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, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      To                     

HANMI FINANCIAL CORPORATION

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)

     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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of November 7, 2005, there were 48,633,544 outstanding shares of the issuer’s Common Stock.

 

 

HANMI FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005

TABLE OF CONTENTS

						Page
				PART I — FINANCIAL INFORMATION
Item 1.		Financial Statements
				Consolidated Statements of Financial Condition (Unaudited)			1
				Consolidated Statements of Income and Comprehensive Income (Unaudited)			2
				Consolidated Statements of Cash Flows (Unaudited)			3
				Notes to Consolidated Financial Statements (Unaudited)			4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations					9
Item 3.		Quantitative and Qualitative Disclosures About Market Risk					31
Item 4.		Controls and Procedures					32
				PART II — OTHER INFORMATION
Item 1.		Legal Proceedings					33
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds					33
Item 3.		Defaults Upon Senior Securities					33
Item 4.		Submission of Matters to a Vote of Security Holders					33
Item 5.		Other Information					33
Item 6.		Exhibits					34
Signatures							35
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

		September 30,				December 31,
		2005				2004
ASSETS
Cash and Due from Banks		$	112,233			$	55,164
Federal Funds Sold and Securities Purchased Under Agreements to Resell			62,000				72,000
Cash and Cash Equivalents			174,233				127,164
Federal Reserve Bank Stock			12,153				12,099
Federal Home Loan Bank Stock			12,098				9,862
Securities Held to Maturity, at Amortized Cost (Fair Value: September 30, 2005 — $1,059; December 31, 2004 — $1,093)			1,055				1,090
Securities Available for Sale, at Fair Value			397,219				417,883
Loans Receivable, Net of Allowance for Loan Losses of $24,523 and $22,702 at September 30, 2005 and December 31, 2004, Respectively			2,458,573				2,230,992
Loans Held for Sale, at the Lower of Cost or Fair Value			375				3,850
Customers’ Liability on Acceptances			9,360				4,579
Premises and Equipment, Net			20,426				19,691
Accrued Interest Receivable			12,157				10,029
Deferred Income Taxes			8,159				5,009
Servicing Asset			3,716				3,846
Goodwill			209,058				209,643
Core Deposit Intangible			9,336				11,476
Bank-Owned Life Insurance — Cash Surrender Value			22,498				21,868
Other Assets			17,972				15,107
TOTAL ASSETS		$	3,368,388			$	3,104,188
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-Bearing		$	764,380			$	729,583
Interest-Bearing:
Money Market Checking			506,843				613,662
Savings			127,349				153,862
Time Deposits of $100,000 or More			1,089,917				756,580
Other Time Deposits			258,281				275,120
Total Deposits			2,746,770				2,528,807
Accrued Interest Payable			9,010				7,100
Acceptances Outstanding			9,360				4,579
Other Borrowed Funds			86,931				69,293
Junior Subordinated Debentures			82,406				82,406
Other Liabilities			17,905				12,093
Total Liabilities			2,952,382				2,704,278
SHAREHOLDERS’ EQUITY:
Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued and Outstanding, 49,769,245 Shares and 49,330,704 Shares at September 30, 2005 and December 31, 2004, Respectively			50				49
Additional Paid-In Capital			339,492				334,932
Unearned Compensation			(1,240	)			—
Accumulated Other Comprehensive Income (Loss) — Unrealized Gain (Loss) on Securities Available for Sale and Interest Rate Swaps, Net of Income Taxes of ($1,562) and $744 at September 30, 2005 and December 31, 2004, Respectively			(2,094	)			1,035
Retained Earnings			99,839				63,894
			436,047				399,910
Less Treasury Stock, at Cost; 1,163,000 Shares and 0 Shares at September 30, 2005 and December 31, 2004, Respectively			(20,041	)			—
Total Shareholders’ Equity			416,006				399,910
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	3,368,388			$	3,104,188

See Accompanying Notes to Consolidated Financial Statements

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
INTEREST INCOME:
Interest and Fees on Loans		$	47,175			$	34,389			$	127,900			$	79,553
Interest on Investments			4,277				4,674				13,659				12,894
Interest on Federal Funds Sold			221				28				679				100
Total Interest Income			51,673				39,091				142,238				92,547
INTEREST EXPENSE:
Interest on Deposits			14,515				7,334				35,811				17,525
Interest on Borrowings			2,316				1,942				5,829				4,405
Total Interest Expense			16,831				9,276				41,640				21,930
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES			34,842				29,815				100,598				70,617
Provision for Credit Losses			3,157				—				3,743				1,750
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES			31,685				29,815				96,855				68,867
NON-INTEREST INCOME:
Service Charges on Deposit Accounts			4,059				4,197				11,657				10,388
Trade Finance Fees			1,162				1,253				3,143				3,088
Other Service Charges and Fees			959				383				2,478				1,204
Remittance Fees			527				456				1,545				1,149
Bank-Owned Life Insurance Income			215				216				630				513
Change in Fair Value of Derivatives			176				(4	)			965				19
Other Income			648				364				1,823				1,105
Gain on Sales of Loans Held for Sale			1,712				352				2,076				1,654
Gain on Sales of Securities Available for Sale			21				115				117				124
Total Non-Interest Income			9,479				7,332				24,434				19,244
NON-INTEREST EXPENSES:
Salaries and Employee Benefits			9,155				9,505				26,867				23,079
Occupancy and Equipment			2,179				2,299				6,581				5,816
Data Processing			1,253				1,442				3,663				3,326
Advertising and Promotion			726				630				1,983				2,053
Amortization of Core Deposit Intangible			694				686				2,140				1,185
Supplies and Communications			559				981				1,867				1,959
Professional Fees			393				600				1,432				1,483
Decrease in Fair Value of Embedded Option			173				—				748				—
Merger-Related Expenses			—				325				(509	)			2,053
Other Operating Expenses			1,859				2,521				5,836				6,161
Total Non-Interest Expenses			16,991				18,989				50,608				47,115
INCOME BEFORE PROVISION FOR INCOME TAXES			24,173				18,158				70,681				40,996
Provision for Income Taxes			9,204				7,089				27,342				15,996
NET INCOME		$	14,969			$	11,069			$	43,339			$	25,000
EARNINGS PER SHARE:
Basic		$	0.30			$	0.23			$	0.88			$	0.63
Diluted		$	0.30			$	0.22			$	0.86			$	0.62
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic			49,144,508				48,971,194				49,386,112				39,877,288
Diluted			49,914,432				49,803,814				50,157,206				40,560,294
DIVIDENDS DECLARED PER SHARE		$	0.05			$	0.05			$	0.15			$	0.15
COMPREHENSIVE INCOME:
Net Income		$	14,969			$	11,069			$	43,339			$	25,000
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Gain (Loss) Arising During the Period			(1,822	)			5,866				(2,141	)			1,319
Less Reclassification Adjustment for Realized Gain on Securities Available for Sale Included in Net Income			—				(70	)			(114	)			(76	)
Unrealized Gain (Loss) on Cash Flow Hedge			(546	)			794				(874	)			71
Total Other Comprehensive Income (Loss), Net of Tax			(2,368	)			6,590				(3,129	)			1,314
Total Comprehensive Income		$	12,601			$	17,659			$	40,210			$	26,314

See Accompanying Notes to Consolidated Financial Statements

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

		Nine Months Ended
		September 30,
		2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	43,339			$	25,000
Adjustments to Reconcile Net Income to Net Cash and Cash Equivalents Provided By (Used In) Operating Activities:
Depreciation and Amortization of Premises and Equipment			1,985				1,725
Amortization of Premiums and Discounts on Investments			245				3,026
Amortization of Core Deposit Intangible			2,140				1,185
Amortization of Unearned Compensation			575				—
Provision for Credit Losses			3,743				1,750
Federal Reserve Bank Stock and Federal Home Loan Bank Stock Dividends			(224	)			(296	)
Gain on Sales of Securities Available for Sale			(117	)			(124	)
Change in Fair Value of Derivatives			(217	)			(19	)
Gain on Sales of Loans Held for Sale			(2,076	)			(1,654	)
Loss on Sales of Premises and Equipment			13				9
Tax Benefit from Exercise of Stock Options			546				—
Deferred Tax (Benefit) Provision			(6,279	)			2,311
Origination of Loans Held for Sale			(34,563	)			(58,266	)
Proceeds from Sales of Loans Held for Sale			40,114				26,725
Change In:
(Increase) Decrease in Accrued Interest Receivable			(2,128	)			470
Increase in Cash Surrender Value of Bank-Owned Life Insurance			(630	)			(513	)
(Increase) Decrease in Other Assets			(6,931	)			3,366
Increase (Decrease) in Accrued Interest Payable			1,910				(1,270	)
Increase (Decrease) in Other Liabilities			10,586				(13,975	)
Net Cash and Cash Equivalents Provided By (Used In) Operating Activities			52,031				(10,550	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Matured or Called Securities Available for Sale			72,449				93,111
Proceeds from Matured or Called Securities Held to Maturity			—				196
Proceeds from Sale of Securities Available for Sale			11,360				52,634
Net Increase in Loans Receivable			(231,100	)			(105,716	)
Purchases of Federal Reserve Bank Stock and Federal Home Loan Bank Stock			(2,066	)			(414	)
Purchases of Securities Available for Sale			(63,238	)			(15,660	)
Purchases of Bank-Owned Life Insurance			—				(10,000	)
Purchases of Premises and Equipment, Net			(2,733	)			(815	)
Acquisition of Pacific Union Bank, Net of Cash Acquired			—				(64,000	)
Net Cash and Cash Equivalents Used In Investing Activities			(215,328	)			(50,664	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits			217,963				22,185
Issuance of Junior Subordinated Debentures			—				82,406
Stock Issued Through Private Placement			—				71,710
Cash Paid to Acquire Treasury Stock			(20,041	)			—
Proceeds from Exercise of Stock Options			2,192				2,223
Cash Dividends Paid			(7,386	)			(5,286	)
Decrease (Increase) in Other Borrowed Funds			17,638				(96,655	)
Net Cash and Cash Equivalents Provided By Financing Activities			210,366				76,583
NET INCREASE IN CASH AND CASH EQUIVALENTS			47,069				15,369
Cash and Cash Equivalents, Beginning of Period			127,164				62,595
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	174,233			$	77,964
Supplemental Disclosures of Cash Flow Information:
Interest Paid		$	43,550			$	20,059
Income Taxes Paid		$	26,150			$	22,401
Reconciliation of Acquisition of Pacific Union Bank, Net of Cash Acquired:
Fair Value of Assets Acquired						$	1,383,881
Cash and Cash Equivalents Acquired							(104,427	)
Non-Cash Financing of Purchase Price and Liabilities Assumed:
Issuance of Common Stock							(156,751	)
Liabilities Assumed							(1,058,703	)
Acquisition of Pacific Union Bank, Net of Cash Acquired						$	64,000

See Accompanying Notes to Consolidated Financial Statements

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

NOTE 1 — HANMI FINANCIAL CORPORATION

     Hanmi Financial Corporation (“Hanmi Financial,” “we” or “our”) is a Delaware corporation that is the holding company for Hanmi Bank (the “Bank”) and is subject to the Bank Holding Company Act of 1956, as amended.

     Hanmi Bank, our primary subsidiary, is a commercial bank licensed by the California Department of Financial Institutions. The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act, up to the applicable limits thereof. The Bank is a member of the Federal Reserve System.

     Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through operation of the Bank. Hanmi Bank is a community bank conducting general business banking with its primary market encompassing the multi-ethnic populations of Los Angeles, Orange, San Diego, San Francisco and Santa Clara counties. Hanmi Bank’s offices are located in business areas where many of the businesses are run by immigrants and other minority groups. Hanmi Bank’s client base reflects the multi-ethnic composition of these communities.

     On April 30, 2004, we completed the acquisition of Pacific Union Bank (“PUB”), a $1.2 billion (assets) commercial bank headquartered in Los Angeles that also served primarily the Korean-American community. As of September 30, 2005, the Bank maintained a branch network of 22 full-service locations, serving individuals and small- to medium-sized businesses in California, and three loan production offices in Chicago, Illinois; the San Jose, California metropolitan area; and the Seattle, Washington metropolitan area.

NOTE 2 — BASIS OF PRESENTATION

     In the opinion of management, the consolidated financial statements of Hanmi Financial Corporation and subsidiary reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods ended September 30, 2005, but are not necessarily indicative of the results that will be reported for the entire year. In the opinion of management, the aforementioned consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America. The interim information should be read in conjunction with our 2004 Annual Report on Form 10-K.

     Descriptions of our significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in our 2004 Annual Report on Form 10-K. Certain reclassifications were made to the prior period’s presentation to conform to the current period’s presentation.

     On January 20, 2005, our Board of Directors declared a two-for-one stock split, to be effected in the form of a 100 percent common stock dividend. The new shares were distributed on February 15, 2005 to shareholders of record on the close of business on January 31, 2005. All share and per share amounts for the prior periods have been restated to reflect the stock dividend.

     On August 25, 2005, we repurchased 1,163,000 shares of our common stock from Korea Exchange Bank for an aggregate purchase price of $20.0 million as part of our ongoing capital management program. Repurchased shares are held in treasury pending use for general corporate purposes, including issuances under our employee stock option plan.

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (Continued)

NOTE 3 — EMPLOYEE STOCK-BASED COMPENSATION

     Our employee stock-based compensation arrangements are measured under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, compensation cost for stock options and restricted stock awards is measured as the excess, if any, of the quoted market price of our stock at the date of grant over the exercise price an employee must pay to acquire the stock. No compensation expense has been recognized for the stock option plan, as stock options were granted at fair value at the date of grant. Had compensation expense for the stock option plan been determined based on the fair values estimated using the Black-Scholes model at the grant dates for previous awards, our net income and earnings per share would have been reduced to the pro forma amounts indicated below:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
		(Dollars in Thousands, Except Per Share Data)
Net Income – As Reported		$	14,969			$	11,069			$	43,339			$	25,000
Add – Stock-Based Employee Compensation Expense Included in Reported Net Income, Net of Related Tax Effects (Restricted Stock Grant)			56				—				353				—
Deduct – Total Stock-Based Employee Compensation Expense Determined Under Fair Value-Based Method for All Awards Subject to SFAS No. 123, Net of Related Tax Effects			(507	)			(196	)			(1,384	)			(406	)
Net Income – Pro Forma		$	14,518			$	10,873			$	42,308			$	24,594
Earnings Per Share – As Reported:
Basic		$	0.30			$	0.23			$	0.88			$	0.63
Diluted		$	0.30			$	0.22			$	0.86			$	0.62
Earnings Per Share – Pro Forma:
Basic		$	0.30			$	0.22			$	0.86			$	0.62
Diluted		$	0.29			$	0.22			$	0.84			$	0.61

     In February 2005, 100,000 shares of restricted stock were granted to Dr. Sung Won Sohn, our Chief Executive Officer. 20,000 of these shares vested immediately, and an additional 20,000 shares will vest each year over the next four years on each anniversary date of the grant. The market value of the shares awarded totaled $1.8 million. The 20,000 shares that vested immediately were recorded as compensation expense and the remaining 80,000 shares were recorded as unearned compensation, a separate component of shareholders’ equity. Unearned compensation is being amortized against income over the four-year vesting period. For the three and nine months ended September 30, 2005, compensation expense of $91,000 and $575,000, respectively, was recognized in the consolidated statements of income.

NOTE 4 — EARNINGS PER SHARE

     Earnings 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 shareholders 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.

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (Continued)

NOTE 4 — EARNINGS PER SHARE (Continued)

     The following table presents a reconciliation of the components used to derive basic and diluted EPS for the periods indicated.

						Weighted-
						Average				Per
		Income				Shares				Share
		(Numerator)				(Denominator)				Amount
		(Dollars in Thousands, Except Per Share Data)
Three Months Ended:
September 30, 2005:
Basic EPS – Income Available to Common Shareholders		$	14,969				49,144,508			$	0.30
Effect of Dilutive Securities – Options and Warrants			—				769,924				—
Diluted EPS – Income Available to Common Shareholders		$	14,969				49,914,432			$	0.30
September 30, 2004:
Basic EPS – Income Available to Common Shareholders		$	11,069				48,971,194			$	0.23
Effect of Dilutive Securities – Options and Warrants			—				832,620				(0.01	)
Diluted EPS – Income Available to Common Shareholders		$	11,069				49,803,814			$	0.22
Nine Months Ended:
September 30, 2005:
Basic EPS – Income Available to Common Shareholders		$	43,339				49,386,112			$	0.88
Effect of Dilutive Securities – Options and Warrants			—				771,094				(0.02	)
Diluted EPS – Income Available to Common Shareholders		$	43,339				50,157,206			$	0.86
September 30, 2004:
Basic EPS – Income Available to Common Shareholders		$	25,000				39,877,288			$	0.63
Effect of Dilutive Securities – Options and Warrants			—				683,006				(0.01	)
Diluted EPS – Income Available to Common Shareholders		$	25,000				40,560,294			$	0.62

     For the three and nine months ended September 30, 2005, there were 45,554 and 60,554 options outstanding, respectively, that were not included in the computation of diluted EPS because their exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. For the three months ended September 30, 2004, there were no anti-dilutive options. For the nine months ended September 30, 2004, there were 372,500 options outstanding that were not included in the computation of diluted EPS.

NOTE 5 — DERIVATIVE FINANCIAL INSTRUMENTS

     During 2004, to hedge the interest rate risk, the Bank entered into one interest rate swap agreement, wherein the Bank received a fixed rate of 7.29 percent at quarterly intervals, and paid Prime-based floating rates, at quarterly intervals, on a total notional amount of $10.0 million. This swap agreement matures in 2009 and was designated as a cash flow hedge for accounting purposes. During 2003, to hedge the interest rate risk, the Bank entered into four interest rate swap agreements, wherein the Bank received fixed rates of 5.77 percent, 6.37 percent, 6.51 percent and 6.76 percent, at quarterly intervals, and paid Prime-based floating rates, at quarterly intervals, on a total notional amount of $60.0 million. All four of the swap agreements mature in 2008. These swaps were designated as cash flow hedges for accounting purposes. As of September 30, 2005, the total notional amount of interest rate swaps was $70.0 million.

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (Continued)

NOTE 5 — DERIVATIVE FINANCIAL INSTRUMENTS (Continued)

     As of September 30, 2005, the fair value of the interest rate swaps was in an unfavorable position of $1.8 million. A total of ($1.1 million), net of tax, was included in Other Comprehensive Income for the nine months ended September 30, 2005. No income or expense related to hedge ineffectiveness was recognized for the nine months ended September 30, 2005.

     In 2004, the Bank offered a certificate of deposit (“CD”) product that paid interest tied to the movement in the Standard & Poor’s 500 Index. The economic characteristics and risks of the embedded option were not clearly and closely related to the CD. Therefore, the embedded option was separated from the CD and accounted for separately in liabilities. As of September 30, 2005, the fair value of the embedded option was $1,284,000, and the change in the liability during the nine months ended September 30, 2005 was $112,000. The change was recognized in earnings.

     To economically hedge the interest risk described above, the Bank entered into an agreement to purchase an equity swap. As of September 30, 2005, the fair value of the equity swap was $84,000, and the change recognized in earnings for the nine months ended September 30, 2005 was ($115,000).

     In 2005, the Bank offered a CD product that pays interest based on the increase in the weighted-average value of five Asian currencies (Korean Won, Singapore Dollar, Taiwan Dollar, Thai Baht and Chinese Yuan) against the U.S. Dollar plus 0.25% annual interest. The economic characteristics and risks of the embedded option were not clearly and closely related to the CD. Therefore, the embedded option was separated from the CD and accounted for separately in liabilities. As of September 30, 2005, the fair value of the embedded option was $18,000, and the change in the liability during the nine months ended September 30, 2005 was $402,000. The change was recognized in earnings.

     To economically hedge the interest risk described above, the Bank entered into an agreement to purchase a currency swap. As of September 30, 2005, the fair value of the currency swap was ($224,000), and the change recognized in earnings for the nine months ended September 30, 2005 was ($182,000).

NOTE 6 — OFF-BALANCE SHEET ARRANGEMENTS

     As part of the Bank’s services to small- and medium-sized business customers, the Bank issues formal loan commitments and letters of credit. These commitments can be either secured or unsecured. They may be in the form of revolving lines of credit for seasonal working capital needs or may take the form of commercial letters of credit or standby letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

     The following table shows the distribution of the Hanmi Bank’s undisbursed loan commitments and letters of credit as of the dates indicated.

		September 30,				December 31,
		2005				2004
		(In Thousands)
Commitments to Extend Credit		$	525,638			$	367,708
Standby Letters of Credit			41,860				47,901
Commercial Letters of Credit			58,763				49,699
Unused Credit Card Lines			14,914				14,324
Total Undisbursed Loan Commitments and Letters of Credit		$	641,175			$	479,632

HANMI FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (Continued)

NOTE 7 — CURRENT ACCOUNTING MATTERS

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”), a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions using the intrinsic method that is currently used and requires that such transactions be accounted for using a fair value-based method and recognized as expense in the Consolidated Statements of Income. SFAS No. 123R was to be effective as of the beginning of the third quarter of 2005; however, on April 14, 2005, the Securities and Exchange Commission adopted a new rule that deferred the required adoption date to the beginning of the first quarter of 2006. We have provided pro forma disclosures under SFAS No. 123 in “Note 3 — Employee Stock-Based Compensation.”

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces Accounting Principles Board (“APB”) Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements (an Amendment of APB Opinion No. 28).” SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005. We will adopt this pronouncement beginning in fiscal year 2006. SFAS No. 154 is not expected to have a material impact on our financial position or results of operations.

     In March of 2004, the Emerging Issues Task Force (“EITF”) reached consensus on the guidance provided in EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” Among other investments, this guidance is applicable to debt and equity securities that are within the scope of Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Paragraph 10 of EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. A company’s liquidity and capital requirements should be considered when assessing its intent and ability to hold an investment for a reasonable period of time that would allow the fair value of the investment to recover up to or beyond its cost. A pattern of selling investments prior to the forecasted fair value recovery may call into question a company’s intent. In addition, the severity and duration of the impairment should also be considered when determining whether the impairment is other-than-temporary. This guidance was effective for reporting periods beginning after June 15, 2004 with the exception of paragraphs 10 — 20 of EITF 03-1, which was to be deliberated further.

     Subsequently, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment, but directed the staff to issue proposed FASB Staff Position (“FSP”) EITF 03-1a, “Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1,” as final. The final FSP (retitled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”) will replace the guidance set forth in paragraphs 10-18 of Issue 03-1. FSP FAS 115-1 will clarify that an investor should recognize an impairment loss no later than when the impairment is deemed other than temporary, even if a decision to sell has not been made. The Board decided that FSP FAS 115-1 would be effective for other-than-temporary impairment analysis conducted in periods beginning after September 15, 2005. FSP FAS 115-1 is not expected to have a material impact on our financial position or results of operations.

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 for the three and nine months ended September 30, 2005. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2004 and with the unaudited consolidated financial statements and notes thereto set forth in this Report.

CRITICAL ACCOUNTING POLICIES

     We have established various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2004. 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 to be critical accounting policies. The estimates and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions that 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 our Board of Directors.

     We believe establishing the allowance for loan losses and allowance for off-balance sheet items, such as unfunded loan commitments and letters of credit, are critical accounting policies that require significant estimates and assumptions that are particularly susceptible to significant change in the preparation of our financial statements. See “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition — Financial Condition — Allowance for Loan Losses and Allowance for Off-Balance Sheet Items” for a description of the methodology used to determine the allowance for loan losses and allowance for off-balance sheet items.

     During the year ended December 31, 2004, the application of SFAS No. 141, “Business Combinations,” to the purchase of Pacific Union Bank (“PUB”) required significant estimates and assumptions. We engaged outside experts including appraisers to assist in estimating the fair values of certain assets acquired, particularly the loan portfolio, core deposit intangible asset and fixed assets. The fair values of financial assets, including the investments portfolio, deposits and borrowings, were estimated by the Bank, using market data regarding securities market prices and interest rates. We also evaluated long-lived assets for impairment and recorded any necessary adjustments. In accordance with Emerging Issues Task Force Issue No. 95-3, “Recognition of Liabilities in Connection With a Purchase Business Combination,” we recognized liabilities assumed for costs to involuntarily terminate employees of PUB and costs to exit activities of PUB under an exit plan approved by Hanmi Bank’s board of directors.

SELECTED FINANCIAL DATA

     The following tables sets forth certain selected financial data for the periods indicated.

		As of and for the
		Three Months Ended
		September 30,
		2005				2004
		(Dollars in Thousands,
		Except Per Share Data)
Average Balances:
Average Gross Loans, Net of Deferred Loan fees		$	2,456,033			$	2,269,477
Average Interest-Earning Assets			2,913,198				2,739,222
Average Total Assets			3,299,551				3,119,083
Average Deposits			2,650,581				2,438,223
Average Interest-Bearing Liabilities			2,075,091				1,964,657
Average Shareholders’ Equity			427,535				379,028
Average Tangible Equity (1)			208,729				157,169
Selected Performance Ratios:
Return on Average Total Assets (2) (3)			1.80	%			1.41	%
Return on Average Shareholders’ Equity (2) (4)			13.89	%			11.62	%
Return on Average Tangible Equity (2) (5)			28.45	%			28.02	%
Net Interest Margin (6)			4.75	%			4.38	%
Average Shareholders’ Equity to Average Total Assets			12.96	%			12.15	%
Efficiency Ratio (7)			38.34	%			51.12	%
Dividend Payout Ratio (8)			16.67	%			21.74	%
Selected Capital Ratios: (9)
Tier 1 Capital to Average Total Assets:
Hanmi Financial			11.55	%			11.43	%
Hanmi Bank			11.49	%			11.51	%
Tier 1 Capital to Total Risk-Weighted Assets:
Hanmi Financial			10.55	%			10.42	%
Hanmi Bank			10.48	%			10.49	%
Total Capital to Total Risk-Weighted Assets:
Hanmi Financial			9.07	%			8.48	%
Hanmi Bank			9.01	%			8.49	%
Book Value Per Share (10) (11)		$	8.56			$	8.15
Selected Asset Quality Ratios:
Net Loan Charge-Offs to Average Total Gross Loans (12)			0.10	%			0.25	%
Allowance for Loan Losses to Total Gross Loans at End of Period			0.99	%			0.98	%
Allowance for Loan Losses to Non-Performing Loans			310.73	%			368.31	%
Non-Performing Assets to Total Assets (13)			0.23	%			0.22	%

(1)		Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity.
(2)		Calculation based upon annualized net income.
(3)		Net income divided by average total assets.
(4)		Net income divided by average shareholders’ equity.
(5)		Net income divided by average tangible equity.
(6)		Net interest income before provision for credit losses as a percentage of average interest-earning assets.
(7)		Ratio of total non-interest expenses to the sum of net interest income before provision for credit losses and total non-interest income including securities gains and losses.
(8)		Dividends declared per share divided by basic earnings per share.
(9)		The required ratios for a “well-capitalized” institution, as defined by regulations of the Board of Governors of the Federal Reserve System, are 5 percent leverage capital, 6 percent Tier 1 risk-based capital and 10 percent total risk-based capital.
(10)		2004 book value per share has been restated for a 100 percent stock dividend declared in January 2005.
(11)		Shareholders’ equity divided by common shares outstanding.
(12)		Calculation based upon annualized net loan charge-offs.
(13)		Non-performing assets consist of non-performing loans (non-accrual loans, loans past due 90 days or more and restructured loans where the terms of repayment have been renegotiated and resulted in a reduction or deferral of interest or principal) and other real estate owned.

		As of and for the
		Nine Months Ended
		September 30,
		2005				2004
		(Dollars in Thousands)
Average Balances:
Average Gross Loans, Net of Deferred Loan Fees		$	2,344,123			$	1,821,496
Average Interest-Earning Assets			2,815,192				2,272,567
Average Total Assets			3,191,373				2,524,788
Average Deposits			2,571,380				2,017,851
Average Interest-Bearing Liabilities			1,988,038				1,599,515
Average Shareholders’ Equity			416,737				259,345
Average Tangible Equity (1)			197,060				109,294
Selected Performance Ratios:
Return on Average Total Assets (2) (3)			1.82	%			1.33	%
Return on Average Shareholders’ Equity (2) (4)			13.90	%			12.92	%
Return on Average Tangible Equity (2) (5)			29.40	%			30.67	%
Net Interest Margin (6)			4.78	%			4.15	%
Average Shareholders’ Equity to Average Total Assets			13.06	%			10.27	%
Efficiency Ratio (7)			40.88	%			52.43	%
Dividend Payout Ratio (8)			17.05	%			23.81	%

(1)		Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity.
(2)		Calculation based upon annualized net income.
(3)		Net income divided by average total assets.
(4)		Net income divided by average shareholders’ equity.
(5)		Net income divided by average tangible equity.
(6)		Net interest income before provision for credit losses as a percentage of average interest-earning assets.
(7)		Ratio of total non-interest expenses (excluding the reversal of merger-related expenses totaling $509,000 for the nine months ended September 30, 2005) to the sum of net interest income before provision for credit losses and total non-interest income including securities gains and losses.
(8)		Dividends declared per share divided by basic earnings per share.

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. 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. For additional information concerning these factors, see our Form 10-K filed with the Securities and Exchange Commission on March 16, 2005 under the headings “Factors That May Affect Future Results of Operations,” “Interest Rate Risk Management” and “Liquidity and Capital Resources.” These forward-looking statements should not be relied on as representing our view as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

RESULTS OF OPERATIONS

Overview

     On April 30, 2004, we completed the merger with Pacific Union Bank (“PUB”). As a result, operating results for the nine months ended September 30, 2004 include only five months of results following the merger with PUB. Operating results reflect the resulting increase in average total assets from $2.52 billion for the nine months ended September 30, 2004 to $3.19 billion for the nine months ended September 30, 2005.

     For the three months ended September 30, 2005, net income was $15.0 million, or $0.30 per diluted share, compared to $11.1 million, or $0.22 per diluted share, for the three months ended September 30, 2004. The 35.2 percent increase in net income for 2005 as compared to 2004 was primarily due to an increase of 37 basis points in the net interest margin and an increase in gain on sales of loans held for sale. Net interest income before provision for credit losses increased $5.0 million, or 16.9 percent, due to ongoing growth in the loan portfolio. Non-interest income increased by $2.1 million, or 29.3 percent, due to a $1.4 million increase in gain on sales of loans held for sale and a $0.6 million increase in other service charges and fees. Non-interest expenses decreased by $2.0 million, or 10.5 percent, due to expense reductions after the acquisition of PUB. The annualized return on average total assets was 1.80 percent for the three months ended September 30, 2005, compared to an annualized return on average total assets of 1.41 percent for the same period of 2004, an increase of 39 basis points. The annualized return on average shareholders’ equity was 13.89 percent for the three months ended September 30, 2005, and the annualized return on average tangible equity was 28.45 percent, compared to 11.62 percent and 28.02 percent, respectively, for the same period in 2004.

     For the nine months ended September 30, 2005, net income was $43.3 million, or $0.86 per diluted share, compared to $25.0 million, or $0.62 per diluted share, for the nine months ended September 30, 2004. The 73.4 percent increase in net income for 2005 as compared to 2004 was primarily due to an increase of 63 basis points in the net interest margin, the acquisition of PUB and asset growth subsequent to the acquisition of PUB. Net interest income before provision for credit losses increased $30.0 million, or 42.5 percent, due to ongoing growth in the loan portfolio as well as the newly acquired interest-earning assets from PUB. Non-interest income increased by $5.2 million, or 27.0 percent, mainly due to increases in service charges on deposit accounts and other service charges and fees. Non-interest expenses increased by $3.5 million, or 7.4 percent, due to the additional salaries and employee benefits, occupancy, data processing and core deposit intangible amortization expenses incurred following the merger, offset by decreased merger-related expenses. The annualized return on average total assets was 1.82 percent for the nine months ended September 30, 2005, compared to an annualized return on average total assets of 1.33 percent for the same period of 2004, an increase of 49 basis points. The annualized return on average shareholders’ equity was 13.90 percent for the nine months ended September 30, 2005, and the annualized return on average tangible equity was 29.40 percent, compared to 12.92 percent and 30.67 percent, respectively, for the same period in 2004.

Non-GAAP Financial Measure

     Return on average tangible equity is supplemental financial information determined by a method other than in accordance with accounting principles generally accepted in the United States of America (“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 core deposit intangible assets from average shareholders’ equity. Banking and financial institution regulators also exclude goodwill and intangibles from shareholders’ 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 substitution 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 this non-GAAP performance measure to the GAAP performance measure for the periods indicated:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
		(Dollars in Thousands)
Average Shareholders’ Equity		$	427,535			$	379,028			$	416,737			$	259,345
Less Average Goodwill and Core Deposit Intangible Asset			(218,806	)			(221,859	)			(219,677	)			(150,051	)
Average Tangible Equity		$	208,729			$	157,169			$	197,060			$	109,294
Return on Average Shareholders’ Equity			13.89	%			11.62	%			13.90	%			12.92	%
Effect of Average Goodwill and Core Deposit Intangible Asset			14.56	%			16.40	%			15.50	%			17.75	%
Return on Average Tangible Equity			28.45	%			28.02	%			29.40	%			30.67	%

Net Interest Income Before Provision for Credit Losses

     Our earnings depend largely upon the difference between the interest income received from the loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings. The difference is “net interest income.” Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the net interest margin. 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. Net interest income is also affected by changes in the yields earned on assets and rates paid on 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, in turn, 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 Federal Reserve Bank.

     For the three months ended September 30, 2005, net interest income before provision for credit losses was $34.8 million. This represented an increase of $5.0 million, or 16.9 percent, over net interest income before provision for credit losses of $29.8 million for the three months ended September 30, 2004. The interest rate spread decreased to 3.82 percent for the three months ended September 30, 2005, from 3.84 percent for the same period in 2004. The change was mainly due to an increase in rates paid on deposits as the result of competitive pricing pressure, which offset an increase in rates received on loans and investments as our prime rate and The Wall Street Journal prime rate both increased by a total of 50 basis points during the third quarter of 2005. Approximately 82.7 percent of our loan portfolio is tied to The Wall Street Journal prime rate or our prime rate. We also emphasized spread income and disposed of certain low yielding assets in the first and second quarters of 2004 and reinvested the proceeds from the amortization of our investment portfolio into loan production. Average loans outstanding increased from 82.9 percent of average interest-earning assets in the third quarter of 2004 to 84.3 percent of average interest-earning assets in the third quarter of 2005. The net interest margin also increased by 37 basis points to 4.75 percent for the three months ended September 30, 2005, from 4.38 percent for the same period in 2004, due to an increase in the volume of interest-earning assets with higher interest rates.

     For the nine months ended September 30, 2005, net interest income before provision for credit losses was $100.6 million. This represented an increase of $30.0 million, or 42.5 percent, over net interest income before provision for credit losses of $70.6 million for the nine months ended September 30, 2004. The interest rate spread increased to 3.96 percent for the nine months ended September 30, 2005, from 3.61 percent for the same period in 2004. The change was mainly due to an increase in rates received on loans and investments as we increased our prime rate by a total of 150 basis points during the first nine months of 2005. We also emphasized spread income and disposed of certain low yielding assets in the first and second quarters of 2004 and reinvested the proceeds from the amortization of our investment portfolio into loan production. Average loans outstanding increased from 80.2 percent of average interest-earning assets for the nine months ended September 30, 2004 to 83.3 percent of average interest-earning assets for the nine months ended September 30, 2005. The net interest margin also increased by 63 basis points to 4.78 percent for the nine months ended September 30, 2005, from 4.15 percent for the same period in 2004, due to an increase in the volume of interest-earning assets with higher interest rates.

     Total interest income increased $12.6 million, or 32.2 percent, to $51.7 million for the three months ended September 30, 2005, from $39.1 million for the three months ended September 30, 2004. The increase was the result of an increase of 130 basis points in the yield on average interest-earning assets and an increase in average interest-earning assets of $174.0 million, or 6.4 percent, to $2.91 billion, compared to $2.74 billion a year ago.

     Total interest income increased $49.7 million, or 53.7 percent, to $142.2 million for the nine months ended September 30, 2005, from $92.5 million for the nine months ended September 30, 2004. The increase was the result of an increase of 132 basis points in the yield on average interest-earning assets and an increase in average interest-earning assets of $542.6 million, or 23.9 percent, to $2.82 billion, compared to $2.27 billion a year ago.

     Total interest expense increased $7.6 million, or 81.4 percent, to $16.8 million for the three months ended September 30, 2005, from $9.3 million for the three months ended September 30, 2004. The increase reflects an increase in average interest-bearing liabilities and higher interest rates paid to depositors. Average interest-bearing liabilities increased by $110.4 million, or 5.6 percent, to $2.08 billion, compared to $1.96 billion a year ago. The cost of average interest-bearing liabilities increased to 3.22 percent for the three months ended September 30, 2005, compared to 1.90 percent for the same period in 2004. In addition, the Bank experienced disintermediation as depositors shifted balances from money market accounts into higher yielding certificates of deposit in response to upward movements in market interest rates. Certificates of deposit over $100,000 made up 55.0 percent of interest-bearing deposits at September 30, 2005, compared to 41.7 percent at September 30, 2004.

     Total interest expense increased $19.7 million, or 89.9 percent, to $41.6 million for the nine months ended September 30, 2005, from $21.9 million for the nine months ended September 30, 2004. The increase reflects an increase in interest-bearing liabilities and higher interest rates paid to depositors. Average interest-bearing liabilities increased by $388.5 million, or 24.3 percent, to $1.99 billion, compared to $1.60 billion a year ago. The cost of average interest-bearing liabilities increased to 2.80 percent for the nine months ended September 30, 2005, compared to 1.83 percent for the same period in 2004. Disintermediation did not have a significant effect on the change in interest expense for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004, as the majority of the shift in the mix of the deposits portfolio occurred in the three months ended September 30, 2005.

     The following tables present the average balances of assets, liabilities and shareholders’ equity; the amount of interest income or 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, 2005												September 30, 2004
						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 of Deferred Loan Fees (1)		$	2,456,033			$	47,175				7.62	%		$	2,269,477			$	34,389				6.09	%
Municipal Securities (2)			75,023				784				6.43	%			71,090				783				6.78	%
Obligations of Other U.S. Government Agencies			99,322				945				3.81	%			96,317				932				3.87	%
Other Debt Securities			233,747				2,368				4.05	%			276,628				2,726				3.94	%
Equity Securities			24,172				177				2.93	%			17,347				232				5.35	%
Federal Funds Sold			24,801				221				3.56	%			8,263				28				1.36	%
Interest-Earning Deposits			100				3				3.45	%			100				1				4.00	%
Total Interest-Earning Assets			2,913,198				51,673				7.04	%			2,739,222				39,091				5.74	%
Noninterest-Earning Assets:
Cash and Cash Equivalents			99,130												97,317
Allowance for Loan Losses			(21,923	)											(25,074	)
Other Assets			309,146												307,618
Total Noninterest-Earning Assets			386,353												379,861
Total Assets		$	3,299,551											$	3,119,083
Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Deposits:
Money Market Checking		$	498,167				3,125				2.49	%		$	578,278				2,471				1.72	%
Savings			134,923				521				1.53	%			148,943				497				1.34	%
Time Deposits of $100,000 or More			1,019,296				9,188				3.58	%			704,313				2,998				1.71	%
Other Time Deposits			237,857				1,681				2.80	%			259,573				1,368				2.12	%
Other Borrowed Funds			184,848				2,316				4.97	%			273,550				1,942				2.86	%
Total Interest-Bearing Liabilities			2,075,091				16,831				3.22	%			1,964,657				9,276				1.90	%
Noninterest-Bearing Liabilities:
Demand Deposits			760,338												747,116
Other Liabilities			36,587												28,282
Total Noninterest-Bearing Liabilities			796,925												775,398
Total Liabilities			2,872,016												2,740,055
Shareholders’ Equity			427,535												379,028
Total Liabilities and Shareholders’ Equity		$	3,299,551											$	3,119,083
Net Interest Income						$	34,842											$	29,815
Net Interest Spread (3)											3.82	%											3.84	%
Net Interest Margin (4)											4.75	%											4.38	%

(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 $1.3 million and $1.8 million for the three months ended September 30, 2005 and 2004, respectively.
(2)		Yields on tax-exempt income have been computed on a tax-equivalent basis using a 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.

		Nine Months Ended
		September 30, 2005												September 30, 2004
						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 of Deferred Loan Fees (1)		$	2,344,123			$	127,900				7.29	%		$	1,821,496			$	79,553				5.83	%
Municipal Securities (2)			74,101				2,340				6.50	%			69,085				2,229				6.62	%
Obligations of Other U.S. Government Agencies			97,838				2,812				3.83	%			89,918				2,481				3.68	%
Other Debt Securities			243,528				7,723				4.23	%			265,556				7,614				3.82	%
Equity Securities			23,259				780				4.47	%			14,369				566				5.25	%
Federal Funds Sold			32,091				679				2.82	%			11,770				100				1.13	%
Interest-Earning Deposits			252				4				2.12	%			373				4				1.43	%
Total Interest-Earning Assets			2,815,192				142,238				6.76	%			2,272,567				92,547				5.44	%
Noninterest-Earning Assets:
Cash and Cash Equivalents			91,237												84,717
Allowance for Loan Losses			(22,305	)											(21,227	)
Other Assets			307,249												188,731
Total Noninterest-Earning Assets			376,181												252,221
Total Assets		$	3,191,373											$	2,524,788
Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Deposits:
Money Market Checking		$	542,858				9,218				2.27	%		$	423,816				5,201				1.64	%
Savings			142,988				1,625				1.52	%			124,551				1,219				1.31	%
Time Deposits of $100,000 or More			898,059				20,797				3.10	%			572,768				7,300				1.70	%
Other Time Deposits			232,838				4,171				2.40	%			253,152				3,806				2.01	%
Other Borrowed Funds			171,295				5,829				4.55	%			225,228				4,404				2.61	%
Total Interest-Bearing Liabilities			1,988,038				41,640				2.80	%			1,599,515				21,930				1.83	%
Noninterest-Bearing Liabilities:
Demand Deposits			754,637												643,564
Other Liabilities			31,961												22,364
Total Noninterest-Bearing Liabilities			786,598												665,928
Total Liabilities			2,744,636												2,265,443
Shareholders’ Equity			416,737												259,345
Total Liabilities and Shareholders’ Equity		$	3,191,373											$	2,524,788
Net Interest Income						$	100,598											$	70,617
Net Interest Spread (3)											3.96	%											3.61	%
Net Interest Margin (4)											4.78	%											4.15	%