Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2009
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ To _________
Commission File Number: 000-30421
HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
         
Delaware       95-4788120
         
(State or Other Jurisdiction of Incorporation or Organization)     (I.R.S. Employer Identification No.)
         
3660 Wilshire Boulevard, Penthouse Suite A
Los Angeles, California
      90010
         
(Address of Principal Executive Offices)       (Zip Code)
(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 þ     No o
     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o     No o
     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large Accelerated Filer o   Accelerated Filer þ   Non-Accelerated Filer o (Do Not Check if a Smaller Reporting Company)   Smaller Reporting Company o
     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o     No þ
     As of October 31, 2009, there were 51,201,390 outstanding shares of the Registrant’s Common Stock.
 
 

 


 

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
TABLE OF CONTENTS
     
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PART I — FINANCIAL INFORMATION
 
   
   
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PART II — OTHER INFORMATION
 
   
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 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 


Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands; Except Share Data)
                 
    September 30,     December 31,  
    2009     2008  
ASSETS
               
Cash and Due from Banks
  $ 57,727     $ 83,933  
Interest-Bearing Deposits in Other Banks
    155,607       2,014  
Federal Funds Sold
          130,000  
 
           
Cash and Cash Equivalents
    213,334       215,947  
Investment Securities Held to Maturity, at Amortized Cost (Fair Value of $876 as of September 30, 2009 and $910 as of December 31, 2008)
    876       910  
Investment Securities Available for Sale, at Fair Value (Amortized Cost of $200,633 as of September 30, 2009 and $195,077 as of December 31, 2008)
    205,025       196,207  
Loans Receivable, Net of Allowance for Loan Losses of $124,768 as of September 30, 2009 and $70,986 as of December 31, 2008
    2,847,618       3,253,715  
Loans Held for Sale, at the Lower of Cost or Fair Value
    5,118       37,410  
Due from Customers on Acceptances
    1,859       4,295  
Premises and Equipment, Net
    19,302       20,279  
Accrued Interest Receivable
    11,389       12,347  
Other Real Estate Owned, Net
    27,140       823  
Deferred Income Taxes, Net
    2,464       29,456  
Servicing Assets
    3,957       3,791  
Other Intangible Assets, Net
    3,736       4,950  
Investment in Federal Home Loan Bank Stock, at Cost
    30,697       30,697  
Investment in Federal Reserve Bank Stock, at Cost
    10,053       10,228  
Income Taxes Receivable
    34,908       11,712  
Bank-Owned Life Insurance
    26,171       25,476  
Other Assets
    13,843       17,573  
 
           
TOTAL ASSETS
  $ 3,457,490     $ 3,875,816  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
LIABILITIES:
               
Deposits:
               
Noninterest-Bearing
  $ 561,548     $ 536,944  
Interest-Bearing
    2,430,312       2,533,136  
 
           
Total Deposits
    2,991,860       3,070,080  
Accrued Interest Payable
    19,730       18,539  
Bank Acceptances Outstanding
    1,859       4,295  
Federal Home Loan Bank Advances
    160,828       422,196  
Other Borrowings
    1,496       787  
Junior Subordinated Debentures
    82,406       82,406  
Accrued Expenses and Other Liabilities
    12,191       13,598  
 
           
Total Liabilities
    3,270,370       3,611,901  
 
           
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS’ EQUITY:
               
Common Stock, $0.001 Par Value; Authorized 200,000,000 Shares; 55,833,890 Shares Issued (51,201,390 Shares Outstanding) as of September 30, 2009 and 50,538,049 Shares Issued (45,905,549 Shares Outstanding) as of December 31, 2008
    56       51  
Additional Paid-In Capital
    357,028       349,304  
Unearned Compensation
    (361 )     (218 )
Accumulated Other Comprehensive Income — Unrealized Gain on Investment Securities Available for Sale, Net of Income Taxes of $1,847 as of September 30, 2009 and $473 as of December 31, 2008
    2,559       544  
Retained Deficit
    (102,150 )     (15,754 )
Less Treasury Stock, at Cost; 4,632,500 Shares as of September 30, 2009 and December 31, 2008
    (70,012 )     (70,012 )
 
           
Total Stockholders’ Equity
    187,120       263,915  
 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 3,457,490     $ 3,875,816  
 
           
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in Thousands; Except Per Share Data)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
INTEREST AND DIVIDEND INCOME:
                               
Interest and Fees on Loans
  $ 42,705     $ 56,134     $ 132,508     $ 172,637  
Taxable Interest on Investment Securities
    1,541       2,049       4,261       7,743  
Tax-Exempt Interest on Investment Securities
    607       650       1,871       2,071  
Interest on Term Federal Funds Sold
    293             1,688        
Dividends on Federal Reserve Bank Stock
    150       176       456       528  
Interest on Federal Funds Sold and Securities Purchased Under Resale Agreements
    67       23       261       137  
Interest on Interest-Bearing Deposits in Other Banks
    68       4       81       5  
Dividends on Federal Home Loan Bank Stock
    64       405       64       953  
 
                       
Total Interest and Dividend Income
    45,495       59,441       141,190       184,074  
 
                       
INTEREST EXPENSE:
                               
Interest on Deposits
    17,365       19,365       62,836       64,699  
Interest on Federal Home Loan Bank Advances
    865       3,324       2,987       11,406  
Interest on Junior Subordinated Debentures
    747       1,150       2,581       3,763  
Interest on Other Borrowings
          5       2       344  
 
                       
Total Interest Expense
    18,977       23,844       68,406       80,212  
 
                       
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    26,518       35,597       72,784       103,862  
Provision for Credit Losses
    49,500       13,176       119,387       50,226  
 
                       
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR CREDIT LOSSES
    (22,982 )     22,421       (46,603 )     53,636  
 
                       
NON-INTEREST INCOME:
                               
Service Charges on Deposit Accounts
    4,275       4,648       13,032       13,904  
Insurance Commissions
    1,063       1,194       3,430       3,893  
Remittance Fees
    511       499       1,579       1,543  
Trade Finance Fees
    512       784       1,517       2,474  
Other Service Charges and Fees
    489       433       1,439       1,852  
Net Gain on Sales of Loans
    864             866       765  
Bank-Owned Life Insurance Income
    234       241       695       715  
Gain on Sales of Investment Securities
                1,277       618  
Loss on Sales of Investment Securities
          (483 )     (109 )     (483 )
Other-Than-Temporary Impairment Loss on Investment Securities
          (2,410 )           (2,410 )
Other Operating Income (Loss)
    265       422       (462 )     1,874  
 
                       
Total Non-Interest Income
    8,213       5,328       23,264       24,745  
 
                       
NON-INTEREST EXPENSE:
                               
Salaries and Employee Benefits
    8,648       10,782       24,659       33,363  
Occupancy and Equipment
    2,834       2,786       8,506       8,360  
Deposit Insurance Premiums and Regulatory Assessments
    2,001       780       7,420       2,098  
Other Real Estate Owned Expense
    3,372       2       5,017       141  
Data Processing
    1,608       1,498       4,691       4,730  
Professional Fees
    1,239       647       2,745       2,627  
Supplies and Communication
    603       681       1,772       2,008  
Advertising and Promotion
    447       914       1,640       2,614  
Loan-Related Expense
    192       170       1,590       569  
Amortization of Other Intangible Assets
    379       478       1,214       1,504  
Other Operating Expenses
    2,366       3,497       7,383       7,859  
Impairment Loss on Goodwill
                      107,393  
 
                       
Total Non-Interest Expense
    23,689       22,235       66,637       173,266  
 
                       
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    (38,458 )     5,514       (89,976 )     (94,885 )
Provision (Benefit) for Income Taxes
    21,207       1,166       (3,580 )     3,393  
 
                       
NET INCOME (LOSS)
  $ (59,665 )   $ 4,348     $ (86,396 )   $ (98,278 )
 
                       
EARNINGS (LOSS) PER SHARE:
                               
Basic
  $ (1.26 )   $ 0.09     $ (1.86 )   $ (2.14 )
Diluted
  $ (1.26 )   $ 0.09     $ (1.86 )   $ (2.14 )
WEIGHTED-AVERAGE SHARES OUTSTANDING:
                               
Basic
    47,413,141       45,881,549       46,415,225       45,869,069  
Diluted
    47,413,141       45,933,043       46,415,225       45,869,069  
DIVIDENDS DECLARED PER SHARE
  $     $     $     $ 0.09  
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS (UNAUDITED)
(In Thousands; Except Share Data)
                                                                                 
    Common Stock - Number of Shares     Stockholders’ Equity  
                                                    Accumulated                    
                                    Additional             Other     Retained     Treasury     Total  
            Treasury             Common     Paid-In     Unearned     Comprehensive     Earnings     Stock,     Stockholders’  
    Issued     Stock     Outstanding     Stock     Capital     Compensation     Income (Loss)     (Deficit)     at Cost     Equity  
BALANCE AS OF JANUARY 1, 2008
    50,493,441       (4,632,500 )     45,860,941     $ 50     $ 348,073     $ (245 )   $ 275     $ 92,415     $ (70,012 )   $ 370,556  
 
                                                                               
Cumulative-Effect Adjustment from the Adoption of FASB ASC 715-60
                                              (2,223 )           (2,223 )
Shares Issued for Business Acquisitions
    39,608             39,608       1       292                               293  
Repurchase of Stock Options
                            (70 )                             (70 )
Share-Based Compensation Expense
                            752       39                         791  
Restricted Stock Awards
    10,000             10,000             67       (67 )                        
Forfeiture of Restricted Stock Award
    (5,000 )           (5,000 )           (41 )     41                          
Cash Dividends
                                              (3,853 )           (3,853 )
 
                                                                               
Comprehensive Loss:
                                                                               
Net Loss
                                              (98,278 )           (98,278 )
Change in Unrealized Loss on Investment Securities Available for Sale, Net of Income Taxes
                                        (20 )                 (20 )
 
                                                           
 
                                                                               
Total Comprehensive Loss
                                                                            (98,298 )
 
                                                                             
 
                                                                               
BALANCE AS OF SEPTEMBER 30, 2008
    50,538,049       (4,632,500 )     45,905,549     $ 51     $ 349,073     $ (232 )   $ 255     $ (11,939 )   $ (70,012 )   $ 267,196  
 
                                                           
 
                                                                               
BALANCE AS OF JANUARY 1, 2009
    50,538,049       (4,632,500 )     45,905,549     $ 51     $ 349,304     $ (218 )   $ 544     $ (15,754 )   $ (70,012 )   $ 263,915  
 
                                                                               
Shares Issued in Private Offering, Net of Offering and Underwriting Costs
    5,070,423             5,070,423       5       6,834                               6,839  
Shares Issued for Business Acquisitions
    39,418             39,418             46                               46  
Share-Based Compensation Expense
                            649       52                         701  
Restricted Stock Awards
    205,000             205,000             284       (284 )                        
Forfeiture of Restricted Stock Awards
    (19,000 )           (19,000 )           (89 )     89                          
 
                                                                               
Comprehensive Loss:
                                                                               
Net Loss
                                              (86,396 )           (86,396 )
Change in Unrealized Gain on Investment Securities Available for Sale, Net of Income Taxes
                                        2,015                   2,015  
 
                                                           
 
                                                                               
Total Comprehensive Loss
                                                                            (84,381 )
 
                                                                             
 
                                                                               
BALANCE AS OF SEPTEMBER 30, 2009
    55,833,890       (4,632,500 )     51,201,390     $ 56     $ 357,028     $ (361 )   $ 2,559     $ (102,150 )   $ (70,012 )   $ 187,120  
 
                                                           
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
                 
    Nine Months Ended  
    September 30,  
    2009     2008  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Loss
  $ (86,396 )   $ (98,278 )
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:
               
Depreciation and Amortization of Premises and Equipment
    1,977       2,202  
Amortization of Premiums and Accretion of Discounts on Investment Securities, Net
    (736 )     121  
Amortization of Other Intangible Assets
    1,214       1,504  
Amortization of Servicing Assets
    597       1,068  
Share-Based Compensation Expense
    701       791  
Provision for Credit Losses
    119,387       50,226  
Federal Home Loan Bank Stock Dividends
          (953 )
Net Gain on Sales of Investment Securities
    (1,168 )     (135 )
Other-Than-Temporary Loss on Investment Securities
          2,410  
Net Gain on Sales of Loans
    (866 )     (765 )
Loss on Sales of Other Real Estate Owned
    440       132  
Provision for Valuation Allowance on Other Real Estate Owned
    2,501        
Impairment Loss on Goodwill
          107,393  
Deferred Tax Expense (Benefit)
    38,150       (212 )
Origination of Loans Held for Sale
    (1,221 )     (45,490 )
Net Proceeds from Sales of Loans Held for Sale
    34,379       24,037  
Decrease in Accrued Interest Receivable
    958       3,610  
Increase in Servicing Asset
    (763 )     (750 )
Increase in Cash Surrender Value of Bank-Owned Life Insurance
    (695 )     (714 )
(Increase) Decrease in Other Assets
    (1,894 )     7,706  
Increase in Income Taxes Receivable
    (29,976 )     (12,154 )
Increase (Decrease) in Accrued Interest Payable
    1,191       (10,484 )
Decrease in Other Liabilities
    (1,681 )     (6,058 )
 
           
Net Cash Provided By Operating Activities
    76,099       25,207  
 
           
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from Redemption of Federal Home Loan Bank and Federal Reserve Bank Stock
    175       2,536  
Proceeds from Matured or Called Investment Securities Available for Sale
    47,290       124,950  
Proceeds from Sales of Investment Securities Available for Sale
    38,448       26,001  
Proceeds from Sales of Other Real Estate Owned
    4,068       155  
Net Decrease (Increase) in Loans Receivable
    253,704       (68,459 )
Purchases of Federal Home Loan Bank Stock
          (10,261 )
Purchases of Investment Securities Available for Sale
    (89,357 )     (25,336 )
Purchases of Premises and Equipment
    (1,000 )     (2,114 )
 
           
Net Cash Provided By Investing Activities
    253,328       47,472  
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Decrease in Deposits
    (78,220 )     (202,322 )
Net Proceeds from Issuance of Common Stock in Private Offering
    6,839        
Cash Paid to Repurchase Stock Options
          (70 )
Cash Dividends Paid
          (3,853 )
Proceeds from Long-Term Federal Home Loan Bank Advances
          250,000  
Repayment of Long-Term Federal Home Loan Bank Advances
    (107,139 )     (349 )
Net Change in Short-Term Federal Home Loan Bank Advances and Other Borrowings
    (153,520 )     (151,843 )
 
           
Net Cash Used In Financing Activities
    (332,040 )     (108,437 )
 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (2,613 )     (35,758 )
Cash and Cash Equivalents at Beginning of Period
    215,947       122,398  
 
           
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 213,334     $ 86,640  
 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash Paid During the Period for:
               
Interest Paid
  $ 67,215     $ 90,696  
Income Taxes Paid
  $     $ 13,873  
Non-Cash Activities:
               
Stock Issued for Business Acquisition
  $ 46     $ 293  
Transfer of Loans to Other Real Estate Owned
  $ 38,326     $ 2,988  
Loan Provided in the Sale of Other Real Estate Owned
  $ 5,000     $  
Transfer of Equity Securities from Other Assets to Securities Available for Sale
  $     $ 511  
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
NOTE 1 — BASIS OF PRESENTATION
     Hanmi Financial Corporation (“Hanmi Financial,” “we” or “us”) is a Delaware corporation and is subject to the Bank Holding Company Act of 1956, as amended. Our primary subsidiary is Hanmi Bank (the “Bank”), a California state chartered bank. Our other subsidiaries are Chun-Ha Insurance Services, Inc. and All World Insurance Services, Inc.
     In the opinion of management, the accompanying unaudited consolidated financial statements of Hanmi Financial Corporation and Subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended September 30, 2009, but are not necessarily indicative of the results that will be reported for the entire year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the aforementioned unaudited consolidated financial statements are in conformity with GAAP. Such interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
     The preparation of interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
     Descriptions of our significant accounting policies are included in “Note 1 Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
     Certain reclassifications were made to the prior period’s presentation to conform to the current period’s presentation.
     The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification™ (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.
NOTE 2 — LIQUIDITY
     FASB ASC 275, “Risks and Uncertainties,” requires reporting entities to disclose information about the nature of their operations and vulnerabilities due to certain concentrations. Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking organizations in the domestic and worldwide credit markets deteriorates.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 2 — LIQUIDITY (Continued)
Hanmi Financial
     Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets through December 31, 2009 to meet its operating cash needs. On August 29, 2008, we elected to suspend payment of quarterly dividends on our common stock in order to preserve our capital position. In addition, Hanmi Financial has also elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. As of September 30, 2009, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $3.8 million, up from $2.2 million as of December 31, 2008.
Hanmi Bank
     Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originated through its branch platform. For the past nine months, the Bank launched two deposit campaigns to increase new deposits and reduce its reliance on wholesale funding to an optimum level. Through the first deposit campaign promoted from December 2008 and early part of March 2009, the Bank achieved the objectives of maintaining strong liquidity and reducing its reliance on wholesale funds. The second deposit campaign, which started in June 2009, has been undertaken to specifically increase new core deposits and recapture time deposits raised from the first deposit promotion. During the third quarter of 2009, we successfully recaptured a substantial portion of the matured time deposits and raised new retail deposits with low-cost core-deposit products. This deposit-portfolio rebalancing implemented under the Bank’s de-leveraging strategy allowed some run-off of rate-sensitive deposits. As a result, total deposits slightly decreased by $78.2 million, or 2.5 percent, from $3.07 billion as of December 31, 2008 to $2.99 billion as of September 30, 2009. The Bank’s wholesale funds, consisting of Federal Home Loan Bank (“FHLB”) advances and brokered deposits, decreased $743.6 million to $552.8 million at September 30, 2009 from $1.30 billion at December 31, 2008.
     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered adequately capitalized under the regulatory framework for prompt corrective action. Section 29 of the Federal Deposit Insurance Act (“FDIA”) limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the Federal Deposit Insurance Corporation (“FDIC”) to place restrictions on interest rates that institutions may pay. On May 29, 2009, the FDIC approved a final rule to implement new interest rate restrictions on institutions that are not “well capitalized.” The rule, which is not effective until January 1, 2010, limits the interest rate paid by such institutions to 75 basis points above a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, the FDIC may permit that institution to offer the higher local rate plus 75 basis points. Hanmi Bank is currently evaluating the local interest rate environment to determine whether it would be beneficial to provide evidence to the FDIC that the local rate is higher than the national rate. In the event that we determine to provide such evidence to the FDIC, there can be no assurance that the FDIC will concur with our assessment. As a result, our ability to compete for local deposits in the Korean-American community may be limited.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 2 — LIQUIDITY (Continued)
     The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 20 percent of its total assets. As of September 30, 2009, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $499.7 million and $337.6 million, respectively. The Bank’s FHLB borrowings as of September 30, 2009 totaled $160.8 million, representing 4.7 percent of total assets. As of November 3, 2009, the Bank’s FHLB borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $532.3 million and $370.1 million, respectively. The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment securities and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.
     As a means of augmenting its liquidity, the Bank had an available borrowing source of $244.7 million from the Federal Reserve Discount Window (the “Fed Discount Window”), to which the Bank pledged loans with a carrying value of $445.0 million, and had no borrowings as of September 30, 2009. In August 2009, South Street Securities LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million. This line of credit will continue for a term of one year, and, unless amended or terminated, will automatically renew for successive one-year terms.
     On July 10, 2009, due to a deterioration in the Bank’s risk profile, the Borrower in Custody Program of the Fed Discount Window in which the Bank has participated changed from the primary credit program to the secondary credit program, which allows the Bank to request very short-term credit (typically overnight) at a rate that is above the primary credit rate. As of November 3, 2009, the Bank had $150.8 million available for use through the Fed Discount Window, as the Bank pledged loans with a carrying value of $445.0 million, and there were no borrowings. The Bank’s borrowing line available with the Fed Discount Window decreased $93.9 million to $150.8 million on November 3, 2009 from $244.7 million on September 30, 2009, due to the Fed Discount Window applying new collateral margins to all participating banks, effective October 19, 2009. As the Bank has a sufficient amount of pledgeable loans, it will pledge additional loans to maintain an adequate level of borrowing line with the Fed Discount Window.
     Current market conditions have limited the Bank’s liquidity sources principally to secured funding outlets such as the FHLB and Fed Discount Window. There can be no assurance that actions by the FHLB or Federal Reserve Bank would not reduce the Bank’s borrowing capacity or that the Bank would be able to continue to replace deposits at competitive rates. The Bank is currently restricted from accepting brokered deposits as a funding source unless we obtain a waiver from the FDIC (see “Note 13 — Subsequent Events” for further information). On October 9, 2009, the Bank filed a request with the FDIC for a waiver of the brokered deposit restrictions for the primary purposes of enhancing profitability and managing our interest-rate risk. As of September 30, 2009, brokered deposits were $391.9 million, or 13.1 percent of total deposits. All brokered deposits are currently scheduled to mature on or prior to June 30, 2010. For the past nine months, the Bank successfully replaced $482.3 million of brokered deposits with retail deposits. In the event that the Bank cannot secure the waiver from the FDIC, the Bank believes that it will be able to replenish the maturing brokered deposits with retail deposits, as it demonstrated its ability to generate retail deposits for the past nine months. However, these higher costs funds would be expected to affect our earnings and net interest margin. If the Bank is unable to replace these maturing deposits with new deposits, the Bank believes that it has adequate liquidity resources to fund its ongoing obligations with its secured funding outlets with the FHLB and Fed Discount Window.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 3 — REGULATORY MATTERS
     Risk-Based Capital
     Hanmi Financial and the Bank are subject to various regulatory capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Hanmi Financial and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
     Quantitative measures established by regulation to ensure capital adequacy require Hanmi Financial and the Bank to maintain minimum ratios (set forth in the table below) of Total and Tier 1 Capital (as defined in the regulations) to Risk-Weighted Assets (as defined), and of Tier 1 Capital (as defined) to Average Assets (as defined).
     To be categorized as “well capitalized,” the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table below. The capital ratios of Hanmi Financial and the Bank as of September 30, 2009 and December 31, 2008 were as follows:
                                                 
                    Minimum     Minimum to Be  
                    Regulatory     Categorized as  
    Actual     Requirement     “Well Capitalized”  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
    (Dollars in Thousands)  
September 30, 2009
                                               
Total Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 281,845       9.15 %   $ 246,403       8.00 %     N/A       N/A  
Hanmi Bank
  $ 297,942       9.69 %   $ 246,071       8.00 %   $ 307,589       10.00 %
Tier 1 Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 241,951       7.86 %   $ 123,202       4.00 %     N/A       N/A  
Hanmi Bank
  $ 258,262       8.40 %   $ 123,035       4.00 %   $ 184,553       6.00 %
Tier 1 Capital (to Average Assets):
                                               
Hanmi Financial
  $ 241,951       6.60 %   $ 146,608       4.00 %     N/A       N/A  
Hanmi Bank
  $ 258,262       7.05 %   $ 146,444       4.00 %   $ 183,055       5.00 %
 
December 31, 2008
                                               
Total Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 383,043       10.79 %   $ 283,943       8.00 %     N/A       N/A  
Hanmi Bank
  $ 379,438       10.70 %   $ 283,561       8.00 %   $ 354,451       10.00 %
Tier 1 Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 338,042       9.52 %   $ 141,972       4.00 %     N/A       N/A  
Hanmi Bank
  $ 334,628       9.44 %   $ 141,781       4.00 %   $ 212,671       6.00 %
Tier 1 Capital (to Average Assets):
                                               
Hanmi Financial
  $ 338,042       8.93 %   $ 151,371       4.00 %     N/A       N/A  
Hanmi Bank
  $ 334,628       8.85 %   $ 151,168       4.00 %   $ 188,959       5.00 %
     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered “adequately capitalized” under the regulatory framework for prompt corrective action.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 3 — REGULATORY MATTERS (Continued)
Memorandum of Understanding
     On October 8, 2008, the members of the Board of the Bank entered into an informal supervisory agreement (a memorandum of understanding) with the Federal Reserve Bank of San Francisco (“FRB”) and the California Department of Financial Institutions (the “DFI” and with the FRB, the “Regulators”) to address certain issues raised in the Bank’s regulatory examination by the DFI on March 10, 2008. The memorandum of understanding has been superseded by the Final Order (the “Order”) issued by the DFI, and the Written Agreement (the “Agreement”) with the FRB, each of which were issued effective as of November 2, 2009. See “Note 13 — Subsequent Events” for further details regarding the Order and Agreement.
     Certain of the issues to be addressed by management under the terms of the memorandum of understanding relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval.
     As of September 30, 2009, the Bank had a Tier 1 leverage ratio of 7.05 percent and tangible stockholder’s equity to total tangible assets ratio of 7.57 percent, both of which are below the minimum requirements required by the memorandum of understanding. See “Note 13 — Subsequent Events” for further information. As of December 31, 2008, the Bank had a Tier 1 leverage ratio of 8.85 percent and tangible stockholder’s equity to total tangible assets ratio of 8.68 percent.
     The Board and management are committed to addressing and resolving the issues raised in the memorandum of understanding on a timely basis. Since completion of the March 10, 2008 regulatory examination, actions have already been undertaken to address and resolve many of the issues raised by the memorandum of understanding.
     As noted above, some of the more significant changes have been in the area of methodology for estimation of the allowances for loan losses. With the changes in the economic climate, we have made various changes quarter to quarter, including:
    In the first quarter of 2008, the historical loss rate migration analysis was enhanced. Twelve previous quarters loss history, with the most recent six quarters weighted more heavily at 1.5 to 1.0 to factor in the increased loss rate to reflect the changing economic environment. Previously, the analysis was conducted using the previous 28 quarters all weighted evenly. The revision is more realistic and dynamic, which is particularly pertinent during these fast-changing times.
 
    The reserve factors for contingent liabilities have also been enhanced and now are based on the actual loan pool usage percentages and the risk rating reserve percentages, whereas before only the weighted historical loss rates for clean loans were used.
 
    Furthermore, collateral values are fluctuating more widely this past year than in previous years. Therefore, real estate secured loans are being monitored more frequently, and collateral is being reappraised more frequently so that impairment on these loans, whether they are classified loans or pass loans, may be calculated accurately for purposes of the allowance for loan losses.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 3 — REGULATORY MATTERS (Continued)
    The impairment policy has also been revised to require charge-off of fully impaired loans within 90 days of the impairment date. Exceptions to this policy are allowed only with the Chief Credit Officer’s approval.
 
    The memorandum of understanding addresses enhancement of loan policies and procedures. The revisions to the loan policies and procedures were made more in response to changes in the business environment and increased credit risk, rather than to a specific mandate in the Memorandum of Understanding.
     The rapidly changing economic conditions that have drastically affected our borrowers have necessitated several revisions to the qualitative factors used in the estimation of the allowance for loan losses. Some of the more significant qualitative factors adjusted are increases in delinquencies, classified assets, non-performing loans and charge-offs, changes in quality of loan review, credit concentrations, and external factors of real estate, construction, commercial term, line of credit and Small Business Administration (“SBA”) loans. Overall, qualitative adjustment totals increased by $10.5 million, or 64.7 percent, to $26.6 million for the third quarter of 2009 from $16.1 million for the fourth quarter of 2008. Specifically, the largest two loan pools, commercial term loans (secured and unsecured combined) and commercial real estate loans, had significant increases in qualitative adjustments, collectively exceeding $9.2 million in increases during the time period.
     Certain actions that we have specifically taken to comply with the memorandum of understanding include the following:
    The Board of Directors’ membership has been changed. Since October 2008, seven directors have retired or resigned. The Board has successfully recruited and elected four new directors, each of them with prior banking experience, professional designations and a wealth of knowledge and experience.
 
    The Corporate Governance Guidelines have also been revised and enhanced to more clearly outline director qualifications, nomination procedures and succession planning.
 
    The memorandum of understanding also called for enhancements to the Capital Augmentation and Maintenance Plan, the Liquidity Contingency Plan, the Strategic Plan and the Earnings Plan. These have been completed and the plans are being followed with positive results.
     The regulators also recommended that the Board of Directors increase its members by one additional director and make further enhancements to the management succession and retention programs. The Board of Directors is addressing these issues.
     The memorandum of understanding requires the Bank to submit reports quarterly on the progress made on all of the provisions. At this time, the Bank is in full or substantial compliance with a majority of the provisions, with the understanding that some of the provisions, like the Asset Quality Improvement Plan, the Capital Augmentation and Maintenance Plan, and the Earnings Plan, require the implementation of the plans and a passage of time to show the results of the plans.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 3 — REGULATORY MATTERS (Continued)
     The liquidity contingency plan, earnings plan and updated strategic plan have been revised as part the Bank’s actions to comply with the memorandum of understanding. As previously reported, certain directors have retired from the Board and other directors have joined the Board, bringing broader and more diverse skill sets.
Capital Plan
     Separately, in accordance with our prior commitment to the FRB, Hanmi Financial has adopted a consolidated capital plan to augment and maintain a sufficient consolidated capital position. In addition, Hanmi Financial has agreed that it will not, and is currently restricted pursuant to the terms of the Agreement and Order from: (i) declare or pay any dividends or make any payments on its junior subordinated debentures or any other capital distributions without the prior written consent of the FRB, and (ii) incur, increase or renew any existing debt or purchase, redeem or otherwise acquire any of its capital stock without the prior written consent of the FRB. In order to preserve its capital position, the Board of Hanmi Financial has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. Finally, Hanmi Financial has agreed to provide prior written notice and obtain the consent of the FRB prior to appointing any new directors or senior executive officers.
NOTE 4 — FAIR VALUE MEASUREMENTS
Fair Value Option and Fair Value Measurements
     FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.
     FASB ASC 825, “Financial Instruments,” provides additional guidance for estimating fair value in accordance with FASB ASC 820 when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. FASB ASC 825 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. FASB ASC 825 also requires additional disclosures relating to fair value measurement inputs and valuation techniques, as well as providing disclosures for all debt and equity investment securities by major security types rather than by major security categories that should be based on the nature and risks of the security during both interim and annual periods. FASB ASC is effective for interim and annual reporting periods ending after June 15, 2009 and does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FASB ASC 825 requires comparative disclosures only for periods ending after initial adoption. We adopted FASB ASC 825 in the second quarter of 2009. The adoption of FASB ASC 825 resulted in additional disclosures that are presented in “Note 5 — Investment Securities.”

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
     We used the following methods and significant assumptions to estimate fair value:
     Investment Securities Available for Sale — The fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Level 1 investment securities include those traded on an active exchange such as the New York Stock Exchange, as well as other U.S. government and agency debentures that are traded by dealers or brokers in active over-the-counter markets. Level 2 investment securities include mortgage-backed securities, municipal bonds, collateralized mortgage obligations, asset-backed securities and corporate debt securities. Securities classified as Level 3 investment securities are preferred stocks that are not traded in market.
     Loans Held for Sale — Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, we classify these loans as Level 2 and subject to non-recurring fair value adjustments.
     Impaired Loans — FASB ASC 820 applies to loans measured for impairment using the practical expedients permitted by FASB ASC 310, “Receivables,” including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost related to liquidation of the collateral. These loans are classified as Level 2 and subject to non-recurring fair value adjustments.
     Other Real Estate Owned — Other real estate owned is measured at fair value less selling costs. Fair value was determined based on third-party appraisals of fair value in an orderly sale. Selling costs were based on standard market factors. We classify other real estate owned as Level 2 and subject to non-recurring fair value adjustments.
     Servicing Assets and Servicing Liabilities — The fair values of servicing assets and servicing liabilities are based on a valuation model that calculates the present value of estimated net future cash flows related to contractually specified servicing fees. The valuation model incorporates assumptions that market participants would use in estimating future cash flows. We are able to compare the valuation model inputs and results to widely available published industry data for reasonableness. Fair value measurements of servicing assets and servicing liabilities use significant unobservable inputs. As such, we classify them as Level 3.
     Other Intangible Assets — Other intangible assets consists of a core deposit intangible and acquired intangible assets arising from acquisitions, including non-compete agreements, trade names, carrier relationships and client/insured relationships. The valuation of other intangible assets is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We test our other intangible assets annually for impairment, or when indications of potential impairment exist. Fair value measurements of other intangible assets use significant unobservable inputs. As such, we classify them as Level 3 and subject to non-recurring fair value adjustments.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
     FASB ASC 320, “Investments — Debt and Equity Securities,” amended current other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income. FASB ASC 320 did not amend existing recognition and measurement guidance related to OTTI write-downs of equity securities. FASB ASC 320 also extended disclosure requirements about debt and equity securities to interim reporting periods. FASB ASC 320 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FASB ASC 320 requires comparative disclosures only for periods ending after initial adoption. We adopted FASB ASC 320 in the second quarter of 2009 and it had no impact on our financial condition or results of operations.
Fair Value Measurement
     FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:
  •   Level 1     Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
  •   Level 2     Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
 
  •   Leve1 3     Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
     As of September 30, 2009, assets and liabilities measured at fair value on a recurring basis are as follows:
                                 
    Level 1     Level 2     Level 3        
            Significant              
            Observable              
    Quoted Prices in     Inputs With No              
    Active Markets     Active Market     Significant     Balance as of  
    for Identical     With Identical     Unobservable     September 30,  
    Assets     Characteristics     Inputs     2009  
    (In Thousands)  
ASSETS:
                               
Investment Securities Available for Sale:
                               
Mortgage-Backed Securities
  $     $ 80,089     $     $ 80,089  
Municipal Bonds
          57,437             57,437  
U.S. Government Agency Securities
    38,022                   38,022  
Collateralized Mortgage Obligations
          15,576             15,576  
Asset-Backed Securities
          8,417             8,417  
Other Securities
          2,971       1,201       4,172  
Equity Securities
    873                   873  
Corporate Bond
    439                   439  
 
                       
Total Investment Securities Available for Sale
  $ 39,334     $ 164,490     $ 1,201     $ 205,025  
 
                       
Servicing Assets
  $     $     $ 3,957     $ 3,957  
LIABILITIES:
                               
Servicing Liabilities
  $     $     $ (225 )   $ (225 )
     The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2009:
                                                 
    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
                            Realized and                
                            Unrealized                
    Beginning             Realized and     Gains (Losses)             Ending  
    Balance as of     Purchases,     Unrealized     in Other     Transfers     Balance as of  
    July 1,     Issuances and     Gains (Losses)     Comprehensive     In and/or Out     September 30,  
    2009     Settlements     in Earnings     Income     of Level 3     2009  
    (In Thousands)  
ASSETS:
                                               
Investment Securities Available for Sale — Other Securities
  $ 1,571     $     $     $ (370 )   $     $ 1,201  
Servicing Assets
  $ 3,444     $ 689     $ (176 )   $     $     $ 3,957  
LIABILITIES:
                                               
Servicing Liabilities
  $ (222 )   $     $ (3 )   $     $     $ (225 )

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
     The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2009:
                                                 
    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
                            Realized and                
                            Unrealized                
    Beginning             Realized and     Gains (Losses)             Ending  
    Balance as of     Purchases,     Unrealized     in Other     Transfers     Balance as of  
    January 1,     Issuances and     Gains (Losses)     Comprehensive     In and/or Out     September 30,  
    2009     Settlements     in Earnings     Income     of Level 3     2009  
    (In Thousands)  
ASSETS:
                                               
Investment Securities Available for Sale — Other Securities
  $ 1,311     $     $     $ (110 )   $     $ 1,201  
Servicing Assets
  $ 3,791     $ 763     $ (597 )   $     $     $ 3,957  
LIABILITIES:
                                               
Servicing Liabilities
  $ (238 )   $     $ 13     $     $     $ (225 )
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
     As of September 30, 2009, assets and liabilities measured at fair value on a non-recurring basis are as follows:
                                         
    Level 1     Level 2     Level 3              
            Significant                    
            Observable                    
    Quoted Prices in     Inputs With No                    
    Active Markets     Active Market     Significant     Balance as of        
    for Identical     With Identical     Unobservable     September 30,     Total  
    Assets     Characteristics     Inputs     2009     Gains (Losses)  
    (In Thousands)  
ASSETS:
                                       
Loans Held for Sale
  $     $ 5,118     $     $ 5,118     $  
Impaired Loans
  $     $ 111,038     $     $ 111,038     $ (19,478 )
Other Real Estate Owned
  $     $ 27,140     $     $ 27,140     $ (2,501 )
Other Intangible Assets
  $     $     $ 3,736     $ 3,736     $  
Assets and Liabilities Not Measured at Fair Value on a Recurring or Non-Recurring Basis
     FASB ASC 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis or non-recurring basis are discussed above.
     The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
     The estimated fair values of financial instruments were as follows:
                                 
    September 30, 2009   December 31, 2008
    Carrying   Estimated   Carrying   Estimated
    or Contract   Fair   or Contract   Fair
    Amount   Value   Amount   Value
    (In Thousands)
Financial Assets:
                               
Cash and Cash Equivalents
  $ 213,334     $ 213,334     $ 215,947     $ 215,947  
Investment Securities Held to Maturity
  $ 876     $ 876     $ 910     $ 910  
Investment Securities Available for Sale
  $ 205,025     $ 205,025     $ 196,207     $ 196,207  
Loans Receivable, Net of Allowance for Loan Losses
  $ 2,847,618     $ 2,819,147     $ 3,253,715     $ 3,246,955  
Accrued Interest Receivable
  $ 11,389     $ 11,389     $ 12,347     $ 12,347  
Investment in Federal Home Loan Bank Stock
  $ 30,697     $ 30,697     $ 30,697     $ 30,697  
Investment in Federal Reserve Bank Stock
  $ 10,053     $ 10,053     $ 10,228     $ 10,228  
Financial Liabilities:
                               
Noninterest-Bearing Deposits
  $ 561,548     $ 561,548     $ 536,944     $ 536,944  
Interest-Bearing Deposits
  $ 2,430,312     $ 2,437,022     $ 2,533,136     $ 2,538,394  
Borrowings
  $ 244,730     $ 244,008     $ 505,389     $ 506,429  
Accrued Interest Payable
  $ 19,730     $ 19,730     $ 18,539     $ 18,539  
Off-Balance Sheet Items:
                               
Commitments to Extend Credit
  $ 304,328     $ 245     $ 386,785     $ 384  
Standby Letters of Credit
  $ 40,085     $ 88     $ 47,289     $ 194  
     The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are as follows:
     Cash and Cash Equivalents — The carrying amounts approximate fair value due to the short-term nature of these instruments.
     Investment Securities — The fair value of investment securities was generally obtained from market bids for similar or identical securities or obtained from independent securities brokers or dealers.
     Loans Receivable, Net of Allowance for Loan Losses — Fair values were estimated by loan portfolio and were based on discounted cash flows utilizing discount rates that approximate the pricing of similar loans, anticipated repayment schedules and default factors. The fair value of non-performing loans at September 30, 2009 and December 31, 2008 was not estimated because it was not practicable to reasonably assess the credit adjustment that would be applied in the marketplace for such loans. Loans held for sale were excluded.
     Accrued Interest Receivable — The carrying amount of accrued interest receivable approximates its fair value.
     Investment in Federal Home Loan Bank Stock and Investment in Federal Reserve Bank Stock — The carrying amounts approximate fair value as the stock may be resold to the issuer at carrying value.
     Noninterest-Bearing Deposits — The fair value of noninterest-bearing deposits was the amount payable on demand at the reporting date.
     Interest-Bearing Deposits — The fair value of interest-bearing deposits, such as certificates of deposit, was estimated based on discounted cash flows. The discount rate used was based on interest rates currently being offered by the Bank on comparable deposits as to amount and term.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)
     Borrowings — Borrowings consist of FHLB advances, junior subordinated debentures and other borrowings. Discounted cash flows have been used to value borrowings.
     Accrued Interest Payable — The carrying amount of accrued interest payable approximates its fair value.
     Commitments to Extend Credit and Standby Letters of Credit — The fair values of commitments to extend credit and standby letters of credit are based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.
NOTE 5 — INVESTMENT SECURITIES
     The following is a summary of investment securities held to maturity:
                                 
    Amortized     Gross     Gross     Estimated  
    Cost     Unrealized     Unrealized     Fair  
            Gain     Loss     Value  
    (In Thousands)  
September 30, 2009:
                               
Municipal Bonds
  $ 695     $     $     $ 695  
Mortgage-Backed Securities (1)
    181                   181  
 
                       
 
  $ 876     $     $     $ 876  
 
                       
 
                               
December 31, 2008:
                               
Municipal Bonds
  $ 695     $     $     $ 695  
Mortgage-Backed Securities (1)
    215                   215  
 
                       
 
  $ 910     $     $     $ 910  
 
                       
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 5 — INVESTMENT SECURITIES (Continued)
     The following is a summary of investment securities available for sale:
                                 
            Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gain     Loss     Value  
    (In Thousands)  
September 30, 2009:
                               
Mortgage-Backed Securities (1)
  $ 78,434     $ 1,685     $ 30     $ 80,089  
Municipal Bonds
    55,511       1,999       73       57,437  
U.S. Government Agency Securities
    38,317       7       302       38,022  
Collateralized Mortgage Obligations (2)
    15,240       336             15,576  
Asset-Backed Securities
    8,331       88       2       8,417  
Other Securities
    3,925       280       33       4,172  
Equity Securities
    511       362             873  
Corporate Bond (3)
    364       75             439  
 
                       
 
  $ 200,633     $ 4,832     $ 440     $ 205,025  
 
                       
 
                               
December 31, 2008:
                               
Mortgage-Backed Securities (1)
  $ 77,515     $ 1,536     $ 191     $ 78,860  
Municipal Bonds
    58,987       413       1,087       58,313  
U.S. Government Agency Securities
    17,580       120             17,700  
Collateralized Mortgage Obligations (2)
    36,204       137       179       36,162  
Other Securities
    3,925       387       112       4,200  
Equity Securities
    511       293             804  
Corporate Bond (3)
    355             186       169  
 
                       
 
  $ 195,077     $ 2,886     $ 1,755     $ 196,208  
 
                       
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
 
(2)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities, except for two private-label securities held as of December 31, 2008 with an unrealized loss totaling $42,000. The two private-label securities were sold during the three months ended March 31, 2009.
 
(3)   Balances presented for amortized cost, representing one corporate bond, were net of an OTTI charge of $2.4 million, which was related to a credit loss, as of September 30, 2009 and December 31, 2008. Therefore, the adoption of FASB ASC 320 did not require a reclassification for the non-credit portion of previously recognized OTTI from the opening balance of retained earnings to other comprehensive income as of March 31, 2009.
     The amortized cost and estimated fair value of investment securities as of September 30, 2009, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2039, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
                                 
    Available for Sale     Held to Maturity  
            Estimated             Estimated  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
    (In Thousands)  
Within One Year
  $ 5,708     $ 6,052     $     $  
Over One Year Through Five Years
    2,873       3,009              
Over Five Years Through Ten Years
    31,330       31,624       695       695  
Over Ten Years
    66,537       67,802              
Mortgage-Backed Securities
    78,434       80,089       181       181  
Collateralized Mortgage Obligations
    15,240       15,576              
Equity Securities
    511       873              
 
                       
 
  $ 200,633     $ 205,025     $ 876     $ 876  
 
                       

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 5 — INVESTMENT SECURITIES (Continued)
     We perform periodic reviews for impairment in accordance with FASB ASC 320. Gross unrealized losses on investment securities available for sale, the estimated fair value of the related securities and the number of securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of September 30, 2009 and December 31, 2008:
                                                                         
    Holding Period  
    Less than 12 Months     12 Months or More     Total  
    Gross     Estimated     Number     Gross     Estimated     Number     Gross     Estimated     Number  
Investment Securities   Unrealized     Fair     of     Unrealized     Fair     of     Unrealized     Fair     of  
Available for Sale   Losses     Value     Securities     Losses     Value     Securities     Losses     Value     Securities  
    (In Thousands)  
September 30, 2009:
                                                                       
Mortgage-Backed Securities
  $ 30     $ 10,183       6     $     $           $ 30     $ 10,183       6  
Municipal Bonds
    7       1,960       3       66       807       1       73       2,767       4  
U.S. Government Agency Securities
    302       34,685       6                         302       34,685       6  
Collateralized Mortgage Obligations
                                                     
Asset-Backed Securities
    2       5,463       1                         2       5,463       1  
Other Securities
                      33       967       1       33       967       1  
 
                                                     
 
  $ 341     $ 52,291       16     $ 99     $ 1,774       2     $ 440     $ 54,065       18  
 
                                                     
December 31, 2008:
                                                                       
Mortgage-Backed Securities
  $ 158     $ 10,631       42     $ 33     $ 5,277       4     $ 191     $ 15,908       46  
Municipal Bonds
    968       35,614       66       119       1,749       4       1,087       37,363       70  
Collateralized Mortgage Obligations
    36       4,569       4       143       5,903       4       179       10,472       8  
Other Securities
    72       929       1       40       1,960       2       112       2,889       3  
Corporate Bonds
    186       169       1                         186       169       1  
 
                                                     
 
  $ 1,420     $ 51,912       114     $ 335     $ 14,889       14     $ 1,755     $ 66,801       128  
 
                                                     
     All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2009 and December 31, 2008 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of September 30, 2009. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.
     FASB ASC 320 requires an entity to assess whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before the recovery of its amortized cost bases. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of September 30, 2009 and December 31, 2008 are not other-than-temporarily impaired, and therefore, no impairment charges as of September 30, 2009 and December 31, 2008 are warranted.
     Investment securities available for sale with carrying values of $123.4 million and $123.6 million as of September 30, 2009 and December 31, 2008, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 5 — INVESTMENT SECURITIES (Continued)
     Realized gains and losses on sales of investment securities, proceeds from sales of investment securities and the tax expense (benefit) on sales of investment securities were as follows for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In Thousands)  
Gross Realized Gains on Sales of Investment Securities
  $     $     $ 1,277     $ 618  
Gross Realized Losses on Sales of Investment Securities
          (483 )     (109 )     (483 )
 
                       
Net Realized Gains (Losses) on Sales of Investment Securities
  $     $ (483 )   $ 1,168     $ 135  
 
                       
Proceeds from Sales of Investment Securities
  $     $ 2,000     $ 38,448     $ 26,001  
Tax Expense (Benefit) on Sales of Investment Securities
  $     $ (203 )   $ 16,166     $ 57  
     For the three months ended September 30, 2009, $1.0 million ($584,000, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income. For the three months ended September 30, 2008, $384,000 ($223,000, net of income taxes) of net unrealized losses arose during the period and was included in comprehensive income and $10,000 ($6,000, net of income taxes) of previously net unrealized losses were realized in earnings. For the nine months ended September 30, 2009, $4.2 million ($2.5 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income and $975,000 ($565,000, net of income taxes) of previously net unrealized gains were realized in earnings. For the nine months ended September 30, 2008, $70,000 ($41,000, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income and $458,000 ($265,000, net of income taxes) of previously net unrealized gains were realized in earnings.
NOTE 6 — LOANS
Loans Receivable
     Loans receivable consisted of the following as of the dates indicated:
                 
    September 30,     December 31,  
    2009     2008  
    (In Thousands)  
Real Estate Loans:
               
Commercial Property
  $ 877,053     $ 908,970  
Construction
    127,304       178,783  
Residential Property
    82,378       92,361  
 
           
Total Real Estate Loans
    1,086,735       1,180,114  
 
           
Commercial and Industrial Loans:
               
Commercial Term Loans
    1,477,843       1,611,449  
SBA Loans
    135,043       140,989  
Commercial Lines of Credit
    128,844       214,699  
International Loans
    77,194       95,185  
 
           
Total Commercial and Industrial Loans
    1,818,924       2,062,322  
 
           
Consumer Loans
    68,537       83,525  
 
           
Total Gross Loans
    2,974,196       3,325,961  
Deferred Loan Fees
    (1,810 )     (1,260 )
Allowance for Loan Losses
    (124,768 )     (70,986 )
 
           
Loans Receivable, Net
  $ 2,847,618     $ 3,253,715  
 
           

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 6 — LOANS (Continued)
     Accrued interest on loans receivable amounted to $10.0 million and $11.8 million at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009 and December 31, 2008, loans receivable totaling $1.36 billion and $2.84 billion, respectively, were pledged to secure FHLB advances and the Fed Discount Window.
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
     Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows for the periods indicated:
                                 
    As of and for the  
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In Thousands)  
Allowance for Loan Losses:
                               
Balance at Beginning of Period
  $ 105,268     $ 62,977     $ 70,986     $ 43,611  
 
                       
Actual Charge-Offs
    (30,362 )     (12,171 )     (67,210 )     (28,679 )
Recoveries on Loans Previously Charged Off
    487       340       1,925       1,331  
 
                       
Net Loan Charge-Offs
    (29,875 )     (11,831 )     (65,285 )     (27,348 )
 
                       
Provision Charged to Operating Expenses
    49,375       12,802       119,067       47,685  
 
                       
Balance at End of Period
  $ 124,768     $ 63,948     $ 124,768     $ 63,948  
 
                       
Allowance for Off-Balance Sheet Items:
                               
Balance at Beginning of Period
  $ 4,291     $ 3,932     $ 4,096     $ 1,765  
Provision Charged to Operating Expenses
    125       374       320       2,541  
 
                       
Balance at End of Period
  $ 4,416     $ 4,306     $ 4,416     $ 4,306  
 
                       
Impaired Loans
     The following table provides information on impaired loans as of the dates indicated:
                 
    September 30,     December 31,  
    2009     2008  
    (In Thousands)  
Recorded Investment With Related Allowance
  $ 190,974     $ 71,448  
Recorded Investment With No Related Allowance
    39,698       49,945  
Allowance on Impaired Loans
    (36,672 )     (18,157 )
 
           
Net Recorded Investment in Impaired Loans
  $ 194,000     $ 103,236  
 
           
     The average recorded investment in impaired loans was $262.9 million and $114.9 million for the nine months ended September 30, 2009 and 2008, respectively.
     The following is a summary of interest foregone on impaired loans for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
    (In Thousands)  
Interest Income That Would Have Been Recognized Had Impaired Loans Performed in Accordance With Their Original Terms
  $ 5,473     $ 3,716     $ 12,126     $ 8,148  
Less: Interest Income Recognized on Impaired Loans
    (3,987 )     (2,386 )     (7,591 )     (3,017 )
 
                       
Interest Foregone on Impaired Loans
  $ 1,486     $ 1,330     $ 4,535     $ 5,131  
 
                       

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 6 — LOANS (Continued)
     There were no commitments to lend additional funds to borrowers whose loans are included above.
Non-Performing Assets
     The following table details non-performing assets as of the dates indicated:
                 
    September 30,     December 31,  
    2009     2008  
    (In Thousands)  
Non-Accrual Loans
  $ 174,363     $ 120,823  
Loans 90 Days or More Past Due and Still Accruing
    64       1,075  
 
           
Total Non-Performing Loans
    174,427       121,898  
Other Real Estate Owned, Net
    27,140       823  
 
           
Total Non-Performing Assets
  $ 201,567     $ 122,721  
 
           
Troubled Debt Restructurings on Accrual Status
  $ 69,893     $  
     Loans on non-accrual status totaled $174.4 million and $120.8 million as of September 30, 2009 and December 31, 2008, respectively. Loans past due 90 days or more and still accruing interest totaled $64,000 and $1.1 million as of September 30, 2009 and December 31, 2008, respectively.
     As of September 30, 2009, other real estate owned consisted of 12 properties with a combined net carrying value of $27.1 million. During the nine months ended September 30, 2009, 14 properties, with a carrying value of $38.3 million, were transferred from loans receivable to other real estate owned and 5 properties, with a carrying value of $9.5 million, were sold and a loss of $440,000 was recognized. As of December 31, 2008, other real estate owned consisted of three properties with a combined net carrying value of $823,000.
     During the nine months ended September 30, 2009, we restructured monthly payments on 266 loans, with a carrying value of $217.8 million as of September 30, 2009, through temporary interest rate reductions of six months or less. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, we believe that performance and collection under the revised terms is probable. In addition, we determined that these restructured loans are well secured. As of September 30, 2009, troubled debt restructurings on accrual status totaled $69.9 million, all of which were temporary interest rate reductions, and a $411,000 impairment allowance relating to these loans was included in the allowance for loan losses. As of December 31, 2008, there were no troubled debt restructurings on accrual status.
NOTE 7 — INCOME TAXES
     During the third quarter of 2009, we recorded a valuation allowance of $44.9 million on our deferred tax assets. Under GAAP, a valuation allowance must be recognized if it is “more likely than not” that such deferred tax assets will not be realized. Appropriate consideration is given to all available evidence (both positive and negative) related to the realization of the deferred tax assets on a quarterly basis.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 7 — INCOME TAXES (Continued)
     In conducting our regular quarterly evaluation, we made a determination to establish a valuation allowance as of September 30, 2009 based primarily upon the existence of a three-year cumulative loss derived by combining the pre-tax losses reported during the two most recent annual periods with management’s current projected results for the year ending December 31, 2009. This three-year cumulative loss position is primarily attributable to significant provisions for credit losses. Although our current financial forecasts indicate that sufficient taxable income will be generated in the future to ultimately realize the existing deferred tax benefits, those forecasts were not considered to constitute sufficient positive evidence to overcome the observable negative evidence associated with the three-year cumulative loss position determined as of September 30, 2009. The remaining net deferred tax assets of $2.5 million represents the remaining portion of operating loss carryback potential.
NOTE 8 — SHARE-BASED COMPENSATION
Share-Based Compensation Expense
     The table below shows the share-based compensation expense and related tax benefits for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
            (In Thousands)          
Share-Based Compensation Expense
  $ 212     $ 284     $ 701     $ 791  
Related Tax Benefits
  $ 89     $ 119     $ 295     $ 333  
Unrecognized Share-Based Compensation Expense
     As of September 30, 2009, unrecognized share-based compensation expense was as follows:
                 
    Unrecognized     Average Expected  
    Expense     Recognition Period  
    (Dollars in Thousands)  
Stock Option Awards
  $ 1,014     2.2 years
Restricted Stock Awards
    361     4.0 years
 
             
Total Unrecognized Share-Based Compensation Expense
  $ 1,375     2.7 years
 
             

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 8 — SHARE-BASED COMPENSATION (Continued)
Share-Based Payment Award Activity
     The table below provides stock option information for the three months ended September 30, 2009:
                                 
            Weighted-     Weighted-     Aggregate  
            Average     Average     Intrinsic  
    Number     Exercise     Remaining     Value of  
    of     Price Per     Contractual     In-the-Money  
    Shares     Share     Life     Options  
    (Dollars in Thousands, Except Per Share Data)  
Options Outstanding at Beginning of Period
    1,355,917     $ 11.41     6.5 years   $ 96 (1)
Options Granted
    20,000     $ 1.69     9.7 years        
Options Expired
    (105,648 )   $ 8.43     2.6 years        
Options Forfeited
    (24,400 )   $ 4.63     9.2 years        
 
                             
Options Outstanding at End of Period
    1,245,869     $ 11.64     6.5 years   $ 68 (1)
 
                             
Options Exercisable at End of Period
    728,958     $ 14.03     5.2 years   $  
 
(1)   Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.75 as of June 30, 2009, over the exercise price, multiplied by the number of options.
 
(2)   Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.64 as of September 30, 2009, over the exercise price, multiplied by the number of options.
     The table below provides stock option information for the nine months ended September 30, 2009:
                                 
            Weighted-     Weighted-     Aggregate  
            Average     Average     Intrinsic  
    Number     Exercise     Remaining     Value of  
    of     Price Per     Contractual     In-the-Money  
    Shares     Share     Life     Options  
    (Dollars in Thousands, Except Per Share Data)  
Options Outstanding at Beginning of Period
    1,323,467     $ 14.05     6.3 years   $  
Options Granted
    270,000     $ 1.39     9.5 years        
Options Expired
    (243,998 )   $ 12.27     4.1 years        
Options Forfeited
    (103,600 )   $ 14.32     7.3 years        
 
                             
Options Outstanding at End of Period
    1,245,869     $ 11.64     6.5 years   $ 68 (1)
 
                             
Options Exercisable at End of Period
    728,958     $ 14.03     5.2 years   $  
 
(1)   Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.64 as of September 30, 2009, over the exercise price, multiplied by the number of options.
     There were no options exercised during the three and nine months ended September 30, 2009 and 2008.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 8 — SHARE-BASED COMPENSATION (Continued)
Restricted Stock Awards
     The table below provides restricted stock award information for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30, 2009     September 30, 2009  
            Weighted-             Weighted-  
            Average             Average  
    Number     Grant Date     Number     Grant Date  
    of     Fair Value     of     Fair Value  
    Shares     Per Share     Shares     Per Share  
Restricted Stock at Beginning of Period
    206,200     $ 2.09       20,200     $ 11.42  
Restricted Stock Granted
    15,000     $ 1.69       205,000     $ 1.41  
Restricted Stock Vested
    (1,000 )   $ 5.15       (1,000 )   $ 5.15  
Restricted Stock Forfeited
    (15,000 )   $ 1.69       (19,000 )   $ 4.73  
 
                           
Restricted Stock at End of Period
    205,200     $ 2.08       205,200     $ 2.08  
 
                           
NOTE 9 — STOCKHOLDERS’ EQUITY
Securities Purchase Agreement
     On June 12, 2009, and subsequently modified on July 31, 2009 and September 28, 2009, we entered into a Securities Purchase Agreement by and between Hanmi Financial and Leading Investment & Securities Co., Ltd., a Korean securities broker-dealer (“LIS”), providing for the sale of 8,079,612 unregistered shares of Hanmi Financial common stock, par value $0.001 per share, to LIS at a purchase price of $1.37 per share (the “Acquisition”), resulting in gross proceeds of $11.1 million. The proceeds will be used to augment Hanmi Financial’s regulatory capital and for other general corporate purposes. The shares of common stock to be sold pursuant to the Securities Purchase Agreement are being offered and sold by us in a transaction that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
     Pursuant to the terms of the Securities Purchase Agreement and the amendment of the Securities Purchase Agreement, LIS will accomplish the Acquisition through an initial purchase of 5,070,423 shares of Hanmi Financial common stock, representing up to 9.9 percent of the issued and outstanding shares of Hanmi Financial common stock after giving effect to the sale of such shares (the “Initial Acquisition”), and a subsequent purchase of 3,009,189 shares of Hanmi Financial common stock (the “Additional Acquisition”). Together, the Initial Acquisition and Additional Acquisition will represent up to 14.9 percent of the issued and outstanding shares of Hanmi Financial common stock after giving effect to the sale of such shares. The Initial Acquisition was completed on September 4, 2009, resulting in an initial investment of $6.8 million from LIS. The Additional Acquisition is subject to receipt of regulatory approval and the satisfaction of customary closing conditions. It is not anticipated that the Additional Acquisition will close during 2009 and there can be no assurance that this transaction will be consummated at all.
     In connection with the Acquisition, we also entered into a Registration Rights Agreement, dated June 12, 2009, by and between Hanmi Financial and LIS pursuant to which we have agreed to grant LIS certain demand registration rights with respect to the shares purchased in the Acquisition.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 10 — EARNINGS (LOSS) PER SHARE
     Earnings (loss) per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury. Unvested restricted stock is excluded from the calculation of weighted-average common shares for basic EPS. For diluted EPS, weighted-average common shares include the impact of restricted stock under the treasury method.
     The following tables present a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:
                                                 
    2009     2008  
    (Numerator)     (Denominator)             (Numerator)     (Denominator)        
            Weighted-     Per     Net     Weighted-     Per  
    Net     Average     Share     Income     Average     Share  
    Loss     Shares     Amount     (Loss)     Shares     Amount  
    (Dollars in Thousands, Except Per Share Data)  
Three Months Ended September 30:
                                               
Basic EPS
  $ (59,665 )     47,413,141     $ (1.26 )   $ 4,348       45,881,549     $ 0.09  
Effect of Dilutive Securities — Options, Warrants and Unvested Restricted Stock
                            51,494        
 
                                   
Diluted EPS
  $ (59,665 )     47,413,141     $ (1.26 )   $ 4,348       45,933,043     $ 0.09  
 
                                   
 
                                               
Nine Months Ended September 30:
                                               
Basic EPS
  $ (86,396 )     46,415,225     $ (1.86 )   $ (98,278 )     45,869,069     $ (2.14 )
Effect of Dilutive Securities — Options, Warrants and Unvested Restricted Stock
                                   
 
                                   
Diluted EPS
  $ (86,396 )     46,415,225     $ (1.86 )   $ (98,278 )     45,869,069     $ (2.14 )
 
                                   
     For the three months ended September 30, 2009 and 2008, there were 1,451,069 and 1,336,382 options, warrants and unvested restricted stock outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive. For the nine months ended September 30, 2009 and 2008, there were 1,451,069 and 1,266,382 options, warrants and unvested restricted stock outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive.
NOTE 11 — OFF-BALANCE SHEET COMMITMENTS
     We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 11 — OFF-BALANCE SHEET COMMITMENTS (Continued)
     Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing or borrower-occupied properties. The following table shows the distribution of undisbursed loan commitments as of the dates indicated:
                 
    September 30,     December 31,  
    2009     2008  
    (In Thousands)  
Commitments to Extend Credit
  $ 304,328     $ 386,785  
Standby Letters of Credit
    40,085       47,289  
Unused Credit Card Lines
    19,281       16,912  
Commercial Letters of Credit
    15,568       29,177  
 
           
Total Undisbursed Loan Commitments
  $ 379,262     $ 480,163  
 
           
NOTE 12 — SEGMENT REPORTING
     Through our branch network and lending units, we provide a broad range of financial services to individuals and companies located primarily in Southern California. These services include demand, time and savings deposits; and commercial and industrial, real estate and consumer lending. While our chief decision makers monitor the revenue streams of our various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations to be aggregated in one reportable operating segment.
NOTE 13 — SUBSEQUENT EVENTS
     Management has evaluated subsequent events through November 9, 2009, the date of issuance of the financial data included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the Consolidated Financial Statements (Unaudited) as of and for the three and nine months ended September 30, 2009, except as disclosed below.
Regulatory Action
     On November 2, 2009, the members of the Board of Directors of the Bank consented to the issuance of the Order from the DFI. On the same date, Hanmi Financial and the Bank entered into the Agreement with the FRB. The Order and the Agreement contain substantially similar provisions.
     The Order and the Agreement require the Board of Directors of the Bank to prepare and submit written plans to the DFI and the FRB that address the following items: (i) strengthening board oversight of the management and operation of the Bank; (ii) strengthening credit risk management practices; (iii) improving credit administration policies and procedures; (iv) improving the Bank’s position with respect to problem assets; (v) maintaining adequate reserves for loan and lease losses; (vi) improving the capital position of the Bank and, with respect to the Agreement, of Hanmi; (vii) improving the Bank’s earnings through a strategic plan and a budget for 2010; (viii) improving the Bank’s liquidity position and funds management practices; and (ix) contingency funding. In addition, the Order and the Agreement place restrictions on the Bank’s lending to borrowers who have adversely classified loans with the Bank and requires the Bank to charge off or collect certain problem loans. The Order and the Agreement also require the Bank to review and revise its allowance for loan and lease losses consistent with relevant supervisory guidance. The Bank is also prohibited from paying dividends, incurring, increasing or guaranteeing any debt, or making certain changes to its business without prior approval from the DFI, and the Bank and Hanmi must obtain prior approval from the FRB prior to declaring and paying dividends.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)
NOTE 13 — SUBSEQUENT EVENTS (Continued)
     Under the Order, the Bank is also required to increase its capital and maintain certain regulatory capital ratios prior to certain dates specified in the Order. By July 31, 2010, the Bank will be required to increase its contributed equity capital by not less than an additional $100 million. The Bank will be required to maintain a ratio of tangible shareholder’s equity to total tangible assets as follows:
     
    Ratio of Tangible Shareholder’s
Date   Equity to Total Tangible Assets
By December 31, 2009
  Not Less Than 7.0 Percent
By July 31, 2010
  Not Less Than 9.0 Percent
From December 31, 2010 and Until the Order is Terminated
  Not Less Than 9.5 Percent
     If the Bank is not able to maintain the capital ratios identified in the Order, it must notify the DFI, and Hanmi and the Bank are required to notify the FRB if their respective capital ratios fall below those set forth in the capital plan to be submitted to the FRB.
     The Board of Directors and management are committed to addressing and resolving the matters raised in the Order and the Agreement on a timely basis and actions have already been undertaken to comply with each requirement.

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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 our results of operations and financial condition as of and for the three and nine months ended September 30, 2009. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2008 and with the unaudited consolidated financial statements and notes thereto set forth in this Report.
FORWARD-LOOKING STATEMENTS
     Some of the statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following:
    failure to maintain adequate levels of capital and liquidity to support our operations;
 
    a significant number of our customers failing to perform under their loans and other terms of credit agreements;
 
    the effect of regulatory orders we have entered into and potential future regulatory enforcement action against us or the Bank;
 
    fluctuations in interest rates and a decline in the level of our interest rate spread;
 
    failure to attract or retain deposits;
 
    sources of liquidity available to us and to the Bank becoming limited or our potential inability to access sufficient sources of liquidity when needed or the requirement that we obtain government waivers to do so;
 
    adverse changes in domestic or global financial markets, economic conditions or business conditions or the effects of pandemic flu;
 
    regulatory restrictions on the Bank’s ability to pay dividends to us and on our ability to make payments on Hanmi Financial obligations;
 
    significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate;
 
    failure to retain our key employees;
 
    failure to maintain our status as a financial holding company;
 
    adequacy of our allowance for loan losses;
 
    credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses;
 
    failure to manage our future growth or successfully integrate acquisitions;
 
    volatility and disruption in financial, credit and securities markets, and the price of our common stock;
 
    deterioration in the financial markets that may result in other-than-temporary impairment charges relating to our securities portfolio;
 
    competition in our primary market areas;
 
    demographic changes in our primary market areas; and
 
    significant government regulations, legislation and potential changes thereto.
     For a discussion of some of the other factors that might cause such a difference, see the discussion contained in this Form 10-Q under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 1A. Risk Factors.” Also see “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2008 as well as other factors we identify from time to time in our periodic reports filed pursuant to the Exchange Act. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

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CRITICAL ACCOUNTING POLICIES
     We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2008. Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies (except for “Investment Securities,” which has been updated below), see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2008. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of Hanmi Financial’s Board of Directors.
Investment Securities
     The classification and accounting for investment securities are discussed in more detail in “Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2008. Under GAAP, investment securities generally must be classified as held-to-maturity, available-for-sale or trading. The appropriate classification is based partially on our ability to hold the securities to maturity and largely on management’s intentions with respect to either holding or selling the securities. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise. Investment securities that are classified as held-to-maturity are recorded at amortized cost. Unrealized gains and losses on available-for-sale securities are recorded as a separate component of stockholders’ equity (accumulated other comprehensive income or loss) and do not affect earnings until realized or are deemed to be other-than-temporarily impaired.
     The fair values of investment securities are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, we have evaluated the methodologies used to develop the resulting fair values. We perform a monthly analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes.
     We are obligated to assess, at each reporting date, whether there is an other-than-temporary impairment to our investment securities. Such impairment must be recognized in current earnings rather than in other comprehensive income. The determination of other-than-temporary impairment is a subjective process, requiring the use of judgments and assumptions. We examine all individual securities that are in an unrealized loss position at each reporting date for other-than-temporary impairment. Specific investment-related factors we examine to assess impairment include the nature of the investment, severity and duration of the loss, the probability that we will be unable to collect all amounts due, an analysis of the issuers of the securities and whether there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies. Additionally, we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash flows into question. We reexamine our financial resources, intent and overall ability to hold the securities until their fair values recover. Management does not believe that there are any investment securities, other than those identified in the current and previous periods, that are deemed other-than-temporarily impaired as of September 30, 2009 and December 31, 2008. Investment securities are discussed in more detail in “Notes to Consolidated Financial Statements (Unaudited), Note 5 — Investment Securities” presented elsewhere herein.

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SELECTED FINANCIAL DATA
     The following tables set forth certain selected financial data for the periods indicated.
                                 
    As of and for the
    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2009   2008   2009   2008
    (Dollars in Thousands, Except Per Share Data)
AVERAGE BALANCES:
                               
Average Gross Loans, Net (1)
  $ 3,078,104     $ 3,341,250     $ 3,235,455     $ 3,320,559  
Average Investment Securities
  $ 209,021     $ 244,027     $ 190,243     $ 294,130  
Average Interest-Earning Assets
  $ 3,552,698     $ 3,630,755     $ 3,718,837     $ 3,659,255  
Average Total Assets
  $ 3,672,253     $ 3,789,614     $ 3,842,266     $ 3,892,197  
Average Deposits
  $ 3,100,419     $ 2,895,746     $ 3,174,880     $ 2,924,416  
Average Borrowings
  $ 297,455     $ 590,401     $ 374,139     $ 588,267  
Average Interest-Bearing Liabilities
  $ 2,844,821     $ 2,835,917     $ 3,013,651     $ 2,861,288  
Average Stockholders’ Equity
  $ 232,136     $ 267,433     $ 249,742     $ 340,894  
Average Tangible Equity (2)
  $ 228,169     $ 261,751     $ 245,377     $ 263,870  
PER SHARE DATA:
                               
Earnings (Loss) Per Share — Basic
  $ (1.26 )   $ 0.09     $ (1.86 )   $ (2.14 )
Earnings (Loss) Per Share — Diluted
  $ (1.26 )   $ 0.09     $ (1.86 )   $ (2.14 )
Common Shares Outstanding
    51,201,390       45,905,549       51,201,390       45,905,549  
Book Value Per Share (3)
  $ 3.65     $ 5.82     $ 3.65     $ 5.82  
Tangible Book Value Per Share (4)
  $ 3.58     $ 5.70     $ 3.58     $ 5.70  
Cash Dividends Per Share
  $     $     $     $ 0.09  
SELECTED PERFORMANCE RATIOS:
                               
Return on Average Assets (5) (6)
    (6.45 %)     0.46 %     (3.01 %)     (3.37 %)
Return on Average Stockholders’ Equity (5) (7)
    (101.97 %)     6.47 %     (46.25 %)     (38.51 %)
Return on Average Tangible Equity (5) (8)
    (103.75 %)     6.61 %     (47.08 %)     (49.75 %)
Efficiency Ratio (9)
    68.21 %     54.33 %     69.38 %     134.73 %
Net Interest Spread (10)
    2.47 %     3.21 %     2.08 %     3.02 %
Net Interest Margin (11)
    3.00 %     3.94 %     2.65 %     3.83 %
Dividend Payout Ratio (12)
                      (4.20 %)
Average Stockholders’ Equity to Average Total Assets
    6.32 %     7.06 %     6.50 %     8.76 %
SELECTED CAPITAL RATIOS: (13)
                               
Total Risk-Based Capital Ratio:
                               
Hanmi Financial
    9.15 %     10.93 %                
Hanmi Bank
    9.69 %     10.84 %                
Tier 1 Risk-Based Capital Ratio:
                               
Hanmi Financial
    7.86 %     9.66 %                
Hanmi Bank
    8.40 %     9.57 %                
Tier 1 Leverage Ratio:
                               
Hanmi Financial
    6.60 %     9.02 %                
Hanmi Bank
    7.05 %     8.94 %                
SELECTED ASSET QUALITY RATIOS:
                               
Non-Performing Loans to Total Gross Loans (14)
    5.85 %     3.34 %     5.85 %     3.34 %
Non-Performing Assets to Total Assets (15)
    5.83 %     3.05 %     5.83 %     3.05 %
Net Loan Charge-Offs to Average Total Gross Loans (16)
    3.85 %     1.41 %     2.70 %     1.10 %
Allowance for Loan Losses to Total Gross Loans
    4.19 %     1.91 %     4.19 %     1.91 %
Allowance for Loan Losses to Non-Performing Loans
    71.53 %     57.16 %     71.53 %     57.16 %
 
(1)   Loans are net of deferred fees and related direct costs.
 
(2)   Average tangible equity is calculated by subtracting average goodwill and average other intangible assets from average stockholders’ equity. See “Non-GAAP Financial Measures.”
 
(3)   Total stockholders’ equity divided by common shares outstanding.
 
(4)   Tangible equity divided by common shares outstanding. See “Non-GAAP Financial Measures.”
 
(5)   Calculation based upon annualized net loss.
 
(6)   Net loss divided by average total assets.
 
(7)   Net loss divided by average stockholders’ equity.
 
(8)   Net loss divided by average tangible equity. See “Non-GAAP Financial Measures.”
 
(9)   Total non-interest expenses divided by the sum of net interest income before provision for credit losses and total non-interest income.
 
(10)   Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(11)   Net interest income before provision for credit losses divided by average interest-earning assets. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(12)   Cash dividends per share times common shares outstanding divided by net loss.
 
(13)   The required ratios for a “well-capitalized” institution, as defined by regulations of the Board of Governors of the Federal Reserve System, are 10 percent for the Total Risk-Based Capital Ratio (total capital divided by total risk-weighted assets); 6 percent for the Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets); and 5 percent for the Tier 1 Leverage Ratio (Tier 1 capital divided by average total assets).
 
(14)   Non-performing loans consist of non-accrual loans and loans past due 90 days or more and still accruing interest.
 
(15)   Non-performing assets consist of non-performing loans (see footnote (14) above) and other real estate owned.
 
(16)   Calculation based upon annualized net loan charge-offs.

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Non-GAAP Financial Measures
Return on Average Tangible Equity
     Return on average tangible equity is supplemental financial information determined by a method other than in accordance with GAAP. This non-GAAP measure is used by management in the analysis of Hanmi Financial’s performance. Average tangible equity is calculated by subtracting average goodwill and average other intangible assets from average stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from stockholders’ equity when assessing the capital adequacy of a financial institution. Management believes the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the financial results of Hanmi Financial, as it provides a method to assess management’s success in utilizing tangible capital. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
     The following table reconciles the GAAP performance measure to this non-GAAP performance measure for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
            (Dollars in Thousands)          
Average Stockholders’ Equity
  $ 232,136     $ 267,433     $ 249,742     $ 340,894  
Less Average Goodwill and Average Other Intangible Assets
    (3,967 )     (5,682 )     (4,365 )     (77,024 )
 
                       
Average Tangible Equity
  $ 228,169     $ 261,751     $ 245,377     $ 263,870  
 
                       
 
                               
Return on Average Stockholders’ Equity
    (101.97 %)     6.47 %     (46.25 %)     (38.51 %)
Effect of Average Goodwill and Average Other Intangible Assets
    (1.78 %)     0.14 %     (0.83 %)     (11.24 %)
 
                       
Return on Average Tangible Equity
    (103.75 %)     6.61 %     (47.08 %)     (49.75 %)
 
                       
Tangible Book Value Per Share
     Tangible book value per share is supplemental financial information determined by a method other than in accordance with GAAP. This non-GAAP measure is used by management in the analysis of Hanmi Financial’s performance. Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total stockholders’ equity and dividing the difference by the number of shares of common stock outstanding. Management believes the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the financial results of Hanmi Financial, as it provides a method to assess management’s success in utilizing tangible capital. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
     The following table reconciles the GAAP performance measure to this non-GAAP performance measure for the periods indicated:
                 
    September 30,  
    2009     2008  
    (Dollars in Thousands, Except Per Share Data)  
Total Stockholders’ Equity
  $ 187,120     $ 267,196  
Less Goodwill and Other Intangible Assets
    (3,736 )     (5,404 )
 
           
Tangible Equity
  $ 183,384     $ 261,792  
 
           
 
               
Book Value Per Share
  $ 3.65     $ 5.82  
Effect of Goodwill and Other Intangible Assets
    (0.07 )     (0.12 )
 
           
Tangible Book Value Per Share
  $ 3.58     $ 5.70  
 
           

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EXECUTIVE OVERVIEW
     The focus of our business has been on commercial and real estate lending for small to medium size businesses. As of September 30, 2009, we maintained a branch network of 27 full-service branch offices in California and 2 loan production offices in Virginia and Washington.
     Since the second half of 2007, the economic conditions in the markets in which our borrowers operate have continued to deteriorate and the levels of loan delinquency and defaults that we experienced have been substantially higher than historical levels. As a result, we have made substantial provisions for credit losses in 2007, 2008 and the first nine months of 2009 that have adversely affected our earnings. We believe that our results of operations will continue to be adversely affected if economic conditions, particularly in California, continue to deteriorate.
     A continuing concern in the banking industry is liquidity. Our utilization of wholesale funds during the fourth quarter of 2008 improved our liquidity, and our strategic priority in 2009 has been to replace such wholesale funds with customer deposits. For the past nine months, the Bank launched two deposit campaigns to increase new deposits and reduce its reliance on wholesale funding to an optimum level. Through the first deposit campaign promoted from December 2008 and early part of March 2009, the Bank achieved the objectives of maintaining strong liquidity and reducing its reliance on wholesale funds. The second deposit campaign, which started in June 2009, has been undertaken to specifically increase new core deposits and recapture time deposits raised from the first deposit promotion. This deposit-portfolio rebalancing implemented under the Bank’s de-leveraging strategy allowed some run-off of rate-sensitive deposits. As a result, total deposits slightly decreased by $78.2 million, or 2.5 percent, to $2.99 billion as of September 30, 2009, compared to $3.07 billion as of December 31, 2008. Brokered deposits and FHLB advances decreased to $391.9 million and $160.8 million, respectively, as of September 30, 2009, compared to $874.2 million and $422.2 million, respectively, as of December 31, 2008.
     See “Liquidity and Capital Resources — Liquidity — Hanmi Bank” for further information.
     Total assets were $3.46 billion as of September 30, 2009, compared to $3.88 billion as of December 31, 2008, and total gross loans were $2.98 billion as of September 30, 2009, compared to $3.36 billion as of December 31, 2008. The decrease in total gross loans is the result of the de-leveraging strategy implemented in 2009 by focusing on asset quality over growth to successfully mitigate the economic downturn we are experiencing, as well as loan charge-offs and transfers to other real estate owned.
     In light of the ever-deepening recession and its possible effect on our customers, we continuously monitor the capital markets and review alternatives for additional capital to provide a sufficient cushion. The de-leveraging strategy we are pursuing will help our efforts to preserve such cushion in our capital in a passive manner. We have also actively searched for alternative ways to improve our capital position. On June 12, 2009, and subsequently modified on July 31, 2009 and September 28, 2009, we entered into a Securities Purchase Agreement by and between Hanmi Financial and LIS, providing for the sale of 8,079,612 unregistered shares of Hanmi Financial common stock, par value $0.001 per share, to LIS at a purchase price of $1.37 per share, resulting in gross proceeds of $11.1 million. The initial purchase of 5,070,423 shares of Hanmi Financial common stock was completed on September 4, 2009, resulting in an additional equity capital injection of $6.8 million. The purchase of the additional 3,009,189 shares of Hanmi Financial common stock is subject to receipt of regulatory approval and satisfaction of customary closing conditions. It is not anticipated that the additional acquisition will occur during 2009 and there can be no assurance that this transaction will be consummated at all.
RESULTS OF OPERATIONS
Net Interest Income Before Provision for Credit Losses
     Our earnings depend largely upon the difference between the interest income received from our loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings. The difference is “net interest income.” The difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities is “net interest spread.” Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the “net interest margin.”

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     Net interest income is affected by the change in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” Our net interest income also is affected by changes in the yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate changes.” Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. Those factors are affected by general economic conditions and other factors beyond our control, such as Federal economic policies, the general supply of money in the economy, income tax policies, governmental budgetary matters and the actions of the FRB.
Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008
     The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
                                                 
    Three Months Ended  
    September 30, 2009     September 30, 2008  
            Interest     Average             Interest     Average  
    Average     Income/     Yield/     Average     Income/     Yield/  
    Balance     Expense     Rate     Balance     Expense     Rate  
    (Dollars in Thousands)  
ASSETS
                                               
Interest-Earning Assets:
                                               
Gross Loans, Net (1)
  $ 3,078,104     $ 42,705       5.50 %   $ 3,341,250     $ 56,134       6.68 %
Municipal Securities (2)
    58,179       933       6.41 %     60,979       1,000       6.56 %
Obligations of Other U.S. Government Agencies
    37,969       431       4.54 %     46,777       483       4.13 %
Other Debt Securities
    112,873       1,110       3.93 %     136,271       1,566       4.60 %
Equity Securities (5)
    41,741       214       2.05 %     39,929       581       5.82 %
Federal Funds Sold and Securities Purchased Under Resale Agreements
    56,568       67       0.47 %     4,797       23       1.92 %
Term Federal Funds Sold
    90,239       293       1.30 %                  
Interest-Bearing Deposits in Other Banks
    77,025       68       0.35 %     752       4       2.13 %
 
                                       
Total Interest-Earning Assets (2)
    3,552,698       45,821       5.12 %     3,630,755       59,791       6.55 %
 
                                       
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    67,318                       89,574                  
Allowance for Loan Losses
    (119,653 )                     (64,737 )                
Other Assets
    171,890                       134,022                  
 
                                           
Total Noninterest-Earning Assets
    119,555                       158,859                  
 
                                           
TOTAL ASSETS
  $ 3,672,253                     $ 3,789,614                  
 
                                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Savings
  $ 93,404       585       2.48 %   $ 91,465       533       2.32 %
Money Market Checking and NOW Accounts
    629,124       2,998       1.89 %     693,718       5,579       3.20 %
Time Deposits of $100,000 or More
    983,341       7,447       3.00 %     973,752       8,709       3.56 %
Other Time Deposits
    841,497       6,335       2.99 %     486,581       4,544       3.72 %
Federal Home Loan Bank Advances
    213,583       865       1.61 %     506,981       3,324       2.61 %
Other Borrowings
    1,466                   1,014       5       1.96 %
Junior Subordinated Debentures
    82,406       747       3.60 %     82,406       1,150       5.55 %
 
                                       
Total Interest-Bearing Liabilities
    2,844,821       18,977       2.65 %     2,835,917       23,844       3.34 %
 
                                       
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    553,053                       650,230                  
Other Liabilities
    42,243                       36,034                  
 
                                           
Total Noninterest-Bearing Liabilities
    595,296                       686,264                  
 
                                           
Total Liabilities
    3,440,117                       3,522,181                  
Stockholders’ Equity
    232,136                       267,433                  
 
                                           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 3,672,253                     $ 3,789,614                  
 
                                           
NET INTEREST INCOME
          $ 26,844                     $ 35,947          
 
                                           
NET INTEREST SPREAD (2) (3)
                    2.47 %                     3.21 %
 
                                           
NET INTEREST MARGIN (2) (4)
                    3.00 %                     3.94 %
 
                                           
 
(1)   Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the calculation of interest income. Loan fees were $654,000 and $544,000 for the three months ended September 30, 2009 and 2008, respectively.
 
(2)   Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(3)   Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
 
(4)   Represents annualized net interest income as a percentage of average interest-earning assets.
 
(5)   Includes investment in Federal Home Loan Bank stock and investment in Federal Reserve Bank stock.

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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 were 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.
                         
    Three Months Ended September 30, 2009 vs.  
    Three Months Ended September 30, 2008  
    Increases (Decreases) Due to Change in  
    Volume     Rate     Total  
    (In Thousands)  
Interest and Dividend Income:
                       
Gross Loans, Net
  $ (4,144 )   $ (9,285 )   $ (13,429 )
Municipal Securities
    (45 )     (22 )     (67 )
Obligations of Other U.S. Government Agencies
    (97 )     45       (52 )
Other Debt Securities
    (248 )     (208 )     (456 )
Equity Securities
    25       (392 )     (367 )
Federal Funds Sold and Securities Purchased Under Resale Agreements
    73       (29 )     44  
Term Federal Funds Sold
    293             293  
Interest-Bearing Deposits in Other Banks
    69       (5 )     64  
 
                 
Total Interest and Dividend Income
    (4,074 )     (9,896 )     (13,970 )
 
                 
Interest Expense:
                       
Savings
    12       40       52  
Money Market Checking and NOW Accounts
    (479 )     (2,102 )     (2,581 )
Time Deposits of $100,000 or More
    87       (1,349 )     (1,262 )
Other Time Deposits
    2,820       (1,029 )     1,791  
Federal Home Loan Bank Advances
    (1,478 )     (981 )     (2,459 )
Other Borrowings
    1       (6 )     (5 )
Junior Subordinated Debentures
          (403 )     (403 )
 
                 
Total Interest Expense
    963       (5,830 )     (4,867 )
 
                 
Change in Net Interest Income
  $ (5,037 )   $ (4,066 )   $ (9,103 )
 
                 
     For the three months ended September 30, 2009 and 2008, net interest income before provision for credit losses on a tax-equivalent basis was $26.8 million and $35.9 million, respectively. The net interest spread and net interest margin for the three months ended September 30, 2009 were 2.47 percent and 3.00 percent, respectively, compared to 3.21 percent and 3.94 percent, respectively, for the same period in 2008. The compression in the net interest margin continues to be driven by intense competition among Korean-American and other banks, particularly in the pricing of deposits, and the Federal Reserve Board’s 200 basis point cut in short-term interest rates since March 2008.
     Average interest-earning assets decreased 2.1 percent to $3.55 billion for the three months ended September 30, 2009 from $3.63 billion for the same period in 2008. Average gross loans decreased 7.9 percent to $3.08 billion for the three months ended September 30, 2009 from $3.34 billion for the same period in 2008. Average investment securities also decreased 14.3 percent to $209.0 million for the three months ended September 30, 2009 from $244.0 million for the same period in 2008. These planned asset decreases are due to the execution of our de-leveraging strategy implemented in 2009. Average federal funds sold and securities purchased under resale agreements and average term federal funds sold increased to $56.6 million and $90.2 million, respectively, for the three months ended September 30, 2009 from $4.8 million and none, respectively, for the same period in 2008, reflecting our stronger cash position in 2009.
     The yield on average interest-earning assets decreased by 143 basis points from 6.55 percent for the three months ended September 30, 2008 to 5.12 percent for the same period in 2009, primarily reflecting a decrease in the average yield on loans. Total loan interest and fee income decreased by 23.9 percent for the three months ended September 30, 2009, primarily due to a decrease in the average yield on loans from 6.68 percent for the three months ended September 30, 2008 to 5.50 percent for the same period in 2009 and a decrease in average gross loans. During this period, the Wall Street Journal Prime Rate dropped 200 basis points from 5.25 percent as of March 31, 2008 to 3.25 percent as of September 30, 2009. The mix of average interest-earning assets was 86.6 percent loans, 5.9 percent investment securities and 7.5 percent other interest-earning assets for the three months ended September 30, 2009, compared to 92.0 percent loans, 6.7 percent investment securities and 1.3 percent other interest-earning assets for the same period in 2008.

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     Average interest-bearing liabilities increased 0.3 percent to $2.84 billion for the three months ended September 30, 2009 from $2.84 billion for the same period in 2008. Average interest-bearing deposits increased 13.4 percent to $2.55 billion for the three months ended September 30, 2009 from $2.25 billion for the same period in 2008, partially offset by a $293.4 million, or 57.9 percent, decrease in average FHLB advances as we replaced wholesale funds with customer deposits in 2009. The average interest rate paid for interest-bearing liabilities decreased by 69 basis points from 3.34 percent for the three months ended September 30, 2008 to 2.65 percent for the same period in 2009. The decrease was primarily due to the Federal Reserve Board’s rate cuts, partially offset by intense competition, primarily among Korean-American banks.
Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008
     The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
                                                 
    Nine Months Ended  
    September 30, 2009     September 30, 2008  
            Interest     Average             Interest     Average  
    Average     Income/     Yield/     Average     Income/     Yield/  
    Balance     Expense     Rate     Balance     Expense     Rate  
                    (Dollars in Thousands)                  
ASSETS
                                               
Interest-Earning Assets:
                                               
Gross Loans, Net (1)
  $ 3,235,455     $ 132,508       5.48 %   $ 3,320,559     $ 172,637       6.94 %
Municipal Securities (2)
    58,760       2,878       6.53 %     65,329       3,186       6.50 %
Obligations of Other U.S. Government Agencies
    20,345       671       4.40 %     80,120       2,612       4.35 %
Other Debt Securities
    111,138       3,590       4.31 %     148,681       5,131       4.60 %
Equity Securities (5)
    41,667       520       1.66 %     37,160       1,481       5.31 %
Federal Funds Sold and Securities Purchased Under Resale Agreements
    95,365       261       0.36 %     7,096       137       2.57 %
Term Federal Funds Sold
    125,249       1,688       1.80 %                  
Interest-Bearing Deposits in Other Banks
    30,858       81       0.35 %     310       5       2.15 %
 
                                       
Total Interest-Earning Assets (2)
    3,718,837       142,197       5.11 %     3,659,255       185,189       6.76 %
 
                                       
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    72,115                       89,674                  
Allowance for Loan Losses
    (95,546 )                     (53,364 )                
Other Assets
    146,860                       196,632                  
 
                                           
Total Noninterest-Earning Assets
    123,429                       232,942                  
 
                                           
TOTAL ASSETS
  $ 3,842,266                     $ 3,892,197                  
 
                                           
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Savings
  $ 86,715       1,617       2.49 %   $ 91,910       1,587       2.31 %
Money Market Checking and NOW Accounts
    431,646       6,278       1.94 %     656,625       15,946       3.24 %
Time Deposits of $100,000 or More
    1,124,876       29,877       3.55 %     1,143,975       35,436       4.14 %
Other Time Deposits
    996,275       25,064       3.36 %     380,511       11,730       4.12 %
Federal Home Loan Bank Advances
    290,142       2,987       1.38 %     492,434       11,406       3.09 %
Other Borrowings
    1,591       2       0.17 %     13,427       344       3.42 %
Junior Subordinated Debentures
    82,406       2,581       4.19 %     82,406       3,763       6.10 %
 
                                       
Total Interest-Bearing Liabilities
    3,013,651       68,406       3.03 %     2,861,288       80,212       3.74 %
 
                                       
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    535,368                       651,395                  
Other Liabilities
    43,505                       38,620                  
 
                                           
Total Noninterest-Bearing Liabilities
    578,873                       690,015                  
 
                                           
Total Liabilities
    3,592,524                       3,551,303                  
Stockholders’ Equity
    249,742                       340,894                  
 
                                           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 3,842,266                     $ 3,892,197                  
 
                                           
NET INTEREST INCOME
          $ 73,791                     $ 104,977          
 
                                           
NET INTEREST SPREAD (2)(3)
                    2.08 %                     3.02 %
 
                                           
NET INTEREST MARGIN (2)(4)
                    2.65 %                     3.83 %
 
                                           
 
(1)   Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the calculation of interest income. Loan fees were $1.5 million and $2.0 million for the nine months ended September 30, 2009 and 2008, respectively.
 
(2)   Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(3)   Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
 
(4)   Represents annualized net interest income as a percentage of average interest-earning assets.
 
(5)   Includes investment in Federal Home Loan Bank stock and investment in Federal Reserve Bank stock.

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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.
                         
    Nine Months Ended September 30, 2009 vs.  
    Nine Months Ended September 30, 2008  
    Increases (Decreases) Due to Change in  
    Volume     Rate     Total  
    (In Thousands)  
Interest and Dividend Income:
                       
Gross Loans, Net
  $ (4,337 )   $ (35,792 )   $ (40,129 )
Municipal Securities
    (342 )     34       (308 )
Obligations of Other U.S. Government Agencies
    (2,018 )     77       (1,941 )
Other Debt Securities
    (1,229 )     (312 )     (1,541 )
Equity Securities
    398       (1,359 )     (961 )
Federal Funds Sold and Securities Purchased Under Resale Agreements
    507       (383 )     124  
Term Federal Funds Sold
    1,688             1,688  
Interest-Bearing Deposits in Other Banks
    89       (13 )     76  
 
                 
Total Interest and Dividend Income
    (5,244 )     (37,748 )     (42,992 )
 
                 
Interest Expense:
                       
Savings
    (93 )     123       30  
Money Market Checking and NOW Accounts
    (4,458 )     (5,210 )     (9,668 )
Time Deposits of $100,000 or More
    (586 )     (4,973 )     (5,559 )
Other Time Deposits
    15,834       (2,500 )     13,334  
Federal Home Loan Bank Advances
    (3,580 )     (4,839 )     (8,419 )
Other Borrowings
    (164 )     (178 )     (342 )
Junior Subordinated Debentures
          (1,182 )     (1,182 )
 
                 
Total Interest Expense
    6,953       (18,759 )     (11,806 )
 
                 
Change in Net Interest Income
  $ (12,197 )   $ (18,989 )   $ (31,186 )
 
                 
     For the nine months ended September 30, 2009 and 2008, net interest income before provision for credit losses on a tax-equivalent basis was $73.8 million and $105.0 million, respectively. The net interest spread and net interest margin for the nine months ended September 30, 2009 were 2.08 percent and 2.65 percent, respectively, compared to 3.02 percent and 3.83 percent, respectively, for the same period in 2008. The compression in the net interest margin continues to be driven by intense competition among Korean-American and other banks, particularly in the pricing of deposits, and the Federal Reserve Board’s 400 basis point cut in short-term interest rates since December 2007.
     Average interest-earning assets increased 1.6 percent to $3.72 billion for the nine months ended September 30, 2009 from $3.66 billion for the same period in 2008. Average gross loans decreased 2.6 percent to $3.24 billion for the nine months ended September 30, 2009 from $3.32 billion for the same period in 2008. Average investment securities decreased 35.3 percent to $190.2 million for the nine months ended September 30, 2009 from $294.1 million for the same period in 2008. Average federal funds sold and securities purchased under resale agreements and average term federal funds sold increased to $95.4 million and $125.2 million, respectively, for the nine months ended September 30, 2009 from $7.1 million and none, respectively, for the same period in 2008, reflecting our stronger cash position in 2009.
     The yield on average interest-earning assets decreased by 165 basis points from 6.76 percent for the nine months ended September 30, 2008 to 5.11 percent for the same period in 2009, primarily reflecting a decrease in the average yield on loans. Total loan interest and fee income decreased by 23.2 percent for the nine months ended September 30, 2009, primarily due to a decrease in the average yield on loans from 6.94 percent for the nine months ended September 30, 2008 to 5.48 percent for the same period in 2009. During this period, the Wall Street Journal Prime Rate dropped 400 basis points from 7.25 percent as of December 31, 2007 to 3.25 percent as of September 30, 2009. The mix of average interest-earning assets was 87.0 percent loans, 5.1 percent investment securities and 7.9 percent other interest-earning assets for the nine months ended September 30, 2009, compared to 90.7 percent loans, 8.0 percent investment securities and 1.3 percent other interest-earning assets for the same period in 2008.

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     The majority of interest-earning assets growth was funded by a $366.4 million, or 16.1 percent, increase in average interest-bearing deposits, partially offset by a $202.3 million, or 41.1 percent, decrease in average FHLB advances as we replaced wholesale funds with customer deposits in 2009. Total average interest-bearing liabilities grew by 5.3 percent to $3.01 billion for the nine months ended September 30, 2009 compared to $2.86 billion for the same period in 2008. The average interest rate paid for interest-bearing liabilities decreased by 71 basis points from 3.74 percent for the nine months ended September 30, 2008 to 3.03 percent for the same period in 2009. The decrease was primarily due to the Federal Reserve Board’s rate cuts, partially offset by intense competition, primarily among Korean-American banks.
Provision for Credit Losses
     For the three months ended September 30, 2009 and 2008, the provision for credit losses was $49.5 million and $13.2 million, respectively. For the nine months ended September 30, 2009 and 2008, the provision for credit losses was $119.4 million and $50.2 million, respectively. The increases in the provision for credit losses for both periods are attributable to increases in net charge-offs, non-performing loans and criticized and classified loans, reflecting a continued severe economic downturn. Net charge-offs increased $18.0 million, or 152.5 percent, from $11.8 million for the three months ended September 30, 2008 to $29.9 million for the same period in 2009. Non-performing loans increased from $121.9 million, or 3.62 percent of total gross loans, as of December 31, 2008 to $174.4 million, or 5.85 percent of total gross loans, as of September 30, 2009. See “Non-Performing Assets” and “Allowance for Loan Losses and Allowance for Off-Balance Sheet Items” for further details.
Non-Interest Income
     We earn non-interest income from four major sources: service charges on deposit accounts, fees generated from international trade finance, insurance commissions and other service charges and fees. In addition, we sell certain assets primarily for risk management purposes.
Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008
     The following table sets forth the various components of non-interest income for the periods indicated:
                                 
    Three Months Ended        
    September 30,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 4,275     $ 4,648     $ (373 )     (8.0 %)
Insurance Commissions
    1,063       1,194       (131 )     (11.0 %)
Remittance Fees
    511       499       12       2.4 %
Trade Finance Fees
    512       784       (272 )     (34.7 %)
Other Service Charges and Fees
    489       433       56       12.9 %
Net Gain on Sales of Loans
    864             864        
Bank-Owned Life Insurance Income
    234       241       (7 )     (2.9 %)
Loss on Sales of Investment Securities
          (483 )     483       (100.0 %)
Other-Than-Temporary Impairment Loss on Investment Securities
          (2,410 )     2,410       (100.0 %)
Other Operating Income
    265       422       (157 )     (37.2 %)
 
                       
Total Non-Interest Income
  $ 8,213     $ 5,328     $ 2,885       54.1 %
 
                       
     For the three months ended September 30, 2009, non-interest income was $8.2 million, an increase of $2.9 million, or 54.1 percent, from $5.3 million for the same period in 2008. The increase in non-interest income is primarily attributable to a net gain on sales of loans in 2009 and no corresponding amount in 2008, and a loss on sales of investment securities and an other-than-temporary impairment loss on investments in 2008 and no corresponding amounts in 2009.
     Service charges on deposit accounts decreased by $373,000, or 8.0 percent, from $4.6 million for the three months ended September 30, 2008 to $4.3 million for the same period in 2009. The decrease was primarily due to a decrease in account analysis fees, reflecting a decrease in the number of accounts subject to account analysis fees, partially offset by a March 2009 increase in the account analysis fee schedule.

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     Insurance commissions decreased by $131,000, or 11.0 percent, from $1.2 million for the three months ended September 30, 2008 to $1.1 million for the same period in 2009. The decrease was primarily due to a decreased demand of insurance products in a soft economy.
     Fees generated from international trade finance decreased by $272,000, or 34.7 percent, from $784,000 for the three months ended September 30, 2008 to $512,000 for the same period in 2009. Trade finance fees relate primarily to import and export letters of credit. The decrease is attributable primarily to a decline in export letter of credit volume due to a soft economy.
     For the three months ended September 30, 2009, the net gain on sales of loans was $864,000 (entirely SBA loan sales of $29.7 million at an average gain of 5.0 percent). There were no sales of loans during the three months ended September 30, 2008 due to the recent economic turmoil.
     Loss on sales of investment securities was $483,000 for the three months ended September 30, 2008. There were no sales of securities available for sale during the three months ended September 30, 2009.
     For the three months ended September 30, 2008, we recorded an other-than-temporary impairment charge of $2.4 million related to an impairment loss on a Lehman Brothers corporate bond. See “Financial Condition — Investment Portfolio” for further details.
Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008
     The following table sets forth the various components of non-interest income for the periods indicated:
                                 
    Nine Months Ended        
    September 30,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 13,032     $ 13,904     $ (872 )     (6.3 %)
Insurance Commissions
    3,430       3,893       (463 )     (11.9 %)
Remittance Fees
    1,579       1,543       36       2.3 %
Trade Finance Fees
    1,517       2,474       (957 )     (38.7 %)
Other Service Charges and Fees
    1,439       1,852       (413 )     (22.3 %)
Net Gain on Sales of Loans
    866       765       101       13.2 %
Bank-Owned Life Insurance Income
    695       715       (20 )     (2.8 %)
Gain on Sales of Investment Securities
    1,277       618       659       106.6 %
Loss on Sales of Investment Securities
    (109 )     (483 )     374       (77.4 %)
Other-Than-Temporary Impairment Loss on Investment Securities
          (2,410 )     2,410       (100.0 %)
Other Operating Income (Loss)
    (462 )     1,874       (2,336 )     (124.7 %)
 
                       
Total Non-Interest Income
  $ 23,264     $ 24,745     $ (1,481 )     (6.0 %)
 
                       
     For the nine months ended September 30, 2009, non-interest income was $23.3 million, a decrease of $1.5 million, or 6.0 percent, from $24.7 million for the same period in 2008. The decrease in non-interest income is primarily attributable to decreases in service charges on deposit accounts, insurance commissions, trade finance fees, other service charges and fees, net gain on sales of loans and other operating income (loss), partially offset by an other-than-temporary impairment loss on investments in 2008 and no corresponding amount in 2009.
     Service charges on deposit accounts decreased by $872,000, or 6.3 percent, from $13.9 million for the nine months ended September 30, 2008 to $13.0 million for the same period in 2009. The decrease was primarily due to a decrease in account analysis fees, reflecting a decrease in the number of accounts subject to account analysis fees, partially offset by a March 2009 increase in the account analysis fee schedule.
     Insurance commissions decreased by $463,000, or 11.9 percent, from $3.9 million for the nine months ended September 30, 2008 to $3.4 million for the same period in 2009. The decrease was primarily due to a decreased demand in a soft economy.

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     Fees generated from international trade finance decreased by $957,000, or 38.7 percent, from $2.5 million for the nine months ended September 30, 2008 to $1.5 million for the same period in 2009. Trade finance fees relate primarily to import and export letters of credit. The decrease is attributable primarily to a decline in export letter of credit volume due to a soft economy.
     Other service charges and fees decreased by $413,000, or 22.3 percent, from $1.9 million for the nine months ended September 30, 2008 to $1.4 million for the same period in 2009. The decrease was primarily due to a decrease in loan servicing income.
     Gain on sales of investment securities increased by $659,000, or 106.6 percent, from $618,000 for the nine months ended September 30, 2008 to $1.3 million for the same period in 2009. Loss on sales of investment securities decreased by $374,000, or 77.4 percent, from $483,000 for the nine months ended September 30, 2008 to $109,000 for the same period in 2009. Proceeds from the sale of investment securities provide additional liquidity to purchase additional investment securities, to fund loan originations and to pay down borrowings.
     For the nine months ended September 30, 2008, we recorded an other-than-temporary impairment charge of $2.4 million related to an impairment loss on a Lehman Brothers corporate bond. See “Financial Condition — Investment Portfolio” for further details.
     Other operating income (loss) decreased by $2.3 million, or 124.7 percent, from $1.9 million for the nine months ended September 30, 2009 to ($462,000) for the same period in 2009. The decrease was attributable primarily to a $1.0 million write-down of an investment in a Community Reinvestment Act equity fund that was included in other assets and a prior year $450,000 refund of a previously paid consulting fee to an outside vendor.
Non-Interest Expense
Three Months Ended September 30, 2009 vs. Three Months Ended September 30, 2008
     The following table sets forth the breakdown of non-interest expense for the periods indicated:
                                 
    Three Months Ended        
    September 30,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 8,648     $ 10,782     $ (2,134 )     (19.8 %)
Occupancy and Equipment
    2,834       2,786       48       1.7 %
Deposit Insurance Premiums and Regulatory Assessments
    2,001       780       1,221       156.5 %
Other Real Estate Owned Expense
    3,372       2       3,370       N/M  
Data Processing
    1,608       1,498       110       7.3 %
Professional Fees
    1,239       647       592       91.5 %
Supplies and Communications
    603       681       (78 )     (11.5 %)
Advertising and Promotion
    447       914       (467 )     (51.1 %)
Loan-Related Expense
    192       170       22       12.9 %
Amortization of Other Intangible Assets
    379       478       (99 )     (20.7 %)
Other Operating Expenses
    2,366       3,497       (1,131 )     (32.3 %)
 
                         
Total Non-Interest Expense
  $ 23,689     $ 22,235     $ 1,454       6.5 %
 
                       
     For the three months ended September 30, 2009 and 2008, non-interest expense was $23.7 million and $22.2 million, respectively. The efficiency ratio for the three months ended September 30, 2009 was 68.21 percent, compared to 54.33 percent for the same period in 2008. The overall increase in non-interest expense was due to increases in deposit insurance premiums and regulatory assessments and other real estate owned expense, partially offset by decreases in salaries and employee benefits and other operating expenses.
     Salaries and employee benefits decreased $2.1 million, or 19.8 percent, from $10.8 million for the three months ended September 30, 2008 to $8.6 million for the same period in 2009. Salaries and employee benefits decreased during the three months ended September 30, 2009 due to our planned headcount reduction in August 2008 of approximately ten percent and lower incentive compensation.

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     Deposit insurance premiums and regulatory assessments increased $1.2 million, or 156.5 percent, from $780,000 for the three months ended September 30, 2008 to $2.0 million for the same period in 2009. The increase was due to higher assessment rates for FDIC insurance on deposits beginning in the second quarter of 2009 and an increase in the basic limit of federal deposit insurance coverage from $100,000 to $250,000 per depositor and fully insured on all noninterest-bearing deposit accounts until December 31, 2009.
     Other real estate owned expense was $3.4 million for the three months ended September 30, 2009 and $2,000 for the same period in 2008. The increase was due primarily to expenses attributable to two California properties foreclosed on (a condominium project in Oakland and a private golf course in Fallbrook), including a $1.5 million provision for valuation allowance, and $116,000 loss on the sale of other real estate owned.
     Other operating expenses decreased $1.1 million, or 32.3 percent, from $3.5 million for the three months ended September 30, 2008 to $2.4 million for the same period in 2009. The decrease was primarily due to $1.1 million in losses during 2008 related to a derivative transaction to which Lehman Brothers Finance, S.A. was a party.
Nine Months Ended September 30, 2009 vs. Nine Months Ended September 30, 2008
     The following table sets forth the breakdown of non-interest expense for the periods indicated:
                                 
    Nine Months Ended        
    September 30,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 24,659     $ 33,363     $ (8,704 )     (26.1 %)
Occupancy and Equipment
    8,506       8,360       146       1.7 %
Deposit Insurance Premiums and Regulatory Assessments
    7,420       2,098       5,322       253.7 %
Other Real Estate Owned Expense
    5,017       141       4,876       3,458.2 %
Data Processing
    4,691       4,730       (39 )     (0.8 %)
Professional Fees
    2,745       2,627       118       4.5 %
Supplies and Communications
    1,772       2,008       (236 )     (11.8 %)
Advertising and Promotion
    1,640       2,614       (974 )     (37.3 %)
Loan-Related Expense
    1,590       569       1,021       179.4 %
Amortization of Other Intangible Assets
    1,214       1,504       (290 )     (19.3 %)
Other Operating Expenses
    7,383       7,859       (476 )     (6.1 %)
Impairment Loss on Goodwill
          107,393       (107,393 )     (100.0 %)
 
                         
Total Non-Interest Expense
  $ 66,637     $ 173,266     $ (106,629 )     (61.5 %)
 
                       
     For the nine months ended September 30, 2009 and 2008, non-interest expense was $66.6 million and $173.3 million, respectively. The efficiency ratio for the nine months ended September 30, 2009 was 69.38 percent, compared to 134.73 percent for the same period in 2008. The overall decrease in non-interest expense was due to the prior year’s impairment loss on goodwill, a staffing reduction in August 2008 and the reversal of a $2.5 million post-retirement benefit obligation related to bank-owned life insurance, partially offset by increases in deposit insurance premiums and regulatory assessments, other real estate owned expense and loan-related expense.
     Salaries and employee benefits decreased $8.7 million, or 26.1 percent, from $33.4 million for the nine months ended September 30, 2008 to $24.7 million for the same period in 2009. During the nine months ended September 30, 2009, an amendment to the bank-owned life insurance policy removed a post-retirement death benefit and a previously accrued liability of $2.5 million for the post-retirement death benefit was reversed. Salaries and employee benefits also decreased during the nine months ended September 30, 2009 due to our planned headcount reduction in August 2008 of approximately ten percent and lower incentive compensation.
     Deposit insurance premiums and regulatory assessments increased $5.3 million, or 253.7 percent, from $2.1 million for the nine months ended September 30, 2008 to $7.4 million for the same period in 2009. The increase was due to higher assessment rates for FDIC insurance on deposits beginning in the second quarter of 2009 and an increase in the basic limit of federal deposit insurance coverage from $100,000 to $250,000 per depositor and fully insured on all noninterest-bearing deposit accounts until December 31, 2009. In addition, there was a special one-time assessment during the second quarter of 2009 that was imposed on each depository institution to maintain public confidence in the federal deposit insurance system.

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     Other real estate owned expense increased $4.9 million from $141,000 for the nine months ended September 30, 2008 to $5.0 million for the same period in 2009. The increase was due primarily to expenses attributable to two California properties foreclosed on (a condominium project in Oakland and a private golf course in Fallbrook), including a $2.5 million provision for valuation allowance, and a $440,000 loss on the sale of other real estate owned.
     Loan-related expense increased $1.0 million, or 179.4 percent, from $569,000 for the nine months ended September 30, 2008 to $1.6 million for the same period in 2009. The increase was primarily due to an $850,000 expense related to a legal settlement on a loan.
Provision (Benefit) for Income Taxes
     For the three months ended September 30, 2009, income tax expense of $21.2 million, which included a valuation allowance of $44.9 million on our deferred tax assets, was recognized on pre-tax losses of $38.5 million, compared to income taxes of $1.2 million recognized on pre-tax income of $5.5 million, representing an effective tax rate of 21.1 percent, for the same period in 2008. For the nine months ended September 30, 2009, income tax benefits of $3.6 million, which included a valuation allowance of $44.9 million on our deferred tax assets, were recognized on pre-tax losses of $90.0 million compared to income taxes of $3.4 million recognized on pre-tax losses of $94.9 million, representing an effective tax rate of 3.6 percent, for the same period in 2008.
     During the third quarter of 2009, we established a valuation allowance of $44.9 million on our deferred tax assets. Under GAAP, a valuation allowance must be recognized if it is “more likely than not” that such deferred tax assets will not be realized. Appropriate consideration is given to all available evidence (both positive and negative) related to the realization of the deferred tax assets on a quarterly basis.
     In conducting our regular quarterly evaluation, we made a determination to establish a valuation allowance as of September 30, 2009 based primarily upon the existence of a three-year cumulative loss derived by combining the pre-tax losses reported during the two most recent annual periods with management’s current projected results for the year ending December 31, 2009. This three-year cumulative loss position is primarily attributable to significant provisions for credit losses. Although our current financial forecasts indicate that sufficient taxable income will be generated in the future to ultimately realize the existing deferred tax benefits, those forecasts were not considered to constitute sufficient positive evidence to overcome the observable negative evidence associated with the three-year cumulative loss position determined as of September 30, 2009. The remaining net deferred tax assets of $2.5 million represents the remaining portion of operating loss carryback potential.
FINANCIAL CONDITION
Investment Portfolio
     Investment securities are classified as held to maturity or available for sale in accordance with GAAP. Those securities that we have the ability and the intent to hold to maturity are classified as “held to maturity.” All other securities are classified as “available for sale.” There were no trading securities as of September 30, 2009 or December 31, 2008. 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 consist primarily of mortgage-backed securities, municipal bonds, U.S. Government agency securities and collateralized mortgage obligations.

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     As of September 30, 2009, investment securities held to maturity, at amortized cost, totaled $876,000 and investment securities available for sale, at fair value, totaled $205.0 million, compared to $910,000 and $196.2 million, respectively, as of December 31, 2008. The following table summarizes the amortized cost, estimated fair value and unrealized gain (loss) on investment securities as of the dates indicated:
                                                 
    September 30, 2009     December 31, 2008  
            Estimated     Unrealized             Estimated     Unrealized  
    Amortized     Fair     Gain     Amortized     Fair     Gain  
    Cost     Value     (Loss)     Cost     Value     (Loss)  
    (In Thousands)  
Investment Securities Held to Maturity:
                                               
Municipal Bonds
  $ 695     $ 695     $     $ 695     $ 695     $  
Mortgage-Backed Securities (1)
    181       181             215       215        
 
                                   
Total Investment Securities Held to Maturity
  $ 876     $ 876     $     $ 910     $ 910     $  
 
                                   
Investment Securities Available for Sale:
                                               
Mortgage-Backed Securities (1)
  $ 78,434     $ 80,089     $ 1,655     $ 77,515     $ 78,860     $ 1,345  
Municipal Bonds
    55,511       57,437       1,926       58,987       58,313       (674 )
U.S. Government Agency Securities
    38,317       38,022       (295 )     17,580       17,700       120  
Collateralized Mortgage Obligations (2)
    15,240       15,576       336       36,204       36,162       (42 )
Asset-Backed Securities
    8,331       8,417       86                    
Other Securities
    3,925       4,172       247       3,925       4,200       275  
Equity Securities
    511       873       362       511       804       293  
Corporate Bond (3)
    364       439       75       355       169       (186 )
 
                                   
Total Investment Securities Available for Sale
  $ 200,633     $ 205,025     $ 4,392     $ 195,077     $ 196,208     $ 1,131  
 
                                   
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
 
(2)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities, except for two private-label securities held as of December 31, 2008 with an unrealized loss totaling $42,000. The two private-label securities were sold during the three months ended March 31, 2009.
 
(3)   Balances presented for amortized cost, representing one corporate bond, were net of an OTTI charge of $2.4 million, which was related to a credit loss, as of September 30, 2009 and December 31, 2008. Therefore, the adoption of a new accounting standard did not require a reclassification for the non-credit portion of previously recognized OTTI from the opening balance of retained earnings to other comprehensive income as of March 31, 2009.
     Investment securities available for sale, at fair value, increased $8.8 million, or 4.5 percent, to $205.0 million as of September 30, 2009 from $196.2 million as of December 31, 2008. The increase was primarily due to the purchase of $89.4 million of investment securities, primarily U.S. Government agency securities and mortgage-backed securities, partially offset by the sale of $37.3 million of investment securities, with a $1.2 million net gain realized, and $14.6 million of U.S. Government agency securities that were called.
     The amortized cost and estimated fair value of investment securities as of September 30, 2009, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2039, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
                                 
    Available for Sale     Held to Maturity  
            Estimated             Estimated  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
    (In Thousands)  
Within One Year
  $ 5,708     $ 6,052     $     $  
Over One Year Through Five Years
    2,873       3,009              
Over Five Years Through Ten Years
    31,330       31,624       695       695  
Over Ten Years
    66,537       67,802              
Mortgage-Backed Securities
    78,434       80,089       181       181  
Collateralized Mortgage Obligations
    15,240       15,576              
Equity Securities
    511       873              
 
                       
 
  $ 200,633     $ 205,025     $ 876     $ 876  
 
                       

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     Gross unrealized losses on investment securities available for sale and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of September 30, 2009 and December 31, 2008:
                                                                         
    Holding Period  
    Less than 12 Months     12 Months or More     Total  
    Gross     Estimated     Number     Gross     Estimated     Number     Gross     Estimated     Number  
Investment Securities   Unrealized     Fair     of     Unrealized     Fair     of     Unrealized     Fair     of  
Available for Sale   Losses     Value     Securities     Losses     Value     Securities     Losses     Value     Securities  
    (In Thousands)  
September 30, 2009:
                                                                       
Mortgage-Backed Securities
  $ 30     $ 10,183       6     $     $           $ 30     $ 10,183       6  
Municipal Bonds
    7       1,960       3       66       807       1       73       2,767       4  
U.S. Government Agency Securities
    302       34,685       6                         302       34,685       6  
Collateralized Mortgage Obligations
                                                     
Asset-Backed Securities
    2       5,463       1                         2       5,463       1  
Other Securities
                      33       967       1       33       967       1  
 
                                                     
 
  $ 341     $ 52,291       16     $ 99     $ 1,774       2     $ 440     $ 54,065       18  
 
                                                     
 
                                                                       
December 31, 2008:
                                                                       
Mortgage-Backed Securities
  $ 158     $ 10,631       42     $ 33     $ 5,277       4     $ 191     $ 15,908       46  
Municipal Bonds
    968       35,614       66       119       1,749       4       1,087       37,363       70  
Collateralized Mortgage Obligations
    36       4,569       4       143       5,903       4       179       10,472       8  
Other Securities
    72       929       1       40       1,960       2       112       2,889       3  
Corporate Bonds
    186       169       1                         186       169       1  
 
                                                     
 
  $ 1,420     $ 51,912       114     $ 335     $ 14,889       14     $ 1,755     $ 66,801       128  
 
                                                     
     All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of September 30, 2009 and December 31, 2008 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of September 30, 2009 and December 31, 2008. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.
     FASB ASC 320 requires an entity to assess whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before the recovery of its amortized cost bases. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of September 30, 2009 and December 31, 2008 are not other-than-temporarily impaired, and therefore, no impairment charges as of September 30, 2009 and December 31, 2008 are warranted.

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Loan Portfolio
     The following table shows the loan composition by type, including loans held for sale, as of the dates indicated.
                                 
    September 30,     December 31,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
            (Dollars in Thousands)          
Real Estate Loans:
                               
Commercial Property
  $ 877,053     $ 908,970     $ (31,917 )     (3.5 %)
Construction
    127,304       178,783       (51,479 )     (28.8 %)
Residential Property
    82,378       92,361       (9,983 )     (10.8 %)
 
                       
Total Real Estate Loans
    1,086,735       1,180,114       (93,379 )     (7.9 %)
 
                       
Commercial and Industrial Loans:
                               
Commercial Term Loans
    1,477,843       1,611,449       (133,606 )     (8.3 %)
SBA Loans (1)
    140,161       178,399       (38,238 )     (21.4 %)
Commercial Lines of Credit
    128,844       214,699       (85,855 )     (40.0 %)
International Loans
    77,194       95,185       (17,991 )     (18.9 %)
 
                       
Total Commercial and Industrial Loans
    1,824,042       2,099,732       (275,690 )     (13.1 %)
 
                       
Consumer Loans
    68,537       83,525       (14,988 )     (17.9 %)
 
                       
Total Loans — Gross
    2,979,314       3,363,371       (384,057 )     (11.4 %)
Deferred Loan Fees
    (1,810 )     (1,260 )     (550 )     43.7 %
Allowance for Loan Losses
    (124,768 )     (70,986 )     (53,782 )     75.8 %
 
                       
Net Loans Receivable
  $ 2,852,736     $ 3,291,125     $ (438,389 )     (13.3 %)
 
                       
 
(1)   Includes loans held for sale, at the lower of cost or market, of $5.1 million and $37.4 million as of September 30, 2009 and December 31, 2008, respectively.
     As of September 30, 2009 and December 31, 2008, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $2.85 billion and $3.29 billion, respectively, a decrease of $438.4 million, or 13.3 percent. The overall decrease in total gross loans is attributable to management’s balance sheet de-leveraging strategy by carefully evaluating credits that are subject to renewal and accepting only those that are of the highest quality, as well as loan charge-offs and transfers to other real estate owned. For the nine months ended September 30, 2009, net loan charge-offs and transfers to other real estate owned totaled $65.3 million and $38.3 million, respectively.
     Real estate loans, composed of commercial property, residential property and construction loans, decreased $93.4 million, or 7.9 percent, to $1.09 billion as of September 30, 2009 from $1.18 billion as of December 31, 2008, representing 36.5 percent and 35.1 percent, respectively, of total gross loans. Commercial and industrial loans, composed of owner-occupied commercial property, trade finance, SBA and commercial lines of credit, decreased $275.7 million, or 13.1 percent, to $1.82 billion as of September 30, 2009 from $2.10 billion as of December 31, 2008, representing 61.2 percent and 62.4 percent, respectively, of total gross loans. Consumer loans decreased $15.0 million, or 17.9 percent, to $68.5 million as of September 30, 2009 from $83.5 million as of December 31, 2008.
     As of September 30, 2009, the loan portfolio included the following concentrations of loans to one type of industry that were greater than ten percent of total gross loans outstanding:
                 
    Balance as of     Percentage of Total  
Industry   September 30, 2009     Gross Loans Outstanding  
    (In Thousands)          
Lessors of Non-Residential Buildings
  $ 428,063       14.4 %
Accommodation/Hospitality
  $ 421,951       14.2 %
Gasoline Stations
  $ 351,990       11.8 %
     There was no other concentration of loans to any one type of industry exceeding ten percent of total gross loans outstanding.

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Non-Performing Assets
     Non-performing loans consist of loans on non-accrual status, which includes loans restructured when there has not been a history of past performance on debt service in accordance with the contractual terms of the restructured loans, and loans 90 days or more past due and still accruing interest. Non-performing assets consist of non-performing loans and OREO. Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When an asset is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectibility of principal is probable, in which case interest payments are credited to income. Non-accrual assets may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for non-accrual. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
     The table below shows the composition of non-performing assets as of the dates indicated.
                                 
    September 30,     December 31,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
            (Dollars in Thousands)          
Non-Accrual Loans
  $ 174,363     $ 120,823     $ 53,540       44.3 %
Loans 90 Days or More Past Due and Still Accruing
    64       1,075       (1,011 )     (94.0 %)
 
                       
Total Non-Performing Loans
    174,427       121,898       52,529       43.1 %
Other Real Estate Owned
    27,140       823       26,317       3,197.7 %
 
                       
Total Non-Performing Assets
  $ 201,567     $ 122,721     $ 78,846       64.2 %
 
                       
Troubled Debt Restructurings on Accrual Status
  $ 69,893     $     $ 69,893       N/A  
     Non-accrual loans totaled $174.4 million as of September 30, 2009, compared to $120.8 million as of December 31, 2008, representing a 44.3 percent increase. Delinquent loans, which are comprised of loans past due 30 or more days and still accruing and non-accrual loans past due 30 or more days, were $151.0 million as of September 30, 2009, compared to $128.5 million as of December 31, 2008, representing a 17.6 percent increase. We believe that the increases in non-performing loans and delinquent loans are attributable primarily to a current economic recession that is affecting some of our borrowers’ ability to honor their commitments.
     Non-performing loans increased by $52.5 million, or 43.1 percent, to $174.4 million as of September 30, 2009, compared to $121.9 million as of December 31, 2008. During the same period, the allowance for loan losses increased by $53.8 million, or 75.8 percent, to $124.8 million from $71.0 million. The allowance for the collateral-dependent loans is calculated by the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly. Significant non-performing loans, along with their specific reserve, are as follows:
    A commercial property secured by five car washes around the Southern California region had an outstanding balance of $24.0 million as of September 30, 2009. A fair value analysis, based on a recent appraisal, of the collateral indicated a need of $3.4 million specific reserve for that loan.
 
    A commercial property loan and line of credit secured by an apartment complex in Los Angeles, California had an outstanding balance of $4.6 million as of September 30, 2009 and was fully secured by real estate. A fair value analysis, based on a recent appraisal, of the collateral indicated no specific reserve needed for that loan.
 
    A SBA loan secured by a hotel in Austin, Texas had an outstanding balance of $4.1 million as of September 30, 2009 and was fully secured by real estate. A fair value analysis, based on a recent appraisal, of the collateral indicated a need of $67,000 specific reserve for that loan.

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     As of September 30, 2009, $132.5 million, or 76.0 percent, of the $174.4 million of non-performing loans were secured by real estate. As of December 31, 2008, $96.3 million, or 79.0 percent, of the $121.9 million of non-performing loans were secured by real estate. While increases in the non-performing loan balance are indicative of an overall loan portfolio deterioration, increased percentages of collateral-dependent loans within the non-performing loan breakdown provide less need of corresponding increases to the allowance for loan losses. In light of declining property values in the current economic downturn affecting the real estate markets, the Bank has obtained current appraisals and factored in adequate market haircuts on the collateral security, which provides mitigating factors in evaluating potential losses.
     As of September 30, 2009, other real estate owned consisted of 12 properties with a combined net carrying value of $27.1 million. During the nine months ended September 30, 2009, 14 properties, with a carrying value of $38.3 million, were transferred from loans receivable to other real estate owned and 5 properties, with a carrying value of $9.5 million, were sold and a loss of $440,000 was recognized. As of December 31, 2008, other real estate owned consisted of three properties with a combined net carrying value of $823,000.
     We evaluate loan impairment in accordance with applicable GAAP. Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.
     The following table provides information on impaired loans as of the dates indicated:
                 
    September 30,     December 31,  
    2009     2008  
    (In Thousands)  
Recorded Investment With Related Allowance
  $ 190,974     $ 71,448  
Recorded Investment With No Related Allowance
    39,698       49,945  
Allowance on Impaired Loans
    (36,672 )     (18,157 )
 
           
Net Recorded Investment in Impaired Loans
  $ 194,000     $ 103,236  
 
           
     The average recorded investment in impaired loans was $262.9 million and $114.9 million for the nine months ended September 30, 2009 and 2008, respectively.
     The following is a summary of interest foregone on impaired loans for the periods indicated:
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2009     2008     2009     2008  
            (In Thousands)          
Interest Income That Would Have Been Recognized Had Impaired Loans Performed in Accordance With Their Original Terms
  $ 5,473     $ 3,716     $ 12,126     $ 8,148  
Less: Interest Income Recognized on Impaired Loans
    (3,987 )     (2,386 )     (7,591 )     (3,017 )
 
                       
Interest Foregone on Impaired Loans
  $ 1,486     $ 1,330     $ 4,535     $ 5,131  
 
                       
     During the nine months ended September 30, 2009, we restructured monthly payments on 266 loans, with a net carrying value of $217.8 million as of September 30, 2009, through temporary interest rate reductions of six months or less. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, we believe that performance and collection under the revised terms is probable. In addition, we determined that these restructured loans are well secured. As of September 30, 2009, troubled debt restructurings on accrual status totaled $69.9 million, all of which were temporary interest rate reductions, and a $411,000 impairment allowance relating to these loans is included in the allowance for loan losses. As of December 31, 2008, there were no troubled debt restructurings on accrual status.

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Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
     Provisions to the allowance for loan losses are made quarterly to recognize probable loan losses. The quarterly provision is based on the allowance need, which is calculated using a formula designed to provide adequate allowances for losses inherent in the portfolio. The formula is made up of various components. The allowance is first determined by assigning reserve ratios for all loans. All loans that are classified are then assigned certain allocations according to type with larger percentages applied to loans deemed to be of a higher risk. These percentages are determined based on the prior loss history by type of loan, adjusted for current economic factors.
     The allowance is based on estimates, and ultimate future losses may vary from current estimates. Underlying trends in the economic cycle, particularly in Southern California, which management cannot completely predict, will influence credit quality. It is possible that future economic or other factors will adversely affect the Bank’s borrowers. As a result, we may sustain loan losses in any particular period that are sizable in relation to the allowance, or exceed the allowance. In addition, our asset quality may deteriorate through a number of possible factors, including rapid growth, failure to maintain or enforce appropriate underwriting standards, failure to maintain an adequate number of qualified loan personnel, and failure to identify and monitor potential problem loans.
     The allowance for loan losses and allowance for off-balance sheet items are maintained at levels that are believed to be adequate by management to absorb estimated probable loan losses inherent in the loan portfolio. The adequacy of the allowances is determined through periodic evaluations of the loan portfolio and other pertinent factors, which are inherently subjective as the process calls for various significant estimates and assumptions. Among other factors, 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.

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     On a quarterly basis, we utilize a classification migration model and individual loan review analysis tools as starting points for determining the adequacy of the allowance for loan losses and allowance for off-balance sheet items. Our loss migration analysis tracks a certain number of quarters of loan loss history to determine historical losses by classification category (i.e., “pass,” “special mention,” “substandard” and “doubtful”) for each loan type, except certain loans (automobile, mortgage and credit cards), which are analyzed as 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 part of the allowance allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolios. Further allowance 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 September 30, 2009, we have enhanced our loan policies and procedures in two areas. First, we enhanced existing policies and procedures regarding the monitoring of loans to be more stringent and make it more difficult to allow exceptions from our loan policy. Second, we centralized the loan underwriting and approval processes, including centralizing the credit underwriting function at two locations, creating a central monitoring mechanism to monitor all loans, and increasing resources in departments of the Bank engaged in addressing problem assets.
     The following table sets forth certain information regarding our allowance for loan losses and allowance for off-balance sheet items for the periods presented.
                                         
    As of and for the     As of and for the  
    Three Months Ended     Nine Months Ended  
    September 30,     June 30,     September 30,     September 30,     September 30,  
    2009     2009     2008     2009     2008  
    (In Thousands)  
Allowance for Loan Losses:
                                       
Balance at Beginning of Period
  $ 105,268     $ 104,943     $ 62,977     $ 70,986     $ 43,611  
 
                             
Actual Charge-Offs
    (30,362 )     (24,332 )     (12,171 )     (67,210 )     (28,679 )
Recoveries on Loans Previously Charged Off
    487       735       340       1,925       1,331  
 
                             
Net Loan Charge-Offs
    (29,875 )     (23,597 )     (11,831 )     (65,285 )     (27,348 )
 
                             
Provision Charged to Operating Expenses
    49,375       23,922       12,802       119,067       47,685  
 
                             
Balance at End of Period
  $ 124,768     $ 105,268     $ 63,948     $ 124,768     $ 63,948  
 
                             
Allowance for Off-Balance Sheet Items:
                                       
Balance at Beginning of Period
  $ 4,291     $ 4,279     $ 3,932     $ 4,096     $ 1,765  
Provision Charged to Operating Expenses
    125       12       374       320       2,541  
 
                             
Balance at End of Period
  $ 4,416     $ 4,291     $ 4,306     $ 4,416     $ 4,306  
 
                             
Ratios:
                                       
Net Loan Charge-Offs to Average Total Gross Loans (1)
    3.85 %     2.88 %     1.41 %     2.70 %     1.10 %
Net Loan Charge-Offs to Total Gross Loans (1)
    3.98 %     3.00 %     1.41 %     2.93 %     1.09 %
Allowance for Loan Losses to Average Total Gross Loans
    4.05 %     3.21 %     1.91 %     3.85 %     1.92 %
Allowance for Loan Losses to Total Gross Loans
    4.19 %     3.33 %     1.91 %     4.19 %     1.91 %
Net Loan Charge-Offs to Allowance for Loan Losses (1)
    95.00 %     89.91 %     73.60 %     69.96 %     57.13 %
Net Loan Charge-Offs to Provision Charged to Operating Expenses
    60.51 %     98.64 %     92.42 %     54.83 %     57.35 %
Allowance for Loan Losses to Non-Performing Loans
    71.53 %     62.92 %     57.16 %     71.53 %     57.16 %
Balances:
                                       
Average Total Gross Loans Outstanding During Period
  $ 3,079,746     $ 3,283,574     $ 3,343,121     $ 3,236,897     $ 3,322,579  
Total Gross Loans Outstanding at End of Period
  $ 2,979,314     $ 3,159,309     $ 3,346,689     $ 2,979,314     $ 3,346,689  
Non-Performing Loans at End of Period
  $ 174,427     $ 167,296     $ 111,870     $ 174,427     $ 111,870  
 
(1)   Net loan charge-offs are annualized to calculate the ratios.
     The allowance for loan losses increased by $53.8 million, or 75.8 percent, to $124.8 million as of September 30, 2009, compared to $71.0 million as of December 31, 2008. The increase in the allowance for loan losses in 2009 was due primarily to the increased migration of loans into more adverse risk rating categories, increases in non-performing and delinquent loans, and the classification method change for restructured loans. See “Provision for Credit Losses.” Non-performing loans increased by $52.5 million, or 43.1 percent, to $174.4 million as of September 30, 2009, compared to $121.9 million as of December 31, 2008. The increase in non-performing loans required an additional provision for credit losses. In addition, loans modified during the first quarter of 2009 were further downgraded to substandard, which also required further provision. The ratio of the allowance for loan losses to total gross loans substantially increased to 4.19 percent as of September 30, 2009, compared to 2.11 percent as of December 31, 2008, primarily due to the overall increase of historical loss factors and classified loans.

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     For the nine months ended September 30, 2009, total charge-offs were $67.2 million, compared to $28.7 million for the nine months ended September 30, 2008. Concurrently, the allowance for loan losses as a percentage of total gross loans increased to 4.19 percent as of September 30, 2009 from 2.11 percent as of December 31, 2008. In addition, total qualitative adjustments increased to $26.6 million as of September 30, 2009 from $16.2 million as of December 31, 2008.
     The largest pools in the loan portfolio are commercial term loans and commercial real estate loans, which totaled $2.35 billion (79.0 percent of total gross loans) as of September 30, 2009 and $2.52 billion (74.9 percent of total gross loans) as of December 31, 2008. The reserves related to commercial term loans and commercial real estate loans increased to $85.5 million as of September 30, 2009 from $48.3 million as of December 31, 2008.
     As of September 30, 2009, $2.41 billion, or 80.8 percent, of total gross loans were secured by real estate. As of December 31, 2008, $2.61 billion, or 77.6 percent, of total gross loans were secured by real estate. Our policy is to grant no more than 65 percent loan-to-value at the time of origination for loans secured by real estate. In fact, most loans do not near the 65 percent loan-to-value at origination. Thus, initial low loan-to-values ensure that the real estate secured portfolio can withstand economic downturns as seen in the current market. Further, a majority of the real estate portfolio lies within Los Angeles County and Orange County, with minimal exposure in the Inland Empire, where real estate value decreases have been the most severe. Thus, the current collateral coverage for the real estate portfolio would not result in significant charge-offs; however, we will continue to closely monitor and update values for collateral-dependent loans to proactively address potential concerns.
     The Bank also recorded in other liabilities an allowance for off-balance sheet exposure, primarily unfunded loan commitments, of $4.4 million and $4.1 million as of September 30, 2009 and December 31, 2008, respectively. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these reserves are adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of September 30, 2009 and December 31, 2008.
Deposits
     The following table shows the composition of deposits by type as of the dates indicated.
                                 
    September 30,     December 31,     Increase (Decrease)  
    2009     2008     Amount     Percentage  
    (Dollars in Thousands)  
Demand — Noninterest-Bearing
  $ 561,548     $ 536,944     $ 24,604       4.6 %
Interest-Bearing:
                               
Savings
    98,019       81,869       16,150       19.7 %
Money Market Checking and NOW Accounts
    723,585       370,401       353,184       95.4 %
Time Deposits of $100,000 or More
    845,318       849,800       (4,482 )     (0.5 %)
Other Time Deposits
    763,390       1,231,066       (467,676 )     (38.0 %)
 
                       
Total Deposits
  $ 2,991,860     $ 3,070,080     $ (78,220 )     (2.5 %)
 
                       
     Total deposits decreased $78.2 million, or 2.5 percent, to $2.99 billion as of September 30, 2009 from $3.07 billion as of December 31, 2008. During the third quarter of 2009, we successfully recaptured a substantial portion of the matured time deposits and raised new retail deposits with low-cost core-deposit products. This deposit-portfolio rebalancing implemented under the Bank’s de-leveraging strategy allowed some run-off of rate-sensitive deposits.
     Brokered deposits decreased by $482.3 million from $874.2 million as of December 31, 2008 to $391.9 million as of September 30, 2009. All of our brokered deposits as September 30, 2009 will mature in less than one year. Brokered deposits are not a guaranteed source of funds, which may affect our ability to raise necessary liquidity. We plan to continue to reduce the Bank’s reliance on wholesale funding, including FHLB advances and brokered deposits, and build our deposit base with long-term relationships. For additional discussion regarding our brokered deposits and payment of interest rates on our deposits, see “Interest Rate Risk Management — Liquidity — Hanmi Bank.”

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     The strength of our deposit base has been further supported by the increase in deposit insurance approved by the FDIC. Effective October 3, 2008 through December 31, 2013, the FDIC increased the level at which deposits are insured from $100,000 to $250,000 for most deposit categories. As of September 30, 2009, time deposits of $250,000 or more were $662.3 million.
     Accrued interest payable on deposits amounted to $16.3 million and $16.7 million at September 30, 2009 and December 31, 2008, respectively.
Federal Home Loan Bank Advances
     As of September 30, 2009, advances from the FHLB were $160.8 million, a decrease of $261.4 million, or 61.9 percent, from the December 31, 2008 balance of $422.2 million, as we have been successfully executing a strategy replacing the usage of wholesale funds with more stable customer deposits in 2009. FHLB advances were utilized to fund loans or maintain liquidity due to favorable rates. FHLB advances as of September 30, 2009 with a remaining maturity of less than one year were $6.8 million, and the weighted-average interest rate thereon was 4.44 percent.
Junior Subordinated Debentures
     During the first half of 2004, we issued two junior subordinated notes bearing interest at the three-month London InterBank Offered Rate (“LIBOR”) plus 2.90 percent totaling $61.8 million and one junior subordinated note bearing interest at the three-month LIBOR plus 2.63 percent totaling $20.6 million. The outstanding subordinated debentures related to these offerings, the proceeds of which were used to finance the purchase of Pacific Union Bank, totaled $82.4 million as of September 30, 2009 and December 31, 2008. In October 2008, we committed to the FRB that no interest payments on the junior subordinated debentures would be made without the prior written consent of the FRB. Therefore, in order to preserve its capital position, Hanmi Financial’s Board of Directors has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. In addition, we are prohibited from making interest payments on our outstanding junior subordinated debentures under the terms of our recently issued regulatory enforcement actions without the prior written consent of the FRB and DFI. Accrued interest payable on junior subordinated debentures amounted to $3.4 million and $780,000 at September 30, 2009 and December 31, 2008, respectively.
INTEREST RATE RISK MANAGEMENT
     Interest rate risk indicates our exposure to market interest rate fluctuations. The movement of interest rates directly and inversely affects the economic value of fixed-income assets, which is the present value of future cash flow discounted by the current interest rate; under the same conditions, the higher the current interest rate, the higher the denominator of discounting. Interest rate risk management is intended to decrease or increase the level of our exposure to market interest rates. The level of interest rate risk can be managed through such means as the changing of gap positions and the volume of fixed-income assets. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.

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     The following table shows the status of our gap position as of September 30, 2009:
                                                 
            After                          
            Three     After One                    
            Months     Year But                    
    Within     But     Within     After     Non-        
    Three     Within     Five     Five     Interest-        
    Months     One Year     Years     Years     Sensitive     Total  
                    (Dollars in Thousands)                  
ASSETS
                                               
Cash and Due from Banks
  $     $     $     $     $ 57,727     $ 57,727  
Interest-Bearing Deposits in Other Banks
    155,607                               155,607  
Investment Securities:
                                               
Fixed Rate
    1,176       9,434       15,986       166,105             192,701  
Floating Rate
    3,538       9,515       147                   13,200  
Loans:
                                               
Fixed Rate
    61,474       52,671       733,389       245,466             1,093,000  
Floating Rate
    1,628,882       14,022       64,188       4,859             1,711,951  
Non-Accrual
                            174,363       174,363  
Deferred Loan Fees and Allowance for Loan Losses
                            (126,578 )     (126,578 )
Investment in Federal Home Loan Bank Stock and Investment in Federal Reserve Bank Stock
                      40,750             40,750  
Other Assets
                      32,830       111,939       144,769  
 
                                   
TOTAL ASSETS
  $ 1,850,677     $ 85,642     $ 813,710     $ 490,010     $ 217,451     $ 3,457,490  
 
                                   
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Demand — Noninterest-Bearing
  $     $     $     $     $ 561,548     $ 561,548  
Savings
    10,460       38,843       41,333       7,383             98,019  
Money Market Checking and NOW Accounts
    110,707       210,488       233,574       168,816             723,585  
Time Deposits:
                                               
Fixed Rate
    648,533       940,136       19,972       11             1,608,652  
Floating Rate
    56                               56  
Federal Home Loan Bank Advances
    152,420       5,121       3,287                   160,828  
Other Borrowings
    1,496                               1,496  
Junior Subordinated Debentures
    82,406                               82,406  
Other Liabilities
                            33,780       33,780  
Stockholders’ Equity
                            187,120       187,120  
 
                                   
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 1,006,078     $ 1,194,588     $ 298,166     $ 176,210     $ 782,448     $ 3,457,490  
 
                                   
 
                                               
Repricing Gap
  $ 844,599     $ (1,108,946 )   $ 515,544     $ 313,800     $ (564,997 )   $  
Cumulative Repricing Gap
  $ 844,599     $ (264,347 )   $ 251,197     $ 564,997     $     $  
Cumulative Repricing Gap as a Percentage of Total Assets
    24.43 %     (7.65 %)     7.27 %     16.34 %              
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    26.33 %     (8.24 %)     7.83 %     17.62 %              
     The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., a point-in-time analysis measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same period). Assets are assigned to maturity and repricing categories based on their expected repayment or repricing dates, and liabilities are assigned based on their repricing or maturity dates. Interest-bearing core deposits that have no maturity dates (savings, money market checking and NOW accounts) are assigned to categories based on expected decay rates.
     As of September 30, 2009, the cumulative repricing gap for the three-month period was asset-sensitive position and 26.33 percent of interest-earning assets, which decreased from the December 31, 2008 figure of 31.21 percent. The decrease was caused primarily by a decrease of $439.7 million in fixed and floating rate loans with maturities or expected to reprice within three months and a decrease of $130.0 million in overnight federal funds sold, partially offset by a decrease of $208.6 million in FHLB advances with maturities or expected to reprice within three months. The cumulative repricing gap for the twelve-month period was liability-sensitive position and 8.24 percent of interest-earning assets, which decreased from the December 31, 2008 figure of 4.04 percent. The decrease was caused primarily by a decrease of $633.8 million in fixed and floating rate loans with maturities or expected to reprice within twelve months and a decrease of $130.0 million in overnight federal funds sold.

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     The following table summarizes the status of the cumulative gap position as of the dates indicated.
                                 
    Less Than Three Months   Less Than Twelve Months
    September 30,   December 31,   September 30,   December 31,
    2009   2008   2009   2008
            (Dollars in Thousands)        
Cumulative Repricing Gap
  $ 844,599     $ 1,127,888     $ (264,347 )   $ (145,945 )
Cumulative Repricing Gap as a Percentage of Total Assets
    24.43 %     29.10 %     (7.65 %)     (3.77 %)
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    26.33 %     31.21 %     (8.24 %)     (4.04 %)
     The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
     To supplement traditional gap analysis, we perform simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the market value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a one-year horizon, given the basis point adjustment in interest rates reflected below.
                 
Rate Shock Table
    Percentage Changes   Change in Amount
Change in   Net   Economic   Net   Economic
Interest   Interest   Value of   Interest   Value of
Rate   Income   Equity   Income   Equity
    (Dollars in Thousands)    
200%
  13.97%   (27.89%)   $18,305   $(76,900)
100%   7.14%   (14.21%)   $9,359   $(39,173)
(100%)   (1)   (1)   (1)   (1)
(200%)   (1)   (1)   (1)   (1)
 
(1)   The table above only reflects the impact of upward shocks due to the fact that a downward parallel shock of 100 basis points or more is not possible given that some short-term rates are currently less than one percent.
     The estimated sensitivity does not necessarily represent our forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources
     In order to ensure adequate levels of capital, the Board continually assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs. Total stockholders’ equity was $187.1 million as of September 30, 2009, which represented a decrease of $76.8 million, or 29.1 percent, compared to $263.9 million as of December 31, 2008.

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     Hanmi Financial and the Bank are deemed to be “adequately capitalized” as of September 30, 2009. There can be no assurance that we will become well-capitalized again. We are exploring alternative funding arrangements for raising capital. See “Notes to Consolidated Financial Statements (Unaudited), Note 9 — Stockholders’ Equity” for further information.
Liquidity — Hanmi Financial
     Hanmi Financial is a company separate and apart from the Bank that must provide for its own liquidity. Substantially all of Hanmi Financial’s revenues are obtained from dividends declared and paid by the Bank. Under applicable California law, the Bank cannot make any distribution (including a cash dividend) to its shareholder (Hanmi Financial) in an amount which exceeds the lesser of: (i) the retained earnings of the Bank or (ii) the net income of the Bank for its last three fiscal years, less the amount of any distributions made by the Bank to its shareholder during such period. Notwithstanding the foregoing, with the prior approval of the California Commissioner of Financial Institutions, the Bank may make a distribution (including a cash dividend) to Hanmi Financial in an amount not exceeding the greatest of: (i) the retained earnings of the Bank; (ii) the net income of the Bank for its last fiscal year; or (iii) the net income of the Bank for its current fiscal year. The Bank currently has deficit retained earnings and has suffered net losses in 2007, 2008 and 2009. See “Dividends” for further information. As a result, the California Financial Code does not provide authority for the Bank to declare a dividend to Hanmi Financial, with or without Commissioner approval. In addition, the Bank has been prohibited by the memorandum of understanding described in “Notes to Consolidated Financial Statements (Unaudited), Note 3 — Regulatory Matters,” and continues to be prohibited by the FRB Written Agreement and DFI Final Order, from paying dividends to Hanmi Financial unless it receives prior regulatory approval.
     Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets through December 31, 2009 to meet its operating cash needs. On August 29, 2008, we elected to suspend payment of quarterly dividends on our common stock in order to preserve our capital position. In addition, Hanmi Financial has also elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. Hanmi Financial is also prohibited from making interest payments on its outstanding junior subordinated debentures under the terms of the Agreement and the Order without prior written approval. See “Regulatory Matters — Written Agreement and Final Order” for further information. As of September 30, 2009, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $3.8 million, up from $2.2 million as of December 31, 2008.
Liquidity — Hanmi Bank
     Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originated through its branch platform. For the past nine months, the Bank launched two deposit campaigns to increase new deposits and reduce its reliance on wholesale funding to an optimum level. Through the first deposit campaign promoted from December 2008 and early part of March 2009, the Bank achieved the objectives of maintaining strong liquidity and reducing its reliance on wholesale funds. The second deposit campaign, which started in June 2009, has been undertaken to specifically increase new core deposits and recapture time deposits raised from the first deposit promotion. During the third quarter of 2009, we successfully recaptured a substantial portion of the matured time deposits and raised new retail deposits with low-cost core-deposit products. This deposit-portfolio rebalancing implemented under the Bank’s de-leveraging strategy allowed some run-off of rate-sensitive deposits. As a result, total deposits slightly decreased by $78.2 million, or 2.5 percent, from $3.07 billion as of December 31, 2008 to $2.99 billion as of September 30, 2009. The Bank’s wholesale funds, consisting of FHLB advances and brokered deposits, decreased $743.6 million to $552.8 million at September 30, 2009 from $1.30 billion at December 31, 2008.

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     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered adequately capitalized under the regulatory framework for prompt corrective action. Section 29 of the FDIA limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the FDIC to place restrictions on interest rates that institutions may pay. On May 29, 2009, the FDIC approved a final rule to implement new interest rate restrictions on institutions that are not “well capitalized.” The rule, which is not effective until January 1, 2010, limits the interest rate paid by such institutions to 75 basis points above a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, the FDIC may permit that institution to offer the higher local rate plus 75 basis points. Hanmi Bank is currently evaluating the local interest rate environment to determine whether it would be beneficial to provide evidence to the FDIC that the local rate is higher than the national rate. In the event that we determine to provide such evidence to the FDIC, there can be no assurance that the FDIC will concur with our assessment. As a result, our ability to compete for local deposits in the Korean-American community may be limited.
     The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 20 percent of its total assets. As of September 30, 2009, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $499.7 million and $337.6 million, respectively. The Bank’s FHLB borrowings as of September 30, 2009 totaled $160.8 million, representing 4.7 percent of total assets. As of November 3, 2009, the Bank’s FHLB borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $532.3 million and $370.1 million, respectively. The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment securities and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.
     As a means of augmenting its liquidity, the Bank had an available borrowing source of $244.7 million from the Fed Discount Window, to which the Bank pledged loans with a carrying value of $445.0 million, and had no borrowings as of September 30, 2009. In August 2009, South Street Securities LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million. This line of credit will continue for a term of one year, and, unless amended or terminated, will automatically renew for successive one-year terms.
     On July 10, 2009, due to a deterioration in the Bank’s risk profile, the Borrower in Custody Program of the Fed Discount Window in which the Bank has participated changed from the primary credit program to the secondary credit program, which allows the Bank to request very short-term credit (typically overnight) at a rate that is above the primary credit rate. As of November 3, 2009, the Bank had $150.8 million available for use through the Fed Discount Window, as the Bank pledged loans with a carrying value of $445.0 million, and there were no borrowings. The Bank’s borrowing line available with the Fed Discount Window decreased $93.9 million to $150.8 million on November 3, 2009 from $244.7 million on September 30, 2009, due to the Fed Discount Window applying new collateral margins to all participating banks, effective October 19, 2009. As the Bank has a sufficient amount of pledgeable loans, it will pledge additional loans to maintain an adequate level of borrowing line with the Fed Discount Window.

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     Current market conditions have limited the Bank’s liquidity sources principally to secured funding outlets such as the FHLB and Fed Discount Window. There can be no assurance that actions by the FHLB or Federal Reserve Bank would not reduce the Bank’s borrowing capacity or that the Bank would be able to continue to replace deposits at competitive rates. The Bank is currently restricted from accepting brokered deposits as a funding source unless we obtain a waiver from the FDIC (see “Notes to Consolidated Financial Statements (Unaudited), Note 13 — Subsequent Events” for further information). On October 9, 2009, the Bank filed a request with the FDIC for a waiver of the brokered deposit restrictions for the primary purposes of enhancing profitability and managing our interest-rate risk. As of September 30, 2009, brokered deposits were $391.9 million, or 13.1 percent of total deposits. All brokered deposits are currently scheduled to mature on or prior to June 30, 2010. For the past nine months, the Bank successfully replaced $482.3 million of brokered deposits with retail deposits. In the event that the Bank cannot secure the waiver from the FDIC, the Bank believes that it will be able to replenish the maturing brokered deposits with retail deposits, as it demonstrated its ability to generate retail deposits for the past nine months. However, these higher costs funds would be expected to affect our earnings and net interest margin. If the Bank is unable to replace these maturing deposits with new deposits, the Bank believes that it has adequate liquidity resources to fund its ongoing obligations with its secured funding outlets with the FHLB and Fed Discount Window.
Capital Ratios
     The regulatory agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0 percent. In addition to the risk-based guidelines, regulators require banking organizations to maintain a minimum ratio of Tier 1 capital to average total assets, referred to as the leverage ratio, of 4.0 percent. For a bank rated in the highest of the five categories used by regulators to rate banks, the minimum leverage ratio is 3.0 percent. In addition to these uniform risk-based capital guidelines that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
     As of September 30, 2009, Hanmi Financial’s Tier 1 capital (stockholders’ equity plus junior subordinated debentures less intangible assets) was $242.0 million. This represented a decrease of $96.1 million, or 28.4 percent, over Tier 1 capital of $338.0 million as of December 31, 2008. The capital ratios of Hanmi Financial and the Bank were as follows as of September 30, 2009:
                                                 
                    Minimum   Minimum to Be
                    Regulatory   Categorized as
    Actual   Requirement   “Well-Capitalized”
    Amount   Ratio   Amount   Ratio   Amount   Ratio
    (Dollars in Thousands)
Total Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 281,845       9.15 %   $ 246,403       8.00 %     N/A       N/A  
Hanmi Bank
  $ 297,942       9.69 %   $ 246,071       8.00 %   $ 307,589       10.00 %
 
                                               
Tier 1 Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 241,951       7.86 %   $ 123,202       4.00 %     N/A       N/A  
Hanmi Bank
  $ 258,262       8.40 %   $ 123,035       4.00 %   $ 184,553       6.00 %
 
                                               
Tier 1 Leverage (to Average Total Assets):
                                               
Hanmi Financial
  $ 241,951       6.60 %   $ 146,608       4.00 %     N/A       N/A  
Hanmi Bank
  $ 258,262       7.05 %   $ 146,444       4.00 %   $ 183,055       5.00 %
     We will continue to closely evaluate our capital levels to determine the need to raise additional capital, and we intend to become “well capitalized” again for regulatory purposes.
Regulatory Matters
     Hanmi Financial and the Bank are subject to extensive federal and state supervision and regulation by certain regulatory agencies. In connection with such supervision and their recent examinations, the regulatory agencies will require that certain deficiencies in our policies, procedures or activities be corrected in the future. If such matters are not corrected in the future or significant progress is not made on such matters, then Hanmi Financial and/or the Bank may face additional regulatory action that may have an impact on the operations of Hanmi Financial and the Bank.

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Memorandum of Understanding
     On October 8, 2008, the members of the Board of Directors of the Bank entered into an informal supervisory agreement (a memorandum of understanding) with the Regulators to address certain issues raised in the Bank’s most recent regulatory examination by the DFI on March 10, 2008. The memorandum of understanding has been superseded by the Final Order (the “Order”) issued by the California Department of Financial Institutions (the “DFI”), and the Written Agreement (the “Agreement”) with the Federal Reserve Bank of San Francisco (the “FRB”), each of which were issued effective as of November 2, 2009.
     Certain of the issues to be addressed by management under the terms of the memorandum of understanding relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval. As of September 30, 2009, the Bank had a Tier 1 leverage ratio of 7.05 percent and tangible stockholder’s equity to total tangible assets ratio of 7.57 percent. As of December 31, 2008, the Bank had a Tier 1 leverage ratio of 8.85 percent and tangible stockholder’s equity to total tangible assets ratio of 8.68 percent.
     As part of the Bank’s efforts to comply with the prior memorandum of understanding, the liquidity contingency plan, earnings plan and updated strategic plan have been revised. As previously reported, certain directors have retired from the Board and other directors have joined the Board, bringing broader and more diverse skill sets.
     Separately, in accordance with its prior commitment to the FRB, Hanmi Financial has adopted a consolidated capital plan to augment and maintain a sufficient consolidated capital position. In addition, Hanmi Financial has agreed that it will not (i) declare or pay any dividends or make any payments on its junior subordinated debentures or any other capital distributions without the prior written consent of the FRB, and (ii) incur, increase or renew any existing debt or purchase, redeem or otherwise acquire any of its capital stock without the prior written consent of the FRB. In order to preserve its capital position, the Board of Hanmi Financial has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. Finally, Hanmi Financial has agreed to provide prior written notice and obtain the consent of the FRB prior to appointing any new directors or senior executive officers.
Written Agreement and Final Order
     On November 2, 2009, the members of the Board of Directors of the Bank consented to the issuance of a Final Order (the “Order”) from the DFI. On the same date, Hanmi Financial and the Bank entered into a Written Agreement (the “Agreement”) with the FRB. The Order and the Agreement contain substantially similar provisions.
     The Order and the Agreement require the Board of Directors of the Bank to prepare and submit written plans to the DFI and the FRB that address the following items: (i) strengthening board oversight of the management and operation of the Bank; (ii) strengthening credit risk management practices; (iii) improving credit administration policies and procedures; (iv) improving the Bank’s position with respect to problem assets; (v) maintaining adequate reserves for loan and lease losses; (vi) improving the capital position of the Bank and, with respect to the Agreement, of Hanmi; (vii) improving the Bank’s earnings through a strategic plan and a budget for 2010; (viii) improving the Bank’s liquidity position and funds management practices; and (ix) contingency funding. In addition, the Order and the Agreement place restrictions on the Bank’s lending to borrowers who have adversely classified loans with the Bank and requires the Bank to charge off or collect certain problem loans. The Order and the Agreement also require the Bank to review and revise its allowance for loan and lease losses consistent with relevant supervisory guidance. The Bank is also prohibited from paying dividends, incurring, increasing or guaranteeing any debt, or making certain changes to its business without prior approval from the DFI, and the Bank and Hanmi must obtain prior approval from the FRB prior to declaring and paying dividends.

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     Under the Order, the Bank is also required to increase its capital and maintain certain regulatory capital ratios prior to certain dates specified in the Order. By July 31, 2010, the Bank will be required to increase its contributed equity capital by not less than an additional $100 million. The Bank will be required to maintain a ratio of tangible shareholder’s equity to total tangible assets as follows:
     
    Ratio of Tangible Shareholder’s
Date   Equity to Total Tangible Assets
By December 31, 2009
  Not Less Than 7.0 Percent
By July 31, 2010
  Not Less Than 9.0 Percent
From December 31, 2010 and Until the Order is Terminated
  Not Less Than 9.5 Percent
     If the Bank is not able to maintain the capital ratios identified in the Order, it must notify the DFI, and Hanmi and the Bank are required to notify the FRB if their respective capital ratios fall below those set forth in the capital plan to be submitted to the FRB.
     The Board of Directors and management are committed to addressing and resolving the matters raised in the Order and the Agreement on a timely basis and actions have already been undertaken to comply with each requirement.
Dividends
     The ability of Hanmi Financial to pay dividends to our stockholders is directly dependent on the ability of the Bank to pay dividends to Hanmi Financial. Section 642 of the California Financial Code provides that neither a California state-chartered bank nor a majority-owned subsidiary of a bank can pay dividends to its stockholders in an amount which exceeds the lesser of (a) the retained earnings of the bank; or (b) the net income of the bank for its last three fiscal years, in each case less the amount of any previous distributions made during such period. Because of the net loss incurred by the Bank in 2007, the Bank is currently not able to pay dividends to Hanmi Financial under Section 642. Financial Code Section 643 provides, alternatively, that, notwithstanding the foregoing restriction, dividends in an amount not exceeding the greatest of (a) the retained earnings of the bank; (b) the net income of the bank for its last fiscal year; or (c) the net income of the bank for its current fiscal year may be declared with the prior approval of the California Commissioner of Financial Institutions (the “Commissioner”). The Bank had a retained deficit of $136.8 million and $53.5 million as of September 30, 2009 and December 31, 2008, respectively. Because of the net loss for the first nine months of 2009, neither Section 642 nor 643 are currently available to the Bank to declare a dividend to Hanmi Financial. Although dividends from the Bank constitute the primary source of income to Hanmi Financial, Hanmi Financial has other limited sources of income including cash, earnings on assets held at the holding company and funds otherwise obtained from capital raising efforts at Hanmi Financial. Use of such funds for payments of interest or dividends is subject to receipt of prior regulatory approval.
     Similarly, the net loss for 2008 requires prior FRB approval of bank dividends in 2009 to Hanmi Financial. FRB Regulation H Section 208.5 provides that the Bank must obtain FRB approval to declare and pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the Bank’s net income during the current calendar year and the retained net income of the prior two calendar years. If permitted by regulation and subject to the discretion of the Board, the Bank will seek prior approval from the Regulators to pay cash dividends to Hanmi Financial. There can be no assurance when or if these approvals would be granted, or that, even if granted, the Board would authorize cash dividends to our stockholders.
     Under the terms of its FRB Written Agreement and DFI Final Order, the Bank is also prohibited from paying dividends, incurring, increasing or guaranteeing any debt, or making certain changes to its business without prior approval from the FRB and DFI, and the Bank and Hanmi must obtain prior approval from the FRB and DFI prior to declaring and paying dividends.

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     On August 29, 2008, the Board of Hanmi Financial announced that it had decided to suspend the quarterly cash dividend previously paid in order to maintain liquidity and conserve capital. In addition, the Board of Hanmi Financial announced that it has decided to start deferring interest payments on its junior subordinated debentures. Pursuant to the documents governing the junior subordinated debentures, Hanmi Financial is prohibited from paying dividends on its common stock while it is deferring interest payments. Hanmi Financial may defer interest payments on its junior subordinate debentures for up to 20 consecutive quarters before it would be considered to be in default under the instruments governing the junior subordinated debentures. Future dividend payments are subject to the future earnings, legal and regulatory requirements, including the pre-approval from the FRB, and the discretion of the Board. The Board reviews the prudence of a dividend each quarter.
OFF-BALANCE SHEET ARRANGEMENTS
     For a discussion of off-balance sheet arrangements, see “Note 11 — Off-Balance Sheet Commitments” of Notes to Consolidated Financial Statements (Unaudited) in this Report and “Item 1. Business — Off-Balance Sheet Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2008.
CONTRACTUAL OBLIGATIONS
     There were no material changes to the contractual obligations described in our Annual Report on Form 10-K for the year ended December 31, 2008.
RECENTLY ISSUED ACCOUNTING STANDARDS
     FASB ASC 105, “Generally Accepted Accounting Principles” — The FASB ASC is the exclusive authoritative reference for non-governmental U.S. GAAP for use in financial statements issued for interim and annual periods ending after September 15, 2009, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The contents of the Codification will carry the same level of authority, eliminating the four-level GAAP hierarchy previously set forth. The FASB ASC supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the FASB ASC is non-authoritative. FASB ASC 105 did not have a material the effect on our financial condition or results of operations.
     FASB ASC 810, “Consolidations” — FASB ASC 810 amends the guidance related to the consolidation of variable interest entities (“VIE’s”). It requires reporting entities to evaluate former qualifying special-purpose entities (“QSPE’s”) for consolidation, changes the approach to determining a VIE’s primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE. FASB ASC 810 requires additional year-end and interim disclosures for public and non-public companies that are similar to the disclosures required by FASB ASC 810-10-50. FASB ASC 810 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009 (January 1, 2010 for calendar year-end companies), and for subsequent interim and annual reporting periods. All QSPE’s and entities currently subject to the guidance related to the consolidation of VIE’s will need to be reevaluated under the amended consolidation requirements as of the beginning of the first annual reporting period that begins after November 15, 2009. Early adoption is prohibited. We are currently evaluating the effect that the provisions of FASB ASC 810 may have on our financial condition and results of operations.

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     FASB ASC 860, “Transfers and Servicing” — FASB ASC 860 amends the guidance related to the accounting for transfers and servicing of financial assets and extinguishments of liabilities. It eliminates the QSPE concept, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the derecognition criteria, revises how retained interests are initially measured, and removes the guaranteed mortgage securitization recharacterization provisions. FASB ASC 860 requires additional year-end and interim disclosures for public and nonpublic companies that are similar to the disclosures required by FASB ASC 810-10-50. FASB ASC 860 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2009 (January 1, 2010 for calendar year-end companies), and for subsequent interim and annual reporting periods. FASB ASC 860’s disclosure requirements must be applied to transfers that occurred before and after its effective date. Early adoption is prohibited. We are currently evaluating the effect that the provisions of FASB ASC 860 may have on our financial condition and results of operations.
     FASB ASC 855, “Subsequent Events” — FASB ASC 855 addresses accounting and disclosure requirements related to subsequent events. FASB ASC 855 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the company’s expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Companies are required to disclose the date through which subsequent events have been evaluated. FASB ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. The adoption of FASB ASC 855 did not have a material effect on our financial condition or results of operations
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     For quantitative and qualitative disclosures regarding market risks, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and "— Liquidity and Capital Resources.”

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ITEM 4.   CONTROLS AND PROCEDURES
     As of September 30, 2009, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and internal controls over financial reporting. Based upon that evaluation, we concluded that our disclosure controls and procedures were not effective as of September 30, 2009. Our conclusion was primarily related to our review and reassessment of management’s policies and procedures for the monitoring and timely evaluation of and revision to management’s approach for assessing credit risk inherent in the loan portfolio to reflect changes in the economic environment.
     Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Exchange Act reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
     In connection with a material weakness in internal control related to the assessment of credit risk disclosed in Amendment No. 1 to our Quarterly Report on Form 10-Q for the period ended March 31, 2009, filed with the SEC on August 17, 2009, the following remediation actions were implemented during the quarter ended September 30, 2009 to reduce the risk of a similar material weakness occurring in the future:
    Immediate re-grading and down-grading of all modified loans;
 
    Expanded risk-based review to verify loan grades on high-risk identified segments of the loan portfolio;
 
    Expanded loan review scope to include a larger sample of pass loans and watch list loans;
 
    Third party review of the Bank’s allowance for loan loss methodology and qualitative factors; and
 
    More active involvement and review by Controller and Chief Financial Officer.
     No other changes in our internal controls over financial reporting occurred during the quarter ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.   LEGAL PROCEEDINGS
     From time to time, Hanmi Financial and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of Hanmi Financial and its subsidiaries. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.

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ITEM 1A.   RISK FACTORS
     Our operations may require us to raise additional capital in the future, but that capital may not be available or may not be on terms acceptable to us when it is needed. We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. As part of the recently issued DFI Final Order, the Bank is also required to increase its capital and maintain certain regulatory capital ratios prior to certain dates specified in the Order. By July 31, 2010, the Bank will be required to increase its contributed equity capital by not less than an additional $100 million. The Bank will be required to maintain a ratio of tangible shareholder’s equity to total tangible assets as follows:
         
    Ratio of Tangible Shareholder’s  
Date   Equity to Total Tangible Assets  
By December 31, 2009
  Not Less Than 7.0 Percent
By July 31, 2010
  Not Less Than 9.0 Percent
From December 31, 2010 and Until the Order is Terminated
  Not Less Than 9.5 Percent
     We have also committed to the FRB to adopt a consolidated capital plan to augment and maintain a sufficient capital position. Our existing capital resources may not satisfy our capital requirements for the foreseeable future and may not be sufficient to offset any problem assets. Further, should our asset quality erode and require significant additional provision for credit losses, resulting in consistent net operating losses at the Bank, our capital levels will decline and we will need to raise capital to maintain our well-capitalized status and satisfy our agreements with the Regulators.
     Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to continue as a going concern could be materially impaired.
     On June 12, 2009, and subsequently amended on July 31, 2009 and September 28, 2009, we entered into a Securities Purchase Agreement with LIS, providing for the sale of 8,079,612 unregistered shares of Hanmi Financial common stock to LIS at a purchase price of $1.37 per share, resulting in gross proceeds of $11.1 million. Although the initial phase of this transaction was completed on September 4, 2009, resulting in an initial investment by LIS of $6.8 million, the remaining phase of this transaction remains subject to receipt of regulatory approval and satisfaction of customary closing conditions. It is not expected that the remainder of this transaction will be completed during 2009 and there can be no assurance that this transaction will be completed at all. If we are unable to complete the acquisition or raise additional capital through other sources when needed, our results of operations and financial condition could be materially and adversely affected. In addition, if we were to raise additional capital through the issuance of additional shares, our stock price could be adversely affected, depending on the terms of any shares we were to issue.
     We may be unable to retain or replace brokered deposits as they mature. Under FDICIA, banks may be restricted in their ability to accept broker deposits, depending on their capital classification. “Well-capitalized” banks are permitted to accept broker deposits, but all banks that are not well-capitalized could be restricted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized to accept broker deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank; however, that institution would generally be prohibited from accepting brokered deposits and offering interest rates on deposits “significantly higher” than the prevailing rate in its market.

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     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered adequately capitalized under the regulatory framework for prompt corrective action. Section 29 of FDIA limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the FDIC to place restrictions on interest rates that institutions may pay. On May 29, 2009, the FDIC approved a final rule to implement new interest rate restrictions on institutions that are not “well capitalized.” The rule limits the interest rate paid by such institutions to 75 basis points above a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, the FDIC may permit that institution to offer the higher local rate plus 75 basis points. As a result, our ability to compete for local deposits in the Korean-American community may be limited. Although the rule is not effective until January 1, 2010, the FDIC has stated that it will not object to the rule’s immediate application.
     Our financial flexibility could be severely constrained if we are unable to renew our wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to continue to fund new loan originations, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. Our inability to obtain regulatory consent to accept or renew brokered deposits could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.
     Our proposed transaction to sell additional shares of common stock to LIS is subject to a number of conditions, and the failure to complete this transaction could adversely affect our financial condition, results of operations and prospects as a going concern. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In addition, we may elect to raise additional capital to support our business or to finance acquisitions, if any, or we may otherwise elect to raise additional capital. In that regard, a number of financial institutions have recently raised considerable amounts of capital because of deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, unstable economic conditions, declines in real estate values and other factors, which may diminish our ability to raise additional capital.
     On June 12, 2009, and subsequently amended on July 31, 2009 and September 28, 2009, we entered into a Securities Purchase Agreement with LIS, providing for the sale of 8,079,612 unregistered shares of Hanmi Financial common stock to LIS at a purchase price of $1.37 per share, resulting in gross proceeds of $11.1 million. Although the initial phase of this transaction was completed on September 4, 2009, resulting in an initial investment by LIS of $6.8 million, the remaining phase of this transaction remains subject to receipt of regulatory approval and satisfaction of customary closing conditions. It is not expected that the remainder of this transaction will be completed during 2009 and there can be no assurance that this transaction will be completed at all. If we are unable to complete the acquisition or raise additional capital through other sources when needed, our results of operations and financial condition could be materially and adversely affected. In addition, if we were to raise additional capital through the issuance of additional shares, our stock price could be adversely affected, depending on the terms of any shares we were to issue.

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     Hanmi Bank is subject to additional regulatory oversight as a result of a formal regulatory enforcement action issued by the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions. Prior to November 2, 2009, the Bank was subject to an informal supervisory agreement (a memorandum of understanding) with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions to address certain issues raised in the Bank’s regulatory examination by the DFI on March 10, 2008. The material terms of the memorandum of understanding are discussed in “Notes to Consolidated Financial Statements (Unaudited), Note 3 — Regulatory Matters.” As a result of the Bank’s recently completed examination by the FRB and DFI, on November 2, 2009, the members of the Board of Directors of the Bank consented to the issuance of a Final Order (the “Order”) from the California Department of Financial Institutions (the “DFI”). On the same date, Hanmi Financial and the Bank entered into a Written Agreement (the “Agreement”) with the Federal Reserve Bank of San Francisco (the “FRB”). The Order and the Agreement contain substantially similar provisions which are described in greater detail in this Quarterly Report of Form 10-Q in “Notes to Consolidated Financial Statements (Unaudited), Note 13 — Subsequent Events,” beginning on page 27. Under the terms of the Order and Agreement, which were issued and became effective on November 2, 2009, the Bank is required to implement certain corrective and remedial measures under strict time frames and we can offer no assurance that the Bank will be able to meet the deadlines imposed by the regulatory orders. The Order and Agreement will remain in effect until modified, terminated, suspended or set aside by the FRB and DFI, as applicable.
     These regulatory actions will remain in effect until modified, terminated, suspended or set aside by the FRB or the DFI, as applicable. Failure to comply with the terms of these regulatory actions within the applicable time frames provided could result in additional orders or penalties from the FRB and the DFI, which could include further restrictions on our business, assessment of civil money penalties on us and the Bank, as well as our respective directors, officers and other affiliated parties, termination of deposit insurance, removal of one or more officers and/or directors, and the liquidation or other closure of the Bank. Generally, these enforcement actions will be lifted only after subsequent examinations substantiate complete correction of the underlying issues.
     We may become subject to additional regulatory restrictions in the event that our regulatory capital levels continue to decline. Although we and the Bank both qualified as “adequately capitalized” under the regulatory framework for prompt corrective action as of September 30, 2009, the additional regulatory restrictions resulting from the decline in our capital category, or any further decline, could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.
     If a state member bank is classified as undercapitalized, the bank is required to submit a capital restoration plan to the Federal Reserve. Pursuant to FDICIA, an undercapitalized bank is prohibited from increasing its assets, engaging in a new line of business, acquiring any interest in any company or insured depository institution, or opening or acquiring a new branch office, except under certain circumstances, including the acceptance by the Federal Reserve of a capital restoration plan for the bank. Furthermore, if a state non-member bank is classified as undercapitalized, the FDIC may take certain actions to correct the capital position of the bank; if a bank is classified as significantly undercapitalized or critically undercapitalized, the Federal Reserve would be required to take one or more prompt corrective actions. These actions would include, among other things, requiring sales of new securities to bolster capital; improvements in management; limits on interest rates paid; prohibitions on transactions with affiliates; termination of certain risky activities and restrictions on compensation paid to executive officers. If a bank is classified as critically undercapitalized, FDICIA requires the bank to be placed into conservatorship or receivership within 90 days, unless the Federal Reserve determines that other action would better achieve the purposes of FDICIA regarding prompt corrective action with respect to undercapitalized banks.
     Under FDICIA, banks may be restricted in their ability to accept broker deposits, depending on their capital classification. “Well-capitalized” banks are permitted to accept broker deposits, but all banks that are not well-capitalized could be restricted to accept such deposits. The FDIC may, on a case-by-case basis, permit banks that are adequately capitalized, such as the Bank, to accept broker deposits if the FDIC determines that acceptance of such deposits would not constitute an unsafe or unsound banking practice with respect to the bank. We can make no assurances that we will be able to accept, renew or roll over brokered deposits in such amounts and at such rates that are consistent with our past results. These restrictions could materially and adversely affect our ability to access lower costs funds and thereby decrease our future earnings capacity.

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     Finally, the capital classification of a bank affects the frequency of examinations of the bank, the deposit insurance premiums paid by such bank, and the ability of the bank to engage in certain activities, all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects. Under FDICIA, the FDIC is required to conduct a full-scope, on-site examination of every bank at least once every twelve months. An exception to this rule is made, however, that provides that banks (i) with assets of less than $100.0 million, (ii) are categorized as “well-capitalized,” (iii) were found to be well managed and its composite rating was outstanding and (iv) has not been subject to a change in control during the last twelve months, need only be examined by the FDIC once every 18 months.
     We may elect or be compelled to seek additional capital in the future, but capital may not be available when it is needed. We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. In that regard, a number of financial institutions have recently raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition arising from the turmoil in the mortgage loan market, deteriorating economic conditions, declines in real estate values and other factors, which may diminish our ability to raise additional capital.
     Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our financial condition, results of operations and prospects.
     We may be restricted in paying deposit rates above a national rate, which may adversely affect our ability to maintain and increase our deposit levels. Section 29 of the FDIA limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the FDIC to place restrictions on interest rates that institutions may pay. On May 29, 2009, the FDIC approved a final rule to implement new interest rate restrictions on institutions that are not “well capitalized.” The rule limits the interest rate paid by such institutions to 75 basis points above a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, the FDIC may permit that institution to offer the higher local rate plus 75 basis points. Although the rule is not effective until January 1, 2010, the FDIC has stated that it will not object to the rule’s immediate application.
     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered adequately capitalized under the regulatory framework for prompt corrective action. As a result, we are currently restricted from using broker deposits as a funding source unless we obtain a waiver from the FDIC. These restrictions on our ability to participate in this market could place limitations on our growth strategy or could result in our participation in other more expensive funding sources.
     Except as described above, there were no other material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008 that was filed on March 13, 2009.
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     None.
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
     None.
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     None.
ITEM 5.   OTHER INFORMATION
     None.

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ITEM 6.   EXHIBITS
         
Exhibit    
Number   Document
  3.1    
Amended and Restated Certificate of Incorporation of Hanmi Financial Corporation (7)
       
 
  3.2    
Certificate of Second Amendment of Certificate of Incorporation of Hanmi Financial Corporation (7)
       
 
  3.3    
Amended and Restated Bylaws of Hanmi Financial Corporation (7)
       
 
  3.4    
Certificate of Amendment to Bylaws of Hanmi Financial Corporation (7)
       
 
  10.1    
Amended and Restated Trust Agreement of Hanmi Capital Trust I dated as of January 8, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein (2)
       
 
  10.2    
Hanmi Capital Trust I Junior Subordinated Indenture dated as of January 8, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.1) (2)
       
 
  10.3    
Hanmi Capital Trust I Guarantee Agreement dated as of January 8, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee (2)
       
 
  10.4    
Hanmi Capital Trust I Form of Common Securities Certificate (included as exhibit B to Exhibit 10.1) (2)
       
 
  10.5    
Hanmi Capital Trust I Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.1) (2)
       
 
  10.6    
Amended and Restated Trust Agreement of Hanmi Capital Trust II dated as of March 15, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein (2)
       
 
  10.7    
Hanmi Capital Trust II Junior Subordinated Indenture dated as of March 15, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.6) (2)
       
 
  10.8    
Hanmi Capital Trust II Guarantee Agreement dated as of March 15, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee (2)
       
 
  10.9    
Hanmi Capital Trust II Form of Common Securities Certificate (included as exhibit B to Exhibit 10.6) (2)
       
 
  10.10    
Hanmi Capital Trust II Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.6) (2)
       
 
  10.11    
Amended and Restated Trust Agreement of Hanmi Capital Trust III dated as of April 28, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein (2)
       
 
  10.12    
Hanmi Capital Trust III Junior Subordinated Indenture dated as of April 28, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.11) (2)
       
 
  10.13    
Hanmi Capital Trust III Guarantee Agreement dated as of April 28, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee (2)
       
 
  10.14    
Hanmi Capital Trust III Form of Common Securities Certificate (included as exhibit B to Exhibit 10.11) (2)
       
 
  10.15    
Hanmi Capital Trust III Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.11) (2)
       
 
  10.16    
Employment Agreement Between Hanmi Financial Corporation and Hanmi Bank, on the One Hand, and Jay S. Yoo, on the Other Hand, dated as of June 19, 2008 (3)
       
 
  10.17    
Hanmi Financial Corporation 2007 Equity Compensation Plan (1)
       
 
  10.18    
Hanmi Financial Corporation Year 2000 Stock Option Plan (6)
       
 
  10.19    
Form of Notice of Stock Option Grant and Agreement Pursuant to 2007 Equity Compensation Plan (7)
       
 
  10.20    
Form of Notice of Grant and Restricted Stock Agreement Pursuant to 2007 Equity Compensation Plan (7)
       
 
  10.21    
Employment Offer Letter with Brian E. Cho, executed November 1, 2007 (5)
       
 
  10.22    
Securities Purchase Agreement, dated June 12, 2009, by and between Hanmi Financial Corporation and Leading Investments & Securities Co., Ltd. (8)
       
 
  10.23    
Registration Rights Agreement, dated June 12, 2009, by and between Hanmi Financial Corporation and Leading Investments & Securities Co., Ltd. (8)
       
 
  10.24    
First Amendment to the Securities Purchase Agreement, dated July 31, 2009, by and between Hanmi Financial Corporation and Leading Investment & Securities Co., Ltd. (9)
       
 
  10.25    
Amended and Restated Term Sheet, dated September 14, 2009, by and among Hanmi Financial Corporation, Leading Investment & Securities Co., Ltd., and IWL Partners LLC (10)

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ITEM 6.   EXHIBITS (Continued)
         
Exhibit    
Number   Document
  10.26    
Second Amendment to the Securities Purchase Agreement, dated September 28, 2009, by and between Hanmi Financial Corporation and Leading Investment & Securities Co., Ltd. (11)
       
 
  10.27    
First Amendment to the Amended and Restated Term Sheet, dated September 28, 2009, by and between Hanmi Financial Corporation, Leading Investment & Securities Co., Ltd., and IWL Partners, LLC (11)
       
 
  10.28    
Final Order, dated November 2, 2009, issued to Hanmi Bank by the California Department of Financial Institutions (12)
       
 
  10.29    
Written Agreement, dated November 2, 2009, by and between Hanmi Financial Corporation and Hanmi Bank, on one hand, and the Federal Reserve Bank of San Francisco, on the other hand (12)
       
 
  14    
Code of Ethics (4)
       
 
  21    
Subsidiaries of the Registrant (5)
       
 
  31.1    
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
       
 
  31.2    
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
       
 
  32.1    
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       
 
  32.2    
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
(1)   Previously filed and incorporated by reference herein from Hanmi Financial’s Current Report on Form 8-K filed with the SEC on June 26, 2007.
 
(2)   Previously filed and incorporated by reference herein from Hanmi Financial’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 filed with the SEC on August 9, 2004.
 
(3)   Previously filed and incorporated by reference herein from Hanmi Financial’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed with the SEC on August 11, 2008.
 
(4)   Previously filed and incorporated by reference herein from Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the SEC on March 16, 2005.
 
(5)   Previously filed and incorporated by reference herein from Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC on February 29, 2008.
 
(6)   Previously filed and incorporated by reference herein from Hanmi Financial’s Registration Statement on Form S-8 filed with the SEC on August 18, 2000.
 
(7)   Previously filed and incorporated by reference herein from Hanmi Financial’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 13, 2009.