Harrington West Announces Financial Results for the September 2009 Quarter, Completes the Sale of Its Kansas Banking Operations for a $4.1 Million Premium, and Returns to Adequately Capitalized Per OTS Requirements

• Press Release
• Source: Harrington West Financial Group, Inc.
• On 9:28 pm EST, Tuesday November 10, 2009

SOLVANG, Calif.--(BUSINESS WIRE)--Harrington West Financial Group, Inc. (NASDAQ:HWFG - News), the holding company for Los Padres Bank and its division, Harrington Bank of Kansas (dba), today announced that it had a net loss of $4.1 million or $.55 per diluted share in the September 2009 quarter compared with a net loss of $15.6 million or $2.16 per diluted share in the June 2009 quarter and a loss of $3.2 million or $.52 per diluted share in the September 2008 quarter. For the nine months ending September 30, 2009, HWFG incurred a net loss of $21.7 million or $3.05 per diluted share compared to a $6.6 million loss or $1.10 per diluted share in the same period a year ago.

Related Quotes

Symbol	Price	Change
HWFG	0.55	-0.05

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The net loss for the September 2009 quarter was comprised of the following components:

• $341 thousand of core banking income, defined as net interest income plus banking fee and other income minus operating expenses.
• $298 thousand of gains on securities available for sale, from trading assets and other assets.
• $2.4 million of non cash provisions for loan losses. HWFG added $2.4 million to its general and specific allowances for loan losses in the September 2009 quarter, significantly less than the $11.1 million in the June 2009 quarter, as the bulk of weak loans had been reappraised in the June 2009 quarter, and the large reduction in loans associated with loans held for sale to Arvest Bank. (See Asset Quality discussion below).
• $2.3 million of non cash other-than-temporary-impairment on $29.0 million book value of residential mortgage backed securities (RMBS), as the delinquency and loss rates in these securities indicate that all principal and interest cannot be returned.

Given that net losses incurred over the last 21 months exceed the profits of the two years prior, no tax benefit of the losses is recorded in the income statement in the September 2009 quarter. As of September 30, 2009, the Company has a deferred tax asset valuation allowance of approximately $8.0 million. However, with the recent law passed by Congress regarding Federal Net Operating Losses (NOL’s), HWFG will be able to carry back these losses up to five years (instead of two years) and obtain refunds for taxes paid in applicable years. The new law would also allow the company to carry forward unused losses up to 20 years against future income. The amount available to be recovered through the extended carryback period, will allow the Company to reverse a majority of the deferred tax asset valuation allowance, which will be recorded in earnings and positively impact risk based capital in the fourth quarter ending December 31, 2009.

Net Interest Income

Net interest income before the provision for loan losses was $6.0 million in the September 2009 quarter compared to $6.9 million in the June 2009 quarter and $7.7 million in the same quarter a year ago. Net interest margin was 2.41% in the September 2009 quarter compared to 2.59% in the June 2009 quarter and 2.67% in the September 2008 quarter. The decline in net interest income and margin on a sequential and comparative quarter basis is attributed to the $14.6 million increase in non performing loans to $39.1 million and the $65.8 million reduction in average earning assets to meet LPB’s required capital levels. For the first 9 months of 2009, net interest income and margin was $18.9 million and 2.35% compared to $22.7 million and 2.55%, respectively, during the same period in 2008. The reduction in net interest income and margin in the comparable nine month periods is due to a lag in the re-pricing of deposits relative to HWFG’s prime and LIBOR based loans, whose rates declined significantly in late 2008 and early 2009 as the Federal Reserve aggressively reduced the Fed Funds rate to address the deep economic recession. Also, the rise in non-performing loans has affected the interest income earned.

Banking Fee Income

Banking fee and other income was $1.2 million in the September 2009 quarter compared to $1.2 million in the June 2009 quarter and $1.1 million in the September 2008 quarter. The improvement in fee income can be attributed to an increase in higher deposit and other retail fees. For the first nine months of 2009, banking fee and other income was $3.2 million compared with $3.0 million in the first nine months of 2008. A comparison of fee income is shown in the following table:

Operating Expenses

HWFG’s operating expenses were $6.8 million in the September 2009 quarter, compared with $7.2 million in the June 2009 quarter (including the special FDIC assessment of $0.6 million) and $6.3 million in the September 2008 quarter. For the first nine months of 2009, operating expenses were $20.3 million compared with $18.5 million in the same period of 2008. Although HWFG has reduced compensation and benefit expenses, eliminated discretionary incentive compensation, and reduced marketing expense, regular and special FDIC insurance expense, other insurance expense, and REO and problem loan expenses have increased markedly in the current environment, causing the increase to total operating expenses for the quarter and year-to-date periods. As such, with LPB’s lower FDIC insurance ratings, FDIC premium expense was $720 thousand in the September 2009 quarter compared to $185 thousand in the September 2008 quarter, accounting for more than the total increase in expenses in this quarter to quarter comparison. As HWFG restores the capital ratios of LPB to the required levels, we expect the FDIC insurance assessment ratings to improve with lower overall premiums.

This Release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act. All of the statements contained in the Release, other than statements of historical fact, should be considered forward-looking statements, including, but not limited to, those concerning (i) the Company's strategies, objectives and plans for expansion of its operations, products and services, and growth of its portfolio of loans, investments and deposits, (ii) the Company's beliefs and expectations regarding actions that may be taken by regulatory authorities having oversight of the operation and the ability of the Company and Bank to comply successfully with the Cease and Desist Orders issued by the Office of Thrift Supervision, (iii) the Company's beliefs as to the adequacy of its existing and anticipated allowances for loan and real estate losses, (iv) the Company's beliefs and expectations concerning future operating results, (v) the Company’s beliefs and expectations regarding the future performance of the real estate or mortgage markets and its securities portfolio, and (vi) other factors referenced in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in those forward-looking statements are reasonable, it can give no assurance that those expectations will prove to have been correct. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are not intended to give any assurance as to future results. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Harrington West Financial Group, Inc.
For information contact:
Craig J. Cerny, 480-596-6555
or
For share transfer information contact:
Lisa F. Watkins, 805-688-6644