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

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2002

or

For the transition period from                              to                             

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 ý    No o

        As of March 31, 2002, there were approximately 13,707,626 outstanding shares of the issuer's Common Stock, with par value at $.001.

FORM 10-Q
INDEX
HANMI FINANCIAL CORPORATION

2

HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes to consolidated financial statements.

3

HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE QUARTER ENDED MARCH 31, 2002 AND 2001

See accompanying notes to consolidated financial statements.

4

HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2002 AND 2001

See accompanying notes to consolidated financial statements.

5

Notes to Consolidated Financial Statements

Note 1. Hanmi Financial Corporation

        Hanmi Financial Corporation ("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 June 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, 1981, and was licensed by the California Department of Financial Institutions on December 15, 1982. Hanmi Bank's deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits thereof, and Bank is a member of the Federal Reserve System. Hanmi Bank's headquarters office is located at 3660 Wilshire Boulevard, Penthouse Suite "A", Los Angeles, California 90010.

        On September 30, 1998, Hanmi Bank acquired First Global Bank, f.s.b, Los Angeles, California. First Global Bank had three branch offices, one branch located in Los Angeles, one branch located in Cerritos and one branch located in Rowland Heights in California. Hanmi Bank acquired approximately $44.9 million in loans, and assumed approximately $77.8 million in deposits.

        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 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. The 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 interim period ended March 31, 2002 but 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.

        Certain reclassifications were made to the prior period presentation to conform to the current period's presentation.

Note 3. Accounting Matters

        The Company adopted the provisions 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.

        There were no separate derivatives existing as of March 31, 2002.

        The Company adopted the provision of Statement of financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") as of January 1, 2002. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies

6

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 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 Company is 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 is 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. As of January 1, 2002, the date of adoption, the Company had unamortized goodwill in the amount of $1.8 million and unamortized identifiable intangible assets in the amount of $341 thousand. There is no amortization taken and no impairment in goodwill and intangible assets considered existing as of March 31, 2002. Amortization expense related to goodwill and intangible assets was $39 thousand for the first quarter ended 2001.

        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 this fiscal year. The Company adopted SFAS No. 144 as of January 1, 2002, and there was no material impact on the Company's consolidated financial statements as of March 31, 2002.

Note 4. Recent Accounting Pronouncements

        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. Management has determined that the impact of the adoption of SFAS 143 is immaterial.

7

Item 2. Management's Discussion and Analysis of Recent Developments

        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 months ended March 31, 2002. This analysis should be read in conjunction with the Company's Annual Report included in Form 10-K for the year ended December 31, 2001 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 periods indicated:

(1)

Calculations are based upon annualized net income.

(2)

Represents the ratio of non-interest expense to the sum of net interest income before provision for loan losses and total non-interest income excluding securities gains and losses.

(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% leveraged capital, 6% tier 1 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

8

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 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.

Dividends

        On February 21, 2002, the Company declared a 9% stock dividend payable on April 5, 2002 to shareholders of record at the close of business on March 7, 2002. Per share data has been retroactively restated to reflect this 9% stock dividend. On February 28, 2001, the Company declared a 12% stock dividend payable on April 5, 2001 to shareholders of record at the close of business on March 14, 2001. The shares and per share data have been retroactively restated to reflect the 12% year 2001 stock dividend.

Results of Operation

        The Company's net income for the quarter ended March 31, 2002 was $4.1 million or $0.29 per diluted share compared to $3.9 million or $0.28 per diluted share for the quarter ended March 31, 2001. The increase in net income for 2002 as compared to 2001 was primarily due to the increase in loan volume, which offset the negative impact of the lower interest margin. The annualized return on average assets was 1.41% for the first quarter of 2002 compared to a return on average assets of 1.52% for the first quarter of 2001, a decrease of 11 basis points. The annualized return on average equity was 15.77% for the first quarter of 2002, compared to a return on average equity of 17.84% for the same period in 2001, a decrease of 207 basis points.

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 first three months ended March 31, 2002, the Company's net interest income before provision for loan losses was $11.2 million. This represented an increase of $640 thousand or 6.06% over net interest income of $10.6 million for the three months ended March 31, 2001.Despite a continuous decrease in the Prime interest rate throughout 2001, the interest rate spread increased to 3.37% for the three months ended March 31, 2002, from 3.01% for the same period in 2001. The change was due to a greater reduction on interest paid on deposits as term deposits repriced. However, the net interest margin slightly decreased to 4.11% for the three months ended March 31, 2002, from 4.43% for the same period in 2001 due to an increase in the volume of interest earning assets with lower interest rates.

        Total interest income decreased $4.4 million or 21.46% to $16.1 million for the three months ended March 31, 2002 from $20.5 million for the three months ended March 31, 2001. The decrease was primarily the result of a decrease in interest rates. The yield on average interest-earning assets decreased to 5.92% for the three months ended March 31, 2002, from a yield of 8.60% for the three months ended March 31, 2001. This decrease is primarily due to a decrease of the Prime interest rate during 2001.

9

        The Company's interest expense on deposits for the quarter ended March 31, 2002 decreased by approximately $5 million or 50.5% to $4.9 million from $9.9 million for the quarter ended March 31, 2001. The decrease reflected a decrease in the interest rates paid to depositors, which was offset by the increase in volume. Average interest-bearing liabilities were $772 million for the first quarter of 2002, which represented an increase of $60 million or 8.43% from average interest-bearing liabilities of $712 million for the first quarter of 2001.

        The cost of average interest-bearing liabilities decreased to 2.55% for the first quarter ended March 31, 2002, compared to a cost of 5.59% for the same period of 2001. Overall interest on deposits decreased mainly due to repricing of interest rates on long-term certificates of deposit to the current low interest rates as the deposits matured.

        The table below represents 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 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 $650 thousand and $466 thousand for the three months ended March 31, 2002 and 2001, 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.

10

(3)

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

(4)

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

        The table below 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 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 three months ended March 31, 2002, the Company made an additional provision of $1.05 million. The Company's management believes that the allowances are sufficient for the inherent losses at March 31, 2002. (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, fees charged on trade finance, and gain on sale of loans and investment securities. Non-interest income increased approximately $1 million or 30.06% to $4.3 million for the quarter ended March 31, 2002 from $3.3 million for the same period in 2001.

11

        Gain on sale of loans increased approximately $266 thousand or 198.51% during three months ended March 31, 2002 to $400 thousand, compared to $134 thousand during the same period in 2001. The company sells the guaranteed portion of the SBA loans in the government securities secondary markets, while the Company retains servicing rights. During the first quarter of 2002, the secondary market for these loans provided a favorable premium compared to the prior period and, therefore, the Company sold SBA loans in its portfolio. The Company currently plans to keep selling a significant number of its SBA loans in coming quarters as long as the secondary market is favorable.

        During the first quarter of 2002, the Company sold a Southern California Edison ("SCE") corporate bond, which had defaulted in January 2001. The Company sold the bond recognizing a $250 thousand gain, because a permanent impairment charge was taken in prior year. Overall, gain on sale of investments increased by $460 thousand or 407.08% to $573 thousand from $113 thousand during the same period in 2001.

        Trade finance fees increased by $110 thousand or 24.72% to $555 thousand compared to $445 thousand during the same period in 2001. The increase was primarily due to growing activity in international trade as countries in the Asian-Pacific region are recovering from the economic crisis.

        At December 31, 2001, the Company invested $10 million in bank owned life insurance ("BOLI"). BOLI involves the purchasing of life insurance by the Company on a chosen group of employees. The Company is the owner and beneficiary of the policies. During the first quarter of 2002, cash surrender value on life insurance purchased increased by $133 thousand.

        Other income increased approximately $58 thousand or 214.81% during three months ended March 31, 2002, to $85 thousand from $27 thousand during the same period in 2001. As a part of the Company's continuing effort to expand non-interest income, the Company introduced non-depository products, such as mutual funds and annuities, and credit cards to customers and generated income of $50 thousand from such activity during the first quarter of 2002.

        The breakdown of non-interest income by category is reflected below:

Non-interest Expenses

        Non-interest expenses for the first quarter of 2002 increased approximately $509 thousand or 7.06% to $7.7 million from $7.2 million for the same period in 2001. This increase was primarily due to expanding branch network and internal growth.

        Salaries and employee benefits expenses for the first quarter of 2002 increased approximately $422 thousand or 11.11% to $4.2 million from $3.8 million for the same period in 2001. This increase

12

was primarily due to addition of new employees at the new branch in Irvine and to provide additional services offered to customers, such as non-deposit products and credit cards.

        The occupancy and equipment expenses for the first quarter of 2002 increased approximately $126 thousand or 13.45% to $1.1 million from $937 thousand for the same period in 2001. This increase is also a result of the Company's recent expansion of new branch as well as annual adjustment of existing leases for other branch premises.

        Professional fees for the first quarter of 2002 increased by approximately $42 thousand or 22.7% to $227 thousand from $185 thousand during the same period in 2001. Additional expense was incurred primarily due to increase in collection efforts during the first quarter of 2002.

        The breakdown of non-interest expense by category is reflected below:

Financial Condition

Summary of Changes in Balance Sheets March 31, 2002 compared to December 31, 2001

        At March 31, 2002, the Company's total assets increased by $62.8 million or 5.41% to $1,221.6 million from $1,158.8 million at December 31, 2001. Loans, net of unearned loan fees and allowance for loan losses, totaled $860.9 million at March 31, 2002, which represents an increase of $39.8 million or 4.85% from $821.1 million at December 31, 2001. Total deposits also increased by $50.1 million or 4.81% to $1,092.5 million at March 31, 2002 from $1,042.4 million at December 31, 2001.

Investment Security Portfolio

        At March 31, 2002, the Company classified 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 March 31, 2002. Securities classified as held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, and available-for-sale securities are stated at fair value. The securities currently held by the Company are U.S. Treasury bond, U.S. agencies, municipal bonds, and corporate bonds.

13

        As of March 31, 2002, held-to-maturity securities totaled $15.5 million and available-for-sale securities totaled $194.8 million, compared to $17.6 million and $195.4 million at December 31, 2001, respectively.

Loan Portfolio

        The Company carries all loans at face amount, less payments collected, net of deferred loan origination fees and costs and the allowance for loan losses. Interest on all loans is accrued daily on a simple interest basis. Once a loan is placed on non-accrual status, accrual of interest is discontinued and previously accrued interest is reversed. Loans are placed on a non-accrual status when principal and interest on a loan is past due 90 days or more, unless a loan is both well-secured and in process of collection.

        The Company's net loans, including loans held for sale, were $860.9 million at March 31, 2002. This represented an increase of $39.8 million or 4.85% over net loans of $821.1 million at December 31, 2001.

        Total commercial loans, comprised of domestic commercial, trade-financing loans, and SBA commercial loans, were approximately $508.4 million at March 31, 2002, which represented an increase of $35.5 million or 7.5% from $472.9 million at December 31, 2001.

        Real estate loans increased by $8.1 million or 2.88% to $289.6 million at March 31, 2002 from $281.5 million at December 31, 2001. This increase was due to increase in residential mortgage loans to take an advantage of decreasing interest rate environment.

14

        The following table shows the Company's loan composition by type:

(1)

Amount included loans held for sale, at the lower of cost or market, of $12,473 million and $14,947 million at March 31, 2002 and December 31, 2001.

        At March 31, 2002, the Company's nonperforming assets (nonaccrual loans, loans 90 days or more past due and still accruing interest, restructured loans, and other real estate owned) decreased by $370 thousand or 7.4% to $4.7 million from $5 million at December 31, 2001. The table below shows the composition of the Company's nonperforming assets as of the dates indicated.

Allowance and Provision for Loan Losses

        The allowance for loan losses is maintained at a level that is believed to be adequate by Management to absorb estimated probable loan losses inherent in various financial instruments. The adequacy of the allowance is determined through periodic evaluations of the Company's portfolio and other pertinent factors, which are inherently subjective as the process calls for various significant estimates and assumptions. Among others, the estimates involve the amounts and timing of expected future cash flows and fair value of collateral on impaired loans, estimated losses on loans based on historical loss experience, various qualitative factors, and uncertainties in estimating losses and inherent risks in the various credit portfolios, which may be subject to substantial change.

        On a quarterly basis, the Company utilizes a classification migration model and individual loan review analysis tools, as a starting point for determining the allowance for loan loss adequacy. The Company's loss migration analysis tracks twelve quarters of loan losses to determine historical loss experience in every classification category (i.e. pass, special mention, substandard, and doubtful) for each loan type, except consumer loans (auto, mortgage and credit cards) which are analyzed as

15

homogeneous loan pools. These calculated loss factors are then applied to outstanding loan balances, unused commitments, and off-balance sheet exposures, such as letters of credit. The individual loan review analysis is the other axis of the allowance allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolios.

        The results from the above two analyses are thereafter compared to independently generated information such as peer group comparisons and the federal regulatory interagency policy for loan and lease losses. Further assignments are made based on general and specific economic conditions, as well as performance trends within specific portfolio segments and individual concentrations of credit.

        As of March 31, 2002, the allowance for loan losses was $9.9 million or 1.13% of gross loans. This represents a decrease of 8 basis points compared to 1.21% at December 31, 2001. The decrease of the allowance was primarily due to the decrease of Substandard and Doubtful grade loans from $11.4 million and $1.7 million to $9.4 and $0.5 million respectively, and the certain qualitative factors declined as delinquency trends improved.

        The loan loss estimation based on historical losses and specific allocations of the allowance are performed on a quarterly basis. Adjustments to allowance allocations for specific segments of the loan and lease portfolio may be made as a result thereof, based on the accuracy of forecasted loss amounts and other loan- or policy-related issues.

        The Company determines the appropriate overall allowance for loan losses based on the foregoing analysis, taking into account management's judgment. Allowance methodology is reviewed on a periodic basis and modified as appropriate. Based on this analysis, including the aforementioned factors, the Company believes that the allowance for loan losses is adequate as of March 31, 2002.

        The Company concentrates the majority of its earning assets in loans. In all forms of lending, there are inherent risks. The Company concentrates the preponderance of its loan portfolio in either commercial loans or real estate loans. A small part of the portfolio is represented by installment loans primarily for the purchase of automobiles.

        While the Company believes that its underwriting criteria are prudent, outside factors can adversely impact credit quality. During the early 1990's the severe recession impacted the Company's ability to collect loans. The devastation of the 1994 earthquake further impacted loan repayment. A repeat of these types of events could cause deterioration in the Company's loan portfolio.

16

        Having experienced the problems mentioned above in the past, the Company has attempted to mitigate collection problems by supporting its loans by fungible collateral. Additionally, a portion of the portfolio is represented by loans guaranteed by the SBA, which further reduces the Company's potential for loss. The Company also utilizes credit review in an effort to maintain loan quality. Loans are reviewed throughout the year with new loans and those that are delinquent receiving special attention. In addition to the Company's internal grading system, loans criticized by this credit review are downgraded with appropriate allowance added if required.

        As indicated above, the Company formally assesses the adequacy of the allowance on a quarterly basis by:

•

reviewing the adversely graded, delinquent or otherwise questionable loans for impairment;



•

generating an estimate of the loss potential in each such impaired loan;



•

adding a risk factor for industry, economic or other external factors; and



•

evaluating the present status of each loan and the impact of potential future events.

        Although Management believes the allowance is adequate to absorb losses as they arise, no assurance can be given that the Company will not sustain losses in any given period, which could be substantial in relation to the size of the allowance.

Deposits

        At March 31, 2002, the Company's total deposits were $1,092.5 million. This represented an increase of $50.2 million or 4.81%, from total deposits of $1,042.4 million at December 31, 2001. Demand deposits totaled $309.4 million, representing an increase of approximately $7.8 million or 2.59% from total demand deposits of $301.6 million at December 31, 2001.

        Time certificates of deposit of $100,000 or more totaled $312.4 million at March 31, 2002. This represented an increase of approximately $35.6 million or 12.86%, compared to $276.8 million at December 31, 2001. However, other time deposits decreased by $5.1 million or 2.13% to $236.3 million from $241.4 million at December 31, 2001. Overall increase was primarily due to expansion of branch network.

17

Item 3. Quantitative and qualitative disclosures about market risk

General