Wilshire Bancorp, Inc. Q3 2009 Earnings Call Transcript

Oct.27.09 | About: Hope Bancorp, (HOPE)

Wilshire Bancorp, Inc. (WIBC) Q3 2009 Earnings Call Transcript October 27, 2009 2:00 PM ET

Executives

Edward Han - First VP, IR

Joanne Kim - President and CEO

Alex Ko - SVP and CFO

Analysts

John Pancari - Fox-Pitt Kelton

Joe Gladue - B. Riley

Aaron Deer - Sandler O'Neil & Partners

Tim Coffey - FIG Partners

Don Worthington - Howe Barns & Hoefer

Jeannette Daroosh - JMP Securities

Dan Oxman - JAM Equity Partners

Operator

Good day, ladies and gentlemen. And welcome to the third quarter 2009 Wilshire Bancorp, Inc. earnings conference call. My name is Erika, and I will be your coordinator for today. (Operator instructions) We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions).

I would now like to turn the presentation over to your host for today’s call, Mr. Edward Han, First Vice President of Investor Relations. Please proceed, sir.

Edward Han

Thank you. And good morning, everyone. We appreciate you joining us today for our third quarter 2009 earnings conference call. Again, my name is Edward Han, and joining me are Joanne Kim, the company’s President and Chief Executive Officer; and, Alex Ko, Senior Vice President and Chief Financial Officer.

Earlier this morning, Wilshire Bancorp issued its third quarter earnings results, which can be accessed either through the Investor Relations tab at wilshirebank.com or from the various financial news Web sites. This call is being webcast and a post view will be available for one year on the company’s Web site.

Before we begin, I must remind you that during this call, we may make certain statements concerning Wilshire's future performance or events. Any such comments constitute forward-looking statements, and are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations.

These factors include, but are not limited to, the ability to grow market share in our markets, including New York and Los Angeles, success of new branches, marketing costs, loan growth and balance sheet management, credit quality, our ability to collect on past due loans, deposit generation, net interest margin expectations, interest rate exposure, global and local economic conditions, and other risks detailed in the most recent reports on Form 10-K and Form 10-Q as filed with the Securities and Exchange Commission.

Given these uncertainties, undue reliance should not be placed on such forward-looking statements. Wilshire Bancorp is under no obligation to update this information as future events or developments take place that may change these forward-looking statements.

First, Ms. Kim will provide an overall commentary on the third quarter. Following that, Mr. Ko will review our detailed financial results. Following his remarks, Ms. Kim, will provide an update on the loan portfolio and closing comments. We will then commence the question-and-answer portion of the call. With that, I will now turn the call over to Joanne.

Joanne Kim

Thank you. Good morning, everyone. I’d like to thank you for joining us for our third quarter investor conference call. I want to start by elaborating and providing commentary on our third quarter press release.

In what continues to be a challenging environment, Wilshire State Bank continues to perform comparatively well. Despite recording a net loss after boosting our loan loss provisions, the third quarter witnessed a number of positive accomplishments. We are adhering to a conservative, highly disciplined approach to our operations. And that is reflected in many of our key metrics. In spite of continuing difficulties we face in this economic environment, we managed to improve the strength of our balance sheet in many meaningful ways this quarter.

On a quarter-over-quarter comparison, our net interest income increased by 40% from the second quarter, thereby increasing our net interest margin by 51 basis points. We also experienced significant core deposit growth of 43% to $1.73 billion in the quarter, compared with the previous quarter, driving down our interest bearing deposit cost by 30 basis points.

The increase of core deposits has greatly increased our liquidity position as well. As for the nearest integration, personal acceptance has exceeded our expectations with deposit retention equaling about 95%. We closed four of the five branches, while carrying out workforce reductions and transitioning operation and systems seamlessly. Doing so has enabled us to realize the potential cost efficiencies.

Wilshire’s culture has been very focused on aggressively managing costs. With our continued asset growth, including the acquired Mirae loan portfolio, we are recognizing efficiency through scale. As our footprints expand, annualized operating cost as a percentage of average assets fell 29 basis points to 1.8% in the quarter, from 2.09% three months earlier. Our efficiency ratio in the third quarter stood at 40.26%, down from about 46% one year ago.

This third quarter, we’ve doubled our provisions for loan losses to $24.2 million compared with the second quarter. The increase in provision was a result of a comprehensive risk analysis of the bank’s commercial real estate loans. I believe now that we have sufficient reserves to cover potential losses and we improve our future earnings prospect.

I will go into more detail regarding credit quality later in the conference call. At this time, let me turn you over to our Chief Financial Officer, Alex Ko.

Alex Ko

Thank you, Joanne. And good morning, everyone. As Joanne mentioned, we had a substantial rise in net interest margin of 51 basis points from the second quarter. The expansion is a result of an increase in interest income coupled with decrease in cost of liabilities for the third quarter compared to the second quarter. During the quarter, we were able to re-price many of the higher rate deposits acquired from former Mirae Bank, while we manage to retain a large portion of their customers.

Total deposit costs were decreased 50.4% from the second quarter, while the yield on earning asset increased by 30 basis points. All of these positive factors contributed to the increase in our net interest margins. The increase in interest income was a result partially from the accretion of discounted portion of the loan acquired from the acquisition of former Mirae Bank. Other interest income attributed to the accretion of discounted loans, including those sold and paid off, was $4.4 million for the third quarter.

As you can see, our underlying core earnings performance remained strong and continues to improve. If we manage to successfully navigate through our credit issues this coming quarter, the potential for substantial profitability is there.

Non-interest income decreased from $28.6 million to $17 million on the quarter-to-quarter comparison. However, it should be noted that in the second quarter of 2009, we booked a gain of $21.7 million from the acquisition of former Mirae Bank. Not including the acquisition gain, non-interest income actually increased by some $89,000 this quarter. We did not sell any investment securities in the third quarter, and therefore, there was no gain.

As a result of the extensive cost savings, such as the closing of the acquired branches, reduction in personnel from 421 to 387 employees, and through vigorous other means, our efficiency ratio was improved to 40% as of September 30, 2009. The improvement is based on comparison, not including the one time acquisition gain from the second quarter.

Non-interest expense meanwhile increased slightly in the third quarter to $14.8 million from $14.1 million, largely due to an increase in salaries and expenses of $1.1 million. FDIC assessment fee was reduced from $2.2 million in the second quarter to $982,000 in the third quarter.

Our effective tax rate for the nine months that ended September 30, 2009 was 38%. This is down from 48.3% in the prior quarter. The decrease in effective tax rate is actually from significant increase in low income housing tax credit relative to income.

On the balance sheet side, our long term strategy to increase our core deposit rates and decrease our reliance on the high cost from the (inaudible) continue to make an impact. During the third quarter, core deposits increased by $520 million or 42% from the second quarter, an increase by 100% from the end of the last year.

(inaudible) CDs, meanwhile, was decreased by $207 million or 18% from the second to the third quarter. As a result, our liquidity has greatly improved, and we were able to pay down all of the local deposits acquired from Mirae Bank to further reduce our deposit cost. While the mix of our deposit was greatly improved, total deposit increased to $2.7 billion or 9% from the second quarter. I want to emphasize that during the fourth quarter of 2009 and the first quarter of 2010, more than $650 million in time deposits will mature, and we expect to re-price these CDs at a lower rate upon maturity.

Moving on to loan portfolio. Gross loans increased by 2% or $45.6 million in the third quarter. Third quarter loan originations accelerated by 15% to $184 million from $159 million in the preceding period. We continue to focus on revenue growth through sound earnings assets and the lowest (inaudible) are underlying -- underwriting reflect our conservative approaches and rigorous credit quality standards.

(inaudible) payment originations advanced 28% quarter-over-quarter, rising to $15.6 million from $12.5 million in the preceding period. Year-over-year, our scale lending is up more that 50%, but still below critical level. We continue to believe that this segment will continue to recover. To that end, the premium of (inaudible) level in the third quarter as a secondary market continues to open and the originations gain momentum.

As of September 30, 2009, fully unrealized gain on securities worth $13.6 million, an increase of $6 million from the prior quarter. Our tax acquisition continues to remain strong with all ratios well in excess of well capitalized regulatory guidance as disclosed on our earnings release.

With that, now I will pass to Joanne.

Joanne Kim

Thank you, Alex. Let me start by commenting on increased provision for loan losses. With provisions for loan losses of $24.2 million during the quarter, our allowance for loan loss coverage increased to 2.24% of gross loans, and 2.52% for legacy Wilshire growth loans. As a result of the comprehensive review of CRE collateral, we deemed it prudent to correctively and quickly increase loan loss reserves to reflect the higher LPV ratio and credit quality deterioration.

Our rationale was to take one time corrective steps to have sufficient reserve and to remove uncertainties for our future earnings prospect. It is important to note that we already marked down the entire Mirae Bank loan portfolio to its fair value, reflecting the expected credit cost at the time of the acquisition in the second quarter.

As a result of this mark down, and our analysis on the adequacy of allowance for loan losses on former Mirae Bank portfolio as of September 30, ’09, we are comfortable with the minimum reserve on the Mirae portfolio. In fact the credit metrics for the former Mirae portfolio is actually outperforming our initial projections, as evidenced by receiving unexpected recovery from previously charged off loans and the subsequent sales of problem credit in excess of the fair value of the loans.

During the third quarter, we achieved significant positive momentum with the substantial reduction in delinquencies. In particular, legacy Wilshire’s delinquent loan decreased by $40 million or 67%, of which $44 million or 85% was in commercial real estate loans. Although 30 to 89-day delinquent loans decreased by a sizeable amount, we noticed an increase of $28.3 million in non-accrual loans during the third quarter.

This increase consisted of $17.6 million in legacy Wilshire and $10.7 million in Mirae loans. The credit risk on the $10.7 million Mirae loans is only 20%, since 80% of its loss is covered by FDIC loan-share agreement.

Of that $17.6 million newly added, non-accrual loans, three lending relationships with an aggregate $14 million from the legacy Wilshire portfolio were added. Eight made up of a $6.1 million (inaudible) loan, $4.3 million hotel loan, and a $3.6 million home mortgage loan.

The credit problems faced by these borrowers, resulted from the decrease in revenue caused by economic difficulties. All of the above loans were identified as problems loans in the previous quarter, and migrated to non-accrual status in the current quarter. However, we believe that non-accrual loans have reached its peak in the current quarter. And we expect balances to decrease in the next quarter, based on a significant reduction of 30 to 89-day delinquent loans during the third quarter, and the resolution of non-accrual loans through expected migration to accrual loans, pay offs, loan sales and aggressive charge offs in the fourth quarter.

Let me move on to our CRE loan portfolio. Expected increases in vacancy rates and decreases in commercial property values raised general CRE credit and refinance risks in the marketplace. As we discussed during the second quarter earnings release, we completed a detailed CRE credit risk analysis, including a comprehensive (inaudible) value review using updated appraisal reports, and resulting stress tests during the third quarter.

CRE loans, which include multi-family loans is roughly 76% of our total portfolio as of September '09. The total CRE loan portfolio -- I'm sorry, increased by $357 million to $1.88 billion, compared to $1.52 billion at December '08. The decrease -- I'm sorry, the increase includes the acquisition of $196 million from the Mirae Bank's CRE portfolio, 80% of which is covered by FDIC loan-share agreement.

As stated on page four in our earnings release, (inaudible) of total CRE loan is to retail borrowers. Retail borrowers mainly consist of carwash, gas stations, restaurants, and income producing retail shopping centers. Based on the appraisals, the updated LCD for retail type remained low at an average 67%, with carwash being 66%, gas station 73%, retail shopping center 59%, and restaurants at 57%.

Consistent with higher LCD in carwash and gas station loans, the delinquencies and non-accrual loans -- loan ratios were relatively higher on both of these loan types than other CRE loans. Our carwash and gas station loans are well seasoned. And only 2% and 4% of the loans are due for refinance or have maturities in 2009 and 2010, respectively. Most of the loans have personal guarantees from the borrowers, as well.

We completed a comprehensive review of collateral values and disclosed the results on page five of the earnings release. We appraised the underlying collateral properties on $364 million CRE loans, which represent 19% of our total CRE portfolio. It covers 15% of legacy Wilshire CRE loans, and 53% of Mirae's CRE loans, and basically covered all non-performing loans, TDRs, OREOs, and all classified credit. We believe that these loans should have higher impairment, and we wanted to build appropriate reserves for the troubled assets.

The loans not considered impaired, for example, performing, criticized, and classified loans, we also allocated reserves for the underwater collaterals in an attempt to be as conservative as possible. We believe that the increase in allowance for loan loss is sufficient as of September 30, 2009.

We anticipate that it will be challenging for commercial real estate borrowers to obtain refinancing until 2011, since many community banks are not in a position to actively lend, and because commercial real estate valuation are expected to remain low. However, our commercial real estate loans are well seasoned and were underwritten with longer terms. Respective 6% and 9% of our CRE portfolio is due for refinance in 2009 and 2010, and 75% of our CRE loans are due for refinance in 2012 and beyond.

We believe that the refinance risk of our CRE portfolio is low, compared to other general CRE market concerns. We completed our own comprehensive stress test on our CRE portfolio in the third quarter. The result shows that we have currently sufficient equity to withstand credit losses, including expected value declines in CRE loans, and increased refinance risk.

In summary, during the quarter we were aggressive in recognizing problem loans and allocating sufficient allowance for loan losses. We believe that this strong credit metrics will allow us our CRE portfolio to continue to perform better than other commercial real estate loans that you may see in the marketplace. And we believe that our loans will be resilient to expected value declines and increased refinance risks.

Before opening the call to questions, I wanted to share some perspective and outlook about Wilshire, moving forward. As you could see, we built a strong foundation to take advantage of the opportunities ahead with improved earning power, both in net interest income and non-interest income, reduction of operating costs, strong levels of capital and strengthened reserve, along with substantial reduction in delinquent loans. The provision for loan losses, we recorded sufficiently cleared the debt of non-performing assets that may emerge, and enables us to focus on the course ahead.

We approach that future with a sense of confidence and cautious optimism. The economy is showing its first green shoots of recovery. I think we are well positioned to play a leadership role in the community we serve. We opened a second Texas branch in Fort Worth, and our 23rd branch during the third quarter.

In the fourth quarter, we will be opening a satellite branch in Van Nuys, California, which complements our existing, full service regional office in the San Fernando Valley. We have seen simply a phenomenal deposit growth in this Los Angeles (inaudible). The new branch represents our model of expansion, building out a number of satellite offices in support of a regional hub.

Also, we are in the process of forming our corporate lending group, which focuses on corporate business lending to seasoned corporate borrowers, as well as centralizing the existing corporate lending relationships so that enhance risk management and provide quality services to our corporate borrowers.

With that, it finishes our prepared remarks. And thank you for listening.

Edward Han

Okay. We'll open the call to questions now. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from the line of John Pancari with Fox-Pitt Kelton. Please proceed.

John Pancari - Fox-Pitt Kelton

Good afternoon

Joanne Kim

Good afternoon, John.

Alex Ko

Hello, John.

John Pancari - Fox-Pitt Kelton

Could you just -- if you can possibly reiterate what you said? I just want to make sure I understand you correctly that when you indicated that you expect that this quarter could mark a peak in your MPAs given the measures that you took from the stress tests and the reappraisals this quarter?

Joanne Kim

Yes. As I said in our statement, our delinquencies in 30 to 89-day categories were substantially reduced. Generally, as you know, loans migrate from delinquent loans to non-accrual loans. Our (inaudible) in that 30 to 89-day category has been reduced substantially. And on top of that, we've been addressing these non-accrual loans in an aggressive manner by charging off those loans or selling off some of those notes.

While simply some of these loans, actually approximately about $9 million of these non-accrual loans are paying loans. And these loans will be migrated out to accrual loans. So with that, we believe that the level has peaked during third quarter.

John Pancari - Fox-Pitt Kelton

Okay. And could you help me understand how much would you say of the increase in non-accrual loans this quarter resulted from your review and your reappraisal process, versus new non-accruals that surfaced during the quarter by result of ordinary default?

Joanne Kim

The non-accrual loans had something to do with the performance -- payment performance. The fact that the values decreased as a result of an appraisal -- updated appraisal that does not necessarily put a performing loan to a non-accrual loan status. It's two separate issues.

So what we did -- the result of the updated appraisal reports caused us to set aside additional provisions to address that value decrease. However, again it does not cause that particular loan to move to a non-accrual status as long as they are making payments. We don't put that loan in non-accrual status.

Alex Ko

And let me add a little bit more color on the appraisal. If you look at our allowance component, we have, in our FAS-1, 14 impaired loan versus general reserve. And compared to Q2 prior to value update, we have an impaired loan reserve of about $6.3 million, which increased to $15.6 million. That's about 150% increase on the impaired loan reserve. And that increase is mainly reflecting those appraisal updates.

John Pancari - Fox-Pitt Kelton

Okay. All right. And then, in terms of the TDRs, it looks like you broke out the TDRs this quarter and excluded them from MPLs and MPAs, and wanted to get an idea of your thought process around excluding them. I know you included them in MPAs last quarter.

Alex Ko

Yes. I have to be honest with you. There is actually, in the industry, there's a very diversified disclosure. And we look at the very details of the TDR. And by definition -- let me start with the definition. If we gave them a concession, that is a TDR regardless if it was a performing or non-performing. And I understand that historically, those TDRs were restructured at the time that it was a non-core or non-performing. And then they just gave the concession and it remained at the non-accrual or non-performing loan.

However, looking at our TDR, when we restructured those loans, those loans were all performing. And it was not non-accrual. And we received an additional down payment so that we enhanced our credit (inaudible). So that's why it remained still at a performing TDR. Which is a little bit different from our traditionally what we have seen, troubled and non-accrual in our TDR. So that's why we wanted to have a fair disclosure to indicate that it is a performing with just an interest rate reduction. That's the only concession that we gave them.

John Pancari - Fox-Pitt Kelton

Okay. All right. And then lastly around the margin, given the amount of CD re-pricing that you expect, can you give us an idea -- some color on where you expect the margin could trend here in the coming quarters?

Alex Ko

Yes. As you know, we have a substantial increase on the margin, about 51% is -- let me start with the -- what caused the -- on the increase in margin for the third quarter, and then move on to our expected on the Q4 margin.

First of all there was accretion of the loan portfolio that we purchased from Mirae Bank that contribute about 21 basis point out of the 51 basis point increase. And the non-accrual reversals that had a negative impact of 10 basis points. And also, our loan volume and rate increase have about 36 basis point positive impact on our margin.

With that, going forward, modeling expectation, I think we will keep re-pricing our deposit at a lower level. I mentioned about this on the $50 million (inaudible) price in Q4 and on next year. Those will be much --re-priced at a much lower rate. And we continue to see loan accretion. However, that loan accretion is really depends on the differences between the initial cash flow that we expected at the time of acquisition versus the actual cash payment we receive. It can be a negative impact to our margin going forward.

But I know, since the Mirae portfolio is performing a little bit better than we expected initially, and if we keep continue to this trend of excess cash received, meaning the P&I reduction than the initial projection, we will have a -- continuous to have loan accretion. I don't know how much the loan accretion will be exactly in the Q4. It might be one of the (inaudible) that might impact on the margin.

With that, I'd say it will -- we have substantial increase in the Q3. So we expect to maintain that -- the rate, healthy rate.

Joanne Kim

Healthy accretion.

John Pancari - Fox-Pitt Kelton

Okay. Thank you.

Joanne Kim

You're welcome.

Operator

Our next question comes from the line Joe Gladue with B. Riley. Please proceed.

Joe Gladue - B. Riley

Okay. Thank you. Hi. I'd like to follow up a little bit on that last thread there. First off, just looking at the balance covered loans from the end of second quarter to the end of third quarter, it looks like it decreased about $11 million. You charged off a little over $500,000 of that. So that's the 20%. It suggests to me that about $2.6 million was charged off of that. Which means the remaining about $8.5 million of that reduction to me, either suggests pay offs, or loans sales, or whatever. Just wondering if you could give me some idea what's causing the decrease in the covered loan portfolio?

Joanne Kim

You guessed it correctly.

Alex Ko

And also, as I mentioned earlier, there was an accretion factor. Meaning there was a true unexpected transaction. One was a total pay off. We lowered our loan portfolio to fair value after the acquisition accounting. When we sold those loans, it was higher than fair value which was already marked down. So that and the sale of the loans had good impact to the loan accretion. And also, there is a pay off -- unexpected pay off on the former Mirae Bank. So those two had an impact to the accretion as well as the decrease on the covered loans.

Joe Gladue - B. Riley

Okay. And just to understand a little bit better that accretion, that's because there's greater cash flow than you would have expected on that acquired portfolio. So it's actually -- it does represent actual cash. It's not just an accounting convention or whatever. Is that--?

Alex Ko

Yes. That's a fair -- yes. I agree with you. So we expect -- we marked down the gross value, for example $240 million, and of course we purchased it and we marked down to $285 million on day one. And that mark down is related to credit component. And that credit component is based on the expected cash flow.

And if we compare that expected cash flow with the actual payment we received, including pay off and a sale, and it was an asset that will be accreted to the interest income.

Joe Gladue - B. Riley

Okay. And let me just ask about expenses going forward. All the branch closures and everything were pretty much accounted for in the acquisition. Any reason to think that, I guess, the run rate of expenses in the third quarter, is that pretty good run rate to look at going forward or is there any potential for further reduction -- for any reductions there?

Joanne Kim

I believe the third quarter expense includes -- because during the third quarter period, we maintained majority of the Mirae -- former Mirae Bank staff. And then, we kept our -- all five branches were opened. But as of now, during the fourth quarter, four closed down, and workers' reduction was completed. So we will receive further reductions in the operating expenses in forms of salary expenses and the rental -- the rent expenses finally in those two areas.

Joe Gladue - B. Riley

Okay. But there wouldn't be any severance costs or severance, or anything in there, would there?

Joanne Kim

No.

Joe Gladue - B. Riley

That's all.

Joanne Kim

All right.

Joe Gladue - B. Riley

Thank you.

Joanne Kim

Okay.

Operator

Our next question comes from the line of Aaron Deer with Sandler O'Neil & Partners. Please proceed.

Aaron Deer - Sandler O'Neil & Partners

Hi. Good morning, Joanne. And good morning, Alex.

Joanne Kim

Good morning, Aaron.

Alex Ko

Good morning.

Aaron Deer - Sandler O'Neil & Partners

A few questions, first of all, the -- putting some good information on the updated loan-to-values in the press release. I noticed in particular that the hotel/motel origination LTV versus updated LTV. There's a four basis -- a four-point difference. I'm wondering, how would that -- has been different for the actual loans that were reviewed because it looks like the loans that were actually reviewed, negative difference was wider? Is that correct?

Joanne Kim

Could you reiterate your question? I--

Aaron Deer - Sandler O'Neil & Partners

I'm wondering if--?

Joanne Kim

Some hotel side, yes.

Aaron Deer - Sandler O'Neil & Partners

--if there's a difference between the overall origination LTVs and updated LTVs that are published in the release versus those of the actual loans that you might have reviewed during the quarter?

Alex Ko

Yes. Actually, that's correct. The increase from 61% to 65% is entire loan portfolio in the hotel/motel side, including what we have reviewed. But if you -- I think the question is, what is the change of loan-to-value for the (inaudible) as example. We have that figure. And it has from -- original LTV was at 63%, and it has updated to 85%.

Joanne Kim

The loans that have an updated appraisal.

Aaron Deer - Sandler O'Neil & Partners

Right, okay.. And then, the SBA production, it sounds like you guys are ramping that up with the spreads on the sales -- I mean, come back. What kind of production and sale activity would you expect in the fourth quarter and then heading into next year?

Joanne Kim

Well I guess, as Alex mentioned briefly during his presentation, it has picked up. Compared to our previous loan origination activities, it is still relatively low. But we feel we have kept our loan production offices. And then, several of these loan production offices are pretty busy. And we have filled our SBA loan inventories in our pipeline. So going forward, I believe that our SBA loan origination will be a lot stronger. And we continue -- we intend to continue selling these SBA (7)A loans to generate premium income.

During, actually, the third quarter, we've sold approximately $21 million worth of SBA (7)A loans. And we received about $1.5 million premium income, which is about 7.8% premium income, which compares a lot stronger, 4.1% in the second quarter or average 5% in 2008 premium income -- premium ratio. So I believe that this premium will remain strong. So we will continue focusing on SBA loan originations.

Aaron Deer - Sandler O'Neil & Partners

That's great. I apologize if you went over. The audio quality was kind of poor.

Joanne Kim

I think our -- we don't know what happened here, but--

Aaron Deer - Sandler O'Neil & Partners

That's okay. One last question on the loan maturities, just to clarify, the 2009 CRE loan maturities that are in the press release. Was that the full year maturities or is that just fourth quarter earnings? I just want to make sure that that was the full year numbers. It seems pretty big if it's just the fourth quarter.

Alex Ko

So fourth quarter, you have a breakdown each year -- that each year those remaining 6% -- for the remaining fourth quarter of maturities. And in 2010, 9% of $164 million of the entire year of loan maturities.

Aaron Deer - Sandler O'Neil & Partners

Okay. So this fourth quarter is going to be an active quarter?

Joanne Kim

I think the reason why it seems somewhat higher is we have the -- some of the -- you know that our TDRs have increased. And when we do -- when we review our TDR loans, our maturity or the term is rather short of six months or shorter. And many of these TDR loans come in view rather quickly. And we intended to do it that way so that we can frequently revisit all those loans and assess the risks in those loans. And that's the reason why the immediate 2009 fourth quarter loan maturity is high.

Aaron Deer - Sandler O'Neil & Partners

Oh, that's great. That's very helpful. Thank you both of you.

Joanne Kim

You're welcome.

Alex Ko

Okay, Aaron.

Operator

Our next question comes from the line of Tim Coffey with FIG Partners. Please proceed.

Tim Coffey - FIG Partners

Hi. Good morning, everybody. How are you doing?

Joanne Kim

Fine. Thank you. Hi, Tim.

Tim Coffey - FIG Partners

Yes. Hi. I'm wondering, when is the dollar amount of reserved -- of specific reserves to outsource commercial real estate?

Alex Ko

About $25 million of CRE out of $54 million.

Tim Coffey - FIG Partners

Okay.

Alex Ko

And actually, I do (inaudible) higher amounts of the construction -- construction of CRE altogether, about 53% is CRE related.

Tim Coffey - FIG Partners

Okay, okay. The thinking behind what came through on the accretional [ph] loans, and then this course in Mirae, did you target specific loans or are groups of loans and decide, "We want to get these paid off early"? Or was it just kind of a natural rollover?

Joanne Kim

No.

Alex Ko

No. We didn't specifically target. It was actually -- as I mentioned earlier, it was an executive -- we always try to resolve the problem loans by selling or asking for the payment. But those accrual transactions that we didn't anticipate, but it turns out to be payoff, and a sale, and a gain.

Tim Coffey - FIG Partners

Okay, okay. So would it be safe to say that a majority of payoffs this quarter were unexpected?

Joanne Kim

Oh--

Alex Ko

No. I don't think it is unexpected. Obviously, we have the expected terms for the loans. But these are accrual [ph] loans that what happened in Q3 was unexpected. But we do have a schedule. We know how do we expect to receive on all those covered loans.

Tim Coffey - FIG Partners

Okay, okay. How much of the commercial real estate portfolio was reappraised?

Joanne Kim

There was about $300 million of the dollar volume, $300 million -- about $350 million.

Tim Coffey - FIG Partners

Okay.

Joanne Kim

This is about 19%.

Tim Coffey - FIG Partners

Okay. Are you removing TDRs from non-accruals once they're older than six months?

Joanne Kim

Well, I guess the -- for the TDRs are not in non-accruals. All of our TDRs, as Alex mentioned before, they are performing on our new modified terms. All payments have terms, and we never ask for the -- do a restructure while these loans were in non-accrual status. All of these restructures were done while these loans were in delinquent status. So again, none of our TDRs are in non-accrual loans. And as long as they perform six months or longer on a really (inaudible) terms, we would revisit that and see whether we can convert back to a regular loan.

Tim Coffey - FIG Partners

Okay. All right. Thanks, Joanne. Those are all my questions, appreciate it.

Joanne Kim

Okay.

Alex Ko

Thank you.

Operator

Our next question comes from the line of Don Worthington with Howe Barnes & Hoefer. Please proceed.

Don Worthington - Howe Barns & Hoefer

Please proceed.

Joanne Kim

Good morning, Don.

Don Worthington - Howe Barns & Hoefer

Good morning. A couple of things, in terms of a gain on sale, I think you mentioned that a portion of it was SBA related. What was the rest of it, the $2.2 million?

Alex Ko

The $2.2 million actually consists of about 50 SBA loans, about $1.6 million. And the one that I mentioned earlier for the Mirae problem loans on the effective sale, we have a gain of $615,000.

Don Worthington - Howe Barns & Hoefer

Okay. And then, in terms of, I guess, capital. I mean clearly, the regulatory capital ratios are good. But you do have a shelf registration out there. Do you have any thoughts in terms of raising capital, either to pay back TARP or to do another deal?

Joanne Kim

Well again, as we stated in our statements, that shelf is for the future business expansion, which includes our future acquisition or our top repayments. So there are no changes now in our purpose of shelf registration. And going forward, we may do so as the need arise.

Don Worthington - Howe Barns & Hoefer

Okay.

Joanne Kim

That's their statement.

Don Worthington - Howe Barns & Hoefer

And as far as TARP, are you happy to hold on to that for now?

Joanne Kim

I guess that we actually revisit the top repayments on a semi-annual basis. So our next review to post level is due in December. So I am sure they will have a chance to discuss it, and make a decision as to how -- what we're going to do about it. As far as our top utilization system, we have used this fund very efficiently in our Mirae acquisition.

Don Worthington - Howe Barns & Hoefer

Okay. Thank you. And then in terms of -- when's your next regulatory exam?

Joanne Kim

Actually, they start next week.

Don Worthington - Howe Barns & Hoefer

Okay. And I guess I just have one more. Alex, you mentioned the specific reserves against impaired loans. What's the balance of impaired loans this quarter versus last?

Alex Ko

Well, impaired loan balance is $128 million. And last year, it was $67 million.

Don Worthington - Howe Barns & Hoefer

Is that last year or last quarter?

Alex Ko

I'm sorry, last quarter.

Don Worthington - Howe Barns & Hoefer

Okay. All right. Thank you very much.

Operator

(Operator instructions) Our next question comes from the line of Jeannette Daroosh with JMP Securities. Please proceed.

Jeannette Daroosh - JMP Securities

Yes. Good morning. Thank you so much for taking my questions. I was wondering if you could provide us with a little bit more detail on the loans that you have restructured. I think your balance is now at approximately $56 million. So I was wondering about what types of loans and the type of concessions that were provided.

Joanne Kim

Okay. And actually, our restructured TDR loans were increased by about $45 million in the third quarter to $66 million from $21 million. Actually, it includes -- it is caused by one large relationship that we've been working, which is the borrower who has a seven (inaudible) common project of more than $32 million. That's a relationship of seven of common buildings holding $32 million worth of loans in -- on a workout stage with us, and they've been performing on modified terms. But it was not specified as TDRs because no concessions were given to them during that workout period.

However, during the third quarter, we -- actually, we moved the floor that was set on the loans. And it's actually lowering the interest rates a little bit. So that really triggered that we record these loans to TDRs. That alone was $32 million, and that's the reason why you saw a substantial increase in TDRs in the third quarter.

Jeannette Daroosh - JMP Securities

Okay. Thank you. And then, in terms of your provisioning, obviously, you took a rather substantial provision in the third quarter, and put most of it into your reserve. How should we look at this on a forward-going basis? Is there a specific target reserve ratio, reserve-to-loans, that you are working towards?

Joanne Kim

Well actually, reserves, our calculation you saw from the systems that's in place. As I stated in my statement, the $24.2 million provision expense includes a one-time reserve requirement caused by a value decrease as a result of the appraisals. We will continue to review the underlying collateral value of these impaired loans.

However, we recognize a substantial portion of it during the third quarter through this massive appraisal update. And going forward, of course, we'll be -- or we do not anticipate any substantial another one-time provision expense. So with that, we will continue to build our reserve on as needed basis based upon our regional calculation method, based upon FAS-5 and FAS-1 booking.

Jeannette Daroosh - JMP Securities

Okay. And then, in terms of charge offs. Given that you've been very proactive and you've had another jump in your non-accruals this quarter, which you anticipate is probably your peak level, should we be thinking about another quarter of aggressive charge offs before they start tapering off.

Joanne Kim

Yes. You will see -- as we said, we are going to aggressively charge off our loans. And we look at our non-accrual loans, roughly about $17 million of our non-accrual loans are bankruptcies. So while waiting for the bankruptcy proceeds to resolve the cases, we have roughly $14 million while we filed NOD. But we believe that the (inaudible) value is worth -- was higher than our actual loan amounts. So we have -- and then about $9 million of non-accrual loans are performing loans. So basically, $44 million out of $77 million non-accrual loans. So with this -- the remaining portion, we intend to aggressively charge off as we move along fourth quarter and on.

Jeannette Daroosh - JMP Securities

Okay. So in the press release, the $8.5 million that you referenced that you would (inaudible) to rebuild in 4Q, (inaudible) going to these three sales?

Joanne Kim

One is the migration out to performing loans, about $4.3 million. And then, the others are through some sale, sale of (inaudible).

Jeannette Daroosh - JMP Securities

Okay, okay. And then, in terms of any kind of growth prospects for the loan portfolio, obviously, you're focused on SBA lending. Is there anything else that we should be considering in terms of loan growth over the next year?

Joanne Kim

Again, SBA lending -- we will focus on SBA lending. As I mentioned, we are in the process of forming a corporate lending group. Obviously, the first focus is to really -- to enhance our creditors in that portfolio and our presence in that market. That middle market business loan relationship is pretty strong in our market. Many of the Korean-American business and non-Korean businesses are (inaudible) of rules substantially. And we see a lot of opportunities in that area. So we cautiously are moving into that market to expand our presence in the area.

And of course, commercial real estate lending is -- still remains strong. But we'll be very, very cautious. In recent months, the loan-to-value ratio that we are using is actually less than 60% in new loan originations. And we're very cautious. And our borrowers or investors are also very cautious when they invest.

Jeannette Daroosh - JMP Securities

Okay. And then, finally, the deposit growth that we put to -- over the last year or so has been phenomenal. What should we expect going forward? Are you going to continue to see this high deposit growth? Is it because you are gaining deposits from competitors or is there some other reason that's driving up the deposit balances?

Joanne Kim

I think, it could be explained in -- we are (inaudible) the fact that we are the strong (inaudible) in our community. Actually, that really helped us in gathering those deposits. And then, the other important factor is that we've been moving into un-Korean communities very, very strongly. We are very -- we are well known in other ethnic communities. And we are being recognized.

If you look at our deposit increase, a substantial portion of this deposit increase is change from non-Korean, multi-ethnic (inaudible). So we are very, very happy about it. And I think, if our strategy in expanding our deposit base in -- outside of the Korean-American community, we expect to see continued success in deposit growth.

Jeannette Daroosh - JMP Securities

Okay. Thank you so much.

Joanne Kim

Welcome.

Operator

The next question comes from the line of Dan Oxman with JAM Equity Partners. Please proceed.

Dan Oxman - JAM Equity Partners

Hi. A quick question, you've been aggressively reappraising the loan portfolio. Can you estimate what percent of the entire loan portfolio you think has been reappraised year-to-date?

Joanne Kim

Through this appraisal, as I said, 19% were updated since -- during this third quarter period. But as we -- as the loans come in view for renewal or expansions, or some readjustments, modifications, we'll look at the underlying flow. And if we believe that there is a substantial value change, we always perform updated appraisal. So I believe that -- I don't have the precise percent other than the 19% that we performed in the third quarter.

But we have many, many loans come in view as those loans are maturing. All of these loans have a maturity -- I mean, updated appraisal. Maybe, Dan, I will probably go into that figure, and find out how much of our loans have an updated appraisal report, at least from the -- during 2009. I will get back to you on that one.

Dan Oxman - JAM Equity Partners

I appreciate that. Thank you very much.

Joanne Kim

Okay. I'm going to leave the (inaudible) information.

Operator

We have no further questions. I will now turn the call back over to Edward Han for closing remarks.

Edward Han

Okay. Thank you. This concludes the conference call. And on behalf of our management team and the Board of Directors, I would like to thank everyone again for your participation, and continued interest and support of Wilshire Bancorp. If you have any further questions, please feel free to contact us directly. Thank you.

Joanne Kim

Thank you.

Alex Ko

Thank you.

Operator

Thank you for your participation in today's conference. This concludes the presentation. Everyone, have a great day.

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