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

Critical Accounting Policies

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

significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of Hanmi Financial's Board of Directors.

Allowance for Loan Losses

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

Loan Sales

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

Goodwill

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

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

Investment Securities

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

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

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

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

Income Taxes

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

Executive Overview

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

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

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

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

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

For the years ended December 31, 2008 and 2007, we recognized net losses of $102.1 million and $60.8 million, respectively, as compared with net income of $65.4 million for the year ended December 31, 2006. Such losses in 2008 and 2007 were mainly caused by goodwill impairment charges of $107.4 million and $102.9 million, respectively, occasioned by the decline in the market value of our common stock that reflects, in part, recent turmoil in the financial markets, and provisions for credit losses of $75.7 million and $38.3 million, respectively. For the years ended December 31, 2008 and 2007, our diluted loss per share was ($2.23) and ($1.27), respectively, as compared to diluted earnings per share of $1.32 for the year ended December 31, 2006. If we measure our operating results from our continuing operations excluding the impact of the goodwill impairment charges, we realized non-GAAP net income of $5.3 million and $42.1 million for the years ended December 31, 2008 and 2007, respectively, as compared with $65.4 million for the year ended December 31, 2006.

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

determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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

                                                                Year Ended December 31,
                                                                 2008               2007
                                                                     (In thousands)

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

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

Results of Operations

Net Interest Income, Net Interest Spread and Net Interest Margin

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

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

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

                                                                                                                 Year Ended December 31,

                                                                              2008                                        2007                                        2006

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

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


Total Interest-Earning Assets                                  3,653,720       238,183          6.52 %     3,494,758       280,896          8.04 %     3,214,761       260,189          8.09 %


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


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


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

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
Deposits:
Savings                                                      $    89,866         2,093          2.33 %   $    97,173         2,004          2.06 %   $   107,811         1,853          1.72 %
Money Market Checking and NOW Accounts                           618,779        19,909          3.22 %       452,825        15,446          3.41 %       471,780        14,539          3.08 %
Time Deposits of $100,000 or More                              1,045,968        43,598          4.17 %     1,430,603        75,516          5.28 %     1,286,202        64,184          4.99 %
Other Time Deposits                                              527,927        18,753          3.55 %       306,876        15,551          5.07 %       280,249        12,977          4.63 %
Federal Home Loan Bank Advances and Other Borrowings             509,524        14,373          2.82 %       273,413        13,949          5.10 %       138,941         6,977          5.02 %
Junior Subordinated Debentures                                    82,406         5,056          6.14 %        82,406         6,644          8.06 %        82,406         6,416          7.79 %


Total Interest-Bearing Liabilities                             2,874,470       103,782          3.61 %     2,643,296       129,110          4.88 %     2,367,389       106,946          4.52 %


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


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


Total Liabilities                                              3,543,394                                   3,390,254                                   3,143,954
Stockholders' Equity                                             323,462                                     492,637                                     458,227


Total Liabilities and Stockholders' Equity                   $ 3,866,856                                 $ 3,882,891                                 $ 3,602,181


Net Interest Income                                                          $ 134,401                                   $ 151,786                                   $ 153,243


Net Interest Spread(3)                                                                          2.91 %                                      3.16 %                                      3.57 %


Net Interest Margin(4)                                                                          3.68 %                                      4.34 %                                      4.77 %