##### 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 June 30, 2010
 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
 o o
  Large Accelerated Filero
    
    Accelerated Filer þ
    
    Non-Accelerated Filero
    
    Smaller Reporting Company o(Do Not Check if a Smaller Reporting Company)
 o þ




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##### 



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 QUARTERLY REPORT ON FORM 10-Q
 THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
 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
    
    
    28ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    56ITEM 4. CONTROLS AND PROCEDURES
    
    
    56PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    57ITEM 1A. RISK FACTORS
    
    
    57ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    68ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    68ITEM 4. REMOVED AND RESERVED
    
    
    68ITEM 5. OTHER INFORMATION
    
    
    68ITEM 6. EXHIBITS
    
    
    69SIGNATURES
    
    
    70EX-10.2EX-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)  (In Thousands, Except Share Data)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCash and Due From Banks
    
    $
    60,034
    
    
    $
    55,263Interest-Bearing Deposits in Other Banks
    
    
    170,711
    
    
    
    98,847Federal Funds Sold
    
    
    20,000
    
    
    
    Cash and Cash Equivalents
    
    
    250,745
    
    
    
    154,110Securities Held to Maturity, at Amortized Cost (Fair Value of $859 as of June 30, 2010 and
$871 as of December 31, 2009)
    
    
    856
    
    
    
    869Investment Securities Available for Sale, at Fair Value (Amortized Cost of $185,953 as of
June 30, 2010 and $130,995 as of December 31, 2009)
    
    
    190,238
    
    
    
    132,420Loans Receivable, Net of Allowance for Loan Losses of $176,667 as of June 30, 2010 and
$144,996 as of December 31, 2009
    
    
    2,296,215
    
    
    
    2,669,054Loans Held for Sale, at the Lower of Cost or Fair Value
    
    
    30,544
    
    
    
    5,010Due from Customers on Acceptances
    
    
    1,072
    
    
    
    994Premises and Equipment, Net
    
    
    17,917
    
    
    
    18,657Accrued Interest Receivable
    
    
    7,802
    
    
    
    9,492Other Real Estate Owned, Net
    
    
    24,064
    
    
    
    26,306Deferred Tax Assets
    
    
    
    
    
    
    3,608Servicing Assets
    
    
    3,356
    
    
    
    3,842Other Intangible Assets, Net
    
    
    2,754
    
    
    
    3,382Investment in Federal Home Loan Bank Stock, at Cost
    
    
    29,556
    
    
    
    30,697Investment in Federal Reserve Bank Stock, at Cost
    
    
    6,783
    
    
    
    7,878Income Taxes Receivable
    
    
    9,697
    
    
    
    56,554Bank-Owned Life Insurance
    
    
    26,874
    
    
    
    26,408Other Assets
    
    
    16,477
    
    
    
    13,425TOTAL ASSETS
    
    $
    2,914,950
    
    
    $
    3,162,706LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Deposits:Noninterest-Bearing
    
    $
    574,843
    
    
    $
    556,306Interest-Bearing
    
    
    2,000,271
    
    
    
    2,193,021Total Deposits
    
    
    2,575,114
    
    
    
    2,749,327Accrued Interest Payable
    
    
    14,024
    
    
    
    12,606Bank Acceptances Outstanding
    
    
    1,072
    
    
    
    994Deferred Tax Liabilities
    
    
    1,203
    
    
    
    Federal Home Loan Bank Advances
    
    
    153,816
    
    
    
    153,978Other Borrowings
    
    
    3,062
    
    
    
    1,747Junior Subordinated Debentures
    
    
    82,406
    
    
    
    82,406Accrued Expenses and Other Liabilities
    
    
    11,073
    
    
    
    11,904Total Liabilities
    
    
    2,841,770
    
    
    
    3,012,962COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common Stock, $0.001 Par Value; Authorized 200,000,000 Shares; Issued 55,830,890
Shares (51,198,390 Shares Outstanding) and 55,814,890 shares (51,182,390 Shares
Outstanding) as of June 30, 2010 and December 31, 2009, Respectively
    
    
    56
    
    
    
    56Additional Paid-In Capital
    
    
    357,641
    
    
    
    357,174Unearned Compensation
    
    
    (261
    )
    
    
    (302
    )Accumulated Other Comprehensive Income  Unrealized Gain on Securities Available for
Sale and Interest-Only Strips, Net of Income Taxes of $1,805 and $602 as of June 30,
2010 and December 31, 2009, Respectively
    
    
    2,530
    
    
    
    859Accumulated Deficit
    
    
    (216,774
    )
    
    
    (138,031
    )Less Treasury Stock, at Cost: 4,632,500 Shares as of June 30, 2010 and December 31, 2009
    
    
    (70,012
    )
    
    
    (70,012
    )Total Stockholders Equity
    
    
    73,180
    
    
    
    149,744TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,914,950
    
    
    $
    3,162,706
  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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009INTEREST AND DIVIDEND INCOME:Interest and Fees on Loans
    
    $
    34,486
    
    
    $
    44,718
    
    
    $
    71,181
    
    
    $
    89,803Taxable Interest on Investment Securities
    
    
    1,359
    
    
    
    1,370
    
    
    
    2,443
    
    
    
    2,720Tax-Exempt Interest on Investment Securities
    
    
    77
    
    
    
    621
    
    
    
    154
    
    
    
    1,264Dividends on Federal Reserve Bank Stock
    
    
    103
    
    
    
    153
    
    
    
    207
    
    
    
    306Dividends on Federal Home Loan Bank Stock
    
    
    20
    
    
    
    
    
    
    
    41
    
    
    
    Interest on Interest-Bearing Deposits in Other Banks
    
    
    99
    
    
    
    11
    
    
    
    154
    
    
    
    13Interest on Federal Funds Sold and Securities Purchased Under Resale Agreements
    
    
    16
    
    
    
    112
    
    
    
    33
    
    
    
    194Interest on Term Federal Funds Sold
    
    
    11
    
    
    
    695
    
    
    
    11
    
    
    
    1,395Total Interest and Dividend Income
    
    
    36,171
    
    
    
    47,680
    
    
    
    74,224
    
    
    
    95,695INTEREST EXPENSE:Interest on Deposits
    
    
    8,813
    
    
    
    22,686
    
    
    
    18,517
    
    
    
    45,471Interest on Federal Home Loan Bank Advances
    
    
    339
    
    
    
    1,010
    
    
    
    685
    
    
    
    2,122Interest on Other Borrowings
    
    
    31
    
    
    
    2
    
    
    
    31
    
    
    
    2Interest on Junior Subordinated Debentures
    
    
    692
    
    
    
    846
    
    
    
    1,361
    
    
    
    1,834Total Interest Expense
    
    
    9,875
    
    
    
    24,544
    
    
    
    20,594
    
    
    
    49,429NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES
    
    
    26,296
    
    
    
    23,136
    
    
    
    53,630
    
    
    
    46,266Provision for Credit Losses
    
    
    37,500
    
    
    
    23,934
    
    
    
    95,496
    
    
    
    69,887NET INTEREST INCOME (LOSS) AFTER PROVISION FOR CREDIT LOSSES
    
    
    (11,204
    )
    
    
    (798
    )
    
    
    (41,866
    )
    
    
    (23,621
    )NON-INTEREST INCOME:Service Charges on Deposit Accounts
    
    
    3,602
    
    
    
    4,442
    
    
    
    7,328
    
    
    
    8,757Insurance Commissions
    
    
    1,206
    
    
    
    1,185
    
    
    
    2,484
    
    
    
    2,367Remittance Fees
    
    
    523
    
    
    
    545
    
    
    
    985
    
    
    
    1,068Trade Finance Fees
    
    
    412
    
    
    
    499
    
    
    
    763
    
    
    
    1,005Other Service Charges and Fees
    
    
    372
    
    
    
    467
    
    
    
    784
    
    
    
    950Bank-Owned Life Insurance Income
    
    
    235
    
    
    
    227
    
    
    
    466
    
    
    
    461Net Gain on Sales of Investment Securities
    
    
    
    
    
    
    1
    
    
    
    105
    
    
    
    1,168Net Gain on Sales of Loans
    
    
    220
    
    
    
    
    
    
    
    214
    
    
    
    2Other Operating Income
    
    
    106
    
    
    
    214
    
    
    
    552
    
    
    
    280Total Non-Interest Income
    
    
    6,676
    
    
    
    7,580
    
    
    
    13,681
    
    
    
    16,058NON-INTEREST EXPENSE:Salaries and Employee Benefits
    
    
    9,011
    
    
    
    8,508
    
    
    
    17,797
    
    
    
    16,011Deposit Insurance Premiums and Regulatory Assessments
    
    
    4,075
    
    
    
    3,929
    
    
    
    6,299
    
    
    
    5,419Occupancy and Equipment
    
    
    2,674
    
    
    
    2,788
    
    
    
    5,399
    
    
    
    5,672Other Real Estate Owned Expense
    
    
    1,718
    
    
    
    1,502
    
    
    
    7,418
    
    
    
    1,645Data Processing
    
    
    1,487
    
    
    
    1,547
    
    
    
    2,986
    
    
    
    3,083Professional Fees
    
    
    1,022
    
    
    
    890
    
    
    
    2,088
    
    
    
    1,506Supplies and Communication
    
    
    574
    
    
    
    599
    
    
    
    1,091
    
    
    
    1,169Advertising and Promotion
    
    
    503
    
    
    
    624
    
    
    
    1,038
    
    
    
    1,193Loan-Related Expense
    
    
    310
    
    
    
    1,217
    
    
    
    617
    
    
    
    1,398Amortization of Other Intangible Assets
    
    
    301
    
    
    
    406
    
    
    
    629
    
    
    
    835Other Operating Expenses
    
    
    3,090
    
    
    
    3,595
    
    
    
    5,627
    
    
    
    6,024Total Non-Interest Expense
    
    
    24,765
    
    
    
    25,605
    
    
    
    50,989
    
    
    
    43,955LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    
    
    (29,293
    )
    
    
    (18,823
    )
    
    
    (79,174
    )
    
    
    (51,518
    )Benefit for Income Taxes
    
    
    (36
    )
    
    
    (9,288
    )
    
    
    (431
    )
    
    
    (24,787
    )NET LOSS
    
    $
    (29,257
    )
    
    $
    (9,535
    )
    
    $
    (78,743
    )
    
    $
    (26,731
    )LOSS PER SHARE:Basic
    
    $
    (0.57
    )
    
    $
    (0.21
    )
    
    $
    (1.54
    )
    
    $
    (0.58
    )Diluted
    
    $
    (0.57
    )
    
    $
    (0.21
    )
    
    $
    (1.54
    )
    
    $
    (0.58
    )WEIGHTED-AVERAGE SHARES OUTSTANDING:Basic
    
    
    51,036,573
    
    
    
    45,924,767
    
    
    
    51,017,885
    
    
    
    45,907,998Diluted
    
    
    51,036,573
    
    
    
    45,924,767
    
    
    
    51,017,885
    
    
    
    45,907,998DIVIDENDS DECLARED PER SHARE
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  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)
 (In Thousands; Except Share Data)
 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 JANUARY 1, 2009
    
    
    50,538,049
    
    
    
    (4,632,500
    )
    
    
    45,905,549
    
    
    $
    51
    
    
    $
    349,304
    
    
    $
    (218
    )
    
    $
    544
    
    
    $
    (15,754
    )
    
    $
    (70,012
    )
    
    $
    263,915Shares Issued for Business Acquisitions
    
    
    39,418
    
    
    
    
    
    
    
    39,418
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46Share-Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    489Restricted Stock Awards
    
    
    190,000
    
    
    
    
    
    
    
    190,000
    
    
    
    
    
    
    
    259
    
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeiture of Restricted Stock Award
    
    
    (4,000
    )
    
    
    
    
    
    
    (4,000
    )
    
    
    
    
    
    
    (64
    )
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,731
    )
    
    
    
    
    
    
    (26,731
    )Change in Unrealized Gain on Securities
Available for Sale and Interest-Only
Strips, Net of Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,407
    
    
    
    
    
    
    
    
    
    
    
    1,407Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,324
    )BALANCE AS OF JUNE 30, 2009
    
    
    50,763,467
    
    
    
    (4,632,500
    )
    
    
    46,130,967
    
    
    $
    51
    
    
    $
    350,005
    
    
    $
    (384
    )
    
    $
    1,951
    
    
    $
    (42,485
    )
    
    $
    (70,012
    )
    
    $
    239,126BALANCE AS OF JANUARY 1, 2010
    
    
    55,814,890
    
    
    
    (4,632,500
    )
    
    
    51,182,390
    
    
    $
    56
    
    
    $
    357,174
    
    
    $
    (302
    )
    
    $
    859
    
    
    $
    (138,031
    )
    
    $
    (70,012
    )
    
    $
    149,744Exercises of Stock Options and Stock Warrants
    
    
    16,000
    
    
    
    
    
    
    
    16,000
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Share-Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    486Comprehensive Loss:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78,743
    )
    
    
    
    
    
    
    (78,743
    )Change in Unrealized Gain on Securities
Available for Sale and Interest-Only
Strips, Net of Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,671
    
    
    
    
    
    
    
    
    
    
    
    1,671Total Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,072
    )BALANCE AS OF JUNE 30, 2010
    
    
    55,830,890
    
    
    
    (4,632,500
    )
    
    
    51,198,390
    
    
    $
    56
    
    
    $
    357,641
    
    
    $
    (261
    )
    
    $
    2,530
    
    
    $
    (216,774
    )
    
    $
    (70,012
    )
    
    $
    73,180
  3




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (In Thousands)
 Six Months EndedJune 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss
    
    $
    (78,743
    )
    
    $
    (26,731
    )Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:Depreciation and Amortization of Premises and Equipment
    
    
    1,204
    
    
    
    1,329Amortization of Premiums and Accretion of Discounts on Investment Securities, Net
    
    
    288
    
    
    
    (957
    )Amortization of Other Intangible Assets
    
    
    629
    
    
    
    835Amortization of Servicing Assets
    
    
    496
    
    
    
    421Share-Based Compensation Expense
    
    
    486
    
    
    
    489Provision for Credit Losses
    
    
    95,496
    
    
    
    69,887Net Gain on Sales of Investment Securities
    
    
    (105
    )
    
    
    (1,168
    )Net Gain on Sales of Loans
    
    
    (214
    )
    
    
    (2
    )(Gain) Loss on Sales of Other Real Estate Owned
    
    
    (154
    )
    
    
    324Provision for Valuation Allowance on Other Real Estate Owned
    
    
    6,503
    
    
    
    1,001Deferred Tax Benefit
    
    
    3,608
    
    
    
    Origination of Loans Held for Sale
    
    
    (1,782
    )
    
    
    (199
    )Net Proceeds from Sales of Loans Held for Sale
    
    
    79,254
    
    
    
    3,354Decrease in Accrued Interest Receivable
    
    
    1,690
    
    
    
    229Increase in Servicing Asset
    
    
    (10
    )
    
    
    (74
    )Increase in Cash Surrender Value of Bank-Owned Life Insurance
    
    
    (466
    )
    
    
    (461
    )Increase in Other Assets
    
    
    (3,039
    )
    
    
    (16,497
    )Decrease in Income Tax Receivable
    
    
    46,857
    
    
    
    Increase in Accrued Interest Payable
    
    
    1,418
    
    
    
    13,320Increase in Other Liabilities
    
    
    682
    
    
    
    390Net Cash Provided By Operating Activities
    
    
    154,098
    
    
    
    45,490CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from Redemption of Federal Home Loan Bank and Federal Reserve Bank Stock
    
    
    2,236
    
    
    
    175Proceeds from Matured or Called Investment Securities Available for Sale
    
    
    37,023
    
    
    
    38,494Proceeds from Matured or Called Investment Securities Held to Maturity
    
    
    13
    
    
    
    Proceeds from Sales of Investment Securities Available for Sale
    
    
    3,252
    
    
    
    38,448Proceeds from Sales of Other Real Estate Owned
    
    
    5,042
    
    
    
    215Net Decrease in Loans Receivable
    
    
    163,888
    
    
    
    130,866Purchases of Investment Securities Available for Sale
    
    
    (95,415
    )
    
    
    (93,511
    )Purchases of Premises and Equipment
    
    
    (464
    )
    
    
    (883
    )Net Cash Provided By Investing Activities
    
    
    115,575
    
    
    
    113,804CASH FLOWS FROM FINANCING ACTIVITIES:Increase (Decrease) in Deposits
    
    
    (174,213
    )
    
    
    217,843Proceeds from Exercise of Stock Options
    
    
    22
    
    
    
    Repayment of Long-Term Federal Home Loan Bank Advances
    
    
    (162
    )
    
    
    (107,061
    )Net Change in Short-Term Federal Home Loan Bank Advances and Other Borrowings
    
    
    1,315
    
    
    
    (102,438
    )Net Cash Provided By (Used In) Financing Activities
    
    
    (173,038
    )
    
    
    8,344NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    96,635
    
    
    
    167,638Cash and Cash Equivalents at Beginning of Period
    
    
    154,110
    
    
    
    215,188CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    250,745
    
    
    $
    382,826SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash Paid During the Period for:Interest Paid
    
    $
    8,457
    
    
    $
    36,109Income Taxes Paid, Net of Refunds
    
    $
    (49,971
    )
    
    $
    Non-Cash Activities:Stock Issued for Business Acquisition
    
    $
    
    
    
    $
    46Transfer of Loans to Other Real Estate Owned
    
    $
    10,366
    
    
    $
    34,735Transfer of Loans to Loan Held for Sale
    
    $
    101,620
    
    
    $
    Loans Provided in the Sale of Other Real Estate Owned
    
    $
    1,217
    
    
    $
    
  4




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
 NOTE 1  BASIS OF PRESENTATION
    Note 2  Summary of
Significant Accounting Policies
  NOTE 2  REGULATORY MATTERS AND GOING CONCERN CONSIDERATION
   5




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 2  REGULATORY MATTERS AND GOING CONCERN CONSIDERATION (Continued)
 Final Order and Written Agreement
   Ratio of Tangible StockholdersDate
    
    Equity to Total Tangible AssetsBy July 31, 2010
    
    Not Less Than 9.0 PercentFrom December 31, 2010 and Until the Final Order is Terminated
    
    Not Less Than 9.5 Percent
  Note 12-Subsequent Events.
 6




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 2  REGULATORY MATTERS AND GOING CONCERN CONSIDERATION (Continued)
 Note
12-Subsequent Events.
 
    
    The Board Committees have been reorganized after a Board assessment was conducted to
leverage the
experience and skill base of our directors and to improve Board oversight of the Banks
operations.
    
    Tools such as a master calendar of scheduled events and policy exception trigger tables have
been created
to assist the Board in its ability to monitor the Banks operations more effectively.
    
    Jung Hak Son, a 24 year employee of the Bank, was appointed to the Chief Credit Officer
position on
December 23, 2009 and the Bank received notice that the regulatory agency interposed no
objection to his
appointment on March 18, 2010.
    
    Loan policies and procedures continue to be adjusted and enhanced to keep current with the
rapidly
changing credit and economic environment.
    
    Quantitative and qualitative factors in our allowance for loan losses have been updated to
reflect the higher
risk in the loan portfolio due to the recessionary economy.
    
    Allowance methodology has been enhanced to better allocate reserves according to more
specified loss and concentration risks.
    
    The credit department has also been reorganized and reinforced with additional personnel to
increase the
level of management loan review and loan monitoring.
    
    Third party loan reviews have been conducted quarterly to validate the loan grading.
    
    Written plans have been developed for each problem loan greater than $3 million and the
plans have been
implemented and are being monitored to improve loan work out and loan collection.
    
    The Banks strategic plan has been reviewed and revised, and the revised plan has been
approved by the
Board of Directors.
    
    The Banks liquidity management plan and contingency funding plan have been significantly
revised to
reflect the additional restrictions and challenges of the market.
    
    The capital plan has been revised and we believe significant progress has been made as set
forth above.
    
    A Board Compliance Committee has been organized to monitor the progress toward full
compliance with
all the provisions of the Agreement and the Final Order and approves the related progress
reports at least on a monthly basis prior to submission to the DFI and FRB according to the
schedule established.
  7




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 2  REGULATORY MATTERS AND GOING CONCERN CONSIDERATION (Continued)
 Risk-Based Capital
   To be Categorized asMinimum
    
    
    Well CapitalizedRegulatory
    
    
    under Prompt CorrectiveActual
    
    
    Requirement
    
    
    Action ProvisionAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)June 30, 2010Total Capital (to Risk-Weighted Assets):Hanmi Financial
    
    $
    180,545
    
    
    
    7.31
    %
    
    $
    197,634
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    181,093
    
    
    
    7.35
    %
    
    $
    197,189
    
    
    
    8.00
    %
    
    $
    246,486
    
    
    
    10.00
    %Tier 1 Capital (to Risk-Weighted Assets):Hanmi Financial
    
    $
    91,111
    
    
    
    3.69
    %
    
    $
    98,817
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    148,300
    
    
    
    6.02
    %
    
    $
    98,594
    
    
    
    4.00
    %
    
    $
    147,891
    
    
    
    6.00
    %Tier 1 Capital (to Average Assets):Hanmi Financial
    
    $
    91,111
    
    
    
    3.06
    %
    
    $
    118,922
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AHanmi Bank
    
    $
    148,300
    
    
    
    4.99
    %
    
    $
    118,763
    
    
    
    4.00
    %
    
    $
    148,454
    
    
    
    5.00
    %
 Going Concern
 Note 12  Subsequent Event.
  8




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 2  REGULATORY MATTERS AND GOING CONCERN CONSIDERATION (Continued)
   NOTE 3  FAIR VALUE MEASUREMENTS
 Fair Value Option and Fair Value Measurements
 Fair Value Measurements and Disclosures,
 Financial Instruments, Note 3  Fair Value Measurements.
 Fair Value Measurements and Disclosures (Topic 820) Note 3  Fair Value Measurements.
 9




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
  Investment Securities Available for Sale
   Loans Held for Sale
 Impaired Loans Receivables,
 Other Real Estate Owned
 10




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
 Servicing Assets and Servicing Liabilities
 Other Intangible Assets
 Investments  Debt and Equity Securities,
 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.
 11




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
 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
    
    
    June 30,Assets
    
    
    Characteristics
    
    
    Inputs
    
    
    2010(In Thousands)ASSETS:Debt Securities Available for Sale:Residential Mortgage-Backed Securities
    
    $
    
    
    
    $
    57,195
    
    
    $
    
    
    
    $
    57,195U.S. Government Agency Securities
    
    
    95,172
    
    
    
    
    
    
    
    
    
    
    
    95,172Collateralized Mortgage Obligations
    
    
    
    
    
    
    19,291
    
    
    
    
    
    
    
    19,291Asset-Backed Securities
    
    
    
    
    
    
    7,911
    
    
    
    
    
    
    
    7,911Municipal Bonds
    
    
    
    
    
    
    5,318
    
    
    
    
    
    
    
    5,318Other Securities
    
    
    
    
    
    
    3,309
    
    
    
    1,258
    
    
    
    4,567Total Debt Securities Available for Sale
    
    $
    95,172
    
    
    $
    93,024
    
    
    $
    1,258
    
    
    $
    189,454Equity Securities Available for Sale:Financial Service Industry
    
    $
    784
    
    
    
    
    
    
    
    
    
    
    $
    784Total Equity Securities Available for Sale
    
    $
    784
    
    
    $
    
    
    
    $
    
    
    
    $
    784Total Securities Available for Sale
    
    $
    95,956
    
    
    $
    93,024
    
    
    $
    1,258
    
    
    $
    190,238Servicing Assets
    
    $
    
    
    
    $
    
    
    
    $
    3,356
    
    
    $
    3,356LIABILITIES:Servicing Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    193
    
    
    $
    193
  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 ofApril 1,
    
    
    Issuances and
    
    
    Gains or Losses
    
    
    Comprehensive
    
    
    In and/or Out
    
    
    June 30,2010
    
    
    Settlements
    
    
    in Earnings
    
    
    Income
    
    
    of Level 3
    
    
    2010(In Thousands)ASSETS:Securities Available for Sale:Other Securities
    
    $
    1,258
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,258Servicing Assets
    
    $
    3,590
    
    
    $
    
    
    
    $
    (234
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,356LIABILITIES:Servicing Liabilities
    
    $
    (200
    )
    
    $
    
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    (193
    )
 12




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (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
    
    
    June 30,2010
    
    
    Settlements
    
    
    in Earnings
    
    
    Income
    
    
    of Level 3
    
    
    2010(In Thousands)ASSETS:Securities Available for Sale:Other Securities
    
    $
    1,258
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,258Servicing Assets
    
    $
    3,842
    
    
    $
    
    
    
    $
    (486
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,356LIABILITIES:Servicing Liabilities
    
    $
    (216
    )
    
    $
    
    
    
    $
    23
    
    
    $
    
    
    
    $
    
    
    
    $
    (193
    )
 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
    
    
    June 30,Assets
    
    
    Characteristics
    
    
    Inputs
    
    
    2010(In Thousands)ASSETS:Loans Held for Sale
    
    $
    
    
    
    $
    30,544
    (1)
    
    $
    
    
    
    $
    30,544Impaired Loans
    
    $
    
    
    
    $
    235,899
    (2)
    
    $
    
    
    
    $
    235,899Other Real Estate Owned
    
    $
    
    
    
    $
    24,064
    (3)
    
    $
    
    
    
    $
    24,064Other Intangible Assets
    
    $
    
    
    
    $
    
    
    
    $
    2,754
    
    
    $
    2,754
 
 (1)
    
    Includes commercial property loans of $14.8 million, commercial term loan of $8.8 millions, and SBA loans of $6.9 million.(2)
    
    Includes real estate loans of $100.9 million and commercial and industrial loans of $134.9 million.(3)
    
    Includes real estate loans of $20.3 million and commercial and industrial loans of $3.7 million. Assets and Liabilities Not Measured at Fair Value on a Recurring or Non-Recurring Basis
   13




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
  June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimatedor Contract
    
    
    Fair
    
    
    or Contract
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In Thousands)Financial Assets:Cash and Cash Equivalents
    
    $
    250,745
    
    
    $
    250,745
    
    
    $
    154,110
    
    
    $
    154,110Investment Securities Held to Maturity
    
    
    856
    
    
    
    859
    
    
    
    869
    
    
    
    871Investment Securities Available for Sale
    
    
    190,238
    
    
    
    190,238
    
    
    
    132,420
    
    
    
    132,420Loans Receivable, Net of Allowance for Loan Losses
    
    
    2,326,759
    
    
    
    2,297,093
    
    
    
    2,674,064
    
    
    
    2,573,080Accrued Interest Receivable
    
    
    7,802
    
    
    
    7,802
    
    
    
    9,492
    
    
    
    9,492Investment in Federal Home Loan Bank Stock
    
    
    29,556
    
    
    
    29,556
    
    
    
    30,697
    
    
    
    30,697Investment in Federal Reserve Bank Stock
    
    
    6,783
    
    
    
    6,783
    
    
    
    7,878
    
    
    
    7,878Financial Liabilities:Noninterest-Bearing Deposits
    
    
    574,843
    
    
    
    574,843
    
    
    
    556,306
    
    
    
    556,306Interest-Bearing Deposits
    
    
    2,000,271
    
    
    
    2,003,379
    
    
    
    2,193,021
    
    
    
    2,197,866Borrowings
    
    
    239,284
    
    
    
    239,947
    
    
    
    236,453
    
    
    
    237,354Accrued Interest Payable
    
    
    14,024
    
    
    
    14,024
    
    
    
    12,606
    
    
    
    12,606Off-Balance Sheet Items:Commitments to Extend Credit
    
    
    150,661
    
    
    
    182
    
    
    
    262,821
    
    
    
    177Standby Letters of Credit
    
    
    17,665
    
    
    
    56
    
    
    
    17,225
    
    
    
    37
  Cash and Cash Equivalents
 Investment Securities
 Loans Receivable, Net of Allowance for Loan Losses
 Accrued Interest Receivable
 Investment in Federal Home Loan Bank (FHLB) and Federal Reserve Bank Stock
 Interest-Bearing Deposits
 14




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 3  FAIR VALUE MEASUREMENTS (Continued)
 Borrowings
 Accrued Interest Payable
 Commitments to Extend Credit and Standby Letters of Credit
 NOTE 4  INVESTMENT SECURITIES
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value(In Thousands)June 30, 2010:Municipal Bonds
    
    $
    696
    
    
    $
    
    
    
    $
    
    
    
    $
    696Mortgage-Backed Securities (1)
    
    
    160
    
    
    
    3
    
    
    
    
    
    
    
    163$
    856
    
    
    $
    3
    
    
    $
    
    
    
    $
    859December 31, 2009:Municipal Bonds
    
    $
    696
    
    
    $
    
    
    
    $
    
    
    
    $
    696Mortgage-Backed Securities (1)
    
    
    173
    
    
    
    2
    
    
    
    
    
    
    
    175$
    869
    
    
    $
    2
    
    
    $
    
    
    
    $
    871
 
 (1)
    
    Collateralized by residential mortgages and guaranteed by U.S. government
sponsored entities. 15




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 4  INVESTMENT SECURITIES (Continued)
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    Value(In Thousands)June 30, 2010:Mortgage-Backed Securities (1)
    
    $
    54,788
    
    
    $
    2,407
    
    
    $
    
    
    
    $
    57,195U.S. Government Agency Securities
    
    
    94,660
    
    
    
    512
    
    
    
    
    
    
    
    95,172Collateralized Mortgage Obligations (1)
    
    
    18,912
    
    
    
    379
    
    
    
    
    
    
    
    19,291Asset-Backed Securities
    
    
    7,587
    
    
    
    324
    
    
    
    
    
    
    
    7,911Municipal Bonds
    
    
    5,265
    
    
    
    88
    
    
    
    (35
    )
    
    
    5,318Other Securities
    
    
    4,230
    
    
    
    361
    
    
    
    (24
    )
    
    
    4,567Equity Securities
    
    
    511
    
    
    
    273
    
    
    
    
    
    
    
    784$
    185,953
    
    
    $
    4,344
    
    
    $
    (59
    )
    
    $
    190,238December 31, 2009:Mortgage-Backed Securities (1)
    
    $
    65,218
    
    
    $
    1,258
    
    
    $
    144
    
    
    $
    66,332U.S. Government Agency Securities
    
    
    33,325
    
    
    
    
    
    
    
    562
    
    
    
    32,763Collateralized Mortgage Obligations (1)
    
    
    12,520
    
    
    
    269
    
    
    
    
    
    
    
    12,789Asset-Backed Securities
    
    
    8,127
    
    
    
    61
    
    
    
    
    
    
    
    8,188Municipal Bonds
    
    
    7,369
    
    
    
    82
    
    
    
    92
    
    
    
    7,359Other Securities
    
    
    3,925
    
    
    
    332
    
    
    
    62
    
    
    
    4,195Equity Securities
    
    
    511
    
    
    
    283
    
    
    
    
    
    
    
    794$
    130,995
    
    
    $
    2,285
    
    
    $
    860
    
    
    $
    132,420
 
 (1)
    
    Collateralized by residential mortgages and guaranteed by U.S. government
sponsored entities.  Available for Sale
    
    
    Held to MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Within One Year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Over One Year Through Five Years
    
    
    42,574
    
    
    
    42,698
    
    
    
    696
    
    
    
    696Over Five Years Through Ten Years
    
    
    48,708
    
    
    
    49,229
    
    
    
    
    
    
    
    Over Ten Years
    
    
    20,460
    
    
    
    21,041
    
    
    
    
    
    
    
    Mortgage-Backed Securities
    
    
    54,788
    
    
    
    57,195
    
    
    
    160
    
    
    
    163Collateralized Mortgage Obligations
    
    
    18,912
    
    
    
    19,291
    
    
    
    
    
    
    
    Equity Securities
    
    
    511
    
    
    
    784
    
    
    
    
    
    
    
    $
    185,953
    
    
    $
    190,238
    
    
    $
    856
    
    
    $
    859
 16




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Continued)
 NOTE 4  INVESTMENT SECURITIES (Continued)
  Holding PeriodLess than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    Estimated
    
    
    Number
    
    
    Gross
    
    
    Estimated
    
    
    Number
    
    
    Gross
    
    
    Estimated
    
    
    NumberInvestment Securities
    
    Unrealized
    
    
    Fair
    
    
    of
    
    
    Unrealized
    
    
    Fair
    
    
    of
    
    
    Unrealized
    
    
    Fair
    
    
    ofAvailable for Sale
    
    Losses
    
    
    Value
    
    
    Securities
    
    
    Losses
    
    
    Value
    
    
    Securities
    
    
    Losses
    
    
    Value
    
    
    Securities(In Thousands)June 30, 2010:Mortgage-Backed Securities
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    Municipal Bonds
    
    
    8
    
    
    
    307
    
    
    
    1
    
    
    
    27
    
    
    
    846
    
    
    
    1
    
    
    
    35
    
    
    
    1,153
    
    
    
    2U.S. Government Agency
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    976
    
    
    
    1
    
    
    
    24
    
    
    
    976
    
    
    
    1$
    8
    
    
    $
    307
    
    
    
    1
    
    
    $
    51
    
    
    $
    1,822
    
    
    
    2
    
    
    $
    59
    
    
    $
    2,129
    
    
    
    3December 31, 2009:Mortgage-Backed Securities
    
    $
    144
    
    
    $
    14,584
    
    
    
    3
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    144
    
    
    $
    14,584
    
    
    
    3Municipal Bonds
    
    
    12
    
    
    
    303
    
    
    
    1
    
    
    
    80
    
    
    
    793
    
    
    
    1
    
    
    
    92
    
    
    
    1,096
    
    
    
    2U.S. Government Agency
Securities
    
    
    562
    
    
    
    32,764
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    562
    
    
    
    32,764
    
    
    
    6Other Securities
    
    
    24
    
    
    
    1,976
    
    
    
    2
    
    
    
    38
    
    
    
    961
    
    
    
    1
    
    
    
    62
    
    
    
    2,937
    
    
    
    3$
    742
    
    
    $
    49,627
    
    
    
    12
    
    
    $
    118
    
    
    $
    1,754
    
    
    
    2
    
    
    $
    860
    
    
    $
    51,381
    
    
    
    14
   17




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 4  INVESTMENT SECURITIES (Continued)
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Gross Realized Gains on Sales of Investment Securities
    
    $
    
    
    
    $
    1
    
    
    $
    210
    
    
    $
    1,277Gross Realized Losses on Sales of Investment Securities
    
    
    
    
    
    
    
    
    
    
    (105
    )
    
    
    (109
    )Net Realized Gains on Sales of Investment Securities
    
    $
    
    
    
    $
    1
    
    
    $
    105
    
    
    $
    1,168Proceeds from Sales of Investment Securities
    
    $
    
    
    
    $
    
    
    
    $
    3,252
    
    
    $
    38,448Tax Expense on Sales of Investment Securities
    
    $
    
    
    
    $
    
    
    
    $
    45
    
    
    $
    491
  18




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 5  LOANS
 Loans Receivable
  June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Real Estate Loans:Commercial Property
    
    $
    772,231
    
    
    $
    839,598Construction
    
    
    72,361
    
    
    
    126,350Residential Property
    
    
    69,374
    
    
    
    77,149Total Real Estate Loans
    
    
    913,966
    
    
    
    1,043,097Commercial and Industrial Loans: (1)Commercial Term Loans
    
    
    1,255,256
    
    
    
    1,420,034SBA Loans
    
    
    115,667
    
    
    
    134,521Commercial Lines of Credit
    
    
    85,758
    
    
    
    101,159International Loans
    
    
    47,267
    
    
    
    53,488Total Commercial and Industrial Loans
    
    
    1,503,948
    
    
    
    1,709,202Consumer Loans
    
    
    55,790
    
    
    
    63,303Total Gross Loans
    
    
    2,473,704
    
    
    
    2,815,602Deferred Loan Fees
    
    
    (822
    )
    
    
    (1,552
    )Allowance for Loan Losses
    
    
    (176,667
    )
    
    
    (144,996
    )Loans Receivable, Net
    
    $
    2,296,215
    
    
    $
    2,669,054
 
 (1)
    
    Commercial and industrial loans include owner-occupied property loans of $995.1
million and $1.15 billion as of June 30, 2010
and December 31, 2009, respectively.  Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
  As of and for the
    
    
    As of and for theThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Allowance for Loan Losses:Balance at Beginning of Period
    
    $
    177,820
    
    
    $
    144,996
    
    
    $
    104,943
    
    
    $
    144,996
    
    
    $
    70,986Actual Charge-Offs
    
    
    (40,718
    )
    
    
    (30,114
    )
    
    
    (24,332
    )
    
    
    (70,832
    )
    
    
    (36,848
    )Recoveries on Loans Previously Charged Off
    
    
    1,772
    
    
    
    3,721
    
    
    
    735
    
    
    
    5,493
    
    
    
    1,438Net Loan Charge-Offs
    
    
    (38,946
    )
    
    
    (26,393
    )
    
    
    (23,597
    )
    
    
    (65,339
    )
    
    
    (35,410
    )Provision Charged to Operating Expenses
    
    
    37,793
    
    
    
    59,217
    
    
    
    23,922
    
    
    
    97,010
    
    
    
    69,692Balance at End of Period
    
    $
    176,667
    
    
    $
    177,820
    
    
    $
    105,268
    
    
    $
    176,667
    
    
    $
    105,268Allowance for Off-Balance Sheet Items:Balance at Beginning of Period
    
    $
    2,655
    
    
    $
    3,876
    
    
    $
    4,279
    
    
    $
    3,876
    
    
    $
    4,096Provision Charged to Operating Expenses
    
    
    (293
    )
    
    
    (1,221
    )
    
    
    12
    
    
    
    (1,514
    )
    
    
    195Balance at End of Period
    
    $
    2,362
    
    
    $
    2,655
    
    
    $
    4,291
    
    
    $
    2,362
    
    
    $
    4,291
 19




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##### Table of Contents



HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 5  LOANS (Continued)
 Impaired Loans
  Amount
    
    
    Allowance(In Thousands)June 30, 2010:With No Allocated Allowance:Without Charge-Offs
    
    $
    86,336
    
    
    $
    With Charge-Offs
    
    
    83,208
    
    
    
    $
    169,544
    
    
    $
    With Allocated Allowance:Without Charge-Offs
    
    $
    42,271
    
    
    $
    24,279With Charge-Offs
    
    
    50,565
    
    
    
    4,202$
    92,836
    
    
    $
    28,481December 31, 2009:With No Allocated Allowance:Without Charge-Offs
    
    $
    44,055
    
    
    $
    With Charge-Offs
    
    
    84,674
    
    
    
    $
    128,729
    
    
    $
    With Allocated Allowance:Without Charge-Offs
    
    $
    41,476
    
    
    $
    20,413With Charge-Offs
    
    
    30,529
    
    
    
    2,735$
    72,005
    
    
    $
    23,148
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Interest Income That Would Have Been Recognized Had
Impaired
Loans Performed in Accordance With Their Original Terms
    
    $
    5,795
    
    
    $
    6,653
    
    
    $
    11,364
    
    
    $
    11,830Less: Interest Income Recognized on Impaired Loans
    
    
    (2,277
    )
    
    
    (3,604
    )
    
    
    (5,048
    )
    
    
    (5,259
    )Interest Foregone on Impaired Loans
    
    $
    3,518
    
    
    $
    3,049
    
    
    $
    6,316
    
    
    $
    6,571
 20




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 5  LOANS (Continued)
  Non-Performing Assets
  June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Non-Performing Loans:Non-Accrual Loans:Real Estate Loans:Commercial Property
    
    $
    77,867
    
    
    $
    58,927Construction
    
    
    9,823
    
    
    
    15,185Residential Property
    
    
    2,612
    
    
    
    3,335Commercial and Industrial Loans:Commercial Term Loans
    
    
    116,108
    
    
    
    102,677Commercial Lines of Credit
    
    
    4,038
    
    
    
    1,906SBA Loans
    
    
    30,601
    
    
    
    35,609International Loans
    
    
    566
    
    
    
    739Consumer Loans
    
    
    518
    
    
    
    622Total Non-Accrual Loans
    
    
    242,133
    
    
    
    219,000Loans 90 Days or More Past Due and Still Accruing
(as to Principal or Interest):Consumer Loans
    
    
    
    
    
    
    67Total Loans 90 Days or More Past Due and Still
Accruing (as to Principal or Interest)
    
    
    
    
    
    
    67Total Non-Performing Loans
    
    
    242,133
    
    
    
    219,067Other Real Estate Owned
    
    
    24,064
    
    
    
    26,306Total Non-Performing Assets
    
    $
    266,197
    
    
    $
    245,373Non-Performing Loans as a Percentage of Total Gross Loans
    
    
    9.67
    %
    
    
    7.77
    %Non-Performing Assets as a Percentage of Total Assets
    
    
    9.13
    %
    
    
    7.76
    %Troubled Debt Restructurings on Accrual Status
    
    $
    21,831
    
    
    $
    
  21




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 6  INCOME TAXES
    NOTE 7  SHARE-BASED COMPENSATION
 Share-Based Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Share-Based Compensation Expense
    
    $
    280
    
    
    $
    247
    
    
    $
    486
    
    
    $
    489Related Tax Benefits
    
    $
    118
    
    
    $
    104
    
    
    $
    205
    
    
    $
    206
 Unrecognized Share-Based Compensation Expense
  Unrecognized
    
    
    Average ExpectedExpense
    
    
    Recognition Period(Dollars in Thousands)Stock Option Awards
    
    $
    923
    
    
    1.3 yearsRestricted Stock Awards
    
    
    261
    
    
    3.6 yearsTotal Unrecognized Share-Based Compensation Expense
    
    $
    1,184
    
    
    1.8  years
 22




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 7  SHARE-BASED COMPENSATION (Continued)
 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
    
    
    1,137,515
    
    
    $
    11.55
    
    
    6.0 years
    
    $
    Options Exercised
    
    
    (16,000
    )
    
    $
    1.35
    
    
    8.8 yearsOptions Expired
    
    
    (3,200
    )
    
    $
    15.20
    
    
    4.5 yearsOptions Forfeited
    
    
    (600
    )
    
    $
    18.00
    
    
    5.8 yearsOptions Outstanding at End of Period
    
    
    1,117,715
    
    
    $
    11.68
    
    
    5.7 years
    
    $
    Options Exercisable at End of Period
    
    
    832,315
    
    
    $
    13.47
    
    
    4.9 years
    
    $
    
  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
    
    
    1,180,358
    
    
    $
    11.78
    
    
    6.2 years
    
    $
    Options Exercised
    
    
    (16,000
    )
    
    $
    1.35
    
    
    8.8 yearsOptions Expired
    
    
    (40,443
    )
    
    $
    18.07
    
    
    5.0 yearsOptions Forfeited
    
    
    (6,200
    )
    
    $
    16.81
    
    
    6.7 yearsOptions Outstanding at End of Period
    
    
    1,117,715
    
    
    $
    11.68
    
    
    5.7 years
    
    $
    Options Exercisable at End of Period
    
    
    832,315
    
    
    $
    13.47
    
    
    4.9 years
    
    $
    
  Restricted Stock Awards
  Three Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageNumber
    
    
    Grant Date
    
    
    Number
    
    
    Grant Dateof
    
    
    Fair Value
    
    
    of
    
    
    Fair ValueShares
    
    
    Per Share
    
    
    Shares
    
    
    Per ShareRestricted Stock at Beginning of Period
    
    
    183,400
    
    
    $
    1.87
    
    
    
    183,400
    
    
    $
    1.87Restricted Stock Vested
    
    
    (35,000
    )
    
    $
    1.40
    
    
    
    (35,000
    )
    
    $
    1.40Restricted Stock at End of Period
    
    
    148,400
    
    
    $
    1.99
    
    
    
    148,400
    
    
    $
    1.99
 23




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 8  EARNINGS (LOSS) PER SHARE
   2010
    
    
    2009(Numerator)
    
    
    (Denominator)
    
    
    
    
    
    
    (Numerator)
    
    
    (Denominator)Weighted-
    
    
    Per
    
    
    
    
    
    
    Weighted-
    
    
    PerNet
    
    
    Average
    
    
    Share
    
    
    Net
    
    
    Average
    
    
    ShareLoss
    
    
    Shares
    
    
    Amount
    
    
    Loss
    
    
    Shares
    
    
    Amount(Dollars in Thousands, Except Per Share Data)Three Months Ended June 30:Basic EPS
    
    $
    (29,257
    )
    
    
    51,036,573
    
    
    $
    (0.57
    )
    
    $
    (9,535
    )
    
    
    45,924,767
    
    
    $
    (0.21
    )Effect of Dilutive Securities  Options, Warrants
and Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (29,257
    )
    
    
    51,036,573
    
    
    $
    (0.57
    )
    
    $
    (9,535
    )
    
    
    45,924,767
    
    
    $
    (0.21
    )Six Months Ended June 30:Basic EPS
    
    $
    (78,743
    )
    
    
    51,017,885
    
    
    $
    (1.54
    )
    
    $
    (26,731
    )
    
    
    45,907,998
    
    
    $
    (0.58
    )Effect of Dilutive Securities  Options, Warrants
and Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (78,743
    )
    
    
    51,017,885
    
    
    $
    (1.54
    )
    
    $
    (26,731
    )
    
    
    45,907,998
    
    
    $
    (0.58
    )
  NOTE 9  OFF-BALANCE SHEET COMMITMENTS
  24




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 9  OFF-BALANCE SHEET COMMITMENTS (Continued)
  June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Commitments to Extend Credit
    
    $
    150,661
    
    
    $
    262,821Standby Letters of Credit
    
    
    17,665
    
    
    
    17,225Commercial Letters of Credit
    
    
    13,695
    
    
    
    13,544Unused Credit Card Lines
    
    
    24,191
    
    
    
    23,408Total Undisbursed Loan Commitments
    
    $
    206,212
    
    
    $
    316,998
 NOTE 10  SEGMENT REPORTING
  NOTE 11  LIQUIDITY
 Risks and Uncertainties,
 25




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 11  LIQUIDITY (Continued)
 Hanmi Financial
  Hanmi Bank
   .
 26




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HANMI FINANCIAL CORPORATION AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)  THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (Continued)
 NOTE 11  LIQUIDITY (Continued)
   NOTE 12  SUBSEQUENT EVENTS
 Rights and Best Efforts Public Offering
  Securities Purchase Agreement with Woori
  27




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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
 
    
    our ability to continue as going concern;
    
    closure of Hanmi Bank and appointment of the Federal Deposit Insurance Corporation as
receiver;
    
    failure to complete the transaction contemplated by the securities purchase agreement
with Woori;
    
    failure to raise enough capital to support our operations or meet our regulatory
requirements;
    
    failure to maintain adequate levels of capital to support our operations;
    
    a significant number of customers failing to perform under their loans and other terms
of credit agreements;
    
    the effect of regulatory orders we have entered into and potential future supervisory
actions against us or Hanmi Bank;
    
    fluctuations in interest rates and a decline in the level of our interest rate spread;
    
    failure to attract or retain deposits;
    
    sources of liquidity available to us and to Hanmi Bank becoming limited or our
potential inability to access sufficient sources of liquidity when needed or the
requirement that we obtain government waivers to do so;
    
    adverse changes in domestic or global financial markets, economic conditions or
business conditions;
    
    regulatory restrictions on Hanmi Banks ability to pay dividends to us and on our
ability to make payments on our obligations;
    
    significant reliance on loans secured by real estate and the associated vulnerability
to downturns in the local real estate market, natural disasters and other variables
impacting the value of real estate;
    
    failure to attract or retain our key employees;
    
    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;
    
    volatility and disruption in financial, credit and securities markets, and the price of
our common stock;
    
    deterioration in financial markets that may result in impairment charges relating to
our securities portfolio;
    
    competition in our primary market areas;
    
    demographic changes in our primary market areas;
    
    global hostilities, acts of war or terrorism, including but not limited to, conflict
between North and South Korea;
    
    significant government regulations, legislation and potential changes thereto; and
    
    other risks described herein and in the other reports and statements we file with the
SEC.
 28




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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
 29




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##### Table of Contents



SELECTED FINANCIAL DATA
  As of and for theThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in Thousands, Except Per Share Data)AVERAGE BALANCES:Average Gross Loans, Net (1)
    
    $
    2,611,178
    
    
    $
    3,282,152
    
    
    $
    2,688,012
    
    
    $
    3,315,434Average Investment Securities
    
    $
    158,543
    
    
    $
    179,129
    
    
    $
    142,034
    
    
    $
    180,698Average Interest-Earning Assets
    
    $
    2,965,975
    
    
    $
    3,786,788
    
    
    $
    2,988,332
    
    
    $
    3,796,434Average Total Assets
    
    $
    2,978,245
    
    
    $
    3,897,158
    
    
    $
    3,031,917
    
    
    $
    3,922,648Average Deposits
    
    $
    2,617,738
    
    
    $
    3,223,309
    
    
    $
    2,640,224
    
    
    $
    3,212,728Average Borrowings
    
    $
    240,189
    
    
    $
    386,477
    
    
    $
    248,614
    
    
    $
    413,117Average Interest-Bearing Liabilities
    
    $
    2,292,121
    
    
    $
    3,083,774
    
    
    $
    2,326,367
    
    
    $
    3,099,465Average Stockholders Equity
    
    $
    91,628
    
    
    $
    240,207
    
    
    $
    114,651
    
    
    $
    252,658PER SHARE DATA:Earnings (Loss) Per Share  Basic
    
    $
    (0.57
    )
    
    $
    (0.21
    )
    
    $
    (1.54
    )
    
    $
    (0.58
    )Earnings (Loss) Per Share  Diluted
    
    $
    (0.57
    )
    
    $
    (0.21
    )
    
    $
    (1.54
    )
    
    $
    (0.58
    )Common Shares Outstanding
    
    
    51,198,390
    
    
    
    46,130,967
    
    
    
    51,198,390
    
    
    
    46,130,967Book Value Per Share (2)
    
    $
    1.43
    
    
    $
    5.18
    
    
    $
    1.43
    
    
    $
    5.18SELECTED PERFORMANCE RATIOS:Return on Average Assets (3) (4)
    
    
    (3.94
    %)
    
    
    (0.98
    %)
    
    
    (5.24
    %)
    
    
    (1.37
    %)Return on Average Stockholders Equity (3) (5)
    
    
    (128.07
    %)
    
    
    (15.92
    %)
    
    
    (138.50
    %)
    
    
    (21.34
    %)Efficiency Ratio (6)
    
    
    75.11
    %
    
    
    83.36
    %
    
    
    75.75
    %
    
    
    70.53
    %Net Interest Spread (7)
    
    
    3.17
    %
    
    
    1.90
    %
    
    
    3.22
    %
    
    
    1.90
    %Net Interest Margin (8)
    
    
    3.56
    %
    
    
    2.49
    %
    
    
    3.62
    %
    
    
    2.49
    %Average Stockholders Equity to Average Total Assets
    
    
    3.08
    %
    
    
    6.16
    %
    
    
    3.78
    %
    
    
    6.44
    %SELECTED CAPITAL RATIOS:(9)Total Risk-Based Capital Ratio:Hanmi Financial
    
    
    7.31
    %
    
    
    10.72
    %Hanmi Bank
    
    
    7.35
    %
    
    
    10.70
    %Tier 1 Risk-Based Capital Ratio:Hanmi Financial
    
    
    3.69
    %
    
    
    9.43
    %Hanmi Bank
    
    
    6.02
    %
    
    
    9.42
    %Tier 1 Leverage Ratio:Hanmi Financial
    
    
    3.06
    %
    
    
    8.02
    %Hanmi Bank
    
    
    4.99
    %
    
    
    8.01
    %SELECTED ASSET QUALITY RATIOS:Non-Performing Loans to Total Gross Loans (10)
    
    
    9.67
    %
    
    
    5.30
    %
    
    
    9.67
    %
    
    
    5.30
    %Non-Performing Assets to Total Assets (11)
    
    
    9.13
    %
    
    
    5.20
    %
    
    
    9.13
    %
    
    
    5.20
    %Net Loan Charge-Offs to Average Total Gross Loans (12)
    
    
    5.98
    %
    
    
    2.88
    %
    
    
    4.90
    %
    
    
    2.15
    %Allowance for Loan Losses to Total Gross Loans
    
    
    7.05
    %
    
    
    3.33
    %
    
    
    7.05
    %
    
    
    3.33
    %Allowance for Loan Losses to Non-Performing Loans
    
    
    72.96
    %
    
    
    62.92
    %
    
    
    72.96
    %
    
    
    62.92
    %
 
 (1)
    
    Loans are net of deferred fees and related direct costs.(2)
    
    Total stockholders equity divided by common shares outstanding.(3)
    
    Calculation based upon annualized net loss.(4)
    
    Net loss divided by average total assets.(5)
    
    Net loss divided by average stockholders equity.(6)
    
    Total non-interest expenses divided by the sum of net interest income before provision for credit losses and total non-interest income.(7)
    
    Average yield earned on interest-earning assets less average rate paid on
interest-bearing liabilities. Computed on a tax-equivalent basis using an effective marginal
rate of 35 percent.(8)
    
    Net interest income before provision for credit losses divided by average
interest-earning assets. Computed on a tax-equivalent basis using an effective marginal rate
of 35 percent.(9)
    
    The required ratios for a well-capitalized institution, as defined by regulations
of the Board of Governors of the Federal Reserve System, are 10 percent for the Total
Risk-Based Capital Ratio (total capital divided by total risk-weighted assets); 6 percent for
the Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets);
and 5 percent for the Tier 1 Leverage Ratio (Tier 1 capital divided by average total assets).(10)
    
    Non-performing loans consist of non-accrual loans and loans past due 90 days or more and still accruing interest.(11)
    
    Non-performing assets consist of non-performing loans (see footnote (10) above) and other real estate owned.(12)
    
    Calculation based upon annualized net loan charge-offs. 30




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##### Table of Contents



EXECUTIVE OVERVIEW
    Recent
Developments
   31




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##### Table of Contents



Outlook for the Remainder of 2010
    RESULTS OF OPERATIONS
 Net Interest Income before Provision for Credit Losses
   32




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##### Table of Contents



Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009
  Three Months EndedJune 30, 2010
    
    
    June 30, 2009Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in Thousands)ASSETSInterest-Earning Assets:Gross Loans, Net (1)
    
    $
    2,611,178
    
    
    $
    34,486
    
    
    
    5.30
    %
    
    $
    3,282,152
    
    
    $
    44,718
    
    
    
    5.46
    %Municipal Securities (2)
    
    
    7,484
    
    
    
    119
    
    
    
    6.36
    %
    
    
    59,222
    
    
    
    956
    
    
    
    6.46
    %Obligations of Other U.S. Government Agencies
    
    
    65,894
    
    
    
    560
    
    
    
    3.40
    %
    
    
    13,177
    
    
    
    144
    
    
    
    4.37
    %Other Debt Securities
    
    
    85,165
    
    
    
    800
    
    
    
    3.76
    %
    
    
    106,730
    
    
    
    1,226
    
    
    
    4.59
    %Equity Securities (5)
    
    
    37,979
    
    
    
    123
    
    
    
    1.30
    %
    
    
    41,532
    
    
    
    153
    
    
    
    1.47
    %Federal Funds Sold
    
    
    12,198
    
    
    
    16
    
    
    
    0.52
    %
    
    
    135,362
    
    
    
    112
    
    
    
    0.33
    %Term Federal Funds Sold
    
    
    7,253
    
    
    
    11
    
    
    
    0.61
    %
    
    
    147,692
    
    
    
    695
    
    
    
    1.88
    %Interest-Earning Deposits
    
    
    138,824
    
    
    
    99
    
    
    
    0.29
    %
    
    
    921
    
    
    
    11
    
    
    
    4.78
    %Total Interest-Earning Assets (2)
    
    
    2,965,975
    
    
    
    36,214
    
    
    
    4.90
    %
    
    
    3,786,788
    
    
    
    48,015
    
    
    
    5.09
    %Noninterest-Earning Assets:Cash and Cash Equivalents
    
    
    68,536
    
    
    
    
    
    
    
    
    
    
    
    78,781Allowance for Loan Losses
    
    
    (182,103
    )
    
    
    
    
    
    
    
    
    
    
    (115,116
    )Other Assets
    
    
    125,837
    
    
    
    
    
    
    
    
    
    
    
    146,705Total Noninterest-Earning Assets
    
    
    12,270
    
    
    
    
    
    
    
    
    
    
    
    110,370TOTAL ASSETS
    
    $
    2,978,245
    
    
    
    
    
    
    
    
    
    
    $
    3,897,158LIABILITIES AND STOCKHOLDERS EQUITYInterest-Bearing Liabilities:Deposits:Savings
    
    $
    125,016
    
    
    
    922
    
    
    
    2.96
    %
    
    $
    84,588
    
    
    
    527
    
    
    
    2.50
    %Money Market Checking and NOW Accounts
    
    
    458,137
    
    
    
    1,217
    
    
    
    1.07
    %
    
    
    319,319
    
    
    
    1,426
    
    
    
    1.79
    %Time Deposits of $100,000 or More
    
    
    1,090,412
    
    
    
    5,057
    
    
    
    1.86
    %
    
    
    1,313,683
    
    
    
    12,108
    
    
    
    3.70
    %Other Time Deposits
    
    
    378,367
    
    
    
    1,617
    
    
    
    1.71
    %
    
    
    979,707
    
    
    
    8,625
    
    
    
    3.53
    %Federal Home Loan Bank Advances
    
    
    153,859
    
    
    
    339
    
    
    
    0.88
    %
    
    
    302,220
    
    
    
    1,010
    
    
    
    1.34
    %Other Borrowings
    
    
    3,924
    
    
    
    31
    
    
    
    3.17
    %
    
    
    1,851
    
    
    
    2
    
    
    
    0.43
    %Junior Subordinated Debentures
    
    
    82,406
    
    
    
    692
    
    
    
    3.37
    %
    
    
    82,406
    
    
    
    846
    
    
    
    4.12
    %Total Interest-Bearing Liabilities
    
    
    2,292,121
    
    
    
    9,875
    
    
    
    1.73
    %
    
    
    3,083,774
    
    
    
    24,544
    
    
    
    3.19
    %Noninterest-Bearing Liabilities:Demand Deposits
    
    
    565,806
    
    
    
    
    
    
    
    
    
    
    
    526,012Other Liabilities
    
    
    28,690
    
    
    
    
    
    
    
    
    
    
    
    47,165Total Noninterest-Bearing Liabilities
    
    
    594,496
    
    
    
    
    
    
    
    
    
    
    
    573,177Total Liabilities
    
    
    2,886,617
    
    
    
    
    
    
    
    
    
    
    
    3,656,951Stockholders Equity
    
    
    91,628
    
    
    
    
    
    
    
    
    
    
    
    240,207TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,978,245
    
    
    
    
    
    
    
    
    
    
    $
    3,897,158NET INTEREST INCOME
    
    
    
    
    
    $
    26,339
    
    
    
    
    
    
    
    
    
    
    $
    23,471NET
INTEREST SPREAD(2)(3)
    
    
    
    
    
    
    
    
    
    
    3.17
    %
    
    
    
    
    
    
    
    
    
    
    1.90
    %NET
INTEREST MARGIN(2)(4)
    
    
    
    
    
    
    
    
    
    
    3.56
    %
    
    
    
    
    
    
    
    
    
    
    2.49
    %
 
 (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 $477,000 and $504,000 for
the three months ended June 30, 2010 and 2009, respectively.(2)
    
    Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.(3)
    
    Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities.(4)
    
    Represents annualized net interest income as a percentage of average
interest-earning assets.(5)
    
    Includes investment in Federal Home Loan Bank stock and investment in Federal
Reserve Bank stock. 33




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##### Table of Contents



Three Months Ended June 30, 2010 vs.Three
Months Ended June 30, 2009Increases (Decreases) Due to Change inVolume
    
    
    Rate
    
    
    Total(In Thousands)Interest and Dividend Income:Gross Loans, Net
    
    $
    (8,898
    )
    
    $
    (1,334
    )
    
    $
    (10,232
    )Municipal Securities
    
    
    (823
    )
    
    
    (14
    )
    
    
    (837
    )Obligations of Other U.S. Government Agencies
    
    
    455
    
    
    
    (39
    )
    
    
    416Other Debt Securities
    
    
    (224
    )
    
    
    (202
    )
    
    
    (426
    )Equity Securities
    
    
    (13
    )
    
    
    (17
    )
    
    
    (30
    )Federal Funds Sold
    
    
    (138
    )
    
    
    42
    
    
    
    (96
    )Term Federal Funds Sold
    
    
    (399
    )
    
    
    (285
    )
    
    
    (684
    )Interest-Earning Deposits
    
    
    107
    
    
    
    (19
    )
    
    
    88Total Interest and Dividend Income
    
    
    (9,933
    )
    
    
    (1,868
    )
    
    
    (11,801
    )Interest Expense:Savings
    
    
    286
    
    
    
    109
    
    
    
    395Money Market Checking and NOW Accounts
    
    
    490
    
    
    
    (699
    )
    
    
    (209
    )Time Deposits of $100,000 or More
    
    
    (1,797
    )
    
    
    (5,254
    )
    
    
    (7,051
    )Other Time Deposits
    
    
    (3,812
    )
    
    
    (3,196
    )
    
    
    (7,008
    )Federal Home Loan Bank Advances
    
    
    (396
    )
    
    
    (275
    )
    
    
    (671
    )Other Borrowings
    
    
    4
    
    
    
    25
    
    
    
    29Junior Subordinated Debentures
    
    
    
    
    
    
    (154
    )
    
    
    (154
    )Total Interest Expense
    
    
    (5,225
    )
    
    
    (9,444
    )
    
    
    (14,669
    )Change in Net Interest Income
    
    $
    (4,708
    )
    
    $
    7,576
    
    
    $
    2,868
    34




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##### Table of Contents



Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009
  Six Months EndedJune 30, 2010
    
    
    June 30, 2009Interest


    
    

    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in Thousands)ASSETSInterest-Earning Assets:Gross Loans, Net (1)
    
    $
    2,688,012
    
    
    $
    71,181
    
    
    
    5.34
    %
    
    $
    3,315,434
    
    
    $
    89,803
    
    
    
    5.46
    %Municipal Securities (2)
    
    
    7,517
    
    
    
    237
    
    
    
    6.31
    %
    
    
    59,055
    
    
    
    1,945
    
    
    
    6.59
    %Obligations of Other U.S. Government Agencies
    
    
    49,100
    
    
    
    943
    
    
    
    3.84
    %
    
    
    11,387
    
    
    
    240
    
    
    
    4.22
    %Other Debt Securities
    
    
    85,417
    
    
    
    1,500
    
    
    
    3.51
    %
    
    
    110,256
    
    
    
    2,480
    
    
    
    4.50
    %Equity Securities (5)
    
    
    38,671
    
    
    
    248
    
    
    
    1.28
    %
    
    
    41,629
    
    
    
    306
    
    
    
    1.47
    %Federal Funds Sold
    
    
    13,152
    
    
    
    33
    
    
    
    0.50
    %
    
    
    115,086
    
    
    
    194
    
    
    
    0.34
    %Term Federal Funds Sold
    
    
    3,646
    
    
    
    11
    
    
    
    0.60
    %
    
    
    143,044
    
    
    
    1,395
    
    
    
    1.95
    %Interest-Earning Deposits
    
    
    102,817
    
    
    
    154
    
    
    
    0.30
    %
    
    
    543
    
    
    
    13
    
    
    
    4.79
    %Total Interest-Earning Assets (2)
    
    
    2,988,332
    
    
    
    74,307
    
    
    
    5.01
    %
    
    
    3,796,434
    
    
    
    96,376
    
    
    
    5.12
    %Noninterest-Earning Assets:Cash and Cash Equivalents
    
    
    67,850
    
    
    
    
    
    
    
    
    
    
    
    81,402Allowance for Loan Losses
    
    
    (169,768
    )
    
    
    
    
    
    
    
    
    
    
    (93,851
    )Other Assets
    
    
    145,503
    
    
    
    
    
    
    
    
    
    
    
    138,663Total Noninterest-Earning Assets
    
    
    43,585
    
    
    
    
    
    
    
    
    
    
    
    126,214TOTAL ASSETS
    
    $
    3,031,917
    
    
    
    
    
    
    
    
    
    
    $
    3,922,648LIABILITIES AND STOCKHOLDERS EQUITYInterest-Bearing Liabilities:Deposits:Savings
    
    $
    120,347
    
    
    
    1,745
    
    
    
    2.92
    %
    
    $
    83,315
    
    
    
    1,032
    
    
    
    2.50
    %Money Market Checking and NOW Accounts
    
    
    508,248
    
    
    
    2,839
    
    
    
    1.13
    %
    
    
    331,270
    
    
    
    3,280
    
    
    
    2.00
    %Time Deposits of $100,000 or More
    
    
    1,007,693
    
    
    
    9,734
    
    
    
    1.95
    %
    
    
    1,196,816
    
    
    
    22,430
    
    
    
    3.78
    %Other Time Deposits
    
    
    441,465
    
    
    
    4,198
    
    
    
    1.92
    %
    
    
    1,074,947
    
    
    
    18,729
    
    
    
    3.51
    %Federal Home Loan Bank Advances
    
    
    163,407
    
    
    
    685
    
    
    
    0.85
    %
    
    
    329,056
    
    
    
    2,122
    
    
    
    1.30
    %Other Borrowings
    
    
    2,801
    
    
    
    31
    
    
    
    2.23
    %
    
    
    1,655
    
    
    
    2
    
    
    
    0.24
    %Junior Subordinated Debentures
    
    
    82,406
    
    
    
    1,361
    
    
    
    3.33
    %
    
    
    82,406
    
    
    
    1,834
    
    
    
    4.49
    %Total Interest-Bearing Liabilities
    
    
    2,326,367
    
    
    
    20,593
    
    
    
    1.79
    %
    
    
    3,099,465
    
    
    
    49,429
    
    
    
    3.22
    %Noninterest-Bearing Liabilities:Demand Deposits
    
    
    562,471
    
    
    
    
    
    
    
    
    
    
    
    526,380Other Liabilities
    
    
    28,428
    
    
    
    
    
    
    
    
    
    
    
    44,145Total Noninterest-Bearing Liabilities
    
    
    590,899
    
    
    
    
    
    
    
    
    
    
    
    570,525Total Liabilities
    
    
    2,917,266
    
    
    
    
    
    
    
    
    
    
    
    3,669,990Stockholders Equity
    
    
    114,651
    
    
    
    
    
    
    
    
    
    
    
    252,658TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,031,917
    
    
    
    
    
    
    
    
    
    
    $
    3,922,648NET INTEREST INCOME
    
    
    
    
    
    $
    53,714
    
    
    
    
    
    
    
    
    
    
    $
    46,947NET
INTEREST SPREAD(3)
    
    
    
    
    
    
    
    
    
    
    3.22
    %
    
    
    
    
    
    
    
    
    
    
    1.90
    %NET
INTEREST MARGIN(4)
    
    
    
    
    
    
    
    
    
    
    3.62
    %
    
    
    
    
    
    
    
    
    
    
    2.49
    %
 
 (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 $927,000 and $895,000 for
the six months ended June 30, 2010 and 2009, respectively.(2)
    
    Computed on a tax-equivalent basis using an effective marginal rate of 35 percent.(3)
    
    Represents the average rate earned on interest-earning assets less the average rate
paid on interest-bearing liabilities.(4)
    
    Represents annualized net interest income as a percentage of average
interest-earning assets.(5)
    
    Includes investment in Federal Home Loan Bank stock and investment in Federal
Reserve Bank stock. 35




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##### Table of Contents



Six Months Ended June 30, 2010 vs.Six Months Ended June 30, 2009Increases (Decreases) Due to Change inVolume
    
    
    Rate
    
    
    Total(In Thousands)Interest and Dividend Income:Gross Loans, Net
    
    $
    (16,655
    )
    
    $
    (1,967
    )
    
    $
    (18,622
    )Municipal Securities
    
    
    (1,628
    )
    
    
    (80
    )
    
    
    (1,708
    )Obligations of Other U.S. Government Agencies
    
    
    768
    
    
    
    (65
    )
    
    
    703Other Debt Securities
    
    
    (496
    )
    
    
    (484
    )
    
    
    (980
    )Equity Securities
    
    
    (21
    )
    
    
    (37
    )
    
    
    (58
    )Federal Funds Sold
    
    
    (349
    )
    
    
    188
    
    
    
    (161
    )Term Federal Funds Sold
    
    
    (810
    )
    
    
    (574
    )
    
    
    (1,384
    )Interest-Earning Deposits
    
    
    188
    
    
    
    (47
    )
    
    
    141Total Interest and Dividend Income
    
    
    (19,003
    )
    
    
    (3,066
    )
    
    
    (22,069
    )Interest Expense:Savings
    
    
    515
    
    
    
    198
    
    
    
    713Money Market Checking and NOW Accounts
    
    
    1,332
    
    
    
    (1,773
    )
    
    
    (441
    )Time Deposits of $100,000 or More
    
    
    (3,122
    )
    
    
    (9,574
    )
    
    
    (12,696
    )Other Time Deposits
    
    
    (8,206
    )
    
    
    (6,325
    )
    
    
    (14,531
    )Federal Home Loan Bank Advances
    
    
    (847
    )
    
    
    (590
    )
    
    
    (1,437
    )Other Borrowings
    
    
    2
    
    
    
    27
    
    
    
    29Junior Subordinated Debentures
    
    
    
    
    
    
    (473
    )
    
    
    (473
    )Total Interest Expense
    
    
    (10,326
    )
    
    
    (18,510
    )
    
    
    (28,836
    )Change in Net Interest Income
    
    $
    (8,677
    )
    
    $
    15,444
    
    
    $
    6,767
    36




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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 June 30, 2010 vs. Three Months Ended June 30, 2009
  Three Months EndedJune 30,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Service Charges on Deposit Accounts
    
    $
    3,602
    
    
    $
    4,442
    
    
    $
    (840
    )
    
    
    (18.9
    %)Insurance Commissions
    
    
    1,206
    
    
    
    1,185
    
    
    
    21
    
    
    
    1.8
    %Remittance Fees
    
    
    523
    
    
    
    545
    
    
    
    (22
    )
    
    
    (4.0
    %)Trade Finance Fees
    
    
    412
    
    
    
    499
    
    
    
    (87
    )
    
    
    (17.4
    %)Other Service Charges and Fees
    
    
    372
    
    
    
    467
    
    
    
    (95
    )
    
    
    (20.3
    %)Bank-Owned Life Insurance Income
    
    
    235
    
    
    
    227
    
    
    
    8
    
    
    
    3.5
    %Net Gain on Sales of Investment Securities
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    %Net Gain on Sales of Loans
    
    
    220
    
    
    
    
    
    
    
    220
    
    
    
    
    %Other Operating Income
    
    
    106
    
    
    
    214
    
    
    
    (108
    )
    
    
    (50.5
    %)Total Non-Interest Income
    
    $
    6,676
    
    
    $
    7,580
    
    
    $
    (904
    )
    
    
    (11.9
    %)
     37




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##### Table of Contents



Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009
  Six Months EndedJune 30,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Service Charges on Deposit Accounts
    
    $
    7,328
    
    
    $
    8,757
    
    
    $
    (1,429
    )
    
    
    (16.3
    %)Insurance Commissions
    
    
    2,484
    
    
    
    2,367
    
    
    
    117
    
    
    
    4.9
    %Remittance Fees
    
    
    985
    
    
    
    1,068
    
    
    
    (83
    )
    
    
    (7.8
    %)Other Service Charges and Fees
    
    
    784
    
    
    
    950
    
    
    
    (166
    )
    
    
    (17.5
    %)Trade Finance Fees
    
    
    763
    
    
    
    1,005
    
    
    
    (242
    )
    
    
    (24.1
    %)Bank-Owned Life Insurance Income
    
    
    466
    
    
    
    461
    
    
    
    5
    
    
    
    1.1
    %Net Gain on Sales of Loans
    
    
    214
    
    
    
    2
    
    
    
    212
    
    
    
    
    %Net Gain on Sales of Investment Securities
    
    
    105
    
    
    
    1,168
    
    
    
    (1,063
    )
    
    
    (91.0
    %)Other Operating Income
    
    
    552
    
    
    
    280
    
    
    
    272
    
    
    
    97.1
    %Total Non-Interest Income
    
    $
    13,681
    
    
    $
    16,058
    
    
    $
    (2,377
    )
    
    
    (14.8
    %)
       38




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##### Table of Contents



Non-Interest Expense
 Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009
  Three Months EndedJune 30,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Salaries and Employee Benefits
    
    $
    9,011
    
    
    $
    8,508
    
    
    $
    503
    
    
    
    5.9
    %Deposit Insurance Premiums and Regulatory Assessments
    
    
    4,075
    
    
    
    3,929
    
    
    
    146
    
    
    
    3.7
    %Occupancy and Equipment
    
    
    2,674
    
    
    
    2,788
    
    
    
    (114
    )
    
    
    (4.1
    %)Other Real Estate Owned Expense
    
    
    1,718
    
    
    
    1,502
    
    
    
    216
    
    
    
    14.4
    %Data Processing
    
    
    1,487
    
    
    
    1,547
    
    
    
    (60
    )
    
    
    (3.9
    %)Professional Fees
    
    
    1,022
    
    
    
    890
    
    
    
    132
    
    
    
    14.8
    %Supplies and Communications
    
    
    574
    
    
    
    599
    
    
    
    (25
    )
    
    
    (4.2
    %)Advertising and Promotion
    
    
    503
    
    
    
    624
    
    
    
    (121
    )
    
    
    (19.4
    %)Loan-Related Expense
    
    
    310
    
    
    
    1,217
    
    
    
    (907
    )
    
    
    (74.5
    %)Amortization of Other Intangible Assets
    
    
    301
    
    
    
    406
    
    
    
    (105
    )
    
    
    (25.9
    %)Other Operating Expenses
    
    
    3,090
    
    
    
    3,595
    
    
    
    (505
    )
    
    
    (14.0
    %)Total Non-Interest Expense
    
    $
    24,765
    
    
    $
    25,605
    
    
    $
    (840
    )
    
    
    (3.3
    %)
       39




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##### Table of Contents



Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009
  Six Months EndedJune 30,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Salaries and Employee Benefits
    
    $
    17,797
    
    
    $
    16,011
    
    
    $
    1,786
    
    
    
    11.2
    %Other Real Estate Owned Expense
    
    
    7,418
    
    
    
    1,645
    
    
    
    5,773
    
    
    
    350.9
    %Deposit Insurance Premiums and Regulatory Assessments
    
    
    6,299
    
    
    
    5,419
    
    
    
    880
    
    
    
    16.2
    %Occupancy and Equipment
    
    
    5,399
    
    
    
    5,672
    
    
    
    (273
    )
    
    
    (4.8
    %)Data Processing
    
    
    2,986
    
    
    
    3,083
    
    
    
    (97
    )
    
    
    (3.1
    %)Professional Fees
    
    
    2,088
    
    
    
    1,506
    
    
    
    582
    
    
    
    38.6
    %Supplies and Communications
    
    
    1,091
    
    
    
    1,169
    
    
    
    (78
    )
    
    
    (6.7
    %)Advertising and Promotion
    
    
    1,038
    
    
    
    1,193
    
    
    
    (155
    )
    
    
    (13.0
    %)Loan-Related Expense
    
    
    617
    
    
    
    1,398
    
    
    
    (781
    )
    
    
    (55.9
    %)Amortization of Other Intangible Assets
    
    
    629
    
    
    
    835
    
    
    
    (206
    )
    
    
    (24.7
    %)Other Operating Expenses
    
    
    5,627
    
    
    
    6,024
    
    
    
    (397
    )
    
    
    (6.6
    %)Total Non-Interest Expense
    
    $
    50,989
    
    
    $
    43,955
    
    
    $
    7,034
    
    
    
    16.0
    %
       Provision for Income Taxes
  40




---



##### Table of Contents



FINANCIAL CONDITION
 Investment Portfolio
     June 30, 2010
    
    
    December 31, 2009Estimated
    
    
    Unrealized
    
    
    
    
    
    
    Estimated
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gain
    
    
    Amortized
    
    
    Fair
    
    
    GainCost
    
    
    Value
    
    
    (Loss)
    
    
    Cost
    
    
    Value
    
    
    (Loss)(In Thousands)Investment Securities Held to Maturity:Municipal Bonds
    
    $
    696
    
    
    $
    696
    
    
    $
    
    
    
    $
    696
    
    
    $
    696
    
    
    $
    Mortgage-Backed Securities (1)
    
    
    160
    
    
    
    163
    
    
    
    3
    
    
    
    173
    
    
    
    175
    
    
    
    2Total Investment Securities Held to Maturity
    
    $
    856
    
    
    $
    859
    
    
    $
    3
    
    
    $
    869
    
    
    $
    871
    
    
    $
    2Investment Securities Available for Sale:U.S. Government Agency Securities
    
    
    94,660
    
    
    
    95,172
    
    
    
    512
    
    
    
    33,325
    
    
    
    32,763
    
    
    
    (562
    )Mortgage-Backed Securities (1)
    
    $
    54,788
    
    
    $
    57,195
    
    
    $
    2,407
    
    
    $
    65,218
    
    
    $
    66,332
    
    
    $
    1,114Collateralized Mortgage Obligations (1)
    
    
    18,912
    
    
    
    19,291
    
    
    
    379
    
    
    
    12,520
    
    
    
    12,789
    
    
    
    269Asset-Backed Securities
    
    
    7,587
    
    
    
    7,911
    
    
    
    324
    
    
    
    8,127
    
    
    
    8,188
    
    
    
    61Municipal Bonds
    
    
    5,265
    
    
    
    5,318
    
    
    
    53
    
    
    
    7,369
    
    
    
    7,359
    
    
    
    (10
    )Other Securities
    
    
    4,230
    
    
    
    4,567
    
    
    
    337
    
    
    
    3,925
    
    
    
    4,195
    
    
    
    270Equity Securities
    
    
    511
    
    
    
    784
    
    
    
    273
    
    
    
    511
    
    
    
    794
    
    
    
    283Total Investment Securities Available for Sale
    
    $
    185,953
    
    
    $
    190,238
    
    
    $
    4,285
    
    
    $
    130,995
    
    
    $
    132,420
    
    
    $
    1,425
 
 (1)
    
    Collateralized by residential mortgages and guaranteed by U.S. government
sponsored entities. 41




---



##### Table of Contents



Available for Sale
    
    
    Held to MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Within One Year
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Over One Year Through Five Years
    
    
    42,574
    
    
    
    42,698
    
    
    
    696
    
    
    
    696Over Five Years Through Ten Years
    
    
    48,708
    
    
    
    49,229
    
    
    
    
    
    
    
    Over Ten Years
    
    
    20,460
    
    
    
    21,041
    
    
    
    
    
    
    
    Mortgage-Backed Securities
    
    
    54,788
    
    
    
    57,195
    
    
    
    160
    
    
    
    163Collateralized Mortgage Obligations
    
    
    18,912
    
    
    
    19,291
    
    
    
    
    
    
    
    Equity Securities
    
    
    511
    
    
    
    784
    
    
    
    
    
    
    
    $
    185,953
    
    
    $
    190,238
    
    
    $
    856
    
    
    $
    859
  Holding PeriodLess than 12 Months
    
    
    12 Months or More
    
    
    TotalInvestment
    
    Gross
    
    
    
    
    
    
    Number
    
    
    Gross
    
    
    
    
    
    
    Number
    
    
    Gross
    
    
    
    
    
    
    NumberSecurities
    
    Unrealized
    
    
    Estimated
    
    
    of
    
    
    Unrealized
    
    
    Estimated
    
    
    of
    
    
    Unrealized
    
    
    Estimated
    
    
    ofAvailable for Sale
    
    Losses
    
    
    Fair Value
    
    
    Securities
    
    
    Losses
    
    
    Fair Value
    
    
    Securities
    
    
    Losses
    
    
    Fair Value
    
    
    Securities(Dollars in Thousands)June 30, 2010:Mortgage-Backed
Securities
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    Municipal Bonds
    
    
    8
    
    
    
    307
    
    
    
    1
    
    
    
    27
    
    
    
    846
    
    
    
    1
    
    
    
    35
    
    
    
    1,153
    
    
    
    2U.S. Government
Agency Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    976
    
    
    
    1
    
    
    
    24
    
    
    
    976
    
    
    
    1$
    8
    
    
    $
    307
    
    
    
    1
    
    
    $
    51
    
    
    $
    1,822
    
    
    
    2
    
    
    $
    59
    
    
    $
    2,129
    
    
    
    3December 31, 2009:Mortgage-Backed
Securities
    
    $
    144
    
    
    $
    14,584
    
    
    
    3
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    144
    
    
    $
    14,584
    
    
    
    3Municipal Bonds
    
    
    12
    
    
    
    303
    
    
    
    1
    
    
    
    80
    
    
    
    793
    
    
    
    1
    
    
    
    92
    
    
    
    1,096
    
    
    
    2U.S. Government
Agency Securities
    
    
    562
    
    
    
    32,764
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    562
    
    
    
    32,764
    
    
    
    6Other Securities
    
    
    24
    
    
    
    1,976
    
    
    
    2
    
    
    
    38
    
    
    
    961
    
    
    
    1
    
    
    
    62
    
    
    
    2,937
    
    
    
    3$
    742
    
    
    $
    49,627
    
    
    
    12
    
    
    $
    118
    
    
    $
    1,754
    
    
    
    2
    
    
    $
    860
    
    
    $
    51,381
    
    
    
    14
   42




---



##### Table of Contents



Loan Portfolio
  June 30,
    
    
    December 31,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Real Estate Loans:Commercial Property (1)
    
    $
    787,084
    
    
    $
    839,598
    
    
    $
    (52,514
    )
    
    
    (6.3
    %)Construction
    
    
    72,361
    
    
    
    126,350
    
    
    
    (53,989
    )
    
    
    (42.7
    %)Residential Property
    
    
    69,374
    
    
    
    77,149
    
    
    
    (7,775
    )
    
    
    (10.1
    %)Total Real Estate Loans
    
    
    928,819
    
    
    
    1,043,097
    
    
    
    (114,278
    )
    
    
    (11.0
    %)Commercial and Industrial Loans: (2)Commercial Term Loans (3)
    
    
    1,264,066
    
    
    
    1,420,034
    
    
    
    (155,968
    )
    
    
    (11.0
    %)SBA Loans (4)
    
    
    122,548
    
    
    
    139,531
    
    
    
    (16,983
    )
    
    
    (12.2
    %)Commercial Lines of Credit
    
    
    85,758
    
    
    
    101,159
    
    
    
    (15,401
    )
    
    
    (15.2
    %)International Loans
    
    
    47,267
    
    
    
    53,488
    
    
    
    (6,221
    )
    
    
    (11.6
    %)Total Commercial and Industrial Loans
    
    
    1,519,639
    
    
    
    1,714,212
    
    
    
    (194,573
    )
    
    
    (11.4
    %)Consumer Loans
    
    
    55,790
    
    
    
    63,303
    
    
    
    (7,513
    )
    
    
    (11.9
    %)Total Loans  Gross
    
    
    2,504,248
    
    
    
    2,820,612
    
    
    
    (316,364
    )
    
    
    (11.2
    %)Deferred Loan Fees
    
    
    (822
    )
    
    
    (1,552
    )
    
    
    730
    
    
    
    (47.0
    %)Allowance for Loan Losses
    
    
    (176,667
    )
    
    
    (144,996
    )
    
    
    (31,671
    )
    
    
    21.8
    %Net Loans Receivable
    
    $
    2,326,759
    
    
    $
    2,674,064
    
    
    $
    (347,305
    )
    
    
    (13.0
    %)
 
 (1)
    
    Includes loans held for sale, at the lower of cost or fair value, of
$14.8 million and $0 as of June 30, 2010 and December 31, 2009, respectively.(2)
    
    Commercial and industrial loans include owner-occupied property loans of $995.1 million and $1.15 billion
as of June 30, 2010 and December 31, 2009, respectively.(3)
    
    Includes loans held for sale, at the lower of cost or fair value, of $8.8
million and $0 as of June 30, 2010 and December 31, 2009, respectively.(4)
    
    Includes loans held for sale, at the lower of cost or fair value, $6.9
million as of June 30, 2010 and December 31, 2009, respectively.    43




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##### Table of Contents



Balance as of
    
    Percentage of TotalIndustry
    
    June 30, 2010
    
    Gross Loans Outstanding(In Thousands)Lessors of Non-Residential Buildings
    
    $
    390,035
    
    
    
    15.6
    %Accommodation/Hospitality
    
    $
    356,708
    
    
    
    14.2
    %Gasoline Stations
    
    $
    294,126
    
    
    
    11.7
    %
  Non-Performing Assets
    44




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##### Table of Contents



June 30,
    
    
    December 31,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Non-Performing Loans:Non-Accrual Loans:Real Estate Loans:Commercial Property
    
    $
    77,867
    
    
    $
    58,927
    
    
    $
    18,940
    
    
    
    32.1
    %Construction
    
    
    9,823
    
    
    
    15,185
    
    
    
    (5,362
    )
    
    
    (35.3
    %)Residential Property
    
    
    2,612
    
    
    
    3,335
    
    
    
    (723
    )
    
    
    (21.7
    %)Commercial and Industrial Loans:Commercial Term Loans
    
    
    116,108
    
    
    
    102,677
    
    
    
    13,431
    
    
    
    13.1
    %Commercial Lines of Credit
    
    
    4,038
    
    
    
    1,906
    
    
    
    2,132
    
    
    
    111.9
    %SBA Loans
    
    
    30,601
    
    
    
    35,609
    
    
    
    (5,008
    )
    
    
    (14.1
    %)International Loans
    
    
    566
    
    
    
    739
    
    
    
    (173
    )
    
    
    (23.4
    %)Consumer Loans
    
    
    518
    
    
    
    622
    
    
    
    (104
    )
    
    
    (16.8
    %)Total Non-Accrual Loans
    
    
    242,133
    
    
    
    219,000
    
    
    
    23,133
    
    
    
    10.6
    %Loans 90 Days or More Past Due and Still Accruing
(as to Principal or Interest):Consumer Loans
    
    
    
    
    
    
    67
    
    
    
    (67
    )
    
    
    (100.0
    %)Total Loans 90 Days or More Past Due and Still
Accruing 
(as to Principal or Interest)
    
    
    
    
    
    
    67
    
    
    
    (67
    )
    
    
    (100.0
    %)Total Non-Performing Loans
    
    
    242,133
    
    
    
    219,067
    
    
    
    23,066
    
    
    
    10.5
    %Other Real Estate Owned
    
    
    24,064
    
    
    
    26,306
    
    
    
    (2,242
    )
    
    
    (8.5
    %)Total Non-Performing Assets
    
    $
    266,197
    
    
    $
    245,373
    
    
    $
    20,824
    
    
    
    8.5
    %Non-Performing Loans as a Percentage of Total Gross Loans
    
    
    9.67
    %
    
    
    7.77
    %Non-Performing Assets as a Percentage of Total Assets
    
    
    9.13
    %
    
    
    7.76
    %Troubled Debt Restructurings on Accrual Status
    
    $
    21,831
    
    
    $
    
    
    
    $
    21,831
    
    
    
    
    %
    45




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##### Table of Contents



June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Recorded Investment With Related Allowance
    
    $
    92,836
    
    
    $
    91,371Recorded Investment With No Related Allowance
    
    
    169,544
    
    
    
    109,363Allowance on Impaired Loans
    
    
    (28,481
    )
    
    
    (23,148
    )Net Recorded Investment in Impaired Loans
    
    $
    233,899
    
    
    $
    177,586
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Interest Income That Would Have Been Recognized Had Impaired
Loans Performed in Accordance With Their Original Terms
    
    $
    5,795
    
    
    $
    6,653
    
    
    $
    11,364
    
    
    $
    11,830Less: Interest Income Recognized on Impaired Loans
    
    
    (2,277
    )
    
    
    (3,604
    )
    
    
    (5,048
    )
    
    
    (5,259
    )Interest Foregone on Impaired Loans
    
    $
    3,518
    
    
    $
    3,049
    
    
    $
    6,316
    
    
    $
    6,571
  46




---



##### Table of Contents



Allowance for Loan Losses and Allowance for Off-Balance Sheet Items
          
    
    changes in lending policies and procedures, including underwriting standards and
collection, charge-offs, and recovery practice;
    
    changes in national and local economic and business conditions and developments,
including the condition of various market segments;
    
    changes in the nature and volume of the portfolio;
 47




---



##### Table of Contents




    
    changes in the trend of the volume and severity of past due and classified loans,
and trends in the volume of non-accrual loans, troubled debt restructurings, charge-offs and other loan
modifications;
    
    changes in the quality of the Banks loan review system and the degree of oversight
by the Board of Directors;
    
    the existence and effect of any concentrations of credit, and changes in the level
of such concentrations;
    
    transfer risk on cross-border lending activities;
    
    the effect of external factors such as competition and legal and regulatory
requirements as well as declining collateral values on the level of estimated credit losses in the Banks current
portfolio.
   June 30, 2010
    
    
    December 31, 2009Allowance
    
    
    Loans
    
    
    Allowance
    
    
    LoansAllowance for Loan Losses Applicable To
    
    Amount
    
    
    Receivable
    
    
    Amount
    
    
    Receivable(Dollars in Thousands)Real Estate Loans:Commercial Property (1)
    
    $
    28,267
    
    
    $
    772,231
    
    
    $
    19,149
    
    
    $
    839,598Construction
    
    
    2,930
    
    
    
    72,361
    
    
    
    9,043
    
    
    
    126,350Residential Property
    
    
    848
    
    
    
    69,374
    
    
    
    997
    
    
    
    77,149Total Real Estate Loans
    
    
    32,045
    
    
    
    913,966
    
    
    
    29,189
    
    
    
    1,043,097Commercial and Industrial Loans: (1)
    
    
    140,504
    
    
    
    1,503,948
    
    
    
    110,678
    
    
    
    1,709,202Consumer Loans
    
    
    2,198
    
    
    
    55,790
    
    
    
    2,690
    
    
    
    63,303Unallocated
    
    
    1,920
    
    
    
    
    
    
    
    2,439
    
    
    
    Total
    
    $
    176,667
    
    
    $
    2,473,704
    
    
    $
    144,996
    
    
    $
    2,815,602
 
 (1)
    
    Loans held for sale excluded. 48




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##### Table of Contents



As of and for the
    
    
    As of and for theThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in Thousands)Allowance for Loan Losses:Balance at Beginning of Period
    
    $
    177,820
    
    
    $
    144,996
    
    
    $
    104,943
    
    
    $
    144,996
    
    
    $
    70,986Actual Charge-Offs
    
    
    (40,718
    )
    
    
    (30,114
    )
    
    
    (24,332
    )
    
    
    (70,832
    )
    
    
    (36,848
    )Recoveries on Loans Previously Charged Off
    
    
    1,772
    
    
    
    3,721
    
    
    
    735
    
    
    
    5,493
    
    
    
    1,438Net Loan Charge-Offs
    
    
    (38,946
    )
    
    
    (26,393
    )
    
    
    (23,597
    )
    
    
    (65,339
    )
    
    
    (35,410
    )Provision Charged to Operating Expenses
    
    
    37,793
    
    
    
    59,217
    
    
    
    23,922
    
    
    
    97,010
    
    
    
    69,692Balance at End of Period
    
    $
    176,667
    
    
    $
    177,820
    
    
    $
    105,268
    
    
    $
    176,667
    
    
    $
    105,268Allowance for Off-Balance Sheet Items:Balance at Beginning of Period
    
    $
    2,655
    
    
    $
    3,876
    
    
    $
    4,279
    
    
    $
    3,876
    
    
    $
    4,096Provision Charged to Operating Expenses
    
    
    (293
    )
    
    
    (1,221
    )
    
    
    12
    
    
    
    (1,514
    )
    
    
    195Balance at End of Period
    
    $
    2,362
    
    
    $
    2,655
    
    
    $
    4,291
    
    
    $
    2,362
    
    
    $
    4,291Ratios:Net Loan Charge-Offs to Average Total Gross Loans (1)
    
    
    5.98
    %
    
    
    3.87
    %
    
    
    2.88
    %
    
    
    4.90
    %
    
    
    2.15
    %Net Loan Charge-Offs to Total Gross Loans (1)
    
    
    6.24
    %
    
    
    3.99
    %
    
    
    3.00
    %
    
    
    5.26
    %
    
    
    2.26
    %Allowance for Loan Losses to Average Total Gross Loans
    
    
    6.76
    %
    
    
    6.43
    %
    
    
    3.21
    %
    
    
    6.57
    %
    
    
    3.17
    %Allowance for Loan Losses to Total Gross Loans
    
    
    7.05
    %
    
    
    6.63
    %
    
    
    3.33
    %
    
    
    7.05
    %
    
    
    3.33
    %Net Loan Charge-Offs to Allowance for Loan Losses (1)
    
    
    88.42
    %
    
    
    60.20
    %
    
    
    89.91
    %
    
    
    74.58
    %
    
    
    67.83
    %Net Loan Charge-Offs to Provision Charged to Operating Expenses
    
    
    103.05
    %
    
    
    44.57
    %
    
    
    98.64
    %
    
    
    67.35
    %
    
    
    50.81
    %Allowance for Loan Losses to Non-Performing Loans
    
    
    72.96
    %
    
    
    67.81
    %
    
    
    62.92
    %
    
    
    72.96
    %
    
    
    62.92
    %Balances:Average Total Gross Loans Outstanding During Period
    
    $
    2,612,077
    
    
    $
    2,766,965
    
    
    $
    3,283,574
    
    
    $
    2,689,093
    
    
    $
    3,316,775Total Gross Loans Outstanding at End of Period
    
    $
    2,504,248
    
    
    $
    2,683,853
    
    
    $
    3,159,309
    
    
    $
    2,504,248
    
    
    $
    3,159,309Non-Performing Loans at End of Period
    
    $
    242,133
    
    
    $
    262,232
    
    
    $
    167,296
    
    
    $
    242,133
    
    
    $
    167,296
 
 (1)
    
    Net loan charge-offs are annualized to calculate the ratios.    49




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##### Table of Contents



As of and for theThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in Thousands)Charge-offs:Real Estate Loans
    
    $
    12,412
    
    
    $
    6,214
    
    
    $
    17,817
    
    
    $
    6,214Commercial Term Loans
    
    
    19,572
    
    
    
    13,911
    
    
    
    40,426
    
    
    
    20,862SBA Loans
    
    
    3,354
    
    
    
    399
    
    
    
    6,334
    
    
    
    997Commercial Lines of Credit
    
    
    4,831
    
    
    
    634
    
    
    
    5,083
    
    
    
    1,397International Loans
    
    
    194
    
    
    
    2,355
    
    
    
    194
    
    
    
    6,147Consumer Loans
    
    
    355
    
    
    
    819
    
    
    
    978
    
    
    
    1,231Total Charge-offs
    
    
    40,718
    
    
    
    24,332
    
    
    
    70,832
    
    
    
    36,848Recoveries:Real Estate Loans
    
    
    162
    
    
    
    
    
    
    
    1,865
    
    
    
    Commercial Term Loans
    
    
    1,015
    
    
    
    558
    
    
    
    2,596
    
    
    
    1,112SBA Loans
    
    
    136
    
    
    
    51
    
    
    
    487
    
    
    
    120Commercial Lines of Credit
    
    
    42
    
    
    
    86
    
    
    
    86
    
    
    
    126International Loans
    
    
    337
    
    
    
    1
    
    
    
    338
    
    
    
    4Consumer Loans
    
    
    80
    
    
    
    39
    
    
    
    121
    
    
    
    76Total Recoveries
    
    
    1,772
    
    
    
    735
    
    
    
    5,493
    
    
    
    1,438Net Charge-offs
    
    $
    38,946
    
    
    $
    23,597
    
    
    $
    65,339
    
    
    $
    35,410
   Deposits
  June 30,
    
    
    December 31,
    
    
    Increase (Decrease)2010
    
    
    2009
    
    
    Amount
    
    
    Percentage(Dollars in Thousands)Demand  Noninterest-Bearing
    
    $
    574,843
    
    
    $
    556,306
    
    
    $
    18,537
    
    
    
    3.3
    %Interest-Bearing:Savings
    
    
    127,848
    
    
    
    111,172
    
    
    
    16,676
    
    
    
    15.0
    %Money Market Checking and NOW Accounts
    
    
    434,533
    
    
    
    685,858
    
    
    
    (251,325
    )
    
    
    (36.6
    %)Time Deposits of $100,000 or More
    
    
    1,117,025
    
    
    
    815,190
    
    
    
    301,835
    
    
    
    37.0
    %Other Time Deposits
    
    
    320,865
    
    
    
    580,801
    
    
    
    (259,936
    )
    
    
    (44.8
    %)Total Deposits
    
    $
    2,575,114
    
    
    $
    2,749,327
    
    
    $
    (174,213
    )
    
    
    (6.3
    %)
  50




---



##### Table of Contents



Federal Home Loan Bank Advances
  Junior Subordinated Debentures
  51




---



##### Table of Contents



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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    60,034
    
    
    $
    60,034Interest-Bearing Deposits in Other Banks
    
    
    167,096
    
    
    
    3,375
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    170,711Fed Fund Sold
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000Investment Securities:Fixed Rate
    
    
    5,431
    
    
    
    3,912
    
    
    
    70,170
    
    
    
    99,291
    
    
    
    
    
    
    
    178,804Floating Rate
    
    
    62
    
    
    
    275
    
    
    
    2,601
    
    
    
    9,352
    
    
    
    
    
    
    
    12,290Loans:Fixed Rate
    
    
    160,959
    
    
    
    337,469
    
    
    
    283,760
    
    
    
    15,694
    
    
    
    
    
    
    
    797,882Floating Rate
    
    
    1,407,968
    
    
    
    34,888
    
    
    
    17,806
    
    
    
    3,571
    
    
    
    
    
    
    
    1,464,233Non-Accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242,133
    
    
    
    242,133Deferred Loan Fees and Allowance for Loan Losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (177,489
    )
    
    
    (177,489
    )Investment in Federal Home Loan Bank Stock and
Federal Reserve Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,339
    
    
    
    
    
    
    
    36,339Other Assets
    
    
    
    
    
    
    26,874
    
    
    
    
    
    
    
    7,100
    
    
    
    76,039
    
    
    
    110,013Total Assets
    
    $
    1,761,516
    
    
    $
    406,793
    
    
    $
    374,577
    
    
    $
    171,347
    
    
    $
    200,717
    
    
    $
    2,914,950LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Deposits:Demand  Noninterest-Bearing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    574,843
    
    
    $
    574,843Savings
    
    
    12,670
    
    
    
    30,378
    
    
    
    61,898
    
    
    
    22,902
    
    
    
    
    
    
    
    127,848Money Market Checking and NOW Accounts
    
    
    59,661
    
    
    
    124,435
    
    
    
    176,062
    
    
    
    74,375
    
    
    
    
    
    
    
    434,533Time Deposits:Fixed Rate
    
    
    312,445
    
    
    
    718,061
    
    
    
    407,270
    
    
    
    
    
    
    
    
    
    
    
    1,437,776Floating Rate
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114Federal Home Loan Bank Advances
    
    
    150,215
    
    
    
    664
    
    
    
    2,937
    
    
    
    
    
    
    
    
    
    
    
    153,816Other Borrowings
    
    
    3,062
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,062Junior Subordinated Debentures
    
    
    82,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,406Other Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,372
    
    
    
    27,372Stockholders Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,180
    
    
    
    73,180Total Liabilities and Stockholders Equity
    
    $
    620,573
    
    
    $
    873,538
    
    
    $
    648,167
    
    
    $
    97,277
    
    
    $
    675,395
    
    
    $
    2,914,950Repricing Gap
    
    $
    1,140,943
    
    
    $
    (466,745
    )
    
    $
    (273,590
    )
    
    $
    74,070
    
    
    $
    (474,678
    )
    
    $
    Cumulative Repricing Gap
    
    $
    1,140,943
    
    
    $
    674,198
    
    
    $
    400,608
    
    
    $
    474,678
    
    
    $
    
    
    
    $
    Cumulative Repricing Gap as a Percentage of
Total Assets
    
    
    39.14
    %
    
    
    23.13
    %
    
    
    13.74
    %
    
    
    16.28
    %
    
    
    Cumulative Repricing Gap as a Percentage of
Interest-Earning Assets
    
    
    42.57
    %
    
    
    25.15
    %
    
    
    14.95
    %
    
    
    17.71
    %
    
    
    
  52




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Less Than Three Months
    
    
    Less Than Twelve MonthsJune 30,
    
    
    December 31,
    
    
    June 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in Thousands)Cumulative Repricing Gap
    
    $
    1,140,943
    
    
    $
    889,466
    
    
    $
    674,198
    
    
    $
    276,131Cumulative Repricing Gap as a Percentage of Total Assets
    
    
    39.14
    %
    
    
    28.12
    %
    
    
    23.13
    %
    
    
    8.73
    %Cumulative Repricing Gap as a Percentage of Interest-Earning Assets
    
    
    42.57
    %
    
    
    30.97
    %
    
    
    25.15
    %
    
    
    9.61
    %
   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%
    
    25.96%
    
    23.57%
    
    $29,751
    
    $13,396100%
    
    13.22%
    
    13.52%
    
    $15,145
    
    $7,683(100%)
    
    (1)
    
    (1)
    
    (1)
    
    (1)(200%)
    
    (1)
    
    (1)
    
    (1)
    
    (1)
 
 (1)
    
    The table above only reflects the impact of upward shocks due to the fact that a
downward parallel shock of 100 basis points or more is not possible given that some
short-term rates are currently less than one percent.  53




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CAPITAL RESOURCES AND LIQUIDITY
 Capital Resources
   Ratio of Tangible StockholdersDate
    
    Equity to Total Tangible AssetsBy July 31, 2010
    
    Not Less Than 9.0 PercentFrom December 31, 2010 and Until the Final
Order is Terminated
    
    Not Less Than 9.5 Percent
    Liquidity
  54




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##### Table of Contents



Note 11  Liquidityand Note 12  Subsequent Event
 OFF-BALANCE SHEET ARRANGEMENTS
 Note 9  Off-Balance Sheet
Commitments Item 1.
Business  Off-Balance Sheet Commitments
 CONTRACTUAL OBLIGATIONS
  RECENTLY ISSUED ACCOUNTING STANDARDS
 FASB ASU 2010-20, Receivable (Topic 310), Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses
 FASB ASU 2010-18, Receivable (Topic 310), Effect of a Loan Modification When the Loan Is Part
of a Pool That Is Accounted for as a Single Asset
 FASB ASC 810, Consolidations
 FASB ASC 860, Transfers and Servicing
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##### Table of Contents



FASB ASC 855, Subsequent Events
 FASB ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820)
 
 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 Part II, Item 1A Risk
Factors,
 
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Remediation of Material Weaknesses in Internal Control over Financial Reporting
    
    
    intensive review by the loan monitoring department to validate the
appropriateness of loan grades;
 
    
    expanded additional review of all loan grading changes by management
and senior loan officers;
 
    
    independent third party review to ensure the assessment of our internal
loan grades.
  56




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##### Table of Contents




    
    increasing qualitative adjustments based on current and potential loss
scenarios to sufficiently reflect deterioration in the asset portfolio as well as
economic decline;
 
    
    implementing more stringent assessment of restructured loans by
down-grading all such loans to Substandard;
 
    
    closely monitoring collateral dependent loans by continually obtaining
up to date valuations;
 
    
    adhering to more stringent requirements for charge-offs regards to
impaired loans.
  
    
    increasing management oversight of the loan portfolio by establishing
two new departments to primarily focus on performing quality control review and
monitoring;
 
    
    providing intensive onsite review and training to loan officers and
other branch staffs by management;
 
    
    outsourcing to independent third parties for credit review to validate
the appropriateness of internal loan grading.
   
 PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  Risks Relating to our Business and Ownership of Our Common Stock
 Our independent registered public accounting firm has expressed substantial doubt about our
ability to continue as a going concern.
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Our operations may require us to raise additional capital in the future, but that capital may
not be available or may not be on terms acceptable to us when it is needed.
 Ratio of Tangible StockholdersDate
    
    Equity to Total Tangible AssetsBy July 31, 2010
    
    Not Less Than 9.0 PercentFrom December 31, 2010 and Until the Final
Order is Terminated
    
    Not Less Than 9.5 Percent
   Hanmi Bank is undercapitalized as of June 30, 2010 under the prompt corrective action
regulations and guidelines and as a result is subject to various operating restrictions and other
limitations.
 Hanmi Bank is prohibited from accepting, renewing or rolling over brokered deposits, which
could significantly affect its liquidity.
 The Bank is subject to additional regulatory oversight as a result of a formal regulatory
enforcement action issued by the Federal Reserve Bank and the California Department of Financial
Institutions.
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##### Table of Contents



We may become subject to additional regulatory restrictions in the event that our regulatory
capital levels continue to decline.
   The Bank is currently restricted from paying dividends to us and we are restricted from paying
dividends to stockholders and from making any payments on our trust preferred securities.
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##### Table of Contents



Liquidity risk could impair our ability to fund operations and jeopardize our financial
condition.
   We may be required to make additional provisions for credit losses and charge off additional
loans in the future, which could adversely affect our results of operations and capital levels.
 Our allowance for loan losses may not be adequate to cover actual losses.
 Our Southern California business focus and economic conditions in Southern California could
adversely affect our operations.
 Our concentration in commercial real estate loans located primarily in Southern California
could have adverse effects on credit quality.
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##### Table of Contents



Our concentration in commercial and industrial loans could have adverse effects on credit
quality.
 Our concentrations of loans in certain industries could have adverse effects on credit
quality.
 The Woori investment is subject to conditions to closing and may not close at all.
  Existing stockholders will experience substantial dilution from the best efforts public
offering and the Woori investment.
 In the future we may decide or be required to raise additional funds, which would cause then
existing stockholders to experience dilution.
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##### Table of Contents



Even after the Woori investment, the rights offering and best efforts public offering we may
still be subject to continued regulatory scrutiny.
 If the Woori investment is completed, we will have a controlling stockholder who will be able
to control certain corporate matters.
    If the Woori investment is completed, we would qualify as a controlled company for NASDAQ
corporate governance purposes.
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##### Table of Contents



Difficult economic and market conditions have adversely affected our industry.
 
    
    We potentially face increased regulation of our industry. Compliance with such regulation
may increase our
costs and limit our ability to pursue business opportunities.
    
    The process we use to estimate losses inherent in our credit exposure requires difficult,
subjective and complex
judgments, including forecasts of economic conditions and how these economic conditions might
impair the
ability of our borrowers to repay their loans. The level of uncertainty concerning economic
conditions may
adversely affect the accuracy of our estimates, which may, in turn, impact the reliability of
the process.
    
    We may be required to pay significantly higher Federal Deposit Insurance Corporation
premiums because
market developments have significantly depleted the deposit insurance fund of the Federal
Deposit Insurance
Corporation and reduced the ratio of reserves to insured deposits.
    
    Our liquidity could be negatively impacted by an inability to access the capital markets,
unforeseen or
extraordinary demands on cash, or regulatory restrictions, which could, among other things,
materially and
adversely affect our business, results of operations and financial condition and our ability
to continue as a going
concern.
 If current levels of market disruption and volatility continue or worsen, there can be no
assurance that we will not experience an adverse effect, which may be material, on our ability to
access capital and on our business, financial condition and results of operations and prospects as
a going concern.
 U.S. and international financial markets and economic conditions could adversely affect our
liquidity, results of operations and financial condition.
 Our success depends on our key management.
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##### Table of Contents



Changes in economic conditions could materially hurt our business.
 
    
    problem assets and foreclosures may increase;
    
    demand for our products and services may decline;
    
    low cost or non-interest bearing deposits may decrease; and
    
    collateral for loans made by us, especially real estate, may decline in value.
 If a significant number of borrowers, guarantors or related parties fail to perform as
required by the terms of their loans, we could sustain losses.
 Our loan portfolio is predominantly secured by real estate and thus we have a higher degree of
risk from a downturn in our real estate markets.
 We are exposed to risk of environmental liabilities with respect to properties to which we
take title.
 Our earnings are affected by changing interest rates.
 The impact of the Basel II capital standards on Hanmi Bank and Woori and potential changes or
additions to those standards are uncertain.
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We are subject to government regulations that could limit or restrict our activities, which in
turn could adversely affect our operations.
 Competition may adversely affect our performance.
 We continually encounter technological change, and we may have fewer resources than many of
our competitors to continue to invest in technological improvements.
 We rely on communications, information, operating and financial control systems technology
from thirdparty service providers, and we may suffer an interruption in those systems.
 Negative publicity could damage our reputation.
 The price of our common stock may be volatile or may decline.
 
    
    developments relating to the Woori investment;
    
    actual or anticipated quarterly fluctuations in our operating results and financial
condition;
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##### Table of Contents




    
    changes in revenue or earnings estimates or publication of research reports and
recommendations by financial
analysts;
    
    failure to meet analysts revenue or earnings estimates;
    
    speculation in the press or investment community;
    
    strategic actions by us or our competitors, such as acquisitions or restructurings;
    
    actions by institutional stockholders;
    
    fluctuations in the stock price and operating results of our competitors;
    
    general market conditions and, in particular, developments related to market conditions for
the financial services industry;
    
    proposed or adopted legislative or regulatory changes or developments;
    
    anticipated or pending investigations, proceedings or litigation that involve or affect us;
or
    
    domestic and international economic factors unrelated to our performance.
  Your share ownership may be diluted by the issuance of additional shares of our common stock in the future.
 Future sales of common stock by existing stockholders may have an adverse impact on the market
price of our common stock.
 Holders of our junior subordinated debentures have rights that are senior to those of our
stockholders.
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Anti-takeover provisions and state and federal law may limit the ability of another party to
acquire us, which could cause our stock price to decline.
  Our ability to use some or all of our net operating loss carryforwards may be impaired.
 Implementation of the various provisions of the Dodd-Frank Act may increase our operating
costs or otherwise have a material affect on our business, financial condition or results of
operations.
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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.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
  68




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ITEM 6.
    
    EXHIBITS
 ExhibitNumber
    
    Document4.1
    
    Form of Subscription Rights Certificate (1)10.1
    
    Securities Purchase Agreement, dated May 25, 2010, between Hanmi Financial
Corporation and Woori Finance Holdings Co. Ltd. (2)10.2
    
    Executive Retention Plan31.1
    
    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
 
 (1)
    
    Previously filed and incorporated by reference herein from Hanmi Financials Current
Report on Form 8-K on June 16, 2010.(2)
    
    Previously filed and incorporated by reference herein from Hanmi Financials Current
Report on Form 8-K on May 24, 2010. 69




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SIGNATURES
  HANMI FINANCIAL CORPORATIONDate:                August 9, 2010
    By:
    /s/ Jay S. YooJay S. YooPresident and Chief Executive OfficerBy:
    /s/ Brian E. ChoBrian E. ChoExecutive Vice President and Chief Financial Officer 70