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

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2002

or

For the transition period from                              to                             

Commission file number: 000-30421

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 June 30, 2002, there were 13,727,228 outstanding shares of the issuer's Common Stock, with par value of $0.001.

FORM 10-Q

INDEX

HANMI FINANCIAL CORPORATION

2

HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes to consolidated financial statements.

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HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)

See accompanying notes to consolidated financial statements.

4

HANMI FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Unaudited)

See accompanying notes to consolidated financial statements.

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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 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 the applicable limits thereof, and Hanmi 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.

        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. 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 reflect all the material adjustments necessary for a fair presentation of the results for the interim period ended June 30, 2002 and 2001 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. The results of operations for interim periods are not necessarily indicative of results for the full year.

Note 3. Critical Accounting Policies

        The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in acordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

        Accounting for the allowance for loan losses involves significant judgements and assumptions by management, which has a material impact on the carrying value of net loans; management considers this accounting policy to be a critical accounting policy. The judgements and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances as described under the heading "Allowance for Loan Losses."

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Note 4. Recent Accounting Pronouncements.

        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. The Company entered into an interest rate swap during the quarter ended June 30, 2002. For the quarter ended June 30, 2002, the changes in fair value of this derivative recognized $1.4 million through earnings. The swap was terminated during the quarter. There were no separate derivatives existing as of June 30, 2002.

        The Company adopted the provisions 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 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 for 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 was no goodwill amortization taken and no impairment of goodwill and intangible assets as of June 30, 2002.

        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.

        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.

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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 for the three and six months ended June 30, 2002 and financial condition as of June 30, 2002. This analysis should be read in conjunction with the Company's Annual Report on 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 on annualized net income, sum of trailing 12 months.

(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

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business of the Company involves inherent risks and uncertainties. Risks and uncertainties include 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 or issuer's of such securities suffering financial losses; and regulatory risks associated with the variety of current and future regulations to which the Company is subject. All of these risks could have a material adverse impact on the Company's financial condition, results of operations or prospects, and these risks should be considered in evaluating the Company. For additional information concerning these factors, see "Interest Rate Risk Management", and "Liquidity and Capital Resources" contained in the Company's annual report on Form 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. The shares and share data have 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 Operations

        The Company's net income for the quarter ended June 30, 2002 was $3 million or $0.21 per diluted share compared to $4.2 million or $0.30 per diluted share for the quarter ended June 30, 2001. The decrease in net income for the quarter ended June 30, 2002 as compared to the quarter ended June 30, 2001 was primarily due to an impairment charge on an investments, which was partially offset by the positive impact of an increase in fair value of an interest rate swap.

        As previously announced on June 28, 2002, the Company recognized a permanent impairment on $5 million on a WorldCom, Inc. bonds purchased in January 2001 with 7.375% coupon rate and January 15, 2003 maturity date. As of June 30, 2002, the bond had a market value of 21% of par value. The book value was reduced to $1 Million resulting in a total before-tax impairment charge of approximately $4 Million. The after-tax impairment related reduction to quarterly income amounted to $2.6 Million based on an estimated 35 percent tax rate.

        During the second quarter, the Company purchased an interest rate swap. The change in fair value of approximately $1.4 million was recognized through earnings. The after tax non-interest income for the quarter amounted to $889 thousand based on an estimated 35 percent tax rate. The swap was terminated on June 14, 2002.

        For the six months ended June 30, 2002, net income decreased by $1.1 million or 13.4% to $7.1 million from $8.2 million for the same period in 2001. The annualized return on average assets was 1.29% for the first half of 2002 compared to a return on average assets of 1.54% for the same period in 2001, a decrease of 25 basis points. The annualized return on average equity was 14.6% for the first half of 2002, compared to a return on average equity of 17.92% for the same period in 2001, a decrease of 332 basis points.

        Without the impairment charge and the recognition of the increase in fair value of interest rate swap, net income would have been $8.8 million for the six months ended June 30, 2002 with an annualized return on average assets of 1.44% and return on average equity of 16.28% for the six months ended June 30, 2002.

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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 quarter ended June 30, 2002, the Company's net interest income before provision for loan losses was $11.8 million. This represented an increase of $1.1 million or 10.3% over net interest income of $10.7 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, net interest income before provision for loan losses was $23.0 million. This represented an increase of $1.6 million or 7.5% over net interest income before provision of loan losses of $21.4 million for the six months ended June 30, 2001.

        The interest rate spread increased to 3.36% for the six months ended June 30, 2002, from 3.03% 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 six months ended June 30, 2002, from 4.39% 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 $2.8 million or 14.2% to $16.9 million for the three months ended June 30, 2002 from $19.7 million for the three months ended June 30, 2001. For the six months ended June 30, 2002, total interest income decreased by $7.2 million or 17.9% to $33.1 million from $40.3 million for the same period in 2001.

        The decrease was primarily the result of a decrease in interest rates, which was off set by a positive impact of an increase in volume of interest earning assets. The yield on average interest-earning assets decreased to 5.90% for the six months ended June 30, 2002, from a yield of 8.29% for the six months ended June 30, 2001. This decrease is primarily due to a decrease of the Prime interest rate through out the rest of the year 2001. Average interest earning assets were $1.1 billion for the first half of 2002, which represented an increase of $146.9 million or 15.1% from average of $973.3 million average interest earning assets for the same period of 2001.

        The Company's interest expense on deposits for the quarter ended June 30, 2002 decreased by approximately $3.9 million or 43.3% to $5.1 million from $9.0 million for the quarter ended June 30, 2001. For the six months ended June 30, 2002, the interest expenses decreased by $8.9 million or 46.8% to $10.1 million from $19.0 million for the same period in 2001. The decrease reflected a decrease in the interest rates paid to depositors as a result of a declining interest rate environment. The cost of average interest-bearing liabilities decreased to 2.54% for the six months ended June 30, 2002, compared to a cost of 5.26% for the same period in 2001. Overall interest on deposits decreased mainly due to repricing of interest rates on certificates of deposits when they were renewed at current low interest rate. Average interest-bearing liabilities were $790.5 million as of June 30, 2002, which represented an increase of $69.1 million or 9.6% from average interest-bearing liabilities of $721.4 million as of June 30, of 2001.

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        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 $1.2 million and $1.1 million for the six months ended June 30, 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.

(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.

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        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 quarter ended June 30, 2002, the Company made an additional provision for loan losses of $1.1 million. For the six months ended June 30, 2002, additional provision for loan losses amounted to $2.1 million. The Company's management believes that the allowances are sufficient for the inherent losses at June 30, 2002. (See Allowance and provision for loan losses)

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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 by $1.5 million to $5.8 million for the quarter ended June 30, 2002 from $4.3 million for the same period in 2001. There was a decrease in service charges on deposits of $139 thousand, and in gain on sale of investments of $364 thousand. However, the decrease was offset by the income recognized from the change in fair value of interest rate swap of $1.4 million, an increase in trade financing of $202 thousand, and the income recognized from the Bank owned life insurance of $137 thousand for the quarter ended June 30, 2002.

        For the six months ended June 30, 2002, non-interest income increased by $2.5 million or 33.6% to $10.1 million from 7.6 million for the same period in 2001. The increase was primarily due to an income recognized from the change in fair value of interest rate swap of $1.4 million, an increase in gain on the sale of loans of $354 thousand, trade finance fees of $292 thousand and income recognized from Bank owned life insurance of $270 thousand.

        Gain on sale of loans increased by $88 thousand or 22.3% during three months ended June 30, 2002 to $483 thousand, compared to $395 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 the servicing rights. During the first two quarters 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.

        For the six months ended June 30, 2002, the gain on sale of loan increased by $354 thousand or 66.9% to $883 thousand from $529 thousand for the same period in 2001.

        Trade finance fees increased by $202 thousand or 47.3% during three months ended June 30, 2002 to $629 thousand from $427 thousand for 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. For the six months ended June 30, 2002, trade finance fees increased by $292 thousand or 32.7% to $1.2 million from $892 thousand for the same period in 2001.

        At December 31, 2001, the Company invested $10 million in bank owned life insurance ("BOLI"). BOLI involves the purchase of life insurance by the Company on a chosen group of employees. The Company is the owner and beneficiary of the policies. During 2002, the increase in cash surrender value on life insurance was recognized in the amount of $137 thousand for the quarter and $270 thousand for the six months ended June 30, 2002.

        Other income increased approximately $113 thousand or 101.8% during three months ended June 30, 2002, to $224 thousand from $111 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 $89 thousand from such activity during the second quarter of 2002 and $139 thousand for the six months ended June 30, 2002.

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

Non-interest Expenses

        Non-interest expenses for the second quarter of 2002 increased approximately $4.7 million or 60.9% to $12.4 million from $7.7 million for the same period in 2001. This increase was primarily due to an impairment charge of $4.0 million made on an investment.

        For six months ended June 30, 2002, non-interest expense increased by $5.2 million or 34.9% to $20.1 million from $15 million for the same period in 2001. The increase was primarily due to the impairment charge made on investment of $4.0 million, and expanding of branch net work.

        Salaries and employee benefits expenses for the second quarter of 2002 increased approximately $340 thousand or 8.6% to $4.3 million from $4 million for the same period in 2001. This increase 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. For the six months ended June 30, 2002, the expense increased by $762 thousand or 9.8% to $8.5 million from $7.8 million for the same period in 2001.

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        The occupancy and equipment expenses for the second quarter of 2002 increased $134 thousand or 14.3% to $1.1 million from $934 thousand for the same period in 2001. This increase is also a result of the Company's recent expansion of a new branch as well as annual adjustment of existing leases for other branch premises. For the six months ended June 30, 2002, the expense increased by $260 thousand or 13.9% to $2.1 million from $1.9 million for the same period in 2001.

        Data processing expense increased by $137 thousand or 24% to $709 thousand from $572 thousand for the same period in 2001. The increase was primarily due to the expanded branch net work and increase in volume of transaction accounts. For the six months ended June 30, 2002, the expense increased by $250 thousand or 22.4% to $1.4 million from $1.1 million for the same period in 2001.

        Loan referral fees increased by $108 thousand or 158.8% to $176 thousand from $68 thousand for the same period in 2001. The increase was primarily due to increase in SBA loans over the year. For the six months ended June 30, 2002, the expense increased by $137 thousand or 72.1% to $327 thousand from $190 thousand for the same period in 2001.

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

Income Taxes

        The effective tax rate was reduced to 28.4 percent for the second quarter, and 35 percent for the six months ended June 30, 2002. This compares with 40.5 percent for the second quarter and 40.5 percent for the six months ended June 30, 2001. The lower tax rates, compared with prior periods, are due primarily to the formation of a special purpose subsidiary, a real estate investment trust ("REIT"), which provides income tax benefit and flexibility to raise additional capital in a tax efficient manner. In order to adjust for the expected reduction in the full-year effective tax rate resulting from the REIT, the second quarter's tax rate was reduced. Management currently anticipates its effective tax rate may approximate the 34 percent to 36 percent range for 2002.

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Financial Condition

Summary of Changes in Balance Sheets June 30, 2002 compared to December 31, 2001

        At June 30, 2002, the Company's total assets increased by $134 million or 11.6% to $1,292.8 million from $1,158.8 million at December 31, 2001. Loans, net of unearned loan fees and the allowance for loan losses, totaled $924.7 million at June 30, 2002, which represents an increase of $103.7 million or 12.6% from $821.1 million at December 31, 2001. Total deposits also increased by $118.3 million or 11.3% to $1,160.7 million at June 30, 2002 from $1,042.4 million at December 31, 2001.

Investment Security Portfolio

        At June 30, 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 June 30, 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. agencies, corporate bonds, municipal bonds, mortgage-backed securities, collateralized mortgage obligations and asset-back securities.

        As of June 30, 2002, held-to-maturity securities totaled $15.3 million and available-for-sale securities totaled $179.2 million, compared to $17.6 million and $195.4 million at December 31, 2001, respectively.