##### 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 March 31, 2008
 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
(State or other jurisdiction of incorporation or organization)
    
    48-1175170
(I.R.S. Employer Identification No.)
 
 
 
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 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 March 31, 2008 and December 31, 2007
    
    
    2Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income for the Three Months Ended March 31, 2008 and Year Ended December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4T.Controls and Procedures
    
    
    26Part II  Other InformationItem 1.Legal Proceedings
    
    
    27Item 1A.Risk Factors
    
    
    27Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3.Defaults upon Senior Securities
    
    
    28Item 4.Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.Other Information
    
    
    28Item 6.Exhibits
    
    
    28Signatures
    
    
    28EXHIBIT 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 per share data)
 March 31
    
    December 31,2008
    
    2007Assets:Cash and cash equivalents
    
    $
    24,599
    
    
    $
    14,433Trading account assets
    
    
    3,719
    
    
    
    2,307Securities, available-for-sale
    
    
    331,434
    
    
    
    351,466Securities held to maturity (fair value of $56 at March 31, 2008 and $58
at December 31, 2007)
    
    
    53
    
    
    
    56Loans held for sale
    
    
    16,654
    
    
    
    Loans receivable, net of allowance for loan losses of $6,945
at March 31, 2008 and $6,446 at December 31, 2007
    
    
    782,421
    
    
    
    782,626Accrued interest receivable
    
    
    4,373
    
    
    
    5,168Premises, equipment and other long-term assets
    
    
    17,540
    
    
    
    16,917Due from broker
    
    
    83
    
    
    
    1Prepaid expenses and other assets
    
    
    4,582
    
    
    
    2,848Investment in FHLB stock, at cost
    
    
    12,643
    
    
    
    12,474Income taxes receivable
    
    
    2,782
    
    
    
    Cash surrender value of life insurance
    
    
    20,716
    
    
    
    20,524Deferred tax asset
    
    
    16,333
    
    
    
    8,384Goodwill
    
    
    5,496
    
    
    
    5,496Other intangible assets
    
    
    640
    
    
    
    702Total assets
    
    $
    1,244,068
    
    
    $
    1,223,402Liabilities:Deposits:Interest-bearing deposits
    
    $
    831,033
    
    
    $
    786,263Non-interest-bearing demand deposits
    
    
    49,000
    
    
    
    50,070Total Deposits
    
    
    880,033
    
    
    
    836,333FHLB advances
    
    
    232,000
    
    
    
    247,000Securities sold under repurchase agreements
    
    
    50,374
    
    
    
    49,981Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    13,115
    
    
    
    8,769Income taxes payable
    
    
    122
    
    
    
    503Total liabilities
    
    
    1,201,418
    
    
    
    1,168,360Commitments and contingenciesShareholders equityPreferred stock, $.01 par value; 1,200,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; 10,800,000 shares authorized;
6,131,243 shares issued and outstanding as of March 31, 2008
and 5,554,003 shares issued and outstanding December 31, 2007
    
    
    61
    
    
    
    56Additional paid-in capital
    
    
    39,003
    
    
    
    34,424Retained earnings
    
    
    31,415
    
    
    
    35,368Accumulated other comprehensive income/(loss)
    
    
    (27,829
    )
    
    
    (14,806
    )Total shareholders equity
    
    
    42,650
    
    
    
    55,042Total liabilities and shareholders equity
    
    $
    1,244,068
    
    
    $
    1,223,402
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME/LOSS (Unaudited)  Dollars in thousands, except per share data)
 March 312008
    
    2007Interest income:Loans
    
    $
    14,200
    
    
    $
    14,992Securities
    
    
    5,365
    
    
    
    4,326Total interest income
    
    
    19,565
    
    
    
    19,318Interest expense:Deposits
    
    
    8,482
    
    
    
    7,577Interest on FHLB advances, repos & other debt
    
    
    3,368
    
    
    
    4,062Total interest expense
    
    
    11,850
    
    
    
    11,639Net interest income
    
    
    7,715
    
    
    
    7,679Provision for loan losses
    
    
    500
    
    
    
    100Net interest income after provision for loan losses
    
    
    7,215
    
    
    
    7,579Non-interest income:Gain on sale of available for sale securities
    
    
    1,402
    
    
    
    Income (loss) from trading assets
    
    
    (8,670
    )
    
    
    4Other-than-temporary loss
    
    
    (70
    )
    
    
    Other income
    
    
    1
    
    
    
    Increase in cash surrender value of life insurance
    
    
    193
    
    
    
    201Banking fee and other income
    
    
    840
    
    
    
    871Total non-interest income
    
    
    (6,304
    )
    
    
    1,076Non-interest expense:Salaries and employee benefits
    
    
    3,536
    
    
    
    3,273Premises and equipment
    
    
    993
    
    
    
    949Insurance premiums
    
    
    212
    
    
    
    85Marketing
    
    
    96
    
    
    
    113Computer services
    
    
    256
    
    
    
    220Professional fees
    
    
    135
    
    
    
    264Office expenses and supplies
    
    
    209
    
    
    
    213Other
    
    
    673
    
    
    
    577Total non-interest expense
    
    
    6,110
    
    
    
    5,694Income (loss) before income taxes
    
    
    (5,199
    )
    
    
    2,961Provision for income tax expense (benefit)
    
    
    (1,953
    )
    
    
    1,106Net income (loss)
    
    $
    (3,246
    )
    
    $
    1,855Basic earnings/(loss) per share
    
    $
    (0.58
    )
    
    $
    0.34Diluted earnings/(loss) per share
    
    $
    (0.58
    )
    
    $
    0.33Basic weighted-average shares outstanding
    
    
    5,590,236
    
    
    
    5,516,239Diluted weighted-average shares outstanding
    
    
    5,590,236
    
    
    
    5,632,054
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY  AND COMPREHENSIVE INCOME (LOSS) (Unaudited)  (Dollars in thousands, except share and per share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Other
    
    TotalCommon Stock
    
    Paid-In
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Earnings
    
    Income/(Loss)
    
    Income (Loss)
    
    EquityBALANCE, JANUARY 1, 2007
    
    
    5,460,393
    
    
    $
    55
    
    
    $
    33,332
    
    
    $
    34,964
    
    
    
    
    
    
    $
    (653
    )
    
    $
    67,698Comprehensive IncomeNet Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,168
    
    
    
    4,168
    
    
    
    
    
    
    
    4,168Other comprehensive loss, net of taxUnrealized 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
    )
    
    
    55,042Comprehensive Income/(loss)Net Income/(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,246
    )
    
    $
    (3,246
    )
    
    
    
    
    
    
    (3,246
    )Other comprehensive loss, net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,772
    )
    
    
    (9,772
    )
    
    
    (9,772
    )Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,251
    )
    
    
    (3,251
    )
    
    
    (3,251
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (16,269
    )Stock options exercised including
tax benefit of $25
    
    
    27,240
    
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    233Shares issued in private offering at $7.75
    
    
    550,000
    
    
    
    5
    
    
    
    4,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,262Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Dividends on Common Stk at $.125/Shr
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (707
    )
    
    
    
    
    
    
    
    
    
    
    (707
    )BALANCE, MARCH 31, 2008
    
    
    6,131,243
    
    
    $
    61
    
    
    $
    39,003
    
    
    $
    31,415
    
    
    
    
    
    
    $
    (27,829
    )
    
    $
    42,650
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
 Three Months EndedMarch 312008
    
    2007Cash flows from operating activities:Net income (loss)
    
    $
    (3,246
    )
    
    $
    1,855Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Accretion of deferred loan fees and costs
    
    
    (173
    )
    
    
    (207
    )Depreciation and amortization
    
    
    358
    
    
    
    386Amortization of premiums and discounts on loans receivable and securities
    
    
    (242
    )
    
    
    459Deferred income taxes
    
    
    (7,949
    )
    
    
    (57
    )Provision for loan losses
    
    
    500
    
    
    
    100Activity in trading account assets
    
    
    (1,902
    )
    
    
    5Gain (loss) on sale of trading securities
    
    
    490
    
    
    
    (3
    )Gain on sale of available-for-sale securities
    
    
    (1,402
    )
    
    
    Loss on other-than-temporary impairment
    
    
    70
    
    
    
    FHLB stock dividend
    
    
    (169
    )
    
    
    (214
    )Earnings on bank owned life insurance
    
    
    (193
    )
    
    
    (201
    )Decrease in accrued interest receivable
    
    
    795
    
    
    
    261Increase (decrease) in income tax receivable, net of payable
    
    
    (3,163
    )
    
    
    359Decrease in prepaid expenses and other assets
    
    
    6,120
    
    
    
    1,067Stock compensation expense
    
    
    89
    
    
    
    120(Decrease) increase in accounts payable, accrued expenses,
and other liabilities
    
    
    1,104
    
    
    
    (1,340
    )Net cash (used in) provided by operating activities
    
    
    (8,913
    )
    
    
    2,590Cash flows from investing activities:Net (increase) decrease in loans receivable
    
    
    (16,767
    )
    
    
    2,802Proceeds from sales of securities available for sale
    
    
    55,446
    
    
    
    Purchases of securities available for sale
    
    
    (65,284
    )
    
    
    (13,198
    )Principal paydowns on securities available for sale
    
    
    15,802
    
    
    
    32,935Principal paydowns on securities held to maturity
    
    
    3
    
    
    
    3Net purchase of premises and equipment
    
    
    (919
    )
    
    
    (71
    )Redemption of FHLB Stock
    
    
    
    
    
    
    108Net cash (used in) provided by investing activities
    
    
    (11,719
    )
    
    
    22,579Cash flows from financing activities:Net increase in deposits
    
    
    43,700
    
    
    
    354(Decrease) increase in securities sold under agreements to repurchase
    
    
    393
    
    
    
    (1,190
    )Decrease in FHLB advances
    
    
    (15,000
    )
    
    
    (30,000
    )Proceeds from exercise of stock options, including tax benefits
    
    
    233
    
    
    
    661Proceeds from shares issued in private offering
    
    
    2,179
    
    
    
    Dividends paid on common stock
    
    
    (707
    )
    
    
    (696
    )Net cash (used in) provided by financing activities
    
    
    30,798
    
    
    
    (30,871
    )Net (decrease) increase in cash and cash equivalents
    
    
    10,166
    
    
    
    (5,702
    )Cash and cash equivalents at beginning of period
    
    
    14,433
    
    
    
    21,178Cash and cash equivalents at end of period
    
    $
    24,599
    
    
    $
    15,476
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HARRINGTON WEST FINANCIAL GROUP, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for:Interest
    
    $
    11,409
    
    
    $
    11,839Income Taxes
    
    $
    1,190
    
    
    $
    800SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES Due from broker
    
    $
    (83
    )
    
    $
    (1
    )Transfer of loans to loans held for sale
    
    $
    16,654
    
    
    $
    
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HARRINGTON WEST FINANCIAL GROUP, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business of the Company
 Basis of Presentation
   Allowance for Loan Losses
  -7-




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Accounting by Creditors for Impairment of a Loan
   Adoption of new accounting standards Fair Value Measurements Effective Date of FASB Statement No. 157
 The Fair Value Option for Financial
Assets and Financial Liabilities
 2. FAIR VALUE
     -8-




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Fair Value Measurements at March 31, 2008 Using
 Quoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Trading securities
    
    $
    3,719
    
    
    $
    
    
    
    $
    3,719
    
    
    $
    Available for sale securities
    
    
    331,434
    
    
    
    
    
    
    
    331,434
    
    
    
    Interest rate swaps
    
    
    (10,313
    )
    
    
    
    
    
    
    (10,313
    )
    
    
    
  Fair Value Measurements at March 31, 2008 Using
 Quoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsTotal
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans
    
    $
    13,784
    
    
    $
    
    
    
    $
    13,784
    
    
    $
    
  3. EARNINGS PER SHARE
  -9-




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Three months ended March 31, 2008(net income/(loss) amounts
    
    Income/(Loss)
    
    
    Shares
    
    
    Per-Sharein thousands)
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS
    
    $
    (3,246
    )
    
    
    5,590,236
    
    
    $
    (0.58
    )Effect of dilutive
stock options
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (3,246
    )
    
    
    5,590,236
    
    
    $
    (0.58
    )
 Three months ended March 31, 2007Income/(Loss)
    
    
    Shares
    
    
    Per-Share(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
  4. OTHER-THAN-TEMPORARY IMPAIRMENT
  5. TOTAL RATE OF RETURN SWAPS
  6. LOANS HELD FOR SALE
  Accounting for
Certain Mortgage Banking Activities
 -10-




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Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Corporate Profile
  Mission and Philosophy
  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.
   -11-




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Product Line Diversification
  Modern Financial and Investment Management Skills
   Control Banking Risks
  Concentrate on Selected Performance Measures
  Profitability Drivers
  1.
    
    Growing our low and 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.
 -12-




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##### Table of Contents



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.5.
    
    Controlling the 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.
  Results of Operations
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Three months ended
    
    
    Three months endedMarch 31, 2008
    
    
    March 31, 2007(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    789,079
    
    
    $
    14,200
    
    
    
    7.21
    %
    
    $
    760,259
    
    
    $
    14,992
    
    
    
    7.92
    %FHLB stock
    
    
    12,476
    
    
    
    165
    
    
    
    5.32
    %
    
    
    14,648
    
    
    
    218
    
    
    
    6.04
    %Securities and trading account assets (2)
    
    
    367,620
    
    
    
    5,126
    
    
    
    5.58
    %
    
    
    302,918
    
    
    
    4,031
    
    
    
    5.32
    %Cash and cash equivalents (3)
    
    
    17,761
    
    
    
    74
    
    
    
    1.68
    %
    
    
    12,088
    
    
    
    77
    
    
    
    2.58
    %Total interest earning assets
    
    
    1,186,936
    
    
    
    19,565
    
    
    
    6.60
    %
    
    
    1,089,913
    
    
    
    19,318
    
    
    
    7.11
    %Non-interest-earning assets
    
    
    40,001
    
    
    
    
    
    
    
    
    
    
    
    52,122Total assets
    
    $
    1,226,937
    
    
    
    
    
    
    
    
    
    
    $
    1,142,035Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    125,947
    
    
    $
    828
    
    
    
    2.64
    %
    
    $
    103,997
    
    
    $
    685
    
    
    
    2.67
    %Passbook accounts and certificates
of deposit
    
    
    685,819
    
    
    
    7,654
    
    
    
    4.49
    %
    
    
    578,703
    
    
    
    6,892
    
    
    
    4.83
    %Total deposits
    
    
    811,766
    
    
    
    8,482
    
    
    
    4.20
    %
    
    
    682,700
    
    
    
    7,577
    
    
    
    4.50
    %FHLB advances (4)
    
    
    234,857
    
    
    
    2,547
    
    
    
    4.36
    %
    
    
    244,044
    
    
    
    3,059
    
    
    
    5.08
    %Reverse repurchase agreements
    
    
    50,336
    
    
    
    388
    
    
    
    3.05
    %
    
    
    64,656
    
    
    
    489
    
    
    
    3.03
    %Other borrowings (5)
    
    
    25,774
    
    
    
    433
    
    
    
    6.65
    %
    
    
    25,774
    
    
    
    514
    
    
    
    7.98
    %Total interest-bearing liabilities
    
    
    1,122,733
    
    
    
    11,850
    
    
    
    4.23
    %
    
    
    1,017,174
    
    
    
    11,639
    
    
    
    4.62
    %Non-interest-bearing deposits
    
    
    45,449
    
    
    
    
    
    
    
    
    
    
    
    49,405Non-interest-bearing liabilities
    
    
    12,353
    
    
    
    
    
    
    
    
    
    
    
    6,576Total liabilities
    
    
    1,180,535
    
    
    
    
    
    
    
    
    
    
    
    1,073,155Stockholders equity
    
    
    46,402
    
    
    
    
    
    
    
    
    
    
    
    68,880Total liabilities and stockholders equity
    
    $
    1,226,937
    
    
    
    
    
    
    
    
    
    
    $
    1,142,035Net interest-earning assets (liabilities)
    
    $
    64,203
    
    
    
    
    
    
    
    
    
    
    $
    72,739Net interest income/interest rate spread
    
    
    
    
    
    $
    7,715
    
    
    
    2.37
    %
    
    
    
    
    
    $
    7,679
    
    
    
    2.49
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.60
    %
    
    
    
    
    
    
    
    
    
    
    2.80
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    105.72
    %
    
    
    
    
    
    
    
    
    
    
    107.15
    %
 
 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 other 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 subordinated debt.6)
    
    Annualized. -14-




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##### Table of Contents



March 312008
    
    
    2007(Dollars in Thousands)Balance at beginning of period
    
    $
    6,446
    
    
    $
    5,914Charge-offs:Real estate loansConsumer and other loans
    
    
    (1
    )
    
    
    (1
    )Total charge-offs
    
    
    (1
    )
    
    
    (1
    )Net charge-offs
    
    
    (1
    )
    
    
    (1
    )Provision for losses on loans
    
    
    500
    
    
    
    100Balance at end of period
    
    $
    6,945
    
    
    $
    6,013Allowance for loan losses as a percent of
total loans outstanding at the end of the
period
    
    
    0.86
    %
    
    
    0.79
    %Ratio of net charge-offs to average loans
outstanding during the period
    
    
    0.00
    %
    
    
    0.00
    %
  -15-




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##### Table of Contents



Banking Fee & Other Income(Dollars in thousands)March
    
    
    December
    
    
    
    
    
    
    March
    
    
    March2008
    
    
    2007
    
    
    %
    
    
    2008
    
    
    2007
    
    
    %Quarter
    
    
    Quarter
    
    
    Change
    
    
    Quarter
    
    
    Quarter
    
    
    ChangeBanking Fee TypeMortgage Brokerage Fee, Prepayment Penalties
& Other Loan Fees
    
    $
    147
    
    
    $
    204
    
    
    
    -27.9
    %
    
    $
    147
    
    
    $
    239
    
    
    
    -38.5
    %Deposit, Other Retail Banking Fees & Other
Fee Income
    
    
    440
    
    
    
    425
    
    
    
    3.5
    %
    
    
    440
    
    
    
    395
    
    
    
    11.4
    %Harrington Wealth Management Fees
    
    
    253
    
    
    
    241
    
    
    
    5.0
    %
    
    
    253
    
    
    
    237
    
    
    
    6.8
    %Cash Surrender Value of Life Insurance, net
    
    
    193
    
    
    
    257
    
    
    
    -24.9
    %
    
    
    193
    
    
    
    201
    
    
    
    -4.0
    %Total Banking Fee & Other Income
    
    $
    1,033
    
    
    $
    1,127
    
    
    
    -8.3
    %
    
    $
    1,033
    
    
    $
    1,072
    
    
    
    -3.6
    %
  (1)
    
    an increase in FDIC deposit insurance (as HWFGs FDIC insurance credit was fully exhausted)
and other insurances of $130 thousand in the March 2008 quarter;(2)
    
    the start up expenses for the new banking center in Surprise, Arizona and related employees
of approximately $30 thousand;(3)
    
    higher payroll taxes of $30 thousand and salary increases of $100 thousand incurred at the
start of a new year;(4)
    
    lower deferral of loan origination expenses of approximately $60 thousand;(5)
    
    and an increase in other expenses of $50 thousand.
  Financial Condition
  -16-




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##### Table of Contents



Securities and Investment Activities
     AmortizedMarch 31, 2008
    
    Cost
    
    
    Fair ValueMortgage-backed securities  pass throughs
    
    $
    59,025
    
    
    $
    58,990Collateralized mortgage obligations
    
    
    98,592
    
    
    
    90,707Commercial mortgage-backed securities
    
    
    19,543
    
    
    
    19,729Asset-backed securities (underlying securities mortgages)
    
    
    186,926
    
    
    
    160,807Asset-backed securities
    
    
    1,814
    
    
    
    1,201$
    365,900
    
    
    $
    331,434
 -17-




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##### Table of Contents



AmortizedCost
    
    
    Fair ValueDecember 31, 2007Mortgage-backed securities  pass throughs
    
    $
    69,570
    
    
    $
    69,101Collateralized mortgage obligations
    
    
    114,101
    
    
    
    111,805Asset-backed securities (underlying securities mortgages)
    
    
    184,724
    
    
    
    168,822Asset-backed securities
    
    
    1,900
    
    
    
    1,738$
    370,295
    
    
    $
    351,466
  AmortizedCost
    
    
    Fair ValueMarch 31, 2008Agency
    
    $
    59,025
    
    
    $
    58,990AAA
    
    
    141,067
    
    
    
    135,807AA
    
    
    118,424
    
    
    
    101,099A
    
    
    34,613
    
    
    
    26,229BBB
    
    
    5,832
    
    
    
    4,990Below investment grade
    
    
    6,939
    
    
    
    4,319$
    365,900
    
    
    $
    331,434
 AmortizedCost
    
    
    Fair ValueDecember 31, 2007Agency
    
    $
    69,570
    
    
    $
    69,101AAA
    
    
    139,890
    
    
    
    138,744AA
    
    
    115,084
    
    
    
    106,090A
    
    
    41,621
    
    
    
    34,691BBB
    
    
    170
    
    
    
    170Below investment grade
    
    
    3,960
    
    
    
    2,670$
    370,295
    
    
    $
    351,466
  -18-




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueMarch 31, 2008Agency
    
    $
    59,025
    
    
    $
    58,990Prime
    
    
    88,670
    
    
    
    83,620Commercial mortgage-backed securities
    
    
    19,543
    
    
    
    19,729Alt-A
    
    
    8,575
    
    
    
    7,286Subprime
    
    
    185,984
    
    
    
    158,837Other
    
    
    4,103
    
    
    
    2,972$
    365,900
    
    
    $
    331,434
 AmortizedCost
    
    
    Fair ValueDecember 31, 2007Agency
    
    $
    69,570
    
    
    $
    69,101Prime
    
    
    104,195
    
    
    
    103,202Alt-A
    
    
    9,217
    
    
    
    8,475Subprime
    
    
    183,065
    
    
    
    166,715Other
    
    
    4,248
    
    
    
    3,973$
    370,295
    
    
    $
    351,466
  Loans
   -19-




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-20-




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##### Table of Contents



HWFG Net Loan Growth and Mix
 March 31, 2008
    
    
    December 31, 2007
    
    
    March 31, 2007% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoan Type
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    TotalCommercial Real Estate
    
    $
    267.4
    
    
    
    33.1
    %
    
    $
    266.3
    
    
    
    33.6
    %
    
    $
    259.4
    
    
    
    34.1
    %Multi-family Real Estate
    
    
    88.8
    
    
    
    10.9
    %
    
    
    82.7
    
    
    
    10.4
    %
    
    
    77.3
    
    
    
    10.1
    %Construction (1)
    
    
    134.1
    
    
    
    16.6
    %
    
    
    126.5
    
    
    
    16.0
    %
    
    
    119.7
    
    
    
    15.7
    %Single-family Real Estate (3)
    
    
    128.8
    
    
    
    15.9
    %
    
    
    125.5
    
    
    
    15.9
    %
    
    
    114.4
    
    
    
    15.0
    %Commercial and Industrial Loans
    
    
    116.8
    
    
    
    14.5
    %
    
    
    117.8
    
    
    
    14.9
    %
    
    
    111.8
    
    
    
    14.7
    %Land Acquisition and Development
    
    
    44.7
    
    
    
    5.5
    %
    
    
    45.3
    
    
    
    5.7
    %
    
    
    51.9
    
    
    
    6.8
    %Consumer Loans
    
    
    24.7
    
    
    
    3.1
    %
    
    
    24.5
    
    
    
    3.1
    %
    
    
    26.3
    
    
    
    3.4
    %Other Loans (2)
    
    
    2.9
    
    
    
    0.4
    %
    
    
    2.8
    
    
    
    0.4
    %
    
    
    1.8
    
    
    
    0.2
    %Total Gross Loans
    
    
    808.2
    
    
    
    100.0
    %
    
    
    791.4
    
    
    
    100.0
    %
    
    
    762.6
    
    
    
    100.0
    %Allowance for loan loss
    
    
    (6.9
    )
    
    
    
    
    
    
    (6.4
    )
    
    
    
    
    
    
    (6.0
    )Deferred fees
    
    
    (1.7
    )
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Discounts/Premiums
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.4
    )Net Loans Receivable
    
    $
    799.1
    
    
    
    
    
    
    $
    782.6
    
    
    
    
    
    
    $
    754.3
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At March 31,
2008, we had $50.1 million of construction loans secured by single-family residential
properties, $41.2 million secured by commercial properties, $42.5 million for land
development and $338 thousand secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.(3)
    
    Includes $16.7 million of Loans Held for Sale. Deposits
   FHLB Advances
  -21-




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##### Table of Contents



Stockholders Equity
   Liquidity and Capital Resources
 Liquidity 
   -22-




---



##### Table of Contents



Capital Resources.
  Asset and Liability Management
    -23-




---



##### Table of Contents



i.e.,
    Accounting for Derivative Instruments and Hedging
Activities,
  -24-




---



##### Table of Contents



Critical Accounting Policies
  Cautionary Statement Regarding Forward-Looking Statements.
    
 Item 3: Quantitative and Qualitative Disclosures about Market Risk
   -25-




---



##### Table of Contents



Change
In Interest Rates (In Basis Points) (1)-300
    
    -200
    
    -100
    
    Base
    
    +100
    
    +200
    
    +300Market value gain (loss) in assets
    
    $
    33,521
    
    
    $
    23,144
    
    
    $
    11,686
    
    
    
    
    
    
    
    ($17,955
    )
    
    
    ($39,056
    )
    
    
    ($60,662
    )Market value gain (loss) of liabilities
    
    
    (25,548
    )
    
    
    (17,057
    )
    
    
    (8,179
    )
    
    
    
    
    
    
    7,663
    
    
    
    19,137
    
    
    
    32,881Market value gain (loss) of net assets
before interest rate contracts
    
    
    7,973
    
    
    
    6,087
    
    
    
    3,507
    
    
    
    
    
    
    
    (10,292
    )
    
    
    (19,919
    )
    
    
    (27,781
    )Market value gain (loss) of interest
rate contracts
    
    
    (19,530
    )
    
    
    (13,673
    )
    
    
    (6,660
    )
    
    
    
    
    
    
    6,330
    
    
    
    12,352
    
    
    
    18,086Total change in MVPE (2)
    
    
    ($11,557
    )
    
    
    ($7,586
    )
    
    
    ($3,153
    )
    
    
    
    
    
    
    ($3,962
    )
    
    
    ($7,567
    )
    
    
    ($9,695
    )Change in MVPE as a percent of:MVPE (2)
    
    
    -18.85
    %
    
    
    -12.37
    %
    
    
    -5.14
    %
    
    
    
    
    
    
    -6.46
    %
    
    
    -12.34
    %
    
    
    -15.81
    %Total assets
of the Bank (3)
    
    
    -1.01
    %
    
    
    -0.68
    %
    
    
    -0.29
    %
    
    
    
    
    
    
    -0.25
    %
    
    
    -0.46
    %
    
    
    -0.56
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $61.3 million at March 31, 2008.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  
 Item 4(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  -26-




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##### Table of Contents



Changes in Internal Control over Financial Reporting
 March 31, 2008,
  
 PART
II  OTHER INFORMATION
 
 Item 1:
  
 Item 1A.
  
 Item 2:
  Number ofPrice
    
    
    Shares
    
    
    AmountDate
    
    Title of Security
    
    
    Per Share
    
    
    (In thousands)
    
    
    (In thousands)March 27, 2008
    
    Common
    
    $
    7.75
    
    
    
    281
    
    
    $
    2,178April 23, 2008
    
    Common
    
    
    7.75
    
    
    
    269
    
    
    
    2,085Total
    
    
    
    
    
    
    
    
    
    
    550
    
    
    $
    4,263
  -27-




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##### Table of Contents



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.
 
 SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.May 14, 2008
    By:
    /s/ Craig J. CernyCraig J. CernyChairman of the Board
and Chief Executive Officer
(Principal Executive Officer)May 14, 2008
    By:
    /s/ William W. Phillips, jr.William W. Phillips, Jr.President, Chief Operating Officer
(Principal Executive Officer)May 14, 2008
    By:

/s/
Kerril SteeleKerril SteeleSr. Vice-President, Chief Financial Officer
(Principle Financial and Accounting Officer) -28-