High-flying Korean-American bank faces slower growth.

Wilshire Bancorp has been a regular on best-of-business lists in recent years, capturing a spot on Fortune's fastest-growing companies list and the All-Star Team at U.S. Banker magazine. And with good reason.

Los Angeles County's sixth-largest ethnic bank has assets of $1.8 billion, and over the past three years it has seen annual average profits rise 45 percent and revenues grow 40 percent. Its share price is up almost a third over the past year.

Yet with interest rate hikes nibbling away at one of its great strengths--non-interest bearing cheap deposits--and increasing competition for its core Korean-American business, the bank is facing impediments to its growth that other area ethnic institutions also are grappling with themselves.

Both James Abbott at Friedman Billings Ramsey and Joe Gladue at Cohen Bros. & Co. believe the company's stock, now trading just under $19 a share, is close what they consider its $20 fair value. Gladue notes shares have traded at a higher price-to-earnings ratio than Nara Bancorp and Center Financial Center, similar-sized L.A.-based Korean-American banks.

"While we believe Wilshire's growth prospects warrant a premium valuation, the current premium leaves little opportunity" for shareholder gains, Gladue noted last month when he cut the stock's rating to "hold." Abbott has rated the shares at "market perform" for some time.

Even so, Wilshire boasts several factors in its favor in the ever tightening competition among ethnic banks, especially its greater diversity of Jewish, Hispanic and African-American customers. Part of that stems from the bank's origins--the majority of its starting capital in 1980 came from Jewish businessmen who continue to be represented on its board.

Still, the bank's heart is clearly in Koreatown, where its headquarters sit at Wilshire Boulevard and Vermont Avenue.

"Our market has been growing 20 percent a year the past five years and much of that comes from the money that people bring from Korea," said Chief Executive Soo Bong Min, a native Korean who came to the U.S. in 1994. "Our relationships, that is our strength. Bank of America has opened a branch in Koreatown and hired Korean-speaking tellers, but we don't consider them our competition the way we would other Korean banks."

Wilshire, like some other ethnic banks, has expanded rapidly beyond its roots in recent years through a strategy to increase both loan production offices and de novo branches, which now stretches into nine states.

Much of the growth has been in California and Texas, but the bank's $14.5 million cash-and-stock acquisition of Liberty Bank of New York in May gave Wilshire a key foothold in a city that has the nation's second-largest Korean-American population after L.A., giving it 19 total branches.

Meanwhile, its seven loan production offices have capitalized on Wilshire's status as a Small Business Administration preferred provider, which means it can offer shorter processing times than many competitors. Until recently, the bank also benefited from less competition in the SBA sector for the business of minority entrepreneurs.

The bank specializes in originating SBA-secured loans and then selling them to real estate investment trusts and other financiers who package them as mortgage-backed securities. Its largest source of non-interest income in 2005 was the $8.3 million gain on the sale of the loans. In the second quarter, Wilshire sold $43 million worth of loans, up 30 percent from a year ago.

Still, investors are worried that Wilshire's loan production might turn sluggish if a slowing economy discourages small business borrowing, said Abbott at Friedman Billings.

On the consumer side, Wilshire's high concentration of non-interest-bearing accounts--similar to other ethnic banks and at 44 percent of deposits--has provided a buffer as rising short-term rates increase the costs of holding deposits.

"So many banks have opened in this town and they try to establish market share by offering high-interest-rate timed deposits," said Chief Financial Officer Brian Cho, not-ing his bank's conservative cost-control focus. "We cannot be left out and we do offer competitive interest rates."

Recent bank initiatives to exploit untapped consumer markets have focused on increasing its consumer loan business, with residential real estate now only comprising 3 percent of its loan portfolio. Despite the sluggish housing market, Cho said there is room for measured growth since Korean businesspeople who buy homes tend to make large down payments, reducing the bank's risk.

Wilshire Bancorp Inc.

Ticker: WIBC 

Business: Commercial banking services.

Hindquarters: Los Angeles

CEO; Soo Bong Min

Target Market: Korean-Americans, with increased focus on Hispanics and Blacks

Assets: $1.9 billion

Market Cap: $540.8 million

2005 Net Income: $27.8 million

Source: Business Journal research

By DEBORAH CROWE

Staff Reporter