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HANMI FINANCIAL CORP - Quarter Report: 2006 June (Form 10-Q)

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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 June 30, 2006
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 is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Exchange Act Rule 12b-2.
Large Accelerated Filer o      Accelerated Filer þ      Non-Accelerated Filer 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 August 1, 2006, there were 48,910,180 outstanding shares of the Registrant’s Common Stock.
 
 

 


 

HANMI FINANCIAL CORPORATION AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
TABLE OF CONTENTS
             
        Page
PART I — FINANCIAL INFORMATION
       
   
 
       
ITEM 1.          
        1  
        2  
        3  
        4  
        5  
   
 
       
ITEM 2.       14  
   
 
       
ITEM 3.       37  
   
 
       
ITEM 4.       37  
 
PART II — OTHER INFORMATION
       
   
 
       
ITEM 1.       37  
   
 
       
ITEM 1A.       37  
   
 
       
ITEM 2.       38  
   
 
       
ITEM 3.       38  
   
 
       
ITEM 4.       38  
   
 
       
ITEM 5.       38  
   
 
       
ITEM 6.       39  
   
 
       
SIGNATURES     40  
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1
 EXHIBIT 32.2

 


Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANMI FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in Thousands)
                 
    June 30,     December 31,  
    2006     2005  
ASSETS
               
Cash and Due From Banks
  $ 110,271     $ 103,477  
Federal Funds Sold and Securities Purchased Under Agreements to Resell
    1,100       60,000  
 
           
Cash and Cash Equivalents
    111,371       163,477  
Securities Held to Maturity, at Amortized Cost (Fair Value: 2006 — $1,031; 2005 — $1,051)
    1,032       1,049  
Securities Available for Sale, at Fair Value
    409,018       442,863  
Loans Receivable, Net of Allowance for Loan Losses of $27,250 and $24,963 at June 30, 2006 and December 31, 2005, Respectively
    2,760,720       2,468,015  
Loans Held for Sale, at the Lower of Cost or Fair Value
          1,065  
Customers’ Liability on Acceptances
    11,057       8,432  
Premises and Equipment, Net
    20,312       20,784  
Accrued Interest Receivable
    14,899       14,120  
Deferred Income Taxes
    12,337       9,651  
Servicing Asset
    4,302       3,910  
Goodwill
    207,646       209,058  
Core Deposit Intangible
    7,461       8,691  
Federal Reserve Bank (“FRB”) Stock, at Cost
    11,760       12,350  
Federal Home Loan Bank (“FHLB”) Stock, at Cost
    12,843       12,237  
Bank-Owned Life Insurance
    23,146       22,713  
Other Assets
    16,401       15,837  
 
           
 
               
TOTAL ASSETS
  $ 3,624,305     $ 3,414,252  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
LIABILITIES:
               
Deposits:
               
Noninterest-Bearing
  $ 778,445     $ 738,618  
Interest-Bearing:
               
Savings
    110,492       121,574  
Money Market Checking
    440,970       526,171  
Time Deposits of $100,000 or More
    1,287,257       1,161,950  
Other Time Deposits
    277,848       277,801  
 
           
Total Deposits
    2,895,012       2,826,114  
Accrued Interest Payable
    15,319       11,911  
Acceptances Outstanding
    11,057       8,432  
FHLB Advances and Other Borrowings
    156,872       46,331  
Junior Subordinated Debentures
    82,406       82,406  
Other Liabilities
    12,253       12,281  
 
           
 
               
Total Liabilities
    3,172,919       2,987,475  
 
           
 
               
SHAREHOLDERS’ EQUITY:
               
Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued 50,071,580 Shares (48,908,580 Outstanding) at June 30, 2006 and Issued 49,821,798 Shares (48,658,798 Outstanding) at December 31, 2005
    50       50  
Additional Paid-In Capital
    342,054       339,991  
Unearned Compensation
          (1,150 )
Accumulated Other Comprehensive Loss — Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of ($4,446) and ($1,671) at June 30, 2006 and December 31, 2005, Respectively
    (7,800 )     (4,383 )
Retained Earnings
    137,123       112,310  
 
           
 
    471,427       446,818  
Less Treasury Stock, at Cost; 1,163,000 Shares at June 30, 2006 and December 31, 2005
    (20,041 )     (20,041 )
 
           
 
               
Total Shareholders’ Equity
    451,386       426,777  
 
           
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 3,624,305     $ 3,414,252  
 
           
See Accompanying Notes to Consolidated Financial Statements.

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2006     2005     2006     2005  
INTEREST INCOME:
                               
Interest and Fees on Loans
  $ 58,242     $ 42,750     $ 110,879     $ 80,976  
Interest on Investments
    5,013       4,734       10,112       9,382  
Interest on Federal Funds Sold
    23       123       312       458  
 
                       
 
Total Interest Income
    63,278       47,607       121,303       90,816  
 
                       
 
                               
INTEREST EXPENSE:
                               
Interest on Deposits
    21,921       11,345       41,512       21,156  
Interest on FHLB Advances and Other Borrowings
    2,001       927       2,615       1,452  
Interest on Junior Subordinated Debentures
    1,587       1,190       3,062       2,201  
 
                       
 
Total Interest Expense
    25,509       13,462       47,189       24,809  
 
                       
 
                               
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    37,769       34,145       74,114       66,007  
Provision for Credit Losses
    900       450       3,860       586  
 
                       
 
                               
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
    36,869       33,695       70,254       65,421  
 
                       
 
                               
NON-INTEREST INCOME:
                               
Service Charges on Deposit Accounts
    4,183       3,868       8,414       7,598  
Trade Finance Fees
    1,116       1,036       2,187       1,981  
Remittance Fees
    532       550       1,020       1,018  
Other Service Charges and Fees
    614       689       1,148       1,268  
Bank-Owned Life Insurance Income
    215       210       433       415  
Increase in Fair Value of Derivatives
    109       370       334       789  
Other Income
    835       554       1,478       1,175  
Gain on Sales of Loans
    1,311       56       2,150       364  
Gain on Sales of Securities Available for Sale
          14       5       96  
 
                       
 
                               
Total Non-Interest Income
    8,915       7,347       17,169       14,704  
 
                       
 
                               
NON-INTEREST EXPENSES:
                               
Salaries and Employee Benefits
    10,691       8,545       19,852       17,712  
Occupancy and Equipment
    2,558       2,171       4,876       4,402  
Data Processing
    1,218       1,245       2,433       2,410  
Advertising and Promotion
    811       563       1,457       1,257  
Supplies and Communication
    576       729       1,212       1,308  
Professional Fees
    492       560       1,160       1,039  
Amortization of Core Deposit Intangible
    605       714       1,230       1,446  
Decrease in Fair Value of Embedded Options
    112       2       214       575  
Other Operating Expenses
    2,353       2,192       4,421       3,977  
Merger-Related Expenses
          (509 )           (509 )
 
                       
 
Total Non-Interest Expenses
    19,416       16,212       36,855       33,617  
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    26,368       24,830       50,568       46,508  
Income Taxes
    10,428       9,792       19,826       18,138  
 
                       
 
                               
NET INCOME
  $ 15,940     $ 15,038     $ 30,742     $ 28,370  
 
                       
 
                               
EARNINGS PER SHARE:
                               
Basic
  $ 0.33     $ 0.30     $ 0.63     $ 0.57  
Diluted
  $ 0.32     $ 0.30     $ 0.62     $ 0.56  
 
                               
WEIGHTED-AVERAGE SHARES OUTSTANDING:
                               
Basic
    48,822,729       49,556,926       48,768,881       49,508,917  
Diluted
    49,404,204       50,213,725       49,366,709       50,218,948  
 
DIVIDENDS DECLARED PER SHARE
  $ 0.06     $ 0.05     $ 0.12     $ 0.10  
See Accompanying Notes to Consolidated Financial Statements.

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Dollars in Thousands)
                                                                                 
    Common Stock - Number of Shares     Shareholders’ Equity  
                                                    Accumulated                      
                                    Additional             Other             Treasury     Total  
            Treasury             Common     Paid-In     Unearned     Comprehensive     Retained     Stock,     Shareholders’  
    Issued     Stock     Outstanding     Stock     Capital     Compensation     Income (Loss)     Earnings     at Cost     Equity  
BALANCE — DECEMBER 31, 2004
    49,330,704             49,330,704     $ 49     $ 334,932     $     $ 1,035     $ 63,894     $     $ 399,910  
Exercises of Stock Options
    220,773             220,773       1       1,454                               1,455  
Restricted Stock Award
    100,000             100,000             1,815       (1,815 )                        
Share-Based Compensation Expense
                                  484                         484  
Tax Benefit from Exercises of Stock Options
                            333                               333  
Cash Dividends
                            4                   (4,964 )           (4,960 )
 
Comprehensive Income:
                                                                               
Net Income
                                              28,370             28,370  
Change in Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax
                                        (762 )                 (762 )
 
                                                           
Total Comprehensive Income
                                                                            27,608  
 
                                                                             
BALANCE — JUNE 30, 2005
    49,651,477             49,651,477     $ 50     $ 338,538     $ (1,331 )   $ 273     $ 87,300     $     $ 424,830  
 
                                                           
 
                                                                               
BALANCE — DECEMBER 31, 2005
    49,821,798       (1,163,000 )     48,658,798     $ 50     $ 339,991     $ (1,150 )   $ (4,383 )   $ 112,310     $ (20,041 )   $ 426,777  
Cumulative Adjustment — Share-Based Compensation
                            (916 )     1,150                         234  
Exercises of Stock Options and Stock Warrants
    249,782             249,782             2,076                               2,076  
Share-Based Compensation Expense
                            574                               574  
Tax Benefit from Exercises of Stock Options
                            329                               329  
Cash Dividends
                                              (5,929 )           (5,929 )
 
Comprehensive Income:
                                                                               
Net Income
                                              30,742             30,742  
Change in Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax
                                        (3,417 )                 (3,417 )
 
                                                           
Total Comprehensive Income
                                                                          27,325  
 
                                                                             
BALANCE — JUNE 30, 2006
    50,071,580       (1,163,000 )     48,908,580     $ 50     $ 342,054     $     $ (7,800 )   $ 137,123     $ (20,041 )   $ 451,386  
 
                                                           
See Accompanying Notes to Consolidated Financial Statements.

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
                 
    Six Months Ended  
    June 30,  
    2006     2005  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income
  $ 30,742     $ 28,370  
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
               
Depreciation and Amortization of Premises and Equipment
    1,472       1,268  
Amortization of Premiums and Accretion of Discounts on Investments, Net
    150       (17 )
Amortization of Core Deposit Intangible
    1,230       1,446  
Share-Based Compensation Expense
    574       484  
Provision for Credit Losses
    3,860       586  
FHLB Stock Dividend
    (295 )     (103 )
Gain on Sales of Securities Available for Sale
    (5 )     (96 )
Increase in Fair Value of Derivatives
    (334 )     (789 )
Decrease in Fair Value of Embedded Options
    214       575  
Gain on Sales of Loans
    (2,150 )     (364 )
Loss on Sales of Premises and Equipment
    15       18  
Tax Benefit from Exercises of Stock Options
    (329 )     333  
Deferred Tax Benefit
    (2,920 )     44  
Origination of Loans Held for Sale
    (49,445 )     (10,026 )
Proceeds from Sales of Loans Held for Sale
    52,660       13,365  
Increase in Accrued Interest Receivable
    (779 )     (2,076 )
Increase in Cash Surrender Value of Bank-Owned Life Insurance
    (433 )     (415 )
Increase in Other Assets
    (2,169 )     (5,249 )
Increase in Accrued Interest Payable
    3,408       1,267  
Increase in Other Liabilities
    6,699       11,638  
 
           
 
               
Net Cash Provided By Operating Activities
    42,165       40,259  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from Redemption of FRB Stock
    590        
Proceeds from Matured or Called Securities Available for Sale
    28,276       49,000  
Proceeds from Matured or Called Securities Held to Maturity
    17       27  
Proceeds from Sales of Securities Available for Sale
    5,005       6,456  
Net Increase in Loans Receivable
    (296,565 )     (172,619 )
Purchases of FRB and FHLB Stock
    (311 )     (2,066 )
Purchases of Securities Available for Sale
    (6,183 )     (48,238 )
Purchases of Premises and Equipment
    (1,015 )     (2,152 )
 
           
 
               
Net Cash Used In Investing Activities
    (270,186 )     (169,592 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Increase in Deposits
    68,898       31,170  
Proceeds from Exercises of Stock Options and Stock Warrants
    2,076       1,455  
Tax Benefit from Exercises of Stock Options
    329        
Cash Dividends Paid
    (5,929 )     (4,960 )
Proceeds from Long-Term FHLB Advances and Other Borrowings
    30,000       7,487  
Repayment of Long-Term FHLB Advances and Other Borrowings
    (207 )     (121 )
Net Change in Short-Term FHLB Advances and Other Borrowings
    80,748       70,988  
 
           
 
               
Net Cash Provided By Financing Activities
    175,915       106,019  
 
           
 
               
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (52,106 )     (23,314 )
Cash and Cash Equivalents — Beginning of Period
    163,477       127,164  
 
           
 
               
CASH AND CASH EQUIVALENTS END OF PERIOD
  $ 111,371     $ 103,850  
 
           
 
               
Supplemental Disclosures of Cash Flow Information:
               
Interest Paid
  $ 50,597     $ 26,076  
Income Taxes Paid
  $ 16,208     $ 14,150  
See Accompanying Notes to Consolidated Financial Statements.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     Basis of Presentation
     Hanmi Financial Corporation (“Hanmi Financial,” “we” or “us”) 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 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. The 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 of the State of California. The Bank’s full-service offices are located in business areas where many of the businesses are run by immigrants and other minority groups. The Bank’s client base reflects the multi-ethnic composition of these communities. As of June 30, 2006, the Bank maintained a branch network of 22 locations, serving individuals and small- to medium-sized businesses in its primary market. The Bank also has six loan production offices in California, Colorado, Georgia, Illinois, Virginia and Washington.
     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 June 30, 2006, 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 (“GAAP”). The interim information should be read in conjunction with our 2005 Annual Report on Form 10-K.
     Descriptions of our significant accounting policies are included in “Note 1 Summary of Significant Accounting Policies” in our 2005 Annual Report on Form 10-K. Certain reclassifications were made to the prior period’s presentation to conform to the current period’s presentation.
     Stock-Based Compensation
     We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), on January 1, 2006 using the “modified prospective” method. Under this method, awards that are granted, modified or settled after December 31, 2005 are measured and accounted for in accordance with SFAS No. 123(R). Also under this method, expense is recognized for services attributed to the current period for unvested awards that were granted prior to January 1, 2006, based upon the fair value determined at the grant date under SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Prior to the adoption of SFAS No. 123(R), we accounted for stock compensation under the intrinsic value method permitted by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB Opinion No. 25”) and related interpretations. Accordingly, we previously recognized no compensation cost for employee stock options that were granted with an exercise price equal to the market value of the underlying common stock on the date of grant.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
     The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 in 2005.
                 
    Three Months     Six Months  
    Ended     Ended  
    June 30, 2005     June 30, 2005  
    (Dollars in Thousands,  
    Except Per Share Data)  
Net Income — As Reported
  $ 15,038     $ 28,370  
Add — Stock-Based Employee Compensation Expense Included in Reported Net Income, Net of Related Tax Effects (Restricted Stock Award)
    55       297  
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
    (350 )     (877 )
 
           
 
               
Net Income — Pro Forma
  $ 14,743     $ 27,790  
 
           
 
               
Earnings Per Share — As Reported:
               
Basic
  $ 0.30     $ 0.57  
Diluted
  $ 0.30     $ 0.56  
 
               
Earnings Per Share — Pro Forma:
               
Basic
  $ 0.30     $ 0.56  
Diluted
  $ 0.29     $ 0.55  
     In November 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of the Share-Based Payment Awards” (“FAS 123R-3”). We have adopted the alternative transition method prescribed by FAS 123R-3 and concluded that we have no pool of windfall tax benefits as of the adoption date of SFAS No. 123(R).
     SFAS No. 123(R) requires that cash flows resulting from the realization of tax deductions recognized on awards that are fully vested prior to the adoption of SFAS No. 123(R) be classified as a financing cash inflow and an operating cash outflow in the Consolidated Statements of Cash Flows. Before the adoption of SFAS No. 123(R), we presented all tax benefits realized from the exercise of stock options as an operating cash inflow.
     In addition, SFAS No. 123(R) requires that any unearned compensation related to awards granted prior to the adoption of SFAS No. 123(R) must be eliminated against the appropriate equity accounts. As a result, the presentation of Shareholders’ Equity was revised to reflect the transfer of the balance previously reported in Unearned Compensation to Additional Paid-In Capital.
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION
     At June 30, 2006, we had two stock incentive plans, the Year 2000 Stock Option Plan and the 2004 CEO Stock Option Plan (collectively, the “Plans”), which provide for the granting of non-qualified and incentive stock options and restricted stock awards to employees (including officers and directors).
     Year 2000 Stock Option Plan
     Under the Year 2000 Stock Option Plan, we may grant options for up to 5,430,742 shares of common stock. As of June 30, 2006, 2,498,897 shares were still available for issuance.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION (Continued)
     All stock options granted under the Year 2000 Stock Option Plan have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted under the Year 2000 Stock Option Plan generally vest based on five years of continuous service and expire ten years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plans). New shares of common stock may be issued or treasury shares may be utilized upon the exercise of stock options.
     For the three and six months ended June 30, 2006 and 2005, the estimated weighted-average fair value per share of options granted under the Year 2000 Stock Option Plan was as follows:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2006   2005   2006   2005
Estimated Weighted-Average Fair Value Per Share of Options Granted
  $ 6.60     $ 4.59     $ 6.60     $ 4.93  
     The weighted-average fair value per share of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2006   2005   2006   2005
Weighted-Average Assumptions:
                               
Dividend Yield
    1.33 %     1.25 %     1.33 %     1.18 %
Expected Volatility
    36.62 %     32.37 %     36.63 %     32.61 %
Expected Term
  5.3 years   4.1 years   5.3 years   4.1 years
Risk-Free Interest Rate
    4.92 %     4.16 %     4.92 %     4.14 %
     Expected volatility is determined based on the historical daily volatility of our stock price over a period equal to the expected term of the options granted. The expected term of the options represents the period of time that options granted are expected to be outstanding based primarily on the historical exercise behavior associated with previous option grants. The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.
     The following information under the Year 2000 Stock Option Plan is presented for the three and six months ended June 30, 2006 and 2005:
                                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2006   2005   2006   2005
    (In Thousands)
Grant Date Fair Value of Options Granted
  $ 4,026     $ 344     $ 4,085     $ 595  
Total Intrinsic Value of Options Exercised (1)
  $ 426     $ 325     $ 1,489     $ 1,713  
Cash Received from Options Exercised
  $ 554     $ 144     $ 979     $ 1,103  
Actual Tax Benefit Realized from Tax Deductions on Options Exercised
  $     $     $ 329     $ 333  
 
(1)   Intrinsic value represents the difference between the closing stock price on the exercise date and the exercise price, multiplied by the number of options.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION (Continued)
     The following is a summary of the transactions under the Year 2000 Stock Option Plan for the three months ended June 30, 2006 and 2005:
                                 
    Three Months Ended June 30,
    2006   2005
            Weighted-           Weighted-
            Average           Average
    Number   Exercise   Number   Exercise
    of   Price Per   of   Price Per
    Shares   Share   Shares   Share
Options Outstanding — Beginning of Period
    1,068,216     $ 10.93       1,355,745     $ 9.72  
Options Granted During the Period
    610,000     $ 18.04       75,000     $ 16.04  
Options Cancelled/Expired During the Period
    (37,870 )   $ 15.11           $  
Options Exercised During the Period
    (52,364 )   $ 10.58       (11,296 )   $ 7.65  
 
                               
 
                               
Options Outstanding — End of Period
    1,587,982     $ 13.57       1,419,449     $ 10.07  
 
                               
 
                               
Options Exercisable — End of Period
    520,389     $ 8.76       421,732     $ 8.02  
 
                               
     The following is a summary of the transactions under the Year 2000 Stock Option Plan for the six months ended June 30, 2006 and 2005:
                                 
    Six Months Ended June 30,
    2006   2005
            Weighted-           Weighted-
            Average           Average
    Number   Exercise   Number   Exercise
    of   Price Per   of   Price Per
    Shares   Share   Shares   Share
Options Outstanding — Beginning of Period
    1,173,712     $ 10.55       1,618,836     $ 9.33  
Options Granted During the Period
    619,000     $ 18.04       120,554     $ 17.03  
Options Cancelled/Expired During the Period
    (70,340 )   $ 14.44       (123,558 )   $ 12.12  
Options Exercised During the Period
    (134,390 )   $ 7.29       (196,383 )   $ 6.91  
 
                               
 
                               
Options Outstanding — End of Period
    1,587,982     $ 13.57       1,419,449     $ 10.07  
 
                               
 
                               
Options Exercisable — End of Period
    520,389     $ 8.76       421,732     $ 8.02  
 
                               
     The following is a summary of the transactions for non-vested stock options under the Year 2000 Stock Option Plan for the three months ended June 30, 2006 and 2005:
                                 
    Three Months Ended June 30,
    2006   2005
            Weighted-           Weighted-
            Average           Average
    Number   Grant Date   Number   Grant Date
    of   Fair Value   of   Fair Value
    Shares   Per Share   Shares   Per Share
Non-Vested Options Outstanding — Beginning of Period
    533,491     $ 3.70       937,276     $ 2.93  
Options Granted During the Period
    610,000     $ 6.57       75,000     $ 4.59  
Options Cancelled/Expired During the Period
    (37,870 )   $ 4.88           $  
Options Vested During the Period
    (38,028 )   $ 3.88       (14,559 )   $ 3.05  
 
                               
 
                               
Non-Vested Options Outstanding — End of Period
    1,067,593     $ 5.29       997,717     $ 3.05  
 
                               

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION (Continued)
     The following is a summary of the transactions for non-vested stock options under the Year 2000 Stock Option Plan for the six months ended June 30, 2006 and 2005:
                                 
    Six Months Ended June 30,
    2006   2005
            Weighted-           Weighted-
            Average           Average
    Number   Grant Date   Number   Grant Date
    of   Fair Value   of   Fair Value
    Shares   Per Share   Shares   Per Share
Non-Vested Options Outstanding — Beginning of Period
    653,110     $ 3.68       1,131,594     $ 2.93  
Options Granted During the Period
    619,000     $ 6.56       120,554     $ 4.95  
Options Cancelled/Expired During the Period
    (70,340 )   $ 4.35       (123,558 )   $ 3.31  
Options Vested During the Period
    (134,177 )   $ 3.79       (130,873 )   $ 3.55  
 
                               
 
                               
Non-Vested Options Outstanding — End of Period
    1,067,593     $ 5.29       997,717     $ 3.05  
 
                               
     As of June 30, 2006, the total compensation cost not yet recognized under the Year 2000 Stock Option Plan was $3.8 million with a weighted-average recognition period of 4.8 years.
     As of June 30, 2006, stock options outstanding under the Year 2000 Stock Option Plan were as follows:
                                                                 
    Options Outstanding   Options Exercisable
                    Weighted-   Weighted-                   Weighted-   Weighted-
                    Average   Average                   Average   Average
                    Exercise   Remaining                   Exercise   Remaining
Exercise   Number   Intrinsic   Price Per   Contractual   Number   Intrinsic   Price Per   Contractual
Price Range   Outstanding   Value (1)   Share   Life   Outstanding   Value (1)   Share   Life
(Dollars in Thousands, Except Per Share Data)
$  3.27 to $  3.99
    156,666     $ 2,462     $ 3.78     4.3 years     156,666     $ 2,462     $ 2.71     3.0 years
$  4.00 to $  7.99
    236,362       2,927     $ 7.11     4.9 years     161,479       1,994     $ 5.70     4.2 years
$  8.00 to $11.99
              $                     $      
$12.00 to $15.99
    513,400       2,980     $ 13.69     7.9 years     186,133       1,097     $ 13.69     7.9 years
$16.00 to $19.10
    681,554       1,025     $ 17.99     9.7 years     16,111       30     $ 17.99     9.7 years
 
                                                           
 
    1,587,982     $ 9,394     $ 13.57     7.9 years     520,389     $ 5,583     $ 8.76     7.0 years
 
                                                           
 
(1)   Intrinsic value represents the difference between the closing stock price on the last trading day of the period, which was $19.44 as of June 30, 2006, and the exercise price, multiplied by the number of options.
     2004 CEO Stock Option Plan
     Under the 2004 CEO Stock Option Plan, a total of 350,000 stock options were granted to our Chief Executive Officer. As of June 30, 2006, there were no additional shares available for issuance.
     All stock options granted under the 2004 CEO Stock Option Plan have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted under the 2004 CEO Stock Option Plan vest based on six years of continuous service and expire ten years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plans). New shares of common stock may be issued or treasury shares may be utilized upon the exercise of stock options.
     There were no stock options granted under the 2004 CEO Stock Option Plan during the three and six months ended June 30, 2006 and 2005.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION (Continued)
     The following is a summary of the transactions under the 2004 CEO Stock Option Plan for the three months ended June 30, 2006 and 2005:
                                 
    Three Months Ended June 30,
    2006   2005
    Number   Exercise   Number   Exercise
    of   Price Per   of   Price Per
    Shares   Share   Shares   Share
Options Outstanding — Beginning of Period
    350,000     $ 17.17       350,000     $ 17.17  
 
                               
 
                               
Options Outstanding — End of Period
    350,000     $ 17.17       350,000     $ 17.17  
 
                               
 
                               
Options Exercisable — End of Period
    58,333     $ 17.17           $  
 
                               
     The following is a summary of the transactions under the 2004 CEO Stock Option Plan for the six months ended June 30, 2006 and 2005:
                                 
    Six Months Ended June 30,
    2006   2005
    Number   Exercise   Number   Exercise
    of   Price Per   of   Price Per
    Shares   Share   Shares   Share
Options Outstanding — Beginning of Period
    350,000     $ 17.17       350,000     $ 17.17  
 
                               
 
                               
Options Outstanding — End of Period
    350,000     $ 17.17       350,000     $ 17.17  
 
                               
 
                               
Options Exercisable — End of Period
    58,333     $ 17.17           $  
 
                               
     The following is a summary of the transactions for non-vested stock options under the 2004 CEO Stock Option Plan for the three months ended June 30, 2006 and 2005:
                                 
    Three Months Ended June 30,
    2006   2005
    Number   Grant Date   Number   Grant Date
    of   Fair Value   of   Fair Value
    Shares   Per Share   Shares   Per Share
Non-Vested Options Outstanding — Beginning of Period
    291,667     $ 4.82       350,000     $ 4.82  
 
                               
 
                               
Non-Vested Options Outstanding — End of Period
    291,667     $ 4.82       350,000     $ 4.82  
 
                               
     The following is a summary of the transactions for non-vested stock options under the 2004 CEO Stock Option Plan for the six months ended June 30, 2006 and 2005:
                                 
    Six Months Ended June 30,
    2006   2005
    Number   Grant Date   Number   Grant Date
    of   Fair Value   of   Fair Value
    Shares   Per Share   Shares   Per Share
Non-Vested Options Outstanding — Beginning of Period
    350,000     $ 4.82       350,000     $ 4.82  
Options Vested During the Period
    (58,333 )   $ 4.82           $  
 
                               
 
Non-Vested Options Outstanding — End of Period
    291,667     $ 4.82       350,000     $ 4.82  
 
                               

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 2 — EMPLOYEE STOCK-BASED COMPENSATION (Continued)
     As of June 30, 2006, the total compensation cost not yet recognized under the 2004 CEO Stock Option Plan was $1.5 million with a recognition period of 4.3 years.
     As of June 30, 2006, stock options outstanding under the 2004 CEO Stock Option Plan were as follows:
                                                         
Options Outstanding   Options Exercisable
            Exercise   Remaining                   Exercise   Remaining
Number   Intrinsic   Price Per   Contractual   Number   Intrinsic   Price Per   Contractual
Outstanding   Value (1)   Share   Life   Outstanding   Value (1)   Share   Life
(Dollars in Thousands, Except Per Share Data)
350,000
  $ 814     $ 17.17     8.4 years     58,333     $ 136     $ 17.17     8.4 years
 
(1)   Intrinsic value represents the difference between the closing stock price on the last trading day of the period, which was $19.44 as of June 30, 2006, and the exercise price, multiplied by the number of options.
NOTE 3 — 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 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.
     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 June 30, 2006:
                       
Basic EPS — Income Available to Common Shareholders
  $ 15,940       48,822,729     $ 0.33  
Effect of Dilutive Securities — Options and Warrants
          581,475       (0.01 )
 
                 
 
                       
Diluted EPS — Income Available to Common Shareholders
  $ 15,940       49,404,204     $ 0.32  
 
                 
 
                       
Three Months Ended June 30, 2005:
                       
Basic EPS — Income Available to Common Shareholders
  $ 15,038       49,556,926     $ 0.30  
Effect of Dilutive Securities — Options and Warrants
          656,799        
 
                 
 
                       
Diluted EPS — Income Available to Common Shareholders
  $ 15,038       50,213,725     $ 0.30  
 
                 
 
                       
Six Months Ended June 30, 2006:
                       
Basic EPS — Income Available to Common Shareholders
  $ 30,742       48,768,881     $ 0.63  
Effect of Dilutive Securities — Options and Warrants
          597,828       (0.01 )
 
                 
 
                       
Diluted EPS — Income Available to Common Shareholders
  $ 30,742       49,366,709     $ 0.62  
 
                 
 
                       
Six Months Ended June 30, 2005:
                       
Basic EPS — Income Available to Common Shareholders
  $ 28,370       49,508,917     $ 0.57  
Effect of Dilutive Securities — Options and Warrants
          710,031       (0.01 )
 
                 
 
                       
Diluted EPS — Income Available to Common Shareholders
  $ 28,370       50,218,948     $ 0.56  
 
                 
     For the three months ended June 30, 2006 and 2005, there were 1,071,554 and 430,554 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 six months ended June 30, 2006 and 2005, there were 1,071,554 and 395,554 options outstanding, respectively, that were not included in the computation of diluted EPS.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 4 — OFF-BALANCE SHEET COMMITMENTS
     As part of the service to our small- and medium-sized business customers, Hanmi Bank issues formal loan commitments and lines 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 Hanmi 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 as of the dates indicated.
                 
    June 30,     December 31,  
    2006     2005  
    (In Thousands)  
Commitments to Extend Credit
  $ 552,689     $ 555,736  
Commercial Letters of Credit
    74,035       58,036  
Standby Letters of Credit
    36,287       42,768  
Unused Credit Card Lines
    15,445       14,892  
 
           
 
               
Total Undisbursed Loan Commitments
  $ 678,456     $ 671,432  
 
           
NOTE 5 — 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 6 — RECENTLY ISSUED ACCOUNTING STANDARDS
     In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). This Statement:
    permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;
 
    clarifies which interest-only strips and principal-only strips are not subject to SFAS No. 133;
 
    establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or hybrid financial instruments that contain an embedded derivative requiring bifurcation;
 
    clarifies that concentrations of credit risk in the form of subordinations are not embedded derivatives; and
 
    amends SFAS No. 140 to eliminate the prohibition against a Qualified Special Purpose Entity holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.
     SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Early adoption of this statement is allowed. We have not determined the financial impact of the adoption of SFAS No. 155 or whether we will adopt SFAS No. 155 in 2006.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Continued)
NOTE 6 — RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)
     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets,” which amends the guidance in SFAS No. 140. SFAS No. 156 requires that an entity separately recognize a servicing asset or a servicing liability when it undertakes an obligation to service a financial asset under a servicing contract in certain situations. Such servicing assets or servicing liabilities are required to be measured initially at fair value, if practicable. SFAS No. 156 also allows an entity to measure its servicing assets and servicing liabilities subsequently using either the amortization method, which existed under SFAS No. 140, or the fair value measurement method. SFAS No. 156 will be effective in the fiscal year beginning January 1, 2007. We do not expect the adoption of SFAS No. 156 to have a material impact on our financial condition or results of operations.
     In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We will be required to adopt FIN No. 48 in the first quarter of 2007. We are currently assessing the impact that the adoption of FIN No. 48 will have on our financial condition and results of operations.

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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 for the three and six months ended June 30, 2006. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2005 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 GAAP in the preparation of our financial statements. Our significant accounting policies are described in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2005. 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. 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.
     We believe the allowance for loan losses and allowance for off-balance sheet items 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 “Financial Condition — Allowance for Loan Losses and Allowance for Off-Balance Sheet Items” and “Results of Operations — Provision for Credit Losses” for a description of the methodology used to determine the allowance for loan losses and allowance for off-balance sheet items.

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SELECTED FINANCIAL DATA
     The following tables sets forth certain selected financial data for the periods indicated.
                 
    As of and for the
    Three Months Ended
    June 30,
    2006   2005
    (Dollars in Thousands, Except Per Share Data)
AVERAGE BALANCES:
               
Average Gross Loans, Net of Deferred Loan Fees
  $ 2,729,218     $ 2,334,803  
Average Securities
  $ 425,371     $ 417,712  
Average Interest-Earning Assets
  $ 3,180,999     $ 2,793,143  
Average Total Assets
  $ 3,570,389     $ 3,168,995  
Average Deposits
  $ 2,832,218     $ 2,542,886  
Average Interest-Bearing Liabilities
  $ 2,341,481     $ 1,960,987  
Average Shareholders’ Equity
  $ 449,664     $ 416,465  
Average Tangible Equity (1)
  $ 232,802     $ 197,080  
PER SHARE DATA:
               
Earnings Per Share — Basic
  $ 0.33     $ 0.30  
Earnings Per Share — Diluted
  $ 0.32     $ 0.30  
Common Shares Outstanding
    48,908,580       49,651,477  
Book Value Per Share (2)
  $ 9.23     $ 8.56  
Tangible Book Value Per Share (3)
  $ 4.83     $ 4.14  
Cash Dividends Per Share
  $ 0.06     $ 0.05  
SELECTED PERFORMANCE RATIOS:
               
Return on Average Assets (4) (5)
    1.79 %     1.90 %
Return on Average Shareholders’ Equity (4) (6)
    14.22 %     14.48 %
Return on Average Tangible Equity (4) (7)
    27.46 %     30.61 %
Net Interest Spread (8)
    3.61 %     4.09 %
Net Interest Margin (9)
    4.76 %     4.90 %
Efficiency Ratio (10)
    41.59 %     40.30 %
Dividend Payout Ratio (11)
    18.41 %     16.51 %
Average Shareholders’ Equity to Average Total Assets
    12.59 %     13.14 %
SELECTED CAPITAL RATIOS: (12)
               
Total Risk-Based Capital Ratio:
               
Hanmi Financial
    12.03 %     12.17 %
Hanmi Bank
    12.05 %     12.13 %
Tier 1 Risk-Based Capital Ratio:
               
Hanmi Financial
    11.02 %     11.22 %
Hanmi Bank
    11.05 %     11.18 %
Tier 1 Leverage Ratio:
               
Hanmi Financial
    9.61 %     9.65 %
Hanmi Bank
    9.63 %     9.61 %
SELECTED ASSET QUALITY RATIOS:
               
Non-Performing Loans to Total Gross Loans (13)
    0.43 %     0.25 %
Non-Performing Assets to Total Assets (14)
    0.33 %     0.19 %
Net Loan Charge-Offs to Average Total Gross Loans (15)
    0.05 %     0.18 %
Allowance for Loan Losses to Total Gross Loans
    0.98 %     0.91 %
Allowance for Loan Losses to Non-Performing Loans
    224.54 %     361.64 %
 
(1)   Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity. See “Non-GAAP Financial Measures.”
 
(2)   Shareholders’ equity divided by common shares outstanding.
 
(3)   Tangible equity divided by common shares outstanding.
 
(4)   Calculation based upon annualized net income.
 
(5)   Net income divided by average total assets.
 
(6)   Net income divided by average shareholders’ equity.
 
(7)   Net income divided by average tangible equity. See “Non-GAAP Financial Measures.”
 
(8)   Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities.
 
(9)   Net interest income before provision for credit losses divided by average interest-earning assets.
 
(10)   Total non-interest expenses (excluding merger-related expenses) divided by the sum of net interest income before provision for credit losses and total non-interest income.
 
(11)   Cash dividends per share times common shares outstanding divided by net income.
 
(12)   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 Total Risk-Based Capital Ratio (total capital divided by risk-weighted assets); 6 percent for Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by risk-weighted assets); and 5 percent for Tier 1 Leverage Ratio (Tier 1 capital divided by average assets).
 
(13)   Non-performing loans consist of non-accrual loans, loans past due 90 days or more and restructured loans.
 
(14)   Non-performing assets consist of non-performing loans (see footnote (13) above) and other real estate owned.
 
(15)   Calculation based upon annualized net loan charge-offs.

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    As of and for the
    Six Months Ended
    June 30,
    2006   2005
    (Dollars in Thousands, Except Per Share Data)
AVERAGE BALANCES:
               
Average Gross Loans, Net of Deferred Loan Fees
  $ 2,638,822     $ 2,287,253  
Average Securities
  $ 431,440     $ 419,235  
Average Interest-Earning Assets
  $ 3,109,051     $ 2,765,114  
Average Total Assets
  $ 3,497,310     $ 3,136,419  
Average Deposits
  $ 2,821,648     $ 2,531,123  
Average Interest-Bearing Liabilities
  $ 2,278,944     $ 1,943,789  
Average Shareholders’ Equity
  $ 443,507     $ 411,270  
Average Tangible Equity (1)
  $ 226,329     $ 191,159  
PER SHARE DATA:
               
Earnings Per Share — Basic
  $ 0.63     $ 0.57  
Earnings Per Share — Diluted
  $ 0.62     $ 0.56  
Cash Dividends Per Share
  $ 0.12     $ 0.10  
SELECTED PERFORMANCE RATIOS:
               
Return on Average Assets (2) (3)
    1.77 %     1.82 %
Return on Average Shareholders’ Equity (2) (4)
    13.98 %     13.91 %
Return on Average Tangible Equity (2) (5)
    27.39 %     29.93 %
Net Interest Spread (6)
    3.69 %     4.05 %
Net Interest Margin (7)
    4.81 %     4.81 %
Efficiency Ratio (8)
    40.37 %     42.28 %
Dividend Payout Ratio (9)
    19.09 %     17.50 %
Average Shareholders’ Equity to Average Total Assets
    12.68 %     13.11 %
 
(1)   Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity. See “Non-GAAP Financial Measures.”
 
(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. See “Non-GAAP Financial Measures.”
 
(6)   Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities.
 
(7)   Net interest income before provision for credit losses divided by average interest-earning assets.
 
(8)   Total non-interest expenses (excluding merger-related expenses) divided by the sum of net interest income before provision for credit losses and total non-interest income.
 
(9)   Cash dividends per share times common shares outstanding divided by net income.

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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 core deposit intangible assets from average shareholders’ equity. Banking and financial institution regulators also exclude goodwill and intangible assets 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 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 this non-GAAP performance measure to the GAAP performance measure for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2006     2005     2006     2005  
    (Dollars in Thousands)  
Average Shareholders’ Equity
  $ 449,664     $ 416,465     $ 443,507     $ 411,270  
Less Average Goodwill and Core Deposit Intangible Assets
    (216,862 )     (219,385 )     (217,178 )     (220,111 )
 
                       
 
                               
Average Tangible Equity
  $ 232,802     $ 197,080     $ 226,329     $ 191,159  
 
                       
 
                               
Return on Average Shareholders’ Equity
    14.22 %     14.48 %     13.98 %     13.91 %
Effect of Average Goodwill and Core Deposit Intangible Assets
    13.24 %     16.13 %     13.41 %     16.02 %
 
                       
 
                               
Return on Average Tangible Equity
    27.46 %     30.61 %     27.39 %     29.93 %
 
                       
     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 core deposit intangible assets from total shareholders’ 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 this non-GAAP performance measure to the GAAP performance measure as of the dates indicated:
                 
    June 30,  
    2006     2005  
    (Dollars in Thousands)  
Total Shareholders’ Equity
  $ 451,386     $ 424,830  
Less Goodwill and Core Deposit Intangible Assets
    (215,107 )     (219,089 )
 
           
 
               
Tangible Equity
  $ 236,279     $ 205,741  
 
           
 
               
Book Value Per Share
  $ 9.23     $ 8.56  
Effect of Goodwill and Core Deposit Intangible Assets
    (4.40 )     (4.42 )
 
           
 
               
Tangible Book Value Per Share
  $ 4.83     $ 4.14  
 
           

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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, 2006 under “Risk Factors,” “Interest Rate Risk Management” and “Liquidity and Capital Resources.” 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.
RESULTS OF OPERATIONS
Overview
     For the three months ended June 30, 2006, net income was $15.9 million, or $0.32 per diluted share, compared to $15.0 million, or $0.30 per diluted share, for the three months ended June 30, 2005. The 6.0 percent increase in net income for 2006 as compared to 2005 was attributable to an increase in average interest-earning assets, partially offset by a decline in the net interest margin due to a higher cost of funds as customers placed their funds in certificates of deposit instead of core deposits. Average interest-earning assets increased $387.9 million, or 13.9 percent, due to ongoing growth in the loan portfolio. The net interest margin was 4.76 percent for the three months ended June 30, 2006, compared to 4.90 percent for the same period of 2005.
     Our results of operations are significantly affected by the provision for credit losses. The provision for credit losses was $900,000 and $450,000 for the three months ended June 30, 2006 and 2005, respectively, reflecting changes in the classification of certain credits as well as growth in the loan portfolio in the respective quarters.
     For the three months ended June 30, 2006, non-interest income increased by $1.6 million, or 21.3 percent, primarily due to an increase in service charges on deposit accounts and higher gain on sales of loans. Non-interest expenses increased by $3.2 million or 19.8 percent, due to increases in salaries and employee benefits and occupancy expense. The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for credit losses and non-interest income) for the second quarter of 2006 was 41.59 percent, compared to 40.30 percent for the same quarter in 2005.
     The annualized return on average assets was 1.79 percent for the three months ended June 30, 2006, compared to 1.90 percent for the same period in 2005. The annualized return on average shareholders’ equity was 14.22 percent for the three months ended June 30, 2006, and return on average tangible equity was 27.46 percent, compared to 14.48 percent and 30.61 percent, respectively, for the same period in 2005.
     For the six months ended June 30, 2006, net income was $30.7 million, or $0.62 per diluted share, compared to $28.4 million, or $0.56 per diluted share, for the six months ended June 30, 2005. The 8.4 percent increase in net income for 2006 as compared to 2005 was attributable to an increase in average interest-earning assets, while the net interest margin remained flat due to a higher cost of funds as customers placed their funds in certificates of deposit instead of core deposits. Average interest-earning assets increased $343.9 million, or 12.4 percent, due to ongoing growth in the loan portfolio. The net interest margin was 4.81 percent for the six months ended June 30, 2006 and 2005.
     Our results of operations are significantly affected by the provision for credit losses. The provision for credit losses was $3.9 million and $586,000 for the six months ended June 30, 2006 and 2005, respectively, reflecting changes in the classification of certain credits as well as growth in the loan portfolio in the respective periods.

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     For the six months ended June 30, 2006, non-interest income increased by $2.5 million, or 16.8 percent, primarily due to an increase in service charges on deposit accounts and higher gain on sales of loans. Non-interest expenses increased by $3.2 million or 9.6 percent, due to increases in salaries and employee benefits and occupancy expense. The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for credit losses and non-interest income) for the six months ended June 30, 2006 was 40.37 percent, compared to 42.28 percent for the same period in 2005.
     The annualized return on average assets was 1.77 percent for the six months ended June 30, 2006, compared to 1.82 percent for the same period in 2005. The annualized return on average shareholders’ equity was 13.98 percent for the six months ended June 30, 2006, and return on average tangible equity was 27.39 percent, compared to 13.91 percent and 29.93 percent, respectively, for the same period in 2005.
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 changes 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 Board of Governors of the Federal Reserve System and the Federal Open Market Committee.

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     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  
    June 30, 2006     June 30, 2005  
            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)
  $ 2,729,218     $ 58,242       8.56 %   $ 2,334,803     $ 42,750       7.34 %
Municipal Securities (2)
    73,061       773       4.23 %     73,223       780       4.26 %
Obligations of Other U.S. Government Agencies
    127,184       1,316       4.14 %     97,953       933       3.81 %
Other Debt Securities
    225,126       2,594       4.61 %     246,536       2,690       4.36 %
Equity Securities
    24,524       330       5.38 %     23,618       330       5.59 %
Federal Funds Sold
    1,859       23       4.95 %     16,941       123       2.91 %
Interest-Earning Deposits
    27             3.64 %     69       1       3.59 %
 
                                       
 
                                               
Total Interest-Earning Assets
    3,180,999       63,278       7.98 %     2,793,143       47,607       6.84 %
 
                                       
 
                                               
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    94,876                       90,351                  
Allowance for Loan Losses
    (26,629 )                     (22,271 )                
Other Assets
    321,143                       307,772                  
 
                                           
 
                                               
Total Noninterest-Earning Assets
    389,390                       375,852                  
 
                                           
 
                                               
Total Assets
  $ 3,570,389                     $ 3,168,995                  
 
                                           
 
                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Money Market Checking
  $ 484,039       3,638       3.01 %   $ 539,229       3,084       2.29 %
Savings
    112,341       480       1.71 %     143,948       548       1.53 %
Time Deposits of $100,000 or More
    1,223,118       14,869       4.88 %     875,297       6,423       2.94 %
Other Time Deposits
    273,503       2,934       4.30 %     225,961       1,290       2.29 %
FHLB Advances and Other Borrowings
    166,074       2,001       4.83 %     94,146       927       3.95 %
Junior Subordinated Debentures
    82,406       1,587       7.72 %     82,406       1,190       5.79 %
 
                                       
 
                                               
Total Interest-Bearing Liabilities
    2,341,481       25,509       4.37 %     1,960,987       13,462       2.75 %
 
                                       
 
                                               
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    739,217                       758,451                  
Other Liabilities
    40,027                       33,092                  
 
                                           
 
                                               
Total Noninterest-Bearing Liabilities
    779,244                       791,543                  
 
                                           
 
                                               
Total Liabilities
    3,120,725                       2,752,530                  
Shareholders’ Equity
    449,664                       416,465                  
 
                                           
 
                                               
Total Liabilities and Shareholders’ Equity
  $ 3,570,389                     $ 3,168,995                  
 
                                           
 
                                               
Net Interest Income
          $ 37,769                     $ 34,145          
 
                                           
 
                                               
Net Interest Spread (3)
                    3.61 %                     4.09 %
 
                                           
 
                                               
Net Interest Margin (4)
                    4.76 %                     4.90 %
 
                                           
 
(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 $1.2 million and $1.8 million for the three months ended June 30, 2006 and 2005, respectively.
 
(2)   Yields on tax-exempt income, computed on a tax-equivalent basis using an effective marginal rate of 35 percent, were 6.51 percent and 6.56 percent for the three months ended June 30, 2006 and 2005, respectively.
 
(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.

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    Six Months Ended  
    June 30, 2006     June 30, 2005  
            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)
  $ 2,638,822     $ 110,879       8.47 %   $ 2,287,253     $ 80,976       7.14 %
Municipal Securities (2)
    73,414       1,551       4.23 %     73,634       1,556       4.23 %
Obligations of Other U.S. Government Agencies
    126,843       2,619       4.13 %     97,090       1,867       3.85 %
Other Debt Securities
    231,183       5,286       4.57 %     248,511       5,355       4.31 %
Equity Securities
    24,567       655       5.33 %     22,794       603       5.29 %
Federal Funds Sold
    14,158       312       4.44 %     35,797       458       2.58 %
Interest-Earning Deposits
    64       1       4.01 %     35       1       3.91 %
 
                                       
 
                                               
Total Interest-Earning Assets
    3,109,051       121,303       7.87 %     2,765,114       90,816       6.62 %
 
                                       
 
                                               
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    94,690                       87,520                  
Allowance for Loan Losses
    (25,825 )                     (22,499 )                
Other Assets
    319,394                       306,284                  
 
                                           
 
                                               
Total Noninterest-Earning Assets
    388,259                       371,305                  
 
                                           
 
                                               
Total Assets
  $ 3,497,310                     $ 3,136,419                  
 
                                           
 
                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Money Market Checking
  $ 501,735       7,352       2.95 %   $ 565,574       6,092       2.17 %
Savings
    115,036       962       1.69 %     147,087       1,104       1.51 %
Time Deposits of $100,000 or More
    1,195,348       27,653       4.67 %     836,435       11,425       2.75 %
Other Time Deposits
    273,134       5,545       4.09 %     230,287       2,535       2.22 %
FHLB Advances and Other Borrowings
    111,285       2,615       4.74 %     82,000       1,452       3.57 %
Junior Subordinated Debentures
    82,406       3,062       7.49 %     82,406       2,201       5.39 %
 
                                       
 
                                               
Total Interest-Bearing Liabilities
    2,278,944       47,189       4.18 %     1,943,789       24,809       2.57 %
 
                                       
 
                                               
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    736,395                       751,740                  
Other Liabilities
    38,464                       29,620                  
 
                                           
 
                                               
Total Noninterest-Bearing Liabilities
    774,859                       781,360                  
 
                                           
 
                                               
Total Liabilities
    3,053,803                       2,725,149                  
Shareholders’ Equity
    443,507                       411,270                  
 
                                           
 
                                               
Total Liabilities and Shareholders’ Equity
  $ 3,497,310                     $ 3,136,419                  
 
                                           
 
                                               
Net Interest Income
          $ 74,114                     $ 66,007          
 
                                           
 
                                               
Net Interest Spread (3)
                    3.69 %                     4.05 %
 
                                           
 
                                               
Net Interest Margin (4)
                    4.81 %                     4.81 %
 
                                           
 
(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 $2.5 million and $3.3 million for the six months ended June 30, 2006 and 2005, respectively.
 
(2)   Yields on tax-exempt income, computed on a tax-equivalent basis using an effective marginal rate of 35 percent, were 6.50 percent and 6.50 percent for the six months ended June 30, 2006 and 2005, respectively.
 
(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.

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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.
                                                 
    Three Months Ended     Six Months Ended  
    June 30, 2006 vs. 2005     June 30, 2006 vs. 2005  
    Increases (Decreases)     Increases (Decreases)  
    Due to Change in     Due to Change in  
    Volume     Rate     Total     Volume     Rate     Total  
    (In Thousands)  
Interest Income:
                                               
Gross Loans, Net
  $ 7,826     $ 7,666     $ 15,492     $ 13,497     $ 16,406     $ 29,903  
Municipal Securities
    (2 )     (5 )     (7 )     (5 )           (5 )
Obligations of Other U.S. Government Agencies
    296       87       383       596       156       752  
Other Debt Securities
    (241 )     145       (96 )     (382 )     313       (69 )
Equity Securities
    14       (14 )           47       5       52  
Federal Funds Sold
    (154 )     54       (100 )     (368 )     222       (146 )
Interest-Earning Deposits
          (1 )     (1 )     2       (2 )      
 
                                   
 
                                               
Total Interest Income
    7,739       7,932       15,671       13,387       17,100       30,487  
 
                                   
 
                                               
Interest Expense:
                                               
Money Market Checking
    (340 )     894       554       (747 )     2,007       1,260  
Savings
    (130 )     62       (68 )     (259 )     117       (142 )
Time Deposits of $100,000 or More
    3,184       5,262       8,446       6,202       10,026       16,228  
Other Time Deposits
    317       1,327       1,644       544       2,466       3,010  
FHLB Advances and Other Borrowings
    829       245       1,074       608       555       1,163  
Junior Subordinated Debentures
          397       397             861       861  
 
                                   
 
                                               
Total Interest Expense
    3,860       8,187       12,047       6,348       16,032       22,380  
 
                                   
 
                                               
Change in Net Interest Income
  $ 3,879     $ (255 )   $ 3,624     $ 7,039     $ 1,068     $ 8,107  
 
                                   
     For the three months ended June 30, 2006 and 2005, net interest income before provision for credit losses was $37.8 million and $34.1 million, respectively. The net interest spread and net interest margin for the three months ended June 30, 2006 were 3.61 percent and 4.76 percent, respectively, compared to 4.09 percent and 4.90 percent, respectively, for the three months ended June 30, 2005.
     Average interest-earning assets increased 13.9 percent to $3.18 billion for the three months ended June 30, 2006 from $2.79 billion for the same period in 2005. Average gross loans increased 16.9 percent to $2.73 billion for the three months ended June 30, 2006 from $2.33 billion for the same period in 2005, and average investment securities increased 1.8 percent to $425.4 million for the three months ended June 30, 2006 from $417.7 million for the same period in 2005. Total loan interest income increased by 36.2 percent for the three months ended June 30, 2006 due to the increase in average gross loans outstanding and the increase in the average yield on loans from 7.34 percent for the three months ended June 30, 2005 to 8.56 percent for the same period in 2006. The average interest rate charged on loans increased 122 basis points, reflecting the increase in the average Wall Street Journal Prime Rate of 199 basis points from 5.91 percent for the three months ended June 30, 2005 to 7.90 percent for the same period in 2006. The yield on average interest-earning assets increased by 114 basis points from 6.84 percent for the three months ended June 30, 2005 to 7.98 percent for the three months ended June 30, 2006, reflecting a shift in the mix of interest-earning assets from 83.6 percent loans, 15.0 percent securities and 1.4 percent other interest-earning assets for the three months ended June 30, 2005 to 85.8 percent loans, 13.4 percent securities and 0.8 percent other interest-earning assets for the same period in 2006.
     The majority of interest-earning assets growth was funded by a $289.3 million, or 11.4 percent, increase in average total deposits. Total average interest-bearing liabilities grew by 19.4 percent to $2.34 billion for the three months ended June 30, 2006 compared to $1.96 billion for the same period in 2005. The average interest rate paid for interest-bearing liabilities increased by 162 basis points from 2.75 percent for the three months ended June 30, 2005 to 4.37 percent for the three months ended June 30, 2006. This increase was primarily due to a higher cost of funds as customers placed their funds in higher yielding certificates of deposit instead of core deposits.

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     For the six months ended June 30, 2006 and 2005, net interest income before provision for credit losses was $74.1 million and $66.0 million, respectively. The net interest spread and net interest margin for the six months ended June 30, 2006 were 3.69 percent and 4.81 percent, respectively, compared to 4.05 percent and 4.81 percent, respectively, for the six months ended June 30, 2005.
     Average interest-earning assets increased 12.4 percent to $3.11 billion for the six months ended June 30, 2006 from $2.77 billion for the same period in 2005. Average gross loans increased 15.4 percent to $2.64 billion for the six months ended June 30, 2006 from $2.29 billion for the same period in 2005, and average investment securities increased 2.9 percent to $431.4 million for the six months ended June 30, 2006 from $419.2 million for the same period in 2005. Total loan interest income increased by 36.9 percent for the six months ended June 30, 2006 due to the increase in average gross loans outstanding and the increase in the average yield on loans from 7.14 percent for the six months ended June 30, 2005 to 8.47 percent for the same period in 2006. The average interest rate charged on loans increased 133 basis points, reflecting the increase in the average Wall Street Journal Prime Rate of 198 basis points from 5.68 percent for the six months ended June 30, 2005 to 7.66 percent for the same period in 2006. The yield on average interest-earning assets increased by 125 basis points from 6.62 percent for the six months ended June 30, 2005 to 7.87 percent for the six months ended June 30, 2006, reflecting a shift in the mix of interest-earning assets from 82.7 percent loans, 15.2 percent securities and 2.1 percent other interest-earning assets for the six months ended June 30, 2005 to 84.9 percent loans, 13.9 percent securities and 1.2 percent other interest-earning assets for the same period in 2006.
     The majority of interest-earning assets growth was funded by a $290.5 million, or 11.5 percent, increase in average total deposits. Total average interest-bearing liabilities grew by 17.2 percent to $2.28 billion for the six months ended June 30, 2006 compared to $1.94 billion for the same period in 2005. The average interest rate paid for interest-bearing liabilities increased by 161 basis points from 2.57 percent for the six months ended June 30, 2005 to 4.18 percent for the six months ended June 30, 2006. This increase was primarily due to a higher cost of funds as customers placed their funds in higher yielding certificates of deposit instead of core deposits.
Provision for Credit Losses
     For the three months ended June 30, 2006, the provision for credit losses was $900,000, compared to $450,000 for the three months ended June 30, 2005. The allowance for loan losses was 0.98 percent and 1.00 percent of total gross loans at June 30, 2006 and December 31, 2005, respectively, with the increase in the dollar amount allowed for credit losses due to changes in the classification of certain credits as well as growth in the loan portfolio, including growth in loan types that historically have experienced charge-offs. Non-performing assets increased from $10.1 million, or 0.30 percent of total assets, as of December 31, 2005 to $12.1 million, or 0.33 percent of total assets, as of June 30, 2006. The $291.6 million, or 11.8 percent, increase in the loan portfolio and the $2.0 million, or 19.8 percent, increase in non-performing assets required the provision to increase to $900,000 for the three months ended June 30, 2006 to maintain the necessary allowance level.
     For the six months ended June 30, 2006, the provision for credit losses was $3.9 million, compared to $586,000 for the six months ended June 30, 2005.

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Non-Interest Income
     The following tables set forth the various components of non-interest income for the periods indicated:
                                 
    Three Months Ended        
    June 30,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 4,183     $ 3,868     $ 315       8.1 %
Trade Finance Fees
    1,116       1,036       80       7.7 %
Remittance Fees
    532       550       (18 )     (3.3 %)
Other Service Charges and Fees
    614       689       (75 )     (10.9 %)
Bank-Owned Life Insurance Income
    215       210       5       2.4 %
Increase in Fair Value of Derivatives
    109       370       (261 )     (70.5 %)
Other Income
    835       554       281       50.7 %
Gain on Sales of Loans
    1,311       56       1,255       2,241.1 %
Gain on Sales of Securities Available for Sale
          14       (14 )     (100.0 %)
 
                       
 
                               
Total Non-Interest Income
  $ 8,915     $ 7,347     $ 1,568       21.3 %
 
                       
                                 
    Six Months Ended        
    June 30,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 8,414     $ 7,598     $ 816       10.7 %
Trade Finance Fees
    2,187       1,981       206       10.4 %
Remittance Fees
    1,020       1,018       2       0.2 %
Other Service Charges and Fees
    1,148       1,268       (120 )     (9.5 %)
Bank-Owned Life Insurance Income
    433       415       18       4.3 %
Increase in Fair Value of Derivatives
    334       789       (455 )     (57.7 %)
Other Income
    1,478       1,175       303       25.8 %
Gain on Sales of Loans
    2,150       364       1,786       490.7 %
Gain on Sales of Securities Available for Sale
    5       96       (91 )     (94.8 %)
 
                       
 
                               
Total Non-Interest Income
  $ 17,169     $ 14,704     $ 2,465       16.8 %
 
                       
     Non-interest income is earned from three major sources: service charges on deposit accounts, fees generated from international trade finance and gain on sales of loans.
     For the three months ended June 30, 2006, non-interest income was $8.9 million, an increase of 21.3 percent from $7.3 million for the three months ended June 30, 2005. The overall increase in non-interest income is primarily due to expansion in the Bank’s loan and deposit portfolios.
     Service charges on deposit accounts increased by $315,000, or 8.1 percent, from $3.9 million for the three months ended June 30, 2005 to $4.2 million for three months ended June 30, 2006. Service charge income on deposit accounts increased due to an increase in demand deposit transaction volume. Service charges are regularly reviewed to maximize service charge income while still maintaining a competitive position.
     Fees generated from international trade finance increased by $80,000, or 7.7 percent, from $1.0 million for the three months ended June 30, 2005 to $1.1 million for the three months ended June 30, 2006 due to higher volume. Trade finance fees related primarily to import and export letters of credit.
     The changes in the fair value of derivatives are caused by movements in the indexes to which interest rates on certain certificates of deposit are tied. In 2005, the Bank offered certificates of deposit tied to either the Standard & Poor’s 500 Index or a basket of Asian currencies. The Bank entered into swap transactions to hedge the market risk associated with such certificates of deposit. The swaps and the related derivatives embedded in the certificates of deposit are accounted for at fair value. The increase in the fair value of the swaps of $109,000 and $370,000 recorded in non-interest income for the three months ended June 30, 2006 and 2005, respectively, are partially offset by changes in the fair value of the embedded derivatives recorded in non-interest expenses.
     Other income increased by $281,000, or 50.7 percent, from $554,000 for the three months ended June 30, 2005 to $835,000 for three months ended June 30, 2006 due primarily to increases in credit card related fee income and commission fee income from sales of insurance products.

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     Gain on sales of loans increased from $56,000 for the three months ended June 30, 2005 to $1.3 million for the three months ended June 30, 2006. The increase in gain on sales of loans resulted primarily from an increase of $22.4 million in sales activity for SBA loans. The guaranteed portion of a substantial percentage of SBA loans is sold in the secondary markets, and servicing rights are retained.
     For the six months ended June 30, 2006, non-interest income was $17.2 million, an increase of 16.8 percent from $14.7 million for the six months ended June 30, 2005. The overall increase in non-interest income is primarily due to expansion in the Bank’s loan and deposit portfolios.
     Service charges on deposit accounts increased by $816,000, or 10.7 percent, from $7.6 million for the six months ended June 30, 2005 to $8.4 million for six months ended June 30, 2006. Service charge income on deposit accounts increased due to an increase in demand deposit transaction volume. Service charges are regularly reviewed to maximize service charge income while still maintaining a competitive position.
     Fees generated from international trade finance increased by $206,000, or 10.4 percent, from $2.0 million for the six months ended June 30, 2005 to $2.2 million for the six months ended June 30, 2006 due to higher volume. Trade finance fees related primarily to import and export letters of credit.
     The changes in the fair value of derivatives are caused by movements in the indexes to which interest rates on certain certificates of deposit are tied. In 2005, the Bank offered certificates of deposit tied to either the Standard & Poor’s 500 Index or a basket of Asian currencies. The Bank entered into swap transactions to hedge the market risk associated with such certificates of deposit. The swaps and the related derivatives embedded in the certificates of deposit are accounted for at fair value. The increase in the fair value of the swaps of $334,000 and $789,000 recorded in non-interest income for the six months ended June 30, 2006 and 2005, respectively, are partially offset by changes in the fair value of the embedded derivatives recorded in non-interest expenses.
     Other income increased by $303,000, or 25.8 percent, from $1.2 million for the six months ended June 30, 2005 to $1.5 million for six months ended June 30, 2006 due primarily to increases in credit card related fee income and commission fee income from sales of insurance products.
     Gain on sales of loans increased from $364,000 for the six months ended June 30, 2005 to $2.2 million for the six months ended June 30, 2006. The increase in gain on sales of loans resulted primarily from an increase of $32.1 million in sales activity for SBA loans. The guaranteed portion of a substantial percentage of SBA loans is sold in the secondary markets, and servicing rights are retained.
Non-Interest Expenses
     The following tables set forth the breakdown of non-interest expenses for the periods indicated:
                                 
    Three Months Ended        
    June 30,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 10,691     $ 8,545     $ 2,146       25.1 %
Occupancy and Equipment
    2,558       2,171       387       17.8 %
Data Processing
    1,218       1,245       (27 )     (2.2 %)
Advertising and Promotion
    811       563       248       44.0 %
Supplies and Communications
    576       729       (153 )     (21.0 %)
Professional Fees
    492       560       (68 )     (12.1 %)
Amortization of Core Deposit Intangible
    605       714       (109 )     (15.3 %)
Decrease in Fair Value of Embedded Options
    112       2       110       5,500.0 %
Other Operating Expenses
    2,353       2,192       161       7.3 %
Merger-Related Expenses
          (509 )     509       (100.0 %)
 
                       
 
                               
Total Non-Interest Expenses
  $ 19,416     $ 16,212     $ 3,204       19.8 %
 
                       

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    Six Months Ended        
    June 30,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 19,852     $ 17,712     $ 2,140       12.1 %
Occupancy and Equipment
    4,876       4,402       474       10.8 %
Data Processing
    2,433       2,410       23       1.0 %
Advertising and Promotion
    1,457       1,257       200       15.9 %
Supplies and Communications
    1,212       1,308       (96 )     (7.3 %)
Professional Fees
    1,160       1,039       121       11.6 %
Amortization of Core Deposit Intangible
    1,230       1,446       (216 )     (14.9 %)
Decrease in Fair Value of Embedded Options
    214       575       (361 )     (62.8 %)
Other Operating Expenses
    4,421       3,977       444       11.2 %
Merger-Related Expenses
          (509 )     509       (100.0 %)
 
                       
 
                               
Total Non-Interest Expenses
  $ 36,855     $ 33,617     $ 3,238       9.6 %
 
                       
     For the three months ended June 30, 2006 and 2005, non-interest expenses were $19.4 million and $16.2 million, respectively. The efficiency ratio (non-interest expenses (excluding merger-related expenses) divided by the sum of net interest income before provision for credit losses and non-interest income) for the second quarter of 2006 was 41.59 percent, compared to 40.30 percent for the same quarter in 2005.
     Salaries and employee benefits were $10.7 million for the three months ended June 30, 2006, representing an increase of $2.1 million, or 25.1 percent, compared to $8.5 million for the three months ended June 30, 2005. Salaries and employee benefits increased due to annual salary increases, additional stock-based compensation reflecting stock options granted and an increase in vacation accruals.
     Occupancy and equipment expense was $2.6 million for the three months ended June 30, 2006, representing an increase of $387,000, or 17.8 percent, compared to $2.2 million for the three months ended June 30, 2005. The increase was due to additional office space leased, including six loan production offices.
     Advertising and promotion expense was $811,000 for the three months ended June 30, 2006, representing an increase of $248,000, or 44.0 percent, compared to $563,000 for the three months ended June 30, 2005. The increase was due to ongoing promotional activities within the local community.
     Supplies and communication expense was $576,000 for the three months ended June 30, 2006, representing an decrease of $153,000, or 21.0 percent, compared to $729,000 for the three months ended June 30, 2005. The decrease was due primarily to lower telephone and postage expense.
     Other operating expenses for the three months ended June 30, 2006 increased $161,000, or 7.3 percent, to $2.4 million from $2.2 million for the three months ended June 30, 2005. The increase is primarily attributable to amortization expense of $165,000 related to the termination in the fourth quarter of 2005 of interest rate swaps that had unrealized losses.
     For the six months ended June 30, 2006 and 2005, non-interest expenses were $36.9 million and $33.6 million, respectively. The efficiency ratio (non-interest expenses (excluding merger-related expenses) divided by the sum of net interest income before provision for credit losses and non-interest income) for the six months ended June 30, 2006 was 40.37 percent, compared to 42.28 percent for the same period in 2005.
     Salaries and employee benefits were $19.9 million for the six months ended June 30, 2006, representing an increase of $2.1 million, or 12.1 percent, compared to $17.7 million for the six months ended June 30, 2005. Salaries and employee benefits increased due to annual salary increases, additional stock-based compensation reflecting stock options granted and an increase in vacation accruals.
     Occupancy and equipment expense was $4.9 million for the six months ended June 30, 2006, representing an increase of $474,000, or 10.8 percent, compared to $4.4 million for the six months ended June 30, 2005. The increase was due to additional office space leased.

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     Advertising and promotion expense was $1.5 million for the six months ended June 30, 2006, representing an increase of $200,000, or 15.9 percent, compared to $1.3 million for the six months ended June 30, 2005. The increase was due to ongoing promotional activities within the local community.
     Other operating expenses for the six months ended June 30, 2006 increased $444,000, or 11.2 percent, to $4.4 million from $4.0 million for the six months ended June 30, 2005. The increase is primarily attributable to amortization expense of $408,000 related to the termination in the fourth quarter of 2005 of interest rate swaps that had unrealized losses.
Income Taxes
     For the three months ended June 30, 2006, income taxes of $10.4 million were recognized on pre-tax income of $26.4 million, representing an effective tax rate of 39.5 percent, compared to income taxes of $9.8 million recognized on pre-tax income of $24.8 million, representing an effective tax rate of 39.4 percent, for the three months ended June 30, 2005.
     For the six months ended June 30, 2006, income taxes of $19.8 million were recognized on pre-tax income of $50.6 million, representing an effective tax rate of 39.2 percent, compared to income taxes of $18.1 million recognized on pre-tax income of $46.5 million, representing an effective tax rate of 39.0 percent, for the six months ended June 30, 2005.
FINANCIAL CONDITION
Summary of Changes in Balance Sheets — June 30, 2006 Compared to December 31, 2005
     As of June 30, 2006, total assets were $3.62 billion, an increase of $210.1 million, or 6.2 percent, from the December 31, 2005 balance of $3.41 billion. The increase in assets was primarily funded by FHLB advances and overnight Federal funds purchased, which increased by $110.5 million, or 238.6 percent, to $156.9 million at June 30, 2006 from $46.3 million at December 31, 2005. In addition, deposits increased $68.9 million, or 2.4 percent, from $2.83 billion as of December 31, 2005 to $2.90 billion as of June 30, 2006. As of June 30, 2006 and December 31, 2005, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $2.76 billion and $2.47 billion, respectively, an increase of $291.6 million, or 11.8 percent. Investment securities decreased $33.9 million, or 7.6 percent, to $410.0 million at June 30, 2006 from $443.9 million at December 31, 2005.
Investment Portfolio
     Securities are classified as held to maturity or available for sale in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Those securities that we have the ability and 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 at June 30, 2006 or December 31, 2005. 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 U.S. Government agency securities, mortgage-backed securities, collateralized mortgage obligations and municipal bonds.

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     As of June 30, 2006, securities held to maturity totaled $1.0 million and securities available for sale totaled $409.0 million, compared to $1.0 million and $442.9 million, respectively, at December 31, 2005.
                                                 
    June 30, 2006     December 31, 2005  
                    Unrealized                     Unrealized  
    Amortized     Fair     Gain     Amortized     Fair     Gain  
    Cost     Value     (Loss)     Cost     Value     (Loss)  
    (In Thousands)  
Held to Maturity:
                                               
Municipal Bonds
  $ 693     $ 693     $     $ 692     $ 692     $  
Mortgage-Backed Securities
    339       338       (1 )     357       359       2  
 
                                   
 
                                               
Total Held to Maturity
  $ 1,032     $ 1,031     $ (1 )   $ 1,049     $ 1,051     $ 2  
 
                                   
 
                                               
Available for Sale:
                                               
Mortgage-Backed Securities
  $ 135,225     $ 130,570     $ (4,655 )   $ 149,311     $ 147,268     $ (2,043 )
U.S. Government Agency Securities
    124,689       121,850       (2,839 )     129,589       127,813       (1,776 )
Collateralized Mortgage Obligations
    75,705       73,157       (2,548 )     83,068       81,456       (1,612 )
Municipal Bonds
    70,715       70,809       94       71,536       73,220       1,684  
Corporate Bonds
    8,163       7,799       (364 )     8,235       8,053       (182 )
Other Securities
    4,999       4,833       (166 )     4,999       5,053       54  
 
                                   
 
                                               
Total Available for Sale
  $ 419,496     $ 409,018     $ (10,478 )   $ 446,738     $ 442,863     $ (3,875 )
 
                                   
     The amortized cost and estimated fair value of investment securities at June 30, 2006, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2036, 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  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
    (In Thousands)  
Within One Year
  $ 9,997     $ 9,822     $     $  
Over One Year Through Five Years
    129,649       126,424              
Over Five Years Through Ten Years
    7,754       7,758       693       693  
Over Ten Years
    61,166       61,287              
 
                       
 
 
    208,566       205,291       693       693  
 
                       
 
Mortgage-Backed Securities
    135,225       130,570       339       338  
Collateralized Mortgage Obligations
    75,705       73,157              
 
                       
 
 
    210,930       203,727       339       338  
 
                       
 
 
  $ 419,496     $ 409,018     $ 1,032     $ 1,031  
 
                       
     Investment securities decreased $33.9 million, or 7.6 percent, from $443.9 million as of December 31, 2005 to $410.1 million as of June 30, 2006, as the portfolio experienced normal amortization.
Loan Portfolio
     All loans are carried at face amount, less principal repayments collected, net of deferred loan fees and the allowance for loan losses. Interest on all loans is accrued daily on a simple interest basis. Once a loan is placed on non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed. Loans are placed on non-accrual status when principal and interest on a loan is past due 90 days or more, unless a loan is both well secured and in the process of collection.

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     The following table shows the loan composition by type, including loans held for sale, as of the dates indicated.
                                 
    June 30,     December 31,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Real Estate Loans:
                               
Commercial Property
  $ 756,620     $ 733,650     $ 22,970       3.1 %
Construction
    185,243       152,080       33,163       21.8 %
Residential Property (1)
    87,599       88,442       (843 )     (1.0 %)
 
                       
Total Real Estate Loans
    1,029,462       974,172       55,290       5.7 %
 
                       
 
                               
Commercial and Industrial Loans:
                               
Commercial Term Loans
    1,087,611       945,210       142,401       15.1 %
Commercial Lines of Credit
    253,893       224,271       29,622       13.2 %
SBA Loans
    195,031       155,491       39,540       25.4 %
International Loans
    126,914       106,520       20,394       19.1 %
 
                       
Total Commercial and Industrial Loans
    1,663,449       1,431,492       231,957       16.2 %
 
                       
 
Consumer Loans
    98,974       92,154       6,820       7.4 %
 
                       
Total Loans — Gross
    2,791,885       2,497,818       294,067       11.8 %
Deferred Loan Fees
    (3,915 )     (3,775 )     (140 )     3.7 %
Allowance for Loan Losses
    (27,250 )     (24,963 )     (2,287 )     9.2 %
 
                       
 
                               
Net Loans Receivable
  $ 2,760,720     $ 2,469,080     $ 291,640       11.8 %
 
                       
 
(1)   Amount includes loans held for sale, at the lower of cost or market, of $0 and $1.1 million at June 30, 2006 and December 31, 2005, respectively.
     At June 30, 2006 and December 31, 2005, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $2.76 billion and $2.47 billion, respectively, an increase of $291.6 million, or 11.8 percent. Real estate loans, composed of commercial property, residential property and construction loans, increased $55.3 million, or 5.7 percent, to $1,029.5 million at June 30, 2006 from $974.2 million at December 31, 2005, representing 36.9 percent and 39.0 percent, respectively, of the total loan portfolio. Total commercial and industrial loans, composed of domestic commercial property, trade financing, SBA loans and lines of credit, increased $232.0 million, or 16.2 percent, to $1.66 billion at June 30, 2006 from $1.43 billion at December 31, 2005, representing 59.6 percent and 57.3 percent, respectively, of the total loan portfolio. Consumer loans increased $6.8 million, or 7.4 percent, to $99.0 million at June 30, 2006 from $92.2 million at December 31, 2005. This activity reflects our emphasis on commercial and industrial lending.
     As of June 30, 2006, there was $347.4 million of loans outstanding, or 12.4 percent of total gross loans outstanding, to borrowers who were involved in the accommodation/hospitality industry. There was no other concentration of loans to any one type of industry exceeding 10 percent of total gross loans.
Non-Performing Assets
     Non-performing assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, and other real estate owned (“OREO”). Loans are generally placed on non-accrual status when they become 90 days past due unless management believes the loan is adequately collateralized and in the process of collection. Loans may be restructured by management when a borrower has experienced some change in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower eventually will overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
     Management’s classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectibility of principal or interest on the loan; at this point, we stop recognizing income from the interest on the loan and reverse any uncollected interest that had been accrued but unpaid. These loans may or may not be collateralized, but collection efforts are continuously pursued.

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     The table below shows the composition of non-performing assets as of the dates indicated.
                                 
    June 30,     December 31,     Increase  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Non-Accrual Loans
  $ 12,001     $ 10,122     $ 1,879       18.6 %
Loans 90 Days or More Past Due and Still Accruing
    135       9       126       N/M  
 
                       
 
Total Non-Performing Loans
    12,136       10,131       2,005       19.8 %
Other Real Estate Owned
                       
 
                       
 
Total Non-Performing Assets
  $ 12,136     $ 10,131     $ 2,005       19.8 %
 
                       
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 inherent probable losses. The formula is composed of various components. The allowance is determined by assigning specific allowances for all impaired loans. All loans that are not classified are then given 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 for loan losses and allowance for off-balance sheet items are maintained at levels that management believes are adequate to absorb probable loan losses inherent in various financial instruments. The adequacy of each of the allowance and the reserve 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.
     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 twelve quarters of loan losses to determine historical loss experience in every classification category (i.e., “pass,” “special mention,” “substandard” and “doubtful”) for each loan type, except consumer loans (automobile, mortgage and credit cards), which are analyzed as homogeneous loan pools. 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 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 June 30, 2006, the allowance for loan losses was $27.3 million, an increase of $2.3 million, or 9.2 percent, compared to $25.0 million at December 31, 2005. The increase in the allowance for loan losses reflects changes in the classification of certain credits as well as growth in the loan portfolio, including loan types that historically have experienced charge-offs. As of June 30, 2006 and December 31, 2005, the allowance for off-balance sheet items was $2.1 million.
     The loan loss estimation, based on historical losses, and specific allocations of the allowance are performed on a quarterly basis. Adjustments to allowance allocations for specific segments of the loan portfolio may be made as a result thereof, based on the accuracy of forecasted loss amounts and other loan-related or policy-related issues.

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     We determine the appropriate overall allowance for loan losses and allowance for off-balance sheet items based on the foregoing analysis, taking into account management’s judgment. The allowance methodology is reviewed on a periodic basis and modified as appropriate. Based on this analysis, including the aforementioned factors, we believe that the allowance for loan losses and allowance for off-balance sheet items are adequate as of June 30, 2006 and December 31, 2005.
                                         
    As of and for the  
    Three Months Ended  
    June 30,        March 31,        December 31,  
    2006     2006     2005  
    (Dollars in Thousands)  
Allowance for Loan Losses:
                       
Balance at Beginning of Period
  $ 26,703     $ 24,963     $ 24,523  
 
                 
                   
Actual Charge-Offs
    (1,053 )     (1,328 )     (1,356 )
Recoveries on Loans Previously Charged Off
    700       108       250  
 
                 
Net Loan Charge-Offs
    (353 )     (1,220 )     (1,106 )
 
                 
                   
Provision Charged to Operating Expenses
    900       2,960       1,546  
 
                 
 
                       
Balance at End of Period
  $ 27,250     $ 26,703     $ 24,963  
 
                 
 
                       
Allowance for Off-Balance Sheet Items:
                       
Balance at Beginning of Period
  $ 2,130     $ 2,130     $ 2,024  
Provision Charged to Operating Expenses
                106  
 
                 
 
                       
Balance at End of Period
  $ 2,130     $ 2,130     $ 2,130  
 
                 
 
                       
Ratios:
                       
Net Loan Charge-Offs to Average Total Gross Loans (1)
    0.05 %     0.19 %     0.18 %
Net Loan Charge-Offs to Total Gross Loans at End of Period (1)
    0.05 %     0.19 %     0.18 %
Allowance for Loan Losses to Average Total Gross Loans
    1.00 %     1.05 %     1.00 %
Allowance for Loan Losses to Total Gross Loans at End of Period
    0.98 %     1.00 %     1.00 %
Net Loan Charge-Offs to Allowance for Loan Losses (1)
    5.20 %     18.53 %     17.58 %
Net Loan Charge-Offs to Provision Charged to Operating Expenses
    39.22 %     41.22 %     66.95 %
Allowance for Loan Losses to Non-Performing Loans
    224.54 %     259.48 %     246.40 %
 
                       
Balances:
                       
Average Total Gross Loans Outstanding During Period
  $ 2,733,112     $ 2,551,228     $ 2,498,947  
Total Gross Loans Outstanding at End of Period
  $ 2,791,885     $ 2,673,389     $ 2,497,818  
Non-Performing Loans at End of Period
  $ 12,136     $ 10,291     $ 10,131  
 
(1)   Net loan charge-offs are annualized to calculate the ratios.

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    As of and for the  
    Six Months Ended  
    June 30,     June 30,  
    2006     2005  
    (Dollars in Thousands)  
Allowance for Loan Losses:
               
Balance at Beginning of Period
  $ 24,963     $ 22,702  
 
           
 
Actual Charge-Offs
    (2,380 )     (2,981 )
Recoveries on Loans Previously Charged Off
    807       1,878  
 
           
Net Loan Charge-Offs
    (1,573 )     (1,103 )
 
           
 
Provision Charged to Operating Expenses
    3,860       450  
 
           
 
               
Balance at End of Period
  $ 27,250     $ 22,049  
 
           
 
               
Allowance for Off-Balance Sheet Items:
               
Balance at Beginning of Period
  $ 2,130     $ 1,800  
Provision Charged to Operating Expenses
          136  
 
           
 
               
Balance at End of Period
  $ 2,130     $ 1,936  
 
           
 
               
Ratios:
               
Net Loan Charge-Offs to Average Total Gross Loans (1)
    0.12 %     0.10 %
Net Loan Charge-Offs to Total Gross Loans at End of Period (1)
    0.11 %     0.09 %
Allowance for Loan Losses to Average Total Gross Loans
    1.03 %     0.96 %
Allowance for Loan Losses to Total Gross Loans at End of Period
    0.98 %     0.91 %
Net Loan Charge-Offs to Allowance for Loan Losses (1)
    11.64 %     10.09 %
Net Loan Charge-Offs to Provision Charged to Operating Expenses
    40.75 %     245.11 %
Allowance for Loan Losses to Non-Performing Loans
    224.54 %     361.64 %
 
               
Balances:
               
Average Total Gross Loans Outstanding During Period
  $ 2,642,673     $ 2,292,037  
Total Gross Loans Outstanding at End of Period
  $ 2,791,885     $ 2,430,544  
Non-Performing Loans at End of Period
  $ 12,136     $ 6,097  
 
(1)   Net loan charge-offs are annualized to calculate the ratios.
     The ratio of the allowance for loan losses to total gross loans decreased by 0.02 percent to 0.98 percent at June 30, 2006, compared to 1.00 percent at December 31, 2005. The decrease is attributable to relatively rapid loan growth, compared to slower growth of specific allowances associated with the non-accrual loans. The decrease in allowances associated with non-accrual loans at June 30, 2006 is attributable to stronger collateral arrangements that reduce the loss potential associated with the non-accrual loans.
     We concentrate the majority of our interest-earning assets in loans. In all forms of lending, there are inherent risks. We concentrate the preponderance of our loan portfolio in commercial loans and real estate loans. A small part of the portfolio is represented by consumer loans, primarily for the purchase of automobiles. While we believe that our underwriting criteria are prudent, outside factors can adversely impact credit quality.
     A portion of the portfolio is represented by loans guaranteed by the SBA, which further reduces the potential for loss. We also utilize credit review in an effort to maintain loan quality. Loans are reviewed throughout the year with special attention given to new loans and those loans that are classified as “special mention” and worse. In addition to our internal grading system, loans criticized by this credit review are downgraded with appropriate allowances added if required.
     As indicated above, we formally assess the adequacy of the allowance on a quarterly basis by:
    reviewing the adversely graded, delinquent or otherwise questionable loans;
 
    generating an estimate of the loss potential in each such loan;
 
    adding a risk factor for industry, economic or other external factors; and
 
    evaluating the present status of each loan.
     Although management believes the allowance is adequate to absorb losses as they arise, no assurance can be given that we will not sustain losses in any given period, which could be substantial in relation to the size of the allowance.

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Deposits
     The following table shows the composition of deposits by type as of the dates indicated.
                                 
    June 30,     December 31,     Increase (Decrease)  
    2006     2005     Amount     Percentage  
    (Dollars in Thousands)  
Deposits:
                               
Demand — Noninterest-Bearing
  $ 778,445     $ 738,618     $ 39,827       5.4 %
Interest-Bearing:
                               
Money Market Checking
    440,970       526,171       (85,201 )     (16.2 %)
Savings
    110,492       121,574       (11,082 )     (9.1 %)
Time Deposits of $100,000 or More
    1,287,257       1,161,950       125,307       10.8 %
Other Time Deposits
    277,848       277,801       47        
 
                       
 
                               
Total Deposits
  $ 2,895,012     $ 2,826,114     $ 68,898       2.4 %
 
                       
     Demand deposits increased $39.8 million, or 5.4 percent, to $778.4 million at June 30, 2006 from $738.6 million at December 31, 2005. This increase was due to continued efforts to increase the net interest margin by changing the deposit composition mix between interest-bearing and noninterest-bearing accounts. Money market checking and savings decreased $85.2 million, or 16.2 percent, and $11.1 million, or 9.1 percent, respectively, to $441.0 million and $110.5 million, respectively, at June 30, 2006 from $526.2 million and $121.6 million, respectively, at December 31, 2005. These accounts decreased because customers shifted their balances into higher yielding certificates of deposit. Time deposits of $100,000 or more increased $125.3 million, or 10.8 percent, to $1.29 billion at June 30, 2006 from $1.16 billion at December 31, 2005. This growth reflects the shift away from low-yielding accounts that normally occurs as interest rates rise and depositors take advantage of the greater interest rate differentials available in the market.
FHLB Advances and Other Borrowings
     FHLB advances and other borrowings consist primarily of advances from the FHLB and overnight Federal funds. At June 30, 2006 and December 31, 2005, advances from the FHLB were $113.3 million and $43.5 million, respectively. Overnight Federal funds totaled $41.0 million at June 30, 2006. There were no overnight Federal funds as of December 31, 2005. Among the FHLB advances and other borrowings at June 30, 2006, short-term borrowings with a remaining maturity of less than one year were $88.6 million, and the weighted-average interest rate thereon was 5.19 percent.
INTEREST RATE RISK MANAGEMENT
     Interest rate risk refers to 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 fluctuations in market interest rate. The level of interest rate risk can be managed through the changing of gap positions and the volume of fixed-income assets and liabilities. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures. 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 the gap position as of June 30, 2006:
                                                 
            After Three     After One                      
    Within     Months     Year But             Non-        
    Three     But Within     Within Five     After Five     Interest-        
    Months     One Year     Years     Years     Sensitive     Total  
    (Dollars in Thousands)          
ASSETS
                                               
Cash and Due From Banks
  $     $     $     $     $ 110,271     $ 110,271  
Federal Funds Sold and Securities Purchased Under Agreements to Resell
    1,100                               1,100  
FRB and FHLB Stock
                      24,603             24,603  
Securities:
                                               
Fixed Rate
    10,419       18,778       213,902       117,626             360,725  
Floating Rate
    10,527       581       33,384       4,833             49,325  
Loans:
                                               
Fixed Rate
    53,643       42,904       338,809       239,422             674,778  
Floating Rate
    1,899,785       22,151       179,490       3,680             2,105,106  
Non-Accrual
                            12,001       12,001  
Deferred Loan Fees and Allowance for Loan Losses
                            (31,165 )     (31,165 )
Other Assets
          23,146             7,719       286,696       317,561  
 
                                   
 
                                               
Total Assets
  $ 1,975,474     $ 107,560     $ 765,585     $ 397,883     $ 377,803     $ 3,624,305  
 
                                   
 
                                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Demand Deposits
  $ 53,592     $ 155,882     $ 374,118     $ 194,853     $     $ 778,445  
Savings
    14,881       34,077       48,974       12,560             110,492  
Money Market Checking
    64,564       124,503       143,507       108,396             440,970  
Time Deposits:
                                               
Fixed Rate
    722,542       695,587       16,950       137             1,435,216  
Floating Rate
    129,889                               129,889  
FHLB Advances and Other Borrowings
    78,552       10,000       63,332       4,988             156,872  
Junior Subordinated Debentures
    82,406                               82,406  
Other Liabilities
                            38,629       38,629  
Shareholders’ Equity
                            451,386       451,386  
 
                                   
 
                                               
Total Liabilities and Shareholders’ Equity
  $ 1,146,426     $ 1,020,049     $ 646,881     $ 320,934     $ 490,015     $ 3,624,305  
 
                                   
 
                                               
Repricing Gap
  $ 829,048     $ (912,489 )   $ 118,704     $ 76,949     $ (112,212 )   $  
Cumulative Repricing Gap
  $ 829,048     $ (83,441 )   $ 35,263     $ 112,212     $     $  
Cumulative Repricing Gap as a Percentage of Total Assets
    22.87 %     (2.30 %)     0.97 %     3.10 %     %        
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    25.78 %     (2.59 %)     1.10 %     3.49 %     %        
     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 time 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. Core deposits that have no maturity dates (demand deposits, savings and money market checking) are assigned to categories based on expected decay rates.
     On June 30, 2006, the cumulative repricing gap as a percentage of interest-earning assets in the less-than-three month period was 25.78 percent. This was a decrease from the previous quarter’s figure of 30.61 percent. The decrease was caused by growth in time deposits, including an increase of $141.9 million in fixed rate time deposits maturing within three months, and by a decrease of $55.9 million in floating rate loans maturing within three months. The cumulative repricing gap as a percentage of interest-earning assets in the three to twelve-month period also decreased, reaching (2.59) percent, reflecting the decrease in short-term liquid assets and increase in FHLB advances and other borrowings. In terms of fixed and floating gap positions, which are used internally to control repricing risk, the accumulated fixed gap position between assets and liabilities as a percentage of interest-earning assets was (5.68) percent. The floating gap position in the less-than-one year period was 0.46 percent.

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     The following table summarizes the status of the gap position as of the dates indicated:
                                 
    Less than Three Months   Three to Twelve Months
    June 30,   March 31,   June 30,   March 31,
    2006   2006   2006   2006
            (Dollars in Thousands)        
Cumulative Repricing Gap
  $ 829,048     $ 954,662     $ (83,441 )   $ (65,317 )
Percentage of Total Assets
    22.87 %     27.16 %     (2.30 %)     (1.86 %)
Percentage of Interest-Earning Assets
    25.78 %     30.61 %     (2.59 %)     (2.09 %)
     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.
     From time to time, the Bank has offered certificate of deposit (“CD”) products that have offered customers CD rates that are tied to market indexes, including the Standard & Poor’s 500 Index and a basket of foreign currencies. In order to hedge the market risk associated with the embedded options inherent in them, the Bank has entered into equity and currency swap contracts that are accounted for at market value. Management believes these swaps effectively hedge the economic risk associated with these CD products, but the swaps do not qualify for hedge accounting treatment under GAAP. The currency swap and related CD’s matured during the three months ended March 31, 2006.
LIQUIDITY AND CAPITAL RESOURCES
     Liquidity of the Bank is defined as the ability to supply cash as quickly as needed without causing a severe deterioration in its profitability. The Bank’s liquidity consists primarily of available cash positions, Federal funds sold and short-term investments categorized as trading and/or available for sale securities, which can be disposed of without significant capital losses in the ordinary course of business, plus borrowing capacities, which include Federal funds lines, repurchase agreements and FHLB advances. Therefore, maintenance of high quality loans and securities that can be used for collateral in repurchase agreements or other secured borrowings is an important feature of our liquidity management.
     Liquidity risk may increase when the Bank has few short-duration securities available for sale and/or is not capable of raising funds as quickly as necessary at acceptable rates in the capital or money markets. A heavy and sudden increase in cash demands for loans and/or deposits can tighten the liquidity position. Several ratios are reviewed on a daily, monthly and quarterly basis to manage the liquidity position and to preempt any liquidity crisis. Specific statistics, which include the loans-to-assets ratio, off-balance sheet items and dependence on non-core deposits, foreign deposits, lines of credit and liquid assets, are reviewed regularly for liquidity management purposes.
     The maintenance of a proper level of liquid assets is critical for both the liquidity and the profitability of the Bank. Since the primary purpose of the investment portfolio is to ensure the Bank has adequate liquidity, management maintains appropriate levels of liquid assets to avoid exposure to higher than necessary liquidity risk.
     Core deposits, expressed as a percentage of the Bank’s total assets, decreased to 32.6 percent at June 30, 2006 from 35.2 percent at December 31, 2005, while short-term non-core funding as a percentage of the Bank’s total assets increased to 45.1 percent at June 30, 2006 from 41.9 percent at December 31, 2005. Off-balance sheet items, primarily unused credit lines, as a percentage of the Bank’s total assets, decreased to 19.0 percent at June 30, 2006 from 19.7 percent at December 31, 2005. During the six months ended June 30, 2006, the Bank continued to see strong demand for loans. Net loans as a percentage of total assets increased to 76.2 percent at June 30, 2006 from 72.3 percent at December 31, 2005.

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     In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, cash generated from operations, and access to capital from financial markets or the issuance of additional securities, including common stock or notes, to meet our capital needs. Total shareholders’ equity was $451.4 million at June 30, 2006, which represented an increase of $24.7 million, or 5.8 percent, over total shareholders’ equity of $426.8 million at December 31, 2005.
     The regulatory agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4.0 percent. In addition to the risk-based guidelines, regulators require banking organizations to maintain a minimum amount of Tier 1 capital to 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.
     At June 30, 2006, Hanmi Financial’s Tier 1 capital (shareholders’ equity plus junior subordinated debentures less intangible assets) was $323.0 million. This represented an increase of $30.2 million, or 10.3 percent, over Tier 1 capital of $292.8 million at December 31, 2005. At June 30, 2006, Hanmi Financial had a ratio of total capital to total risk-weighted assets of 12.03 percent and a ratio of Tier 1 capital to total risk-weighted assets of 11.02 percent. The Tier 1 leverage ratio was 9.61 percent at June 30, 2006.
     The capital ratios of Hanmi Financial and Hanmi Bank were as follows as of June 30, 2006:
                                                 
                    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
  $ 352,350       12.03 %   $ 234,392       8.00 %     N/A       N/A  
Hanmi Bank
  $ 352,723       12.05 %   $ 234,154       8.00 %   $ 292,692       10.00 %
 
                                               
Tier 1 Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 322,971       11.02 %   $ 117,196       4.00 %     N/A       N/A  
Hanmi Bank
  $ 323,344       11.05 %   $ 117,077       4.00 %   $ 175,615       6.00 %
 
                                               
Tier 1 Capital (to Average Total Assets):
                                               
Hanmi Financial
  $ 322,971       9.61 %   $ 134,442       4.00 %     N/A       N/A  
Hanmi Bank
  $ 323,344       9.63 %   $ 134,323       4.00 %   $ 167,903       5.00 %
Dividends
     On June 22, 2006, we declared a quarterly cash dividend of $0.06 per common share for the second quarter of 2006. The dividend was paid on July 17, 2006. Future dividend payments are subject to the future earnings and legal requirements and the discretion of the Board of Directors.
OFF-BALANCE SHEET ARRANGEMENTS
     For a discussion of off-balance sheet arrangements, see “Note 5 — Off-Balance Sheet Arrangements” of Notes to Consolidated Financial Statements, “Item 1. Business — Small Business Administration Guaranteed Loans” and “Item 1. Business — Off-Balance Sheet Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2005.
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, 2005.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     For quantitative and qualitative disclosures regarding market risks in Hanmi Bank’s portfolio, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and “— Liquidity and Capital Resources.”
ITEM 4. CONTROLS AND PROCEDURES
     As of June 30, 2006, 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 and internal controls over financial reporting. Based upon that evaluation, we concluded that:
    Our disclosure controls and procedures were effective as of June 30, 2006; and
 
    No change in our internal controls over financial reporting occurred during the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.
     Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) 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.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     From time to time, Hanmi Financial or Hanmi Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel as to the current status of these claims or proceedings to which Hanmi Financial or Hanmi Bank is a party, management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on the financial condition or results of operations of Hanmi Financial or Hanmi Bank.
ITEM 1A. RISK FACTORS
     There were no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2005 that was filed on March 16, 2006.

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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
     On May 24, 2006, the Annual Meeting of Stockholders was called to vote on election of four nominees to serve as Class I Directors of Hanmi Financial for terms of three years each. The number of votes cast at the meeting as to each Director was as follows:
                         
    Votes     Votes        
Class I Director Nominees   For     Withheld     Unvoted  
I Joon Ahn
    40,635,079       504,881       8,875,408  
Kraig A. Kupiec
    41,010,371       129,589       8,875,408  
Joon Hyung Lee
    40,635,981       503,983       8,875,408  
Joseph K. Rho
    39,451,548       1,688,412       8,875,408  
     The other directors, whose terms of office as a director continued after the meeting, were:
          Class II Directors — Terms Expire in 2007
M. Christian Mitchell
Sung Won Sohn, Ph.D.
Won R. Yoon
          Class III Directors — Terms Expire in 2008
Richard B. C. Lee
Chang Kyu Park
William J. Ruh
ITEM 5. OTHER INFORMATION
     None.

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ITEM 6. EXHIBITS
     
Exhibit    
Number   Document
 
   
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

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
             
    HANMI FINANCIAL CORPORATION    
 
           
Date: August 9, 2006
  By:   /s/ Sung Won Sohn, Ph.D.    
 
     
 
Sung Won Sohn, Ph.D.
   
 
      President and Chief Executive Officer    
 
           
 
  By:   /s/ Michael J. Winiarski    
 
     
 
Michael J. Winiarski
   
 
      Senior Vice President and Chief Financial Officer    

40