Hanmi Financial - 10-Q quarterly report FY

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the Quarterly Period Ended September 30, 2007

or


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

For the Transition Period From To

Commission File Number: 000-30421

HANMI FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware		95-4788120

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


3660 Wilshire Boulevard, Penthouse Suite A
Los Angeles, California		90010

(Address of Principal Executive Offices)		(Zip Code)

(213) 382-2200

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

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

Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of November 1, 2007, there were 46,984,341 outstanding shares of the Registrant’s Common Stock.

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

TABLE OF CONTENTS


		Page

PART I — FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Statements of Financial Condition (Unaudited)		1
	Consolidated Statements of Income (Unaudited)		2
	Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Unaudited)		3
	Consolidated Statements of Cash Flows (Unaudited)		4
	Notes to Consolidated Financial Statements (Unaudited)		5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		12

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36

ITEM 4.	CONTROLS AND PROCEDURES		37

PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		37

ITEM 1A.	RISK FACTORS		37

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		37

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		38

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		38

ITEM 5.	OTHER INFORMATION		38

ITEM 6.	EXHIBITS		38

SIGNATURES			39
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in Thousands)


	September 30,			December 31,
	2007			2006
ASSETS
Cash and Due From Banks	$	103,789		$	97,501
Federal Funds Sold		—			41,000

Cash and Cash Equivalents		103,789			138,501
Term Federal Funds Sold		—			5,000
Securities Held to Maturity, at Amortized Cost (Fair Value: 2007 — $947; 2006 — $969)		945			967
Securities Available for Sale, at Fair Value		356,671			390,612
Loans Receivable, Net of Allowance for Loan Losses of $34,503 and $27,557 at September 30, 2007 and December 31, 2006, Respectively		3,177,848			2,813,520
Loans Held for Sale, at the Lower of Cost or Fair Value		7,520			23,870
Customers’ Liability on Acceptances		5,357			8,403
Premises and Equipment, Net		20,597			20,075
Accrued Interest Receivable		17,619			16,919
Other Real Estate Owned		287			—
Deferred Income Taxes		13,480			13,064
Servicing Asset		4,328			4,579
Goodwill		209,991			207,646
Other Intangible Assets		7,457			6,312
Federal Reserve Bank Stock		11,733			11,733
Federal Home Loan Bank Stock		13,792			13,189
Bank-Owned Life Insurance		24,285			23,592
Other Assets		35,916			27,261


TOTAL ASSETS	$	4,011,615		$	3,725,243


LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Noninterest-Bearing	$	690,513		$	728,347
Interest-Bearing:
Savings		94,150			99,255
Money Market Checking and NOW Accounts		476,257			438,267
Time Deposits of $100,000 or More		1,474,764			1,383,358
Other Time Deposits		311,873			295,488


Total Deposits		3,047,557			2,944,715

Accrued Interest Payable		20,449			22,582
Acceptances Outstanding		5,357			8,403
FHLB Advances and Other Borrowings		361,344			169,037
Junior Subordinated Debentures		82,406			82,406
Other Liabilities		11,593			10,983


Total Liabilities		3,528,706			3,238,126

SHAREHOLDERS’ EQUITY:
Common Stock, $.001 Par Value; Authorized 200,000,000 Shares; Issued 50,474,441 Shares (46,986,341 Shares Outstanding) and 50,239,613 Shares (49,076,613 Shares Outstanding) at September 30, 2007 and December 31, 2006, Respectively		50			50
Additional Paid-In Capital		347,076			344,810
Accumulated Other Comprehensive Loss — Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Income Taxes of ($629) and ($1,450) at September 30, 2007 and December 31, 2006, Respectively		(1,458	)		(3,200	)
Retained Earnings		196,208			165,498


		541,876			507,158

Less Treasury Stock, at Cost; 3,488,100 and 1,163,000 Shares at September 30, 2007 and December 31, 2006, Respectively		(58,967	)		(20,041	)

Total Shareholders’ Equity		482,909			487,117

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,011,615		$	3,725,243

See Accompanying Notes to Consolidated Financial Statements.

1

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006

INTEREST INCOME:
Interest and Fees on Loans	$	66,714	$	63,392	$	194,487	$	175,409
Interest on Investments		4,422		4,836		13,558		14,948
Interest on Federal Funds Sold		61		436		963		748
Interest on Term Federal Funds Sold		—		—		5		—


Total Interest Income		71,197		68,664		209,013		191,105


INTEREST EXPENSE:
Interest on Deposits		27,882		25,178		80,654		66,690
Interest on FHLB Advances and Other Borrowings		3,785		2,084		8,875		4,699
Interest on Junior Subordinated Debentures		1,675		1,672		4,974		4,734


Total Interest Expense		33,342		28,934		94,503		76,123


NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES		37,855		39,730		114,510		114,982
Provision for Credit Losses		8,464		1,682		17,619		5,542


NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		29,391		38,048		96,891		109,440


NON-INTEREST INCOME:
Service Charges on Deposit Accounts		4,463		4,249		13,389		12,663
Insurance Commissions		1,131		250		3,535		646
Trade Finance Fees		1,082		1,227		3,549		3,414
Remittance Fees		512		517		1,503		1,537
Other Service Charges and Fees		691		591		1,881		1,739
Bank-Owned Life Insurance Income		234		221		693		654
Increase in Fair Value of Derivatives		207		389		521		723
Other Income		457		328		1,223		911
Gain on Sales of Loans		523		1,400		3,685		3,550
Gain on Sales of Other Real Estate Owned		226		—		226		48


Total Non-Interest Income		9,526		9,172		30,205		25,885


NON-INTEREST EXPENSES:
Salaries and Employee Benefits		11,418		10,357		33,961		30,209
Occupancy and Equipment		2,657		2,482		7,740		7,122
Data Processing		1,540		1,431		4,768		4,314
Advertising and Promotion		943		665		2,493		2,122
Supplies and Communication		704		636		1,996		1,848
Professional Fees		565		390		1,686		1,550
Amortization of Other Intangible Assets		570		585		1,776		1,815
Decrease in Fair Value of Embedded Options		37		78		233		292
Other Operating Expenses		2,815		3,237		9,055		8,126


Total Non-Interest Expenses		21,249		19,861		63,708		57,398


INCOME BEFORE PROVISION FOR INCOME TAXES		17,668		27,359		63,388		77,927
Provision for Income Taxes		6,580		9,762		23,922		29,588


NET INCOME	$	11,088	$	17,597	$	39,466	$	48,339


EARNINGS PER SHARE:
Basic	$	0.23	$	0.36	$	0.82	$	0.99
Diluted	$	0.23	$	0.36	$	0.81	$	0.98

WEIGHTED-AVERAGE SHARES OUTSTANDING:
Basic		47,355,143		48,890,662		48,232,464		48,809,921
Diluted		47,536,078		49,450,601		48,569,863		49,395,152

DIVIDENDS DECLARED PER SHARE	$	0.06	$	0.06	$	0.18	$	0.18

See Accompanying Notes to Consolidated Financial Statements.

2

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Thousands)


	Common Stock — Number of Shares								Shareholders’ Equity
																		Accumulated
												Additional						Other						Treasury			Total
			Treasury							Common		Paid-in			Unearned			Comprehensive			Retained			Stock,			Shareholders’
	Issued		Stock			Outstanding				Stock		Capital			Compensation			Loss			Earnings			at Cost			Equity

BALANCE — 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

Cumulative Adjustments:
Tax Credit Funds		—		—			—				—		—			—			—			(656	)		—			(656	)
Share-Based Compensation		—		—			—				—		(916	)		1,150			—			—			—			234
Exercises of Stock Options and Stock Warrants		332,348		—			332,348				—		2,795			—			—			—			—			2,795
Share-Based Compensation Expense		—		—			—				—		998			—			—			—			—			998
Tax Benefit from Exercises of Stock Options		—		—			—				—		329			—			—			—			—			329
Cash Dividends		—		—			—				—		—			—			—			(8,864	)		—			(8,864	)

Comprehensive Income:
Net Income		—		—			—				—		—			—			—			48,339			—			48,339
Change in Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax		—		—			—				—		—			—			753			—			—			753


Total Comprehensive Income																												49,092


BALANCE — SEPTEMBER 30, 2006		50,154,146		(1,163,000	)		48,991,146			$	50	$	343,197		$	—		$	(3,630	)	$	151,129		$	(20,041	)	$	470,705


BALANCE — DECEMBER 31, 2006		50,239,613		(1,163,000	)		49,076,613			$	50	$	344,810		$	—		$	(3,200	)	$	165,498		$	(20,041	)	$	487,117

Shares Issued for Business Acquisitions		102,181		—			102,181				—		2,198			—			—			—			—			2,198
Exercises of Stock Options and Stock Warrants		132,647		—			132,647				—		1,164			—			—			—			—			1,164
Share-Based Compensation Expense		—		—			—				—		1,283			—			—			—			—			1,283
Tax Benefit from Exercises of Stock Options		—		—			—				—		173			—			—			—			—			173
Cash Dividends		—		—			—				—		—			—			—			(8,756	)		—			(8,756	)
Repurchase of Common Stock		—		(2,325,100	)		(2,325,100	)			—		—			—			—			—			(38,926	)		(38,926	)
Repurchase of Stock Warrants		—		—			—				—		(2,552	)		—			—			—			—			(2,552	)

Comprehensive Income:
Net Income		—		—			—				—		—			—			—			39,466			—			39,466
Change in Unrealized Loss on Securities Available for Sale, Interest-Only Strips and Interest Rate Swaps, Net of Tax		—		—			—				—		—			—			1,742			—			—			1,742


Total Comprehensive Income																												41,208


BALANCE — SEPTEMBER 30, 2007		50,474,441		(3,488,100	)		46,986,341			$	50	$	347,076		$	—		$	(1,458	)	$	196,208		$	(58,967	)	$	482,909

See Accompanying Notes to Consolidated Financial Statements

3

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)


	Nine Months Ended
	September 30,
	2007			2006

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	39,466		$	48,339
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation and Amortization of Premises and Equipment		2,186			2,203
Amortization of Premiums and Accretion of Discounts on Investments, Net		150			221
Amortization of Other Intangible Assets		1,776			1,815
Share-Based Compensation Expense		1,283			998
Provision for Credit Losses		17,619			5,542
Federal Home Loan Bank Stock Dividend		(526	)		(460	)
Gain on Sales of Securities Available for Sale		—			(2	)
Increase in Fair Value of Derivatives		(521	)		(723	)
Decrease in Fair Value of Embedded Options		233			292
Gain on Sales of Loans		(3,685	)		(3,550	)
Gain on Sales of Other Real Estate Owned		(226	)		(48	)
Loss on Sales of Premises and Equipment		11			22
Excess Tax Benefit from Exercises of Stock Options		(173	)		(329	)
Deferred Tax Benefit		(2,400	)		(1,964	)
Origination of Loans Held for Sale		(76,488	)		(88,047	)
Proceeds from Sales of Loans Held for Sale		96,523			85,327
Increase in Accrued Interest Receivable		(700	)		(2,070	)
Decrease (Increase) in Servicing Asset		251			(356	)
Increase in Cash Surrender Value of Bank-Owned Life Insurance		(693	)		(655	)
Increase in Other Assets		(9,718	)		(12,195	)
(Decrease) Increase in Accrued Interest Payable		(2,133	)		7,280
Increase in Other Liabilities		199			111
Other, Net		2,697			3,159


Net Cash Provided By Operating Activities		65,131			44,910


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Redemption of Federal Reserve Bank Stock		—			590
Proceeds from Matured Term Federal Funds Sold		5,000			—
Proceeds from Matured or Called Securities Available for Sale		45,762			46,005
Proceeds from Sales of Securities Available for Sale		—			5,005
Proceeds from Sales of Other Real Estate Owned		1,306			—
Net Increase in Loans Receivable		(382,280	)		(352,062	)
Purchases of Federal Home Loan Bank Stock		(77	)		(311	)
Purchases of Securities Available for Sale		(11,158	)		(6,273	)
Purchases of Premises and Equipment		(2,701	)		(1,763	)
Business Acquisitions, Net of Cash Acquired		(4,121	)		—


Net Cash Used In Investing Activities		(348,269	)		(308,809	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deposits		102,842			147,667
Proceeds from Exercises of Stock Options and Stock Warrants		1,164			2,795
Tax Benefit from Exercises of Stock Options		173			329
Stock Issued for Business Acquisitions		2,198			—
Cash Paid to Acquire Treasury Stock		(38,926	)		—
Cash Paid to Acquire Stock Warrants		(2,552	)		—
Cash Dividends Paid		(8,756	)		(8,864	)
Proceeds from Long-Term FHLB Advances and Other Borrowings		—			120,000
Repayment of Long-Term FHLB Advances and Other Borrowings		(330	)		(313	)
Net Change in Short-Term FHLB Advances and Other Borrowings		192,613			3,417


Net Cash Provided By Financing Activities		248,426			265,031


NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(34,712	)		1,132
Cash and Cash Equivalents — Beginning of Period		138,501			163,477


CASH AND CASH EQUIVALENTS — END OF PERIOD	$	103,789		$	164,609


Supplemental Disclosures of Cash Flow Information:
Interest Paid	$	96,636		$	83,403
Income Taxes Paid	$	33,784		$	30,708
Transfers of Loans Receivable to Other Real Estate Owned	$	1,367		$	545

See Accompanying Notes to Consolidated Financial Statements

4

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Hanmi Financial Corporation (“Hanmi Financial,” “we” or “us”) is a Delaware corporation and is subject to the Bank Holding Company Act of 1956, as amended. Our primary subsidiary is Hanmi Bank (the “Bank”). Our other subsidiaries are Chun-Ha Insurance Services, Inc. (“Chun-Ha”) and All World Insurance Services, Inc. (“All World”), which were acquired on January 2, 2007.

The Bank is a commercial bank licensed by the California Department of Financial Institutions. The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to applicable limits thereof. The Bank is a member of the Federal Reserve System. Chun-Ha and All World are insurance brokerages founded in 1989 and offer a complete line of insurance products, including life, commercial, auto, health, and property and casualty.

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 the multi-ethnic populations of Los Angeles, Orange, San Bernardino, San Diego, San Francisco and Santa Clara counties of the State of California. 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. As of September 30, 2007, the Bank maintained a branch network of 24 locations, serving individuals and small- to medium-sized businesses in its primary market. The Bank also had eight loan production offices in California, Colorado, Georgia, Illinois, Texas, Virginia and Washington. Chun-Ha and All World are headquartered in Garden Grove, California and have offices in Los Angeles.

In the opinion of management, the consolidated financial statements of Hanmi Financial Corporation and Subsidiaries reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim period ended September 30, 2007, but are not necessarily indicative of the results that will be reported for the entire year. In the opinion of management, the aforementioned consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The interim information should be read in conjunction with our 2006 Annual Report on Form 10-K.

Descriptions of our significant accounting policies are included in “Note 1 — Summary of Significant Accounting Policies” in our 2006 Annual Report on Form 10-K.

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

NOTE 2 — SHARE-BASED COMPENSATION

2007 Equity Compensation Plan

At the May 23, 2007 Annual Meeting of Stockholders, shareholders approved the 2007 Equity Compensation Plan, which replaces the Year 2000 Stock Option Plan. The 2007 Equity Compensation 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.

Under the 2007 Equity Compensation Plan, we may grant options for up to 3,000,000 shares of common stock. As of September 30, 2007, 3,000,000 shares were still available for issuance.

5

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 2 — SHARE-BASED COMPENSATION (Continued)

Share-Based Compensation Expense

The table below shows the share-based compensation expense and related tax benefits for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
	(In Thousands)

Share-Based Compensation Expense	$	416	$	424	$	1,283	$	998
Related Tax Benefits	$	175	$	178	$	540	$	420

Unrecognized Share-Based Compensation Expense

At September 30, 2007, unrecognized share-based compensation expense was as follows:


	Unrecognized		Average
	Share-Based		Expected
	Compensation		Recognition
	Expense		Period
	(Dollars in Thousands)
Stock Option Awards:
2007 Equity Compensation Plan	$	4,323	3.1 years
2004 CEO Stock Option Plan		889	3.3 years
Restricted Stock Awards		514	1.4 years


Total Unrecognized Share-Based Compensation Expense	$	5,726	3.0 years

Share-Based Payment Award Activity — 2007 Equity Compensation Plan

The table below provides stock option information related to the 2007 Equity Compensation Plan for the three months ended September 30, 2007:


				Weighted-		Weighted-	Aggregate
				Average		Average	Intrinsic
	Number			Exercise		Remaining	Value of
	of			Price Per		Contractual	In-the-Money
	Shares			Share		Life	Options
	(Dollars in Thousands, Except Per Share Data)

Options Outstanding at Beginning of Period		1,497,478		$	15.44	7.5 years	$	4,094	⁽¹⁾

Options Granted		72,000		$	16.06	9.9 years
Options Exercised		(37,512	)	$	12.19	4.7 years
Options Expired		(14,000	)	$	17.03	8.0 years
Options Forfeited		(33,200	)	$	17.76	8.2 years


Options Outstanding at End of Period		1,484,766		$	15.49	7.4 years	$	2,937	⁽²⁾

Options Exercisable at End of Period		560,434		$	11.42	5.6 years	$	2,627	⁽²⁾


⁽¹⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $17.06 as of June 29, 2007, over the exercise price, multiplied by the number of options.

⁽²⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $15.49 as of September 28, 2007, over the exercise price, multiplied by the number of options.

The total intrinsic value of options exercised during the three months ended September 30, 2007 and 2006 was $153,000 and $859,000, respectively.

6

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 2 — SHARE-BASED COMPENSATION (Continued)

The table below provides stock option information related to the 2007 Equity Compensation Plan for the nine months ended September 30, 2007:


				Weighted-		Weighted-	Aggregate
				Average		Average	Intrinsic
	Number			Exercise		Remaining	Value of
	of			Price Per		Contractual	In-the-Money
	Shares			Share		Life	Options
	(Dollars in Thousands, Except Per Share Data)

Options Outstanding at Beginning of Period		1,755,813		$	15.31	8.0 years	$	12,678	⁽¹⁾
Options Granted		102,667		$	16.64	9.1 years
Options Exercised		(130,647	)	$	8.76	4.4 years
Options Expired		(14,000	)	$	17.03	8.0 years
Options Forfeited		(229,067	)	$	18.38	8.3 years


Options Outstanding at End of Period		1,484,766		$	15.49	7.4 years	$	2,937	⁽²⁾


Options Exercisable at End of Period		560,434		$	11.42	5.6 years	$	2,627	⁽²⁾


⁽¹⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $22.53 as of December 29, 2006, over the exercise price, multiplied by the number of options.

⁽²⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $15.49 as of September 28, 2007, over the exercise price, multiplied by the number of options.

The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $1.2 million and $2.3 million, respectively.

Share-Based Payment Award Activity — 2004 CEO Stock Option Plan

The table below provides stock option information related to the 2004 CEO Stock Option Plan for the three months ended September 30, 2007:

Aggregate

Intrinsic

Number

Exercise

Remaining

Value of

of

Price Per

Contractual

In-the-Money

Shares

Share

Life

Options

(Dollars in Thousands, Except Per Share Data)

Options Outstanding at Beginning of Period

350,000

$

17.17

7.4 years

$

—

⁽¹⁾

Options Outstanding at End of Period

350,000

$

17.17

7.3 years

$

—

⁽²⁾

Options Exercisable at End of Period

116,666

$

17.17

7.3 years

$

—

⁽²⁾


⁽²⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $17.06 as of June 29, 2007, over the exercise price, multiplied by the number of options.

⁽¹⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $15.49 as of September 28, 2007, over the exercise price, multiplied by the number of options.

7

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 2 — SHARE-BASED COMPENSATION (Continued)

The table below provides stock option information related to the 2004 CEO Stock Option Plan for the nine months ended September 30, 2007:

Aggregate

Intrinsic

Number

Exercise

Remaining

Value of

of

Price Per

Contractual

In-the-Money

Shares

Share

Life

Options

(Dollars in Thousands, Except Per Share Data)

Options Outstanding at Beginning of Period

350,000

$

17.17

7.9 years

$

1,878

⁽¹⁾

Options Outstanding at End of Period

350,000

$

17.17

7.3 years

$

—

⁽²⁾

Options Exercisable at End of Period

116,666

$

17.17

7.3 years

$

—

⁽²⁾


⁽¹⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $22.53 as of December 29, 2006, over the exercise price, multiplied by the number of options.

⁽²⁾		Intrinsic value represents the excess of the closing stock price on the last trading day of the period, which was $15.49 as of September 28, 2007, over the exercise price, multiplied by the number of options.

Share-Based Payment Award Activity — Restricted Stock Awards

The table below provides information related to restricted stock awards for the three and nine months ended September 30, 2007:


	Three Months Ended				Nine Months Ended
	September 30, 2007				September 30, 2007
	Number		Grant Date		Number			Grant Date
	of		Fair Value		of			Fair Value
	Shares		Per Share		Shares			Per Share

Non-Vested at Beginning of Period		40,000	$	18.15		60,000		$	18.15

Vested		—	$	18.15		(20,000	)	$	18.15


Non-Vested at End of Period		40,000	$	18.15		40,000		$	18.15

NOTE 3 — EARNINGS PER SHARE

Earnings per share (“EPS”) is calculated on both a basic and a diluted basis. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from the issuance of common stock that then shared in earnings, excluding common shares in treasury.

Unvested restricted stock is excluded from the calculation of weighted-average common shares for basic EPS. For diluted EPS, weighted-average common shares include the impact of restricted stock under the treasury method.

8

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 3 — EARNINGS PER SHARE (Continued)

The following table presents a reconciliation of the components used to derive basic and diluted EPS for the periods indicated.


	2007							2006
			Weighted-							Weighted-
			Average		Per					Average		Per
	Income		Shares		Share			Income		Shares		Share
	(Numerator)		(Denominator)		Amount			(Numerator)		(Denominator)		Amount
			(Dollars in Thousands, Except Per Share Data)

Three Months Ended September 30:
Basic EPS — Income Available to Common Shareholders	$	11,088		47,355,143	$	0.23		$	17,597		48,890,662	$	0.36
Effect of Dilutive Securities — Options and Warrants		—		180,935		—			—		559,939		—

Diluted EPS — Income Available to Common Shareholders	$	11,088		47,536,078	$	0.23		$	17,597		49,450,601	$	0.36


Nine Months Ended September 30:
Basic EPS — Income Available to Common Shareholders	$	39,466		48,232,464	$	0.82		$	48,339		48,809,921	$	0.99
Effect of Dilutive Securities — Options and Warrants		—		337,399		(0.01	)		—		585,231		(0.01	)

Diluted EPS — Income Available to Common Shareholders	$	39,466		48,569,863	$	0.81		$	48,339		49,395,152	$	0.98

For the three months ended September 30, 2007 and 2006, there were 1,275,354 and 1,103,554 options outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive. For the nine months ended September 30, 2007 and 2006, there were 1,275,354 and 1,103,554 options outstanding, respectively, that were not included in the computation of diluted EPS because their effect would be anti-dilutive.

NOTE 4 — INCOME TAXES

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN No. 48”). This Statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN No. 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements.

We adopted the provisions of FIN No. 48 effective as of January 1, 2007 and there was no significant impact on our financial condition or results of operations.

At September 30, 2007 and December 31, 2006, net current taxes receivable of $3.3 million and net current taxes payable of $1.0 million, respectively, were included in Other Assets and Other Liabilities in the Consolidated Statements of Financial Condition.

NOTE 5 — SHAREHOLDERS’ EQUITY

Stock Warrants

In 2004, we issued 508,558 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 may purchase shares of common stock at an exercise price of $9.50 per share. The warrants were immediately exercisable and expire after five years.

9

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 5 — SHAREHOLDERS’ EQUITY (Continued)

During the three months ended September 30, 2007 and 2006, 2,000 and 0 shares of common stock, respectively, were issued in connection with the exercise of stock warrants. During the nine months ended September 30, 2007 and 2006, 2,000 and 115,392 shares of common stock, respectively, were issued in connection with the exercise of stock warrants.

On June 1, 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 September 30, 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 three months ended September 30, 2007, 1,004,100 shares of our common stock were repurchased on the open market for an aggregate purchase price of $15.0 million. During the nine months ended September 30, 2007, 2,325,100 shares of our common stock were repurchased on the open market for an aggregate purchase price of $38.9 million. Repurchased shares are held in treasury pending use for general corporate purposes, including issuances under our stock option plans.

NOTE 6 — 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 Statements of Financial Condition. 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.

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:


	September 30,		December 31,
	2007		2006
	(In Thousands)

Commitments to Extend Credit	$	551,009	$	578,347
Commercial Letters of Credit		50,583		65,158
Standby Letters of Credit		46,559		48,289
Unused Credit Card Lines		19,427		17,031


Total Undisbursed Loan Commitments	$	667,578	$	708,825

10

HANMI FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 (Continued)

NOTE 7 — 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.

11

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and nine months ended September 30, 2007. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006 and with the unaudited consolidated financial statements and notes thereto set forth in this Report.

FORWARD-LOOKING STATEMENTS

Some of the statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q 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. 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, including risks and uncertainties relating to changes in interest rates, credit quality, governmental regulation, ability to integrate acquisitions we may make, natural disasters, increased competition in our market areas and changes in economic conditions in California, nationally and internationally. For a discussion of some of the factors that might cause such a difference, 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” in our Annual Report on Form 10-K for the year ended December 31, 2006. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, except as required by law.

CRITICAL ACCOUNTING POLICIES

We have established various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in the “Notes to Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2006. Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2006. 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.

12

SELECTED FINANCIAL DATA

The following tables set forth certain selected financial data for the periods indicated.


	As of and for the
	Three Months Ended
	September 30,
	2007			2006
	(Dollars in Thousands, Except Per Share Data)
AVERAGE BALANCES:
Average Gross Loans, Net ⁽¹⁾	$	3,135,531		$	2,828,972
Average Investment Securities	$	360,626		$	401,039
Average Interest-Earning Assets	$	3,526,493		$	3,287,581
Average Total Assets	$	3,915,517		$	3,675,091
Average Deposits	$	3,016,118		$	2,927,956
Average Borrowings	$	367,605		$	241,404
Average Interest-Bearing Liabilities	$	2,683,930		$	2,427,883
Average Shareholders’ Equity	$	487,006		$	463,011
Average Tangible Equity ⁽²⁾	$	269,255		$	248,147

PER SHARE DATA:
Earnings Per Share — Basic	$	0.23		$	0.36
Earnings Per Share — Diluted	$	0.23		$	0.36
Common Shares Outstanding at End of Period		46,986,341			48,991,146
Book Value Per Share ⁽³⁾	$	10.28		$	9.61
Tangible Book Value Per Share ⁽⁴⁾	$	5.65		$	5.23
Cash Dividends Per Share	$	0.06		$	0.06

SELECTED PERFORMANCE RATIOS:
Return on Average Assets ^{(5) (6)}		1.12	%		1.90	%
Return on Average Shareholders’ Equity ^{(5) (7)}		9.03	%		15.08	%
Return on Average Tangible Equity ^{(5) (8)}		16.34	%		28.13	%
Net Interest Spread ⁽⁹⁾		3.08	%		3.56	%
Net Interest Margin ⁽¹⁰⁾		4.26	%		4.79	%
Efficiency Ratio ⁽¹¹⁾		44.85	%		40.61	%
Dividend Payout Ratio ⁽¹²⁾		25.43	%		16.70	%
Average Shareholders’ Equity to Average Total Assets		12.44	%		12.60	%

SELECTED CAPITAL RATIOS: ⁽¹³⁾
Total Risk-Based Capital Ratio:
Hanmi Financial Corporation		10.86	%		12.02	%
Hanmi Bank		10.74	%		12.00	%
Tier 1 Risk-Based Capital Ratio:
Hanmi Financial Corporation		9.83	%		11.03	%
Hanmi Bank		9.70	%		11.01	%
Tier 1 Leverage Ratio:
Hanmi Financial Corporation		9.32	%		9.78	%
Hanmi Bank		9.20	%		9.76	%

SELECTED ASSET QUALITY RATIOS:
Non-Performing Loans to Total Gross Loans ⁽¹⁴⁾		1.39	%		0.47	%
Non-Performing Assets to Total Assets ⁽¹⁵⁾		1.12	%		0.36	%
Net Loan Charge-Offs to Average Total Gross Loans ⁽¹⁶⁾		0.77	%		0.09	%
Allowance for Loan Losses to Total Gross Loans		1.07	%		0.99	%
Allowance for Loan Losses to Non-Performing Loans		77.19	%		209.82	%


⁽¹⁾		Loans are net of deferred fees and related direct costs.

⁽²⁾		Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity. See “Non-GAAP Financial Measures.”

⁽³⁾		Total shareholders’ equity divided by common shares outstanding.

⁽⁴⁾		Tangible equity divided by common shares outstanding. See “Non-GAAP Financial Measures.”

⁽⁵⁾		Calculation based upon annualized net income.

⁽⁶⁾		Net income divided by average total assets.

⁽⁷⁾		Net income divided by average shareholders’ equity.

⁽⁸⁾		Net income divided by average tangible equity. See “Non-GAAP Financial Measures.”

⁽⁹⁾		Average yield earned on interest-earning assets less average rate paid on interest-bearing liabilities.

⁽¹⁰⁾		Net interest income before provision for credit losses divided by average interest-earning assets.

⁽¹¹⁾		Total non-interest expenses divided by the sum of net interest income before provision for credit losses and total non-interest income.

⁽¹²⁾		Cash dividends per share times common shares outstanding divided by net income.

⁽¹³⁾		The required ratios for a “well-capitalized” institution, as defined by regulations of the Board of Governors of the Federal Reserve System, are 10 percent for Total Risk-Based Capital Ratio (total capital divided by total risk-weighted assets); 6 percent for Tier 1 Risk-Based Capital Ratio (Tier 1 capital divided by total risk-weighted assets); and 5 percent for Tier 1 Leverage Ratio (Tier 1 capital divided by average total assets).

⁽¹⁴⁾		Non-performing loans consist of non-accrual loans, loans past due 90 days or more and restructured loans.

⁽¹⁵⁾		Non-performing assets consist of non-performing loans (see footnote (14) above) and other real estate owned.

⁽¹⁶⁾		Calculation based upon annualized net loan charge-offs.

13


	As of and for the
	Nine Months Ended
	September 30,
	2007			2006
	(Dollars in Thousands, Except Per Share Data)
AVERAGE BALANCES:
Average Gross Loans, Net ⁽¹⁾	$	3,011,946		$	2,702,902
Average Investment Securities	$	374,209		$	421,195
Average Interest-Earning Assets	$	3,435,932		$	3,169,215
Average Total Assets	$	3,825,784		$	3,557,227
Average Deposits	$	2,976,676		$	2,857,260
Average Borrowings	$	308,406		$	209,770
Average Interest-Bearing Liabilities	$	2,575,061		$	2,329,135
Average Shareholders’ Equity	$	494,731		$	450,069
Average Tangible Equity ⁽²⁾	$	276,627		$	233,671

PER SHARE DATA:
Earnings Per Share — Basic	$	0.82		$	0.99
Earnings Per Share — Diluted	$	0.81		$	0.98
Cash Dividends Per Share	$	0.18		$	0.18

SELECTED PERFORMANCE RATIOS:
Return on Average Assets ^{(3) (4)}		1.38	%		1.82	%
Return on Average Shareholders’ Equity ^{(3) (5)}		10.67	%		14.36	%
Return on Average Tangible Equity ^{(3) (6)}		19.07	%		27.66	%
Net Interest Spread ⁽⁷⁾		3.22	%		3.69	%
Net Interest Margin ⁽⁸⁾		4.46	%		4.85	%
Efficiency Ratio ⁽⁹⁾		44.02	%		40.75	%
Dividend Payout Ratio ⁽¹⁰⁾		21.43	%		18.24	%
Average Shareholders’ Equity to Average Total Assets		12.93	%		12.65	%


⁽¹⁾		Loans are net of deferred fees and related direct costs.

⁽²⁾		Average tangible equity is calculated by subtracting average goodwill and average core deposit intangible assets from average shareholders’ equity. See “Non-GAAP Financial Measures.”

⁽³⁾		Calculation based upon annualized net income.

⁽⁴⁾		Net income divided by average total assets.

⁽⁵⁾		Net income divided by average shareholders’ equity.

⁽⁶⁾		Net income divided by average tangible equity. See “Non-GAAP Financial Measures.”

⁽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 divided by the sum of net interest income before provision for credit losses and total non-interest income.

⁽¹⁰⁾		Cash dividends per share times common shares outstanding divided by net income.

14

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 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 shareholders’ equity. Banking and financial institution regulators also exclude goodwill and other intangible assets from shareholders’ 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 substitute 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 the GAAP performance measure to this non-GAAP performance measure for the periods indicated:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
				(Dollars in Thousands)

Average Shareholders’ Equity	$	487,006		$	463,011		$	494,731		$	450,069
Less Average Goodwill and Average Other Intangible Assets		(217,751	)		(214,864	)		(218,104	)		(216,398	)


Average Tangible Equity	$	269,255		$	248,147		$	276,627		$	233,671


Return on Average Shareholders’ Equity		9.03	%		15.08	%		10.67	%		14.36	%
Effect of Average Goodwill and Average Other Intangible Assets		7.31	%		13.05	%		8.40	%		13.30	%


Return on Average Tangible Equity		16.34	%		28.13	%		19.07	%		27.66	%

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 shareholders’ 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 substitute 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 the GAAP performance measure to this non-GAAP performance measure as of the dates indicated:


	September 30,
	2007			2006
	(Dollars in Thousands; Except
	Per Share Data)

Total Shareholders’ Equity	$	482,909		$	470,705
Less Goodwill and Other Intangible Assets		(217,448	)		(214,522	)


Tangible Equity	$	265,461		$	256,183


Book Value Per Share	$	10.28		$	9.61
Effect of Goodwill and Other Intangible Assets		(4.63	)		(4.38	)


Tangible Book Value Per Share	$	5.65		$	5.23

15

RESULTS OF OPERATIONS

Overview

Three Months Ended September 30, 2007 vs. 2006

For the three months ended September 30, 2007, net income was $11.1 million, or $0.23 per diluted share, compared to $17.6 million, or $0.36 per diluted share, for the three months ended September 30, 2006. The 37.0 percent decrease in net income for 2007 as compared to 2006 was attributable to increases in the provision for credit losses and non-interest expenses and a decrease in net interest income, partially offset by an increase in non-interest income.

Effective January 2, 2007, we completed the acquisitions of Chun-Ha Insurance Services, Inc. and All World Insurance Services, Inc. (collectively, “Chun-Ha”). The acquisitions were accounted for as purchases, so the operating results of Chun-Ha are included from the acquisition date.

Net interest income decreased because of a decline in the net interest margin due to a more competitive loan pricing environment and a higher cost of funds, reflecting trends in the second half of 2006, when customers placed their funds in certificates of deposit instead of core deposits, and certificates of deposit continued to reprice. The composition of the deposits portfolio and interest rates paid on deposits have remained relatively stable in 2007. However, compared to the third quarter of 2006, the deposits portfolio in the third quarter of 2007 included a larger percentage of time deposits, bearing interest at higher rates. Therefore, the cost of funds increased more than the increase in the yield on interest-earning assets. The net interest margin was 4.26 percent for the three months ended September 30, 2007, compared to 4.79 percent for the same period in 2006. The effect of the decrease in the net interest margin was partially offset by an increase in average interest-earning assets, which increased $238.9 million, or 7.3 percent, due to ongoing growth in the loan portfolio.

Our results of operations are significantly affected by the provision for credit losses. The provision for credit losses was $8.5 million and $1.7 million for the three months ended September 30, 2007 and 2006, respectively. The increase in the provision for credit losses was primarily attributable to the migration of loans into more adverse risk rating categories, including a group of six related business acquisition loans amounting to $3.6 million, some of which have become the subject of litigation. The higher provision for credit losses also reflects increases in non-performing and delinquent loans.

For the three months ended September 30, 2007, non-interest income increased by $354,000, or 3.9 percent, compared to the three months ended September 30, 2006 due primarily to the acquisition of Chun-Ha, which increased insurance commissions by $916,000, and a $226,000 gain on sale of other real estate owned, partially offset by a lower gain on sales of loans.

Non-interest expenses increased by $1.4 million, or 7.0 percent, due to non-interest expenses of $878,000 attributable to Chun-Ha and $428,000 attributable to the opening of branches in Fullerton, California and Rancho Cucamonga, California during 2007. The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for credit losses and non-interest income) was 44.85 percent for the three months ended September 30, 2007, compared to 40.61 percent for the same quarter in 2006. Of the 4.24 percent increase, 1.01 percent was attributable to the acquisition of Chun-Ha and 1.04 percent was attributable to the new branches.

The annualized return on average assets was 1.12 percent for the three months ended September 30, 2007, compared to 1.90 percent for the same period in 2006. The annualized return on average shareholders’ equity was 9.03 percent for the three months ended September 30, 2007, and the annualized return on average tangible equity was 16.34 percent, compared to 15.08 percent and 28.13 percent, respectively, for the same period in 2006.

Nine Months Ended September 30, 2007 vs. 2006

For the nine months ended September 30, 2007, net income was $39.5 million, or $0.82 per diluted share, compared to $48.3 million, or $0.98 per diluted share, for the nine months ended September 30, 2006. The 18.4 percent decrease in net income for 2007 as compared to 2006 was attributable to increases in the provision for credit losses and non-interest expenses and a decrease in net interest income, offset by an increase in non-interest income.

16

Net interest income increased slightly because average interest-earning assets increased $266.7 million, or 8.4 percent, due to ongoing growth in the loan portfolio. The effect of the growth in average interest-earning assets was partially offset by a decline in the net interest margin due to a more competitive loan pricing environment and a higher cost of funds as customers placed their funds in certificates of deposit instead of core deposits, and certificates of deposit continued to reprice throughout 2007. Therefore, although the composition of the deposits portfolio and interest rates paid on deposits have remained relatively stable in 2007, the cost of funds increased more than the increase in the yield on interest-earning assets compared to the nine months ended September 30, 2006. The net interest margin was 4.46 percent for the nine months ended September 30, 2007, compared to 4.85 percent for the same period in 2006.

Our results of operations are significantly affected by the provision for credit losses. The provision for credit losses was $17.6 million and $5.5 million for the nine months ended September 30, 2007 and 2006, respectively. The increase in the provision for credit losses was primarily attributable to the migration of loans into more adverse risk rating categories. The higher provision for credit losses also reflects increases in non-performing and delinquent loans.

For the nine months ended September 30, 2007, non-interest income increased by $4.3 million, or 16.7 percent, compared to the nine months ended September 30, 2006 due primarily to the acquisition of Chun-Ha, which increased insurance commissions by $3.0 million, and increases in service charges on deposit accounts and other income.

Non-interest expenses increased by $6.3 million, or 11.0 percent, due to increases in salaries and employee benefits, occupancy and equipment, and other operating expenses, as well as non-interest expenses of $2.6 million attributable to Chun-Ha and $854,000 attributable to the two new branches that opened during 2007. The efficiency ratio (non-interest expenses divided by the sum of net interest income before provision for credit losses and non-interest income) was 44.02 percent for the nine months ended September 30, 2007, compared to 40.75 percent for the same quarter in 2006. Of the 3.27 percent increase, 0.91 percent was attributable to the acquisition of Chun-Ha and 0.69 percent was attributable to the new branches.

The annualized return on average assets was 1.38 percent for the nine months ended September 30, 2007, compared to 1.82 percent for the same period in 2006. The annualized return on average shareholders’ equity was 10.67 percent for the nine months ended September 30, 2007, and the annualized return on average tangible equity was 19.07 percent, compared to 14.36 percent and 27.66 percent, respectively, for the same period in 2006.

Net Interest Income Before Provision for Credit Losses

Our earnings depend largely upon the difference between the interest income received from the loan portfolio and other interest-earning assets and the interest paid on deposits and borrowings. The difference is “net interest income.” 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 changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on 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 economic policies, the general supply of money in the economy, income tax policies, governmental budgetary matters and the actions of the Board of Governors of the Federal Reserve System and the Federal Open Market Committee.

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Three Months Ended September 30, 2007 vs. 2006

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


	Three Months Ended
	September 30, 2007								September 30, 2006
				Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars in Thousands)
ASSETS
Interest-Earning Assets:
Gross Loans, Net ⁽¹⁾	$	3,135,531		$	66,714		8.44	%	$	2,828,972		$	63,392		8.89	%
Municipal Securities ⁽²⁾		70,984			764		4.31	%		71,301			770		4.32	%
Obligations of Other U.S. Government Agencies		119,704			1,286		4.30	%		118,365			1,268		4.29	%
Other Debt Securities		169,938			2,022		4.76	%		211,373			2,456		4.65	%
Equity Securities		25,431			350		5.51	%		24,720			342		5.53	%
Federal Funds Sold		4,905			61		4.97	%		32,850			436		5.31	%


Total Interest-Earning Assets		3,526,493			71,197		8.01	%		3,287,581			68,664		8.29	%


Noninterest-Earning Assets:
Cash and Cash Equivalents		94,034								93,300
Allowance for Loan Losses		(31,535	)							(27,417	)
Other Assets		326,525								321,627


Total Noninterest-Earning Assets		389,024								387,510


Total Assets	$	3,915,517							$	3,675,091

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Deposits:
Savings	$	95,147			567		2.36	%	$	102,518			440		1.70	%
Money Market Checking and NOW Accounts		471,756			4,164		3.50	%		441,880			3,512		3.15	%
Time Deposits of $100,000 or More		1,438,711			19,263		5.31	%		1,358,908			17,881		5.22	%
Other Time Deposits		310,711			3,888		4.96	%		283,173			3,345		4.69	%
FHLB Advances and Other Borrowings		285,199			3,785		5.27	%		158,998			2,084		5.20	%
Junior Subordinated Debentures		82,406			1,675		8.06	%		82,406			1,672		8.05	%


Total Interest-Bearing Liabilities		2,683,930			33,342		4.93	%		2,427,883			28,934		4.73	%


Noninterest-Bearing Liabilities:
Demand Deposits		699,793								741,477
Other Liabilities		44,788								42,720


Total Noninterest-Bearing Liabilities		744,581								784,197

Total Liabilities		3,428,511								3,212,080
Shareholders’ Equity		487,006								463,011

Total Liabilities and Shareholders’ Equity	$	3,915,517							$	3,675,091

Net Interest Income				$	37,855							$	39,730

Net Interest Spread ⁽³⁾							3.08	%							3.56	%

Net Interest Margin ⁽⁴⁾							4.26	%							4.79	%


⁽¹⁾		Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the calculation of interest income. Loan fees were $580,000 and $1.4 million for the three months ended September 30, 2007 and 2006, respectively.

⁽²⁾		If computed on a tax-equivalent basis using an effective marginal rate of 35 percent, tax-exempt income would be $1.2 million and $1.2 million, and the yields would be 6.62 percent and 6.65 percent, for the three months ended September 30, 2007 and 2006, respectively.

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

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

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The table below show changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.


	Three Months Ended
	September 30, 2007 vs. 2006
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(In Thousands)

Interest Income:
Gross Loans, Net	$	6,632		$	(3,310	)	$	3,322
Municipal Securities		(3	)		(3	)		(6	)
Obligations of Other U.S. Government Agencies		14			4			18
Other Debt Securities		(492	)		58			(434	)
Equity Securities		10			(2	)		8
Federal Funds Sold		(350	)		(25	)		(375	)


Total Interest Income		5,811			(3,278	)		2,533


Interest Expense:
Savings		(34	)		161			127
Money Market Checking and NOW Accounts		246			406			652
Time Deposits of $100,000 or More		1,064			318			1,382
Other Time Deposits		336			207			543
FHLB Advances and Other Borrowings		1,675			26			1,701
Junior Subordinated Debentures		—			3			3


Total Interest Expense		3,287			1,121			4,408


Change in Net Interest Income	$	2,524		$	(4,399	)	$	(1,875	)

For the three months ended September 30, 2007 and 2006, net interest income before provision for credit losses was $37.9 million and $39.7 million, respectively. The net interest spread and net interest margin for the three months ended September 30, 2007 were 3.08 percent and 4.26 percent, respectively, compared to 3.56 percent and 4.79 percent, respectively, for the three months ended September 30, 2006.

Average interest-earning assets increased 7.3 percent to $3.53 billion for the three months ended September 30, 2007 from $3.29 billion for the same period in 2006. Average gross loans increased 10.8 percent to $3.14 billion for the three months ended September 30, 2007 from $2.83 billion for the same period in 2006, and average investment securities decreased 10.1 percent to $360.6 million for the three months ended September 30, 2007 from $401.0 million for the same period in 2006. Total loan interest and fee income increased by 5.2 percent for the three months ended September 30, 2007 due to the increase in average gross loans outstanding, partially offset by a decrease in the average yield on loans from 8.89 percent for the three months ended September 30, 2006 to 8.44 percent for the same period in 2007.

During this period, the average Wall Street Journal Prime Rate (the “Prime Rate”) declined seven basis points from 8.25 percent for the three months ended September 30, 2006 to 8.18 percent for the same period in 2007. Due to competitive pressures, the average spread over the Prime Rate for new loans and renewals of existing loans decreased. The decrease in the spread also reflects a shift in the mix of the loan portfolio into fixed-rate loans, which generally carry lower interest rates, reflecting the yield curve in effect during the third quarter. The yield on average interest-earning assets decreased by 28 basis points from 8.29 percent for the three months ended September 30, 2006 to 8.01 percent for the same period in 2007, reflecting the decrease in the average yield on loans previously discussed and a shift in the mix of average interest-earning assets from 86.1 percent loans, 12.2 percent securities and 1.7 percent other interest-earning assets for the three months ended September 30, 2006 to 88.9 percent loans, 10.2 percent securities and 0.9 percent other interest-earning assets for the same period in 2007.

The majority of the interest-earning assets growth was funded by an increase of $126.2 million, or 52.3 percent, in average borrowings and an increase of $88.2 million, or 3.0 percent, in average total deposits. Total average interest-bearing liabilities grew by 10.5 percent to $2.68 billion for the three months ended September 30, 2007 compared to $2.43 billion for the same period in 2006. The average interest rate paid for interest-bearing liabilities increased by 20 basis points from 4.73 percent for the three months ended September 30, 2006 to 4.93 percent for the three months ended September 30, 2007. This increase was primarily due to a higher cost of deposits, reflecting trends in the second half of 2006, when customers placed their funds in higher yielding certificates of deposit instead

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of core deposits, and certificates of deposit continued to reprice. The composition of the deposits portfolio and interest rates paid on deposits have remained relatively stable in 2007. However, compared to the third quarter of 2006, the deposits portfolio in the third quarter of 2007 included a larger percentage of time deposits, bearing interest at higher rates.

Nine Months Ended September 30, 2007 vs. 2006

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


	Nine Months Ended
	September 30, 2007								September 30, 2006
				Interest		Average						Interest		Average
	Average			Income/		Yield/			Average			Income/		Yield/
	Balance			Expense		Rate			Balance			Expense		Rate
	(Dollars in Thousands)

ASSETS
Interest-Earning Assets:
Gross Loans, Net ⁽¹⁾	$	3,011,946		$	194,487		8.63	%	$	2,702,902		$	175,409		8.68	%
Municipal Securities ⁽²⁾		71,883			2,290		4.25	%		72,702			2,321		4.26	%
Obligations of Other U.S. Government Agencies		118,894			3,775		4.23	%		123,986			3,887		4.18	%
Other Debt Securities		183,432			6,438		4.68	%		224,507			7,742		4.60	%
Equity Securities		25,244			1,055		5.57	%		24,619			997		5.40	%
Federal Funds Sold		24,405			963		5.26	%		20,457			748		4.88	%
Term Federal Funds Sold		128			5		5.21	%		—			—		—
Interest-Earning Deposits		—			—		—			42			1		3.17	%


Total Interest-Earning Assets		3,435,932			209,013		8.13	%		3,169,215			191,105		8.06	%


Noninterest-Earning Assets:
Cash and Cash Equivalents		92,260								94,221
Allowance for Loan Losses		(29,905	)							(26,361	)
Other Assets		327,497								320,152


Total Noninterest-Earning Assets		389,852								388,012


Total Assets	$	3,825,784							$	3,557,227

LIABILITIES AND
SHAREHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Deposits:
Savings	$	98,440			1,530		2.08	%	$	110,817			1,402		1.69	%
Money Market Checking and NOW Accounts		444,173			11,302		3.40	%		481,564			10,864		3.02	%
Time Deposits of $100,000 or More		1,418,825			56,539		5.33	%		1,250,467			45,534		4.87	%
Other Time Deposits		305,217			11,283		4.94	%		276,517			8,890		4.30	%
FHLB Advances and Other Borrowings		226,000			8,875		5.25	%		127,364			4,699		4.93	%
Junior Subordinated Debentures		82,406			4,974		8.07	%		82,406			4,734		7.68	%

Total Interest-Bearing Liabilities		2,575,061			94,503		4.91	%		2,329,135			76,123		4.37	%

Noninterest-Bearing Liabilities:
Demand Deposits		710,021								737,895
Other Liabilities		45,971								40,128

Total Noninterest-Bearing Liabilities		755,992								778,023


Total Liabilities		3,331,053								3,107,158
Shareholders’ Equity		494,731								450,069

Total Liabilities and Shareholders’ Equity	$	3,825,784							$	3,557,227

Net Interest Income				$	114,510							$	114,982

Net Interest Spread ⁽³⁾							3.22	%							3.69	%

Net Interest Margin ⁽⁴⁾							4.46	%							4.85	%


⁽¹⁾		Loans are net of deferred fees and related direct costs, but excluding the allowance for loan losses. Non-accrual loans are included in the average loan balance. Loan fees have been included in the calculation of interest income. Loan fees were $2.4 million and $4.0 million for the nine months ended September 30, 2007 and 2006, respectively.

⁽²⁾		If computed on a tax-equivalent basis using an effective marginal rate of 35 percent, tax-exempt income would be $3.5 million and $3.6 million, and the yields would be 6.53 percent and 6.55 percent, for the nine months ended September 30, 2007 and 2006, respectively.

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

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

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The table below shows changes in interest income and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.


	Nine Months Ended
	September 30, 2007 vs. 2006
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(In Thousands)
Interest Income:
Gross Loans, Net	$	19,961		$	(883	)	$	19,078
Municipal Securities		(26	)		(5	)		(31	)
Obligations of Other U.S. Government Agencies		(160	)		48			(112	)
Other Debt Securities		(1,433	)		129			(1,304	)
Equity Securities		25			33			58
Federal Funds Sold		151			64			215
Term Federal Funds Sold		5			—			5
Interest-Earning Deposits		(1	)		—			(1	)


Total Interest Income		18,522			(614	)		17,908


Interest Expense:
Savings		(169	)		297			128
Money Market Checking and NOW Accounts		(885	)		1,323			438
Time Deposits of $100,000 or More		6,471			4,534			11,005
Other Time Deposits		979			1,414			2,393
FHLB Advances and Other Borrowings		3,855			321			4,176
Junior Subordinated Debentures		—			240			240


Total Interest Expense		10,251			8,129			18,380


Change in Net Interest Income	$	8,271		$	(8,743	)	$	(472	)

For the nine months ended September 30, 2007 and 2006, net interest income before provision for credit losses was $114.5 million and $115.0 million, respectively. The net interest spread and net interest margin for the nine months ended September 30, 2007 were 3.22 percent and 4.46 percent, respectively, compared to 3.69 percent and 4.85 percent, respectively, for the nine months ended September 30, 2006.

Average interest-earning assets increased 8.4 percent to $3.44 billion for the nine months ended September 30, 2007 from $3.17 billion for the same period in 2006. Average gross loans increased 11.4 percent to $3.01 billion for the nine months ended September 30, 2007 from $2.70 billion for the same period in 2006, and average investment securities decreased 11.2 percent to $374.2 million for the nine months ended September 30, 2007 from $421.2 million for the same period in 2006. Total loan interest and fee income increased by 10.9 percent for the nine months ended September 30, 2007 due to the increase in average gross loans outstanding, partially offset by a decrease in the average yield on loans from 8.68 percent for the nine months ended September 30, 2006 to 8.63 percent for the same period in 2007.

During this period, the average Prime Rate rose 37 basis points from 7.86 percent for the nine months ended September 30, 2006 to 8.23 percent for the same period in 2007. Due to competitive pressures, the average spread over the Prime Rate for new loans and renewals of existing loans decreased. The decrease in the spread also reflects a shift in the mix of the loan portfolio into fixed-rate loans, which generally carry lower interest rates. The yield on average interest-earning assets increased by seven basis points from 8.06 percent for the nine months ended September 30, 2006 to 8.13 percent for the nine months ended September 30, 2007, reflecting a shift in the mix of average interest-earning assets from 85.3 percent loans, 13.3 percent securities and 1.4 percent other interest-earning assets for the nine months ended September 30, 2006 to 87.7 percent loans, 10.9 percent securities and 1.4 percent other interest-earning assets for the same period in 2007, partially offset by the decrease in the average yield on loans previously discussed.

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The majority of the interest-earning assets growth was funded by an increase of $119.4 million, or 4.2 percent, increase in average total deposits and an increase of $98.6 million, or 47.0 percent, in average borrowings. Total average interest-bearing liabilities grew by 10.6 percent to $2.58 billion for the nine months ended September 30, 2007 compared to $2.33 billion for the same period in 2006. The average interest rate paid for interest-bearing liabilities increased by 54 basis points from 4.37 percent for the nine months ended September 30, 2006 to 4.91 percent for the nine months ended September 30, 2007.

Provision for Credit Losses

The provision for credit losses was $8.5 million and $1.7 million for the three months ended September 30, 2007 and 2006, respectively. Net charge-offs were $6.1 million and $656,000 for the three months ended September 30, 2007 and 2006, respectively. The provision for credit losses was $17.6 million and $5.5 million for the nine months ended September 30, 2007 and 2006, respectively. Net charge-offs were $11.0 million and $2.2 million for the nine months ended September 30, 2007 and 2006, respectively.

The increase in the provision for credit losses is attributable primarily to increased migration of loans into more adverse risk ratings. The increase in the provision for credit losses also parallels increases in non-performing loans, which increased from $14.2 million at December 31, 2006 to $44.7 million at September 30, 2007, and delinquent loans, which increased from $19.6 million at December 31, 2006 to $55.0 million at September 30, 2007. While the level of non-performing and delinquent loans are indicators of the credit quality of the portfolio, the provision for credit losses is determined primarily on the basis of loan classifications and the historical loss experience with similarly situated credits.

Non-Interest Income

Non-interest income is earned from four major sources: service charges on deposit accounts, insurance commissions, fees generated from international trade finance and gain on sales of loans. Non-interest income has become a significant part of revenue in the past several years.

Three Months Ended September 30, 2007 vs. 2006

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


	Three Months Ended
	September 30,				Increase (Decrease)
	2007		2006		Amount			Percentage
			(Dollars in Thousands)

Service Charges on Deposit Accounts	$	4,463	$	4,249	$	214			5.0	%
Insurance Commissions		1,131		250		881			352.4	%
Trade Finance Fees		1,082		1,227		(145	)		(11.8	%)
Remittance Fees		512		517		(5	)		(1.0	%)
Other Service Charges and Fees		691		591		100			16.9	%
Bank-Owned Life Insurance Income		234		221		13			5.9	%
Increase in Fair Value of Derivatives		207		389		(182	)		(46.8	%)
Other Income		457		328		129			39.3	%
Gain on Sales of Loans		523		1,400		(877	)		(62.6	%)
Gain on Sales of Other Real Estate Owned		226		—		226			—


Total Non-Interest Income	$	9,526	$	9,172	$	354			3.9	%

For the three months ended September 30, 2007, non-interest income was $9.5 million, an increase of 3.9 percent from $9.2 million for the three months ended September 30, 2006. The overall increase in non-interest income is primarily due to increases in insurance commissions and service charges on deposit accounts, partially offset by a lower gain on sales of loans.

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Service charges on deposit accounts increased by $214,000, or 5.0 percent, from $4.2 million for the three months ended September 30, 2006 to $4.5 million for the three months ended September 30, 2007. Service charge income on deposit accounts increased due to fee increases.

Insurance commissions increased by $881,000 from $250,000 for the three months ended September 30, 2006 to $1.1 million for the three months ended September 30, 2007. The increase was primarily due to the acquisition of Chun-Ha in the first quarter of 2007.

Gain on sales of loans was $523,000 for the three months ended September 30, 2007, compared to $1.4 million for the three months ended September 30, 2006, a decrease of 62.6 percent. The decrease in gain on sales of loans resulted primarily from lower sales volume in SBA loans and an increase in the cost to originate such loans. During the three months ended September 30, 2007, $16.9 million of SBA loans were sold at an average gain of 3.1 percent, compared to SBA loan sales of $29.9 million at an average gain of 4.6 percent for the three months ended September 30, 2006. The lower gain on sales of loans in 2007 reflects a greater use of brokers to refer loan applications, which results in a higher cost to originate such loans, compared to originations through our branch network. The guaranteed portion of a substantial percentage of SBA loan production is sold in the secondary markets, and servicing rights are retained.

Nine Months Ended September 30, 2007 vs. 2006

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


	Nine Months Ended
	September 30,				Increase (Decrease)
	2007		2006		Amount			Percentage
			(Dollars in Thousands)

Service Charges on Deposit Accounts	$	13,389	$	12,663	$	726			5.7	%
Insurance Commissions		3,535		646		2,889			447.2	%
Trade Finance Fees		3,549		3,414		135			4.0	%
Remittance Fees		1,503		1,537		(34	)		(2.2	%)
Other Service Charges and Fees		1,881		1,739		142			8.2	%
Bank-Owned Life Insurance Income		693		654		39			6.0	%
Increase in Fair Value of Derivatives		521		723		(202	)		(27.9	%)
Other Income		1,223		911		312			34.2	%
Gain on Sales of Loans		3,685		3,550		135			3.8	%
Gain on Sales of Other Real Estate Owned		226		48		178			370.8	%


Total Non-Interest Income	$	30,205	$	25,885	$	4,320			16.7	%

For the nine months ended September 30, 2007, non-interest income was $30.2 million, an increase of 16.7 percent from $25.9 million for the nine months ended September 30, 2006. The overall increase in non-interest income is primarily due to increases in insurance commissions and service charges on deposit accounts.

Service charges on deposit accounts increased by $726,000, or 5.7 percent, from $12.7 million for the nine months ended September 30, 2006 to $13.4 million for the nine months ended September 30, 2007. Service charge income on deposit accounts increased due to fee increases.

Insurance commissions increased by $2.9 million from $646,000 for the nine months ended September 30, 2006 to $3.5 million for the nine months ended September 30, 2007. The increase was primarily due to the acquisition of Chun-Ha in the first quarter of 2007.

Fees generated from international trade finance increased by 4.0 percent from $3.4 million for the nine months ended September 30, 2006 to $3.5 million for the nine months ended September 30, 2007. Trade finance fees relate primarily to import and export letters of credit. The increase is attributable primarily to increased export letter of credit volume and fee increases.

23

Gain on sales of loans was $3.7 million for the nine months ended September 30, 2007, compared to $3.6 million for the nine months ended September 30, 2006, an increase of 3.8 percent. The increase in gain on sales of loans resulted primarily from increased sales volume in SBA loans, offset by an increase in the cost to originate such loans. During the nine months ended September 30, 2007, $83.3 million of SBA loans were sold at an average gain of 4.4 percent, compared to SBA loan sales of $67.8 million at an average gain of 5.0 percent for the nine months ended September 30, 2006. The lower gain on sales of loans in 2007 reflects a greater use of brokers to refer loan applications, which results in a higher cost to originate such loans, compared to originations through our branch network.

Non-Interest Expenses

Three Months Ended September 30, 2007 vs. 2006

The following table sets forth the breakdown of non-interest expenses for the periods indicated:


	Three Months Ended
	September 30,				Increase (Decrease)
	2007		2006		Amount			Percentage
			(Dollars in Thousands)

Salaries and Employee Benefits	$	11,418	$	10,357	$	1,061			10.2	%
Occupancy and Equipment		2,657		2,482		175			7.1	%
Data Processing		1,540		1,431		109			7.6	%
Advertising and Promotion		943		665		278			41.8	%
Supplies and Communications		704		636		68			10.7	%
Professional Fees		565		390		175			44.9	%
Amortization of Other Intangible Assets		570		585		(15	)		(2.6	%)
Decrease in Fair Value of Embedded Options		37		78		(41	)		(52.6	%)
Other Operating Expenses		2,815		3,237		(422	)		(13.0	%)


Total Non-Interest Expenses	$	21,249	$	19,861	$	1,388			7.0	%

For the three months ended September 30, 2007, non-interest expenses were $21.2 million, representing an increase of $1.4 million, or 7.0 percent, compared to $19.9 million for the three months ended September 30, 2006. The increase in non-interest expenses is due primarily to non-interest expenses of $878,000 attributable to Chun-Ha and $428,000 attributable to the opening of branches in Fullerton, California and Rancho Cucamonga, California during 2007.

Salaries and employee benefits were $11.4 million for the three months ended September 30, 2007, representing an increase of $1.1 million, or 10.2 percent, compared to $10.4 million for the three months ended September 30, 2006. Salaries and employee benefits increased primarily due to the acquisition of Chun-Ha, annual salary increases and an increase in staffing.

Other operating expenses for the three months ended September 30, 2007 decreased $422,000, or 13.0 percent, to $2.8 million from $3.2 million for the three months ended September 30, 2006. The decrease is primarily attributable to the decreased deposit operations losses and write-downs of loan servicing assets during the three months ended September 30, 2006.

24

Nine Months Ended September 30, 2007 vs. 2006

The following table sets forth the breakdown of non-interest expenses for the periods indicated:


	Nine Months Ended
	September 30,				Increase (Decrease)
	2007		2006		Amount			Percentage
	(Dollars in Thousands)

Salaries and Employee Benefits	$	33,961	$	30,209	$	3,752			12.4	%
Occupancy and Equipment		7,740		7,122		618			8.7	%
Data Processing		4,768		4,314		454			10.5	%
Advertising and Promotion		2,493		2,122		371			17.5	%
Supplies and Communications		1,996		1,848		148			8.0	%
Professional Fees		1,686		1,550		136			8.8	%
Amortization of Other Intangible Assets		1,776		1,815		(39	)		(2.1	%)
Decrease in Fair Value of Embedded Options		233		292		(59	)		(20.2	%)
Other Operating Expenses		9,055		8,126		929			11.4	%


Total Non-Interest Expenses	$	63,708	$	57,398	$	6,310			11.0	%

For the nine months ended September 30, 2007, non-interest expenses were $63.7 million, representing an increase of $6.3 million, or 11.0 percent, compared to $57.4 million for the nine months ended September 30, 2006. The increase in non-interest expenses is primarily due to increases in salaries and employee benefits, occupancy and equipment, and other operating expenses, as well as non-interest expenses of $2.6 million attributable to Chun-Ha and $854,000 attributable to the two new branches that opened during 2007.

Salaries and employee benefits were $34.0 million for the nine months ended September 30, 2007, representing an increase of $3.8 million, or 12.4 percent, compared to $30.2 million for the nine months ended September 30, 2006. Salaries and employee benefits increased due primarily to the acquisition of Chun-Ha, annual salary increases and an increase in staffing.

Occupancy and equipment expense was $7.7 million for the nine months ended September 30, 2007, representing an increase of $618,000, or 8.7 percent, compared to $7.1 million for the nine months ended September 30, 2006. The increase was due primarily to additional office space leased from the acquisition of Chun-Ha and the new branches.

Other operating expenses for the nine months ended September 30, 2007 increased $929,000, or 11.4 percent, to $9.1 million from $8.1 million for the nine months ended September 30, 2006. The increase is primarily attributable to an increase in the amortization of loan servicing assets and deposit operations losses.

Provision for Income Taxes

For the three months ended September 30, 2007, income taxes of $6.6 million were recognized on pre-tax income of $17.7 million, representing an effective tax rate of 37.2 percent, compared to income taxes of $9.8 million recognized on pre-tax income of $27.4 million, representing an effective tax rate of 35.7 percent, for the three months ended September 30, 2006. For the nine months ended September 30, 2007, income taxes of $23.9 million were recognized on pre-tax income of $63.4 million, representing an effective tax rate of 37.7 percent, compared to income taxes of $29.6 million recognized on pre-tax income of $77.9 million, representing an effective tax rate of 38.0 percent, for the nine months ended September 30, 2006. The periodic effective tax rates reflect a stable level of Enterprise Zone and low-income housing tax credits in periods in which there were fluctuations in taxable income.

25

FINANCIAL CONDITION

Summary of Changes in Balance Sheets — September 30, 2007 Compared to December 31, 2006

As of September 30, 2007, total assets were $4.01 billion, an increase of $286.4 million, or 7.7 percent, from the December 31, 2006 balance of $3.73 billion. The increase in assets was primarily funded by FHLB advances and other borrowings, which increased $192.3 million, or 113.8 percent, from $169.0 million as of December 31, 2006 to $361.3 million as of September 30, 2007, and deposits, which increased $102.8 million, or 3.5 percent, from $2.94 billion as of December 31, 2006 to $3.05 billion as of September 30, 2007. As of September 30, 2007 and December 31, 2006, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $3.19 billion and $2.84 billion, respectively, an increase of $348.0 million, or 12.3 percent. Investment securities available for sale decreased $33.9 million, or 8.7 percent, to $356.7 million at September 30, 2007 from $390.6 million at December 31, 2006.

Investment Portfolio

Securities are classified as held to maturity or available for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Those securities that we have the ability and intent to hold to maturity are classified as “held to maturity.” All other securities are classified as “available for sale.” There were no trading securities at September 30, 2007 or December 31, 2006. Securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts, and available for sale securities are stated at fair value. The securities currently held consist primarily of U.S. Government agency securities, mortgage-backed securities, collateralized mortgage obligations and municipal bonds.

As of September 30, 2007, securities held to maturity, at amortized cost, totaled $945,000 and securities available for sale, at fair value, totaled $356.7 million, compared to $967,000 and $390.6 million, respectively, at December 31, 2006.


	September 30, 2007							December 31, 2006
					Unrealized							Unrealized
	Amortized		Fair		Gain			Amortized		Fair		Gain
	Cost		Value		(Loss)			Cost		Value		(Loss)
	(In Thousands)

Held to Maturity:
Municipal Bonds	$	694	$	694	$	—		$	693	$	693	$	—
Mortgage-Backed Securities		251		253		2			274		276		2


Total Held to Maturity	$	945	$	947	$	2		$	967	$	969	$	2


Available for Sale:
U.S. Government Agency Securities	$	119,856	$	119,570	$	(286	)	$	119,768	$	118,244	$	(1,524	)
Mortgage-Backed Securities		100,469		98,915		(1,554	)		123,614		121,608		(2,006	)
Municipal Bonds		69,920		71,405		1,485			69,966		71,710		1,744
Collateralized Mortgage Obligations		54,927		54,164		(763	)		67,605		66,113		(1,492	)
Corporate Bonds		7,982		7,887		(95	)		8,090		7,887		(203	)
Other Securities		4,999		4,730		(269	)		4,999		5,050		51


Total Available for Sale	$	358,153	$	356,671	$	(1,482	)	$	394,042	$	390,612	$	(3,430	)

26

The amortized cost and estimated fair value of investment securities at September 30, 2007, by contractual maturity, are shown below. Although some mortgage-backed securities and collateralized mortgage obligations have contractual maturities through 2036, 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		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)

Within One Year	$	86,952	$	86,430	$	—	$	—
Over One Year Through Five Years		48,298		48,163		—		—
Over Five Years Through Ten Years		9,282		9,430		694		694
Over Ten Years		58,225		59,569		—		—


		202,757		203,592		694		694


Mortgage-Backed Securities		100,469		98,915		251		253
Collateralized Mortgage Obligations		54,927		54,164		—		—


		155,396		153,079		251		253


	$	358,153	$	356,671	$	945	$	947

Investment securities available for sale, at fair value, decreased $33.9 million, or 8.7 percent, to $356.7 million at September 30, 2007 from $390.6 million at December 31, 2006 as the portfolio experienced normal amortization.

Loan Portfolio

All loans are carried at face amount, less principal repayments collected, net of deferred loan fees and the allowance for loan losses. Interest on all loans is accrued daily on a simple interest basis. Once a loan is placed on non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed. Loans are placed on non-accrual status when principal and interest on a loan is past due 90 days or more, unless a loan is both well secured and in the process of collection.

The following table shows the loan composition by type, including loans held for sale, as of the dates indicated.


	September 30,			December 31,			Increase (Decrease)
	2007			2006			Amount			Percentage
	(Dollars in Thousands)

Real Estate Loans:
Commercial Property	$	779,724		$	757,428		$	22,296			2.9	%
Construction		232,782			202,207			30,575			15.1	%
Residential Property ⁽¹⁾		86,594			81,758			4,836			5.9	%


Total Real Estate Loans		1,099,100			1,041,393			57,707			5.5	%


Commercial and Industrial Loans:
Commercial Term Loans		1,507,241			1,202,612			304,629			25.3	%
Commercial Lines of Credit		256,299			225,630			30,669			13.6	%
SBA Loans ⁽²⁾		147,057			171,631			(24,574	)		(14.3	%)
International Loans		122,412			126,561			(4,149	)		(3.3	%)


Total Commercial and Industrial Loans		2,033,009			1,726,434			306,575			17.8	%


Consumer Loans		90,416			100,121			(9,705	)		(9.7	%)


Total Loans — Gross		3,222,525			2,867,948			354,577			12.4	%

Deferred Loan Fees		(2,654	)		(3,001	)		347			(11.6	%)


Gross Loans, Net of Deferred Loan Fees		3,219,871			2,864,947			354,924			12.4	%

Allowance for Loan Losses		(34,503	)		(27,557	)		(6,946	)		25.2	%


Net Loans Receivable	$	3,185,368		$	2,837,390		$	347,978			12.3	%


⁽¹⁾		Includes mortgage loans held for sale, at the lower of cost or market, of $630,000 at December 31, 2006.

⁽²⁾		Includes SBA loans held for sale, at the lower of cost or market, of $7.5 million and $23.2 million at September 30, 2007 and December 31, 2006, respectively.

27

At September 30, 2007 and December 31, 2006, loans receivable (including loans held for sale), net of deferred loan fees and allowance for loan losses, totaled $3.19 billion and $2.84 billion, respectively, an increase of $348.0 million, or 12.3 percent. Real estate loans, composed of commercial property, residential property and construction loans, increased $57.7 million, or 5.5 percent, to $1.10 billion at September 30, 2007 from $1.04 billion at December 31, 2006, representing 34.1 percent and 36.3 percent, respectively, of the total loan portfolio. Total commercial and industrial loans, composed of owner-occupied commercial property, trade finance, SBA and lines of credit, increased $306.6 million, or 17.8 percent, to $2.03 billion at September 30, 2007 from $1.73 billion at December 31, 2006, representing 63.1 percent and 60.2 percent, respectively, of the total loan portfolio. Consumer loans decreased $9.7 million, or 9.7 percent, to $90.4 million at September 30, 2007 from $100.1 million at December 31, 2006.

As of September 30, 2007, there was $411.4 million of loans outstanding, or 12.8 percent of total gross loans outstanding, to borrowers who were involved in the accommodation/hospitality industry. There was no other concentration of loans to any one industry exceeding 10 percent of total gross loans.

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.

The table below shows the composition of non-performing assets as of the dates indicated.


	September 30,		December 31,		Increase (Decrease)
	2007		2006		Amount		Percentage
	(Dollars in Thousands)

Non-Accrual Loans	$	44,497	$	14,213	$	30,284		213.1	%
Loans 90 Days or More Past Due and Still Accruing		199		2		197		9,850.0	%


Total Non-Performing Loans		44,696		14,215		30,481		214.4	%
Other Real Estate Owned		287		—		287		—


Total Non-Performing Assets	$	44,983	$	14,215	$	30,768		216.4	%

Non-performing loans were $44.7 million at September 30, 2007, compared to $14.2 million at December 31, 2006. Non-performing loans at September 30, 2007 included a $17.0 million construction loan for low-income housing that is fully collateralized and participated in by the local government. The downgrade of this loan relates to project cost overruns and construction delays. Despite these setbacks, we anticipate the project being completed and the loan being repaid without a loss. The ratio of non-performing loans to total gross loans increased to 1.39 percent at September 30, 2007 from 0.50 percent at December 31, 2006. As of September 30, 2007, OREO was $287,000. As of December 31, 2006, we had no OREO. Non-performing loans include $6.0 million and $4.4 million of loans with credit enhancement in the form of SBA, state or other governmental guarantees at September 30, 2007 and December 31, 2006, respectively.

28

Allowance for Loan Losses and Allowance for Off-Balance Sheet Items

Provisions to the allowance for loan losses are made quarterly to recognize probable loan losses. The quarterly provision is based on the allowance need, which is calculated using a formula designed to provide adequate allowances for losses inherent in the portfolio. The allowance is determined by assigning loss ratios for all loans based on historical experience. All loans that are classified are then assigned certain allocations according to type with larger percentages applied to loans deemed to be of a higher risk. These percentages are determined based on the prior loss history by type of loan, adjusted for current economic factors.

The allowance for loan losses and allowance for off-balance sheet items are maintained at levels that are believed to be adequate by management to absorb estimated probable loan losses inherent in the loan portfolio. The adequacy of the allowances is determined through periodic evaluations of the loan portfolio and estimates of future losses, which are inherently subjective as the process calls for various significant estimates and assumptions. Among other factors, the estimates involve the amounts and timing of expected future cash flows and fair value of collateral on impaired loans, estimated losses on loans based on historical loss experience, various qualitative factors, and uncertainties in estimating losses and inherent risks in the various credit portfolios, which may be subject to substantial change.

On a quarterly basis, we utilize a classification migration model and individual loan review analysis tools as starting points for determining the adequacy of the allowance for loan losses and allowance for off-balance sheet items. Our loss migration analysis tracks twelve quarters of loan losses to determine historical loss experience in every classification category (i.e., pass, special mention, substandard and doubtful) for each loan type, except consumer loans (auto, mortgage and credit cards), which are analyzed as homogeneous loan pools. These calculated loss factors are then applied to outstanding loan balances, unused commitments and off-balance sheet exposures, such as letters of credit. The individual loan review analysis is the other part of the allowance allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolios. Further allowance assignments are made based on general and specific economic conditions, as well as performance trends within specific portfolio segments and individual concentrations of credit.

At September 30, 2007, we maintained an allowance for loan losses of $34.5 million and a liability for off-balance sheet exposure, primarily unfunded loan commitments, of $1.8 million. The allowance for loan losses represented 1.07 percent of gross loans at September 30, 2007, compared to 0.96 percent at December 31, 2006. As of September 30, 2007, the allowance for loan losses was 77.19 percent of non-performing loans, compared to 193.86 percent at December 31, 2006.

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 September 30, 2007 and December 31, 2006.

29


	As of and for the Three Months Ended
	September 30,			June 30,			September 30,
	2007			2007			2006
	(Dollars in Thousands)
Allowance for Loan Losses:
Balance at Beginning of Period	$	32,190		$	31,527		$	27,250

Actual Charge-Offs		(6,215	)		(2,662	)		(1,239	)
Recoveries on Loans Previously Charged Off		131			144			583

Net Loan Charge-Offs		(6,084	)		(2,518	)		(656	)

Provision Charged to Operating Expenses		8,397			3,181			1,682

Balance at End of Period	$	34,503		$	32,190		$	28,276


Allowance for Off-Balance Sheet Items:
Balance at Beginning of Period	$	1,730		$	1,888		$	2,130
Provision Charged to Operating Expenses		67			(158	)		—

Balance at End of Period	$	1,797		$	1,730		$	2,130


Ratios:
Net Loan Charge-Offs to Average Total Gross Loans ⁽¹⁾		0.77	%		0.33	%		0.09	%
Net Loan Charge-Offs to Total Gross Loans at End of Period ⁽¹⁾		0.75	%		0.33	%		0.09	%
Allowance for Loan Losses to Average Total Gross Loans		1.10	%		1.07	%		1.00	%
Allowance for Loan Losses to Total Gross Loans at End of Period		1.07	%		1.05	%		0.99	%
Net Loan Charge-Offs to Allowance for Loan Losses ⁽¹⁾		69.96	%		31.38	%		9.20	%
Net Loan Charge-Offs to Provision Charged to Operating Expenses		72.45	%		79.16	%		39.00	%
Allowance for Loan Losses to Non-Performing Loans		77.19	%		142.30	%		209.82	%

Balances:
Average Total Gross Loans Outstanding During Period	$	3,137,477		$	3,017,012		$	2,832,624
Total Gross Loans Outstanding at End of Period	$	3,222,525		$	3,058,053		$	2,853,714
Non-Performing Loans at End of Period	$	44,696		$	22,621		$	13,476


⁽¹⁾		Net loan charge-offs are annualized to calculate the ratios.


	As of and for the
	Nine Months Ended
	September 30,			September 30,
	2007			2006
	(Dollars in Thousands)
Allowance for Loan Losses:
Balance at Beginning of Period	$	27,557		$	24,963

Actual Charge-Offs		(11,497	)		(3,619	)
Recoveries on Loans Previously Charged Off		491			1,390

Net Loan Charge-Offs		(11,006	)		(2,229	)

Provision Charged to Operating Expenses		17,952			5,542

Balance at End of Period	$	34,503		$	28,276


Allowance for Off-Balance Sheet Items:
Balance at Beginning of Period	$	2,130		$	2,130
Provision Charged to Operating Expenses		(333	)		—

Balance at End of Period	$	1,797		$	2,130


Ratios:
Net Loan Charge-Offs to Average Total Gross Loans ⁽¹⁾		0.49	%		0.11	%
Net Loan Charge-Offs to Total Gross Loans at End of Period ⁽¹⁾		0.46	%		0.10	%
Allowance for Loan Losses to Average Total Gross Loans		1.14	%		1.04	%
Allowance for Loan Losses to Total Gross Loans at End of Period		1.07	%		0.99	%
Net Loan Charge-Offs to Allowance for Loan Losses ⁽¹⁾		42.65	%		10.54	%
Net Loan Charge-Offs to Provision Charged to Operating Expenses		61.31	%		40.22	%
Allowance for Loan Losses to Non-Performing Loans		77.19	%		209.82	%

Balances:
Average Total Gross Loans Outstanding During Period	$	3,014,164		$	2,706,686
Total Gross Loans Outstanding at End of Period	$	3,222,525		$	2,853,714
Non-Performing Loans at End of Period	$	44,696		$	13,476


⁽¹⁾		Net loan charge-offs are annualized to calculate the ratios.

30

We concentrate the majority of our earning assets in loans. In all forms of lending, there are inherent risks. We concentrate the preponderance of our loan portfolio in either commercial loans or real estate loans. A small part of the portfolio is represented by installment loans primarily for the purchase of automobiles. While we believe that our underwriting criteria are prudent, outside factors can adversely impact credit quality.

A portion of the portfolio is represented by loans guaranteed by the SBA, which further reduces the potential for loss. We also utilize credit review in an effort to maintain loan quality. Loans are reviewed throughout the year with special attention given to new loans and those that are classified special mention and below. Loans criticized by this credit review are downgraded with appropriate allowance added if required.

As indicated above, we formally assess the adequacy of the allowance on a quarterly basis by:

	•		reviewing the adversely graded, delinquent or otherwise questionable loans;

	•		generating an estimate of the loss potential in each such loan;

	•		adjusting a qualitative factor for industry, economic or other external factors; and

	•		evaluating the present status of each loan.

Although management believes the allowance is adequate to absorb probable losses, no assurance can be given that we will not sustain losses in any given period, which could be substantial in relation to the size of the allowance.

Deposits

The following table shows the composition of deposits by type as of the dates indicated.


	September 30,		December 31,		Increase (Decrease)
	2007		2006		Amount			Percentage
			(Dollars in Thousands)
Deposits:
Demand — Noninterest-Bearing	$	690,513	$	728,347	$	(37,834	)		(5.2	%)
Interest-Bearing:
Savings		94,150		99,255		(5,105	)		(5.1	%)
Money Market Checking and NOW Accounts		476,257		438,267		37,990			8.7	%
Time Deposits of $100,000 or More		1,474,764		1,383,358		91,406			6.6	%
Other Time Deposits		311,873		295,488		16,385			5.5	%


Total Deposits	$	3,047,557	$	2,944,715	$	102,842			3.5	%

Core deposit balances were relatively stable during the first nine months of 2007, while the certificate of deposit portfolio grew modestly during that period as we made greater use of lower cost short-term borrowings to fund loan portfolio growth. Demand deposits decreased $37.8 million, or 5.2 percent, to $690.5 million at September 30, 2007 from $728.3 million at December 31, 2006. Savings accounts decreased $5.1 million, or 5.1 percent, to $94.2 million at September 30, 2007 from $99.3 million at December 31, 2006. Time deposits of $100,000 or more increased $91.4 million, or 6.6 percent, to $1.47 billion at September 30, 2007 from $1.38 billion at December 31, 2006, and other time deposits increased $16.4 million, or 5.5 percent, to $311.9 million at September 30, 2007 from $295.5 million at December 31, 2006, also reflecting this trend.

FHLB Advances and Other Borrowings

FHLB advances and other borrowings consist primarily of advances from the FHLB and overnight Federal funds. At September 30, 2007 and December 31, 2006, advances from the FHLB were $292.8 million and $168.1 million, respectively. At September 30, 2007, overnight Federal funds were $66.0 million. There were no overnight Federal funds at December 31, 2006.

In 2006 and 2007, we made greater use of borrowings to fund loan growth, including $120.0 million of FHLB advances with maturities of 18 to 24 months obtained in mid-2007 to match-fund fixed-rate loans with contractual maturities of five to seven years. Total average FHLB advances and other borrowings increased $126.2 million, or 79.4 percent, to $285.2 million for the three months ended September 30, 2007, compared to $159.0 million for the same period in 2006. The average interest rate paid on FHLB advances and other borrowings increased seven basis points from 5.20 percent for the three months ended September 30, 2006 to 5.27 percent for the three months ended September 30, 2007, reflecting the relatively flat yield curve that existed in 2006 and the first nine months of 2007.

31

Among the FHLB advances and other borrowings at September 30, 2007, short-term borrowings with remaining maturities of less than one year were $343.6 million, and the weighted-average interest rate thereon was 4.93 percent.

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 change 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 and liabilities. For successful management of interest rate risk, we use various methods to measure existing and future interest rate risk exposures, giving effect to historical attrition rates of core deposits. In addition to regular reports used in business operations, repricing gap analysis, stress testing and simulation modeling are the main measurement techniques used to quantify interest rate risk exposure.

The following table shows the status of our gap position as of September 30, 2007:


				After Three			After One
	Within			Months			Year But						Non-
	Three			But Within			Within Five			After Five			Interest-
	Months			One Year			Years			Years			Sensitive			Total
							(Dollars in Thousands)
ASSETS
Cash and Due From Banks	$	—		$	—		$	—		$	—		$	103,789		$	103,789
Securities:
Fixed Rate		31,227			72,169			116,274			104,391			—			324,061
Floating Rate		10,549			428			17,848			4,730			—			33,555
Loans:
Fixed Rate		36,824			70,405			570,799			554,059			—			1,232,087
Floating Rate		1,732,460			70,621			139,146			3,714			—			1,945,941
Non-Accrual		—			—			—			—			44,497			44,497
Deferred Loan Fees and Allowance for Loan Losses		—			—			—			—			(37,157	)		(37,157	)
FRB and FHLB Stock		—			—			—			25,525			—			25,525
Other Assets		—			24,285			—			6,693			308,339			339,317

Total Assets	$	1,811,060		$	237,908		$	844,067		$	699,112		$	419,468		$	4,011,615

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand Deposits	$	42,154		$	139,432		$	334,637		$	174,290		$	—		$	690,513
Savings		11,625			35,302			38,146			9,077			—			94,150
Money Market Checking and NOW Accounts		70,675			135,692			154,613			115,277			—			476,257
Time Deposits:
Fixed Rate		951,959			824,020			10,489			115			—			1,786,583
Floating Rate		54			—			—			—			—			54
FHLB Advances and Other Borrowings		238,567			105,000			13,127			4,650			—			361,344
Junior Subordinated Debentures		82,406			—			—			—			—			82,406
Other Liabilities		—			—			—			—			37,399			37,399
Shareholders’ Equity		—			—			—			—			482,909			482,909

Total Liabilities and Shareholders’ Equity	$	1,397,440		$	1,239,446		$	551,012		$	303,409		$	520,308		$	4,011,615

Repricing Gap	$	413,620		$	(1,001,538	)	$	293,055		$	395,703		$	(100,840	)
Cumulative Repricing Gap	$	413,620		$	(587,918	)	$	(294,863	)	$	100,840		$	—
Cumulative Repricing Gap as a Percentage of Total Assets		10.31	%		(14.66	%)		(7.35	%)		2.51	%		—
Cumulative Repricing Gap as a Percentage of Interest-Earning Assets		11.61	%		(16.51	%)		(8.28	%)		2.83	%		—

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The repricing gap analysis measures the static timing of repricing risk of assets and liabilities (i.e., a point-in-time analysis measuring the difference between assets maturing or repricing in a period and liabilities maturing or repricing within the same 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.

As of September 30, 2007, the cumulative repricing gap as a percentage of interest-earning assets in the less-than-three month period was 11.61 percent. This decrease from the previous quarter’s figure of 16.38 percent was caused primarily by a $75.5 million decrease in the loan portfolio, funded primarily by an increase of $97.7 million in FHLB advances and other borrowings with maturities of three months or less. The cumulative repricing percentage in the less than twelve month period also moved lower, reaching (16.51) percent. This was a decrease from the previous quarter’s figure of (8.24) percent. The decrease was caused by increase of $103.0 million and $75.0 million in fixed rate time deposits and FHLB advances and other borrowings, respectively, maturing within one year. In terms of fixed and floating gap positions, which are used internally to control repricing risk, the accumulated fixed gap position between assets and liabilities as a percentage of interest-earning assets was 5.73 percent liability-sensitive, compared to 1.74 percent liability-sensitive as of June 30, 2007. The floating gap position in the less than twelve months period was 9.05 percent liability-sensitive, compared to 5.49 percent liability-sensitive as of June 30, 2007.

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


	Less than Three Months						Less Than Twelve Months
	September 30,			June 30,			September 30,			June 30,
	2007			2007			2007			2007
	(Dollars in Thousands)

Cumulative Repricing Gap	$	413,620		$	564,945		$	(587,918	)	$	(284,364	)
Percentage of Total Assets		10.31	%		14.59	%		(14.66	%)		(7.35	%)
Percentage of Interest-Earning Assets		11.61	%		16.38	%		(16.51	%)		(8.24	%)

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 and economic value of equity over a one-year horizon, given the basis point adjustment in interest rates reflected below.


Rate Shock Table
	Percentage Changes						Change in Amount
Change in	Net			Economic			Net			Economic
Interest	Interest			Value of			Interest			Value of
Rate	Income			Equity			Income			Equity
(Dollars in Thousands)

200%		7.19	%		(16.92	%)	$	10,955		$	(79,008	)
100%		3.58	%		(8.79	%)	$	5,462		$	(41,039	)
(100%)		(3.62	%)		9.49	%	$	(5,521	)	$	44,305
(200%)		(7.30	%)		19.47	%	$	(11,126	)	$	90,931

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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

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 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 funds lines, repurchase agreements and FHLB advances. 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.

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 sale and/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 loans and/or deposits can tighten the liquidity position. Several ratios are reviewed on a daily, monthly and quarterly basis to manage the liquidity position and to preempt any 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.


	September 30,			December 31,
Liquidity Ratios	2007			2006

Core Deposits/Total Assets		28.41	%		30.10	%
Short-Term Non-Core Funding/Total Assets		52.83	%		46.01	%
Net Loans/Total Assets		79.67	%		76.60	%
Investments/Deposits		12.76	%		15.93	%
Loans and Investments/Deposits		117.33	%		112.52	%
Off-Balance Sheet Items/Total Assets		16.66	%		19.04	%

The net loans to total assets ratio increased to 79.67 percent as of September 30, 2007 compared to 76.60 percent at December 31, 2006. The ratio of loans and investments to deposits increased to 117.33 percent as the Bank made use of short-term borrowings to fund a portion of loan portfolio growth. Off-balance sheet items as a percentage of total assets decreased at September 30, 2007 to 16.66 percent, compared to 19.04 percent at December 31, 2006. The total amount of off-balance sheet items decreased to $667.6 million at September 30, 2007 from $708.8 million at December 31, 2006. The decrease was primarily due to a $27.3 million decrease in commitments to extend credit and a $14.6 million decrease in commercial letters of credit. The ratio of short-term non-core funding to total assets was 52.83 percent at September 30, 2007, compared to 46.01 percent at December 31, 2006, and the ratio of core deposits to total assets decreased to 28.41 percent at September 30, 2007, compared to 30.10 percent at December 31, 2006. Overall, the level of liquidity associated with assets and liabilities carried on the Bank’s balance sheet declined slightly, while the decrease in off-balance sheet exposure offset this decline.

In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, cash generated from operations, and access to capital from financial markets or the issuance of additional securities, including common stock or notes, to meet our capital needs. Total shareholders’ equity was $482.9 million at September 30, 2007, which represented a decrease of $4.2 million, or 0.9 percent, over total shareholders’ equity of $487.1 million at December 31, 2006.

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The regulatory agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8.0 percent and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4.0 percent. In addition to the risk-based guidelines, regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio, of 4.0 percent. For a bank rated in the highest of the five categories used by regulators to rate banks, the minimum leverage ratio is 3.0 percent. In addition to these uniform risk-based capital guidelines that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

At September 30, 2007, Hanmi Financial’s Tier 1 capital (shareholders’ equity plus junior subordinated debentures less intangible assets) was $345.1 million. This represented a decrease of $10.1 million, or 0.3 percent, over Tier 1 capital of $355.2 million at December 31, 2006. At September 30, 2007, Hanmi Financial had a ratio of total capital to total risk-weighted assets of 10.86 percent and a ratio of Tier 1 capital to total risk-weighted assets of 9.83 percent. The Tier 1 leverage ratio was 9.32 percent at September 30, 2007.

The capital ratios of Hanmi Financial and Hanmi Bank were as follows at September 30, 2007:


						Minimum					Minimum to Be
						Regulatory					Categorized as
	Actual					Requirement					“Well Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)

Total Capital (to Risk-Weighted Assets):
Hanmi Financial Corporation	$	381,417		10.86	%	$	280,845		8.00	%		N/A		N/A
Hanmi Bank	$	376,380		10.74	%	$	280,448		8.00	%	$	350,559		10.00	%

Tier 1 Capital (to Risk-Weighted Assets):
Hanmi Financial Corporation	$	345,118		9.83	%	$	140,422		4.00	%		N/A		N/A
Hanmi Bank	$	340,081		9.70	%	$	140,224		4.00	%	$	210,336		6.00	%

Tier 1 Capital (to Average Total Assets):
Hanmi Financial Corporation	$	345,118		9.32	%	$	148,049		4.00	%		N/A		N/A
Hanmi Bank	$	340,081		9.20	%	$	147,896		4.00	%	$	184,870		5.00	%

Dividends

On September 20, 2007, we declared a quarterly cash dividend of $0.06 per common share for the third quarter of 2007. The dividend was paid on October 12, 2007. Future dividend payments are subject to future earnings, legal and regulatory requirements, and the discretion of the Board of Directors.

OFF-BALANCE SHEET ARRANGEMENTS

There were no material changes to the off-balance sheet arrangements described in our Annual Report on Form 10-K for the year ended December 31, 2006. For a discussion of off-balance sheet arrangements, see “Note 7 — Off-Balance Sheet Commitments” of Notes to Consolidated Financial Statements (Unaudited) in this Report and “Item 1. Business — Small Business Administration Guaranteed Loans” and “Item 1. Business — Off-Balance Sheet Commitments” in our Annual Report on Form 10-K for the year ended December 31, 2006.

CONTRACTUAL OBLIGATIONS

There were no material changes to the contractual obligations described in our Annual Report on Form 10-K for the year ended December 31, 2006.

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RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 159 — In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), 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. This Statement 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. We are currently assessing the impact that the adoption of SFAS No. 159 will have on our financial condition and results of operations.

SFAS No. 157 — In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within that fiscal year. We are currently assessing the impact that the adoption of SFAS No. 157 will have on our financial condition and results of operations.

SFAS No. 156 — In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“SFAS No. 156”), which amends the guidance in SFAS No. 140. SFAS No. 156 requires that an entity separately recognize a servicing asset or a servicing liability when it undertakes an obligation to service a financial asset under a servicing contract in certain situations. Such servicing assets or servicing liabilities are required to be measured initially at fair value, if practicable. SFAS No. 156 also allows an entity to measure its servicing assets and servicing liabilities subsequently using either the amortization method, which existed under SFAS No. 140, or the fair value measurement method. We adopted SFAS No. 156 beginning January 1, 2007. SFAS No. 156 has not had a material impact on our financial condition or results of operations.

SFAS No. 155 — In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and SFAS No. 140” (“SFAS No. 155”). This Statement:

	•		permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation;

	•		clarifies which interest-only strips and principal-only strips are not subject to SFAS No. 133;

	•		establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or hybrid financial instruments that contain an embedded derivative requiring bifurcation;

	•		clarifies that concentrations of credit risk in the form of subordinations are not embedded derivatives; and

	•		amends SFAS No. 140 to eliminate the prohibition on a qualified special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

SFAS No. 155 became effective on January 1, 2007 for all financial instruments acquired or issued after that date. SFAS No. 155 has not had a material impact on our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures regarding market risks in Hanmi Bank’s portfolio, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management” and “— Liquidity and Capital Resources.”

36

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, Hanmi Financial or Hanmi Bank is a party to claims and legal proceedings arising in the ordinary course of business. After taking into consideration information furnished by counsel as to the current status of these claims or proceedings to which Hanmi Financial or Hanmi Bank is a party, management is of the opinion that the ultimate aggregate liability represented thereby, if any, will not have a material adverse effect on the financial condition or results of operations of Hanmi Financial or Hanmi Bank.

ITEM 1A. RISK FACTORS

There were no material changes in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006 that was filed on March 1, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 the period covered by this Report.


ISSUER PURCHASES OF EQUITY SECURITIES
							(d) Maximum Number
	(a) Total				(c) Total Number of		(or Approximate Dollar
	Number of		(b) Average		Shares (or Units)		Value) of Shares (or
	Shares		Price Paid		Purchased as Part of		Units) that May Yet Be
	(or Units)		per Share		Publicly Announced		Purchased Under the
Period	Purchased		(or Unit)		Plans or Programs		Plans or Programs

Repurchases from July 1, 2007 to July 31, 2007		70,000	$	14.64		70,000	$	25,038,000

Repurchases from August 1, 2007 to August 31, 2007		894,400	$	14.90		894,400	$	11,682,000

Repurchases from September 1, 2007 to September 30, 2007		39,700	$	15.29		39,700	$	11,074,000


Total		1,004,100	$	14.90		1,004,100	$	11,074,000

37

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit
Number		Document

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HANMI FINANCIAL CORPORATION



Date: November 9, 2007	By:	/s/ Sung Won Sohn, Ph.D.
		Sung Won Sohn, Ph.D.
		President and Chief Executive Officer

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