##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2008
 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 ALos 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)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 QUARTERLY REPORT ON FORM 10-Q
 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets (Unaudited)
    
    
    1Consolidated Statements of Operations (Unaudited)
    
    
    2Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income (Loss) (Unaudited)
    
    
    3Consolidated Statements of Cash Flows (Unaudited)
    
    
    4Notes to Consolidated Financial Statements (Unaudited)
    
    
    5ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    19ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    49ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    49PART II  OTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    50ITEM 1A.
    
    RISK FACTORS
    
    
    50ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    51ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
    
    
    51ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    51ITEM 5.
    
    OTHER INFORMATION
    
    
    51ITEM 6.
    
    EXHIBITS
    
    
    51SIGNATURES
    
    
    52EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (Dollars in Thousands, Except Share Data)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCash and Due From Banks
    
    $
    81,640
    
    
    $
    105,898Federal Funds Sold
    
    
    5,000
    
    
    
    16,500Cash and Cash Equivalents
    
    
    86,640
    
    
    
    122,398Securities Held to Maturity, at Amortized Cost (Fair Value: 2008  $917; 2007  $941)
    
    
    918
    
    
    
    940Securities Available for Sale, at Fair Value
    
    
    221,551
    
    
    
    349,517Loans Receivable, Net of Allowance for Loan Losses of $63,948 and $43,611 at September 30,
2008 and December 31, 2007, Respectively
    
    
    3,252,548
    
    
    
    3,234,762Loans Held for Sale, at the Lower of Cost or Fair Value
    
    
    28,553
    
    
    
    6,335Customers Liability on Acceptances
    
    
    7,382
    
    
    
    5,387Premises and Equipment, Net
    
    
    20,703
    
    
    
    20,800Accrued Interest Receivable
    
    
    13,801
    
    
    
    17,411Other Real Estate Owned
    
    
    2,988
    
    
    
    287Servicing Assets
    
    
    4,018
    
    
    
    4,336Goodwill
    
    
    
    
    
    
    107,100Other Intangible Assets
    
    
    5,404
    
    
    
    6,908Federal Reserve Bank Stock, at Cost
    
    
    11,733
    
    
    
    11,733Federal Home Loan Bank Stock, at Cost
    
    
    30,424
    
    
    
    21,746Bank-Owned Life Insurance
    
    
    25,239
    
    
    
    24,525Other Assets
    
    
    54,089
    
    
    
    49,472TOTAL ASSETS
    
    $
    3,765,991
    
    
    $
    3,983,657LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-Bearing
    
    $
    634,593
    
    
    $
    680,282Interest-Bearing:Savings
    
    
    86,157
    
    
    
    93,099Money Market Checking and NOW Accounts
    
    
    597,065
    
    
    
    445,806Time Deposits of $100,000 or More
    
    
    863,034
    
    
    
    1,441,683Other Time Deposits
    
    
    618,528
    
    
    
    340,829Total Deposits
    
    
    2,799,377
    
    
    
    3,001,699Accrued Interest Payable
    
    
    11,344
    
    
    
    21,828Acceptances Outstanding
    
    
    7,382
    
    
    
    5,387FHLB Advances and Other Borrowings
    
    
    584,972
    
    
    
    487,164Junior Subordinated Debentures
    
    
    82,406
    
    
    
    82,406Other Liabilities
    
    
    13,314
    
    
    
    14,617Total Liabilities
    
    
    3,498,795
    
    
    
    3,613,101COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued 50,538,049 Shares
(45,905,549 Shares Outstanding) and 50,493,441 Shares (45,860,941 Shares Outstanding) at
September 30, 2008 and December 31, 2007, Respectively
    
    
    51
    
    
    
    50Additional Paid-In Capital
    
    
    349,073
    
    
    
    348,073Unearned Compensation
    
    
    (232
    )
    
    
    (245
    )Accumulated
Other Comprehensive Income  Unrealized Gain on Securities 
Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of
$312 and $527 at September 30, 2008 and December 31, 2007, Respectively
    
    
    255
    
    
    
    275Retained Earnings (Deficit)
    
    
    (11,939
    )
    
    
    92,415337,208
    
    
    
    440,568Less Treasury Stock, at Cost; 4,632,500 Shares at September 30, 2008 and December 31, 2007
    
    
    (70,012
    )
    
    
    (70,012
    )Total Stockholders Equity
    
    
    267,196
    
    
    
    370,556TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,765,991
    
    
    $
    3,983,657
  1




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (Dollars in Thousands, Except Per Share Data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007INTEREST AND DIVIDEND INCOME:Interest and Fees on Loans
    
    $
    56,134
    
    
    $
    66,714
    
    
    $
    172,637
    
    
    $
    194,487Taxable Interest on Investments
    
    
    2,053
    
    
    
    3,308
    
    
    
    7,748
    
    
    
    10,213Tax-Exempt Interest on Investments
    
    
    650
    
    
    
    764
    
    
    
    2,071
    
    
    
    2,290Dividends on Federal Home Loan Bank and Federal Reserve Bank Stock
    
    
    581
    
    
    
    350
    
    
    
    1,481
    
    
    
    1,055Interest on Federal Funds Sold
    
    
    23
    
    
    
    61
    
    
    
    137
    
    
    
    963Interest on Term Federal Funds Sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Total Interest and Dividend Income
    
    
    59,441
    
    
    
    71,197
    
    
    
    184,074
    
    
    
    209,013INTEREST EXPENSE:Interest on Deposits
    
    
    19,365
    
    
    
    27,987
    
    
    
    64,699
    
    
    
    80,973Interest on FHLB Advances and Other Borrowings
    
    
    3,329
    
    
    
    3,785
    
    
    
    11,750
    
    
    
    8,875Interest on Junior Subordinated Debentures
    
    
    1,150
    
    
    
    1,675
    
    
    
    3,763
    
    
    
    4,974Total Interest Expense
    
    
    23,844
    
    
    
    33,447
    
    
    
    80,212
    
    
    
    94,822NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    
    
    35,597
    
    
    
    37,750
    
    
    
    103,862
    
    
    
    114,191Provision for Credit Losses
    
    
    13,176
    
    
    
    8,464
    
    
    
    50,226
    
    
    
    17,619NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
    
    
    22,421
    
    
    
    29,286
    
    
    
    53,636
    
    
    
    96,572NON-INTEREST INCOME:Service Charges on Deposit Accounts
    
    
    4,648
    
    
    
    4,463
    
    
    
    13,904
    
    
    
    13,389Insurance Commissions
    
    
    1,194
    
    
    
    1,131
    
    
    
    3,893
    
    
    
    3,535Trade Finance Fees
    
    
    784
    
    
    
    1,082
    
    
    
    2,474
    
    
    
    3,549Other Service Charges and Fees
    
    
    433
    
    
    
    691
    
    
    
    1,852
    
    
    
    1,881Remittance Fees
    
    
    499
    
    
    
    512
    
    
    
    1,543
    
    
    
    1,503Gain on Sales of Loans
    
    
    
    
    
    
    523
    
    
    
    765
    
    
    
    3,685Bank-Owned Life Insurance Income
    
    
    241
    
    
    
    234
    
    
    
    715
    
    
    
    693Gain (Loss) on Sales of Securities Available for Sale
    
    
    (483
    )
    
    
    
    
    
    
    135
    
    
    
    Other-Than-Temporary Impairment Loss on Securities
    
    
    (2,621
    )
    
    
    
    
    
    
    (2,621
    )
    
    
    Other Income
    
    
    633
    
    
    
    890
    
    
    
    2,085
    
    
    
    1,970Total Non-Interest Income
    
    
    5,328
    
    
    
    9,526
    
    
    
    24,745
    
    
    
    30,205NON-INTEREST EXPENSES:Salaries and Employee Benefits
    
    
    10,782
    
    
    
    11,418
    
    
    
    33,363
    
    
    
    33,961Occupancy and Equipment
    
    
    2,786
    
    
    
    2,657
    
    
    
    8,360
    
    
    
    7,740Data Processing
    
    
    1,498
    
    
    
    1,540
    
    
    
    4,730
    
    
    
    4,768Professional Fees
    
    
    647
    
    
    
    565
    
    
    
    2,627
    
    
    
    1,686Advertising and Promotion
    
    
    914
    
    
    
    943
    
    
    
    2,614
    
    
    
    2,493Supplies and Communication
    
    
    681
    
    
    
    704
    
    
    
    2,008
    
    
    
    1,996Amortization of Other Intangible Assets
    
    
    478
    
    
    
    570
    
    
    
    1,504
    
    
    
    1,776Impairment Loss on Goodwill
    
    
    
    
    
    
    
    
    
    
    107,393
    
    
    
    Other Operating Expenses
    
    
    4,449
    
    
    
    2,852
    
    
    
    10,667
    
    
    
    9,288Total Non-Interest Expenses
    
    
    22,235
    
    
    
    21,249
    
    
    
    173,266
    
    
    
    63,708INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    
    
    5,514
    
    
    
    17,563
    
    
    
    (94,885
    )
    
    
    63,069Provision for Income Taxes
    
    
    1,166
    
    
    
    6,536
    
    
    
    3,393
    
    
    
    23,788NET INCOME (LOSS)
    
    $
    4,348
    
    
    $
    11,027
    
    
    $
    (98,278
    )
    
    $
    39,281EARNINGS (LOSS) PER SHARE:Basic
    
    $
    0.09
    
    
    $
    0.23
    
    
    $
    (2.14
    )
    
    $
    0.81Diluted
    
    $
    0.09
    
    
    $
    0.23
    
    
    $
    (2.14
    )
    
    $
    0.81WEIGHTED-AVERAGE SHARES OUTSTANDING:Basic
    
    
    45,881,549
    
    
    
    47,355,143
    
    
    
    45,869,069
    
    
    
    48,232,464Diluted
    
    
    45,933,043
    
    
    
    47,536,078
    
    
    
    45,869,069
    
    
    
    48,569,863DIVIDENDS DECLARED PER SHARE
    
    $
    
    
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.18
  2




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 (Dollars in Thousands)
 Common Stock - Number of Shares
    
    
    Stockholders EquityAccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    Retained
    
    
    Treasury
    
    
    TotalTreasury
    
    
    
    
    
    
    Common
    
    
    Paid-in
    
    
    Unearned
    
    
    Comprehensive
    
    
    Earnings
    
    
    Stock,
    
    
    StockholdersIssued
    
    
    Stock
    
    
    Outstanding
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Income (Loss)
    
    
    (Deficit)
    
    
    at Cost
    
    
    EquityBALANCE AS OF DECEMBER 31, 2006
    
    
    50,239,613
    
    
    
    (1,163,000
    )
    
    
    49,076,613
    
    
    $
    50
    
    
    $
    344,810
    
    
    $
    --
    
    
    $
    (3,200
    )
    
    $
    164,751
    
    
    $
    (20,041
    )
    
    $
    486,370Shares Issued for Business Acquisitions
    
    
    102,181
    
    
    
    
    
    
    
    102,181
    
    
    
    
    
    
    
    2,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,198Exercises of Stock Options
    
    
    132,647
    
    
    
    
    
    
    
    132,647
    
    
    
    
    
    
    
    1,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,164Share-Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,283Tax Benefit from Exercise of Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,756
    )
    
    
    
    
    
    
    (8,756
    )Repurchase of Common Stock
    
    
    
    
    
    
    (2,325,100
    )
    
    
    (2,325,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,926
    )
    
    
    (38,926
    )Repurchase of Stock Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,552
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,552
    )Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,281
    
    
    
    
    
    
    
    39,281Change in Unrealized Loss on Securities
Available for Sale, Interest-Only Strips
and Interest Rate Swaps, Net of Income
Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,742
    
    
    
    
    
    
    
    
    
    
    
    1,742Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,023BALANCE AS OF SEPTEMBER 30, 2007
    
    
    50,474,441
    
    
    
    (3,488,100
    )
    
    
    46,986,341
    
    
    $
    50
    
    
    $
    347,076
    
    
    $
    
    
    
    $
    (1,458
    )
    
    $
    195,276
    
    
    $
    (58,967
    )
    
    $
    481,977BALANCE AS OF DECEMBER 31, 2007
    
    
    50,493,441
    
    
    
    (4,632,500
    )
    
    
    45,860,941
    
    
    $
    50
    
    
    $
    348,073
    
    
    $
    (245
    )
    
    $
    275
    
    
    $
    92,415
    
    
    $
    (70,012
    )
    
    $
    370,556Cumulative-Effect Adjustment from the
Adoption of EITF Issue No. 06-4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,223
    )
    
    
    
    
    
    
    (2,223
    )Shares Issued for Business Acquisitions
    
    
    39,608
    
    
    
    
    
    
    
    39,608
    
    
    
    1
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293Repurchase of Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70
    )Share-Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    752
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    791Restricted Stock Awards
    
    
    10,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    67
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of Restricted Stock Award
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (41
    )
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,853
    )
    
    
    
    
    
    
    (3,853
    )Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,278
    )
    
    
    
    
    
    
    (98,278
    )Change in Unrealized Gain on Securities
Available for Sale, Interest-Only Strips
and Interest Rate Swaps, Net of Income
Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98,298
    )BALANCE AS OF SEPTEMBER 30, 2008
    
    
    50,538,049
    
    
    
    (4,632,500
    )
    
    
    45,905,549
    
    
    $
    51
    
    
    $
    349,073
    
    
    $
    (232
    )
    
    $
    255
    
    
    $
    (11,939
    )
    
    $
    (70,012
    )
    
    $
    267,196
  3




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Nine Months EndedSeptember 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (Loss)
    
    $
    (98,278
    )
    
    $
    39,281Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities:Depreciation and Amortization of Premises and Equipment
    
    
    2,202
    
    
    
    2,186Amortization of Premiums and Accretion of Discounts on Investments, Net
    
    
    121
    
    
    
    150Amortization of Other Intangible Assets
    
    
    1,504
    
    
    
    1,776Amortization of Servicing Assets
    
    
    1,068
    
    
    
    1,508Share-Based Compensation Expense
    
    
    791
    
    
    
    1,283Provision for Credit Losses
    
    
    50,226
    
    
    
    17,619Federal Home Loan Bank Stock Dividends
    
    
    (953
    )
    
    
    (526
    )Gain on Sales of Securities Available for Sale, Net
    
    
    (135
    )
    
    
    Other-Than-Temporary Loss on Investment Securities
    
    
    2,621
    
    
    
    Gain on Sales of Loans
    
    
    (765
    )
    
    
    (3,685
    )Loss (Gain) on Sales of Other Real Estate Owned
    
    
    132
    
    
    
    (226
    )Loss on Sales of Premises and Equipment
    
    
    9
    
    
    
    11Impairment Loss on Goodwill
    
    
    107,393
    
    
    
    Tax Benefit from Exercise of Stock Options
    
    
    
    
    
    
    (173
    )Origination of Loans Held for Sale
    
    
    (45,490
    )
    
    
    (76,488
    )Proceeds from Sales of Loans Held for Sale
    
    
    24,037
    
    
    
    96,523Decrease (Increase) in Accrued Interest Receivable
    
    
    3,610
    
    
    
    (700
    )Increase in Servicing Asset
    
    
    (750
    )
    
    
    (1,257
    )Increase in Cash Surrender Value of Bank-Owned Life Insurance
    
    
    (714
    )
    
    
    (693
    )Increase in Other Assets
    
    
    (4,871
    )
    
    
    (9,044
    )Decrease in Accrued Interest Payable
    
    
    (10,484
    )
    
    
    (2,133
    )(Decrease) Increase in Other Liabilities
    
    
    (6,067
    )
    
    
    890Net Cash Provided By Operating Activities
    
    
    25,207
    
    
    
    66,302CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from Matured Term Federal Funds Sold
    
    
    
    
    
    
    5,000Proceeds from Redemption of Federal Home Loan Bank Stock
    
    
    2,536
    
    
    
    Proceeds from Matured or Called Securities Available for Sale
    
    
    124,950
    
    
    
    45,762Proceeds from Sales of Securities Available for Sale
    
    
    26,001
    
    
    
    Proceeds from Sales of Other Real Estate Owned
    
    
    155
    
    
    
    1,306Net Increase in Loans Receivable
    
    
    (68,459
    )
    
    
    (383,647
    )Purchases of Federal Home Loan Bank Stock
    
    
    (10,261
    )
    
    
    (77
    )Purchases of Securities Available for Sale
    
    
    (25,336
    )
    
    
    (11,158
    )Purchases of Premises and Equipment
    
    
    (2,114
    )
    
    
    (2,701
    )Business Acquisitions, Net of Cash Acquired
    
    
    
    
    
    
    (1,727
    )Net Cash Provided By (Used In) Investing Activities
    
    
    47,472
    
    
    
    (347,242
    )CASH FLOWS FROM FINANCING ACTIVITIES:(Decrease) Increase in Deposits
    
    
    (202,322
    )
    
    
    102,842Proceeds from Exercises of Stock Options
    
    
    
    
    
    
    1,164Tax Benefit from Exercise of Stock Options
    
    
    
    
    
    
    173Cash Paid to Acquire Treasury Stock
    
    
    
    
    
    
    (38,926
    )Cash Paid to Repurchase Stock Options
    
    
    (70
    )
    
    
    Cash Paid to Repurchase Stock Warrants
    
    
    
    
    
    
    (2,552
    )Cash Dividends Paid
    
    
    (3,853
    )
    
    
    (8,756
    )Proceeds from FHLB Advances and Other Borrowings
    
    
    250,000
    
    
    
    Repayment of FHLB Advances and Other Borrowings
    
    
    (349
    )
    
    
    (330
    )Net Change in Short-Term FHLB Advances and Other Borrowings
    
    
    (151,843
    )
    
    
    192,613Net Cash (Used In) Provided By Financing Activities
    
    
    (108,437
    )
    
    
    246,228NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (35,758
    )
    
    
    (34,712
    )Cash and Cash Equivalents at Beginning of Period
    
    
    122,398
    
    
    
    138,501CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    86,640
    
    
    $
    103,789SUPPLEMENTAL CASH FLOW INFORMATION:Cash Paid During the Period for:Interest
    
    $
    90,696
    
    
    $
    96,955Income Tax Payments, Net of Refunds
    
    $
    13,873
    
    
    $
    33,784Non-Cash Activities:Stock Issued for Business Acquisitions
    
    $
    293
    
    
    $
    2,198Transfer of Loans to Other Real Estate Owned
    
    $
    2,988
    
    
    $
    1,367Transfer of Equity Securities from Other Assets to Securities Available for Sale
    
    $
    511
    
    
    $
    
  4




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
 NOTE 1  BASIS OF PRESENTATION
  Form 10-Q Form 10-K).
  Note 1  Summary of
Significant Accounting Policies
 Note 10  Correction of Immaterial Errors in Prior
Periods.
 NOTE 2  OTHER-THAN-TEMPORARY IMPAIRMENT LOSS ON SECURITIES
 Accounting for Certain Investments in Debt and Equity
Securities, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments,
 5




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 2  OTHER-THAN-TEMPORARY IMPAIRMENT LOSS ON SECURITIES (Continued)
  NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Option and Fair Value Measurements
 Fair Value Measurements. Effective Date of FASB Statement No. 157.
 The Fair Value Option for Financial Assets
and Financial Liabilities.
 , Determining Fair Value of a Financial Asset
in a Market That Is Not Active.
 6




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
 Fair Value Measurement
  
    
    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.
  Securities Available for Sale
 Loans Held for Sale
 Impaired Loans Accounting by Creditors for Impairment of a Loan,
 Other Real Estate Owned (OREO)
 7




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
 Servicing Assets and Servicing Liabilities
 Assets and Liabilities Measured at Fair Value on a Recurring Basis
  Level 1
    
    
    Level 2
    
    
    Level 3SignificantObservableInputs WithQuoted Prices in
    
    
    No ActiveActive Markets
    
    
    Market With
    
    
    Significant
    
    
    Balance as offor Identical
    
    
    Identical
    
    
    Unobservable
    
    
    September 30,Assets
    
    
    Characteristics
    
    
    Inputs
    
    
    2008(In Thousands)ASSETS:Securities Available for Sale:Mortgage-Backed Securities
    
    $
    
    
    
    $
    81,249
    
    
    $
    
    
    
    $
    81,249Municipal Bonds
    
    
    
    
    
    
    59,119
    
    
    
    
    
    
    
    59,119Collateralized Mortgage Obligations
    
    
    
    
    
    
    39,428
    
    
    
    
    
    
    
    39,428U.S. Government Agency Securities
    
    
    32,532
    
    
    
    
    
    
    
    
    
    
    
    32,532Other Securities
    
    
    755
    
    
    
    2,865
    
    
    
    1,700
    
    
    
    5,320Corporate Bonds
    
    
    
    
    
    
    2,847
    
    
    
    
    
    
    
    2,847Equity Securities
    
    
    
    
    
    
    
    
    
    
    1,056
    
    
    
    1,056Total Securities Available for Sale
    
    $
    33,287
    
    
    $
    185,508
    
    
    $
    2,756
    
    
    $
    221,551Servicing Assets
    
    $
    
    
    
    $
    
    
    
    $
    4,018
    
    
    $
    4,018LIABILITIES:Servicing Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    238
    
    
    $
    238
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Realized andUnrealizedBeginning
    
    
    
    
    
    Realized and
    
    Gains or Losses
    
    
    
    
    
    EndingBalance as of
    
    Purchases,
    
    Unrealized
    
    in Other
    
    Transfers
    
    Balance as ofJuly 1,
    
    Issuances and
    
    Gains or Losses
    
    Comprehensive
    
    In and/or Out
    
    September 30,2008
    
    Settlements
    
    in Earnings
    
    Income
    
    of Level 3
    
    2008(In Thousands)ASSETS:Securities Available for Sale:Other Securities
    
    $
    925
    
    
    $
    
    
    
    $
    
    
    
    $
    775
    
    
    $
    
    
    
    $
    1,700Equity Securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    545
    
    
    $
    511
    
    
    $
    1,056Servicing Assets
    
    $
    4,328
    
    
    $
    
    
    
    $
    (310
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,018LIABILITIES:Servicing Liabilities
    
    $
    250
    
    
    $
    
    
    
    $
    (12
    )
    
    $
    
    
    
    $
    
    
    
    $
    238
 8




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Realized andUnrealizedBeginning
    
    
    
    
    
    Realized and
    
    Gains or Losses
    
    
    
    
    
    EndingBalance as of
    
    Purchases,
    
    Unrealized
    
    in Other
    
    Transfers
    
    Balance as ofJanuary 1,
    
    Issuances and
    
    Gains or Losses
    
    Comprehensive
    
    In and/or Out
    
    September 30,2008
    
    Settlements
    
    in Earnings
    
    Income
    
    of Level 3
    
    2008(In Thousands)ASSETS:Securities Available for Sale:Other Securities
    
    $
    925
    
    
    $
    
    
    
    $
    
    
    
    $
    775
    
    
    $
    
    
    
    $
    1,700Equity Securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    545
    
    
    $
    511
    
    
    $
    1,056Servicing Assets
    
    $
    4,336
    
    
    $
    405
    
    
    $
    (723
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,018LIABILITIES:Servicing Liabilities
    
    $
    266
    
    
    $
    
    
    
    $
    (28
    )
    
    $
    
    
    
    $
    
    
    
    $
    238
 Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
  Level 1
    
    Level 2
    
    Level 3SignificantObservableInputs WithQuoted Prices in
    
    No ActiveActive Markets
    
    Market With
    
    Significant
    
    Balance as offor Identical
    
    Identical
    
    Unobservable
    
    September 30,Assets
    
    Characteristics
    
    Inputs
    
    2008(In Thousands)ASSETS:Loans Held for Sale
    
    $
    
    
    
    $
    28,553
    
    
    $
    
    
    
    $
    28,553Impaired Loans
    
    $
    
    
    
    $
    1,976
    
    
    $
    
    
    
    $
    1,976Other Real Estate Owned
    
    $
    
    
    
    $
    2,988
    
    
    $
    
    
    
    $
    2,988
 9




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 4  ALLOWANCE FOR LOAN LOSSES
  As of and for theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)Allowance for Loan Losses:Balance at Beginning of Period
    
    $
    62,977
    
    
    $
    32,190
    
    
    $
    43,611
    
    
    $
    27,557Provision Charged to Operating Expense
    
    
    12,802
    
    
    
    8,397
    
    
    
    47,685
    
    
    
    17,952Loans Charged Off
    
    
    (12,171
    )
    
    
    (6,215
    )
    
    
    (28,679
    )
    
    
    (11,497
    )Recoveries
    
    
    340
    
    
    
    131
    
    
    
    1,331
    
    
    
    491Balance at End of Period
    
    $
    63,948
    
    
    $
    34,503
    
    
    $
    63,948
    
    
    $
    34,503Allowance for Off-Balance Sheet Items:Balance at Beginning of Period
    
    $
    3,932
    
    
    $
    1,730
    
    
    $
    1,765
    
    
    $
    2,130Provision Charged to Operating Expense
    
    
    374
    
    
    
    67
    
    
    
    2,541
    
    
    
    (333
    )Balance at End of Period
    
    $
    4,306
    
    
    $
    1,797
    
    
    $
    4,306
    
    
    $
    1,797
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)Interest Income That Would Have Been Recognized Had
Impaired Loans Performed in Accordance With Their
Original Terms
    
    $
    3,716
    
    
    $
    2,178
    
    
    $
    8,148
    
    
    $
    3,308Less: Interest Income Recognized on Impaired Loans
    
    
    (2,386
    )
    
    
    (1,935
    )
    
    
    (3,017
    )
    
    
    (2,679
    )Interest Foregone on Impaired Loans
    
    $
    1,330
    
    
    $
    243
    
    
    $
    5,131
    
    
    $
    629
  September 30,
    
    
    December 31,2008
    
    
    2007(In Thousands)Recorded Investment With Related Allowance
    
    $
    84,990
    
    
    $
    38,930Recorded Investment With No Related Allowance
    
    
    16,698
    
    
    
    15,202Allowance on Impaired Loans
    
    
    (17,921
    )
    
    
    (11,829
    )Net Recorded Investment in Impaired Loans
    
    $
    83,767
    
    
    $
    42,303Average Total Recorded Investment in Impaired Loans
    
    $
    114,892
    
    
    $
    61,249
   10




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 5  GOODWILL
  As of and for theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands)Balance at Beginning of Period
    
    $
    
    
    
    $
    209,941
    
    
    $
    107,100
    
    
    $
    207,646Acquired Goodwill
    
    
    
    
    
    
    50
    
    
    
    293
    
    
    
    2,345Impairment Loss on Goodwill
    
    
    
    
    
    
    
    
    
    
    (107,393
    )
    
    
    Balance at End of Period
    
    $
    
    
    
    $
    209,991
    
    
    $
    
    
    
    $
    209,991
 Acquired Goodwill
  Impairment Loss on Goodwill
  NOTE 6  SHARE-BASED COMPENSATION
 Share-Based Compensation Expense
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007(In Thousands)Share-Based Compensation Expense
    
    $
    284
    
    
    $
    416
    
    
    $
    791
    
    
    $
    1,283Related Tax Benefits
    
    $
    119
    
    
    $
    175
    
    
    $
    333
    
    
    $
    540
 11




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 6  SHARE-BASED COMPENSATION (Continued)
 Unrecognized Share-Based Compensation Expense
  Unrecognized
    
    
    Average ExpectedExpense
    
    
    Recognition Period(Dollars in Thousands)Stock Option Awards
    
    $
    2,635
    
    
    2.3 yearsRestricted Stock Awards
    
    
    242
    
    
    4.1 yearsTotal Unrecognized Share-Based Compensation Expense
    
    $
    2,877
    
    
    2.5 years
 Share-Based Payment Award Activity
  Weighted-
    
    
    Weighted-
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicNumber
    
    
    Exercise
    
    
    Remaining
    
    
    Value ofof
    
    
    Price Per
    
    
    Contractual
    
    
    In-the-MoneyShares
    
    
    Share
    
    
    Life
    
    
    Options(Dollars in Thousands, Except Per Share Data)Options Outstanding at Beginning of Period
    
    
    1,491,566
    
    
    $
    14.72
    
    
    6.8 years
    
    $
    169
    (1)Options Granted
    
    
    30,000
    
    
    $
    5.15
    
    
    9.9 yearsOptions Expired
    
    
    (15,800
    )
    
    $
    19.43
    
    
    7.7 yearsOptions Forfeited
    
    
    (43,200
    )
    
    $
    18.08
    
    
    7.7 yearsOptions Outstanding at End of Period
    
    
    1,462,566
    
    
    $
    14.38
    
    
    6.6 years
    
    $
    149
    (2)Options Exercisable at End of Period
    
    
    786,477
    
    
    $
    13.24
    
    
    5.4 years
    
    $
    149
    (2)
 
 (1)
    
    Intrinsic value represents the excess of the closing stock price on the last trading
day of the period, which was $5.21 as of June 30, 2008, 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 $5.05 as of September 30, 2008, over the exercise price,
multiplied by the number of options.  12




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 6  SHARE-BASED COMPENSATION (Continued)
  Weighted-
    
    
    Weighted-
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicNumber
    
    
    Exercise
    
    
    Remaining
    
    
    Value ofof
    
    
    Price Per
    
    
    Contractual
    
    
    In-the-MoneyShares
    
    
    Share
    
    
    Life
    
    
    Options(Dollars in Thousands, Except Per Share Data)Options Outstanding at Beginning of Period
    
    
    1,472,766
    
    
    $
    15.33
    
    
    7.2 years
    
    $
    735
    (1)Options Granted
    
    
    140,000
    
    
    $
    6.28
    
    
    9.7 yearsOptions Expired
    
    
    (34,600
    )
    
    $
    17.05
    
    
    6.8 yearsOptions Forfeited
    
    
    (115,600
    )
    
    $
    15.93
    
    
    8.2 yearsOptions Outstanding at End of Period
    
    
    1,462,566
    
    
    $
    14.38
    
    
    6.6 years
    
    $
    149
    (2)Options Exercisable at End of Period
    
    
    786,477
    
    
    $
    13.24
    
    
    5.4 years
    
    $
    149
    (2)
 
 (1)
    
    Intrinsic value represents the excess of the closing stock price on the last trading
day of the period, which was $8.62 as of December 31, 2007, 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 $5.05 as of September 30, 2008, over the exercise price,
multiplied by the number of options.   Three Months Ended
    
    Nine Months EndedSeptember 30, 2008
    
    September 30, 2008Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    AverageNumber
    
    Grant Date
    
    Number
    
    Grant Dateof
    
    Fair Value
    
    of
    
    Fair ValueShares
    
    Per Share
    
    Shares
    
    Per ShareRestricted Stock at Beginning of Period
    
    
    19,000
    
    
    $
    13.48
    
    
    
    19,000
    
    
    $
    13.48Restricted Stock Granted
    
    
    5,000
    
    
    $
    5.15
    
    
    
    10,000
    
    
    $
    6.68Restricted Stock Forfeited
    
    
    
    
    
    $
    
    
    
    
    (5,000
    )
    
    $
    8.21Restricted Stock at End of Period
    
    
    24,000
    
    
    $
    11.74
    
    
    
    24,000
    
    
    $
    11.74
 NOTE 7  EARNINGS (LOSS) PER SHARE
  13




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 7  EARNINGS PER SHARE (Continued)
  Three Months Ended September 30,2008
    
    
    2007(Numerator)
    
    
    (Denominator)
    
    
    
    
    
    
    (Numerator)
    
    
    (Denominator)Weighted-
    
    
    Per
    
    
    
    
    
    
    Weighted-
    
    
    PerNet
    
    
    Average
    
    
    Share
    
    
    Net
    
    
    Average
    
    
    ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    Amount(Dollars in Thousands, Except Per Share Data)Basic EPS
    
    $
    4,348
    
    
    
    45,881,549
    
    
    $
    0.09
    
    
    $
    11,027
    
    
    
    47,355,143
    
    
    $
    0.23Effect of Dilutive Securities  Options, Warrants and
Unvested Restricted Stock
    
    
    
    
    
    
    51,494
    
    
    
    
    
    
    
    
    
    
    
    180,935
    
    
    
    Diluted EPS
    
    $
    4,348
    
    
    
    45,933,043
    
    
    $
    0.09
    
    
    $
    11,027
    
    
    
    47,536,078
    
    
    $
    0.23
 Nine Months Ended September 30,2008
    
    
    2007(Numerator)
    
    
    (Denominator)
    
    
    
    
    
    
    (Numerator)
    
    
    (Denominator)Weighted-
    
    
    Per
    
    
    
    
    
    
    Weighted-
    
    
    PerNet
    
    
    Average
    
    
    Share
    
    
    Net
    
    
    Average
    
    
    ShareIncome
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    Shares
    
    
    Amount(Dollars in Thousands, Except Per Share Data)Basic EPS
    
    $
    (98,278
    )
    
    
    45,869,069
    
    
    $
    (2.14
    )
    
    $
    39,281
    
    
    
    48,232,464
    
    
    $
    0.81Effect of Dilutive Securities  Options, Warrants and
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    337,399
    
    
    
    Diluted EPS
    
    $
    (98,278
    )
    
    
    45,869,069
    
    
    $
    (2.14
    )
    
    $
    39,281
    
    
    
    48,569,863
    
    
    $
    0.81
  NOTE 8  OFF-BALANCE SHEET COMMITMENTS
  14




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 8  OFF-BALANCE SHEET COMMITMENTS (Continued)
  September 30,
    
    
    December 31,2008
    
    
    2007(In Thousands)Commitments to Extend Credit
    
    $
    453,574
    
    
    $
    524,349Standby Letters of Credit
    
    
    49,538
    
    
    
    48,071Commercial Letters of Credit
    
    
    30,761
    
    
    
    52,544Unused Credit Card Lines
    
    
    17,824
    
    
    
    18,622Total Undisbursed Loan Commitments
    
    $
    551,697
    
    
    $
    643,586
 NOTE 9  SEGMENT REPORTING
  NOTE 10  CORRECTION OF IMMATERIAL ERRORS IN PRIOR PERIODS
   December 31, 2007AsPreviously
    
    
    
    
    
    AsCONSOLIDATED BALANCE SHEET
    
    Reported
    
    Adjustments
    
    Restated(In Thousands)Accrued Interest Receivable
    
    $
    17,500
    
    
    $
    (89
    )
    
    $
    17,411Total Assets
    
    $
    3,983,746
    
    
    $
    (89
    )
    
    $
    3,983,657Other Liabilities
    
    $
    13,717
    
    
    $
    900
    
    
    $
    14,617Total Liabilities
    
    $
    3,612,201
    
    
    $
    900
    
    
    $
    3,613,101Retained Earnings
    
    $
    93,404
    
    
    $
    (989
    )
    
    $
    92,415Total Stockholders Equity
    
    $
    371,545
    
    
    $
    (989
    )
    
    $
    370,556Total Liabilities and Stockholders Equity
    
    $
    3,983,746
    
    
    $
    (89
    )
    
    $
    3,983,657
 15




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 10  CORRECTION OF IMMATERIAL ERRORS IN PRIOR PERIODS (Continued)
 Three Months Ended September 30, 2007
    
    Nine Months Ended September 30, 2007As
    
    
    
    
    
    
    
    
    
    AsCONSOLIDATED
    
    Previously
    
    
    
    
    
    As
    
    Previously
    
    
    
    
    
    AsSTATEMENTS OF OPERATIONS
    
    Reported
    
    Adjustments
    
    Restated
    
    Reported
    
    Adjustments
    
    Restated(Dollars in Thousands, Except Per Share Data)Interest on Deposits
    
    $
    27,882
    
    
    $
    105
    
    
    $
    27,987
    
    
    $
    80,654
    
    
    $
    319
    
    
    $
    80,973Total Interest Expense
    
    $
    33,342
    
    
    $
    105
    
    
    $
    33,447
    
    
    $
    94,503
    
    
    $
    319
    
    
    $
    94,822Net Interest Income Before Provision for
Credit Losses
    
    $
    37,855
    
    
    $
    (105
    )
    
    $
    37,750
    
    
    $
    114,510
    
    
    $
    (319
    )
    
    $
    114,191Net Interest Income After Provision for
Credit Losses
    
    $
    29,391
    
    
    $
    (105
    )
    
    $
    29,286
    
    
    $
    96,891
    
    
    $
    (319
    )
    
    $
    96,572Income Before Provision for Income Taxes
    
    $
    17,668
    
    
    $
    (105
    )
    
    $
    17,563
    
    
    $
    63,388
    
    
    $
    (319
    )
    
    $
    63,069Provision for Income Taxes
    
    $
    6,580
    
    
    $
    (44
    )
    
    $
    6,536
    
    
    $
    23,922
    
    
    $
    (134
    )
    
    $
    23,788Net Income
    
    $
    11,088
    
    
    $
    (61
    )
    
    $
    11,027
    
    
    $
    39,466
    
    
    $
    (185
    )
    
    $
    39,281Earnings Per Share:Basic
    
    $
    0.23
    
    
    $
    
    
    
    $
    0.23
    
    
    $
    0.82
    
    
    $
    (0.01
    )
    
    $
    0.81Diluted
    
    $
    0.23
    
    
    $
    
    
    
    $
    0.23
    
    
    $
    0.81
    
    
    $
    
    
    
    $
    0.81
 NOTE 11  CUMULATIVE-EFFECT ADJUSTMENT FROM THE ADOPTION OF EITF ISSUE NO. 06-4
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split
Dollar Life Insurance Arrangements, Employers Accounting for
Postretirement Benefits Other Than Pensions,
 16




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 12  LIQUIDITY
    17




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Continued)
 NOTE 13  SUBSEQUENT EVENTS
 Memorandum of Understanding
   Capital Plan
  Retirement of Directors
    
 18




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  FORWARD-LOOKING STATEMENTS
 Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
 
    
    failure to maintain adequate levels of capital and liquidity to support our operations;
    
    a significant number of our customers failing to perform under their loans and other
terms of credit agreements;
    
    fluctuations in interest rates and a decline in the level of our interest rate spread;
    
    failure to attract or retain deposits;
    
    the impact of regulatory orders or actions by government regulators against us or the
Bank;
    
    sources of liquidity available to us and to the Bank becoming limited or our potential
inability to access sufficient sources of liquidity when needed or the requirement that we
obtain government waivers to do so;
    
    adverse changes in domestic or global financial markets, economic conditions or
business conditions;
    
    regulatory restrictions on the Banks ability to pay dividends to us and on our ability
to make payments on Hanmi Financial obligations;
    
    significant reliance on loans secured by real estate and the associated vulnerability
to downturns in the local real estate market, natural disasters and other variables
impacting the value of real estate;
    
    reliance on loans secured by the Small Business Administration and the risks associated
with those loans;
    
    failure to retain our key employees;
    
    failure to maintain our status as a financial holding company;
    
    adequacy of our allowance for loan losses;
    
    credit quality and the effect of credit quality on our provision for credit losses and
allowance for loan losses;
    
    failure to manage our future growth or successfully integrate acquisitions;
    
    volatility and disruption in financial, credit and securities markets, and the price of
our common stock;
    
    deterioration in the financial markets that may result in other-than-temporary
impairment charges relating to our securities portfolio;
    
    competition in our primary market areas;
    
    demographic changes in our primary market areas; and
    
    significant government regulations, legislation and potential changes thereto.
 19




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##### Table of Contents



Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations Item 1A. Risk Factors. Item 1A. Risk Factors Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
 CRITICAL ACCOUNTING POLICIES
 Notes to Consolidated Financial Statements Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting
Policies
 Goodwill
 Goodwill and Other
Intangible Assets,
 Note 5  Goodwill Notes to
Consolidated Financial Statements, Note 1  Summary of Significant Accounting Policies
  20




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##### Table of Contents



SELECTED FINANCIAL DATA
  As of and for theThree Months EndedSeptember 30,2008
    
    2007(Dollars in Thousands, Except Per Share Data)AVERAGE BALANCES:Average Gross Loans, Net (1)
    
    $
    3,341,250
    
    
    $
    3,135,531Average Investment Securities
    
    $
    244,027
    
    
    $
    360,626Average Interest-Earning Assets
    
    $
    3,630,755
    
    
    $
    3,526,493Average Total Assets
    
    $
    3,789,614
    
    
    $
    3,915,517Average Deposits
    
    $
    2,895,746
    
    
    $
    3,016,118Average Borrowings
    
    $
    590,401
    
    
    $
    367,605Average Interest-Bearing Liabilities
    
    $
    2,835,917
    
    
    $
    2,683,930Average Stockholders Equity
    
    $
    267,433
    
    
    $
    487,006Average Tangible Equity (2)
    
    $
    261,751
    
    
    $
    269,255PER SHARE DATA:Earnings Per Share  Basic
    
    $
    0.09
    
    
    $
    0.23Earnings Per Share  Diluted
    
    $
    0.09
    
    
    $
    0.23Common Shares Outstanding
    
    
    45,905,549
    
    
    
    46,986,341Book Value Per Share (3)
    
    $
    5.82
    
    
    $
    10.26Tangible Book Value Per Share (4)
    
    $
    5.70
    
    
    $
    5.63Cash Dividends Per Share
    
    $
    
    
    
    $
    0.06SELECTED PERFORMANCE RATIOS:Return on Average Assets (5) (6)
    
    
    0.46
    %
    
    
    1.12
    %Return on Average Stockholders Equity (5) (7)
    
    
    6.47
    %
    
    
    8.98
    %Return on Average Tangible Equity (5) (8)
    
    
    6.61
    %
    
    
    16.25
    %Efficiency Ratio (9)
    
    
    54.33
    %
    
    
    44.95
    %Net Interest Spread (10)
    
    
    3.17
    %
    
    
    3.07
    %Net Interest Margin (11)
    
    
    3.90
    %
    
    
    4.25
    %Dividend Payout Ratio (12)
    
    
    
    
    
    
    25.56
    %Average Stockholders Equity to Average Total Assets
    
    
    7.06
    %
    
    
    12.44
    %SELECTED CAPITAL RATIOS:(13)Total Risk-Based Capital Ratio:Hanmi Financial
    
    
    10.93
    %
    
    
    10.86
    %Hanmi Bank
    
    
    10.84
    %
    
    
    10.74
    %Tier 1 Risk-Based Capital Ratio:Hanmi Financial
    
    
    9.66
    %
    
    
    9.83
    %Hanmi Bank
    
    
    9.57
    %
    
    
    9.70
    %Tier 1 Leverage Ratio:Hanmi Financial
    
    
    9.02
    %
    
    
    9.32
    %Hanmi Bank
    
    
    8.94
    %
    
    
    9.20
    %SELECTED ASSET QUALITY RATIOS:Non-Performing Loans to Total Gross Loans (14)
    
    
    3.34
    %
    
    
    1.39
    %Non-Performing Assets to Total Assets (15)
    
    
    3.05
    %
    
    
    1.12
    %Net Loan Charge-Offs to Average Total Gross Loans (16)
    
    
    1.41
    %
    
    
    0.77
    %Allowance for Loan Losses to Total Gross Loans
    
    
    1.91
    %
    
    
    1.07
    %Allowance for Loan Losses to Non-Performing Loans
    
    
    57.16
    %
    
    
    77.19
    %
 
 (1)
    
    Loans are net of deferred fees and related direct costs.(2)
    
    Average tangible equity is calculated by subtracting average goodwill and average
other intangible assets from average stockholders equity. See Non-GAAP Financial Measures.(3)
    
    Total stockholders equity divided by common shares outstanding.(4)
    
    Tangible equity divided by common shares outstanding. See Non-GAAP Financial
Measures.(5)
    
    Calculation based upon annualized net income.(6)
    
    Net income divided by average total assets.(7)
    
    Net income divided by average stockholders equity.(8)
    
    Net income divided by average tangible equity. See Non-GAAP Financial Measures.(9)
    
    Total non-interest expenses divided by the sum of net interest income before
provision for credit losses and total non-interest income.(10)
    
    Average yield earned on interest-earning assets less average rate paid on
interest-bearing liabilities.(11)
    
    Net interest income before provision for credit losses divided by average
interest-earning assets.(12)
    
    Cash dividends per share times common shares outstanding divided by net income.(13)
    
    The required ratios for a well-capitalized institution, as defined by regulations
of the Board of Governors of the Federal Reserve System (the FRS), are 10 percent for the
Total Risk-Based Capital Ratio (total capital divided by total risk-weighted assets); 6
percent for the Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted
assets); and 5 percent for the Tier 1 Leverage Ratio (Tier 1 capital divided by average total
assets).(14)
    
    Non-performing loans consist of non-accrual loans, loans past due 90 days or more
and restructured loans.(15)
    
    Non-performing assets consist of non-performing loans (see footnote (14) above) and
other real estate owned.(16)
    
    Calculation based upon annualized net loan charge-offs. 21




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##### Table of Contents



As of and for theNine Months EndedSeptember 30,2008
    
    2007(Dollars in Thousands, Except Per Share Data)AVERAGE BALANCES:Average Gross Loans, Net (1)
    
    $
    3,320,559
    
    
    $
    3,011,946Average Investment Securities
    
    $
    294,130
    
    
    $
    374,209Average Interest-Earning Assets
    
    $
    3,659,255
    
    
    $
    3,435,932Average Total Assets
    
    $
    3,892,197
    
    
    $
    3,825,784Average Deposits
    
    $
    2,924,416
    
    
    $
    2,976,676Average Borrowings
    
    $
    588,267
    
    
    $
    308,406Average Interest-Bearing Liabilities
    
    $
    2,861,288
    
    
    $
    2,575,061Average Stockholders Equity
    
    $
    340,894
    
    
    $
    494,731Average Tangible Equity (2)
    
    $
    263,870
    
    
    $
    276,627PER SHARE DATA:Earnings (Loss) Per Share  Basic
    
    $
    (2.14
    )
    
    $
    0.81Earnings (Loss) Per Share  Diluted
    
    $
    (2.14
    )
    
    $
    0.81Cash Dividends Per Share
    
    $
    0.09
    
    
    $
    0.18SELECTED PERFORMANCE RATIOS:Return on Average Assets (3) (4)
    
    
    (3.37
    )%
    
    
    1.37
    %Return on Average Stockholders Equity (3) (5)
    
    
    (38.51
    )%
    
    
    10.62
    %Return on Average Tangible Equity (3) (6)
    
    
    (49.75
    )%
    
    
    18.99
    %Efficiency Ratio (7)
    
    
    134.73
    %
    
    
    44.12
    %Net Interest Spread (8)
    
    
    2.98
    %
    
    
    3.21
    %Net Interest Margin (9)
    
    
    3.79
    %
    
    
    4.44
    %Dividend Payout Ratio (10)
    
    
    (4.20
    )%
    
    
    21.53
    %Average Stockholders Equity to Average Total Assets
    
    
    8.76
    %
    
    
    12.93
    %
 
 (1)
    
    Loans are net of deferred fees and related direct costs.(2)
    
    Average tangible equity is calculated by subtracting average goodwill and average
other intangible assets from average stockholders equity. See Non-GAAP Financial Measures.(3)
    
    Calculation based upon annualized net income.(4)
    
    Net income (loss) divided by average total assets.(5)
    
    Net income (loss) divided by average stockholders equity.(6)
    
    Net income (loss) divided by average tangible equity. See Non-GAAP Financial
Measures.(7)
    
    Total non-interest expenses divided by the sum of net interest income before
provision for credit losses and total non-interest income.(8)
    
    Average yield earned on interest-earning assets less average rate paid on
interest-bearing liabilities.(9)
    
    Net interest income before provision for credit losses divided by average
interest-earning assets.(10)
    
    Cash dividends per share times common shares outstanding divided by net income
(loss). 22




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##### Table of Contents



Non-GAAP Financial Measures
 Return on Average Tangible Equity
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)Average Stockholders Equity
    
    $
    267,433
    
    
    $
    487,006
    
    
    $
    340,894
    
    
    $
    494,731Less Average Goodwill and Average Other Intangible Assets
    
    
    (5,682
    )
    
    
    (217,751
    )
    
    
    (77,024
    )
    
    
    (218,104
    )Average Tangible Equity
    
    $
    261,751
    
    
    $
    269,255
    
    
    $
    263,870
    
    
    $
    276,627Return on Average Stockholders Equity
    
    
    6.47
    %
    
    
    8.98
    %
    
    
    (38.51
    )%
    
    
    10.62
    %Effect of Average Goodwill and Average Other Intangible Assets
    
    
    0.14
    %
    
    
    7.27
    %
    
    
    (11.24
    )%
    
    
    8.37
    %Return on Average Tangible Equity
    
    
    6.61
    %
    
    
    16.25
    %
    
    
    (49.75
    )%
    
    
    18.99
    %
 Tangible Book Value Per Share
   September 30,2008
    
    
    2007(Dollars in Thousands;Except Per Share Data)Total Stockholders Equity
    
    $
    267,196
    
    
    $
    481,977Less Goodwill and Other Intangible Assets
    
    
    (5,404
    )
    
    
    (217,448
    )Tangible Equity
    
    $
    261,792
    
    
    $
    264,529Book Value Per Share
    
    $
    5.82
    
    
    $
    10.26Effect of Goodwill and Other Intangible Assets
    
    
    (0.12
    )
    
    
    (4.63
    )Tangible Book Value Per Share
    
    $
    5.70
    
    
    $
    5.63
 23




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##### Table of Contents



EXECUTIVE OVERVIEW
       Effect ofImpairmentLoss onGAAP
    
    Goodwill
    
    Non-GAAP(In Thousands)Nine Months Ended September 30, 2008:Net Income (Loss)
    
    $
    (98,278
    )
    
    $
    107,393
    
    
    $
    9,115
  24




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##### Table of Contents



Key Performance Indicators
  Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
 
    
    The annualized return on average assets was 0.46 percent for the three months ended
September 30, 2008, compared to 1.12 percent for the same period in 2007.
    
    The efficiency ratio was 54.33 percent for the three months ended September 30, 2008,
compared to 44.95 percent for the same period in 2007.
    
    The net interest spread and net interest margin for the three months ended September
30, 2008 were 3.17 percent and 3.90 percent, respectively, compared to 3.07 percent and
4.25 percent, respectively, for the same period in 2007.
 Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
 
    
    The annualized return on average assets was (3.37) percent for the nine months ended
September 30, 2008, compared to 1.37 percent for the same period in 2007. Excluding the
impact of the goodwill impairment charge, the non-GAAP annualized return on average total
assets was 0.31 percent for the nine months ended September 30, 2008.
    
    The efficiency ratio was 134.73 percent for the nine months ended September 30, 2008,
compared to 44.12 percent for the same period in 2007. Excluding the impact of the goodwill
impairment charge, the non-GAAP efficiency ratio was 51.22 percent for the nine months
ended September 30, 2008.
    
    The net interest spread and net interest margin for the nine months ended September 30,
2008 were 2.98 percent and 3.79 percent, respectively, compared to 3.21 percent and 4.44
percent, respectively, for the same period in 2007.
   Effect ofImpairmentLoss onGAAP
    
    Goodwill
    
    Non-GAAP(Dollars in Thousands)Nine Months Ended September 30, 2008:Total Non-Interest Expenses
    
    $
    173,266
    
    
    $
    (107,393
    )
    
    $
    65,873Return on Average Total Assets
    
    
    (3.37
    )%
    
    
    3.68
    %
    
    
    0.31
    %Return on Average Stockholders Equity
    
    
    (38.51
    )%
    
    
    42.08
    %
    
    
    3.57
    %Return on Average Tangible Equity
    
    
    (49.75
    )%
    
    
    54.36
    %
    
    
    4.61
    %Efficiency Ratio
    
    
    134.73
    %
    
    
    (83.51
    )%
    
    
    51.22
    %
  25




---



##### Table of Contents



2008 Outlook
  Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations  Interest Rate Risk Management " Liquidity and Capital Resources
 Recent Developments
    
    
    dividends on the Treasurys preferred stock at a rate of five percent for the first
five years and nine percent dividends thereafter;
    
    common stock dividends cannot be increased for three years while the Treasury is an
investor unless preferred stock is redeemed or consent from the Treasury is received;
    
    the Treasury preferred stock cannot be redeemed for three years unless the
participating bank raises qualifying private capital;
    
    the Treasury must consent to any buyback of other stock (common or other preferred);
    
    the Treasury receives warrants equal to 15 percent of the Treasurys total investment
in the participating institution; and
    
    the participating institutions executives must agree to certain compensation
restrictions, and restrictions on the amount of executive compensation that is tax
deductible.
 26




---



##### Table of Contents



RESULTS OF OPERATIONS
 Net Interest Income Before Provision for Credit Losses
   27




---



##### Table of Contents



Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
  Three Months EndedSeptember 30, 2008
    
    
    September 30, 2007Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in Thousands)ASSETSInterest-Earning Assets:Gross Loans, Net (1)
    
    $
    3,341,250
    
    
    $
    56,134
    
    
    
    6.68
    %
    
    $
    3,135,531
    
    
    $
    66,714
    
    
    
    8.44
    %Municipal Securities (2)
    
    
    60,979
    
    
    
    650
    
    
    
    4.26
    %
    
    
    70,984
    
    
    
    764
    
    
    
    4.31
    %Obligations of Other U.S. Government Agencies
    
    
    46,777
    
    
    
    483
    
    
    
    4.13
    %
    
    
    119,704
    
    
    
    1,286
    
    
    
    4.30
    %Other Debt Securities
    
    
    136,271
    
    
    
    1,566
    
    
    
    4.60
    %
    
    
    169,938
    
    
    
    2,022
    
    
    
    4.76
    %Equity Securities
    
    
    39,929
    
    
    
    581
    
    
    
    5.82
    %
    
    
    25,431
    
    
    
    350
    
    
    
    5.51
    %Federal Funds Sold
    
    
    4,797
    
    
    
    23
    
    
    
    1.92
    %
    
    
    4,905
    
    
    
    61
    
    
    
    4.97
    %Interest-Earning Deposits
    
    
    752
    
    
    
    4
    
    
    
    2.13
    %
    
    
    
    
    
    
    
    
    
    
    Total Interest-Earning Assets
    
    
    3,630,755
    
    
    
    59,441
    
    
    
    6.51
    %
    
    
    3,526,493
    
    
    
    71,197
    
    
    
    8.01
    %Noninterest-Earning Assets:Cash and Cash Equivalents
    
    
    89,574
    
    
    
    
    
    
    
    
    
    
    
    94,034Allowance for Loan Losses
    
    
    (64,737
    )
    
    
    
    
    
    
    
    
    
    
    (31,535
    )Other Assets
    
    
    134,022
    
    
    
    
    
    
    
    
    
    
    
    326,525Total Noninterest-Earning Assets
    
    
    158,859
    
    
    
    
    
    
    
    
    
    
    
    389,024TOTAL ASSETS
    
    $
    3,789,614
    
    
    
    
    
    
    
    
    
    
    $
    3,915,517LIABILITIES AND STOCKHOLDERS EQUITYInterest-Bearing Liabilities:Deposits:Savings
    
    $
    91,465
    
    
    
    533
    
    
    
    2.32
    %
    
    $
    95,147
    
    
    
    567
    
    
    
    2.36
    %Money Market Checking and NOW Accounts
    
    
    693,718
    
    
    
    5,579
    
    
    
    3.20
    %
    
    
    471,756
    
    
    
    4,164
    
    
    
    3.50
    %Time Deposits of $100,000 or More
    
    
    973,752
    
    
    
    8,709
    
    
    
    3.56
    %
    
    
    1,438,711
    
    
    
    19,263
    
    
    
    5.31
    %Other Time Deposits
    
    
    486,581
    
    
    
    4,544
    
    
    
    3.72
    %
    
    
    310,711
    
    
    
    3,993
    
    
    
    5.10
    %FHLB Advances and Other Borrowings
    
    
    507,995
    
    
    
    3,329
    
    
    
    2.61
    %
    
    
    285,199
    
    
    
    3,785
    
    
    
    5.27
    %Junior Subordinated Debentures
    
    
    82,406
    
    
    
    1,150
    
    
    
    5.55
    %
    
    
    82,406
    
    
    
    1,675
    
    
    
    8.06
    %Total Interest-Bearing Liabilities
    
    
    2,835,917
    
    
    
    23,844
    
    
    
    3.34
    %
    
    
    2,683,930
    
    
    
    33,447
    
    
    
    4.94
    %Noninterest-Bearing Liabilities:Demand Deposits
    
    
    650,230
    
    
    
    
    
    
    
    
    
    
    
    699,793Other Liabilities
    
    
    36,034
    
    
    
    
    
    
    
    
    
    
    
    44,788Total Noninterest-Bearing Liabilities
    
    
    686,264
    
    
    
    
    
    
    
    
    
    
    
    744,581Total Liabilities
    
    
    3,522,181
    
    
    
    
    
    
    
    
    
    
    
    3,428,511Stockholders Equity
    
    
    267,433
    
    
    
    
    
    
    
    
    
    
    
    487,006TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,789,614
    
    
    
    
    
    
    
    
    
    
    $
    3,915,517NET INTEREST INCOME
    
    
    
    
    
    $
    35,597
    
    
    
    
    
    
    
    
    
    
    $
    37,750NET INTEREST SPREAD(3)
    
    
    
    
    
    
    
    
    
    
    3.17
    %
    
    
    
    
    
    
    
    
    
    
    3.07
    %NET INTEREST MARGIN(4)
    
    
    
    
    
    
    
    
    
    
    3.90
    %
    
    
    
    
    
    
    
    
    
    
    4.25
    %
 
 (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 $544,000 and $580,000 for
the three months ended September 30, 2008 and 2007, respectively.(2)
    
    If computed on a tax-equivalent basis using an effective marginal rate of 35
percent, tax-exempt income would be $1.0 million and $1.2 million, and the yields would be
6.56 percent and 6.62 percent, for the three months ended September 30, 2008 and 2007,
respectively.(3)
    
    Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities.(4)
    
    Represents annualized net interest income as a percentage of average
interest-earning assets.  28




---



##### Table of Contents



Three Months Ended September 30, 2008vs.Three Months Ended September 30, 2007Increases (Decreases) Due to Change inVolume
    
    
    Rate
    
    
    Total(In Thousands)Interest and Dividend Income:Gross Loans, Net
    
    $
    4,104
    
    
    $
    (14,684
    )
    
    $
    (10,580
    )Municipal Securities
    
    
    (107
    )
    
    
    (7
    )
    
    
    (114
    )Obligations of Other U.S. Government Agencies
    
    
    (755
    )
    
    
    (48
    )
    
    
    (803
    )Other Debt Securities
    
    
    (389
    )
    
    
    (67
    )
    
    
    (456
    )Equity Securities
    
    
    210
    
    
    
    21
    
    
    
    231Federal Funds Sold
    
    
    (1
    )
    
    
    (37
    )
    
    
    (38
    )Interest-Earning Deposits
    
    
    4
    
    
    
    
    
    
    
    4Total Interest and Dividend Income
    
    
    3,066
    
    
    
    (14,822
    )
    
    
    (11,756
    )Interest Expense:Savings
    
    
    (23
    )
    
    
    (11
    )
    
    
    (34
    )Money Market Checking and NOW Accounts
    
    
    1,802
    
    
    
    (387
    )
    
    
    1,415Time Deposits of $100,000 or More
    
    
    (5,220
    )
    
    
    (5,334
    )
    
    
    (10,554
    )Other Time Deposits
    
    
    1,833
    
    
    
    (1,282
    )
    
    
    551FHLB Advances and Other Borrowings
    
    
    2,038
    
    
    
    (2,494
    )
    
    
    (456
    )Junior Subordinated Debentures
    
    
    
    
    
    
    (525
    )
    
    
    (525
    )Total Interest Expense
    
    
    430
    
    
    
    (10,033
    )
    
    
    (9,603
    )Change in Net Interest Income
    
    $
    2,636
    
    
    $
    (4,789
    )
    
    $
    (2,153
    )
     29




---



##### Table of Contents



Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
  Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in Thousands)ASSETSInterest-Earning Assets:Gross Loans, Net (1)
    
    $
    3,320,559
    
    
    $
    172,637
    
    
    
    6.94
    %
    
    $
    3,011,946
    
    
    $
    194,487
    
    
    
    8.63
    %Municipal Securities (2)
    
    
    65,329
    
    
    
    2,071
    
    
    
    4.23
    %
    
    
    71,883
    
    
    
    2,290
    
    
    
    4.25
    %Obligations of Other U.S. Government Agencies
    
    
    80,120
    
    
    
    2,612
    
    
    
    4.35
    %
    
    
    118,894
    
    
    
    3,775
    
    
    
    4.23
    %Other Debt Securities
    
    
    148,681
    
    
    
    5,131
    
    
    
    4.60
    %
    
    
    183,432
    
    
    
    6,438
    
    
    
    4.68
    %Equity Securities
    
    
    37,160
    
    
    
    1,481
    
    
    
    5.31
    %
    
    
    25,244
    
    
    
    1,055
    
    
    
    5.57
    %Federal Funds Sold
    
    
    7,096
    
    
    
    137
    
    
    
    2.57
    %
    
    
    24,405
    
    
    
    963
    
    
    
    5.26
    %Term Federal Funds Sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    5
    
    
    
    5.21
    %Interest-Earning Deposits
    
    
    310
    
    
    
    5
    
    
    
    2.15
    %
    
    
    
    
    
    
    
    
    
    
    Total Interest-Earning Assets
    
    
    3,659,255
    
    
    
    184,074
    
    
    
    6.72
    %
    
    
    3,435,932
    
    
    
    209,013
    
    
    
    8.13
    %Noninterest-Earning Assets:Cash and Cash Equivalents
    
    
    89,674
    
    
    
    
    
    
    
    
    
    
    
    92,260Allowance for Loan Losses
    
    
    (53,364
    )
    
    
    
    
    
    
    
    
    
    
    (29,905
    )Other Assets
    
    
    196,632
    
    
    
    
    
    
    
    
    
    
    
    327,497Total Noninterest-Earning Assets
    
    
    232,942
    
    
    
    
    
    
    
    
    
    
    
    389,852TOTAL ASSETS
    
    $
    3,892,197
    
    
    
    
    
    
    
    
    
    
    $
    3,825,784LIABILITIES AND STOCKHOLDERS EQUITYInterest-Bearing Liabilities:Deposits:Savings
    
    $
    91,910
    
    
    
    1,587
    
    
    
    2.31
    %
    
    $
    98,440
    
    
    
    1,530
    
    
    
    2.08
    %Money Market Checking and NOW Accounts
    
    
    656,625
    
    
    
    15,946
    
    
    
    3.24
    %
    
    
    444,173
    
    
    
    11,302
    
    
    
    3.40
    %Time Deposits of $100,000 or More
    
    
    1,143,975
    
    
    
    35,436
    
    
    
    4.14
    %
    
    
    1,418,825
    
    
    
    56,539
    
    
    
    5.33
    %Other Time Deposits
    
    
    380,511
    
    
    
    11,730
    
    
    
    4.12
    %
    
    
    305,217
    
    
    
    11,602
    
    
    
    5.08
    %FHLB Advances and Other Borrowings
    
    
    505,861
    
    
    
    11,750
    
    
    
    3.10
    %
    
    
    226,000
    
    
    
    8,875
    
    
    
    5.25
    %Junior Subordinated Debentures
    
    
    82,406
    
    
    
    3,763
    
    
    
    6.10
    %
    
    
    82,406
    
    
    
    4,974
    
    
    
    8.07
    %Total Interest-Bearing Liabilities
    
    
    2,861,288
    
    
    
    80,212
    
    
    
    3.74
    %
    
    
    2,575,061
    
    
    
    94,822
    
    
    
    4.92
    %Noninterest-Bearing Liabilities:Demand Deposits
    
    
    651,395
    
    
    
    
    
    
    
    
    
    
    
    710,021Other Liabilities
    
    
    38,620
    
    
    
    
    
    
    
    
    
    
    
    45,971Total Noninterest-Bearing Liabilities
    
    
    690,015
    
    
    
    
    
    
    
    
    
    
    
    755,992Total Liabilities
    
    
    3,551,303
    
    
    
    
    
    
    
    
    
    
    
    3,331,053Stockholders Equity
    
    
    340,894
    
    
    
    
    
    
    
    
    
    
    
    494,731TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,892,197
    
    
    
    
    
    
    
    
    
    
    $
    3,825,784NET INTEREST INCOME
    
    
    
    
    
    $
    103,862
    
    
    
    
    
    
    
    
    
    
    $
    114,191NET INTEREST SPREAD(3)
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %NET INTEREST MARGIN(4)
    
    
    
    
    
    
    
    
    
    
    3.79
    %
    
    
    
    
    
    
    
    
    
    
    4.44
    %
 
 (1)
    
    Loans are net of deferred fees and related direct costs, but excluding the allowance
for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have
been included in the calculation of interest income. Loan fees were $2.0 million and $2.4
million for the nine months ended September 30, 2008 and 2007, respectively.(2)
    
    If computed on a tax-equivalent basis using an effective marginal rate of 35
percent, tax-exempt income would be $3.2 million and $3.5 million, and the yields would be
6.50 percent and 6.53 percent, for the nine months ended September 30, 2008 and 2007,
respectively.(3)
    
    Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities.(4)
    
    Represents annualized net interest income as a percentage of average
interest-earning assets.  30




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##### Table of Contents



Nine Months Ended September 30, 2008vs.Nine Months Ended September 30, 2007Increases (Decreases) Due to Change inVolume
    
    
    Rate
    
    
    Total(In Thousands)Interest and Dividend Income:Gross Loans, Net
    
    $
    18,666
    
    
    $
    (40,516
    )
    
    $
    (21,850
    )Municipal Securities
    
    
    (208
    )
    
    
    (11
    )
    
    
    (219
    )Obligations of Other U.S. Government Agencies
    
    
    (1,261
    )
    
    
    98
    
    
    
    (1,163
    )Other Debt Securities
    
    
    (1,201
    )
    
    
    (106
    )
    
    
    (1,307
    )Equity Securities
    
    
    477
    
    
    
    (51
    )
    
    
    426Federal Funds Sold
    
    
    (480
    )
    
    
    (346
    )
    
    
    (826
    )Term Federal Funds Sold
    
    
    (2
    )
    
    
    (3
    )
    
    
    (5
    )Interest-Earning Deposits
    
    
    5
    
    
    
    
    
    
    
    5Total Interest and Dividend Income
    
    
    15,996
    
    
    
    (40,935
    )
    
    
    (24,939
    )Interest Expense:Savings
    
    
    (105
    )
    
    
    162
    
    
    
    57Money Market Checking and NOW Accounts
    
    
    5,191
    
    
    
    (547
    )
    
    
    4,644Time Deposits of $100,000 or More
    
    
    (9,801
    )
    
    
    (11,302
    )
    
    
    (21,103
    )Other Time Deposits
    
    
    2,564
    
    
    
    (2,436
    )
    
    
    128FHLB Advances and Other Borrowings
    
    
    7,624
    
    
    
    (4,749
    )
    
    
    2,875Junior Subordinated Debentures
    
    
    
    
    
    
    (1,211
    )
    
    
    (1,211
    )Total Interest Expense
    
    
    5,473
    
    
    
    (20,083
    )
    
    
    (14,610
    )Change in Net Interest Income
    
    $
    10,523
    
    
    $
    (20,852
    )
    
    $
    (10,329
    )
     31




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##### Table of Contents



Provision for Credit Losses
 Non-Performing Assets Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
 Non-Interest Income
  Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
  Three Months EndedSeptember 30,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Service Charges on Deposit Accounts
    
    $
    4,648
    
    
    $
    4,463
    
    
    $
    185
    
    
    
    4.1
    %Insurance Commissions
    
    
    1,194
    
    
    
    1,131
    
    
    
    63
    
    
    
    5.6
    %Trade Finance Fees
    
    
    784
    
    
    
    1,082
    
    
    
    (298
    )
    
    
    (27.5
    )%Other Service Charges and Fees
    
    
    433
    
    
    
    691
    
    
    
    (258
    )
    
    
    (37.3
    )%Remittance Fees
    
    
    499
    
    
    
    512
    
    
    
    (13
    )
    
    
    (2.5
    )%Gain on Sales of Loans
    
    
    
    
    
    
    523
    
    
    
    (523
    )
    
    
    (100.0
    )%Bank-Owned Life Insurance Income
    
    
    241
    
    
    
    234
    
    
    
    7
    
    
    
    3.0
    %Loss on Sales of Securities Available for Sales
    
    
    (483
    )
    
    
    
    
    
    
    (483
    )
    
    
    Other-Than-Temporary Impairment Loss on Securities
    
    
    (2,621
    )
    
    
    
    
    
    
    (2,621
    )
    
    
    Other Income
    
    
    633
    
    
    
    890
    
    
    
    (257
    )
    
    
    (28.9
    )%Total Non-Interest Income
    
    $
    5,328
    
    
    $
    9,526
    
    
    $
    (4,198
    )
    
    
    (44.1
    )%
     32




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##### Table of Contents



Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
  Nine Months EndedSeptember 30,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Service Charges on Deposit Accounts
    
    $
    13,904
    
    
    $
    13,389
    
    
    $
    515
    
    
    
    3.8
    %Insurance Commissions
    
    
    3,893
    
    
    
    3,535
    
    
    
    358
    
    
    
    10.1
    %Trade Finance Fees
    
    
    2,474
    
    
    
    3,549
    
    
    
    (1,075
    )
    
    
    (30.3
    )%Other Service Charges and Fees
    
    
    1,852
    
    
    
    1,881
    
    
    
    (29
    )
    
    
    (1.5
    )%Remittance Fees
    
    
    1,543
    
    
    
    1,503
    
    
    
    40
    
    
    
    2.7
    %Gain on Sales of Loans
    
    
    765
    
    
    
    3,685
    
    
    
    (2,920
    )
    
    
    (79.2
    )%Bank-Owned Life Insurance Income
    
    
    715
    
    
    
    693
    
    
    
    22
    
    
    
    3.2
    %Gain on Sales of Securities Available for Sale, Net
    
    
    135
    
    
    
    
    
    
    
    135
    
    
    
    Other-Than-Temporary Impairment Loss on Securities
    
    
    (2,621
    )
    
    
    
    
    
    
    (2,621
    )
    
    
    Other Income
    
    
    2,085
    
    
    
    1,970
    
    
    
    115
    
    
    
    5.8
    %Total Non-Interest Income
    
    $
    24,745
    
    
    $
    30,205
    
    
    $
    (5,460
    )
    
    
    (18.1
    )%
     33




---



##### Table of Contents



Non-Interest Expenses
 Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007
  Three Months EndedSeptember 30,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Salaries and Employee Benefits
    
    $
    10,782
    
    
    $
    11,418
    
    
    $
    (636
    )
    
    
    (5.6
    )%Occupancy and Equipment
    
    
    2,786
    
    
    
    2,657
    
    
    
    129
    
    
    
    4.9
    %Data Processing
    
    
    1,498
    
    
    
    1,540
    
    
    
    (42
    )
    
    
    (2.7
    )%Professional Fees
    
    
    647
    
    
    
    565
    
    
    
    82
    
    
    
    14.5
    %Advertising and Promotion
    
    
    914
    
    
    
    943
    
    
    
    (29
    )
    
    
    (3.1
    )%Supplies and Communications
    
    
    681
    
    
    
    704
    
    
    
    (23
    )
    
    
    (3.3
    )%Amortization of Other Intangible Assets
    
    
    478
    
    
    
    570
    
    
    
    (92
    )
    
    
    (16.1
    )%Other Operating Expenses
    
    
    4,449
    
    
    
    2,852
    
    
    
    1,597
    
    
    
    56.0
    %Total Non-Interest Expenses
    
    $
    22,235
    
    
    $
    21,249
    
    
    $
    986
    
    
    
    4.6
    %
     34




---



##### Table of Contents



Nine Months Ended September 30, 2008 vs. Nine Months Ended September 30, 2007
  Nine Months EndedSeptember 30,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Salaries and Employee Benefits
    
    $
    33,363
    
    
    $
    33,961
    
    
    $
    (598
    )
    
    
    (1.8
    )%Occupancy and Equipment
    
    
    8,360
    
    
    
    7,740
    
    
    
    620
    
    
    
    8.0
    %Data Processing
    
    
    4,730
    
    
    
    4,768
    
    
    
    (38
    )
    
    
    (0.8
    )%Professional Fees
    
    
    2,627
    
    
    
    1,686
    
    
    
    941
    
    
    
    55.8
    %Advertising and Promotion
    
    
    2,614
    
    
    
    2,493
    
    
    
    121
    
    
    
    4.9
    %Supplies and Communications
    
    
    2,008
    
    
    
    1,996
    
    
    
    12
    
    
    
    0.6
    %Amortization of Other Intangible Assets
    
    
    1,504
    
    
    
    1,776
    
    
    
    (272
    )
    
    
    (15.3
    )%Impairment Loss on Goodwill
    
    
    107,393
    
    
    
    
    
    
    
    107,393
    
    
    
    Other Operating Expenses
    
    
    10,667
    
    
    
    9,288
    
    
    
    1,379
    
    
    
    14.8
    %Total Non-Interest Expenses
    
    $
    173,266
    
    
    $
    63,708
    
    
    $
    109,558
    
    
    
    172.0
    %
      Provision for Income Taxes
  35




---



##### Table of Contents



FINANCIAL CONDITION
 Investment Portfolio
 Accounting for Certain Investments in Debt and Equity Securities.
  September 30, 2008
    
    
    December 31, 2007Estimated
    
    
    Unrealized
    
    
    
    
    
    
    Estimated
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gain
    
    
    Amortized
    
    
    Fair
    
    
    GainCost
    
    
    Value
    
    
    (Loss)
    
    
    Cost
    
    
    Value
    
    
    (Loss)(In Thousands)Held to Maturity:Municipal Bonds
    
    $
    694
    
    
    $
    694
    
    
    $
    
    
    
    $
    694
    
    
    $
    694
    
    
    $
    Mortgage-Backed Securities
    
    
    224
    
    
    
    223
    
    
    
    (1
    )
    
    
    246
    
    
    
    247
    
    
    
    1Total Held to Maturity
    
    $
    918
    
    
    $
    917
    
    
    $
    (1
    )
    
    $
    940
    
    
    $
    941
    
    
    $
    1Available for Sale:Mortgage-Backed Securities
    
    $
    81,475
    
    
    $
    81,249
    
    
    $
    (226
    )
    
    $
    99,332
    
    
    $
    99,198
    
    
    $
    (134
    )Municipal Bonds
    
    
    59,091
    
    
    
    59,119
    
    
    
    28
    
    
    
    69,907
    
    
    
    71,751
    
    
    
    1,844Collateralized Mortgage Obligations
    
    
    39,515
    
    
    
    39,428
    
    
    
    (87
    )
    
    
    51,881
    
    
    
    51,418
    
    
    
    (463
    )U.S. Government Agency Securities
    
    
    32,578
    
    
    
    32,532
    
    
    
    (46
    )
    
    
    104,893
    
    
    
    105,089
    
    
    
    196Other Securities
    
    
    4,680
    
    
    
    5,320
    
    
    
    640
    
    
    
    3,925
    
    
    
    3,835
    
    
    
    (90
    )Corporate Bonds
    
    
    2,945
    
    
    
    2,847
    
    
    
    (98
    )
    
    
    18,295
    
    
    
    18,226
    
    
    
    (69
    )Equity Securities
    
    
    511
    
    
    
    1,056
    
    
    
    545
    
    
    
    
    
    
    
    
    
    
    
    Total Available for Sale
    
    $
    220,795
    
    
    $
    221,551
    
    
    $
    756
    
    
    $
    348,233
    
    
    $
    349,517
    
    
    $
    1,284
   Available for Sale
    
    
    Held to MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Within One Year
    
    $
    17,678
    
    
    $
    18,354
    
    
    $
    
    
    
    $
    Over One Year Through Five Years
    
    
    25,640
    
    
    
    25,515
    
    
    
    
    
    
    
    Over Five Years Through Ten Years
    
    
    6,749
    
    
    
    6,891
    
    
    
    694
    
    
    
    694Over Ten Years
    
    
    49,227
    
    
    
    49,058
    
    
    
    
    
    
    
    Mortgage-Backed Securities
    
    
    81,475
    
    
    
    81,249
    
    
    
    224
    
    
    
    223Collateralized Mortgage Obligations
    
    
    39,515
    
    
    
    39,428
    
    
    
    
    
    
    
    Equity Securities
    
    
    511
    
    
    
    1,056
    
    
    
    
    
    
    
    $
    220,795
    
    
    $
    221,551
    
    
    $
    918
    
    
    $
    917
 36




---



##### Table of Contents



Holding PeriodLess than 12 Months
    
    
    12 Months or More
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)Available for Sale  September 30,
2008:Mortgage-Backed Securities
    
    $
    23,235
    
    
    $
    209
    
    
    $
    16,124
    
    
    $
    460
    
    
    $
    39,359
    
    
    $
    669Municipal Bonds
    
    
    26,584
    
    
    
    366
    
    
    
    1,776
    
    
    
    92
    
    
    
    28,360
    
    
    
    458Collateralized Mortgage Obligations
    
    
    8,110
    
    
    
    71
    
    
    
    6,149
    
    
    
    109
    
    
    
    14,259
    
    
    
    180U.S. Government Agency Securities
    
    
    14,494
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    14,494
    
    
    
    87Other Securities
    
    
    
    
    
    
    
    
    
    
    2,865
    
    
    
    135
    
    
    
    2,865
    
    
    
    135Corporate Bonds
    
    
    2,470
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    2,470
    
    
    
    98$
    74,893
    
    
    $
    831
    
    
    $
    26,914
    
    
    $
    796
    
    
    $
    101,807
    
    
    $
    1,627Available for Sale  December 31,
2007:Mortgage-Backed Securities
    
    $
    5,319
    
    
    $
    31
    
    
    $
    42,143
    
    
    $
    636
    
    
    $
    47,462
    
    
    $
    667Municipal Bonds
    
    
    
    
    
    
    
    
    
    
    2,910
    
    
    
    23
    
    
    
    2,910
    
    
    
    23Collateralized Mortgage Obligations
    
    
    
    
    
    
    
    
    
    
    40,167
    
    
    
    591
    
    
    
    40,167
    
    
    
    591U.S. Government Agency Securities
    
    
    
    
    
    
    
    
    
    
    46,895
    
    
    
    81
    
    
    
    46,895
    
    
    
    81Other Securities
    
    
    
    
    
    
    
    
    
    
    2,910
    
    
    
    90
    
    
    
    2,910
    
    
    
    90Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    7,834
    
    
    
    112
    
    
    
    7,834
    
    
    
    112$
    5,319
    
    
    $
    31
    
    
    $
    142,859
    
    
    $
    1,533
    
    
    $
    148,178
    
    
    $
    1,564
  Loan Portfolio
  37




---



##### Table of Contents



September 30,
    
    
    December 31,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Real Estate Loans:Commercial Property
    
    $
    871,713
    
    
    $
    795,675
    
    
    $
    76,038
    
    
    
    9.6
    %Construction
    
    
    204,340
    
    
    
    215,857
    
    
    
    (11,517
    )
    
    
    (5.3
    )%Residential Property (1)
    
    
    90,383
    
    
    
    90,375
    
    
    
    8
    
    
    
    Total Real Estate Loans
    
    
    1,166,436
    
    
    
    1,101,907
    
    
    
    64,529
    
    
    
    5.9
    %Commercial and Industrial Loans:Commercial Term Loans
    
    
    1,613,730
    
    
    
    1,599,853
    
    
    
    13,877
    
    
    
    0.9
    %Commercial Lines of Credit
    
    
    210,544
    
    
    
    256,978
    
    
    
    (46,434
    )
    
    
    (18.1
    )%SBA Loans (2)
    
    
    168,637
    
    
    
    118,528
    
    
    
    50,109
    
    
    
    42.3
    %International Loans
    
    
    103,311
    
    
    
    119,360
    
    
    
    (16,049
    )
    
    
    (13.4
    )%Total Commercial and Industrial Loans
    
    
    2,096,222
    
    
    
    2,094,719
    
    
    
    1,503
    
    
    
    0.1
    %Consumer Loans
    
    
    84,031
    
    
    
    90,449
    
    
    
    (6,418
    )
    
    
    (7.1
    )%Total Loans  Gross
    
    
    3,346,689
    
    
    
    3,287,075
    
    
    
    59,614
    
    
    
    1.8
    %Deferred Loan Fees
    
    
    (1,640
    )
    
    
    (2,367
    )
    
    
    727
    
    
    
    (30.7
    )%Allowance for Loan Losses
    
    
    (63,948
    )
    
    
    (43,611
    )
    
    
    (20,337
    )
    
    
    46.6
    %Net Loans Receivable
    
    $
    3,281,101
    
    
    $
    3,241,097
    
    
    $
    40,004
    
    
    
    1.2
    %
 
 (1)
    
    Includes loans held for sale, at the lower of cost or market, of $0 and $310,000 at
September 30, 2008 and December 31, 2007, respectively.(2)
    
    Includes loans held for sale, at the lower of cost or market, of $28.6 million and
$6.0 million at September 30, 2008 and December 31, 2007, respectively.   Balance as of
    
    Percentage of TotalIndustry
    
    September 30, 2008
    
    Gross Loans Outstanding(In Thousands)Accommodation/Hospitality
    
    $
    440,963
    
    
    
    13.2
    %Lessors of Non-Residential Buildings
    
    $
    430,717
    
    
    
    12.9
    %Gasoline Stations
    
    $
    378,714
    
    
    
    11.3
    %
  38




---



##### Table of Contents



Non-Performing Assets
   September 30,
    
    
    December 31,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Non-Accrual Loans
    
    $
    111,335
    
    
    $
    54,252
    
    
    $
    57,083
    
    
    
    105.2
    %Loans 90 Days or More Past Due and Still Accruing
    
    
    535
    
    
    
    227
    
    
    
    308
    
    
    
    135.7
    %Total Non-Performing Loans
    
    
    111,870
    
    
    
    54,479
    
    
    
    57,391
    
    
    
    105.3
    %Other Real Estate Owned
    
    
    2,988
    
    
    
    287
    
    
    
    2,701
    
    
    
    941.1
    %Total Non-Performing Assets
    
    $
    114,858
    
    
    $
    54,766
    
    
    $
    60,092
    
    
    
    109.7
    %
  Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
   39




---



##### Table of Contents



As of and for the
    
    
    As of and for theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    June 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)Allowance for Loan Losses:Balance at Beginning of Period
    
    $
    62,977
    
    
    $
    52,986
    
    
    $
    32,190
    
    
    $
    43,611
    
    
    $
    27,557Actual Charge-Offs
    
    
    (12,171
    )
    
    
    (8,656
    )
    
    
    (6,215
    )
    
    
    (28,679
    )
    
    
    (11,496
    )Recoveries on Loans Previously Charged Off
    
    
    340
    
    
    
    436
    
    
    
    131
    
    
    
    1,331
    
    
    
    490Net Loan Charge-Offs
    
    
    (11,831
    )
    
    
    (8,220
    )
    
    
    (6,084
    )
    
    
    (27,348
    )
    
    
    (11,006
    )Provision Charged to Operating Expenses
    
    
    12,802
    
    
    
    18,211
    
    
    
    8,397
    
    
    
    47,685
    
    
    
    17,952Balance at End of Period
    
    $
    63,948
    
    
    $
    62,977
    
    
    $
    34,503
    
    
    $
    63,948
    
    
    $
    34,503Allowance for Off-Balance Sheet Items:Balance at Beginning of Period
    
    $
    3,932
    
    
    $
    2,914
    
    
    $
    1,730
    
    
    $
    1,765
    
    
    $
    2,130Provision Charged to Operating Expenses
    
    
    374
    
    
    
    1,018
    
    
    
    67
    
    
    
    2,541
    
    
    
    (333
    )Balance at End of Period
    
    $
    4,306
    
    
    $
    3,932
    
    
    $
    1,797
    
    
    $
    4,306
    
    
    $
    1,797Ratios:Net Loan Charge-Offs to Average Total Gross Loans (1)
    
    
    1.41
    %
    
    
    1.00
    %
    
    
    0.77
    %
    
    
    1.10
    %
    
    
    0.49
    %Net Loan Charge-Offs to Total Gross Loans (1)
    
    
    1.41
    %
    
    
    0.99
    %
    
    
    0.75
    %
    
    
    1.09
    %
    
    
    0.46
    %Allowance for Loan Losses to Average Total Gross Loans
    
    
    1.91
    %
    
    
    1.90
    %
    
    
    1.10
    %
    
    
    1.91
    %
    
    
    1.10
    %Allowance for Loan Losses to Total Gross Loans
    
    
    1.91
    %
    
    
    1.88
    %
    
    
    1.07
    %
    
    
    1.91
    %
    
    
    1.07
    %Net Loan Charge-Offs to Allowance for Loan Losses (1)
    
    
    73.60
    %
    
    
    52.50
    %
    
    
    69.96
    %
    
    
    57.13
    %
    
    
    42.65
    %Net Loan Charge-Offs to Provision Charged to Operating Expenses
    
    
    92.42
    %
    
    
    45.14
    %
    
    
    72.45
    %
    
    
    57.35
    %
    
    
    61.31
    %Allowance for Loan Losses to Non-Performing Loans
    
    
    57.16
    %
    
    
    56.14
    %
    
    
    77.19
    %
    
    
    57.16
    %
    
    
    77.19
    %Balances:Average Total Gross Loans
    
    $
    3,343,121
    
    
    $
    3,319,141
    
    
    $
    3,137,477
    
    
    $
    3,322,579
    
    
    $
    3,014,164Total Gross Loans
    
    $
    3,346,689
    
    
    $
    3,355,048
    
    
    $
    3,222,525
    
    
    $
    3,346,689
    
    
    $
    3,222,525Non-Performing Loans
    
    $
    111,870
    
    
    $
    112,182
    
    
    $
    44,696
    
    
    $
    111,870
    
    
    $
    44,696
 
 (1)
    
    Net loan charge-offs are annualized to calculate the ratios. 40




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##### Table of Contents



Provision for Credit
Losses.
  Deposits
  September 30,
    
    
    December 31,
    
    
    Increase (Decrease)2008
    
    
    2007
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Demand  Noninterest-Bearing
    
    $
    634,593
    
    
    $
    680,282
    
    
    $
    (45,689
    )
    
    
    (6.7
    )%Interest-Bearing:Savings
    
    
    86,157
    
    
    
    93,099
    
    
    
    (6,942
    )
    
    
    (7.5
    )%Money Market Checking and NOW Accounts
    
    
    597,065
    
    
    
    445,806
    
    
    
    151,259
    
    
    
    33.9
    %Time Deposits of $100,000 or More
    
    
    863,034
    
    
    
    1,441,683
    
    
    
    (578,649
    )
    
    
    (40.1
    )%Other Time Deposits
    
    
    618,528
    
    
    
    340,829
    
    
    
    277,699
    
    
    
    81.5
    %Total Deposits
    
    $
    2,799,377
    
    
    $
    3,001,699
    
    
    $
    (202,322
    )
    
    
    (6.7
    )%
   FHLB Advances and Other Borrowings
  41




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##### Table of Contents



Junior Subordinated Debentures
  INTEREST RATE RISK MANAGEMENT
   AfterThree
    
    
    After OneMonths
    
    
    Year ButWithin
    
    
    But
    
    
    Within
    
    
    After
    
    
    Non-Three
    
    
    Within
    
    
    Five
    
    
    Five
    
    
    Interest-Months
    
    
    One Year
    
    
    Years
    
    
    Years
    
    
    Sensitive
    
    
    Total(Dollars in Thousands)ASSETSCash and Due From Banks
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    81,640
    
    
    $
    81,640Federal Funds Sold
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000Securities:Fixed Rate
    
    
    48,291
    
    
    
    22,314
    
    
    
    77,025
    
    
    
    52,755
    
    
    
    1,055
    
    
    
    201,440Floating Rate
    
    
    3,754
    
    
    
    
    
    
    
    12,710
    
    
    
    4,565
    
    
    
    
    
    
    
    21,029Loans:Fixed Rate
    
    
    103,517
    
    
    
    219,076
    
    
    
    537,721
    
    
    
    281,089
    
    
    
    
    
    
    
    1,141,403Floating Rate
    
    
    1,947,334
    
    
    
    28,361
    
    
    
    113,267
    
    
    
    4,989
    
    
    
    
    
    
    
    2,093,951Non-Accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,335
    
    
    
    111,335Deferred Loan Fees and Allowance for Loan Losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65,588
    )
    
    
    (65,588
    )FRB and FHLB Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,157
    
    
    
    
    
    
    
    42,157Other Assets
    
    
    
    
    
    
    25,239
    
    
    
    
    
    
    
    8,106
    
    
    
    100,279
    
    
    
    133,624Total Assets
    
    $
    2,107,896
    
    
    $
    294,990
    
    
    $
    740,723
    
    
    $
    393,661
    
    
    $
    228,721
    
    
    $
    3,765,991LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits:Demand Deposits
    
    $
    42,053
    
    
    $
    127,428
    
    
    $
    305,827
    
    
    $
    159,285
    
    
    $
    
    
    
    $
    634,593Savings
    
    
    11,243
    
    
    
    33,556
    
    
    
    33,992
    
    
    
    7,366
    
    
    
    
    
    
    
    86,157Money Market Checking and NOW Accounts
    
    
    89,978
    
    
    
    171,903
    
    
    
    193,281
    
    
    
    141,903
    
    
    
    
    
    
    
    597,065Time Deposits:Fixed Rate
    
    
    403,203
    
    
    
    1,036,038
    
    
    
    42,129
    
    
    
    138
    
    
    
    
    
    
    
    1,481,508Floating Rate
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54FHLB Advances and Other Borrowings
    
    
    167,657
    
    
    
    156,000
    
    
    
    256,953
    
    
    
    4,362
    
    
    
    
    
    
    
    584,972Junior Subordinated Debentures
    
    
    82,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,406Other Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,040
    
    
    
    32,040Stockholders Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267,196
    
    
    
    267,196Total Liabilities and Stockholders Equity
    
    $
    796,594
    
    
    $
    1,524,925
    
    
    $
    832,182
    
    
    $
    313,054
    
    
    $
    299,236
    
    
    $
    3,765,991Repricing Gap
    
    $
    1,311,302
    
    
    $
    (1,229,935
    )
    
    $
    (91,459
    )
    
    $
    80,607
    
    
    $
    (70,515
    )Cumulative Repricing Gap
    
    $
    1,311,302
    
    
    $
    81,367
    
    
    $
    (10,092
    )
    
    $
    70,515
    
    
    $
    Cumulative Repricing Gap as a Percentage of
Total Assets
    
    
    34.82
    %
    
    
    2.16
    %
    
    
    (0.27
    )%
    
    
    1.87
    %
    
    
    Cumulative Repricing Gap as a Percentage of
Interest-Earning Assets
    
    
    37.41
    %
    
    
    2.32
    %
    
    
    (0.29
    )%
    
    
    2.01
    %
    
    
    
 42




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##### Table of Contents



Less Than Three Months
    
    Less Than Twelve MonthsSeptember 30,
    
    June 30,
    
    September 30,
    
    June 30,2008
    
    2008
    
    2008
    
    2008(Dollars in Thousands)Cumulative Repricing Gap
    
    $
    1,311,302
    
    
    $
    445,577
    
    
    $
    81,367
    
    
    $
    (106,711
    )Cumulative Repricing Gap as a Percentage of Total Assets
    
    
    34.82
    %
    
    
    11.59
    %
    
    
    2.16
    %
    
    
    (2.78
    )%Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    
    
    37.41
    %
    
    
    12.53
    %
    
    
    2.32
    %
    
    
    (3.00
    )%
   Rate Shock TablePercentage Changes
    
    Change in AmountChange in
    
    
    
    Net
    
    Economic
    
    Net
    
    EconomicInterest
    
    
    
    Interest
    
    Value of
    
    Interest
    
    Value ofRate
    
    
    
    Income
    
    Equity
    
    Income
    
    Equity(Dollars in Thousands)200
    %
    
    
    
    
    16.91
    %
    
    
    (13.86
    )%
    
    $
    21,208
    
    
    $
    (45,890
    )100
    %
    
    
    
    
    8.77
    %
    
    
    (6.78
    )%
    
    $
    10,995
    
    
    $
    (22,452
    )(100
    )%
    
    
    
    
    (8.94
    )%
    
    
    10.17
    %
    
    $
    (11,207
    )
    
    $
    33,674(200
    )%
    
    
    
    
    (18.04
    )%
    
    
    29.53
    %
    
    $
    (22,613
    )
    
    $
    97,741
  43




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
       44




---



##### Table of Contents



Capital Ratios
   Minimum
    
    Minimum to BeRegulatory
    
    Categorized asActual
    
    Requirement
    
    Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in Thousands)Total Capital (to Risk-Weighted Assets):Hanmi Financial
    
    $
    386,107
    
    
    
    10.93
    %
    
    $
    282,516
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    382,287
    
    
    
    10.84
    %
    
    $
    282,162
    
    
    
    8.00
    %
    
    $
    352,703
    
    
    
    10.00
    %Tier 1 Capital (to Risk-Weighted Assets):Hanmi Financial
    
    $
    341,133
    
    
    
    9.66
    %
    
    $
    141,258
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    337,608
    
    
    
    9.57
    %
    
    $
    141,081
    
    
    
    4.00
    %
    
    $
    211,622
    
    
    
    6.00
    %Tier 1 Capital (to Average Total Assets):Hanmi Financial
    
    $
    341,133
    
    
    
    9.02
    %
    
    $
    151,292
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    337,608
    
    
    
    8.94
    %
    
    $
    151,082
    
    
    
    4.00
    %
    
    $
    188,853
    
    
    
    5.00
    %
 45




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##### Table of Contents



Regulatory Matters
  Regulatory Matters
     46




---



##### Table of Contents



Dividends
    OFF-BALANCE SHEET ARRANGEMENTS
 Note 8  Off-Balance Sheet
Commitments Item 1.
Business  Off-Balance Sheet Commitments
 CONTRACTUAL OBLIGATIONS
  47




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##### Table of Contents



RECENTLY ISSUED ACCOUNTING STANDARDS
 FSP No. 157-3, Determining Fair Value of a Financial Asset in a Market That Is Not Active
 Emerging Issues Task Force (EITF) Issue No. 08-5, Issuers Accounting for Liabilities
Measured at Fair Value With a Third-Party Credit Enhancement
 FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities
 FSP No. 142-3, Determination of the Useful Life of Intangible Assets Goodwill and Other Intangible Assets.
 SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles,
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment
of FASB Statement No. 133
 48




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##### Table of Contents



SFAS No. 160, Non-Controlling Interest in Consolidated Financial Statements  an Amendment
of ARB No. 51
 SFAS No. 141(R), Business Combinations
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Interest Rate Risk Management " Liquidity and Capital Resources.
 
 ITEM 4. CONTROLS AND PROCEDURES
    49




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 U.S. and international financial
markets and economic conditions could adversely affect our capital
adequacy,
liquidity, financial condition, results of
operations and profitability. Managements Discussion
and Analysis of Financial Condition and Results of Operations  Recent Developments,
 Hanmi Bank is currently restricted from paying dividends to Hanmi Financial. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Liquidity and Capital Resources. Regulatory Matters.
Dividends.
 We have recently experienced significant changes in our key management.
 We may be required to make additional provisions for credit losses and charge off additional
loans in the future, which could adversely affect our result of operations and capital levels.
  50




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    Document3.1
    
    Amended and Restated Certificate of Incorporation of Hanmi Financial
Corporation (incorporated by reference to Exhibit 3.1 to Hanmi Financial
Corporations Registration Statement on Form S-4/A filed on April 21, 2000)3.2
    
    Certificate of Second Amendment of the Certificate of Incorporation of Hanmi
Financial Corporation (incorporated by reference to Exhibit 3.2 to Hanmi
Financial Corporations Registration Statement on Form S-3 filed on
September 1, 2004)10.1
    
    Employment Offer Letter to John Park from Hanmi Bank dated August 13, 200831.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    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
 51




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##### Table of Contents



SIGNATURES
  HANMI FINANCIAL CORPORATION
 Date: November 7, 2008
    By:
    /s/ Jay S. YooJay S. YooPresident and Chief Executive OfficerBy:
    /s/ Brian E. ChoBrian E. ChoExecutive Vice President and Chief Financial Officer 52