UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


		þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended December 31, ~~2007~~2008
or
		o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Transition Period From To

Commission File Number:000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-4788120
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
3660 Wilshire Boulevard, Penthouse Suite A Los Angeles, California		90010
(Address of Principal Executive Offices)		(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, ~~$.001~~$0.001 Par Value		NASDAQ “Global Select Market”

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to thisForm 10-K. þ

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþo	Accelerated fileroþ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)			~~Smaller reporting company~~ o

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

As of June ~~29, 2007,~~30, 2008, the aggregate market value of the common stock held by non-affiliates of the Registrant was approximately ~~$684,296,000.~~$194,704,000. For purposes of the foregoing calculation only, in addition to affiliated companies, all directors and officers of the Registrant have been deemed affiliates.

Number of shares of common stock of the Registrant outstanding as of ~~February 21, 2008~~March 1, 2009 was ~~45,865,941~~45,901,549 shares.

Documents Incorporated By Reference Herein:Registrant’s Definitive Proxy Statement for its Annual Meeting of Stockholders, which will be filed within 120 days of the fiscal year ended December 31, ~~2007,~~2008, is incorporated by reference into Part III of this report.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under“Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”and elsewhere in thisForm 10-K constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement because of:


•	~~changes in~~failure to maintain adequate levels of capital and liquidity to support our ~~borrowers’ performance on loans;~~operations;

•	~~changes in the commercial~~a significant number of our customers failing to perform under their loans and ~~consumer real estate markets;~~other terms of credit agreements;

•	~~changes in our costs~~the effect of ~~operation, compliance~~regulatory orders we have entered into and ~~expansion;~~potential future supervisory action against us or Hanmi Bank (the “Bank”);

•	~~changes~~fluctuations in interest rates and a decline in the ~~economy, including inflation;~~level of our interest rate spread;

•	~~changes in government interest rate policies;~~failure to attract or retain deposits;

•	~~changes in laws~~sources of liquidity available to us and to the Bank becoming limited or our potential inability to access sufficient sources of liquidity when needed or the ~~regulatory environment;~~requirement that we obtain government waivers to do so;

•	adverse changes in domestic or global financial markets, economic conditions or business conditions;

•	regulatory restrictions on the ~~equity~~Bank’s ability to pay dividends to us and ~~debt~~on our ability to make payments on Hanmi Financial obligations;

•	significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate;

��	failure to attract or retain our key employees;

•	failure to maintain our status as a financial holding company;

•	adequacy of our allowance for loan losses;

•	credit quality and the effect of credit quality on our provision for credit losses and allowance for loan losses;

•	failure to manage our future growth or successfully integrate acquisitions;

•	volatility and disruption in financial, credit and securities ~~markets;~~markets, and the price of our common stock;

•	deterioration in the financial markets that may result in other-than-temporary impairment charges relating to our securities portfolio;

•	competition in our primary market areas;

•	demographic changes in our primary market areas; and

•	~~acts of terrorism or natural disasters such as earthquakes or floods.~~significant government regulations, legislation and potential changes thereto.

For ~~a discussion of these factors as well as some of the other factors that might cause such differences,~~additional information concerning risks we face, see“Item 1A. Risk Factors,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management”and“— Liquidity and Capital Resources.”We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

PART I


*Item 1.*	*Business*

General

Hanmi Financial Corporation (“Hanmi Financial,” ~~“we”~~“we,” “us” or ~~“us”~~“our”) is a Delaware corporation incorporated on March 14, 2000 ~~pursuant to a Plan of Reorganization and Agreement of Merger~~ to be the holding company for Hanmi Bank (the “Bank”). Hanmi Financial became the holding company for the Bank in June 2000 and is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”). Hanmi Financial also elected financial holding company status under the BHCA in 2000. Our principal office is located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010, and our telephone number is(213) 382-2200.

Hanmi Bank, our primary subsidiary, is a state chartered bank incorporated under the laws of the State of California on August 24, 1981, and licensed by the California Department of Financial Institutions (“DFI”) on December 15, 1982. The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act (“FDI Act”) up to applicable limits thereof, and the Bank is a member of the Federal Reserve System. The Bank’s headquarters is located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010.

The Bank is a community bank conducting general business banking, with its primary market encompassing theKorean-American community as well as other communities in the multi-ethnic populations of Los Angeles County, Orange County, San Bernardino County, San Diego County, the San Francisco Bay area, and the Silicon Valley area in Santa Clara County. The Bank’s full-service offices are located in business areas where many of the businesses are run by immigrants and other minority groups. The Bank’s client base reflects the multi-ethnic composition of these communities. At December 31, ~~2007,~~2008, the Bank maintained a branch network of 2426 full-service branch offices in California and ~~eight~~7 loan production offices (“LPO’s”) in California, Colorado, Georgia, Illinois, Texas, Virginia and Washington.

Our other subsidiaries are Chun-Ha Insurance Services, Inc. (“Chun-Ha”) and All World Insurance Services, Inc. (“All World”), which were acquired in January 2007. Founded in 1989, Chun-Ha and All World are insurance ~~brokerages~~agencies that offer a complete line of insurance products, including life, commercial, automobile, health, and property and casualty.

The Bank’s revenues are derived primarily from interest and fees on our ~~loan~~loans, interest and dividends on our securities ~~portfolios~~portfolio, and service charges on deposit accounts. A summary of revenues for the periods indicated follows:


	Year Ended December 31,									*Year Ended December 31,*

(Dollars in thousands)	2007			2006			2005
*(Dollars in Thousands)*										*2008*			*2007*			*2006*


Interest and Fees on Loans	$	261,992	81.6%	$	239,075	80.5%	$	180,845	77.8%	$	223,942	82.8%	$	261,992	81.6%	$	239,075	80.5%
Interest on Investments		17,867	5.6%		19,710	6.6%		18,507	8.0%
Interest and Dividends on Investments											14,032	5.2%		17,867	5.6%		19,710	6.6%
Other Interest Income		1,037	0.3%		1,404	0.5%		1,589	0.7%		209	0.1%		1,037	0.3%		1,404	0.5%
Service Charges on Deposit Accounts		18,061	5.6%		17,134	5.8%		15,782	6.8%		18,463	6.8%		18,061	5.6%		17,134	5.8%
Other Non-Interest Income		21,945	6.9%		19,829	6.6%		15,668	6.7%		13,686	5.1%		21,945	6.9%		19,829	6.6%


Total Revenues	$	320,902	100.0%	$	297,152	100.0%	$	232,391	100.0%	$	270,332	100.0%	$	320,902	100.0%	$	297,152	100.0%

Market Area

The Bank historically has provided its banking services through its branch network ~~located primarily in the Koreatown area of Los Angeles,~~ to a wide variety of small- to medium-sized businesses. In recent years, it has expanded its service areas through de novo branching to Orange County, San Bernardino County, the Silicon Valley area in Santa Clara County, and San Diego County, and through acquisition to the San Francisco Bay area and the Seattle, Washington metropolitan area.

Throughout the Bank’s service areas, competition is intense for both loans and deposits. While the market for banking services is dominated by a few nationwide banks with many offices operating over a wide geographic area, savings banks, ~~thrift and loan associations,~~industrial banks, credit unions, mortgage companies, insurance companies and other lending institutions, the Bank’s primary competitors are relatively smaller community banks that focus their marketing efforts onKorean-American businesses in the Bank’s service areas. Substantially all of our assets are located in, and substantially all of our revenues are derived from clients located within, California.

In 2008, the ~~State of California.~~

Bank opened two full-service branch offices in Beverly Hills and Northridge. In 2007, the Bank opened two full-service branch offices in Fullerton ~~California~~ and Rancho Cucamonga, California. In 2005 and 2006, the Bank opened loan production offices in Atlanta, Chicago, Dallas, Denver and Annandale. These offices will expand our geographic coverage by providing commercial and industrial, real estate and Small Business Administration (“SBA”) loans. The Bank also has loan production offices in Los Angeles, California; the San Jose, California metropolitan area; and the Seattle, Washington metropolitan area. We plan to continue to expand our business services by opening additional loan production offices in selected locations throughout the United States. The Bank is a preferred SBA lender in the following SBA districts: California (Los Angeles, Santa Ana, San Diego, Fresno, San Francisco and Sacramento), Portland, Seattle, Anchorage, Denver, Texas (Dallas and Houston), Illinois, Georgia, Florida, Virginia, Washington, D.C., Maryland, New Jersey and New York.Cucamonga.

Lending Activities

The Bank originates loans for its own portfolio and for sale in the secondary market. Lending activities include real estate loans (commercial property, construction and residential property), commercial and industrial loans (commercial term loans, commercial lines of credit, SBA loans and international trade finance), and consumer loans.

Real Estate Loans

Real estate lending involves risks associated with the potential decline in the value of the underlying real estate collateral and the cash flow from income-producing properties. Declines in real estate values and cash flows can be caused by a number of factors, including adversity in general economic conditions, rising interest rates, changes in tax and other laws and regulations affecting the holding of real estate, environmental conditions, governmental and other use restrictions, development of competitive properties and increasing vacancy rates. When real estate values decline, the Bank’s real estate dependence increases the risk of loss both in the Bank’s loan portfolio and any holdings of other real estate owned because of foreclosures on loans.

Commercial Property

The Bank offers commercial real estate loans. These loans are generally collateralized by first deeds of trust. For these commercial ~~mortgage~~real estate loans, the Bank generally obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral. All appraisal reports on commercial mortgage loans are reviewed by an ~~appraisal review officer.~~Appraisal Review Officer. The review generally covers an examination of the appraiser’s assumptions and methods that were used to derive a value for the property, as well as compliance with the Uniform Standards of Professional

Appraisal Practice (the “USPAP”). The Bank first looks to cash flow from the borrower to repay the loan and then to cash flow from ~~the business.~~other sources. The majority of the properties securing these loans are located in Los Angeles County and Orange County.

The Bank’s commercial real estate loans are principally secured by investor-owned commercial buildings and owner-occupied commercial and industrial buildings. Generally, these types of loans are made for a period of up to seven ~~years. Monthly payments are~~years based ~~upon~~on a ~~portion of the principal plus accrued interest.~~longer amortization period. These loans usually have a loan-to-value ratio of 65 percent or less, using an adjustable rate indexed to the prime rate appearing in the West Coast edition ofThe Wall Street Journal(“WSJ Prime Rate”) or the Bank’s prime rate (“Bank Prime Rate”), as adjusted from time to time. The Bank also offers fixed-rate commercial real estate loans, including hybrid-fixed rate loans that are fixed for one to five years and convert to adjustable rate loans for the remaining term. Amortization schedules for commercial real estate loans generally do not exceed 25 years.

Payments on loans secured by investor-owned and owner-occupied properties are often dependent upon successful operation or management of the properties. Repayment of such loans may be subject to a greater extent to the risk of adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks in a variety of ways, including limiting the size of such loans in relation to the market value of the property and strictly scrutinizing the property securing the loan. The Bank manages these risks in a variety of ways, including vacancy and interest rate hike sensitivity analysis at the time of loan origination and quarterly risk assessment of the total commercial real estate secured loan portfolio that includes most recent industry trends. When possible, the Bank also obtains corporate or individual guarantees from financially capable parties. Representatives of the Bank visit all of the properties securing the Bank’s real estate loans before the loans are approved. The Bank requires title insurance insuring the status of its lien on all of the real estate secured loans when a trust deed on the real estate is taken as collateral. The Bank also requires the borrower to maintain fire insurance, extended coverage casualty insurance and, if the property is in a flood zone, flood insurance, in an amount equal to the outstanding loan balance, subject to applicable laws that may limit the amount of hazard insurance a lender can require to replace such improvements. We cannot assure that these procedures will protect against losses on loans secured by real property.

Construction

The Bank finances the construction of multifamily, low-income housing, commercial and industrial properties within its market area. The future condition of the local economy could negatively affect the collateral values of such

loans. The Bank’s construction loans typically have the following characteristics:


•	maturities of two years or less;

•	a floating rate of interest based on the Bank Prime Rate or the WSJ Prime Rate;

•	minimum cash equity of 35 percent of project cost;

•	reserve of anticipated interest costs during construction or advance of fees;

•	first lien position on the underlying real estate;

•	loan-to-value ratios generally not exceeding 65 percent; and

•	recourse against the borrower or a guarantor in the event of default.

The Bank does, on acase-by-case basis, commit to making permanent loans on the property with loan conditions that command strong project stability and debt service coverage. Construction loans involve additional risks compared to loans secured by existing improved real property. These include the following:


•	the uncertain value of the project prior to completion;

•	the inherent uncertainty in estimating construction costs, which are often beyond the borrower’s control;

•	construction delays and cost overruns;

•	possible difficulties encountered in connection with municipal or other governmental regulations during construction; and

•	the difficulty in accurately evaluating the market value of the completed project.

Because of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If the Bank is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that the Bank will be able to recover all of the unpaid balance of, or accrued interest on, the loans as well as the related foreclosure and holding costs. In addition, the Bank may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminable period. The Bank has underwriting procedures designed to identify what it believes to be acceptable levels of risk in construction lending. Among other things, qualified and bonded third parties are engaged to provide progress reports and recommendations for construction disbursements. No assurance can

be given that these procedures will prevent losses arising from the risks described above.

Residential Property

The Bank originates fixed-rate and variable-rate mortgage loans secured by one- to four-family properties with amortization schedules of 15 to 30 years and maturities of up to 30 years. The loan fees charged, interest rates and other provisions of the Bank’s residential loans are determined by an analysis of the Bank’s cost of funds, cost of origination, cost of servicing, risk factors and portfolio needs. The Bank may sell some of the mortgage loans that it originates to secondary market participants. The typical turn-around time from origination to sale is between 30 and 90 days. The interest rate and the price of the loan are typically agreed to prior to the loan origination.

Commercial and Industrial Loans

The Bank offers commercial loans for intermediate and short-term credit. Commercial loans may be unsecured, partially secured or fully secured. The majority of the origination of commercial loans is in Los Angeles County and Orange County, and loan maturities are normally 12 to 60 months. The Bank requires a credit underwriting before considering any extension of credit. The Bank finances primarily small and middle market businesses in a wide spectrum of industries. Commercial and industrial loans consist of credit lines for operating needs, loans for equipment purchases and working capital, and various other business purposes.

As compared to consumer lending, commercial lending entails significant additional risks. These loans typically involve larger loan balances, are generally dependent on the cash flow of the business and may be subject to adverse conditions in the general economy or in a specific industry. Short-term business loans generally are intended to finance current operations and typically provide for ~~periodic~~ principal ~~payments,~~payment at maturity, with interest payable monthly. Term loans normally provide for floating interest rates, with monthly payments of both principal and interest.

In general, it is the intent of the Bank to take collateral whenever possible, regardless of the loan purpose(s). Collateral may include liens on inventory, accounts receivable, fixtures and equipment, leasehold improvements and real

estate. When real estate is the primary collateral, the Bank obtains formal appraisals in accordance with applicable regulations to support the value of the real estate collateral. Typically, the Bank requires all principals of a business to be co-obligors on all loan instruments and all significant stockholders of corporations to execute a specific debt guaranty. All borrowers must demonstrate the ability to service and repay not only their obligations to the Bank debt, but also all outstanding business debt, without liquidating the collateral, based on historical earnings or reliable projections.

Commercial Term Loans

The Bank finances small and middle-market businesses in a wide spectrum of industries throughout California. The Bank offers term loans for a variety of needs, including loans for working capital, purchases of equipment, machinery or inventory, business acquisitions, renovation of facilities, and refinancing of existing business-related debts. These loans have repayment terms of up to seven years.

Commercial Lines of Credit

The Bank offers lines of credit for a variety of short-term needs, including lines of credit for working capital, account receivable and inventory financing, and other purposes related to business operations. Commercial lines of credit usually have a term of 12 months or less.

SBA Loans

The Bank originates loans qualifying for guarantees issued by the ~~United States~~U.S. SBA, an independent agency of the Federal ~~government.~~Government. The SBA guarantees on such loans currently range from 75 percent to 85 percent of the principal and accrued interest. Under certain circumstances, the guarantee of principal and interest may be less than 75 percent. In general, the guaranteed percentage is less than 75 percent for loans over $1.3 million.principal. The Bank typically requires that SBA loans be secured by business assets and by a first or second deed of trust on any available real property. When the loan is secured by a first deed of trust on real property, the Bank generally obtains appraisals in accordance with applicable regulations. SBA loans have terms ranging from ~~five~~5 to ~~twenty~~20 years depending on the use of the proceeds. To qualify for a SBA loan, a borrower must demonstrate the capacity to service and repay the loan, without liquidating the collateral, based on historical earnings or reliable projections.

The Bank ~~generally~~normally sells to unrelated third parties a substantial amount of the guaranteed portion of the SBA ~~guaranteed~~ loans that it originates. During the fourth quarter of 2007 and 2006, the Bank also sold the unguaranteed portion of some SBA loans. When the Bank sells a SBA loan, it has a right to repurchase the loan if the loan defaults. If the Bank repurchases a loan, the Bank will make a demand for guarantee purchase to the SBA. The Bank retains the right to service the SBA loans, for which it receives servicing fees. The unsold portions of the SBA loans that remain owned by the Bank are included in loans receivable on the Consolidated Balance Sheets. As of December 31, ~~2007,~~2008, the

Bank had ~~$118.5~~$178.4 million of SBA loans in its portfolio, and was servicing ~~$258.5~~$228.6 million of SBA loans sold to investors.

International Trade Finance

The Bank offers a variety of international finance and trade services and products, including letters of credit, import financing (trust receipt financing and bankers’ acceptances) and export financing. Although most of our trade finance activities are related to trade with Asian countries, all of our loans are made to companies domiciled in the United States. A substantial portion of this business involves California-based customers engaged in import activities.

Consumer Loans

Consumer loans are extended for a variety of purposes, including automobile loans, secured and unsecured personal loans, home improvement loans, home equity lines of credit, ~~(“HELOCs”),~~ overdraft protection loans, unsecured lines of credit and credit cards. Management assesses the borrower’s creditworthiness and ability to repay the debt through a review of credit history and ratings, verification of employment and other income, review of debt-to-income ratios and other measures of repayment ability. Although creditworthiness of the applicant is of primary importance, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount. Most of the Bank’s loans to individuals are repayable on an installment basis.

Any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance, because the collateral is more likely to suffer damage ~~loss~~ or depreciation. The remaining deficiency often does not warrant further collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, the collection of loans to individuals is dependent on the borrower’s continuing financial stability,

and thus is more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, various ~~Federal~~federal and state laws, including bankruptcy and insolvency laws, often limit the amount that the lender can recover on loans to individuals. Loans to individuals may also give rise to claims and defenses by a consumer borrower against the lender on these loans, and a borrower may be able to assert against any assignee of the note these claims and defenses that the borrower has against the seller of the underlying collateral.

Off-Balance Sheet Commitments

As part of its service to its small- to medium-sized business customers, the Bank from time to time issues formal commitments and lines of credit. These commitments can be either secured or unsecured. They may be in the form of revolving lines of credit for seasonal working capital needs or may take the form of commercial letters of credit or standby letters of credit. Commercial letters of credit facilitate import trade. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.

Lending Procedures and Loan Limits

Loan applications may be approved by the Board of Directors’ Loan Committee, or by the Bank’s management or lending officers to the extent of their lending authority. Individual lending authority is granted to the Chief Credit Officer ~~the Deputy Chief Credit Officer, Senior Credit Officers~~ and certain additional officers, including ~~Branch Managers and the line managers to whom they report.~~District Leaders. Loans for which direct and indirect borrower liability exceeds an individual’s lending authority are referred to the Bank’s Management Credit Committee and, for those in excess of the Management Credit Committee’s approval limits, to the Board of Directors’ Loan Committee.

Legal lending limits are calculated in conformance with the California Financial Code, which prohibits a bank from lending to any one individual or entity or its related interests on an unsecured basis any amount that exceeds 15 percent of the sum of ~~shareholders’~~stockholders’ equity plus the allowance for loan losses, capital notes and any debentures, plus an additional 10 percent on a secured basis. At December 31, ~~2007,~~2008, the Bank’s authorized legal lending limits for loans to one borrower were ~~$56.6~~$56.9 million for unsecured loans plus an additional ~~$37.8~~$37.9 million for specific secured loans. However, the Bank has established internal loan limits that are lower than the legal lending limits.

The Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to certain underwriting practices. The review of each loan application includes analysis of the applicant’s experience, prior credit history, income level, cash flow, financial condition, tax returns, cash flow projections, and the value of any collateral to secure the loan, based upon reports of independent appraisersand/or audits of accounts receivable or inventory pledged as security. In the case of real estate loans over a specified amount, the review of collateral value includes an appraisal report prepared by an independent Bank-approved appraiser. All appraisal reports on commercial real property secured loans are reviewed by an Appraisal Review Officer. The review generally covers an examination of the appraiser’s assumptions and methods that were used to derive a value for the property, as well as compliance with the USPAP.

Allowance for Loan Losses, Allowance for Off-Balance Sheet Items and Provision for Credit Losses

The Bank maintains an allowance for loan losses at a level considered by management to be adequate to cover the inherent risks of loss associated with its loan portfolio under prevailing economic conditions. In addition, the Bank maintains an allowance for off-balance sheet items associated with unfunded commitments and letters of credit, which is included in other liabilities on the Consolidated Balance Sheets.

The Bank follows the“Interagency Policy Statement on the Allowance for Loan and Lease Losses”and analyzes the allowance for loan losses on a quarterly basis. In addition, as an integral part of the quarterly credit review process of the Bank, the allowance for loan losses and allowance for off-balance sheet items are reviewed for adequacy. The DFIand/or the Board of Governors of the Federal Reserve System (the “FRB”) may require the Bank to recognize additions to the allowance for loan losses through a provision for credit losses based upon their assessment of the information available to them at the time of their examinations.

Deposits

The Bank raises funds primarily through its network of ~~branches.~~branches and broker deposits. The Bank attracts deposits by offering a wide variety of transaction and term accounts and personalized customer service. Accounts offered include business and personal checking accounts, savings accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts and certificates of deposit.

Website

We maintain an Internet website atwww.hanmi.com. We make available free of charge on the website our Annual Reports onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and any amendments thereto, as soon as reasonably practicable after we file such reports with the Securities and Exchange Commission (“SEC” ~~or “the Commission”~~). None of the information on or hyperlinked from our website is incorporated into this Annual Report onForm ~~10-K.~~10-K (“Report”). These reports and other information on file can be inspected and copied at the public reference facilities of the SEC at 100 F Street, N.E., Washington D.C., 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. The SEC maintains a website that contains the reports, proxy and information statements and other information we file with them. The address of the site iswww.sec.gov.

Employees

As of December 31, ~~2007,~~2008, the Bank had ~~612~~513 full-time employees and 15 part-time employees and Chun-Ha and All World had 3133 full-time employees and 12 part-time ~~employee.~~employees. Our employees are not represented by a union or covered by a collective bargaining agreement. We believe that our employee relations are satisfactory.

Insurance

We maintain financial institution bond and commercial insurance at levels deemed adequate by management to protect Hanmi Financial from certain litigation and other losses.

Competition

The banking and financial services industry in California generally, and in the Bank’s market areas specifically, are highly competitive. The increasingly competitive environment faced by banks is aprimarily the result ~~primarily~~ of changes in laws and regulation, changes in technology and product delivery systems, new competitors in the market, and the accelerating pace of consolidation among financial service providers. We compete for loans, deposits and customers with other commercial banks, savings institutions, securities and brokerage companies, mortgage companies, real estate investment trusts, insurance companies, finance companies, money market funds, credit unions and other non-bank financial service providers. Some of these competitors are larger in total assets and capitalization, have greater access to capital markets, including foreign-ownership,and/or offer a broader range of financial services.

Among the advantages that the major banks have over the Bank is their ability to finance extensive advertising campaigns and to allocate their investment assets to the regions ofwith the highest yield and demand. Many of the major commercial banks operating in the Bank’s service areas offer specific services (for instance, trust services) that are not offered directly by the Bank. By virtue of their greater total capitalization, these banks also have substantially higher lending ~~limits than the Bank does.~~limits.

The recent trend has been for other institutions, including brokerage firms, credit card companies and retail establishments, to offer banking services to consumers, including money market funds with check access and cash advances on credit card accounts. In addition, other entities (both public and private) seeking to raise capital through the issuance and sale of debt or equity securities compete with banks infor the acquisition of deposits.

The Bank’s major competitors are relatively smaller community banks that focus their marketing efforts onKorean-American businesses in the Bank’s service areas. Amongst these banks, the Bank is the largest, with a loan portfolio that is ~~41.8~~59.4 percent larger than its nearest competitor’s loan portfolio, and a deposit portfolio that is ~~60.6~~58.4 percent larger than its nearest competitor’s deposit portfolio. These banks compete for loans primarily through the interest rates and fees they charge and the convenience and quality of service they provide to borrowers. The ~~principal bases of~~ competition for deposits ~~are~~is primarily based on the interest rate paid and the convenience and quality of service.

In order to compete with other financial institutions in its service area, the Bank relies principally upon local promotional activity, including advertising in the local media, personal contacts, direct mail and specialized services. The Bank’s promotional activities emphasize the advantages of dealing with a locally owned and headquartered institution attuned to the particular needs of the community.

Economic ~~Conditions, Government Policies,~~Developments, Legislation and ~~Regulation~~Regulatory Initiatives

Our profitability, like that of most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by us on interest-bearing liabilities, such as deposits and other

borrowings, and the interest rates received by us on our interest-earning assets, such as loans extended to our customers and securities held in our investment portfolio, will comprise the major portion of our earnings. These rates are highly sensitive to many factors that are beyond our control, such as inflation, recession and unemployment, and the impact that future changes in domestic and foreign economic conditions might have on us cannot be predicted.

Our business is also influenced by the monetary and fiscal policies of the Federal ~~government~~Government and the policies of regulatory agencies, particularly the FRB. The FRB implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities, by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target ~~Federal~~federal funds and discount rates applicable to borrowings by depository institutions. The actions of the FRB in these areas influence the growth of bank loans, investments and deposits and affect interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The nature and impact on us of any future changes in monetary and fiscal policies cannot be predicted.

From time to time, ~~Federal~~federal and state legislation is enacted ~~which~~that may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers, such as recent ~~Federal~~federal legislation permitting affiliations among commercial banks, insurance companies and securities firms. We cannot predict whether or when any potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. In addition, the outcome of any investigations initiated by state authorities or litigation raising issues may result in necessary changes in our operations, additional regulation and increased compliance costs.

Negative developments beginning in the latter half of 2007 in the sub-prime mortgage market and the securitization markets for such loans and other factors have resulted in uncertainty in the financial markets in general and a related general economic downturn, which continued through 2008 and are anticipated to continue throughout 2009. Dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the credit performance of mortgage and residential construction loans and resulted in significant write-downs of assets by many financial institutions. In addition, the values of real estate collateral supporting many commercial as well as residential loans have declined and may continue to decline. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer delinquencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. Competition among depository institutions for deposits has increased significantly. Bank and bank holding company stock prices have been significantly negatively affected, as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. The bank regulatory agencies have been very aggressive in responding to concerns and trends identified in examinations, and this has resulted in the increased issuance of formal and informal enforcement orders and other supervisory actions requiring that institutions take action to address credit quality, liquidity and risk management, and capital adequacy, as well as other safety and soundness concerns.

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was enacted to restore confidence and stabilize the volatility in the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other. Initially introduced as the Troubled Asset Relief Program (“TARP”), the EESA authorized the U.S. Department of the Treasury (the “Treasury”) to purchase from financial institutions and their holding companies up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions and their holding companies in a troubled asset relief program. Initially, $350 billion, or half of the $700 billion, was made immediately available to the Treasury. On January 15, 2009, the remaining $350 billion was released to the Treasury.

On October 14, 2008, the Treasury announced its intention to inject capital into nine large U.S. financial institutions under the TARP Capital Purchase Program (the “TARP

CPP”), and since has injected capital into many other financial institutions. The Treasury initially allocated $250 billion towards the TARP CPP. We have filed an application for TARP CPP funds, which remains pending with the Treasury. Under the terms of the TARP CPP, if Hanmi Financial enters into a Securities Purchase Agreement with the Treasury to sell to the Treasury preferred stock and warrants, we would be prohibited from increasing dividends on our common stock, and from making certain repurchases of equity securities, including our common stock, without the Treasury’s consent. Furthermore, as long as the preferred stock issued to the Treasury under the TARP CPP is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities, including common stock, are prohibited until all accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions.

In order to participate in the TARP CPP, financial institutions were also required to adopt certain standards for executive compensation and corporate governance. These standards generally applied to the Chief Executive Officer, Chief Financial Officer and the three next most highly compensated senior executive officers. The standards include: 1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; 2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; 3) prohibition on making golden parachute payments to senior executives; and 4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. If Hanmi Financial were to receive TARP CPP funds, we would be required to comply with these requirements and additionally other requirements adopted in the new legislation as discussed below.

The bank regulatory agencies, the Treasury and the Office of Special Inspector General, also created by the EESA, have issued guidance and requests to the financial institutions that participate in the TARP CPP to document their plans and use of TARP CPP funds and their plans for addressing the executive compensation requirements associated with the TARP CPP.

On February 10, 2009, the Treasury and the federal bank regulatory agencies announced in a Joint Statement a new Financial Stability Plan, which would include additional capital support for banks under a Capital Assistance Program, a public-private investment fund to address existing bank loan portfolios and expanded funding for the FRB’s pending Term Asset-Backed Securities Loan Facility to restart lending and the securitization markets.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law by President Obama. The ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health and education needs. In addition, the ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients, including us, until the institution has repaid the Treasury, which is now permitted under the ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

The executive compensation standards are more stringent than those currently in effect under the TARP CPP or those previously proposed by the Treasury. The new standards include (but are not limited to): (i) prohibitions on bonuses, retention awards and other incentive compensation, other than restricted stock grants which do not fully vest during the TARP period up to one-third of an employee’s total annual compensation; (ii) prohibitions on golden parachute payments for departure from a company; (iii) an expanded clawback of bonuses, retention awards and incentive compensation if payment is based on materially inaccurate statements of earnings, revenues, gains or other criteria; (iv) prohibitions on compensation plans that encourage manipulation of reported earnings; (v) retroactive review of bonuses, retention awards and other compensation previously provided by TARP recipients if found by the Treasury to be inconsistent with the purposes of the TARP or otherwise contrary to public interest; (vi) required establishment of a company-wide policy regarding “excessive or luxury expenditures;” and (vii) inclusion in a participant’s proxy statements for annual shareholder meetings of a non-binding “Say on Pay” shareholder vote on the compensation of executives.

On February 23, 2008, the Treasury and the federal bank regulatory agencies issued a Joint Statement providing further guidance with respect to the Capital Assistance Program (“CAP”) announced on February 10, 2009, including: (i) that the CAP will be initiated on February 25, 2009 and will include “stress test” assessments of major banks and that should the “stress test” indicate that an

additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital; otherwise the temporary capital buffer will be made available from the government; (ii) such additional government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory; and (iii) previous capital injections under the TARP CPP will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion of preferred shares to common equity shares would enable institutions to maintain or enhance the quality of their capital by increasing their tangible common equity capital ratios; however, such conversions would necessarily dilute the interests of existing shareholders.

On February 25, 2009, the first day the CAP program was initiated, the Treasury released the actual terms of the program, stating that the purpose of the CAP is to restore confidence throughout the financial system that the nation’s largest banking institutions have a sufficient capital cushion against larger than expected future losses, should they occur due to more a more severe economic environment, and to support lending to creditworthy borrowers. Under the CAP terms, eligible U.S. banking institutions with assets in excess of $100 billion on a consolidated basis are required to participate in coordinated supervisory assessments, which are forward-looking “stress test” assessments to evaluate the capital needs of the institution under a more challenging economic environment. Should this assessment indicate the need for the bank to establish an additional capital buffer to withstand more stressful conditions, these larger institutions may access the CAP immediately as a means to establish any necessary additional buffer or they may delay the CAP funding for six months to raise the capital privately. Eligible U.S. banking institutions with assets below $100 billion may also obtain capital from the CAP. The CAP program does not replace the TARP CPP, but is an additional program to the TARP CPP, and is open to eligible institutions regardless of whether they participated in the TARP CPP. The deadline to apply to the CAP is May 25, 2009. Recipients of capital under the CAP will be subject to the same executive compensation requirements as if they had received the TARP CPP.

The EESA also increased Federal Deposit Insurance Corporation (“FDIC”) deposit insurance on most accounts from $100,000 to $250,000 through the end of 2009. In addition, the FDIC has implemented two temporary liquidity programs to: (i) provide deposit insurance for the full amount of most noninterest-bearing transaction accounts (the “Transaction Account Guarantee”) through the end of 2009; and (ii) guarantee certain unsecured debt of financial institutions and their holding companies through June 2012 under a temporary liquidity guarantee program (the “Debt Guarantee Program” and together the “TLGP”).

Hanmi Financial and the Bank did not elect to opt out of the Debt Guarantee Program. The FDIC charges “systemic risk special assessments” to depository institutions that participate in the TLGP. The FDIC has recently proposed that Congress give the FDIC expanded authority to charge fees to those holding companies that benefit directly and indirectly from the FDIC guarantees.

Supervision and Regulation

General

We are extensively regulated under both ~~Federal~~federal and certain state laws. Regulation and supervision by the ~~Federal~~federal and state banking agencies is intended primarily for the protection of depositors and the Deposit Insurance Fund (“DIF”) administered by the ~~Federal Deposit Insurance Corporation (“FDIC”),~~FDIC, and not for the benefit of stockholders. Set forth below is a summary description of the key laws and regulations that relate to our operations. These descriptions are qualified in their entirety by reference to the applicable laws and regulations.

From time to time, federal and state legislation is enacted that may have the effect of materially increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Several proposals for legislation that could substantially intensify the regulation of the financial services industry (including a possible comprehensive overhaul of the financial institutions regulatory system) are expected to be introduced and possibly enacted in the new Congress in response to the current economic downturn and financial industry instability. Other legislative and regulatory initiatives that could affect us and the Bank and the banking industry in general are pending, and additional initiatives may be proposed or introduced, before the Congress, the California legislature and other governmental bodies in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject us and the Bank to increased regulation, disclosure and

reporting requirements. In addition, the various bank regulatory agencies often adopt new rules, regulations and policies to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations or changes in policies may be enacted or the extent to which the business of the Bank would be affected thereby.

Hanmi Financial

As a bank and financial holding company, we are subject to regulation and examination by the FRB under the BHCA. Accordingly, we are subject to the FRB’s authority to:


•	require periodic reports and such additional information as the FRB may require.

•	require us to maintain certain levels of capital. See“Capital Standards.”

•	require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank. A bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of FRB regulations, or both.

•	terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the FRB believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary.

•	take formal or informal enforcement action or issue other supervisory directives and assess civil money penalties for non-compliance under certain circumstances.

•	regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem our securities in certain situations.

•	limit or prohibit and require FRB prior approval of the payment of dividends.

•	require financial holding companies to divest non-banking activities or subsidiary banks if they fail to meet certain financial holding company standards.

•	approve acquisitions and mergers with other banks or savings institutions and consider certain competitive, management, financial and other factors in granting these approvals. Similar California and other state banking agency approvals may also be required.

A bank holding company is required to file with the FRB annual reports and other information regarding its business operations and those of its non-banking subsidiaries. It is also subject to supervision and examination by the FRB. Examinations are designed to inform the FRB of the financial condition and nature of the operations of the bank holding company and its subsidiaries and to monitor compliance with the BHCA and other laws affecting the operations of bank holding companies. To determine whether potential weaknesses in the condition or operations of bank holding companies might pose a risk to the safety and soundness of their subsidiary banks, examinations focus on whether a bank holding company has adequate systems and internal controls in place to manage the risks inherent in its business, including credit risk, interest rate risk, market risk (for example, from changes in value of portfolio instruments and foreign currency), liquidity risk, operational risk, legal risk and reputation risk.

Bank holding companies may be subject to potential enforcement actions by the FRB for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the FRB. Enforcement actions may include the issuance of cease and desist orders, the imposition of civil money penalties, the requirement to meet and maintain specific capital levels for any capital measure, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against officers or directors and other “institution-affiliated” parties.

Bank holding companies are also subject to capital maintenance requirements on a consolidated basis that are parallel to those required for banks. See“Capital Standards”below. Further, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the FRB’s view that, in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain financial flexibility and capital-raising capacity to obtain additional resources for assisting

711

its subsidiary banks. A bank holding company’s failure to meet its source-of-strength obligations may constitute an unsafe and unsound practice or a violation of the FRB’s regulations, or both.

The source-of-strength doctrine most directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels. In such a situation, the subsidiary bank will be required by the bank’s federal regulator to take “prompt corrective action.” The prompt corrective action regulatory framework is discussed in~~Non-Banking~~“Prompt Corrective Action Regulations”below. Under the prompt corrective action regulations, the subsidiary bank will be required to submit to its federal regulator a capital restoration plan and to comply with the plan. Each parent company that controls the subsidiary bank will be required to provide assurances of compliance by the bank with the capital restoration plan. However, the aggregate liability of such parent companies will not exceed the lesser of (i) five percent of the bank’s total assets at the time it became undercapitalized and (ii) the amount necessary to bring the bank into compliance with the plan. Failure to restore capital under a capital restoration plan can result in the bank’s being placed into receivership if it becomes critically undercapitalized. A bank subject to prompt corrective action also may affect its parent bank holding company in other ways. These include possible restrictions or prohibitions on dividends to the parent bank holding company by the bank; subordinated debt payments to the parent; and other transactions between the bank and the holding company. In addition, the regulators may impose restrictions on the ability of the holding company itself to pay dividends; require divestiture of holding company affiliates that pose a significant risk to the bank; or require divestiture of the undercapitalized subsidiary bank.

On October 8, 2008, the Bank entered into an informal supervisory agreement (a memorandum of understanding (the “MOU”)) with the FRB and the DFI (collectively, the “Regulators”) to address certain issues raised in the Bank’s most recent regulatory examination by the DFI on March 10, 2008. Certain of the issues to be addressed by management under the terms of the MOU relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval.

Separately, Hanmi Financial ~~Activities~~has committed to the FRB that it will adopt a consolidated capital plan to augment and maintain a sufficient consolidated capital position. In addition, Hanmi Financial has agreed that it will not (i) declare or pay any dividends or make any payments on its trust preferred securities or any other capital distributions without the prior written consent of the FRB, and (ii) incur, increase or renew any existing debt or purchase, redeem or otherwise acquire any of its capital stock without the prior written consent of the FRB.

A bank holding company is generally required to give the FRB prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is equal to 10 percent or more of the company’s consolidated net worth.

A bank holding company is also required to obtain FRB approval before acquiring, directly or indirectly, ownership or control of any voting shares of any bank if it would thereby directly or indirectly own or control more than five percent of the voting stock of that bank, unless it already owns a majority of the voting stock. Prior approval from the FRB is also required in connection with the acquisition of control of a bank or another bank holding company, or business combinations with another bank holding company.

Subject to certain prior notice or FRB approval requirements, bank holding companies may engage directly or indirectly through a subsidiary in any, or acquire shares of companies engaged in, those non-banking activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Hanmi Financial may engage in these non-banking activities and also broader securities, insurance, merchant banking and other activities that are determined to be “financial in nature” or are incidental or complementary to activities that are financial in nature and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally without prior FRB approval pursuant to its election to become a financial holding company.

Pursuant to the Gramm-Leach-Bliley Act of 1999 (the “GLBA”), Chun-Ha and All World qualify as financial

subsidiaries under the GLBA. Under the GLBA, in order to elect and retain financial holding company status, all depository institution subsidiaries of a bank holding company must be well capitalized, well managed, and, except in limited circumstances, be in satisfactory compliance with the Community Reinvestment Act (“CRA”). Failure to sustain compliance with these requirements or correct any non-compliance within a fixed time period could lead to divestiture of subsidiary banks or require all activities to conform to those permissible for a bank holding company. ~~Chun-Ha and All World qualify as financial subsidiaries under~~We have agreed with the ~~GLBA.~~FRB to take certain corrective action pursuant to these GLBA requirements.

Hanmi Financial is also a bank holding company within the meaning of Section 3700 of the California Financial Code. As such, Hanmi Financial and its subsidiaries are subject to examination by, and may be required to file reports with, the DFI.

Securities Registration

Our securities are registered with the ~~Securities and Exchange Commission (“SEC”)~~SEC under the Exchange ~~Act of 1934, as amended (the “Exchange Act”).~~Act. As such, we are subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.

The Sarbanes-Oxley Act of 2002

We are subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:


•	required executive certification of financial presentations;

•	increased requirements for board audit committees and their members;

•	enhanced disclosure of controls and procedures and internal control over financial reporting;

•	enhanced controls on, and reporting of, insider trading; and

•	increased penalties for financial crimes and forfeiture of executive bonuses in certain circumstances.

The Bank

As a California ~~chartered~~commercial bank whose deposits are insured by the FDIC, the Bank is subject to ~~primary~~regulation, supervision ~~periodic~~and regular examination ~~and regulation~~ by the DFI and by the ~~FRB as the Bank’s primary federal regulator.~~FRB. As a member bank, the Bank is a stockholder of the Federal Reserve Bank of San ~~Francisco (the “Reserve Bank”).~~ Francisco. Specific federal and state laws and regulations that are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions. Supervision, examination and enforcement actions by these agencies are generally intended to protect depositors, creditors, borrowers and the DIF and generally is not intended for the protection of stockholders.

If, as a result of an examination, the DFI or the FRB should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the Bank’s operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFI and the FRB, and separately the FDIC as insurer of the Bank’s deposits, have residual authority to:


•	require affirmative action to correct any conditions resulting from any violation or practice;

•	direct an increase in ~~capital;~~capital or establish specific minimum capital ratios;

•	restrict the Bank’s growth geographically, by products and services or by mergers and acquisitions;

•	enter into informal ~~nonpublic~~non-public or formal public memoranda of understanding or written agreements; enjoin unsafe and unsound practices and issue cease and desist orders to take corrective action;

•	remove officers and directors and assess civil monetary penalties; and

•	take possession and close and liquidate the Bank.

As discussed above, on October 8, 2008, the Bank entered into a MOU with the Regulators to address certain issues raised in the Bank’s most recent regulatory examination by the DFI on March 10, 2008.

Permissible Activities and Subsidiaries

Under the California ~~law permits~~Financial Code, California banks have all the powers of a California corporation, subject to the general limitation of state ~~chartered commercial banks~~bank powers under the FDI Act to ~~engage in any activity~~those permissible for national banks. ~~Therefore,~~California banks may engage in the ~~Bank~~“commercial banking business,” which generally encompasses lending, deposit-taking and

all other kinds of banking business in which banks, including national banks, customarily engage in the United States. Further, California banks may form subsidiaries to engage in the many so-called “closely related to banking” or “non-banking” activities commonly conducted by national banks in operating subsidiaries. Federal law prohibits the Bank and its subsidiaries ~~and, further, pursuant~~from engaging in any banking activities in which a national bank cannot engage, unless the activity is found by the FDIC not to pose a significant risk to the DIF. This prohibition does not extend to those activities in which the Bank (or a subsidiary of the Bank) is authorized under state law to engage as agent, advisor, custodian, administrator or trustee for its customer.

In addition, under the GLBA, the Bank may ~~conduct certain “financial”~~engage in expanded financial activities ~~in a subsidiary~~through specially qualified “financial subsidiaries” to the same extent as ~~may~~ a national ~~bank, provided~~bank. In order to form a financial subsidiary, the Bank ismust be and ~~remains “well-capitalized,” “well-managed”~~remain well-capitalized and well-managed and in satisfactory compliance with the ~~CRA.~~CRA, and would be subject to the same capital deduction, risk management and affiliate transaction rules that apply to financial subsidiaries of national banks. Generally, a financial subsidiary is permitted to engage in activities, as may a financial holding company, that are “financial in nature” or incidental thereto, even though they are not permissible for the national bank to conduct directly within the bank. However, a bank financial subsidiary may not engage as principal in underwriting insurance (other than credit life insurance), issue annuities, or engage in real estate development or investment or merchant banking. Presently, ~~none of~~ the ~~Bank’s subsidiaries are~~Bank has no financial subsidiaries.

In September 2007, the SEC and the FRB finalized joint rules required by the Financial Services Regulatory Relief Act of 2006 to implement exceptions provided in the GLBA for securities activities that banks may conduct without registering with the SEC as a securities broker or moving such activities to a broker-dealer

affiliate. The FRB’s final Regulation R provides exceptions for networking arrangements with third party broker-dealers and authorizes compensation for bank employees who refer and assist retail and high net worth bank customers with their securities, including sweep accounts to money market funds, and with related trust, fiduciary, custodial and safekeeping needs. The final rules, which ~~will not be~~became effective ~~until~~in 2009, are not expected to have a material effect on the current securities activities that the Bank currently conducts for customers.

Interstate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994, bank holding companies and banks generally have the ability to acquire or merge with banks in other ~~states;~~states, and, subject to certain state restrictions, banks may also acquire or establish new branches outside their home states. Interstate branches are subject to certain laws of the states in which they are located. The Bank presently has no interstate branches.

Federal Home Loan Bank System

The Bank is a member and stockholder of the capital stock of the Federal Home Loan Bank of San Francisco. Among other benefits, each Federal Home Loan Bank (“FHLB”) serves as a reserve or central bank for its members within its assigned region and makes available loans or advances to its members. Each FHLB is financed primarily from the sale of consolidated obligations of the FHLB system. Each FHLB makes available loans or advances to its members in compliance with the policies and procedures established by the Board of Directors of the individual FHLB. Each member of the FHLB of San Francisco is required to own stock in an amount equal to the greater of (i) a membership stock requirement with an initial cap of $25 million (100 percent of “membership asset value” as defined), or (ii) an activity based stock requirement (based on percentage of outstanding advances). At December 31, 2008, the Bank was in compliance with the FHLB’s stock ownership requirement and our investment in FHLB capital stock totaled $30.7 million. The FHLB recently announced that it would not pay any dividends on its capital stock in the first quarter of 2009, and there can be no assurance that the FHLB will pay dividends at the same rate it has paid in the past, or that it will pay any dividends in the future.

Federal Reserve System

The FRB requires all depository institutions to maintain noninterest-bearing reserves at specified levels against their transaction accounts (primarily checking and non-personal time deposits). At December 31, ~~2007,~~2008, the Bank was in compliance with these requirements.

~~Dividends and Other Transfers of Funds~~

Dividends from the Bank constitute the principal source of income to Hanmi Financial. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends without the prior approval of the DFI or the FRB. In addition, the banking agencies have the authority to prohibit the Bank from paying dividends, depending upon the Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Furthermore, under the Federal Prompt Corrective Action regulations, the FRB may prohibit a bank holding company from paying any dividends if the holding company’s bank subsidiary is classified as “undercapitalized.” See~~“Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividends”for a further discussion of restrictions on the Bank’s ability to pay dividends to Hanmi Financial.~~

Capital Standards

At December 31, ~~2007,~~2008, Hanmi Financial and the Bank’s capital ratios exceed the minimum percentage requirements ~~for~~to be deemed “well capitalized” institutions. See“Notes to

Consolidated Financial Statements, Note 14 — Regulatory Matters.”

Hanmi Financial and the Bank are subject to capital adequacy guidelines that incorporate both risk-based and leverage capital requirements. These capital adequacy guidelines define capital in terms of “core capital elements,” or Tier 1 capital, and “supplemental capital elements,” or Tier 2 capital. Tier 1 capital is generally defined as the sum of the core capital elements less goodwill and certain other deductions, notably the unrealized net gains or losses (after tax adjustments) on available-for-sale investment securities carried at fair value. The ~~Federal banking agencies have adopted~~following items are included as core capital elements: (i) common shareholders’ equity; (ii) qualifying non-cumulative perpetual preferred stock and related surplus, including trust preferred securities (but not in excess of 25 percent of Tier 1 capital); and (iii) minority interests in the equity accounts of consolidated subsidiaries. If Hanmi Financial were to receive TARP CPP funds, they would also count as Tier 1 capital. Supplementary capital elements include: (i) allowance for loan and lease losses (but not more than 1.25 percent of an institution’s risk-weighted assets); (ii) perpetual preferred stock and related surplus not qualifying as core capital; (iii) hybrid capital instruments, perpetual debt and mandatory convertible debt instruments; and (iv) term subordinated debt and intermediate-term preferred stock and related surplus. The maximum amount of supplemental capital elements that qualifies as Tier 2 capital is limited to 100 percent of Tier 1 capital.

The minimum required ratio of qualifying total capital to total risk-weighted assets, or the total risk-based capital ratio, is 8.0 percent, at least one-half of which must be in the form of Tier 1 capital, and the minimum required ratio of Tier 1 capital ~~guidelines for bank holding companies and banks that~~to total risk-weighted assets, or the Tier 1 risk-based capital ratio, is 4.0 percent. Risk-based capital ratios are ~~intended~~calculated to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets, and transactions, ~~that~~such as letters of credit and recourse arrangements, which are recorded as off-balance sheet items. Under the risk-based capital guidelines, the nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0 percent for assets with low credit risk, such as certain U.S. Treasury securities, to 100 percent for assets with relatively high credit risk, such as business loans.

The risk-based capital ~~ratio is determined by classifying assets~~requirements also take into account concentrations of credit (i.e., relatively large proportions of loans involving one borrower, industry, location, collateral or loan type) and ~~certain off-balance sheet financial instruments into weighted categories,~~the risks of “non-traditional” activities (those that have not customarily been part of the banking business). The regulations require institutions with high or inordinate levels of risk to operate with higher ~~levels~~minimum capital standards and authorize the regulators to review an institution’s management of such risks in assessing an institution’s capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization’s total capital is divided into tiers. “Tier 1 capital” includes common equity and trust-preferred securities, subject to certain criteria and quantitative limits.adequacy. The risk-based capital regulations also include exposure to interest rate risk as a factor that the regulators will consider in evaluating a bank’s capital adequacy. Interest rate risk is the exposure of a bank’s current and future earnings and equity capital arising from adverse movements in interest rates. While interest rate risk is inherent in a bank’s role as financial intermediary, it introduces volatility to bank earnings and to the economic value of the institution. Bank holding companies and banks engaged in significant trading activity (trading assets constituting 10 percent or more of total assets, or $1 billion or more) may also be subject to the market risk capital guidelines ~~require~~and be required to incorporate additional market and interest rate risk components into their risk-based capital standards. Neither Hanmi Financial nor the Bank is currently subject to the market risk capital rules.

Hanmi Financial and the Bank are also required to maintain a ~~minimum~~leverage capital ratio designed to supplement the risk-based capital guidelines. Banks and bank holding companies that have received the highest rating of ~~qualifying total capital~~the five categories used by regulators to ~~risk-weighted assets of 8.0 percent~~rate banks and that are not anticipating or experiencing any significant growth must maintain a ~~minimum~~ ratio of Tier 1 capital ~~to risk-weighted assets~~(net of ~~4.0 percent.~~

An institution’s risk-based capital, leverage capital and tangible capital ratios together determine the institution’s capital classification. An institution is treated as well capitalized if its total capital to risk-weighted assets ratio is 10.0 percent or more; its Tier 1 capital to risk-weighted assets ratio is 6.0 percent or more; and its Tier 1 capitalall intangibles) to adjusted total ~~average~~ assets of at least 3.0 percent. All other institutions are required to maintain a leverage ratio isof at least 100 to 200 basis points above the 3.0 percent minimum, for a minimum of 4.0 percent to 5.0 percent. Pursuant to federal regulations, banks must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. Federal regulators may, however, set higher capital requirements when a bank’s particular circumstances warrant. As of December 31, 2008, the Bank’s leverage capital ratio was 8.85 percent, ~~or more.~~and Hanmi Financial’s leverage capital ratio was 8.93 percent, both ratios exceeding regulatory minimums.

As of December 31, ~~2007,~~2008, the regulatory capital guidelines and the actual capital ratios for Hanmi Financial and the Bank were as follows:


							Actual as of
	Requirement						December 31, 2007						*Regulatory Capital Guidelines*						*Actual*

	Adequately			Well			Hanmi			Hanmi			*Adequately*			*Well*			*Hanmi*			*Hanmi*
	Capitalized			Capitalized			Bank			Financial			*Capitalized*			*Capitalized*			*Bank*			*Financial*


Total Risk-Based Capital Ratio		8.0	%		10.0	%		10.59	%		10.65	%		8.00	%		10.00	%		10.70	%		10.79	%
Tier 1 Risk-Based Capital Ratio		4.0	%		6.0	%		9.34	%		9.40	%		4.00	%		6.00	%		9.44	%		9.52	%
Tier 1 Leverage Capital Ratio		4.0	%		5.0	%		8.47	%		8.52	%
Tier 1 Leverage Ratio														4.00	%		5.00	%		8.85	%		8.93	%

The terms of the MOU included a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent. As of December 31, 2008, the Bank had a Tier 1 leverage ratio of 8.85 percent and a tangible stockholder’s equity to total tangible assets ratio of 8.68 percent, both above the required 8.0 percent level.

The current risk-based capital guidelines that apply to Hanmi Financial and the Bank are based upon the 1988 capital accord of the International Basel Committee on Banking

~~Supervision.~~ Supervision, a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. A new international accord, referred to as Basel II, which emphasizes internal assessment of credit, market and operational risk, supervisory assessment and market discipline in determining minimum capital requirements, ~~currently becomes~~became mandatory for large or “core” international banks outside the ~~U.S.~~United States in 2008 (total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more); is optional for others, and if adopted, must first be complied with in a “parallel run” for two years along with the existing Basel I standards. ~~A separate~~In January 2009, the Basel Committee proposed to reconsider regulatory capital standards, supervisory and risk-management requirements and additional disclosures in the final new accord in response to recent worldwide developments.

In July 2008, the U.S. federal banking agencies issued a proposed rule ~~is expected to be released and issued in final by the Federal regulatory agencies in 2008, which will offer U.S. banks~~ that ~~will~~would give banking organizations that do not ~~adopt Basel II an alternative “standardized approach under Basel II” option and address concerns that~~use the Basel II advanced approaches the option to implement a new risk-based capital framework. This framework ~~may offer significant competitive advantages~~would adopt the standardized approach of Basel II for credit risk, the ~~largest~~basic indicator approach of Basel II for operational risk, and related disclosure requirements. While this proposed rule generally parallels the relevant approaches under Basel II, it diverges where U.S. markets have unique characteristics and ~~international banks.~~risk profiles, most notably with respect to risk weighting residential mortgage exposures. A definitive final rule has not been issued. The U.S. banking agencies have indicated, however, that they will retain the minimum leverage requirement for all U.S. banks. ~~Further proposals~~

Prompt Corrective Action Regulations

Federal law requires each federal banking agency to take prompt corrective action when a bank falls below one or more prescribed minimum capital ratios. The federal banking agencies have, by regulation, defined the following five capital categories:


•	“Well Capitalized” — Total risk-based capital ratio of 10.0 percent, Tier 1 risk-based capital ratio of 6.0 percent, and leverage capital ratio of 5.0 percent, and not subject to any order or written directive by any regulatory authority to meet and maintain a specific capital level for any capital measure;

•	“Adequately Capitalized” — Total risk-based capital ratio of 8.0 percent, Tier 1 risk-based capital ratio of 4.0 percent, and leverage capital ratio of 4.0 percent (or 3.0 percent if the institution receives the highest rating from its primary regulator);

•	“Undercapitalized” — Total risk-based capital ratio of less than 8.0 percent, Tier 1 risk-based capital ratio of less than 4.0 percent, or leverage capital ratio of less than 4.0 percent (or 3.0 percent if the institution receives the highest rating from its primary regulator);

•	“Significantly Undercapitalized” — Total risk-based capital ratio of less than 6.0 percent, Tier 1 risk-based capital ratio of less than 3.0 percent, or leverage capital ratio of less than 3.0 percent; and

•	“Critically Undercapitalized” — Tangible equity to total assets of less than 2.0 percent.

A bank may be treated as though it were in the next lower capital category if, after notice and ~~revisions~~the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice so warrants, but no bank may be treated as “critically undercapitalized” unless its actual capital ratio warrants such treatment.

Undercapitalized banks are required to ~~the Basel II framework~~ submit capital restoration plans and, during any period of capital inadequacy,

may ~~also occur in response~~not pay dividends or make other capital distributions, are subject to ~~recent adverse liquidity~~asset growth and ~~securitization market developments.~~expansion restrictions and may not be able to accept brokered deposits. At each successively lower capital category, banks are subject to increased restrictions on operations.

The FDI Act gives the Federal banking agencies the additional broad authority to take “prompt corrective action” to resolve the problems of insured depository institutions that fall within any undercapitalized category, including requiring the submission of an acceptable capital restoration plan. The Federalfederal banking agencies have also adopted non-capital safety and soundness standards to assist examiners in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset quality and growth, (v) earnings, (vi) risk management, and (vii) compensation and benefits. In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired. If an institution fails to meet safety and soundness standards, the appropriate federal banking agency may require the institution to submit a compliance plan and institute enforcement proceedings if an acceptable compliance plan is not submitted or the deficiency is not corrected.

FDIC Deposit Insurance

~~Through~~The FDIC is an independent federal agency that insures deposits, up to prescribed statutory limits, of federally insured banks and savings institutions and safeguards the ~~Deposit Insurance Fund (“DIF”),~~safety and soundness of the banking and savings industries. The FDIC insures ~~the Bank’s~~our customer deposits through the DIF up to prescribed limits for each depositor. Pursuant to the EESA, the maximum deposit insurance amount has been increased from $100,000 to $250,000 through the end of 2009. The amount of FDIC assessments paid by each DIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors. Pursuant to the Federal Deposit Insurance Reform Act of 2005, the FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15 percent and 1.50 percent of estimated insured deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. ~~The Federal Deposit Insurance Reform Act of 2006 (“FDIRA”)~~In an effort to restore capitalization levels and ~~implementing regulations provide for changes in~~to ensure the ~~formula and factors to be considered by~~DIF will adequately cover projected losses from future bank failures, the FDIC, in ~~calculating~~October 2008, proposed a rule to alter the way in which it differentiates for risk in the risk-based assessment system and to revise deposit insurance assessment rates, including base assessment rates. First quarter 2009 assessment rates were increased to between 12 and 50 cents for every $100 of domestic deposits, with most banks paying between 12 and 14 cents.

On February 27, 2009, the FDIC ~~reserve ratio, assessments and dividends, including business line concentrations and risk~~approved an interim rule to institute a one-time special assessment of ~~failure and severity~~20 cents per $100 in domestic deposits to restore the DIF reserves depleted by recent bank failures. The interim rule additionally reserves the right of ~~loss~~the FDIC to charge an additional up-to-10 basis point special premium at a later point if the DIF reserves continue to fall. The FDIC also approved an increase in regular premium rates for the second quarter of 2009. For most banks, this will be between 12 to 16 basis points per $100 of domestic deposits. Premiums for the rest of 2009 have not yet been set.

Additionally, by participating in the ~~event~~transaction account guarantee program under the TLGP, banks temporarily become subject to an additional assessment on deposits in excess of ~~failure. It is unclear whether~~$250,000 in certain transaction accounts and additionally for assessments from 50 basis points to 100 basis points per annum depending on the initial maturity of the debt. Further, all FDIC-insured institutions are required to pay assessments to the FDIC ~~may need~~ to ~~increase~~fund interest payments on bonds issued by the Financing Corporation (“FICO”), an agency of the Federal Government established to recapitalize the predecessor to the DIF. The FICO assessment rates, which are determined quarterly, averaged 0.0113 percent of insured deposits in fiscal 2008. These assessments will continue until the FICO bonds mature in ~~the near term or longer term to address the risks and costs of any increase in bank failures.~~2017.

The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of athe bank’s depositors. The termination of deposit insurance for ~~the Bank~~a bank would also result in the revocation of the ~~Bank’s~~bank’s charter by the DFI.

Loans-to-One-Borrower

With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25 percent (and unsecured loans may not exceed 15 percent) of the bank’s stockholders’ equity, allowance for loan losses, and any capital notes and debentures of the bank.

Extensions of Credit to Insiders and Transactions with Affiliates

The Federal Reserve Act and FRB Regulation O place limitations and conditions on loans or extensions of credit to:


•	a bank or bank holding company’s executive officers, directors and principal ~~shareholders~~stockholders (i.e., in most cases, those persons who own, control or have power to vote more than 10 percent of any class of voting securities);

•	any company controlled by any such executive officer, director or ~~shareholder;~~stockholder; or

•	any political or campaign committee controlled by such executive officer, director or principal ~~shareholder.~~stockholder.

Such loans and leases:


•	must comply with loan-to-one-borrower limits;

•	require prior full board approval when aggregate extensions of credit to the person exceed specified amounts;

•	must be made on substantially the same terms (including interest rates and collateral) and follow credit-underwriting procedures no less stringent than those prevailing at the time for comparable transactions with non-insiders;

•	must not involve more than the normal risk of repayment or present other unfavorable features; and

•	in the aggregate limit not exceed the bank’s unimpaired capital and unimpaired surplus.

California has laws and the DFI has regulations that adopt and apply Regulation O to the Bank.

The Bank also is subject to certain restrictions imposed by Federal Reserve Act Sections 23A and 23B and FRB Regulation W on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, any affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of any affiliates. Affiliates include parent holding companies, sister banks, sponsored and advised companies, financial subsidiaries and investment

companies where the Bank’s affiliate serves as investment advisor. Sections 23A and 23B and Regulation W generally:


•	prevent any affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts;

•	limit such loans and investments to or in any affiliate individually to 10 percent of the Bank’s capital and surplus;

•	limit such loans and investments to all ~~affiliate~~affiliates in the aggregate to 20 percent of the Bank’s capital and surplus; and

•	require such loans and investments to or in any affiliate to be on terms and under conditions substantially the same or at least as favorable to the Bank as those prevailing for comparable transactions with ~~nonaffiliated~~non-affiliated parties.

Additional restrictions on transactions with affiliates may be imposed on the Bank under the FDI ~~Act~~Act’s prompt corrective action ~~provisions~~regulations and the supervisory authority of the ~~Federal~~federal and state banking ~~agencies.~~agencies discussed above.

Dividends

Holders of Hanmi Financial common stock and preferred stock are entitled to receive dividends as and when declared by the Board of Directors out of funds legally available therefore under the laws of the State of Delaware. Delaware corporations such as Hanmi Financial may make distributions to their stockholders out of their surplus, or out of their net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. However, dividends may not be paid out of a corporation’s net profits if, after the payment of the dividend, the corporation’s capital would be less than the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets.

The FRB has advised bank holding companies that it believes that payment of cash dividends in excess of current earnings from operations is inappropriate and may be cause for supervisory action. As a result of this policy, banks and their holding companies may find it difficult to pay dividends out of retained earnings from historical periods prior to the most recent fiscal year or to take advantage of earnings generated by extraordinary items such as sales of buildings or other large assets in order to generate profits to enable payment of future dividends. In a February 2009 guidance letter, the FRB directed that a bank holding company should inform the FRB if it is planning to pay a dividend that exceeds earnings for a given quarter or that could affect the bank’s capital position in an adverse way. Further, the FRB’s position that holding companies are expected to provide a source of managerial and financial strength to their subsidiary banks potentially restricts a bank holding company’s ability to pay dividends. Hanmi

Financial has agreed with the FRB that it will not declare or pay any dividends or make any payments on its trust preferred securities or any other capital distributions without the prior written consent of the FRB.

The Bank is a legal entity that is separate and distinct from its holding company. Hanmi Financial receives income through dividends paid by the Bank. Subject to the regulatory restrictions described below, future cash dividends by the Bank will depend upon management’s assessment of future capital requirements, contractual restrictions and other factors.

The powers of the Board of Directors of the Bank to declare a cash dividend to its holding company is subject to California law, which restricts the amount available for cash dividends to the lesser of a bank’s retained earnings or net income for its last three fiscal years (less any distributions to shareholders made during such period). Where the above test is not met, cash dividends may still be paid, with the prior approval of the DFI, in an amount not exceeding the greatest of: 1) retained earnings of the bank; 2) the net income of the bank for its last fiscal year; or 3) the net income of the bank for its current fiscal year. There are no retained earnings available for cash dividends to Hanmi Financial immediately after December 31, 2008 due to the Bank’s retained deficit of $53.5 million as of December 31, 2008 and a net loss for both its current and last fiscal years. See“Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividends”for a further discussion of restrictions on the Bank’s ability to pay dividends to Hanmi Financial.

Bank regulators also have authority to prohibit a bank from engaging in business practices considered to be unsafe or unsound. It is possible, depending upon the financial condition of a bank and other factors, that regulators could assert that the payment of dividends or other payments might, under certain circumstances, be an unsafe or unsound practice, even if technically permissible.

Bank Secrecy Act and USA PATRIOT Act

The Bank Secrecy Act (“BSA”) is a disclosure law that forms the basis of the Federal Government’s framework to prevent and ~~Anti-Money Laundering Compliance~~detect money laundering and to deter other criminal enterprises. Under the BSA, financial institutions such as the Bank are required to maintain certain records and file certain reports regarding domestic currency transactions and cross-border transportations of currency. Among other requirements, the BSA requires financial institutions to report imports and exports of currency in the amount of $10,000 or more and, in general, all cash transactions of $10,000 or more. The Bank has established a BSA compliance policy under which, among other precautions, the Bank keeps currency transaction reports to document cash transactions in excess of $10,000 or in multiples totaling more than $10,000 during one business day, monitors certain potentially suspicious transactions such as the exchange of a large number of small denomination bills for large denomination bills, and scrutinizes electronic funds transfers for BSA compliance. The BSA also requires that financial institutions report to relevant law enforcement agencies any suspicious transactions potentially involving violations of law.

The USA PATRIOT Act ~~of 2001~~ and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws ~~including~~in response to the ~~Bank Secrecy Act.~~terrorist attacks in September 2001. The Bank has adopted additional comprehensive policies and procedures to address the requirements of the USA PATRIOT Act. Material deficiencies in anti-money laundering compliance can result in public enforcement actions by the banking agencies, including the imposition of civil money penalties and supervisory restrictions on growth and expansion. Such enforcement actions could also have serious reputation consequences for ~~Hanmi Financial~~us and the Bank.

Consumer Laws

The Bank and Hanmi Financial are subject to many ~~Federal~~federal and state consumer protection laws and regulations prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition, including:


•	The Home Ownership and Equity Protection Act of 1994 ~~(“HOEPA), which~~ requires extra disclosures and consumer protections to borrowers from certain lending practices, such as practices deemed to be “predatory lending.”

•	Privacy policies are required by ~~Federal~~federal and state banking laws and regulations ~~which~~that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. The federal bank regulatory agencies have adopted customer information security guidelines for safeguarding confidential, personal customer information. The guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to create, implement and maintain a comprehensive written information


	security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information, and protect against unauthorized access or use of such information that could result in substantial harm or inconvenience to any customer.


•	The Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, ~~(“the FACT Act”), which~~ requires financial firms to help deter identity theft, including developing appropriate fraud response programs, and gives consumers more control of their credit data.

•	The Equal Credit Opportunity Act ~~(“ECOA”), which~~ generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.

•	The Truth in Lending Act ~~(“TILA”), which~~ requires that credit terms be disclosed in a meaningful and consistent way so that consumers may compare credit terms more readily and knowledgeably.

•	The Fair Housing Act ~~which~~ regulates many lending practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status.

•	The CRA ~~which~~ requires insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities; directs the ~~Federal~~federal regulatory agencies, in examining insured depository institutions, to assess a bank’s record of helping meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices and further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations. In its ~~last examination for CRA compliance, as of October 10, 2006,~~most recently released public reports, from September 2008, the Bank ~~was rated “Outstanding.”~~received an “outstanding” rating.

•	The Home Mortgage Disclosure Act ~~(“HMDA”), which~~ includes a “fair lending” aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

•	The Real Estate Settlement Procedures Act ~~(“RESPA”), which~~ requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits certain abusive practices, such as kickbacks.

•	The National Flood Insurance Act ~~which~~ requires homes in flood-prone areas with mortgages from a federally regulated lender to have flood insurance.

•	The Americans with Disabilities Act, in conjunction with similar California legislation, requires employers with 15 or more employees and all businesses operating “commercial facilities” or “public accommodations” to accommodate disabled employees and customers.

These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans and providing other services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including, but not limited to, enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights.

Regulation of Subsidiaries

Non-bank subsidiaries are subject to additional or separate regulation and supervision by other state, ~~Federal~~federal and self-regulatory bodies. Chun-Ha and All World are subject to the licensing and supervisory authority of the California Commissioner of Insurance.


*Item 1A.*	*Risk Factors*

Together with the other information on the risks we face and our management of risk contained in this ~~Annual~~ Report or in our other SEC filings, the following presents significant risks that may affect us. Events or circumstances arising from one or more of these risks could adversely affect our business, financial condition, operating results and prospects and the value and price of our common stock could decline. The risks identified below are not intended to be a comprehensive list of all risks we face and additional risks that we may currently view as not material may also ~~impair~~adversely impact our financial condition, business operations and results of operations.

We may be subject to further regulatory action. On October 8, 2008, the members of the Board of Directors

(the “Board”) of the Bank entered into a MOU with the Regulators to address certain issues raised in the Bank’s most recent regulatory examination by the DFI on March 10, 2008. Certain of the issues to be addressed by management under the terms of the memorandum of understanding relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval. In addition, Hanmi Financial has committed to the FRB that it will adopt a consolidated capital plan to augment and maintain a sufficient consolidated capital position. The Bank is required to regularly keep our Regulators informed of its progress in complying with the provisions of the MOU. If we fail to comply with the terms of the MOU or any other regulatory orders or agreements we have entered into, or the Regulators believe that further enforcement action against us is necessary, we may be subject to further requirements to take corrective action, face further regulation and intervention and additional constraints on our business operations, any of which could have a material adverse effect on our results of operations, financial condition and ~~results.~~business.

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. We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. As part of the MOU we entered into, we agreed that the Bank would maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent. We have also committed to the FRB to adopt a consolidated capital plan to augment and maintain a sufficient capital position. Our existing capital resources may not satisfy our capital requirements for the foreseeable future and may not be sufficient to offset any problem assets. Further, should our asset quality erode and require significant additional provision for credit losses, resulting in consistent net operating losses at the Bank, our capital levels will decline and we will need to raise capital to maintain our well-capitalized status and satisfy our agreements with the Regulators.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to continue as a going concern could be materially impaired. Although both Hanmi Financial and the Bank met the requirements to be deemed well-capitalized at December 31, 2008, there can be no assurance that we will continue to be deemed well-capitalized. We have applied to participate in the TARP CPP for an investment of up to $105 million from the Treasury, but we are still waiting a final decision from the Treasury as to whether we will be able to participate in this program. If we cannot raise additional capital through the TARP CPP or other sources when needed, our results of operations and financial condition could be materially and adversely affected. In addition, if we were to raise additional capital through the issuance of additional shares, our stock price could be adversely affected, depending on the terms of any shares we were to issue.

Difficult economic and market conditions have adversely affected our industry. Dramatic declines in the housing market, with decreasing home prices and increasing delinquencies and foreclosures, have negatively impacted the credit performance of mortgage and construction loans and resulted in significant write-downs of assets by many financial institutions. General downward economic trends, reduced availability of commercial credit and increasing unemployment have negatively impacted the credit performance of commercial and consumer credit, resulting in additional write-downs. Concerns over the stability of the financial markets and the economy have resulted in decreased lending by financial institutions to their customers and to each other. This market turmoil and tightening of credit has led to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity. Financial institutions have experienced decreased access to deposits and borrowings. The resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets may adversely affect our business, financial condition, results of operations and stock price. We do not expect that the difficult conditions in the financial markets are likely to improve in the near

future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:


•	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 FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC 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.

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. Recent legislative and regulatory initiatives to address difficult market and economic conditions may not stabilize the U.S. banking system. On October 3, 2008, President Bush signed into law the EESA and on February 17, 2009, President Obama signed the ARRA in response to the current crisis in the financial sector. The Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in the banking system. There can be no assurance, however, as to the actual impact that the EESA and the ARRA will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the EESA and the ARRA to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to capital and credit or the value of our securities.

U.S. and international financial markets and economic conditions could adversely affect our liquidity, results of operations and financial condition. As described in“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments,”global capital markets and economic conditions continue to be adversely affected and the resulting disruption has been particularly acute in the financial sector. Although Hanmi Financial remains well capitalized, our capital ratios have been adversely affected and the cost and availability of funds may be adversely affected by illiquid credit markets and the demand for our products and services may decline as our borrowers and customers realize the impact of an economic slowdown and recession. In addition, the severity and duration of these adverse conditions is unknown and may exacerbate our exposure to credit risk and adversely affect the ability of borrowers to perform under the terms of their lending arrangements with us. Accordingly, continued turbulence in the U.S. and international markets and economy may adversely affect our liquidity, financial condition, results of operations and profitability.

We have recently experienced significant changes in our key management. Our President and Chief Executive Officer joined us in June 2008, our Chief Financial Officer joined us in December 2007 and our Chief Credit Officer joined us in September 2008. Our success depends in large part on our ability to attract key people who are qualified and have knowledge and experience in the banking industry in our markets and to retain those people to successfully implement our business objectives. The unexpected loss of services of one or more of our key personnel or the inability to maintain consistent personnel in management could have a material adverse impact on our business and results of operations.

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. During the year ended December 31, 2008, we recorded a $75.7 million provision for credit losses and charged off $48.2 million in loans, net of $2.2 million in recoveries. There has been a general slowdown in the economy and in particular, in the housing market in areas of Southern California where a majority of our loan customers are based. This slowdown reflects declining prices and excess inventories of homes to be sold, which has

contributed to a financial strain on homebuilders and suppliers, as well as an overall decrease in the collateral value of real estate securing loans. As of December 31, 2008, we had $1.2 billion in commercial real estate, construction and residential property loans. Continuing deterioration in the real estate market generally and in the residential property and construction segment in particular could result in additional loan charge-offs and provisions for credit losses in the future, which could have an adverse effect on our net income and capital levels.

Our allowance for loan losses may not be adequate to cover actual losses. A significant source of risk arises from the possibility that we could sustain losses because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loans. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for loan losses to provide for loan defaults and non-performance. The allowance is also appropriately increased for new loan growth. While we believe that our allowance for loan losses is adequate to cover anticipated losses, we cannot assure you that we will not increase the allowance for loan losses further or that our regulators will not require us to increase this allowance.

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

Brokered deposits may be difficult for us to retain or replace at attractive rates as they mature. Our financial flexibility could be severely constrained if we are unable to renew our wholesale funding or if adequate financing is not available in the future at acceptable rates of interest. We may not have sufficient liquidity to continue to fund new loan originations, and we may need to liquidate loans or other assets unexpectedly in order to repay obligations as they mature. In addition, a depository institution that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits “significantly higher” than the prevailing rate in its market. A depository institution that is adequately capitalized may accept brokered deposits if it obtains the prior approval of the FDIC.

Changes in economic conditions could materially hurt our business. Our business is directly affected by changes in economic conditions, including finance, legislative and regulatory changes and changes in government monetary and fiscal policies and inflation, all of which are beyond our control. Deterioration in economic conditions could result in the following consequences:


•	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.

~~Recent negative developments in the financial industry and U.S. and global credit markets may affect our operations and results.~~ Negative developments in the latter half of 2007 in the subprime mortgage market and the securitization markets for such loans have resulted in uncertainty in the financial markets generally and the expectation of a general economic downturn beginning in 2008. Commercial as well as consumer loan portfolio performances have deteriorated at many institutions and the competition for deposits and quality loans has increased significantly. In addition, the values of real estate collateral supporting many commercial loans and home mortgages have declined and may continue. Bank and bank holding company stock prices have been negatively affected as has the ability of banks and bank holding companies to raise capital or borrow in the debt markets compared to recent years. As a result, there is a potential for new Federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be very aggressive in responding to concerns and trends identified in examinations, including the expected issuance of many formal enforcement orders. Negative developments in the financial industry and the impact of new legislation in response to those developments could negatively affect our operations by restricting our business operations, including our ability to originate or sell loans, and adversely affect our financial performance.

Our Southern California business focus and economic conditions in Southern California could adversely affect our operations. The Bank’s operations are located primarily in Los Angeles and Orange counties. Because of this geographic concentration, our results depend largely upon economic conditions in these areas. Deterioration in economic conditions in the Bank’s market ~~area,~~areas, or a significant natural or man-made disaster in these market areas, could have a material adverse effect on the quality of the Bank’s loan portfolio, the demand for its products and services and on its overall financial condition and results of operations.

Our ~~concentrations~~concentration in commercial real estate loans located primarily in Southern California could have adverse effects on credit quality. ~~Approximately 30.7 percent~~As of December 31, 2008, the Bank’s loan portfolio ~~consists of~~included commercial real estate and construction loans, primarily in Southern ~~California.~~California, totaling $1,087.8 million, or 32.3 percent of total gross loans. Because of this concentration, a deterioration of the Southern California commercial real estate market could have adverse consequences for the Bank. Among the factors that could contribute to such a decline are general economic

conditions in Southern California, interest rates and local market construction and sales activity.

Our ~~earnings are affected by changing interest rates.~~concentration in commercial and industrial loans could have adverse effects on credit quality. ~~Changes~~As of December 31, 2008, the Bank’s loan portfolio included commercial and industrial loans, primarily in ~~interest rates~~Southern California, totaling $2,099.7 million, or 62.4 percent of total gross loans. Because of this concentration, a deterioration of the Southern California economy could affect the ~~level~~ability of borrowers, guarantors and related parties to perform in accordance with the terms of their loans, deposits and investments, the credit profile of existing loans, the rates received on loans and securities and the rates paid on deposits and borrowings. Significant fluctuations in interest rates may have a material adverse effect on our financial condition and results of operations.

~~If we cannot attract deposits, our growth may be inhibited.~~ Our ability to increase our asset base depends in large part on our ability to attract additional deposits at favorable rates. We seek additional deposits by offering deposit products that are competitive with those offered by other financial institutions in our markets. We cannot assure you that these efforts will be successful.

~~We must manage our funding resources to enable us to meet our ongoing operations costs and our deposit and borrowing obligations as they come due.~~ ~~Liquidity is essential to our business and any inability to raise funds~~which could have ~~a substantial negative effect on our liquidity. Sources of funds to meet our operating needs and obligations include deposits; interest and~~

~~fee income on loans and other products and services; earnings on our investment securities portfolio; revenue from~~adverse consequences for the sale or securitization of loans; new capital infusions and borrowings, such as from the Federal Home Loan Banks. Adverse regulatory developments or a decline in our financial condition or a decline in financial market conditions generally, such as the recent turmoil faced by depository financial institutions in the domestic and worldwide credit markets, could have a significant impact on our ability to meet our liquidity needs, including our ability to attract deposits in an increasingly competitive environment.

~~We may not be able to pay dividends in the future.~~ ~~A substantial source of Hanmi Financial’s income from which we pay Hanmi Financial obligations and distribute dividends to our stockholders is from the receipt of dividends from the~~ Bank. The availability of dividends from the Bank is limited by various statutes and regulations. As a result of our net loss for 2007 after the goodwill impairment charge and the increased provision for credit losses, the Bank must obtain the prior approval of the DFI and the FRB in order to pay dividends to Hanmi Financial. In the event the Bank is unable to pay dividends to us, we may not be able to service our debt, pay our obligations or pay dividends on our outstanding common stock. See~~“Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”for a further discussion of restrictions on the Bank’s ability to pay dividends to Hanmi Financial.~~

Our ~~operations may require us to raise additional capital~~concentrations of loans in certain industries could have adverse effects on credit quality. As of December 31, 2008, the Bank’s loan portfolio included loans to: 1) lessors of non-residential buildings totaling $450.2 million, or 13.4 percent of total gross loans; 2) borrowers in the ~~future, but that capital may not be available~~accommodation industry totaling $444.9 million, or ~~may not be on~~13.2 percent of total gross loans; and 3) gas stations totaling $381.0 million, or 11.3 percent of total gross loans. Most of these loans are in Southern California. Because of these concentrations of loans in specific industries, a deterioration of the Southern California economy overall, and specifically within these industries, could affect the ability of borrowers, guarantors and related parties to perform in accordance with the terms ~~acceptable to us when it is needed.~~ ~~We are required by Federal regulatory authorities to maintain adequate levels~~ of ~~capital to support our operations. We believe that our existing capital resources will satisfy our capital requirements~~their loans, which could have adverse consequences for the foreseeable future and will be sufficient to offset any problem assets. However, should our asset quality erode and require significant additional provision, resulting in consistent net operating losses at the Bank, our capital levels will decline and we will need to raise capital. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.

~~The short-term and long-term impact of the new Basel II capital standards and the forthcoming new capital rules to be proposed for non-Basel II U.S. banks is uncertain.~~ As a result of the recent deterioration in the global credit markets and the potential impact of increased liquidity risk and interest rate risk, it is unclear what the short-term impact of the implementation Basel II may be or what impact a pending alternative standardized approach to Basel II option for non-Basel II U.S. banks may have on the cost and availability of different types of credit and the potential compliance costs of implementing the new capital standards.

~~We are subject to government regulations that could limit or restrict our activities, which in turn could adversely affect our operations.~~ The financial services industry is subject to extensive Federal and state supervision and regulation. Significant new laws, changes in existing laws, or repeals of existing laws may cause our results to differ materially. Further, Federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions and a material change in these conditions could have a material adverse affect on our financial condition and results of operations.

~~Competition may adversely affect our performance.~~ The banking and financial services businesses in our market areas are highly competitive. We face competition in attracting deposits, in making loans and attracting and retaining employees. The increasingly competitive environment is a result of changes in regulation, changes in technology and product delivery systems, new competitors in the market, and the pace of consolidation among financial services providers. Our results in the future may differ depending upon the nature and level of competition.Bank.

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. A significant source of risk arises from the possibility that losses will be sustained because borrowers, guarantors or related parties may fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for loan losses, that management believes are appropriate to limit this risk by assessing the likelihood of non-performance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could have a material adverse effect on our financial condition and results of operations. As described herein, the Bank substantially increased its provision for credit losses in 2008 and 2007, as compared to ~~2006 and 2005,~~previous years, as a result of increases in historical loss factors, increased charge-offs and migration of more loans into more adverse risk categories.

~~Failure~~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. A downturn in our real estate markets could hurt our business because many of our loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to ~~manage~~potential purchasers, changes in tax laws and other governmental statutes, regulations and policies and acts of nature, such as earthquakes and national disasters particular to California. Substantially all of our ~~growth may adversely affect~~real estate collateral is located in California. If real estate values continue to further decline, the value of real estate collateral securing our ~~performance.~~loans could be significantly reduced. Our ~~financial performance and profitability depend on our~~ ability to ~~manage~~recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans.

We are exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our ~~recent~~business, we may foreclose and ~~possible future~~

~~growth. Future acquisitions~~take title to real estate, and ~~our continued growth~~could be subject to environmental liabilities with respect to these properties. We may ~~present operating, integration~~be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and ~~other issues that~~clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate orclean-up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could ~~have~~be substantial. In addition, if we are the owner or former owner of a ~~material adverse effect~~contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we become subject to significant environmental liabilities, our business, financial condition, results of operations and ~~cash flows.~~prospects could be adversely affected.

Our earnings are affected by changing interest rates. Changes in interest rates affect the level of loans, deposits and investments, the credit profile of existing loans, the rates received on loans and securities and the rates paid on deposits and borrowings. Significant fluctuations in interest rates may have a material adverse effect on our financial condition and results of operations. The current historically low interest rate environment resulted by the response to the financial market crisis and the global economic recession in 2008 may affect our operating earnings negatively.

We must manage our funding resources to enable us to meet our ongoing operations costs and our deposit and borrowing obligations as they come due. Liquidity is essential to our business and any inability to raise funds could have a substantial negative effect on our liquidity. Sources of funds to meet our operating needs and obligations include deposits; interest and fee income on loans and other products and services; earnings on our investment securities portfolio; revenue from the sale or securitization of loans; new capital infusions and borrowings, such as from the FHLB. Adverse regulatory developments or a decline in our financial condition or a decline in financial market conditions generally, such as the recent turmoil faced by depository financial institutions in the domestic and worldwide credit markets, or a decline in the financial condition of the FHLB, could have a significant impact on our ability to meet our liquidity needs, including our ability to attract deposits in an increasingly competitive environment. We cannot forecast if or when market liquidity conditions will improve from current stresses, although it is our expectation that the existing turmoil in the financial and credit markets may continue to affect its performance at least throughout 2009.

The short-term and long-term impact of the new Basel II capital standards and the forthcoming new capital rules to be proposed for non-Basel II U.S. banks is uncertain. As a result of the recent deterioration in the global credit markets and the potential impact of increased liquidity risk and interest rate risk, it is unclear what the short-term impact of the implementation of Basel II may be or what impact a pending alternative standardized approach to the Basel II option for non-Basel II U.S. banks may have on the cost and availability of different types of credit and the potential compliance costs of implementing the new capital standards.

We are subject to government regulations that could limit or restrict our activities, which in turn could adversely affect our operations. The financial services industry is subject to extensive federal and state supervision and regulation. Significant new laws, changes in existing laws, or repeals of existing laws may cause our results to differ materially. Further, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions and a material change in these conditions could have a material adverse affect on our financial condition and results of operations.

Competition may adversely affect our performance. The banking and financial services businesses in our market areas are highly competitive. We face competition in attracting deposits, making loans, and attracting and retaining employees. The increasingly competitive environment is a result of changes in regulation, changes in technology and product delivery systems, new competitors in the market, and the pace of consolidation among financial services providers. Our results in the future may differ depending upon the nature and level of competition.

Hanmi Bank is currently restricted from paying dividends to Hanmi Financial and Hanmi Financial is restricted from paying dividends to stockholders and from making any payments on its trust preferred securities. The primary source of Hanmi Financial’s income from which we pay Hanmi Financial obligations and distribute dividends to our stockholders is from the receipt of dividends from the Bank. The availability of dividends from the Bank is limited by various statutes and regulations. The Bank currently has deficit retained earnings and has suffered net losses in 2007 and 2008, largely caused by goodwill impairments. As a result, the California Financial Code does not provide authority for the Bank to declare a dividend to Hanmi Financial, with or without Commissioner approval. In addition, the Bank is prohibited from paying dividends to Hanmi Financial unless it receives prior regulatory approval. See“Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources.” Furthermore, Hanmi Financial has agreed that it will not pay any dividends or make any payments on our outstanding $82.4 million of trust preferred securities or any other capital distributions without the prior written consent of the FRB. We began to defer interest payment on our trust preferred securities commencing with the interest payment that was due on January 15, 2009. If we defer interest payments for more than 20 consecutive quarters under any of our outstanding trust preferred instruments, then we would be in default under such trust preferred arrangements and the amounts due under the agreements pursuant to which we issued our trust preferred securities would be immediately due and payable. See“Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for a further discussion of restrictions on the Bank’s ability to pay dividends to Hanmi Financial.

We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. The effective use of

technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands for convenience, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

We rely on communications, information, operating and financial control systems technology from third-party service providers, and we may suffer an interruption in those systems.We rely heavily on third-party service providers for much of our communications, information, operating and financial control systems technology, including our internet banking services and data processing systems. Any failure or interruption of these services or systems or breaches in security of these systems could result in failures or interruptions in our customer relationship management, general ledger, deposit, servicingand/or loan origination systems. The occurrence of any failures or interruptions may require us to identify alternative sources of such services, and we cannot assure you that we could negotiate terms that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need to expend substantial resources, if at all.

Negative publicity could damage our reputation. Reputation risk, or the risk to our earnings and capital from negative publicity or public opinion, is inherent in our business. Negative publicity or public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or perceived conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.

~~Our~~The price of our common stock may be volatile or may decline. The trading price of our common stock may fluctuate widely because of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect our stock price ~~can be volatile due to many factors.~~ ~~Our stock price can fluctuate widely in response to a variety of factors, in addition to those described above, including:~~are:


•	actual or anticipated quarterly fluctuations in our operating results and financial condition;

•	changes in revenue or earnings estimates or publication of research reports and recommendations by ~~securities~~financial analysts;

•	~~operating and stock price performance of other companies that investors deem comparable~~failure to ~~us;~~meet analysts’ revenue or earnings estimates;

•	~~news reports relating~~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 ~~trends, concerns and other issues in~~market conditions for the financial services industry;

•	~~new technology used,~~proposed or ~~services offered, by our competitors;~~adopted legislative or regulatory changes or developments;

•	~~natural disasters, such as earthquakes; and~~anticipated or pending investigations, proceedings or litigation that involve or affect us; or

•	~~geopolitical conditions such as acts or threats of terrorism or military conflicts.~~domestic and international economic factors unrelated to our performance.

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility recently. As a result, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. The trading price of the shares of our common stock and the value of our other securities will depend on many factors, which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity-related securities, and other factors identified above in“Cautionary Note Regarding Forward-Looking Statements.”Current levels of market volatility are unprecedented. The capital and credit markets have been experiencing volatility and disruption for more than a year. In recent months, the volatility and disruption has reached unprecedented levels. In some cases, the markets have produced downward pressure on

stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation and potential delisting from The NASDAQ Stock Market, Inc. (“Nasdaq”).

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. Various provisions of our certificate of incorporation and by-laws could delay or prevent a third-party from acquiring us, even if doing so might be beneficial to our stockholders. These provisions provide for, among other things, a classified board of directors, supermajority voting approval for certain actions, limitation on large stockholders taking certain actions and the authorization to issue “blank check” preferred stock by action of the Board of Directors acting alone, thus without obtaining stockholder approval. The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as amended, together with federal regulations, require that, depending on the particular circumstances, either FRB approval must be obtained or notice must be furnished to the FRB and not disapproved prior to any person or entity acquiring “control” of a state member bank, such as the Bank. These provisions may prevent a merger or acquisition that would be attractive to stockholders and could limit the price investors would be willing to pay in the future for our common stock.

We may face other risks. From time to time, we detail other risks with respect to our businessand/or financial results in our filings with the SEC.


*Item 1B.*	*Unresolved Staff Comments*

None.

1427


*Item 2.*	*Properties*

Hanmi Financial’s principal office is located at 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California. The office is leased pursuant to a five-year term, which expires on November 30, ~~2008.~~2013.

The following table sets forth information about our ~~offices:~~offices as of December 31, 2008:


			*Owned/*
*Office*	~~Owned/~~ Address
~~Office~~	*~~Type of Office~~City/State*	*~~Address~~Leased*	~~City/State~~	~~Leased~~


Corporate ~~Headquarters~~	Headquarters⁽¹⁾	3660 Wilshire Boulevard, Penthouse Suite A	Los Angeles, CA	Leased
~~Cerritos~~ Branches:
Beverly Hills Branch	9300 Wilshire Boulevard, Suite 101	Beverly Hills, CA	Leased
Cerritos — Artesia Branch	11754 East Artesia Boulevard	Artesia, CA	Leased
~~Downtown~~Cerritos — South Branch	11900 South Street, Suite 109	Cerritos, CA	Leased
Downtown — Los Angeles Branch	950 South Los Angeles Street	Los Angeles, CA	Leased
Fashion District Branch	~~Branch~~	726 East 12th Street, Suite 211	Los Angeles, CA	Leased
Fullerton ~~Branch~~	— Beach Branch	5245 Beach Boulevard	Buena Park, CA	Leased
Garden Grove ~~Branch~~	— Brookhurst Branch	9820 Garden Grove Boulevard	Garden Grove, CA	Owned
~~Gardena~~Garden Grove — Magnolia Branch	9122 Garden Grove Boulevard	Garden Grove, CA	Owned
Gardena Branch	2001 West Redondo Beach Boulevard	Gardena, CA	Leased
Irvine Branch	~~Branch~~	14474 Culver Drive, Suite D	Irvine, CA	Leased
Koreatown Galleria ~~Branch~~	Branch	3250 West Olympic Boulevard, Suite 200	Los Angeles, CA	Leased
Koreatown Plaza Branch	~~Branch~~⁽²⁾	928 South Western Avenue, Suite 260	Los Angeles, CA	Leased
~~Mid-Olympic~~Northridge Branch	10180 Reseda Boulevard	Northridge, CA	Leased
Olympic Branch⁽³⁾⁽²⁾	3737 West Olympic Boulevard	Los Angeles, CA	Owned
Olympic — Kingsley Branch	3099 West Olympic Boulevard	Los Angeles, CA	Owned
~~Olympic Branch~~	~~Branch~~⁽⁴⁾	~~3737 West Olympic Boulevard~~	~~Los Angeles, CA~~	~~Owned~~
Rancho Cucamonga ~~Branch~~	Branch	9759 Baseline Road	Rancho Cucamonga, CA	Leased
Rowland Heights Branch	~~Branch~~	18720 East Colima Road	Rowland Heights, CA	Leased
San Diego ~~Branch~~	Branch	4637 Convoy Street, Suite 101	San Diego, CA	Leased
San Francisco Branch	~~Branch~~	~~1491~~1469 Webster Street	San Francisco, CA	Leased
Silicon Valley Branch	~~Branch~~	2765 El Camino Real	Santa Clara, CA	Leased
~~South Cerritos Branch~~	~~Branch~~	~~11900 South Street, Suite 109~~	~~Cerritos, CA~~	~~Leased~~
Torrance ~~Branch~~	— Crenshaw Branch	2370 Crenshaw Boulevard, Suite H	Torrance, CA	Leased
~~Van Nuys~~Torrance — Del Amo Mall Branch	21838 Hawthorne Boulevard	Torrance, CA	Leased
Van Nuys Branch	14427 Sherman Way	Van Nuys, CA	Leased
Vermont Branch	~~Branch~~⁽⁵⁾⁽³⁾	933 South Vermont Avenue	Los Angeles, CA	Owned
~~West Garden Grove Branch~~	~~Branch~~	~~9122 Garden Grove Boulevard~~	~~Garden Grove, CA~~	~~Owned~~
~~West Torrance Branch~~	~~Branch~~	~~21838 Hawthorne Boulevard~~	~~Torrance, CA~~	~~Leased~~
Western ~~Branch~~	Branch	120 South Western Avenue	Los Angeles, CA	Leased
Wilshire — Hobart Branch	~~Main Branch~~⁽⁶⁾	3660 Wilshire Boulevard, Suite 103	Los Angeles, CA	Leased
Departments:
Commercial Loan Department	~~Loan Office~~⁽¹⁾	3660 Wilshire Boulevard, Suite 1050	Los Angeles, CA	Leased
~~SBA~~ Consumer Loan ~~Department~~Center⁽¹⁾	~~Loan Office~~3099 West Olympic Boulevard, Second Floor	Los Angeles, CA	Owned
Insurance Department⁽¹⁾	~~3327~~3660 Wilshire Boulevard, Suite 424	Los Angeles, CA	Leased
~~Atlanta LPO~~ International Finance Department⁽¹⁾	933 South Vermont Avenue, 2nd Floor	Los Angeles, CA	Leased
SBA Loan ~~Office~~Center⁽¹⁾	3660 Wilshire Boulevard, Suite 116	Los Angeles, CA	Leased
LPO’s and Subsidiaries:
Atlanta LPO⁽¹⁾	3585 Peachtree Industrial Boulevard, Suite 144	Duluth, GA	Leased
Chicago LPO	~~Loan Office~~⁽¹⁾	6200 North Hiawatha, Suite 235	Chicago, IL	Leased
Dallas LPO	~~Loan Office~~⁽¹⁾	2711 LBJ Freeway, Suite 114	Farmers Branch, TX	Leased
Denver LPO	~~Loan Office~~⁽¹⁾	3033 South Parker Road, Suite 340	Aurora, CO	Leased
~~Northern California~~ Northwest Region LPO	~~Loan Office~~⁽¹⁾	~~39899 Balentine Drive, Suite 200~~	~~Newark, CA~~	~~Leased~~
~~Northwest Region LPO~~	~~Loan Office~~⁽¹⁾	3500 108th Avenue Northeast, Suite 280	Bellevue, WA	Leased
Virginia LPO	~~Loan Office~~⁽¹⁾	7535 Little River Turnpike, Suite 200B	Annandale, VA	Leased
~~Chun-Ha Insurance Services~~	~~Headquarters~~ Chun-Ha/All World⁽¹⁾	12912 Brookhurst Street, Suite 480	Garden Grove, CA	Leased
Chun-Ha ~~Insurance Services~~	~~Insurance Office~~⁽¹⁾	3225 Wilshire Boulevard, Suite 1806	Los Angeles, CA	~~Leased~~
~~All World Insurance Services~~	~~Headquarters~~⁽¹⁾	~~12912 Brookhurst Street, Suite 480~~	~~Garden Grove,~~ CA	Leased


(1)		Deposits are not accepted at this facility.

(2)		~~Residential Mortgage Center~~Training Facility is also located at this facility.

(3)		~~Auto Loan Center and Consumer Loan Center are also located at this facility.~~

~~(4)~~		~~Training Facility is also located at this facility.~~

~~(5)~~		Administrative offices are also located at this facility.

~~(6)~~		~~International Finance Department is also located at this facility.~~

As of December 31, 2008, our consolidated investment in premises and equipment, net of accumulated depreciation and amortization, totaled $20.3 million. Our total occupancy expense, exclusive of furniture and equipment expense, was $5.2 million for the year ended December 31, 2008. Hanmi Financial and its subsidiaries consider their present facilities to be sufficient for their current operations.


*Item 3.*	*Legal Proceedings*

From time to time, Hanmi Financial and its subsidiaries are parties to litigation that arises in the ordinary course of business, such as claims to enforce liens, claims involving the origination and servicing of loans, and other issues related to the business of Hanmi Financial and its subsidiaries. In the opinion of management, the resolution of any such issues would not have a material adverse impact on the financial condition, results of operations, or liquidity of Hanmi Financial or its subsidiaries.


*Item 4.*	*Submission of Matters to a Vote of Security Holders*

During the fourth quarter of ~~2007,~~2008, no matters were submitted to stockholders for a vote.

PART II


*Item 5.*	*Market ~~For~~for Registrant’s Common Equity, Related Stockholder Matters ~~And~~and Issuer Purchases Ofof Equity Securities*

Market Information

The following table sets forth, for the periods indicated, the high and low trading prices of Hanmi Financial’s common stock for the last two years as reported by ~~NASDAQ~~Nasdaq under the symbol ~~“HAFC.”~~“HAFC”:


	High		Low		Cash Dividend		*High*		*Low*		*Cash Dividend*


2007:
2008:
Fourth Quarter	$	16.70	$	8.39	$	0.06 per share	$	5.19	$	1.65		—
Third Quarter	$	17.39	$	14.04	$	0.06 per share	$	6.77	$	4.65		—
Second Quarter	$	19.50	$	15.74	$	0.06 per share	$	7.79	$	5.20	$	0.03 Per Share
First Quarter	$	23.18	$	18.58	$	0.06 per share	$	9.82	$	6.80	$	0.06 Per Share
2006:
2007:
Fourth Quarter	$	22.88	$	18.89	$	0.06 per share	$	16.70	$	8.39	$	0.06 Per Share
Third Quarter	$	20.00	$	18.13	$	0.06 per share	$	17.39	$	14.04	$	0.06 Per Share
Second Quarter	$	20.46	$	17.09	$	0.06 per share	$	19.50	$	15.74	$	0.06 Per Share
First Quarter	$	19.95	$	17.04	$	0.06 per share	$	23.18	$	18.58	$	0.06 Per Share

Holders

Hanmi Financial had ~~347~~339 registered stockholders of record as of ~~February 7, 2008.~~March 1, 2009.

Dividends

Hanmi Financial has agreed with the FRB that it will not pay any cash dividends to its stockholders without prior consent of the FRB. Hanmi Bank is also required to seek prior approval from the Regulators to pay cash dividends to Hanmi Financial. The ability of Hanmi Financial to pay dividends to ~~our shareholders~~its stockholders is also directly dependent on the ability of the Bank to pay dividends to us. Section 642 of the California Financial Code provides that neither a California state-chartered bank nor a majority-owned subsidiary of a bank can pay dividends to its ~~shareholders~~stockholders in an amount which exceeds the lesser of (a) the retained earnings of the bank or (b) the net income of the bank for its last three fiscal years, in each case less the amount of any previous distributions made during such period.

As a result of the net loss incurred by the Bank in 2007, the Bank is currently not able to pay dividends to Hanmi Financial under Section 642. However, Financial Code Section 643 provides, alternatively, that, notwithstanding the foregoing restriction, dividends in an amount not exceeding the greatest of (a) the retained earnings of the bank; (b) the net income of the bank for its last fiscal year or (c) the net income of the bank for its current fiscal year may be declared with the prior approval of the California Commissioner of Financial Institutions. The Bank had a retained ~~earnings~~deficit of ~~$52.8~~$53.5 million as of December 31, ~~2007.~~2008.

~~Similarly,~~Due to the net ~~loss~~losses for 2008 and 2007, ~~requires prior~~ FRB approval is required for payment of bank dividends ~~in 2008~~ to Hanmi ~~Financial.~~Financial in 2008. FRB Regulation H Section 208.5 provides that the Bank must obtain FRB approval to declare and pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the Bank’s net income during the current calendar year and the retained net income of the prior two calendar years. ~~The Bank will seek prior approval from~~On August 29, 2008, we announced the ~~DFI~~suspension of our quarterly cash dividend. As a result of entering into the MOU and further agreements we have entered into with the FRB, we are required to ~~pay cash~~obtain regulatory approval prior to the Bank or Hanmi Financial declaring any dividends to ~~Hanmi Financial.~~its respective shareholders.

There can be no assurance when or if these approvals would be granted, or that, even if granted, the Board of Directors will continue to authorize cash dividends to our ~~shareholders.~~stockholders.

1629

~~Securities Authorized for Issuance Under Equity Compensation Plans~~

The following table summarizes information as of December 31, 2007 relating to equity compensation plans of Hanmi Financial pursuant to which grants of options, restricted stock awards or other rights to acquire shares may be granted from time to time.

Number of Securities

Remaining Available for

Number of Securities to be
Weighted-Average
Future Issuance Under

Issued Upon Exercise of
Exercise Price of
Equity Compensation

Outstanding Options,
Outstanding Options,
Plans (Excluding Securities

Warrants and Rights Warrants and Rights (b) Reflected in Column (a))

(a) (b)

Equity Compensation Plans Approved By Security Holders 1,472,766 $ 15.33 2,879,000
Equity Compensation Plans Not Approved By Security Holders — $ — —

Total Equity Compensation Plans 1,472,766 $ 15.33 2,879,000

Performance Graph

The following graph shows a comparison of stockholder return on Hanmi Financial’s common stock with the cumulative total returns for: 1) the ~~NASDAQ~~Nasdaq Composite^® (U.S.) Index; 2) the Standard and Poors (“S&P”) 500 Financials Index; and 3) the SNL Bank $1B-$5B Index, which was compiled by SNL Financial LC of Charlottesville, Virginia. ~~The SNL Bank $1B-$5B Index was added to the graph this year to enhance comparisons of Hanmi Financial’s performance to other companies with similar market capitalizations.~~ The graph assumes an initial investment of $100 and reinvestment of dividends. The graph is historical only and may not be indicative of possible future performance. The performance graph shall not be deemed incorporated by reference to any general statement incorporating by reference this ~~Annual~~ Report into any filing under the Securities Act of 1933 or under the Exchange Act, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.

TOTAL RETURN PERFORMANCE


					December 31,														*December 31,*

Index	Symbol		2002		2003		2004		2005		2006		2007		*Symbol*		*2003*		*2004*		*2005*		*2006*		*2007*		*2008*


Hanmi Financial		HAFC	$	100.00	$	121.24	$	223.44	$	224.61	$	286.92	$	111.66		HAFC	$	100.00	$	183.81	$	184.73	$	235.52	$	92.62	$	23.10
NASDAQ Composite		ˆ IXIC	$	100.00	$	150.01	$	162.89	$	165.13	$	180.85	$	198.60
Nasdaq Composite																IXIC	$	100.00	$	108.59	$	110.08	$	120.56	$	132.39	$	78.72
S&P 500 Financials		S5FINL	$	100.00	$	127.92	$	138.45	$	143.61	$	166.82	$	132.05		S5FINL	$	100.00	$	110.70	$	117.38	$	139.94	$	114.55	$	52.43
SNL Bank $1B-$5B		—	$	100.00	$	135.99	$	167.83	$	164.97	$	190.90	$	139.06		—	$	100.00	$	123.42	$	121.31	$	140.38	$	102.26	$	84.81

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

~~On April 25, 2006, the Board of Directors of Hanmi Financial authorized the repurchase of up to $50.0 million of common stock. The following are details on repurchases under this program for~~During the fourth quarter of ~~2007:~~

ISSUER PURCHASES OF EQUITY SECURITIES

(d) Maximum Number (or

(b) Average
(c) Total Number of Shares
Approximate Dollar

(a )Total Number
Price Paid
(or Units) Purchased as
Value) of Shares (or Units)

of Shares (or
per Share
Part of Publicly Announced
that May Yet Be Purchased

Period Units) Purchased (or Unit) Plans or Programs Under the Plans or Programs

Repurchases from October 1, 2007 to October 31, 2007 2,000 $ 16.57 2,000 $ 11,074,000
Repurchases from November 1, 2007 to November 30, 2007 1,060,400 $ 9.62 1,060,400 $ 798,000
Repurchases from December 1, 2007 to December 31, 2007 82,000 $ 9.34 82,000 $ 29,000

Total 1,144,400 $ 9.62 1,144,400

2008, there were no purchases of equity securities. As of December 31, 2008, there was no current plan authorizing purchases of equity securities.

1930


*Item 6.*	*Selected Financial Data*

The following table presents selected historical financial information, including per share information as adjusted for the stock dividends and stock splits declared by us. This selected historical financial data should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this Report and the information contained in“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”The selected historical financial data as of and for each of the years in the five years ended December 31, ~~2007~~2008 is derived from our audited financial statements. In the opinion of management, the information presented reflects all adjustments, including normal and recurring accruals, considered necessary for a fair presentation of the results of such periods.


				As of and for the Year Ended December 31,											*As of and for the Year Ended December 31,*

(Dollars in thousands, except for per share data)	2007			2006		2005		2004		2003		*2008*			*2007*			*2006*		*2005*		*2004*


SUMMARY STATEMENTS OF OPERATIONS:
Interest Income	$	280,896		$	260,189	$	200,941	$	135,554	$	77,417
Interest and Dividend Income												$	238,183		$	280,896		$	260,189	$	200,941	$	135,554
Interest Expense		128,693			106,429		62,111		32,617		20,796		103,782			129,110			106,946		62,850		32,652

Net Interest Income Before Provision for Credit Losses		152,203			153,760		138,830		102,937		56,621		134,401			151,786			153,243		138,091		102,902
Provision for Credit Losses		38,323			7,173		5,395		2,907		5,680		75,676			38,323			7,173		5,395		2,907
Non-Interest Income		40,006			36,963		31,450		26,211		20,022		32,149			40,006			36,963		31,450		26,211
Non-Interest Expenses		189,929			77,313		70,201		66,566		39,325
Non-Interest Expense													194,322			189,929			77,313		70,201		66,566

Income (Loss) Before Provision for Income Taxes		(36,043	)		106,237		94,684		59,675		31,638
Provision for Income Taxes		24,477			40,588		36,455		22,975		12,425
Income (Loss) Before Provision (Benefit) for Income Taxes													(103,448	)		(36,460	)		105,720		93,945		59,640
Provision (Benefit) for Income Taxes													(1,355	)		24,302			40,370		36,144		22,960

NET INCOME (LOSS)	$	(60,520	)	$	65,649	$	58,229	$	36,700	$	19,213	$	(102,093	)	$	(60,762	)	$	65,350	$	57,801	$	36,680

SUMMARY BALANCE SHEETS:
Cash and Cash Equivalents	$	122,398		$	138,501	$	163,477	$	127,164	$	62,595	$	215,188		$	122,398		$	138,501	$	163,477	$	127,164
Total Investment Securities		350,457			391,579		443,912		418,973		414,616		197,876			350,457			391,579		443,912		418,973
Net Loans⁽¹⁾		3,241,097			2,837,390		2,469,080		2,234,842		1,248,399		3,291,125			3,241,097			2,837,390		2,469,080		2,234,842
Total Assets		3,983,746			3,725,243		3,414,252		3,104,188		1,787,139		3,875,816			3,983,657			3,725,243		3,414,252		3,104,188
Total Deposits		3,001,699			2,944,715		2,826,114		2,528,807		1,445,835		3,070,080			3,001,699			2,944,715		2,826,114		2,528,807
Total Liabilities		3,612,201			3,238,126		2,987,475		2,704,278		1,647,672		3,611,901			3,613,101			3,238,873		2,987,923		2,704,298
Total Stockholders’ Equity		371,545			487,117		426,777		399,910		139,467		263,915			370,556			486,370		426,329		399,890
Tangible Equity		257,537			273,159		209,028		178,791		137,424		258,965			256,548			272,412		208,580		178,771
Average Net Loans(1)		3,049,775			2,721,229		2,359,439		1,912,534		1,103,765		3,276,142			3,049,775			2,721,229		2,359,439		1,912,534
Average Investment Securities		368,144			414,672		418,750		425,537		379,635		271,802			368,144			414,672		418,750		425,537
Average Interest-Earning Assets		3,494,758			3,214,761		2,871,564		2,387,412		1,538,820		3,653,720			3,494,758			3,214,761		2,871,564		2,387,412
Average Total Assets		3,882,891			3,602,181		3,249,190		2,670,701		1,623,214		3,866,856			3,882,891			3,602,181		3,249,190		2,670,701
Average Deposits		2,989,806			2,881,448		2,632,254		2,129,724		1,416,564		2,913,171			2,989,806			2,881,448		2,632,254		2,129,724
Average Borrowings		355,819			221,347		165,482		223,780		63,138		591,930			355,819			221,347		165,482		223,780
Average Interest-Bearing Liabilities		2,643,296			2,367,389		2,046,227		1,687,688		1,057,249		2,874,470			2,643,296			2,367,389		2,046,227		1,687,688
Average Stockholders’ Equity		492,637			458,227		417,813		293,313		132,369		323,462			492,637			458,227		417,813		293,313
Average Tangible Equity		275,036			242,362		198,527		143,262		130,252		264,490			275,036			242,362		198,527		143,262
PER SHARE DATA:
Earnings (Loss) Per Share — Basic	$	(1.27	)	$	1.34	$	1.18	$	0.87	$	0.68	$	(2.23	)	$	(1.27	)	$	1.34	$	1.18	$	0.87
Earnings (Loss) Per Share — Diluted	$	(1.27	)	$	1.33	$	1.17	$	0.84	$	0.67	$	(2.23	)	$	(1.27	)	$	1.32	$	1.16	$	0.84
Book Value Per Share⁽²⁾	$	8.10		$	9.93	$	8.77	$	8.11	$	4.92	$	5.75		$	8.08		$	9.91	$	8.76	$	8.11
Tangible Book Value Per Share⁽³⁾	$	5.62		$	5.57	$	4.30	$	3.62	$	4.85	$	5.64		$	5.59		$	5.55	$	4.29	$	3.62
Cash Dividends Per Share	$	0.24		$	0.24	$	0.20	$	0.20	$	0.20	$	0.09		$	0.24		$	0.24	$	0.20	$	0.20
Common Shares Outstanding		45,860,941			49,076,613		48,658,798		49,330,704		28,326,820		45,905,549			45,860,941			49,076,613		48,658,798		49,330,704


(1)		Loans receivable, net of allowance for loan losses and deferred loan fees, and loans held for sale.

(2)		Total stockholders’ equity divided by common shares outstanding.

(3)		Tangible equity divided by common shares outstanding.

2031


	As of and for the Year Ended December 31,															*As of and for the Year Ended December 31,*

	2007			2006			2005			2004			2003			*2008*			*2007*			*2006*			*2005*			*2004*


SELECTED PERFORMANCE RATIOS:
Return on Average Assets⁽⁴⁾		(1.56	)%		1.82	%		1.79	%		1.37	%		1.18	%		(2.64	)%		(1.56	)%		1.81	%		1.78	%		1.37	%
Return on Average Stockholders’ Equity⁽⁵⁾		(12.28	)%		14.33	%		13.94	%		12.51	%		14.51	%		(31.56	)%		(12.33	)%		14.26	%		13.83	%		12.51	%
Return on Average Tangible Equity⁽⁶⁾		(22.00	)%		27.09	%		29.33	%		25.62	%		14.75	%		(38.60	)%		(22.09	)%		26.96	%		29.11	%		25.60	%
Net Interest Spread⁽⁷⁾		3.17	%		3.59	%		3.96	%		3.75	%		3.06	%		2.91	%		3.16	%		3.57	%		3.93	%		3.75	%
Net Interest Margin⁽⁸⁾		4.36	%		4.78	%		4.83	%		4.31	%		3.68	%		3.68	%		4.34	%		4.77	%		4.81	%		4.31	%
Efficiency Ratio⁽⁹⁾		98.81	%		40.54	%		40.86	%		51.54	%		51.31	%		116.67	%		99.03	%		40.65	%		41.41	%		51.56	%
Dividend Payout Ratio⁽¹⁰⁾		(18.90	)%		17.91	%		16.95	%		22.99	%		29.41	%		(4.05	)%		(18.11	)%		18.02	%		16.84	%		26.90	%
Average Stockholders’ Equity to Average Total Assets		12.69	%		12.72	%		12.86	%		10.98	%		8.15	%		8.36	%		12.69	%		12.72	%		12.86	%		10.98	%
SELECTED CAPITAL RATIOS:
Total Capital to Total Risk-Weighted Assets:
Hanmi Financial		10.65	%		12.55	%		12.04	%		11.98	%		11.13	%		10.79	%		10.65	%		12.55	%		12.04	%		11.98	%
Hanmi Bank		10.59	%		12.28	%		11.98	%		11.80	%		11.09	%		10.70	%		10.59	%		12.28	%		11.98	%		11.80	%
Tier 1 Capital to Total Risk-Weighted Assets:
Hanmi Financial		9.40	%		11.58	%		11.03	%		10.93	%		10.05	%		9.52	%		9.40	%		11.58	%		11.03	%		10.93	%
Hanmi Bank		9.34	%		11.31	%		10.96	%		10.75	%		10.00	%		9.44	%		9.34	%		11.31	%		10.96	%		10.75	%
Tier 1 Capital to Average Total Assets:
Hanmi Financial		8.52	%		10.08	%		9.11	%		8.93	%		7.80	%		8.93	%		8.52	%		10.08	%		9.11	%		8.93	%
Hanmi Bank		8.47	%		9.85	%		9.06	%		8.78	%		7.75	%		8.85	%		8.47	%		9.85	%		9.06	%		8.78	%
SELECTED ASSET QUALITY RATIOS:
Non-Performing Loans to Total Gross Loans⁽¹¹⁾		1.66	%		0.50	%		0.41	%		0.27	%		0.68	%		3.62	%		1.66	%		0.50	%		0.41	%		0.27	%
Non-Performing Assets to Total Assets⁽¹²⁾		1.37	%		0.38	%		0.30	%		0.19	%		0.48	%		3.17	%		1.37	%		0.38	%		0.30	%		0.19	%
Net Loan Charge-Offs to Average Total Gross Loans		0.73	%		0.17	%		0.12	%		0.19	%		0.29	%		1.38	%		0.73	%		0.17	%		0.12	%		0.19	%
Allowance for Loan Losses to Total Gross Loans		1.33	%		0.96	%		1.00	%		1.00	%		1.06	%		2.11	%		1.33	%		0.96	%		1.00	%		1.00	%
Allowance for Loan Losses to Non-Performing Loans		80.05	%		193.86	%		246.40	%		377.49	%		154.13	%		58.23	%		80.05	%		193.86	%		246.40	%		377.49	%


(4)		Net income (loss) divided by average total assets.

(5)		Net income (loss) divided by average stockholders’ equity.

(6)		Net income (loss) divided by average tangible equity.

(7)		Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities.

(8)		Net interest income before provision for credit losses divided by average interest-earning assets.

(9)		Total non-interest ~~expenses~~expense divided by the sum of net interest income before provision for credit losses and total non-interest income.

(10)		Dividends declared per share divided by basic earnings (loss) per share.

(11)		Non-performing loans consist of non-accrual loans, loans past due 90 days or more and restructured loans.

(12)		Non-performing assets consist of non-performing loans and other real estate owned.

Non-GAAP Financial Measures

Return on Average Tangible Equity

Return on average tangible equity is supplemental financial information determined by a method other than in accordance with U.S. generally accepted accounting principles (“GAAP”). This non-GAAP measure is used by management in the analysis of Hanmi Financial’s performance. Average tangible equity is calculated by subtracting average goodwill and average other intangible assets from average stockholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from stockholders’ equity when assessing the capital adequacy of a financial institution. Management believes the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the financial results of Hanmi Financial, as it provides a method to assess management’s success in utilizing tangible capital. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

2132

The following table reconciles this non-GAAP performance measure to the GAAP performance measure for the periods indicated:


				Year Ended December 31,															*Year Ended December 31,*

(Dollars in thousands)	2007			2006			2005			2004			2003			*2008*			*2007*			*2006*			*2005*			*2004*


Average Stockholders’ Equity	$	492,637		$	458,227		$	417,813		$	293,313		$	132,369		$	323,462		$	492,637		$	458,227		$	417,813		$	293,313
Less Average Goodwill and Average Other Intangible Assets		(217,601	)		(215,865	)		(219,286	)		(150,051	)		(2,117	)		(58,972	)		(217,601	)		(215,865	)		(219,286	)		(150,051	)

Average Tangible Equity	$	275,036		$	242,362		$	198,527		$	143,262		$	130,252		$	264,490		$	275,036		$	242,362		$	198,527		$	143,262

Return on Average Stockholders’ Equity		(12.28	)%		14.33	%		13.94	%		12.51	%		14.51	%		(31.56	)%		(12.33	)%		14.26	%		13.83	%		12.51	%
Effect of Average Goodwill and Average Other Intangible Assets		(9.72	)%		12.76	%		15.39	%		13.11	%		0.24	%		(7.04	)%		(9.76	)%		12.70	%		15.28	%		13.09	%

Return on Average Tangible Equity		(22.00	)%		27.09	%		29.33	%		25.62	%		14.75	%		(38.60	%)		(22.09	%)		26.96	%		29.11	%		25.60	%

Tangible Book Value Per Share

Tangible book value per share is supplemental financial information determined by a method other than in accordance with GAAP. This non-GAAP measure is used by management in the analysis of Hanmi Financial’s performance. Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total stockholders’ equity and dividing the difference by the number of shares of common stock outstanding. Management believes the presentation of this financial measure excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the financial results of Hanmi Financial, as it provides a method to assess management’s success in utilizing tangible capital. This disclosure should not be viewed as a substitution for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following table reconciles this non-GAAP performance measure to the GAAP performance measure for the periods indicated:


	December 31,															*December 31,*

(Dollars in thousands, except per share amounts)	2007			2006			2005			2004			2003			*2008*			*2007*			*2006*			*2005*			*2004*


Total Stockholders’ Equity	$	371,545		$	487,117		$	426,777		$	399,910		$	139,467		$	263,915		$	370,556		$	486,370		$	426,329		$	399,890
Less Goodwill and Other Intangible Assets		(114,008	)		(213,958	)		(217,749	)		(221,119	)		(2,043	)		(4,950	)		(114,008	)		(213,958	)		(217,749	)		(221,119	)

Tangible Equity	$	257,537		$	273,159		$	209,028		$	178,791		$	137,424		$	258,965		$	256,548		$	272,412		$	208,580		$	178,771

Book Value Per Share	$	8.10		$	9.93		$	8.77		$	8.11		$	4.92		$	5.75		$	8.08		$	9.91		$	8.76		$	8.11
Effect of Goodwill and Other Intangible Assets		(2.48	)		(4.36	)		(4.47	)		(4.49	)		(0.07	)		(0.11	)		(2.49	)		(4.36	)		(4.47	)		(4.49	)

Tangible Book Value Per Share	$	5.62		$	5.57		$	4.30		$	3.62		$	4.85		$	5.64		$	5.59		$	5.55		$	4.29		$	3.62


*Item 7.*	*Management’s Discussion ~~And~~and Analysis Ofof Financial Condition ~~And~~and Results Ofof Operations*

This discussion presents management’s analysis of the financial condition and results of operations as of and for the years ended December 31, 2008, 2007 ~~2006~~ and ~~2005.~~2006. This discussion should be read in conjunction with our Consolidated Financial Statements and the Notes related thereto presented elsewhere in this Report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements because of certain factors discussed elsewhere in this Report. See“Item 1A. Risk Factors.”

Critical Accounting Policies

We have established various accounting policies that govern the application of GAAP in the preparation of our consolidated financial statements. Our significant accounting policies are described in the“Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies.”Certain accounting policies require us to make

significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the

carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of Hanmi Financial’s Board of Directors.

Allowance for Loan Losses

We believe the allowance for loan losses and allowance for off-balance sheet items are critical accounting policies that require significant estimates and assumptions that are particularly susceptible to significant change in the preparation of our financial statements. Our allowance for loan loss methodologies incorporate a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors include our historical loss experiences on ~~ten~~10 segmented loan pools by risk rating, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Qualitative factors include the general economic environment in our markets, delinquency and charge-off trends, and the change in non-performing loans. Concentration of credit, change of lending management and staff, quality of loan review system, and change in interest rate are other qualitative factors that are considered in our methodologies. See“Financial Condition — Allowance for Loan Losses and Allowance for Off-Balance Sheet Items,” “Results of Operations — Provision for Credit Losses”and“Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies”for additional information on methodologies used to determine the allowance for loan losses and allowance for off-balance sheet items.

Loan Sales

We ~~routinely~~normally sell SBA and residential mortgage loans to secondary market investors. When SBA guaranteed loans are sold, we generally retain the right to service these loans. We ~~may~~ record a loan servicing ~~assets~~asset when the benefits of servicing are expected to be more than adequate compensation to a ~~servicer. We determine whether the benefits of servicing are expected to be more than adequate compensation to a~~ servicer, which is determined by discounting all of the future net cash flows associated with the contractual rights and obligations of the servicing agreement. The expected future net cash flows are discounted at a rate equal to the return that would adequately compensate a substitute servicer for performing the servicing. In addition to the anticipated rate of loan prepayments and discount rates, other assumptions (such as the cost to service the underlying loans, foreclosure costs, ancillary income and float rates) are also used in determining the value of the loan servicing assets. Loan servicing assets are discussed in more detail in“Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies”and“Note 4 — ~~Servicing Assets”~~Loans”presented elsewhere herein.

Goodwill

~~We have goodwill, which~~Goodwill represents the excess of purchase price over the fair value of net assets ~~acquired, because~~acquired. As of ~~various business acquisitions.~~December 31, 2008, there was no remaining goodwill. As of December 31, 2007, ~~and 2006,~~ goodwill was $107.1 million, ~~and $207.6 million, respectively,~~ which resulted primarily from the acquisition of Pacific Union Bank (“PUB”) in 2004. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,“Goodwill and Other Intangible Assets,”goodwill must be recorded at the reporting unit level. Reporting units are defined as an operating segment. We have identified one reporting unit — our banking operations. SFAS No. 142 prohibits the amortization of goodwill, but requires that it be tested for impairment at least annually (at any time during the year, but at the same time each year), or more frequently if events or circumstances change, such as adverse changes in the business climate, that would more likely than not reduce the reporting unit’s fair value below its carrying amount.

During our ~~annual assessment~~assessments of goodwill during the second quarter of 2008 and the fourth quarter of 2007, we recognized an impairment ~~loss~~losses on goodwill of $107.4 million and $102.9 million, ~~based on~~respectively, occasioned by the decline in the market value of our common stock ~~which we believe~~that reflects, in part, recent turmoil in the financial markets that has adversely affected the market value of the common stock of many banks. Goodwill is discussed in more detail in“Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies”and“Note 6 — Goodwill”presented elsewhere herein.

Investment Securities

The classification and accounting for investment securities are discussed in more detail in“Notes to Consolidated Financial

Statements, Note 1 — Summary of Significant Accounting Policies”presented elsewhere herein. Under SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities,”investment securities generally must be classified as held-to-maturity, available-for-sale or trading. The appropriate classification is based partially on our ability to hold the securities to maturity and largely on management’s intentions with respect to either holding or selling the securities. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities flow directly through earnings during the periods in which they arise. Investment securities that are classified as held-to-maturity are recorded at amortized cost. Unrealized gains and losses on available-for-sale securities are recorded as a separate component of stockholders’ equity (accumulated other comprehensive income or loss) and do not affect earnings until realized or are deemed to be other-than-temporarily impaired.

The fair values of investment securities are generally determined by reference to the average of at least two quoted market prices obtained from independent external brokers or independent external pricing service providers who have experience in valuing these securities. In obtaining such valuation information from third parties, we have evaluated the methodologies used to develop the resulting fair values. We perform a monthly analysis on the broker quotes received from third parties to ensure that the prices represent a reasonable estimate of the fair value. The procedures include, but are not limited to, initial and on-going review of third party pricing methodologies, review of pricing trends, and monitoring of trading volumes. We ensure whether prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if it is determined that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations that utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding.

We are obligated to assess, at each reporting date, whether there is an other-than-temporary impairment (“OTTI”) to our investment securities. Such impairment must be recognized in current earnings rather than in other comprehensive income. The determination of other-than-temporary impairment is a subjective process, requiring the use of judgments and assumptions. We examine all individual securities that are in an unrealized loss position at each reporting date for other-than-temporary impairment. Specific investment-related factors we examine to assess impairment include the nature of the investment, severity and duration of the loss, the probability that we will be unable to collect all amounts due, an analysis of the issuers of the securities and whether there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies. Additionally, we evaluate whether the creditworthiness of the issuer calls the realization of contractual cash flows into question. We reexamine our financial resources, intent and overall ability to hold the securities until their fair values recover. Management does not believe that there are any investment securities, other than those identified in the current and previous periods, that are deemed other-than-temporarily impaired as of December 31, 2008 and 2007. Investment securities are discussed in more detail in“Notes to Consolidated Financial Statements, Note 3 — Securities”presented elsewhere herein.

Income Taxes

We provide for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2008 and 2007, no valuation allowance was required. Income taxes are discussed in more detail in“Notes to Consolidated Financial Statements, Note 1 — Summary of Significant Accounting Policies”and“Note 11 — Income Taxes”presented elsewhere herein.

Executive Overview

The focus of our business has been on commercial and real estate lending. Since the second half of 2007, the economic conditions in the markets in which our borrowers operate continued to deteriorate and the levels of loan delinquency and defaults that we experienced were substantially higher than historical levels. As a result, we have had to make substantial provisions for credit losses in 2007 and 2008, which adversely affected our earnings. We believe that our results of operations will continue to be adversely affected if economic conditions, particularly in California, continue to deteriorate. Following our most recent safety and soundness exam, we entered into a MOU with the Regulators whereby we have agreed to take certain corrective actions and maintain certain levels of capital.

Starting in the fourth quarter of 2007, we expanded our portfolio monitoring activities in an attempt to identify problematic loans. For non-performing loans, we enhanced our collection efforts, increased workout and collection personnel and created individual action plans to maximize, to the extent possible, collections on such loans. We have also made significant changes in two critical areas. First, we have enhanced our policies and procedures regarding the monitoring of loans to be more stringent and make it more difficult to allow exceptions from our loan policy. Second, we strengthened and centralized the loan underwriting and approval processes, including centralizing the credit underwriting function at two locations, created a central monitoring mechanism to monitor all loans, and increased resources in the Bank’s departments responsible for addressing problem assets.

Complementing these initiatives is a program to improve our organizational structure and streamline our operations. Our goal is to reduce costs and gain greater operating efficiencies. During the third quarter of 2008, we reduced our headcount by approximately 10 percent. The headcount reduction was across all of our operations, but the majority was in marketing. As of December 31, 2008, we had 559 full-time equivalent employees as compared to 655 full-time equivalent employees as of December 31, 2007.

In ~~2007,~~2008, total assets ~~increased 6.9~~decreased 2.7 percent, reflecting the weakening economy and our new strategy of focusing on asset quality over growth, compared to increases of 6.9 percent and 9.1 percent in 2007 and ~~10.0 percent in 2006 and 2005.~~2006. Total assets ~~increased~~were $3,875.8 million at December 31, 2008 as compared to $3,983.7 million and $3,725.2 million at December 31, 2007 ~~from $3,725.2 million~~ and ~~$3,414.3~~2006, respectively. Net loans were $3,291.1 million at December 31, ~~2006~~2008 as compared to $3,241.1 million and ~~2005, respectively. Net loans increased to $3,241.1~~$2,837.4 million at December 31, 2007 ~~from $2,837.4 million~~ and ~~$2,469.1~~2006, respectively. Total deposits were $3,070.1 million at December 31, ~~2006~~2008 as compared to $3,001.7 million and ~~2005, respectively. Total deposits increased to $3,001.7~~$2,944.7 million at December 31, 2007 ~~from $2,944.7 million~~ and ~~$2,826.1 million at December 31,~~ 2006, ~~and 2005,~~ respectively.

Effective January 2, 2007, we completed the acquisitions of Chun-Ha and All World, which had combined total assets of $3.9 million on the date of acquisition. The acquisitions were accounted for as

purchases, so the operating results ~~and assets and liabilities~~ of Chun-Ha and All World are included from the acquisition date.

For the ~~year~~years ended December 31, 2008 and 2007, we recognized a net ~~loss~~losses of ~~$60.5~~$102.1 million and $60.8 million, respectively, as compared with net income of ~~$65.6~~$65.4 million for the year ended December 31, 2006. Such ~~loss~~losses in 2008 and 2007 ~~was~~were mainly caused by a goodwill impairment ~~charge~~charges of $107.4 million and $102.9 million, respectively, occasioned by the decline in the market value of our common stock that reflects, in part, recent turmoil in the financial ~~markets.~~markets, and provisions for credit losses of $75.7 million and $38.3 million, respectively. For the years ended December 31, 2008 and 2007, our diluted loss per share was ($2.23) and ($1.27), respectively, as compared to diluted earnings per share of $1.32 for the year ended December 31, 2006. If we measure our operating results from our continuing operations ~~without this~~excluding the impact of the goodwill impairment ~~charge on a non-GAAP basis (as shown in the table below),~~charges, we realized non-GAAP net income of ~~$42.4~~$5.3 million and $42.1 million for the years ended December 31, 2008 and 2007, respectively, as compared with ~~$65.6~~$65.4 million for the year ended December 31, 2006.

Non-GAAP net income is supplemental financial information determined by a method other than in ~~2006.~~accordance with GAAP. This non-GAAP measure is used by management in the analysis of Hanmi Financial’s performance. Non-GAAP net income is calculated by adding the impairment loss on goodwill and GAAP net income (loss) together. Management believes the presentation of this financial measure excluding the impact of ~~these items~~the goodwill impairment charges provides useful supplemental information that is essential to a proper understanding of the financial results of Hanmi Financial, as it provides a method to assess ~~our~~the results from our core banking operations. This disclosure should not be viewed as a substitution for results

Year Ended December 31,

(In thousands) 2007 2006 2005

GAAP Total Non-Interest Expenses $ 189,929 $ 77,313 $ 70,201
Deduct — Impairment Loss on Goodwill (102,891 ) — —

Non-GAAP Total Non-Interest Expenses $ 87,038 $ 77,313 $ 70,201

GAAP Efficiency Ratio 98.81 % 40.54 % 40.86 %
Effect of Impairment Loss on Goodwill (53.53 )% — —

Non-GAAP Efficiency Ratio 45.28 % 40.54 % 40.86 %


	Year Ended December 31,
	2008			2007
	(In thousands)

GAAP Net Loss	$	(102,093	)	$	(60,762	)
Impairment Loss on Goodwill		107,393			102,891

Non-GAAP Net Income, Excluding Impairment Loss on Goodwill	$	5,300		$	42,129

Results Ofof Operations

Net Interest Income, Net Interest Spread and Net Interest Margin

Our earnings depend largely upon the difference between the interest income received from our loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings. The difference is “net interest income.” The difference between the yield earned on interest-earning assets and the cost of interest-bearing liabilities is “net interest spread.” Net interest income, when expressed as a percentage of average total interest-earning assets, is referred to as the “net interest margin.”

Net interest income is affected by the change in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” Our net interest income also is affected by changes in the yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as “rate changes.” Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and competitive factors. Those factors are ~~in turn,~~ affected by general economic conditions and other factors beyond our control, such as ~~Federal~~federal economic policies, the general supply of money in the economy, income tax policies, governmental budgetary matters and the actions of the FRB.

The following table shows the average balances of assets, liabilities and stockholders’ equity; the amount of interest income and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated.


	Year Ended December 31,																								*Year Ended December 31,*

	2007								2006								2005								*2008*								*2007*								*2006*

				Interest		Average						Interest		Average						Interest		Average						*Interest*		*Average*						*Interest*		*Average*						*Interest*		*Average*
	Average			Income/		Yield/			Average			Income/		Yield/			Average			Income/		Yield/			*Average*			*Income/*		*Yield/*			*Average*			*Income/*		*Yield/*			*Average*			*Income/*		*Yield/*
(Dollars in thousands)	Balance			Expense		Rate			Balance			Expense		Rate			Balance			Expense		Rate			*Balance*			*Expense*		*Rate*			*Balance*			*Expense*		*Rate*			*Balance*			*Expense*		*Rate*


ASSETS
Interest-Earning Assets:
Gross Loans, Net⁽¹⁾	$	3,080,544		$	261,992		8.50	%	$	2,747,922		$	239,075		8.70	%	$	2,382,230		$	180,845		7.59	%	$	3,332,133		$	223,942		6.72	%	$	3,080,544		$	261,992		8.50	%	$	2,747,922		$	239,075		8.70	%
Municipal Securities⁽²⁾		71,937			3,055		4.25	%		72,694			3,087		4.25	%		74,166			3,122		4.21	%		63,918			2,717		4.25	%		71,937			3,055		4.25	%		72,694			3,087		4.25	%
Obligations of Other U.S. Government Agencies		116,701			4,963		4.25	%		122,503			5,148		4.20	%		102,703			4,002		3.90	%		65,440			2,813		4.30	%		116,701			4,963		4.25	%		122,503			5,148		4.20	%
Other Debt Securities		179,506			8,436		4.70	%		219,475			10,120		4.61	%		241,881			10,271		4.25	%		142,444			6,574		4.62	%		179,506			8,436		4.70	%		219,475			10,120		4.61	%
Equity Securities		26,228			1,413		5.39	%		24,684			1,354		5.49	%		23,571			1,107		4.70	%		38,516			1,918		4.98	%		26,228			1,413		5.39	%		24,684			1,354		5.49	%
Federal Funds Sold		19,746			1,032		5.23	%		27,410			1,402		5.11	%		46,799			1,589		3.40	%		8,934			166		1.86	%		19,746			1,032		5.23	%		27,410			1,402		5.11	%
Term Federal Funds Sold		96			5		5.21	%		41			2		4.88	%		—			—		—			1,913			43		2.25	%		96			5		5.21	%		41			2		4.88	%
Interest-Earning Deposits		—			—		—			32			1		4.04	%		214			5		2.34	%		422			10		2.37	%		—			—		—			32			1		4.04	%


Total Interest-Earning Assets		3,494,758			280,896		8.04	%		3,214,761			260,189		8.09	%		2,871,564			200,941		7.00	%		3,653,720			238,183		6.52	%		3,494,758			280,896		8.04	%		3,214,761			260,189		8.09	%

Noninterest-Earning Assets:
Cash and Cash Equivalents		92,148								93,535								92,245								88,679								92,148								93,535
Allowance for Loan Losses		(30,769	)							(26,693	)							(22,791	)							(55,991	)							(30,769	)							(26,693	)
Other Assets		326,754								320,578								308,172								180,448								326,754								320,578

Total Noninterest-Earning Assets		388,133								387,420								377,626								213,136								388,133								387,420

Total Assets	$	3,882,891							$	3,602,181							$	3,249,190							$	3,866,856							$	3,882,891							$	3,602,181

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Deposits:
Savings	$	97,173			2,004		2.06	%	$	107,811			1,853		1.72	%	$	138,167			2,130		1.54	%	$	89,866			2,093		2.33	%	$	97,173			2,004		2.06	%	$	107,811			1,853		1.72	%
Money Market Checking and NOW Accounts		452,825			15,446		3.41	%		471,780			14,539		3.08	%		539,678			12,964		2.40	%		618,779			19,909		3.22	%		452,825			15,446		3.41	%		471,780			14,539		3.08	%
Time Deposits of $100,000 or More		1,430,603			75,516		5.28	%		1,286,202			64,184		4.99	%		959,904			31,984		3.33	%		1,045,968			43,598		4.17	%		1,430,603			75,516		5.28	%		1,286,202			64,184		4.99	%
Other Time Deposits		306,876			15,134		4.93	%		280,249			12,460		4.45	%		242,996			7,114		2.93	%		527,927			18,753		3.55	%		306,876			15,551		5.07	%		280,249			12,977		4.63	%
FHLB Advances and Other Borrowings		273,413			13,949		5.10	%		138,941			6,977		5.02	%		83,076			3,017		3.63	%
Federal Home Loan Bank Advances and Other Borrowings																										509,524			14,373		2.82	%		273,413			13,949		5.10	%		138,941			6,977		5.02	%
Junior Subordinated Debentures		82,406			6,644		8.06	%		82,406			6,416		7.79	%		82,406			4,902		5.95	%		82,406			5,056		6.14	%		82,406			6,644		8.06	%		82,406			6,416		7.79	%

Total Interest-Bearing Liabilities		2,643,296			128,693		4.87	%		2,367,389			106,429		4.50	%		2,046,227			62,111		3.04	%		2,874,470			103,782		3.61	%		2,643,296			129,110		4.88	%		2,367,389			106,946		4.52	%

Noninterest-Bearing Liabilities:
Demand Deposits		702,329								735,406								751,509								630,631								702,329								735,406
Other Liabilities		44,629								41,159								33,641								38,293								44,629								41,159

Total Noninterest-Bearing Liabilities		746,958								776,565								785,150								668,924								746,958								776,565

Total Liabilities		3,390,254								3,143,954								2,831,377								3,543,394								3,390,254								3,143,954
Stockholders’ Equity		492,637								458,227								417,813								323,462								492,637								458,227

Total Liabilities and Stockholders’ Equity	$	3,882,891							$	3,602,181							$	3,249,190							$	3,866,856							$	3,882,891							$	3,602,181

Net Interest Income				$	152,203							$	153,760							$	138,830							$	134,401							$	151,786							$	153,243

Net Interest Spread⁽³⁾							3.17	%							3.59	%							3.96	%							2.91	%							3.16	%							3.57	%

Net Interest Margin⁽⁴⁾							4.36	%							4.78	%							4.83	%							3.68	%							4.34	%							4.77	%


(1)		~~Loans are~~Average balances for loans include non-accrual loans and net of deferred fees and related direct costs. Loan fees have been included in the calculation of interest income. Loan fees were $2.4 million, $2.7 million ~~$4.8 million~~ and ~~$6.3~~$4.8 million for the years ended December 31, 2008, 2007 ~~2006~~ and ~~2005,~~2006, respectively.

(2)		Tax-exempt income, computed on a tax-equivalent basis using an effective marginal rate of 35 percent, was ~~$4.7~~$4.2 million, $4.7 million and ~~$4.8~~$4.7 million for the years ended December 31, 2008, 2007 ~~2006~~ and ~~2005,~~2006, respectively. Yields on tax-exempt income were ~~6.53~~6.54 percent, 6.53 percent and ~~6.48~~6.53 percent for the years ended December 31, 2008, 2007 ~~2006~~ and ~~2005,~~2006, respectively.

(3)		Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(4)		Represents net interest income as a percentage of average interest-earning assets.

2638

The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for interest-earning assets and interest-bearing liabilities and the amount of change attributable to changes in average daily balances (volume) or changes in average daily interest rates (rate). The variances attributable to both the volume and rate changes have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amount of the changes in each.


	Year Ended December 31,																	*Year Ended December 31,*

	2007 vs. 2006									2006 vs. 2005								*2008 vs. 2007*									*2007 vs. 2006*
	Increase (Decrease)									Increase (Decrease)								*Increase (Decrease)*									*Increase (Decrease)*
	Due to Change in									Due to Change in								*Due to Change in*									*Due to Change in*

(In thousands)	Volume			Rate			Total			Volume			Rate		Total			*Volume*			*Rate*			*Total*			*Volume*			*Rate*			*Total*


Interest Income:
Interest and Dividend Income:
Gross Loans, Net	$	28,391		$	(5,474	)	$	22,917		$	29,839		$	28,391	$	58,230		$	20,139		$	(58,189	)	$	(38,050	)	$	28,385		$	(5,468	)	$	22,917
Municipal Securities		(32	)		—			(32	)		(63	)		28		(35	)		(341	)		3			(338	)		(30	)		(2	)		(32	)
Obligations of Other U.S. Government Agencies		(246	)		61			(185	)		816			330		1,146			(2,202	)		52			(2,150	)		(249	)		64			(185	)
Other Debt Securities		(1,875	)		191			(1,684	)		(994	)		843		(151	)		(1,713	)		(149	)		(1,862	)		(1,877	)		193			(1,684	)
Equity Securities		83			(24	)		59			54			193		247			619			(114	)		505			84			(25	)		59
Federal Funds Sold		(400	)		30			(370	)		(807	)		620		(187	)		(398	)		(468	)		(866	)		(401	)		31			(370	)
Term Federal Funds Sold		3			—			3			2			—		2			43			(5	)		38			3			—			3
Interest-Earning Deposits		(1	)		—			(1	)		(10	)		6		(4	)		10			—			10			—			(1	)		(1	)

Total Interest Income		25,923			(5,216	)		20,707			28,837			30,411		59,248
Total Interest and Dividend Income																			16,157			(58,870	)		(42,713	)		25,915			(5,208	)		20,707

Interest Expense:
Savings		(196	)		347			151			(503	)		226		(277	)		(158	)		247			89			(195	)		346			151
Money Market Checking and NOW Accounts		(601	)		1,508			907			(1,773	)		3,348		1,575			5,382			(919	)		4,463			(601	)		1,508			907
Time Deposits of $100,000 or More		7,481			3,851			11,332			13,068			19,132		32,200			(17,907	)		(14,011	)		(31,918	)		7,481			3,851			11,332
Other Time Deposits		1,244			1,430			2,674			1,220			4,126		5,346			8,835			(5,633	)		3,202			1,291			1,283			2,574
FHLB Advances and Other Borrowings		6,860			112			6,972			2,524			1,436		3,960
Federal Home Loan Bank Advances and Other Borrowings																			8,497			(8,073	)		424			6,858			114			6,972
Junior Subordinated Debentures		—			228			228			—		��	1,514		1,514			—			(1,588	)		(1,588	)		—			228			228

Total Interest Expense		14,788			7,476			22,264			14,536			29,782		44,318			4,649			(29,977	)		(25,328	)		14,834			7,330			22,164

Change in Net Interest Income	$	11,135		$	(12,692	)	$	(1,557	)	$	14,301		$	629	$	14,930		$	11,508		$	(28,893	)	$	(17,385	)	$	11,081		$	(12,538	)	$	(1,457	)

For the years ended December 31, ~~2007~~2008 and ~~2006,~~2007, net interest income was ~~$152.2~~$134.4 million and ~~$153.8~~$151.8 million, respectively. The net interest spread and net interest margin for the year ended December 31, ~~2007~~2008 were ~~3.17~~2.91 percent and ~~4.36~~3.68 percent, respectively, compared to ~~3.59~~3.16 percent and ~~4.78~~4.34 percent, respectively, for the year ended December 31, ~~2006~~2007 and ~~3.96~~3.57 percent and ~~4.83~~4.77 percent, respectively, for the year ended December 31, ~~2005.~~2006.

Average loans were $3.33 billion in 2008, as compared with $3.08 billion in 2007 ~~as compared with~~and $2.75 billion in 2006, ~~and $2.38 billion in 2005,~~ representing increases of 8.2 percent and 12.1 percent in 2008 and ~~15.4 percent in~~ 2007, ~~and 2006,~~ respectively. Average interest-earning assets were $3.65 billion in 2008, as compared with $3.49 billion in 2007 ~~as compared with~~and $3.21 billion in 2006, ~~and $2.87 billion in 2005,~~ representing increases of 4.5 percent and 8.7 percent in 2008 and ~~12.0 percent in~~ 2007, ~~and 2006,~~ respectively. In ~~2007,~~2008, the majority of interest-earning assets growth was funded by a $236.1 million increase in FHLB advances and other borrowings. In 2007, the growth was funded primarily by $108.4 million increase in average total deposits and a $134.5 million increase in FHLB advances and other borrowings. ~~In 2006, the growth was funded primarily by a $249.2 million increase in average total deposits and a $55.9 million increase in FHLB advances and other borrowings.~~ Total average interest-bearing liabilities grew by ~~$275.9~~$231.2 million and ~~$321.2~~$275.9 million, respectively, in ~~2007~~2008 and ~~2006.~~2007.

The average yield on interest-earning assets ~~slightly~~ decreased by 152 basis points to 6.52 percent in 2008, after a five basis point decrease in 2007 to 8.04 percent ~~in 2007, after a 109 basis point increase in 2006 to~~from 8.09 percent ~~from 7.00 percent~~ in ~~2005.~~2006. The ~~strong competition for deposits in our local markets accelerated our~~ average cost on interest-bearing liabilities decreased to ~~4.87~~3.61 percent in ~~2007,~~2008, compared to ~~4.50~~4.88 percent

in 2007 and 4.52 percent in ~~2006 and 3.04 percent in 2005, despite the FRB lowering rates by 100 basis points since September 2007.~~2006. As a result, interest income ~~grew~~decreased 15.2 percent to $238.2 million for 2008 from $280.9 million in 2007 and interest expense decreased 19.6 percent to $103.8 million from $129.1 million in 2007. In 2007, interest income increased by 8.0 percent to $280.9 million ~~for 2007,~~from $260.2 million in 2006, but was outpaced by a ~~20.9~~20.7 percent increase in interest expense to ~~$128.7 million. In 2006, interest income increased by~~

~~29.5 percent to $260.2 million from $200.9~~$129.1 million in ~~2005, but was outpaced by a 71.4 percent increase in interest expense to $106.4~~2007 from $106.9 million in ~~2006 from $62.1 million in 2005.~~2006.

~~Our~~In 2008, net interest income ~~in 2007 was slightly lower at $152.2~~decreased by 11.5 percent to $134.4 million, compared to ~~$153.8~~$151.8 million in ~~2006,~~2007, as the ~~modest~~ growth in average interest-earning assets was offset by the FRB’s lowering of rates. In ~~2006,~~2007, net interest income ~~increased~~decreased by ~~10.8~~1.0 percent to ~~$153.8~~$151.8 million from ~~$138.8~~$153.2 million in ~~2005,~~2006, due primarily to ~~a 12.0 percent increase in average interest-earning assets.~~the FRB’s lowering of rates.

Provision for Credit Losses

For the year ended December 31, 2008, the provision for credit losses was $75.7 million, compared to $38.3 million for the year ended December 31, 2007. The increase in the provision for credit losses is attributable to increases in net charge-offs, non-performing loans and criticized and classified loans. Net charge-offs increased $23.3 million, or 103.1 percent, from $22.6 million for the year ended December 31, 2007 to $46.0 million for the year ended December 31, 2008. Non-performing loans increased from $54.5 million, or 1.66 percent of total gross loans, as of December 31, 2007 to $121.9 million, or 3.62 percent of total gross loans, as of December 31, 2008.

For the year ended December 31, 2007, the provision for credit losses was $38.3 million, compared to $7.2 million for the year ended December 31, 2006. The ~~allowance for loan losses was 1.33 percent and 0.96 percent of total gross loans at December 31, 2007 and 2006, respectively. The~~ increase in the provision for credit losses is attributable to increases in the loan portfolio, net charge-offs, non-performing loans and criticized and classified loans. The gross loan portfolio increased ~~$403.7~~$419.1 million, or ~~14.2~~14.6 percent, from ~~$2,837.4~~$2,868.0 million at December 31, 2006 to ~~$3,241.1~~$3,287.1 million at December 31, 2007. Net charge-offs increased $18.1 million, or 394.3 percent, from $4.6 million for the year ended December 31, 2006 to $22.6 million for the year ended December 31, 2007. Non-performing loans increased from $14.2 million, or 0.50 percent of total gross loans, as of December 31, 2006 to $54.5 million, or 1.66 percent of total gross loans, as of December 31, 2007. The $403.7 million, or 14.2 percent, increase in the loan portfolio and the $40.3 million, or 283.3 percent, increase in non-performing loans required the provision to increase to $38.3 million in 2007 from $7.2 million in 2006 to maintain the necessary allowance level.

For the year ended December 31, 2006, the provision for credit losses was $7.2 million, compared to $5.4 million for the year ended December 31, 2005, an increase of 33.0 percent. The allowance for loan losses was 0.96 percent and 1.00 percent of total gross loans at December 31, 2006 and 2005, respectively, with the increase in the dollar amount allowed for credit losses due to an increase in loan volume. This was primarily due to the overall decrease in historical loss factors on pass grade loans, while non-performing loans increased from $10.1 million, or 0.41 percent of total gross loans, as of December 31, 2005 to $14.2 million, or 0.50 percent of total gross loans, as of December 31, 2006. The $368.3 million, or 14.9 percent, increase in the loan portfolio and the $4.1 million, or 40.3 percent, increase in non-performing loans required the provision to increase to $7.2 million in 2006 from $5.4 million in 2005 to maintain the necessary allowance level.

Non-Interest Income

The following table sets forth the various components of non-interest income for the years indicated:


	Year Ended December 31,							*Year Ended December 31,*

(In thousands)	2007			2006		2005		*2008*			*2007*			*2006*


Service Charges on Deposit Accounts	$	18,061		$	17,134	$	15,782	$	18,463		$	18,061		$	17,134
Insurance Commissions		4,954			770		651		5,067			4,954			770
Trade Finance Fees		4,493			4,567		4,269		3,088			4,493			4,567
Other Service Charges and Fees									2,365			2,527			2,359
Remittance Fees		2,049			2,056		2,122		2,194			2,049			2,056
Other Service Charges and Fees		2,527			2,359		2,496
Bank-Owned Life Insurance Income		933			879		845		952			933			879
Increase in Fair Value of Derivatives		683			1,074		1,105
Other Income		1,702			1,157		1,042
Gain on Sales of Loans		5,452			6,917		3,021		765			5,452			6,917
Gain on Sales of Other Real Estate Owned		226			48		—
Gain on Sales of Securities Available for Sale		—			2		117		77			—			2
Other-Than-Temporary Impairment Loss on Securities		(1,074	)		—		—		(3,115	)		(1,074	)		—
Other Income									2,293			2,611			2,279

Total Non-Interest Income	$	40,006		$	36,963	$	31,450	$	32,149		$	40,006		$	36,963

We earn non-interest income from four major sources: service charges on deposit accounts, insurance commissions, fees generated from international trade finance and gain on sales of loans. For the year ended December 31, 2008, non-interest income was $32.1 million, a decrease of 19.6 percent from $40.0 million for the year ended December 31, 2007. The decrease in non-interest income for 2008 is primarily due to lower gain on sales of loans, an increase in OTTI loss on securities, and lower trade finance fee income. For the year ended December 31, 2007, non-interest income was $40.0 million, an increase of 8.2 percent from $37.0 million for the year ended December 31, 2006. The overall increase in non-interest income for 2007 is primarily due to expansion in the Bank’s loan and deposit portfolios and higher insurance commissions due to the acquisition of two insurance agencies in January 2007, partially offset by lower gain on sales of loans and an~~other-than-temporary~~ ~~impairment~~ OTTI loss on securities. For the year ended December 31, 2006, non-interest income was $37.0 million, an increase of 17.5 percent from $31.5 million for the year ended December 31, 2005. The overall increase in non-interest income for 2006 is primarily due to expansion in the Bank’s loan and deposit portfolios.securities

Service charges on deposit accounts increased $402,000, or 2.2 percent, in 2008 compared to 2007 and increased $927,000, or 5.4 percent, in 2007 compared to ~~2006 and increased $1.4 million, or 8.6 percent, in 2006 compared to 2005.~~2006. Service charge income on deposit accounts increased in ~~2007~~2008 and ~~2006~~2007 due to ~~an increase in the number of accounts and an~~ increase in demand deposit transaction volume. Average demand deposits decreased by 10.2 percent to $630.6 million in 2008 from $702.3 million in 2007 and decreased by 4.5 percent to $702.3 million in 2007 from $735.4 million in ~~2006 and decreased by 2.1 percent to $735.4 million in 2006 from $751.5 million in 2005.~~2006.

increased in 2007 due to the acquisition of two insurance agencies in January 2007.

Fees generated from international trade finance decreased by 31.3 percent from $4.5 million in 2007 to $3.1 million in 2008 and decreased by 1.6 percent from $4.6 million in 2006 to $4.5 million in ~~2007 and increased by 7.0 percent from $4.3 million~~2007. The decrease in ~~2005~~2008 is due primarily to ~~$4.6 million~~depressed international trading activities in ~~2006.~~this recessionary economy. The decrease in 2007 is attributable primarily to decreased export letter of credit volume. ~~The increase in 2006 is attributable primarily to increased export letter of credit volume and fee increases.~~ Trade finance fees relate primarily to import and export letters of credit.

The changes in the fair value of derivatives are caused primarily by movements in the indexes to which interest rates on certain certificates of deposit are tied. In 2005, the Bank offered certificates of deposit tied to either the Standard & Poor’s 500 Index or a basket of Asian currencies. The Bank entered into swap transactions to hedge the market risk associated with such certificates of deposit. The swaps and the related derivatives embedded in the certificates of deposit are accounted for at fair value. The increases in the fair value of the swaps of $683,000, $1.1 million and $1.1 million recorded in non-interest income in 2007, 2006 and 2005, respectively, are partially offset by changes in the fair value of the embedded derivatives recorded in non-interest expenses.

Gain on sales of loans was $765,000 in 2008, compared to $5.5 million in 2007 ~~compared to~~and $6.9 million in 2006, representing a decrease of 86.0 percent for the year ended December 31, 2008 and ~~$3.0 million in 2005, representing~~ a decrease of 21.2 percent for the year ended December 31, ~~2007 and an increase~~2007. In 2008, the decrease in gain on sales of ~~129.0 percent~~loans was due to a depressed secondary market for ~~the year ended December 31, 2006.~~SBA loans. In 2007, the decrease in gain on sales of loans resulted from lower premiums, which decreased to 4.3 percent in 2007 compared to 5.3 percent in 2006. In 2006, the increase in gain on sales of loans resulted from increased sales activity in SBA loans, which was primarily due to increased loan production and sales efforts, including the sale of some of the unguaranteed portions of SBA loans. Generally, the guaranteed portion of a substantial percentage of SBA loans is sold in the secondary markets, and servicing rights are retained. During ~~2007,~~2008, there were ~~$116.6~~$23.3 million of SBA loans sold, compared to $116.6 million in 2007 and $110.7 million in ~~2006 and $50.6 million in 2005.~~2006.

We periodically evaluate our investments for~~other-than-temporary~~ ~~impairment. We have investments in Community Reinvestment Act (“CRA”) preferred securities with an aggregate par value of $2.0 million as of December 31, 2007 and 2006.~~ OTTI. During the fourth quarter of 2007, based on an evaluation of the length of time and extent to which the estimated fair value of the CRA preferred securities had been less than their carrying value, and the financial condition and near-term prospects of the issuers,2008, we recorded an~~other-than-temporary~~ OTTI charge of $3.1 million, which consisted of an impairment loss of $2.4 million on a Lehman Brothers corporate bond, and an impairment loss of $705,000 on a CRA equity fund investment. During 2007, we recorded an OTTI charge of $1.1 million to write down the value of ~~the~~an investment in CRA preferred securities to their estimated fair value.

Non-Interest ~~Expenses~~Expense

The following table sets forth the breakdown of non-interest ~~expenses~~expense for the years indicated:


	Year Ended December 31,							*Year Ended December 31,*

(In thousands)	2007		2006		2005			*2008*		*2007*		*2006*


Salaries and Employee Benefits	$	47,036	$	40,512	$	36,839		$	42,209	$	47,036	$	40,512
Occupancy and Equipment		10,494		9,643		9,413			11,158		10,494		9,643
Data Processing		6,390		5,857		4,844			5,799		6,390		5,857
Professional Fees									3,539		2,468		1,910
Advertising and Promotion		3,630		2,997		2,913			3,518		3,630		2,997
Supplies and Communications		2,592		2,391		2,556			2,518		2,592		2,391
Professional Fees		2,468		1,910		2,201
Amortization of Other Intangible Assets		2,324		2,379		2,785			1,958		2,324		2,379
Decrease in Fair Value of Embedded Option		233		582		748
Impairment Loss on Goodwill									107,393		102,891		—
Other Operating Expenses		11,871		11,042		8,411			16,230		12,104		11,624
Merger-Related Expenses		—		—		(509	)
Impairment Loss on Goodwill		102,891		—		—

Total Non-Interest Expenses	$	189,929	$	77,313	$	70,201
Total Non-Interest Expense								$	194,322	$	189,929	$	77,313

For the year ended December 31, 2008, non-interest expense was $194.3 million, an increase of $4.4 million, or 2.3 percent, from $189.9 million for the year ended December 31, 2007. The increase in 2008 was primarily the result of an increase of $4.5 million in impairment loss on goodwill, an increase of $4.1 million in other operating expenses and $1.4 million attributable to the two new branches opened during the year, partially offset by a decrease of $4.8 million in salaries and employee benefits. For the year ended December 31, 2007, non-interest ~~expenses were~~expense was $189.9 million, an increase of $112.6 million, or 145.7 percent, from $77.3 million for the year ended December 31, 2006. The increase in 2007 was primarily the result of an impairment loss on goodwill of $102.9 million. The remaining increase in 2007 was due to increases in compensation, occupancy and equipment expenses, and other operating expenses, as well as non-interest ~~expenses~~expense of $3.6 million attributable to Chun-Ha and All World and $1.3 million attributable to the two new branches that opened during 2007. For the year ended December 31, 2006, non-interest expenses were $77.3 million, an increase of $7.1 million, or 10.1 percent, from $70.2 million for the year ended December 31, 2005. The increase in 2006 was primarily the result of higher compensation.

Salaries and employee benefits ~~expenses~~expense for 2008 decreased $4.8 million, or 10.3 percent, to $42.2 million from $47.0 million for 2007. The decrease was primarily due to a previously announced staff reduction during the third quarter of 2008 and a lower bonus accrual, offset by $544,000 attributable to the two new branches that opened during 2008. Average headcount was 606 and 623 in 2008 and 2007, respectively, representing a decrease of 2.7 percent over the prior year. Salaries and employee benefits expense for 2007 increased $6.5 million, or 16.1 percent, to ~~$47.0~~

$47.0 million from $40.5 million for 2006. ~~Salaries and employee benefits expenses for 2006 increased $3.7 million, or 10.0 percent, to $40.5 million from $36.8 million for 2005.~~ The increase in 2007 was due to $2.4 million attributable to Chun-Ha and All World, $1.7 million of separation expenses for our former Chief Executive Officer’s retirement, $521,000 attributable to the two new branches that opened during 2007, $370,000 of additional share-based compensation reflecting stock options granted, annual salary increases and an increase in the

average number of employees. Average headcount was 623 ~~589~~ and ~~535~~589 in 2007 ~~2006~~ and ~~2005,~~2006, respectively, representing ~~increases~~an increase of 5.8 percent ~~10.1 percent and 6.4 percent, respectively,~~ over the prior ~~years.~~year.

Occupancy and equipment expenses for 2008 increased $664,000, or 6.3 percent, to $11.2 million from $10.5 million for 2007. The increase ~~in 2006~~ was due ~~primarily~~ to ~~annual salary increases, additional share-based compensation reflecting stock options granted and an increase in~~$456,000 attributable to the ~~average number of employees.~~

two new branches that opened during 2008. Occupancy and equipment expenses for 2007 increased $851,000, or 8.8 percent, to $10.5 million from $9.6 million for 2006. ~~Occupancy and equipment expenses for 2006 increased $230,000, or 2.4 percent, to $9.6 million from $9.4 million for 2005.~~ The increase ~~in 2007~~ was due to $476,000 attributable to the two new branches that opened during 2007, $194,000 attributable to Chun-Ha and All World, and additional office space leased.

Professional fees for 2008 increased $1.1 million, or 43.4 percent, to $3.5 million from $2.5 million for 2007. Professional fees for 2007 increased $558,000, or 29.2 percent, to $2.5 million from $1.9 million for 2006. The ~~increase in 2006 was~~increases for both years were due primarily to additional ~~office space leased.~~professional fees incurred for credit, legal and valuation services.

Other operating expenses were ~~$11.9~~$16.2 million for 2008, compared to $12.1 million for 2007, representing an increase of $4.1 million, or 34.1 percent. The increase was due primarily to a $3.1 million increase in FDIC assessments due to the utilization of a one-time assessment credit received from the FDIC during 2007, which offset the assessments, $1.1 million in losses related to a derivative transaction to which Lehman Brothers Finance, S.A. was a party, and $965,000 of severance expense for four directors who retired during 2008. Other operating expenses were $12.1 million for 2007, compared to ~~$11.0~~$11.6 million for 2006, representing an increase of ~~$829,000,~~$480,000, or ~~7.5~~4.1 percent. The increase is primarily attributable to an increase in the amortization of loan servicing assets. Other operating expenses were $11.0 million for 2006, compared to $8.4 million for 2005, representing an increase of $2.6 million, or 31.3 percent. The increase is primarily attributable to a $534,000 operating loss related to an international trade transaction, amortization expense of $879,000 related to the termination in the fourth quarter of 2005 of interest rate swaps that had unrealized losses aggregating $2.1 million, and a $355,000 impairment charge to adjust the loan servicing asset to fair value.

During our ~~annual assessment~~assessments of goodwill during the second quarter of 2008 and the fourth quarter of 2007, we concluded that we had an impairment of goodwill based on the decline in the market value of our common stock, which we believe reflects, in part, recent turmoil in the financial markets that has adversely affected the market value of the common stock of many ~~banks.~~banks and the increase in our provision for credit losses. The fair value was determined based on a weighted distribution of values derived from three different approaches: market approach, market capitalization approach, and income approach. Based on ~~this assessment,~~these assessments, we concluded that ~~$102.9 million of~~ the related goodwill was impaired and $107.4 million and $102.9 million was required to be expensed as a non-cash ~~charge~~charges to continuing operations during the second quarter of 2008 and the fourth quarter of ~~2007.~~2007, respectively. As of December 31, ~~2007~~2008 and ~~2006,~~2007, goodwill was $0 and $107.1 million, ~~and $207.6 million, respectively, which resulted primarily from the acquisition of PUB in 2004.~~respectively.

Income Taxes

For the year ended December 31, ~~2007, income taxes~~2008, a tax benefit of ~~$24.5~~$1.4 million ~~were~~was recognized on pre-tax losses of ~~$36.0~~$103.4 million, representing an effective tax rate of ~~67.9~~1.3 percent, compared to income taxes of $24.3 million recognized on pre-tax losses of $36.5 million, representing an effective tax rate of 66.7 percent, for 2007, and income taxes of $40.6 million recognized on pre-tax income of $106.2 million, representing an effective tax rate of 38.2 percent, for ~~2006, and income taxes of $36.5 million recognized on pre-tax income of $94.7 million, representing an effective tax rate of 38.5 percent, for 2005.~~2006. The effective tax ~~rate~~rates for 2008 and 2007 ~~includes a~~include impairment losses on goodwill of $107.4 million and $102.9 million, ~~impairment loss on goodwill,~~respectively, which isare not deductible for tax purposes.

During ~~2007,~~2008, we made investments in various tax credit funds totaling ~~$5.8~~$6.1 million and recognized ~~$775,000~~$908,000 of income tax credits earned from qualified low-income housing investments. We recognized an income tax credit of ~~$659,000~~$775,000 for the tax year ~~2006~~2007 from ~~$4.8~~$5.8 million in such investments and recognized an income tax credit of ~~$673,000~~$659,000 for the tax year ~~2005~~2006 from ~~$5.9~~$4.8 million in such investments. We intend to continue to make such investments as part of an effort to lower the effective tax rate and to meet our community reinvestment obligations under the CRA.

As indicated in“Notes to Consolidated Financial Statements, Note 11 — Income Taxes,”income taxes are the sum of two components: current tax expense and deferred tax expense (benefit). Current tax expense is the result of applying the current tax rate to taxable income. The deferred portion is intended to account for the fact that income on which taxes are paid differs from financial statement pretax income because certain items of income and expense are recognized in different years for income tax purposes than in the financial statements. These differences in the years that

income and expenses are recognized cause “temporary differences.”

Most of our temporary differences involve recognizing more expenses in our financial statements than we have been allowed to deduct for taxes, and therefore we normally have a net deferred tax asset. At December 31, ~~2007~~2008 and ~~2006,~~2007, we had net deferred tax assets of ~~$18.5~~$29.5 million and ~~$13.1~~$18.5 million, respectively.

Financial Condition

Investment Portfolio

As of December 31, 2008, the investment portfolio was composed primarily of mortgage-backed securities, U.S. Government agency securities, municipal bonds, collateralized mortgage obligations and corporate bonds.

Investment securities available for sale were 99.5 percent, 99.7 percent and 99.8 percent of the total investment portfolio as of December 31, 2008, 2007 and 2006, respectively. Most of the securities held carried fixed interest rates. Other than holdings of U.S. Government agency securities, there were no investments in securities of any one issuer exceeding 10 percent of stockholders’ equity as of December 31, 2008, 2007 or 2006.

We maintain an investment portfolio primarily for liquidity purposes. As of December 31, 2008, securities available for sale were $197.0 million, or 5.1 percent of total assets, compared to $349.5 million, or 8.8 percent of total assets, as of December 31, 2007. In 2008 and 2007, we purchased $25.4 million and $45.0 million, respectively, of U.S. Government agency securities, corporate bonds and mortgage-backed securities to replenish the portfolio for principal repayments in the form of calls, prepayments and scheduled amortization and to maintain an asset mix consistent with our strategic direction.

The following table summarizes the amortized cost, fair value and distribution of investment securities as of the dates indicated:


	*Investment Portfolio as of December 31,*

	*2008*				*2007*				*2006*

	*Amortized*		*Fair*		*Amortized*		*Fair*		*Amortized*		*Fair*
*(In thousands)*	*Cost*		*Value*		*Cost*		*Value*		*Cost*		*Value*


Securities Held to Maturity:
Municipal Bonds	$	695	$	695	$	694	$	694	$	693	$	693
Mortgage-Backed Securities		215		215		246		247		274		276


Total Securities Held to Maturity	$	910	$	910	$	940	$	941	$	967	$	969


Securities Available for Sale:
Mortgage-Backed Securities	$	77,515	$	78,860	$	99,332	$	99,198	$	123,614	$	121,608
Municipal Bonds		58,987		58,313		69,907		71,751		69,966		71,710
Collateralized Mortgage Obligations		36,204		36,162		51,881		51,418		67,605		66,113
U.S. Government Agency Securities		17,580		17,700		104,893		105,089		119,768		118,244
Other Securities		4,684		4,958		3,925		3,835		4,999		5,050
Equity Securities		511		804		—		—		—		—
Corporate Bonds		355		169		18,295		18,226		8,090		7,887


Total Securities Available for Sale	$	195,836	$	196,966	$	348,233	$	349,517	$	394,042	$	390,612

The following table summarizes the contractual maturity schedule for investment securities, at amortized cost, and their weighted-average yield as of December 31, 2008:


						*After One Year*					*After Five Years*
	*Within*					*But Within*					*But Within*					*After*
	*One Year*					*Five Years*					*Ten Years*					*Ten Years*

*(Dollars in thousands)*	*Amount*		*Yield*			*Amount*		*Yield*			*Amount*		*Yield*			*Amount*		*Yield*


Mortgage-Backed Securities	$	536		4.21	%	$	15,457		4.00	%	$	24,990		4.72	%	$	36,747		5.04	%
Municipal Bonds⁽¹⁾		—		—			3,116		5.05	%		7,778		6.45	%		48,788		6.52	%
Collateralized Mortgage Obligations		11,143		4.05	%		21,734		4.17	%		2,961		3.99	%		366		4.32	%
U.S. Government Agency Securities		2,999		4.19	%		14,581		3.37	%		—		—			—		—
Other Securities		4,684		2.85	%		—		—			—		—			—		—
Equity Securities		—		—			—		—			—		—			511		—
Corporate Bonds		355		7.88	%		—		—			—		—			—		—


	$	19,717		3.86	%	$	54,888		3.96	%	$	35,729		5.04	%	$	86,412		5.84	%


(1)		The yield on municipal bonds has been computed on a tax-equivalent basis, using an effective marginal rate of 35 percent.

Loan Portfolio

Total gross loans increased by $76.3 million, or 2.3 percent, in 2008 and increased by $419.1 million, or 14.6 percent, in 2007. Total gross loans represented ~~82.5~~86.8 percent of total assets at December 31, ~~2007,~~2008, compared with ~~77.0~~82.5 percent and ~~73.2~~77.0 percent at December 31, ~~2006~~2007 and ~~2005,~~2006, respectively.

Commercial and industrial loans were ~~$2,094.7~~$2,099.7 million and ~~$1,726.4~~$2,094.7 million at December 31, 2008 and 2007, ~~and 2006,~~ respectively,

representing ~~63.7~~62.4 percent and ~~60.2~~63.7 percent, respectively, of ~~the~~ total ~~loan portfolio.~~gross loans. Commercial loans include term loans and revolving lines of credit. Term loans typically have a maturity of three to five years and are extended to finance the purchase of business entities, owner-occupied commercial property, business equipment, leasehold improvements or for permanent working capital. SBA guaranteed loans usually have a longer maturity ~~(five~~(5 to ~~twenty~~20 years). Lines of credit, in general, are extended on an annual basis to businesses that need temporary working capitaland/or import/export financing. These borrowers are well diversified as to industry, location and their current and target markets.

Real estate loans were ~~$1,101.9~~$1,180.1 million and ~~$1,041.4~~$1,101.9 million at December 31, ~~2007~~2008 and ~~2006,~~2007, respectively, representing ~~33.5~~35.1 percent and ~~36.3~~33.5 percent, respectively, of ~~the~~ total ~~loan portfolio.~~gross loans. Real estate loans are extended to finance the purchaseand/or improvement of commercial real estate and residential property. The properties generally are investor-owned, but may be for user-owned purposes. Underwriting guidelines include, among other things, an appraisal in conformity with the USPAP, limitations onloan-to-value ratios, and minimum cash flow requirements to service debt. The majority of the properties taken as collateral are located in Southern California.

Residential Property⁽¹⁾

The following table sets forth the percentage distribution of loans in each category as of the dates indicated:


	Percentage Distribution of Loans as of December 31,															*Percentage Distribution of Loans as of December 31,*

	2007			2006			2005			2004			2003			*2008*			*2007*			*2006*			*2005*			*2004*


Real Estate Loans:
Commercial Property		24.2	%		26.4	%		29.4	%		34.6	%		31.4	%		27.0	%		24.2	%		26.4	%		29.4	%		34.6	%
Construction		6.6	%		7.1	%		6.1	%		4.1	%		3.4	%		5.3	%		6.6	%		7.1	%		6.1	%		4.1	%
Residential Property		2.7	%		2.8	%		3.5	%		3.6	%		4.7	%		2.8	%		2.7	%		2.8	%		3.5	%		3.6	%

Total Real Estate Loans		33.5	%		36.3	%		39.0	%		42.3	%		39.5	%		35.1	%		33.5	%		36.3	%		39.0	%		42.3	%

Commercial and Industrial Loans:
Commercial Term Loans		48.7	%		41.9	%		37.8	%		33.3	%		34.3	%		47.9	%		48.7	%		41.9	%		37.8	%		33.3	%
Commercial Lines of Credit		7.8	%		7.9	%		9.0	%		8.9	%		9.6	%		6.4	%		7.8	%		7.9	%		9.0	%		8.9	%
SBA Loans																	5.3	%		3.6	%		6.0	%		6.2	%		7.3	%
International Loans		3.6	%		4.4	%		4.3	%		4.3	%		5.1	%		2.8	%		3.6	%		4.4	%		4.3	%		4.3	%
SBA Loans		3.6	%		6.0	%		6.2	%		7.3	%		7.2	%

Total Commercial and Industrial Loans		63.7	%		60.2	%		57.3	%		53.8	%		56.2	%		62.4	%		63.7	%		60.2	%		57.3	%		53.8	%

Consumer Loans		2.8	%		3.5	%		3.7	%		3.9	%		4.3	%		2.5	%		2.8	%		3.5	%		3.7	%		3.9	%

Total Gross Loans		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The table below shows the maturity distribution and repricing intervals of outstanding loans as of December 31, ~~2007.~~2008. In addition, the table shows the distribution of such loans between those with floating or variable interest rates and those with fixed or predetermined interest rates. The table includes non-accrual loans of ~~$54.3~~$120.8 million.


											*After One*
			After One								*Year But*
	Within		But Within		After				*Within*		*Within*		*After*
(In thousands)	One Year		Five Years		Five Years		Total		*One Year*		*Five Years*		*Five Years*		*Total*


Real Estate Loans:
Commercial Property	$	390,407	$	245,020	$	160,248	$	795,675	$	799,795	$	109,175	$	—	$	908,970
Construction		215,857		—		—		215,857		178,783		—		—		178,783
Residential Property		22,881		40,656		26,838		90,375		37,422		39,443		15,496		92,361

Total Real Estate Loans		629,145		285,676		187,086		1,101,907		1,016,000		148,618		15,496		1,180,114

Commercial and Industrial Loans:
Commercial Term Loans		875,340		325,428		399,085		1,599,853		915,473		346,576		349,400		1,611,449
Commercial Lines of Credit		256,978		—		—		256,978		214,699		—		—		214,699
SBA Loans										169,305		1,288		7,806		178,399
International Loans		119,360		—		—		119,360		95,185		—		—		95,185
SBA Loans		108,413		1,338		8,777		118,528

Total Commercial and Industrial Loans		1,360,091		326,766		407,862		2,094,719		1,394,662		347,864		357,206		2,099,732

Consumer Loans		61,538		28,862		49		90,449		65,212		18,269		44		83,525

Total Gross Loans	$	2,050,774	$	641,304	$	594,997	$	3,287,075	$	2,475,874	$	514,751	$	372,746	$	3,363,371

Loans With Predetermined Interest Rates	$	117,175	$	619,110	$	590,680	$	1,326,965	$	367,434	$	498,685	$	371,973	$	1,238,092
Loans With Variable Interest Rates	$	1,933,599	$	22,194	$	4,317	$	1,960,110	$	2,108,440	$	16,066	$	773	$	2,125,279

As of December 31, ~~2007, there were $389.7 million~~2008, the loan portfolio included the following concentrations of loans ~~or 11.9~~to one type of industry that were greater than 10 percent of total gross loans ~~to borrowers who were involved in the accommodation/hospitality industry, and $336.9 million of loans, or 10.2 percent of total gross loans, to borrowers operating gasoline stations.~~ outstanding:


	*Balance as of*
	*December 31,*		*Percentage of Total*
*Industry*	*2008*		*Gross Loans Outstanding*

	(In thousands)

Lessors of Non-Residential Buildings	$	450,226		13.4	%
Accommodation/Hospitality	$	444,870		13.2	%
Gasoline Stations	$	381,036		11.3	%

There was no other concentration of loans to any one type of industry exceeding ~~ten~~10 percent of total gross loans outstanding.

Non-Performing Assets

Non-performing assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing

interest, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, and other real estate owned (“OREO”). Loans are generally placed on non-accrual status when they become 90 days past due unless management believes the loan is adequately collateralized and in the process of collection. Loans may be restructured by management when a borrower has experienced some change in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower eventually will overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.

Management’s classification of a loan as non-accrual is an indication that there is reasonable doubt as to the full collectibility of principal or interest on the loan; at this point, we stop recognizing income from the interest on the loan and reverse any uncollected interest that had been accrued but unpaid. These loans may or may not be collateralized, but collection efforts are continuously pursued.

Non-performing loans were $121.9 million at December 31, 2008, compared to $54.5 million and $14.2 million at December 31, 2007 ~~compared to $14.2 million~~ and ~~$10.1 million at December 31,~~ 2006, ~~and 2005,~~ respectively, representing a 123.8 percent increase in 2008 and a 283.3 percent increase in ~~2007 and a 40.3 percent increase in 2006.~~2007. Total gross loans increased by 2.3 percent in 2008 over 2007 and 14.6 percent in 2007 over ~~2006 and 14.8 percent in 2006 over 2005.~~2006. As a result, the ratio of non-performing loans to total gross loans increased to 3.62 percent at December 31, 2008 from 1.66 percent at December 31, 2007, and increased to 1.66 percent at December 31, 2007 from 0.50 percent at December 31, ~~2006, and increased to 0.50 percent at December 31, 2006 from 0.41 percent at December 31, 2005.~~2006. As of December 31, 2008 and 2007, we had OREO of $823,000 and $287,000, ~~of OREO. There was no OREO as of December 31, 2006.~~respectively.

Except for non-performing loans set forth below, ~~and loans disclosed as impaired,~~ our management is not aware of any loans as of December 31, ~~2007~~2008 and ~~2006~~2007 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present loan repayment

terms, or any known events that would result in the loan being designated as non-performing at some future date. Our management cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, or changes in the financial condition or business of borrower may adversely affect a borrower’s ability to pay.

Allowance for Loan Losses and Allowance forOff-Balance Sheet Items

Residential Property⁽¹⁾

Commercial and Industrial Loans⁽¹⁾

including centralizing the credit underwriting function at three locations, creating a central monitoring mechanism to monitor all loans, and increasing resources in departments of the Bank engaged in addressing problem assets.

The allowance for loan losses increased by $27.4 million, or 62.8 percent, to $71.0 million at December 31, 2008 as compared with $43.6 million at December 31, 2007 and increased by $16.1 million, or 58.3 percent, to $43.6 million at December 31, 2007 as compared with $27.6 million at December 31, 2006. The increase in the allowance for loan losses in 2008 and 2007 was due primarily to the increased migration of loans into more adverse risk rating categories, increases in non-performing and delinquent loans, and the increase in the overall loan portfolio. See“Provision for Credit Losses.”In addition, the allowance reflects higher estimated loss severity arising from a softening economy, partially offset by our better collateral coverage on certain impaired loans and the presence of guarantees. The increase in the allowance for loan losses in 2006 was due primarily to increased specific allowances for impaired loans and an increase in the qualitative adjustments due to changes in the qualitative factors. The ratio of the allowance for loan losses to total gross loans substantially ~~improved~~increased to ~~1.33~~2.11 percent at the end of ~~2007~~2008 as compared with ~~0.96~~1.33 percent and ~~1.00~~0.96 percent at December 31, ~~2006~~2007 and ~~2005,~~2006, respectively, primarily due to the overall increase of historical loss factors and classified loans.

The Bank also recorded in other liabilities an allowance for ~~off-~~

~~balance~~off-balance sheet exposure, primarily unfunded loan commitments, of ~~$1.8~~$4.1 million and ~~$2.1~~$1.8 million at December 31, ~~2007~~2008 and ~~2006,~~2007, respectively. Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these reserves are adequate for losses inherent in the loan portfolio and off-balance sheet exposure at December 31, ~~2007~~2008 and ~~2006.~~

2007.

We determine the appropriate overall allowance for loan losses and allowance for off-balance sheet items based on the analysis described above, taking into account management’s judgment. The allowance methodology is reviewed on a periodic basis and modified as appropriate. Based on this analysis, including the aforementioned factors, we believe that the allowance for loan losses and allowance for off-balance sheet items are adequate as of December 31, ~~2007~~2008 and ~~2006.~~2007.

As of and For The Year Ended December 31,

(Dollars in thousands) 2007 2006 2005 2004 2003

Allowance for Loan Losses:
Balance at Beginning of Year $ 27,557 $ 24,963 $ 22,702 $ 13,349 $ 11,254

Allowance for Loan Losses from PUB Acquisition — — — 10,566 —

Charge-Offs:
Real Estate Loans:
Commercial Property — — — — 198
Commercial and Industrial Loans 22,255 5,333 4,371 5,004 3,687
Consumer Loans 1,075 796 827 481 538

Total Charge-Offs 23,330 6,129 5,198 5,485 4,423

Recoveries on Loans Previously Charged Off:
Real Estate Loans:
Commercial Property — 406 — — 21
Residential Property — — — — 6
Commercial and Industrial Loans 494 957 2,193 1,702 859
Consumer Loans 202 187 201 78 322

Total Recoveries on Loans Previously Charged Off 696 1,550 2,394 1,780 1,208

Net Loan Charge-Offs 22,634 4,579 2,804 3,705 3,215

Provision Charged to Operating Expenses 38,688 7,173 5,065 2,492 5,310

Balance at End of Year $ 43,611 $ 27,557 $ 24,963 $ 22,702 $ 13,349

Allowance for Off-Balance Sheet Items:
Balance at Beginning of Year $ 2,130 $ 2,130 $ 1,800 $ 1,385 $ 1,015
Provision Charged to Operating Expenses (365 ) — 330 415 370

Balance at End of Year $ 1,765 $ 2,130 $ 2,130 $ 1,800 $ 1,385

Ratios:
Net Loan Charge-Offs to Average Total Gross Loans 0.73 % 0.17 % 0.12 % 0.19 % 0.29 %
Net Loan Charge-Offs to Total Gross Loans at End of Period 0.69 % 0.16 % 0.11 % 0.16 % 0.25 %
Allowance for Loan Losses to Average Total Gross Loans 1.41 % 1.00 % 1.05 % 1.17 % 1.20 %
Allowance for Loan Losses to Total Gross Loans at End of Period 1.33 % 0.96 % 1.00 % 1.00 % 1.06 %
Net Loan Charge-Offs to Allowance for Loan Losses 51.90 % 16.62 % 11.23 % 16.32 % 24.08 %
Net Loan Charge-Offs to Provision Charged to Operating Expenses 58.50 % 63.84 % 55.36 % 148.68 % 60.55 %
Allowance for Loan Losses to Non-Performing Loans 80.05 % 193.86 % 246.40 % 377.55 % 154.13 %
Balances:
Average Total Gross Loans Outstanding During Period $ 3,082,671 $ 2,751,565 $ 2,386,575 $ 1,938,422 $ 1,119,860
Total Gross Loans Outstanding at End of Period $ 3,287,075 $ 2,867,948 $ 2,497,818 $ 2,262,641 $ 1,265,266
Non-Performing Loans at End of Period $ 54,479 $ 14,215 $ 10,131 $ 6,014 $ 8,661

The following table sets forth certain information regarding our allowance for loan losses and allowance for off-balance sheet items for the periods presented.


	*As of and For The Year Ended December 31,*

*(Dollars in thousands)*	*2008*			*2007*			*2006*			*2005*			*2004*


Allowance for Loan Losses:
Balance at Beginning of Year	$	43,611		$	27,557		$	24,963		$	22,702		$	13,349


Allowance for Loan Losses from PUB Acquisition		—			—			—			—			10,566


Charge-Offs:
Real Estate Loans		15,005			199			—			—			—
Commercial and Industrial Loans		31,916			22,255			5,333			4,371			5,004
Consumer Loans		1,231			876			796			827			481


Total Charge-Offs		48,152			23,330			6,129			5,198			5,485


Recoveries on Loans Previously Charged Off:
Real Estate Loans		—			—			406			—			—
Commercial and Industrial Loans		1,979			494			957			2,193			1,702
Consumer Loans		203			202			187			201			78


Total Recoveries on Loans Previously Charged Off		2,182			696			1,550			2,394			1,780


Net Loan Charge-Offs		45,970			22,634			4,579			2,804			3,705


Provision Charged to Operating Expense		73,345			38,688			7,173			5,065			2,492


Balance at End of Year	$	70,986		$	43,611		$	27,557		$	24,963		$	22,702


Allowance for Off-Balance Sheet Items:
Balance at Beginning of Year	$	1,765		$	2,130		$	2,130		$	1,800		$	1,385
Provision Charged to Operating Expense		2,331			(365	)		—			330			415


Balance at End of Year	$	4,096		$	1,765		$	2,130		$	2,130		$	1,800


Ratios:
Net Loan Charge-Offs to Average Total Gross Loans		1.38	%		0.73	%		0.17	%		0.12	%		0.19	%
Net Loan Charge-Offs to Total Gross Loans at End of Period		1.37	%		0.69	%		0.16	%		0.11	%		0.16	%
Allowance for Loan Losses to Average Total Gross Loans		2.13	%		1.41	%		1.00	%		1.05	%		1.17	%
Allowance for Loan Losses to Total Gross Loans at End of Period		2.11	%		1.33	%		0.96	%		1.00	%		1.00	%
Net Loan Charge-Offs to Allowance for Loan Losses		64.76	%		51.90	%		16.62	%		11.23	%		16.32	%
Net Loan Charge-Offs to Provision Charged to Operating Expense		62.68	%		58.50	%		63.84	%		55.36	%		148.68	%
Allowance for Loan Losses to Non-Performing Loans		58.23	%		80.05	%		193.86	%		246.40	%		377.55	%
Balances:
Average Total Gross Loans Outstanding During Period	$	3,334,008		$	3,082,671		$	2,751,565		$	2,386,575		$	1,938,422
Total Gross Loans Outstanding at End of Period	$	3,363,371		$	3,287,075		$	2,867,948		$	2,497,818		$	2,262,641
Non-Performing Loans at End of Period	$	121,898		$	54,479		$	14,215		$	10,131		$	6,014

3651

~~Investment Portfolio~~

As of December 31, 2007, the investment portfolio was composed primarily of mortgage-backed securities, U.S. Government agency securities (“Agencies”), municipal bonds, collateralized mortgage obligations and corporate bonds.

Investment securities available for sale were 99.7 percent, 99.8 percent and 99.8 percent of the total investment portfolio as of December 31, 2007, 2006 and 2005, respectively. Most of the securities held by us carried fixed interest rates. Other than holdings of Agencies, there were no investments in securities of any one issuer exceeding 10 percent of stockholders’ equity as of December 31, 2007, 2006 or 2005.

We maintain an investment portfolio primarily for liquidity purposes. As of December 31, 2007, securities available for sale were $349.5 million, or 8.8 percent of total assets, compared to $390.6 million, or 10.5 percent of total assets, as of December 31, 2006. In 2007 and 2006, we purchased $45.0 million and $9.7 million, respectively, of Agencies, corporate bonds and mortgage-backed securities to replenish the portfolio for principal repayments in the form of calls, prepayments and scheduled amortization and to maintain an asset mix consistent with our strategic direction.

~~The following table summarizes the amortized cost, fair value and distribution of investment securities as of the dates indicated:~~

Investment Portfolio as of December 31,

2007 2006 2005

Amortized
Fair
Amortized
Fair
Amortized
Fair

(In thousands) Cost Value Cost Value Cost Value

Securities Held to Maturity:
Municipal Bonds $ 694 $ 694 $ 693 $ 693 $ 692 $ 692
Mortgage-Backed Securities 246 247 274 276 357 359

Total Securities Held to Maturity $ 940 $ 941 $ 967 $ 969 $ 1,049 $ 1,051

Securities Available for Sale:
U.S. Government Agency Securities $ 104,893 $ 105,089 $ 119,768 $ 118,244 $ 129,589 $ 127,813
Mortgage-Backed Securities 99,332 99,198 123,614 121,608 149,311 147,268
Municipal Bonds 69,907 71,751 69,966 71,710 71,536 73,220
Collateralized Mortgage Obligations 51,881 51,418 67,605 66,113 83,068 81,456
Corporate Bonds 18,295 18,226 8,090 7,887 8,235 8,053
Other Securities 3,925 3,835 4,999 5,050 4,999 5,053

Total Securities Available for Sale $ 348,233 $ 349,517 $ 394,042 $ 390,612 $ 446,738 $ 442,863

~~The following table summarizes the maturityand/or~~ ~~repricing schedule for investment securities and their weighted-average yield as of December 31, 2007:~~

After One
After Five

Within
But Within
But Within
After

One Year Five Years Ten Years Ten Years

(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield

U.S. Government Agency Securities $ 61,942 4.26% $ 43,147 4.74% $ — — $ — —
Mortgage-Backed Securities⁽¹⁾
28,971 4.98% 36,518 4.84% 33,955 4.91% — —
Municipal Bonds⁽²⁾
— — 2,844 5.01% 9,757 6.26% 59,844 6.39%
Collateralized Mortgage Obligations⁽¹⁾
19,629 4.29% 28,772 4.31% 3,017 4.38% — —
Corporate Bonds — — 18,226 5.04% — — — —
Other Securities 3,835 7.12% — — — — — —

$ 114,377 4.54% $ 129,507 4.72% $ 46,729 5.16% $ 59,844 6.39%


~~(1)~~		~~Mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2037. The above table is based on the expected prepayment schedule.~~

~~(2)~~		~~The yield on municipal bonds has been computed on a tax-equivalent basis, using an effective marginal rate of 35 percent.~~

Deposits

Total deposits at December 31, 2008, 2007 and 2006 ~~and 2005~~ were $3,070.1 million, $3,001.7 million ~~$2,944.7 million~~ and ~~$2,826.1~~$2,944.7 million, respectively, representing an increase of $68.4 million, or 2.3 percent, in 2008 and $57.0 million, or 1.9 percent, in ~~2007 and $118.6 million, or 4.2 percent, in 2006.~~2007. At December 31, 2008, 2007 ~~2006~~ and ~~2005,~~2006, total time deposits outstanding were $2,080.9 million, $1,782.5 million ~~$1,678.8 million~~ and ~~$1,439.8~~$1,678.8 million, respectively, representing 67.8 percent, 59.4 percent ~~57.0 percent~~ and ~~50.9~~57.0 percent, respectively, of total deposits. This growth reflects ~~the shift away from low-yielding accounts that normally occurs as interest rates rise and depositors take advantage~~an increase in broker deposits necessitated by liquidity issues after an outflow of ~~the greater interest rate differentials available in the market.~~core deposits.

Demand deposits and money market accounts decreased by $218.7 million, or 19.4 percent, in 2008 and $40.5 million, or 3.5 percent, in ~~2007 and $98.2 million, or 7.8 percent, in 2006.~~2007. Core deposits (defined as demand, money market and savings deposits) decreased by ~~$46.7~~$230.0 million, or ~~3.7~~18.9 percent, to $989.2 million as of December 31, 2008 from $1,219.7 million as of December 31, 2007, ~~from $1,265.9 million as~~due to an outflow of ~~December 31, 2006, as depositors shifted~~ funds ~~into higher yielding certificates~~in the latter part of ~~deposit.~~2008 triggered by depositors’ currency speculation over potential future appreciation of the South Korean currency. At December 31, ~~2007,~~2008, noninterest-bearing demand deposits represented ~~22.7~~17.5 percent of total deposits compared to ~~24.7~~22.7 percent at December 31, ~~2006.~~2007.

Average deposits for the years ended December 31, 2008, 2007 and 2006 ~~and 2005~~ were $2,913.2 million, $2,989.8 million ~~$2,881.4 million~~ and ~~$2,632.3~~$2,881.4 million, respectively. Average deposits ~~grew~~decreased by 2.6 percent in 2008 and increased by 3.8 percent in ~~2007 and 9.5 percent in 2006.~~2007.

We accept brokered deposits on a selective basis at prudent interest rates to augment deposit ~~growth.~~growth or as a wholesale funding source. There were ~~$31.8~~$874.2 million and ~~$3.3~~$31.8 million of brokered deposits as of December 31, 2008 and 2007, respectively, with a weighted-average interest rate of 3.20 percent and ~~2006, respectively.~~5.00 percent, respectively, which are consistent with the rates paid on our retail deposits. The increase in brokered deposits in 2008 was to offset a runoff of customer deposits due to the loss of confidence in the financial system because of the financial market crisis and the aforementioned currency speculation. We also had $200.0 million of state time deposits over $100,000 with a weighted-average interest rate of 3.62 percent ~~and 5.16 percent~~ as of December 31, 2007, ~~and 2006, respectively.~~which were not renewed in 2008.

On October 3, 2008, FDIC deposit insurance on most accounts was increased from $100,000 to $250,000. This increase is in place until the end of 2009. As of December 31, 2008, time deposits of $250,000 or more were $324.0 million.

The table below summarizes the distribution of average deposits and the average rates paid for the periods indicated:


	Year Ended December 31,												*Year Ended December 31,*

	2007				2006				2005				*2008*				*2007*				*2006*

	Average		Average		Average		Average		Average		Average		*Average*		*Average*		*Average*		*Average*		*Average*		*Average*
(Dollars in thousands)	Balance		Rate		Balance		Rate		Balance		Rate		*Balance*		*Rate*		*Balance*		*Rate*		*Balance*		*Rate*


Demand, Noninterest-Bearing	$	702,329		—	$	735,406		—	$	751,509		—	$	630,631		—	$	702,329		—	$	735,406		—
Savings		97,173		2.06%		107,811		1.72%		138,167		1.54%		89,866		2.33%		97,173		2.06%		107,811		1.72%
Money Market Checking and NOW Accounts		452,825		3.41%		471,780		3.08%		539,678		2.40%		618,779		3.22%		452,825		3.41%		471,780		3.08%
Time Deposits of $100,000 or More		1,430,603		5.28%		1,286,202		4.99%		959,904		3.33%		1,045,968		4.17%		1,430,603		5.28%		1,286,202		4.99%
Other Time Deposits		306,876		4.93%		280,249		4.45%		242,996		2.93%		527,927		3.55%		306,876		5.07%		280,249		4.63%


Total Deposits	$	2,989,806			$	2,881,448			$	2,632,254			$	2,913,171		2.90%	$	2,989,806		3.63%	$	2,881,448		3.25%

FHLB Advances and Other Borrowings

FHLB advances and other borrowings mostly take the form of advances from the FHLB of San Francisco and overnight ~~Federal~~federal funds.

At December 31, ~~2007,~~2008, advances from the FHLB were ~~$432.7~~$422.2 million, ~~an increase~~a decrease of ~~$264.6~~$10.5 million, or ~~157.4~~2.4 percent, from the December 31, ~~2006~~2007 balance of ~~$168.1~~$432.7 million. During ~~2007~~2008 and ~~2006,~~2007, advances from the FHLB were utilized to fund loans or maintain liquidity due to favorable rates. FHLB advances at December 31, 2008 with a remaining maturity of less than one year were $161.0 million, and the weighted-average interest rate thereon was 1.71 percent.

Junior Subordinated Debentures

During the first half of 2004, we issued two junior subordinated notes bearing interest at the three-month London InterBank Offered Rate (“LIBOR”) plus 2.90 percent totaling $61.8 million and one junior subordinated note bearing interest at the three-month LIBOR plus 2.63 percent totaling $20.6 million. The outstanding subordinated debentures related to these offerings, the proceeds of which were used to finance the purchase of PUB, totaled $82.4 million at December 31, ~~2007~~2008 and ~~2006.~~2007. In October 2008, we committed to the FRB that no interest payments on the trust preferred securities would be made without the prior written consent of the FRB. Therefore, in order to preserve its capital position, Hanmi Financial’s Board of Directors has elected to defer quarterly interest payments on its outstanding trust preferred securities until further notice, beginning with the interest payment that was due on January 15, 2009. See“Item 1. Business — Supervision and Regulation. Hanmi Financial”for further discussion.

Interest Rate Risk Management

Interest rate risk indicates our exposure to market interest rate fluctuations. The movement of interest rates directly and inversely affects the economic value of fixed-income assets, which is the present value of future cash flow discounted by the current interest rate; under the same conditions, the higher the current interest rate, the higher the denominator of discounting. Interest rate risk management is intended to decrease or increase the level of our exposure to market interest rates. The level of interest rate risk can be managed through such means as the changing of gap positions and the volume of fixed-income assets. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.

3953

The following table shows the status of our gap position as of December 31, ~~2007:~~2008:


				After																		*After*			*After One*
	Less			Three			After One												*Less*			*Three*			*Year But*
	Than			Months			Year But						Non-						*Than*			*Months*			*Within*			*After*			*Non-*
	Three			But Within			Within			After			Interest-						*Three*			*But Within*			*Five*			*Five*			*Interest-*
(Dollars in thousands)	Months			One Year			Five Years			Five Years			Sensitive			Total			*Months*			*One Year*			*Years*			*Years*			*Sensitive*			*Total*


Assets
Cash	$	—		$	—		$	—		$	—		$	105,898		$	105,898		$	—		$	—		$	—		$	—		$	85,188		$	85,188
Federal Funds Sold		16,500			—			—			—			—			16,500			130,000			—			—			—			—			130,000
Securities:
Fixed Rate		16,150			72,744			129,507			106,681			—			325,082			41,273			26,370			67,248			43,455			—			178,346
Floating Rate		5,133			—			16,407			3,835			—			25,375			3,510			—			11,790			4,230			—			19,530
Loans:
Fixed Rate		35,867			84,151			619,109			590,679			—			1,329,806			231,115			225,703			498,685			245,306			—			1,200,809
Floating Rate		1,693,610			52,986			148,448			7,973			—			1,903,017			1,898,935			35,100			106,931			773			—			2,041,739
Non-Accrual		—			—			—			—			54,252			54,252			—			—			—			—			120,823			120,823
Deferred Loan Fees and Allowance for Loan Losses		—			—			—			—			(45,978	)		(45,978	)		—			—			—			—			(72,246	)		(72,246	)
Federal Reserve Bank and Federal Home Loan Bank Stock		—			—			—			33,479			—			33,479
Federal Home Loan Bank and Federal Reserve Bank Stock																				—			—			—			40,925			—			40,925
Other Assets		—			24,521			—			7,467			204,327			236,315			—			25,477			—			7,661			97,564			130,702

Total Assets	$	1,767,260		$	234,402		$	913,471		$	750,114		$	318,499		$	3,983,746		$	2,304,833		$	312,650		$	684,654		$	342,350		$	231,329		$	3,875,816


Liabilities and Stockholders’ Equity
Liabilities
Liabilities:
Deposits:
Demand Deposits	$	42,550		$	137,147		$	329,152		$	171,433		$	—		$	680,282		$	35,430		$	107,852		$	258,846		$	134,816		$	—		$	536,944
Savings		13,749			33,099			37,597			8,654			—			93,099			13,368			29,254			32,704			6,543			—			81,869
Money Market Checking and NOW Accounts		65,181			125,737			145,117			109,771			—			445,806			54,638			105,106			120,379			90,278			—			370,401
Time Deposits:
Fixed Rate		1,141,570			631,433			9,340			115			—			1,782,458			630,523			1,293,974			156,177			138			—			2,080,812
Floating Rate		54			—			—			—			—			54			54			—			—			—			—			54
FHLB Advances and Other Borrowings		364,500			105,000			13,084			4,580			—			487,164
Federal Home Loan Bank Advances and Other Borrowings																				11,781			150,297			255,551			5,354			—			422,983
Junior Subordinated Debentures		82,406			—			—			—			—			82,406			82,406			—			—			—			—			82,406
Other Liabilities		—			—			—			—			40,932			40,932			—			—			—			—			36,432			36,432
Stockholders’ Equity		—			—			—			—			371,545			371,545			—			—			—			—			263,915			263,915

Total Liabilities and Stockholders’ Equity	$	1,710,010		$	1,032,416		$	534,290		$	294,553		$	412,477		$	3,983,746		$	828,200		$	1,686,483		$	823,657		$	237,129		$	300,347		$	3,875,816

Repricing Gap	$	57,250		$	(798,014	)	$	379,181		$	455,561		$	(93,978	)	$	—		$	1,476,633		$	(1,373,833	)	$	(139,003	)	$	105,221		$	(69,018	)	$	—
Cumulative Repricing Gap	$	57,250		$	(740,764	)	$	(361,583	)	$	93,978		$	—		$	—		$	1,476,633		$	102,800		$	(36,203	)	$	69,018		$	—		$	—
Cumulative Repricing Gap as a Percentage of Total Assets		1.44	%		(18.59	)%		(9.08	)%		2.36	%		—			—			38.10	%		2.65	%		(0.93	)%		1.78	%		—
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets		1.58	%		(20.39	)%		(9.95	)%		2.59	%		—			—			40.89	%		2.85	%		(1.00	)%		1.91	%		—

The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., apoint-in-time analysis measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same ~~time~~ period). Assets are assigned to maturity and repricing categories based on their expected repayment or repricing dates, and liabilities are assigned based on their repricing or maturity dates. Core deposits that have no maturity dates (demand deposits, savings, money market checking and NOW accounts) are assigned to categories based on expected decay rates.

On December 31, ~~2007,~~2008, the cumulative repricing gap as a percentage of interest-earning assets in the less than ~~three month~~three-month period was ~~1.58~~40.89 percent. This ~~decrease~~increase from the previous year’s figure of ~~29.26~~1.58 percent was caused primarily by ~~increases~~decreases of ~~$329.5~~$511.0 million and ~~$363.6~~$352.7 million in fixed rate certificates of deposit and FHLB advances and other borrowings, respectively,

with maturities of less than three months. The cumulative repricing percentage in the less than ~~twelve month~~twelve-month period ~~also moved lower, reaching (20.39)~~increased to 2.85 percent. This was ~~a decrease~~an increase from the previous year’s figure of ~~(2.56)~~(20.39) percent. The ~~decrease~~increase was caused primarily by ~~increases~~an increase of ~~$105.2 million and $423.6~~$524.2 million in fixed and floating rate ~~certificates~~loans with maturities of ~~deposit~~less than twelve months and a decrease of $307.4 million in FHLB advances and other borrowings ~~respectively,~~ with maturities of less than twelve months.

The following table summarizes the status of the cumulative gap position as of the dates indicated.


	Less Than						Less Than						*Less Than*						*Less Than*
	Three Months						Twelve Months						*Three Months*						*Twelve Months*

	December 31,						December 31,						*December 31,*						*December 31,*

(Dollars in thousands)	2007			2006			2007			2006			*2008*			*2007*			*2008*			*2007*


Cumulative Repricing Gap	$	57,250		$	970,441		$	(740,764	)	$	(85,051	)	$	1,476,633		$	57,250		$	102,800		$	(740,764	)
Percentage of Total Assets		1.44	%		26.05	%		(18.59	)%		(2.28	)%		38.10	%		1.44	%		2.65	%		(18.59	)%
Percentage of Interest-Earning Assets		1.58	%		29.26	%		(20.39	)%		(2.56	)%		40.89	%		1.58	%		2.85	%		(20.39	)%

The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.

To supplement traditional gap analysis, we perform simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the market value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a one-year horizon, given the basis point adjustment in interest rates reflected below.


Rate Shock Table	Rate Shock Table														*Rate Shock Table*

			Percentage Changes						Change in Amount								*Percentage Changes*						*Change in Amount*

			Net			Economic			Net			Economic					*Net*			*Economic*			*Net*			*Economic*
Change in	Change in		Interest			Value of			Interest			Value of			*Change in*		*Interest*			*Value of*			*Interest*			*Value of*
Interest Rate	Interest Rate		Income			Equity			Income			Equity			*Interest Rate*		*Income*			*Equity*			*Income*			*Equity*

(Dollars in Thousands)
*(Dollars in thousands)*															*(Dollars in thousands)*

	200	%		3.55	%		(18.92	)%	$	5,169		$	(101,438	)	200	%		8.11	%		(7.69	)%	$	9,679		$	(37,500	)
	100	%		1.78	%		(9.80	)%	$	2,586		$	(52,565	)	100	%		4.40	%		(3.92	)%	$	5,251		$	(19,127	)
	(100	)%		(1.86	)%		10.48	%	$	(2,707	)	$	56,200		(100	)%		(11.71	)%		9.62	%	$	(13,974	)	$	46,957
	(200	)%		(3.84	)%		21.55	%	$	(5,588	)	$	115,576		(200	)%		(23.67	)%		18.88	%	$	(28,251	)	$	92105

The estimated sensitivity does not necessarily represent our forecast and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, pricing strategies on loans and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.

Liquidity and Capital Resources

Capital Resources

In order to ensure adequate levels of capital, the Board continually assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs. Total stockholders’ equity was $263.9 million at

December 31, 2008, which represented a decrease of $106.6 million, or 28.8 percent, compared to $370.6 million at December 31, 2007. The decrease was primarily due to a non-cash goodwill impairment charge of $107.4 million during 2008.

Although both Hanmi Financial and the Bank were well-capitalized at December 31, 2008, there can be no assurance that we will continue to be well-capitalized. We have applied to participate in the TARP CPP for an investment of up to $105 million from the Treasury, but we are still waiting a final decision from the Treasury as to whether we will be able to participate in this program. We are exploring alternative funding arrangements for raising capital if we are unable to participate in the TARP CPP.

Liquidity

Hanmi Financial is a company separate and apart from the Bank that must provide for its own liquidity. Substantially all of Hanmi Financial’s revenues are obtained from dividends declared and paid by the Bank. Under applicable California law, the Bank cannot make any distribution (including a cash dividend) to its shareholder (Hanmi Financial) in an amount which exceeds the lesser of: (i) the retained earnings of the Bank or (ii) the net income of the Bank for its last three fiscal years, less the amount of any distributions made by the Bank to its shareholder during such period. Notwithstanding the foregoing, with the prior approval of the California Commissioner of Financial Institutions, the Bank may make a distribution (including a cash dividend) to Hanmi Financial in an amount not exceeding the greatest of: (i) the retained earnings of the Bank; (ii) the net income of the Bank for its last fiscal year; or (iii) the net income of the Bank for its current fiscal year. The Bank currently has deficit retained earnings and has suffered net losses in 2007 and 2008. As a result, the California Financial Code does not provide authority for the Bank to declare a dividend to Hanmi Financial, with or without Commissioner approval. In addition, the Bank is prohibited by the MOU described in“Notes to Consolidated Financial Statements, Note 14 — Regulatory Matters”from paying dividends to Hanmi Financial unless it receives prior regulatory approval.

Liquidity of the Bank is defined as the ability to supply cash as quickly as needed without causing a severe deterioration in profitability. The Bank’s liquidity consists primarily of available cash positions, ~~Federal~~federal funds sold and short-term investments categorized as available for sale securities, which can be disposed of without significant capital losses in the ordinary course of business, plus borrowing capacities, which include ~~Federal~~federal funds lines, repurchase agreements, FHLB advances and ~~FHLB advances.~~a FRB discount window line. Therefore, maintenance of high quality loans and securities that can be used for collateral in repurchase agreements or other secured borrowings is an important feature of our liquidity management. Currently, management believes that Hanmi Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations through December 31, 2009, which include deposits and FHLB borrowings.

The maintenance of a proper level of liquid assets is critical for both the liquidity and the profitability of the Bank. Since the primary purpose of the investment portfolio is to ensure the Bank has adequate liquidity, management maintains appropriate levels of liquid assets to avoid exposure to higher than necessary liquidity risk. Liquidity risk may increase when the Bank has few short-duration securities available for saleand/or is not capable of raising funds as quickly as necessary at acceptable rates in the capital or money markets. A heavy and sudden increase in cash demands for loansand/or deposits can tighten the liquidity position. ~~Several ratios are reviewed on a daily, monthly and quarterly basis to~~We manage the Bank’s liquidity position primarily through constant monitoring of cash flow projections, loan and ~~to preempt any~~deposit growth trends, funding strategies and liquidity ~~crisis.~~

Specific statistics, which include the loans-to-assets ratio, off-balance sheet items and dependence on non-core deposits, foreign deposits, lines of credit and liquid assets, are reviewed regularly for liquidity management purposes.

December 31,

Liquidity Ratios 2007 2006 2005

Core Deposits/Total Assets 26.9 % 30.1 % 35.3 %
Short-Term Non-Core Funding/Total Assets 54.8 % 46.0 % 41.8 %
Net Loans/Total Assets 79.8 % 76.6 % 72.4 %
Investments/Deposits 13.6 % 15.9 % 18.9 %
Loans and Investments/Deposits 122.0 % 112.2 % 106.3 %
Off-Balance Sheet Items/Total Assets 15.8 % 19.0 % 18.5 %

ratios.

~~The net loans~~We are eligible to borrow up to 20 percent of our total assets ~~ratio increased to 79.8 percent~~from the FHLB. We have pledged investment securities available for sale and loans receivable as collateral with the FHLB for this borrowing facility. As of December 31, 2008, the total borrowing capacity available from the collateral that has been pledged and the remaining available borrowing capacity were $682.7 million and $260.5 million, respectively. As of December 31, 2007, ~~compared~~the total borrowing capacity available from the collateral that has been pledged and the remaining available borrowing capacity were $714.6 million and $281.8 million, respectively.

At December 31, 2008, the Bank’s FHLB borrowings totaled $422.2 million, representing 10.9 percent of the Bank’s total assets. The amount that the FHLB is willing to ~~76.6 percent~~advance differs based on the quality and character of qualifying collateral offered by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment

securities and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement. During the second quarter of 2008, the FHLB cancelled the Bank’s $62 million unsecured line of credit with them. This cancellation was the result of the Bank’s net loss for the fourth quarter of 2007.

At December 31, 2008, the carrying values of investment securities available for sale and loans pledged as collateral with the FRB amounted to $54.0 million and $1.4 billion, respectively. As of December 31, 2008, we had $1.07 billion available for use through this short-term (generally not to exceed three months) borrowing facility and there were no borrowings. When combined with the borrowing capacity available from the FHLB, the total contingent available line was $1.33 billion at December 31, ~~2006. The ratio~~2008.

In an effort to ease the credit crisis, the FRB lowered its discount rate from 4.75 percent to 0.50 percent through eight separate actions since December 2007, and made modifications to previous practices to facilitate financing for longer periods. This makes the FRB’s federal discount window a viable source of funding given current market conditions. We have pledged securities available for sale and loans receivable on this short-term borrowing facility. On December 31, 2008, we received approval for participation in theBorrower-in-Custody Program, where a broad range of loans may be pledged and ~~investments to deposits~~borrowed against it through the FRB’s federal discount window. As an additional source of funding, we significantly increased ~~to 122.0 percent~~our borrowing capacity with the FRB.

As a means of augmenting our current liquidity sources, we will consider selling some of our loans held for sale, beginning with SBA loans, in an ordinary fashion, as soon as the ~~Bank made use~~secondary market is normalized. We are also participating in the FDIC’s Debt Guarantee Program, which will enable us to issue up to two percent of ~~short-term borrowings~~our liabilities (approximately $70.0 million) in senior unsecured debt. Given that there is no cost involved in our participation if we do not issue debt under the program, we believe continuing to ~~fund~~participate in the Debt Guarantee Program helps us to maintain a ~~portion~~cushion of ~~loan portfolio growth. Off-balance sheet items as~~extra liquidity.

During the second half of 2008, we experienced a ~~percentage~~deposit run-off caused by the U.S. financial crisis. This deposit run-off was further amplified by an outflow of ~~total~~funds triggered by some depositors’ currency speculation over potential appreciation of the South Korean currency. Our deposit campaign launched in December 2008, together with some stabilization of the South Korean currency, slowed the rate at which retail deposits decreased during the fourth quarter of 2008.

We addressed liquidity concerns mainly through utilization of brokered deposits during 2008. As a result, we issued new brokered time deposits of $824.2 million during the second half of 2008.

We also believe that the opening of a new branch, which historically has been a vital source for garnering deposits, will benefit us. In 2008, we opened new branches in Northridge and Beverly Hills. In March 2009, we opened another branch in Diamond Bar.

We believe our branch network is well positioned to capture business opportunities that may arise from anticipated increases in travel by South Korean travelers to the U.S. This anticipated increase would follow full implementation of the Visa Waiver Program in 2009 by South Korean travelers who may frequentKorean-American businesses in our market areas.

Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets ~~decreased at~~to meet its current obligations through December 31, ~~2006~~2009, which are primarily interest payments on junior subordinated debentures, subject to ~~15.8 percent, compared to 19.0 percent at~~prior approval of such payments by the FRB. As of December 31, ~~2006, and~~2008, limitations imposed by our regulators prohibited the ~~total amount decreased~~Bank from providing a dividend to ~~$643.6~~Hanmi Financial. On August 29, 2008, we elected to suspend payment of quarterly dividends on our common stock. At December 31, 2008, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $2.2 million, down from $5.3 million at December 31, ~~2007~~2007. In order to preserve its capital position, our Board of Directors elected to defer quarterly interest payments on the outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009.

below well capitalized, the Bank would need regulatory consent before accepting brokered deposits. Over the next 12 months, approximately $1.9 billion of time deposits will mature. There can be no assurances that we will be able to replace these time deposits with deposits at competitive rates. Such events could have a ~~$54.0 million decrease in commitments~~material adverse impact on our results of operations and financial condition. However, if we are unable to ~~extend credit. During~~replace these maturing deposits with new deposits, we believe that we have adequate liquidity resources to fund this need with our secured funding outlets with the year, the percentage of off-balance sheet items to total assets generally ranged from 18 percent to 20 percent. The ratio of short-term non-core funding to total assets was 54.8 percent at December 31, 2007, compared to 46.0 percent at December 31, 2006.FHLB and FRB.

Foreign deposits areU.S.-based deposits made by foreign customers. Foreign deposit risk deals with dependency on foreign deposits that could adversely affect the Bank’s liquidity. These liabilities are assumed to be volatile because of the variability of social, political and environmental conditions in foreign countries. As of December 31, 2008, 2007 ~~2006~~ and ~~2005,~~2006, foreign deposits were $182.6 million, $331.2 million ~~$325.4 million~~ and ~~$294.3~~$325.4 million, respectively.

As of December 31, 2007, we maintained a total of $186.0 million in credit lines secured by us to meet our liquidity needs. In addition, we maintained eight master repurchase agreements, all of which can furnish liquidity to us in consideration of bond collateral. We also can meet our liquidity needs through borrowings from the FHLB. We are eligible to borrow up of 25 percent of our total assets from the FHLB.

~~As of December 31, 2007,~~2008, there were no material commitments for capital expenditures. We raise ~~capital~~liquidity in the form of deposits, borrowings (primarily FHLB advances and junior subordinated debentures) and equity, and expect to continue to rely upon deposits and FHLB borrowings as the primary source of ~~capital.~~liquidity.

Off-Balance Sheet Arrangements

~~For~~We are a ~~discussion of~~party to financial instruments with off-balance sheet ~~arrangements, see~~~~“Item 1. Business — Off-Balance Sheet Commitments.”~~risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the Consolidated Balance Sheets. The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, was based on management’s credit evaluation of the counterparty.

Collateral held varies but may include accounts receivable; inventory; property, plant and equipment; and income-producing or borrower-occupied properties. The following table shows the distribution of undisbursed loan commitments as of the dates indicated:


	*December 31,*
	*2008*		*2007*

	*(In thousands)*

Commitments to Extend Credit	$	386,785	$	524,349
Standby Letters of Credit		47,289		48,071
Commercial Letters of Credit		29,177		52,544
Unused Credit Card Lines		16,912		18,622

Total Undisbursed Loan Commitments	$	480,163	$	643,586

Contractual Obligations

Our contractual obligations as of December 31, ~~2007~~2008 are as follows:

More Than
More Than

One Year
Three Years

and Less
and Less
More

Less Than
Than Three
Than Five
Than Five

Contractual Obligations One Year Years Years Years Total

(In thousands)

Time Deposits $ 1,773,057 $ 4,313 $ 5,027 $ 115 $ 1,782,512
Commitments to Extend Credit 524,349 — — — 524,349
FHLB Advances and Other Borrowings 469,500 13,084 — 4,580 487,164
Junior Subordinated Debentures — — — 82,406 82,406
Standby Letters of Credit 43,643 4,328 — 100 48,071
Operating Lease Obligations 2,906 5,509 2,684 5,179 16,278

Total Contractual Obligations $ 2,813,455 $ 27,234 $ 7,711 $ 92,380 $ 2,940,780


			*More Than*		*More Than*
			*One Year*		*Three Years*
			*and Less*		*and Less*		*More*
	*Less Than*		*Than Three*		*Than Five*		*Than Five*
*Contractual Obligations*	*One Year*		*Years*		*Years*		*Years*		*Total*

	*(In thousands)*

Time Deposits	$	1,929,025	$	151,699	$	4	$	138	$	2,080,866
Federal Home Loan Bank Advances and Other Borrowings		161,787		156,908		100,000		4,288		422,983
Commitments to Extend Credit		386,785		—		—		—		386,785
Junior Subordinated Debentures		—		—		—		82,406		82,406
Standby Letters of Credit		45,480		1,709		—		100		47,289
Operating Lease Obligations		5,382		9,186		6,037		6,479		27,084


Total Contractual Obligations	$	2,528,459	$	319,502	$	106,041	$	93,411	$	3,047,413

Recently Issued Accounting Standards

Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”)EITF 99-20-1, “Amendments to the Impairment Guidance of Emerging Issues Task Force (“EITF”) IssueNo. 99-20”— In January 2009, the FASB issued FSPEITF 99-20-1, which revises the other-than-temporary impairment (“OTTI”) guidance on beneficial interests in securitized financial assets that are within the scope of EITF IssueNo. 99-20. FSPEITF 99-20-1 amends EITF IssueNo. 99-20 to more closely align its OTTI guidance with paragraph 16 of SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities,”by (1) removing the notion of a “market participant” and (2) inserting a “probable” concept related to the estimation of a beneficial interest’s cash flows. FSPEITF 99-20-1 is effective prospectively for interim and annual periods ending after December 15, 2008. Retrospective application of FSPEITF 99-20-1 is prohibited. The adoption of this guidance did not have a material effect on our financial condition, results of operations or cash flows.

EITF IssueNo. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement”— In September 2008, the FASB ratified EITF IssueNo. 08-5, which provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement (such as a guarantee) should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF Issue08-5 is effective for the first reporting period beginning after December 15, 2008 and is not expected to have a significant impact on our financial condition or results of operations.

FSPEITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”— In June 2008, the FASB issued FSPEITF 03-6-1, which clarified that all outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends participate in undistributed earnings with common stockholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSPEITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and is not expected to have a significant impact on our financial condition or results of operations.

SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” — In May 2008, the FASB issued SFAS No. 162, which identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with GAAP. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411,“The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”On September 16, 2008, the SEC approved the amendments to AU Section 411. The adoption of SFAS No. 162 did not have a significant impact on our financial condition or results of operations.

FSPNo. FAS 142-3, “Determination of the Useful Life of Intangible Assets” — In April 2008, the FASB issued FSPNo. FAS 142-3, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible Assets.”FSPNo. FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other GAAP. FSPNo. FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and is not expected to have a significant impact on our financial condition, results of operations or cash flows.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”— In March 2008, the FASB issued SFAS No. 161, which requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 and is not expected to have a significant impact on our financial condition or results of operations.

SFAS No. 160, “Non-Controlling Interest in Consolidated Financial Statements — an Amendment of ARB No. 51”— In December 2007, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued SFAS No. 160, which requires that a non-controlling interest in a subsidiary (i.e., minority interest) be reported in the equity section

of the consolidated balance sheet instead of being reported as a liability or in the mezzanine section between debt and equity. It also requires that the consolidated statement of

operations include net income attributable to both the parent and non-controlling interest of a consolidated subsidiary. ~~A disclosure must be made on the face of the consolidated statement of operations of the net income attributable to the parent and to the non-controlling interest.~~ In addition, regardless of whether the parent purchases additional ownership interest, sells a portion of its ownership interest in a subsidiary or the subsidiary participates in a transaction that changes the parent’s ownership interest, as long as the parent retains controlling interest, the transaction is considered an equity transaction. SFAS No. 160 is effective for annual periods beginning after December 15, ~~2008. We are currently assessing the~~2008 and is not expected to have a significant impact ~~that the adoption of SFAS No. 160 will have~~ on our financial ~~position and~~condition or results of operations.

SFAS No. 141(R), “Business Combinations”— In December 2007, the FASB issued SFAS No. 141(R), which ~~revises~~replaces SFAS No. 141, ~~and changes multiple aspects of the accounting for business combinations. Under the guidance in~~“Business Combinations.” SFAS No. 141(R), establishes principles and requirements for how an acquiring company (1) recognizes and measures in its financial statements the ~~acquisition method must be used, which requires the acquirer to recognize most~~ identifiable assets acquired, the liabilities assumed and any non-controlling ~~interests~~interest in the ~~acquiree at their full fair value on~~acquiree; (2) recognizes and measures the ~~acquisition date. Goodwill is~~goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to ~~be recognized as the excess~~disclose to enable users of the ~~consideration transferred plus~~financial statements to evaluate the ~~fair value~~nature and financial effects of the non-controlling interest over the fair values of the identifiable net assets acquired. Subsequent changes in the fair value of contingent consideration classified as a liability are to be recognized in earnings, while contingent consideration classified as equity is not to be remeasured. Costs such as transaction costs are to be excluded from acquisition accounting, generally leading to recognizing expense and additionally, restructuring costs that do not meet certain criteria at acquisition date are to be subsequently recognized as post-acquisition costs.business combination. SFAS No. 141(R) is effective for business combinations ~~for which the acquisition date is~~occurring on or after the beginning of the ~~first annual reporting period~~fiscal year beginning on or after December 15, 2008. ~~We are currently assessing the impact that the adoption of~~ SFAS No. 141(R) ~~will have on our financial position and results of operations.~~

~~SAB No. 109, “Written Loan Commitments Recorded at Fair Value through Earnings”~~~~— On November 5, 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109. Previously, SAB No. 105,~~~~“Application of Accounting Principles to Loan Commitments,”~~stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB No. 109 supersedes SAB No. 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB No. 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB No. 109 retains that view. SAB No. 109 is, effective for ~~derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of SAB No. 109 did not have a material impact~~us on ~~our financial condition or results of operations.~~

~~EITF IssueNo. 06-10,~~ ~~“Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements”~~~~— In March 2007, the FASB ratified EITF IssueNo. 06-10,~~ which provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset based on the terms of the collateral assignment agreement. EITF Issue~~No. 06-10~~ ~~is effective for fiscal years beginning after December 15, 2007. The adoption of EITF IssueNo. 06-10~~ ~~did not have a material impact on our financial condition or results of operations.~~

~~SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”~~~~— In February 2007, the FASB issued SFAS No. 159,~~~~“The Fair Value Option for Financial Assets and Financial Liabilities,”~~which gives entities the option to measure eligible financial assets, and financial liabilities at fair value on an instrument by instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in fair value must be recorded in earnings. SFAS No. 159 is effective as of the beginning of a company’s first fiscal year after November 15, 2007. We are required to and plan to adopt the provisions of SFAS No. 159 beginning in the first quarter of 2008. The adoption of SFAS No. 159 did not have a material impact on our financial condition or results of operations.

~~SFAS No. 157, “Fair Value Measurements”~~— In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within that fiscal year. The adoption of SFAS No. 157 did not have a material impact on our financial condition or results of operations.

~~EITF IssueNo. 06-4,~~ ~~“Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements”~~~~— In September 2006, the FASB’s~~

~~Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-4,~~ which requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106,~~“Employers’ Accounting for Postretirement Benefits Other Than Pensions,”~~or Accounting Principles Board Opinion No. 12, as appropriate. For transition, an entity can choose to apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective applicationJanuary 1, 2009, applies to all ~~periods presented;~~transactions or ~~(b)~~other events in which we obtain control in one or more businesses. Management will assess each transaction on a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. The disclosures are required in fiscal years beginning after December 15, 2007. The adoption of EITF Issue~~No. 06-4~~case-by-case ~~did not have a material impact on our financial condition or results of operations.~~basis as they occur.


*Item 7A.*	*Quantitative and Qualitative Disclosures About Market Risk*

For quantitative and qualitative disclosures regarding market risks in the Bank’s portfolio, see“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and“— Liquidity and Capital Resources.”


*Item 8.*	*Financial Statements and Supplementary Data*

The financial statements required to be filed as a part of this Report are set forth on pages 5067 through ~~84.~~112.


*Item 9.*	*Changes in and Disagreements With Accountants on Accounting and Financial Disclosure*

None.


*Item 9A.*	*Controls and Procedures*

Disclosure Controls and Procedures

As of December 31, ~~2007,~~2008, Hanmi Financial carried out an evaluation, under the supervision and with the participation of Hanmi Financial’s management, including Hanmi Financial’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hanmi Financial’s disclosure controls and procedures and internal controls over financial reporting pursuant to Securities and Exchange Commission (“SEC”) rules. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that:


•	Hanmi Financial’s disclosure controls and procedures were effective as of the end of the period covered by this ~~report in timely alerting them to material information relating to Hanmi Financial that is required to be included in Hanmi Financial’s periodic SEC filings;~~report; and

•	Hanmi Financial’s internal controls over financial reporting provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

During the quarter ended December 31, ~~2007,~~2008, there have been no changes in Hanmi Financial’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Hanmi Financial’s internal control over financial reporting.

Disclosure controls and procedures are defined in SEC rules as controls and other procedures designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Hanmi Financial’s disclosure controls and procedures were designed to ensure that material information related to Hanmi Financial, including subsidiaries, is made known to management, including the Chief Executive Officer and Chief Financial Officer, in a timely manner.

KPMG LLP, the independent registered public accounting firm that audited and reported on the consolidated financial statements of Hanmi Financial and subsidiaries, has issued a report on Hanmi Financial’s internal control over financial reporting as of December 31, ~~2007.~~2008. The report expresses an unqualified opinion on the effectiveness of Hanmi Financial’s internal control over financial reporting as of December 31, ~~2007.~~2008.

Management’s Report on Internal Control Over Financial Reporting

accounting principles. Internal control over financial reporting includes those written policies and procedures that:


•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles;

•	provide reasonable assurance that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Hanmi Financial’s internal control over financial reporting as of December 31, ~~2007.~~2008. Management based this assessment on criteria for effective internal control over financial reporting described inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of Hanmi Financial’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.

Based on this assessment, management determined that, as of December 31, ~~2007,~~2008, Hanmi Financial maintained effective internal control over financial reporting.

~~Report of Independent Registered Public Accounting Firm~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Hanmi Financial Corporation:

We have audited Hanmi Financial ~~Corporation and subsidiaries’~~Corporation’s (the Company) internal control over financial reporting as of December 31, ~~2007,~~2008, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Hanmi Financial Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our ~~audits.~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the ~~audits~~audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our ~~audits~~audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our ~~audits~~audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our ~~audits provide~~audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, Hanmi Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2007,~~2008, based on criteria established inInternal Control-Integrated Frameworkissued by the ~~Committee of Sponsoring Organizations~~COSO of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hanmi Financial Corporation and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2007,~~2008, and our report dated ~~February 29, 2008~~March 13, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Los Angeles, California

~~February 29, 2008~~March 13, 2009

4662


*Item 9B.*	*Other Information*

None.

PART III


*Item 10.*	*Directors, Executive Officers and Corporate Governance*

Except as hereinafter noted, the information concerning directors and officers of Hanmi Financial is incorporated by reference from the sections entitled“The Board of Directors and Executive Officers”and“Section 16(a) Beneficial Ownership Reporting Compliance”of Hanmi Financial’s Definitive Proxy Statement for the Annual Meeting of Stockholders, which will be filed with the ~~Commission~~SEC within 120 days after the close of Hanmi Financial’s fiscal year.

~~Audit Committee Financial Expert~~

Mark K. Mason was appointed to the Audit Committee of the Board of Directors as of May 23, 2007. The Board has determined that Mr. Mason meets the independence standards required by NASDAQ and is a “financial expert” within the meaning of the current rules of the SEC.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial and accounting officer, controller and other persons performing similar functions. It will be provided to any stockholder without charge, upon the written request of that stockholder. Such requests should be addressed to Judith Kim, Associate General Counsel, Hanmi Financial Corporation, 3660 Wilshire Boulevard, Penthouse Suite A, Los Angeles, California 90010. It is also available on our website atwww.hanmi.com.


*Item 11.*	*Executive Compensation*

Information concerning executive compensation is incorporated by reference from the section entitled“Executive Compensation”of Hanmi Financial’s Definitive Proxy Statement for the Annual Meeting of Stockholders, which will be filed with the ~~Commission~~SEC within 120 days after the close of Hanmi Financial’s fiscal year.


*Item 12.*	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Information regarding security ownership of certain beneficial owners and management and related stockholder matters will appear under the caption“Beneficial Ownership of Principal Stockholders and Management”in Hanmi Financial’s Definitive Proxy Statement for the Annual Meeting of Stockholders and is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes information as of December 31, 2008 relating to equity compensation plans of Hanmi Financial pursuant to which grants of options, restricted stock awards or other rights to acquire shares may be granted from time to time.

Number of

Securities

Number of

Remaining

Securities

Available for

to be

Weighted-

Future

Issued

Average

Issuance Under

Upon

Exercise

Equity

Exercise

Price of

Compensation

of Outstanding

Outstanding

Plans

Options,

(Excluding

Warrants

Securities

and Rights

Reflected

(a)

(b)

in Column (a))

Equity Compensation Plans Approved By Security Holders

1,323,467

14.05

3,000,000

Equity Compensation Plans Not Approved By Security Holders

—

Total Equity Compensation Plans

1,323,467

14.05

3,000,000


*Item 13.*	*Certain Relationships and Related Transactions, and Director Independence*

Information concerning certain relationships and related transactions and director independence is incorporated by reference from the ~~section~~sections entitled“Certain Relationships and Related Transactions”and“Director Independence”of Hanmi Financial’s Definitive Proxy Statement for the Annual Meeting of Stockholders, which will be filed with the ~~Commission~~SEC within 120 days after the close of Hanmi Financial’s fiscal year.


*Item 14.*	*Principal Accounting Fees and Services*

Information concerning Hanmi Financial’s principal accountants’ fees and services is incorporated by reference from the section entitled“Independent Accountants”of Hanmi Financial’s Definitive Proxy Statement for the Annual Meeting of Stockholders, which will be filed with the ~~Commission~~SEC within 120 days after the close of Hanmi Financial’s fiscal year.

PART IV


*Item 15.*	*Exhibits, Financial Statement Schedules*

~~(a) Financial Statements and Schedules~~


(a)	Financial Statements and Schedules

(1) The Financial Statements required to be filed hereunder are listed in the Index to Consolidated Financial Statements on page 5267 of this Report.

(2) All Financial Statement Schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements.

(3) The Exhibits required to be filed with this Report are listed in the Exhibit Index included herein at page ~~88.~~114.

4764

~~Report of Independent Registered Public Accounting Firm~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Hanmi Financial Corporation:

We have audited the accompanying consolidated balance sheets of Hanmi Financial Corporation and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2007.~~2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hanmi Financial Corporation and subsidiaries as of December 31, ~~2007~~2008 and ~~2006,~~2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2007,~~2008, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hanmi Financial Corporation’s internal control over financial reporting as of December 31, ~~2007,~~2008, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated ~~February 29, 2008~~March 13, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Los Angeles, California

~~February 29, 2008~~March 13, 2009

4966

Hanmi Financial Corporation and Subsidiaries

~~Consolidated Balance Sheets~~CONSOLIDATED BALANCE SHEETS


		December 31,							*December 31,*

(Dollars in thousands)		2007			2006				*2008*			*2007*


ASSETS	ASSETS							ASSETS
Cash and Due From Banks		$	105,898		$	97,501			$	85,188		$	105,898
Federal Funds Sold			16,500			41,000				130,000			16,500

Cash and Cash Equivalents			122,398			138,501				215,188			122,398
Term Federal Funds Sold			—			5,000
Securities Held to Maturity, at Amortized Cost (Fair Value: 2007 — $941; 2006 — $969)			940			967
Securities Held to Maturity, at Amortized Cost (Fair Value: 2008 — $910; 2007 — $941)										910			940
Securities Available for Sale, at Fair Value			349,517			390,612				196,966			349,517
Loans Receivable, Net of Allowance for Loan Losses of $43,611 and $27,557 at December 31, 2007 and 2006, Respectively			3,234,762			2,813,520
Loans Receivable, Net of Allowance for Loan Losses of $70,986 and $43,611 at December 31, 2008 and 2007, Respectively										3,253,715			3,234,762
Loans Held for Sale, at the Lower of Cost or Fair Value			6,335			23,870				37,410			6,335
Customers’ Liability on Acceptances			5,387			8,403				4,295			5,387
Premises and Equipment, Net			20,800			20,075				20,279			20,800
Accrued Interest Receivable			17,500			16,919				12,347			17,411
Other Real Estate Owned			287			—				823			287
Deferred Income Taxes			18,470			13,064				29,456			18,470
Servicing Assets			4,336			4,579				3,791			4,336
Goodwill			107,100			207,646				—			107,100
Other Intangible Assets			6,908			6,312				4,950			6,908
Federal Home Loan Bank Stock, at Cost										30,697			21,746
Federal Reserve Bank Stock, at Cost			11,733			11,733				10,228			11,733
Federal Home Loan Bank Stock, at Cost			21,746			13,189
Bank-Owned Life Insurance			24,525			23,592				25,476			24,525
Other Assets			31,002			27,261				29,285			31,002

TOTAL ASSETS		$	3,983,746		$	3,725,243			$	3,875,816		$	3,983,657
															LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-Bearing		$	680,282		$	728,347			$	536,944		$	680,282
Interest-Bearing:
Savings			93,099			99,255				81,869			93,099
Money Market Checking and NOW Accounts			445,806			438,267				370,401			445,806
Time Deposits of $100,000 or More			1,441,683			1,383,358				849,800			1,441,683
Other Time Deposits			340,829			295,488				1,231,066			340,829

Total Deposits			3,001,699			2,944,715				3,070,080			3,001,699
Accrued Interest Payable			21,828			22,582				18,539			21,828
Acceptances Outstanding			5,387			8,403				4,295			5,387
FHLB Advances and Other Borrowings			487,164			169,037
Federal Home Loan Bank Advances and Other Borrowings										422,983			487,164
Junior Subordinated Debentures			82,406			82,406				82,406			82,406
Other Liabilities			13,717			10,983				13,598			14,617

Total Liabilities			3,612,201			3,238,126				3,611,901			3,613,101

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued 50,493,441 Shares (45,860,941 Shares Outstanding) and 50,239,613 Shares (49,076,613 Shares Outstanding) at December 31, 2007 and 2006, Respectively			50			50
Common Stock, $0.001 Par Value; Authorized 200,000,000 Shares; Issued 50,538,049 Shares (45,905,549 Shares Outstanding) and 50,493,441 Shares (45,860,941 Shares Outstanding) at December 31, 2008 and 2007, Respectively										51			50
Additional Paid-In Capital			348,073			344,810				349,304			348,073
Unearned Compensation			(245	)		—				(218	)		(245	)
Accumulated Other Comprehensive Income (Loss) — Unrealized Gain (Loss) on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of $527 and ($1,450) at December 31, 2007 and 2006, Respectively			275			(3,200	)
Retained Earnings			93,404			165,498


			441,557			507,158
Less Treasury Stock, at Cost; 4,632,500 Shares and 1,163,000 Shares at December 31, 2007 and 2006, Respectively			(70,012	)		(20,041	)
Accumulated Other Comprehensive Income — Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of $473 and $527 at December 31, 2008 and 2007, Respectively										544			275
Retained Earnings (Deficit)										(15,754	)		92,415
Treasury Stock, at Cost (4,632,500 Shares at December 31, 2008 and 2007)										(70,012	)		(70,012	)

Total Stockholders’ Equity			371,545			487,117				263,915			370,556

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,983,746		$	3,725,243			$	3,875,816		$	3,983,657

See Accompanying Notes to Consolidated Financial Statements.

5067

Hanmi Financial Corporation and Subsidiaries

~~Consolidated Statements of Operations~~CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended December 31,								*Year Ended December 31,*

(Dollars in thousands, except per share data)	2007			2006		2005			*2008*			*2007*			*2006*


INTEREST AND DIVIDEND INCOME:
Interest and Fees on Loans	$	261,992		$	239,075	$	180,845		$	223,942		$	261,992		$	239,075
Taxable Interest on Investments		13,399			15,2690		14,278			9,397			13,399			15,269
Tax-Exempt Interest on Investments		3,055			3,087		3,122			2,717			3,055			3,087
Dividends on FHLB and FRB Stock		1,413			1,354		1,107
Dividends on Federal Home Loan Bank and Federal Reserve Bank Stock										1,918			1,413			1,354
Interest on Federal Funds Sold		1,032			1,402		1,589			166			1,032			1,402
Interest on Term Federal Funds Sold		5			2		—			43			5			2

Total Interest and Dividend Income		280,896			260,189		200,941			238,183			280,896			260,189

INTEREST EXPENSE:
Interest on Deposits		108,100			93,036		54,192			84,353			108,517			93,553
Interest on FHLB Advances and Other Borrowings		13,949			6,977		3,017
Interest on Federal Home Loan Bank Advances and Other Borrowings										14,373			13,949			6,977
Interest on Junior Subordinated Debentures		6,644			6,416		4,902			5,056			6,644			6,416

Total Interest Expense		128,693			106,429		62,111			103,782			129,110			106,946

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		152,203			153,760		138,830			134,401			151,786			153,243
Provision for Credit Losses		38,323			7,173		5,395			75,676			38,323			7,173

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		113,880			146,587		133,435			58,725			113,463			146,070

NON-INTEREST INCOME:
Service Charges on Deposit Accounts		18,061			17,134		15,782			18,463			18,061			17,134
Insurance Commissions		4,954			770		651			5,067			4,954			770
Trade Finance Fees		4,493			4,567		4,269			3,088			4,493			4,567
Other Service Charges and Fees										2,365			2,527			2,359
Remittance Fees		2,049			2,056		2,122			2,194			2,049			2,056
Other Service Charges and Fees		2,527			2,359		2,496
Bank-Owned Life Insurance Income		933			879		845			952			933			879
Increase in Fair Value of Derivatives		683			1,074		1,105
Other Income		1,702			1,157		1,042
Gain on Sales of Loans		5,452			6,917		3,021			765			5,452			6,917
Gain on Sales of Other Real Estate Owned		226			48		—
Gain on Sales of Securities Available for Sale		—			2		117			77			—			2
Other-Than-Temporary Impairment Loss on Securities		(1,074	)		—		—			(3,115	)		(1,074	)		—
Other Income										2,293			2,611			2,279

Total Non-Interest Income		40,006			36,963		31,450			32,149			40,006			36,963

NON-INTEREST EXPENSES:
NON-INTEREST EXPENSE:
Salaries and Employee Benefits		47,036			40,512		36,839			42,209			47,036			40,512
Occupancy and Equipment		10,494			9,643		9,413			11,158			10,494			9,643
Data Processing		6,390			5,857		4,844			5,799			6,390			5,857
Professional Fees										3,539			2,468			1,910
Advertising and Promotion		3,630			2,997		2,913			3,518			3,630			2,997
Supplies and Communications		2,592			2,391		2,556			2,518			2,592			2,391
Professional Fees		2,468			1,910		2,201
Amortization of Other Intangible Assets		2,324			2,379		2,785			1,958			2,324			2,379
Decrease in Fair Value of Embedded Options		233			582		748
Impairment Loss on Goodwill										107,393			102,891			—
Other Operating Expenses		11,871			11,042		8,411			16,230			12,104			11,624
Merger-Related Expenses		—			—		(509	)
Impairment Loss on Goodwill		102,891			—		—

Total Non-Interest Expenses		189,929			77,313		70,201
Total Non-Interest Expense										194,322			189,929			77,313

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		(36,043	)		106,237		94,684
Provision for Income Taxes		24,477			40,588		36,455
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES										(103,448	)		(36,460	)		105,720
Provision (Benefit) for Income Taxes										(1,355	)		24,302			40,370

NET INCOME (LOSS)	$	(60,520	)	$	65,649	$	58,229		$	(102,093	)	$	(60,762	)	$	65,350

EARNINGS (LOSS) PER SHARE:
Basic	$	(1.27	)	$	1.34	$	1.18		$	(2.23	)	$	(1.27	)	$	1.34
Diluted	$	(1.27	)	$	1.33	$	1.17		$	(2.23	)	$	(1.27	)	$	1.32
WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic		47,787,213			48,850,221		49,174,885			45,872,541			47,787,213			48,850,221
Diluted		47,787,213			49,435,128		49,942,356			45,872,541			47,787,213			49,435,128
DIVIDENDS DECLARED PER SHARE	$	0.24		$	0.24	$	0.20		$	0.09		$	0.24		$	0.20

See Accompanying Notes to Consolidated Financial Statements.

5168

Hanmi Financial Corporation and Subsidiaries

~~Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income~~CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


	Common Stock — Number of Shares								Stockholders’ Equity
																													*Common Stock — Number of Shares*									*Stockholders’ Equity*
																	Accumulated
	Gross					Net											Other												*Gross*						*Net*											*Accumulated*
	Shares					Shares					Additional						Comprehensive						Treasury			Total			*Shares*						*Shares*					*Additional*						*Other*			*Retained*			*Treasury*			*Total*
	Issued and		Treasury			Issued and			Common		Paid-in			Unearned			Income			Retained			Stock,			Stockholders’			*Issued and*			*Treasury*			*Issued and*			*Common*		*Paid-in*			*Unearned*			*Comprehensive*			*Earnings*			*Stock,*			*Stockholders’*
(Dollars in thousands)	Outstanding		Shares			Outstanding			Stock		Capital			Compensation			(Loss)			Earnings			at Cost			Equity			*Outstanding*			*Shares*			*Outstanding*			*Stock*		*Capital*			*Compensation*			*Income (Loss)*			*(Deficit)*			*at Cost*			*Equity*


BALANCE AT JANUARY 1, 2005		49,330,704		—			49,330,704		$	49	$	334,932		$	—		$	1,035		$	63,894		$	—		$	399,910
Exercises of Stock Options		391,094		—			391,094			1		2,515			—			—			—			—			2,516
Restricted Stock Award		100,000		—			100,000			—		1,815			(1,815	)		—			—			—			—
Amortization of Unearned Compensation		—		—			—			—		—			665			—			—			—			665
Tax Benefit from Exercise of Stock Options		—		—			—			—		729			—			—			—			—			729
Stock Repurchase		—		(1,163,000	)		(1,163,000	)		—		—			—			—			—			(20,041	)		(20,041	)
Cash Dividends		—		—			—			—		—			—			—			(9,813	)		—			(9,813	)
Comprehensive Income:
Net Income		—		—			—			—		—			—			—			58,229			—			58,229
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax		—		—			—			—		—			—			(5,418	)		—			—			(5,418	)


Total Comprehensive Income																											52,811

BALANCE AT DECEMBER 31, 2005		49,821,798		(1,163,000	)		48,658,798			50		339,991			(1,150	)		(4,383	)		112,310			(20,041	)		426,777
BALANCE AT JANUARY 1, 2006																														49,821,798			(1,163,000	)		48,658,798		$	50	$	339,991		$	(1,150	)	$	(4,383	)	$	111,862		$	(20,041	)	$	426,329
Cumulative Adjustment — Tax Credit Funds		—		—			—			—		—			—			—			(656	)		—			(656	)		—			—			—			—		—			—			—			(656	)		—			(656	)
Cumulative Adjustment — Share-Based Compensation		—		—			—			—		(916	)		1,150			—			—			—			234			—			—			—			—		(916	)		1,150			—			—			—			234
Exercises of Stock Options and Stock Warrants		417,815		—			417,815			—		3,553			—			—			—			—			3,553			417,815			—			417,815			—		3,553			—			—			—			—			3,553
Share-Based Compensation Expense		—		—			—			—		1,521			—			—			—			—			1,521			—			—			—			—		1,521			—			—			—			—			1,521
Tax Benefit from Exercise of Stock Options		—		—			—			—		661			—			—			—			—			661			—			—			—			—		661			—			—			—			—			661
Cash Dividends		—		—			—			—		—			—			—			(11,805	)		—			(11,805	)		—			—			—			—		—			—			—			(11,805	)		—			(11,805	)
Comprehensive Income:
Net Income		—		—			—			—		—			—			—			65,649			—			65,649			—			—			—			—		—			—			—			65,350			—			65,350
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax		—		—			—			—		—			—			1,183			—			—			1,183
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes																														—			—			—			—		—			—			1,183			—			—			1,183

Total Comprehensive Income																											66,832																													66,533

BALANCE AT DECEMBER 31, 2006		50,239,613		(1,163,000	)		49,076,613			50		344,810			—			(3,200	)		165,498			(20,041	)		487,117			50,239,613			(1,163,000	)		49,076,613			50		344,810			—			(3,200	)		164,751			(20,041	)		486,370
Shares Issued for Business Acquisitions		102,181		—			102,181			—		2,198			—			—			—			—			2,198			102,181			—			102,181			—		2,198			—			—			—			—			2,198
Exercises of Stock Options and Stock Warrants		132,647		—			132,647			—		1,164			—			—			—			—			1,164			132,647			—			132,647			—		1,164			—			—			—			—			1,164
Share-Based Compensation Expense		—		—			—			—		1,880			11			—			—			—			1,891			—			—			—			—		1,880			11			—			—			—			1,891
Restricted Stock Awards		19,000		—			19,000			—		256			(256	)		—			—			—			—			19,000			—			19,000			—		256			(256	)		—			—			—			—
Tax Benefit from Exercise of Stock Options		—		—			—			—		317			—			—			—			—			317			—			—			—			—		317			—			—			—			—			317
Cash Dividends		—		—			—			—		—			—			—			(11,574	)		—			(11,574	)		—			—			—			—		—			—			—			(11,574	)		—			(11,574	)
Repurchase of Common Stock		—		(3,469,500	)		(3,469,500	)		—		—			—			—			—			(49,971	)		(49,971	)		—			(3,469,500	)		(3,469,500	)		—		—			—			—			—			(49,971	)		(49,971	)
Repurchase of Stock Warrants		—		—			—			—		(2,552	)		—			—			—			—			(2,552	)		—			—			—			—		(2,552	)		—			—			—			—			(2,552	)
Comprehensive Loss:
Net Loss		—		—			—			—		—			—			—			(60,520	)		—			(60,520	)		—			—			—			—		—			—			—			(60,762	)		—			(60,762	)
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax		—		—			—			—		—			—			3,475			—			—			3,475
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes																														—			—			—			—		—			—			3,475			—			—			3,475

Total Comprehensive Loss																											(57,045	)																												(57,287	)

BALANCE AT DECEMBER 31, 2007		50,493,441		(4,632,500	)		45,860,941		$	50	$	348,073		$	(245	)	$	275		$	93,404		$	(70,012	)	$	371,545			50,493,441			(4,632,500	)		45,860,941			50		348,073			(245	)		275			92,415			(70,012	)		370,556
Cumulative-Effect Adjustment — Adoption of EITF IssueNo. 06-4																														—			—			—			—		—			—			—			(2,223	)		—			(2,223	)
Shares Issued for Business Acquisitions																														39,608			—			39,608			1		292			—			—			—			—			293
Repurchase of Stock Options																														—			—			—			—		(70	)		—			—			—			—			(70	)
Share-Based Compensation Expense																														—			—			—			—		983			53			—			—			—			1,036
Restricted Stock Awards																														10,000			—			10,000			—		67			(67	)		—			—			—			—
Cancellation of Restricted Stock Award																														(5,000	)		—			(5,000	)		—		(41	)		41			—			—			—			—
Cash Dividends																														—			—			—			—		—			—			—			(3,853	)		—			(3,853	)
Comprehensive Loss:
Net Loss																														—			—			—			—		—			—			—			(102,093	)		—			(102,093	)
Change in Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes																														—			—			—			—		—			—			269			—			—			269

Total Comprehensive Loss																																																								(101,824	)

BALANCE AT DECEMBER 31, 2008																														50,538,049			(4,632,500	)		45,905,549		$	51	$	349,304		$	(218	)	$	544		$	(15,754	)	$	(70,012	)	$	263,915

See Accompanying Notes to Consolidated Financial Statements.

5269

Hanmi Financial Corporation and Subsidiaries

~~Consolidated Statements of Cash Flows~~CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,									*Year Ended December 31,*

(In thousands)	2007			2006			2005			*2008*			*2007*			*2006*


CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(60,520	)	$	65,649		$	58,229		$	(102,093	)	$	(60,762	)	$	65,350
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided By Operating Activities:
Depreciation and Amortization of Premises and Equipment		2,953			2,924			2,704			2,900			2,953			2,924
Amortization of Premiums and Accretion of Discounts on Investments, Net		218			264			565			164			218			264
Amortization of Other Intangible Assets		2,324			2,379			2,785			1,958			2,324			2,379
Amortization of Servicing Assets											1,295			2,046			1,307
Share-Based Compensation Expense		1,891			1,521			665			1,036			1,891			1,521
Provision for Credit Losses		38,323			7,173			5,395			75,676			38,323			7,173
Federal Reserve Bank and Federal Home Loan Bank Stock Dividends		(708	)		(641	)		(362	)
Federal Home Loan Bank and Federal Reserve Bank Stock Dividends											(1,259	)		(708	)		(641	)
Gain on Sales of Securities Available for Sale		—			(2	)		(117	)		(77	)		—			(2	)
Other-Than-Temporary Impairment Loss on Securities		1,074			—			—			3,115			1,074			—
Increase in Fair Value of Derivatives		(683	)		(1,074	)		(1,105	)
Decrease in Fair Value of Embedded Options		233			582			748
Gain on Sales of Loans		(5,452	)		(6,917	)		(3,021	)		(765	)		(5,452	)		(6,917	)
Gain on Sales of Other Real Estate Owned		(226	)		(48	)		—			324			(226	)		—
Loss on Sales of Premises and Equipment		22			96			34
Impairment Loss on Goodwill		102,891			—			—			107,393			102,891			—
Excess Tax Benefit from Exercises of Stock Options		(193	)		(598	)		729			—			(193	)		(598	)
Deferred Tax Benefit		(14,618	)		(2,942	)		(2,707	)		(11,254	)		(14,618	)		(2,942	)
Origination of Loans Held for Sale		(108,639	)		(154,608	)		(61,709	)		(54,347	)		(108,639	)		(154,608	)
Proceeds from Sales of Loans Held for Sale		131,626			138,720			67,515			24,037			131,626			138,720
Increase in Accrued Interest Receivable		(581	)		(2,799	)		(4,091	)
(Increase) Decrease in Servicing Assets, Net		243			(669	)		(64	)
(Increase) Decrease in Accrued Interest Receivable											5,064			(492	)		(2,799	)
Increase in Servicing Assets, Net											(750	)		(1,803	)		(1,976	)
Increase in Cash Surrender Value of Bank-Owned Life Insurance		(933	)		(879	)		(845	)		(951	)		(933	)		(879	)
Increase in Other Assets		(4,040	)		(11,424	)		(2,015	)
(Increase) Decrease in Other Assets											1,151			2,875			(9,300	)
Increase (Decrease) in Accrued Interest Payable		(754	)		10,671			4,811			(3,289	)		(754	)		10,671
Increase (Decrease) in Other Liabilities		3,034			(1,298	)		188			(5,573	)		3,158			(760	)
Other, Net		6,165			2,236			612

Net Cash Provided By Operating Activities		93,650			48,316			68,944			43,755			94,821			48,909


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Redemption of Federal Reserve Bank Stock		—			617			—
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Matured Term Federal Funds Sold		5,000			—			—			—			5,000			—
Proceeds from Redemption of Federal Home Loan Bank and Federal Reserve Bank Stock											4,074			—			617
Proceeds from Matured or Called Securities Available for Sale		89,958			56,729			89,885			147,320			89,958			56,729
Proceeds from Sales of Securities Available for Sale		—			5,005			11,360			28,501			—			5,005
Proceeds from Sales of Other Real Estate Owned		1,306			593			—			2,128			1,306			—
Net Increase in Loans Receivable		(459,930	)		(352,678	)		(242,088	)		(95,286	)		(461,297	)		(352,678	)
Purchase of Term Federal Funds Sold		—			(5,000	)		—			—			—			(5,000	)
Purchases of Federal Reserve Bank and Federal Home Loan Bank Stock		(7,849	)		(311	)		(2,264	)
Purchases of Federal Home Loan Bank and Federal Reserve Bank Stock											(10,261	)		(7,849	)		(311	)
Purchases of Securities Available for Sale		(44,980	)		(9,663	)		(132,700	)		(25,339	)		(44,980	)		(9,663	)
Purchases of Premises and Equipment		(3,682	)		(2,237	)		(3,831	)		(2,379	)		(3,682	)		(2,237	)
Business Acquisitions, Net of Cash Acquired		(4,121	)		—			—			—			(1,727	)		—

Net Cash Used In Investing Activities		(424,298	)		(306,945	)		(279,638	)

Net Cash Provided By (Used In) Investing Activities											48,758			(423,271	)		(307,538	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits		56,984			118,601			297,307			68,381			56,984			118,601
Proceeds from Exercises of Stock Options and Stock Warrants		1,164			3,553			2,516			—			1,164			3,553
Excess Tax Benefit from Exercises of Stock Options		193			598			—			—			193			598
Stock Issued for Business Acquisitions		2,198			—			—
Cash Paid to Acquire Treasury Stock		(49,971	)		—			(20,041	)		—			(49,971	)		—
Cash Paid to Repurchase Stock Warrants		(2,552	)		—			—
Cash Paid to Repurchase Stock Options and Stock Warrants											(70	)		(2,552	)		—
Cash Dividends Paid		(11,574	)		(11,805	)		(9,813	)		(3,853	)		(11,574	)		(11,805	)
Proceeds from Long-Term FHLB Advances and Other Borrowings		—			130,000			7,411
Repayment of Long-Term FHLB Advances and Other Borrowings		(443	)		(5,420	)		(30,246	)
Net Change in Short-Term FHLB Advances and Other Borrowings		318,546			(1,874	)		(127	)
Proceeds from Long-Term Federal Home Loan Bank Advances and Other Borrowings											250,000			—			130,000
Repayment of Long-Term Federal Home Loan Bank Advances and Other Borrowings											(468	)		(443	)		(5,420	)
Net Change in Short-Term Federal Home Loan Bank Advances and Other Borrowings											(313,713	)		318,546			(1,874	)

Net Cash Provided By Financing Activities		314,545			233,653			247,007			277			312,347			233,653

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(16,103	)		(24,976	)		36,313			92,790			(16,103	)		(24,976	)
Cash and Cash Equivalents at Beginning of Year		138,501			163,477			127,164			122,398			138,501			163,477

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	122,398		$	138,501		$	163,477		$	215,188		$	122,398		$	138,501

Supplemental Disclosures of Cash Flow Information:
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest Paid	$	129,447		$	117,100		$	41,266		$	107,071		$	129,864		$	117,100
Income Taxes Paid	$	38,232		$	45,869		$	37,650		$	13,873		$	38,232		$	45,869
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Non-Cash Activities:
Stock Issued for Business Acquisition										$	293		$	2,198		$	—
Transfer of Loans to Other Real Estate Owned	$	1,367		$	541		$	—		$	2,988		$	1,367		$	541
Accrued Dividend	$	3,030		$	2,941		$	2,433
Dividends Declared										$	—		$	3,030		$	2,941

See Accompanying Notes to Consolidated Financial Statements.

5370

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~December~~DECEMBER 31, 2008, 2007 AND 2006 ~~and 2005~~


*Note 1 —*	*Summary of Significant Accounting Policies*

~~The accounting and reporting policies~~Summary of Hanmi Financial Corporation and subsidiaries conform to U.S. generally accepted accounting principles. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.Operations

~~Principles of Consolidation~~

~~The consolidated financial statements include the accounts of~~ Hanmi Financial Corporation (“Hanmi Financial,” “we,” “us” or “our”) and our wholly owned subsidiaries, Hanmi Bank (the “Bank”), Chun-Ha Insurance Services, Inc. (“Chun-Ha”) and All World Insurance Services, Inc. (“All World”). Intercompany transactions and balances are eliminated in consolidation.

~~Hanmi Financial~~ was formed as a holding company of ~~the~~Hanmi Bank (the “Bank”) and registered with the Securities and Exchange Commission under the Securities Act of 1933 on March 17, 2001. Subsequent to its formation, each of the Bank’s shares was exchanged for one share of Hanmi Financial with an equal value. Our primary operations are related to traditional banking activities, including the acceptance of deposits and the lending and investing of money through operation of the Bank.

The Bank is a community bank conducting general business banking, with its primary market encompassing theKorean-American community as well as other communities in the multi-ethnic populations of Los Angeles County, Orange County, San Bernardino County, San Diego County, the San Francisco Bay area, and the Silicon Valley area in Santa Clara County. The Bank’s full-service offices are located in business areas where many of the businesses are run by immigrants and other minority groups. The Bank’s client base reflects the multi-ethnic composition of these communities. The Bank is a California state-chartered ~~FDIC-insured~~ financial ~~institution.~~institution insured by the Federal Deposit Insurance Corporation. As of December 31, ~~2007,~~2008, the Bank maintained a branch network of 2426 full-service branch offices in California and ~~eight~~7 loan production offices in California, Colorado, Georgia, Illinois, Texas, Virginia and Washington.

Our other subsidiaries, Chun-Ha Insurance Services, Inc. (“Chun-Ha”) and All World Insurance Services, Inc. (“All World”), were acquired in January 2007. Founded in 1989, Chun-Ha and All World are insurance ~~brokerages~~agencies that offer a complete line of insurance products, including life, commercial, automobile, health, and property and casualty.

Basis of Presentation

The accounting and reporting policies of Hanmi Financial and subsidiaries conform, in all material respects, to U.S. generally accepted accounting principles (“GAAP”) and general practices within the banking industry. A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.

Principles of Consolidation

The consolidated financial statements include the accounts of Hanmi Financial and our wholly owned subsidiaries, the Bank, Chun-Ha and All World. All intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas where estimates are made consist of the allowance for loan losses, other-than-temporary impairment, investment securities valuations and income taxes. Actual results could differ from those estimates.

Reclassifications

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

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

Liquidity Risk

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

For further disclosure on our liquidity position and our available sources of liquidity, see“Note 22 — Liquidity.”

Cash and Cash Equivalents

Cash and cash equivalents include cash, ~~and~~ due from banks and overnight ~~Federal~~federal funds sold, all of which have original or purchased maturities of less than 90 days.

Securities

Securities are classified into three categories and accounted for as follows:


1.	Securities that we have the positive intent and ability to hold to maturity are classified as “held-to-maturity” and reported at amortized cost;


2.	Securities that are bought and held principally for the purpose of selling them in the near future are classified as “trading securities” and reported at fair value. Unrealized gains and losses are recognized in earnings; and

3.	Securities not classified as held-to-maturity or trading securities are classified as “available for sale” and reported at fair value. Unrealized gains and losses are reported as a separate component of stockholders’ equity as accumulated other comprehensive income, ~~(loss),~~ net of income taxes.

Accreted discounts and amortized premiums on investment securities are included in interest income using the effective interest method

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 1 —~~	~~Summary of Significant Accounting Policies~~ ~~(Continued)~~

over the remaining period to the call date or contractual maturity and, in the case of mortgage-backed securities and securities with call features, adjusted for anticipated prepayments. Unrealized and realized gains or losses related to holding or selling of securities are calculated using the specific-identification method.

We assess, at each reporting date, whether there is an “other-than-temporary” impairment to our investment securities. We examine all individual securities that are in an unrealized loss position at each reporting date for ~~“other-than-temporary” impairment.~~other-than-temporary impairment (“OTTI”). Specific investment level factors we examine to assess impairment include the severity and duration of the loss, an analysis of the issuers of the securities and if there has been any cause for default on the securities and any change in the rating of the securities by the various rating agencies. Additionally, we reexamine the financial resources and overall ability the Bank has and the intent management has to hold the securities until their fair values recover. To the extent

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

there is an impairment of value deemed “other than temporary” for a security held to maturity or available for sale, a loss is recognized in earnings and a new cost basis established for the security.

We also have a minority investment of ~~4.99~~less than five percent in a ~~non-publicly~~publicly traded company, Pacific International ~~Bank. The~~Bancorp (“PIB”). As of December 31, 2008, the investment iswas carried at fair value and included in securities available for sale on the Consolidated Balance Sheets. At December 31, 2007, due to an inactive market for the common stock of PIB, the investment was carried at cost and is included in other assets on the Consolidated Balance Sheets. As of December 31, ~~2007~~2008 and ~~2006,~~2007, its carrying value was ~~$511,000.~~$804,000 and $511,000, respectively. We monitor the investment for impairment and make appropriate reductions in carrying value when necessary.

Loans Receivable

We originate loans for investment, with such designation made at the time of origination. Loans receivable that we have the intent and ability to hold for the foreseeable future, or until maturity, are ~~recorded~~stated at ~~the contractual amounts due from borrowers, adjusted~~their outstanding principal, reduced by an allowance for ~~undisbursed funds,~~loan losses and net deferred loan fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Non-refundable fees and direct costs associated with the origination ~~costs, and the allowance for loan losses.~~

~~Loans Held for Sale~~

~~Loans originated and intended for sale in the secondary market, primarily Small Business Administration (“SBA”)~~or purchase of loans are ~~carried at the lower of cost or market value in the aggregate. Net unrealized losses, if any,~~deferred and netted against outstanding loan balances. The deferred net loan fees and costs are recognized ~~through a valuation allowance by charges~~in interest income as an adjustment to ~~income.~~

~~Loan Interest Income and Fees~~yield over the loan term using the effective interest method. Discounts or premiums on purchased loans are accreted or amortized to interest income using the effective interest method over the remaining period to contractual maturity adjusted for anticipated prepayments.

Interest on loans is credited to income as earned and is accrued only if deemed collectible. Direct loan origination costs are offset by loan origination fees with the net amount deferred and recognized over the contractual lives of the loans in interest income as a yield adjustment using the effective interest method. Discounts or premiums associated with purchased loans are accreted or amortized to interest income using the interest method over the contractual lives of the loans, adjusted for prepayments. Accretion of discounts and deferred loan fees is discontinued when loans are placed on non-accrual status.

Loans are placed on non-accrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due. However, in certain instances, we may place a particular loan on non-accrual status earlier, depending upon the individual circumstances surrounding the loan’s delinquency. When an asset is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectibility of principal is probable, in which case interest payments are credited to income. Non-accrual assets may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans not meeting the criteria for non-accrual.

Loans Held for Sale

Loans originated and intended for sale in the secondary market, primarily Small Business Administration (“SBA”) loans, are carried at the lower of aggregate cost or market value. Origination fees on loans held for sale, net of certain costs of processing and closing the loans, are deferred until the time of sale and are included in the computation of the gain or loss from the sale of the related loans. A valuation allowance is established if the market value of such loans is lower than their cost and net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

5573

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~December~~DECEMBER 31, 2008, 2007 AND 2006 ~~and 2005~~ (Continued)


*Note 1 —*	Summary of Significant Accounting Policies ~~(Continued)~~(Continued)

Allowance for Loan Losses

Management believes the allowance for loan losses is adequate to provide for probable losses inherent in the loan portfolio. However, the allowance is an estimate that is inherently uncertain and depends on the outcome of future events. Management’s estimates are based on previous loan loss experience; volume, growth and composition of the loan portfolio; the value of collateral; and current economic conditions. Our lending is concentrated in commercial, consumer, construction and real estate loans in the greater Los Angeles/Orange County area. Although management believes the level of the allowance is adequate to absorb probable losses inherent in the loan portfolio, a decline in the local economy may result in increasing losses that cannot reasonably be predicted at this date.

Non-performing assets consist of loans on non-accrual status, loans 90 days or more past due and still accruing interest, loans restructured where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, and other real estate owned (“OREO”). Loans are generally placed on non-accrual status when they become 90 days past due unless management believes the loan is adequately collateralized and in the process of collection. Additionally, the Bank may place loans that are not 90 days past due on non-accrual status, if management reasonably believes the borrower will not be able to comply with the contractual loan repayment terms and collection of principal or interest is in question.

When loans are placed on non-accrual status, accrued but unpaid interest is reversed against the current year’s income, and interest income on non-accrual loans is recorded on a cash basis. The Bank may treat payments as interest income or return of principal depending upon management’s opinion of the ultimate risk of loss on the individual loan. Cash payments are treated as interest income where management believes the remaining principal balance is fully collectible.

Loan losses are charged, and recoveries are credited, to the allowance account. Additions to the allowance account are charged to the provision for credit losses. The allowance for loan losses is maintained at a level considered adequate by management to absorb probable losses in the loan portfolio. The adequacy of the allowance is determined by management based upon an evaluation and review of the loan portfolio, consideration of historical loan loss experience, current economic conditions, changes in the composition of the loan portfolio, analysis of collateral values and other pertinent factors.

Loans are measured for impairment when it is probable that not all amounts, including principal and interest, will ~~not~~ be collected in accordance with the contractual terms of the loan agreement. The amount of impairment and any subsequent changes are recorded through the provision for credit losses as an adjustment to the allowance for loan losses. Accounting standards require that an impaired loan be measured based on:


1.	the present value of the expected future cash flows, discounted at the loan’s effective interest rate; or

2.	the loan’s observable fair value; or

3.	the fair value of the collateral, if the loan is collateral-dependent.

The Bank follows the“Interagency Policy Statement on the Allowance for Loan and Lease Losses”and analyzes the allowance for loan losses on a quarterly basis. In addition, as an integral part of the quarterly credit review process of the Bank, the allowance for loan losses and allowance for off-balance sheet items are reviewed for adequacy. The California Department of Financial Institutions (“DFI”)and/or the Board of Governors of the Federal Reserve System require the Bank to recognize additions to the allowance for loan losses based upon their assessment of the information available to them at the time of their examinations.

5674

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
~~December~~DECEMBER 31, 2008, 2007 AND 2006 ~~and 2005~~ (Continued)


*Note 1 —*	Summary of Significant Accounting Policies ~~(Continued)~~(Continued)

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of useful lives for the principal classes of assets are as follows:


Buildings and Improvements		10 to 30 years
Furniture and Equipment		3 to 7 Years
Leasehold Improvements		Term of Lease or Useful Life, Whichever is Shorter
Software		3 Years

Impairment of Long-Lived Assets

We account for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Other Real Estate Owned

Assets acquired through ~~or instead of~~ loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Servicing Assets

Servicing assets are recorded at the lower of amortized cost or fair value in accordance with the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The fair values of servicing assets represent either the price paid if purchased, or the allocated carrying amounts based on relative values when retained in a sale. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing income. The fair value of servicing assets is determined based on the present value of estimated net future cash flows related to contractually specified servicing fees.

Upon sales of such loans, we receive a fee for servicing the loans. The servicing asset is recorded based on the present value of the contractually specified servicing fee, net of adequate compensation, for the estimated life of the loan, using a discount rate and a constant prepayment rate. The servicing asset is amortized in proportion to and over the period of estimated servicing income. Management periodically evaluates the servicing asset for impairment. Impairment, if it occurs, is recognized in a valuation allowance in the period of impairment.

Interest-only strips are recorded based on the present value of the excess of total servicing fee over the contractually specified servicing fee for the estimated life of the loan, calculated using the same assumptions as noted above. Such interest-only

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

strips are accounted for at their estimated fair value, with unrealized gains or losses recorded as adjustments to accumulated other comprehensive income (loss).

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. In accordance with SFAS No. 142,“Goodwill and Other Intangible Assets,”goodwill must be recorded at the reporting unit level. Reporting units are defined as an operating segment. We have identified one reporting unit — our banking operations. SFAS No. 142 prohibits the amortization of goodwill, but requires that it be tested for impairment at least annually (at any time during the year, but at the same time each year), or more frequently if events or circumstances change, such as adverse changes in the business climate, that would more likely than not reduce the reporting unit’s fair value below its carrying amount.

The impairment test is performed in two phases. The first step involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. The fair value of the reporting unit was derived based on a weighted distribution of values derived from three different approaches: market approach, market capitalization approach, and income approach. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

Other Intangible Assets

Other intangible assets consists of a core deposit intangible (“CDI”) and acquired intangible assets arising from acquisitions, including non-compete agreements, trade names, carrier relationships and client/insured relationships. CDI represents the intangible value of depositor relationships resulting from deposit liabilities assumed in acquisitions. We amortize the CDI balance using an accelerated method over eight years. The acquired intangible assets were initially measured at fair value and then are amortized on the straight-line method over their estimated useful lives.

As required by SFAS No. 142, we evaluated the useful lives assigned to other intangible assets and determined that no change was necessary and amortization expense was not adjusted for the year ended December 31, 2008. As required by SFAS No. 142, other intangible assets are assessed for impairment or recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The other intangible assets recoverability analysis is consistent with our policy for assessing impairment of long-lived assets.

Federal Home Loan Bank Stock

The Bank is a member of the Federal Home Loan Bank of San Francisco (“FHLB”) and is required to own common stock in the FHLB based upon the Bank’s balance of residential mortgage loans and outstanding FHLB advances. FHLB stock is carried at cost and may be sold back to the FHLB at its carrying value. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends received are reported as dividend income.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

Federal Reserve Bank Stock

The Bank is a member of the Federal Reserve Bank of San Francisco (“FRB”) and is required to maintain stock in the FRB based on a specified ratio relative to the Bank’s capital. FRB stock is carried at cost and may be sold back to the FRB at its carrying value. FRB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends received are reported as dividend income.

Derivative Instruments

We account for derivatives in accordance with the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended.”Under SFAS No. 133, all derivatives are recognized on the balance sheet at their fair values. On the date the derivative contract is entered into, we designate the derivative as a fair value hedge or a cash flow hedge. Fair value hedges include hedges of the fair value of a recognized asset, liability or a firm commitment. Cash flow hedges include hedges of the variability of cash flows to be received or paid related to a recognized asset, liability or a forecasted transaction. Changes in the fair value of derivatives designated as fair value hedges, along with the change in fair value on the hedged asset, liability or firm commitment that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of derivatives designated as cash flow hedges, to the extent effective as a hedge, are recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item affects earnings.

We formally document all relationships between hedging instruments and hedged items. This documentation includes our risk management objective and strategy for undertaking various hedge transactions, as well as how hedge effectiveness and ineffectiveness will be measured. This process includes linking derivatives to specific assets and liabilities on the balance sheet. We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.

When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective hedge, the derivative will continue to be carried on the balance sheet at its fair value, with changes in its fair value recognized in current period earnings. For fair value hedges, the formerly hedged asset or liability will no longer be adjusted for changes in fair value and any previously recorded adjustments to the carrying value of the hedged asset or liability will be amortized in the same manner that the hedged item affects income. For cash flow hedges, amounts previously recorded in accumulated other comprehensive income (loss) will be reclassified into income as earnings are impacted by the variability in the cash flows of the hedged item.

If the hedging instrument is terminated early, the derivative is removed from the balance sheet. Accounting for the adjustments to the hedged asset or liability or adjustments to accumulated other comprehensive income (loss) are the same as described above when a derivative no longer qualifies as an effective hedge.

If the hedged asset or liability is sold or extinguished, the derivative will continue to be carried on the balance sheet at its fair value, with changes in its fair value recognized in current period earnings. The hedged item, including previously recorded mark-to-market adjustments, is derecognized immediately as a component of the gain or loss upon disposition.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

Bank-Owned Life Insurance

We have purchased single premium life insurance policies (“bank-owned life insurance”) on certain officers. The Bank is the beneficiary under the policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement.

Affordable Housing Investments

The Bank has invested in limited partnerships formed to develop and operate affordable housing units for lower income tenants throughout California. The partnership interests are accounted for utilizing the equity method of accounting. The costs of the investments are being amortized on a straight-line method over the life of related tax credits. If the partnerships cease to qualify during the compliance period, the credits may be denied for any period in which the projects are not in compliance and a portion of the credits previously taken is subject to recapture with interest. Such investments are recorded in other assets in the accompanying Consolidated Balance Sheets.

Junior Subordinated Debentures

We have established three statutory business trusts that are wholly owned subsidiaries of Hanmi Financial: Hanmi Capital Trust I, Hanmi Capital Trust II and Hanmi Capital Trust III (collectively, “the Trusts”). In three separate private placement transactions, the Trusts issued variable rate capital securities representing undivided preferred beneficial interests in the assets of the Trusts. Hanmi Financial is the owner of all the beneficial interests represented by the common securities of the Trusts.

Financial Accounting Standards Board (“FASB”) Interpretation No. 46R,“Consolidation of Variable Interest Entities (Revised December 2003) — an Interpretation of ARB No. 51,”requires that variable interest entities be consolidated by a company if that company is subject to a majority of expected losses from the variable interest entity’s activities, or is entitled to receive a majority of the entity’s expected residual returns, or both. The Trusts are not consolidated and junior subordinated debt represents liabilities of Hanmi Financial to the Trusts.

Income Taxes

Share-Based Compensation

We adopted SFAS No. 123(R),“Share-Based Payment,”on January 1, 2006 using the “modified prospective” method. Under this method, awards that are granted, modified or settled after December 31, 2005 are measured and accounted for in

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 1 —*	*Summary of Significant Accounting Policies* (Continued)

accordance with SFAS No. 123(R). Also under this method, expense is recognized for services attributed to the current period for unvested awards that were granted prior to January 1, 2006, based upon the fair value determined at the grant date under SFAS No. 123, “Accounting for Stock-Based Compensation.”Prior to the adoption of SFAS No. 123(R), we accounted for stock compensation under the intrinsic value method permitted by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,”and related interpretations. Accordingly, we previously recognized no compensation cost for employee stock options that were granted with an exercise price equal to the market value of the underlying common stock on the date of grant.

In November 2005, the FASB issued FASB Staff Position (“FSP”)No. FAS 123R-3,“Transition Election Related to Accounting for the Tax Effects of the Share-Based Payment Awards.”We have adopted the alternative transition method prescribed by FSPNo. FAS 123R-3 and concluded that we have no pool of tax benefits as of the adoption date of SFAS No. 123(R).

SFAS No. 123(R) requires that cash flows resulting from the realization of excess tax benefits recognized on awards that were fully vested at the time of adoption of SFAS No. 123(R) be classified as a financing cash inflow and an operating cash outflow on the Consolidated Statements of Cash Flows. Before the adoption of SFAS No. 123(R), we presented all tax benefits realized from the exercise of stock options as an operating cash inflow.

In addition, SFAS No. 123(R) requires that any unearned compensation related to awards granted prior to the adoption of SFAS No. 123(R) be eliminated against the appropriate equity accounts. As a result, the presentation of stockholders’ equity was revised to reflect the transfer of the balance previously reported in unearned compensation to additional paid-in capital.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution of securities that could share in the earnings.

Treasury Stock

We use the cost method of accounting for treasury stock. The cost method requires us to record the reacquisition cost of treasury stock as a deduction from stockholders’ equity on the Consolidated Balance Sheets.


*Note 2 —*	*Fair Value Measurements*

Fair Value Option and Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.”SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It also establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. We adopted SFAS No. 157 on January 1, 2008. In February 2008, the FASB issued FSPNo. FAS 157-2,“Effective Date of FASB Statement No. 157.”FSPNo. FAS 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 2 —*	*Fair Value Measurements* (Continued)

years. The adoption of SFAS No. 157 and FSP No. FAS 157-2 did not have a material impact on our financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities.”SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 was effective for us on January 1, 2008. We did not elect the fair value option for any financial assets or financial liabilities as of January 1, 2008.

In October 2008, the FASB issued FSPNo. 157-3, “Determining Fair Value of a Financial Asset in a Market That Is Not Active.”FSPNo. 157-3 clarified the application of SFAS No. 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSPNo. 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued, and did not have a significant impact on our financial condition or results of operations.

Fair Value Measurement

SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:


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

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

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

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

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 2 —*	*Fair Value Measurements* (Continued)

Impaired Loans — SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114,“Accounting by Creditors for Impairment of a Loan,”including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation, which is then adjusted for the cost related to liquidation of the collateral. These loans are classified as Level 2 and subject to non-recurring fair value adjustments.

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2008, assets and liabilities measured at fair value on a recurring basis are as follows:



	*Level 1*		*Level 2*		*Level 3*

			*Significant*
			*Observable*
			*Inputs With*
	*Quoted Prices in*		*No Active*
	*Active Markets*		*Market With*		*Significant*		*Balance as of*
	*for Identical*		*Identical*		*Unobservable*		*December 31,*
*(In thousands)*	*Assets*		*Characteristics*		*Inputs*		*2008*


ASSETS:
Securities Available for Sale:
Mortgage-Backed Securities	$	—	$	78,860	$	—	$	78,860
Municipal Bonds		—		58,313		—		58,313
Collateralized Mortgage Obligations		—		36,162		—		36,162
U.S. Government Agency Securities		17,700		—		—		17,700
Other Securities		759		2,888		1,311		4,958
Equity Securities		804		—		—		804
Corporate Bonds		—		169		—		169


Total Securities Available for Sale	$	19,263	$	176,392	$	1,311	$	196,966


Servicing Assets	$	—	$	—	$	3,791	$	3,791

LIABILITIES:
Servicing Liabilities	$	—	$	—	$	238	$	238

The table below presents a reconciliation and income statement classification of gains and losses for all assets and liabilities

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 2 —*	*Fair Value Measurements* (Continued)

measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2008:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

								*Realized and*
								*Unrealized*
	*Beginning*				*Realized and*			*Gains or Losses*				*Ending*
	*Balance as of*		*Purchases,*		*Unrealized*			*in Other*		*Transfers*		*Balance as of*
	*January 1,*		*Issuances and*		*Gains or Losses*			*Comprehensive*		*In and/or Out*		*December 31,*
*(In thousands)*	*2008*		*Settlements*		*in Earnings*			*Income*		*of Level 3*		*2008*

ASSETS:
Securities Available for Sale:
Other Securities	$	925	$	—	$	—		$	386	$	—	$	1,311
Servicing Assets	$	4,336	$	405	$	(950	)	$	—	$	—	$	3,791

LIABILITIES:
Servicing Liabilities	$	266	$	—	$	(28	)	$	—	$	—	$	238

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

As of December 31, 2008, assets and liabilities measured at fair value on a non-recurring basis are as follows:



	*Level 1*		*Level 2*		*Level 3*

			*Significant*
			*Observable*
			*Inputs With*
	*Quoted Prices in*		*No Active*
	*Active Markets*		*Market With*		*Significant*		*Balance as of*
	*for Identical*		*Identical*		*Unobservable*		*December 31,*
*(In thousands)*	*Assets*		*Characteristics*		*Inputs*		*2008*


ASSETS:
Loans Held for Sale	$	—	$	37,410	$	—	$	37,410
Impaired Loans	$	—	$	2,404	$	—	$	2,404

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

SFAS No. 107,“Disclosures About Fair Value of Instruments,”requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring basis or non-recurring basis are discussed above.

The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 2 —*	*Fair Value Measurements* (Continued)

we could realize in a current market exchange. The use of different market assumptionsand/or estimation methodologies may have a material effect on the estimated fair value amounts.

The estimated fair values of financial instruments were as follows:


	*December 31, 2008*				*December 31, 2007*

	*Carrying*		*Estimated*		*Carrying*		*Estimated*
	*or Contract*		*Fair*		*or Contract*		*Fair*
*(In thousands)*	*Amount*		*Value*		*Amount*		*Value*


FINANCIAL ASSETS:
Cash and Cash Equivalents	$	215,188	$	215,188	$	122,398	$	122,398
Securities Held to Maturity		910		910		940		941
Securities Available for Sale		196,966		196,966		349,517		349,517
Loans Receivable, Net		3,251,311		3,246,955		3,234,762		3,232,165
Accrued Interest Receivable		12,347		12,347		17,500		17,500
Federal Home Loan Bank Stock		30,697		30,697		21,746		21,746
Federal Reserve Bank Stock		10,228		10,228		11,733		11,733

FINANCIAL LIABILITIES:
Noninterest-Bearing Deposits		536,944		536,944		680,282		680,282
Interest-Bearing Deposits		2,533,136		2,538,394		2,321,417		2,323,199
FHLB Advances, Other Borrowings and Junior Subordinated Debentures		505,389		506,429		569,570		571,913
Accrued Interest Payable		18,539		18,539		21,828		21,828

OFF-BALANCE SHEET ITEMS:
Commitments to Extend Credit		386,785		384		524,349		535
Standby Letters of Credit		47,289		194		48,071		147

The methods and assumptions used to estimate the fair value of each class of financial instruments for which it was practicable to estimate that value are explained below:

Cash and Cash Equivalents — The carrying amounts approximate fair value due to the short-term nature of these instruments.

Securities — The fair value of securities was generally obtained from market bids for similar or identical securities or obtained from independent securities brokers or dealers.

Loans Receivable, Net — Fair values were estimated by loan portfolio and are based on discounted cash flows utilizing discount rates that approximate the pricing of similar loans and anticipated repayment schedules. The fair value of non-performing loans at December 31, 2008 and 2007 was not estimated because it was not practicable to reasonably assess the credit adjustment that would be applied in the marketplace for such loans. The estimated fair value is net of the allowance for loan losses. Impaired loans and loans held for sale were excluded.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 2 —*	*Fair Value Measurements* (Continued)

Accrued Interest Receivable — The carrying amount of accrued interest receivable approximates its fair value.

Federal Home Loan Bank and Federal Reserve Bank Stock — The carrying amounts approximate fair value as the stock may be resold to the issuer at carrying value.

Noninterest-Bearing Deposits — The fair value of non-maturity deposits was the amount payable on demand at the reporting date. Non-maturity deposits include noninterest-bearing demand deposits, savings accounts and money market checking.

Interest-Bearing Deposits — The fair value of interest-bearing deposits, such as certificates of deposit, was estimated based on discounted cash flows. The discount rate used was based on interest rates currently being offered by the Bank on comparable deposits as to amount and term.

FHLB Advances, Other Borrowings and Junior Subordinated Debentures — Discounted cash flows have been used to value FHLB advances, other borrowings and junior subordinated debentures.

Accrued Interest Payable — The carrying amount of accrued interest payable approximates its fair value.

Commitments to Extend Credit and Standby Letters of Credit — The fair values of commitments to extend credit and standby letters of credit are based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.


*Note 3 —*	*Securities*

The following is a summary of securities held to maturity:



			*Gross*		*Gross*		*Estimated*
	*Amortized*		*Unrealized*		*Unrealized*		*Fair*
*(In thousands)*	*Cost*		*Gain*		*Loss*		*Value*


December 31, 2008:
Municipal Bonds	$	695	$	—	$	—	$	695
Mortgage-Backed Securities		215		—		—		215


	$	910	$	—	$	—	$	910


December 31, 2007:
Municipal Bonds	$	694	$	—	$	—	$	694
Mortgage-Backed Securities		246		1		—		247


	$	940	$	1	$	—	$	941

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 3 —*	*Securities* (Continued)

The following is a summary of securities available for sale:



			*Gross*		*Gross*		*Estimated*
	*Amortized*		*Unrealized*		*Unrealized*		*Fair*
*(In thousands)*	*Cost*		*Gain*		*Loss*		*Value*


December 31, 2008:
Mortgage-Backed Securities	$	77,515	$	1,536	$	191	$	78,860
Municipal Bonds		58,987		413		1,087		58,313
Collateralized Mortgage Obligations		36,204		137		179		36,162
U.S. Government Agency Securities		17,580		120		—		17,700
Other Securities		4,684		386		112		4,958
Equity Securities		511		293		—		804
Corporate Bonds		355		—		186		169


	$	195,836	$	2,885	$	1,755	$	196,966


December 31, 2007:
Mortgage-Backed Securities	$	99,332	$	533	$	667	$	99,198
Municipal Bonds		69,907		1,867		23		71,751
Collateralized Mortgage Obligations		51,881		128		591		51,418
U.S. Government Agency Securities		104,893		277		81		105,089
Other Securities		3,925		—		90		3,835
Corporate Bonds		18,295		43		112		18,226


	$	348,233	$	2,848	$	1,564	$	349,517

The amortized cost and estimated fair value of investment securities at December 31, 2008, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2037, expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	*Available for Sale*				*Held to Maturity*

	*Amortized*		*Estimated*		*Amortized*		*Estimated*
*(In thousands)*	*Cost*		*Fair Value*		*Cost*		*Fair Value*


Within One Year	$	8,038	$	8,200	$	—	$	—
Over One Year Through Five Years		17,697		17,812		—		—
Over Five Years Through Ten Years		7,083		7,208		695		695
Over Ten Years		48,788		47,920		—		—
Mortgage-Backed Securities		77,515		78,860		215		215
Collateralized Mortgage Obligations		36,204		36,162		—		—
Equity Securities		511		804		—		—


	$	195,836	$	196,966	$	910	$	910

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 3 —*	*Securities* (Continued)

In accordance with SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities,”FSPNo. FAS 115-1 and FSPNo. FAS 124-1,“The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,”and Staff Accounting Bulletin No. 59, we periodically evaluate our investments for OTTI. For the years ended December 31, 2008 and 2007, we recorded $3.1 million and $1.1 million, respectively, in other-than-temporary impairment charges on certain available-for-sale securities and certain unmarketable securities (included in other assets in the accompanying Consolidated Balance Sheets).

As of December 31, 2008, we had an investment in a Lehman Brothers corporate bond with an aggregate par value of $2.7 million. During the third quarter of 2008, Lehman Brothers filed for bankruptcy. Based on an evaluation of the financial condition and near-term prospects of Lehman Brothers, we recorded an OTTI charge of $2.4 million to write down the value of the corporate bond to its estimated fair value. As of December 31, 2008, we had an investment in a Community Reinvestment Act (“CRA”) equity fund that was included in other assets. During the third and fourth quarters of 2008, we recorded OTTI charges of $212,000 and $494,000, respectively, due to the foreclosure of three properties in the fund and the conversion of three properties from for-sale to rental properties.

As of December 31, 2007, we had investments in CRA preferred securities with an aggregate par value of $2.0 million. During the fourth quarter of 2007, based on an evaluation of the length of time and extent to which the estimated fair value of the CRA preferred securities had been less than their carrying value, and the financial condition and near-term prospects of the issuers, we recorded an OTTI charge of $1.1 million to write down the value of the CRA preferred securities to their estimated fair value.

Gross unrealized losses on investment securities available for sale and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows as of December 31, 2008 and 2007:


	*Holding Period*

	*Less than 12 Months*				*12 Months or More*				*Total*

	*Unrealized*		*Estimated*		*Unrealized*		*Estimated*		*Unrealized*		*Estimated*
*(In thousands)*	*Losses*		*Fair Value*		*Losses*		*Fair Value*		*Losses*		*Fair Value*


Available for Sale — December 31, 2008:
Mortgage-Backed Securities	$	158	$	10,631	$	33	$	5,277	$	191	$	15,908
Municipal Bonds		968		35,614		119		1,749		1,087		37,363
Collateralized Mortgage Obligations		36		4,569		143		5,903		179		10,472
Other Securities		72		929		40		1,960		112		2,889
Corporate Bonds		186		169		—		—		186		169


	$	1,420	$	51,912	$	335	$	14,889	$	1,755	$	66,801


Available for Sale — December 31, 2007:
Mortgage-Backed Securities	$	31	$	5,319	$	636	$	42,143	$	667	$	47,462
Municipal Bonds		—		—		23		2,910		23		2,910
Collateralized Mortgage Obligations		—		—		591		40,167		591		40,167
U.S. Government Agency Securities		—		—		81		46,895		81		46,895
Other Securities		—		—		90		2,910		90		2,910
Corporate Bonds		—		—		112		7,834		112		7,834


	$	31	$	5,319	$	1,533	$	142,859	$	1,564	$	148,178

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 3 —*	*Securities* (Continued)

The impairment losses described previously are not included in the table above as the impairment losses were recorded. All other individual securities that have been in a continuous unrealized loss position for 12 months or longer at December 31, 2008 and 2007 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status at December 31, 2008 and 2007. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability, and management intends, to hold these securities until their fair values recover to cost. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of December 31, 2008 and 2007 are not other-than-temporarily impaired, and therefore, no additional impairment charges as of December 31, 2008 and 2007 are warranted.

Securities available for sale with carrying values of $123.6 million and $240.4 million as of December 31, 2008 and 2007, respectively, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

There were $77,000, $0 and $2,000 in net realized gains on sales of securities available for sale during the years ended December 31, 2008, 2007 and 2006, respectively. In 2008, $281,000 ($163,000, net of income taxes) of net unrealized gains arose during the year and was included in comprehensive income and $435,000 ($252,000, net of income taxes) of previously net unrealized gains were realized in earnings. In 2007, $2.7 million ($2.0 million, net of income taxes) of net unrealized gains arose during the year and was included in comprehensive income. In 2006, $254,000 ($184,000, net of income taxes) of net unrealized losses arose during the year and was included in comprehensive income and $4,000 ($3,000, net of income taxes) of previously net unrealized gains were realized in earnings.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 4 —*	*Loans*

Loans Receivable

Loans receivable consisted of the following:


	*December 31,*

*(In thousands)*	*2008*			*2007*


Real Estate Loans:
Commercial Property	$	908,970		$	795,675
Construction		178,783			215,857
Residential Property		92,361			90,065


Total Real Estate Loans		1,180,114			1,101,597


Commercial and Industrial Loans:
Commercial Term Loans		1,611,449			1,599,853
Commercial Lines of Credit		214,699			256,978
SBA Loans		140,989			112,503
International Loans		95,185			119,360


Total Commercial and Industrial Loans		2,062,322			2,088,694


Consumer Loans		83,525			90,449


Total Gross Loans		3,325,961			3,280,740
Allowance for Loans Losses		(70,986	)		(43,611	)
Deferred Loan Fees		(1,260	)		(2,367	)


Loans Receivable, Net	$	3,253,715		$	3,234,762

Accrued interest on loans receivable amounted to $11.8 million and $15.6 million at December 31, 2008 and 2007, respectively. At December 31, 2008 and 2007, loans receivable totaling $2,841.5 million and $1,278.6 million, respectively, were pledged to secure FHLB advances and the FRB’s federal discount window.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 4 —*	*Loans* (Continued)

Allowance for Loan Losses and Allowance for Off-Balance Sheet Items

Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows:


	*As of and for the Year Ended December 31,*

	*2008*					*2007*						*2006*

				*Allowance*					*Allowance*						*Allowance*
				*for Off-*					*for Off-*						*for Off-*
	*Allowance*			*Balance*		*Allowance*			*Balance*			*Allowance*			*Balance*
	*for Loan*			*Sheet*		*for Loan*			*Sheet*			*for Loan*			*Sheet*
*(In thousands)*	*Losses*			*Items*		*Losses*			*Items*			*Losses*			*Items*


Balance at Beginning of Year	$	43,611		$	1,765	$	27,557		$	2,130		$	24,963		$	2,130
Provision Charged to Operating Expense		73,345			2,331		38,688			(365	)		7,173			—
Loans Charged Off		(48,152	)		—		(23,330	)		—			(6,129	)		—
Recoveries		2,182			—		696			—			1,550			—


Balance at End of Year	$	70,986		$	4,096	$	43,611		$	1,765		$	27,557		$	2,130

Impaired Loans

The following table provides information on impaired loans for the periods indicated:


	*As of and for the Year Ended December 31,*

*(In thousands)*	*2008*			*2007*			*2006*


Recorded Investment With Related Allowance	$	71,448		$	38,930		$	10,616
Recorded Investment With No Related Allowance		49,945			15,202			3,868
Allowance on Impaired Loans		(18,157	)		(11,829	)		(6,731	)


Net Recorded Investment in Impaired Loans	$	103,236		$	42,303		$	7,753


Average Total Recorded Investment in Impaired Loans	$	149,680		$	61,249		$	19,287

The following is a summary of interest foregone on impaired loans for the periods indicated:


	*Year Ended December 31,*

*(In thousands)*	*2008*			*2007*			*2006*


Interest Income That Would Have Been Recognized Had Impaired Loans Performed in Accordance With Their Original Terms	$	7,327		$	4,672		$	1,726
Less: Interest Income Recognized on Impaired Loans on a Cash Basis		(5,422	)		(3,705	)		(1,146	)


Interest Foregone on Impaired Loans	$	1,905		$	967		$	580

There were no commitments to lend additional funds to borrowers whose loans are included above.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 4 —*	*Loans* (Continued)

Non-Performing Assets

The following table details non-performing assets for the periods indicated:


	*December 31,*

*(In thousands)*	*2008*		*2007*


Non-Accrual Loans	$	120,823	$	54,252
Loans 90 Days or More Past Due and Still Accruing		1,075		227


Total Non-Performing Loans		121,898		54,479
Other Real Estate Owned		823		287


Total Non-Performing Assets	$	122,721	$	54,766

Loans on non-accrual status totaled $120.8 million and $54.3 million at December 31, 2008 and 2007, respectively. The increase in non-accrual loans was primarily due to two large construction loans (a $25.2 million condominium project in Northern California and an $11.9 million low-income housing construction project in the Los Angeles area) and a $24.2 million commercial term loan.

Loans past due 90 days or more and still accruing interest totaled $1.1 million and $227,000 at December 31, 2008 and 2007, respectively.

As of December 31, 2008, there were three OREO properties with a combined net carrying value of $823,000. As of December 31, 2007, there was one OREO property with a net carrying value of $287,000. During the year ended December 31, 2008, an OREO property, with a carrying value of $2.3 million, was sold and a net loss of $324,000 was realized. During the year ended December 31, 2007, an OREO property, with a carrying value of $1.1 million, was sold and a net gain of $226,000 was realized.

Restructured Loans

As of December 31, 2008, restructured loans totaled $24.2 million and the related allowance was $714,000. There were no restructured loans at December 31, 2007.

Servicing Assets

The changes in servicing assets were as follows for the periods indicated:


	*December 31,*

*(In thousands)*	*2008*			*2007*


Balance at Beginning of Year	$	4,336		$	4,579
Additions		405			1,821
Changes in Valuation Allowance		345			(18	)
Amortization		(1,295	)		(2,046	)


Balance at End of Year	$	3,791		$	4,336

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 4 —*	*Loans* (Continued)

At December 31, 2008 and 2007, we serviced loans sold to unaffiliated parties in the amounts of $228.6 million and $258.5 million, respectively. These represent loans that have either been sold or securitized for which the Bank continues to provide servicing. These loans are maintained off balance sheet and are not included in the loans receivable balance. All of the loans being serviced were SBA loans.


*Note 5 —*	*Premises and Equipment*

The following is a summary of the major components of premises and equipment:


	*December 31,*

*(In thousands)*	*2008*			*2007*


Land	$	6,120		$	6,120
Buildings and Improvements		8,790			8,433
Furniture and Equipment		14,528			13,783
Leasehold Improvements		10,956			10,141
Software		862			862


		41,256			39,339
Accumulated Depreciation and Amortization		(20,977	)		(18,539	)


Total Premises and Equipment, Net	$	20,279		$	20,800

Depreciation and amortization expense totaled $2.9 million, $3.0 million and $2.9 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the various classes of assets. The ranges of useful lives for the principal classes


*Note 6 —*	*Goodwill*

As of December 31, 2008 and 2007, goodwill totaled $0 and $107.1 million, respectively. The change in goodwill during the year is as follows:


	*As of and for the Year Ended*
	*December 31,*

*(In thousands)*	*2008*			*2007*


Balance at Beginning of Year	$	107,100		$	207,646
Acquired Goodwill		293			2,345
Impairment Loss on Goodwill		(107,393	)		(102,891	)


Balance at End of Year	$	—		$	107,100

Acquired Goodwill

The acquisitions of Chun-Ha and All World resulted in the recognition of goodwill aggregating $293,000 and $2.3 million for the years ended December 31, 2008 and 2007, respectively.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 6 —*	*Goodwill* (Continued)

Impairment Loss on Goodwill

During our assessments of goodwill during the second quarter of 2008 and the fourth quarter of 2007, we concluded that we had an impairment of goodwill based on the decline in the market value of our common stock, which we believe reflects, in part, recent turmoil in the financial markets that has adversely affected the market value of the common stock of many banks. The fair value was determined based on a weighted distribution of values derived from three different approaches: market approach, market capitalization approach, and income approach. Based on these assessments, we concluded that the related goodwill was impaired and $107.4 million and $102.9 million was required to be expensed as a non-cash charge to continuing operations during the second quarter of 2008 and the fourth quarter of 2007, respectively.


*Note 7 —*	*Other Intangible Assets*

Other intangible assets were as follows:


			*December 31, 2008*								*December 31, 2007*

			*Gross*						*Net*		*Gross*					*Net*
	*Amortization*		*Carrying*		*Accumulated*				*Carrying*		*Carrying*		*Accumulated*			*Carrying*
*(In thousands)*	*Period*		*Amount*		*Amortization*				*Amount*		*Amount*		*Amortization*			*Amount*


Other Intangible Assets:
Core Deposit Intangible		8 years	$	13,137	$	(10,538	)		$	2,599	$	13,137	$	(8,865	)	$	4,272
Trade Names		20 years		970		(97	)			873		970		(48	)		922
Client/Insured Relationships		10 years		770		(154	)			616		770		(77	)		693
Non-Compete Agreements		5 years		600		(240	)			360		600		(120	)		480
Carrier Relationships		15 years		580		(78	)			502		580		(39	)		541


Total Other Intangible Assets			$	16,057	$	(11,107	)	��	$	4,950	$	16,057	$	(9,149	)	$	6,908

The weighted-average amortization period for other intangible assets is 9.1 years. The total amortization expense for other intangible assets was $2.0 million, $2.3 million and $2.4 million during the years ended December 31, 2008, 2007 and 2006, respectively.

Estimated future amortization expense related to other intangible assets for each of the next five years is as follows:


*Year Ending*
*December 31,*

*(In thousands)*	*Amount*


2009	$	1,568
2010	$	1,149
2011	$	700
2012	$	198
2013	$	165

As of December 31, 2008 and 2007, management is not aware of any circumstances that would indicate impairment of other intangible assets. There were no impairment charges recorded through earnings in 2008 or 2007.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 8 —*	*Deposits*

At December 31, 2008, the scheduled maturities of time deposits are as follows:


~~Buildings and Improvements~~		~~10 to 30 years~~
~~Furniture and Equipment~~		~~Two to Seven Years~~
~~Leasehold Improvements~~		~~Term of Lease or Useful Life, Whichever is Shorter~~
~~Software~~		~~Three Years~~


	*Time*
	*Deposits*		*Other*
*Year Ending*	*of $100,000*		*Time*
*December 31,*	*or More*		*Deposits*		*Total*

*(In thousands)*


2009	$	823,015	$	1,106,010	$	1,929,025
2010		26,499		124,934		151,433
2011		182		84		266
2012		—		4		4
2013		—		—		—
Thereafter		104		34		138


Total	$	849,800	$	1,231,066	$	2,080,866

A summary of interest expense on deposits was as follows for the periods indicated:


	*Year Ended December 31,*

*(In thousands)*	*2008*		*2007*		*2006*


Savings	$	2,093	$	2,004	$	1,853
Money Market Checking and NOW Accounts		19,909		15,446		14,539
Time Deposits of $100,000 or More		43,598		75,516		64,184
Other Time Deposits		18,753		15,551		12,977


Total Interest Expense on Deposits	$	84,353	$	108,517	$	93,553

Accrued interest payable on deposits totaled $16.7 million and $20.7 million at December 31, 2008 and 2007, respectively. Total deposits reclassified to loans due to overdrafts at December 31, 2008 and 2007 were $3.1 million and $6.3 million, respectively.

On October 3, 2008, FDIC deposit insurance on most accounts was increased from $100,000 to $250,000. This increase is in place until the end of 2009. As of December 31, 2009, time deposits of $250,000 or more were $149.5 million.

~~Impairment of Long-Lived Assets~~Note 9 —

~~We account for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,~~

~~“Accounting for the Impairment or Disposal of Long-Lived Assets.”~~~~This Statement requires that long-lived assets~~FHLB Advances and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
~~Servicing Assets~~Other Borrowings
~~Servicing assets are recorded at the lower of amortized cost or fair value in accordance with the provisions of SFAS No. 140,~~~~“Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”~~ The fair values of servicing assets represent either the price paid if purchased, or the allocated carrying amounts based on relative values when retained in a sale. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing income. The fair value of servicing assets is determined based on the present value of estimated net future cash flows related to contractually specified servicing fees.
Upon sales of such loans, we receive a fee for servicing the loans. The servicing asset is recorded based on the present value of the contractually specified servicing fee, net of adequate compensation, for the estimated life of the loan, discounted by a rate in the range of 11 percent to 12 percent and a constant prepayment rate ranging from 6 percent to 16 percent. The servicing asset is amortized in proportion to and over the period of estimated servicing income. Management periodically evaluates the servicing asset for impairment. Impairment, if it occurs, is recognized in a valuation allowance in the period of impairment.
Interest-only strips are recorded based on the present value of the excess of total servicing fee over the contractually specified servicing fee for the estimated life of the loan, calculated using the same assumptions as noted above. Such interest-only strips are accounted for at their estimated fair value, with unrealized gains or losses recorded as adjustments to accumulated other comprehensive income (loss).

FHLB advances and other borrowings consisted of the following:


	*December 31,*

*(In thousands)*	*2008*		*2007*


FHLB Advances	$	422,196	$	432,664
Federal Funds Purchased		—		50,000
Note Issued to U.S. Treasury		787		4,500


Total FHLB Advances and Other Borrowings	$	422,983	$	487,164

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 1 —~~	~~Summary of Significant Accounting Policies~~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008, 2007 AND 2006 (Continued)

~~Goodwill~~

~~We have goodwill, which represents the excess of purchase price over the fair value of net assets acquired, because of various business acquisitions. In accordance with SFAS No. 142,~~~~“Goodwill and Other Intangible Assets,”~~goodwill must be recorded at the reporting unit level. Reporting units are defined as an operating segment. We have identified one reporting unit — our banking operations. SFAS No. 142 prohibits the amortization of goodwill, but requires that it be tested for impairment at least annually (at any time during the year, but at the same time each year), or more frequently if events or circumstances change, such as adverse changes in the business climate, that would more likely than not reduce the reporting unit’s fair value below its carrying amount.

~~Other Intangible Assets~~

Other intangible assets consists of a core deposit intangible (“CDI”) and acquired intangible assets arising from acquisitions, including non-compete agreements, trade names, carrier relationships, and client/insured relationships. We amortize the CDI balance using an accelerated method over eight years. The acquired intangible assets were initially measured at fair value and then are amortized on the straight-line method over their estimated useful lives.

As required by SFAS No. 142, we evaluated the useful lives assigned to other intangible assets and determined that no change was necessary and amortization expense was not adjusted for the year ended December 31, 2007. As required by SFAS No. 142, other intangible assets are assessed for impairment or recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The other intangible assets recoverability analysis is consistent with our policy for assessing impairment of long-lived assets.

~~Federal Reserve Bank Stock~~

~~Federal Home Loan Bank Stock~~

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 1 —~~	~~Summary of Significant Accounting Policies~~ ~~(Continued)~~

sold back to the FHLB at its carrying value. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends received are reported as dividend income.

~~Derivative Instruments~~

~~We account for derivatives in accordance with the provisions of SFAS No. 133,~~~~“Accounting for Derivative Instruments and Hedging Activities, as amended.”~~Under SFAS No. 133, all derivatives are recognized on the balance sheet at their fair values. On the date the derivative contract is entered into, we designate the derivative as a fair value hedge or a cash flow hedge. Fair value hedges include hedges of the fair value of a recognized asset, liability or a firm commitment. Cash flow hedges include hedges of the variability of cash flows to be received or paid related to a recognized asset, liability or a forecasted transaction. Changes in the fair value of derivatives designated as fair value hedges, along with the change in fair value on the hedged asset, liability or firm commitment that is attributable to the hedged risk, are recorded in current period earnings. Changes in the fair value of derivatives designated as cash flow hedges, to the extent effective as a hedge, are recorded in accumulated other comprehensive income (loss) and reclassified into earnings in the period during which the hedged item affects earnings.

~~Bank-Owned Life Insurance~~

We have purchased life insurance policies on certain key executives. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due, if any, that are probable at settlement.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 1 —~~	~~Summary of Significant Accounting Policies~~ ~~(Continued)~~

~~Affordable Housing Investments~~


*Note 9 —*	*FHLB Advances and Other Borrowings* (Continued)

FHLB advances represent collateralized obligations with the FHLB. The following is a summary of contractual maturities pertaining to FHLB advances:


*Year of Maturity*	*December 31, 2008*					*December 31, 2007*

			*Weighted-*					*Weighted-*
			*Average*					*Average*
			*Interest*					*Interest*
*(Dollars in thousands)*	*Amount*		*Rate*			*Amount*		*Rate*


2008	$	—		—		$	415,000		4.72	%
2009		161,000		1.71	%		6,000		5.63	%
2010		6,908		4.44	%		7,084		4.44	%
2011		150,000		0.76	%		—		—
2012		—		—			—		—
2013		100,000		0.67	%		—		—
Thereafter		4,288		5.27	%		4,580		5.27	%


	$	422,196		1.21	%	$	432,664		4.73	%

The following is financial data pertaining to FHLB advances:


	Year Ended December 31,

*(Dollars in thousands)*	*2008*			*2007*			*2006*


Weighted-Average Interest Rate at End of Year		1.21	%		4.73	%		5.20	%
Weighted-Average Interest Rate During the Year		2.81	%		5.11	%		5.02	%
Average Balance of FHLB Advances	$	498,875		$	237,733		$	123,295
Maximum Amount Outstanding at Any Month-End	$	597,472		$	432,664		$	168,250

We have pledged investment securities available for sale and loans receivable with carrying values of $110.1 million and $1,441.5 million, respectively, as collateral with the FHLB for this borrowing facility. The total borrowing capacity available from the collateral that has been pledged is $682.7 million, of which $260.5 million remained available as of December 31, 2008.

For the years ended December 31, 2008, 2007 and 2006, interest expense on FHLB advances and other borrowings totaled $14.4 million, $13.9 million and $7.0 million, respectively, and the weighted-average interest rates were 2.82 percent, 5.10 percent and 5.02 percent, respectively.

Total credit lines for borrowing amounted to $5.0 million and $186.0 million at December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, $0 and $50.0 million, respectively, was borrowed under these credit lines. On December 31, 2008, the Bank was approved for a credit line of $1.07 billion through the FRB discount window.

Note 10 —

Junior Subordinated Debentures
We have established three statutory business trusts that are wholly-owned subsidiaries of Hanmi Financial: Hanmi Capital Trust I, Hanmi Capital Trust II and Hanmi Capital Trust III (collectively, “the Trusts”). In three separate private placement transactions, the Trusts issued variable rate capital securities representing undivided preferred beneficial interests in the assets of the Trusts. Hanmi Financial is the owner of all the beneficial interests represented by the common securities of the Trusts.

~~FASB Interpretation No. 46R,~~~~“Consolidation of Variable Interest Entities (Revised December 2003) — an Interpretation of ARB No. 51,”~~

Hanmi Financial Corporation and Subsidiariesrequires that variable interest entities be consolidated by a company if that company is subject to a majority of expected losses from the variable interest entity’s activities, or is entitled to receive a majority of the entity’s expected residual returns, or both. The Trusts are not consolidated and junior subordinated debt represents liabilities of Hanmi Financial to the Trusts.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 10 —*	*Junior Subordinated Debentures* (Continued)

interest at the three-month LIBOR plus 2.63 percent totaling $20.6 million. The securities have a floating rate, which resets quarterly. Under the terms of the transactions, the securities will mature in 2034 and are redeemable, in whole or in part, without penalty, at the option of Hanmi Financial after five years. The outstanding subordinated debentures related to these offerings, the proceeds of which financed the purchase of PUB, totaled $82.4 million at December 31, 2008 and 2007.

In October 2008, Hanmi Financial committed to the FRB that no interest payments on the trust preferred securities would be made without the prior written consent of the FRB. In addition, limitations imposed by our regulators prohibited the Bank from providing a dividend to Hanmi Financial. Therefore, in order to preserve its capital position, Hanmi Financial’s Board of Directors has elected to defer quarterly interest payments on its outstanding trust preferred securities until further notice, beginning with the interest payment that was due on January 15, 2009. See“Note 14 — Regulatory Matters”for further discussion.

For the years ended December 31, 2008, 2007 and 2006, interest expense on the junior subordinated debentures totaled $5.1 million, $6.6 million and $6.4 million, respectively, and the weighted-average interest rates were 6.14 percent, 8.06 percent and 7.79 percent, respectively.


*Note 11 —*	*Income Taxes*

In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48,“Accounting for Uncertainty in Income Taxes— an interpretation of FASB Statement No. 109.”FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to betaken on a tax return. Under FIN No. 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

We adopted the provisions of FIN No. 48 on January 1, 2007, and there was no material effect on the consolidated financial statements as of the date of the adoption. Because of the implementation, there was no cumulative effect related to adopting FIN No. 48. However, certain amounts have been reclassified on the Consolidated Balance Sheets in order to comply with the requirements of FIN No. 48.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	*December 31,*

*(In thousands)*	*2008*			*2007*


Unrecognized Tax Benefits at Beginning of Year	$	1,032		$	794
Gross Increases for Tax Positions of Prior Years		960			40
Gross Decreases for Tax Positions of Prior Years		—			—
Increases in Tax Positions for Current Year		131			198
Settlements		—			—
Lapse in Statute of Limitations		(686	)		—


Unrecognized Tax Benefits at End of Year	$	1,437		$	1,032

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 11 —*	*Income Taxes* (Continued)

The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $976,000, $141,000 and $115,000 as of December 31, 2008, December 31, 2007 and January 1, 2007, respectively.

During 2008 and 2007, we accrued interest of $58,000 and $52,000, respectively, for uncertain tax benefits. As of December 31, 2008 and 2007, the total amount of accrued interest related to uncertain tax positions, net of federal tax benefit, was $117,000 and $96,000, respectively. We account for interest and penalties related to uncertain tax positions as part of our provision for federal and state income taxes. Accrued interest and penalties are included within the related tax liability line on the Consolidated Balance Sheets.

Unrecognized tax benefits primarily include state exposures from California Enterprise Zone interest deductions and income tax treatment for prior business acquisition costs. We believe that it is reasonably possible that certain remaining unrecognized tax positions, each of which are individually insignificant, may be recognized by the end of 2009 because of a lapse of the statute of limitations. We anticipate an insignificant net change in the unrecognized tax benefits related to prior business acquisition costs, which will increase due to additional unrecognized tax benefits and decrease due to the lapse of the statute of limitations during 2009. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next 12 months.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2005 through 2007. Hanmi Financial Corporation and its subsidiaries’ state income tax returns are open to audit under the statute of limitations by various state tax authorities for the years ended December 31, 2004 through 2007. We are currently not under any audit by the Internal Revenue Service or state tax authorities.

A summary of the provision (benefit) for income taxes was as follows:


	*Year Ended December 31,*

*(In thousands)*	*2008*			*2007*			*2006*


Current Expense:
Federal	$	7,020		$	30,074		$	34,298
State		2,879			8,846			9,014


		9,899			38,920			43,312


Deferred Expense:
Federal		(7,590	)		(10,791	)		(2,222	)
State		(3,664	)		(3,827	)		(720	)


		(11,254	)		(14,618	)		(2,942	)


Provision (Benefit) for Income Taxes	$	(1,355	)	$	24,302		$	40,370

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 11 —*	*Income Taxes* (Continued)

Deferred tax assets and liabilities were as follows:


	*December 31,*

*(In thousands)*	*2008*			*2007*


Deferred Tax Assets:
Credit Loss Provision	$	35,792		$	20,800
Depreciation		2,170			1,729
State Taxes		—			1,594
Other		962			2,133


Total Deferred Tax Assets		38,924			26,256


Deferred Tax Liabilities:
Purchase Accounting		(4,559	)		(5,464	)
State Taxes		(2,337	)		—
Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps		(471	)		(527	)
Other		(2,101	)		(1,795	)


Total Deferred Tax Liabilities		(9,468	)		(7,786	)


Net Deferred Tax Assets	$	29,456		$	18,470

The realization of deferred tax assets will depend on the existence of future taxable income. The losses in 2006 and 2007 were caused by goodwill impairment charges that were not (and will never be) deductible for tax return purposes. Given our current financial position, the results of operations for the preceding years and the lack of any negative evidence suggesting otherwise, management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Therefore, as of December 31, 2008 and 2007, management has determined that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2007 and 2006, no valuation allowance was required.

A reconciliation between the federal statutory income tax rate and the effective tax rate was as follows:


	*Year Ended December 31,*

	*2008*			*2007*			*2006*


Federal Statutory Income Tax Rate		35.0	%		(35.0	)%		35.0	%
State Taxes, Net of Federal Tax Benefits		0.5	%		9.1	%		5.8	%
Tax-Exempt Municipal Securities		0.9	%		(3.0	)%		(1.0	)%
Other		1.2	%		(4.3	)%		(1.6	)%
Impairment Loss on Goodwill		(36.3	)%		99.9	%		—


Effective Tax Rate		1.3	%		66.7	%		38.2	%

At December 31, 2008 and 2007, net current taxes receivable of $11.7 million and $5.6 million, respectively, were included in other assets on the Consolidated Balance Sheets.

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)

Note 12 —

Share-Based Compensation
~~We adopted SFAS No. 123(R),~~~~“Share-Based Payment,”~~on January 1, 2006 using the “modified prospective” method. Under this method, awards that are granted, modified or settled after December 31, 2005 are measured and accounted for in accordance with SFAS No. 123(R). Also under this method, expense is recognized for services attributed to the current period for unvested awards that were granted prior to January 1, 2006, based upon the fair value determined at the grant date under SFAS No. 123,~~“Accounting for Stock-Based Compensation.”~~~~Prior to the adoption of SFAS No. 123(R), we accounted for stock compensation under the intrinsic value method permitted by Accounting Principles Board Opinion (“APB”) No. 25,~~~~“Accounting for Stock Issued to Employees,”~~and related interpretations. Accordingly, we previously recognized no compensation cost for employee stock options that were granted with an exercise price equal to the market value of the underlying common stock on the date of grant.
Prior to the adoption of SFAS No. 123(R), we applied APB No. 25 to account for share-based awards. The reported net income and earnings per share for the year ended December 31, 2005 has been presented below to reflect the impact had we been required to

At December 31, 2008, we had one incentive plan, the 2007 Equity Compensation Plan (the “Plan”), which replaced the Year 2000 Stock Option Plan. The 2004 CEO Stock Option Plan (the “CEO Plan”) was terminated on December 31, 2007. The Plan provides for grants of non-qualified and incentive stock options, restricted stock, stock appreciation rights and performance shares to non-employee directors, officers, employees and consultants of Hanmi Financial and its subsidiaries. The CEO Plan had provided for the grant of stock options and restricted stock to our former Chief Executive Officer.

Under the Plan, we may grant equity incentive awards for up to 3,000,000 shares of common stock. As of December 31, 2008, 3,000,000 shares were still available for issuance. The CEO Plan was terminated as of December 31, 2007 and there were no additional shares available for issuance.

The table below shows the share-based compensation expense and related tax benefits for the periods indicated:


	*Year Ended December 31,*

	*2008*		*2007*		*2006*


Share-Based Compensation Expense	$	1,036	$	1,891	$	1,521
Related Tax Benefits	$	436	$	795	$	640

As of December 31, 2008, unrecognized share-based compensation expense was as follows:



	*Unrecognized*		*Average Expected*
*(Dollars in thousands)*	*Expense*		*Recognition Period*


Stock Option Awards	$	1,976		2.2 years
Restricted Stock Awards		218		3.9 years


Total Unrecognized Share-Based Compensation Expense	$	2,194		2.4 years

2007 Equity Compensation Plan

Stock Options

All stock options granted under the Plan have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted under the Plan generally vest based on 5 years of continuous service and expire 10 years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plan). New shares of common stock are issued or treasury shares are utilized upon the exercise of stock options.

The weighted-average estimated fair value per share of options granted under the Plan was as follows:


	Year Ended December 31,

	2008		2007		2006


Weighted-Average Estimated Fair Value Per Share of Options Granted	$	1.54	$	4.49	$	6.23

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

~~Note 1 —~~

~~Summary of Significant Accounting Policies~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 12 —*	*Share-Based Compensation* (Continued)

The weighted-average fair value per share of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	*Year Ended December 31,*

	*2008*			*2007*			*2006*


Weighted-Average Assumptions:
Dividend Yield		1.78	%		1.68	%		1.26	%
Expected Volatility		35.89	%		29.98	%		34.79	%
Expected Term		3.1 years			4.9 years			4.6 years
Risk-Free Interest Rate		3.04	%		4.29	%		4.85	%

Expected volatility was determined based on the historical weekly volatility of our stock price over a period equal to the expected term of the options granted. The expected term of the options represents the period that options granted are expected to be outstanding based primarily on the historical exercise behavior associated with previous option grants. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.

The following information under the Plan is presented for the periods indicated:


	*Year Ended December 31,*

*(In thousands)*	*2008*		*2007*		*2006*


Grant Date Fair Value of Options Granted	$	216	$	596	$	5,940
Fair Value of Options Vested	$	1,249	$	1,590	$	695
Total Intrinsic Value of Options Exercised⁽¹⁾	$	—	$	1,197	$	2,874
Cash Received from Options Exercised	$	—	$	1,145	$	2,032
Actual Tax Benefit Realized from Tax Deductions on Options Exercised	$	—	$	317	$	661

~~recognize compensation cost based~~

(1)

Intrinsic value represents the difference between the closing stock price on the ~~fair value at the grant~~exercise date ~~for stock options, as required under SFAS No. 123(R). The pro forma amounts are as follows:~~

Year Ended

December 31,

(Dollars in thousands, except per share data) 2005

Net Income — As Reported $ 58,229
Add — Share-Based Employee Compensation Expense Included in Reported Net Income, Net of Related Tax Effects (Restricted Stock Award) 409
Deduct — Total Share-Based Employee Compensation Expense Determined Under Fair Value-Based Method for All Awards Subject to SFAS No. 123, Net of Related Tax Effects (1,214 )

Net Income — Pro Forma $ 57,424

Earnings Per Share — As Reported:
Basic $ 1.18
Diluted $ 1.17
Earnings Per Share — Pro Forma:
Basic $ 1.17
Diluted $ 1.15

~~In November 2005, the Financial Accounting Standards Board (“FASB”) issued Staff PositionNo. FAS 123R-3,~~~~“Transition Election Related to Accounting for the Tax Effects of the Share-Based Payment Awards”~~~~(“FAS 123R-3”).~~ ~~We have adopted the alternative transition method prescribed byFAS 123R-3~~and ~~concluded that we have no pool of tax benefits as of the adoption date of SFAS No. 123(R).~~
SFAS No. 123(R) requires that cash flows resulting from the realization of excess tax benefits recognized on awards that were fully vested at the time of adoption of SFAS No. 123(R) be classified as a financing cash inflow and an operating cash outflow in the Consolidated Statements of Cash Flows. Before the adoption of SFAS No. 123(R), we presented all tax benefits realized from the exercise ~~of stock options as an operating cash inflow.~~
In addition, SFAS No. 123(R) requires that any unearned compensation related to awards granted prior to the adoption of SFAS No. 123(R) be eliminated against the appropriate equity accounts. As a result, the presentation of stockholders’ equity was revised to reflect the transfer of the balance previously reported in unearned compensation to additional paid-in capital.
~~Earnings Per Share~~
~~Basic earnings per share (“EPS”) is computed by dividing earnings available to common shareholders~~price, multiplied by the ~~weighted-average~~ number of ~~common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings.~~
~~Treasury Stock~~options.
We use the cost method of accounting for treasury stock. The cost method requires us to record the reacquisition cost of treasury stock as a deduction from stockholders’ equity on the Consolidated Balance Sheets.

61

The following is a summary of stock option transactions under the Plan for the periods indicated:


	*Year Ended December 31,*

	*2008*					*2007*					*2006*

				*Weighted-*					*Weighted-*					*Weighted-*
				*Average*					*Average*					*Average*
	*Number*			*Exercise*		*Number*			*Exercise*		*Number*			*Exercise*
	of			*Price Per*		of			*Price Per*		of			*Price Per*
	*Shares*			*Share*		*Shares*			*Share*		*Shares*			*Share*


Options Outstanding at Beginning of Year		1,472,766		$	15.33		1,755,813		$	15.31		1,173,712		$	10.55
Options Granted		140,000		$	6.28		132,667		$	15.05		953,000		$	19.17
Options Exercised		—		$	—		(130,647	)	$	8.76		(257,759	)	$	7.88
Options Forfeited		(208,467	)	$	17.36		(256,267	)	$	18.22		(111,540	)	$	15.39
Options Expired		(80,832	)	$	15.33		(28,800	)	$	16.90		(1,600	)	$	14.03


Options Outstanding at End of Year		1,323,467		$	14.05		1,472,766		$	15.33		1,755,813		$	15.31


Options Exercisable at End of Year		778,245		$	13.51		617,634		$	12.48		471,903		$	8.55

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 1 —~~	~~Summary of Significant Accounting Policies~~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008, 2007 AND 2006 (Continued)

~~Use of Estimates in the Preparation of Financial Statements~~

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

~~Reclassifications~~

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


*Note 12 —*	*Share-Based Compensation* (Continued)
~~Note 2 —~~	~~Securities~~

~~The following is a summary of securities held to maturity:~~

Gross
Gross
Estimated

Amortized
Unrealized
Unrealized
Fair

(In thousands) Cost Gain Loss Value

December 31, 2007:
Municipal Bonds $ 694 $ — $ — $ 694
Mortgage-Backed Securities 246 1 — 247

$ 940 $ 1 $ — $ 941

December 31, 2006:
Municipal Bonds $ 693 $ — $ — $ 693
Mortgage-Backed Securities 274 2 — 276

$ 967 $ 2 $ — $ 969

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

The following is a summary of transactions for non-vested stock options under the Plan for the periods indicated:


~~Note 2 —~~	~~Securities~~ ~~(Continued)~~

~~The following is a summary of securities available for sale:~~

Gross
Gross
Estimated

Amortized
Unrealized
Unrealized
Fair

(In thousands) Cost Gain Loss Value

December 31, 2007:
U.S. Government Agency Securities $ 104,893 $ 277 $ 81 $ 105,089
Mortgage-Backed Securities 99,332 533 667 99,198
Municipal Bonds 69,907 1,867 23 71,751
Collateralized Mortgage Obligations 51,881 128 591 51,418
Corporate Bonds 18,295 43 112 18,226
Other 3,925 — 90 3,835

$ 348,233 $ 2,848 $ 1,564 $ 349,517

December 31, 2006:
U.S. Government Agency Securities $ 119,768 $ — $ 1,524 $ 118,244
Mortgage-Backed Securities 123,614 179 2,185 121,608
Municipal Bonds 69,966 1,795 51 71,710
Collateralized Mortgage Obligations 67,605 — 1,492 66,113
Corporate Bonds 8,090 — 203 7,887
Other 4,999 �� 172 121 5,050

$ 394,042 $ 2,146 $ 5,576 $ 390,612


	*Year Ended December 31,*

	*2008*					*2007*					*2006*

				*Weighted-*					*Weighted-*					*Weighted-*
				*Average*					*Average*					*Average*
	*Number*			*Grant Date*		*Number*			*Grant Date*		*Number*			*Grant Date*
	of			*Fair Value*		of			*Fair Value*		of			*Fair Value*
	*Shares*			*Per Share*		*Shares*			*Per Share*		*Shares*			*Per Share*


Non-Vested Options Outstanding at Beginning of Year		855,132		$	5.47		1,283,910		$	5.53		653,110		$	3.68
Options Granted		140,000		$	1.54		132,667		$	4.49		953,000		$	6.23
Options Vested		(241,443	)	$	5.17		(305,178	)	$	5.21		(210,660	)	$	3.30
Options Forfeited		(208,467	)	$	4.92		(256,267	)	$	5.57		(111,540	)	$	4.90


Non-Vested Options Outstanding at End of Year		545,222		$	4.79		855,132		$	5.47		1,283,910		$	5.53

As of December 31, 2008, stock options outstanding under the Plan were as follows:


	*Options Outstanding*								*Options Exercisable*

					*Weighted-*		*Weighted-*						*Weighted-*		*Weighted-*
					*Average*		*Average*						*Average*		*Average*
					*Exercise*		*Remaining*						*Exercise*		*Remaining*
*Exercise*	*Number*		*Intrinsic*		*Price Per*		*Contractual*		*Number*		*Intrinsic*		*Price Per*		*Contractual*
*Price Range*	*of Shares*		*Value⁽¹⁾*		*Share*		*Life*		*of Shares*		*Value⁽¹⁾*		*Share*		*Life*

	*(Dollars in thousands, except per share data)*


$3.27 to $4.99		128,184	$	—	$	3.89		1.7 years		128,184	$	—	$	3.89		1.7 years
$5.00 to $9.99		203,096		—	$	6.65		7.0 years		79,096		—	$	7.22		3.1 years
$10.00 to $14.99		319,700		—	$	13.51		5.2 years		249,700		—	$	13.51		5.2 years
$15.00 to $19.99		534,487		—	$	17.68		7.3 years		223,265		—	$	17.71		7.2 years
$20.00 to $21.63		138,000		—	$	21.58		7.9 years		98,000		—	$	21.62		7.9 years


		1,323,467	$	—	$	14.05		6.3 years		778,245	$	—	$	13.51		5.3 years

~~The amortized cost and estimated fair~~

(1)

Intrinsic value represents the difference between the closing stock price on the last trading day of investment securities at December 31, 2007, by contractual maturity, are shown below. Although mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2037, expected maturities may differ from contractual maturities because borrowers may have the ~~right to call or prepay obligations with or without call or prepayment penalties.~~

Available for Sale Held to Maturity

Amortized
Estimated
Amortized
Estimated

(In thousands) Cost Fair Value Cost Fair Value

Within One Year $ 65,898 $ 65,777 $ — $ —
Over One Year Through Five Years 64,033 64,217 — —
Over Five Years Through Ten Years 8,877 9,063 694 694
Over Ten Years 58,212 59,844 — —
Mortgage-Backed Securities 99,332 99,198 246 247
Collateralized Mortgage Obligations 51,881 51,418 — —

$ 348,233 $ 349,517 $ 940 $ 941

We periodically evaluate our investments for other-than-temporary impairment. We have investments in Community Reinvestment Act (“CRA”) preferred securities with an aggregate par value of $2.0 millionperiod, which was $2.06 as of December 31, ~~2007~~2008, and ~~2006. During~~ the ~~fourth quarter~~exercise price, multiplied by the number of ~~2007, based on an evaluation of the length of time and extent to which the estimated fair value of the CRA preferred securities had been~~

63options.

Restricted Stock Awards

Restricted stock awards under the Plan become fully vested after three to five years of continued employment from the date of grant. Hanmi Financial becomes entitled to an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted shares when the restrictions are released and the shares are issued. Restricted shares are forfeited if officers and employees terminate prior to the lapsing of restrictions. Forfeitures of restricted stock are treated as cancelled shares.

100

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 12 —*	*Share-Based Compensation* (Continued)
~~Note 2 —~~	~~Securities~~ ~~(Continued)~~

less than their carrying value, and the financial condition and near-term prospects of the issuers, we recorded an other-than-temporary impairment charge of $1.1 million to write down the value of the CRA preferred securities to their estimated fair value.

Holding Period

Less than 12 Months 12 Months or More Total

Unrealized
Estimated
Unrealized
Estimated
Unrealized
Estimated

(In thousands) Losses Fair Value Losses Fair Value Losses Fair Value

Available for Sale — December 31, 2007:
U.S. Government Agency Securities $ — $ — $ 81 $ 46,895 $ 81 $ 46,895
Mortgage-Backed Securities 31 5,319 636 42,143 667 47,462
Municipal Bonds — — 23 2,910 23 2,910
Collateralized Mortgage Obligations — — 591 40,167 591 40,167
Corporate Bonds — — 112 7,834 112 7,834
Other — — 90 2,910 90 2,910

$ 31 $ 5,319 $ 1,533 $ 142,859 $ 1,564 $ 148,178

Available for Sale — December 31, 2006:
U.S. Government Agency Securities $ 21 $ 9,979 $ 1,503 $ 108,265 $ 1,524 $ 118,244
Mortgage-Backed Securities 121 19,442 2,064 87,966 2,185 107,408
Municipal Bonds 3 961 48 4,290 51 5,251
Collateralized Mortgage Obligations 98 7,196 1,394 58,917 1,492 66,113
Corporate Bonds — — 203 7,887 203 7,887
Other — — 121 2,879 121 2,879

$ 243 $ 37,578 $ 5,333 $ 270,204 $ 5,576 $ 307,782

The impairment losses described previously are not included in the table above as the impairment loss was recorded. All other individual securities that have been in a continuous unrealized loss position for 12 months or longer at December 31, 2007 and 2006 had investment grade ratings upon purchase. The issuers of these securities have not established any cause for default on these securities and the various rating agencies have reaffirmed these securities’ long-term investment grade status at December 31, 2007 and 2006. These securities have fluctuated in value since their purchase dates as market interest rates have fluctuated. However, we have the ability, and management intends to hold these securities until their fair values recover to cost. Therefore, in management’s opinion, all securities that have been in a continuous unrealized loss position for the past 12 months or longer as of December 31, 2007 and 2006 are not other-than-temporarily impaired, and therefore, no additional impairment charges as of December 31, 2007 and 2006 are warranted.

Securities with carrying values of $240.4 million and $282.5 million as of December 31, 2007 and 2006, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

The table below provides information for restricted stock awards under the Plan for the periods indicated:


	*Year Ended December 31,*

	*2008*					*2007*				*2006*

				*Weighted-*				*Weighted-*				*Weighted-*
				*Average*				*Average*				*Average*
	*Number*			*Grant Date*		*Number*		*Grant Date*		*Number*		*Grant Date*
	of			*Fair Value*		of		*Fair Value*		of		*Fair Value*
	*Shares*			*Per Share*		*Shares*		*Per Share*		*Shares*		*Per Share*


Restricted Stock at Beginning of Year		19,000		$	13.48		—	$	—		—	$	—
Restricted Stock Granted		10,000		$	6.68		19,000	$	13.48		—	$	—
Restricted Stock Forfeited		(5,000	)	$	8.21		—	$	—		—	$	—


Restricted Stock at End of Year		24,000		$	11.74		19,000	$	13.48		—	$	—

2004 CEO Stock Option Plan

Stock Options

There were no stock options granted under the CEO Plan during the years ended December 31, 2008, 2007 and 2006. Upon the former Chief Executive Officer’s retirement on December 31, 2007, 116,666 vested stock options were repurchased for $70,000.

The following is a summary of stock option transactions under the CEO Plan for the periods indicated:


	*Year Ended December 31,*

	*2008*				*2007*					*2006*

	*Number*		*Exercise*		*Number*			*Exercise*		*Number*		*Exercise*
	of		*Price Per*		of			*Price Per*		of		*Price Per*
	*Shares*		*Share*		*Shares*			*Share*		*Shares*		*Share*


Options Outstanding at Beginning of Year		—	$	—		350,000		$	17.17		350,000	$	17.17
Options Forfeited		—	$	—		(233,334	)	$	17.17		—	$	—
Options Repurchased		—	$	—		(116,666	)	$	17.17		—	$	—


Options Outstanding at End of Year		—	$	—		—		$	—		350,000	$	17.17


Options Exercisable at End of Year		—	$	—		—		$	—		58,333	$	17.17

101

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 2 —~~	~~Securities~~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2008, 2007 AND 2006 (Continued)

There were $0, $2,000 and $117,000 in net realized gains on sales of securities available for sale during the years ended December 31, 2007, 2006 and 2005, respectively. In 2007, $2.7 million ($2.0 million, net of tax) of unrealized gains arose during the year and were included in comprehensive income. In 2006, $254,000 ($184,000, net of tax) of unrealized losses arose during the year and were included in comprehensive income and $4,000 ($3,000, net of tax) of previously unrealized gains were realized in earnings. In 2005, $3.6 million ($2.6 million, net of tax) of unrealized losses arose during the year and were included in comprehensive income and $114,000 ($83,000, net of tax) of previously unrealized gains were realized in earnings.


*Note 12 —*	*Share-Based Compensation* (Continued)
~~Note 3 —~~	~~Loans Receivable~~

The following is a summary of transactions for non-vested stock options under the CEO Plan for the periods indicated:


	*Year Ended December 31,*

	*2008*				*2007*					*2006*

	*Number*		*Grant Date*		*Number*			*Grant Date*		*Number*			*Grant Date*
	of		*Fair Value*		of			*Fair Value*		of			*Fair Value*
	*Shares*		*Per Share*		*Shares*			*Per Share*		*Shares*			*Per Share*


Non-Vested Options Outstanding at Beginning of Year		—	$	—		291,667		$	4.82		350,000		$	4.82
Options Forfeited		—	$	—		(233,334	)	$	4.82		—		$	—
Options Vested		—	$	—		(58,333	)	$	4.82		(58,333	)	$	4.82


Non-Vested Options Outstanding at End of Year		—	$	—		—		$	—		291,667		$	4.82

Restricted Stock Awards

The table below provides information for restricted stock awards under the CEO Plan for the periods indicated:


	*Year Ended December 31,*

	*2008*				*2007*					*2006*

			*Weighted-*					*Weighted-*					*Weighted-*
			*Average*					*Average*					*Average*
	*Number*		*Grant Date*		*Number*			*Grant Date*		*Number*			*Grant Date*
	of		*Fair Value*		of			*Fair Value*		of			*Fair Value*
	*Shares*		*Per Share*		*Shares*			*Per Share*		*Shares*			*Per Share*


Restricted Stock at Beginning of Year		—	$	—		60,000		$	18.15		80,000		$	18.15
Restricted Stock Vested		—	$	—		(60,000	)	$	18.15		(20,000	)	$	18.15


Restricted Stock at End of Year		—	$	—		—		$	—		60,000		$	18.15

~~Loans receivable consisted of the following:~~

December 31,

(In thousands) 2007 2006

Real Estate Loans:
Commercial Property $ 795,675 $ 757,428
Construction 215,857 202,207
Residential Property 90,065 81,128

Total Real Estate Loans 1,101,597 1,040,763

Commercial and Industrial Loans:
Commercial Term Loans 1,599,853 1,202,612
Commercial Lines of Credit 256,978 225,630
International Loans 119,360 126,561
SBA Loans 112,503 148,391

Total Commercial and Industrial Loans 2,088,694 1,703,194

Consumer Loans 90,449 100,121

Total Gross Loans 3,280,740 2,844,078
Allowance for Loans Losses (43,611 ) (27,557 )
Deferred Loan Fees (2,367 ) (3,001 )

Loans Receivable, Net $ 3,234,762 $ 2,813,520

65
Note 13 — Stockholders’ Equity

Stock Warrants

In 2004, we issued stock warrants to affiliates of Castle Creek Financial LLC for services rendered in connection with the placement of our equity securities. Under the terms of the warrants, the warrant holders can purchase 508,558 shares of common stock at an exercise price of $9.50 per share. The warrants were immediately exercisable and expire after five years. During the years ended December 31, 2008, 2007 and 2006, 0, 2,000 and 160,056 shares of common stock, respectively, were issued in connection with the exercise of stock warrants. In June 2007, we repurchased 324,502 stock warrants at an aggregate cash purchase price of $2.6 million and such stock warrants were then canceled. As of December 31, 2008, there were outstanding stock warrants to purchase 2,000 shares of our common stock.

102

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 13 —*	*Stockholders’ Equity* (Continued)
~~Note 3 —~~	~~Loans Receivable~~ ~~(Continued)~~

~~Activity in the allowance for loan losses and allowance for off-balance sheet items was as follows:~~

Repurchase of Common Stock

In April 2006, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock as part of our ongoing capital management program. During the year ended December 31, 2007, 3,469,500 shares of our common stock were repurchased on the open market for an aggregate purchase price of $50.0 million. There were no common stock repurchases in 2008 or 2006. Repurchased shares are held in treasury pending use for general corporate purposes, including issuance under our stock option plans.

As of and for the Year Ended December 31,

2007 2006 2005

Allowance
Allowance
Allowance

for Off-
for Off-
for Off-

Allowance
Balance
Allowance
Balance
Allowance
Balance

for Loan
Sheet
for Loan
Sheet
for Loan
Sheet

(In thousands) Losses Items Losses Items Losses Items

Balance at Beginning of Year $ 27,557 $ 2,130 $ 24,963 $ 2,130 $ 22,702 $ 1,800
Provision Charged to Operating Expense 38,688 (365 ) 7,173 — 5,065 330
Loans Charged Off (23,330 ) — (6,129 ) — (5,198 ) —
Recoveries 696 — 1,550 — 2,394 —

Balance at End of Year $ 43,611 $ 1,765 $ 27,557 $ 2,130 $ 24,963 $ 2,130

~~The following is a summary of interest foregone on impaired loans for the periods indicated:~~

Year Ended December 31,

(In thousands) 2007 2006 2005

Interest Income That Would Have Been Recognized Had Impaired Loans Performed in Accordance With Their Original Terms $ 4,672 $ 1,726 $ 957
Less: Interest Income Recognized on Impaired Loans (3,705 ) (1,146 ) (603 )

Interest Foregone on Impaired Loans $ 967 $ 580 $ 354

~~The following table provides information on impaired loans for the periods indicated:~~

As of and for the Year Ended December 31,

(In thousands) 2007 2006 2005

Recorded Investment With Related Allowance $ 38,930 $ 10,616 $ 7,548
Recorded Investment With No Related Allowance 15,202 3,868 3,235
Allowance on Impaired Loans (11,829 ) (6,731 ) (4,991 )

Net Recorded Investment in Impaired Loans $ 42,303 $ 7,753 $ 5,792

Average Total Recorded Investment in Impaired Loans $ 61,249 $ 19,287 $ 14,340

~~There were no commitments to lend additional funds to borrowers whose loans are included above.~~

Loans on non-accrual status totaled $54.3 million and $14.2 million at December 31, 2007 and 2006, respectively. Loans past due 90 days or more and still accruing interest totaled $227,000 and $2,000 at December 31, 2007 and 2006, respectively. There were no restructured loans at December 31, 2007 and 2006.

66
Note 14 — Regulatory Matters

Risk-Based Capital

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

Quantitative measures established by regulation to ensure capital adequacy require Hanmi Financial and the Bank to maintain minimum ratios (set forth in the table below) of Total and Tier 1 Capital (as defined in the regulations) to Risk-Weighted Assets (as defined), and of Tier 1 Capital (as defined) to Average Assets (as defined). Management believes that, as of December 31, 2008 and 2007, Hanmi Financial and the Bank met all capital adequacy requirements to which they were subject.

To be categorized as “well capitalized,” the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table below. There are no conditions or events since that notification which management believes have changed the institution’s category.

103

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 4 —~~	~~Servicing Assets~~

~~Changes in servicing assets were as follows:~~

December 31,

(In thousands) 2007 2006

Balance at Beginning of Year $ 4,579 $ 3,910
Additions 1,821 2,331
Valuation Write-Down (18 ) (355 )
Amortization (2,046 ) (1,307 )

Balance at End of Year $ 4,336 $ 4,579

~~At December 31, 2007 and 2006, we serviced loans sold to unaffiliated parties in the amounts of $258.5 million and $236.0 million, respectively. All of the loans being serviced were SBA loans.~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 14 —*	*Regulatory Matters* (Continued)
~~Note 5 —~~	~~Premises and Equipment~~

~~The following is a summary of the major components of premises and equipment:~~

December 31,

(In thousands) 2007 2006

Land $ 6,120 $ 6,120
Buildings and Improvements 8,433 8,210
Furniture and Equipment 13,783 12,202
Leasehold Improvements 10,141 8,403
Software 862 862

39,339 35,797
Accumulated Depreciation and Amortization (18,539 ) (15,722 )

Total Premises and Equipment, Net $ 20,800 $ 20,075

~~Depreciation and amortization expense totaled $3.0 million, $2.9 million and $2.7 million for the years ended December 31, 2007, 2006 and 2005, respectively.~~

The capital ratios of Hanmi Financial and Hanmi Bank at December 31, 2008 and 2007 were as follows:


						*Minimum*					*Minimum to Be*
						*Regulatory*					*Categorized as*
	*Actual*					*Requirement*					*“Well Capitalized”*

*(Dollars in thousands)*	*Amount*		*Ratio*			*Amount*		*Ratio*			*Amount*		*Ratio*

December 31, 2008
Total Capital (to Risk-Weighted Assets):
Hanmi Financial	$	383,043		10.79	%	$	283,943		8.00	%		N/A		N/A
Hanmi Bank	$	379,438		10.70	%	$	283,561		8.00	%	$	354,451		10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial	$	338,042		9.52	%	$	141,972		4.00	%		N/A		N/A
Hanmi Bank	$	334,628		9.44	%	$	141,781		4.00	%	$	212,671		6.00	%
Tier 1 Capital (to Average Assets):
Hanmi Financial	$	338,042		8.93	%	$	151,371		4.00	%		N/A		N/A
Hanmi Bank	$	334,628		8.85	%	$	151,168		4.00	%	$	188,959		5.00	%
December 31, 2007
Total Capital (to Risk-Weighted Assets):
Hanmi Financial	$	380,057		10.65	%	$	285,417		8.00	%		N/A		N/A
Hanmi Bank	$	377,613		10.59	%	$	285,137		8.00	%	$	356,422		10.00	%
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial	$	335,451		9.40	%	$	142,708		4.00	%		N/A		N/A
Hanmi Bank	$	333,050		9.34	%	$	142,569		4.00	%	$	213,853		6.00	%
Tier 1 Capital (to Average Assets):
Hanmi Financial	$	335,451		8.52	%	$	157,513		4.00	%		N/A		N/A
Hanmi Bank	$	333,050		8.47	%	$	157,372		4.00	%	$	196,715		5.00	%

Reserve Requirement

The Bank is required to maintain a percentage of its deposits as reserves at the FRB. The daily average reserve balance required to be maintained with the FRB was $1.5 million as of December 31, 2008 and 2007, respectively.

Memorandum of Understanding

On October 8, 2008, the members of the Board of the Bank entered into an informal supervisory agreement (a memorandum of understanding) with the FRB and the DFI (the “Regulators”) to address certain issues raised in the Bank’s most recent regulatory examination by the DFI on March 10, 2008. Certain of the issues to be addressed by management under the terms of the memorandum of understanding relate to the following, among others: (i) Board and senior management maintenance and succession planning; (ii) Board oversight and education; (iii) Board assessment and enhancement; (iv) loan policies and procedures; (v) allowance for loan losses policies and procedures; (vi) liquidity and funds management policies; (vii) strategic planning; (viii) capital maintenance, including a requirement that the Bank maintain a minimum Tier 1 leverage ratio and tangible stockholder’s equity to total tangible assets ratio of not less than 8.0 percent; and (ix) restrictions on the payment of dividends without the Regulators’ prior approval. At December 31, 2008, the Bank had a Tier 1 leverage ratio of 8.85 percent and a tangible stockholder’s equity to total tangible assets ratio of 8.68 percent, both above the required 8.0 percent level.

104

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 14 —*	*Regulatory Matters* (Continued)

The Bank is required to regularly keep the Regulators informed of its progress in complying with the provisions of the memorandum of understanding. If we fail to comply with the terms of the memorandum of understanding or any other regulatory orders or agreements we have entered into, or the Regulators believe that further enforcement action against us is necessary, we may be subject to further requirements to take corrective action, face further regulation and intervention and additional constraints on our business operations, any of which could have a material adverse effect on our results of operations and business.

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

Troubled Asset Relief Program

On October 14, 2008, the Treasury announced its intention to inject capital into nine large U.S. financial institutions under the TARP Capital Purchase Program (the “TARP CPP”), and since has injected capital into many other financial institutions. The Treasury initially allocated $250 billion towards the TARP CPP. We have filed an application for TARP CPP funds, which remains pending with the Treasury. Under the terms of the TARP CPP, if Hanmi Financial enters into a Securities Purchase Agreement with the Treasury to sell to the Treasury preferred stock and warrants, we would be prohibited from increasing dividends on our common stock, and from making certain repurchases of equity securities, including our common stock, without the Treasury’s consent. Furthermore, as long as the preferred stock issued to the Treasury under the TARP CPP is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities, including common stock, are prohibited until all accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions.

We have applied to participate in the TARP CPP for an investment of up to $105 million from the Federal Government, but we are still waiting a final decision from the Treasury as to whether we will be able to participate in this program.

105

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)

~~Note 6 —~~

~~Goodwill~~

~~As of December 31, 2007 and 2006, goodwill totaled $107.1 million and $207.6 million, respectively. The change in goodwill during the year is as follows:~~Note 14 —Regulatory Matters (Continued)

Capital Plan

Separately, Hanmi Financial has committed to the FRB that it will adopt a consolidated capital plan to augment and maintain a sufficient consolidated capital position. In addition, Hanmi Financial has agreed that it will not (i) declare or pay any dividends or make any payments on its trust preferred securities or any other capital distributions without the prior written consent of the FRB, and (ii) incur, increase or renew any existing debt or purchase, redeem or otherwise acquire any of its capital stock without the prior written consent of the FRB. In order to preserve its capital position, the Board of Hanmi Financial has elected to defer quarterly interest payments on its outstanding trust preferred securities until further notice, beginning with the interest payment that was due on January 15, 2009. Finally, Hanmi Financial has agreed to provide prior written notice and obtain the consent of the FRB prior to appointing any new directors or senior executive officers.

As of and for the Years Ended December 31,

(In thousands) 2007 2006

Balance at Beginning of Year $ 207,646 $ 209,058
Acquired Goodwill 2,345 (1,412 )
Impairment Loss on Goodwill (102,891 ) —

Balance at End of Year $ 107,100 $ 207,646


*Note 15 —*	*Earnings (Loss) Per Share*

Earnings (loss) per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury. Unvested restricted stock was excluded from the calculation of weighted-average common shares for basic EPS. For diluted EPS, weighted-average common shares include the impact of restricted stock under the treasury method.

The following table is a reconciliation of the components used to derive basic and diluted EPS for the periods indicated:


				*Weighted-*
	*Income*			*Average*		*Per*
	*(Loss)*			*Shares*		*Share*
*(Dollars in thousands, except per share amounts)*	*(Numerator)*			*(Denominator)*		*Amount*

Year Ended December 31, 2008:
Basic EPS — Income Available to Common Stockholders	$	(102,093	)		45,872,541	$	(2.23	)
Effect of Dilutive Securities — Options and Warrants		—			—		—


Diluted EPS — Income Available to Common Stockholders	$	(102,093	)		45,872,541	$	(2.23	)


Year Ended December 31, 2007:
Basic EPS — Income Available to Common Stockholders	$	(60,762	)		47,787,213	$	(1.27	)
Effect of Dilutive Securities — Options and Warrants		—			—		—


Diluted EPS — Income Available to Common Stockholders	$	(60,762	)		47,787,213	$	(1.27	)


Year Ended December 31, 2006:
Basic EPS — Income Available to Common Stockholders	$	65,350			48,850,221	$	1.34
Effect of Dilutive Securities — Options and Warrants		—			584,907		(0.02	)


Diluted EPS — Income Available to Common Stockholders	$	65,350			49,435,128	$	1.32

For the years ended December 31, 2008, 2007 and 2006, there were 1,197,283, 1,493,766 and 1,373,554 options and warrants outstanding, respectively, that were not included in the computation of diluted EPS because of a net loss or their exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive.

106

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 16 —*	*Employee Benefits*

401(k) Plan

We have a Section 401(k) plan for the benefit of substantially all of our employees. We match 75 percent of participant contributions to the 401(k) plan up to 8 percent of each 401(k) plan participant’s annual compensation. For the years ended December 31, 2008, 2007 and 2006, contributions to the 401(k) plan were $1.3 million, $1.2 million and $1.0 million, respectively.

Bank-Owned Life Insurance

In 2001 and 2004, we purchased single premium life insurance policies called bank-owned life insurance covering certain officers. The Bank is the beneficiary under the policy. In the event of the death of a covered officer, we will receive the specified insurance benefit from the insurance carrier.

Deferred Compensation Plan

Effective November 1, 2006, the Board of Directors approved the Hanmi Financial Corporation Deferred Compensation Plan (“the DCP”). The DCP is a non-qualified deferred compensation program for directors and certain key employees whereby they may defer a portion of annual compensation for payment upon retirement of the amount deferred plus a guaranteed return. The DCP is unfunded. As of December 31, 2008 and 2007, the liability for the deferred compensation plan and interest thereon was $151,000 and $188,000, respectively.


*Note 17 —*	*Commitments and Contingencies*

Lease Commitments

We lease our premises under non-cancelable operating leases. At December 31, 2008, future minimum annual rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, was as follows:



*Year Ending*	*Amount*
*December 31,*	*(In thousands)*


2009	$	5,382
2010		5,048
2011		4,138
2012		3,295
2013		2,742
Thereafter		6,479


Total	$	27,084

For the years ended December 31, 2008, 2007 and 2006, rental expenses recorded under such leases amounted to $5.2 million, $4.8 million and $4.1 million, respectively.

Litigation

107

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 17 —*	*Commitments and Contingencies* (Continued)

claims. In management’s opinion, the final disposition of all such claims will not have a material adverse effect on our financial position or results of operations.


*Note 18 —*	*Off-Balance Sheet Commitments*

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the Consolidated Balance Sheets. The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on acase-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, was based on management’s credit evaluation of the counterparty.


	*December 31,*

*(In thousands)*	*2008*		*2007*


Commitments to Extend Credit	$	386,785	$	524,349
Standby Letters of Credit		47,289		48,071
Commercial Letters of Credit		29,177		52,544
Unused Credit Card Lines		16,912		18,622


Total Undisbursed Loan Commitments	$	480,163	$	643,586


*~~Acquired Goodwill~~Note 19 —*	*Segment Reporting*

Through our branch network and lending units, we provide a broad range of financial services to individuals and companies located primarily in Southern California. These services include demand, time and savings deposits; and commercial and industrial, real estate and consumer lending. While our chief decision makers monitor the revenue streams of our various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, we consider all of our operations to be aggregated in one reportable operating segment.

~~In January 2007, the acquisitions~~


*Note 20 —*	*Correction of ~~Chun-Ha and All World resulted~~Immaterial Errors in ~~the recognition~~Prior Periods*

Our historical financial statements have been revised from that issued in prior years to correct immaterial errors related to the recording of interest expense. We recognized an adjustment of $989,000, net of income taxes, to retained earnings and related accrued interest payable on the Consolidated Balance Sheet as of December 31, 2007 and pre-tax adjustments of $417,000 and $517,000 to interest expense on deposits on the Consolidated Statement of Operations for the years ended December 31, 2007 and 2006, respectively.

108

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 20 —*	Correction of ~~goodwill aggregating $2.3 million. In 2006, goodwill decreased by $1.4 million due to a tax refund related to the acquisition of Pacific Union Bank (“PUB”).~~Immaterial Errors in Prior Periods (Continued)

The following is a summary of the effects of the immaterial error correction on the consolidated financial statements for the periods indicated:

CONSOLIDATED BALANCE SHEET


	*December 31, 2007*

	As
	*Previously*					As
*(In thousands)*	*Reported*		*Adjustments*			*Restated*


Accrued Interest Receivable	$	17,500	$	(89	)	$	17,411
Total Assets	$	3,983,746	$	(89	)	$	3,983,657
Other Liabilities	$	13,717	$	900		$	14,617
Total Liabilities	$	3,612,201	$	900		$	3,613,101
Retained Earnings	$	93,404	$	(989	)	$	92,415
Total Stockholders’ Equity	$	371,545	$	(989	)	$	370,556
Total Liabilities and Stockholders’ Equity	$	3,983,746	$	(89	)	$	3,983,657

CONSOLIDATED STATEMENTS OF OPERATIONS


	*Year Ended December 31, 2007*									*Year Ended December 31, 2006*

	As									As
	*Previously*						As			*Previously*					As
*(Dollars in thousands, except per share data)*	*Reported*			*Adjustments*			*Restated*			*Reported*		*Adjustments*			*Restated*


Interest on Deposits	$	108,100		$	417		$	108,517		$	93,036	$	517		$	93,553
Total Interest Expense	$	128,693		$	417		$	129,110		$	106,429	$	517		$	106,946
Net Interest Income Before Provision for Credit Losses	$	152,203		$	(417	)	$	151,786		$	153,760	$	(517	)	$	153,243
Net Interest Income After Provision for Credit Losses	$	113,880		$	(417	)	$	113,463		$	146,587	$	(517	)	$	146,070
Income (Loss) Before Provision for Income Taxes	$	(36,043	)	$	(417	)	$	(36,460	)	$	106,237	$	(517	)	$	105,720
Provision for Income Taxes	$	24,477		$	(175	)	$	24,302		$	40,588	$	(218	)	$	40,370
Net Income (Loss)	$	(60,520	)	$	(242	)	$	(60,762	)	$	65,649	$	(299	)	$	65,350
Earnings (Loss) Per Share:
Basic	$	(1.27	)	$	—		$	(1.27	)	$	1.34	$	—		$	1.34
Diluted	$	(1.27	)	$	—		$	(1.27	)	$	1.33	$	(0.01	)	$	1.32

109

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*~~Impairment Loss on Goodwill~~Note 21 —*	*Cumulative-Effect Adjustment From the Adoption of EITF IssueNo. 06-4*

In September 2006, the FASB’s Emerging Issues Task Force (“EITF”) issued EITF IssueNo. 06-4,“Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements,”which requires the recognition of a liability related to the postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The consensus highlights that the employer (who is also the policyholder) has a liability for the benefit it is providing to its employee. As such, if the policyholder has agreed to maintain the insurance policy in force for the employee’s benefit during his or her retirement, then the liability recognized during the employee’s active service period should be based on the future cost of insurance to be incurred during the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS No. 106,“Employers’ Accounting for Postretirement Benefits Other Than Pensions,”or Accounting Principles Board Opinion No. 12, as appropriate. For transition, an entity could apply the guidance using either of the following approaches: (a) a change in accounting principle through retrospective application to all periods presented; or (b) a change in accounting principle through a cumulative-effect adjustment to the balance in retained earnings at the beginning of the year of adoption. We adopted the provisions of EITF IssueNo. 06-4 on January 1, 2008 and recorded a $2.2 million cumulative-effect adjustment to the beginning balance in retained earnings.

During our annual assessment of goodwill during the fourth quarter of 2007, we concluded that we had an impairment of goodwill based on the decline in the market value of our common stock, which we believe reflects, in part, recent turmoil in the financial markets that has adversely affected the market value of the common stock of many banks. The fair value was determined based on a weighted distribution of values derived from three different approaches: market approach, market capitalization approach, and income approach. We concluded that $102.9 million of the goodwill was impaired and was required to be expensed as a non-cash charge to continuing operations during


*Note 22 —*	*Liquidity*

Currently, management believes that Hanmi Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations through December 31, 2009, which include deposits and FHLB borrowings. In addition to its deposits, the Bank’s principal source of liquidity is its ability to utilize borrowings, as needed. The Bank’s primary source of borrowings is the FHLB. The Bank is eligible to borrow up to 20 percent of its total assets from the FHLB. The Bank has pledged investment securities available for sale and loans receivable as collateral with the FHLB for this borrowing facility. As of December 31, 2008, the total borrowing capacity available from the collateral that has been pledged and the remaining available borrowing capacity were $682.7 million and $260.5 million, respectively.

At December 31, 2008, the Bank’s FHLB borrowings totaled $422.2 million, representing 10.9 percent of total assets. As of March 3, 2009, the Bank’s FHLB borrowings totaled $311.1 million and the remaining amount available based on pledged collateral was $443.3 million. The amount that the FHLB is willing to advance differs based on the quality and character of qualifying collateral offered by the Bank, and the advance rates for qualifying collateral may be adjusted upwards or downwards by the FHLB from time to time. To the extent deposit renewals and deposit growth are not sufficient to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and investment securities and otherwise fund working capital needs and capital expenditures, the Bank may utilize the remaining borrowing capacity from its FHLB borrowing arrangement. During the second quarter of 2008, the FHLB cancelled the Bank’s $62.0 million unsecured line of credit with them. This cancellation was the result of the Bank’s net loss for the fourth quarter of 2007.


~~Note 7 —~~	~~Other Intangible Assets~~

~~Other intangible assets were as follows:~~

December 31, 2007 December 31, 2006

Gross
Gross

Amortization
Carrying
Accumulated
Carrying
Accumulated

(In thousands) Period Amount Amortization Amount Amortization

Other Intangible Assets:
Core Deposit Intangible 8 years $ 11,385 $ (7,113 ) $ 11,385 $ (5,073 )
Trade Names 20 years 970 (48 ) — —
Client/Insured Relationships 10 years 770 (77 ) — —
Non-Compete Agreements 5 years 600 (120 ) — —
Carrier Relationships 15 years 580 (39 ) — —

Total Other Intangible Assets $ 14,305 $ (7,397 ) $ 11,385 $ (5,073 )

The weighted-average amortization period for other intangible assets is 9.1 years. The total amortization expense for other intangible assets was $2.3 million, $2.4 million and $2.8 million during the years ended December 31, 2007, 2006 and 2005, respectively.

In an effort to ease the credit crisis, the FRB lowered its discount rate from 4.75 percent to 0.50 percent through eight separate actions since December 2007, and made modifications to previous practices to facilitate financing for longer periods. This makes the FRB’s federal discount window a viable source of funding given current market conditions. We have pledged securities available for sale and loans receivable on this short-term borrowing facility. On December 31, 2008, we received approval for participation in theBorrower-in-Custody Program, where a broad range of loans may be pledged and borrowed against it through the FRB’s federal discount window. As an additional source of funding, we significantly increased our borrowing capacity with the FRB.

110

Hanmi Financial Corporation and Subsidiaries

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~

~~Note 7 —~~

~~Other Intangible Assets~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 22 —*	*Liquidity* (Continued)

use through this short-term (generally not to exceed three months) borrowing facility and there were no borrowings. When combined with the borrowing capacity available from the FHLB, the total contingent available line was $1.33 billion at December 31, 2008.

As a means of augmenting our current liquidity sources, we will consider selling some of our loans held for sale, beginning with SBA loans, in an ordinary fashion, as soon as the secondary market is normalized. We are also participating in the FDIC’s Debt Guarantee Program, which will enable us to issue up to two percent of our liabilities (approximately $70.0 million) in senior unsecured debt. Given that there is no cost involved in our participation if we do not issue debt under the program, we believe continuing to participate in the Debt Guarantee Program helps us to maintain a cushion of extra liquidity.

During the second half of 2008, we experienced a deposit run-off caused by the U.S. financial crisis. This deposit run-off was further amplified by an outflow of funds triggered by some depositors’ currency speculation over potential appreciation of the South Korean currency. Our deposit campaign launched in December 2008, together with some stabilization of the South Korean currency, slowed the rate at which retail deposits decreased during the fourth quarter of 2008.

We addressed liquidity concerns mainly through utilization of brokered deposits during 2008. As a result, we issued new brokered time deposits of $824.2 million during the second half of 2008.

Currently, management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its current obligations through December 31, 2009, which are primarily interest payments on junior subordinated debentures, subject to prior approval of such payments by the FRB. As of December 31, 2008, limitations imposed by our regulators prohibited the Bank from providing a dividend to Hanmi Financial. On August 29, 2008, we elected to suspend payment of quarterly dividends on our common stock. At December 31, 2008, Hanmi Financial’s liquid assets, including amounts deposited with the Bank, totaled $2.2 million, down from $5.3 million at December 31, 2007. In order to preserve its capital position, the Board of Directors (the “Board”) of Hanmi Financial has elected to defer quarterly interest payments on its outstanding junior subordinated debentures until further notice, beginning with the interest payment that was due on January 15, 2009.

Current market conditions have also limited the Bank’s liquidity sources principally to secured funding outlets, such as the FHLB and FRB, in addition to deposits originated through the Bank’s branch network and from brokered deposits. There can be no assurance that actions by the FHLB or FRB would not reduce the Bank’s borrowing capacity or that we would be able to continue to replace deposits at competitive rates. If the Bank’s capital ratio falls below well capitalized, the Bank would need regulatory consent before accepting brokered deposits. Over the next 12 months, approximately $1.9 billion of time deposits will mature. There can be no assurances that we will be able to replace these time deposits with deposits at competitive rates. Such events could have a material adverse impact on our results of operations and financial condition. However, if we are unable to replace these maturing deposits with new deposits, we believe that we have adequate liquidity resources to fund this need with our secured funding outlets with the FHLB and FRB.


*Note 23 —*	*Retirement and Resignation of Directors*

Retirement of Directors

On October 29, 2008, the Board of Hanmi Financial received notices that the following directors were retiring from service as a director as of November 5, 2008: Dr. Won R. Yoon, Ki Tae Hong and Chang Kyu Park. None of the directors retired because of a disagreement with our operations, policies or practices. In connection with their retirements, each of the retiring directors and Hanmi Bank entered into a Severance and Release Agreement (the “Severance Agreement”). Pursuant to the

111

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 23 —*	*Retirement and Resignation of Directors* (Continued)

Severance Agreements, among other things, each of the retiring directors will receive $3,000 per month for the next five years. Each of the retiring directors will also receive current health insurance coverage for the next five years in which the Bank will continue to pay for medical, dentaland/or vision premiums. In accordance with GAAP, $1.0 million was expensed during the fourth quarter of 2008 for the amounts to be paid per the Severance Agreements.

Resignation of Directors

On January 31, 2009, the Board of Hanmi Financial received notice from Robert Abeles that he was resigning from service as a director of Hanmi Financial and the Bank effective as of that date. On December 3, 2008, the Board of Hanmi Financial received notice from Mark K. Mason that he was resigning from service as a director of Hanmi Financial and the Bank effective as of that date. Both directors cited fundamental differences of opinion on appropriate corporate governance.


*Note 24 —*	*Condensed Financial Information of Parent Company*

BALANCE SHEETS


	*December 31,*

*(In thousands)*	*2008*		*2007*


ASSETS
Cash	$	2,167	$	5,296
Securities Available for Sale		804		—
Investment in Consolidated Subsidiaries		340,297		447,668
Investment in Trust Preferred Securities		2,475		2,475
Other Assets		1,738		1,543


Total Assets	$	347,481	$	456,982



LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Junior Subordinated Debentures	$	82,406	$	82,406
Other Liabilities		1,160		4,020
Stockholders’ Equity		263,915		370,556


Total Liabilities and Stockholders’ Equity	$	347,481	$	456,982

112

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 24 —*	*Condensed Financial Information of Parent Company* (Continued)

STATEMENTS OF OPERATIONS


	*Year Ended December 31,*

*(In thousands)*	*2008*			*2007*			*2006*


Equity in Earnings (Losses) of Subsidiaries	$	(97,040	)	$	(54,500	)	$	70,858
Other Expenses, Net		(8,610	)		(10,155	)		(9,266	)
Income Tax Benefit		3,557			3,893			3,758


Net Income (Loss)	$	(102,093	)	$	(60,762	)	$	65,350

112.1

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 24 —*	*Condensed Financial Information of Parent Company* (Continued)

STATEMENTS OF CASH FLOWS


	*Year Ended December 31,*

*(In thousands)*	*2008*			*2007*			*2006*


CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(102,093	)	$	(60,762	)	$	65,350
Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities:
Losses (Earnings) of Subsidiaries		97,040			54,500			(70,858	)
Share-Based Compensation Expense		1,036			1,891			1,521
(Increase) Decrease in Other Assets		(706	)		3,139			(1,473	)
Increase (Decrease) in Other Liabilities		(2,983	)		(208	)		659
Tax Benefit from Exercises of Stock Options		—			317			661


Net Cash Used In Operating Activities		(7,706	)		(1,123	)		(4,140	)


CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends Received from Hanmi Bank		8,500			63,501			18,500
Business Acquisitions, Net of Cash Received		—			(1,727	)		—


Net Cash Provided By Investing Activities		8,500			61,774			18,500


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options and Stock Warrants		—			1,164			3,553
Cash Paid to Acquire Treasury Stock		—			(49,971	)		—
Cash Paid to Repurchase Stock Options and Stock Warrants		(70	)		(2,552	)		—
Cash Dividends Paid		(3,853	)		(11,574	)		(11,805	)


Net Cash Used In Financing Activities		(3,923	)		(62,933	)		(8,252	)


NET INCREASE (DECREASE) IN CASH		(3,129	)		(2,282	)		6,108
Cash at Beginning of Year		5,296			7,578			1,470


CASH AT END OF YEAR	$	2,167		$	5,296		$	7,578

113

Hanmi Financial Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008, 2007 AND 2006 (Continued)


*Note 25 —*	*Quarterly Financial Data (Unaudited)*

Summarized quarterly financial data follows:


	*Quarter Ended*

*(Dollars in thousands; except per share amounts)*	*March 31*		*June 30*			*September 30*		*December 31*


2008:
Interest and Dividend Income	$	64,970	$	59,663		$	59,441	$	54,109
Interest Expense		30,773		25,595			23,844		23,570


Net Interest Income Before Provision for Credit Losses		34,197		34,068			35,597		30,539
Provision for Credit Losses		17,821		19,229			13,176		25,450
Non-Interest Income		9,765		9,652			5,328		7,404
Non-Interest Expense		21,588		129,443			22,235		21,056


Income (Loss) Before Provision (Benefit) for Income Taxes		4,553		(104,952	)		5,514		(8,563	)
Provision (Benefit) for Income Taxes		1,632		595			1,166		(4,748	)


NET INCOME (LOSS)	$	2,921	$	(105,547	)	$	4,348	$	(3,815	)


EARNINGS (LOSS) PER SHARE:
Basic	$	0.06	$	(2.30	)	$	0.09	$	(0.08	)
Diluted	$	0.06	$	(2.30	)	$	0.09	$	(0.08	)
2007:
Interest and Dividend Income	$	67,956	$	69,860		$	71,197	$	71,883
Interest Expense		29,999		31,376			33,447		34,288


Net Interest Income Before Provision for Credit Losses		37,957		38,484			37,750		37,595
Provision for Credit Losses		6,132		3,023			8,464		20,704
Non-Interest Income		9,987		10,692			9,526		9,801
Non-Interest Expense		20,969		21,490			21,249		126,221


Income (Loss) Before Provision for Income Taxes		20,843		24,663			17,563		(99,529	)
Provision for Income Taxes		7,851		9,401			6,536		514


NET INCOME (LOSS)	$	12,992	$	15,262		$	11,027	$	(100,043	)


EARNINGS (LOSS) PER SHARE:
Basic	$	0.27	$	0.32		$	0.23	$	(2.15	)
Diluted	$	0.26	$	0.31		$	0.23	$	(2.15	)

The 2007 quarterly financial statements have been revised from that previously issued to correct immaterial errors related to the recording of interest expense. See“Note 20 — Correction of Immaterial Errors in Prior Periods”for further details.

114


*Note 25 —*	*Quarterly Financial Data (Unaudited)* (Continued)

~~Estimated future amortization expense related to other intangible assets for each of the next five years is as follows:~~

Year Ending

December 31,

(In thousands) Amount

2008 $ 1,959
2009 $ 1,568
2010 $ 1,149
2011 $ 700
2012 $ 198

As of December 31, 2007 and 2006, management is not aware of any circumstances that would indicate impairment of other intangible assets. There were no impairment charges recorded through earnings in 2007 or 2006.


~~Note 8 —~~	~~Deposits~~

~~Time deposits by maturity were as follows:~~

December 31,

(In thousands) 2007 2006

Less Than Three Months $ 1,141,872 $ 811,211
After Three Months to Six Months 379,806 516,473
After Six Months to Twelve Months 251,352 340,856
After Twelve Months 9,482 10,306

Total Time Deposits $ 1,782,512 $ 1,678,846

~~For time deposits having a remaining term of more than one year, the aggregate amount of maturities for each of the five years following the balance sheet date are as follows:~~

Year Ending

December 31,

(In thousands) Amount

2008 $ —
2009 $ 8,720
2010 $ 620
2011 $ —
2012 $ 4

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 8 —~~	~~Deposits~~ ~~(Continued)~~

~~A summary of interest expense on deposits was as follows for the periods indicated:~~

Year Ended December 31,

(In thousands) 2007 2006 2005

Savings $ 2,004 $ 1,853 $ 2,130
Money Market Checking and NOW Accounts 15,446 14,539 12,964
Time Deposits of $100,000 or More 75,516 64,184 31,984
Other Time Deposits 15,134 12,460 7,114

Total Interest Expense on Deposits $ 108,100 $ 93,036 $ 54,192

~~Total deposits reclassified to loans due to overdrafts at December 31, 2007 and 2006 were $6.3 million and $4.3 million, respectively.~~


~~Note 9 —~~	~~FHLB Advances and Other Borrowings~~

~~FHLB advances and other borrowings consisted of the following:~~

December 31,

(In thousands) 2007 2006

FHLB Advances $ 432,664 $ 168,107
Federal Funds Purchased 50,000 —
Note Issued to U.S. Treasury 4,500 930

Total FHLB Advances and Other Borrowings $ 487,164 $ 169,037

~~FHLB advances represent collateralized obligations with the FHLB. The following is a summary of contractual maturities pertaining to FHLB advances:~~

Year

Weighted-

Average

Interest

(In thousands) Amount Rate

2008 $ 415,000 4.72 %
2009 6,000 5.63 %
2010 7,084 4.44 %
2011 — —
2012 — —
Thereafter 4,580 5.27 %

$ 432,664

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 9 —~~	~~FHLB Advances and Other Borrowings~~ ~~(Continued)~~

~~All of the FHLB advances had fixed interest rates. The following is financial data pertaining to FHLB advances:~~

Year Ended December 31,

(Dollars in thousands) 2007 2006 2005

Weighted-Average Interest Rate at End of Year 4.73 % 5.20 % 4.33 %
Weighted-Average Interest Rate During the Year 5.11 % 5.02 % 3.70 %
Average Balance of FHLB Advances $ 237,733 $ 123,295 $ 74,437
Maximum Amount Outstanding at Any Month-End $ 432,664 $ 168,250 $ 100,700

We have pledged investment securities available for sale and loans receivable with carrying values of $10.0 million and $1,278.6 million, respectively, as collateral with the FHLB for this borrowing facility. The total borrowing capacity available from the collateral that has been pledged is $714.6 million, of which $281.8 million remained available as of December 31, 2007.

For the years ended December 31, 2007, 2006 and 2005, interest expense on FHLB advances and other borrowings totaled $13.9 million, $7.0 million and $3.0 million, respectively, and the weighted-average interest rates were 5.10 percent, 5.02 percent and 3.63 percent, respectively.

Total credit lines for borrowing amounted to $186.0 million and $158.0 million at December 31, 2007 and 2006, respectively. As of December 31, 2007, $50.0 million was borrowed under these credit lines. At December 31, 2006, there were no borrowings under these credit lines.


~~Note 10 —~~	~~Junior Subordinated Debentures~~

For the years ended December 31, 2007, 2006 and 2005, interest expense on the junior subordinated debentures totaled $6.6 million, $6.4 million and $4.9 million, respectively, and the weighted-average interest rates were 8.06 percent, 7.79 percent and 5.95 percent, respectively.


~~Note 11 —~~	~~Income Taxes~~

~~In June 2006, the FASB issued Interpretation No. 48,~~~~“Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”~~ (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to betaken on a tax return. Under FIN No. 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 11 —~~	~~Income Taxes~~ ~~(Continued)~~

We adopted the provisions of FIN No. 48 on January 1, 2007, and there was no material effect on the consolidated financial statements as of the date of adoption. Because of the implementation, there was no cumulative effect related to adopting FIN No. 48. However, certain amounts have been reclassified in the Consolidated Balance Sheets in order to comply with the requirements of FIN No. 48.

~~A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:~~

(In thousands)

Unrecognized Tax Benefits at January 1, 2007 $ 794
Gross Increases for Tax Positions of Prior Years 40
Gross Decreases for Tax Positions of Prior Years —
Increases in Tax Positions for Current Year 198
Settlements —
Lapse in Statute of Limitations —

Unrecognized Tax Benefits at December 31, 2007 $ 1,032

~~The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $141,000 as of December 31, 2007 and $115,000 as of January 1, 2007.~~

During 2007, we accrued interest of $52,000 for uncertain tax benefits. As of December 31, 2007, the total amount of accrued interest related to uncertain tax positions, net of Federal tax benefit, is $96,000. We account for interest and penalties related to uncertain tax positions as part of our provision for Federal and state income taxes. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets.

Unrecognized tax benefits primarily include state exposures from California Enterprise Zone interest deductions and income tax treatment for prior business acquisition costs. We believe that it is reasonably possible that certain remaining unrecognized tax positions, each of which are individually insignificant, may be recognized by the end of 2008 because of a lapse of the statute of limitations. We anticipate an insignificant net change in the unrecognized tax benefits related to prior business acquisition costs, which will increase due to additional unrecognized tax benefits and decrease due to the lapse of the statute of limitations during 2008. We do not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2004 through 2006. Hanmi Financial Corporation and its subsidiaries’ state income tax returns are open to audit under the statute of limitations by various state tax authorities for the years ended December 31, 2003 through 2006. We are currently not under any audit by the Internal Revenue Service or state tax authorities.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 11 —~~	~~Income Taxes~~ ~~(Continued)~~

~~A summary of the provision for income taxes is as follows:~~

Year Ended December 31,

(In thousands) 2007 2006 2005

Current Expense:
Federal $ 30,209 $ 34,471 $ 29,779
State 8,886 9,059 9,383

39,095 43,530 39,162

Deferred Expense:
Federal (10,791 ) (2,222 ) (2,350 )
State (3,827 ) (720 ) (357 )

(14,618 ) (2,942 ) (2,707 )

Provision for Income Taxes $ 24,477 $ 40,588 $ 36,455

~~Deferred tax assets and liabilities were as follows:~~

December 31,

(In thousands) 2007 2006

Deferred Tax Assets:
Credit Loss Provision $ 20,800 $ 13,608
Depreciation 1,729 1,288
State Taxes 1,594 2,672
Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps — 1,450
Other 2,133 637

Total Deferred Tax Assets 26,256 19,655

Deferred Tax Liabilities:
Purchase Accounting (5,464 ) (5,329 )
Unrealized Gain on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps (527 ) —
Other (1,795 ) (1,262 )

Total Deferred Tax Liabilities (7,786 ) (6,591 )

Net Deferred Tax Assets $ 18,470 $ 13,064

~~Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance.~~

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 11 —~~	~~Income Taxes~~ ~~(Continued)~~

~~A reconciliation of the difference between the Federal statutory income tax rate and the effective tax rate is as follows:~~

Year Ended December 31,

2007 2006 2005

Federal Statutory Income Tax Rate (35.0 )% 35.0 % 35.0 %
State Taxes, Net of Federal Tax Benefits 9.1 % 5.8 % 6.2 %
Tax-Exempt Municipal Securities (3.0 )% (1.0 )% (1.2 )%
Other (3.1 )% (1.6 )% (1.5 )%
Impairment Loss on Goodwill — —

Effective Tax Rate 67.9 % 38.2 % 38.5 %

At December 31, 2007, net current taxes receivable of $5.6 million were included in other assets in the Consolidated Balance Sheets. At December 31, 2006, net current taxes payable of $1.0 million were included in other liabilities in the Consolidated Balance Sheets.


~~Note 12 —~~	~~Employee Share-Based Compensation~~

At December 31, 2007, we had one incentive plan, the 2007 Equity Compensation Plan (the “Plan”), which replaced the Year 2000 Stock Option Plan. The 2004 CEO Stock Option Plan (the “CEO Plan”) was terminated on December 31, 2007. The Plan provides for grants of non-qualified and incentive stock options, restricted stock, stock appreciation rights and performance shares to non-employee directors, officers, employees and consultants of Hanmi Financial and its subsidiaries. The CEO Plan had provided for the grant of stock options and restricted stock to our former Chief Executive Officer.

~~2007 Equity Compensation Plan~~

~~Under the Plan, we may grant equity incentive awards for up to 3,000,000 shares of common stock. As of December 31, 2007, 2,879,000 shares were still available for issuance.~~

All stock options granted under the Plan have an exercise price equal to the fair market value of the underlying common stock on the date of grant. Stock options granted under the Plan generally vest based on five years of continuous service and expire ten years from the date of grant. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the Plan). New shares of common stock may be issued or treasury shares may be utilized upon the exercise of stock options.

~~The weighted-average estimated fair value per share of options granted under the Plan was as follows:~~

��
Year Ended December 31,

2007 2006 2005

Weighted-Average Estimated Fair Value Per Share of Options Granted $ 4.49 $ 6.23 $ 4.96

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 12 —~~	~~Employee Share-Based Compensation~~ ~~(Continued)~~

~~The weighted-average fair value per share of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:~~

Year Ended December 31,

2007 2006 2005

Weighted-Average Assumptions:
Dividend Yield 1.68 % 1.26 % 1.18 %
Expected Volatility 29.98 % 34.79 % 32.62 %
Expected Term 4.9 years 4.6 years 4.1 years
Risk-Free Interest Rate 4.29 % 4.85 % 4.13 %

Expected volatility is determined based on the historical weekly volatility of our stock price over a period equal to the expected term of the options granted. The expected term of the options represents the period that options granted are expected to be outstanding based primarily on the historical exercise behavior associated with previous option grants. The risk-free interest rate is based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.

~~The following information under the Plan is presented for the periods indicated:~~

Year Ended December 31,

(In thousands) 2007 2006 2005

Grant Date Fair Value of Options Granted $ 596 $ 5,940 $ 672
Fair Value of Options Vested $ 1,590 $ 695 $ 905
Total Intrinsic Value of Options Exercised⁽¹⁾
$ 1,197 $ 2,874 $ 4,487
Cash Received from Options Exercised $ 1,145 $ 2,032 $ 2,093
Actual Tax Benefit Realized from Tax Deductions on Options Exercised $ 317 $ 661 $ 729


~~(1)~~		~~Intrinsic value represents the difference between the closing stock price on the exercise date and the exercise price, multiplied by the number of options.~~

~~The following is a summary of transactions under the Plan for the periods indicated:~~

Year Ended December 31,

2007 2006 2005

Weighted-
Weighted-
Weighted-

Average
Average
Average

Number
Exercise
Number
Exercise
Number
Exercise

of
Price Per
of
Price
of
Price Per

Shares Share Shares Per Share Shares Share

Options Outstanding at Beginning of Year 1,755,813 $ 15.31 1,173,712 $ 10.55 1,618,836 $ 9.33
Options Granted 132,667 $ 15.05 953,000 $ 19.17 135,554 $ 17.10
Options Exercised (130,647 ) $ 8.76 (257,759 ) $ 7.88 (391,094 ) $ 6.44
Options Forfeited (256,267 ) $ 18.22 (111,540 ) $ 15.39 (189,584 ) $ 13.26
Options Expired (28,800 ) $ 16.90 (1,600 ) $ 14.03 — $ —

Options Outstanding at End of Year 1,472,766 $ 15.33 1,755,813 $ 15.31 1,173,712 $ 10.55

Options Exercisable at End of Year 617,634 $ 12.48 471,903 $ 8.55 520,602 $ 7.00

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 12 —~~	~~Employee Share-Based Compensation~~ ~~(Continued)~~

~~The following is a summary of transactions for non-vested stock options under the Plan for the periods indicated:~~

Year Ended December 31,

2007 2006 2005

Weighted-
Weighted-
Weighted-

Average
Average
Average

Number
Grant Date
Number
Grant Date
Number
Grant Date

of
Fair Value
of
Fair Value
of
Fair Value

Shares Per Share Shares Per Share Shares Per Share

Non-Vested Options Outstanding at Beginning of Year 1,283,910 $ 5.53 653,110 $ 3.68 1,131,594 $ 2.93
Options Granted 132,667 $ 4.49 953,000 $ 6.23 135,554 $ 4.96
Options Vested (305,178 ) $ 5.21 (210,660 ) $ 3.30 (424,454 ) $ 2.13
Options Forfeited (256,267 ) $ 5.57 (111,540 ) $ 4.90 (189,584 ) $ 3.62

Non-Vested Options Outstanding at End of Year 855,132 $ 5.47 1,283,910 $ 5.53 653,110 $ 3.68

For the years ended December 31, 2007, 2006 and 2005, compensation expense of $1.1 million, $742,000 and $0 for the Plan was recognized in the Consolidated Statements of Operations. As of December 31, 2007, the total compensation cost not yet recognized under the Plan was $3.9 million with a weighted-average recognition period of 2.9 years.

~~As of December 31, 2007, stock options outstanding under the Plan were as follows:~~

Options Outstanding Options Exercisable

Weighted-
Weighted-
Weighted-
Weighted-

Average
Average
Average
Average

Exercise
Remaining
Exercise
Remaining

Exercise
Number
Intrinsic
Price Per
Contractual
Number
Intrinsic
Price Per
Contractual

Price Range of Shares Value⁽¹⁾ Share Life of Shares Value⁽¹⁾ Share Life
(Dollars in thousands, except per share data)

$3.27 to $4.99 128,184 $ 1,105 $ 3.89 2.7 years 128,184 $ 1,105 $ 3.89 2.7 years
$5.00 to $9.99 121,128 1,044 $ 7.78 4.8 years 91,128 786 $ 7.21 3.1 years
$10.00 to $14.99 338,900 2,921 $ 13.51 6.2 years 190,100 1,639 $ 13.51 6.2 years
$15.00 to $19.99 653,554 5,634 $ 17.71 8.3 years 136,222 1,174 $ 17.81 8.1 years
$20.00 to $21.63 231,000 1,991 $ 21.57 8.9 years 72,000 620 $ 21.63 8.9 years

1,472,766 $ 12,695 $ 15.33 7.2 years 617,634 $ 5,324 $ 12.48 7.2 years


~~(1)~~		Intrinsic value represents the difference between the closing stock price on the last trading day of the period, which was $8.62 as of December 31, 2007, and the exercise price, multiplied by the number of options.

~~2004 CEO Stock Option Plan~~

The CEO Plan was terminated as of December 31, 2007 and there were no additional shares available for issuance. There were no stock options granted under the 2004 CEO Stock Option Plan during the years ended December 31, 2007, 2006 and 2005.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 12 —~~	~~Employee Share-Based Compensation~~ ~~(Continued)~~

~~The following is a summary of transactions under the CEO Plan for the periods indicated:~~

Year Ended December 31,

2007 2006 2005

Number
Exercise
Number
Exercise
Number
Exercise

of
Price Per
of
Price Per
of
Price Per

Shares Share Shares Share Shares Share

Options Outstanding at Beginning of Year 350,000 $ 17.17 350,000 $ 17.17 350,000 $ 17.17
Options Forfeited (233,334 ) $ 17.17 — $ — — $ —
Options Cancelled (116,666 ) $ 17.17 — $ — — $ —

Options Outstanding at End of Year — $ — 350,000 $ 17.17 350,000 $ 17.17

Options Exercisable at End of Year — $ — 58,333 $ 17.17 — $ —

~~The following is a summary of transactions for non-vested stock options under the CEO Plan for the periods indicated:~~

Year Ended December 31,

2007 2006 2005

Number
Grant Date
Number
Grant Date
Number
Grant Date

of
Fair Value
of
Fair Value
of
Fair Value

Shares Per Share Shares Per Share Shares Per Share

Non-Vested Options Outstanding at Beginning of Year 291,667 $ 4.82 350,000 $ 4.82 350,000 $ 4.82
Options Forfeited (233,334 ) $ 4.82 — $ — — $ —
Options Vested (58,333 ) $ 4.82 (58,333 ) $ 4.82 — $ —

Non-Vested Options Outstanding at End of Year — $ — 291,667 $ 4.82 350,000 $ 4.82

~~For the years ended December 31, 2007, 2006 and 2005, compensation expense of $0, $416,000 and $0 for the CEO Plan was recognized in the Consolidated Statements of Operations.~~

~~Restricted Stock Awards~~

During 2007, 19,000 shares of restricted stock were granted to officers under the Plan. The shares vest 20 percent over the next five years on the anniversary dates of the grants. The market value of the shares awarded totaled $256,000. For the year ended December 31, 2007, compensation expense of $11,000 related to these restricted stock awards was recognized in the Consolidated Statements of Operations.

In February 2005, 100,000 shares of restricted stock were granted to our former Chief Executive Officer. 20,000 of these shares vested immediately, and an additional 20,000 shares were to vest each year over the next four years on the anniversary date of the grant. Upon the former Chief Executive Officer’s retirement on December 31, 2007, all unvested restricted stock became immediately vested. The market value of the shares awarded totaled $1.8 million. For the years ended December 31, 2007, 2006 and 2005, compensation expense of $787,000, $363,000 and $665,000, respectively, related to the restricted stock award was recognized in the Consolidated Statements of Operations.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 13 —~~	~~Stockholders’ Equity~~

~~Stock Warrants~~

In 2004, we issued stock warrants to affiliates of Castle Creek Financial LLC for services rendered in connection with the placement of our equity securities. Under the terms of the warrants, the warrant holders can purchase 508,558 shares of common stock at an exercise price of $9.50 per share. The warrants were immediately exercisable and expire after five years. During the years ended December 31, 2007, 2006 and 2005, 2,000, 160,056 and 0 shares of common stock, respectively, were issued in connection with the exercise of stock warrants. In June 2007, we repurchased 324,502 stock warrants at an aggregate cash purchase price of $2.6 million and such stock warrants were then canceled. As of December 31, 2007, there were outstanding stock warrants to purchase 2,000 shares of our common stock.

~~Repurchase of Common Stock~~

In April 2006, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock as part of our ongoing capital management program. During the year ended December 31, 2007, 3,469,500 shares of our common stock were repurchased on the open market for an aggregate purchase price of $50.0 million. There were no common stock repurchases in 2006. In August 2005, we repurchased 1,163,000 shares of our common stock from Korea Exchange Bank for an aggregate purchase price of $20.0 million as part of our ongoing capital management program. Repurchased shares are held in treasury pending use for general corporate purposes, including issuance under our stock option plans.


~~Note 14 —~~	~~Regulatory Matters~~

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

Quantitative measures established by regulation to ensure capital adequacy require Hanmi Financial and the Bank to maintain minimum ratios (set forth in the table below) of Total and Tier 1 Capital (as defined in the regulations) to Risk-Weighted Assets (as defined), and of Tier 1 Capital (as defined) to Average Assets (as defined). Management believes that, as of December 31, 2007 and 2006, Hanmi Financial and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2007, the most recent notification from the Federal Reserve Board categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table below. There are no conditions or events since that notification which management believes have changed the institution’s category.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 14 —~~	~~Regulatory Matters~~ ~~(Continued)~~

~~The capital ratios of Hanmi Financial and Hanmi Bank at December 31, 2007 and 2006 were as follows:~~

Minimum
Minimum to Be

Regulatory
Categorized as

Actual Requirement “Well Capitalized”

(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio

December 31, 2007
Total Capital (to Risk-Weighted Assets):
Hanmi Financial $ 380,057 10.65 % $ 285,417 8.00 % N/A N/A
Hanmi Bank $ 377,613 10.59 % $ 285,137 8.00 % $ 356,422 10.00 %
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial $ 335,451 9.40 % $ 142,708 4.00 % N/A N/A
Hanmi Bank $ 333,050 9.34 % $ 142,569 4.00 % $ 213,853 6.00 %
Tier 1 Capital (to Average Assets):
Hanmi Financial $ 335,451 8.52 % $ 157,513 4.00 % N/A N/A
Hanmi Bank $ 333,050 8.47 % $ 157,372 4.00 % $ 196,715 5.00 %
December 31, 2006
Total Capital (to Risk-Weighted Assets):
Hanmi Financial $ 384,895 12.55 % $ 245,408 8.00 % N/A N/A
Hanmi Bank $ 376,422 12.28 % $ 245,158 8.00 % $ 306,447 10.00 %
Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial $ 355,186 11.58 % $ 122,704 4.00 % N/A N/A
Hanmi Bank $ 346,713 11.31 % $ 122,579 4.00 % $ 183,868 6.00 %
Tier 1 Capital (to Average Assets):
Hanmi Financial $ 355,186 10.08 % $ 140,947 4.00 % N/A N/A
Hanmi Bank $ 346,713 9.85 % $ 140,827 4.00 % $ 176,034 5.00 %

~~The average reserve balance required to be maintained with the FRB was $1.5 million as of December 31, 2007 and 2006.~~

~~Memorandum of Understanding~~

On July 20, 2005, following a joint regular examination by the FRB and the DFI, the Bank’s Board of Directors approved and signed an informal memorandum of understanding (“Memorandum”) in connection with certain deficiencies identified by the regulators relating to the Bank’s compliance with certain provisions of the Bank Secrecy Act and anti-money laundering regulations. On December 21, 2006, following a joint examination by the FRB and the DFI, the Memorandum was terminated.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 15 —~~	~~Earnings (Loss) Per Share~~

~~The following is a reconciliation of the numerators and denominators of the basic and diluted per share computations for the years ended December 31, 2007, 2006 and 2005:~~

Weighted-

Income
Average
Per

(Loss)
Shares
Share

(Dollars in Thousands, Except Per Share Amounts) (Numerator) (Denominator) Amount

2007:
Basic EPS — Income Available to Common Shareholders $ (60,520 ) 47,787,213 $ (1.27 )
Effect of Dilutive Securities — Options and Warrants — — —

Diluted EPS — Income Available to Common Shareholders $ (60,520 ) 47,787,213 $ (1.27 )

2006:
Basic EPS — Income Available to Common Shareholders $ 65,649 48,850,221 $ 1.34
Effect of Dilutive Securities — Options and Warrants — 584,907 (0.01 )

Diluted EPS — Income Available to Common Shareholders $ 65,649 49,435,128 $ 1.33

2005:
Basic EPS — Income Available to Common Shareholders $ 58,229 49,174,885 $ 1.18
Effect of Dilutive Securities — Options and Warrants — 767,471 (0.01 )

Diluted EPS — Income Available to Common Shareholders $ 58,229 49,942,356 $ 1.17

For the years ended December 31, 2007, 2006 and 2005, there were 1,493,766, 1,373,554 and 50,554 options and warrants outstanding, respectively, that were not included in the computation of diluted EPS because of a net loss or their exercise price was greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive.


~~Note 16 —~~	~~Employee Benefits~~

~~401(k) Plan~~

We have a Section 401(k) plan for the benefit of substantially all of our employees. We match 75 percent of participant contributions to the 401(k) plan up to 8 percent of each 401(k) plan participant’s annual compensation. We made contributions to the 401(k) plan for the years ended December 31, 2007, 2006 and 2005 of $1.2 million, $1.0 million and $918,000, respectively.

~~Bank-Owned Life Insurance~~

~~Deferred Compensation Plan~~

Effective November 1, 2006, the Board of Directors approved the Hanmi Financial Corporation Deferred Compensation Plan (“the DCP”). The DCP is a non-qualified deferred compensation program for directors and certain key employees whereby they may defer a portion of annual compensation for payment upon retirement of the amount deferred plus a guaranteed return. The DCP is unfunded. As of December 31, 2007 and 2006, the liability for the deferred compensation plan and interest thereon was $188,000 and $112,000, respectively.

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 17 —~~	~~Commitments and Contingencies~~

We lease our premises under non-cancelable operating leases. At December 31, 2007, future minimum annual rental commitments under these non-cancelable operating leases, with initial or remaining terms of one year or more, is as follows:

Year Ending
Amount

December 31, (In thousands)

2008 $ 2,906
2009 2,864
2010 2,645
2011 1,494
2012 1,190
Thereafter 5,179

$ 16,278

~~Rental expenses recorded under such leases in 2007, 2006 and 2005 amounted to $4.8 million, $4.1 million and $3.4 million, respectively.~~

In the normal course of business, we are involved in various legal claims. Management has reviewed all legal claims against us with in-house or outside legal counsel and has taken into consideration the views of such counsel as to the outcome of the claims. In management’s opinion, the final disposition of all such claims will not have a material adverse effect on our financial position or results of operations.


~~Note 18 —~~	~~Off-Balance Sheet Commitments~~

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The Bank’s exposure to credit losses in the event of non-performance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for extending loan facilities to customers. The Bank evaluates each customer’s creditworthiness on a~~case-by-case~~ ~~basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty.~~

December 31,

(In thousands) 2007 2006

Commitments to Extend Credit $ 524,349 $ 578,347
Commercial Letters of Credit 52,544 65,158
Standby Letters of Credit 48,071 48,289
Unused Credit Card Lines 18,622 17,031

Total Undisbursed Loan Commitments $ 643,586 $ 708,825


~~Note 19 —~~	~~Fair Value of Financial Instruments~~

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 19 —~~	~~Fair Value of Financial Instruments~~ ~~(Continued)~~

~~Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptionsand/or~~ ~~estimation methodologies may have a material effect on the estimated fair value amounts.~~

December 31, 2007 December 31, 2006

Carrying
Estimated
Carrying
Estimated

or Contract
Fair
or Contract
Fair

(In thousands) Amount Value Amount Value

ASSETS
Cash and Cash Equivalents $ 122,398 $ 122,398 $ 138,501 $ 138,501
Term Federal Funds Sold — — 5,000 5,000
Securities Held to Maturity 940 941 967 969
Securities Available for Sale 349,517 349,517 390,612 390,612
Loans Receivable, Net 3,234,762 3,232,165 2,813,520 2,834,864
Loans Held for Sale 6,335 6,335 23,870 23,870
Accrued Interest Receivable 17,500 17,500 16,919 16,919
Federal Reserve Bank Stock 11,733 11,733 11,733 11,733
Federal Home Loan Bank Stock 21,746 21,746 13,189 13,189

LIABILITIES
Noninterest-Bearing Deposits 680,282 680,282 728,347 728,347
Interest-Bearing Deposits 2,321,417 2,323,199 2,216,368 2,216,757
FHLB Advances, Other Borrowings and Junior Subordinated Debentures 569,570 571,913 251,443 254,058
Accrued Interest Payable 21,828 21,828 22,582 22,582
OFF-BALANCE SHEET ITEMS
Commitments to Extend Credit 524,349 535 578,347 1,786
Standby Letters of Credit 48,071 147 48,289 245

~~The methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value are explained below:~~

~~Cash and Cash Equivalents~~~~— The carrying amounts approximate fair value due to the short-term nature of these instruments.~~

~~Term Federal Funds Sold~~~~— The carrying amounts approximate fair value due to the short-term nature of these instruments.~~

~~Securities~~~~— The fair value of securities is generally obtained from market bids for similar or identical securities or obtained from independent securities brokers or dealers.~~

~~Loans~~— Fair values are estimated for portfolios of loans with similar financial characteristics, primarily fixed and adjustable rate interest terms. The fair values of fixed rate mortgage loans are based on discounted cash flows utilizing applicable risk-adjusted spreads relative to the current pricing of similar fixed rate loans, as well as anticipated repayment schedules. The fair value of adjustable rate commercial loans is based on the estimated discounted cash flows utilizing the discount rates that approximate the pricing of loans collateralized by similar commercial properties. The fair value of non-performing loans at December 31, 2007 and 2006 was not estimated because it is not

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 19 —~~	~~Fair Value of Financial Instruments~~ ~~(Continued)~~

~~practicable to reasonably assess the credit adjustment that would be applied in the marketplace for such loans. The estimated fair value is net of allowance for loan losses.~~

~~Accrued Interest Receivable~~~~— The carrying amount of accrued interest receivable approximates its fair value.~~

~~Federal Reserve Bank Stock and Federal Home Loan Bank Stock~~~~— The carrying amounts approximate fair value as the stock may be resold to the issuer at carrying value.~~

~~Deposits~~— The fair value of non-maturity deposits is the amount payable on demand at the reporting date. Non-maturity deposits include noninterest-bearing demand deposits, savings accounts and money market checking. Discounted cash flows have been used to value term deposits such as certificates of deposit. The discount rate used is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term.

~~Accrued Interest Payable~~~~— The carrying amount of accrued interest payable approximates its fair value.~~

~~FHLB Advances, Other Borrowings and Junior Subordinated Debentures~~ ~~— Discounted cash flows have been used to value FHLB advances, other borrowings and junior subordinated debentures.~~

~~Commitments to Extend Credit and Standby Letters of Credit~~— The fair values of commitments to extend credit and standby letters of credit are based upon the difference between the current value of similar loans and the price at which the Bank has committed to make the loans.


~~Note 20 —~~	~~Condensed Financial Information of Parent Company~~

~~BALANCE SHEETS~~

December 31,

(In thousands) 2007 2006

ASSETS
Cash $ 5,296 $ 7,578
Investment in Consolidated Subsidiaries 448,657 558,645
Investment in Unconsolidated Subsidiaries 2,986 2,986
Other Assets 1,032 4,346

Total Assets $ 457,971 $ 573,555

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Junior Subordinated Debentures $ 82,406 $ 82,406
Other Liabilities 4,020 4,032
Stockholders’ Equity 371,545 487,117

Total Liabilities and Stockholders’ Equity $ 457,971 $ 573,555

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 20 —~~	~~Condensed Financial Information of Parent Company~~ ~~(Continued)~~

~~STATEMENTS OF OPERATIONS~~

Year Ended December 31,

(In thousands) 2007 2006 2005

Equity in Earnings (Losses) of Subsidiaries $ (54,083 ) $ 71,375 $ 62,001
Other Expenses, Net (10,155 ) (9,266 ) (6,133 )
Income Tax Benefit 3,718 3,540 2,361

Net Income (Loss) $ (60,520 ) $ 65,649 $ 58,229

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 20 —~~	~~Condensed Financial Information of Parent Company~~ ~~(Continued)~~

~~STATEMENTS OF CASH FLOWS~~

Year Ended December 31,

(In thousands) 2007 2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (60,520 ) $ 65,649 $ 58,229
Adjustments to Reconcile Net Income to Net Cash Used In Operating Activities:
Losses (Earnings) of Subsidiaries 54,083 (71,375 ) (62,001 )
Decrease in Receivable from Hanmi Bank — — 455
Share-Based Compensation Expense 1,891 1,521 —
(Increase) Decrease in Other Assets 3,314 (1,255 ) (1,292 )
Increase (Decrease) in Other Liabilities (12 ) 659 (229 )
Tax Benefit from Exercises of Stock Options 317 661 729

Net Cash Used In Operating Activities (927 ) (4,140 ) (4,109 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends Received from Hanmi Bank 63,501 18,500 27,541
Business Acquisitions, Net of Cash Received (4,121 ) — —

Net Cash Provided By Investing Activities 59,380 18,500 27,541

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options and Stock Warrants 1,164 3,553 2,516
Stock Issued for Business Acquisitions 2,198 — —
Cash Paid to Acquire Treasury Stock (49,971 ) — (20,041 )
Cash Paid to Repurchase Stock Warrants (2,552 ) — —
Cash Dividends Paid (11,574 ) (11,805 ) (9,813 )

Net Cash Used In Financing Activities (60,735 ) (8,252 ) (27,338 )

NET INCREASE (DECREASE) IN CASH (2,282 ) 6,108 (3,906 )
Cash at Beginning of Year 7,578 1,470 5,376

CASH AT END OF YEAR $ 5,296 $ 7,578 $ 1,470

~~Hanmi Financial Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~
~~December 31, 2007, 2006 and 2005~~ ~~(Continued)~~


~~Note 21 —~~	~~Quarterly Financial Data (Unaudited)~~

~~Summarized quarterly financial data follows:~~

Quarter Ended

(Dollars in thousands; except per share amounts) March 31 June 30 September 30 December 31

2007:
Interest Income $ 67,956 $ 69,860 $ 71,197 $ 71,883
Interest Expense 29,891 31,270 33,342 34,190

Net Interest Income Before Provision for Credit Losses 38,065 38,590 37,855 37,693
Provision for Credit Losses 6,132 3,023 8,464 20,704
Non-Interest Income 9,987 10,692 9,526 9,801
Non-Interest Expenses 20,969 21,490 21,249 126,221

Income (Loss) Before Provision for Income Taxes 20,951 24,769 17,668 (99,431 )
Provision for Income Taxes 7,896 9,446 6,580 555

NET INCOME (LOSS) $ 13,055 $ 15,323 $ 11,088 $ (99,986 )

EARNINGS (LOSS) PER SHARE:
Basic $ 0.27 $ 0.32 $ 0.23 $ (2.15 )
Diluted $ 0.26 $ 0.31 $ 0.23 $ (2.15 )
2006:
Interest Income $ 58,535 $ 63,906 $ 68,664 $ 69,084
Interest Expense 21,680 25,509 28,934 30,306

Net Interest Income Before Provision for Credit Losses 36,855 38,397 39,730 38,778
Provision for Credit Losses 2,960 900 1,682 1,631
Non-Interest Income 8,045 8,668 9,172 11,078
Non-Interest Expenses 17,740 19,797 19,861 19,915

Income Before Provision for Income Taxes 24,200 26,368 27,359 28,310
Provision for Income Taxes 9,398 10,428 9,762 11,000

NET INCOME $ 14,802 $ 15,940 $ 17,597 $ 17,310

EARNINGS PER SHARE:
Basic $ 0.30 $ 0.33 $ 0.36 $ 0.35
Diluted $ 0.30 $ 0.32 $ 0.36 $ 0.35

~~Reclassifications have been made to the 2006 quarterly financial statements to conform to the current presentation.~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

HANMI FINANCIAL CORPORATION


	~~By:~~	~~/s/ Chung Hoon Youk~~

By: /s/ Jay S. Yoo

~~Chung Hoon Youk~~

Jay S. Yoo

~~Interim~~ President and Chief Executive Officer

Date: ~~February 29, 2008~~March 13, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of ~~February 29, 2008.~~March 13, 2009.


/s/ ~~Chung Hoon Youk~~Jay S. Yoo ~~Chung Hoon Youk~~Jay S. Yoo ~~Interim~~ President and Chief Executive Officer (Principal Executive Officer)		/s/ Brian E. Cho Brian E. Cho Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ ~~Richard B. C. Lee~~Joseph K. Rho ~~Richard B. C. Lee~~Joseph K. Rho Chairman of the Board		/s/ I Joon Ahn I Joon Ahn Director

/s/ ~~Ki Tae Hong~~John A. Hall ~~Ki Tae Hong~~John A. Hall Director		/s/ Richard B. C. Lee Richard B. C. Lee Director

/s/ Joon Hyung Lee Joon Hyung Lee Director
~~/s/ Mark K. Mason~~ ~~Mark K. Mason~~ ~~Director~~		/s/ ~~Chang Kyu Park~~Paul (Seon-Hong) Kim ~~Chang Kyu Park~~ ~~Director~~
~~/s/ Joseph K. Rho~~ ~~Joseph K. Rho~~ ~~Director~~		~~/s/ Won R. Yoon~~ ~~Won R. Yoon~~Paul (Seon-Hong) Kim Director

87115

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX


Exhibit	Exhibit			*Exhibit*
Number	Number		Document	*Number*		*Document*


	3	.1	Certificate of Incorporation, As Amended⁽¹⁾	3	.1	Amended and Restated Certificate of Incorporation of Hanmi Financial Corporation
	3	.2	Bylaws⁽¹⁾	3	.2	Certificate of Second Amendment of Certificate of Incorporation of Hanmi Financial Corporation
	3	.3	Certificate of Amendment to Bylaws⁽²⁾	3	.3	Amended and Restated Bylaws of Hanmi Financial Corporation
	4	.1	Specimen Certificate of Registrant⁽¹⁾	3	.4	Certificate of Amendment to Bylaws of Hanmi Financial Corporation
	10	.1	Hanmi Financial Corporation 2007 Equity Compensation Plan⁽³⁾	10	.1	Amended and Restated Trust Agreement of Hanmi Capital Trust I dated as of January 8, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein⁽⁵⁾
	10	.2	Separation Agreement between Hanmi Financial Corporation and Dr. Sung Won Sohn, dated December 27, 2007⁽⁴⁾	10	.2	Hanmi Capital Trust I Junior Subordinated Indenture dated as of January 8, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.1)⁽⁵⁾
	10	.3	Employment Offer Letter with Brian E. Cho, executed November 1, 2007⁽⁵⁾	10	.3	Hanmi Capital Trust I Guarantee Agreement dated as of January 8, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee⁽⁵⁾
	10	.4	Put Option Agreement between Hanmi Financial Corporation and John M. Eggemeyer dated April 17, 2007⁽⁶⁾	10	.4	Hanmi Capital Trust I Form of Common Securities Certificate (included as exhibit B to Exhibit 10.1)⁽⁵⁾
	10	.5	Put Option Agreement between Hanmi Financial Corporation and William J. Ruh dated April 17, 2007⁽⁶⁾	10	.5	Hanmi Capital Trust I Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.1)⁽⁵⁾
	14		Code of Ethics⁽⁷⁾	10	.6	Amended and Restated Trust Agreement of Hanmi Capital Trust II dated as of March 15, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein⁽⁵⁾
	21		Subsidiaries of the Registrant	10	.7	Hanmi Capital Trust II Junior Subordinated Indenture dated as of March 15, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.6)⁽⁵⁾
	23		Consent of KPMG LLP	10	.8	Hanmi Capital Trust II Guarantee Agreement dated as of March 15, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee⁽⁵⁾
	31	.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	10	.9	Hanmi Capital Trust II Form of Common Securities Certificate (included as exhibit B to Exhibit 10.6)⁽⁵⁾
	31	.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	10	.10	Hanmi Capital Trust II Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.6)⁽⁵⁾
	32	.1	Certification of Chief Executive Officer Under Section 906 of the Sarbanes-Oxley Act	10	.11	Amended and Restated Trust Agreement of Hanmi Capital Trust III dated as of April 28, 2004 among Hanmi Financial Corporation, Deutsche Bank Trust Company Americas, as Property Trustee, Deutsche Bank Trust Company Delaware, as Delaware Trustee, and the Administrative Trustees Named Therein⁽⁵⁾
	32	.2	Certification of Chief Financial Officer Under Section 906 of the Sarbanes-Oxley Act	10	.12	Hanmi Capital Trust III Junior Subordinated Indenture dated as of April 28, 2004 entered into between Hanmi Financial Corporation and Deutsche Bank Trust Company Americas, as Trustee (included as exhibit D to Exhibit 10.11)⁽⁵⁾

				10	.13	Hanmi Capital Trust III Guarantee Agreement dated as of April 28, 2004 entered into between Hanmi Financial Corporation, as Guarantor, and Deutsche Bank Trust Company Americas, as Guarantee Trustee⁽⁵⁾
				10	.14	Hanmi Capital Trust III Form of Common Securities Certificate (included as exhibit B to Exhibit 10.11)⁽⁵⁾
				10	.15	Hanmi Capital Trust III Form of Preferred Securities Certificate (included as exhibit C to Exhibit 10.11)⁽⁵⁾
				10	.16	Employment Agreement Between Hanmi Financial Corporation and Hanmi Bank, on the One Hand, and Jay S. Yoo, on the Other Hand, dated as of June 19, 2008⁽⁶⁾
				10	.17	Hanmi Financial Corporation 2007 Equity Compensation Plan⁽³⁾
				10	.18	Separation Agreement between Hanmi Financial Corporation and Dr. Sung Won Sohn, dated December 27, 2007⁽⁴⁾
				10	.19	Employment Offer Letter to John Park from Hanmi Bank dated August 13, 2008⁽⁷⁾
				14		Code of Ethics⁽⁸⁾
				21		Subsidiaries of the Registrant⁽⁹⁾
				23		Consent of KPMG LLP

116

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX (Continued)


*Exhibit*
*Number*			*Document*


	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended
	32	.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Previously filed and incorporated by reference herein from Hanmi Financial’s Registration Statement onForm S-4(No. 333-32770) filed with the SEC on March 20, 2000.

(2)		Previously filed and incorporated by reference herein from Hanmi Financial’s Current Report onForm 8-K filed with the SEC on November 26, 2007.

(3)		Previously filed and incorporated by reference herein from Hanmi Financial’s Current Report onForm 8-K filed with the SEC on June 26, 2007.

(4)		Previously filed and incorporated by reference herein from Hanmi Financial’s Current Report onForm 8-K filed with the SEC on December 27, 2007.

(5)		Previously filed and incorporated by reference herein from Hanmi Financial’s ~~Current~~Quarterly Report onForm ~~8-K~~10-Q for the quarter ended June 30, 2004 filed with the SEC on ~~December 3, 2007.~~August 9, 2004.

(6)		Previously filed and incorporated by reference herein from Hanmi Financial’s Quarterly Report onForm 10-Q for the quarter ended ~~March 31, 2007~~June 30, 2008 filed with the SEC on ~~May 10, 2007.~~August 11, 2008.

(7)		Previously filed and incorporated by reference herein from Hanmi Financial’s Quarterly Report onForm 10-Q for the quarter ended September 30, 2008 filed with the SEC on November 7 2008.

(8)		Previously filed and incorporated by reference herein from Hanmi Financial’s Annual Report onForm 10-K for the year ended December 31, 2004 filed with the SEC on March 16, 2005.

(9)		Previously filed and incorporated by reference herein from Hanmi Financial’s Annual Report onForm 10-K for the year ended December 31, 2008 filed with the SEC on February 29, 2008.

88117


			Page


Cautionary Note Regarding Forward-Looking Statements				1

PART I
	Item 1.	Business		12
	Item 1A.	Risk Factors		1220
	Item 1B.	Unresolved Staff Comments		1427
	Item 2.	Properties		1528
	Item 3.	Legal Proceedings		1629
	Item 4.	Submission of Matters to a Vote of Security Holders		1629

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		1629
	Item 6.	Selected Financial Data		2031
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2233
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		4460
	Item 8.	Financial Statements and Supplementary Data		4460
	Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		4460
	Item 9A.	Controls and Procedures		4460
	Item 9B.	Other Information		4763

PART III
	Item 10.	Directors, Executive Officers and Corporate Governance		4763
	Item 11.	Executive Compensation		4763
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		4763
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		4763
	Item 14.	Principal Accounting Fees and Services		4763

PART IV
	Item 15.	Exhibits, Financial Statement Schedules		4764
		Index to Consolidated Financial Statements		4865
		Report of Independent Registered Public Accounting Firm		4966
		Consolidated Balance Sheets as of December 31, ~~2007~~2008 and ~~2006~~2007		5067
		Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006		5168
		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006		5269
		Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006		5370
		Notes to Consolidated Financial Statements		5471
Signatures				87115
Exhibit Index				88116
EX-3.1
EX-3.2
EX-3.3
EX-3.4
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	ISSUER PURCHASES OF EQUITY SECURITIES

							(d) Maximum Number (or
			(b) Average		(c) Total Number of Shares		Approximate Dollar
	(a )Total Number		Price Paid		(or Units) Purchased as		Value) of Shares (or Units)
	of Shares (or		per Share		Part of Publicly Announced		that May Yet Be Purchased
Period	Units) Purchased		(or Unit)		Plans or Programs		Under the Plans or Programs


Repurchases from October 1, 2007 to October 31, 2007		2,000	$	16.57		2,000	$	11,074,000
Repurchases from November 1, 2007 to November 30, 2007		1,060,400	$	9.62		1,060,400	$	798,000
Repurchases from December 1, 2007 to December 31, 2007		82,000	$	9.34		82,000	$	29,000


Total		1,144,400	$	9.62		1,144,400


	Year Ended December 31, 2007

				Weighted-
	Income			Average		Per
	(Loss)			Shares		Share
(Dollars in thousands, except per share data)	(Numerator)			(Denominator)		Amount


GAAP Net Loss	$	(60,520	)		47,787,213	$	(1.27	)
Impairment Loss on Goodwill		102,891
Dilutive Securities — Options and Warrants					306,504	$	2.15


Non-GAAP Net Income, Excluding Impairment Loss on Goodwill	$	42,371			48,093,717	$	0.88


	Amount of Loans Outstanding as of December 31,										*Amount of Loans Outstanding as of December 31,*

(In thousands)	2007		2006		2005		2004		2003		*2008*		*2007*		*2006*		*2005*		*2004*


Real Estate Loans:
Commercial Property	$	795,675	$	757,428	$	733,650	$	783,539	$	397,853	$	908,970	$	795,675	$	757,428	$	733,650	$	783,539
Construction		215,857		202,207		152,080		92,521		43,047		178,783		215,857		202,207		152,080		92,521
Residential Property⁽¹⁾		90,375		81,758		88,442		80,786		58,477		92,361		90,375		81,758		88,442		80,786

Total Real Estate Loans		1,101,907		1,041,393		974,172		956,846		499,377		1,180,114		1,101,907		1,041,393		974,172		956,846

Commercial and Industrial Loans:
Commercial Term Loans		1,599,853		1,202,612		945,210		754,108		433,398		1,611,449		1,599,853		1,202,612		945,210		754,108
Commercial Lines of Credit		256,978		225,630		224,271		201,940		120,856		214,699		256,978		225,630		224,271		201,940
SBA Loans⁽²⁾												178,399		118,528		171,631		155,491		166,285
International Loans		119,360		126,561		106,520		95,936		65,040		95,185		119,360		126,561		106,520		95,936
SBA Loans⁽²⁾		118,528		171,631		155,491		166,285		91,717

Total Commercial and Industrial Loans		2,094,719		1,726,434		1,431,492		1,218,269		711,011		2,099,732		2,094,719		1,726,434		1,431,492		1,218,269

Consumer Loans⁽³⁾		90,449		100,121		92,154		87,526		54,878		83,525		90,449		100,121		92,154		87,526

Total Gross Loans	$	3,287,075	$	2,867,948	$	2,497,818	$	2,262,641	$	1,265,266	$	3,363,371	$	3,287,075	$	2,867,948	$	2,497,818	$	2,262,641


(1)		As of December 31, 2008, 2007, 2006, 2005 and 2004, ~~and 2003,~~residential mortgage loans held for sale totaling $0, $310,000, $630,000, ~~$0, $0~~$1.1 million and $0, respectively, were included at the lower of cost or fair value.

(2)		As of December 31, 2008, 2007, 2006, 2005 and 2004, ~~and 2003,~~SBA loans held for sale totaling $37.4 million, $6.0 million, $23.2 million, $0 ~~$3.9 million~~ and ~~$25.5~~$3.9 million, respectively, were included at the lower of cost or ~~market.~~fair value.

(3)		Consumer loans ~~includes HELOCs.~~include home equity lines of credit.


					After One				After Five
	Within				But Within				But Within				After
	One Year				Five Years				Ten Years				Ten Years

(Dollars in thousands)	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield


U.S. Government Agency Securities	$	61,942		4.26%	$	43,147		4.74%	$	—		—	$	—		—
Mortgage-Backed Securities⁽¹⁾		28,971		4.98%		36,518		4.84%		33,955		4.91%		—		—
Municipal Bonds⁽²⁾		—		—		2,844		5.01%		9,757		6.26%		59,844		6.39%
Collateralized Mortgage Obligations⁽¹⁾		19,629		4.29%		28,772		4.31%		3,017		4.38%		—		—
Corporate Bonds		—		—		18,226		5.04%		—		—		—		—
Other Securities		3,835		7.12%		—		—		—		—		—		—


	$	114,377		4.54%	$	129,507		4.72%	$	46,729		5.16%	$	59,844		6.39%


	December 31,

Liquidity Ratios	2007			2006			2005


Core Deposits/Total Assets		26.9	%		30.1	%		35.3	%
Short-Term Non-Core Funding/Total Assets		54.8	%		46.0	%		41.8	%
Net Loans/Total Assets		79.8	%		76.6	%		72.4	%
Investments/Deposits		13.6	%		15.9	%		18.9	%
Loans and Investments/Deposits		122.0	%		112.2	%		106.3	%
Off-Balance Sheet Items/Total Assets		15.8	%		19.0	%		18.5	%


			More Than		More Than
			One Year		Three Years
			and Less		and Less		More
	Less Than		Than Three		Than Five		Than Five
Contractual Obligations	One Year		Years		Years		Years		Total

	(In thousands)

Time Deposits	$	1,773,057	$	4,313	$	5,027	$	115	$	1,782,512
Commitments to Extend Credit		524,349		—		—		—		524,349
FHLB Advances and Other Borrowings		469,500		13,084		—		4,580		487,164
Junior Subordinated Debentures		—		—		—		82,406		82,406
Standby Letters of Credit		43,643		4,328		—		100		48,071
Operating Lease Obligations		2,906		5,509		2,684		5,179		16,278


Total Contractual Obligations	$	2,813,455	$	27,234	$	7,711	$	92,380	$	2,940,780



			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(In thousands)	Cost		Gain		Loss		Value


December 31, 2007:
U.S. Government Agency Securities	$	104,893	$	277	$	81	$	105,089
Mortgage-Backed Securities		99,332		533		667		99,198
Municipal Bonds		69,907		1,867		23		71,751
Collateralized Mortgage Obligations		51,881		128		591		51,418
Corporate Bonds		18,295		43		112		18,226
Other		3,925		—		90		3,835


	$	348,233	$	2,848	$	1,564	$	349,517


December 31, 2006:
U.S. Government Agency Securities	$	119,768	$	—	$	1,524	$	118,244
Mortgage-Backed Securities		123,614		179		2,185		121,608
Municipal Bonds		69,966		1,795		51		71,710
Collateralized Mortgage Obligations		67,605		—		1,492		66,113
Corporate Bonds		8,090		—		203		7,887
Other		4,999	��	172		121		5,050


	$	394,042	$	2,146	$	5,576	$	390,612


	Holding Period

	Less than 12 Months				12 Months or More				Total

	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
(In thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value


Available for Sale — December 31, 2007:
U.S. Government Agency Securities	$	—	$	—	$	81	$	46,895	$	81	$	46,895
Mortgage-Backed Securities		31		5,319		636		42,143		667		47,462
Municipal Bonds		—		—		23		2,910		23		2,910
Collateralized Mortgage Obligations		—		—		591		40,167		591		40,167
Corporate Bonds		—		—		112		7,834		112		7,834
Other		—		—		90		2,910		90		2,910


	$	31	$	5,319	$	1,533	$	142,859	$	1,564	$	148,178


Available for Sale — December 31, 2006:
U.S. Government Agency Securities	$	21	$	9,979	$	1,503	$	108,265	$	1,524	$	118,244
Mortgage-Backed Securities		121		19,442		2,064		87,966		2,185		107,408
Municipal Bonds		3		961		48		4,290		51		5,251
Collateralized Mortgage Obligations		98		7,196		1,394		58,917		1,492		66,113
Corporate Bonds		—		—		203		7,887		203		7,887
Other		—		—		121		2,879		121		2,879


	$	243	$	37,578	$	5,333	$	270,204	$	5,576	$	307,782


			December 31, 2007					December 31, 2006

			Gross					Gross
	Amortization		Carrying		Accumulated			Carrying		Accumulated
(In thousands)	Period		Amount		Amortization			Amount		Amortization


Other Intangible Assets:
Core Deposit Intangible		8 years	$	11,385	$	(7,113	)	$	11,385	$	(5,073	)
Trade Names		20 years		970		(48	)		—		—
Client/Insured Relationships		10 years		770		(77	)		—		—
Non-Compete Agreements		5 years		600		(120	)		—		—
Carrier Relationships		15 years		580		(39	)		—		—


Total Other Intangible Assets			$	14,305	$	(7,397	)	$	11,385	$	(5,073	)