, 2010.
  • Decrease in non-accrual inflows – Inflow of loans into non-accrual status decreased from $40.3 million during the fourth quarter of 2010 to $25.2 million during the first quarter of 2011, representing a decline of $15.1 million or 37.5%. However, total non-accrual loans increased to $80.1 million at March 31, 2011, from $60.9 million at December 31, 2010, largely due to an increase in covered non-accrual loans.
  • Transfer of loans to held-for-saleLoans held-for-sale at the end of the first quarter of 2011 totaled $136.8 million, and increased from $17.1 million at December 31, 2010.
  • Deferred tax asset valuation allowance – A valuation allowance for Federal and State deferred tax assets was recorded during the first quarter of 2011 resulting in a net tax expense of $38.1 million.

CREDIT QUALITY

For the first quarter of 2011, the Company recorded a provision for loan losses of $44.8 million compared to $83.6 million in the fourth quarter of 2010. Approximately $25.0 million in additional provision for loan losses was recorded for the first quarter of 2011 due to the partial charge-off of loans as they were transferred to held-for-sale.

The allowance for loan losses increased to $114.8 million, or 5.02% of gross loans, at March 31, 2011, compared to $111.0 million, or 4.76% of gross loans, at December 31, 2010. The coverage ratio of allowance for loan losses to non-performing assets was 129.55% at March 31, 2011, compared with 128.69% at December 31, 2010. Allowance coverage of Legacy Wilshire loans increased from 5.23% at December 31, 2010 to 5.50% at March 31, 2011.

The Company sold a total of $12.3 million in loans (not including SBA or mortgage loans) during the first quarter of 2011 and received proceeds of $9.7 million, which amounts to a discount of 21.4% based on carrying values. In addition to the note sales, the Company transferred approximately $93.4 million in loans (not including SBA or mortgage loans) to held-for-sale status during the first quarter, most of which are expected to be sold during the second quarter of 2011. These loans include $21.0 million in non-accrual loans, $11.5 million in performing troubled debt restructured loans, and $7.5 million in delinquent loans. The Company marked all the loans categorized as held-for-sale to their fair values, which accounted for $31.5 million in charge-offs recorded in the first quarter of 2011.

In addition to the transfer of loans to held-for-sale, the new CEO implemented the following actions in the first quarter of 2011 to further strengthen the credit administration practices:

  • Separated the loan production and underwriting functions,
  • Established an enterprise risk management department and appointed a Chief Risk Officer responsible for managing credit risk,
  • Created a credit taskforce consisting of members of the finance, credit administration, and risk management groups whose mandate is to improve credit quality and reduce problem assets,
  • Increased the level of credit training throughout the organization; and
  • Instituted a new in-house lending limit to single borrowers.

These actions are the start of a process to create a stronger credit culture, which the Company believes will lead to improved credit quality and financial performance.

Non-accrual Loans

As previously disclosed, upon acquiring certain assets and liabilities of the former Mirae Bank, the Company entered into loss sharing agreements with the FDIC whereby the FDIC has agreed to share in losses on assets covered under the agreement. The assets covered by the loss sharing agreements include loans and foreclosed loan collateral existing on June 26, 2009, and acquired from Mirae Bank. As a result, loans acquired through the acquisition of Mirae Bank are identified as "covered" loans, and those that were originated at Wilshire are "non-covered" loans or "legacy Wilshire" loans. 

At March 31, 2011, total non-accrual loans totaled $80.1 million, or 3.50% of gross loans, compared to $71.2 million, or 3.06% of gross loans, at December 31, 2010. The increase in non-accrual loans occurred primarily in the covered loan portfolio, which increased from $10.4 million at December 31, 2010, to $18.1 million at March 31, 2011, an increase of $7.7 million. Meanwhile non-covered non-accrual loans only increased $1.2 million from $60.9 million at December 31, 2010, to $62.1 million at March 31, 2011.

The following is a table showing "covered" and "non-covered" non-accrual loans by loan type: 

Although we experienced an increase in non-accrual loans in the first quarter, inflow of new loans into non-accrual status declined by 37.5% from $40.3 million total inflows during the fourth quarter of 2010 to $25.2 million of inflow during the first quarter of 2011. Non-covered or legacy inflows into non-accrual status declined to $15.3 million at March 31, 2011 from $38.7 million at December 31, 2010, a decline of 60.4% on a quarterly basis. Of the $25.2 million in inflows into non-accrual status during the first quarter of 2011, 39.1%, or $9.9 million, were covered or acquired loans. 

Outflow of non-accrual loans decreased from $45.4 million during the fourth quarter of 2010 to $16.3 million during the first quarter of 2011. The decrease was a result of a decline in loan sales during the first quarter of 2011 compared to the previous quarter which reduced the total number and balance of outflows. Outflow of non-covered loans totaled $14.2 million for the quarter ending March 31, 2011, down from $43.2 million in total outflows for the previous quarter.

Impaired Loans            

Loans are classified as impaired when based on current information, it is probable that the Company will not be able to collect all principal and interest payments due in accordance with the terms of the loan. Impaired loans at March 31, 2011 totaled $176.4 million, compared with $118.5 million at December 31, 2010. Total impaired loans by loan category are shown in the table below: 

The increase in impaired loans during the first quarter of 2011 is largely attributable to the transfer of loans to held-for-sale status given that the loans are expected to be sold at a discount to book value and therefore are deemed to be impaired and are reclassified accordingly. Approximately $69.6 million in loans that are currently in held-for-sale status were not impaired at December 31, 2010.  

Loan Delinquencies

At March 31, 2011, total loan delinquencies increased to $41.2 million from $34.5 million at December 31, 2010. As a percentage of gross loans, delinquencies increased to 1.80% at March 31, 2011, from 1.48% at December 31, 2010. A significant driver of the increase in total delinquent loans for the first quarter of 2011 was the inflow of one construction loan with a balance of $15.0 million. This single loan accounted for 36.4% of all delinquent loans at March 31, 2011.

Delinquent loans by days past due and loan type are reflected in the two tables below:  

Loan Charge-offs

Loan charge-offs for the first quarter of 2011 totaled $41.7 million, compared to $71.9 million in the fourth quarter of 2010. Approximately 94.1% of the charge-offs in the first quarter of 2011 were commercial real estate loans. Of the total charge-offs in the first quarter of 2011, $31.5 million or 75.6% were charge-offs that resulted from the transfer of loans to held-for-sale status, which are expected to be sold during the second quarter of 2011.

Charge-offs by loan type is reflected in the table below: 

BALANCE SHEET

During the first quarter of 2011, the Company continued to reposition its balance sheet by utilizing cash and cash equivalents and loan sales to fund the run-off of higher-costing money market and time deposit accounts. This repositioning had the effect of lowering the Company's overall cost of funds. As a result of this strategy, total assets decreased to $2.79 billion at March 31, 2011, from $2.97 billion at December 31, 2010.

Total loans including loans held-for-sale totaled $2.28 billion at March 31, 2011, compared to $2.33 billion at December 31, 2010. The decrease was primarily due to charge-offs, loan payoffs in the commercial real estate portfolio, and sale of loans during the first quarter. Loan originations for the first quarter of 2011 were approximately $69 million (excluding SBA and residential mortgage loans), 73% of which were commercial real estate loans and 27% were commercial loans. This compares to total loan originations (excluding SBA and residential mortgage loans) of $112.4 million during the fourth quarter of 2010 and $61.8 million during the first quarter of 2010.

Loan Categories

Total deposits were $2.27 billion at March 31, 2011, down from $2.46 billion at December 31, 2010. The decline was experienced in all interest-bearing deposit categories. This decline was partially offset by a 4% increase in non-interest bearing deposits as a result of management's continued focus to attract demand deposits accounts.

Total other real estate owned (OREOs) was $8.5 million at March 31, 2011, down from $15.0 million at December 31, 2010.  Outflow from OREO in the first quarter of 2011 consisted of 21 sold properties totaling $12.8 million. Inflows to OREO in the first quarter of 2011 consisted of 8 properties totaling $6.3 million.

Capital Ratios

The Company's capital ratios continued to be in excess of "well capitalized" regulatory requirements as shown in the following table:  

The Company has developed a plan to strengthen all of its capital ratios which it expects to implement in the very near future.

STATEMENT OF OPERATIONS

Net interest Income and Margin

Net interest income before provision for loan losses totaled $29.3 million in the first quarter of 2011, an increase of 11.5% from $26.3 million in the fourth quarter of 2010, and an increase of 2.6% from $28.6 million in the first quarter of 2010. The increase in net interest income on a linked quarter basis was attributable to both an increase in interest income and a decline in interest expense. Compared to the same quarter of previous year, interest income declined 13.7% from $41.3 million to $35.6 million. The decline in interest income from the first quarter of 2010 is attributable to the reduction in average earning assets.

Interest expense declined to $6.3 million for the first quarter of 2011, a 20.4% reduction from $8.0 million in the fourth quarter of 2010 and a 50.3% decline from $12.7 million in the first quarter of 2010. The decline in interest expense reflects the improvement in the deposit mix, reduction in the cost of funds, and a reduction in deposits over the past year. Interest expense on deposits decreased to $5.1 million, a 24.4% and 54.3% reduction compared to the fourth quarter of 2010 and the first quarter of 2010, respectively.

Net interest margin was 4.53% in the first quarter of 2011, compared to 3.72% in the fourth quarter of 2010 and 3.65% in the first quarter of 2010. The increase in net interest margin from the previous quarter is attributable to a decline in funding costs and a lower level of interest reversals on non-accrual loans. On a year-over-year basis, net interest margin increased due to the continued decline in the cost of funds. Cost of funds declined to 0.88% in the first quarter of 2011 from 1.04% in the fourth quarter of 2010 and 1.55% in the first quarter of 2010.

Non-Interest Income

Non-interest income was $8.7 million in the first quarter of 2011, compared to $6.1 million for the previous quarter and $7.3 million for the first quarter of 2010. The increase from both the prior quarter and the prior year was attributable to an increase in gain on sale of loans. A portion of the increase in gain on sale of loans during the first quarter of 2011 was attributable to a change in the treatment of SBA loan sale transactions. During the first quarter of 2011, the Company originated $48.5 million in SBA loans, compared to SBA loan originations of $47.7 million in the fourth quarter of 2010.

Non-Interest Expense

Total non-interest expense was $17.5 million in the first quarter of 2011, compared with $19.7 million in the prior quarter and $14.2 million for the first quarter of 2010. During the first quarter of 2011, the Company incurred approximately $450,000 in severance expense related to the elimination of 20 positions, as part of a restructuring initiative to enhance efficiencies. The staff reduction and other expense reduction measures are expected to result in annual savings of $2.6 million. 

The decrease in non-interest expense compared to the prior quarter was primarily attributable to a reduction in OREO-related expenses and expense related to low income housing tax credit investments. The increase in non-interest expense from the first quarter of 2010 was primarily attributable to an increase in salaries and benefits expense due to severance payments and OREO-related expenses. 

Deferred Tax Asset & Effective Tax Rate

During the first quarter of 2011, the Company reviewed its deferred tax asset. Due to a decline in income for the past two quarters, the Company's cumulative three-year historical income was reduced to where a valuation allowance on the deferred tax assets was required in the first quarter of 2011. As a result, the Company recorded net tax expense of $38.1 million to reflect the creation of a valuation allowance on its deferred tax asset. Based on its current business plan, management believes that its future level of profitability will exceed projections utilized for the purpose of evaluating the deferred tax asset.

The effective tax benefit rate excluding the tax expense of $38.1 million that resulted from the deferred tax valuation allowance, for the first quarter of 2011 was 46.2%, compared to 44.5% for the fourth quarter of 2010. The effective tax rate for the first quarter of 2010 was 28.8%. The tax benefits relating to municipal investments, low income housing tax credits, and other state sponsored tax credit programs reduced the effective tax rates during the first quarter of 2010, while the same permanent differences have increased the tax benefit rates during the first quarter of 2011 and fourth quarter of 2010.

CONFERENCE CALL

Management will host its quarterly conference call on April 26, 2011, at 11:00 a.m. PT (2:00 p.m. ET). Investment professionals are invited to participate in the call by dialing 866-804-6929 (domestic number) or857-350-1675 (international number) and entering passcode 28610857.

COMPANY INFORMATION

Headquartered in Los Angeles, Wilshire State Bank operates 24 branch offices in California, Texas, New Jersey and New York, and six loan production offices in Dallas, Houston, Atlanta, Denver, Annandale, Virginia, and Fort Lee, New Jersey, and is an SBA preferred lender nationwide. Wilshire State Bank is a community bank with a focus on commercial real estate lending and general commercial banking, with its primary market encompassing the multi-ethnic populations of the Los Angeles Metropolitan area. Wilshire Bancorp's strategic goals include increasing shareholder and franchise value by continuing to grow its multi-ethnic banking business and expanding its geographic reach to other similar markets with strong levels of small business activity. Visit us at www.wilshirebank.com. 

FORWARD-LOOKING STATEMENTS

Statements concerning future performance, events, or any other guidance on future periods constitute forward-looking statements that are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations. Specific factors include, but are not limited to, loan production and sales, credit quality, the ability to expand net interest margin, the ability to continue to attract low-cost deposits, success of expansion efforts, competition in the marketplace and general economic conditions. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes included in Wilshire Bancorp's most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Results of operations for the most recent quarter are not necessarily indicative of operating results for any future periods. Any projections in this release are based on limited information currently available to management and are subject to change. Since management will only provide guidance at certain points during the year, Wilshire Bancorp will not necessarily update the information. Such information speaks only as of the date of this release. Additional information on these and other factors that could affect financial results are included in filings by Wilshire Bancorp with the Securities and Exchange Commission.

CONTACT: WILSHIRE BANCORP, INC. Alex Ko, EVP & CFO (213) 427-6560 www.wilshirebank.com