HANMI FINANCIAL CORP - Quarter Report: 2009 September (Form 10-Q)

 

 

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

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

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

Not Applicable

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes o     No o

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o (Do Not Check if a Smaller Reporting Company)		Smaller Reporting Company o

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

     As of October 31, 2009, there were 51,201,390 outstanding shares of the Registrant’s Common Stock.

 

 

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)		1
Consolidated Statements of Operations (Unaudited)		2
Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Loss (Unaudited)		3
Consolidated Statements of Cash Flows (Unaudited)		4
Notes to Consolidated Financial Statements (Unaudited)		5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		60
ITEM 4. CONTROLS AND PROCEDURES		61
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		61
ITEM 1A. RISK FACTORS		62
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		65
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		65
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		65
ITEM 5. OTHER INFORMATION		65
ITEM 6. EXHIBITS		66
SIGNATURES		68
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

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

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

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

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE LOSS (UNAUDITED)
(In Thousands; Except Share Data)

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

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)

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

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

NOTE 1 — BASIS OF PRESENTATION

     Hanmi Financial Corporation (“Hanmi Financial,” “we” or “us”) is a Delaware corporation and is subject to the Bank Holding Company Act of 1956, as amended. Our primary subsidiary is Hanmi Bank (the “Bank”), a California state chartered bank. Our other subsidiaries are Chun-Ha Insurance Services, Inc. and All World Insurance Services, Inc.

     In the opinion of management, the accompanying unaudited consolidated financial statements of Hanmi Financial Corporation and Subsidiaries reflect all adjustments of a normal and recurring nature that are necessary for a fair presentation of the results for the interim period ended September 30, 2009, but are not necessarily indicative of the results that will be reported for the entire year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the aforementioned unaudited consolidated financial statements are in conformity with GAAP. Such interim financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The interim information should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

     The preparation of interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Descriptions of our significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

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

     The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification™ (“ASC”) became effective on July 1, 2009. At that date, the ASC became FASB’s officially recognized source of authoritative GAAP applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

NOTE 2 — LIQUIDITY

     FASB ASC 275, “Risks and Uncertainties,” requires reporting entities to disclose information about the nature of their operations and vulnerabilities due to certain concentrations. Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally affect our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action against us. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking organizations in the domestic and worldwide credit markets deteriorates.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 2 — LIQUIDITY (Continued)

Hanmi Financial

     Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets through December 31, 2009 to meet its operating cash needs. On August 29, 2008, we elected to suspend payment of quarterly dividends on our common stock in order to preserve our capital position. In addition, Hanmi Financial has also elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. As of September 30, 2009, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $3.8 million, up from $2.2 million as of December 31, 2008.

Hanmi Bank

     Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originated through its branch platform. For the past nine months, the Bank launched two deposit campaigns to increase new deposits and reduce its reliance on wholesale funding to an optimum level. Through the first deposit campaign promoted from December 2008 and early part of March 2009, the Bank achieved the objectives of maintaining strong liquidity and reducing its reliance on wholesale funds. The second deposit campaign, which started in June 2009, has been undertaken to specifically increase new core deposits and recapture time deposits raised from the first deposit promotion. During the third quarter of 2009, we successfully recaptured a substantial portion of the matured time deposits and raised new retail deposits with low-cost core-deposit products. This deposit-portfolio rebalancing implemented under the Bank’s de-leveraging strategy allowed some run-off of rate-sensitive deposits. As a result, total deposits slightly decreased by $78.2 million, or 2.5 percent, from $3.07 billion as of December 31, 2008 to $2.99 billion as of September 30, 2009. The Bank’s wholesale funds, consisting of Federal Home Loan Bank (“FHLB”) advances and brokered deposits, decreased $743.6 million to $552.8 million at September 30, 2009 from $1.30 billion at December 31, 2008.

     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered adequately capitalized under the regulatory framework for prompt corrective action. Section 29 of the Federal Deposit Insurance Act (“FDIA”) limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the Federal Deposit Insurance Corporation (“FDIC”) to place restrictions on interest rates that institutions may pay. On May 29, 2009, the FDIC approved a final rule to implement new interest rate restrictions on institutions that are not “well capitalized.” The rule, which is not effective until January 1, 2010, limits the interest rate paid by such institutions to 75 basis points above a national rate, as derived from the interest rate average of all institutions. If an institution could provide evidence that its local rate is higher, the FDIC may permit that institution to offer the higher local rate plus 75 basis points. Hanmi Bank is currently evaluating the local interest rate environment to determine whether it would be beneficial to provide evidence to the FDIC that the local rate is higher than the national rate. In the event that we determine to provide such evidence to the FDIC, there can be no assurance that the FDIC will concur with our assessment. As a result, our ability to compete for local deposits in the Korean-American community may be limited.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 2 — LIQUIDITY (Continued)

     The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 20 percent of its total assets. As of September 30, 2009, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $499.7 million and $337.6 million, respectively. The Bank’s FHLB borrowings as of September 30, 2009 totaled $160.8 million, representing 4.7 percent of total assets. As of November 3, 2009, the Bank’s FHLB borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $532.3 million and $370.1 million, respectively. The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral pledged by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment securities and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement.

     As a means of augmenting its liquidity, the Bank had an available borrowing source of $244.7 million from the Federal Reserve Discount Window (the “Fed Discount Window”), to which the Bank pledged loans with a carrying value of $445.0 million, and had no borrowings as of September 30, 2009. In August 2009, South Street Securities LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million. This line of credit will continue for a term of one year, and, unless amended or terminated, will automatically renew for successive one-year terms.

     On July 10, 2009, due to a deterioration in the Bank’s risk profile, the Borrower in Custody Program of the Fed Discount Window in which the Bank has participated changed from the primary credit program to the secondary credit program, which allows the Bank to request very short-term credit (typically overnight) at a rate that is above the primary credit rate. As of November 3, 2009, the Bank had $150.8 million available for use through the Fed Discount Window, as the Bank pledged loans with a carrying value of $445.0 million, and there were no borrowings. The Bank’s borrowing line available with the Fed Discount Window decreased $93.9 million to $150.8 million on November 3, 2009 from $244.7 million on September 30, 2009, due to the Fed Discount Window applying new collateral margins to all participating banks, effective October 19, 2009. As the Bank has a sufficient amount of pledgeable loans, it will pledge additional loans to maintain an adequate level of borrowing line with the Fed Discount Window.

     Current market conditions have limited the Bank’s liquidity sources principally to secured funding outlets such as the FHLB and Fed Discount Window. There can be no assurance that actions by the FHLB or Federal Reserve Bank would not reduce the Bank’s borrowing capacity or that the Bank would be able to continue to replace deposits at competitive rates. The Bank is currently restricted from accepting brokered deposits as a funding source unless we obtain a waiver from the FDIC (see “Note 13 — Subsequent Events” for further information). On October 9, 2009, the Bank filed a request with the FDIC for a waiver of the brokered deposit restrictions for the primary purposes of enhancing profitability and managing our interest-rate risk. As of September 30, 2009, brokered deposits were $391.9 million, or 13.1 percent of total deposits. All brokered deposits are currently scheduled to mature on or prior to June 30, 2010. For the past nine months, the Bank successfully replaced $482.3 million of brokered deposits with retail deposits. In the event that the Bank cannot secure the waiver from the FDIC, the Bank believes that it will be able to replenish the maturing brokered deposits with retail deposits, as it demonstrated its ability to generate retail deposits for the past nine months. However, these higher costs funds would be expected to affect our earnings and net interest margin. If the Bank is unable to replace these maturing deposits with new deposits, the Bank believes that it has adequate liquidity resources to fund its ongoing obligations with its secured funding outlets with the FHLB and Fed Discount Window.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 3 — REGULATORY MATTERS

     Risk-Based Capital

     Hanmi Financial and the Bank are subject to various regulatory capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Hanmi Financial and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

     Quantitative measures established by regulation to ensure capital adequacy require Hanmi Financial and the Bank to maintain minimum ratios (set forth in the table below) of Total and Tier 1 Capital (as defined in the regulations) to Risk-Weighted Assets (as defined), and of Tier 1 Capital (as defined) to Average Assets (as defined).

     To be categorized as “well capitalized,” the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table below. The capital ratios of Hanmi Financial and the Bank as of September 30, 2009 and December 31, 2008 were as follows:

										Minimum								Minimum to Be
										Regulatory								Categorized as
		Actual								Requirement								“Well Capitalized”
		Amount				Ratio				Amount				Ratio				Amount				Ratio
		(Dollars in Thousands)
September 30, 2009
Total Capital (to Risk-Weighted Assets):
Hanmi Financial		$	281,845				9.15	%		$	246,403				8.00	%			N/A				N/A
Hanmi Bank		$	297,942				9.69	%		$	246,071				8.00	%		$	307,589				10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial		$	241,951				7.86	%		$	123,202				4.00	%			N/A				N/A
Hanmi Bank		$	258,262				8.40	%		$	123,035				4.00	%		$	184,553				6.00	%
Tier 1 Capital (to Average Assets):
Hanmi Financial		$	241,951				6.60	%		$	146,608				4.00	%			N/A				N/A
Hanmi Bank		$	258,262				7.05	%		$	146,444				4.00	%		$	183,055				5.00	%
December 31, 2008
Total Capital (to Risk-Weighted Assets):
Hanmi Financial		$	383,043				10.79	%		$	283,943				8.00	%			N/A				N/A
Hanmi Bank		$	379,438				10.70	%		$	283,561				8.00	%		$	354,451				10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial		$	338,042				9.52	%		$	141,972				4.00	%			N/A				N/A
Hanmi Bank		$	334,628				9.44	%		$	141,781				4.00	%		$	212,671				6.00	%
Tier 1 Capital (to Average Assets):
Hanmi Financial		$	338,042				8.93	%		$	151,371				4.00	%			N/A				N/A
Hanmi Bank		$	334,628				8.85	%		$	151,168				4.00	%		$	188,959				5.00	%

     As of September 30, 2009, the Bank’s total risk-based capital ratio was 9.69 percent, which causes us to be considered “adequately capitalized” under the regulatory framework for prompt corrective action.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 3 — REGULATORY MATTERS (Continued)

Memorandum of Understanding

     On October 8, 2008, the members of the Board of the Bank entered into an informal supervisory agreement (a memorandum of understanding) with the Federal Reserve Bank of San Francisco (“FRB”) and the California Department of Financial Institutions (the “DFI” and with the FRB, the “Regulators”) to address certain issues raised in the Bank’s regulatory examination by the DFI on March 10, 2008. The memorandum of understanding has been superseded by the Final Order (the “Order”) issued by the DFI, and the Written Agreement (the “Agreement”) with the FRB, each of which were issued effective as of November 2, 2009. See “Note 13 — Subsequent Events” for further details regarding the Order and Agreement.

     Certain of the issues to be addressed by management under the terms of the memorandum of understanding relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval.

     As of September 30, 2009, the Bank had a Tier 1 leverage ratio of 7.05 percent and tangible stockholder’s equity to total tangible assets ratio of 7.57 percent, both of which are below the minimum requirements required by the memorandum of understanding. See “Note 13 — Subsequent Events” for further information. As of December 31, 2008, the Bank had a Tier 1 leverage ratio of 8.85 percent and tangible stockholder’s equity to total tangible assets ratio of 8.68 percent.

     The Board and management are committed to addressing and resolving the issues raised in the memorandum of understanding on a timely basis. Since completion of the March 10, 2008 regulatory examination, actions have already been undertaken to address and resolve many of the issues raised by the memorandum of understanding.

     As noted above, some of the more significant changes have been in the area of methodology for estimation of the allowances for loan losses. With the changes in the economic climate, we have made various changes quarter to quarter, including:

	•		In the first quarter of 2008, the historical loss rate migration analysis was enhanced. Twelve previous quarters loss history, with the most recent six quarters weighted more heavily at 1.5 to 1.0 to factor in the increased loss rate to reflect the changing economic environment. Previously, the analysis was conducted using the previous 28 quarters all weighted evenly. The revision is more realistic and dynamic, which is particularly pertinent during these fast-changing times.
	•		The reserve factors for contingent liabilities have also been enhanced and now are based on the actual loan pool usage percentages and the risk rating reserve percentages, whereas before only the weighted historical loss rates for clean loans were used.
	•		Furthermore, collateral values are fluctuating more widely this past year than in previous years. Therefore, real estate secured loans are being monitored more frequently, and collateral is being reappraised more frequently so that impairment on these loans, whether they are classified loans or pass loans, may be calculated accurately for purposes of the allowance for loan losses.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 3 — REGULATORY MATTERS (Continued)

	•		The impairment policy has also been revised to require charge-off of fully impaired loans within 90 days of the impairment date. Exceptions to this policy are allowed only with the Chief Credit Officer’s approval.
	•		The memorandum of understanding addresses enhancement of loan policies and procedures. The revisions to the loan policies and procedures were made more in response to changes in the business environment and increased credit risk, rather than to a specific mandate in the Memorandum of Understanding.

     The rapidly changing economic conditions that have drastically affected our borrowers have necessitated several revisions to the qualitative factors used in the estimation of the allowance for loan losses. Some of the more significant qualitative factors adjusted are increases in delinquencies, classified assets, non-performing loans and charge-offs, changes in quality of loan review, credit concentrations, and external factors of real estate, construction, commercial term, line of credit and Small Business Administration (“SBA”) loans. Overall, qualitative adjustment totals increased by $10.5 million, or 64.7 percent, to $26.6 million for the third quarter of 2009 from $16.1 million for the fourth quarter of 2008. Specifically, the largest two loan pools, commercial term loans (secured and unsecured combined) and commercial real estate loans, had significant increases in qualitative adjustments, collectively exceeding $9.2 million in increases during the time period.

     Certain actions that we have specifically taken to comply with the memorandum of understanding include the following:

	•		The Board of Directors’ membership has been changed. Since October 2008, seven directors have retired or resigned. The Board has successfully recruited and elected four new directors, each of them with prior banking experience, professional designations and a wealth of knowledge and experience.
	•		The Corporate Governance Guidelines have also been revised and enhanced to more clearly outline director qualifications, nomination procedures and succession planning.
	•		The memorandum of understanding also called for enhancements to the Capital Augmentation and Maintenance Plan, the Liquidity Contingency Plan, the Strategic Plan and the Earnings Plan. These have been completed and the plans are being followed with positive results.

     The regulators also recommended that the Board of Directors increase its members by one additional director and make further enhancements to the management succession and retention programs. The Board of Directors is addressing these issues.

     The memorandum of understanding requires the Bank to submit reports quarterly on the progress made on all of the provisions. At this time, the Bank is in full or substantial compliance with a majority of the provisions, with the understanding that some of the provisions, like the Asset Quality Improvement Plan, the Capital Augmentation and Maintenance Plan, and the Earnings Plan, require the implementation of the plans and a passage of time to show the results of the plans.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 3 — REGULATORY MATTERS (Continued)

     The liquidity contingency plan, earnings plan and updated strategic plan have been revised as part the Bank’s actions to comply with the memorandum of understanding. As previously reported, certain directors have retired from the Board and other directors have joined the Board, bringing broader and more diverse skill sets.

Capital Plan

     Separately, in accordance with our prior commitment to the FRB, Hanmi Financial has adopted a consolidated capital plan to augment and maintain a sufficient consolidated capital position. In addition, Hanmi Financial has agreed that it will not, and is currently restricted pursuant to the terms of the Agreement and Order from: (i) declare or pay any dividends or make any payments on its junior subordinated debentures or any other capital distributions without the prior written consent of the FRB, and (ii) incur, increase or renew any existing debt or purchase, redeem or otherwise acquire any of its capital stock without the prior written consent of the FRB. In order to preserve its capital position, the Board of Hanmi Financial has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. Finally, Hanmi Financial has agreed to provide prior written notice and obtain the consent of the FRB prior to appointing any new directors or senior executive officers.

NOTE 4 — FAIR VALUE MEASUREMENTS

Fair Value Option and Fair Value Measurements

     FASB ASC 820, “Fair Value Measurements and Disclosures,” defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset.

     FASB ASC 825, “Financial Instruments,” provides additional guidance for estimating fair value in accordance with FASB ASC 820 when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. FASB ASC 825 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. FASB ASC 825 also requires additional disclosures relating to fair value measurement inputs and valuation techniques, as well as providing disclosures for all debt and equity investment securities by major security types rather than by major security categories that should be based on the nature and risks of the security during both interim and annual periods. FASB ASC is effective for interim and annual reporting periods ending after June 15, 2009 and does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FASB ASC 825 requires comparative disclosures only for periods ending after initial adoption. We adopted FASB ASC 825 in the second quarter of 2009. The adoption of FASB ASC 825 resulted in additional disclosures that are presented in “Note 5 — Investment Securities.”

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)

     We used the following methods and significant assumptions to estimate fair value:

     Investment Securities Available for Sale — The fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Level 1 investment securities include those traded on an active exchange such as the New York Stock Exchange, as well as other U.S. government and agency debentures that are traded by dealers or brokers in active over-the-counter markets. Level 2 investment securities include mortgage-backed securities, municipal bonds, collateralized mortgage obligations, asset-backed securities and corporate debt securities. Securities classified as Level 3 investment securities are preferred stocks that are not traded in market.

     Loans Held for Sale — Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, we classify these loans as Level 2 and subject to non-recurring fair value adjustments.

     Impaired Loans — FASB ASC 820 applies to loans measured for impairment using the practical expedients permitted by FASB ASC 310, “Receivables,” including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost related to liquidation of the collateral. These loans are classified as Level 2 and subject to non-recurring fair value adjustments.

     Other Real Estate Owned — Other real estate owned is measured at fair value less selling costs. Fair value was determined based on third-party appraisals of fair value in an orderly sale. Selling costs were based on standard market factors. We classify other real estate owned as Level 2 and subject to non-recurring fair value adjustments.

     Servicing Assets and Servicing Liabilities — The fair values of servicing assets and servicing liabilities are based on a valuation model that calculates the present value of estimated net future cash flows related to contractually specified servicing fees. The valuation model incorporates assumptions that market participants would use in estimating future cash flows. We are able to compare the valuation model inputs and results to widely available published industry data for reasonableness. Fair value measurements of servicing assets and servicing liabilities use significant unobservable inputs. As such, we classify them as Level 3.

     Other Intangible Assets — Other intangible assets consists of a core deposit intangible and acquired intangible assets arising from acquisitions, including non-compete agreements, trade names, carrier relationships and client/insured relationships. The valuation of other intangible assets is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We test our other intangible assets annually for impairment, or when indications of potential impairment exist. Fair value measurements of other intangible assets use significant unobservable inputs. As such, we classify them as Level 3 and subject to non-recurring fair value adjustments.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)

     FASB ASC 320, “Investments — Debt and Equity Securities,” amended current other-than-temporary impairment (“OTTI”) guidance in GAAP for debt securities by requiring a write-down when fair value is below amortized cost in circumstances where: (1) an entity has the intent to sell a security; (2) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (3) an entity does not expect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than not the entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income. FASB ASC 320 did not amend existing recognition and measurement guidance related to OTTI write-downs of equity securities. FASB ASC 320 also extended disclosure requirements about debt and equity securities to interim reporting periods. FASB ASC 320 does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, FASB ASC 320 requires comparative disclosures only for periods ending after initial adoption. We adopted FASB ASC 320 in the second quarter of 2009 and it had no impact on our financial condition or results of operations.

Fair Value Measurement

     FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:

	•   Level 1		Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
	•   Level 2		Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.
	•   Leve1 3		Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     As of September 30, 2009, assets and liabilities measured at fair value on a recurring basis are as follows:

		Level 1				Level 2				Level 3
						Significant
						Observable
		Quoted Prices in				Inputs With No
		Active Markets				Active Market				Significant				Balance as of
		for Identical				With Identical				Unobservable				September 30,
		Assets				Characteristics				Inputs				2009
		(In Thousands)
ASSETS:
Investment Securities Available for Sale:
Mortgage-Backed Securities		$	—			$	80,089			$	—			$	80,089
Municipal Bonds			—				57,437				—				57,437
U.S. Government Agency Securities			38,022				—				—				38,022
Collateralized Mortgage Obligations			—				15,576				—				15,576
Asset-Backed Securities			—				8,417				—				8,417
Other Securities			—				2,971				1,201				4,172
Equity Securities			873				—				—				873
Corporate Bond			439				—				—				439
Total Investment Securities Available for Sale		$	39,334			$	164,490			$	1,201			$	205,025
Servicing Assets		$	—			$	—			$	3,957			$	3,957
LIABILITIES:
Servicing Liabilities		$	—			$	—			$	(225	)		$	(225	)

     The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended September 30, 2009:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
														Realized and
														Unrealized
		Beginning								Realized and				Gains (Losses)								Ending
		Balance as of				Purchases,				Unrealized				in Other				Transfers				Balance as of
		July 1,				Issuances and				Gains (Losses)				Comprehensive				In and/or Out				September 30,
		2009				Settlements				in Earnings				Income				of Level 3				2009
		(In Thousands)
ASSETS:
Investment Securities Available for Sale — Other Securities		$	1,571			$	—			$	—			$	(370	)		$	—			$	1,201
Servicing Assets		$	3,444			$	689			$	(176	)		$	—			$	—			$	3,957
LIABILITIES:
Servicing Liabilities		$	(222	)		$	—			$	(3	)		$	—			$	—			$	(225	)

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)

     The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2009:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
														Realized and
														Unrealized
		Beginning								Realized and				Gains (Losses)								Ending
		Balance as of				Purchases,				Unrealized				in Other				Transfers				Balance as of
		January 1,				Issuances and				Gains (Losses)				Comprehensive				In and/or Out				September 30,
		2009				Settlements				in Earnings				Income				of Level 3				2009
		(In Thousands)
ASSETS:
Investment Securities Available for Sale — Other Securities		$	1,311			$	—			$	—			$	(110	)		$	—			$	1,201
Servicing Assets		$	3,791			$	763			$	(597	)		$	—			$	—			$	3,957
LIABILITIES:
Servicing Liabilities		$	(238	)		$	—			$	13			$	—			$	—			$	(225	)

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

     As of September 30, 2009, assets and liabilities measured at fair value on a non-recurring basis are as follows:

		Level 1				Level 2				Level 3
						Significant
						Observable
		Quoted Prices in				Inputs With No
		Active Markets				Active Market				Significant				Balance as of
		for Identical				With Identical				Unobservable				September 30,				Total
		Assets				Characteristics				Inputs				2009				Gains (Losses)
		(In Thousands)
ASSETS:
Loans Held for Sale		$	—			$	5,118			$	—			$	5,118			$	—
Impaired Loans		$	—			$	111,038			$	—			$	111,038			$	(19,478	)
Other Real Estate Owned		$	—			$	27,140			$	—			$	27,140			$	(2,501	)
Other Intangible Assets		$	—			$	—			$	3,736			$	3,736			$	—

Assets and Liabilities Not Measured at Fair Value on a Recurring or Non-Recurring Basis

     FASB ASC 825 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis or non-recurring basis are discussed above.

     The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Continued)

NOTE 4 — FAIR VALUE MEASUREMENTS (Continued)

     The estimated fair values of financial instruments were as follows:

		September 30, 2009								December 31, 2008
		Carrying				Estimated				Carrying				Estimated
		or Contract				Fair				or Contract				Fair
		Amount				Value				Amount				Value
		(In Thousands)
Financial Assets:
Cash and Cash Equivalents		$	213,334			$	213,334			$	215,947			$	215,947
Investment Securities Held to Maturity		$	876			$	876			$	910			$	910
Investment Securities Available for Sale		$	205,025			$	205,025			$	196,207			$	196,207
Loans Receivable, Net of Allowance for Loan Losses		$	2,847,618			$	2,819,147			$	3,253,715			$	3,246,955
Accrued Interest Receivable		$	11,389			$	11,389			$	12,347			$	12,347
Investment in Federal Home Loan Bank Stock		$	30,697			$	30,697			$	30,697			$	30,697
Investment in Federal Reserve Bank Stock		$	10,053			$	10,053			$	10,228			$	10,228
Financial Liabilities:
Noninterest-Bearing Deposits		$	561,548			$	561,548			$	536,944			$	536,944
Interest-Bearing Deposits		$	2,430,312			$	2,437,022			$	2,533,136			$	2,538,394
Borrowings		$	244,730			$	244,008			$	505,389			$	506,429
Accrued Interest Payable		$	19,730			$	19,730			$	18,539			$	18,539
Off-Balance Sheet Items:
Commitments to Extend Credit		$	304,328			$	245			$	386,785			$	384
Standby Letters of Credit		$	40,085			$	88			$	47,289			$	194