UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

Hanmi Financial Corporation
(Exact name of registrant as specified in its charter)

(213) 382-2200
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

    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 /x/  No / /

    As of September 30, 2001, there were approximately 12,548,016 outstanding shares of the issuer's Common Stock, with par value at $.001.

FORM 10-Q
INDEX
HANMI FINANCIAL CORPORATION

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HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

    See accompanying notes to unaudited consolidate financial statements.

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HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)

    See accompanying notes to unaudited consolidate financial statements.

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HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)

    (Amounts in thousands)

See accompanying notes to unaudited consolidate financial statements.

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Notes to Consolidated Financial Statements

Note 1. Hanmi Financial Corporation

    Hanmi Financial Corporation (the "Hanmi Financial" or the "Company") is a Delaware corporation incorporated on March 14, 2000 pursuant to a Plan of Reorganization and Agreement of Merger to be the holding company for Hanmi Bank (the "Hanmi Bank"). The Company became the holding company for Hanmi Bank in September 2000, and is subject to the Bank Holding Company Act of 1956, as amended.

    Hanmi Bank, the sole subsidiary of the Company, was incorporated under the laws of the State of California on August 24, 1984, and was licensed by the California Department of Financial Institutions on December 15, 1982. The Federal Deposit Insurance Corporation insures Hanmi Bank's deposit accounts. Hanmi Bank's headquarter office is located at 3660 Wilshire Boulevard, Penthouse suite "A", Los Angeles, California 90010.

    Hanmi Bank is a community bank conducting general business banking with its primary market encompassing the multi-ethnic population of the Los Angeles, Orange and San Diego counties. Hanmi Bank's full-service branch offices are located in business areas where many of the businesses are run by immigrants and other minority groups. Hanmi Bank's client base reflects the multi-ethnic composition of these communities. Hanmi Bank currently has twelve full-service branch offices located in Los Angeles, Orange and San Diego counties. Of the twelve offices, Hanmi Bank opened nine as de novo branches and acquired the other three through acquisition.

Note 2. Basis of Presentation

    In the opinion of management, the consolidated financial statements of Hanmi Financial Corporation and its subsidiary (the "Company") reflect all the material adjustments necessary for a fair presentation of the results for the nine month period ended September 30, 2001. The results of the interim period are not necessarily indicative of the results which will be reported for the entire year. In the opinion of management, the aforementioned consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America.

Note 3. Accounting Matters

    The Company adopted the provision of Statement of financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instrument and Hedging Activities", as amended by SFAS Nos. 137 and 138, as of January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities.

    No transition adjustment was required at January 1, 2001. The swaps existing at January 1, 2001 were terminated during the first quarter of 2001 with an insignificant effect on earnings. No derivatives were outstanding at September 30, 2001.

Notes 4. Other Information

    On September 14, 2001, the Hanmi Bank, a sole subsidiary of the Company, opened a de novo branch in Irvine, CA. It is the twelfth branch opened, and is strategically located between Garden Grove and San Diego Branch.

    On August 16, 2001, the Company announced a three-for-two stock split. The split is to be effected in the form of a common stock dividend, payable to the corporation's stockholders of record as of August 31, 2001. Hanmi Financial stockholders of record at the close of business on August 31, 2001 have received stock certificates representing one additional share of Hanmi Financial common stock for every two shares of common stock then held. Distribution of additional shares issued as a result of the split occurred on September 21, 2001.

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    The split is designed to improve trading liquidity and broaden ownership of Hanmi Financial's common shares. After the split, there are 12,548,016 shares outstanding.

Note 5. Recent Accounting Pronouncements

    In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", it retains many of the fundamental provisions of that Statement. The statement is effective for fiscal years beginning after December 15, 2001 and must be adopted as of the beginning of the fiscal year. Management does not expect the implementation of SFAS No. 144 to have a material impact on the Company's consolidated financial statements.

    In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 143, "Accounting for Asset Retirement Obligations," ("SFAS No. 143"), which requires that the fair value of a liability for an asset retirement obligation must be recognized in the period in which it is incurred or reasonable estimate of fair value can be made. The associated asset retirement cost would be capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The liability is recorded at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. Management does not yet determined the impact, if any, of adoption of SFAS No. 143.

    In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after September 30, 2001 as well as all purchase method business combinations completed after September 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted separately. SFAS 141 will require, upon adoption of Statement 142, that the Company evaluate its existing goodwill that was acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in SFAS 141 for recognition apart from goodwill.

    SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of SFAS 142, which for the Company, will be January 1, 2002. Upon adoption of SFAS 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. Management does not expect that the adoption of SFAS 142 will have a material impact on the Company's results of operations or financial position, however management expects to complete its analysis of the impact of adopting SFAS 142 by the 4th quarter 2001. As of September 30, 2001, the Company had $1.9 million of goodwill and approximately $364,000 of core deposit intangibles.

    In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 140"), which the Company fully adopted by April 1, 2001. Adoption of SFAS 140 did not have a material impact to the Company's consolidated financial statements.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

    The following is management's discussion and analysis of the major factors that influenced the Company's results of operations and financial condition for the three and nine months ended September 30, 2001. This analysis should be read in conjunction with the Company's Annual Report included in Form 10-K for the year ended December 31, 2000 and with the unaudited financial statements and notes as set forth in this report.

    The following table sets forth certain selected financial data concerning the Company for the nine month periods indicated (dollars in thousands):

(1)

Calculations are based upon annualized net income.

(2)

Efficiency ratio is defined as operating expenses divided by the sum of net interest income and other non-interest income.

(3)

Net interest margin is calculated by dividing annualized net interest income by total average interest-earning assets.

(4)

The required ratios for a "well-capitalized" institution are 5% leverage capital, 6% tier I risk-based capital and 10% total risk-based capital.

(5)

Nonperforming assets consist of nonperforming loans, which include nonaccrual loans, loans past due 90 days or more and still accruing interest, restructured loans, and other real estate owned.

Forward-Looking Information

    Certain matters discussed under this caption may constitute forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because the business of the Company involves inherent risks and uncertainties. Risks and uncertainties include

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possible future deteriorating economic conditions in the Company's areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available for sale securities declining significantly in value as if interest rates rise; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. For additional information concerning these factors, see "Interest Rate Risk Management", and "Liquidity and Capital Resources" contained in the Company's annual 10-K.

Results of Operations

    For the third quarter of 2001, the Company reported net income of $4.4 million or $0.35 per diluted share compared to $3.8 million or $0.31 per diluted share for the same quarter of 2000, representing an increase of approximately $600,000 or 15.79%. The increase in net income was primarily attributable to a $1.3 million increase in net interest income due to balanced growth in both loans and deposits, and $1.0 million increase in gain on sale of available-for-sale securities, which was off set by a $1.2 million increase in non-interest expense due to expanding of branch net working.

    The annualized return on average assets was 1.55% for the third quarter of 2001 compared to a return on average assets of 1.80% for the same quarter of 2000, a decrease of 25 basis points. The annualized return on average equity was 17.97% for the third quarter of 2001, compared to a return on average equity of 19.62% for the same quarter in 2000, a decrease of 165 basis points. The decrease was mainly due to growth in assets.

    For the nine months ended September 30, 2001, the Company reported net income of $12.6 million or $1.00 per basic and $.99 per diluted common share, compared with $11.3 million or $.90 per basic and diluted common share for the same period of 2000. This represented an increase of approximately $1.3 million or 11.7%.

Net Interest Income

    The principal component of the Company's earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and other borrowed funds. When net interest income is expressed as a percentage of average interest-earning assets, the result is the net interest margin. The net interest spread is the yield on average interest-earning assets less the average cost of interest-bearing deposits and borrowed funds.

    For the third quarter of 2001, net interest income before provision for loan losses totaled $11.6 million, compared with $10.3 million for the corresponding quarter of 2000. This represented an increase of $1.3 million or 12.2%.

    For the nine months ended September 30, 2001, net interest income before provision for loan losses amounted to $32.9 million, compared with $ 30.1 million for the corresponding period of 2000. This represented an increase of $2.8 million or 9.3%. The increase in net interest income before provision for loan losses was substantially attributable to an increase of $237.3 million or 31.3% in average interest-earning assets, from $757.3 million to $994.6 million. Even though the Prime rate was cut by 350 basis points, the volume increase has mitigated the negative impact.

    For the third quarter of 2001, interest income increased by approximately $595,000 or 3.2% to $19.4 million from $18.8 million for the corresponding quarter of 2000. The Company's interest income on interest-earning assets for the nine months ended September 30, 2001 increased by $8.3 million or 16.2% to $59.6 million from $51.3 million for the nine months ended September 30, 2000. The increase was the net result of a $13.9 million increase due to an increase in interest-earning assets and a $5.6 million decrease due to a decrease in yield.

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    The yield on average interest-earning assets decreased to 7.99% for the nine months ended September 30, 2001, from a yield of 9.04% for the nine months ended September 30, 2000. This decrease is mainly due to a decrease of 350 basis points in Prime interest rate during the first three quarters of 2001.

    For the third quarter of 2001, interest expense actually decreased by approximately $668,000 or 7.93% to $7.8 million from $8.4 million for the corresponding quarter of 2000. The Company's interest expense on deposits for the nine months ended September 30, 2001 increased by $5.5 million or 26.0% to $26.7 million from $21.2 million for the nine months ended September 30, 2000. This increase was the net result of $8.2 million increase due to an increase in interest bearing liabilities and $2.7 million decrease due to a decrese in the cost of interest-bearing liabilities.

    Average interest-bearing liabilities were $731.2 million for the nine months ended September 30, 2001, which represented an increase of $209.7 million or 40.2% from average interest-bearing liabilities of $521.5 million for the nine months ended September 30, 2000.

    The cost of average interest-bearing liabilities decreased to 4.87% for the nine months ended September 30, 2001, compared to a cost of 5.42% for the same period of 2000. Until the second quarter of 2001, the cost of average interest-bearing liabilities was higher than the corresponding periods. The reason was the re-pricing interest gap of time certificates of deposits, which consisted of more than 75% of total interest-bearing liabilities. This type of deposit tends to have a longer maturity, usually from three months to a year. Therefore, the higher rate given to these deposits in prior periods had not yet been affected by the recent interest decreases. However, these deposits have been maturing and re-priced at current lower interest rates.

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    The table below presents the average yield on each category of interest-earning assets, average rate paid on each category of interest-bearing liabilities, and the resulting interest rate spread and net yield on interest-earning assets for the periods indicated. All average balances are daily average balances.

(1)

Loan fees have been included in the calculation of interest income. Loan fees were approximately $1.7 million and $1.3 million for the nine months ended September 30, 2001 and 2000, respectively. Loans are net of the allowance for loan losses, deferred fees and related direct costs.

(2)

Yields on tax-exempt income have not been computed on a tax equivalent basis.

(3)

Represents the average rate earned on interest-bearing assets less the average rate paid to interest-bearing liabilities.

(4)

Represents net interest income as percentage of average interest-earning assets.

    The following table shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume

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and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.

Provision for loan losses

    For the quarter ended September 30, 2001, the Company made an additional provision for loan losses of $700,000. The Company's management believes that the allowance is sufficient for the known and inherent losses at September 30, 2001. (See Allowance and Provision for Loan Losses)

Non-interest Income

    Non-interest income includes revenues earned from sources other than interest income. It is primarily comprised of service charges and fees on deposit accounts, gain on sale of loans and securities, and trade finance and remittance service fees charged for international trade.

    For the third quarter of 2001, non-interest income increased approximately $967,000 or 26.1% to $4.7 million from $3.7 million for the corresponding period in 2000. The increase was the net result of the increase of the gain on sale of loans of approximately $131,000 and the gain on sale of investment securities of $1.0 million, and the decrease of approximately $137,000 in other income.

    For the nine months ended September 30,2001, non-interest income increased $1.7 million or 15.6% to $12.3 million from $10.7 million for the same period a year ago. This increase was attributable to a combination of an approximately $330,000 increase in service charges and fees on deposit accounts plus an approximately $1.8 million increase in gain on sale of investment securities. The increase was mitigated by a decrease in gain on sale of loans of $274,000, and in other income of $236,000 due to the sale of rental income producing property in the fourth quarter of 2000. Trade

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finance and remittance service fees charged for international trade stayed at the about same amount for the same period in 2000. The breakdown of non-interest income by category is as below:

Non-interest Expenses

    Non-interest expenses for the third quarter of 2001 increased approximately $1.2 or 17.88% to $8.2 million from $6.9 million for the corresponding quarter of 2000. For the nine months ended September 30, 2001, non-interest expenses increased $3.2 million or 16.1% to $23.1 million from $19.9 million for the same period a year ago. The increase was attributable to a combination of internal growth and an expanding branch network.

    Salaries and employee benefits expenses for the nine months ended September 30, 2001, increased $1.8 million or 17.5% to $11.9 million from $10.1 million for the same period in 2000. This increase was primarily due to expenses associated with annual salary adjustments, addition of new employees to the two new branches opened in 2000 and one in September 2001, and an increase in employee medical insurance cost.

    The occupancy and equipment expenses for the nine months ended September 30, 2001 increased by $455,000 or 19.2% to $2.8 million from $2.4 million for the same period in 2000. This increase was also a result of the Company's recent internal growth and expansion of three new branches as well as an annual adjustment of existing leases on the branch premises.

    Data processing fees for the nine months ended September 30, 2001 increased by $156,000 or 10.0% to $1.7 million from $1.6 million for the same period in 2000. This increase was also a result of the Company's recent internal growth and expansion of three new branches.

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    Professional fees for the nine months ended September 30, 2001 increased by $352,000 or 52.86% to $1.1 million from approximately $666,000 for the same period in 2000. The increase was due to legal and accounting expenses associated with attempted merger of California Central Bank and consulting fees associated with holding company.

    Advertising and promotional expenses for the nine months increased by $132,000 or 11.3% to $1.3 million from $1.2 million for the same period in 2000. The increase was due to the introduction of non-depository products to the market, new branch in Irvine in September 2001, and utilization of television media for broad exposure to the target market started during the second quarter of 2001.

    Other expenses consist of various operating expenses other than the above mentioned major expenditures. For the nine months ended September 30, 2001, other expenses increased by $351,000 or 14% to $2.9 million from $2.5 million for the same period in 2000. Most of the increase was due to the expansion of the branch network and associated expenses, including, but not limited to, security guards expense, armored expenses, insurance and operating losses. For the nine months ended September 30, 2001, approximately $227,000 was expensed for Hanmi Financing Holding Company in connection with NASDAQ registration fee, state franchise tax of Delaware, and SEC filing and printing cost. The breakdowns on non-interest expenses are summarized as follows:

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Financial Condition

Summary of Changes in Consolidated Statements of Financial Condition as of September 30, 2001 compared to December 31, 2000

    At September 30, 2001, the Company's total assets increased by $105 million or 10.2% to $1,139 million from $1,035 million at December 31, 2000. Loans receivable, net of unearned loan fees and the allowance for loan loss, increased by $118 million or 19.4% to $755.6 million at September 30, 2001, from 607.7 million at December 31, 2000. Total deposits also increased by $87.2 million or 9.3% to $1,021.8 million at September 30, 2001 from $934.6 million at December 31, 2000.

Investment Security Portfolio

    The Company classifies its securities as held-to-maturity or available-for-sale in accordance with Statement of Financial Accounting Standards (SFAS) 115. Those securities that the Company has the ability and intent to hold to maturity are classified as "held-to-maturity securities". All other securities are classified as "available-for-sale". The Company owned no trading securities at September 30, 2001. Securities classified as held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, and securities as available-for-sale are stated at fair value. The securities currently held by the Company are U.S. agencies, municipal bonds, mortgage-backed and asset-backed securities and corporate bonds.

    As of September 30, 2001, the Company owned $19.4 million of held-to-maturity securities and $228.0 million of available-for-sale securities, including unrealized gains of $2.2 million, net of taxes, compared to $22.3 million and $183.7 million at December 31, 2000, respectively.