##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 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 þ
  o o þ




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##### 



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 June 30, 2006 and December 31, 2005
    
    
    2Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income for the Six Months Ended June 30, 2006 and Year Ended December 31, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4.Controls and Procedures
    
    
    25Part II  Other InformationItem 1.Legal Proceedings
    
    
    26Item 1A.Risk Factors
    
    
    26Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.Defaults upon Senior Securities
    
    
    26Item 4.Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.Other Information
    
    
    27Item 6.Exhibits
    
    
    27Signatures
    
    
    28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 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)
 June 30, 2006
    
    
    December 31, 2005ASSETSCash and cash equivalents
    
    $
    16,508
    
    
    $
    19,312Trading account assets
    
    
    786
    
    
    
    975Securities available-for-sale
    
    
    326,470
    
    
    
    387,352Securities held to maturity
    
    
    73
    
    
    
    80Loans receivable, (net of allowance for loan losses of $5,614
and $5,661 at June 30, 2006 and December 31,
2005, respectively)
    
    
    716,176
    
    
    
    672,890Accrued interest receivable
    
    
    4,680
    
    
    
    4,463Real estate owned
    
    
    1,021
    
    
    
    Premises and equipment, net
    
    
    13,327
    
    
    
    10,276Prepaid expenses and other assets
    
    
    5,739
    
    
    
    3,783Investment in FHLB stock, at cost
    
    
    15,608
    
    
    
    16,364Income tax receivable
    
    
    565
    
    
    
    251Bank owned life insurance (BOLI)
    
    
    18,043
    
    
    
    17,621Deferred tax asset
    
    
    
    
    
    
    137Goodwill
    
    
    5,496
    
    
    
    5,496Core deposit intangible, net
    
    
    1,061
    
    
    
    1,187TOTAL ASSETS
    
    $
    1,125,553
    
    
    $
    1,140,187LIABILITIES & STOCKHOLDERS EQUITYDeposits:Interest bearing
    
    $
    663,168
    
    
    $
    619,213Non-interest bearing
    
    
    47,954
    
    
    
    49,932Total Deposits
    
    
    711,122
    
    
    
    669,145FHLB advances
    
    
    259,000
    
    
    
    319,000Securities sold under repurchase agreements
    
    
    59,082
    
    
    
    59,013Subordinated debt
    
    
    25,774
    
    
    
    25,774Due to broker
    
    
    1,156
    
    
    
    2,474Accrued interest payable and other liabilities
    
    
    3,591
    
    
    
    5,207Deferred tax liability
    
    
    1,151
    
    
    
    TOTAL LIABILITIES
    
    
    1,060,876
    
    
    
    1,080,613STOCKHOLDERS EQUITYPreferred stock, $.01 par value: 1,200,000 shares
authorized: none issued and outstandingCommon stock, $.01 par value; 10,800,000 shares
authorized: 5,447,643 shares issued and outstanding as of June 30, 2006
and 5,384,843 shares issued and outstanding December 31, 2005
    
    
    54
    
    
    
    54Additional paid-in capital
    
    
    32,811
    
    
    
    32,059Retained earnings
    
    
    32,272
    
    
    
    29,458Accumulated other comprehensive loss
    
    
    (460
    )
    
    
    (1,997
    )Total Stockholders Equity
    
    
    64,677
    
    
    
    59,574TOTAL LIABILITIES & STOCKHOLDERS EQUITY
    
    $
    1,125,553
    
    
    $
    1,140,187
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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 
(Unaudited)
 Dollars in thousands, except share data)
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005INTEREST INCOMEInterest on loans
    
    
    13,286
    
    
    $
    10,598
    
    
    
    25,939
    
    
    $
    20,506Interest and dividends on securities
    
    
    4,921
    
    
    
    4,565
    
    
    
    9,929
    
    
    
    8,965Total interest income
    
    
    18,207
    
    
    
    15,163
    
    
    
    35,868
    
    
    
    29,471INTEREST EXPENSEInterest on deposits
    
    
    6,119
    
    
    
    3,500
    
    
    
    11,367
    
    
    
    6,585Interest on FHLB advances and other borrowings
    
    
    4,391
    
    
    
    4,180
    
    
    
    9,002
    
    
    
    7,842Total interest expense
    
    
    10,510
    
    
    
    7,680
    
    
    
    20,369
    
    
    
    14,427NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES
    
    
    7,697
    
    
    
    7,483
    
    
    
    15,499
    
    
    
    15,044PROVISION FOR LOAN LOSSES
    
    
    150
    
    
    
    200
    
    
    
    290
    
    
    
    350NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    7,547
    
    
    
    7,283
    
    
    
    15,209
    
    
    
    14,694OTHER INCOME (LOSS)Net gain (loss) on sale of available-for-sale securities
    
    
    (147
    )
    
    
    458
    
    
    
    (613
    )
    
    
    508Income from trading assets
    
    
    113
    
    
    
    (387
    )
    
    
    833
    
    
    
    275Other income gain (loss)
    
    
    2
    
    
    
    1
    
    
    
    (3
    )
    
    
    (6
    )Banking fee and other income
    
    
    1,194
    
    
    
    974
    
    
    
    2,111
    
    
    
    1,832Total other income
    
    
    1,162
    
    
    
    1,046
    
    
    
    2,328
    
    
    
    2,609OTHER EXPENSESSalaries & employee benefits
    
    
    3,055
    
    
    
    2,615
    
    
    
    6,061
    
    
    
    5,426Premises & equipment
    
    
    960
    
    
    
    994
    
    
    
    1,814
    
    
    
    1,898Insurance premiums
    
    
    88
    
    
    
    126
    
    
    
    220
    
    
    
    251Marketing
    
    
    109
    
    
    
    73
    
    
    
    214
    
    
    
    172Computer services
    
    
    205
    
    
    
    189
    
    
    
    397
    
    
    
    370Consulting fees
    
    
    257
    
    
    
    351
    
    
    
    560
    
    
    
    713Office expenses & supplies
    
    
    210
    
    
    
    227
    
    
    
    452
    
    
    
    441Other
    
    
    676
    
    
    
    563
    
    
    
    1,228
    
    
    
    1,077Total other expenses
    
    
    5,560
    
    
    
    5,138
    
    
    
    10,946
    
    
    
    10,348INCOME BEFORE INCOME TAXES
    
    
    3,149
    
    
    
    3,191
    
    
    
    6,591
    
    
    
    6,955INCOME TAXES
    
    
    1,076
    
    
    
    1,240
    
    
    
    2,418
    
    
    
    2,769NET INCOME
    
    $
    2,073
    
    
    $
    1,951
    
    
    $
    4,173
    
    
    $
    4,186TOTAL COMPREHENSIVE INCOME
    
    $
    2,520
    
    
    $
    650
    
    
    $
    5,710
    
    
    $
    3,905BASIC EARNINGS PER SHARE
    
    $
    0.38
    
    
    $
    0.36
    
    
    $
    0.77
    
    
    $
    0.79DILUTED EARNINGS PER SHARE
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.75
    
    
    $
    0.74BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,446,100
    
    
    
    5,360,331
    
    
    
    5,428,334
    
    
    
    5,326,363DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,588,019
    
    
    
    5,639,756
    
    
    
    5,567,063
    
    
    
    5,620,992
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY 
AND COMPREHENSIVE INCOME (Unaudited)
 (Dollars in thousands, except share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Amt
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Loss
    
    
    EquityBalance, January 1, 2005
    
    
    5,278,934
    
    
    $
    53
    
    
    $
    31,225
    
    
    $
    23,637
    
    
    
    
    
    
    
    ($2,255
    )
    
    $
    52,660Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,336
    
    
    $
    8,336
    
    
    
    
    
    
    
    8,336Other comprehensive income,
net of taxUnrealized (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,270
    )
    
    
    (2,270
    )
    
    
    (2,270
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,528
    
    
    
    2,528
    
    
    
    2,528Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,594Stock options, exercised, including
tax benefit of $250
    
    
    105,909
    
    
    
    1
    
    
    
    834
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    835Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,515
    )
    
    
    
    
    
    
    
    
    
    
    (2,515
    )Balance, December 31, 2005
    
    
    5,384,843
    
    
    
    54
    
    
    
    32,059
    
    
    
    29,458
    
    
    
    
    
    
    
    (1,997
    )
    
    
    59,574Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,173
    
    
    $
    4,173
    
    
    
    
    
    
    
    4,173Other comprehensive income,
net of taxUnrealized (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (152
    )
    
    
    (152
    )
    
    
    (152
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,689
    
    
    
    1,689
    
    
    
    1,689Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,710Stock options exercised, including
tax benefit of $194
    
    
    62,800
    
    
    
    
    
    
    
    530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    530Stock options expensed
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,359
    )
    
    
    
    
    
    
    
    
    
    
    (1,359
    )Balance, June 30, 2006
    
    
    5,447,643
    
    
    $
    54
    
    
    $
    32,811
    
    
    $
    32,272
    
    
    
    
    
    
    $
    (460
    )
    
    $
    64,677
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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
 Six months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    4,173
    
    
    $
    4,186Adjustments to reconcile net income
to net cash provided by operating activities:Accretion of deferred loan fees and costs
    
    
    (172
    )
    
    
    311Depreciation and amortization
    
    
    686
    
    
    
    653Amortization of premiums and discounts on loans
receivable and securities
    
    
    1,115
    
    
    
    1,359Provision for loan losses
    
    
    290
    
    
    
    350Loss (Gain) on sale of investment securities
    
    
    613
    
    
    
    (508
    )Activity in securities held for trading
    
    
    189
    
    
    
    (66
    )FHLB stock dividend
    
    
    (395
    )
    
    
    (309
    )(Increase) in accrued interest receivable
    
    
    (217
    )
    
    
    (561
    )(Increase) in income taxes receivable
    
    
    (314
    )
    
    
    (418
    )Stock Options expensed
    
    
    222
    
    
    
    Tax benefit on exercise of stock options
    
    
    (194
    )
    
    
    Provision for deferred income taxes
    
    
    277
    
    
    
    24Decrease (increase) in prepaid expenses and other assets
    
    
    (1,887
    )
    
    
    981(Decrease) in accounts payable, accrued expenses,
And other liabilities
    
    
    (1,616
    )
    
    
    (1,381
    )Net cash provided by operating activities
    
    
    2,770
    
    
    
    4,621CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) in loans receivable
    
    
    (44,454
    )
    
    
    (37,257
    )Proceeds from sales of securities available for sale
    
    
    44,327
    
    
    
    38,197Principal paydowns on securities available for sale
    
    
    44,334
    
    
    
    37,448Principal paydowns on securities held to maturity
    
    
    7
    
    
    
    5Purchases of securities available for sale
    
    
    (28,542
    )
    
    
    (46,639
    )Purchase bank owned life insurance
    
    
    
    
    
    
    (17,000
    )Acquisition, net of cash acquired
    
    
    
    
    
    
    (1,954
    )Purchase of premises and equipment
    
    
    (3,614
    )
    
    
    (932
    )Sale (purchase) of FHLB Stock
    
    
    1,151
    
    
    
    (1,638
    )Net cash used in investing activities
    
    
    13,209
    
    
    
    (29,770
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    41,977
    
    
    
    47,154(Decrease) Increase in securities sold under agreements to repurchase
    
    
    69
    
    
    
    (509
    )(Decrease) in FHLB advances
    
    
    (60,000
    )
    
    
    (20,000
    )Proceeds from exercise of stock options
    
    
    530
    
    
    
    708Dividends paid on common stock
    
    
    (1,359
    )
    
    
    (1,171
    )Net cash (used in ) provided by financing activities
    
    
    (18,783
    )
    
    
    26,182NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (2,804
    )
    
    
    1,033CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    19,312
    
    
    
    13,238CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    16,508
    
    
    $
    14,271SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-Cash paid during the period for:Interest
    
    $
    20,613
    
    
    $
    13,123Income Taxes
    
    $
    2,240
    
    
    $
    2,120
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##### Table of Contents



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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##### Table of Contents



Stock-Based Compensation  Share-based Payment
 Accounting for Stock Issued to
Employees, Accounting for Stock-Based Compensation
   2005 Equity Based Compensation Plan 
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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.
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##### Table of Contents



Three Months
    
    
    Six MonthsPro Forma Results
    
    June 30, 2005
    
    
    June 30, 2005Net income:As reported
    
    $
    1,951
    
    
    $
    4,186Total stock-based employee
expense under the fair value based
awards, net of related tax effects
    
    $
    58
    
    
    $
    117Pro forma net income (APB 25)
    
    $
    1,893
    
    
    $
    4,069Earnings per share  basic:As reported
    
    $
    0.36
    
    
    $
    0.79Pro forma
    
    $
    0.35
    
    
    $
    0.76Earnings per share  diluted:As reported
    
    $
    0.35
    
    
    $
    0.74Pro forma
    
    $
    0.34
    
    
    $
    0.72
  2006
    
    2005Risk free interest rate:
    
    
    4.98
    %
    
    
    4.31
    %Expected option term (years):
    
    
    6.93
    
    
    
    9.00Expected stock price volatility:
    
    
    52.79
    %
    
    
    41.12
    %Contractual lives
    
    
    10
    
    
    
    10Dividend yield
    
    
    3.11
    %
    
    
    2.90
    %Weighted average fair value of options granted
    
    $
    7.08
    
    
    $
    8.08
  June 30,2006Weighted-Average
    
    
    AggregateExercise
    
    
    Intrinsic($ in Thousands Except Per Share Information)
    
    Shares
    
    
    Price
    
    
    ValueIncentive stock options:Outstanding, beginning of year
    
    
    620,440
    
    
    $
    9.60Granted
    
    
    102,500
    
    
    $
    16.80Expired unexercised
    
    
    (1,000
    )
    
    $
    16.88Options exercised
    
    
    (62,800
    )
    
    $
    5.35Outstanding, end of the period
    
    
    659,140
    
    
    $
    11.12
    
    
    $
    3,463Exercisable, end of the period
    
    
    427,526
    
    
    $
    8.37
    
    
    $
    3,275
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Recent Accounting Pronouncements
  Accounting for Servicing of Financial Asset
 2. EARNINGS PER SHARE
  Three months ended June 30, 2006
    
    
    Six months ended June 30, 2006Income
    
    
    Shares
    
    
    Per-Share
    
    
    Income
    
    
    Shares
    
    
    Per-Share(net income amounts in thousands)
    
    (Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS
    
    $
    2,073
    
    
    
    5,446,100
    
    
    $
    0.38
    
    
    $
    4,173
    
    
    
    5,428,334
    
    
    $
    0.77Effect of dilutive
stock options
    
    
    
    
    
    
    141,919
    
    
    
    (0.01
    )
    
    
    
    
    
    
    138,729
    
    
    
    (0.02
    )Diluted EPS
    
    $
    2,073
    
    
    
    5,588,019
    
    
    $
    0.37
    
    
    $
    4,173
    
    
    
    5,567,063
    
    
    $
    0.75
 Three months ended June 30, 2005
    
    
    Six months ended June 30, 2005Income
    
    
    Shares
    
    
    Per-Share
    
    
    Income
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS
    
    $
    1,951
    
    
    
    5,360,331
    
    
    $
    0.36
    
    
    $
    4,186
    
    
    
    5,326,363
    
    
    $
    0.79Effect of dilutive
stock options
    
    
    
    
    
    
    279,425
    
    
    
    (0.01
    )
    
    
    
    
    
    
    294,629
    
    
    
    (0.05
    )Diluted EPS
    
    $
    1,951
    
    
    
    5,639,756
    
    
    $
    0.35
    
    
    $
    4,186
    
    
    
    5,620,992
    
    
    $
    0.74
 - 10 -




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##### Table of Contents



Item 2: Managements Discussion and Analysis
 Corporate Profile
  Mission and Philosophy
  Multiple Market Strategy
   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.
  - 11 -




---



##### Table of Contents



Product Line Diversification
  Modern Financial and Investment Management Skills
  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.
 - 12 -




---



##### Table of Contents



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 1.00% to 1.25% 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.
  Results of Operations
     - 13 -




---



##### Table of Contents



Three months ended
    
    
    Three months endedJune 30, 2006
    
    
    June 30, 2005(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    697,804
    
    
    $
    13,286
    
    
    
    7.62
    %
    
    $
    631,198
    
    
    $
    10,598
    
    
    
    6.72
    %FHLB stock
    
    
    15,849
    
    
    
    208
    
    
    
    5.26
    %
    
    
    16,754
    
    
    
    191
    
    
    
    4.56
    %Securities and trading account assets (2)
    
    
    357,127
    
    
    
    4,643
    
    
    
    5.20
    %
    
    
    408,233
    
    
    
    4,338
    
    
    
    4.25
    %Cash and cash equivalents (3)
    
    
    11,420
    
    
    
    70
    
    
    
    2.46
    %
    
    
    9,389
    
    
    
    36
    
    
    
    1.52
    %Total interest earning assets
    
    
    1,082,200
    
    
    
    18,207
    
    
    
    6.73
    %
    
    
    1,065,574
    
    
    
    15,163
    
    
    
    5.69
    %Non-interest-earning assets
    
    
    49,325
    
    
    
    
    
    
    
    
    
    
    
    40,675Total assets
    
    $
    1,131,525
    
    
    
    
    
    
    
    
    
    
    $
    1,106,249Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    100,212
    
    
    $
    548
    
    
    
    2.19
    %
    
    $
    116,105
    
    
    $
    454
    
    
    
    1.57
    %Passbook accounts and certificates
of deposit
    
    
    547,729
    
    
    
    5,571
    
    
    
    4.08
    %
    
    
    453,760
    
    
    
    3,046
    
    
    
    2.69
    %Total deposits
    
    
    647,941
    
    
    
    6,119
    
    
    
    3.79
    %
    
    
    569,865
    
    
    
    3,500
    
    
    
    2.46
    %FHLB advances (4)
    
    
    282,692
    
    
    
    3,450
    
    
    
    4.90
    %
    
    
    325,088
    
    
    
    3,281
    
    
    
    4.04
    %Reverse repurchase agreements
    
    
    59,116
    
    
    
    442
    
    
    
    2.96
    %
    
    
    80,512
    
    
    
    526
    
    
    
    2.62
    %Other borrowings (5)
    
    
    25,774
    
    
    
    499
    
    
    
    7.66
    %
    
    
    25,774
    
    
    
    373
    
    
    
    5.78
    %Total
interest-bearing
liabilities
    
    
    1,015,523
    
    
    
    10,510
    
    
    
    4.13
    %
    
    
    1,001,239
    
    
    
    7,680
    
    
    
    3.07
    %Non-interest-bearing deposits
    
    
    46,285
    
    
    
    
    
    
    
    
    
    
    
    38,990Non-interest-bearing liabilities
    
    
    5,936
    
    
    
    
    
    
    
    
    
    
    
    10,018Total liabilities
    
    
    1,067,744
    
    
    
    
    
    
    
    
    
    
    
    1,050,247Stockholders equity
    
    
    63,781
    
    
    
    
    
    
    
    
    
    
    
    56,002Total liabilities and stockholders equity
    
    $
    1,131,525
    
    
    
    
    
    
    
    
    
    
    $
    1,106,249Net interest-earning assets (liabilities)
    
    $
    66,677
    
    
    
    
    
    
    
    
    
    
    $
    64,335Net interest income/interest rate spread
    
    
    
    
    
    $
    7,697
    
    
    
    2.60
    %
    
    
    
    
    
    $
    7,483
    
    
    
    2.62
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    2.82
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.57
    %
    
    
    
    
    
    
    
    
    
    
    106.43
    %
 
 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.
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. 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. - 14 -




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##### Table of Contents



Six Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2005(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    691,032
    
    
    $
    25,939
    
    
    
    7.53
    %
    
    $
    622,692
    
    
    $
    20,506
    
    
    
    6.59
    %FHLB stock
    
    
    16,121
    
    
    
    402
    
    
    
    5.03
    %
    
    
    16,071
    
    
    
    336
    
    
    
    4.18
    %Securities and trading account assets (2)
    
    
    372,763
    
    
    
    9,407
    
    
    
    5.05
    %
    
    
    417,370
    
    
    
    8,558
    
    
    
    4.10
    %Cash and cash equivalents (3)
    
    
    11,431
    
    
    
    120
    
    
    
    2.12
    %
    
    
    9,144
    
    
    
    71
    
    
    
    1.55
    %Total interest earning assets
    
    
    1,091,347
    
    
    
    35,868
    
    
    
    6.59
    %
    
    
    1,065,277
    
    
    
    29,471
    
    
    
    5.53
    %Non-interest-earning assets
    
    
    47,954
    
    
    
    
    
    
    
    
    
    
    
    33,150Total assets
    
    $
    1,139,301
    
    
    
    
    
    
    
    
    
    
    $
    1,098,427Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    105,417
    
    
    $
    1,097
    
    
    
    2.10
    %
    
    $
    117,796
    
    
    $
    840
    
    
    
    1.43
    %Passbook accounts and certificates
of deposit
    
    
    531,380
    
    
    
    10,270
    
    
    
    3.90
    %
    
    
    451,432
    
    
    
    5,745
    
    
    
    2.55
    %Total deposits
    
    
    636,797
    
    
    
    11,367
    
    
    
    3.60
    %
    
    
    569,228
    
    
    
    6,585
    
    
    
    2.31
    %FHLB advances (4)
    
    
    302,287
    
    
    
    7,162
    
    
    
    4.78
    %
    
    
    322,994
    
    
    
    6,093
    
    
    
    3.77
    %Reverse repurchase agreements
    
    
    59,109
    
    
    
    878
    
    
    
    2.95
    %
    
    
    80,062
    
    
    
    1,040
    
    
    
    2.60
    %Other borrowings (5)
    
    
    25,774
    
    
    
    962
    
    
    
    7.42
    %
    
    
    25,774
    
    
    
    709
    
    
    
    5.50
    %Total interest-bearing liabilities
    
    
    1,023,967
    
    
    
    20,369
    
    
    
    3.99
    %
    
    
    998,058
    
    
    
    14,427
    
    
    
    2.89
    %Non-interest-bearing deposits
    
    
    47,433
    
    
    
    
    
    
    
    
    
    
    
    37,077Non-interest-bearing liabilities
    
    
    5,652
    
    
    
    
    
    
    
    
    
    
    
    8,907Total liabilities
    
    
    1,077,052
    
    
    
    
    
    
    
    
    
    
    
    1,044,042Stockholders equity
    
    
    62,249
    
    
    
    
    
    
    
    
    
    
    
    54,385Total liabilities and stockholders equity
    
    $
    1,139,301
    
    
    
    
    
    
    
    
    
    
    $
    1,098,427Net interest-earning assets (liabilities)
    
    $
    67,380
    
    
    
    
    
    
    
    
    
    
    $
    67,219Net interest income/interest rate spread
    
    
    
    
    
    $
    15,499
    
    
    
    2.60
    %
    
    
    
    
    
    $
    15,044
    
    
    
    2.64
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.85
    %
    
    
    
    
    
    
    
    
    
    
    2.82
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.58
    %
    
    
    
    
    
    
    
    
    
    
    106.73
    %
 
 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.
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. 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. - 15 -




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##### Table of Contents



For the Quarter Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in thousands)
    
    
    (Dollars in thousands)Balance at beginning of period
    
    
    5,800
    
    
    $
    5,376
    
    
    
    5,661
    
    
    $
    5,228Charge-offs:Real estate loansSingle-family residential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Multi-family residential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial & Industrial
    
    
    (336
    )
    
    
    
    
    
    
    (336
    )
    
    
    Consumer and other loans
    
    
    
    
    
    
    (0
    )
    
    
    (1
    )
    
    
    (2
    )Total charge-offs
    
    
    (336
    )
    
    
    (0
    )
    
    
    (337
    )
    
    
    (2
    )Provision (credit) for losses on loans
    
    
    150
    
    
    
    200
    
    
    
    290
    
    
    
    350Balance at end of period
    
    $
    5,614
    
    
    $
    5,576
    
    
    $
    5,614
    
    
    $
    5,576Allowance for loan losses as a
percent of total loans outstanding
    
    
    0.78
    
    
    
    0.87
    %
    
    
    0.78
    %
    
    
    0.87
    %Ratio of net charge-offs to average
loans outstanding
    
    
    .05
    %
    
    
    0.00
    %
    
    
    .05
    %
    
    
    0.00
    %
 - 16 -




---



##### Table of Contents



- 17 -




---



##### Table of Contents



(Dollars in thousands)June
    
    June

    
    
    
    
    
    June
    
    June2006
    
    2005
    
    %
    
    2006
    
    2005
    
    %Banking Fee and Other Income
    
    Quarter
    
    Quarter
    
    Change
    
    YTD
    
    YTD
    
    ChangeMortgage Brokerage Fee,
Prepayment Penalties & Other
Loan Fees
    
    $
    166
    
    
    $
    254
    
    
    
    (34.6
    %)
    
    $
    375
    
    
    $
    631
    
    
    
    (40.6
    %)Deposit, Other Retail Banking
Fees & Other Fee Income
    
    
    630
    
    
    
    317
    
    
    
    98.7
    %
    
    
    950
    
    
    
    634
    
    
    
    49.8
    %Harrington Wealth Management Fees
    
    
    207
    
    
    
    189
    
    
    
    9.5
    %
    
    
    404
    
    
    
    353
    
    
    
    14.4
    %BOLI Income, net
    
    
    191
    
    
    
    214
    
    
    
    (10.7
    )%
    
    
    382
    
    
    
    214
    
    
    
    78.5
    %Total Banking Fee Income
    
    $
    1,194
    
    
    $
    974
    
    
    
    22.6
    %
    
    
    2,111
    
    
    $
    1,832
    
    
    
    15.2
    %
   Financial Condition
   - 18 -




---



##### Table of Contents



HWFG Net Loan Growth and Mix
 (Dollars in millions)June 30, 2006
    
    December 31, 2005
    
    June 30, 2005% of
    
    
    
    
    
    % ofLoan Type
    
    Total
    
    Total
    
    Total
    
    Total
    
    
    
    
    
    % of TotalCommercial Real Estate
    
    $
    254.0
    
    
    
    35.1
    %
    
    $
    253.2
    
    
    
    37.2
    %
    
    $
    266.8
    
    
    
    41.5
    %Multi-family Real Estate
    
    
    80.8
    
    
    
    11.2
    %
    
    
    80.9
    
    
    
    11.9
    %
    
    
    80.0
    
    
    
    12.4
    %Construction (1)
    
    
    95.0
    
    
    
    13.1
    %
    
    
    70.9
    
    
    
    10.4
    %
    
    
    46.4
    
    
    
    7.2
    %Single-family Real Estate
    
    
    113.5
    
    
    
    15.6
    %
    
    
    115.9
    
    
    
    17.0
    %
    
    
    106.3
    
    
    
    16.5
    %Commercial and industrial loans
    
    
    99.8
    
    
    
    13.8
    %
    
    
    96.5
    
    
    
    14.1
    %
    
    
    86.5
    
    
    
    13.5
    %Land acquisition and
development
    
    
    51.2
    
    
    
    7.1
    %
    
    
    36.1
    
    
    
    5.3
    %
    
    
    30.1
    
    
    
    4.7
    %Consumer loans
    
    
    27.8
    
    
    
    3.8
    %
    
    
    26.7
    
    
    
    3.9
    %
    
    
    25.6
    
    
    
    4.0
    %Other loans (2)
    
    
    2.4
    
    
    
    .3
    %
    
    
    1.3
    
    
    
    .2
    %
    
    
    1.2
    
    
    
    .2
    %Total gross loans
    
    
    724.5
    
    
    
    100.0
    %
    
    
    681.5
    
    
    
    100.0
    %
    
    
    642.9
    
    
    
    100.0
    %Allowance, Deferred Fees &
Discounts/Premiums
    
    
    (8.3
    )
    
    
    
    
    
    
    (8.6
    )
    
    
    
    
    
    
    (8.0
    )Net loans receivable
    
    $
    716.2
    
    
    
    
    
    
    $
    672.9
    
    
    
    
    
    
    $
    634.9
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At June 30,
2006, we had $54.8 million of construction loans secured by single-family residential
properties, $16.7 million secured by commercial properties, $17.4 million for land
development and $6.1 million secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.  - 19 -




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##### Table of Contents



Amortized Cost
    
    
    Fair ValueJune 30, 2006Mortgage-backed securities  pass through
    
    $
    105,344
    
    
    $
    102,692Collateralized mortgage obligations
    
    
    61,867
    
    
    
    60,907Commercial mortgage-backed securities
    
    
    37,483
    
    
    
    36,997Asset-backed securities (underlying
securities mortgages)
    
    
    121,913
    
    
    
    122,430Asset-backed securities
    
    
    3,424
    
    
    
    3,444$
    330,031
    
    
    $
    326,470
 Amortized Cost
    
    
    Fair ValueDecember 31, 2005Mortgage-backed securities  pass through
    
    $
    125,153
    
    
    $
    122,840Collateralized mortgage obligations
    
    
    80,470
    
    
    
    79,531Commercial mortgage-backed securities
    
    
    40,647
    
    
    
    40,179Asset-backed securities (underlying
securities mortgages)
    
    
    141,086
    
    
    
    141,564Asset-backed securities
    
    
    3,335
    
    
    
    3,238$
    390,691
    
    
    $
    387,352
    - 20 -




---



##### Table of Contents



Liquidity and Capital Resources
 Liquidity.
    - 21 -




---



##### Table of Contents



Capital Resources.
  Asset and Liability Management
   - 22 -




---



##### Table of Contents



i.e.,
    Accounting for Derivative Instruments and Hedging
Activities,
 - 23 -




---



##### Table of Contents



Critical Accounting Policies
  Cautionary Statement Regarding Forward-Looking Statements.
    - 24 -




---



##### Table of Contents



Item 3: Quantitative and Qualitative Disclosures about Market Risk
    Change In Interest Rates (In Basis Points)(1)-300
    
    
    -200
    
    
    -100
    
    
    +100
    
    
    +200
    
    
    +300(Dollars in Thousands)Market value gain (loss) in assets
    
    $
    35,571
    
    
    $
    26,528
    
    
    $
    14,767
    
    
    $
    (16,991
    )
    
    $
    (35,222
    )
    
    $
    (53,903
    )Market value gain (loss) of liabilities
    
    
    (22,988
    )
    
    
    (15,638
    )
    
    
    (7,880
    )
    
    
    7,907
    
    
    
    15,901
    
    
    
    23,909Market value gain (loss) of net assets
before interest rate contracts
    
    
    12,583
    
    
    
    10,890
    
    
    
    6,887
    
    
    
    (9,084
    )
    
    
    (19,321
    )
    
    
    (29,994
    )Market value gain (loss) of interest
rate contracts before tax
    
    
    (11,573
    )
    
    
    (7,504
    )
    
    
    (3,651
    )
    
    
    3,463
    
    
    
    6,744
    
    
    
    9,861Total change in MVPE (2)
    
    $
    1,010
    
    
    $
    3,386
    
    
    $
    3,236
    
    
    $
    (5,621
    )
    
    $
    (12,577
    )
    
    $
    (20,133
    )Change in MVPE as a percent of:MVPE(2)
    
    
    1.14
    %
    
    
    3.82
    %
    
    
    3.65
    %
    
    
    -6.34
    %
    
    
    -14.18
    %
    
    
    -22.70
    %MVPE post shock ratio (3)
    
    
    -0.16
    %
    
    
    -0.11
    %
    
    
    -0.18
    %
    
    
    -0.39
    %
    
    
    -0.91
    %
    
    
    -1.50
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $88.7 million at June 30, 2006.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  
 Item 4: Controls and Procedures
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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1:
  
 Item 1A.
  
 Item 2:
  
 Item 3:
  - 26 -




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##### Table of Contents



Item 4:
    NAME
    
    FOR
    
    WITHHELDTimothy Hatlestad
    
    
    4,385,526
    
    
    
    207,577William W. Phillips
    
    
    4,327,621
    
    
    
    265,482William D. Ross
    
    
    4,387,009
    
    
    
    206,094
  FOR
    
    AGAINST
    
    ABSTAIN4,438,613
    
    
    152,824
    
    
    
    1,664
 
 Item 5:
  
 Item 6:
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    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.
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##### Table of Contents



SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.Date: August 10, 2006
    
    By:
    
    /s/ CRAIG J. CERNYCraig J. Cerny, Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ WILLIAM W. PHILLIPSWilliam W. Phillips,President, Chief Operating Officer andChief Financial Officer(Principal Financial and Accounting Officer)
 - 28 -