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HANMI FINANCIAL CORP - Quarter Report: 2011 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, 2011
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _________ To _________
Commission File Number: 000-30421
HANMI FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
     
Delaware   95-4788120
     
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
3660 Wilshire Boulevard, Penthouse Suite A
Los Angeles, California
  90010
     
(Address of Principal Executive Offices)   (Zip Code)
(213) 382-2200
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes þ 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   Smaller Reporting Company o
        (Do Not Check if a Smaller Reporting Company)    
     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 July 29, 2011, there were 151,258,390 outstanding shares of the Registrant’s Common Stock.
 
 

 


 

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
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 EX-31.1
 EX-31.1
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 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Thousands, Except Share Data)
                 
    June 30,     December 31,  
    2011     2010  
ASSETS
               
Cash and Due From Banks
  $ 67,166     $ 60,983  
Interest-Bearing Deposits in Other Banks
    131,757       158,737  
Federal Funds Sold
          30,000  
 
           
 
Cash and Cash Equivalents
    198,923       249,720  
 
Securities Held to Maturity, at Amortized Cost (Fair Value of $835 as of June 30, 2011 and $847 as of December 31, 2010)
    833       845  
Investment Securities Available for Sale, at Fair Value (Amortized Cost of $386,299 as of June 30, 2011 and $415,491 as of December 31, 2010)
    390,212       413,118  
Loans Receivable, Net of Allowance for Loan Losses of $109,029 as of June 30, 2011 and $146,059 as of December 31, 2010
    1,959,564       2,084,447  
Loans Held for Sale, at the Lower of Cost or Fair Value
    44,105       36,620  
Accrued Interest Receivable
    7,512       8,048  
Premises and Equipment, Net
    16,869       17,599  
Other Real Estate Owned, Net
    1,340       4,089  
Customers’ Liability on Acceptances
    1,629       711  
Servicing Assets
    2,545       2,890  
Other Intangible Assets, Net
    1,825       2,233  
Investment in Federal Home Loan Bank Stock, at Cost
    25,076       27,282  
Investment in Federal Reserve Bank Stock, at Cost
    7,489       7,449  
Income Taxes Receivable
    9,188       9,188  
Bank-Owned Life Insurance
    27,813       27,350  
Other Assets
    15,912       15,559  
 
           
 
TOTAL ASSETS
  $ 2,710,835     $ 2,907,148  
 
           
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
LIABILITIES:
               
Deposits:
               
Noninterest-Bearing
  $ 600,812     $ 546,815  
Interest-Bearing
    1,797,563       1,919,906  
 
           
 
Total Deposits
    2,398,375       2,466,721  
 
Accrued Interest Payable
    14,226       15,966  
Bank’s Liability on Acceptances
    1,629       711  
Federal Home Loan Bank Advances
    3,479       153,650  
Other Borrowings
    1,034       1,570  
Junior Subordinated Debentures
    82,406       82,406  
Accrued Expenses and Other Liabilities
    11,321       12,868  
 
           
 
Total Liabilities
    2,512,470       2,733,892  
 
           
 
COMMITMENTS AND CONTINGENCIES
               
STOCKHOLDERS’ EQUITY:
               
Common Stock, $0.001 Par Value; Authorized 500,000,000 Shares; Issued 155,890,890 Shares (151,258,390 Shares Outstanding) and 155,830,890 Shares (151,198,390 Shares Outstanding) as of June 30, 2011 and December 31, 2010, respectively
    156       156  
Additional Paid-In Capital
    472,717       472,335  
Unearned Compensation
    (219 )     (219 )
Accumulated Other Comprehensive Income (Loss) — Unrealized Gain (Loss) on Securities Available for Sale and Interest-Only Strips, Net of Income Taxes of $602 as of June 30, 2011 and December 31, 2010, respectively
    3,325       (2,964 )
Accumulated Deficit
    (207,602 )     (226,040 )
Less Treasury Stock, at Cost: 4,632,500 Shares as of June 30, 2011 and December 31, 2010
    (70,012 )     (70,012 )
 
           
 
Total Stockholders’ Equity
    198,365       173,256  
 
           
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 2,710,835     $ 2,907,148  
 
           
See Accompanying Notes to Consolidated Financial Statements (Unaudited).

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
INTEREST AND DIVIDEND INCOME:
                               
Interest and Fees on Loans
  $ 29,249     $ 34,486     $ 60,154     $ 71,181  
Taxable Interest on Investment Securities
    3,094       1,359       5,767       2,443  
Tax-Exempt Interest on Investment Securities
    37       77       77       154  
Dividends on Federal Reserve Bank Stock
    112       103       224       207  
Dividends on Federal Home Loan Bank Stock
    20       20       41       41  
Interest on Interest-Bearing Deposits in Other Banks
    79       99       168       154  
Interest on Federal Funds Sold
    9       16       17       33  
Interest on Term Federal Funds Sold
    18       11       45       11  
 
                       
 
Total Interest and Dividend Income
    32,618       36,171       66,493       74,224  
 
                       
 
INTEREST EXPENSE:
                               
Interest on Deposits
    6,192       8,813       12,927       18,517  
Interest on Federal Home Loan Bank Advances
    239       339       572       685  
Interest on Other Borrowings
    1       31       1       31  
Interest on Junior Subordinated Debentures
    711       692       1,409       1,361  
 
                       
 
Total Interest Expense
    7,143       9,875       14,909       20,594  
 
                       
 
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    25,475       26,296       51,584       53,630  
Provision for Credit Losses
          37,500             95,496  
 
                       
 
NET INTEREST INCOME (LOSS) AFTER PROVISION FOR CREDIT LOSSES
    25,475       (11,204 )     51,584       (41,866 )
 
                       
 
NON-INTEREST INCOME:
                               
Service Charges on Deposit Accounts
    3,278       3,602       6,419       7,328  
Insurance Commissions
    1,203       1,206       2,463       2,484  
Remittance Fees
    499       523       961       985  
Trade Finance Fees
    328       412       625       763  
Other Service Charges and Fees
    368       372       701       784  
Bank-Owned Life Insurance Income
    233       235       463       466  
Net Gain (Loss) on Sales of Investment Securities
    (70 )           (70 )     105  
Net Gain (Loss) on Sales of Loans
    (77 )     220       (415 )     214  
Other Operating Income
    255       106       378       552  
 
                       
 
Total Non-Interest Income
    6,017       6,676       11,525       13,681  
 
                       
 
NON-INTEREST EXPENSE:
                               
Salaries and Employee Benefits
    8,762       9,011       17,886       17,797  
Deposit Insurance Premiums and Regulatory Assessments
    1,377       4,075       3,447       6,299  
Occupancy and Equipment
    2,650       2,674       5,215       5,399  
Directors and Officers Liability Insurance
    733       716       1,467       1,433  
Other Real Estate Owned Expense
    806       1,718       1,635       7,418  
Data Processing
    1,487       1,487       2,886       2,986  
Professional Fees
    1,138       1,022       1,927       2,088  
Supplies and Communication
    496       574       1,074       1,091  
Advertising and Promotion
    908       503       1,474       1,038  
Loan-Related Expense
    184       310       409       617  
Amortization of Other Intangible Assets
    190       301       408       629  
Expenses Related to Unconsummated Capital Offerings
    2,220             2,220        
Other Operating Expenses
    1,935       2,374       3,899       4,194  
 
                       
 
Total Non-Interest Expense
    22,886       24,765       43,947       50,989  
 
                       
 
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    8,606       (29,293 )     19,162       (79,174 )
Provision (Benefit) for Income Taxes
    605       (36 )     724       (431 )
 
                       
 
NET INCOME (LOSS)
  $ 8,001     $ (29,257 )   $ 18,438     $ (78,743 )
 
                       
 
EARNINGS (LOSS) PER SHARE:
                               
Basic
  $ 0.05     $ (0.57 )   $ 0.12     $ (1.54 )
Diluted
  $ 0.05     $ (0.57 )   $ 0.12     $ (1.54 )
WEIGHTED-AVERAGE SHARES OUTSTANDING:
                               
Basic
    151,104,636       51,036,573       151,082,945       51,017,885  
Diluted
    151,258,390       51,036,573       151,257,350       51,017,885  
DIVIDENDS DECLARED PER SHARE
  $     $     $     $  
See Accompanying Notes to Consolidated Financial Statements (Unaudited).

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (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, 2010
    55,814,890       (4,632,500 )     51,182,390     $ 56     $ 357,174     $ (302 )   $ 859     $ (138,031 )   $ (70,012 )   $ 149,744  
Exercises of Stock Options and Stock Warrants
    16,000             16,000             22                               22  
Share-Based Compensation Expense
                            445       41                         486  
Comprehensive Loss:
                                                                               
Net Loss
                                              (78,743 )           (78,743 )
Change in Unrealized Gain on Securities Available for Sale and Interest-Only Strips, Net of Income Taxes
                                        1,671                   1,671  
 
                                                           
 
                                                                               
Total Comprehensive Loss
                                                                            (77,072 )
 
                                                                             
 
                                                                               
BALANCE AS OF JUNE 30, 2010
    55,830,890       (4,632,500 )     51,198,390     $ 56     $ 357,641     $ (261 )   $ 2,530     $ (216,774 )   $ (70,012 )   $ 73,180  
 
                                                           
 
                                                                               
BALANCE AS OF JANUARY 1, 2011
    155,830,890       (4,632,500 )     151,198,390     $ 156     $ 472,335     $ (219 )   $ (2,964 )   $ (226,040 )   $ (70,012 )   $ 173,256  
 
                                                           
 
                                                                               
Share-Based Compensation Expense
                            304       78                         382  
Restricted Stock Awards
    60,000             60,000             78       (78 )                        
 
Comprehensive Income:
                                                                               
Net Income
                                              18,438             18,438  
Change in Unrealized Gain on Securities Available for Sale and Interest-Only Strips, Net of Income Taxes
                                        6,289                   6,289  
 
                                                           
Total Comprehensive Income
                                                                            24,727  
 
                                                                             
 
                                                                               
BALANCE AS OF JUNE 30, 2011
    155,890,890       (4,632,500 )     151,258,390     $ 156     $ 472,717     $ (219 )   $ 3,325     $ (207,602 )   $ (70,012 )   $ 198,365  
 
                                                           
See Accompanying Notes to Consolidated Financial Statements (Unaudited).

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
                 
    Six Months Ended  
    June 30,  
    2011     2010  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net Income (Loss)
  $ 18,438     $ (78,743 )
Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:
               
Depreciation and Amortization of Premises and Equipment
    1,083       1,204  
Amortization of Premiums and Accretion of Discounts on Investment Securities, Net
    1,227       288  
Amortization of Other Intangible Assets
    408       629  
Amortization of Servicing Assets
    345       496  
Share-Based Compensation Expense
    382       486  
Provision for Credit Losses
          95,496  
Net Gain (Loss) on Sales of Investment Securities
    70       (105 )
Net Gain on Sales of Loans
    (2,489 )     (214 )
(Gain) Loss on Sales of Other Real Estate Owned
    681       (154 )
Provision for Valuation Allowance on Other Real Estate Owned
    470       6,503  
Lower of Cost or Fair Value Adjustment for Loans Held for Sale
    2,903        
Deferred Tax Benefit
          3,608  
Origination of Loans Held for Sale
    (16,056 )     (1,782 )
Net Proceeds from Sales of Loans Held for Sale
          79,254  
Loss on Investment in Affordable Housing Partnership
    440       440  
Decrease in Accrued Interest Receivable
    536       1,690  
Increase in Cash Surrender Value of Bank-Owned Life Insurance
    (463 )     (466 )
Increase in Other Assets
    (789 )     (3,489 )
Decrease in Income Tax Receivable
          46,857  
(Decrease) Increase in Accrued Interest Payable
    (1,636 )     1,418  
(Decrease) Increase in Other Liabilities
    (521 )     682  
 
           
 
Net Cash Provided By Operating Activities
    5,029       154,098  
 
           
 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds from Redemption of Federal Home Loan Bank and Federal Reserve Bank Stock
    2,206       2,236  
Proceeds from Matured or Called Investment Securities Available for Sale
    70,841       37,023  
Proceeds from Matured or Called Investment Securities Held to Maturity
    12       13  
Proceeds from Sales of Investment Securities Available for Sale
    157,777       3,252  
Net Proceeds from Sales of Loans Held for Sale
    45,963        
Proceeds from Sales of Other Real Estate Owned
    3,736       5,042  
Net Decrease in Loans Receivable
    83,809       163,888  
Purchases of Federal Reserve Bank Stock
    (40 )      
Purchases of Investment Securities Available for Sale
    (200,724 )     (95,415 )
Purchases of Premises and Equipment
    (353 )     (464 )
 
           
 
Net Cash Provided By Investing Activities
    163,227       115,575  
 
           
 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Decrease in Deposits
    (68,346 )     (174,213 )
Proceeds from Exercise of Stock Options
          22  
Repayment of Long-Term Federal Home Loan Bank Advances
    (171 )     (162 )
Net Change in Short-Term Federal Home Loan Bank Advances and Other Borrowings
    (150,536 )     1,315  
 
           
 
Net Cash Used In Financing Activities
    (219,053 )     (173,038 )
 
           
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (50,797 )     96,635  
Cash and Cash Equivalents at Beginning of Period
    249,720       154,110  
 
           
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 198,923     $ 250,745  
 
           
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
               
Cash Paid During the Period for:
               
Interest Paid
  $ 16,649     $ 19,176  
Income Taxes Paid, Net of Refunds
  $ 3     $ (49,971 )
Non-Cash Activities:
               
Loan Provided in the Sale of Loans Held for Sale
  $ 5,750     $  
Transfer of Loans to Other Real Estate Owned
  $ 2,752     $ 10,366  
Transfer of Loans to Loans Held for Sale
  $ 37,806     $ 101,620  
Loans Provided in the Sale of Other Real Estate Owned
  $ 510     $ 1,217  
See Accompanying Notes to Consolidated Financial Statements (Unaudited).

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
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. (“Chun-Ha”) and All World Insurance Services, Inc. (“All World”).
     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 June 30, 2011, 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, 2010 (the “2010 Annual Report on Form 10-K”).
     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 2 Summary of Significant Accounting Policies” in our 2010 Annual Report on Form 10-K.
     Certain reclassifications were made to the prior period’s presentation to conform to the current period’s presentation.
NOTE 2 — REGULATORY MATTERS
     On November 2, 2009, the members of the Board of Directors of the Bank consented to the issuance of a Final Order (“Final Order”) with the California Department of Financial Institutions (the “DFI”). On the same date, Hanmi Financial and the Bank entered into a Written Agreement (the “Agreement”) with the Federal Reserve Bank of San Francisco (the “FRB”). The Final Order and the Agreement contain a list of strict requirements ranging from a capital directive to developing a contingency funding plan.
     While Hanmi Financial intends to take such actions as may be necessary to enable Hanmi Financial and the Bank to comply with the requirements of the Final Order and the Agreement, there can be no assurance that Hanmi Financial or the Bank will be able to comply fully with the provisions of the Final Order and the Agreement, or that compliance with the Final Order and the Agreement will not have material and adverse effects on the operations and financial condition of Hanmi Financial and the Bank. Any material failure to comply with the provisions of the Final Order and the Agreement could result in further enforcement actions by both DFI and FRB, or the possible placement of the Bank into conservatorship or receivership.
Final Order and Written Agreement
     The Final Order and the Agreement contain substantially similar provisions, and require the Board of Directors of the Bank to prepare and submit written plans to the DFI and the FRB that address the following items: (i) strengthening Board oversight of the management and operation of the Bank; (ii) strengthening credit risk management practices; (iii) improving credit administration policies and procedures; (iv) improving the Bank’s position with respect to problem assets; (v) maintaining adequate reserves for loan and lease losses; (vi)

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Table of Contents

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 2 — REGULATORY MATTERS (Continued)
improving the capital position of the Bank and, with respect to the Agreement, of Hanmi Financial; (vii) improving the Bank’s earnings through a strategic plan and a budget for 2010; and (viii) improving the Bank’s liquidity position, funds management practices, and contingency funding plan. In addition, the Final Order and the Agreement place restrictions on the Bank’s lending to borrowers who have adversely classified loans with the Bank, and require the Bank to charge off or collect certain problem loans and to review and revise its methodology for calculating allowance for loan and lease losses consistent with relevant supervisory guidance. The Bank is also prohibited from paying dividends, incurring, increasing or guaranteeing any debt, or making certain changes to its business without prior approval from the DFI, and Hanmi Financial and the Bank must obtain prior approval from the FRB prior to declaring and paying dividends.
     Under the Final Order, the Bank is required to increase its capital and maintain certain regulatory capital ratios prior to certain dates as follows: 1) by July 31, 2010, the Bank was required to increase its contributed equity capital by not less than an additional $100 million, and maintain a ratio of tangible stockholders’ equity to total tangible assets of at least 9.0 percent, and 2) by December 31, 2010, and thereafter during the life of the Final Order, the Bank will be required to maintain a ratio of tangible stockholders’ equity to total tangible assets of not less than 9.5 percent.
     If the Bank is not able to maintain the capital ratios identified in the Final Order, it must notify the DFI, and Hanmi Financial and the Bank are required to notify the FRB if their respective capital ratios fall below those set forth in the capital plan approved by the FRB. On July 27, 2010, we completed a registered rights and best efforts offering in which we raised $116.8 million in net proceeds. As a result, we satisfied the $100 million capital contribution requirement set forth in the Final Order. While the Bank’s tangible stockholders’ equity to total tangible assets ratio was 8.59% at December 31, 2010, the ratio increased to 10.33 percent at June 30, 2011. Therefore, the Bank is currently in compliance with the tangible capital ratio requirement.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 2 — REGULATORY MATTERS (Continued)
Risk-Based Capital
     Federal bank regulatory agencies require a minimum ratio of qualifying total capital to risk-weighted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0 percent. In addition to the risk-based guidelines, the regulators require banking organizations to maintain a minimum ratio of Tier 1 capital to average total assets, referred to as the leverage ratio, of 4.0 percent. For a bank rated in the highest of the five categories used by the regulators to rate banks, the minimum leverage ratio is 3.0 percent. In addition to these uniform risk-based capital guidelines that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
     As of June 30, 2011, Hanmi Financial’s Tier 1 capital (stockholders’ equity plus qualified junior subordinated debentures less intangible assets) was $257.9 million. This represented an increase of $25.2 million, or 10.8 percent, over Tier 1 capital of $232.7 million as of December 31, 2010. The capital ratios of Hanmi Financial and the Bank were as follows as of June 30, 2011:
                                                 
                                    To be Categorized as  
                    Minimum     “Well Capitalized”  
                    Regulatory     under Prompt Corrective  
    Actual     Requirement     Action Provision  
    Amount     Ratio     Amount     Ratio     Amount     Ratio  
                    (Dollars in Thousands)                  
June 30, 2011
                                               
Total Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 301,045       13.92 %   $ 173,032       8.00 %     N/A       N/A  
Hanmi Bank
  $ 302,827       14.02 %   $ 172,802       8.00 %   $ 216,003       10.00 %
Tier 1 Capital (to Risk-Weighted Assets):
                                               
Hanmi Financial
  $ 257,911       11.92 %   $ 86,516       4.00 %     N/A       N/A  
Hanmi Bank
  $ 274,785       12.72 %   $ 86,401       4.00 %   $ 129,602       6.00 %
Tier 1 Capital (to Average Assets):
                                               
Hanmi Financial
  $ 257,911       9.09 %   $ 113,504       4.00 %     N/A       N/A  
Hanmi Bank
  $ 274,785       9.70 %   $ 113,260       4.00 %   $ 141,576       5.00 %

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS
Fair Value Option and Fair Value Measurements
     We determine the fair value of our assets and liabilities in accordance with ASC 820, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value of an asset or liability is determined based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for market activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact for the asset or liability.
     In determining fair value, we use various methods including market and income approaches. Based on these approaches, we utilize certain assumptions that market participants would use in pricing the asset or liability. These inputs can be readily observable, market corroborated, or generally unobservable inputs. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, we classify and disclose assets and liabilities based on the fair value hierarchy presented below. The hierarchy is based on the quality and reliability of the information used to determine fair values. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to data lacking transparency.
     In January 2010, the FASB issued ASU No. 2010-6, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurements. This requires (i) fair value disclosures by each class of assets and liabilities (generally a subset within a line item as presented in the statement of financial position) rather than major category, (ii) for items measured at fair value on a recurring basis, the amounts of significant transfers between Levels 1 and 2, and transfers into and out of Level 3, and the reasons for those transfers, including separate discussion related to the transfers into each level apart from transfers out of each level, and (iii) gross presentation of the amounts of purchases, sales, issuances, and settlements in the Level 3 recurring measurement reconciliation. Additionally, the ASU clarifies that a description of the valuation techniques(s) and inputs used to measure fair values is required for both recurring and nonrecurring fair value measurements. In addition, if a valuation technique has changed, entities should disclose that change and the reason for the change. Disclosures other than the gross presentation changes in the Level 3 reconciliation were effective for the first reporting period beginning after December 31, 2009. The requirement to present the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis was effective for fiscal years beginning after December 15, 2010. The adoption of FASB ASU 2010-06 did not have a material effect on our financial condition or result of operations.
     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. The fair values of investment securities are determined by reference to the average of at least two quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, we have evaluated the methodologies used to develop the resulting fair values. We perform a monthly analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
     Level 1 investment securities include U.S. government and agency debentures and equity securities that are traded on an active exchange or by dealers or brokers in active over-the-counter markets. The fair value of these securities is determined by quoted prices on an active exchange or over-the-counter market. Level 2 investment securities primarily include mortgage-backed securities, municipal bonds, collateralized mortgage obligations, and asset-backed securities. In determining the fair value of the securities’ categorized as Level 2, we obtain reports from nationally recognized broker-dealers detailing the fair value of each investment security we hold as of each reporting date. The broker-dealers use observable market information to value our fixed income securities, with the primary sources being nationally recognized pricing services. The fair value of the municipal securities is based on a proprietary model maintained by the broker-dealer. We review the market prices provided by the broker-dealer for our securities for reasonableness based on our understanding of the marketplace. We also consider any credit issues related to the bonds. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.
     Securities classified as Level 3 investment securities are instruments that are not traded in the market. As such, no observable market data for the instrument is available. This necessitates the use of significant unobservable inputs into our proprietary valuation model. As of June 30, 2011 and December 31, 2010, we had no level 3 investment securities.
     SBA Loans Held for Sale – All Small Business Administration (“SBA”) loans originate for sale. Loans held for sale are carried at the lower of cost or fair value. As of June 30, 2011 and December 31, 2010, we had $24.3 million and $10.0 million of SBA loans held for sale, respectively. Management obtains quotes, bids or pricing indication sheets on all or part of these loans directly from the purchasing financial institutions. Premiums received or to be received on the quotes, bids or pricing indication sheets are indicative of the fact that cost is lower than fair value. At June 30, 2011 and December 31, 2010, the entire balance of the loans held for sale was recorded at its cost on a nonrecurring basis with Level 2 inputs.
     Non-performing Loans Held for Sale – We reclassify certain non-performing loans when we make the decision to sell those loans. The fair value of non-performing loans held for sale is generally based upon the quotes, bids or sales contract prices from buyers. Non-performing loans held for sale are recorded at estimated fair value less anticipated liquidation cost. As of June 30, 2011 and December 31, 2010, we had $19.8 million and $26.6 million of non-performing loans held for sale, respectively, and measured them on a nonrecurring basis with Level 3 inputs.
     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 3 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, which is subject to non-recurring fair value adjustments, as Level 3.
     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. The valuation model inputs and results are compared to widely available published industry data for reasonableness. Since fair value measurements of servicing assets and servicing liabilities use significant unobservable inputs, we classify them as Level 3.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
     Other Intangible Assets – Other intangible assets consist 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. Since fair value measurements of other intangible assets use significant unobservable inputs, we classify them, which are subject to non-recurring fair value adjustments, as Level 3.
     Stock Warrants – The fair value of stock warrants was determined by the Black-Scholes option pricing model. The expected stock volatility is based on historical volatility of our common stock over the expected term of the warrants. The expected life assumption is commensurate with the contract term. The dividend yield of zero is determined by the fact that we have no present intention to pay cash dividends. The risk free rate used for the warrant is equal to the zero coupon rate in effect at the time of the grant. As such, we classify them, which are subject to non-recurring fair value adjustments, as Level 3.
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.
 
     Level 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.
     Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment or for disclosure purposes in accordance with ASC 825, Financial Instruments.
     We record investment securities available for sale at fair value on a recurring basis. Certain other assets, such as loans held for sale, mortgage servicing assets, impaired loans, other real estate owned, and other intangible assets, are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring Basis
     We recognize transfers of assets between levels at the end of each respective quarterly reporting period. However, there were no transfers of assets between Level 1 and Level 2 of the fair value hierarchy for the three and six months ended June 30, 2011.
     As of June 30, 2011 and December 31, 2010, assets and liabilities measured at fair value on a recurring basis are as follows:
                                 
    Level 1     Level 2     Level 3        
            Significant                
            Observable                
            Inputs With                
    Quoted Prices in     No Active             Balance as of  
    Active Markets     Market With     Significant     June 30,  
    for Identical     Identical     Unobservable     2011 and December  
    Assets     Characteristics     Inputs     31, 2010  
            (In Thousands)          
June 30, 2011
                               
ASSETS:
                               
Debt Securities Available for Sale:
                               
Collateralized Mortgage Obligations
  $     $ 125,929     $     $ 125,929  
U.S. Government Agency Securities
    106,325                   106,325  
Residential Mortgage-Backed Securities
          117,777             117,777  
Corporate Bonds
          20,385             20,385  
Municipal Bonds
          9,256             9,256  
Asset-Backed Securities
          6,799             6,799  
Other Securities
          3,281             3,281  
 
                       
Total Debt Securities Available for Sale
  $ 106,325     $ 283,427     $     $ 389,752  
 
                       
 
                               
Equity Securities Available for Sale:
                               
Financial Services Industry
  $ 460                 $ 460  
 
                       
 
                               
Total Equity Securities Available for Sale
  $ 460     $     $     $ 460  
 
                       
 
                               
Total Securities Available for Sale
  $ 106,785     $ 283,427     $     $ 390,212  
 
                       
 
                               
LIABILITIES:
                               
Stock Warrants
  $     $     $ 1,289     $ 1,289  
 
                               
December 31, 2010
                               
ASSETS:
                               
Debt Securities Available for Sale:
                               
 
                               
Collateralized Mortgage Obligations
  $     $ 137,193     $     $ 137,193  
U.S. Government Agency Securities
    113,334                   113,334  
Residential Mortgage-Backed Securities
          109,842             109,842  
Municipal Bonds
          21,028             21,028  
Corporate Bonds
          20,205             20,205  
Asset-Backed Securities
          7,384             7,384  
Other Securities
          3,259             3,259  
 
                       
Total Debt Securities Available for Sale
  $ 113,334     $ 298,911     $     $ 412,245  
 
                       
 
                               
Equity Securities Available for Sale:
                               
Financial Services Industry
  $ 873                 $ 873  
 
                       
 
                               
Total Equity Securities Available for Sale
  $ 873     $     $     $ 873  
 
                       
 
                               
Total Securities Available for Sale
  $ 114,207     $ 298,911     $     $ 413,118  
 
                       
 
                               
LIABILITIES:
                               
Stock Warrants
  $     $     $ 1,600     $ 1,600  

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — 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 three and six months ended June 30, 2011:
                                                 
    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  
                            Realized and                
                            Unrealized                
    Beginning             Realized and     Gains or Losses             Ending  
    Balance as of     Purchases,     Unrealized     in Other     Transfers     Balance as of  
    March 31,     Issuances and     Gains or Losses     Comprehensive     In and/or Out     June 30,  
    2011     Settlements     in Earnings     Income     of Level 3     2011  
                    (In Thousands)                  
LIABILITIES:
                                               
Stock Warrants(1)
  $ 1,614     $     $ 325     $     $     $ 1,289  
                                                 
                            Realized and                
                            Unrealized                
    Beginning             Realized and     Gains or Losses             Ending  
    Balance as of     Purchases,     Unrealized     in Other     Transfers     Balance as of  
    December 31,     Issuances and     Gains or Losses     Comprehensive     In and/or Out     June 30,  
    2010     Settlements     in Earnings     Income     of Level 3     2011  
                    (In Thousands)                  
LIABILITIES:
                                               
Stock Warrants(1)
  $ 1,600     $     $ 311     $     $     $ 1,289  
 
(1)   Reflects warrants for our common stock issued to Cappello Capital Corp. in connection with services it provided to us as a placement agent in connection with our best efforts public offering and as our financial adviser in connection with our completed rights offering. The warrants were immediately exercisable when issued at an exercise price of $1.20 per share and expire on October 14, 2015. See “Note 8 — Stockholders’ Equity” for more details.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
     For the three and six months ended June 30, 2011 and 2010, assets and liabilities measured at fair value on a non-recurring basis are as follows:
                                         
    Level 1     Level 2     Level 3              
    Quoted Prices in     Significant
Observable

Inputs With
No Active
            Losses During The     Losses During The  
    Active Markets     Market With     Significant     Three Months Ended     Six Months Ended  
    for Identical     Identical       Unobservable     June 30,     June 30,  
    Assets     Characteristics     Inputs     2011 and 2010     2011 and 2010  
June 30, 2011
                                       
ASSETS:
                                       
Non-Performing Loans Held for Sale
  $     $     $ 18,683 (1)   $ 682     $ 9,462  
Impaired Loans
  $     $     $ 178,090 (2)   $ 14,314     $ 23,940  
Other Real Estate Owned
  $     $     $ 1,298 (3)   $ 203     $ 770  
 
                                       
June 30, 2010
                                       
ASSETS:
                                       
Non-Performing Loans Held for Sale
  $     $     $ 23,663 (4)   $ 5,337     $ 7,053  
Impaired Loans
  $     $     $ 168,184 (5)   $ 19,857     $ 48,696  
Other Real Estate Owned
  $     $     $ 22,499 (6)   $ 966     $ 5,912  
 
(1)   Includes commercial property loans of $418,000, commercial term loans of $12.0 million, SBA loans of $6.0 million and residential property loans of $266,000.
 
(2)   Includes real estate loans of $73.7 million, commercial and industrial loans of $103.7 million, and consumer loans of $732,000 .
 
(3)   Includes properties from the foreclosure of commercial property loans of $308,000 and SBA loans of $990,000.
 
(4)   Includes commercial term loans of $8.8 million and commercial property loans of $14.9 million.
 
(5)   Includes real estate loans of $43.7 million, commercial and industrial loans of $124.1 million, and consumer loans of $388,000.
 
(6)   Includes properties from the foreclosure of real estate loans of $19.4 million, and commercial and industrial loans of $3.1 million.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
     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 to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
     The estimated fair values of financial instruments were as follows:
                                 
    June 30, 2011     December 31, 2010  
    Carrying     Estimated     Carrying     Estimated  
    or Contract     Fair     or Contract     Fair  
    Amount     Value     Amount     Value  
            (In Thousands)          
Financial Assets:
                               
Cash and Cash Equivalents
  $ 198,923     $ 198,923     $ 249,720     $ 249,720  
Investment Securities Held to Maturity
    833       835       845       847  
Investment Securities Available for Sale
    390,212       390,212       413,118       413,118  
Loans Receivable, Net of Allowance for Loan Losses
    1,959,564       1,943,118       2,084,447       2,025,368  
Loans Held for Sale
    44,105       44,105       36,620       36,620  
Accrued Interest Receivable
    7,512       7,512       8,048       8,048  
Investment in Federal Home Loan Bank Stock
    25,076       25,076       27,282       27,282  
Investment in Federal Reserve Bank Stock
    7,489       7,489       7,449       7,449  
 
                               
Financial Liabilities:
                               
Noninterest-Bearing Deposits
    600,812       600,812       546,815       546,815  
Interest-Bearing Deposits
    1,797,563       1,807,148       1,919,906       1,927,314  
Borrowings
    86,919       87,017       237,626       233,077  
Accrued Interest Payable
    14,226       14,226       15,966       15,966  
 
                               
Off-Balance Sheet Items:
                               
Commitments to Extend Credit
    167,018       100       178,424       130  
Standby Letters of Credit
    14,771       36       15,226       50  
     The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are explained below:
     Cash and Cash Equivalents – For short-term instruments, including cash and due from banks, and interest bearing deposits with banks, the carrying amount is a reasonable estimate of fair value.
     Investment Securities – Fair values for investment securities are based on quoted market prices when available or through the use of market prices obtained from independent securities brokers or dealers, when market quotes are not readily accessible or available.
     Loans Receivable, Net of Allowance for Loan Losses – Fair values for loans receivable are estimated based on the discounted cash flow approach. The discount rate is derived from the associated yield curve plus spreads, and reflects the offering rates offered by the Bank for loans with similar financial characteristics. Yield curves are constructed by product type using the Bank’s loan pricing model for like-quality credits. The discount rates used in the Bank’s model represent the rates the Bank would offer to current borrowers for like-quality credits. These rates could be different from what other financial institutions could offer for these loans. No adjustments have been made for changes in credit within the loan portfolio. It is our opinion that the allowance for loan losses relating to performing and nonperforming loans results in a fair valuation of such loans. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans, and may differ materially from the values that we may ultimately realize.
     Loans Held for Sale – For loans held for sale, the carrying value approximates fair value.
    Accrued Interest Receivable – The carrying amount of accrued interest receivable approximates its fair value.
     Investment in Federal Home Loan Bank and Federal Reserve Bank Stock – The carrying amounts approximate fair value as the stock may be resold to the issuer at carrying value.
     Noninterest-Bearing Deposits – The fair value of noninterest-bearing deposits is equal to the amount payable on demand at the reporting date.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 3 — FAIR VALUE MEASUREMENTS (Continued)
     Interest-Bearing Deposits – The fair value of interest-bearing deposits, such as savings accounts, money market checking, and certificates of deposit, is estimated based on the discounted value of contractual cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rates used for fair valuation are based on interest rates currently being offered by the Bank on comparable deposits as to amount and term.
     Borrowings – Borrowings consist of Federal Home Loan Bank (“FHLB”) advances, junior subordinated debentures and other borrowings. Discounted cash flows are used to value borrowings.
     Accrued Interest Payable – The carrying amount of accrued interest payable approximates its fair value.
     Stock Warrants – The fair value of stock warrants is determined by the Black-Scholes option pricing model. The expected stock volatility is based on historical volatility of our common stock over expected term of the warrants. The expected life assumption is commensurate with the contract term. The dividend yield of zero is determined by the fact that we have no present intention to pay cash dividends. The risk free rate used for the warrant is equal to the zero coupon rate in effect at the time of the grant.
     Commitments to Extend Credit and Standby Letters of Credit – The fair values of commitments to extend credit and standby letters of credit are based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.
NOTE 4 — INVESTMENT SECURITIES
     The following is a summary of investment securities held to maturity:
                                 
            Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gain     Loss     Value  
    (In Thousands)  
June 30, 2011:
                               
Municipal Bonds
  $ 697     $     $     $ 697  
Mortgage-Backed Securities (1)
    136       2             138  
 
                       
 
                               
 
  $ 833     $ 2     $     $ 835  
 
                       
 
                               
December 31, 2010:
                               
Municipal Bonds
  $ 696     $     $     $ 696  
Mortgage-Backed Securities (1)
    149       2             151  
 
                       
 
                               
 
  $ 845     $ 2     $     $ 847  
 
                       
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 4 — INVESTMENT SECURITIES (Continued)
     The following is a summary of investment securities available for sale:
                                 
            Gross     Gross     Estimated  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gain     Loss     Value  
    (In Thousands)  
June 30, 2011:
                               
Collateralized Mortgage Obligations (1)
  $ 124,940     $ 1,114     $ 125     $ 125,929  
Mortgage-Backed Securities (1)
    115,019       2,793       35       117,777  
U.S. Government Agency Securities
    106,162       260       97       106,325  
Corporate Bonds
    20,454       23       92       20,385  
Municipal Bonds
    9,296       80       120       9,256  
Asset-Backed Securities (2)
    6,476       323             6,799  
Other Securities
    3,305       17       41       3,281  
Equity Securities (3)
    647             187       460  
 
                       
 
                               
 
  $ 386,299     $ 4,610     $ 697     $ 390,212  
 
                       
 
                               
December 31, 2010:
                               
Collateralized Mortgage Obligations (1)
  $ 139,053     $ 470     $ 2,330     $ 137,193  
U.S. Government Agency Securities
    114,066       98       830       113,334  
Mortgage-Backed Securities (1)
    108,436       2,137       731       109,842  
Municipal Bonds
    22,420       48       1,440       21,028  
Corporate Bonds
    20,449       13       257       20,205  
Asset-Backed Securities (2)
    7,115       269             7,384  
Other Securities
    3,305             46       3,259  
Equity Securities (3)
    647       226             873  
 
                       
 
                               
 
  $ 415,491     $ 3,261     $ 5,634     $ 413,118  
 
                       
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
 
(2)   Collaterized debentures of small business investment companies and state and local development companies, and guaranteed by SBA.
 
(3)   Balances presented for amortized cost, representing two equity securities, were net of an OTTI charge of $790,000, which was related to a credit loss, as of December 31, 2010. We recorded an OTTI charge of $790,000 to write down the value of one equity investment to its fair value during the year ended December 31, 2010.
     The amortized cost and estimated fair value of investment securities at June 30, 2011, by contractual maturity, are shown below. Although collateralized mortgage obligations, mortgage-backed securities and asset-backed securities have contractual maturities through 2041, 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     Estimated     Amortized     Estimated  
    Cost     Fair Value     Cost     Fair Value  
            (In Thousands)          
Within One Year
  $     $     $     $  
Over One Year Through Five Years
    103,279       103,360       697       697  
Over Five Years Through Ten Years
    32,191       32,199              
Over Ten Years
    3,747       3,688              
Collateralized Mortgage Obligations
    124,940       125,929              
Mortgage-Backed Securities
    115,019       117,777       136       138  
Asset-Backed Securities
    6,476       6,799              
Equity Securities
    647       460              
 
                       
 
                               
 
  $ 386,299     $ 390,212     $ 833     $ 835  
 
                       
     In accordance with FASB ASC 320, “Investments — Debt and Equity Securities,” amended current other-than-temporary impairment (“OTTI”) guidance, we periodically evaluate our investments for OTTI. For the three and six months ended June 30, 2011 and 2010, there were no OTTI charges recorded in earnings.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 4 — INVESTMENT SECURITIES (Continued)
     Gross unrealized losses on investment securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of June 30, 2011 and December 31, 2010:
                                                                         
    Holding Period  
    Less than 12 Months     12 Months or More     Total  
    Gross     Estimated     Number     Gross     Estimated     Number     Gross     Estimated     Number  
Investment Securities   Unrealized     Fair     of     Unrealized     Fair     of     Unrealized     Fair     of  
Available for Sale   Losses     Value     Securities     Losses     Value     Securities     Losses     Value     Securities  
                            (In Thousands)                          
June 30, 2011:
                                                                       
Mortgage-Backed Securities
  $ 35     $ 4,744       1     $     $           $ 35     $ 4,744       1  
Collateralized Mortgage Obligations
    125       29,630       8                         125       29,630       8  
Municipal Bonds
    59       2,827       5       61       2,323       2       120       5,150       7  
U.S. Government Agency Securities
    97       26,903       7                         97       26,903       7  
Equity Securities
    187       460       2                         187       460       2  
Other Securities
                      41       958       1       41       958       1  
Corporate Bonds
    74       12,895       3       18       2,982       1       92       15,877       4  
 
                                                     
 
                                                                       
 
  $ 577     $ 77,459       26     $ 120     $ 6,263       4     $ 697     $ 83,722       30  
 
                                                     
 
                                                                       
December 31, 2010:
                                                                       
Mortgage-Backed Securities
  $ 731     $ 62,738       16     $     $           $ 731     $ 62,738       16  
Collateralized Mortgage Obligations
    2,330       99,993       20                         2,330       99,993       20  
Municipal Bonds
    1,440       16,907       11                         1,440       16,907       11  
U.S. Government Agency Securities
    830       69,266       14                         830       69,266       14  
Other Securities
    3       1,997       2       43       957       1       46       2,954       3  
Corporate Bonds
    257       17,210       5                         257       17,210       5  
 
                                                     
 
                                                                       
 
  $ 5,591     $ 268,111       68     $ 43     $ 957       1     $ 5,634     $ 269,068       69  
 
                                                     
     All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of June 30, 2011 and December 31, 2010 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of June 30, 2011. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.
     The unrealized losses on investments in U.S. agencies securities were caused by changes in market interest rates or the widening of market spreads subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.
     The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of June 30, 2011. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.
     Of the residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at June 30, 2011, all of them are issued and guaranteed by U.S. government sponsored entities.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 4 — INVESTMENT SECURITIES (Continued)
The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not by concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.
     FASB ASC 320 requires other-than-temporarily impaired investment securities to be written 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. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before the recovery of its amortized cost bases. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of June 30, 2011 and December 31, 2010 are not other-than-temporarily impaired, and therefore, no impairment charges as of June 30, 2011 and December 31, 2010 are warranted.
     Realized gains and losses on sales of investment securities, proceeds from sales of investment securities and the tax expense on sales of investment securities were as follows for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
            (In Thousands)          
Gross Realized Gains on Sales of Investment Securities
  $ 969     $     $ 969     $ 210  
Gross Realized Losses on Sales of Investment Securities
    (1,039 )           (1,039 )     (105 )
 
                       
Net Realized Gains on Sales of Investment Securities
  $ (70 )   $     $ (70 )   $ 105  
 
                       
Proceeds from Sales of Investment Securities
  $ 157,777     $     $ 157,777     $ 3,252  
Tax Expense on Sales of Investment Securities
  $     $     $     $ 45  
     For the three months ended June 30, 2011, $6.2 million ($3.6 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $70,000 loss in earnings resulting from the sale of investment securities that had previously recorded net unrealized losses of $1.3 million in comprehensive income. For the three months ended June 30, 2010, $1.9 million ($1.1 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income. For the six months ended June 30, 2011, $6.3 million ($3.6 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $70,000 loss in earnings resulting from the sale of investment securities that had previously recorded net unrealized losses of $1.5 million in comprehensive income. For the six months ended June 30, 2010, $2.9 million ($1.7 million, net of income taxes) of net unrealized gains arose during the period and was included in comprehensive income, and we recognized a $105,000 gain in earnings resulting from the sale of investment securities that had previously recorded net unrealized gains of $99,000 in comprehensive income.
     Investment securities available for sale with carrying values of $66.2 million and $118.0 million as of June 30, 2011 and December 31, 2010, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS
     The Board of Directors and management review and approve the Bank’s loan policy and procedures on a regular basis to reflect issues such as regulatory and organizational structure change, strategic planning revisions, concentrations of credit, loan delinquencies and non-performing loans, problem loans, and policy adjustments.
     Real estate loans are subject to loans secured by liens or interest in real estate, to provide purchase, construction, and refinance on real estate properties. Commercial and industrial loans consist of commercial term loans, commercial lines of credit, and SBA loans. Consumer loans consist of auto loans, credit cards, personal loans, and home equity lines of credit. We maintain management loan review and monitoring departments that review and monitor pass graded loans as well as problem loans to prevent further deterioration.
     Concentrations of Credit: The majority of the Bank’s loan portfolio consists of commercial real estate loans and commercial and industrial loans. The Bank has been diversifying and monitoring commercial real estate loans based on property types, tightening underwriting standards, and portfolio liquidity and management, and has not exceeded certain specified limits set forth in the Bank’s loan policy. Most of the Bank’s lending activity occurs within Southern California.
Loans Receivable
     Loans receivable consisted of the following as of the dates indicated:
                 
    June 30,     December 31,  
    2011     2010  
    (In Thousands)  
Real Estate Loans:
               
Commercial Property
  $ 688,842     $ 729,222  
Construction
    40,684       60,995  
Residential Property
    58,059       62,645  
 
           
Total Real Estate Loans
    787,585       852,862  
 
           
Commercial and Industrial Loans: (1)
               
Commercial Term
    1,032,274       1,118,999  
SBA
    105,049       105,688  
Commercial Lines of Credit
    50,636       59,056  
International
    46,560       44,167  
 
           
Total Commercial and Industrial Loans
    1,234,519       1,327,910  
 
           
Consumer Loans
    46,500       50,300  
 
           
Total Gross Loans
    2,068,604       2,231,072  
Allowance for Loans Losses
    (109,029 )     (146,059 )
Deferred Loan Fees
    (11 )     (566 )
 
           
Loans Receivable, Net
  $ 1,959,564     $ 2,084,447  
 
           
 
(1)   Commercial and industrial loans include owner-occupied property loans of $846.5 million and $894.8 million as of June 30, 2011 and December 31, 2010, respectively.
     Accrued interest on loans receivable amounted to $6.0 million and $6.5 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, loans receivable totaling $904.5 million and $1.03 billion, respectively, was pledged to secure borrowings from the FHLB and the Fed Discount Window.
     The following table details the information on the purchases, sales and reclassification of loans receivable to loans held for sale by portfolio segment for the three months ended June 30, 2011 and 2010.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
                                 
            Commercial              
    Real Estate     and Industrial     Consumer     Total  
            (Dollars in Thousands)          
June 30, 2011
                               
Loans Held for Sale:
                               
Beginning Balance
  $ 3,513     $ 44,136     $     $ 47,649  
Origination of Loans Held for Sale
          1,771             1,771  
Reclassification from Loans Receivable to Loans Held for sale
    266       9,567             9,833  
Sales of Loans Held for sale
    (2,664 )     (11,557 )           (14,221 )
Principal Payoffs and Amortization
    (8 )     (237 )           (245 )
Valuation Adjustments
    (133 )     (549 )           (682 )
 
                       
Ending Balance
  $ 974     $ 43,131     $     $ 44,105  
 
                       
 
                               
June 30, 2010
                               
Loans Held for Sale:
                               
Beginning Balance
  $     $ 10,104     $     $ 10,104  
Origination of Loans Held for Sale
          462             462  
Reclassification from Loans Receivable to Loans Held for sale
    22,584       60,500             83,084  
Sales of Loans Held for sale
    (7,731 )     (55,257 )           (62,988 )
Principal Payoffs and Amortization
          (118 )           (118 )
Valuation Adjustments
                       
 
                       
Ending Balance
  $ 14,853     $ 15,691     $     $ 30,544  
 
                       
     For the three months ended June 30, 2011, loans receivable of $9.8 million were reclassified as loans held for sale, and loans held for sale of $14.2 million were sold. For the same period ended June 30, 2010, loans receivable of $83.1 million were reclassified as loans held for sale, and loans held for sale of $63.0 million were sold. The net proceeds from the sale of non-performing loans were $18.0 million and $57.4 million for the three months ended June 30, 2011 and 2010, respectively. There were no purchases of loans receivable for the three months ended June 30, 2011 and 2010.
     The following table details the information on the purchases, sales and reclassification of loans receivable to loans held for sale by portfolio segment for the six months ended June 30, 2011 and 2010.
                                 
            Commercial              
    Real Estate     and Industrial     Consumer     Total  
            (Dollars in Thousands)          
June 30, 2011
                               
Loans Held for Sale:
                               
Beginning Balance
  $ 3,666     $ 32,954     $     $ 36,620  
Origination of Loans Held for Sale
          16,056             16,056  
Reclassification from Loans Receivable to Loans Held for sale
    18,175       19,631             37,806  
Sales of Loans Held for sale
    (20,653 )     (22,140 )           (42,793 )
Principal Payoffs and Amortization
    (14 )     (667 )           (681 )
Valuation Adjustments
    (200 )     (2,703 )           (2,903 )
 
                       
Ending Balance
  $ 974     $ 43,131     $     $ 44,105  
 
                       
 
                               
June 30, 2010
                               
Loans Held for Sale:
                               
Beginning Balance
  $     $ 5,010     $     $ 5,010  
Origination of Loans Held for Sale
          1,782             1,782  
Reclassification from Loans Receivable to Loans Held for sale
    35,401       66,219             101,620  
Sales of Loans Held for sale
    (20,548 )     (57,137 )           (77,685 )
Principal Payoffs and Amortization
          (183 )           (183 )
Valuation Adjustments
                       
 
                       
Ending Balance
  $ 14,853     $ 15,691     $     $ 30,544  
 
                       
     For the six months ended June 30, 2011, loans receivable of $37.8 million were reclassified as loans held for sale, and loans held for sale of $42.8 million were sold. For the same period ended June 30, 2010, loans receivable of $101.6 million were reclassified as loans held for sale and loans held for sale of $77.7 million were sold. The net proceeds from the sale of non-performing loans were $45.9 million and $73.6 million for the six months ended June 30, 2011 and 2010, respectively. There were no purchases of loans receivable for the six months ended June 30, 2011 and 2010.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
     Activity in the allowance for loan losses and off-balance sheet items was as follows for the periods indicated:
                                         
    As of and for the     As of and for the  
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,     June 30,     June 30,  
    2011     2011     2010     2011     2010  
                    (In Thousands)                  
Allowance for Loan Losses:
                                       
Balance at Beginning of Period
  $ 125,780     $ 146,059     $ 177,820     $ 146,059     $ 144,996  
 
                             
Actual Charge-Offs
    (20,652 )     (25,181 )     (40,718 )     (45,833 )     (70,832 )
Recoveries on Loans Previously Charged Off
    4,151       3,626       1,772       7,777       5,493  
 
                             
Net Loan Charge-Offs
    (16,501 )     (21,555 )     (38,946 )     (38,056 )     (65,339 )
 
                             
Provision Charged to Operating Expenses
    (250 )     1,276       37,793       1,026       97,010  
 
                             
Balance at End of Period
  $ 109,029     $ 125,780     $ 176,667     $ 109,029     $ 176,667  
 
                             
 
                                       
Allowance for Off-Balance Sheet Items:
                                       
Balance at Beginning of Period
  $ 2,141     $ 3,417     $ 2,655     $ 3,417     $ 3,876  
Provision Charged to Operating Expenses
    250       (1,276 )     (293 )     (1,026 )     (1,514 )
 
                             
Balance at End of Period
  $ 2,391     $ 2,141     $ 2,362     $ 2,391     $ 2,362  
 
                             
     The following table details the information on the allowance for loan losses by portfolio segment for the three months ended June 30, 2011 and 2010.
                                         
            Commercial                    
    Real Estate     and Industrial     Consumer     Unallocated     Total  
    (Dollars in Thousands)  
June 30, 2011
                                       
Allowance for Loan Losses:
                                       
Beginning Balance
  $ 25,884     $ 93,878     $ 1,732     $ 4,286     $ 125,780  
Charge-Offs
    5,591       14,741       320             20,652  
Recoveries on Loans Previously Charged Off
    2,223       1,915       13             4,151  
Provision
    1,599       1,793       162       (3,804 )     (250 )
 
                             
Ending Balance
  $ 24,115     $ 82,845     $ 1,587     $ 482     $ 109,029  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 3,324     $ 26,149     $ 223     $     $ 29,696  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 20,791     $ 56,696     $ 1,364     $ 482     $ 79,333  
 
                             
Loans Receivable:
                                       
Ending Balance
  $ 787,585     $ 1,234,519     $ 46,500     $     $ 2,068,604  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 78,065     $ 114,560     $ 870     $     $ 193,495  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 709,520     $ 1,119,959     $ 45,630     $     $ 1,875,109  
 
                             
 
                                       
June 30, 2010
                                       
Allowance for Loan Losses:
                                       
Beginning Balance
  $ 31,597     $ 143,994     $ 2,229     $     $ 177,820  
Charge-Offs
    12,412       27,951       355             40,718  
Recoveries on Loans Previously Charged Off
    162       1,530       80             1,772  
Provision
    12,698       22,931       244       1,920       37,793  
 
                             
Ending Balance
  $ 32,045     $ 140,504     $ 2,198     $ 1,920     $ 176,667  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 3,963     $ 24,495     $ 23     $     $ 28,481  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 28,082     $ 116,009     $ 2,175     $ 1,920     $ 148,186  
 
                             
Loans Receivable:
                                       
Ending Balance
  $ 913,966     $ 1,503,948     $ 55,790     $     $ 2,473,704  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 100,854     $ 161,138     $ 388     $     $ 262,380  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 813,112     $ 1,342,810     $ 55,402     $     $ 2,211,324  
 
                             

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following table details the information on the allowance for loan losses by portfolio segment for the six months ended June 30, 2011 and 2010.
                                         
            Commercial                    
    Real Estate     and Industrial     Consumer     Unallocated     Total  
    (Dollars in Thousands)  
June 30, 2011
                                       
Allowance for Loan Losses:
                                       
Beginning Balance
  $ 32,766     $ 108,986     $ 2,079     $ 2,228     $ 146,059  
Charge-Offs
    12,644       32,693       496             45,833  
Recoveries on Loans Previously Charged Off
    2,744       5,011       22             7,777  
Provision
    1,249       1,541       (18 )     (1,746 )     1,026  
 
                             
Ending Balance
  $ 24,115     $ 82,845     $ 1,587     $ 482     $ 109,029  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 3,324     $ 26,149     $ 223     $     $ 29,696  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 20,791     $ 56,696     $ 1,364     $ 482     $ 79,333  
 
                             
Loans Receivable:
                                       
Ending Balance
  $ 787,585     $ 1,234,519     $ 46,500     $     $ 2,068,604  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 78,065     $ 114,560     $ 870     $     $ 193,495  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 709,520     $ 1,119,959     $ 45,630     $     $ 1,875,109  
 
                             
 
                                       
June 30, 2010
                                       
Allowance for Loan Losses:
                                       
Beginning Balance
  $ 30,081     $ 112,225     $ 2,690     $     $ 144,996  
Charge-Offs
    17,817       52,037       978             70,832  
Recoveries on Loans Previously Charged Off
    1,865       3,507       121             5,493  
Provision
    17,916       76,809       365       1,920       97,010  
 
                             
Ending Balance
  $ 32,045     $ 140,504     $ 2,198     $ 1,920     $ 176,667  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 3,963     $ 24,495     $ 23     $     $ 28,481  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 28,082     $ 116,009     $ 2,175     $ 1,920     $ 148,186  
 
                             
Loans Receivable:
                                       
Ending Balance
  $ 913,966     $ 1,503,948     $ 55,790     $     $ 2,473,704  
 
                             
Ending Balance: Individually Evaluated for Impairment
  $ 100,854     $ 161,138     $ 388     $     $ 262,380  
 
                             
Ending Balance: Collectively Evaluated for Impairment
  $ 813,112     $ 1,342,810     $ 55,402     $     $ 2,211,324  
 
                             
     Credit Quality Indicators
     As part of the on-going monitoring of the credit quality of our loan portfolio, we utilize an internal loan grading system to identify credit risk and assign an appropriate grade (from 0 to 8) for each and every loan in our loan portfolio.
     Pass-grade (0 to 4) loans are reviewed for reclassification on an annual basis, while criticized (5) and classified (6 and 7) loans are reviewed semi-annually. Additional adjustments are made when determined to be necessary. The loan grade definitions are as follows:
     Pass: These loans, risk rated 0 to 4, are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential for defined weaknesses as defined under “Special Mention” (5), “Substandard” (6) or “Doubtful” (7). This is the strongest level of the Bank’s loan grading system. It incorporates all performing loans with no credit weaknesses. It includes cash and stock/security secured loans or other investment grade loans. Following are sub categories within the Pass grade:
          Pass 0: Secured in full by cash or cash equivalents.
          Pass 1: A very strong, well-structured credit relationship with an established borrower.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
The relationship should be supported by audited financial statements indicating cash flow, well in excess of debt service requirements, excellent liquidity, and very strong capital.
Pass 2: These loans require a well-structured credit that may not be as seasoned or as high quality as grade 1. Capital, liquidity, debt service capacity, and collateral coverage must all be well above average. This category includes individuals with substantial net worth supported by liquid assets and strong income.
Pass 3: Loans or commitments to borrowers exhibiting a fully acceptable credit risk. These borrowers should have sound balance sheet proportions and significant cash flow coverage, although they may be somewhat more leveraged and exhibit greater fluctuations in earning and financing but generally would be considered very attractive to the Bank as a borrower. The borrower has historically demonstrated the ability to manage economic adversity. Real estate and asset-based loans which are designated this grade must have characteristics that place them well above the minimum underwriting requirements. Asset-based borrowers assigned this grade must exhibit extremely favorable leverage and cash flow characteristics and consistently demonstrate a high level of unused borrowing capacity
Pass 4: Loans or commitments to borrowers exhibiting either somewhat weaker balance sheet proportions or positive, but inconsistent, cash flow coverage. These borrowers may exhibit somewhat greater credit risk, and as a result of this, the Bank may have secured its exposure in an effort to mitigate the risk. If so, the collateral taken should provide an unquestionable ability to repay the indebtedness in full through liquidation, if necessary. Cash flows should be adequate to cover debt service and fixed obligations, although there may be a question about the borrower’s ability to provide alternative sources of funds in emergencies. Better quality real estate and asset-based borrowers who fully comply with all underwriting standards and are performing according to projections would be assigned this grade.
     Special Mention or 5: A Special Mention credit has potential weaknesses that deserve management’s close attention, as the borrower is exhibiting deteriorating trends that, if not corrected, could jeopardize repayment of the debt and result in a “Substandard” (6) grade. Credits which have significant actual, not potential, weaknesses are assigned lower grades than this grade.
     Substandard or 6: A Substandard credit has a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. A credit graded Substandard is not protected by the sound worth and paying capacity of the borrower, or of the value and type of collateral pledged. With a Substandard loan, there is a distinct possibility that the Bank will sustain some loss if the weaknesses or deficiencies are not corrected.
     Doubtful or 7: A Doubtful credit is one that has critical weaknesses that would make the collection or liquidation of the full amount due improbable. However, there may be pending events that may work to strengthen the credit, and therefore the amount or timing of a possible loss cannot be determined at the current time.
     Loss or 8: Loans classified Loss are considered uncollectible and of such little value that their continuance as active Bank assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that the loan should be charged off now, even though partial or full recovery may be possible in the future. Loans classified Loss will be charged off in a timely manner.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
     NOTE 5 — LOANS (Continued)
                                 
    Pass     Criticized     Classified        
    (Grade 0-4)     (Grade 5)     (Grade 6-7)     Total Loans  
    (In Thousands)  
June 30, 2011:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 274,428     $ 11,015     $ 33,903     $ 319,346  
Land
    3,610             26,256       29,866  
Other
    278,636       20,966       40,028       339,630  
Construction
    8,529       14,080       18,075       40,684  
Residential Property
    54,936             3,123       58,059  
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    113,299       17,597       55,206       186,102  
Secured by Real Estate
    617,367       72,790       156,015       846,172  
Commercial Lines of Credit
    38,580       8,758       3,298       50,636  
SBA
    71,024       580       33,445       105,049  
International
    40,698       312       5,550       46,560  
 
                               
Consumer Loans
    43,990       574       1,936       46,500  
 
                       
Total
  $ 1,545,097     $ 146,672     $ 376,835     $ 2,068,604  
 
                       
 
                               
December 31, 2010:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 302,696     $ 18,507     $ 38,568     $ 359,771  
Land
    3,845             37,353       41,198  
Other
    265,957       20,804       41,493       328,254  
Construction
    12,958       25,897       22,139       60,994  
Residential Property
    59,329             3,315       62,644  
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    134,709       24,620       63,739       223,068  
Secured by Real Estate
    617,200       107,645       171,086       895,931  
Commercial Lines of Credit
    40,195       8,019       10,841       59,055  
SBA
    68,994       731       35,965       105,690  
International
    38,447       4,693       1,027       44,167  
 
                               
Consumer Loans
    48,027       347       1,926       50,300  
 
                       
Total
  $ 1,592,357     $ 211,263     $ 427,452     $ 2,231,072  
 
                       

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following is an aging analysis of past due loans, disaggregated by loan class, as of June 30, 2011 and December 31, 2010:
                                                         
    30-59 Days Past             90 Days or More                             Accruing 90 Days or  
    Due     60-89 Days Past Due     Past Due     Total Past Due     Current     Total Loans     More Past Due  
    (In Thousands)  
June 30, 2011:
                                                       
Real Estate Loans:
                                                       
Commercial Property
                                                       
Retail
  $     $     $     $     $ 319,346     $ 319,346     $  
Land
                21,970       21,970       7,896       29,866        
Other
    4,081                   4,081       335,549       339,630        
Construction
                12,298       12,298       28,386       40,684        
Residential Property
    1,883       895       695       3,473       54,586       58,059        
 
                                                       
Commercial and Industrial Loans:
                                                       
Commercial Term
                                                       
Unsecured
    1,874       759       1,237       3,870       182,232       186,102        
Secured by Real Estate
    4,816       2,142       2,104       9,062       837,110       846,172        
Commercial Lines of Credit
                1,422       1,422       49,214       50,636        
SBA
    3,136       3,740       9,943       16,819       88,230       105,049        
International
    2,943       399             3,342       43,218       46,560        
 
                                                       
Consumer Loans
    1,024       321       40       1,385       45,115       46,500        
 
                                         
Total
  $ 19,757     $ 8,256     $ 49,709     $ 77,722     $ 1,990,882     $ 2,068,604     $  
 
                                         
 
                                                       
December 31, 2010:
                                                       
Real Estate Loans:
                                                       
Commercial Property
                                                       
Retail
  $     $     $ 7,857     $ 7,857     $ 351,913     $ 359,770     $  
Land
                25,725       25,725       15,471       41,196        
Other
                7,212       7,212       321,043       328,255        
Construction
    10,409             8,477       18,886       42,108       60,994        
Residential Property
    522             1,240       1,762       60,883       62,645        
 
                                                       
Commercial and Industrial Loans:
                                                       
Commercial Term
                                                       
Unsecured
    2,208       2,781       6,842       11,831       211,237       223,068        
Secured by Real Estate
    5,111       3,720       10,530       19,361       876,570       895,931        
Commercial Lines of Credit
    454             1,745       2,199       56,857       59,056        
SBA
    2,287       8,205       13,957       24,449       81,241       105,690        
International
                            44,167       44,167        
 
                                                       
Consumer Loans
    596       202       865       1,663       48,637       50,300        
 
                                         
Total
  $ 21,587     $ 14,908     $ 84,450     $ 120,945     $ 2,110,127     $ 2,231,072     $  
 
                                         
Impaired Loans
     Loans are identified and classified as impaired when, non-accrual and principal or interest payments have been contractually past due for 90 days or more, unless the loan is both well-collateralized and in the process of collection; or they are classified as Troubled Debt Restructuring (TDR) loans to offer terms not typically granted by the Bank or when current information or events make it unlikely to collect in full according to the contractual terms of the loan agreements; or they are classified as Substandard loans in an amount over 5% of the Bank’s Tier 1 Capital; or there is a deterioration in the borrower’s financial condition that raises uncertainty as to timely collection of either principal or interest; or full payment of both interest and principal is in doubt according to the original contractual terms.
     We evaluate loan impairment in accordance with applicable GAAP.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, loans that are considered impaired are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.
     The allowance for collateral-dependent loans is determined by calculating the difference between the outstanding loan balance and the collateral value as determined by recent appraisals. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following table provides information on impaired loans, disaggregated by loan class, as of the dates indicated:
                                         
    Recorded     Unpaid Principal     With No Related     With an Allowance     Related  
    Investment     Balance     Allowance Recorded     Recorded     Allowance  
                    (In Thousands)                  
June 30, 2011:
                                       
Real Estate Loans:
                                       
Commercial Property
                                       
Retail
  $ 15,810     $ 16,329     $ 8,845     $ 6,963     $ 565  
Land
    26,008       26,008       25,184       825       105  
Other
    21,624       21,748       3,698       17,926       2,623  
Construction
    12,298       12,396       12,298              
Residential Property
    2,325       2,386       1,982       343       31  
 
                                       
Commercial and Industrial Loans:
                                       
Commercial Term
                                       
Unsecured
    14,999       15,463       661       14,338       11,040  
Secured by Real Estate
    83,382       85,570       41,163       42,219       9,092  
Commercial Lines of Credit
    3,028       3,097       1,218       1,810       1,394  
SBA
    17,780       19,437       7,340       10,441       1,380  
International
    3,243       3,243             3,243       3,243  
 
                                       
Consumer Loans
    870       898       379       491       223  
 
                             
Total
  $ 201,367     $ 206,575     $ 102,768     $ 98,599     $ 29,696  
 
                             
 
                                       
December 31, 2010:
                                       
Real Estate Loans:
                                       
Commercial Property
                                       
Retail
  $ 17,606     $ 18,050     $ 6,336     $ 11,270     $ 1,543  
Land
    35,207       35,295       5,482       29,725       1,485  
Other
    11,357       11,476       10,210       1,147       33  
Construction
    17,691       17,831       13,992       3,699       280  
Residential Property
    1,926       1,990       1,926              
 
                                       
Commercial and Industrial Loans:
                                       
Commercial Term
                                       
Unsecured
    17,847       18,799       6,465       11,382       10,313  
Secured by Real Estate
    80,213       81,395       35,154       45,059       11,831  
Commercial Lines of Credit
    4,067       4,116       1,422       2,645       1,321  
SBA
    17,715       18,544       7,112       10,603       2,122  
International
    127       141             127       127  
 
                                       
Consumer Loans
    934       951       393       541       393  
 
                             
Total
  $ 204,690     $ 208,588     $ 88,492     $ 116,198     $ 29,448  
 
                             

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following table provides information on impaired loans, disaggregated by loan class, as of the dates indicated:
                                 
    Average     Interest     Average     Interest  
    Recorded     Income     Recorded     Income  
    Investment     Recognized     Investment     Recognized  
    for the Three     for the Three     for the Six     for the Six  
    Months     Months     Months     Months  
    Ended     Ended(1)     Ended     Ended(1)  
    (In Thousands)  
June 30, 2011:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 17,260     $ 26     $ 17,633     $ 51  
Land
    27,561             29,023        
Other
    21,849       60       21,864       121  
Construction
    12,535             12,578        
Residential Property
    2,371             2,386        
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    15,365       53       15,571       105  
Secured by Real Estate
    84,898       456       85,504       821  
Commercial Lines of Credit
    3,076       2       3,090       4  
SBA
    18,900       31       19,107       57  
International
    3,243             2,255        
 
                               
Consumer Loans
    889       1       893       1  
 
                       
Total
  $ 207,947     $ 629     $ 209,904     $ 1,160  
 
                       
June 30, 2010:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 17,977     $     $ 25,664     $  
Land
    43,425       59       45,164       114  
Other
    16,492       55       18,524       216  
Construction
    9,823             9,823        
Residential Property
    2,725             2,784        
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    20,289             18,278       9  
Secured by Real Estate
    111,388       67       104,745       293  
Commercial Lines of Credit
    6,132       56       5,499       82  
SBA
    25,573             26,083        
International
    284             588        
 
                               
Consumer Loans
    396             531        
 
                       
Total
  $ 254,504     $ 237     $ 257,683     $ 714  
 
                       
 
(1)    Represents interest income recognized on impaired loans subsequent to classification as impaired.
     For the three and six months ended June 30, 2011, we recognized interest income of $0 and $33,000, respectively, on one impaired commercial term loan secured by real estate using a cash-basis method. For the three and six months ended June 30, 2010, we recognized interest income of $67,000 and $204,000, respectively, on one impaired commercial term loan secured by real estate using a cash-basis method. Except for such loan, no other interest income was recognized on impaired loans subsequent to classification as impaired using a cash-basis method.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following is a summary of interest foregone on impaired loans for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
    (In Thousands)  
Interest Income That Would Have Been Recognized Had Impaired Loans Performed in Accordance With Their Original Terms
  $ 2,001     $ 3,755     $ 4,475     $ 7,030  
Less: Interest Income Recognized on Impaired Loans
    (629 )     (237 )     (1,160 )     (714 )
 
                       
Interest Foregone on Impaired Loans
  $ 1,372     $ 3,518     $ 3,315     $ 6,316  
 
                       
     There were no commitments to lend additional funds to borrowers whose loans are included above.
Non-Accrual Loans
     Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectibility of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when principal and interest become current and full repayment is expected.
     The following table details non-accrual loans, disaggregated by class of loan, for the periods indicated:
                 
    June 30,     December 31,  
    2011     2010  
    (In Thousands)  
Real Estate Loans:
               
Commercial Property
               
Retail
  $ 14,335     $ 10,998  
Land
    25,184       25,725  
Other
    3,772       8,953  
Construction
    12,298       17,691  
Residential Property
    1,460       1,926  
 
               
Commercial and Industrial Loans:
               
Commercial Term
               
Unsecured
    10,758       17,065  
Secured by Real Estate
    46,454       31,053  
Commercial Lines of Credit
    2,905       2,798  
SBA
    23,263       25,054  
International
    3,243       127  
 
               
Consumer Loans
    824       1,047  
 
           
Total
  $ 144,496     $ 142,437  
 
           

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 5 — LOANS (Continued)
     The following table details non-performing assets as of the dates indicated:
                 
    June 30,     December 31,  
    2011     2010  
    (In Thousands)  
Non-Accrual Loans
  $ 144,496     $ 142,437  
Loans 90 Days or More Past Due and Still Accruing
           
 
           
Total Non-Performing Loans
    144,496       142,437  
Other Real Estate Owned
    1,340       4,089  
 
           
Total Non-Performing Assets
  $ 145,836     $ 146,526  
 
           
Troubled Debt Restructurings on Accrual Status
  $ 19,793     $ 47,395  
 
           
     Loans on non-accrual status, excluding non-performing loans held for sale of $22.6 million, totaled $144.5 million as of June 30, 2011, compared to $142.4 million as of December 31, 2010, representing an 1.4 percent increase. Delinquent loans (defined as 30 days or more past due), excluding loans held for sale, were $77.7 million as of June 30, 2011, compared to $120.9 million as of December 31, 2010, representing a 35.7 percent decrease.
     As of June 30, 2011, other real estate owned consisted of five properties, primarily located in California, with a combined net carrying value of $1.3 million. During the six months ended June 30, 2011, five properties, with a carrying value of $2.8 million, were transferred from loans receivable to other real estate owned, and eight properties, with a carrying value of $4.4 million, were sold and a loss of $681,000 was recognized. As of December 31, 2010, other real estate owned consisted of eight properties with a combined net carrying value of $4.1 million.
     During the six months ended June 30, 2011, we restructured monthly payments on 92 loans, with a net carrying value of $77.4 million as of June 30, 2011, through temporary payment structure modifications ranging from changing the amount of principal and interest due monthly to allowing for interest only due monthly payments for six months or less. For the restructured loans on accrual status, we believe that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is probable. As of June 30, 2011, TDR loans, excluding loans held for sale, totaled $76.0 million, all of which were temporary interest rate reductions, and a $13.2 million reserve relating to these loans was included in the allowance for loan losses. As of December 31, 2010, TDR loans, excluding loans held for sale, totaled $72.2 million and the related allowance for loan losses was $10.2 million.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 6 — INCOME TAXES
     Under GAAP, a valuation allowance must be recorded if it is “more likely than not” that such deferred tax assets will not be realized. Appropriate consideration is given to all available evidence (both positive and negative) related to the realization of the deferred tax assets on a quarterly basis.
     In conducting our regular quarterly evaluation, we decided to maintain a full deferred tax asset valuation allowance as of June 30, 2011 based primarily upon the existence of a three-year cumulative loss position. Although our current financial forecasts indicate that sufficient taxable income will be generated in the future to ultimately realize the existing deferred tax benefits, those forecasts were not considered to constitute sufficient positive evidence to overcome the observable negative evidence associated with the three-year cumulative loss position determined as of June 30, 2011.
     At June 30, 2011, the valuation allowance decreased to $82.7 million compared to $88.6 million at March 31, 2011 and $92.7 million at December 31, 2010. This decrease was mainly due to a decrease of deferred tax assets balance related to credit loss provision. We had zero balance of net deferred tax assets as of June 30, 2011 and December 31, 2010. During the first half of 2010, we recorded an additional valuation allowance of $37.8 million against our deferred tax assets, resulting in $83.0 million of valuation allowance at June 30, 2010. There was $1.2 million of net deferred tax liabilities as of June 30, 2010.
     The tax expense recognized for the three and six months ended June 30, 2011 was primarily due to an out-of-period adjustment of $605,000 and $718,000, respectively, to reserve for certain ASC 740-10(FIN 48) exposure items. During the fourth quarter of 2009, the Company recorded a tax benefit upon electing a 5-year net operating loss carryback according to the IRS Code section IRC § 172(b)(1)(H) amended in November 2009. This out -of-period adjustment was to reinstate the reserves that the Company released as the statute of limitations had expired in previous years. Due to the Company filing amended tax returns as a result of the tax law revision, the Company needed to reestablish these reserves. The tax benefit recognized during the first half of 2010 was primarily due to the reversal of FIN 48 reserves related to lower assessment from the result of the State of California Franchise Tax Board audit for the tax year 2005 through 2007.
NOTE 7 — SHARE-BASED COMPENSATION
Share-Based Compensation Expense
     The table below shows the share-based compensation expense and related tax benefits for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
    (In Thousands)  
Share-Based Compensation Expense
  $ 69     $ 280     $ 382     $ 486  
Related Tax Benefits
  $ 29     $ 118     $ 161     $ 205  
Unrecognized Share-Based Compensation Expense
     As of June 30, 2011, unrecognized share-based compensation expense was as follows:
                 
    Unrecognized     Average Expected  
    Expense     Recognition Period  
    (Dollars in Thousands)  
Stock Option Awards
  $ 192     1.9 years
Restricted Stock Awards
    219     2.2 years
 
             
Total Unrecognized Share-Based Compensation Expense
  $ 411     2.1 years
 
             

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 7 — SHARE-BASED COMPENSATION (Continued)
Share-Based Payment Award Activity
     The table below provides stock option information for the three months ended June 30, 2011:
                                 
            Weighted-     Weighted-     Aggregate  
            Average     Average     Intrinsic  
    Number     Exercise     Remaining     Value of  
    of     Price Per     Contractual     In-the-Money  
    Shares     Share     Life     Options  
    (Dollars in Thousands, Except Per Share Data)  
Options Outstanding at Beginning of Period
    1,210,091     $ 10.58     5.7 years   $ (1)
Options Expired
    (17,200 )   $ 16.15     1.1 years        
 
                             
Options Outstanding at End of Period
    1,192,891     $ 10.50     5.5 years   $ (2)
 
                             
Options Exercisable at End of Period
    927,291     $ 12.80     4.6 years   $ (2)
 
(1)    Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.24 as of March 31, 2011, over the exercise price, multiplied by the number of options.
 
(2)    Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.07 as of June 30, 2011, over the exercise price, multiplied by the number of options.
     The table below provides stock option information for the six months ended June 30, 2011:
                                 
            Weighted-     Weighted-     Aggregate  
            Average     Average     Intrinsic  
    Number     Exercise     Remaining     Value of  
    of     Price Per     Contractual     In-the-Money  
    Shares     Share     Life     Options  
    (Dollars in Thousands, Except Per Share Data)  
Options Outstanding at Beginning of Period
    1,066,891     $ 11.93     5.3 years   $ (1)
Options Granted
    150,000     $ 1.30     9.7 years        
Options Expired
    (21,200 )   $ 16.54     4.1 years        
Options Forfeited
    (2,800 )   $ 18.00     4.8 years        
 
                             
Options Outstanding at End of Period
    1,192,891     $ 10.50     5.5 years   $ (2)
 
                             
Options Exercisable at End of Period
    927,291     $ 12.80     4.6 years   $ (2)
 
(1)     Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.15 as of December 31, 2010, over the exercise price, multiplied by the number of options.
 
(2)     Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $1.07 as of June 30, 2011, over the exercise price, multiplied by the number of options.
     There were no options exercised during the three and six months ended June 30, 2011, and total intrinsic value of options exercised during the three and six months ended June 30, 2010 was $14,000.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 7 — SHARE-BASED COMPENSATION (Continued)
Restricted Stock Awards
     The table below provides restricted stock award information for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30, 2011     June 30, 2011  
            Weighted-             Weighted-  
            Average             Average  
    Number     Grant Date     Number     Grant Date  
    of     Fair Value     of     Fair Value  
    Shares     Per Share     Shares     Per Share  
Restricted Stock at Beginning of Period
    185,600     $ 1.72       145,600     $ 1.77  
 
                               
Restricted Stock Granted
        $       60,000     $ 1.30  
Restricted Stock Vested
    (35,000 )   $ 1.40       (55,000 )   $ 1.33  
 
                           
Restricted Stock at End of Period
    150,600     $ 1.75       150,600     $ 1.75  
 
                           
NOTE 8 — STOCKHOLDERS’ EQUITY
Stock Warrants
     As part of the agreement executed on July 27, 2010 with Cappello Capital Corp, the placement agent in connection with our best efforts offering and the financial advisor in connection with our completed rights offering, we issued warrants to purchase two million shares of our common stock for services performed. The warrants have an exercise price of $1.20 per share. According to the agreement, the warrants vested on October 14, 2010 and are exercisable until its expiration on October 14, 2015. The Company followed the guidance of FASB ASC Topic 815- 40, “Derivatives and Hedging — Contracts in Entity’s Own Stock” (“ASC 815- 40”), which establishes a framework for determining whether certain freestanding and embedded instruments are indexed to a company’s own stock for purposes of evaluation of the accounting for such instruments under existing accounting literature. Under GAAP, the issuer is required to measure the fair value of the equity instruments in the transaction as of earlier of i) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or ii) the date at which the counterparty’s performance is complete. The fair value of the warrants at the date of issuance totaling $2.0 million was recorded as a liability and a cost of equity, which was determined by the Black-Scholes option pricing model. The expected stock volatility is based on historical volatility of our common stock over the expected term of the warrants. We used a weighted average expected stock volatility of 111.46%. The expected life assumption is based on the contract term of five years. The dividend yield of zero is based on the fact that we have no present intention to pay cash dividends. The risk free rate of 2.07% used for the warrant is equal to the zero coupon rate in effect at the time of the grant.
     Upon re-measuring the fair value of the stock warrants at June 30, 2011, compared to $1.6 million at December 31, 2010, the fair value decreased by $311,000, which we have included in other operating expenses for the six months ended June 30, 2011. We used a weighted average expected stock volatility of 83.02% and a remaining contractual life of 4.3 years based on the contract terms. We also used a dividend yield of zero as we have no present intention to pay cash dividends. The risk free rate of 1.75% used for the warrant is equal to the zero coupon rate in effect at the end of the measurement period.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 9 — EARNINGS (LOSS) PER SHARE
     Earnings (loss) per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury. Unvested restricted stock is excluded from the calculation of weighted-average common shares for basic EPS. For diluted EPS, weighted-average common shares include the impact of restricted stock under the treasury method.
     The following tables present a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:
                                                 
    2011     2010  
            (Denominator)                     (Denominator)        
    (Numerator)     Weighted-     Per     (Numerator)     Weighted-     Per  
    Net     Average     Share     Net     Average     Share  
    Income     Shares     Amount     Loss     Shares     Amount  
    (Dollars in Thousands, Except Per Share Data)  
Three Months Ended June 30:
                                               
 
Basic EPS
  $ 8,001       151,104,636     $ 0.05     $ (29,257 )     51,036,573     $ (0.57 )
Effect of Dilutive Securities — Options, Warrants and Unvested Restricted Stock
          153,754                          
 
                                   
Diluted EPS
  $ 8,001       151,258,390     $ 0.05     $ (29,257 )     51,036,573     $ (0.57 )
 
                                   
 
                                               
Six Months Ended June 30:
                                               
Basic EPS
  $ 18,438       151,082,945     $ 0.12     $ (78,743 )     51,017,885     $ (1.54 )
Effect of Dilutive Securities — Options, Warrants and Unvested Restricted Stock
          174,405                          
 
                                   
 
Diluted EPS
  $ 18,438       151,257,350     $ 0.12     $ (78,743 )     51,017,885     $ (1.54 )
 
                                   
     For the three months ended June 30, 2011 and 2010, there were 3,192,891 and 1,266,115 options, warrants and unvested restricted stock outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive. For the six months ended June 30, 2011 and 2010, there were 1,192,891 and 1,266,115 options, warrants and unvested restricted stock outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive.
NOTE 10 — OFF-BALANCE SHEET COMMITMENTS
     We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 10 — OFF-BALANCE SHEET COMMITMENTS (Continued)
     Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing or borrower-occupied properties. The following table shows the distribution of undisbursed loan commitments as of the dates indicated:
                 
    June 30,     December 31,  
    2011     2010  
    (In Thousands)  
Commitments to Extend Credit
  $ 167,018     $ 178,424  
Standby Letters of Credit
    14,771       15,226  
Commercial Letters of Credit
    7,654       11,899  
Unused Credit Card Lines
    17,058       24,649  
 
           
Total Undisbursed Loan Commitments
  $ 206,501     $ 230,198  
 
           
NOTE 11 — 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 12 — LIQUIDITY
Hanmi Financial
     Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its operating cash needs through December 31, 2011. 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 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 June 30, 2011, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $6.3 million, down from $7.7 million at December 31, 2010.
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 originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of June 30, 2011, in compliance with its regulatory restrictions, the Bank had no brokered deposits, and had FHLB advances of $3.5 million, a decrease of $150.2 million from $153.7 million at December 31, 2010.
     The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 15 percent of its total assets. As of June 30, 2011, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $391.6 million and $387.7 million, respectively. The Bank’s FHLB borrowings as of June 30, 2011 totaled $3.5 million, representing 0.1 percent of total assets.
     As of August 5, 2011, the Bank’s FHLB borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $378.1 million and $374.6 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.

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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 (Continued)
NOTE 12 — LIQUIDITY (Continued)
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 $150.5 million from the Federal Reserve Discount Window (the “Fed Discount Window”), to which the Bank pledged loans with a carrying value of $321.1 million, and had no borrowings as of June 30, 2011. The Bank is currently in the secondary program of the Borrower in Custody Program of the Fed Discount Window, which allows the Bank to request very short-term credit (typically overnight) at a rate that is above the primary credit rate within a specified period. In August 2010, South Street Securities LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million.
     Current market conditions have limited the Bank’s liquidity sources principally to interest-bearing deposits, unpledged marketable securities, and 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. As of June 30, 2011, in compliance with its regulatory restrictions, the Bank did not have any brokered deposits and would consult in advance with its regulators if it were to consider accepting brokered deposits in the future.
     The Bank has Contingency Funding Plans (“CFPs”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFPs are designed to examine and quantify its liquidity under various “stress” scenarios. Furthermore, the CFPs provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. The CFPs address authority for activation and decision making, liquidity options and the responsibilities of key departments in the event of a liquidity contraction.
     The Bank believes that it nonetheless has adequate liquidity resources to fund its obligations with its interest-bearing deposits, unpledged marketable securities, and secured credit lines with the FHLB and Fed Discount Window.
NOTE 13 — SUBSEQUENT EVENTS
     Management has evaluated subsequent events through the date of issuance of the financial data included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the Consolidated Financial Statements (Unaudited) as of June 30, 2011.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and six months ended June 30, 2011. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010 and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 (this “Report”).
FORWARD-LOOKING STATEMENTS
     Some of the statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward —looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs, plan and availability, plans and objectives of management for future operations, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These risks, uncertainties and other factors include the following:
    failure to raise enough capital to support our operations or meet our regulatory requirements, including requirements under the Final Order and the Agreement;
 
    failure to maintain adequate levels of capital to support our operations;
 
    a significant number of customers failing to perform under their loans or other extensions of credit;
 
    our compliance with and the effect of regulatory orders and agreements that we and Hanmi Bank have entered into with our respective regulators and potential future supervisory or governmental actions against us or Hanmi Bank;
 
    fluctuations in interest rates and a decline in the level of our interest rate spread;
 
    failure to attract or retain deposits and restrictions on taking brokered deposits;
 
    sources of liquidity available to us and to Hanmi Bank becoming limited or our potential inability to access sufficient sources of liquidity when needed or the requirement that we obtain government waivers to do so;
 
    adverse changes in domestic or global financial markets, economic conditions or business conditions;
 
    regulatory restrictions on Hanmi Bank’s ability to pay dividends to us and on our ability to make payments on our obligations;
 
    significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate;
 
    our use of appraisals in deciding whether to make loans secured by real property, which does not ensure that the value of the real property collateral will be sufficient to pay our loans;
 
    failure to attract or retain our key employees;
 
    credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses;
 
    our ability to raise capital on reasonable terms;
 
    volatility and disruption in financial, credit and securities markets, and the price of our common stock;
 
    deterioration in financial markets that may result in impairment charges relating to our securities portfolio;
 
    competition and demographic changes in our primary market areas;
 
    global hostilities, acts of war or terrorism, including but not limited to, conflict between North Korea and

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      South Korea;
 
    the effects of climate change and attendant regulation on our customers and borrowers;
 
    the effects of litigation against us;
 
    failed or circumvented internal controls and procedures;
 
    adverse changes in the soundness of other financial institutions with whom we have trading, clearing, counterparty or other relationships;
 
    risks associated with security breaches in our online banking services, and fears of security breaches that limit the growth of our online services;
 
    significant government regulations, legislation and potential changes thereto; and
 
    other risks described herein and in the other reports and statements we file with the SEC.
     For a discussion of some of the other factors that might cause such a difference, see the discussion contained in this Report under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Also see “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2010 as well as other factors we identify from time to time in our periodic reports filed pursuant to the Exchange Act. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.
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, 2010. Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2010. 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.

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SELECTED FINANCIAL DATA
     The following tables set forth certain selected financial data for the periods indicated.
                                 
    As of and for the  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
    (Dollars in Thousands, Except Per Share Data)  
AVERAGE BALANCES:
                               
Average Gross Loans, Net (1)
  $ 2,136,976     $ 2,611,178     $ 2,185,274     $ 2,688,012  
Average Investment Securities
  $ 497,052     $ 158,543     $ 485,148     $ 142,034  
Average Interest-Earning Assets
  $ 2,804,709     $ 2,965,975     $ 2,848,313     $ 2,988,332  
Average Total Assets
  $ 2,836,967     $ 2,978,245     $ 2,871,419     $ 3,031,917  
Average Deposits
  $ 2,427,934     $ 2,617,738     $ 2,443,299     $ 2,640,224  
Average Borrowings
  $ 190,447     $ 240,189     $ 213,820     $ 248,614  
Average Interest-Bearing Liabilities
  $ 2,025,392     $ 2,292,121     $ 2,078,947     $ 2,326,367  
Average Stockholders’ Equity
  $ 189,528     $ 91,628     $ 183,906     $ 114,651  
PER SHARE DATA:
                               
Earnings (Loss) Per Share — Basic
  $ 0.05     $ (0.57 )   $ 0.12     $ (1.54 )
Earnings (Loss) Per Share — Diluted
  $ 0.05     $ (0.57 )   $ 0.12     $ (1.54 )
Common Shares Outstanding
    151,258,390       51,198,390       151,258,390       51,198,390  
Book Value Per Share (2)
  $ 1.31     $ 1.43     $ 1.31     $ 1.43  
SELECTED PERFORMANCE RATIOS:
                               
Return on Average Assets (3) (4)
    1.13 %     (3.94 %)     1.29 %     (5.24 %)
Return on Average Stockholders’ Equity (3) (5)
    16.93 %     (128.07 %)     20.22 %     (138.50 %)
Efficiency Ratio (6)
    72.67 %     75.11 %     69.64 %     75.75 %
Net Interest Spread (7)
    3.26 %     3.17 %     3.26 %     3.22 %
Net Interest Margin (8)
    3.65 %     3.56 %     3.66 %     3.62 %
Average Stockholders’ Equity to Average Total Assets
    6.68 %     3.08 %     6.40 %     3.78 %
SELECTED CAPITAL RATIOS: (9)
                               
Total Risk-Based Capital Ratio:
                               
Hanmi Financial
    13.92 %     7.31 %                
Hanmi Bank
    14.02 %     7.35 %                
Tier 1 Risk-Based Capital Ratio:
                               
Hanmi Financial
    11.92 %     3.69 %                
Hanmi Bank
    12.72 %     6.02 %                
Tier 1 Leverage Ratio:
                               
Hanmi Financial
    9.09 %     3.06 %                
Hanmi Bank
    9.70 %     4.99 %                
SELECTED ASSET QUALITY RATIOS:
                               
Non-Performing Loans to Total Gross Loans (10) (11)
    7.91 %     9.67 %     7.91 %     9.67 %
Non-Performing Assets to Total Assets (12)
    6.21 %     9.13 %     6.21 %     9.13 %
Net Loan Charge-Offs to Average Total Gross Loans (13)
    3.10 %     5.98 %     3.51 %     4.90 %
Allowance for Loan Losses to Total Gross Loans
    5.16 %     7.05 %     5.16 %     7.05 %
Allowance for Loan Losses to Non-Performing Loans
    65.25 %     72.96 %     65.25 %     72.96 %
 
(1)   Loans are net of deferred fees and related direct costs.
 
(2)   Total stockholders’ equity divided by common shares outstanding.
 
(3)   Calculation based upon annualized net loss.
 
(4)   Net loss divided by average total assets.
 
(5)   Net loss divided by average stockholders’ equity.
 
(6)   Total non-interest expenses divided by the sum of net interest income before provision for credit losses and total non-interest income.
 
(7)   Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(8)   Net interest income before provision for credit losses divided by average interest-earning assets. Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(9)   The required ratios for a “well-capitalized” institution, as defined by regulations of the Board of Governors of the Federal Reserve System, are 10 percent for the Total Risk-Based Capital Ratio (total capital divided by total risk-weighted assets); 6 percent for the Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets); and 5 percent for the Tier 1 Leverage Ratio (Tier 1 capital divided by average total assets).
 
(10)   Non-performing loans consist of non-accrual loans and loans past due 90 days or more and still accruing interest.
 
(11)   This Quarterly Report on Form 10-Q includes corrected data regarding total non-performing loans as of and for the quarter ended June 30, 2011, which differ from and supersede data included in the Earnings Release dated July 21, 2011. These corrections had no effect on the statement of operations or earnings per share for the second quarter of 2011.
 
(12)   Non-performing assets consist of non-performing loans (see footnote (10) and (11) above) and other real estate owned.
 
(13)   Calculation based upon annualized net loan charge-offs.

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Non-GAAP Financial Measures
     Tangible Stockholders’ Equity to Tangible Assets Ratio
     The ratio of tangible stockholders’ equity to tangible assets 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 Bank’s capital strength. Tangible equity is calculated by subtracting goodwill and other intangible assets from total stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from total stockholders’ equity when assessing the capital adequacy of a financial institution. Management believes the presentation of this financial measure, excluding the impact of these items, provides useful supplemental information that is essential to a proper understanding of the capital strength of Hanmi Bank. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
     The following table reconciles this non-GAAP performance measure to the GAAP performance measure for the periods indicated:
     Hanmi Bank
                 
    June 30,     December 31,  
    2011     2010  
    (In Thousands)  
Total Assets
  $ 2,705,997     $ 2,900,415  
Less Intangible Assets
    (184 )     (450 )
 
           
 
Tangible Assets
  $ 2,705,813     $ 2,899,965  
 
           
 
Total Stockholders’ Equity
  $ 279,712     $ 249,637  
Less Intangible Assets
    (184 )     (450 )
 
           
 
Tangible Stockholders’ Equity
  $ 279,528     $ 249,187  
 
           
 
Total Stockholders’ Equity to Total Assets Ratio
    10.34 %     8.61 %
Tangible Stockholders’ Equity to Tangible Assets Ratio
    10.33 %     8.59 %
     As of June 30, 2011 and December 31, 2010, the Bank had a tangible stockholders’ equity to tangible assets ratio of 10.33% and 8.59%, respectively.

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EXECUTIVE OVERVIEW
     For the second quarter ended June 30, 2011, we reported net income of $8.0 million, or $0.05 per diluted share, compared to a net loss of $29.3 million, or $(0.57) per diluted share for the same period in 2010. We reported net income for the first six months ended June 30, 2011 of $18.4 million, or $0.12 per diluted share, compared to a net loss of $78.7 million, or $(1.54) per diluted share for the same period in 2010. The increase in net income for the second quarter and first half ended June 30, 2011 was primarily driven by the lack of any provision for credit losses, reflecting continued improvement in most credit metrics. We recorded $37.5 million and $95.5 million in provision for credit losses for the second quarter ended June 30, 2010 and for the first half of 2010, respectively.
     With profits generated for three consecutive quarters since the fourth quarter of 2010 and the successful completion of the $120 million registered rights and best efforts offering during the third quarter of 2010, the Bank exceeded the threshold for being considered “well-capitalized” for regulatory purposes since September 30, 2010 and, as of June 30, 2011, complies with the tangible capital ratio requirement set forth in the Final Order.
     Significant financial highlights include (as of and for the period ended June 30, 2011):
    The Bank’s total risk-based capital ratio improved to 14.02 percent as of June 30, 2011 compared to 12.22 percent as of December 31, 2010. The Bank’s tangible common equity to tangible assets ratio also improved to 10.33 percent as of June 30, 2011 compared to 8.59 percent as of December 31, 2010.
 
    Due to the success of recent marketing initiatives, core deposits (defined as total deposits less time deposits greater than $100,000) increased by $171.4 million, or 12.7 percent, to $1.52 billion as of June 30, 2011 from $1.35 billion as of December 31, 2010. At June 30, 2011, noninterest-bearing demand deposits represented 25.1 percent of total deposits compared to 22.2 percent of total deposits at December 31, 2010.
 
    The average loan yield improved by 19 basis points to 5.49 percent in the second quarter of 2011 compared to 5.30 percent for the same period in 2010, and improved by 21 basis points to 5.55 percent for the first half of 2011 compared to 5.34 percent for the same period in 2010, reflecting the improvement in credit quality.
 
    The cost of funds decreased primarily through downward re-pricing of matured time deposits. The average funding cost decreased by 32 basis points to 1.41 percent in the second quarter of 2011 compared to 1.73 percent for the same period in 2010, and decreased by 34 basis points to 1.45 percent for the first half of 2011 compared to 1.79 percent for the same period in 2010.
 
    Net interest margin improved by 9 basis points to 3.65 percent in the second quarter of 2011 compared to 3.56 percent for the same period in 2010, and improved by 4 basis points to 3.66 percent for the first half of 2011 compared to 3.62 percent for the same period in 2010.
Outlook for the Remainder of 2011
     Our priorities for the remainder of 2011 are to reevaluate the adequacy of our capital given the level and nature of the risks to which we are exposed, continue to improve our credit quality, and fully comply with all of the requirements of the Final Order and the Agreement.
     We will continue to actively work down problem loans through bulk and individual note sales, and redeploy the proceeds into performing loans or securities investments. We believe that our continuous proactive initiatives to manage credit risk exposure have resulted in improvement of our asset quality over the past several quarters. Our commitment to elevate our credit risk management systems will continue in order to meet the challenges of our uncertain economic environment. In addition, we have reinvigorated sales with targeted marketing programs that focus on generating quality loans and core deposits to improve profitability and expand existing customer base.

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RESULTS OF OPERATIONS
Net Interest Income before Provision for Credit Losses
     Our earnings depend largely upon the difference between the interest income received from our loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings. The difference is “net interest income.” The difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities is “net interest spread.” Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the “net interest margin.”
     Net interest income is affected by the change in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” Our net interest income also is affected by changes in the yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate changes.” Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. Those factors are affected by general economic conditions and other factors beyond our control, such as Federal economic policies, the general supply of money in the economy, income tax policies, governmental budgetary matters and the actions of the FRB.

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     Three Months Ended June 30, 2011 vs. Three Months Ended June 30, 2010
     The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
                                                 
    Three Months Ended  
    June 30, 2011     June 30, 2010  
            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)
  $ 2,136,976     $ 29,248       5.49 %   $ 2,611,178     $ 34,486       5.30 %
Municipal Securities:
                                               
Taxable
    13,603       140       4.12 %                  
Tax — Exempt (2)
    4,125       57       5.53 %     7,484       119       6.36 %
Obligations of Other U.S. Government Agencies
    152,438       629       1.65 %     65,894       560       3.40 %
Other Debt Securities
    326,886       2,326       2.85 %     85,165       800       3.76 %
Equity Securities (5)
    34,078       133       1.56 %     37,979       123       1.30 %
Federal Funds Sold
    7,067       9       0.51 %     12,198       16       0.52 %
Term Federal Funds Sold
    13,681       18       0.53 %     7,253       11       0.61 %
Interest-Earning Deposits
    115,855       79       0.27 %     138,824       99       0.29 %
 
                                       
 
Total Interest-Earning Assets (2)
    2,804,709       32,639       4.67 %     2,965,975       36,214       4.90 %
 
                                       
 
                                               
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    68,371                       68,536                  
Allowance for Loan Losses
    (125,152 )                     (182,103 )                
Other Assets
    89,039                       125,837                  
 
                                           
 
                                               
Total Noninterest-Earning Assets
    32,258                       12,270                  
 
                                           
 
                                               
TOTAL ASSETS
  $ 2,836,967                     $ 2,978,245                  
 
                                           
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Savings
  $ 111,723       734       2.64 %   $ 125,016       922       2.96 %
Money Market Checking and NOW Accounts
    488,723       1,010       0.83 %     458,137       1,217       1.07 %
Time Deposits of $100,000 or More
    926,024       3,477       1.51 %     1,090,412       5,057       1.86 %
Other Time Deposits
    308,475       971       1.26 %     378,367       1,617       1.71 %
Federal Home Loan Bank Advances
    106,710       239       0.90 %     153,859       339       0.88 %
Other Borrowings
    1,331       1       0.30 %     3,924       31       3.17 %
Junior Subordinated Debentures
    82,406       711       3.46 %     82,406       692       3.37 %
 
                                       
 
                                               
Total Interest-Bearing Liabilities
    2,025,392       7,143       1.41 %     2,292,121       9,875       1.73 %
 
                                       
 
                                               
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    592,989                       565,806                  
Other Liabilities
    29,058                       28,690                  
 
                                           
 
                                               
Total Noninterest-Bearing Liabilities
    622,047                       594,496                  
 
                                           
 
                                               
Total Liabilities
    2,647,439                       2,886,617                  
Stockholders’ Equity
    189,528                       91,628                  
 
                                           
 
                                               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 2,836,967                     $ 2,978,245                  
 
                                           
 
                                               
NET INTEREST INCOME
          $ 25,496                     $ 26,339          
 
                                           
 
                                               
NET INTEREST SPREAD (2) (3)
                    3.26 %                     3.17 %
 
                                           
 
                                               
NET INTEREST MARGIN (2) (4)
                    3.65 %                     3.56 %
 
                                           
 
(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 $570,000 and $477,000 for the three months ended June 30, 2011 and 2010, respectively.
 
(2)   Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(3)   Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
 
(4)   Represents annualized net interest income as a percentage of average interest-earning assets.
 
(5)   Includes investment in Federal Home Loan Bank stock and Federal Reserve Bank stock.

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     The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes were allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
                         
    Three Months Ended June 30, 2011 vs.  
    Three Months Ended June 30, 2010  
    Increases (Decreases) Due to Change in  
    Volume     Rate     Total  
    (In Thousands)  
Interest and Dividend Income:
                       
Gross Loans, Net
  $ (6,452 )   $ 1,214     $ (5,238 )
Municipal Securities:
                       
Taxable
    140             140  
Tax — Exempt
    (48 )     (14 )     (62 )
Obligations of Other U.S. Government Agencies
    463       (394 )     69  
Other Debt Securities
    1,763       (237 )     1,526  
Equity Securities
    (14 )     24       10  
Federal Funds Sold
    (7 )           (7 )
Term Federal Funds Sold
    8       (1 )     7  
Interest-Earning Deposits
    (16 )     (4 )     (20 )
 
                 
 
                       
Total Interest and Dividend Income
    (4,163 )     588       (3,575 )
 
                 
 
                       
Interest Expense:
                       
Savings
    (93 )     (95 )     (188 )
Money Market Checking and NOW Accounts
    77       (284 )     (207 )
Time Deposits of $100,000 or More
    (698 )     (882 )     (1,580 )
Other Time Deposits
    (266 )     (380 )     (646 )
Federal Home Loan Bank Advances
    (106 )     6       (100 )
Other Borrowings
    (12 )     (18 )     (30 )
Junior Subordinated Debentures
          19       19  
 
                 
 
                       
Total Interest Expense
    (1,098 )     (1,634 )     (2,732 )
 
                 
 
                       
Change in Net Interest Income
  $ (3,065 )   $ 2,222     $ (843 )
 
                 
     For the three months ended June 30, 2011 and 2010, net interest income before provision for credit losses on a tax equivalent basis was $25.5 million and $26.3 million, respectively. Interest income decreased 9.8 percent to $32.6 million for the three months ended June 30, 2011 from $36.2 million for the same period in 2010. Interest expense also decreased 27.7 percent to $7.1 million for the three months ended June 30, 2011 from $9.9 million for the same period in 2010. The net interest spread and net interest margin for the three months ended June 30, 2011 were 3.26 percent and 3.65 percent, respectively, compared to 3.17 percent and 3.56 percent, respectively, for the same period in 2010. The decrease in net interest income was primarily due to the decrease in loan volume resulting from the credit quality improvement strategy, coupled with relatively weak loan demand in current challenging business and economic conditions. This decrease was mostly offset by lower deposit costs resulting from the replacement of high-cost promotional time deposits with low-cost deposit products through a series of core deposit campaigns.
     Average gross loans decreased by $474.2 million, or 18.2 percent, to $2.14 billion for the three months ended June 30, 2011 from $2.61 billion for the same period in 2010. Average investment securities increased by $338.5 million, or 213.5 percent, to $497.1 million for the three months ended June 30, 2011 from $158.5 million for the same period in 2010. Average interest-earning assets decreased by $161.2 million, or 5.4 percent, to $2.80 billion for the three months ended June 30, 2011 from $2.97 billion for the same period in 2010. The decrease in average interest earning assets was a direct result of our balance sheet deleveraging and credit quality improvement strategy implemented since early 2009 through the disposition of problem assets while maintaining a strong level of liquidity with increased investment in short and mid-term instruments. Consistent with this strategy, the average interest-bearing liabilities decreased by $266.7 million, or 11.6 percent, to $2.03 billion for the three months ended June 30, 2011 from $2.29 billion for the same period in 2010. Average FHLB advances decreased by $47.1 million, or 30.6 percent, to $106.7 million for the three months ended June 30, 2011 from $153.9 million for the same period in 2010.
     The average yield on interest-earning assets decreased by 23 basis points to 4.67 percent for the three months ended June 30, 2011 from 4.90 percent for the same period in 2010, primarily due to lower yields on investment securities in the current low interest rate environment, partially offset by an increase in loan portfolio yields. Total loan interest and fee income decreased by $5.2 million, or 15.19 percent, to $29.2 million for the three months ended June

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30, 2011 from $34.5 million for the same period in 2010 due primarily to an 18.16 percent decrease in the average gross loans. The average yield on loans increased to 5.49 percent for the three months ended June 30, 2011 from 5.30 percent for the same period in 2010. This increase reflected improvement in credit quality metrics, including lowered levels of delinquent loan and non-performing loans. The average cost on interest-bearing liabilities decreased by 32 basis points to 1.41 percent for the three months ended June 30, 2011 from 1.73 percent for the same period in 2010. This decrease was primarily due to a continued shift in funding sources toward lower-cost funds through disciplined deposit pricing while reducing wholesale funds and rate sensitive deposits. Average brokered deposits decreased to zero for the three months ended June 30, 2011 from $39.7 million for the same period in 2010. Average FHLB advances decreased by $47.1 million, or 30.64 percent, to $106.7 million for the three months ended June 30, 2011 from $153.9 million for the same period in 2010.

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Six Months Ended June 30, 2011 vs. Six Months Ended June 30, 2010
     The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
                                                 
    Six Months Ended  
    June 30, 2011     June 30, 2010  
            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)
  $ 2,185,274     $ 60,153       5.55 %   $ 2,688,012     $ 71,181       5.34 %
Municipal Securities:
                                               
Taxable
    15,556       318       4.09 %                  
Tax — Exempt (2)
    4,294       119       5.54 %     7,517       237       6.31 %
Obligations of Other U.S. Government Agencies
    149,392       1,252       1.68 %     49,100       943       3.84 %
Other Debt Securities
    315,906       4,198       2.66 %     85,417       1,500       3.51 %
Equity Securities (5)
    34,813       265       1.52 %     38,671       248       1.28 %
Federal Funds Sold
    6,884       17       0.49 %     13,152       33       0.50 %
Term Federal Funds Sold
    16,713       45       0.54 %     3,646       11       0.60 %
Interest-Earning Deposits
    119,481       168       0.28 %     102,817       154       0.30 %
 
                                       
 
                                               
Total Interest-Earning Assets (2)
    2,848,313       66,535       4.71 %     2,988,332       74,307       5.01 %
 
                                       
 
                                               
Noninterest-Earning Assets:
                                               
Cash and Cash Equivalents
    68,115                       67,850                  
Allowance for Loan Losses
    (135,411 )                     (169,768 )                
Other Assets
    90,402                       145,503                  
 
                                           
 
                                               
Total Noninterest-Earning Assets
    23,106                       43,585                  
 
                                           
 
                                               
TOTAL ASSETS
  $ 2,871,419                     $ 3,031,917                  
 
                                           
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Interest-Bearing Liabilities:
                                               
Deposits:
                                               
Savings
  $ 112,398       1,483       2.66 %   $ 120,347       1,745       2.92 %
Money Market Checking and NOW Accounts
    468,875       2,012       0.87 %     508,248       2,839       1.13 %
Time Deposits of $100,000 or More
    988,336       7,536       1.54 %     1,007,693       9,734       1.95 %
Other Time Deposits
    295,518       1,896       1.29 %     441,465       4,198       1.92 %
Federal Home Loan Bank Advances
    130,030       572       0.89 %     163,407       685       0.85 %
Other Borrowings
    1,384       1       0.15 %     2,801       31       2.23 %
Junior Subordinated Debentures
    82,406       1,409       3.45 %     82,406       1,361       3.33 %
 
                                       
 
                                               
Total Interest-Bearing Liabilities
    2,078,947       14,909       1.45 %     2,326,367       20,593       1.79 %
 
                                       
 
                                               
Noninterest-Bearing Liabilities:
                                               
Demand Deposits
    578,172                       562,471                  
Other Liabilities
    30,394                       28,428                  
 
                                           
 
                                               
Total Noninterest-Bearing Liabilities
    608,566                       590,899                  
 
                                           
 
                                               
Total Liabilities
    2,687,513                       2,917,266                  
Stockholders’ Equity
    183,906                       114,651                  
 
                                           
 
                                               
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 2,871,419                     $ 3,031,917                  
 
                                           
 
                                               
NET INTEREST INCOME
          $ 51,626                     $ 53,714          
 
                                           
 
                                               
NET INTEREST SPREAD (3)
                    3.26 %                     3.22 %
 
                                           
 
                                               
NET INTEREST MARGIN (4)
                    3.66 %                     3.62 %
 
                                           
 
(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 $1.1 million and $927,000 for the six months ended June 30, 2011 and 2010, respectively.
 
(2)   Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.
 
(3)   Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
 
(4)   Represents annualized net interest income as a percentage of average interest-earning assets.
 
(5)    Includes investment in Federal Home Loan Bank stock and Federal Reserve Bank stock.

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     The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
                         
    Six Months Ended June 30, 2011 vs.  
    Six Months Ended June 30, 2010  
    Increases (Decreases) Due to Change in  
    Volume     Rate     Total  
    (In Thousands)  
Interest and Dividend Income:
                       
Gross Loans, Net
  $ (13,747 )   $ 2,719     $ (11,028 )
Municipal Securities:
                       
Taxable
    318             318  
Tax — Exempt
    (92 )     (26 )     (118 )
Obligations of Other U.S. Government Agencies
    1,908       (1,599 )     309  
Other Debt Securities
    3,814       (1,116 )     2,698  
Equity Securities
    (58 )     75       17  
Federal Funds Sold
    (15 )     (1 )     (16 )
Term Federal Funds Sold
    37       (3 )     34  
Interest-Earning Deposits
    38       (24 )     14  
 
                 
 
                       
Total Interest and Dividend Income
    (7,797 )     25       (7,772 )
 
                 
 
                       
Interest Expense:
                       
Savings
    (111 )     (151 )     (262 )
Money Market Checking and NOW Accounts
    (207 )     (620 )     (827 )
Time Deposits of $100,000 or More
    (184 )     (2,014 )     (2,198 )
Other Time Deposits
    (1,160 )     (1,142 )     (2,302 )
Federal Home Loan Bank Advances
    (146 )     33       (113 )
Other Borrowings
    (11 )     (19 )     (30 )
Junior Subordinated Debentures
          48       48  
 
                 
 
                       
Total Interest Expense
    (1,819 )     (3,865 )     (5,684 )
 
                 
 
                       
Change in Net Interest Income
  $ (5,978 )   $ 3,890     $ (2,088 )
 
                 
     For the six months ended June 30, 2011 and 2010, net interest income before provision for credit losses on a tax equivalent basis was $51.6 million and $53.7 million, respectively. Interest income decreased 10.5 percent to $66.5 million for the six months ended June 30, 2011 from $74.3 million for the same period in 2010. Interest expense also decreased 27.6 percent to $14.9 million for the six months ended June 30, 2011 from $20.6 million for the same period in 2010. The net interest spread and net interest margin for the six months ended June 30, 2011 were 3.26 percent and 3.66 percent, respectively, compared to 3.22 percent and 3.62 percent, respectively, for the same period in 2010. The decrease in net interest income was primarily due to the decrease in loan volume resulting from the credit quality improvement strategy, coupled with relatively weak loan demand in current challenging business and economic conditions. This decrease was partially offset by lower deposit costs resulting from the replacement of high-cost promotional time deposits with low-cost deposit products through a series of core deposit campaigns.
     Average gross loans decreased by $502.7 million, or 18.7 percent, to $2.19 billion for the six months ended June 30, 2011 from $2.69 billion for the same period in 2010. Average investment securities increased by $343.1 million, or 241.6 percent, to $485.1 million for the six months ended June 30, 2011 from $142.0 million for the same period in 2010. Average interest-earning assets decreased by $140.0 million, or 4.7 percent, to $2.85 billion for the six months ended June 30, 2011 from $2.99 billion for the same period in 2010. The decrease in average interest earning assets was a direct result of our balance sheet deleveraging and credit quality improvement strategy implemented since early 2009 through the disposition of problem assets while maintaining a strong level of liquidity with increased investment in short and mid-term instruments. Consistent with this strategy, the average interest-bearing liabilities decreased by $247.4 million, or 10.6 percent, to $2.08 billion for the six months ended June 30, 2011 from $2.33 billion for the same period in 2010. Average FHLB advances decreased by $33.4 million, or 20.4 percent, to $130.0 million for the six months ended June 30, 2011 from $163.4 million for the same period in 2010.
     The yield on average interest-earning assets decreased by 30 basis points to 4.71 percent for the six months ended June 30, 2011 from 5.01 percent for the same period in 2010, primarily due to lower yields on investment securities in the current low interest rate environment, partially offset by an increase in loan portfolio yields. Total loan interest and fee income decreased by $11.0 million, or 15.49 percent to $60.2 million for the six months ended June 30, 2011 from $71.2 million for the same period in 2010 due primarily to an 18.70 percent decrease in the average gross loans.

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The average yield on loans increased to 5.55 percent for the six months ended June 30, 2011 from 5.34 percent for the same period in 2010. This increase reflected improvement in credit quality metrics, including improved levels of delinquent and non-performing loans. The average cost on interest-bearing liabilities decreased by 34 basis points to 1.45 percent for the six months ended June 30, 2011 from 1.79 percent for the same period in 2010. This decrease was primarily due to a continued shift in funding sources toward lower-cost funds through disciplined deposit pricing while reducing wholesale funds and rate sensitive deposits. Average brokered deposits decreased to zero for the six months ended June 30, 2011 from $52.0 million for the same period in 2010. Average FHLB advances decreased by $33.4 million, or 20.43 percent to $130.0 million for the six months ended June 30, 2011 from $163.4 million for the same period in 2010.
Provision for Credit Losses
     For the three months ended June 30, 2011 and 2010, the provision for credit losses was $0 and $37.5 million, respectively. For the six months ended June 30, 2011 and 2010, the provision for credit losses was $0 and $95.5 million, respectively. The decrease in the provision for credit losses is attributable to decreases in net charge-offs and problem loans, reflecting the improvement in asset quality through aggressive management of our problem assets. Net charge-offs decreased $22.4 million, or 57.6 percent, to $16.5 million for the three months ended June 30, 2011 from $38.9 million for the same period in 2010. Non-performing loans decreased to $167.1 million, or 7.91 percent of total gross loans, as of June 30, 2011 from $242.1 million, or 9.67 percent of total gross loans, as of June 30, 2010. See “Non-Performing Assets” and “Allowance for Loan Losses and Allowance for Off-Balance Sheet Items” for further details. We continually assess the quality of our loan portfolio to determine whether additional provision for credit losses is necessary. We anticipate future provisions will be required to account for probable credit losses.
Non-Interest Income
     We earn non-interest income from five major sources: service charges on deposit accounts, insurance commissions, remittance fees, other service charges and fees and fees generated from international trade finance. In addition, we sell certain assets, including investment securities, non-performing loans and SBA loans, primarily for risk management purposes.
     Three Months Ended June 30, 2011 vs. Three Months Ended June 30, 2010
     The following table sets forth the various components of non-interest income for the periods indicated:
                                 
    Three Months Ended        
    June 30,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 3,278     $ 3,602     $ (324 )     (9.0 %)
Insurance Commissions
    1,203       1,206       (3 )     (0.2 %)
Remittance Fees
    499       523       (24 )     (4.6 %)
Trade Finance Fees
    328       412       (84 )     (20.4 %)
Other Service Charges and Fees
    368       372       (4 )     (1.1 %)
Bank-Owned Life Insurance Income
    233       235       (2 )     (0.9 %)
Net Loss on Sales of Investment Securities
    (70 )           (70 )     %
Net Gain (Loss) on Sales of Loans
    (77 )     220       (297 )     %
Other Operating Income
    255       106       149       %
 
                       
 
                               
Total Non-Interest Income
  $ 6,017     $ 6,676     $ (659 )     (9.9 %)
 
                       
     For the three months ended June 30, 2011, non-interest income was $6.0 million, a decrease of $659,000, or 9.9 percent, from $6.7 million for the same period in 2010. The decrease in non-interest income was primarily attributable to the decrease in service charges on deposit accounts and net gain on sales of loans, partially offset by the increase in other operating income. The service charges on deposit accounts decreased by $324,000, or 9.0 percent, to $3.3 million for the three months ended June 30, 2011 compared to $3.6 million for the same period in 2010, due mainly to a decrease of $299,000 in non-sufficient fund charges, reflecting the continued underlying decline in activity as customers better managed their account balances. Net loss on sales of loans increased by $297,000 for the three months ended June 30, 2011 compared to the same period in 2010. The net loss on sales of loans reflected $682,000 of valuation adjustments on loans held for sale, partially offset by $605,000 of gains from the sales of loans held for sale. Other operating income increased by $149,000 to $255,000 for the three months ended June 30, 2011 compared to $106,000 for the same period in 2010. The increase was primarily attributable to an $85,000 increase in foreign exchange gain driven by favorable changes in exchange rates.

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     Six Months Ended June 30, 2011 vs. Six Months Ended June 30, 2010
     The following table sets forth the various components of non-interest income for the periods indicated:
                                 
    Six Months Ended        
    June 30,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
    (Dollars in Thousands)  
Service Charges on Deposit Accounts
  $ 6,419     $ 7,328     $ (909 )     (12.4 %)
Insurance Commissions
    2,463       2,484       (21 )     (0.8 %)
Remittance Fees
    961       985       (24 )     (2.4 %)
Other Service Charges and Fees
    701       784       (83 )     (10.6 %)
Trade Finance Fees
    625       763       (138 )     (18.1 %)
Bank-Owned Life Insurance Income
    463       466       (3 )     (0.6 %)
Net Gain (Loss) on Sales of Loans
    (415 )     214       (629 )     %
Net Gain (Loss) on Sales of Investment Securities
    (70 )     105       (175 )     %
Other Operating Income
    378       552       (174 )     (31.5 %)
 
                       
 
                               
Total Non-Interest Income
  $ 11,525     $ 13,681     $ (2,156 )     (15.8 %)
 
                       
     For the six months ended June 30, 2011, non-interest income was $11.5 million, a decrease of $2.2 million, or 15.8 percent, from $13.7 million for the same period in 2010. The decrease in non-interest income was primarily attributable to the decreases in service charges on deposit accounts, net gain on sales of loans and investment securities, and other operating income. The service charges on deposit accounts decreased by $909,000, or 12.4 percent, to $6.4 million for the six months ended June 30, 2011 compared to $7.3 million for the same period in 2010, due mainly to a decrease of $820,000 in non-sufficient fund charges, reflecting the continued underlying decline in activity as customers better managed their account balances. Net loss on sales of loans increased by $629,000 for the six months ended June 30, 2011 compared to the same period in 2010. This increase reflected $2.9 million of valuation adjustments on loans held for sale, partially offset by $2.5 million of gains from the sales of loans held for sale. Net gain on sales of investment securities decreased by $175,000 for the six months ended June 30, 2011 compared to the same period in 2010. The sales of investment securities for the first half of 2011 were a direct result of implementing our rate risk minimization strategy through replacing long- duration investments with short-duration ones in anticipation of rising rates. The proceeds from the sale of investment securities provided additional liquidity to reduce the FHLB advance due in June 2011. Other operating income decreased by $174,000, or 31.5 percent, to $378,000 for the six months ended June 30, 2011 compared to $552,000 for the same period in 2010. The decrease was primarily attributable to the absence of a $274,000 recovery on a previously recorded loss on sale of OREO during the first quarter of 2010, partially offset by an $82,000 increase in foreign exchange gain driven by favorable changes in exchange rates.

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Non-Interest Expense
     Three Months Ended June 30, 2011 vs. Three Months Ended June 30, 2010
     The following table sets forth the breakdown of non-interest expense for the periods indicated:
                                 
    Three Months Ended        
    June 30,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 8,762     $ 9,011     $ (249 )     (2.8 %)
Occupancy and Equipment
    2,650       2,674       (24 )     (0.9 %)
Data Processing
    1,487       1,487             %
Deposit Insurance Premiums and Regulatory Assessments
    1,377       4,075       (2,698 )     (66.2 %)
Professional Fees
    1,138       1,022       116       11.4 %
Advertising and Promotion
    908       503       405       80.5 %
Other Real Estate Owned Expense
    806       1,718       (912 )     (53.1 %)
Directors and Officers Liability Insurance
    733       716       17       2.4 %
Supplies and Communications
    496       574       (78 )     (13.6 %)
Amortization of Other Intangible Assets
    190       301       (111 )     (36.9 %)
Loan-Related Expense
    184       310       (126 )     (40.6 %)
Expenses Related to Unconsummated Capital Raises
    2,220             2,220       %
Other Operating Expenses
    1,935       2,374       (439 )     (18.5 %)
 
                       
 
                               
Total Non-Interest Expense
  $ 22,886     $ 24,765     $ (1,879 )     (7.6 %)
 
                       
     For the three months ended June 30, 2011, non-interest expense was $22.9 million, a decrease of $1.9 million, or 7.6 percent, from $24.8 million for the same period in 2010. The efficiency ratio for the three months ended June 30, 2011 was 72.67 percent, compared to 75.11 percent for the same period in 2010. The $1.9 million decrease in non-interest expense was primarily due to the decreases in deposit insurance premiums and regulatory assessments and OREO expense, partially offset by increases in expenses related to unconsummated capital raises and advertising and promotion. The deposit insurance premiums and regulatory assessments decreased by $2.7 million, or 66.2 percent, to $1.4 million for the three months ended June 30, 2011 compared to $4.1 million for the same period in 2010, primarily due to the lower assessment rates for the FDIC insurance on deposits. The assessment rates decreased by 22 basis points to 23 basis points for the three months ended June 30, 2011 from 45 basis points for the same period in 2010, resulting from the improvement in risk categories of the Bank and the Dodd-Frank Act’s changes to the FDIC assessment system. OREO expense decreased by $912,000, or 53.1 percent to $806,000 for the three months ended June 30, 2011 compared to $1.7 million for the same period in 2010, primarily as a result of a $937,000 decrease in valuation allowance. During the three months ended June 30, 2011, non-interest expense included $2.2 million for our unconsummated capital offerings related to a definitive securities purchase agreement with Woori Finance Holdings Co. Ltd. and a planned equity offering. Advertising and promotion increased by $405,000, or 80.5 percent, to $908,000 for the three months ended June 30, 2011 compared to $503,000 for the same period in 2010, primarily due to the launch of new branding campaigns.

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     Six Months Ended June 30, 2011 vs. Six Months Ended June 30, 2010
     The following table sets forth the breakdown of non-interest expense for the periods indicated:
                                 
    Six Months Ended        
    June 30,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
    (Dollars in Thousands)  
Salaries and Employee Benefits
  $ 17,886     $ 17,797     $ 89       0.5 %
Occupancy and Equipment
    5,215       5,399       (184 )     (3.4 %)
Deposit Insurance Premiums and Regulatory Assessments
    3,447       6,299       (2,852 )     (45.3 %)
Data Processing
    2,886       2,986       (100 )     (3.3 %)
Professional Fees
    1,927       2,088       (161 )     (7.7 %)
Other Real Estate Owned Expense
    1,635       7,418       (5,783 )     (78.0 %)
Advertising and Promotion
    1,474       1,038       436       42.0 %
Directors and Officers Liability Insurance
    1,467       1,433       34       2.4 %
Supplies and Communications
    1,074       1,091       (17 )     (1.6 %)
Loan-Related Expense
    409       617       (208 )     (33.7 %)
Amortization of Other Intangible Assets
    408       629       (221 )     (35.1 %)
Expenses Related to Unconsummated Capital Raises
    2,220             2,220       %
Other Operating Expenses
    3,899       4,194       (295 )     (7.0 %)
 
                       
 
                               
Total Non-Interest Expense
  $ 43,947     $ 50,989     $ (7,042 )     (13.8 %)
 
                       
     For the six months ended June 30, 2011, non-interest expense was $43.9 million, a decrease of $7.0 million, or 13.8 percent, from $51.0 million for the same period in 2010. The efficiency ratio for the three months ended June 30, 2011 was 69.64 percent, compared to 75.75 percent for the same period in 2010. The $7.0 million decrease in non-interest expense was primarily due to the decreases in OREO expense and deposit insurance premiums and regulatory assessments, partially offset by increases in expenses related to unconsummated capital raises and advertising and promotion. OREO expense decreased by $5.8 million, or 78.0 percent, to $1.6 million for the six months ended June 30, 2011 compared to $7.4 million for the same period in 2010, primarily as a result of a $6.0 million decrease in valuation allowance. The deposit insurance premiums and regulatory assessments decreased by $2.9 million, or 45.3 percent, to $3.4 million for the three months ended June 30, 2011 compared to $6.3 million for the same period in 2010, primarily due to the lower assessment rates for the FDIC insurance on deposits. The average assessment rates decreased by 17 basis points to 28 basis points for the six months ended June 30, 2011 from 45 basis points for the same period in 2010, resulting from the improvement in risk categories of the Bank and the Dodd-Frank Act’s changes to the FDIC assessment system in early April of 2011. Partially offsetting the declines in non-interest expense were the $2.2 million expense for our unconsummated capital offerings and the $436,000 increase in advertising and promotion for the six months ended June 30, 2011 compared to the same period in 2010.
Provision for Income Taxes
     For the three months ended June 30, 2011, income tax expense of $605,000 was recognized on pre-tax income of $8.6 million, representing an effective tax rate of 7.0 percent, compared to income tax benefits of $36,000 recognized on pre-tax loss of $29.3 million, representing an effective tax rate of 0.1 percent for the same period in 2010. For the six months ended June 30, 2011, income tax expense of $724,000 was recognized on pre-tax income of $19.2 million, representing an effective tax rate of 3.8 percent, compared to income tax benefits of $431,000 recognized on pre-tax loss of $79.2 million, representing an effective tax rate of 0.5 percent for the same period in 2010.
     The tax expense recognized for the three and six months ended June 30, 2011 was primarily due to an out of period adjustment of $605,000 and $718,000, respectively, to reserve for certain ASC 740-10(FIN 48) exposure items. During the fourth quarter of 2009, the Company recorded a tax benefit upon electing a 5-year net operating loss carryback according to the IRS Code section IRC § 172(b)(1)(H) amended in November 2009. This out-of-period adjustment was to reinstate the reserves that the Company released as the statute of limitations had expired in previous years. Due to the Company filing amended tax returns as a result of the tax law revision, the Company needed to reestablish these reserves. The tax benefit recognized during the first half of 2010 was primarily due to the reversal of FIN 48 reserves related to lower assessment from the result of the State of California Franchise Tax Board audit for the tax year 2005 through 2007.

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FINANCIAL CONDITION
Investment Portfolio
     Investment securities are classified as held to maturity or available for sale in accordance with GAAP. Those securities that we have the ability and the intent to hold to maturity are classified as “held to maturity.” All other securities are classified as “available for sale.” There were no trading securities as of June 30, 2011 and December 31, 2010. 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 composition of our investment portfolio reflects our investment strategy of providing a relatively stable source of interest income while maintaining an appropriate level of liquidity. The investment portfolio also provides a source of liquidity by pledging as collateral or through repurchase agreement and collateral for certain public funds deposits.
     As of June 30, 2011, the investment portfolio was composed primarily of mortgage-backed securities, U.S. government agency securities, and collateralized mortgage obligations. Investment securities available for sale were 99.79 percent and 99.80 percent of the total investment portfolio as of June 30, 2011 and December 31, 2010, respectively. Most of the securities held carried fixed interest rates. Other than holdings of U.S. government agency securities, there were no investments in securities of any one issuer exceeding 10 percent of stockholders’ equity as of June 30, 2011 and December 31, 2010.
     As of June 30, 2011, securities available for sale were $390.2 million, or 14.4 percent of total assets, compared to $413.1 million, or 14.2 percent of total assets, as of December 31, 2010. Securities available for sale, at fair value, decreased $22.9 million, or 5.54 percent, from December 31, 2010 to June 30, 2011. The decrease was due primarily to $95.6 million of sales of securities, $108.2 million of matured and called bonds and $24.8 million of principal paydowns, partially offset by $200.7 million of purchased securities and $6.3 million of fair value increases.
     The following table summarizes the amortized cost, estimated fair value and unrealized gain (loss) on investment securities as of the dates indicated:
                                                 
    June 30, 2011     December 31, 2010  
            Estimated     Unrealized             Estimated     Unrealized  
    Amortized     Fair     Gain     Amortized     Fair     Gain  
    Cost     Value     (Loss)     Cost     Value     (Loss)  
    (In Thousands)  
Securities Held to Maturity:
                                               
Municipal Bonds
  $ 697     $ 697     $     $ 696     $ 696     $  
Mortgage-Backed Securities (1)
    136       138       2       149       151       2  
 
                                   
 
                                               
Total Securities Held to Maturity
  $ 833     $ 835     $ 2     $ 845     $ 847     $ 2  
 
                                   
 
                                               
Securities Available for Sale:
                                               
Collateralized Mortgage Obligations
  $ 124,940     $ 125,929     $ 989     $ 139,053     $ 137,193     $ (1,860 )
Mortgage-Backed Securities (1)
    115,019       117,777       2,758       108,436       109,842       1,406  
U.S. Government Agency Securities
    106,162       106,325       163       114,066       113,334       (732 )
Corporate Bonds
    20,454       20,385       (69 )     20,449       20,205       (244 )
Municipal Bonds
    9,296       9,256       (40 )     22,420       21,028       (1,392 )
Asset-Backed Securities (2)
    6,476       6,799       323       7,115       7,384       269  
Other Securities
    3,305       3,281       (24 )     3,305       3,259       (46 )
Equity Securities (3)
    647       460       (187 )     647       873       226  
 
                                   
 
                                               
Total Securities Available for Sale
  $ 386,299     $ 390,212     $ 3,913     $ 415,491     $ 413,118     $ (2,373 )
 
                                   
 
(1)   Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
 
(2)   Collateralized debentures of small business investment companies and state and local development companies, and guaranteed by SBA.
 
(3)   Balances presented for amortized cost, representing two equity securities, were net of an OTTI charge of $790,000, which was related to a credit loss, as of December 31, 2010. We recorded an OTTI charge of $790,000 to write down the value of one equity investment to its fair value during the year ended December 31, 2010.

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     The amortized cost and estimated fair value of investment securities as of June 30, 2011, by contractual maturity, are shown below. Although collateralized mortgage obligations, mortgage-backed securities and asset-backed securities have contractual maturities through 2041, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
                                 
    Available for Sale     Held to Maturity  
            Estimated             Estimated  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  
    (In Thousands)  
Within One Year
  $     $     $     $  
Over One Year Through Five Years
    103,279       103,360       697       697  
Over Five Years Through Ten Years
    32,191       32,199              
Over Ten Years
    3,747       3,688              
Collateralized Mortgage Obligations
    124,940       125,929              
Mortgage-Backed Securities
    115,019       117,777       136       138  
Asset-Backed Securities
    6,476       6,799              
Equity Securities
    647       460              
 
                       
 
                               
 
  $ 386,299     $ 390,212     $ 833     $ 835  
 
                       
     We perform periodic reviews for impairment in accordance with FASB ASC 320. Gross unrealized losses on investment securities available for sale, the estimated fair value of the related securities and the number of securities aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of June 30, 2011 and December 31, 2010:
                                                                         
    Holding Period  
    Less than 12 Months     12 Months or More     Total  
    Gross     Estimated     Number     Gross     Estimated     Number     Gross     Estimated     Number  
Investment Securities   Unrealized     Fair     of     Unrealized     Fair     of     Unrealized     Fair     of  
Available for Sale   Losses     Value     Securities     Losses     Value     Securities     Losses     Value     Securities  
    (In Thousands)  
June 30, 2011:
                                                                       
Mortgage-Backed Securities
  $ 35     $ 4,744       1     $     $           $ 35     $ 4,744       1  
Collateralized Mortgage Obligations
    125       29,630       8                         125       29,630       8  
Municipal Bonds
    59       2,827       5       61       2,323       2       120       5,150       7  
U.S. Government Agency Securities
    97       26,903       7                         97       26,903       7  
Equity Securities
    187       460       2                         187       460       2  
Other Securities
                      41       958       1       41       958       1  
Corporate Bonds
    74       12,895       3       18       2,982       1       92       15,877       4  
 
                                                     
 
                                                                       
 
  $ 577     $ 77,459       26     $ 120     $ 6,263       4     $ 697     $ 83,722       30  
 
                                                     
 
                                                                       
December 31, 2010:
                                                                       
Mortgage-Backed Securities
  $ 731     $ 62,738       16     $     $           $ 731     $ 62,738       16  
Collateralized Mortgage Obligations
    2,330       99,993       20                         2,330       99,993       20  
Municipal Bonds
    1,440       16,907       11                         1,440       16,907       11  
U.S. Government Agency Securities
    830       69,266       14                         830       69,266       14  
Other Securities
    3       1,997       2       43       957       1       46       2,954       3  
Corporate Bonds
    257       17,210       5                         257       17,210       5  
 
                                                     
 
                                                                       
 
  $ 5,591     $ 268,111       68     $ 43     $ 957       1     $ 5,634     $ 269,068       69  
 
                                                     
     All individual securities that have been in a continuous unrealized loss position for 12 months or longer as of June 30, 2011 and December 31, 2010 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status as of June 30, 2011. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated.
     The unrealized losses on investments in U.S. agencies securities were caused by changes in market interest rates or the widening of market spreads subsequent to the purchase of these securities. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than par. Because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

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     The unrealized losses on obligations of political subdivisions were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and no adverse ratings changes have occurred since the date of purchase of obligations of political subdivisions which are in an unrealized loss position as of June 30, 2011. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not more likely than not that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.
     Of the residential mortgage-backed securities and collateralized mortgage obligations portfolio in an unrealized loss position at June 30, 2011, all of them are issued and guaranteed by governmental sponsored entities. The unrealized losses on residential mortgage-backed securities and collateralized mortgage obligations were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not by concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Bank does not intend to sell the securities in this class and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.
     FASB ASC 320 requires an entity to assess whether the entity has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. We do not intend to sell these securities and it is not more likely than not that we will be required to sell the investments before the recovery of its amortized cost bases. Therefore, in the opinion of management, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of June 30, 2011 and December 31, 2010 are not other-than-temporarily impaired, and therefore, no impairment charges as of June 30, 2011 and December 31, 2010 are warranted.
     Investment securities available for sale with carrying values of $66.2 million and $118.0 million as of June 30, 2011 and December 31, 2010, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

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Loan Portfolio
     The following table shows the loan composition by type, including loans held for sale, as of the dates indicated.
                                 
    June 30,     December 31,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
    (Dollars in Thousands)  
Real Estate Loans:
                               
Commercial Property (1)
  $ 689,550     $ 731,482     $ (41,932 )     (5.7 %)
Construction (2)
    40,684       62,400       (21,716 )     (34.8 %)
Residential Property
    58,325       62,645       (4,320 )     (6.9 %)
 
                       
 
                               
Total Real Estate Loans
    788,559       856,527       (67,968 )     (7.9 %)
 
                       
 
                               
Commercial and Industrial Loans: (3)
                               
Commercial Term (4)
    1,045,131       1,133,892       (88,761 )     (7.8 %)
Commercial Lines of Credit
    50,636       59,056       (8,420 )     (14.3 %)
SBA (5)
    135,323       123,750       11,573       9.4 %
International
    46,560       44,167       2,393       5.4 %
 
                       
 
                               
Total Commercial and Industrial Loans
    1,277,650       1,360,865       (83,215 )     (6.1 %)
 
                       
 
                               
Consumer Loans
    46,500       50,300       (3,800 )     (7.6 %)
 
                       
 
                               
Total Loans — Gross
    2,112,709       2,267,692       (154,983 )     (6.8 %)
 
                               
Deferred Loan Fees
    (11 )     (566 )     555       (98.1 %)
Allowance for Loan Losses
    (109,029 )     (146,059 )     37,030       (25.4 %)
 
                       
 
                               
Net Loans Receivable
  $ 2,003,669     $ 2,121,067     $ (117,398 )     (5.5 %)
 
                       
 
(1)   Includes loans held for sale, at the lower of cost or fair value, of $708,000 and $2.3 million as of June 30, 2011 and December 31, 2010, respectively.
 
(2)   Includes loans held for sale, at the lower of cost or fair value, of $0 and $1.4 million as of June 30, 2011 and December 31, 2010, respectively.
 
(3)   Includes owner-occupied property loans of $846.5 million and $894.8 million as of June 30, 2011 and December 31, 2010, respectively.
 
(4)   Includes loans held for sale, at the lower of cost or fair value, of $12.9 million and $14.9 million as of June 30, 2011 and December 31, 2010, respectively.
 
(5)   Includes loans held for sale, at the lower of cost or fair value, of $30.3 million and $18.1 million as of June 30, 2011 and December 31, 2010, respectively.
     As of June 30, 2011 and December 31, 2010, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $2.00 billion and $2.12 billion, respectively, a decrease of $117.4 million, or 5.5 percent. Total gross loans decreased by $155.0 million, or 6.8 percent, from $2.27 billion as of December 31, 2010 to $2.11 billion as of June 30, 2011.
     During the first half of 2011, total new loan production and advances amounted to $169.1 million. For the same period, we experienced decreases in loans totaling $323.5 million, comprised of $224.5 million in principal amortization and payoffs, $47.7 million in charge-offs, $49.2 million in problem loan sales, and $2.1 million that were transferred to OREO. For the first half of 2011, the $41.9 million decrease in commercial property loans was attributable to $64.2 million in principal amortization and payoffs, $12.0 million in charge-offs, and $21.5 million in loan sales, partially offset by new loan production and advances of $55.8 million. The $88.8 million decrease in commercial term loans for the six months ended June 30, 2011 was attributable to $117.2 million in principal amortization and payoffs, $24.1 million in charge-offs, and $22.6 million in loan sales, partially offset by new loan production and advances of $75.1 million.
     Real estate loans, composed of commercial property, construction loans and residential property, decreased $68.0 million, or 7.9 percent, to $788.6 million as of June 30, 2011 from $856.5 million as of December 31, 2010, representing 37.3 percent and 37.8 percent, respectively, of total gross loans. Commercial and industrial loans, composed of owner-occupied commercial property, trade finance, SBA and commercial lines of credit, decreased $83.2 million, or 6.1 percent, to $1.28 billion as of June 30, 2011 from $1.36 billion as of December 31, 2010, representing 60.5 percent and 60.0 percent, respectively, of total gross loans. Consumer loans decreased $3.8 million, or 7.6 percent, to $46.5 million as of June 30, 2011 from $50.3 million as of December 31, 2010.

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     As of June 30, 2011, our loan portfolio included the following concentrations of loans to one type of industry that were greater than 10 percent of total gross loans outstanding:
                 
    Balance as of     Percentage of Total  
Industry   June 30, 2011     Gross Loans Outstanding  
    (In Thousands)          
Lessors of Non-Residential Buildings
  $ 372,732       17.6 %
Accommodation/Hospitality
  $ 307,428       14.6 %
Gasoline Stations
  $ 270,816       12.8 %
     There was no other concentration of loans to any one type of industry exceeding ten percent of total gross loans outstanding.
Non-Performing Assets
     Non-performing loans consist of loans on non-accrual status and loans 90 days or more past due and still accruing interest. Non-performing assets consist of non-performing loans and OREO. Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When an asset is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectibility of principal is probable, in which case interest payments are credited to income. Non-accrual assets may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for non-accrual. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
     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.
     Except for non-performing loans set forth below, management is not aware of any loans as of June 30, 2011 and December 31, 2010 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment terms, or any known events that would result in the loan being designated as non-performing at some future date. Management cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, or changes in the financial condition or business of borrower may adversely affect a borrower’s ability to pay.

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     The following table provides information with respect to the components of non-performing assets as of the dates indicated:
                                 
    June 30,     December 31,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
            (Dollars in Thousands)          
Non-Performing Loans:
                               
Non-Accrual Loans:
                               
Real Estate Loans:
                               
Commercial Property
  $ 44,132     $ 47,937     $ (3,805 )     (7.9 %)
Construction
    12,298       19,097       (6,799 )     (35.6 %)
Residential Property
    1,726       1,925       (199 )     (10.3 %)
Commercial and Industrial Loans:
                               
Commercial Term
    70,811       63,012       7,799       12.4 %
Commercial Lines of Credit
    2,905       2,798       107       3.8 %
SBA
    31,163       33,085       (1,922 )     (5.8 %)
International
    3,243       127       (3,116 )     %
Consumer Loans
    824       1,047       (223 )     (21.3 %)
 
                       
 
                               
Total Non-Accrual Loans
    167,102       169,028       (1,926 )     (1.1 %)
 
                               
Loans 90 Days or More Past Due and Still Accruing (as to Principal or Interest):
                       
 
                       
 
                               
Total Non-Performing Loans (1) (2)
    167,102       169,028       (1,926 )     (1.1 %)
 
                               
Other Real Estate Owned
    1,340       4,089       (2,749 )     (67.2 %)
 
                       
 
                               
Total Non-Performing Assets
  $ 168,442     $ 173,117     $ (4,675 )     (2.7 %)
 
                       
 
                               
Non-Performing Loans as a Percentage of Total Gross Loans
    7.91 %     7.45 %                
Non-Performing Assets as a Percentage of Total Assets
    6.21 %     5.95 %                
 
                               
Troubled Debt Restructured Performing Loans
  $ 19,793     $ 47,395     $ (27,602 )     (58.2 %)
 
                       
 
(1)    Includes troubled debt restructured non-performing loans of $66.0 million and $27.0 million as of June 30, 2011 and December 31, 2010, respectively.
 
(2)    Includes loans held for sale.
     Non-accrual loans totaled $167.1 million as of June 30, 2011, compared to $169.0 million as of December 31, 2010, representing a 1.1 percent decrease. Delinquent loans (defined as 30 days or more past due) were $97.2 million as of June 30, 2011, compared to $147.5 million as of December 31, 2010, representing a 34.1 percent decrease. Of the $97.2 million delinquent loans as of June 30, 2011, $81.6 million was included in non-performing loans. The $126.1 million of $147.5 million delinquent loans as of December 31, 2010 was included in non-performing loans. During the first six months of 2011, loans totaling $81.8 million were placed on nonaccrual status. The additions to nonaccrual loans of $81.8 million were offset by $35.1 million in charge-offs, $29.3 million in sales of problem loans, $14.3 million in principal paydowns and payoffs, $3.2 million that were placed back to accrual status, and $1.9 million that were transferred to OREO.
     The ratio of non-performing loans to total gross loans increased to 7.91 percent at June 30, 2011 from 7.45 percent at December 31, 2010. During the same period, our allowance for loan losses decreased by $37.0 million, or 25.4 percent, to $109.0 million from $146.1 million. Of the $167.1 million non-performing loans, approximately $128.9 million were impaired based on the definition contained in FASB ASC 310, “Receivables,” which resulted in aggregate impairment reserve of $19.3 million as of June 30, 2011. We calculate our allowance for the collateral-dependent loans as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals less estimated costs to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as non-performing. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.
     As of June 30, 2011, $140.2 million, or 83.9 percent, of the $167.1 million of non-performing loans were secured by real estate, compared to $138.1 million, or 81.7 percent, of the $169.0 million of non-performing loans as of December 31, 2010. In light of declining property values in the current challenging economic condition affecting the real estate markets, the Bank obtained current appraisals for most non-performing loan collaterals, but factored in adequate market discounts on some non-performing loan collaterals to compensate for their non-current appraisals.

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     As of June 30, 2011, other real estate owned consisted of five properties, primarily located in California, with a combined net carrying value of $1.3 million. During the six months ended June 30, 2011, five properties, with a carrying value of $2.8 million, were transferred from loans receivable to other real estate owned and eight properties, with a carrying value of $4.4 million, were sold and a loss of $681,000 was recognized. As of December 31, 2010, other real estate owned consisted of eight properties with a combined net carrying value of $4.1 million.
     We evaluate loan impairment in accordance with applicable GAAP. Loans are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement, including scheduled interest payments. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as an expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired loan is less than the recorded investment in the loan, the deficiency will be charged off against the allowance for loan losses or, alternatively, a specific allocation will be established. Additionally, impaired loans are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan losses required for the period.
     The following table provides information on impaired loans as of the dates indicated:
                                         
    Recorded     Unpaid Principal     With No Related     With an Allowance      
    Investment     Balance     Allowance Recorded     Recorded     Related Allowance  
                    (In Thousands)                  
June 30, 2011:
                                       
Real Estate Loans:
                                       
Commercial Property
                                       
Retail
  $ 15,810     $ 16,329     $ 8,845     $ 6,963     $ 565  
Land
    26,008       26,008       25,184       825       105  
Other
    21,624       21,748       3,698       17,926       2,623  
Construction
    12,298       12,396       12,298              
Residential Property
    2,325       2,386       1,982       343       31  
 
                                       
Commercial and Industrial Loans:
                                       
Commercial Term
                                       
Unsecured
    14,999       15,463       661       14,338       11,040  
Secured by Real Estate
    83,382       85,570       41,163       42,219       9,092  
Commercial Lines of Credit
    3,028       3,097       1,218       1,810       1,394  
SBA
    17,780       19,437       7,340       10,441       1,380  
International
    3,243       3,243             3,243       3,243  
 
                                       
Consumer Loans
    870       898       379       491       223  
 
                             
Total
  $ 201,367     $ 206,575     $ 102,768     $ 98,599     $ 29,696  
 
                             
 
                                       
December 31, 2010:
                                       
Real Estate Loans:
                                       
Commercial Property
                                       
Retail
  $ 17,606     $ 18,050     $ 6,336     $ 11,270     $ 1,543  
Land
    35,207       35,295       5,482       29,725       1,485  
Other
    11,357       11,476       10,210       1,147       33  
Construction
    17,691       17,831       13,992       3,699       280  
Residential Property
    1,926       1,990       1,926              
 
                                       
Commercial and Industrial Loans:
                                       
Commercial Term
                                       
Unsecured
    17,847       18,799       6,465       11,382       10,313  
Secured by Real Estate
    80,213       81,395       35,154       45,059       11,831  
Commercial Lines of Credit
    4,067       4,116       1,422       2,645       1,321  
SBA
    17,715       18,544       7,112       10,603       2,122  
International
    127       141             127       127  
 
                                       
Consumer Loans
    934       951       393       541       393  
 
                             
Total
  $ 204,690     $ 208,588     $ 88,492     $ 116,198     $ 29,448  
 
                             

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     The following table provides information on impaired loans, disaggregated by class of loan, as of the dates indicated:
                                 
    Average     Interest     Average     Interest  
    Recorded     Income     Recorded     Income  
    Investment     Recognized     Investment     Recognized  
    for the Three     for the Three     for the Six     for the Six  
    Months     Months     Months     Months  
    Ended     Ended (1)     Ended     Ended (1)  
            (In Thousands)          
June 30, 2011:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 17,260     $ 26     $ 17,633     $ 51  
Land
    27,561             29,023        
Other
    21,849       60       21,864       121  
Construction
    12,535             12,578        
Residential Property
    2,371             2,386        
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    15,365       53       15,571       105  
Secured by Real Estate
    84,898       456       85,504       821  
Commercial Lines of Credit
    3,076       2       3,090       4  
SBA
    18,900       31       19,107       57  
International
    3,243             2,255        
 
                               
Consumer Loans
    889       1       893       1  
 
                       
Total
  $ 207,947     $ 629     $ 209,904     $ 1,160  
 
                       
 
                               
June 30, 2010:
                               
Real Estate Loans:
                               
Commercial Property
                               
Retail
  $ 17,977     $     $ 25,664     $  
Land
    43,425       59       45,164       114  
Other
    16,492       55       18,524       216  
Construction
    9,823             9,823        
Residential Property
    2,725             2,784        
 
                               
Commercial and Industrial Loans:
                               
Commercial Term
                               
Unsecured
    20,289             18,278       9  
Secured by Real Estate
    111,388       67       104,745       293  
Commercial Lines of Credit
    6,132       56       5,499       82  
SBA
    25,573             26,083        
International
    284             588        
 
                               
Consumer Loans
    396             531        
 
                       
Total
  $ 254,504     $ 237     $ 257,683     $ 714  
 
                       
 
(1)    Represents interest income recognized on impaired loans subsequent to classification as impaired.
     For the three and six months ended June 30, 2011, we recognized interest income of $0 and $33,000, respectively, on one impaired commercial term loan secured by real estate using a cash-basis method. For the three and six months ended June 30, 2010, we recognized interest income of $67,000 and $204,000, respectively, on one impaired commercial term loan secured by real estate using a cash-basis method. Except for such loan, no other interest income was recognized on impaired loans subsequent to classification as impaired using a cash-basis method.

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     The following is a summary of interest foregone on impaired loans for the periods indicated:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
            (In Thousands)          
Interest Income That Would Have Been Recognized Had Impaired
                               
Loans Performed in Accordance With Their Original Terms
  $ 2,001     $ 3,755     $ 4,475     $ 7,030  
Less: Interest Income Recognized on Impaired Loans
    (629 )     (237 )     (1,160 )     (714 )
 
                       
Interest Foregone on Impaired Loans
  $ 1,372     $ 3,518     $ 3,315     $ 6,316  
 
                       
     There were no commitments to lend additional funds to borrowers whose loans are included above.
     During the six months ended June 30, 2011, we restructured monthly payments on 92 loans, with a net carrying value of $77.4 million as of June 30, 2011, through temporary payment structure modification from principal and interest due monthly to interest only due monthly for six months or less. For the restructured loans on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, we believe that performance and collection under the revised terms is probable. As of June 30, 2011, troubled debt restructurings on accrual status totaled $19.8 million, all of which were temporary interest rate reductions, and a$4.4 million reserve relating to these loans is included in the allowance for loan losses. Troubled debt restructurings on accrual status are comprised of loans that are contractually current and have sustained repayment ability and performance or well secured and in process of collection. As of December 31, 2010, troubled debt restructured loans on accrual status totaled $47.4 million and a $6.4 million reserve relating to these loans is included in the allowance for loan losses.
Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
     The Bank will charge off a loan and declare a loss when its collectability is sufficiently questionable that the Bank can no longer justify showing the loan as an asset on its balance sheet. To determine if a loan should be charged off, all possible sources of repayment are analyzed, including the potential for future cash flow from income or liquidation of other assets, the value of any collateral, and the strength of co-makers or guarantors. When these sources do not provide a reasonable probability that principal can be collected in full, the Bank will fully or partially charge off the loan.
     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 determined through analysis involving quantitative calculations based on historic loss rates for general reserves and individual impairment calculations for specific allocations to impaired loans as well as qualitative adjustments.
     To determine general reserve requirements, existing loans are divided into 10 general loan pools of risk-rated loans (commercial real estate, construction, commercial term — unsecured, commercial term — T/D secured, commercial line of credit, SBA, international, consumer installment, consumer line of credit, and miscellaneous loans) as well as 3 homogenous loan pools (residential mortgage, auto loans, and credit card). For risk-rated loans, migration analysis allocates historical losses by loan pool and risk grade (pass, special mention, substandard, and doubtful) to determine risk factors for potential loss inherent in the current outstanding loan portfolio.
     During the first quarter of 2010, to enhance reserve calculations to better reflect the Bank’s current loss profile, the two loan pools of commercial real estate and commercial term — T/D secured were subdivided according to the 21 collateral codes used by the Bank to identify commercial property types (apartment, auto, car wash, casino, church, condominium, gas station, golf course, industrial, land, manufacturing, medical, mixed used, motel, office, retail, school, supermarket, warehouse, wholesale, and others). This further segregation allows the Bank to more specifically allocate reserves within the commercial real estate portfolio according to risks defined by historic loss as well as current loan concentrations of the different collateral types.
     Risk factor calculations were previously based on 12-quarters of historic loss analysis with 1.5 to 1 weighting given to the most recent six quarters. In the first quarter of 2010, the historic loss window was reduced to eight quarters with 1.5 to 1 weighting given to the most recent four quarters. The enhanced window places greater emphasis on losses taken by the Bank within the past year, as recent loss history is more relevant to the Bank’s risks given the rapid changes to asset quality within the current economic conditions.

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     As homogenous loans are bulk graded, the risk grade is not factored into the historical loss analysis; however, as with risk-rated loans, risk factor calculations are based on 8-quarters of historic loss analysis with 1.5 to 1 weighting given to the most recent four quarters.
     The Bank will charge off a loan and declare a loss when its collectability is sufficiently questionable that the Bank can no longer justify showing the loan as an asset on its balance sheet. To determine if a loan should be charged off, all possible sources of repayment are analyzed, including the potential for future cash flow from income or liquidation of other assets, the value of any collateral, and the strength of co-makers or guarantors. When these sources do not provide a reasonable probability that principal can be collected in full, the Bank will fully or partially charge off the loan.
     For purposes of determining the allowance for credit losses, the loan portfolio is subdivided into three portfolio segments: real estate, commercial and industrial, and consumer. The portfolio segment of real estate contains the allowance loan pools of commercial real estate, construction, and residential mortgage. The portfolio segment of commercial and industrial contains the loan pools of commercial term — unsecured, commercial term — T/D secured, commercial line of credit, SBA, international, and miscellaneous. Lastly, the portfolio segment of Consumer contains the loan pools of consumer installment, consumer line of credit, auto, and credit card.
     Real estate loans, which are mostly dependent on rental income from non-owner occupied or investor properties, have been subject to increased losses. Prior to 2009, no historic losses were recorded for loans secured by commercial real estate. However, given the decrease in sales and increase in vacancies due to the current slowed economy, losses in loans secured by office and retail properties have been significant. Loans secured by vacant land have also had significant losses as valuations have decreased and further development has been limited. Also, commercial term — T/D secured loans, which are mostly owner-occupied property loans, have been subject to decreases in collateral value and have had more losses than prior to the current economic condition. Similarly, construction loans have been subject to losses due to unforeseen difficulties in completion of projects. As such, allocations to general reserves for those loan pools have been higher than that of loan pools with lower risk. Residential mortgage loans constitute a limited concentration within the Bank’s entire loan portfolio, and losses as well as supplementary reserves have been minimal.
     Commercial and industrial loans, which are largely subject to changes in business cash flow, have had the most historic losses within the Bank’s entire loan portfolio. The largest loan pool within the commercial and industrial sector is commercial term — T/D secured, which are mostly loans secured by owner-occupied business properties. Loans secured by car washes, gas stations, golf courses, and motels have had the most significant losses, as the hospitality and recreation industries have been negatively affected by the current economy. As such, allocations to general reserve for those loan pools have been increased. Also, commercial term — unsecured and SBA loans have had considerable losses and additional general reserves as decreased business cash flow due to the challenging economic condition has weakened borrowers’ repayment abilities.
     Consumer loans constitute a limited concentration within the Bank’s loan portfolio and are mostly evaluated in bulk for general reserve requirements due to the relatively small volume per loan.
     Specific reserves are allocated for loans deemed “impaired.” FASB ASC 310, “Receivables,” indicates that a loan is “impaired” when it is probable that a creditor will be unable to collect all amounts due, including principal and interest, according to the contractual terms and schedules of the loan agreement. Loans that represent significant concentrations of credit, material non-performing loans, insider loans and other material credit exposures are subject to FASB ASC 310 impairment analysis.
     Loans that are determined to be impaired under FASB ASC 310, are individually analyzed to estimate the Bank’s exposure to loss based on the following factors: the borrower’s character, the current financial condition of the borrower and the guarantor, the borrower’s resources, the borrower’s payment history, repayment ability, debt servicing ability, action plan, the prevailing value of the underlying collateral, the Bank’s lien position, general economic conditions, specific industry conditions, and outlook for the future.
     The loans identified as impaired are measured using one of the three methods of valuations: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate, (2) the fair market value of the collateral if the loan is collateral dependent, or (3) the loan’s observable market price.

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     When determining the appropriate level for allowance for loan losses, the management considers qualitative adjustments for any factors that are likely to cause estimated credit losses associated with the Bank’s current portfolio to differ from historical loss experience, including but not limited to:
    changes in lending policies and procedures, including underwriting standards and collection, charge-offs, and recovery practice;
 
    changes in national and local economic and business conditions and developments, including the condition of various market segments;
 
    changes in the nature and volume of the portfolio;
 
    changes in the trend of the volume and severity of past due and classified loans, and trends in the volume of non-accrual loans, troubled debt restructurings, charge-offs and other loan modifications;
 
    changes in the quality of the Bank’s loan review system and the degree of oversight by the Board of Directors;
 
    the existence and effect of any concentrations of credit, and changes in the level of such concentrations;
 
    transfer risk on cross-border lending activities; and
 
    the effect of external factors such as competition and legal and regulatory requirements as well as declining collateral values on the level of estimated credit losses in the Bank’s current portfolio.
     In order to systematically quantify the credit risk impact of trends and changes within the loan portfolio, a credit risk matrix is utilized. The above factors are considered on a loan pool by loan pool basis subsequent to, and in conjunction with, a loss migration analysis. The credit risk matrix provides various scenarios with positive or negative impact on the asset portfolio along with corresponding basis points for qualitative adjustments.
     The following table reflects our allocation of allowance for loan and lease losses by loan category as well as the loans receivable for each loan type:
                                 
    June 30, 2011     December 31, 2010  
    Allowance     Loans     Allowance     Loans  
Allowance for Loan Losses Applicable To   Amount     Receivable     Amount     Receivable  
            (Dollars in Thousands)          
Real Estate Loans:
                               
Commercial Property
  $ 21,298     $ 688,842     $ 26,248     $ 729,222  
Construction
    1,984       40,684       5,606       60,995  
Residential Property
    833       58,059       911       62,645  
 
                       
 
                               
Total Real Estate Loans (1)
    24,115       787,585       32,765       852,862  
 
                       
 
                               
Commercial and Industrial Loans: (1)
    82,845       1,234,519       108,986       1,327,910  
 
                               
Consumer Loans
    1,587       46,500       2,077       50,300  
Unallocated
    482             2,231        
 
                       
 
                               
Total
  $ 109,029     $ 2,068,604     $ 146,059     $ 2,231,072  
 
                       
 
(1)    Excludes loans held for sale.

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     The following table sets forth certain information regarding our allowance for loan losses and allowance for off-balance sheet items for the periods presented. Allowance for off-balance sheet items is determined by applying reserve factors according to loan pool and grade as well as actual current commitment usage figures by loan type to existing contingent liabilities.
                                         
        As of and for the           As of and for the  
    Three Months Ended     Six Months Ended  
    June 30,     March 31,     June 30,     June 30,     June 30,  
    2011     2011     2010     2011     2010  
            (Dollars in Thousands)          
Allowance for Loan Losses:
                                       
Balance at Beginning of Period
  $ 125,780     $ 146,059     $ 177,820     $ 146,059     $ 144,996  
 
                               
 
                                       
Actual Charge-Offs
    (20,652 )     (25,181 )     (40,718 )     (45,833 )     (70,832 )
Recoveries on Loans Previously Charged Off
    4,151       3,626       1,772       7,777       5,493  
 
                             
 
                                       
Net Loan Charge-Offs
    (16,501 )     (21,555 )     (38,946 )     (38,056 )     (65,339 )
 
                             
 
                                       
Provision Charged to Operating Expenses
    (250 )     1,276       37,793       1,026       97,010  
 
                             
 
                                       
Balance at End of Period
  $ 109,029     $ 125,780     $ 176,667     $ 109,029     $ 176,667  
 
                             
 
                                       
Allowance for Off-Balance Sheet Items:
                                       
Balance at Beginning of Period
  $ 2,141     $ 3,417     $ 2,655     $ 3,417     $ 3,876  
Provision Charged to Operating Expenses
    250       (1,276 )     (293 )     (1,026 )     (1,514 )
 
                             
 
                                       
Balance at End of Period
  $ 2,391     $ 2,141     $ 2,362     $ 2,391     $ 2,362  
 
                             
 
                                       
Ratios:
                                       
Net Loan Charge-Offs to Average Total Gross Loans (1)
    3.10 %     3.91 %     5.98 %     3.51 %     4.90 %
Net Loan Charge-Offs to Total Gross Loans (1)
    3.13 %     4.02 %     6.24 %     3.63 %     5.26 %
Allowance for Loan Losses to Average Total Gross Loans
    5.10 %     5.63 %     6.76 %     4.99 %     6.57 %
Allowance for Loan Losses to Total Gross Loans
    5.16 %     5.79 %     7.05 %     5.16 %     7.05 %
Net Loan Charge-Offs to Allowance for Loan Losses (1)
    60.70 %     69.50 %     88.42 %     70.39 %     74.58 %
Net Loan Charge-Offs to Provision Charged to Operating Expenses
    %     %     103.05 %     %     67.35 %
Allowance for Loan Losses to Non-Performing Loans
    65.25 %     82.90 %     72.96 %     65.25 %     72.96 %
 
                                       
Balances:
                                       
Average Total Gross Loans Outstanding During Period
  $ 2,137,144     $ 2,234,570     $ 2,612,077     $ 2,185,587     $ 2,689,093  
Total Gross Loans Outstanding at End of Period
  $ 2,112,709     $ 2,173,692     $ 2,504,248     $ 2,112,709     $ 2,504,248  
Non-Performing Loans at End of Period
  $ 167,102     $ 151,730     $ 242,133     $ 167,102     $ 242,133  
 
(1)    Net loan charge-offs are annualized to calculate the ratios.
     The allowance for loan losses decreased by $37.0 million, or 25.4 percent, to $109.0 million as of June 30, 2011 as compared to $146.1 million as of December 31, 2010. The allowance for loan losses as a percentage of total gross loans decreased to 5.16 percent as of June 30, 2011 from 6.44 percent as of December 31, 2010. For the three months ended June 30, 2011 and 2010, the provision for credit losses was $0 and $37.5 million, respectively. For the six months ended June 30, 2011 and 2010, the provision for credit losses was $0 and $95.5 million, respectively. For the three months ended June 30, 2011, the $250,000 provision for off-balance items was offset by the $250,000 reversal in provision for loans, resulting in the $0 total provision for credit losses as of June 30, 2011. For the six months ended June 30, 2011, the $1.0 million provision for loans was offset by the $1.0 million reversal in provision for off-balance items, resulting in the $0 total provision for credit losses as of June 30, 2011.
     The decrease in the allowance for loan losses as of June 30, 2011 was due primarily to subsequent decreases in historical loss rates, classified assets, and overall gross loans. Due to these factors, general reserves decreased $33.8 million, or 38.1 percent, to $54.9 million as of June 30, 2011 as compared to $88.7 million at December 31, 2010. In addition, total qualitative reserves decreased $2.0 million, or 8.1 percent, to $23.5 million as of June 30, 2011 as compared to $25.5 million as of December 31, 2010. This was a direct result of the decrease in overall loan volume of $155.0 million, or 6.8 percent, to $2.11 billion at June 30, 2011 as compared to $2.27 billion at December 31, 2011. Improvements in metrics related to credit quality as well as decreases in overall gross loan balances have directly resulted in subsequent decreases in allowance and provision for loan losses as of June 30, 2011.
     Total impaired loans, excluding loans held for sale, decreased $11.2 million, or 5.5 percent, to $193.5 million as of June 31, 2011 as compared to $204.7 million at December 31, 2010. However, specific reserve allocations associated with impaired loans increased $0.3 million, or 0.8 percent, to $29.7 million as of June 30, 2011 as compared

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to $29.4 million as of December 31, 2010. The increase in impairment reserves was mostly due to more conservative discounts taken by the Bank on out-dated valuations and out-of-state collaterals as a measure of prudence against potential losses.
     The following table presents a summary of charge-offs by the loan portfolio.
                                 
    As of and for the  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
            (Dollars in Thousands)          
Charge-offs:
                               
Real Estate Loans
  $ 5,591     $ 12,412     $ 12,644     $ 17,817  
Commercial Term Loans
    9,591       19,572       23,939       40,426  
SBA Loans
    577       3,354       3,730       6,334  
Commercial Lines of Credit
    4,453       4,831       4,904       5,083  
International Loans
    120       194       120       194  
Consumer Loans
    320       355       496       978  
 
                       
Total Charge-offs
    20,652       40,718       45,833       70,832  
 
                               
Recoveries:
                               
Real Estate Loans
    2,223       162       2,744       1,865  
Commercial Term Loans
    1,666       1,015       4,594       2,596  
SBA Loans
    122       136       232       487  
Commercial Lines of Credit
    4       42       56       86  
International Loans
    123       337       129       338  
Consumer Loans
    13       80       22       121  
 
                       
Total Recoveries
    4,151       1,772       7,777       5,493  
 
                               
Net Charge-offs
  $ 16,501     $ 38,946     $ 38,056     $ 65,339  
 
                       
     For the three months ended June 30, 2011, total net charge-offs were $16.5 million, compared to $38.9 million for the same period in 2010. During the six months ended June 30, 2011, total net charge-offs were $38.1 million, compared to $65.3 million for the same period in 2010.
     The Bank recorded in other liabilities an allowance for off-balance sheet exposure, primarily unfunded loan commitments, of $2.4 million and $3.4 million as of June 30, 2011 and December 31, 2010, respectively. The decrease was primarily due to lower reserve factors based on historical loss rates as well as decreases in total off-balance items. The Bank closely monitors the borrower’s repayment capabilities while funding existing commitments to ensure losses are minimized. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these reserves are adequate for losses inherent in the loan portfolio and off-balance sheet exposure as of June 30, 2011 and December 31, 2010.
Deposits
     The following table shows the composition of deposits by type as of the dates indicated.
                                 
    June 30,     December 31,     Increase (Decrease)  
    2011     2010     Amount     Percentage  
            (Dollars in Thousands)          
Demand — Noninterest-Bearing
  $ 600,812     $ 546,815     $ 53,997       9.9 %
Interest-Bearing:
                               
Savings
    110,935       113,968       (3,033 )     (2.7 %)
Money Market Checking and NOW Accounts
    484,132       402,481       81,651       20.3 %
Time Deposits of $100,000 or More
    878,871       1,118,621       (239,750 )     (21.4 %)
Other Time Deposits
    323,625       284,836       38,789       13.6 %
 
                       
 
                               
Total Deposits
  $ 2,398,375     $ 2,466,721     $ (68,346 )     (2.8 %)
 
                       
     Total deposits decreased $68.3 million, or 2.8 percent, to $2.40 billion as of June 30, 2011 from $2.47 billion as of December 31, 2010. Total time deposits outstanding decreased $201.0 million, or 14.3 percent, to $1.20 billion as of June 30, 2011 from $1.40 billion as of December 31, 2010, representing 50.1 percent and 56.9 percent, respectively, of total deposits. The decreases in total deposits were the direct results of strategic plans aiming to increase core deposits while reducing the reliance on volatile wholesale funds and rate-sensitive time deposits. During the first half of 2011, $166.4 million of high-cost promotional time deposits and $152.9 million of deposits raised from rate listing services

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matured. Core deposits (defined as total deposits less time deposits greater than $100,000) increased by $171.4 million, or 12.7 percent, to $1.52 billion as of June 30, 2011 from $1.35 billion as of December 31, 2010. At June 30, 2011, noninterest-bearing demand deposits represented 25.1 percent of total deposits compared to 22.2 percent at December 31, 2010. We had no brokered deposits as of June  30, 2011 and December 31, 2010. As of June 30, 2011, time deposits of more than $250,000 were $346.9 million.
Federal Home Loan Bank Advances
     FHLB advances and other borrowings mostly take the form of advances from the FHLB of San Francisco and overnight federal funds. At June 30, 2011, advances from the FHLB were $3.5 million, a decrease of $150.1 million from the December 31, 2010 balance of $153.7 million. As of June 30, 2011, there were no FHLB advances with a remaining maturity of less than one year.
Junior Subordinated Debentures
     During the first half of 2004, we issued two junior subordinated notes bearing interest at the three-month London InterBank Offered Rate (“LIBOR”) plus 2.90 percent totaling $61.8 million and one junior subordinated note bearing interest at the three-month LIBOR plus 2.63 percent totaling $20.6 million. The outstanding subordinated debentures related to these offerings, the proceeds of which were used to finance the purchase of Pacific Union Bank, totaled $82.4 million at June 30, 2011 and December 31, 2010. In October 2008, we committed to the FRB that no interest payments on the junior subordinated debentures would be made without the prior written consent of the FRB. Therefore, in order to preserve its capital position, Hanmi Financial’s Board of Directors has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009. In addition, we are prohibited from making interest payments on our outstanding junior subordinated debentures under the terms of our recently issued regulatory enforcement actions without the prior written consent of the FRB and DFI. Accrued interest payable on junior subordinated debentures amounted to $8.3 million and $6.9 million at June 30, 2011 and December 31, 2010, respectively.

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INTEREST RATE RISK MANAGEMENT
     Interest rate risk indicates our exposure to market interest rate fluctuations. The movement of interest rates directly and inversely affects the economic value of fixed-income assets, which is the present value of future cash flow discounted by the current interest rate; under the same conditions, the higher the current interest rate, the higher the denominator of discounting. Interest rate risk management is intended to decrease or increase the level of our exposure to market interest rates. The level of interest rate risk can be managed through such means as the changing of gap positions and the volume of fixed-income assets. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.
     The following table shows the status of our gap position as of June 30, 2011:
                                                 
            After                          
            Three     After One                    
            Months     Year But                    
    Within     But     Within     After     Non-        
    Three     Within     Five     Five     Interest-        
    Months     One Year     Years     Years     Sensitive     Total  
                    (Dollars in Thousands)                  
ASSETS
                                               
Cash and Due From Banks
  $     $     $     $     $ 67,166     $ 67,166  
Interest-Bearing Deposits in Other Banks
    129,768       1,989                         131,757  
Investment Securities:
                                               
Fixed Rate
    43,625       65,080       115,351       84,250       9,801       318,107  
Floating Rate
    28,482       11,095       23,494       9,399       468       72,938  
Loans:
                                               
Fixed Rate
    114,492       152,607       377,522       16,266             660,887  
Floating Rate
    1,233,939       30,110       24,782       1,230             1,290,061  
Non-Accrual
                            167,102       167,102  
Deferred Loan Fees, Discounts, Valuation Adjustment and Allowance for Loan Losses
                            (114,381 )     (114,381 )
Investment in Federal Home Loan Bank Stock and Federal Reserve Bank Stock
                      32,565             32,565  
Other Assets
          27,813             6,173       50,647       84,633  
 
                                   
 
                                               
Total Assets
  $ 1,550,306     $ 288,694     $ 541,149     $ 149,883     $ 180,803     $ 2,710,835  
 
                                   
 
                                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                               
Liabilities:
                                               
Deposits:
                                               
Demand — Noninterest-Bearing
  $     $     $     $     $ 600,812     $ 600,812  
Savings
    10,983       26,358       53,748       19,846             110,935  
Money Market Checking and NOW Accounts
    35,242       168,756       215,821       64,313             484,132  
Time Deposits:
                                               
Fixed Rate
    185,241       790,547       226,650                   1,202,438  
Floating Rate
    58                               58  
Federal Home Loan Bank Advances
    61       277       3,141                   3,479  
Other Borrowings
    1,034                               1,034  
Junior Subordinated Debentures
    82,406                               82,406  
Other Liabilities
                            27,176       27,176  
Stockholders’ Equity
                            198,365       198,365  
 
                                   
 
                                               
Total Liabilities and Stockholders’ Equity
  $ 315,025     $ 985,938     $ 499,360     $ 84,159     $ 826,353     $ 2,710,835  
 
                                   
 
                                               
Repricing Gap
  $ 1,235,281     $ (697,244 )   $ 41,789     $ 65,724     $ (645,550 )   $  
Cumulative Repricing Gap
  $ 1,235,281     $ 538,037     $ 579,826     $ 645,550     $     $  
Cumulative Repricing Gap as a Percentage of Total Assets
    45.57 %     19.85 %     21.39 %     23.81 %              
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    49.29 %     21.47 %     23.13 %     25.76 %              
     The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., a point-in-time analysis measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same period). Assets are assigned to maturity and repricing categories based on their expected repayment or repricing dates, and liabilities are assigned based on their repricing or maturity dates. Core deposits that have no maturity dates (demand deposits, savings, money market checking and NOW accounts) are assigned to categories based on expected decay rates.

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     As of June 30, 2011, the cumulative repricing gap for the three-month period was at an asset-sensitive position and was 49.29 percent of interest-earning assets, which increased from 33.67 percent as of December 31, 2010. The increase was mainly caused by decreases of $150.0 million and $243.2 million in Federal Home Loan Bank advances and fixed rate time deposits, respectively, partially offset by decreases of $54.6 million and $49.1 million in interest-bearing deposits in other banks and fixed rate loans, respectively.
     The cumulative repricing gap for the twelve-month period was at an asset-sensitive position and was 21.47 percent of interest-earning assets, which decreased from 31.25 percent as of December 31, 2010. The decrease was primarily caused by decreases of $160.9 million, $89.0 million, $57.0 million, and $5.1 million in fixed rate loans, floating rate loans, interest-bearing deposits in other banks, and floating rate securities, respectively, and increases of $166.4 million and $36.3 million in fixed rate time deposits, and money market checking and NOW accounts, respectively. Partially offsetting the declines in the twelve-month period gap were a decrease of $150.0 million in FHLB advances and an increase of $44.8 million in fixed rate investment securities, respectively.
     The following table summarizes the status of the cumulative gap position as of the dates indicated.
                                 
    Less Than Three Months     Less Than Twelve Months  
    June 30,     December 31,     June 30,     December 31,  
    2011     2010     2011     2010  
            (Dollars in Thousands)          
Cumulative Repricing Gap
  $ 1,235,281     $ 921,942     $ 538,037     $ 855,812  
Cumulative Repricing Gap as a Percentage of Total Assets
    45.57 %     31.71 %     19.85 %     29.44 %
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    49.29 %     33.67 %     21.47 %     31.25 %
     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. To achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
     To supplement traditional gap analysis, we perform simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the market value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a one-year horizon, given the basis point adjustment in interest rates reflected below.
                                 
Rate Shock Table  
    Percentage Changes     Change in Amount  
Change in   Net     Economic     Net     Economic  
Interest   Interest     Value of     Interest     Value of  
Rate   Income     Equity     Income     Equity  
    (Dollars in Thousands)          
200%
    10.26 %     (8.91 )%   $ 11,285     $ (30,908 )
100%
    4.62 %     (4.37 )%   $ 5,081     $ (15,174 )
(100%)
    (1 )     (1 )     (1 )     (1 )
(200%)
    (1 )     (1 )     (1 )     (1 )
 
(1)   The table above only reflects the impact of upward shocks due to the fact that a downward parallel shock of 100 basis points or more is not possible given that some short-term rates are currently less than one percent.
     The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.

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CAPITAL RESOURCES AND LIQUIDITY
     Capital Resources
     Historically, our primary source of capital has been the retention of operating earnings. To ensure adequate capital levels, the Board continually assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.
     Under the Final Order, the Bank is required to increase its capital and maintain certain regulatory capital ratios prior to certain dates specified in the Final Order. By July 31, 2010, the Bank was required to increase its contributed equity capital by not less than an additional $100 million, and maintain a ratio of tangible stockholders’ equity to total tangible assets of at least 9.0 percent. By December 31, 2010, and thereafter during the life of the Final Order, the Bank will be required to maintain a ratio of tangible stockholders’ equity to total tangible assets of not less than 9.5 percent.
     If the Bank is not able to maintain the capital ratios identified in the Final Order, it must notify the DFI, and Hanmi Financial and the Bank are required to notify the FRB if their respective capital ratios fall below those set forth in the capital plan submitted to the FRB. On July 27, 2010, we completed a registered rights and best efforts offering in which we raised $116.8 million in net proceeds. As a result, we satisfied the $100 million capital contribution requirement set forth in the Final Order. While the Bank’s tangible stockholders’ equity to total tangible assets ratio was 8.59 percent at December 31, 2010, the ratio increased to 10.33 percent at June 30, 2011. Therefore, the Bank is currently in compliance with the tangible capital ratio requirement. Further, the Bank’s capital ratios exceeded the ratios required to be considered “well capitalized” under the regulatory PCA guidelines.
     Our board has assessed and will continue to periodically assess our capital position. If it determines that the Bank’s capital does not exceed the amount necessary to fund its operating and strategic needs and to fully comply with regulatory orders we are subject to, we will evaluate various opportunities to further enhance our capital position with additional capital.
     Liquidity — Hanmi Financial
     Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its operating cash needs through December 31, 2011. 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 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 June 30, 2011, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $6.3 million, down from $7.7 million as of December 31, 2010.
     Liquidity — Hanmi Bank
     Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of June 30, 2011, in compliance with its regulatory restrictions, the Bank had no brokered deposits, and had FHLB advances of $3.5 million, a decrease of $150.2 million from $153.7 million at December 31, 2010.
     The Bank’s primary source of borrowings is the FHLB, from which the Bank is eligible to borrow up to 15 percent of its total assets. As of June 30, 2011, the total borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $391.2 million and $387.7 million, respectively. The Bank’s FHLB borrowings as of June 30, 2011 totaled $3.5 million, representing 0.1 percent of total assets. As of August 5, 2011, the Bank’s FHLB borrowing capacity available based on pledged collateral and the remaining available borrowing capacity were $378.1 million and $374.6 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.

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     As a means of augmenting its liquidity, the Bank had an available borrowing source of $150.5 million from the Federal Reserve Discount Window (the “Fed Discount Window”), to which the Bank pledged loans with a carrying value of $321.1 million, and had no borrowings as of June 30, 2011. The Bank is currently in the secondary program of the Borrower in Custody Program of the Fed Discount Window, which allows the Bank to request very short-term credit (typically overnight) at a rate that is above the primary credit rate within a specified period. In August 2010, South Street Securities LLC extended a line of credit to the Bank for reverse repurchase agreements up to a maximum of $100.0 million.
     Current market conditions have limited the Bank’s liquidity sources principally to interest-bearing deposits, unpledged marketable securities, and 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. As of June 30, 2011, in compliance with its regulatory restrictions, the Bank did not have any brokered deposits and would consult in advance with its regulators if it were to consider accepting brokered deposits in the future.
     The Bank has Contingency Funding Plans (“CFPs”) designed to ensure that liquidity sources are sufficient to meet its ongoing obligations and commitments, particularly in the event of a liquidity contraction. The CFPs are designed to examine and quantify its liquidity under various “stress” scenarios. Furthermore, the CFPs provide a framework for management and other critical personnel to follow in the event of a liquidity contraction or in anticipation of such an event. The CFPs address authority for activation and decision making, liquidity options and the responsibilities of key departments in the event of a liquidity contraction.
The Bank believes that it nonetheless has adequate liquidity resources to fund its obligations with its interest-bearing deposits, unpledged marketable securities, and secured credit lines with the FHLB and Fed Discount Window.
OFF-BALANCE SHEET ARRANGEMENTS
     For a discussion of off-balance sheet arrangements, see “Note 10 — Off-Balance Sheet Commitments” of Notes to Consolidated Financial Statements (Unaudited) in this Report and “Item 1. Business — Off-Balance Sheet Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2010.
CONTRACTUAL OBLIGATIONS
     There have been no material changes to the contractual obligations described in our Annual Report on Form 10-K for the year ended December 31, 2010.
RECENTLY ISSUED ACCOUNTING STANDARDS
     FASB ASU 2011-05, “Presentation of Comprehensive Income (Topic 220)” — ASU 2011-05 is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS, the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, among other amendments in this Update. These amendments apply to all entities that report items of other comprehensive income, in any period presented. Under the amendments to Topic 220, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in ASU 2011-05 are effective fiscal years, and interim periods within those years, beginning after December 15, 2011. Adoption of ASU 2011-05 is not expected to have a significant impact on our financial condition or result of operations.
     FASB ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Topic 820)” — ASU 2011-04 provides guidance on fair value measurement and disclosure requirements that the FASB deemed largely identical across U.S. GAAP and IFRS.

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The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or allowed. ASU 2011-04 supersedes most of the guidance in ASC topic 820, but many of the changes are clarifications of existing guidance or wording changes to reflect IFRS 13. Amendments in ASU 2011-04 change the wording used to describe U.S. GAAP requirements for fair value and disclosing information about fair value measurements. ASU 2011-04 is effective for interim and annual reporting periods beginning after December 15, 2011, and early application is not permitted. Adoption of ASU 2011-04 is not expected to have a significant impact on our financial condition or result of operations.
     FASB ASU 2011-02, “Receivable (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” — ASU 2011-02 clarifies the guidance for evaluating whether a restructuring constitutes a troubled debt restructuring (‘TDR”). The guidance requires that a creditor separately conclude that both of the following exist: i) The restructuring constitutes a concession, ii) The debtor is experiencing financial difficulties. In addition, the guidance clarifies that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a TDR. The amendments in ASU 2011-02 are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We are evaluating the impact of adoption of ASU 2011-02 on its disclosures in the consolidated financial statements.
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 “— Capital Resources and Liquidity.”
ITEM 4. CONTROLS AND PROCEDURES
     As of June 30, 2011, Hanmi Financial carried out an evaluation, under the supervision and with the participation of Hanmi Financial’s management, including Hanmi Financial’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of Hanmi Financial’s disclosure controls and procedures and internal controls over financial reporting pursuant to Securities and Exchange Commission rules. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Hanmi Financial’s disclosure controls and procedures were effective as of the end of the period covered by this Report.
     During our most recent fiscal quarter ended June 30, 2011, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
     From time to time, Hanmi Financial and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of Hanmi Financial and its subsidiaries. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.
ITEM 1A. RISK FACTORS
     There have been no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 that was filed with the SEC on March 16, 2011. Together with those risk factors and other information on the risks we face and our management of risk contained in this Quarterly Report on Form 10-Q, the following presents additional risks that may affect us. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face and additional risks that we may currently view as not material may also adversely impact our financial condition, business operations and results of operations.

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     Our use of appraisals in deciding whether to make loans secured by real property does not ensure that the value of the real property collateral will be sufficient to repay our loans. In considering whether to make a loan secured by real property, we require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made and requires the exercise of a considerable degree of judgment and adherence to professional standards. If the appraisal does not reflect the amount that may be obtained upon sale or foreclosure of the property, whether due to declines in property values after the date of the original appraisal or defective preparation, we may not realize an amount equal to the indebtedness secured by the property and may suffer losses.
     Our controls and procedures could fail or be circumvented. Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, but not absolute, assurances of the effectiveness of these systems and controls, and that the objectives of these controls have been met. Any failure or circumvention of our controls and procedures, and any failure to comply with regulations related to controls and procedures could adversely affect our business, results of operations and financial condition.
     We could be liable for breaches of security in our online banking services. Fear of security breaches could limit the growth of our online services. We offer various Internet-based services to our clients, including online banking services. The secure transmission of confidential information over the Internet is essential to maintain our clients’ confidence in our online services. Advances in computer capabilities, new discoveries or other developments could result in a compromise or breach of the technology we use to protect client transaction data. Although we have developed systems and processes that are designed to prevent security breaches and periodically test our security, failure to mitigate breaches of security could adversely affect our ability to offer and grow our online services and could harm our business.
     The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.
     A failure by the U.S. government to meet the conditions of the August 2011 debt ceiling agreement or to reduce its budget deficits or a downgrade of U.S. sovereign debt from its AAA credit rating could have a material adverse effect on the availability of financing, our borrowing costs, the liquidity and valuation of securities in our investment portfolio, our financial condition and our results of operations. As widely reported, there continues to be concerns over the ability of the United States government to reduce its budget deficits and resolve its debt crisis. The U.S. sovereign debt continues to be under review for a downgrade of its AAA credit rating to account for the risk that U.S. lawmakers fail to meet the conditions of the August 2011 debt ceiling agreement and/or reduce its overall debt. Any such failures or a downgrade of the U.S. sovereign debt rating could have a material adverse effect both on the U.S. economy and on the global economy. In particular, this could cause disruption in the capital markets and impact the stability of future U.S. treasury auctions and the trading market for U.S. government securities, resulting in increased interest rates and borrowing costs. The Bank relies on customer deposits, brokered deposits and advances from the Federal Home Loan Bank to fund operations. The Bank’s financial flexibility will be severely constrained if it is unable to maintain its access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If the Bank is required to rely on more expensive funding sources to support future growth, revenues may not increase proportionately to cover costs. In this case, profitability would be adversely affected. Any of these factors could negatively impact our borrowing costs and our liquidity, which could have a material adverse impact on our financial condition and our results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     None.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
     None.
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
Corrections of Certain Data Regarding Non-performing Loans Set Forth in Our Earnings Release dated July 21, 2011.
     This Quarterly Report on Form 10-Q includes corrected data regarding total non-performing loans as of and for the quarter ended June 30, 2011, which differ from and supersede data included in the Earnings Release dated July 21, 2011. These corrections had no effect on the consolidated statements of operations or earnings per share for the second quarter of 2011.
     The following table sets forth the corrected items.
Total Non-Performing Loans
                                                 
    As Previously Reported     Adjustment     As Adjusted  
                    (In Thousands)              
                            Percentage              
    Balance     Percentage     Amount     Change     Balance     Percentage  
June 30, 2011:
                                               
Real Estate Loans:
                                               
Commercial Property
                                               
Retail
  $ 14,335       9.0 %   $           $ 14,335       8.6 %
Land
    25,184       15.9 %                 25,184       15.1 %
Other
    3,672       2.3 %     941       0.5 %     4,613       2.8 %
Construction
    12,298       7.8 %                 12,298       7.4 %
Residential Property
    1,726       1.1 %                 1,726       1.0 %
 
                                               
Commercial and Industrial Loans:
                                               
Commercial Term Unsecured
    8,389       5.3 %     2,369       1.1 %     10,758       6.4 %
Secured by Real Estate
    54,754       34.5 %     5,299       1.4 %     60,053       35.9 %
Commercial Lines of Credit
    2,905       1.8 %                 2,905       1.7 %
SBA
    31,163       19.7 %                 31,163       18.6 %
International
    3,243       2.0 %                 3,243       1.9 %
 
                                               
Consumer Loans
    824       0.5 %                 824       0.5 %
 
                                     
Total
  $ 158,493       100.0 %   $ 8,609             $ 167,012       100.0 %
 
                                     

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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
 
   
101.INS
  XBRL Instance Document *
 
   
101.SCH
  XBRL Taxonomy Extension Schema Document *
 
   
101.CAL
  XBRL Taxonomy Extension Calculation Linkbase Document *
 
   
101.LAB
  XBRL Taxonomy Extension Label Linkbase Document *
 
   
101.PRE
  XBRL Taxonomy Extension Presentation Linkbase Document *
 
   
101.DEF
  XBRL Taxonomy Extension Definition Linkbase Document *
 
*   Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”

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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, 2011  By:   /s/ Jay S. Yoo    
    Jay S. Yoo   
    President and Chief Executive Officer   
 
     
  By:   /s/ Brian E. Cho    
    Brian E. Cho   
    Executive Vice President and Chief Financial Officer   
 

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