##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2007
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No.: 000-50066
 HARRINGTON WEST FINANCIAL GROUP, INC.
  Delaware
    
    48-1175170(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)610 Alamo Pintado RoadSolvang, California
    
    93463(Address of Principal Executive Offices)
    
    (Zip Code)
 (805) 688-6644
 
 o þ
 o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer
o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company
þ
  o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PagePART IItem 1. BusinessGeneral
    
    
    4Principal Products and ServicesLending Activities
    
    
    5Asset Quality
    
    
    11Investment Activities
    
    
    18Sources of Funds
    
    
    26Subsidiaries
    
    
    29Employees
    
    
    29Regulation of Harrington West Financial Group
    
    
    29Regulation of Los Padres Bank
    
    
    30Legislation
    
    
    35Item 1A. Risk Factors
    
    
    37Item 1B. Unresolved Staff Comments
    
    
    45Item 2. Properties
    
    
    45Item 3. Legal Proceedings
    
    
    47Item 4. Submission of Matters to a Vote of Security Holders
    
    
    47PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    48Item 6. Selected Financial Data
    
    
    49Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsMission
    
    
    50Multiple Market Strategy
    
    
    50Product Line Diversification
    
    
    51Modern Financial Skills
    
    
    51Control Banking Risks
    
    
    52Performance Measurement
    
    
    52Profitability Drivers
    
    
    52Critical Accounting Policies
    
    
    53Results of Operation
    
    
    54Changes in Financial Condition
    
    
    61Asset and Liability Management
    
    
    63Liquidity and Capital Resources
    
    
    67Contractual Obligations and Commercial Commitments
    
    
    68Off Balance Sheet Arrangements
    
    
    69Inflation and Changing Prices
    
    
    70Effect of Newly, But Not Yet Effective Accounting Standards
    
    
    70Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    70Item 8. Financial Statements and Supplementary Data
    
    
    70Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    114Item 9A. Controls and Procedures
    
    
    114Item 9A(T). Controls and Procedures
    
    
    114Item 9B. Other Information
    
    
    115PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    115Item 11. Executive Compensation
    
    
    115Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    115Item 13. Certain Relationships, Related Transactions and Director Independence
    
    
    116Item 14. Principal Accountant Fees and Services
    
    
    116PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    117SIGNATURES
    
    
    119CERTIFICATIONS
    
    
    120




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PART I
 Cautionary Statement Regarding Forward-Looking Statements.
  
    
    we may experience higher defaults on our loan portfolio than we expect;
    
    changes in managements estimate of the adequacy of the allowance for loan losses;
    
    changes in managements valuation of our mortgage-backed swaps and related
securities portfolio and interest rate contracts;
    
    increases in competitive pressure among financial institutions;
    
    general economic conditions, either nationally or locally in areas in which we
conduct or will conduct our operations, or conditions in financial markets may be less
favorable than we currently anticipate;
    
    our net income from operations may be lower than we expect;
    
    natural disasters;
    
    we may lose more business or customers than we expect, or our operating costs may be
higher than we expect;
    
    the availability of capital to fund our growth and expansion;
    
    changes in the interest rate environment and their impact on customer behavior, our
interest margins and our securities portfolio;
    
    political and global changes arising from the war on terrorism;
    
    the impact of re-pricing and competitors pricing initiatives on loan and deposit
products;
    
    our ability to adapt successfully to technological changes to meet customers needs
and developments in the market place;
    
    our ability to access cost-effective funding;
    
    our ability to successfully implement our strategy to continue to grow our business
in California, Kansas and Arizona;
    
    our returns from our securities portfolio may be lower than we expect;
 3




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
    
    legislative or regulatory changes or changes in accounting principles, policies or
guidelines may adversely affect our ability to conduct our business.
   
 Item 1. Business.
 
 General
    4




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##### Table of Contents



Lending Activities
 General
 December 31,2007
    
    
    2006
    
    
    2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Real estate loans:Single-family
    
    $
    125,545
    
    
    
    15.9
    %
    
    $
    106,675
    
    
    
    13.9
    %
    
    $
    115,925
    
    
    
    17.0
    %Multi-family
    
    
    82,717
    
    
    
    10.5
    %
    
    
    79,896
    
    
    
    10.4
    %
    
    
    80,855
    
    
    
    11.9
    %Commercial
    
    
    266,345
    
    
    
    33.7
    %
    
    
    264,915
    
    
    
    34.6
    %
    
    
    253,208
    
    
    
    37.2
    %Construction (1)
    
    
    126,447
    
    
    
    16.0
    %
    
    
    112,645
    
    
    
    14.7
    %
    
    
    70,883
    
    
    
    10.4
    %Land acquistion
    
    
    45,278
    
    
    
    5.7
    %
    
    
    54,738
    
    
    
    7.1
    %
    
    
    36,085
    
    
    
    5.3
    %Commercial and industrial loans
    
    
    117,842
    
    
    
    14.9
    %
    
    
    119,074
    
    
    
    15.6
    %
    
    
    96,566
    
    
    
    14.2
    %Consumer loans
    
    
    24,483
    
    
    
    3.1
    %
    
    
    25,304
    
    
    
    3.3
    %
    
    
    26,653
    
    
    
    3.9
    %Other loans (2)
    
    
    2,753
    
    
    
    0.3
    %
    
    
    2,206
    
    
    
    0.4
    %
    
    
    1,271
    
    
    
    0.1
    %Total loans receivable
    
    
    791,410
    
    
    
    100.0
    %
    
    
    765,453
    
    
    
    100.0
    %
    
    
    681,446
    
    
    
    100.0
    %Less:Allowance for loan losses
    
    
    (6,446
    )
    
    
    
    
    
    
    (5,914
    )
    
    
    
    
    
    
    (5,661
    )Net deferred loan fees
    
    
    (1,865
    )
    
    
    
    
    
    
    (2,103
    )
    
    
    
    
    
    
    (2,498
    )Net (discounts) premiums
    
    
    (473
    )
    
    
    
    
    
    
    (403
    )
    
    
    
    
    
    
    (397
    )(8,784
    )
    
    
    
    
    
    
    (8,420
    )
    
    
    
    
    
    
    (8,556
    )Loans receivable, net
    
    $
    782,626
    
    
    
    
    
    
    $
    757,033
    
    
    
    
    
    
    $
    672,890
 
 (1)
    
    Includes loans secured by residential and commercial properties. At December 31, 2007, we
had $49.0 million of construction loans secured by residential properties, $41.1 million of
land and development (loans for the initial acquisition of land and off-site improvements) and
$36.3 million of construction loans secured by commercial properties.(2)
    
    Includes loans collateralized by deposit accounts and consumer line of credit loans. 5




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Due 5 orDue 1-5
    
    
    more yearsyears after
    
    
    afterDue 1 year
    
    
    December
    
    
    Decemberor less
    
    

31, 2007
    
    

31, 2007
    
    
    TotalReal estate loans:Single-family residential
    
    $
    1,309
    
    
    $
    7,451
    
    
    $
    116,784
    
    
    $
    125,545Multi-family residential
    
    
    2,140
    
    
    
    15,311
    
    
    
    65,267
    
    
    
    82,717Commercial
    
    
    25,215
    
    
    
    99,814
    
    
    
    141,316
    
    
    
    266,345Construction (1)
    
    
    83,500
    
    
    
    12,350
    
    
    
    30,598
    
    
    
    126,447Land acquisition
    
    
    34,461
    
    
    
    10,607
    
    
    
    210
    
    
    
    45,278Commercial and industrial loans
    
    
    65,444
    
    
    
    39,980
    
    
    
    12,418
    
    
    
    117,842Consumer loans
    
    
    5
    
    
    
    814
    
    
    
    23,663
    
    
    
    24,483Other loans (2)
    
    
    2,428
    
    
    
    325
    
    
    
    
    
    
    
    2,753Total
    
    $
    214,502
    
    
    $
    186,652
    
    
    $
    390,256
    
    
    $
    791,410
 
 (1)
    
    Includes loans secured by residential and commercial properties.(2)
    
    Includes loans collateralized by deposit accounts and consumer line of credit loans.  6




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Floating oradjustableFixed rate
    
    
    rate
    
    
    TotalReal estate loans:Single-family residential
    
    $
    95,872
    
    
    $
    28,364
    
    
    $
    124,236Multi-family residential
    
    
    49,859
    
    
    
    30,718
    
    
    
    80,577Commercial
    
    
    139,914
    
    
    
    101,216
    
    
    
    241,130Construction (1)
    
    
    18,472
    
    
    
    24,475
    
    
    
    42,947Land acquisition
    
    
    820
    
    
    
    9,997
    
    
    
    10,817Commercial and industrial loans
    
    
    24,920
    
    
    
    27,478
    
    
    
    52,398Consumer loans
    
    
    796
    
    
    
    23,682
    
    
    
    24,478Other loans (2)
    
    
    25
    
    
    
    300
    
    
    
    325Total
    
    $
    330,678
    
    
    $
    246,230
    
    
    $
    576,908
 
 (1)
    
    Includes loans secured by residential and commercial properties.(2)
    
    Includes loans collateralized by deposit accounts and consumer line of credit loans. Origination, Purchase and Sale of Loans.
   7




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Single-Family Residential Real Estate Loans.
  Multi-Family Residential and Commercial Real Estate Loans.
  8




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Construction Loans.
   Land acquisition and development.
 9




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Commercial and Industrial Loans
  Consumer and Other Loans
     10




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Asset Quality
 General
 Loan Delinquencies
 Non-Performing Assets
 11




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December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Non-accruing loans:Single-family residential
    
    $
    
    
    
    $
    
    
    
    $
    Multi-family residential
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    
    
    
    
    
    
    
    
    Land acquisition and development
    
    
    1,843
    
    
    
    
    
    
    
    Commercial and industrial
    
    
    
    
    
    
    98
    
    
    
    Consumer and other
    
    
    
    
    
    
    
    
    
    
    Total non-accruing loans
    
    
    1,843
    
    
    
    98
    
    
    
    Total non-performing loans
    
    
    1,843
    
    
    
    
    
    
    
    Troubled debt restructurings
    
    
    
    
    
    
    
    
    
    
    Real estate owned, net of reserves
    
    
    
    
    
    
    
    
    
    
    Total non-performing assets and troubled debt
restructurings
    
    $
    1,843
    
    
    $
    98
    
    
    $
    Total non-performing loans and troubled debt
restructurings as a percentage of total loans
    
    
    0.23
    %
    
    
    0.01
    %
    
    
    0.00
    %Total non-performing assets and troubled debt
restructurings as a percentage of total assets
    
    
    0.15
    %
    
    
    0.01
    %
    
    
    0.00
    %
   Classified Assets
 12




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Allowance for Loan Losses.
 Allocated allowance for specifically identified problem loans Accounting by Creditors for
Impairment of a Loan as amended by SFAS No. 118.
 Formula allowance for non-homogeneous loans
  Formula allowance for large groups of smaller balance homogeneous loans
 Unallocated Allowance
 13




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
    
    trends in criticized and non-accrual assets;
    
    the levels and trends in charge-offs, recovery history and loan restructuring;
    
    changes in volumes and terms of the loan portfolio;
    
    any credit concentrations or changes in the level of such concentrations;
    
    changes in the effectiveness of the internal asset review process;
    
    changes in lending policies, procedures and practices;
    
    changes in the experience, ability and depth of lending management;
    
    changes in the national, regional and local economic conditions;
    
    changes in value of underlying collateral for collateral-dependent loans; and
    
    the trend in local real estate values.
    14




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At December 31,2007
    
    
    2006
    
    
    2005(In Thousands)Allocated reserve
    
    $
    440
    
    
    $
    16
    
    
    $
    441Formula-non homogeneous
    
    
    5,302
    
    
    
    5,296
    
    
    
    4,612Formula-homogeneous
    
    
    704
    
    
    
    560
    
    
    
    605Unallocated
    
    
    0
    
    
    
    42
    
    
    
    3$
    6,446
    
    
    $
    5,914
    
    
    $
    5,661
    15




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December 31,2007
    
    
    2006(Dollars in Thousands)Balance at beginning of period
    
    $
    5,914
    
    
    $
    5,661Charge-offs:Real estate
loansCommercial
    
    
    (112
    )
    
    
    (352
    )Consumer and other loans
    
    
    (7
    )
    
    
    (4
    )Total charge-offs
    
    
    (119
    )
    
    
    (356
    )Recoveries
    
    
    1
    
    
    
    44Net charge-offs
    
    
    (118
    )
    
    
    (312
    )Provision for losses on loans
    
    
    650
    
    
    
    565Balance at end of period
    
    $
    6,446
    
    
    $
    5,914Allowance for loan losses as a percent of total
net loans outstanding at the end of the period
    
    
    0.82
    %
    
    
    0.78
    %Ratio of net charge-offs to average loans
outstanding during the period
    
    
    0.02
    %
    
    
    0.01
    %
 16




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December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands)Amount
    
    
    Percent (1)
    
    
    Amount
    
    
    Percent (1)
    
    
    Amount
    
    
    Percent (1)Real estate loans:Single-family residential
    
    $
    368
    
    
    
    15.9
    %
    
    $
    231
    
    
    
    13.9
    %
    
    $
    265
    
    
    
    17.0
    %Multi-family residential
    
    
    422
    
    
    
    10.5
    %
    
    
    417
    
    
    
    10.4
    %
    
    
    422
    
    
    
    11.9
    %Commercial
    
    
    1,008
    
    
    
    33.7
    %
    
    
    1,054
    
    
    
    34.6
    %
    
    
    1,115
    
    
    
    37.2
    %Construction
    
    
    498
    
    
    
    16.0
    %
    
    
    452
    
    
    
    14.7
    %
    
    
    300
    
    
    
    10.4
    %Land acquisition and development
    
    
    547
    
    
    
    5.7
    %
    
    
    520
    
    
    
    7.1
    %
    
    
    272
    
    
    
    5.3
    %Commercial and industrial loans
    
    
    3,267
    
    
    
    14.9
    %
    
    
    2,869
    
    
    
    15.6
    %
    
    
    2,944
    
    
    
    14.2
    %Consumer and other loans
    
    
    336
    
    
    
    3.4
    %
    
    
    329
    
    
    
    3.7
    %
    
    
    340
    
    
    
    3.9
    %Unallocated reserve
    
    
    0
    
    
    
    0.0
    %
    
    
    42
    
    
    
    0.0
    %
    
    
    3
    
    
    
    0.1
    %Total
    
    $
    6,446
    
    
    
    100
    %
    
    $
    5,914
    
    
    
    100
    %
    
    $
    5,661
    
    
    
    100
    %
 
 (1)
    
    Percent of loans in each category to total loans 17




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Investment Activities
 General
  e.g Accounting for Certain Investments in Debt and Equity Securities,
 Mortgage-Backed and Related Securities
 18




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i.e
  Asset Backed Securities
  19




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20




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21




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Corporate Debt Securities.
 Trading Account Assets and Other Securities
    22




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2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    YieldMortgage-backed securities pass
throughs (1)Due from one to five years
    
    $
    510
    
    
    $
    497
    
    
    
    4.47
    %
    
    $
    1,039
    
    
    $
    1,011
    
    
    
    4.57
    %Due from five to ten years
    
    
    9,951
    
    
    
    9,983
    
    
    
    5.17
    %
    
    
    12,347
    
    
    
    12,187
    
    
    
    4.81
    %Due over ten years
    
    
    59,109
    
    
    
    58,621
    
    
    
    5.42
    %
    
    
    84,858
    
    
    
    83,747
    
    
    
    4.62
    %Total mortgage backed securities -
pass-throughs
    
    
    69,570
    
    
    
    69,101
    
    
    
    5.37
    %
    
    
    98,244
    
    
    
    96,945
    
    
    
    4.64
    %Collateralized mortgage obligationsDue over ten years
    
    
    114,101
    
    
    
    111,805
    
    
    
    5.61
    %
    
    
    76,182
    
    
    
    75,795
    
    
    
    5.31
    %Total collateralized mortgage obligations
    
    
    114,101
    
    
    
    111,805
    
    
    
    5.61
    %
    
    
    76,182
    
    
    
    75,795
    
    
    
    5.31
    %Commercial mortgage-backed securitiesDue over ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,312
    
    
    
    31,081
    
    
    
    4.13
    %Total commercial mortgage-back securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,312
    
    
    
    31,081
    
    
    
    4.13
    %Asset-backed securities (underlying
mortgages)Due from one to five years
    
    
    2,183
    
    
    
    1,855
    
    
    
    5.11
    %Due over ten years
    
    
    182,541
    
    
    
    166,967
    
    
    
    9.87
    %
    
    
    102,815
    
    
    
    103,159
    
    
    
    5.65
    %Total asset backed-securities
    
    
    184,724
    
    
    
    168,822
    
    
    
    9.81
    %
    
    
    102,815
    
    
    
    103,159
    
    
    
    5.65
    %Asset-backed securitiesDue from one to five years
    
    
    600
    
    
    
    563
    
    
    
    10.96
    %
    
    
    1,447
    
    
    
    1,459
    
    
    
    11.15
    %Due over ten years
    
    
    1,300
    
    
    
    1,175
    
    
    
    5.29
    %
    
    
    1,300
    
    
    
    1,290
    
    
    
    5.63
    %Total asset backed securities
    
    
    1,900
    
    
    
    1,738
    
    
    
    7.08
    %
    
    
    2,747
    
    
    
    2,749
    
    
    
    8.54
    %Total
    
    $
    370,295
    
    
    $
    351,466
    
    
    
    7.70
    %
    
    $
    311,300
    
    
    $
    309,729
    
    
    
    5.13
    %
 
 (1)
    
    The fair value at December 31, 2007, consisted of $19.3 million of Fannie Mae participation
certificates, $1.4 million of Freddie Mac participation certificates and $48.4 million of
Ginnie Mae participation certificates. At December 31, 2006, the portfolio consisted of
$23.5 million of Fannie Mae participation certificates, $14.4 million of Freddie Mac
participation certificates and $59.0 million of Ginnie Mae participation certificates. 23




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2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    YieldMortgage-backed securities pass throughsDue from five to ten years
    
    $
    53
    
    
    $
    55
    
    
    
    6.83
    %
    
    $
    66
    
    
    $
    68
    
    
    
    8.10
    %Due over ten years
    
    
    3
    
    
    
    3
    
    
    
    7.44
    %
    
    
    3
    
    
    
    3
    
    
    
    7.28
    %Total
    
    $
    56
    
    
    $
    58
    
    
    
    6.86
    %
    
    $
    69
    
    
    $
    71
    
    
    
    6.83
    %
 
 (1)
    
    Consists entirely of Fannie Mae participation certificates.  2007
    
    
    2006Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    Fair
    
    
    Average
    
    
    Amortized
    
    
    Fair
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Value
    
    
    Yield
    
    
    Cost
    
    
    Value
    
    
    YieldMortgage-backed securities
    
    $
    196
    
    
    $
    194
    
    
    
    5.79
    %
    
    $
    235
    
    
    $
    237
    
    
    
    5.18
    %Mutual funds
    
    
    635
    
    
    
    656
    
    
    
    
    
    
    
    585
    
    
    
    600
    
    
    
    Other securities (1)
    
    
    
    
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    831
    
    
    $
    2,307
    
    
    
    1.36
    %
    
    $
    820
    
    
    $
    837
    
    
    
    1.49
    %
 
 (1)
    
    The balance at December 31, 2007, and 2006 consisted of total return swaps, which we use to
enhance our returns, and interest rate contracts, which do not qualify for hedge accounting
treatment pursuant to SFAS No. 133. 24




---



##### Table of Contents



At or for the YearsEnding December 31,2007
    
    
    2006(Dollars in thousands)Beginning balance
    
    $
    309,800
    
    
    $
    387,436Mortgage-backed securities pass-throughs purchased-
available for sale
    
    
    7,305
    
    
    
    10,712Collateralized mortgage obligations purchased-
    
    
    65,368
    
    
    
    32,819Asset-backed securities purchased- available for sale
    
    
    124,860
    
    
    
    20,344Total securities purchased
    
    
    197,533
    
    
    
    63,875Less:Sale and principal payments of mortgage-backed
securities, pass throughs  available for sale
    
    
    (35,280
    )
    
    
    (36,610
    )Sale and principal payments of collateralized mortgage
obligations  available for sale
    
    
    (27,569
    )
    
    
    (37,076
    )Sale and principal payments of commercial mortgage-
backed securities  available for sale
    
    
    (31,054
    )
    
    
    (8,376
    )Sale and principal payments of asset-backed securities
available for sale
    
    
    (42,015
    )
    
    
    (59,139
    )Principal payments of mortgage-backed securities,
pass throughs  held to maturity
    
    
    (13
    )
    
    
    (13
    )Total securities sold and repaid
    
    
    (135,931
    )
    
    
    (141,214
    )Change in net unrealized gain (loss) on securities
available for sale and held to maturity
    
    
    (17,259
    )
    
    
    1,766Other-than-temporary loss on available for sale
securities
    
    
    (2,153
    )
    
    
    Amortization of premium
    
    
    (466
    )
    
    
    (2,063
    )Ending balance
    
    $
    351,524
    
    
    $
    309,800
 25




---



##### Table of Contents



Sources of Funds
 General
 Deposits
   Amount(In Thousands)Certificates of deposit maturing:Three months or less
    
    $
    165,766Over three through six months
    
    
    138,255Over six through twelve months
    
    
    84,693Over twelve months
    
    
    7,845Total
    
    $
    396,559
 26




---



##### Table of Contents



At December 31,2007
    
    
    2006
    
    
    2005(In Thousands)0.00% to 2.99%
    
    $
    2,120
    
    
    $
    2,763
    
    
    $
    65,0413.00% to 3.99%
    
    
    49,505
    
    
    
    24,339
    
    
    
    301,2874.00% to 4.99%
    
    
    397,194
    
    
    
    192,937
    
    
    
    109,3005.00% to 5.99%
    
    
    212,268
    
    
    
    336,245
    
    
    
    6,5846.00% to 6.99%
    
    
    
    
    
    
    
    
    
    
    7.00% and higher
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    661,087
    
    
    $
    556,284
    
    
    $
    482,212
  Over six
    
    
    Over One
    
    
    Over TwoMonths
    
    
    Year
    
    
    YearsSix Months
    
    
    Through
    
    
    Through
    
    
    Through
    
    
    Over Threeand Less
    
    
    One Year
    
    
    Two Years
    
    
    Three Years
    
    
    Years
    
    
    Total(In Thousands)0.00% to 2.99%
    
    $
    1,842
    
    
    $
    274
    
    
    $
    4
    
    
    $
    
    
    
    $
    
    
    
    $
    2,1203.00% to 3.99%
    
    
    42,330
    
    
    
    3,648
    
    
    
    3,328
    
    
    
    188
    
    
    
    11
    
    
    
    49,5054.00% to 4.99%
    
    
    259,333
    
    
    
    125,789
    
    
    
    5,683
    
    
    
    2,935
    
    
    
    3,454
    
    
    
    397,1945.00% to 5.99%
    
    
    198,770
    
    
    
    11,330
    
    
    
    1,077
    
    
    
    108
    
    
    
    983
    
    
    
    212,2686.00% to 6.99%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.00% and higher
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    502,275
    
    
    $
    141,041
    
    
    $
    10,092
    
    
    $
    3,231
    
    
    $
    4,448
    
    
    $
    661,087
 Borrowings.
  27




---



##### Table of Contents



At or For the Year EndedDecember 31,2007
    
    2006
    
    2005(Dollars in Thousands)Securities sold under agreements to repurchase:Average balance outstanding
    
    $
    5,576
    
    
    $
    1,212
    
    
    $
    10,853Maximum amount outstanding at any month-end
during the period
    
    
    6,729
    
    
    
    6,141
    
    
    
    22,298Balance outstanding at end of period
    
    
    4,981
    
    
    
    6,141
    
    
    
    13Average interest rate during the period
    
    
    3.61
    %
    
    
    3.93
    %
    
    
    1.49
    %Average interest rate at end of period
    
    
    3.32
    %
    
    
    4.11
    %
    
    
    1.05
    %
 28




---



##### Table of Contents



At or For the Year EndedDecember 31,2007
    
    2006
    
    2005(Dollars in Thousands)Short-term FHLB advances:Average balance outstanding
    
    $
    215,544
    
    
    $
    267,452
    
    
    $
    295,116Maximum amount outstanding at any month-end
during the period
    
    
    262,000
    
    
    
    310,000
    
    
    
    339,050Balance outstanding at end of period
    
    
    228,000
    
    
    
    238,000
    
    
    
    300,000Average interest rate during the period
    
    
    5.18
    %
    
    
    5.05
    %
    
    
    3.26
    %Average interest rate at end of period
    
    
    4.27
    %
    
    
    5.29
    %
    
    
    4.03
    %
 
 Subsidiaries
      
 Employees
  
 Regulation of Harrington West Financial Group, Inc.
 General
 Activities Restriction Test
 29




---



##### Table of Contents



Restrictions on Acquisitions
  
 Regulation of Los Padres Bank
 General
   Insurance of Deposit Accounts
 30




---



##### Table of Contents



Regulatory Capital Requirements and Prompt Corrective Action
    31




---



##### Table of Contents




    
    tangible capital equal to at least 1.5% of total adjusted assets,
    
    leverage capital (core capital) equal to 4% of total adjusted assets, and
    
    risk-based capital equal to 8% of total risk-weighted assets.
  32




---



##### Table of Contents



Tangible Capital(1)
    
    
    Tier 1 Leverage Capital(1)
    
    
    Risk-Based Capital(1)Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Actual regulatory capital
    
    $
    85,457
    
    
    
    6.93
    %
    
    $
    85,457
    
    
    
    6.93
    %
    
    $
    91,757
    
    
    
    10.45
    %Minimum regulatory capital
    
    
    18,506
    
    
    
    1.50
    
    
    
    49,351
    
    
    
    4.00
    
    
    
    70,273
    
    
    
    8.00Excess regulatory capital
    
    $
    66,951
    
    
    
    5.43
    %
    
    $
    36,106
    
    
    
    2.93
    %
    
    $
    21,484
    
    
    
    2.45
    %
 
 (1)
    
    Tangible capital is computed as a percentage of tangible assets and Tier 1 leverage capital is
computed as a percentage of the adjusted total assets, both of which amounted to $85.0 million
as of December 31, 2007.  Loans-to-One Borrower Limitations
 
    
    the savings association is in compliance with its capital requirements;
    
    the loans comply with applicable loan-to-value requirements; and
    
    the aggregate amount of loans made under this authority does not exceed 150% of
unimpaired capital and surplus.
  Qualified Thrift Lender Test
 33




---



##### Table of Contents



Affiliate Transactions
 Capital Distribution Limitations
 
    
    be required to file an application and await approval from the OTS before it makes a
capital distribution;
    
    be required to file a notice 30 days before the capital distribution; or
    
    be permitted to make the capital distribution without notice or application to the
OTS.
  
    
    it is not eligible for expedited treatment of its other applications under OTS
regulations;
    
    the total amount of all of capital distributions, including the proposed capital
distribution, for the applicable calendar year exceeds its net income for that year to
date plus retained net income for the preceding two years;
    
    it would not be at least adequately capitalized, under the prompt corrective action
regulations of the OTS following the distribution; or
    
    the associations proposed capital distribution would violate a prohibition
contained in any applicable statute, regulation, or agreement between the savings
association and the OTS, or the FDIC, or violate a condition imposed on the savings
association in an OTS-approved application or notice.
  
    
    would not be well capitalized under the prompt corrective action regulations of the
OTS following the distribution;
    
    the proposed capital distribution would reduce the amount of or retire any part of
the savings associations common or preferred stock or retire any part of debt
instruments like notes or debentures included in capital, other than regular payments
required under a debt instrument approved by the OTS; or
    
    the savings association is a subsidiary of a savings and loan holding company.
  34




---



##### Table of Contents



Community Reinvestment Act and the Fair Lending Laws
 Federal Home Loan Bank System
 
    
    1% of its aggregate outstanding principal amount of its residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each calendar year;
or
    
    5% of its FHLB advances or borrowings.
  Federal Reserve System
 Activities of Subsidiaries
 
 Legislation
 USA Patriot Act of 2001.
 35




---



##### Table of Contents



Financial Services Modernization Legislation.
     Sarbanes-Oxley Act
  36




---



##### Table of Contents



Item 1A. Risk Factors
   The current changing economic environment poses significant challenges for us.
  
    
    Loan delinquencies, problem assets and foreclosures may increase;
    
    Demand for our products and services may decline;
    
    Low cost or non-interest bearing deposits may decrease; and
    
    Collateral for our loans, especially real estate, may decline in value, in turn
reducing customers borrowing power, and reducing the value of assets and
collateral associate with our existing loans.
 Our business is subject to various lending risks which could adversely impact our results of
operations and financial condition.
 Our commercial real estate and multi-family residential loans involve higher principal amounts
than other loans, and repayment of these loans may be dependent on factors outside our control or
the control of our borrowers.
 37




---



##### Table of Contents



Repayment of our commercial and industrial loans is often dependent on the cash flows of the
borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in
value.
 Our construction loans are based upon estimates of costs and value associated with the
complete project. These estimates may be inaccurate.
 Our consumer loans generally have a higher risk of default than our other loans
 Our investment portfolio includes securities and total rate of return swaps which are sensitive to
interest rates and spread changes and which we may be required to sell at a loss to meet our
liquidity needs.
   38




---



##### Table of Contents



Our allowance for loan losses may prove to be insufficient to absorb probable incurred losses
inherent in our loan portfolio.
  
    
    cash flow of the borrower and/or the project being financed;
    
    in the case of a collateralized loan, the changes and uncertainties as to the future
value of the collateral;
    
    the credit history of a particular borrower;
    
    changes in economic and industry conditions; and
    
    the duration of the loan.
   Our business is subject to interest rate risk and variations in interest rates may negatively
affect our financial performance.
  39




---



##### Table of Contents




    
    inflation;
    
    slow or stagnant economic growth or recession;
    
    unemployment;
    
    money supply and the monetary policies of the Federal Reserve Board;
    
    international disorders; and
    
    instability in domestic and foreign financial markets.
  Our business is subject to economic and other general risks which may adversely impact our results
of operations and financial condition.
 Changes in economic conditions, in particular an economic slowdown in the markets in which we
operate, could hurt our business
 
    
    loan delinquencies may increase;
    
    problem assets and foreclosures may increase;
    
    demand for our products and services may decline;
    
    low cost or noninterest-bearing deposits may decrease; and
    
    collateral, for loans made by us, especially real estate, may decline in value, in
turn reducing customers borrowing power.
 40




---



##### Table of Contents



A downturn in the real estate market may adversely affect our business.
 We are exposed to risk of environmental liabilities with respect to properties to which we
take title
 We may suffer losses in our loan portfolio despite our underwriting practices
 We invest in interest rate contracts which can cause losses to us in excess of the value at which
we carry these investments.
   
    
    basis or spread risk, which is the risk of loss associated with variations in the
spread between the interest rate contract and the hedged item;
    
    credit risk, which is the risk of the insolvency or other inability of another party
to the transaction to perform its obligations;
 41




---



##### Table of Contents




    
    interest rate risk;
    
    volatility risk, which is the risk that the expected uncertainty relating to the
price of the underlying asset differs from what is anticipated; and
    
    liquidity risk.
  We are subject to extensive regulation which could adversely affect our business.
  Our continued pace of growth may require us to raise additional capital in the future, but that
capital may not be available when it is needed.
   Our plan to expand the franchise with additional banking offices in California, Kansas and Arizona
may not be successful, which would negatively affect our growth strategy and prospects, and
profitability.
  42




---



##### Table of Contents



We are dependent on key individuals and our ability to attract and retain banking professionals
with significant experience in our local markets.
   We face strong competition from other financial institutions, financial service companies and other
companies that offer banking services which can hurt our business.
   43




---



##### Table of Contents



We continually encounter technological change, and we may have fewer resources than many of our
competitors to continue to invest in technological improvements.
  Our ability to service our Trust Preferred Securities, pay dividends, and otherwise pay our
obligations as they come due is substantially dependent on capital distributions from Los Padres
Bank, and these distributions are subject to regulatory limits and other restrictions.
  Provisions in our certificate of incorporation and bylaws limit the authority of our stockholders,
and therefore minority stockholders may not be able to significantly influence our governance or
affairs.
    44




---



##### Table of Contents



Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 Office Locations
  Leased/Owned
    
    Date Office
    
    Total Deposits atand
    
    Opened or Purchase
    
    December 31, 2007Office Location
    
    Lease Expiration Date
    
    Date
    
    (Dollars in thousands)Solvang Branch and Administrative Offices
    
    Lease expires on
1/31/10 with one option for five years
    
    June 1983
    
    $
    169,370610 Alamo Pintado RoadSolvang, CA 93463Loan Center
    
    Lease expires on
1/31/10 with one option for five years
    
    March 1998
    
    
    1992 Old Mission DriveSolvang, CA 93463Pismo Branch
    
    Lease expires on 2/9/08
with two options for five years each
    
    May 1988
    
    
    83,309831 Oak Park BoulevardPismo Beach, CA 93449Atascadero Branch
    
    Lease expires on
4/30/11 with three options for five years each
    
    May 1991
    
    
    58,8927315 El Camino RealAtascadero, CA 93422Santa Maria Branch
    
    Lease expires on
6/30/12 with three options for five years each
    
    July 1992
    
    
    71,775402 E. Main StreetSanta Maria, CA 93454Buellton Branch
    
    Lease expires on
11/2/12 with one option for five years
    
    December 1997
    
    
    21,362234 E. Highway 246, Suite 109Buellton, CA 93427Goleta Branch
    
    Lease expires on
10/31/08 with three options for five years each
    
    February 1999
    
    
    93,718197 North FairviewGoleta, CA 93117San Luis Branch
    
    Lease expires on
12/31/10 with one option for five years
    
    January 2001
    
    
    30,7161322 Madonna RoadSan Luis Obispo, CA 93405Nipomo Branch
    
    Lease expires on
12/31/10 with two options for five years each
    
    July 2001
    
    
    29,991542 W. Teft RoadNipomo, CA 93444Storage Area
    
    Month-to-month Lease
with no expiration date
    
    June 1992
    
    
    1120 Mission DriveSolvang, CA 93463
 45




---



##### Table of Contents



Leased/Owned
    
    Date Office
    
    Total Deposits atand
    
    Opened or Purchase
    
    December 31, 2007Office Location
    
    Lease Expiration Date
    
    Date
    
    (Dollars in thousands)Human Resources, Compliance &
    
    Lease expires on
1/31/10 with one option for five years
    
    March 2000
    
    
    Training RoomSuite A-4 and A-51984 Old Mission Drive

Solvang, CA 93463Loan Origination Center
    
    Lease expires on
1/31/10 with one option for five years
    
    April 2002
    
    
    Suite B-121988 Old Mission DriveSolvang, CA 93463Harrington Bank
    
    Lease expires on
12/31/10 with four options for five years each
    
    November 2001
    
    
    67,2666300 Nall AvenueShawnee Mission, KS 66208Harrington
Wealth Management Company
    
    Lease expires on 10/31/11
    
    November 2001
    
    
    10150 Lantern Road, Suite 150

Fishers, IN 46038Arizona  Scottsdale Branch
    
    Lease expires on
9/30/12 with two options for five years each
    
    November 2002
    
    
    34,26610555 North 114th Street, Suite 100Scottsdale, AZ 85295Ventura Branch
    
    Lease expires on
11/27/08 with four options for five years each
    
    May 2004
    
    
    36,7511171 S. Victoria Ave., Suite AVentura, CA 93003Thousand Oaks Branch
    
    Lease expires on
5/31/10 with three options for five years each
    
    June 1, 2005
    
    
    30,5962920 Thousand Oaks Blvd, Suite AThousand Oaks, CA 91360Storage Area
    
    Month-to Month Lease with no expiration date
    
    August 2004
    
    
    10760 North 116th StreetScottsdale, AZ 85259Storage Area
    
    Month-to Month Lease with no expiration date10555 North 114th Street
    

    
    August 2006
    
    
    Scottsdale, AZ 85259Arizona  Northsight Branch
    
    Owned
    
    December 17, 2004
    
    
    28,42114100 N. Northsight Blvd.

Scottsdale, AZ 85260
 46




---



##### Table of Contents



Leased/Owned
    
    Date Office
    
    Total Deposits atand
    
    Opened or Purchase
    
    December 31, 2007Office Location
    
    Lease Expiration Date
    
    Date
    

(Dollars in thousands)Ojai Branch
    
    Owned
    
    November 1997
    
    
    48,735110 South Ventura Street 

Ojai, CA 93023Hanalei Bay Condo
    
    Owned
    
    July 1994
    
    
    5380 Honiki Road
Princeville, KauaiMetcalf Branch
    
    Owned
    
    December 2003
    
    
    21,25014300 Metcalf
Overland Park, KS 66223Olathe Branch
    
    Owned
    
    November 2005
    
    
    9,915College & Pflumm Rds
Olathe, KS 66215Surprise Branch
    
    Owned
    
    January 2006
    
    
    Bell Road & 114th Ave.
Surprise, AZ 85374Deer Valley Branch
    
    Owned
    
    April 2006
    
    
    NWC 19th Ave. & Pinnacle Peak Rd.
Phoenix, AZGilbert Branch
    
    Owned
    
    December 2006
    
    
    Lindsay & Warner Rds
Gilbert, AZ$
    836,333
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  47




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
 Stock Information
   Quarter Ended
    
    High
    
    Low
    
    Dividends DeclaredMarch 31, 2006
    
    $
    17.17
    
    
    $
    15.46
    
    
    $
    .125June 30, 2006
    
    
    16.49
    
    
    
    15.50
    
    
    
    .125September 30, 2006
    
    
    16.98
    
    
    
    15.73
    
    
    
    .125December 31, 2006
    
    
    18.49
    
    
    
    16.33
    
    
    
    .125March 31, 2007
    
    
    18.00
    
    
    
    16.75
    
    
    
    .125June 30, 2007
    
    
    17.80
    
    
    
    15.71
    
    
    
    .425September 30, 2007
    
    
    16.30
    
    
    
    14.50
    
    
    
    December 31, 2007
    
    
    12.46
    
    
    
    11.01
    
    
    
    .125
 Dividends
   Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  48




---



##### Table of Contents



Item 6. Selected Financial Data.
   At or For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Selected Financial Condition Data:Total assets
    
    $
    1,223,402
    
    
    $
    1,154,473
    
    
    $
    1,140,187
    
    
    $
    1,081,330
    
    
    $
    974,799Loans receivable, net
    
    
    782,626
    
    
    
    757,033
    
    
    
    672,890
    
    
    
    598,442
    
    
    
    518,496Securities available for sale
    
    
    351
    
    
    
    309,729
    
    
    
    387,352
    
    
    
    431,206
    
    
    
    398,691Securities held to maturity
    
    
    56
    
    
    
    69
    
    
    
    80
    
    
    
    93
    
    
    
    222Trading account assets
    
    
    2,307
    
    
    
    837
    
    
    
    975
    
    
    
    1,046
    
    
    
    2,111Deposits
    
    
    836,333
    
    
    
    732,757
    
    
    
    669,145
    
    
    
    598,182
    
    
    
    570,697Federal Home Loan Bank advances
    
    
    247,000
    
    
    
    257,000
    
    
    
    319,000
    
    
    
    316,000
    
    
    
    262,500Securities sold under repurchase agreements
    
    
    49,981
    
    
    
    65,141
    
    
    
    59,013
    
    
    
    79,689
    
    
    
    65,728Other debt
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    15,464Stockholders equity
    
    
    55,042
    
    
    
    67,698
    
    
    
    59,574
    
    
    
    52,660
    
    
    
    48,076Shares outstanding
    
    
    5,554,003
    
    
    
    5,460,393
    
    
    
    5,384,843
    
    
    
    5,278,934
    
    
    
    5,206,109Selected Income Statement Data:Interest income
    
    $
    80,124
    
    
    $
    74,095
    
    
    $
    62,056
    
    
    $
    52,266
    
    
    $
    46,434Interest expense
    
    
    48,271
    
    
    
    43,341
    
    
    
    31,898
    
    
    
    22,718
    
    
    
    20,308Net interest income
    
    
    31,853
    
    
    
    30,754
    
    
    
    30,158
    
    
    
    29,548
    
    
    
    26,126Provision for loan losses
    
    
    650
    
    
    
    565
    
    
    
    435
    
    
    
    650
    
    
    
    790Net interest income after provision for loan losses
    
    
    31,203
    
    
    
    30,189
    
    
    
    29,723
    
    
    
    28,898
    
    
    
    25,336Other income:Net gain (loss) on sale of available-for-sale securities
    
    
    (1,004
    )
    
    
    (613
    )
    
    
    933
    
    
    
    690
    
    
    
    Income (loss) from trading assets
    
    
    (2,798
    )
    
    
    1,024
    
    
    
    3
    
    
    
    571
    
    
    
    2,647Other-than-temporary loss
    
    
    (2,153
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )
    
    
    (1,610
    )Other gain (loss)
    
    
    (1
    )
    
    
    (39
    )
    
    
    (15
    )
    
    
    (57
    )
    
    
    30Banking fee income and other income(1)
    
    
    4,326
    
    
    
    4,085
    
    
    
    3,948
    
    
    
    3,148
    
    
    
    4,108Total other income
    
    
    (1,630
    )
    
    
    4,457
    
    
    
    4,869
    
    
    
    4,163
    
    
    
    5,175Other expenses:Salaries and employee benefits
    
    
    13,157
    
    
    
    12,478
    
    
    
    11,166
    
    
    
    10,522
    
    
    
    10,086Premises and equipment
    
    
    3,875
    
    
    
    3,744
    
    
    
    3,884
    
    
    
    3,153
    
    
    
    2,722Other expenses(2)
    
    
    5,892
    
    
    
    5,938
    
    
    
    6,026
    
    
    
    5,741
    
    
    
    5,041Total other expense
    
    
    22,924
    
    
    
    22,160
    
    
    
    21,076
    
    
    
    19,416
    
    
    
    17,849Income before income taxes
    
    
    6,649
    
    
    
    12,486
    
    
    
    13,516
    
    
    
    13,645
    
    
    
    12,662Income taxes
    
    
    2,481
    
    
    
    4,258
    
    
    
    5,180
    
    
    
    5,436
    
    
    
    5,249Net income
    
    $
    4,168
    
    
    $
    8,228
    
    
    $
    8,336
    
    
    $
    8,209
    
    
    $
    7,413Common Stock Summary:Basic earnings per share
    
    $
    0.75
    
    
    $
    1.51
    
    
    $
    1.56
    
    
    $
    1.56
    
    
    $
    1.43Diluted earnings per share
    
    $
    0.74
    
    
    $
    1.48
    
    
    $
    1.48
    
    
    $
    1.46
    
    
    $
    1.36Dividends per share
    
    $
    0.68
    
    
    $
    0.50
    
    
    $
    0.49
    
    
    $
    0.88
    
    
    $
    0.21Stockholders equity per share
    
    $
    9.91
    
    
    $
    12.40
    
    
    $
    11.06
    
    
    $
    9.98
    
    
    $
    9.23Diluted weighted average shares outstanding
    
    
    5,637,415
    
    
    
    5,572,664
    
    
    
    5,620,556
    
    
    
    5,603,680
    
    
    
    5,455,002Selected Operating Data(3):Performance Ratios and Other Data:Return on average assets
    
    
    0.36
    %
    
    
    0.72
    %
    
    
    0.75
    %
    
    
    0.80
    %
    
    
    0.82
    %Return on average equity
    
    
    6.29
    %
    
    
    12.85
    %
    
    
    14.61
    %
    
    
    16.30
    %
    
    
    16.37
    %Average equity to average assets
    
    
    5.71
    %
    
    
    5.62
    %
    
    
    5.14
    %
    
    
    4.87
    %
    
    
    4.93
    %Interest rate spread (4)
    
    
    2.60
    %
    
    
    2.56
    %
    
    
    2.63
    %
    
    
    2.77
    %
    
    
    2.90
    %Net interest margin (4)
    
    
    2.90
    %
    
    
    2.83
    %
    
    
    2.83
    %
    
    
    2.93
    %
    
    
    3.07
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    106.81
    %
    
    
    106.82
    %
    
    
    106.61
    %
    
    
    107.09
    %
    
    
    107.03
    %Total noninterest expenses to average total assets
    
    
    1.97
    %
    
    
    1.94
    %
    
    
    1.86
    %
    
    
    1.88
    %
    
    
    2.04
    %Efficiency ratio(5)
    
    
    63.36
    %
    
    
    63.61
    %
    
    
    61.80
    %
    
    
    59.38
    %
    
    
    59.04
    %
 49




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##### Table of Contents



At or For the Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Asset Quality Rations (6):Non-performing assets and troubled debt restructurings to total
assets
    
    
    0.15
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Non-performing loans and troubled debt restructurings to total loans
    
    
    0.23
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.02
    %
    
    
    0.00
    %Allowance for loan losses to total loans
    
    
    0.82
    %
    
    
    0.78
    %
    
    
    0.84
    %
    
    
    0.87
    %
    
    
    0.88
    %Net charge-offs to average loans outstanding
    
    
    0.02
    %
    
    
    0.01
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Bank Regulatory Capital Ratios:Tier 1 risk-based capital ratio
    
    
    9.73
    %
    
    
    10.08
    %
    
    
    9.96
    %
    
    
    10.37
    %
    
    
    10.20
    %Total risk-based capital ratio
    
    
    10.45
    %
    
    
    10.78
    %
    
    
    10.69
    %
    
    
    11.13
    %
    
    
    10.99
    %Tier 1 leverage capital ratio
    
    
    6.93
    %
    
    
    7.41
    %
    
    
    6.78
    %
    
    
    6.68
    %
    
    
    6.08
    %
 
 (1)
    
    Consists of service charges, wholesale mortgage banking income, other commissions and
fees, other miscellaneous noninterest income and increase in
cash surrender value of life insurance.(2)
    
    Consists of computer services, consulting fees, marketing and other miscellaneous
noninterest expenses.(3)
    
    With the exception of return on average assets and return on average equity, all
ratios are based on average daily balances.(4)
    
    Interest rate spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average rate on interest-
bearing liabilities. Net interest margin represents net interest income as a percentage of
average interest-earning assets.(5)
    
    Efficiency ratio represents noninterest expenses as a percentage of the aggregate of net
interest income before provision for loan losses and noninterest income, excluding gains on
sales of securities, deposits and loans.(6)
    
    Non-performing loans generally consist of non-accrual loans and non-performing assets
generally consist of non-performing loans and real estate acquired by foreclosure or
deed-in-lieu thereof.  
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 
 Mission
  
 Multiple Market Strategy
  1.
    
    Diversification of the loan portfolio and economic and credit risk.2.
    
    Options to capitalize on the most favorable growth markets.3.
    
    The capability to deploy the Companys diversified product mix and
emphasize those products that are best suited for the market.4.
    
    The ability to price products strategically among the markets in an attempt
to maximize profitability.
 50




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##### Table of Contents



Product Line Diversification
   
 Modern Financial Skills
  51




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##### Table of Contents



Control Banking Risks
  
 Performance Measurement
  
 Profitability Drivers
  1.
    
    Growing our non-costing consumer and commercial deposits and continuing to
change the mix of deposits to fewer time based certificates of deposit. This strategy
is expected to lower our deposit cost and increase our net interest margin over time.
We have emphasized the development of low cost business accounts and our full-service,
free checking and money market accounts for consumers.2.
    
    Changing the mix of our loans to higher risk-adjusted spread earning categories
such as business lending, commercial real estate lending, small tract construction and
construction-to-permanent loan lending, and selected consumer lending activities such
as home equity line of credit loans.3.
    
    Diversifying and growing our banking fee income through existing and new fee
income sources such as our overdraft protection program and other deposit fees, loan
fee income from mortgage banking, prepayment penalty fees and other loan fees,
Harrington Wealth Management trust and investment fees, and other retail banking fees.4.
    
    Achieving a high level of performance on our investment portfolio by earning a
pre-tax total return consisting of interest income plus net gains and losses on
securities and related total return swaps over one month LIBOR of approximately 1.00%
per annum. With our skills in investment and risk management, we utilize excess equity
capital by investing in a high credit quality, mortgage and related securities
portfolio managed to a short duration of three to six months. From 2001 to 2004 the
investment portfolios performance exceeded our goals and contributed to our record
profit performance due to favorable selection of securities and spread tightening on
these securities. From 2005 to 2006 the investment portfolio underperformed our goal
but still earned a total return in excess of one-month LIBOR. In 2007 the investment
portfolio significantly underperformed our goal as a result of the severe credit market
dislocation.
 52




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##### Table of Contents



5.
    
    Controlling interest rate risk of the institution and seeking high credit
quality of the loan and investment portfolios. The Bank seeks to hedge the
marked-to-market value of equity and net interest income to changes in interest rates
by matching the effective duration of our assets to our liabilities using risk
management tools and practices. The company maintains rigorous loan underwriting
standards and credit risk management and review process. As such, non-performing asset
levels have been low with corresponding low loan charge-offs.
  
 Critical Accounting Policies
 General
  Allowance for loan losses Accounting for Contingencies
 53




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##### Table of Contents



Trading and Investment Portfolio
 Hedging Activity.
 
 Results of Operations
    54




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##### Table of Contents



Net Interest Income
  55




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##### Table of Contents



Average Balances, Net Interest Income, Yields Earned and Rates Paid
  Year Ended2007
    
    2006(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate
    
    
    Balance
    
    
    Income
    
    
    RateInterest earning assets:Loans receivable (1)
    
    $
    764,056
    
    
    $
    60,317
    
    
    
    7.90
    %
    
    $
    715,520
    
    
    $
    54,963
    
    
    
    7.68
    %FHLB stock
    
    
    13,169
    
    
    
    692
    
    
    
    5.25
    %
    
    
    15,395
    
    
    
    826
    
    
    
    5.37
    %Securities and trading account assets (2)
    
    
    320,246
    
    
    
    18,855
    
    
    
    5.89
    %
    
    
    347,917
    
    
    
    18,051
    
    
    
    5.19
    %Cash and cash equivalents (3)
    
    
    12,020
    
    
    
    260
    
    
    
    2.16
    %
    
    
    11,252
    
    
    
    255
    
    
    
    2.27
    %Total interest earning assets
    
    
    1,109,491
    
    
    
    80,124
    
    
    
    7.23
    %
    
    
    1,090,084
    
    
    
    74,095
    
    
    
    6.80
    %Non-interest-earning assets
    
    
    51,696
    
    
    
    
    
    
    
    
    
    
    
    49,316Total assets
    
    $
    1,161,187
    
    
    
    
    
    
    
    
    
    
    $
    1,139,400Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    100,454
    
    
    $
    2,656
    
    
    
    2.64
    %
    
    $
    99,226
    
    
    $
    2,214
    
    
    
    2.23
    %Passbook accounts and certificates of deposit
    
    
    623,088
    
    
    
    30,217
    
    
    
    4.85
    %
    
    
    548,784
    
    
    
    23,376
    
    
    
    4.26
    %Total deposits
    
    
    723,542
    
    
    
    32,873
    
    
    
    4.54
    %
    
    
    648,010
    
    
    
    25,590
    
    
    
    3.95
    %FHLB advances (4)
    
    
    234,544
    
    
    
    11,598
    
    
    
    4.94
    %
    
    
    286,452
    
    
    
    13,912
    
    
    
    4.86
    %Reverse repurchase agreements
    
    
    54,910
    
    
    
    1,723
    
    
    
    3.18
    %
    
    
    60,212
    
    
    
    1,819
    
    
    
    3.06
    %Other borrowings (5)
    
    
    25,774
    
    
    
    2,077
    
    
    
    8.17
    %
    
    
    25,774
    
    
    
    2,020
    
    
    
    7.95
    %Total interest-bearing liabilities
    
    
    1,038,770
    
    
    
    48,271
    
    
    
    4.63
    %
    
    
    1,020,448
    
    
    
    43,341
    
    
    
    4.24
    %Non-interest-bearing deposits
    
    
    47,581
    
    
    
    
    
    
    
    
    
    
    
    48,660Non-interest-bearing liabilities
    
    
    8,544
    
    
    
    
    
    
    
    
    
    
    
    6,265Total liabilities
    
    
    1,094,895
    
    
    
    
    
    
    
    
    
    
    
    1,075,373Stockholders equity
    
    
    66,292
    
    
    
    
    
    
    
    
    
    
    
    64,027Total liabilities and stockholders equity
    
    $
    1,161,187
    
    
    
    
    
    
    
    
    
    
    $
    1,139,400Net interest-earning assets (liabilities)
    
    $
    70,721
    
    
    
    
    
    
    
    
    
    
    $
    69,636Net interest income/interest rate spread
    
    
    
    
    
    $
    31,853
    
    
    
    2.60
    %
    
    
    
    
    
    $
    30,754
    
    
    
    2.56
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.90
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Ratio of average interest-earning assets to average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.81
    %
    
    
    
    
    
    
    
    
    
    
    106.82
    %
 
 (1)
    
    Includes non-accrual loans. Interest income includes fees earned on loans originated and
accretion of deferred loan fees.(2)
    
    Consists of securities classified as available for sale and held to maturity and trading
account assets. Excludes SFAS 115 adjustments to fair value, which are included in other
assets.(3)
    
    Consists of cash and due from banks and federal funds sold.(4)
    
    Interest on FHLB advances is net of hedging costs. We use interest rate swaps to hedge the
short-term repricing characteristics of our floating-rate FHLB advances. See Asset and
Liability Management.(5)
    
    Consists of subordinated debt. 56




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##### Table of Contents



Rate/Volume Analysis
  2007 over 2006
    
    2006 over 2005Increase (decrease) due to
    
    Total Net
    
    Increase (decrease) due to
    
    Total NetRate/
    
    Increase
    
    
    
    
    
    
    
    
    
    Rate/
    
    Increase(In thousands)
    
    Rate
    
    Volume
    
    Volume
    
    (Decrease)
    
    Rate
    
    Volume
    
    Volume
    
    (Decrease)Increase (decrease) in:Interest -earning assets:Loans receivable (1)
    
    $
    1,574
    
    
    $
    3,728
    
    
    $
    52
    
    
    $
    5,354
    
    
    $
    5,601
    
    
    $
    5,374
    
    
    $
    719
    
    
    $
    11,694FHLB stock
    
    
    (18
    )
    
    
    (120
    )
    
    
    4
    
    
    
    (134
    )
    
    
    162
    
    
    
    (37
    )
    
    
    (8
    )
    
    
    117Securities and trading account assets (2)
    
    
    2,435
    
    
    
    (1,436
    )
    
    
    (195
    )
    
    
    804
    
    
    
    3,311
    
    
    
    (2,665
    )
    
    
    (509
    )
    
    
    137Cash and cash equivalents (3)
    
    
    (12
    )
    
    
    17
    
    
    
    
    
    
    
    5
    
    
    
    54
    
    
    
    28
    
    
    
    9
    
    
    
    91Total net change in income 
on interest-earning assets
    
    
    3,979
    
    
    
    2,189
    
    
    
    (139
    )
    
    
    6,029
    
    
    
    9,128
    
    
    
    2,700
    
    
    
    211
    
    
    
    12,039Interest-bearing liabilities:DepositsNOW and money market accounts
    
    
    407
    
    
    
    27
    
    
    
    8
    
    
    
    442
    
    
    
    730
    
    
    
    (332
    )
    
    
    (129
    )
    
    
    269Passbook accounts and certificates of deposit
    
    
    3,238
    
    
    
    3,165
    
    
    
    438
    
    
    
    6,841
    
    
    
    6,513
    
    
    
    2,122
    
    
    
    1,018
    
    
    
    9,653Total deposits
    
    
    3,645
    
    
    
    3,192
    
    
    
    446
    
    
    
    7,283
    
    
    
    7,243
    
    
    
    1,790
    
    
    
    889
    
    
    
    9,922FHLB advances (4)
    
    
    229
    
    
    
    (2,523
    )
    
    
    (20
    )
    
    
    (2,314
    )
    
    
    2,544
    
    
    
    (1,118
    )
    
    
    (246
    )
    
    
    1,180Reverse Repurchase Agreements
    
    
    18
    
    
    
    (162
    )
    
    
    48
    
    
    
    (96
    )
    
    
    146
    
    
    
    (263
    )
    
    
    (39
    )
    
    
    (156
    )Other borrowings (5)
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    57
    
    
    
    526
    
    
    
    
    
    
    
    (29
    )
    
    
    497Total net change in expense on interest-bearing liabilities
    
    
    3,892
    
    
    
    507
    
    
    
    531
    
    
    
    4,930
    
    
    
    10,459
    
    
    
    409
    
    
    
    575
    
    
    
    11,443Change in net interest income
    
    $
    87
    
    
    $
    1,682
    
    
    $
    (670
    )
    
    $
    1,099
    
    
    $
    (1,331
    )
    
    $
    2,291
    
    
    $
    (364
    )
    
    $
    596
 
 1)
    
    Includes fees earned on loans originated and accretion of deferred loan fees.2)
    
    Consists of interest income from securities classified as available for sale, held to
maturity and trading account assets.3)
    
    Consists of interest income from cash and due from banks and Federal funds sold.4)
    
    Interest expense on FHLB advances is net of hedging costs. Hedging costs include
interest income and expense and ineffectiveness adjustments for cash flow hedges.
The Company uses pay-fixed, receive floating LIBOR swaps to hedge the short term
repricing characteristics of the floating FHLB advances.5)
    
    Consists of interest expense on other debt 57




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##### Table of Contents



Interest Income
 Interest Expense
 Provision for Loan Losses
 Other Income
  Year Ended December 31,2007
    
    
    2006Net gain (loss) on sale of available-for-sale securities
    
    $
    (1,004
    )
    
    $
    (613
    )Income from trading assets
    
    
    (2,798
    )
    
    
    1,024Other-than-temporary loss
    
    
    (2,153
    )
    
    
    Other gain (loss)
    
    
    (1
    )
    
    
    (39
    )Increase in cash surrender value of insurance
    
    
    873
    
    
    
    745Banking fee income and other income (1)
    
    
    3,453
    
    
    
    3,340Total other income
    
    $
    (1,630
    )
    
    $
    4,457
 
 (1)
    
    Consists primarily of banking fee income such as service charges and fees on
deposit accounts, fees from our trust and investment management services, other
miscellaneous fees and increase in cash surrender value of life insurance.  58




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##### Table of Contents



Banking Fee & Other Income(Dollars in thousands)%
    
    
    
    
    
    
    
    
    
    
    %2007
    
    
    2006
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeBanking Fee TypeMortgage Brokerage Fee, Prepayment Penalties
& Other Loan Fees
    
    $
    832
    
    
    $
    826
    
    
    
    0.7
    %
    
    $
    826
    
    
    $
    1,310
    
    
    
    -36.9
    %Deposit, Other Retail Banking Fees & Other
Fee Income
    
    
    1,665
    
    
    
    1,666
    
    
    
    -0.1
    %
    
    
    1,666
    
    
    
    1,293
    
    
    
    28.8
    %Harrington Wealth Management Fees
    
    
    956
    
    
    
    848
    
    
    
    12.7
    %
    
    
    848
    
    
    
    724
    
    
    
    17.1
    %Cash Surrender Value of Life Insurance, net
    
    
    873
    
    
    
    745
    
    
    
    17.2
    %
    
    
    745
    
    
    
    621
    
    
    
    20.0
    %Total Banking Fee & Other Income
    
    $
    4,326
    
    
    $
    4,085
    
    
    
    5.9
    %
    
    $
    4,085
    
    
    $
    3,948
    
    
    
    3.5
    %
  
 59




---



##### Table of Contents



Other Expenses
  Year Ended December 31,2007
    
    
    2006Salaries and employee benefits
    
    $
    13,157
    
    
    $
    12,478Premises and equipment
    
    
    3,875
    
    
    
    3,744Insurance premiums
    
    
    337
    
    
    
    417Marketing
    
    
    418
    
    
    
    453Computer services
    
    
    950
    
    
    
    841Professional fees
    
    
    760
    
    
    
    998Office expenses and supplies
    
    
    792
    
    
    
    881Other (1)
    
    
    2,635
    
    
    
    2,348Total other expenses
    
    $
    22,924
    
    
    $
    22,160
 
 (1)
    
    Consists primarily of regulatory fees, and other miscellancous expenses.       60




---



##### Table of Contents



Income Taxes
 
 Changes in Financial Condition
 General
    Cash and Cash Equivalents
 Securities.
 61




---



##### Table of Contents



Trading Account Assets.
 Loans Receivable.
   Allowance for Loan Losses.
 Prepaid expenses and other assets.
 Deposits.
 62




---



##### Table of Contents



Borrowings.
 Subordinated Debt.
 Stockholders Equity
 
 Asset and Liability Management
  63




---



##### Table of Contents



i.e.,
   64




---



##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities,
     i.e i.e
  65




---



##### Table of Contents



66




---



##### Table of Contents



Change In Interest Rates (In Basis Points)(1)-300
    
    
    -200
    
    
    -100
    
    
    
    
    
    +100
    
    
    +200
    
    
    +300(Dollars in Thousands)2007Market value gain (loss) in assets
    
    $
    41,066
    
    
    $
    29,762
    
    
    $
    16,089
    
    
    
    
    
    
    $
    (17,779
    )
    
    $
    (36,760
    )
    
    $
    (56,690
    )Market value gain (loss) of liabilities
    
    
    (26,183
    )
    
    
    (16,276
    )
    
    
    (7,792
    )
    
    
    
    
    
    
    7,307
    
    
    
    14,456
    
    
    
    22,969Market value gain (loss) of net assets before
interest rate contracts
    
    
    14,883
    
    
    
    13,486
    
    
    
    8,297
    
    
    
    
    
    
    
    (10,472
    )
    
    
    (22,304
    )
    
    
    (33,721
    )Market value gain (loss) of interest rate contracts
    
    
    (14,728
    )
    
    
    (9,599
    )
    
    
    (4,694
    )
    
    
    
    
    
    
    4,494
    
    
    
    8,798
    
    
    
    12,923Total change in MVPE(2)
    
    $
    155
    
    
    $
    3,887
    
    
    $
    3,603
    
    
    
    
    
    
    $
    (5,978
    )
    
    $
    (13,506
    )
    
    $
    (20,798
    )Change in MVPE as a percent of:MVPE(2)
    
    
    .19
    %
    
    
    4.74
    %
    
    
    4.40
    %
    
    
    
    
    
    
    -7.30
    %
    
    
    -16.49
    %
    
    
    -25.39
    %Total assets of Los Padres Bank
    
    
    -0.20
    %
    
    
    -0.15
    %
    
    
    0.20
    %
    
    
    
    
    
    
    -0.40
    %
    
    
    -0.93
    %
    
    
    -1.46
    %
 Change In Interest Rates (In Basis Points)(1)-300
    
    
    -200
    
    
    -100
    
    
    
    
    
    +100
    
    
    +200
    
    
    +300(Dollars in Thousands)2006Market value gain
(loss) in assets
    
    $
    27,788
    
    
    $
    20,864
    
    
    $
    12,159
    
    
    
    
    
    
    $
    (15,076
    )
    
    $
    (31,987
    )
    
    $
    (49,751
    )Market value gain
(loss) of liabilities
    
    
    (21,404
    )
    
    
    (14,831
    )
    
    
    (7,577
    )
    
    
    
    
    
    
    7,653
    
    
    
    15,359
    
    
    
    23,124Market value gain
(loss) of net assets
before interest rate
contracts
    
    
    6,384
    
    
    
    6,033
    
    
    
    4,582
    
    
    
    
    
    
    
    (7,423
    )
    
    
    (16,628
    )
    
    
    (26,627
    )Market value gain
(loss) of interest
rate contracts
    
    
    (12,760
    )
    
    
    (8,295
    )
    
    
    (4,044
    )
    
    
    
    
    
    
    3,845
    
    
    
    7,515
    
    
    
    11,015Total change in MVPE(2)
    
    $
    (6,376
    )
    
    $
    (2,262
    )
    
    $
    538
    
    
    
    
    
    
    $
    (3,578
    )
    
    $
    (9,113
    )
    
    $
    (15,612
    )Change in MVPE as a
percent of:MVPE(2)
    
    
    -6.35
    %
    
    
    -2.25
    %
    
    
    .54
    %
    
    
    
    
    
    
    -3.56
    %
    
    
    -9.08
    %
    
    
    -15.55
    %Total assets of Los
Padres Bank
    
    
    -0.74
    %
    
    
    -0.35
    %
    
    
    0.05
    %
    
    
    
    
    
    
    -0.20
    %
    
    
    -0.57
    %
    
    
    -1.03
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on our pre-tax MVPE of $76.8 million at December 31, 2007.  
 Liquidity and Capital Resources
 Liquidity.
  67




---



##### Table of Contents



Capital Resources.
 
 Contractual Obligations and Commercial Commitments
  Payment due periodLess than
    
    
    One to
    
    
    Three to
    
    
    More thanTotal
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)Contractual obligations:Certificates of deposit
    
    $
    661,087
    
    
    $
    643,316
    
    
    $
    13,323
    
    
    $
    4,448
    
    
    $
    FHLB advances
    
    
    247,000
    
    
    
    228,000
    
    
    
    19,000
    
    
    
    
    
    
    
    Reverse repurchase agreements
    
    
    49,981
    
    
    
    34,981
    
    
    
    15,000
    
    
    
    
    
    
    
    Leases
    
    
    3,450
    
    
    
    1,197
    
    
    
    1,711
    
    
    
    542
    
    
    
    Other debt
    
    
    25,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,774Due from broker
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
obligations
    
    $
    987,293
    
    
    $
    907,495
    
    
    $
    49,034
    
    
    $
    4,990
    
    
    $
    25,774
 68




---



##### Table of Contents



Amount of Commitment Expiration Per PeriodUnfunded
    
    
    Less than
    
    
    One to
    
    
    Three to
    
    
    AfterCommitments
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)Commitments:Commercial lines of credit
    
    $
    46,725
    
    
    $
    34,562
    
    
    $
    6,982
    
    
    $
    1,107
    
    
    $
    4,074Consumer lines of credit (1)
    
    
    48,809
    
    
    
    2,858
    
    
    
    150
    
    
    
    500
    
    
    
    45,301Undisbursed portion of loans in process
    
    
    74,245
    
    
    
    42,960
    
    
    
    31,285
    
    
    
    
    
    
    
    Approved but, not funded mortgage loans
    
    
    26,239
    
    
    
    26,239
    
    
    
    
    
    
    
    
    
    
    
    Approved but, not funded commercial
loans
    
    
    2,927
    
    
    
    2,927
    
    
    
    
    
    
    
    
    
    
    
    Approved but not funded consumer loans
    
    
    791
    
    
    
    791
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    1,325
    
    
    
    1,215
    
    
    
    110
    
    
    
    
    
    
    
    Total commitments
    
    $
    201,061
    
    
    $
    111,552
    
    
    $
    38,527
    
    
    $
    1,607
    
    
    $
    49,375
 
 (1)
    
    Lines of credit with no stated maturity date are included in commitments for less than one
year. 
 Off-Balance Sheet Arrangements
   Contract or
    
    
    
    
    Weighted-AverageNotional
    
    Estimated
    
    Interest RateAmount
    
    Fair Value
    
    Receivable
    
    PayableDecember 31, 2007 -Interest rate swaps  pay fixed receive 3-month LIBOR
    
    $
    172,000
    
    
    $
    (4,979
    )
    
    
    5.02
    %
    
    
    5.17
    %December 31, 2006 -Interest rate swaps  pay fixed receive 3-month LIBOR
    
    $
    164,000
    
    
    $
    587
    
    
    
    5.36
    %
    
    
    4.73
    %
 69




---



##### Table of Contents



Maturities
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterInterest rate swaps:Notional amount
    
    $
    4,000
    
    
    $
    70,000
    
    
    $
    30,000
    
    
    $
    30,000
    
    
    $
    10,000
    
    
    $
    28,000Weighted-average
payable rate
    
    
    3.78
    %
    
    
    5.20
    %
    
    
    5.63
    %
    
    
    5.05
    %
    
    
    5.46
    %
    
    
    4.84
    %Weighted-average
receivable rate
    
    
    5.18
    %
    
    
    4.95
    %
    
    
    5.11
    %
    
    
    4.88
    %
    
    
    5.18
    %
    
    
    5.18
    %
  
 Inflation and Changing Prices
  
 See Effect of Newly Issued But Not Yet Effective Accounting Standards included in Footnote 1.
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .
  
 Item 8. Financial Statements and Supplementary Data.
  70




---



##### 



PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    72CONSOLIDATED FINANCIAL STATEMENTS:Consolidated Statements of Financial Condition -
December 31, 2007 and 2006
    
    
    73Consolidated Statements of Earnings for the
Years Ended December 31, 2007 and 2006
    
    
    74Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss) for the Years Ended December 31, 2007 and 2006
    
    
    75Consolidated Statements of Cash Flows for the
Years Ended December 31, 2007 and 2006
    
    
    77Notes to Consolidated Financial Statements
    
    
    79EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  71




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     ,
 72




---



##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Dollars in thousands, except share data)
 December 312007
    
    
    2006Assets:Cash and cash equivalents
    
    $
    14,433
    
    
    $
    21,178Trading account assets
    
    
    2,307
    
    
    
    837Securities, available-for-sale
    
    
    351,466
    
    
    
    309,729Securities held to maturity (fair value of $58 in 2007 and $71 in 2006)
    
    
    56
    
    
    
    69Loans receivable, net of allowance for loan losses of $6,446 in 2007 and $5,914 in 2006
    
    
    782,626
    
    
    
    757,033Accrued interest receivable
    
    
    5,168
    
    
    
    5,315Premises, equipment and other long-term assets
    
    
    16,917
    
    
    
    15,581Due from broker
    
    
    1
    
    
    
    142Prepaid expenses and other assets
    
    
    2,848
    
    
    
    4,959Investment in FHLB stock, at cost
    
    
    12,474
    
    
    
    14,615Income taxes receivable
    
    
    
    
    
    
    112Cash surrender value of life insurance
    
    
    20,524
    
    
    
    18,472Deferred tax asset
    
    
    8,384
    
    
    
    Goodwill
    
    
    5,496
    
    
    
    5,496Other intangible assets
    
    
    702
    
    
    
    935Total assets
    
    $
    1,223,402
    
    
    $
    1,154,473Liabilities:Deposits:Interest-bearing deposits
    
    $
    786,263
    
    
    $
    677,665Non-interest-bearing demand deposits
    
    
    50,070
    
    
    
    55,092Total deposits
    
    
    836,333
    
    
    
    732,757FHLB advances
    
    
    247,000
    
    
    
    257,000Securities sold under repurchase agreements
    
    
    49,981
    
    
    
    65,141Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    8,769
    
    
    
    5,005Income taxes payable
    
    
    503
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    1,098Total liabilities
    
    
    1,168,360
    
    
    
    1,086,775Commitments and contingenciesStockholders equityPreferred stock, $
..01 par value; 1,200,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 10,800,000 shares authorized;
5,554,003 shares issued and outstanding as of December 31, 2007
and 5,460,393 shares issued and outstanding December 31, 2006
    
    
    56
    
    
    
    55Additional paid-in capital
    
    
    34,424
    
    
    
    33,332Retained earnings
    
    
    35,368
    
    
    
    34,964Accumulated other comprehensive loss
    
    
    (14,806
    )
    
    
    (653
    )Total stockholders equity
    
    
    55,042
    
    
    
    67,698Total liabilities and stockholders equity
    
    $
    1,223,402
    
    
    $
    1,154,473
  73




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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF EARNINGS
 (Dollars in thousands, except share and per share data)
 Year EndedDecember 31,2007
    
    
    2006Interest income:Loans
    
    $
    60,317
    
    
    $
    54,963Securities
    
    
    19,807
    
    
    
    19,132Total interest income
    
    
    80,124
    
    
    
    74,095Interest expense:Deposits
    
    
    32,873
    
    
    
    25,590Interest on FHLB advances, repos & other debt
    
    
    15,398
    
    
    
    17,751Total interest expense
    
    
    48,271
    
    
    
    43,341Net interest income
    
    
    31,853
    
    
    
    30,754Provision for loan losses (Note 5)
    
    
    650
    
    
    
    565Net interest income after provision for loan losses
    
    
    31,203
    
    
    
    30,189Non-interest income:Loss on sale of AFS
    
    
    (1,004
    )
    
    
    (613
    )Income (loss) from trading assets
    
    
    (2,798
    )
    
    
    1,024Other-than-temporary loss
    
    
    (2,153
    )
    
    
    Other loss
    
    
    (1
    )
    
    
    (39
    )Increase in cash surrender value of life insurance
    
    
    873
    
    
    
    745Banking fee and other income
    
    
    3,453
    
    
    
    3,340Total non-interest income
    
    
    (1,630
    )
    
    
    4,457Non-interest expense:Salaries and employee benefits
    
    
    13,157
    
    
    
    12,478Premises and equipment
    
    
    3,875
    
    
    
    3,744Insurance premiums
    
    
    337
    
    
    
    417Marketing
    
    
    418
    
    
    
    453Computer services
    
    
    950
    
    
    
    841Professional fees
    
    
    760
    
    
    
    998Office expenses and supplies
    
    
    792
    
    
    
    881Other
    
    
    2,635
    
    
    
    2,348Total non-interest expense
    
    
    22,924
    
    
    
    22,160Income before income taxes
    
    
    6,649
    
    
    
    12,486Provision for income taxes
    
    
    2,481
    
    
    
    4,258Net income
    
    $
    4,168
    
    
    $
    8,228Basic earnings per share
    
    $
    0.75
    
    
    $
    1.51Diluted earnings per share
    
    $
    0.74
    
    
    $
    1.48Basic weighted-average shares outstanding
    
    
    5,541,840
    
    
    
    5,441,075Diluted weighted-average shares outstanding
    
    
    5,637,415
    
    
    
    5,572,664
  74




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##### Table of Contents



HARRINGTON
WEST FINANCIAL GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY and COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Income (Loss)
    
    
    EquityBALANCE, JANUARY 1, 2006
    
    
    5,384,843
    
    
    $
    54
    
    
    $
    32,059
    
    
    $
    29,458
    
    
    
    
    
    
    $
    (1,997
    )
    
    $
    59,574Comprehensive IncomeNet Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,228
    
    
    $
    8,228
    
    
    
    
    
    
    
    8,228Other comprehensive income, net of tax
Unrealized gains (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,008
    
    
    
    1,008
    
    
    
    1,008Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    336
    
    
    
    336Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,572Stock options exercised including
tax benefit of $397
    
    
    75,550
    
    
    
    1
    
    
    
    825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    826Stock compensatoin expense
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Dividends on Common Stk at $.50/Shr
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,722
    )
    
    
    
    
    
    
    
    
    
    
    (2,722
    )BALANCE, DECEMBER 31, 2006
    
    
    5,460,393
    
    
    $
    55
    
    
    $
    33,332
    
    
    $
    34,964
    
    
    
    
    
    
    $
    (653
    )
    
    $
    67,698Comprehensive IncomeNet Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,168
    
    
    $
    4,168
    
    
    
    
    
    
    
    4,168Other comprehensive income (loss), net of taxUnrealized gains (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,757
    )
    
    
    (10,757
    )
    
    
    (10,757
    )Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,396
    )
    
    
    (3,396
    )
    
    
    (3,396
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,985
    )Stock options exercised including
tax benefit of $125
    
    
    93,610
    
    
    
    1
    
    
    
    719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    373Dividends on Common Stk at $.675/Shr
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,764
    )
    
    
    
    
    
    
    
    
    
    
    (3,764
    )BALANCE, DECEMBER 31, 2007
    
    
    5,554,003
    
    
    $
    56
    
    
    $
    34,424
    
    
    $
    35,368
    
    
    
    
    
    
    $
    (14,806
    )
    
    $
    55,042
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HARRINGTON WEST FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY and COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
 Twelve months endedDecember 31,2007
    
    
    2006DISCLOSURE OF RECLASSIFICATION AMOUNT:Unrealized holding gain (loss) arising during period,
net of tax (benefit) expense of ($7,686), and $542 for
2007, and 2006, respectively
    
    $
    (12,730
    )
    
    $
    613Less: Reclassification adjustment for losses included
in net income, net of tax benefit of ($1,184), and ($
218)
for 2007, and 2006, respectively
    
    
    (1,973
    )
    
    
    (395
    )Net unrealized gain (loss) on securities, net of tax
(benefit) expense
of ($6,502), and $760 for 2007, and 2006, respectively
    
    $
    (10,757
    )
    
    $
    1,008Unrealized net gain (loss) on cash flow hedges, net of tax
(benefit)
expense of ($2,171), and $212 for 2007, and 2006 ,
respectively
    
    $
    (3,395
    )
    
    $
    339Less: Reclassification adjustment for net gains on cash
flow hedges included in net income, net of tax (benefit)
expense of $1, and ($2) for 2007, and 2006 ,
respectively
    
    
    1
    
    
    
    3Net unrealized gain (loss) on cash flow hedges, net of tax
(benefit)
expense of ($2,171), and $214 for 2007, and 2006,
respectively
    
    $
    (3,396
    )
    
    $
    336Total change in Accumulated Other Comprehensive Income (Loss)
    
    $
    (14,153
    )
    
    $
    1,344
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Year EndedDecember 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    4,168
    
    
    $
    8,228Adjustments to reconcile net income to net cash provided by operating activities:Accretion of deferred loan fees and costs
    
    
    (238
    )
    
    
    (395
    )Depreciation and amortization
    
    
    1,485
    
    
    
    1,475Amortization of premiums and discounts on loans receivable and securities
    
    
    540
    
    
    
    2,075Deferred income taxes
    
    
    (1,045
    )
    
    
    505Provision for loan losses
    
    
    650
    
    
    
    565Activity in trading account assets
    
    
    (6
    )
    
    
    135Loss (gain) on sale of trading securities
    
    
    (1,464
    )
    
    
    3Loss on sale of available-for-sale securities
    
    
    1,004
    
    
    
    613Loss on other-than-temporary impairment
    
    
    2,153
    
    
    
    FHLB stock dividend
    
    
    (726
    )
    
    
    (808
    )Earnings on bank owned life insurance
    
    
    (873
    )
    
    
    (745
    )(Increase) decrease in accrued interest receivable/payable
    
    
    147
    
    
    
    (852
    )Decrease in income taxes receivable
    
    
    615
    
    
    
    139(Increase) decrease in prepaid expenses and other assets
    
    
    1,151
    
    
    
    (1,479
    )Stock compensation expense
    
    
    373
    
    
    
    448Decrease in accounts payable, accrued expenses,
and other liabilities
    
    
    (429
    )
    
    
    (2,321
    )Net cash provided by operating activities
    
    
    7,505
    
    
    
    7,586Cash flows from investing activities:Net increase in loans receivable
    
    
    (26,074
    )
    
    
    (85,381
    )Proceeds from sales of securities available for sale
    
    
    35,999
    
    
    
    44,327Purchases of securities available for sale
    
    
    (197,533
    )
    
    
    (63,875
    )Principal paydowns on securities available for sale
    
    
    98,915
    
    
    
    96,261Principal paydowns on securities held to maturity
    
    
    13
    
    
    
    13Purchase of cash surrender value of life insurance
    
    
    (2,000
    )
    
    
    Proceeds from life insurance death benefit
    
    
    779
    
    
    
    Proceeds from sale of real estate acquired through foreclosure
    
    
    
    
    
    
    1,062Net purchase of premises and equipment
    
    
    (2,588
    )
    
    
    (6,528
    )Redemption of FHLB Stock
    
    
    2,867
    
    
    
    2,557Net used in investing activities
    
    
    (89,622
    )
    
    
    (11,564
    )Cash flows from financing activities:Net increase in deposits
    
    
    103,576
    
    
    
    63,612(Decrease) increase in securities sold under agreements to repurchase
    
    
    (15,160
    )
    
    
    6,128Decrease in FHLB advances
    
    
    (10,000
    )
    
    
    (62,000
    )Proceeds from exercise of stock options, including tax benefits
    
    
    720
    
    
    
    826Dividends paid on common stock
    
    
    (3,764
    )
    
    
    (2,722
    )Net cash provided by financing activities
    
    
    75,372
    
    
    
    5,844Net (decrease) increase in cash and cash equivalents
    
    
    (6,745
    )
    
    
    1,866Cash and cash equivalents at beginning of period
    
    
    21,178
    
    
    
    19,312Cash and cash equivalents at end of period
    
    $
    14,433
    
    
    $
    21,178
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HARRINGTON WEST FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -Cash paid during the period for:Interest
    
    $
    49,457
    
    
    $
    44,180Income taxes
    
    $
    2,671
    
    
    $
    3,689SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES -Due to / from broker
    
    $
    (1
    )
    
    $
    (142
    )
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HARRINGTON WEST FINANCIAL GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Table amounts in thousands, except share and per share data)
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusiness of the Company- Harrington West Financial Group, Inc. is a savings and loan holding
company incorporated on August 29, 1995 to acquire and hold all of the outstanding common
stock of Los Padres Bank (the Bank), referred to herein on a consolidated basis as the
Company. The Bank is a federally chartered savings bank which operates 16 branches serving
individuals and small to medium-sized businesses. Eleven banking facilities are operated on
the California Central Coast, three banking facilities are located in Kansas, and operated as
a division under the Harrington Bank brand, and two banking facilities are located in
Scottsdale, Arizona.Harrington Wealth Management Company (HWMC) is a wholly owned subsidiary of the Bank and is
consolidated into the Bank.. HWMC offers trust and investment management services to the
customers of the Bank. HWMC performs management of investment portfolios through knowledge
and analysis of the customers investment needs, risk tolerance, tax situation and investment
horizon. At December 31, 2007, HWMC administered approximately 493 accounts and had $184.4
million of assets under management that are not included on the consolidated statements of
financial condition. For the years ended December 31, 2007 and 2006, HWMC generated revenues
of $964,000 and $848,000, respectively.Basis of Presentation- The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and general practices
within the banking industry. The following is a summary of significant principles used in the
preparation of the accompanying consolidated financial statements. In preparing the
consolidated financial statements, management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, including the allowance
for loan losses, valuation of investment securities, fair value of derivatives, fair value of
financial instruments and stock-based compensation. Actual results could differ from those
estimates.Principles of Consolidation The consolidated financial statements include the accounts of
Harrington West Financial Group, Inc. and its wholly owned subsidiary, Los Padres Bank (the
Bank), and the Banks wholly owned subsidiaries. All intercompany transactions and accounts
have been eliminated in consolidation. The Company also has two wholly-owned subsidiaries
that are statutory business trusts (the Trusts). In accordance with Financial Accounting
Standards Board Interpretation No. 46R, Consolidation of Variable Interest Entities(FIN No.
46R), the Trusts are not consolidated into the accounts of Harrington West Financial Group,
Inc.Segments- The Company has a single operating segment, banking operations.Cash and Cash Equivalents- For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.Trading Account Assets- Trading account assets are debt and equity securities, as well as
derivative instruments not receiving hedge treatment (as further described in Note 15) that
are bought and held principally for the purpose of active management. These assets are
reported at fair value and included in trading account assets on the statements of financial
condition. Realized and unrealized
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gains and losses are included in income (loss) from trading assets. Interest from trading
assets is included in interest income.Available for Sale Securities- Debt and equity securities not classified as either held to
maturity or trading securities are classified as securities available for sale and recorded at
fair value, with unrealized gains and losses, after applicable taxes, excluded from earnings
and reported as a separate component of stockholders equity. Declines in the value of debt
securities and marketable equity securities that are considered to be other than temporary are
recorded as realized losses in the statement of earnings. Amortization of premiums and
accretion of discounts on securities are recorded as yield adjustments on such securities
using an effective interest method that considers estimates of future principal prepayments.
Gains and losses on the sale of securities are recorded on the trade date and are determined
using the specific identification method.A security may become impaired. The impairment may be temporary or other than temporary. In
the case of debt securities, the impairment may imply a judgment by the market that the issuer
will not be able to make interest and principal payments as contractually required.
Alternatively, the impairment may be due only to changes in interest rates that do not impact
the issuers ability to meet its contractual obligations. The Company periodically reviews
impaired securities to determine whether the impairment is other than temporary. Declines in
the fair value of securities below their cost that are other than temporary are reflected as
realized losses. In estimating other-than-temporary losses, management considers: the length
of time and extent that fair value has been less than cost, the financial condition and near
term prospects of the issuer, and the Companys ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair value.Held to Maturity Securities- Held to maturity securities represent investments that the Bank
has the positive intent and ability to hold to maturity and are reported at amortized cost.
Declines in the value of held to maturity securities that are considered to be other than
temporary are recorded as realized losses in the statement of earnings. Similar to available
for sale securities, premiums and discounts are amortized using an effective interest method
that considers estimates of future principal prepayments.Loans Receivable- Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay off are carried at the principal amount
outstanding, net of deferred loan fees, costs, premiums and allowance for loan losses.Loan Interest Income and Fees- Interest on loans is accrued as earned, except non-accrual
loans on which interest is normally discontinued whenever the payment of principal or interest
is considered to be in doubt, generally when the interest becomes 60 days past due. When a
loan is placed on non-accrual, all previously accrued but uncollected interest is reversed
against current period income. In general, subsequent payments received are applied to the
outstanding principal balance of the loan. A loan is returned to accrual status when the
borrower has demonstrated a satisfactory payment trend subject to managements assessment of
the borrowers ability to repay the loan.Loan origination fees and certain direct loan origination costs are deferred and amortized
over the lives of the related loans as an adjustment to yield using a method that approximates
the level-yield method. Calculation of the yield is done on a loan-by-loan basis.
Unamortized fees are recognized in interest income. Other loan fees and charges representing
service costs for the repayment of loans, delinquent payments or miscellaneous loan services
are recorded as income when collected.Discounts and premiums on loans are amortized into interest income, using a method that
approximates the level-yield method over the estimated life of the related loans.
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Allowance for Loan Losses- Allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Charge-offs are recorded when management
believes the uncollectibility of the loan balance is confirmed.The allowance is maintained at a level believed by management to be sufficient to absorb
probable incurred credit losses in the loan portfolio. Managements determination of the
adequacy of the allowance is based on periodic evaluations of the credit portfolio and other
relevant factors. This evaluation is inherently subjective, as it requires material
estimates, including, among others, the amounts and timing of expected future cash flows on
impaired loans, estimated losses on consumer loans and residential mortgages, and general
amounts for historical loss experience, economic conditions, uncertainties in estimating
losses and inherent risks in the various credit portfolios, all of which may be susceptible to
significant change.In determining the adequacy of the allowance for loan losses, the Company makes specific
allocations to impaired loans in accordance with Statement of Financial Accounting Standards
(SFAS) No. 114, Accounting by Creditors for Impairment of a Loanas amended by SFAS No. 118. Loans are identified as impaired when it is deemed probable that the borrower will be
unable to meet the scheduled principal and interest payments under the terms of the loan
agreement. Impairment is based on the present value of expected future cash flows discounted
at the loans effective interest rate, except that as a practical expedient, impairment may be
measured based on a loans observable market price or the fair value of the collateral if the
loan is collateral dependent.Allocation of the allowance for loan losses to non-homogeneous loan pools are developed by
loan type and risk factor and are based on historical loss trends and managements judgment
concerning those trends and other relevant factors. These factors may include, among others,
trends in criticized assets, regional and national economic conditions, changes in lending
policies and procedures, trends in local real estate values and changes in volumes and terms
of the loan portfolio.Homogeneous (consumer and residential mortgage) loan allocation of the allowance for loan
losses are made at a total portfolio level based on historical loss experience adjusted for
portfolio activity and economic conditions.Transfers of Financial Assets- Transfers of financial assets are accounted for as sales, when
control over the assets has been relinquished. Control over transferred assets is deemed to
be surrendered when the assets have been isolated from the Company, the transferee obtains the
right (free of conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their maturity.Premises and Equipment Land is carried at cost. Premises and equipment are stated at cost
less accumulated depreciation. Depreciation and amortization are computed on the
straight-line method over the estimated useful lives of the assets. The depreciable lives
range from 3 to 25 years for leasehold improvements, 3 to 20 years for furniture, fixtures and
equipment and 15 to 39 years for the office buildings.The Company reviews its long-lived assets for impairment annually or when events or
circumstances indicate that the carrying amount of these assets may not be recoverable. An
asset is considered impaired when the expected undiscounted cash flows over the remaining
useful life is less than the net book value. When impairment is indicated for an asset, the
amount of impairment loss is the excess of the net book value over its fair value.
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Real Estate Acquired through Foreclosure- Real estate acquired through foreclosure is carried
at estimated fair value at the time of foreclosure, less estimated costs to sell. Any
subsequent operating expense or income, reduction in estimated values, and gains or losses on
disposition of such properties are included in current operations. The Company had no real
estate acquired through foreclosure at December 2007 and 2006.Income Taxes Income tax expense is the total of the current-year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax assets or
liabilities shown on the statement of financial condition are adjusted to reflect differences
between the tax bases of assets and liabilities and their reported amounts in the financial
statements, based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income.The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes(FIN
48), as of January 1, 2007. A tax position is recognized as a benefit only if it is more
likely than not that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the largest amount of tax
benefit that is greater than 50% likely of being realized on examination. For tax positions
not meeting the more likely than not test, no tax benefit is recorded. The adoption had no
material affect on the Companys consolidated financial statements. The Company recognizes
interest and penalties related to income tax matters in income tax expense.Investment in Federal Home Loan Bank of San Francisco StockAs a member of the Federal Home
Loan Bank (FHLB) of San Francisco, the Bank is required to own common stock in the FHLB of
San Francisco based upon its balance of residential mortgage loans and outstanding FHLB
advances. FHLB stock is carried at cost and may be sold back to the FHLB at its carrying
value. Both cash and stock dividends received are reported as dividend income.Cash Surrender Value of Life Insurance The Company has purchased life insurance policies on
certain key executives. Company owned life insurance is recorded at cash surrender value (or
the amount that can be realized). Upon adoption of EITF 06-5, which is discussed further
below, cash surrender value of life insurance is recorded at the amount that can be realized
under the insurance contract at the balance sheet date, which is the cash surrender value
adjusted for other charges or other amounts due that are probable at settlement. Prior to
adoption of EITF 06-5, the Company recorded cash surrender value of life insurance at its cash
surrender value.In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5, Accounting
for Purchases of Life Insurance  Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of Life Insurance){Issue}.
This Issue requires that a policyholder consider contractual terms of a life insurance policy
in determining the amount that could be realized under the insurance contract. It also
requires that if the contract provides for a greater surrender value if all individual
policies in a group are surrendered at the same time, that the surrender value be determined
based on the assumption that policies will be surrendered on an individual basis. Lastly, the
Issue requires disclosure when there are contractual restrictions on the Companys ability to
surrender a policy. The adoption of EITF 06-5 on January 1, 2007 had no impact on the
Companys consolidated financial condition or results of operations.Core Deposit Intangibles- Core deposit intangibles are established in connection with
purchase business combinations of banking or thrift institutions. Core deposit intangibles
are amortized over the estimated useful life of the deposit base acquired, currently 10 years,
using an accelerated amortization method. At December 31, 2007 and 2006, the gross balance of
core deposit intangibles was $2.4 million and the accumulated amortization was $1.7 million
and $1.5 million, respectively. The amortization expense was $233 thousand and $252 thousand
for the years ended December 31, 2007, and 2006, respectively. Estimated future amortization
of core deposit intangibles is $148
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thousand for 2008, $146 thousand for 2009, $143 thousand for 2010, $123 thousand for 2011, $44
thousand for 2012, and $98 thousand thereafter.Goodwill Goodwill results from business acquisitions and represents the excess of the
purchase price over the fair value of acquired tangible assets and liabilities and
identifiable intangible assets. Goodwill is no longer amortized, but instead is tested for
impairment at least annually. A goodwill impairment test was completed as of September 30,
2007. No impairment loss was recorded by the Company.Derivatives Held for Asset and Liability Management Purposes- SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair value hedge, a cash
flow hedge or a hedge of foreign currency exposure. The accounting for changes in the fair
value of a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation.In accordance with the standards, the Company has identified certain types of short-term
interest-bearing liabilities as a source of interest rate risk to be hedged in connection with
the Companys overall asset-liability management process. Although these liabilities have
contractually fixed rates of interest, their short-term maturities, together with the
expectation that they will be continually refinanced or replaced with similar products, give
rise to the risk of fluctuations in interest expense as interest rates rise and fall in future
periods. In response to this identified risk, the Company uses interest rate swaps as cash
flow hedges to hedge the interest rate risk associated with the cash flows of short-term
deposits, securities sold under agreements to repurchase and FHLB advances.To qualify for hedge accounting, the Company must show that, at the inception of the hedges
and on an ongoing basis, the changes in the fair value of the hedging instruments are expected
to be highly effective in offsetting related changes in the cash flows of the hedged
liabilities. These interest rate swaps have been shown to be effective in hedging the
exposure to the short-term liability variability in cash flows and, therefore, qualify for
hedge accounting. For our cash flow hedges, the effective portion of the derivatives gain or
loss is initially reported in stockholders equity (as a component of accumulated other
comprehensive income (loss)) and is subsequently reclassified into income, as an increase or
decrease to interest expense, in the same period or periods during which the hedged forecasted
transaction affects income. The ineffective portion of the gain or loss is reported as
interest expense immediately. During the next twelve months, the Company expects a benefit of
$2 thousand, net of tax, from the amount recorded in the separate component of stockholders
equity to be reclassified to interest expense.Securities Sold Under Repurchase Agreements The Company sells securities under repurchase
agreements. These transactions are accounted for as collateralized financing transactions and
recorded at the amounts at which the securities were sold. The Company may have to provide
additional collateral to the counterparty, as necessary.Comprehensive Income (Loss) Comprehensive income (loss) consists of net income and other
comprehensive income or loss. Other comprehensive income or loss includes unrealized gains
and losses on securities available for sale, net of tax, and unrealized gains and losses on
cash flow hedges, net of tax, which are also recognized as separate components of
stockholders equity.Loss Contingencies- Loss contingencies, including claims and legal actions arising in the
ordinary course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management does not
believe there now are such matters that will have a material effect on the financial
statements.
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Fair Value of Financial Instruments- Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully disclosed in a separate note.
Fair value estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.The fair value estimates presented herein are based on pertinent information available to
management as of each reporting date. Although management is not aware of any factors that
would significantly affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that date, and
therefore, current estimates of fair value may differ significantly from the amounts presented
herein.Cash Flows- Net cash flows are reported for customer loan and deposit transactions, interest
bearing deposits in other financial institutions, and federal funds purchased and securities
sold under repurchase agreements and other short-term borrowings with original maturities
under 90 days.Stock-Based CompensationEffective January 1, 2006, the Company adopted SFAS No. 123(R), Share-based Payment. Under
SFAS 123(R), compensation cost is calculated on the date of grant using the fair value of the
option as determined using the Black Scholes model. The compensation cost is then amortized
straight-line over the vesting period. The Black Scholes valuation calculation requires the
Company to estimate key assumptions such as expected option term, expected volatility of the
Companys stock, the risk-free interest rate, annual dividend yield and forfeiture rates to
determine the stock options fair value. The estimate of these key assumptions is based on
historical information and judgment regarding market factors and trends. The Company elected
to adopt the modified prospective application method as provided by SFAS 123(R), and,
accordingly, the Company recorded compensation costs as the requisite service is rendered for
the unvested portion of previously issued awards that remain outstanding at the initial date
of adoption and for any awards issued, modified, repurchased, or cancelled after the effective
date of SFAS 123(R). The Company assumes a forfeiture rate of 3% annually.The pre-tax unearned compensation expense for the remaining three year vesting period through
December 31, 2011, of the non-vested stock options is $596 thousand as of December 31, 2007.Adoption of new accounting standards:In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155,
Accounting for Certain Hybrid Financial Instruments(SFAS No. 155), which permits fair value
re-measurement for hybrid financial instruments that contain an embedded derivative that
otherwise would require bifurcation. Additionally, SFAS No. 155 clarifies the accounting
guidance for beneficial interests in securitizations. Under SFAS No. 155, all beneficial
interests in a securitization will require an assessment in accordance with SFAS No. 133 to
determine if an embedded derivative exists within the instrument. In January 2007, the FASB
issued Derivatives Implementation Group Issue B40, Application ofParagraph 13(b)to
Securitized Interests in Prepayable Financial Assets(DIG Issue B40). DIG Issue B40 provides
an exemption from the embedded derivative test of paragraph 13(b) of SFAS No. 133 for
instruments that would otherwise require bifurcation if the test is met solely because of a
prepayment feature included within the securitized interest and prepayment is not controlled
by the security holder. SFAS No. 155 and DIG Issue B40 are effective for fiscal years
beginning after September 15, 2006. The adoption of SFAS No. 155 and DIG Issue B40 did not
have a material impact on the Companys consolidated financial position or results of
operations.
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Newly Issued, But Not Yet Effective Accounting Standards
 Fair Value Measurements
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements
 Written Loan
Commitments Recorded at Fair Value through Earnings Application of Accounting Principles to Loan Commitments
 Reclassifications
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2. LOANS RECEIVABLE
  2007
    
    
    2006Real estate loans:Residential property  one to four units
    
    $
    125,545
    
    
    $
    106,675Residential property  more than four units
    
    
    82,717
    
    
    
    79,896Residential property  construction
    
    
    49,051
    
    
    
    57,660Nonresidential property  construction
    
    
    77,396
    
    
    
    54,985Commercial and other income  producing properties
    
    
    266,345
    
    
    
    264,915Loans for the acquisition and development of land
    
    
    45,278
    
    
    
    54,738Total real estate loans
    
    
    646,332
    
    
    
    618,869Commercial and industrial loans
    
    
    117,842
    
    
    
    119,074Consumer loans
    
    
    24,483
    
    
    
    25,304Loans collateralized by deposits and for executive line of credit
    
    
    2,486
    
    
    
    1,964Consumer line-of-credit loans
    
    
    267
    
    
    
    242791,410
    
    
    
    765,453Net deferred loan fees
    
    
    (1,865
    )
    
    
    (2,103
    )Net (discount) premiums
    
    
    (473
    )
    
    
    (403
    )Allowance for loan losses
    
    
    (6,446
    )
    
    
    (5,914
    )Loans receivable, net
    
    $
    782,626
    
    
    $
    757,033
  2007
    
    
    2006Balance, beginning of year
    
    $
    5,914
    
    
    $
    5,661Charge-offs
    
    
    (119
    )
    
    
    (356
    )Recoveries
    
    
    1
    
    
    
    44Provision for loan losses
    
    
    650
    
    
    
    565Balance, end of year
    
    $
    6,446
    
    
    $
    5,914
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At December 31,2007
    
    
    2006Impaired loans with a valuation allowance
    
    $
    8,296
    
    
    $
    98Impaired loans without a valuation allowance
    
    
    1,191
    
    
    
    Total impaired loans
    
    $
    9,487
    
    
    $
    98Valuation allowance related to impaired loans
    
    $
    440
    
    
    $
    16
 2007
    
    2006Average recorded investment in impaired loans
    
    $
    9,330
    
    
    $
    824Interest income recognized on impaired loans
    
    
    141
    
    
    
    4Interest income recognized on a cash basis
    
    
    
    
    
    
    
   Unfunded Loan Commitments as of December 31,
 2007
    
    2006Commercial lines of credit
    
    $
    46,725
    
    
    $
    38,419Consumer lines of credit
    
    
    48,809
    
    
    
    48,532Undisbursed portion of loans in process
    
    
    74,245
    
    
    
    83,855Approved, but not funded mortgage loans
    
    
    26,239
    
    
    
    7,463Approved, but not funded commercial loans
    
    
    2,927
    
    
    
    540Approved, but not funded consumer loans
    
    
    791
    
    
    
    300Letters of Credit
    
    
    1,325
    
    
    
    4,387Total Commitments
    
    $
    201,061
    
    
    $
    183,496
  87




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##### Table of Contents



3. SECURITIES
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2007Mortgage-backed securities  pass throughs
    
    $
    69,570
    
    
    $
    144
    
    
    $
    (613
    )
    
    $
    69,101Collateralized mortgage obligations
    
    
    114,101
    
    
    
    1,024
    
    
    
    (3,320
    )
    
    
    111,805Asset-backed securities (underlying securities mortgages)
    
    
    184,724
    
    
    
    333
    
    
    
    (16,235
    )
    
    
    168,822Asset-backed securities
    
    
    1,900
    
    
    
    5
    
    
    
    (167
    )
    
    
    1,738$
    370,295
    
    
    $
    1,506
    
    
    $
    (20,335
    )
    
    $
    351,466
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2006Mortgage-backed securities  pass throughs
    
    $
    98,244
    
    
    $
    215
    
    
    $
    (1,514
    )
    
    $
    96,945Collateralized mortgage obligations
    
    
    76,182
    
    
    
    130
    
    
    
    (517
    )
    
    
    75,795Commercial mortgage-backed securities
    
    
    31,312
    
    
    
    
    
    
    
    (231
    )
    
    
    31,081Asset-backed securities (underlying securities mortgages)
    
    
    102,815
    
    
    
    519
    
    
    
    (175
    )
    
    
    103,159Asset-backed securities
    
    
    2,747
    
    
    
    45
    
    
    
    (43
    )
    
    
    2,749$
    311,300
    
    
    $
    909
    
    
    $
    (2,480
    )
    
    $
    309,729
  Less than 12 months
    
    
    12 months or more
    
    

TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDecember 31, 2007Mortgage-backed securities  pass throughs
    
    $
    22,345
    
    
    $
    (194
    )
    
    $
    23,828
    
    
    $
    (419
    )
    
    $
    46,173
    
    
    $
    (613
    )Collateralized mortgage obligations
    
    
    59,722
    
    
    
    (3,316
    )
    
    
    1,843
    
    
    
    (4
    )
    
    
    61,565
    
    
    
    (3,320
    )Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset-backed securities (underlying
securities mortgages)
    
    
    142,635
    
    
    
    (15,621
    )
    
    
    3,082
    
    
    
    (614
    )
    
    
    145,717
    
    
    
    (16,235
    )Asset-backed securities
    
    
    1,599
    
    
    
    (167
    )
    
    
    
    
    
    
    
    
    
    
    1,599
    
    
    
    (167
    )$
    226,301
    
    
    $
    (19,298
    )
    
    $
    28,753
    
    
    $
    (1,037
    )
    
    $
    255,054
    
    
    $
    (20,335
    )
 88




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##### Table of Contents



Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFairValue
    
    
    Losses
    
    
    FairValue
    
    
    Losses
    
    
    FairValue
    
    
    LossesDecember 31, 2006Mortgage-backed securities  pass
throughs
    
    $
    4,560
    
    
    $
    (10
    )
    
    $
    71,356
    
    
    $
    (1,504
    )
    
    $
    75,916
    
    
    $
    (1,514
    )Collateralized mortgage obligations
    
    
    23,705
    
    
    
    (102
    )
    
    
    11,664
    
    
    
    (415
    )
    
    
    35,369
    
    
    
    (517
    )Commercial mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    31,081
    
    
    
    (231
    )
    
    
    31,081
    
    
    
    (231
    )Asset-backed securities (underlying
securities mortgages)
    
    
    4,294
    
    
    
    (25
    )
    
    
    10,274
    
    
    
    (150
    )
    
    
    14,568
    
    
    
    (175
    )Asset-backed securities
    
    
    1,290
    
    
    
    (10
    )
    
    
    1,096
    
    
    
    (33
    )
    
    
    2,386
    
    
    
    (43
    )$
    33,849
    
    
    $
    (147
    )
    
    $
    125,471
    
    
    $
    (2,333
    )
    
    $
    159,320
    
    
    $
    (2,480
    )
      89




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##### Table of Contents



Securities Held to maturity
 December 31, 2007 GrossUnrealized
    
    Gross UnrealizedAmortized Cost
    
    Gains
    
    Losses
    
    Fair ValueMortgage-backed securities
    
    $
    56
    
    
    $
    2
    
    
    $
    
    
    
    $
    58Total
    
    $
    56
    
    
    $
    2
    
    
    $
    
    
    
    $
    58-
  GrossUnrealized
    
    Gross UnrealizedAmortized Cost
    
    Gains
    
    Losses
    
    Fair ValueMortgage-backed securities
    
    $
    69
    
    
    $
    2
    
    
    $
    
    
    
    $
    71Total
    
    $
    69
    
    
    $
    2
    
    
    $
    
    
    
    $
    71
 90




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##### Table of Contents



4. PREMISES AND EQUIPMENT
  2007
    
    
    2006Land
    
    $
    4,873
    
    
    $
    4,873Office building/REI
    
    
    8,203
    
    
    
    6,128Leasehold improvements
    
    
    3,644
    
    
    
    3,620Furniture, fixtures and equipment
    
    
    7,156
    
    
    
    6,789Total
    
    
    23,876
    
    
    
    21,410Less: accumulated depreciation and amortization
    
    
    6,959
    
    
    
    5,829Premises and equipment, net
    
    $
    16,917
    
    
    $
    15,581
  5. DEPOSITS
  2007
    
    
    2006Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageAmount
    
    
    Interest Rate (1)
    
    
    Amount
    
    
    Interest Rate(1)Noninterest bearing:Noninterest bearing
    
    $
    10,279
    
    
    
    
    
    
    $
    12,022
    
    
    
    Commercial noninterest bearing
    
    
    39,791
    
    
    
    
    
    
    
    43,070
    
    
    
    Total noninterest bearing
    
    
    50,070
    
    
    
    
    
    
    
    55,092
    
    
    
    Interest bearing:Passbook
    
    
    15,581
    
    
    
    0.80
    %
    
    
    17,597
    
    
    
    0.87
    %NOW Accounts
    
    
    34,921
    
    
    
    0.99
    %
    
    
    35,082
    
    
    
    0.61
    %Money Market
    
    
    12,750
    
    
    
    2.78
    %
    
    
    60,602
    
    
    
    3.67
    %Commercial MM
    
    
    61,924
    
    
    
    3.75
    %
    
    
    8,100
    
    
    
    2.97
    %Total interest bearing
    
    
    125,176
    
    
    
    2.51
    %
    
    
    121,381
    
    
    
    2.33
    %Total
    
    
    175,246
    
    
    
    1.80
    %
    
    
    176,473
    
    
    
    1.60
    %Certificates of deposits:$100,000 or greater
    
    
    396,559
    
    
    
    4.84
    %
    
    
    308,652
    
    
    
    4.96
    %Under $100,000
    
    
    264,528
    
    
    
    4.78
    %
    
    
    247,632
    
    
    
    4.84
    %Total certificates of deposits
    
    
    661,087
    
    
    
    
    
    
    
    556,284Total deposits
    
    $
    836,333
    
    
    
    4.18
    %
    
    $
    732,757
    
    
    
    4.11
    %
 
   91




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##### Table of Contents



$100,000 or
    
    
    Less thanGreater
    
    
    $100,000
    
    
    Total2008
    
    $
    388,714
    
    
    $
    254,602
    
    
    $
    643,3162009
    
    
    3,414
    
    
    
    6,678
    
    
    
    10,0922010
    
    
    1,755
    
    
    
    1,476
    
    
    
    3,2312011
    
    
    898
    
    
    
    972
    
    
    
    1,8702012
    
    
    1,778
    
    
    
    800
    
    
    
    2,578$
    396,559
    
    
    $
    264,528
    
    
    $
    661,087
 6. FEDERAL HOME LOAN BANK ADVANCES
    20072008 - overnight
    
    $
    228,0002010 - long term
    
    
    19,000$
    247,000
 At or For the Year EndedDecember 31,2007
    
    
    2006Overnight FHLB advances:Average balance outstanding during the year
    
    $
    215,544
    
    
    $
    267,452Maximum amount outstanding at any month-end during the year
    
    
    262,000
    
    
    
    310,000Balance outstanding at end of period
    
    
    228,000
    
    
    
    238,000Average interest rate during the period
    
    
    5.18
    %
    
    
    5.05
    %Average interest rate at end of period
    
    
    4.27
    %
    
    
    5.29
    %
 92




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##### Table of Contents



7. NOTE PAYABLE
  8. SUBORDINATED DEBT
    December 31,Series
    
    2007 & 2006
    
    
    Index and SpreadHarrington West Capital Trust I
    
    $
    15,464
    
    
    3 Mo. Libor + 2.85
    %Harrington West Capital Trust II
    
    
    10,310
    
    
    3 Mo. Libor + 1.90
    %Total
    
    $
    25,774
 Rate
at December 31, 2007
    
 
    
    
    
    Issuance Date
    
    
    Maturity DateHarrington
West Capital Trust I                   8.09%
    
    
    
    
    
    
    09/25/03
    
    
    
    10/08/33Harrington
West Capital Trust II                  7.14%
    
    
    
    
    
    
    09/27/04
    
    
    
    10/07/34
 9. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
  93




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Year ended December 31,2007
    
    2006Short-Term Securities sold under agreements to repurchase:Average balance outstanding
    
    $
    5,576
    
    
    $
    1,212Maximum amount outstanding at any month-end during the period
    
    
    6,729
    
    
    
    6,141Balance outstanding at end of period
    
    
    4,981
    
    
    
    6,141Average interest rate during the period
    
    
    3.61
    %
    
    
    3.93
    %Average interest rate at end of period
    
    
    3.32
    %
    
    
    4.11
    %Wholesale repurchase agreements:Average balance outstanding
    
    $
    49,334
    
    
    $
    59,000Maximum amount outstanding at any month-end during the period
    
    
    59,000
    
    
    
    59,000Balance outstanding at end of period
    
    
    45,000
    
    
    
    59,000Average interest rate during the period
    
    
    3.13
    %
    
    
    3.05
    %Average interest rate at end of period
    
    
    3.11
    %
    
    
    2.96
    %
 94




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##### Table of Contents



10. INCOME TAXES
  2007
    
    
    2006Current tax expense:Federal
    
    $
    2,865
    
    
    $
    3,298State
    
    
    661
    
    
    
    4553,526
    
    
    
    3,753Deferred tax expense / (benefit):Federal
    
    
    (784
    )
    
    
    336State
    
    
    (261
    )
    
    
    169(1,045
    )
    
    
    505$
    2,481
    
    
    $
    4,258
  2007
    
    
    2006Federal income taxes at statutory rates
    
    
    35.0
    %
    
    
    35.0
    %Increase resulting from:State tax, net of federal benefit
    
    
    3.9
    %
    
    
    3.2
    %Earnings from cash surrender value of life
insurance
    
    
    (4.6
    )%
    
    
    (2.1
    )%Other, net
    
    
    3.0
    %
    
    
    (2.0
    )%37.3
    %
    
    
    34.1
    %
 95




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##### Table of Contents



2007
    
    
    2006Deferred tax asset:Unrealized hedging loss on cash flow hedges
    
    $
    2,032
    
    
    $
    Unrealized loss on available for sale securities
    
    
    7,061
    
    
    
    559Non-qualified stock options
    
    
    
    
    
    
    242Allowance for loan losses
    
    
    2,772
    
    
    
    2,544State tax
    
    
    269
    
    
    
    436Deferred rent
    
    
    91
    
    
    
    92Other-than-temporary loss on available for sale securities
    
    
    926
    
    
    
    Gross deferred tax asset
    
    
    13,151
    
    
    
    3,873Deferred tax liabilities:Net loan fees/costs
    
    $
    3,115
    
    
    $
    2,890FHLB stock dividends
    
    
    1,369
    
    
    
    1,459Depreciation
    
    
    96
    
    
    
    302Unrealized hedging gain on cash flow hedges
    
    
    
    
    
    
    139Other
    
    
    187
    
    
    
    181Gross deferred tax liability
    
    
    4,767
    
    
    
    4,971Net deferred tax asset (liability)
    
    $
    8,384
    
    
    $
    (1,098
    )
 11. STOCKHOLDERS EQUITY
  Qualified Stock Option Plan
 2005 Equity Based Compensation Plan 
  96




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##### Table of Contents




    
    the 2005 Plan authorizes the granting of:
 
 
    
    vesting restrictions on awards may be time based and/or performance based;
 
    
    participation in the 2005 Plan is limited to officers at the level of Vice
President or above and other employees who provide substantial services to the
Company as well as the Companys directors;
 
    
    the 2005 Plan provides for a maximum of a floating ten percent (10%) of the
Companys issued and outstanding shares of common stock that may be delivered for
awards subject to adjustment as set forth therein; and
 
    
    the maximum number of Incentive Stock Options (ISO) that may be issued under the
Plan is the lesser of 1,000,000 or the maximum number of shares allocated to the
Plan.
 
    
    the right to acquire stock may not remain outstanding more than 10 years after
the grant date, and any ISO Award granted to any eligible employee owning more than
10% of the Companys stock must be granted at 110% of the fair market value of the
stock. Awards do not vest or become exercisable until six months after the date of
grant.
 97




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##### Table of Contents



Year Ended December 31,2007
    
    2006Risk-free interest rate
    
    
    4.63
    %
    
    
    4.98
    %Expected volatility
    
    
    20.45
    %
    
    
    52.79
    %Expected lives
    
    7 years
    
    
    7 yearsContractual lives
    
    10 years
    
    
    10 yearsDividend Yield
    
    
    2.90
    %
    
    
    3.11
    %
  2007
    
    2006Intrinsic value of options exercised
    
    $
    1,044
    
    
    $
    794Cash received from option exercises
    
    
    595
    
    
    
    430Tax benefit realized from option exercises
    
    
    125
    
    
    
    397Weighted average fair value of options granted
    
    
    3.64
    
    
    
    7.08
  2007Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    Intrinsic($ in Thousands Except Per Share Information)
    
    Shares
    
    
    Price
    
    
    Life
    
    
    ValueStock options:Outstanding beginning of year
    
    
    645,340
    
    
    $
    11.18Granted
    
    
    140,500
    
    
    $
    17.11Forfeited/Expired unexercised
    
    
    (13,975
    )
    
    $
    17.37Exercised
    
    
    (93,610
    )
    
    $
    6.36Outstanding, end of the period
    
    
    678,255
    
    
    $
    12.95
    
    
    
    5.7
    
    
    $
    1,004Vested or expected to vest at 12/31/07
    
    
    670,943
    
    
    $
    12.91
    
    
    
    5.6
    
    
    $
    1,004Exercisable, end of the period
    
    
    434,516
    
    
    $
    10.75
    
    
    
    4.2
    
    
    $
    1,004
 98




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12. REGULATORY CAPITAL REQUIREMENTS
       99




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REGULATORY CAPITAL
FINANCIAL STATEMENT FOOTNOTE
  To Be WellCapitalized UnderFor Capital
    
    Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Actions ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007:Total Capital(to risk weighted assets)
    
    $
    91,757
    
    
    
    10.45
    %
    
    $
    70,2733
    
    
    
    8.00
    %
    
    $
    87,8413
    
    
    
    10.00
    %Core capital(to adjusted tangible assets)
    
    $
    85,457
    
    
    
    6.93
    %
    
    $
    49,3513
    
    
    
    4.00
    %
    
    $
    61,6883
    
    
    
    5.00
    %Tangible capital(to tangible assets)
    
    $
    85,457
    
    
    
    6.93
    %
    
    $
    18,5063
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital(to risk weighted assets)
    
    $
    85,457
    
    
    
    9.73
    %
    
    $
    35,136
    
    
    
    4.00
    %
    
    $
    52,7043
    
    
    
    6.00
    %As of December 31, 2006:Total Capital(to risk weighted assets)
    
    $
    90,921
    
    
    
    10.78
    %
    
    $
    67,481>
    
    
    
    8.00
    %
    
    $
    84,3513
    
    
    
    10.00
    %Core capital(to adjusted tangible assets)
    
    $
    85,008
    
    
    
    7.41
    %
    
    $
    45,862>
    
    
    
    4.00
    %
    
    $
    57,3283
    
    
    
    5.00
    %Tangible capital(to tangible assets)
    
    $
    85,008
    
    
    
    7.41
    %
    
    $
    17,198>
    
    
    
    1.50
    %
    
    
    N/A
    
    
    
    N/ATier 1 capital(to risk weighted assets)
    
    $
    85,008
    
    
    
    10.08
    %
    
    $
    33,741
    
    
    
    4.00
    %
    
    $
    50,6113
    
    
    
    6.00
    %
 100




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##### Table of Contents



13. EARNINGS PER SHARE
  Year EndedDecember 31, 2007(net income amounts
    
    Income
    
    Shares
    
    Per-Sharein thousands)
    
    (Numerator)
    
    Denominator
    
    AmountBasic EPS
    
    $
    4,168
    
    
    
    5,541,840
    
    
    $
    0.75Effect of dilutive stock options
    
    
    
    
    
    
    95,575
    
    
    
    (0.01
    )Diluted EPS
    
    $
    4,168
    
    
    
    5,637,415
    
    
    $
    0.74
 Year EndedDecember 31, 2006Income
    
    Shares
    
    Per-Share(Numerator)
    
    Denominator
    
    AmountBasic EPS
    
    $
    8,228
    
    
    
    5,441,075
    
    
    $
    1.51Effect of dilutive stock options
    
    
    
    
    
    
    131,589
    
    
    
    (0.03
    )Diluted EPS
    
    $
    8,228
    
    
    
    5,572,664
    
    
    $
    1.48
  14. COMMITMENTS AND CONTINGENCIES
  2008
    
    $
    1,1972009
    
    
    1,0182010
    
    
    6932011
    
    
    3382012
    
    
    204$
    3,450
   101




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##### Table of Contents



15. TRADING ACCOUNT ASSETS
 Derivative Instruments Not Receiving Hedge Treatment
 Interest rate swaps
   Contract or
    
    Estimated
    
    Weighted AverageNotional
    
    Fair Value
    
    Interest Rate2007
    
    Amount
    
    Asset
    
    Liability
    
    Payable
    
    ReceivableTotal return swaps  receive total return
    
    
    
    
    
    
    
    
    
    
    
    Bank receives the spread on LehmanCMBS investment grade total return,
    
    $
    80,000
    
    
    $
    1,457
    
    
    
    
    Brothers AAA CMBS Index Plus a
spread and receives or pays the
market
value change of index
   102




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##### Table of Contents



IncomeRealized
    
    
    Unrealized
    
    
    fromGains
    
    
    Gains
    
    
    Trading(Losses)
    
    
    (Losses)
    
    
    AssetsDecember 31, 2007Interest rate contracts:Swaps
    
    $
    (4,263
    )
    
    $
    1,457
    
    
    $
    (2,806
    )MBS and other trading assets
    
    
    5
    
    
    
    3
    
    
    
    8Total trading portfolio
    
    $
    (4,258
    )
    
    $
    1,460
    
    
    $
    (2,798
    )
 IncomeRealized
    
    
    Unrealized
    
    
    fromGains
    
    
    Gains
    
    
    Trading(Losses)
    
    
    (Losses)
    
    
    AssetsDecember 31, 2006Interest rate contracts:Swaps
    
    $
    1,074
    
    
    $
    (127
    )
    
    $
    947MBS and other trading assets
    
    
    63
    
    
    
    14
    
    
    
    77Total trading portfolio
    
    $
    1,137
    
    
    $
    (113
    )
    
    $
    1,024
 103




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##### Table of Contents



2007
    
    Fair ValueMortgage-backed securities and other
    
    $
    194Mutual funds
    
    
    656CMBS total return swaps
    
    
    1,457Trading assets
    
    $
    2,307
 2006
    
    Fair ValueMortgage-backed securities and other
    
    $
    237Mutual funds
    
    
    600Trading assets
    
    $
    837
 16. DERIVATIVES HELD FOR ASSET AND LIABILITY MANAGEMENT
  Contract or
    
    
    
    
    
    Weighted-AverageNotional
    
    Estimated
    
    Interest RateAmount
    
    Fair Value
    
    Receivable
    
    PayableDecember 31, 2007 -Interest rate swaps  pay fixed receive 3-month LIBOR
    
    $
    172,000
    
    
    $
    (4,979
    )
    
    
    5.02
    %
    
    
    5.17December 31, 2006 -Interest rate swaps  pay fixed receive 3-month LIBOR
    
    $
    164,000
    
    
    $
    587
    
    
    
    5.36
    %
    
    
    4.73
 104




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##### Table of Contents



Maturities
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    ThereafterInterest rate swaps:Notional amount
    
    $
    4,000
    
    
    $
    70,000
    
    
    $
    30,000
    
    
    $
    30,000
    
    
    $
    10,000
    
    
    $
    28,000Weighted-average
payable rate
    
    
    3.78
    %
    
    
    5.20
    %
    
    
    5.63
    %
    
    
    5.05
    %
    
    
    5.46
    %
    
    
    4.84
    %Weighted-average
receivable rate
    
    
    5.18
    %
    
    
    4.95
    %
    
    
    5.11
    %
    
    
    4.88
    %
    
    
    5.18
    %
    
    
    5.18
    %
   17. FAIR VALUES OF FINANCIAL INSTRUMENTS
 Disclosures about Fair Value of Financial Instruments
 105




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##### Table of Contents



2007
    
    2006Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    14,433
    
    
    $
    14,433
    
    
    $
    21,178
    
    
    $
    21,178Trading account assets
    
    
    2,307
    
    
    
    2,307
    
    
    
    837
    
    
    
    837Securities, available for sale
    
    
    351,466
    
    
    
    351,466
    
    
    
    309,729
    
    
    
    309,729Securities, held to maturity
    
    
    56
    
    
    
    58
    
    
    
    69
    
    
    
    71Loans receivable, net
    
    
    782,626
    
    
    
    788,513
    
    
    
    757,033
    
    
    
    760,913FHLB stock
    
    
    12,474
    
    
    
    N/A
    
    
    
    14,615
    
    
    
    N/ADue from broker
    
    
    1
    
    
    
    1
    
    
    
    142
    
    
    
    142Accrued interest receivable
    
    
    5,168
    
    
    
    5,168
    
    
    
    5,315
    
    
    
    5,315Liabilities:Demand deposits
    
    
    175,246
    
    
    
    175,246
    
    
    
    176,473
    
    
    
    176,473Certificates of deposit
    
    
    661,087
    
    
    
    661,767
    
    
    
    556,284
    
    
    
    554,971FHLB advances
    
    
    247,000
    
    
    
    248,616
    
    
    
    257,000
    
    
    
    256,551Securities sold under
repurchase agreements
    
    
    49,981
    
    
    
    49,648
    
    
    
    65,141
    
    
    
    65,027Subordinated debt
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774
    
    
    
    25,774Accrued interest payable
    
    
    821
    
    
    
    821
    
    
    
    1,063
    
    
    
    1,063Hedging Instruments -
Interest rate swaps
    
    
    (4,979
    )
    
    
    (4,979
    )
    
    
    587
    
    
    
    587
  Cash and Cash Equivalents
 Trading Account Assets
 Securities
 Loans
 FHLB Stock
 106




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##### Table of Contents



Accrued Interest Receivable 
 Deposits
 FHLB Advances
 Securities Sold under Repurchase Agreements
 Subordinated Debt
 Due to/Due from Broker
 Accrued Interest Payable
 Hedging instruments
 Commitments to Extend Credit, and Standby and Commercial Letters of Credit
 Accrued Interest Payable
 18. RELATED-PARTY TRANSACTIONS
  107




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##### Table of Contents



2007
    
    
    2006Beginning Balance:
    
    $
    4,825
    
    
    $
    4,929Additions:
    
    
    255
    
    
    
    9Repayments:
    
    
    (141
    )
    
    
    (113
    )Change in related party status
    
    
    (89
    )
    
    
    Ending Balance:
    
    $
    4,850
    
    
    $
    4,825
  19. EMPLOYEE BENEFIT PLAN
  108




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##### Table of Contents



20. PARENT COMPANY ONLY FINANCIAL INFORMATION
 Condensed Statements of Financial Condition
 December 312007
    
    
    2006Assets:Cash and cash equivalents
    
    $
    2,364
    
    
    $
    1,711Trading account assets
    
    
    191
    
    
    
    175Premises, equipment and other assets
    
    
    362
    
    
    
    429Investment in Bank
    
    
    76,852
    
    
    
    90,792Investment in capital trusts
    
    
    950
    
    
    
    891Deferred tax asset
    
    
    930
    
    
    
    Total assets
    
    $
    81,649
    
    
    $
    93,998Liabilities:Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    833
    
    
    
    526Total liabilities
    
    
    26,607
    
    
    
    26,300Commitments and contingenciesShareholders equityTotal shareholders equity
    
    
    55,042
    
    
    
    67,698Total liabilities and shareholders equity
    
    $
    81,649
    
    
    $
    93,998
 109




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##### Table of Contents



Condensed Statements of Earnings
 Year Ended December 31,2007
    
    
    2006(Dollars in thousands)Interest income
    
    $
    6
    
    
    $
    5Interest expense
    
    
    (2,090
    )
    
    
    (2,020
    )Net interest expense
    
    
    (2,084
    )
    
    
    (2,015
    )Other income
    
    
    63
    
    
    
    39Other Expense
    
    
    (901
    )
    
    
    (1,089
    )Loss before income taxes and equity in undistributed
earnings of subsidiary
    
    
    (2,922
    )
    
    
    (3,065
    )Income tax benefit
    
    
    1,099
    
    
    
    1,192Loss before equity in undistributed earnings of
subsidiary
    
    
    (1,823
    )
    
    
    (1,873
    )Dividends from subsidiary
    
    
    6,250
    
    
    
    3,050Equity in (excess) undistributed earnings of subsidiary
    
    
    (259
    )
    
    
    7,051Net income
    
    $
    4,168
    
    
    $
    8,228
 110




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##### Table of Contents



Condensed Statements of Cash Flows
 Year EndedDecember 31,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    4,168
    
    
    $
    8,228Adjustments to reconcile net income to net cash provided by operating activities:Equity in excess (undistributed) earnings of subsidiary
    
    
    259
    
    
    
    (7,051
    )Activity in securities held for trading
    
    
    (16
    )
    
    
    (8
    )Depreciation and amortization
    
    
    22
    
    
    
    22(Decrease) in income taxes (payable) receivable
    
    
    (696
    )
    
    
    (267
    )Decrease in prepaid expenses and other assets
    
    
    46
    
    
    
    221and other liabilities
    
    
    39
    
    
    
    115Net cash provided by operating activities
    
    
    3,822
    
    
    
    1,260Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    595
    
    
    
    430Cash dividends paid
    
    
    (3,764
    )
    
    
    (2,722
    )Net cash (used in) provided by financing activities
    
    
    (3,169
    )
    
    
    (2,292
    )Net increase (decrease) in cash and cash equivalents
    
    
    653
    
    
    
    (1,032
    )Cash and cash equivalents at beginning of period
    
    
    1,711
    
    
    
    2,743Cash and cash equivalents at end of period
    
    $
    2,364
    
    
    $
    1,711
 111




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##### Table of Contents



21. QUARTERLY FINANCIAL INFORMATION (Unaudited)
 2007
    
    Quarter EndedDec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,Interest income
    
    $
    21,249
    
    
    $
    20,242
    
    
    $
    19,314
    
    
    $
    19,318Interest expense
    
    
    12,740
    
    
    
    12,200
    
    
    
    11,690
    
    
    
    11,639Net interest income
    
    
    8,509
    
    
    
    8,042
    
    
    
    7,624
    
    
    
    7,679Provision for loan losses
    
    
    250
    
    
    
    200
    
    
    
    100
    
    
    
    100Net interest income after provision for loan losses
    
    
    8,259
    
    
    
    7,842
    
    
    
    7,524
    
    
    
    7,579Non-interest income
    
    
    (1,545
    )
    
    
    (1,288
    )
    
    
    127
    
    
    
    1,076Non-interest expense
    
    
    5,734
    
    
    
    5,749
    
    
    
    5,747
    
    
    
    5,694Income before income taxes
    
    
    980
    
    
    
    805
    
    
    
    1,904
    
    
    
    2,961Provision for income taxes
    
    
    361
    
    
    
    307
    
    
    
    708
    
    
    
    1,106Net income
    
    $
    619
    
    
    $
    498
    
    
    $
    1,196
    
    
    $
    1,855Net income  basic
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.22
    
    
    $
    0.34Net income  diluted
    
    $
    0.11
    
    
    $
    0.09
    
    
    $
    0.21
    
    
    $
    0.33
 2006
    
    Quarter EndedDec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,Interest income
    
    $
    19,250
    
    
    $
    18,978
    
    
    $
    18,207
    
    
    $
    17,664Interest expense
    
    
    11,700
    
    
    
    11,275
    
    
    
    10,510
    
    
    
    9,858Net interest income
    
    
    7,550
    
    
    
    7,703
    
    
    
    7,697
    
    
    
    7,806Provision for loan losses
    
    
    75
    
    
    
    200
    
    
    
    150
    
    
    
    140Net interest income after provision for loan losses
    
    
    7,475
    
    
    
    7,503
    
    
    
    7,547
    
    
    
    7,666Non-interest income
    
    
    1,078
    
    
    
    1,055
    
    
    
    1,162
    
    
    
    1,166Non-interest expense
    
    
    5,674
    
    
    
    5,543
    
    
    
    5,560
    
    
    
    5,392Income before income taxes
    
    
    2,879
    
    
    
    3,015
    
    
    
    3,149
    
    
    
    3,440Provision for income taxes
    
    
    926
    
    
    
    913
    
    
    
    1,074
    
    
    
    1,342Net income
    
    $
    1,953
    
    
    $
    2,102
    
    
    $
    2,075
    
    
    $
    2,098Net income  basic
    
    $
    0.36
    
    
    $
    0.39
    
    
    $
    0.38
    
    
    $
    0.39Net income  diluted
    
    $
    0.35
    
    
    $
    0.38
    
    
    $
    0.37
    
    
    $
    0.38
   112




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##### Table of Contents



22. SUBSEQUENT EVENTS (Unaudited)
      113




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures
   
 Item 9A(T). Controls and Procedures
  Internal ControlIntegrated Framework
  114




---



##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
    
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
    115




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##### Table of Contents



Number of securities remainingavailable for future issuance underNumber of securities to be issued
    
    Weighted-average exercise price of
    
    equity compensation plansupon exercise of outstanding
    
    outstanding options, warrants and
    
    (excluding securities reflected inoptions, warrants and rights
    
    rights
    
    column (a))Plan category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans
approved by
security holders
    
    
    678,255
    
    
    $
    12.95
    
    
    
    320,400Total
    
    
    678,255
    
    
    $
    12.95
    
    
    
    320,400
 
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services
  116




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##### Table of Contents



Part IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    Documents filed as part of this report.
         (b)
    
    The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit
Index.
 EXHIBIT NO.
    
    DESCRIPTION3.1
    
    Certificate of Incorporation of Harrington West Financial Group, Inc. (1)3.1.1
    
    Certificate of Amendment to Certificate of Incorporation. (1)3.1.2
    
    Second Certificate of Amendment to Certificate of Incorporation. (1)3.2
    
    Bylaws of Harrington West Financial Group, Inc. (1)3.2.1
    
    Amendment to Bylaws. (1)4.0
    
    Specimen stock certificate of Harrington West Financial Group, Inc. (1)4.1
    
    Indenture Agreement dated September 25, 2003. (2)4.2
    
    Amended and Restated Declaration of Trust of Harrington West Capital Trust I dated
September 25, 2003 (2)4.3
    
    Preferred Securities Guarantee Agreement dated September 25, 2003 (2)4.4
    
    Indenture Agreement dated September 27, 2004 (2)4.5
    
    Amended and Restated Declaration of Trust of Harrington West Capital Trust II
dated September 27, 2004 (2)4.6
    
    Guarantee Agreement dated September 27, 2004 (2)10.1
    
    Harrington West Financial Group 1996 Stock Option Plan, as amended. (1)10.2
    
    Amended and Restated Credit Agreement dated as of October 30, 1997 among
Harrington West Financial Group, Inc., the lenders party thereto and Harris Trust and
Savings Bank, as amended on October 1, 1999, May 2, 2000 and November 1, 2001.
(1)10.2.1
    
    Fourth Amendment to Amended and Restated Credit Agreement dated September
17, 2002. (1)10.2.2
    
    Fifth Amendment to Amended and Restated Credit Agreement dated February 24,
2003. (2)
 117




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##### Table of Contents



10.2.3
    
    Sixth Amendment to Amended and Restated Credit Agreement dated October 30,
2003. (2)10.2.4
    
    Seventh Amendment to Amended and Restate Credit Agreement dated September
16, 2004.(2)10.3
    
    Investment and Interest Rate Advisory Agreement between Los Padres Savings
Bank, FSB and Smith Breeden Associates, Inc., dated February 3, 1997. (1)10.4
    
    Purchase and Assumption Agreement by and between Los Padres Bank, FSB and
Harrington Bank, FSB dated as of May 30, 2001. (1)10.5
    
    Los Padres Mortgage Company, LLC Operating Agreement by and between
Resource Marketing Group, Inc. and Los Padres Bank FSB dated June 13, 2002. (1)10.6
    
    Option Agreement, dated as of April 4, 1996 by and between Smith Breeden
Associates, Inc. and Harrington West Financial Group, Inc. Assignment of Option,
dated as of January 19, 2001, by and between Craig Cerny and Smith Breeden
Associates, Inc. (1)10.7
    
    Stock Purchase Agreement by and between Harrington Bank, FSB and Los Padres
Bank, FSB dated as of May 30, 2001. (1)10.8
    
    2005 Equity Based Compensation Plan (2)10.9
    
    Smith Breeden Associates, Inc. Portfolio Advisory & Rate Risk Analysis Agreement
(2)11
    
    Statement re computation of per share earnings  Reference is made to Item 8.
Financial Statements and Supplementary Data for the required information.14
    
    Code of Ethics (3)23.1
    
    Consent of Crowe Chizek and Company LLP31.1
    
    Section 302 Certification by Chief Executive Officer filed herewith.31.2
    
    Section 302 Certification by Chief Financial Officer filed herewith.32
    
    Section 906 Certification by Chief Executive Officer and Chief Financial Officer
furnished herewith.
 
 (1)
    
    Incorporated by reference to the Registrants Form S-1 (File No. 333-99031) filed with the
Securities and Exchange Commission (the SEC) on August 30, 2002, as amended.(2)
    
    Incorporated by reference to the Registrants Form 10-Q for the quarter ending September 30,
2003 filed with the SEC on November 11, 2003.(3)
    
    Previously filed. 118




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##### Table of Contents



SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.March 26, 2008
    By:

/s/
Craig  J.
CernyCraig J. Cerny Chairman of the Board and Chief
Executive Officer (Principal
Executive Officer)March 26, 2008
    By:

/s/
William W.
Phillips, jr.William W. Phillips, Jr.President, Chief Operating
Officer
 (Principal Executive
Officer)March 26, 2008
    By:
    /s/ Kerry SteeleKerry SteeleSr. Vice-President, Chief Financial Officer
(Principle Financial and Accounting Officer)  NAME
    
    TITLE
    
    DATE/s/ Craig J. Cerny

Craig J. Cerny
    
    Chairman of the Board and
Chief Executive Officer
    
    March 26, 2008/s/ William W. Phillips

William W. Phillips, Jr.
    
    Director, President, and
Chief Operating Officer
    
    March 26, 2008/s/
John J. McConnell
    
    Director
    
    March 26, 2008John J. McConnell/s/ Paul O. Halme
    
    Director
    
    March 26, 2008Paul O. Halme/s/ William D. Ross
    
    Director
    
    March 26, 2008William D. Ross/s/ Tim Hatlestad
    
    Director
    
    March 26, 2008Tim Hatlestad
 119