##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50066
 HARRINGTON WEST FINANCIAL GROUP, INC.
  Delaware
    
    48-1175170(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 TABLE OF CONTENTS
 PagePart I    Financial InformationItem 1.Condensed Consolidated Financial Statements (Unaudited)
    
    
    2Condensed Consolidated Statements of Financial Condition as of
March 31, 2007 and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended March 31, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Stockholders Equity and Comprehensive
Income for the Three Months Ended March 31, 2007
and Year Ended December 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4.Controls and Procedures
    
    
    23Part II  Other InformationItem 1.Legal Proceedings
    
    
    24Item 1A.Risk Factors
    
    
    24Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3.Defaults upon Senior Securities
    
    
    24Item 4.Submission of Matters to a Vote of Security Holders
    
    
    24Item 5.Other Information
    
    
    24Item 6.Exhibits
    
    
    24Signatures
    
    
    25EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32
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##### Table of Contents



PART 1-FINANCIAL INFORMATION
 
 Item 1: Condensed Consolidated Financial Statements
 HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
 (Dollars in thousands, except share data)
 March 31, 2007
    
    
    December 31, 2006ASSETSCash and cash equivalents
    
    $
    15,476
    
    
    $
    21,178Trading account assets
    
    
    835
    
    
    
    837Securities available-for-sale at fair value
    
    
    289,311
    
    
    
    309,729Securities held to maturity (fair value of $68 at March 31,
2007 and $71 at
December 31, 2006)
    
    
    66
    
    
    
    69Loans receivable, (net of allowance for loan losses of $6,013
and $5,914 at March 31, 2007 and December 31,
2006, respectively)
    
    
    754,342
    
    
    
    757,033Accrued interest receivable
    
    
    5,054
    
    
    
    5,315Premises and equipment, net
    
    
    15,328
    
    
    
    15,581Due from broker
    
    
    20
    
    
    
    142Prepaid expenses and other assets
    
    
    3,559
    
    
    
    4,959Investment in FHLB stock, at cost
    
    
    14,721
    
    
    
    14,615Income tax receivable
    
    
    484
    
    
    
    112Bank owned life insurance
    
    
    18,630
    
    
    
    18,472Deferred taxes
    
    
    2,205
    
    
    
    Goodwill
    
    
    5,496
    
    
    
    5,496Core deposit intangible, net
    
    
    873
    
    
    
    935TOTAL ASSETS
    
    $
    1,126,400
    
    
    $
    1,154,473LIABILITIES & STOCKHOLDERS EQUITYLIABILITIES:Deposits:Interest bearing
    
    $
    682,851
    
    
    $
    677,665Non-interest bearing
    
    
    50,260
    
    
    
    55,092Total Deposits
    
    
    733,111
    
    
    
    732,757FHLB advances
    
    
    227,000
    
    
    
    257,000Securities sold under repurchase agreements
    
    
    63,951
    
    
    
    65,141Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    3,707
    
    
    
    5,005Income taxes payable
    
    
    731
    
    
    
    Deferred income taxes
    
    
    2,924
    
    
    
    1,098TOTAL LIABILITIES
    
    
    1,057,198
    
    
    
    1,086,775STOCKHOLDERS EQUITY:Preferred stock, $.01 par value: 1,200,000 shares authorized
none issued and outstandingCommon stock, $.01 par value; 10,800,000 shares authorized
5,546,653 shares issued and outstanding as of March 31,
2007 and 5,460,393 shares issued and outstanding December
31, 2006
    
    
    55
    
    
    
    55Additional paid-in capital
    
    
    34,113
    
    
    
    33,332Retained earnings
    
    
    36,123
    
    
    
    34,964Accumulated other comprehensive loss
    
    
    (1,089
    )
    
    
    (653
    )Total Stockholders Equity
    
    
    69,202
    
    
    
    67,698TOTAL LIABILITIES & STOCKHOLDERS EQUITY
    
    $
    1,126,400
    
    
    $
    1,154,473
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 (Unaudited)
 (Dollars in thousands, except per share data)
 Three months endedMarch 31,2007
    
    
    2006INTEREST INCOMEInterest on loans
    
    $
    14,992
    
    
    $
    12,654Interest and dividends on securities
    
    
    4,326
    
    
    
    5,010Total interest income
    
    
    19,318
    
    
    
    17,664INTEREST EXPENSEInterest on deposits
    
    
    7,577
    
    
    
    5,247Interest on FHLB advances and other borrowings
    
    
    4,062
    
    
    
    4,611Total interest expense
    
    
    11,639
    
    
    
    9,858NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES
    
    
    7,679
    
    
    
    7,806PROVISION FOR LOAN LOSSES
    
    
    100
    
    
    
    140NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    7,579
    
    
    
    7,666OTHER INCOMENet (loss) on sale of available-for-sale securities
    
    
    
    
    
    
    (466
    )Income from trading assets
    
    
    4
    
    
    
    721Other (loss)
    
    
    
    
    
    
    (4
    )Increase in cash surrender value of life insurance
    
    
    201
    
    
    
    191Banking fee income and other income
    
    
    871
    
    
    
    724Total other income
    
    
    1,076
    
    
    
    1,166OTHER EXPENSESSalaries & employee benefits
    
    
    3,273
    
    
    
    3,007Premises & equipment
    
    
    949
    
    
    
    854Insurance premiums
    
    
    85
    
    
    
    131Marketing
    
    
    113
    
    
    
    105Computer services
    
    
    220
    
    
    
    192Professional fees
    
    
    264
    
    
    
    302Office expenses & supplies
    
    
    213
    
    
    
    243Other
    
    
    577
    
    
    
    558Total other expenses
    
    
    5,694
    
    
    
    5,392INCOME BEFORE INCOME TAXES
    
    
    2,961
    
    
    
    3,440INCOME TAXES
    
    
    1,106
    
    
    
    1,342NET INCOME
    
    $
    1,855
    
    
    $
    2,098TOTAL COMPREHENSIVE INCOME
    
    $
    1,419
    
    
    $
    3,188BASIC EARNINGS PER SHARE
    
    $
    0.34
    
    
    $
    0.39DILUTED EARNINGS PER SHARE
    
    $
    0.33
    
    
    $
    0.38BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,516,239
    
    
    
    5,410,370DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,632,054
    
    
    
    5,564,236
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AND COMPREHENSIVE INCOME (Unaudited)
 (Dollars in thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Amt
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Loss
    
    
    EquityBalance, January 1, 2006
    
    
    5,384,843
    
    
    $
    54
    
    
    $
    32,059
    
    
    $
    29,458
    
    
    
    
    
    
    
    ($1,997
    )
    
    $
    59,574Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,228
    
    
    $
    8,228
    
    
    
    
    
    
    
    8,228Other comprehensive income,
net of taxUnrealized gains on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,008
    
    
    
    1,008
    
    
    
    1,008Effective portion in 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 options earned
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Dividends on Common Stock at
$.50 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,722
    )
    
    
    
    
    
    
    
    
    
    
    (2,722
    )Balance, December 31, 2006
    
    
    5,460,393
    
    
    
    55
    
    
    
    33,332
    
    
    
    34,964
    
    
    
    
    
    
    
    (653
    )
    
    
    67,698Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,855
    
    
    $
    1,855
    
    
    
    
    
    
    
    1,855Other comprehensive income,
net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )
    
    
    (109
    )
    
    
    (109
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (327
    )
    
    
    (327
    )
    
    
    (327
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,419Stock options exercised, including
tax benefit of $135
    
    
    86,260
    
    
    
    
    
    
    
    661
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    661Stock options earned
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Dividends on common stock at $.125
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (696
    )
    
    
    
    
    
    
    
    
    
    
    (696
    )Balance, March 31, 2007
    
    
    5,546,653
    
    
    $
    55
    
    
    $
    34,113
    
    
    $
    36,123
    
    
    
    
    
    
    
    ($1,089
    )
    
    $
    69,202
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Dollars in thousands)
 Three months ended
    
    
    Three months endedMarch 31,
    
    
    March 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,855
    
    
    $
    2,098Adjustments to reconcile net income
to net cash provided by operating activities:Accretion of deferred loan fees and costs
    
    
    (207
    )
    
    
    (218
    )Depreciation and amortization
    
    
    386
    
    
    
    335Amortization of premiums and discounts on loans
receivable and securities
    
    
    459
    
    
    
    589Provision for loan losses
    
    
    100
    
    
    
    140Loss on sale of available-for-sale securities
    
    
    
    
    
    
    340Activity in trading account assets
    
    
    5
    
    
    
    (237
    )Loss (gain) on securities held for trading
    
    
    (3
    )
    
    
    2FHLB stock dividend
    
    
    (214
    )
    
    
    (192
    )Earnings on bank owned life insurance
    
    
    (201
    )
    
    
    (191
    )Decrease in accrued interest receivable
    
    
    261
    
    
    
    154Increase in income taxes receivable
    
    
    359
    
    
    
    1,267Stock options expensed
    
    
    120
    
    
    
    109Deferred income taxes
    
    
    (57
    )
    
    
    723Increase in prepaid expenses and other assets
    
    
    1,067
    
    
    
    (497
    )Decrease in accounts payable, accrued expenses,
and other liabilities
    
    
    (1,340
    )
    
    
    (3,880
    )Net cash provided by operating activities
    
    
    2,590
    
    
    
    542CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease (increase) in loans receivable
    
    
    2,802
    
    
    
    (11,969
    )Proceeds from sales of securities available for sale
    
    
    
    
    
    
    15,373Principal paydowns on securities available for sale
    
    
    32,935
    
    
    
    22,064Principal paydowns on securities held to maturity
    
    
    3
    
    
    
    3Purchases of securities available for sale
    
    
    (13,198
    )
    
    
    (18,464
    )Net purchase of premises and equipment
    
    
    (71
    )
    
    
    (1,547
    )Redemption of FHLB Stock
    
    
    108
    
    
    
    Net cash provided by investing activities
    
    
    22,579
    
    
    
    5,460CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    354
    
    
    
    27,618(Decrease) increase in securities sold under agreements to repurchase
    
    
    (1,190
    )
    
    
    121Decrease in FHLB advances
    
    
    (30,000
    )
    
    
    (34,000
    )Exercise of stock options on common stock, including tax benefits
    
    
    661
    
    
    
    165Dividends paid on common stock
    
    
    (696
    )
    
    
    (678
    )Net cash (used in) financing activities
    
    
    (30,871
    )
    
    
    (6,774
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (5,702
    )
    
    
    (772
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    21,178
    
    
    
    19,312CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    15,476
    
    
    $
    18,540SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -Cash paid during the period for:Interest
    
    $
    11,839
    
    
    $
    8,101Income Taxes
    
    $
    800
    
    
    $
    60
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business of the Company
 Basis of Presentation
  Allowance for Loan Losses
  Accounting by Creditors for Impairment of a Loan
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Stock-Based Compensation  Share-based Payment
 Accounting for Stock Issued to
Employees, Accounting for Stock-Based Compensation
   2007
    
    2006Risk free interest rate
    
    
    4.55
    %
    
    
    4.36
    %Expected option term (years)
    
    
    7.59
    
    
    
    6.68Expected stock price volatility
    
    
    20.29
    %
    
    
    51.3
    %Contractual lives
    
    
    10
    
    
    
    10Dividend yield
    
    
    2.86
    %
    
    
    2.98
    %Weighted average fair value of options granted
    
    $
    3.80
    
    
    $
    7.09
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Effect of Newly Issued, But Not Yet Effective Accounting Standards
 Fair Value Measurements
  Adoption of new accounting standards Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 - 8 -




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2. EARNINGS PER SHARE
  Three months endedMarch 31, 2007Per-(net income amounts
    
    Income
    
    Shares
    
    Sharein thousands)
    
    (Numerator)
    
    (Denominator)
    
    AmountBasic EPS
    
    $
    1,855
    
    
    
    5,516,239
    
    
    $
    0.34Effect of dilutive
stock options
    
    
    
    
    
    
    115,815
    
    
    
    (0.01
    )Diluted EPS
    
    $
    1,855
    
    
    
    5,632,054
    
    
    $
    0.33
 Three months endedMarch 31, 2006Per-Income
    
    Shares
    
    Share(Numerator)
    
    (Denominator)
    
    AmountBasic EPS
    
    $
    2,098
    
    
    
    5,410,370
    
    
    $
    0.39Effect of dilutive
stock options
    
    
    
    
    
    
    153,866
    
    
    
    (0.01
    )Diluted EPS
    
    $
    2,098
    
    
    
    5,564,236
    
    
    $
    0.38
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Corporate Profile
  Mission and Philosophy
  Multiple Market Strategy
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1.
    
    Diversify its loan portfolio and thus economic and credit risk2.
    
    Capitalize on the most favorable growth markets3.
    
    Deploy elements of our diverse product mix that are best suited for
each market4.
    
    Price products strategically among the markets to maximize
profitability.
   Product Line Diversification
   Modern Financial and Investment Management Skills
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Control Banking Risks
  Concentrate on Selected Performance Measures
  Profitability Drivers
  1.
    
    Steady development and growth of loans, deposits, and investment management and
trust accounts in all of our markets.2.
    
    Changing the loan mix 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 lines of credit.3.
    
    Growing our non-interest bearing consumer and commercial deposits and
continuing to change the overall deposit mix toward core deposit accounts.4.
    
    Diversifying and increasing our banking fee income through existing and new
sources such as our overdraft protection program and other deposit fees, loan fee
income from mortgage banking and prepayment penalties, Harrington Wealth Management
trust and investment fees, and other retail banking fees.5.
    
    Achieving a high level of performance on our investment portfolio by earning a
pre-tax total return interest income plus net gains and losses on securities and
related total return swaps over one month LIBOR of approximately .75% to 1.00% per
annum.6.
    
    Controlling interest rate risk of the institution to a lower level and seeking
high credit quality of the loan and investment portfolios.
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Results of Operations
    - 12 -




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Three months ended
    
    
    Three months endedMarch 31, 2007
    
    
    March 31, 2006(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    760,259
    
    
    $
    14,992
    
    
    
    7.92
    %
    
    $
    684,183
    
    
    $
    12,654
    
    
    
    7.43
    %FHLB stock
    
    
    14,648
    
    
    
    218
    
    
    
    6.04
    %
    
    
    16,396
    
    
    
    194
    
    
    
    4.80
    %Securities and trading account assets (2)
    
    
    302,918
    
    
    
    4,031
    
    
    
    5.32
    %
    
    
    388,578
    
    
    
    4,765
    
    
    
    4.91
    %Cash and cash equivalents (3)
    
    
    12,088
    
    
    
    77
    
    
    
    2.58
    %
    
    
    11,442
    
    
    
    51
    
    
    
    1.81
    %Total interest earning assets
    
    
    1,089,913
    
    
    
    19,318
    
    
    
    7.11
    %
    
    
    1,100,599
    
    
    
    17,664
    
    
    
    6.44
    %Non-interest-earning assets
    
    
    52,122
    
    
    
    
    
    
    
    
    
    
    
    46,948Total assets
    
    $
    1,142,035
    
    
    
    
    
    
    
    
    
    
    $
    1,147,547Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    103,997
    
    
    $
    685
    
    
    
    2.67
    %
    
    $
    110,680
    
    
    $
    549
    
    
    
    2.01
    %Passbook accounts and certificates
of deposit
    
    
    578,703
    
    
    
    6,892
    
    
    
    4.83
    %
    
    
    514,849
    
    
    
    4,698
    
    
    
    3.70
    %Total deposits
    
    
    682,700
    
    
    
    7,577
    
    
    
    4.50
    %
    
    
    625,529
    
    
    
    5,247
    
    
    
    3.40
    %FHLB advances (4)
    
    
    244,044
    
    
    
    3,059
    
    
    
    5.08
    %
    
    
    322,100
    
    
    
    3,712
    
    
    
    4.67
    %Reverse repurchase agreements
    
    
    64,656
    
    
    
    437
    
    
    
    2.70
    %
    
    
    59,102
    
    
    
    436
    
    
    
    2.95
    %Other borrowings (5)
    
    
    25,774
    
    
    
    566
    
    
    
    8.78
    %
    
    
    25,774
    
    
    
    463
    
    
    
    7.19
    %Total interest-bearing liabilities
    
    
    1,017,174
    
    
    
    11,639
    
    
    
    4.62
    %
    
    
    1,032,505
    
    
    
    9,858
    
    
    
    3.85
    %Non-interest-bearing deposits
    
    
    49,405
    
    
    
    
    
    
    
    
    
    
    
    48,595Non-interest-bearing liabilities
    
    
    6,576
    
    
    
    
    
    
    
    
    
    
    
    5,747Total liabilities
    
    
    1,073,155
    
    
    
    
    
    
    
    
    
    
    
    1,086,847Stockholders equity
    
    
    68,880
    
    
    
    
    
    
    
    
    
    
    
    60,700Total liabilities and stockholders equity
    
    $
    1,142,035
    
    
    
    
    
    
    
    
    
    
    $
    1,147,547Net interest-earning assets (liabilities)
    
    $
    72,739
    
    
    
    
    
    
    
    
    
    
    $
    68,094Net interest income/interest rate spread
    
    
    
    
    
    $
    7,679
    
    
    
    2.49
    %
    
    
    
    
    
    $
    7,806
    
    
    
    2.59
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.80
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    107.15
    %
    
    
    
    
    
    
    
    
    
    
    106.60
    %
 
 1)
    
    Balance includes non-accrual loans. Income includes fees earned on loans originated and accretion of deferred loan fees.2)
    
    Consists of securities classified as available for sale, held to maturity and trading account assets. Excludes SFAS 115
adjustments to fair value, which are included in non-interest earning assets.3)
    
    Consists of cash and due from banks and federal funds sold.4)
    
    Interest 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 other debt and a note payable under a revolving line of credit.6)
    
    Annualized. - 13 -




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For the Quarter EndedMarch 31,2007
    
    
    2006(Dollars in thousands)Balance at beginning of period
    
    $
    5,914
    
    
    $
    5,661Charge-offs:Real Estate LoansSingle-family Residential
    
    
    
    
    
    
    Multi-family Residential
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    Commercial & Industrial
    
    
    
    
    
    
    Consumer and Other Loans
    
    
    (1
    )
    
    
    (1
    )Total Charge-offs
    
    
    (1
    )
    
    
    (1
    )Recoveries:
    
    
    0
    
    
    
    0Net Recoveries (Charge-offs)
    
    
    (1
    )
    
    
    (1
    )Provision (credit) for Losses on Loans
    
    
    100
    
    
    
    140Balance at end of period
    
    $
    6,013
    
    
    $
    5,800Allowance for Loan Losses as a percent
of total loans outstanding
    
    
    0.79
    %
    
    
    0.84
    %Ratio of Net Charge-offs to Average Loans
outstanding
    
    
    0.00
    %
    
    
    0.00
    %
   - 15 -




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Banking Fee Income & Other Income(Dollars in thousands)March
    
    
    December
    
    
    
    
    
    
    March
    
    
    March2007
    
    
    2006
    
    
    %
    
    
    2007
    
    
    2006
    
    
    %Quarter
    
    
    Quarter
    
    
    Change
    
    
    Quarter
    
    
    Quarter
    
    
    ChangeBanking Fee TypeMortgage
Brokerage Fee, Prepayment Penalties & Other
Loan Fees
    
    $
    239
    
    
    $
    276
    
    
    
    -13.4
    %
    
    $
    239
    
    
    $
    208
    
    
    
    14.9
    %Deposit, Other Retail Banking
Fees & Other Fee Income
    
    
    395
    
    
    
    363
    
    
    
    8.8
    %
    
    
    395
    
    
    
    319
    
    
    
    23.8
    %Harrington Wealth Management Fees
    
    
    237
    
    
    
    230
    
    
    
    3.0
    %
    
    
    237
    
    
    
    197
    
    
    
    20.3
    %BOLI Income, net
    
    
    201
    
    
    
    178
    
    
    
    12.9
    %
    
    
    201
    
    
    
    191
    
    
    
    5.2
    %Total
    
    $
    1,072
    
    
    $
    1,047
    
    
    
    2.4
    %
    
    $
    1,072
    
    
    $
    915
    
    
    
    17.2
    %
  Financial Condition
   - 16 -




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HWFG Net Loan Growth and Mix(Dollars in millions)March 31, 2007
    
    
    December 31, 2006
    
    
    March 31, 2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoan Type
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    TotalCommercial Real Estate
    
    $
    259.4
    
    
    
    34.1
    %
    
    $
    264.9
    
    
    
    34.6
    %
    
    $
    252.7
    
    
    
    36.5
    %Multi-family Real Estate
    
    
    77.3
    
    
    
    10.1
    %
    
    
    79.9
    
    
    
    10.4
    %
    
    
    82.4
    
    
    
    11.9
    %Construction (1)
    
    
    119.7
    
    
    
    15.7
    %
    
    
    112.6
    
    
    
    14.7
    %
    
    
    83.5
    
    
    
    12.0
    %Single-family Real Estate
    
    
    114.4
    
    
    
    15.0
    %
    
    
    106.7
    
    
    
    13.9
    %
    
    
    111.5
    
    
    
    16.1
    %Commercial and Industrial Loans
    
    
    111.8
    
    
    
    14.7
    %
    
    
    119.1
    
    
    
    15.6
    %
    
    
    95.3
    
    
    
    13.8
    %Land Acquisition and Development
    
    
    51.9
    
    
    
    6.8
    %
    
    
    54.7
    
    
    
    7.1
    %
    
    
    39.3
    
    
    
    5.7
    %Consumer Loans
    
    
    26.3
    
    
    
    3.4
    %
    
    
    25.3
    
    
    
    3.3
    %
    
    
    26.3
    
    
    
    3.8
    %Other Loans (2)
    
    
    1.8
    
    
    
    0.2
    %
    
    
    2.2
    
    
    
    0.4
    %
    
    
    1.4
    
    
    
    0.2
    %Total Gross Loans
    
    $
    762.6
    
    
    
    100.0
    %
    
    $
    765.4
    
    
    
    100.0
    %
    
    $
    692.4
    
    
    
    100.0
    %Allowance for loan loss
    
    
    (6.0
    )
    
    
    
    
    
    
    (5.9
    )
    
    
    
    
    
    
    (5.8
    )Deferred fees
    
    
    (1.9
    )
    
    
    
    
    
    
    (2.1
    )
    
    
    
    
    
    
    (2.3
    )Discounts/Premiums
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Net Loans Receivable
    
    $
    754.3
    
    
    
    
    
    
    $
    757.0
    
    
    
    
    
    
    $
    683.9
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At March 31,
2007, we had $49.0 million of construction loans secured by single-family residential
properties, $27.0 million secured by commercial properties, $30.8 million for land
development and $6.2 million secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.  - 17 -




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    ValueMarch 31, 2007Mortgage-backed securities  pass throughs
    
    $
    99,141
    
    
    $
    98,136Collateralized mortgage obligations
    
    
    75,655
    
    
    
    75,226Commercial mortgage-backed securities
    
    
    23,641
    
    
    
    23,492Asset-backed securities (underlying
securities mortgages)
    
    
    90,192
    
    
    
    89,996Asset-backed securities
    
    
    2,474
    
    
    
    2,461$
    291,103
    
    
    $
    289,311
 Amortized
    
    
    FairCost
    
    
    ValueDecember 31, 2006Mortgage-backed securities  pass throughs
    
    $
    98,244
    
    
    $
    96,945Collateralized mortgage obligations
    
    
    76,182
    
    
    
    75,795Commercial mortgage-backed securities
    
    
    31,312
    
    
    
    31,081Asset-backed securities (underlying securities mortgages)
    
    
    102,815
    
    
    
    103,159Asset-backed securities
    
    
    2,747
    
    
    
    2,749$
    311,300
    
    
    $
    309,729
     - 18 -




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Liquidity and Capital Resources
 Liquidity.
    Capital Resources.
 - 19 -




---



##### Table of Contents



Asset and Liability Management
      - 20 -




---



##### Table of Contents



i.e.,
    Accounting for Derivative Instruments and Hedging
Activities,
  Critical Accounting Policies
  - 21 -




---



##### Table of Contents



Cautionary Statement Regarding Forward-Looking Statements.
    
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
    - 22 -




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##### Table of Contents



Change In Interest Rates (In Basis Points)-300
    
    
    -200
    
    
    -100
    
    
    Base
    
    
    +100
    
    
    +200
    
    
    +300Market value gain (loss) in assets
    
    $
    23,928
    
    
    $
    17,613
    
    
    $
    10,334
    
    
    
    
    
    
    
    ($13,365
    )
    
    
    ($28,993
    )
    
    
    ($45,576
    )Market value gain (loss) of liabilities
    
    
    (20,328
    )
    
    
    (14,163
    )
    
    
    (7,263
    )
    
    
    
    
    
    
    7,369
    
    
    
    14,846
    
    
    
    22,516Market value gain (loss) of net assets
before interest rate contracts
    
    
    3,600
    
    
    
    3,450
    
    
    
    3,071
    
    
    
    
    
    
    
    (5,996
    )
    
    
    (14,147
    )
    
    
    (23,060
    )Market value gain (loss) of interest
rate contracts
    
    
    (11,675
    )
    
    
    (7,590
    )
    
    
    (3,701
    )
    
    
    
    
    
    
    3,528
    
    
    
    6,891
    
    
    
    10,099Total change in MVPE (2)
    
    
    ($8,075
    )
    
    
    ($4,140
    )
    
    
    ($630
    )
    
    
    
    
    
    
    ($2,468
    )
    
    
    ($7,256
    )
    
    
    ($12,961
    )Change in MVPE as a percent of:MV of total assets of Bank
    
    
    -8.00
    %
    
    
    -4.10
    %
    
    
    -0.62
    %
    
    
    
    
    
    
    -2.45
    %
    
    
    -7.19
    %
    
    
    -12.85
    %Total assets of the Bank
    
    
    -0.89
    %
    
    
    -0.50
    %
    
    
    -0.14
    %
    
    
    
    
    
    
    -0.11
    %
    
    
    -0.43
    %
    
    
    -0.82
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $100.9 million at March 31, 2007.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  
 Item 4: Controls and Procedures
   - 23 -




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##### Table of Contents



PART II - OTHER INFORMATION
 
 Item 1:
  
 Item 1A.
  
 Item 2:
  
 Item 3:
  
 Item 4:
  
 Item 5:
  
 Item 6:
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Section 302 Certification by Chief Executive Officer filed herewith.31.2
    
    Section 302 Certification by Chief Operating Officer filed herewith.31.3
    
    Section 302 Certification by Chief Financial Officer filed herewith.32
    
    Section 906 Certification by Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer furnished herewith.
 - 24 -




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##### Table of Contents



SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.May 10, 2007
    By:
    /s/ Craig J. CernyCraig J. CernyChairman of the Board
and Chief Executive Officer
(Principal Executive Officer)May 10, 2007
    By:
    /s/ William W. PhillipsWilliam W. PhillipsPresident, Chief Operating Officer
(Principal Executive Officer)May 10, 2007
    By:
    /s/ Kerril SteeleKerril SteeleSr. Vice-President, Chief Financial Officer
(Principle Financial and Accounting Officer) - 25 -