##### 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, 2005
 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.)
 
 
 
 (Former name, former address and former fiscal year, if changed since last report)
 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, 2005 and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income for the Three and Six Months Ended June, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income for the Six months ended June 30, 2005 and Year Ended December 31, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4.Controls and Procedures
    
    
    35Part II   Other InformationItem 1.Legal Proceedings
    
    
    36Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3.Defaults upon Senior Securities
    
    
    36Item 4.Submission of Matters to a Vote of Security Holders
    
    
    37Item 5.Other Information
    
    
    37Item 6.Exhibits
    
    
    37Signatures
    
    
    38EX-31.1EX-31.2EX-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, 2005
    
    December 31, 2004ASSETSCash and cash equivalents
    
    $
    14,271
    
    
    $
    13,238Trading account assets (with amortized cost of $887 and
$943 at June 30, 2005 and December 31, 2004, respectively)
    
    
    1,112
    
    
    
    1,046Securities available for sale (with amortized cost of $401,496
and $430,782 at June 30, 2005 and December 31, 2004,
respectively)
    
    
    400,885
    
    
    
    431,206Securities held to maturity
    
    
    88
    
    
    
    93Loans receivable, (net of allowance for loan losses of $5,576
and $5,228 at June 30, 2005 and December 31,
2004, respectively)
    
    
    634,890
    
    
    
    598,442Accrued interest receivable
    
    
    3,883
    
    
    
    3,322Premises and equipment, net
    
    
    9,470
    
    
    
    8,886Prepaid expenses and other assets
    
    
    2,299
    
    
    
    3,745Investment in FHLB stock, at cost
    
    
    17,081
    
    
    
    15,134Bank owned life insurance
    
    
    17,214
    
    
    
    Deferred tax asset
    
    
    1,290
    
    
    
    1,314Goodwill
    
    
    4,025
    
    
    
    3,981Core deposit intangible, net
    
    
    2,758
    
    
    
    923TOTAL ASSETS
    
    $
    1,109,266
    
    
    $
    1,081,330LIABILITIES & STOCKHOLDERS EQUITYDeposits:Interest bearing
    
    $
    605,259
    
    
    $
    564,552Non-interest bearing
    
    
    40,056
    
    
    
    33,630Total Deposits
    
    
    645,315
    
    
    
    598,182FHLB advances
    
    
    296,000
    
    
    
    316,000Securities sold under repurchase agreements
    
    
    79,180
    
    
    
    79,689Subordinated debt
    
    
    25,774
    
    
    
    25,774Accounts payable and accrued expenses
    
    
    6,851
    
    
    
    8,563Income taxes payable
    
    
    44
    
    
    
    462TOTAL LIABILITIES
    
    
    1,053,164
    
    
    
    1,028,670STOCKHOLDERS EQUITYPreferred stock, $.01 par value: 1,200,000 shares authorized:none issued and outstandingCommon stock, $.01 par value; 10,800,000 shares authorized:5,363,853 shares issued and outstanding as of June 30,
2005 and 5,278,934 shares issued and outstanding December

31, 2004
    
    
    54
    
    
    
    53Additional paid-in capital
    
    
    31,932
    
    
    
    31,225Retained earnings
    
    
    26,652
    
    
    
    23,637Accumulated other comprehensive loss, net of tax
    
    
    (2,536
    )
    
    
    (2,255
    )Total Stockholders Equity
    
    
    56,102
    
    
    
    52,660TOTAL LIABILITIES & STOCKHOLDERS EQUITY
    
    $
    1,109,266
    
    
    $
    1,081,330
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Dollars in thousands, except share data
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004INTEREST INCOMEInterest on loans
    
    $
    10,598
    
    
    $
    8,752
    
    
    $
    20,506
    
    
    $
    17,344Interest and dividends on securities
    
    
    4,565
    
    
    
    3,975
    
    
    
    8,965
    
    
    
    7,630Total interest income
    
    
    15,163
    
    
    
    12,727
    
    
    
    29,471
    
    
    
    24,974INTEREST EXPENSEInterest on deposits
    
    
    3,500
    
    
    
    2,521
    
    
    
    6,585
    
    
    
    5,056Interest on FHLB advances and other borrowings
    
    
    4,180
    
    
    
    2,711
    
    
    
    7,842
    
    
    
    5,384Total interest expense
    
    
    7,680
    
    
    
    5,232
    
    
    
    14,427
    
    
    
    10,440NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES
    
    
    7,483
    
    
    
    7,495
    
    
    
    15,044
    
    
    
    14,534PROVISION FOR LOAN LOSSES
    
    
    200
    
    
    
    230
    
    
    
    350
    
    
    
    320NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    7,283
    
    
    
    7,265
    
    
    
    14,694
    
    
    
    14,214OTHER INCOME (LOSS)Income from trading assets
    
    
    71
    
    
    
    273
    
    
    
    783
    
    
    
    611Loss on extinguishment of debt
    
    
    
    
    
    
    (189
    )
    
    
    
    
    
    
    (189
    )Other income gain (loss)
    
    
    1
    
    
    
    (2
    )
    
    
    (6
    )
    
    
    (12
    )Banking fee income
    
    
    974
    
    
    
    848
    
    
    
    1,832
    
    
    
    1,608Total other income
    
    
    1,046
    
    
    
    930
    
    
    
    2,609
    
    
    
    2,018OTHER EXPENSESSalaries & employee benefits
    
    
    2,615
    
    
    
    2,704
    
    
    
    5,426
    
    
    
    5,387Premises & equipment
    
    
    994
    
    
    
    741
    
    
    
    1,898
    
    
    
    1,465Insurance premiums
    
    
    126
    
    
    
    121
    
    
    
    251
    
    
    
    269Marketing
    
    
    73
    
    
    
    119
    
    
    
    172
    
    
    
    229Computer services
    

    
    189
    
    
    
    168
    
    
    
    370
    
    
    
    323Consulting fees
    
    
    351
    
    
    
    336
    
    
    
    713
    
    
    
    580Office expenses & supplies
    
    
    227
    
    
    
    214
    
    
    
    441
    
    
    
    425Other
    
    
    563
    
    
    
    467
    
    
    
    1,077
    
    
    
    931Total other expenses
    
    
    5,138
    
    
    
    4,870
    
    
    
    10,348
    
    
    
    9,609INCOME BEFORE INCOME TAXES
    
    
    3,191
    
    
    
    3,325
    
    
    
    6,955
    
    
    
    6,623INCOME TAXES
    
    
    1,240
    
    
    
    1,345
    
    
    
    2,769
    
    
    
    2,584NET INCOME
    
    $
    1,951
    
    
    $
    1,980
    
    
    $
    4,186
    
    
    $
    4,039BASIC EARNINGS PER SHARE
    
    $
    0.36
    
    
    $
    0.38
    
    
    $
    0.79
    
    
    $
    0.77DILUTED EARNINGS PER SHARE
    
    $
    0.35
    
    
    $
    0.35
    
    
    $
    0.74
    
    
    $
    0.72BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,360,331
    
    
    
    5,258,765
    
    
    
    5,326,363
    
    
    
    5,233,966DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,639,756
    
    
    
    5,613,093
    
    

    
    5,620,992
    
    
    
    5,576,272
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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)
 Accumulated OtherCommon Stock
    
    Additional Paid-in
    
    Retained
    
    Comprehensive
    
    Comprehensive
    
    Total StockholdersStock
    
    Amt
    
    Capital
    
    Earnings
    
    Income
    
    Loss
    
    EquityBalance, January 1, 2004
    
    
    5,206,109
    
    
    $
    52
    
    
    $
    30,710
    
    
    $
    20,073
    
    
    
    
    
    
    
    ($2,759
    )
    
    $
    48,076Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,209
    
    
    $
    8,209
    
    
    
    
    
    
    
    8,209Other comprehensive income,
net of taxUnrealized (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (324
    )
    
    
    (324
    )
    
    
    (324
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    828
    
    
    
    828Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,713Stock options
    
    
    72,825
    
    
    
    1
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    516Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,645
    )
    
    
    
    
    
    
    
    
    
    
    (4,645
    )Balance, December 31, 2004
    
    
    5,278,934
    
    
    
    53
    
    
    
    31,225
    
    
    
    23,637
    
    
    
    
    
    
    
    (2,255
    )
    
    
    52,660Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,186
    
    
    $
    4,186
    
    
    
    
    
    
    
    4,186Other comprehensive income,
net of taxUnrealized (losses) on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (612
    )
    
    
    (612
    )
    
    
    (612
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    331
    
    
    
    331
    
    
    
    331Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,905Stock options exercised
    
    
    84,919
    
    
    
    1
    
    
    
    707
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    708Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,171
    )
    
    
    
    
    
    
    
    
    
    
    (1,171
    )Balance, June 30, 2005
    
    
    5,363,853
    
    
    $
    54
    
    
    $
    31,932
    
    
    $
    26,652
    
    
    
    
    
    
    $
    (2,536
    )
    
    $
    56,102
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HARRINGTON WEST FINANCIAL GROUP, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
 Dollars in thousands)
 Six months endedJune 30,2005
    
    2004DISCLOSURE OF RECLASSIFICATION AMOUNT:Unrealized holding (loss) arising during period,
net of tax (benefit) of $(202) and $(847) for the
six months ending June 30, 2005 and 2004, respectively
    
    $
    (306
    )
    
    $
    (1,234
    )Less: Reclassification adjustment for gains included
in net income, net of tax expense of $202 and
$249 for the six months ended June 30, 2005 and 2004,
respectively
    
    
    306
    
    
    
    363Net unrealized (loss) on securities, net of tax (benefit)
of $(404) and $(1,096) for the six months ended
June 30, 2005 and 2004, respectively
    
    $
    (612
    )
    
    $
    (1,597
    )Unrealized net gain on cash flow hedges, net of tax expense
of $214 and $1,169 for the three months
ending June 30, 2005 and 2004, respectively
    
    $
    324
    
    
    $
    1,703Less: Reclassification adjustment for net gains on cash
flow hedges included in net income, net of tax (benefit)
expense of $(4) and $57 for the six months ended
June 30, 2005 and 2004, respectively
    
    
    (7
    )
    
    
    83Net unrealized gain on cash flow hedges, net of tax expense
of $218 and $1,112 for the six months ended
June 30, 2005 and 2004, respectively
    
    $
    331
    
    
    $
    1,620Total change in other comprehensive (loss) income
    
    $
    (281
    )
    
    $
    23
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
 Six months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    4,186
    
    
    $
    4,039Adjustments to reconcile net income
to net cash provided by operating activities:Amortization of net deferred loan fees
    
    
    311
    
    
    
    354Depreciation and amortization
    
    
    653
    
    
    
    522Amortization of premiums and discounts on loans
receivable and securities
    
    
    1,359
    
    
    
    1,263Provision for loan losses
    
    
    350
    
    
    
    320(Gain) on sale of investment securities
    
    
    (508
    )
    
    
    (613
    )Activity in securities held for trading
    
    
    (66
    )
    
    
    194FHLB stock dividend
    
    
    (309
    )
    
    
    (260
    )(Increase) decrease in accrued interest receivable
    
    
    (561
    )
    
    
    (194
    )(Decrease) increase in income taxes payable
    
    
    (418
    )
    
    
    (521
    )Deferred income taxes
    
    
    24
    
    
    
    450Decrease (increase) in prepaid expenses and other assets
    
    
    981
    
    
    
    (6,044
    )(Decrease) increase in accounts payable
    
    
    (1,381
    )
    
    
    8,867Net cash provided by operating activities
    
    
    4,621
    
    
    
    8,377CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) in loans receivable
    
    
    (37,257
    )
    
    
    (47,530
    )Proceeds from sales of securities available for sale
    
    
    38,197
    
    
    
    19,069Principal paydowns on securities available for sale
    
    
    37,448
    
    
    
    52,707Principal paydowns on securities held to maturity
    
    
    5
    
    
    
    60Purchases of securities available for sale
    
    
    (46,639
    )
    
    
    (102,084
    )Purchase bank owned life insurance
    
    
    (17,000
    )
    
    
    Acquisition, net of cash acquired
    
    
    (1,954
    )
    
    
    Purchase of premises and equipment
    
    
    (932
    )
    
    
    (1,477
    )Purchase of FHLB Stock
    
    
    (1,638
    )
    
    
    (400
    )Net cash used in investing activities
    
    
    (29,770
    )
    
    
    (79,655
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    47,154
    
    
    
    19,101(Decrease) Increase in securities sold under agreements to repurchase
    
    
    (509
    )
    
    
    13,782(Decrease) increase in FHLB advances
    
    
    (20,000
    )
    
    
    32,500Exercise of stock options on common stock
    
    
    708
    
    
    
    420Dividends paid on common stock
    
    
    (1,171
    )
    
    
    (960
    )Net cash provided by financing activities
    
    
    26,182
    
    
    
    64,843NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,033
    
    
    
    (6,435
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    13,238
    
    
    
    22,856CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    14,271
    
    
    $
    16,421SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -Cash paid during the period for:Interest
    
    $
    13,123
    
    
    $
    8,415Income Taxes
    
    $
    2,120
    
    
    $
    2,827
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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
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Accounting by Creditors for Impairment of a Loan
    Fair Value of Options  Accounting for Stock-based Compensation, Accounting for Stock Issued to Employees
 - 8 -




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Three months endedPro Forma Results
    
    June 30, 2005
    
    June 30, 2004Net income:As reported
    
    $
    1,951
    
    
    $
    1,980Pro forma
    
    $
    1,893
    
    
    $
    1,943Earnings per share  basic:As reported
    
    $
    0.36
    
    
    $
    0.38Pro forma
    
    $
    0.35
    
    
    $
    0.37Earnings per share  diluted:As reported
    
    $
    0.35
    
    
    $
    0.35Pro forma
    
    $
    0.34
    
    
    $
    0.35
 Six months endedPro Forma Results
    
    June 30, 2005
    
    June 30, 2004Net income:As reported
    
    $
    4,186
    
    
    $
    4,039Pro forma
    
    $
    4,069
    
    
    $
    3,964Earnings per share  basic:As reported
    
    $
    0.79
    
    
    $
    0.77Pro forma
    
    $
    0.76
    
    
    $
    0.75Earnings per share  diluted:As reported
    
    $
    0.74
    
    
    $
    0.72Pro forma
    
    $
    0.72
    
    
    $
    0.71
  2005
    
    2004Risk free interest rate:
    
    
    4.31
    %
    
    
    4.06
    %Expected life (years):
    
    
    9
    
    
    
    9Dividend yield
    
    
    2.49
    %
    
    
    2.33
    %Estimated volatility:
    
    
    41.12
    %
    
    
    32.67
    %
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Recent Accounting Pronouncements
 Accounting for Certain Loans or Debt Securities Acquired in a
Transfer.
 Share Based Payment
 Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions
 Accounting Changes and Error
Corrections,
 - 10 -




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Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments Recognition of
Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities Accounting for Noncurrent Marketable Equity Securities The Equity Method of Accounting for Investments in Common Stock
 2. EARNINGS PER SHARE
  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
    
    
    $
    .36
    
    
    $
    4,186
    
    
    
    5,326,363
    
    
    $
    .79Effect of dilutive
stock options
    
    
    
    
    
    
    279,425
    
    
    
    (.01
    )
    
    
    
    
    
    
    294,629
    
    
    
    (.05
    )Diluted EPS
    
    $
    1,951
    
    
    
    5,639,756
    
    
    $
    .35
    
    
    $
    4,186
    
    
    
    5,620,992
    
    
    $
    .74
 Three months ended June 30, 2004
    
    Six months ended June 30, 2004Income
    
    Shares
    
    Per-Share
    
    Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    AmountBasic EPS
    
    $
    1,980
    
    
    
    5,258,765
    
    
    $
    .38
    
    
    $
    4,039
    
    
    
    5,233,966
    
    
    $
    .77Effect of dilutive
stock options
    
    
    
    
    
    
    354,328
    
    
    
    (.03
    )
    
    
    
    
    
    
    342,306
    
    
    
    (.05
    )Diluted EPS
    
    $
    1,980
    
    
    
    5,613,093
    
    
    $
    .35
    
    
    $
    4,039
    
    
    
    5,576,272
    
    
    $
    .72
 - 11 -




---



##### Table of Contents



3. COMMITMENTS AND CONTINGENCIES
  Payment due periodLess than
    
    One to
    
    Three to
    
    More thanTotal
    
    One Year
    
    Three Years
    
    Five Years
    
    Five Years(In Thousands)Contractual obligations:Certificates of deposit
    
    $
    457,540
    
    
    $
    408,727
    
    
    $
    37,083
    
    
    $
    11,583
    
    
    $
    147FHLB advances
    
    
    296,000
    
    
    
    277,000
    
    
    
    
    
    
    
    
    
    
    
    19,000Reverse Repurchase Agreements
    
    
    79,180
    
    
    
    20,180
    
    
    
    29,000
    
    
    
    15,000
    
    
    
    15,000Leases
    
    
    20,883
    
    
    
    1,325
    
    
    
    2,630
    
    
    
    2,538
    
    
    
    14,390Subordinated debt
    
    
    25,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,774Due to broker
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense for debt
obligations
    
    
    46,705
    
    
    
    4,364
    
    
    
    8,175
    
    
    
    6,179
    
    
    
    27,987Total contractual
obligations
    
    $
    926,082
    
    
    $
    711,596
    
    
    $
    76,888
    
    
    $
    35,300
    
    
    $
    102,298
 Amount of Commitment Expiration Per PeriodUnfunded
    
    Less than
    
    One to
    
    Three to
    
    AfterCommitments
    
    One Year
    
    Three Years
    
    Five Years
    
    Five Years(In Thousands)Commitments:Commercial lines of credit
    
    $
    28,504
    
    
    $
    21,348
    
    
    $
    1,881
    
    
    $
    690
    
    
    $
    4,585Consumer lines of credit(1)
    
    
    40,135
    
    
    
    1,904
    
    
    
    
    
    
    
    252
    
    
    
    37,979Undisbursed portion of loans in process
    
    
    57,727
    
    
    
    33,618
    
    
    
    24,109
    
    
    
    
    
    
    
    Approved but, unfunded mortgage loans
    
    
    10,581
    
    
    
    10,581
    
    
    
    
    
    
    
    
    
    
    
    Approved but, unfunded commercial
loans
    
    
    6,421
    
    
    
    6,421
    
    
    
    
    
    
    
    
    
    
    
    Approved but unfunded consumer loans
    
    
    3,290
    
    
    
    3,290
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    3,954
    
    
    
    2,438
    
    
    
    1,516
    
    
    
    
    
    
    
    Total commitments
    
    $
    150,612
    
    
    $
    79,600
    
    
    $
    27,506
    
    
    $
    942
    
    
    $
    42,564
 
 (1)
    
    Line of credit with no stated maturity date is included in commitments for less than one
year. 
 Item 2: Managements Discussion and Analysis
 Corporate Profile
  - 12 -




---



##### Table of Contents



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.
  Product Line Diversification
  - 13 -




---



##### Table of Contents



Modern Financial and Investment Management Skills
  Control Banking Risks
  Concentrate on Selected Performance Measures
  Profitability Drivers
  1.
    
    Increasing loans, deposits, and investment management and trust accounts in all
of our markets.2.
    
    Changing the loan mix from residential mortgage 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 lines of credit.3.
    
    Growing our non-interest bearing consumer and commercial deposits and
continuing to shift the deposit mix toward core deposit accounts.4.
    
    Diversifying and increasing our banking fee income through existing and new fee
income sources such as our overdraft protection program and other deposit fees, loan
fee income, 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 over one month LIBOR of approximately 1.25% to 1.50% per annum.
 - 14 -




---



##### Table of Contents



6.
    
    Controlling interest rate risk of the institution and seeking high credit
quality of the loan and investment portfolios.
  Results of Operations
  th
 - 15 -




---



##### Table of Contents



Three months ended June 30,2005
    
    2004Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    AverageBalance
    
    Interest
    
    Yield/ Cost
    
    Balance
    
    Interest
    
    Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable (1)
    
    $
    631,198
    
    
    $
    10,598
    
    
    
    6.72
    %
    
    $
    542,073
    
    
    $
    8,752
    
    
    
    6.46
    %FHLB stock
    
    
    16,754
    
    
    
    191
    
    
    
    4.56
    %
    
    
    14,022
    
    
    
    140
    
    
    
    4.01
    %Securities and trading account assets (2)
    
    
    408,233
    
    
    
    4,338
    
    
    
    4.25
    %
    
    
    416,360
    
    
    
    3,824
    
    
    
    3.67
    %Cash and cash equivalents (3)
    
    
    9,389
    
    
    
    36
    
    
    
    1.52
    %
    
    
    11,611
    
    
    
    11
    
    
    
    .39
    %Total interest-earning assets
    
    
    1,065,574
    
    
    
    15,163
    
    
    
    5.69
    %
    
    
    984,066
    
    
    
    12,727
    
    
    
    5.17
    %Noninterest-earning assets
    
    
    40,675
    
    
    
    
    
    
    
    
    
    
    
    25,959Total assets
    
    $
    1,106,249
    
    
    
    
    
    
    
    
    
    
    $
    1,010,025Interest-bearing liabilities:Deposits:NOW and money market accounts
    
    
    116,105
    
    
    
    454
    
    
    
    1.57
    %
    
    
    115,118
    
    
    
    239
    
    
    
    .84
    %Passbook accounts and certificates of
deposit
    
    
    453,760
    
    
    
    3,046
    
    
    
    2.69
    %
    
    
    439,945
    
    
    
    2,282
    
    
    
    2.09
    %Total interest-bearing deposits
    
    
    569,865
    
    
    
    3,500
    
    
    
    2.46
    %
    
    
    555,063
    
    
    
    2,521
    
    
    
    1.83
    %FHLB advances (4)
    
    
    325,088
    
    
    
    3,281
    
    
    
    4.04
    %
    
    
    271,900
    
    
    
    2,046
    
    
    
    2.98
    %Reverse Repurchase Agreements
    
    
    80,512
    
    
    
    526
    
    
    
    2.62
    %
    
    
    76,685
    
    
    
    500
    
    
    
    2.58
    %Other borrowings (5)
    
    
    25,774
    
    
    
    373
    
    
    
    5.78
    %
    
    
    15,464
    
    
    
    165
    
    
    
    4.27
    %Total interest-bearing liabilities
    
    
    1,001,239
    
    
    
    7,680
    
    
    
    3.07
    %
    
    
    919,112
    
    
    
    5,232
    
    
    
    2.28
    %Non-interest-bearing deposits
    
    
    38,990
    
    
    
    
    
    
    
    
    
    
    
    29,194Non-interest-bearing liabilities
    
    
    10,018
    
    
    
    
    
    
    
    
    
    
    
    12,601Total liabilities
    
    
    1,050,247
    
    
    
    
    
    
    
    
    
    
    
    960,907Stockholders equity
    
    
    56,002
    
    
    
    
    
    
    
    
    
    
    
    49,118Total liabilities and stockholders equity
    
    $
    1,106,249
    
    
    
    
    
    
    
    
    
    
    $
    1,010,025Net interest-earning assets (liabilities)
    
    $
    64,335
    
    
    
    
    
    
    
    
    
    
    $
    64,954Net interest income/interest rate spread
    
    
    
    
    
    $
    7,483
    
    
    
    2.62
    %
    
    
    
    
    
    $
    7,495
    
    
    
    2.89
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    3.04
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.43
    %
    
    
    
    
    
    
    
    
    
    
    107.07
    %
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on loans
originated.2)
    
    Consists of securities classified as available for sale, held to maturity and
trading account 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 subordinated debt and note payable under a revolving line of
credit. - 16 -




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##### Table of Contents



Six months ended June 30,2005
    
    2004Average
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    Yield/
    
    Average
    
    
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    Cost(Dollars in thousands)Interest-earning assets:Loans receivable (1)
    
    $
    622,692
    
    
    $
    20,506
    
    
    
    6.59
    %
    
    $
    533,537
    
    
    $
    17,344
    
    
    
    6.50
    %FHLB stock
    
    
    16,071
    
    
    
    336
    
    
    
    4.18
    %
    
    
    13,796
    
    
    
    264
    
    
    
    3.83
    %Securities and trading account assets (2)
    
    
    417,370
    
    
    
    8,558
    
    
    
    4.10
    %
    
    
    409,435
    
    
    
    7,343
    
    
    
    3.59
    %Cash and cash equivalents (3)
    
    
    9,144
    
    
    
    71
    
    
    
    1.55
    %
    
    
    12,751
    
    
    
    23
    
    
    
    .36
    %Total interest-earning assets
    
    
    1,065,277
    
    
    
    29,471
    
    
    
    5.53
    %
    
    
    969,519
    
    
    
    24,974
    
    
    
    5.15
    %Noninterest-earning assets
    
    
    33,150
    
    
    
    
    
    
    
    
    
    
    
    24,659Total assets
    
    $
    1,098,427
    
    
    
    
    
    
    
    
    
    
    $
    994,178Interest-bearing liabilities:Deposits:NOW and money market accounts
    
    
    117,796
    
    
    
    840
    
    
    
    1.43
    %
    
    
    118,612
    
    
    
    518
    
    
    
    .87
    %Passbook accounts and certificates of deposit
    
    
    451,432
    
    
    
    5,745
    
    
    
    2.55
    %
    
    
    433,837
    
    
    
    4,538
    
    
    
    2.09
    %Total interest-bearing deposits
    
    
    569,228
    
    
    
    6,585
    
    
    
    2.31
    %
    
    
    552,449
    
    
    
    5,056
    
    
    
    1.83
    %FHLB advances (4)
    
    
    322,994
    
    
    
    6,093
    
    
    
    3.77
    %
    
    
    265,841
    
    
    
    4,124
    
    
    
    3.10
    %Reverse Repurchase Agreements
    
    
    80,062
    
    
    
    1,040
    
    
    
    2.60
    %
    
    
    71,153
    
    
    
    930
    
    
    
    2.62
    %Other borrowings (5)
    
    
    25,774
    
    
    
    709
    
    
    
    5.50
    %
    
    
    15,464
    
    
    
    330
    
    
    
    4.27
    %Total interest-bearing liabilities
    
    
    998,058
    
    
    
    14,427
    
    
    
    2.89
    %
    
    
    904,907
    
    
    
    10,440
    
    
    
    2.31
    %Non-interest-bearing deposits
    
    
    37,077
    
    
    
    
    
    
    
    
    
    
    
    28,363Non-interest-bearing liabilities
    
    
    8,907
    
    
    
    
    
    
    
    
    
    
    
    12,384Total liabilities
    
    
    1,044,042
    
    
    
    
    
    
    
    
    
    
    
    945,654Stockholders equity
    
    
    54,385
    
    
    
    
    
    
    
    
    
    
    
    48,524Total liabilities and stockholders equity
    
    $
    1,098,427
    
    
    
    
    
    
    
    
    
    
    $
    994,178Net interest-earning assets (liabilities)
    
    $
    67,219
    
    
    
    
    
    
    
    
    
    
    $
    64,612Net interest income/interest rate spread
    
    
    
    
    
    $
    15,044
    
    
    
    2.64
    %
    
    
    
    
    
    $
    14,534
    
    
    
    2.84
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    3.00
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.73
    %
    
    
    
    
    
    
    
    
    
    
    107.14
    %
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on loans
originated.2)
    
    Consists of securities classified as available for sale, held to maturity and
trading account 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 subordinated debt and note payable under a revolving line of
credit. - 17 -




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##### Table of Contents



Three Months EndedJune 30, 2005 vs. June 30, 2004Increase (decrease) due to:Total NetRate/
    
    IncreaseRate
    
    Volume
    
    Volume
    
    (Decrease)(In Thousands)Interest-earning assets:Loans receivable (1)
    
    $
    1,389
    
    
    $
    5,757
    
    
    $
    (5,300
    )
    
    $
    1,846FHLB stock
    
    
    78
    
    
    
    110
    
    
    
    (137
    )
    
    
    51Securities and trading account assets (2)
    
    
    2,419
    
    
    
    (298
    )
    
    
    (1,607
    )
    
    
    514Cash and cash equivalents (3)
    
    
    131
    
    
    
    (9
    )
    
    
    (97
    )
    
    
    25Total net change in income on interest-
earning assets
    
    
    4,017
    
    
    
    5,560
    
    
    
    (7,141
    )
    
    
    2,436Interest-bearing liabilities:DepositsNOW and money market accounts
    
    
    835
    
    
    
    8
    
    
    
    (628
    )
    
    
    215Passbook accounts and certificates
of deposit
    
    
    2,619
    
    
    
    289
    
    
    
    (2,144
    )
    
    
    764Total interest-bearing deposits
    
    
    3,454
    
    
    
    297
    
    
    
    (2,772
    )
    
    
    979FHLB advances (4)
    
    
    2,874
    
    
    
    1,585
    
    
    
    (3,224
    )
    
    
    1,235Reverse Repurchase Agreements
    
    
    27
    
    
    
    99
    
    
    
    (100
    )
    
    
    26Other borrowings (5)
    
    
    234
    
    
    
    440
    
    
    
    (466
    )
    
    
    208Total net change in expense on interest-
bearing liabilities
    
    
    6,589
    
    
    
    2,421
    
    
    
    (6,562
    )
    
    
    2,448Change in net interest income
    
    $
    (2,572
    )
    
    $
    3,139
    
    
    $
    (579
    )
    
    $
    (12
    )
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on
loans originated.2)
    
    Consists of securities classified as available for sale, held to
maturity and trading account 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 subordinated debt and a note payable under a revolving line
of credit. - 18 -




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##### Table of Contents



Six Months EndedJune 30, 2005 vs. June 30, 2004Increase (decrease) due to:Rate/
    
    Total NetRate
    
    Volume
    
    Volume
    
    Increase(In Thousands)Interest-earning assets:Loans receivable (1)
    
    $
    460
    
    
    $
    5,795
    
    
    $
    (3,093
    )
    
    $
    3,162FHLB stock
    
    
    48
    
    
    
    87
    
    
    
    (63
    )
    
    
    72Securities and trading account assets (2)
    
    
    2,092
    
    
    
    285
    
    
    
    (1,162
    )
    
    
    1,215Cash and cash equivalents (3)
    
    
    152
    
    
    
    (13
    )
    
    
    (91
    )
    
    
    48Total net change in income on interest-
earning assets
    
    
    2,752
    
    
    
    6,154
    
    
    
    (4,409
    )
    
    
    4,497Interest-bearing liabilities:DepositsNOW and money market accounts
    
    
    660
    
    
    
    (7
    )
    
    
    (331
    )
    
    
    322Passbook accounts and certificates
of deposit
    
    
    1,974
    
    
    
    368
    
    
    
    (1,135
    )
    
    
    1,207Total interest-bearing deposits
    
    
    2,634
    
    
    
    361
    
    
    
    (1,466
    )
    
    
    1,529FHLB advances (4)
    
    
    1,789
    
    
    
    1,772
    
    
    
    (1,592
    )
    
    
    1,969Reverse Repurchase Agreements
    
    
    (16
    )
    
    
    233
    
    
    
    (107
    )
    
    
    110Other borrowings (5)
    
    
    191
    
    
    
    440
    
    
    
    (252
    )
    
    
    379Total net change in expense on interest-
bearing liabilities
    
    
    4,598
    
    
    
    2,806
    
    
    
    (3,417
    )
    
    
    3,987Change in net interest income
    
    $
    (1,846
    )
    
    $
    3,348
    
    
    $
    (992
    )
    
    $
    510
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on
loans originated.2)
    
    Consists of securities classified as available for sale, held to
maturity and trading account 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 subordinated debt and a note payable under a revolving line
of credit.   - 19 -




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##### Table of Contents



For the Quarter Ended
    
    For the Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in thousands)
    
    (Dollars in thousands)Balance at beginning of period
    
    $
    5,376
    
    
    $
    4,677
    
    
    $
    5,228
    
    
    $
    4,587Charge-offs:Real estate loansSingle-family residential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Multi-family residential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial & Industrial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other loans
    
    
    (0
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    (4
    )Total charge-offs
    
    
    (0
    )
    
    
    (4
    )
    
    
    (2
    )
    
    
    (4
    )Provision for losses on loans
    
    
    200
    
    
    
    230
    
    
    
    350
    
    
    
    320Balance at end of period
    
    $
    5,576
    
    
    $
    4,903
    
    
    $
    5,576
    
    
    $
    4,903Allowance for loan losses as a
percent of total loans
outstanding
    
    
    0.87
    %
    
    
    0.86
    %
    
    
    0.87
    %
    
    
    0.86
    %Ratio of net charge-offs to
average loans outstanding
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
  - 20 -




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(Dollars in thousands)June
    
    June
    
    
    
    
    
    June
    
    June2005
    
    2004
    
    %
    
    2005
    
    2004
    
    %Banking Fee Type
    
    Quarter
    
    Quarter
    
    Change
    
    YTD
    
    YTD
    
    ChangeMortgage Brokerage Fee,
Prepayment Penalties & Other
Loan Fees
    
    $
    254
    
    
    $
    472
    
    
    
    (46.2
    %)
    
    $
    631
    
    
    $
    848
    
    
    
    (25.6
    %)Deposit, Other Retail Banking
Fees & Other Fee Income
    
    
    317
    
    
    
    230
    
    
    
    37.8
    %
    
    
    634
    
    
    
    469
    
    
    
    35.2
    %Harrington Wealth Management Fees
    
    
    189
    
    
    
    146
    
    
    
    29.5
    %
    
    
    353
    
    
    
    291
    
    
    
    21.3
    %BOLI Income, net
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    214Total Banking Fee Income
    
    $
    974
    
    
    $
    848
    
    
    
    14.9
    %
    
    $
    1,832
    
    
    $
    1,608
    
    
    
    13.9
    %
   Financial Condition
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June 30, 2005
    
    December 31, 2004
    
    ChangeAmount
    
    Percent
    
    Amount
    
    Percent
    
    Amount(Dollars in thousands)Real Estate Loans:Single-family
    
    $
    106,329
    
    
    
    16.5
    %
    
    $
    100,485
    
    
    
    16.6
    %
    
    $
    5,844Multi-family
    
    
    79,963
    
    
    
    12.4
    
    
    
    84,937
    
    
    
    14.0
    
    
    
    (4,974
    )Commercial
    
    
    266,764
    
    
    
    41.5
    
    
    
    260,759
    
    
    
    43.1
    
    
    
    6,005Construction (1)
    
    
    46,477
    
    
    
    7.2
    
    
    
    34,981
    
    
    
    5.8
    
    
    
    11,496Land acquisition and development
    
    
    30,076
    
    
    
    4.7
    
    
    
    27,460
    
    
    
    4.5
    
    
    
    2,616Commercial and industrial loans
    
    
    86,511
    
    
    
    13.5
    
    
    
    72,240
    
    
    
    11.9
    
    
    
    14,271Consumer loans
    
    
    25,559
    
    
    
    4.0
    
    
    
    23,757
    
    
    
    3.9
    
    
    
    1,802Other loans (2)
    
    
    1,241
    
    
    
    .2
    
    
    
    1,044
    
    
    
    0.2
    
    
    
    197Total loans receivable
    
    
    642,920
    
    
    
    100.0
    %
    
    
    605,663
    
    
    
    100.0
    %
    
    
    37,257Less:Allowance for loan loss
    
    
    (5,576
    )
    
    
    
    
    
    
    (5,228
    )
    
    
    
    
    
    
    (348
    )Net deferred loan fees
    
    
    (2,041
    )
    
    
    
    
    
    
    (1,730
    )
    
    
    
    
    
    
    (311
    )Net (discount) premiums
    
    
    (413
    )
    
    
    
    
    
    
    (263
    )
    
    
    
    
    
    
    (150
    )(8,030
    )
    
    
    
    
    
    
    (7,221
    )
    
    
    
    
    
    
    (809
    )Loans receivable, net
    
    $
    634,890
    
    
    
    
    
    
    $
    598,442
    
    
    
    
    
    
    $
    36,448
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At June 30,
2005, we had $23.1 million of construction loans secured by single-family residential
properties, $12.2 million secured by commercial properties, $3.3 million for land
development and $7.9 million secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans. - 23 -




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Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    Value(Dollars in thousands)Securities Available for Sale:June 30, 2005Mortgage-backed securities  pass through
    
    $
    132,092
    
    
    $
    322
    
    
    $
    (1,310
    )
    
    $
    131,104Collateralized mortgage obligations
    
    
    63,704
    
    
    
    
    
    
    
    (630
    )
    
    
    63,074Commercial mortgage-backed securities
    
    
    44,161
    
    
    
    55
    
    
    
    (102
    )
    
    
    44,114Asset-backed securities (underlying
securities mortgages)
    
    
    155,725
    
    
    
    1,138
    
    
    
    (93
    )
    
    
    156,770Asset-backed securities
    
    
    4,217
    
    
    
    
    
    
    
    (114
    )
    
    
    4,103Corporate debt securities
    
    
    1,597
    
    
    
    123
    
    
    
    
    
    
    
    1,720$
    401,496
    
    
    $
    1,638
    
    
    $
    (2,249
    )
    
    $
    400,885
 Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    Value(Dollars in thousands)Securities Available for Sale:December 31, 2004Mortgage-backed securities  pass through
    
    $
    114,365
    
    
    $
    294
    
    
    
    ($957
    )
    
    $
    113,702Collateralized mortgage obligations
    
    
    73,894
    
    
    
    
    
    
    
    (495
    )
    
    
    73,399Commercial mortgage-backed securities
    
    
    47,545
    
    
    
    472
    
    
    
    (96
    )
    
    
    47,921Asset-backed securities (underlying
securities mortgages)
    
    
    187,949
    
    
    
    1,504
    
    
    
    (64
    )
    
    
    189,389Asset-backed securities
    
    
    5,460
    
    
    
    34
    
    
    
    (351
    )
    
    
    5,143Corporate debt securities
    
    
    1,569
    
    
    
    83
    
    
    
    
    
    
    
    1,652$
    430,782
    
    
    $
    2,387
    
    
    
    ($1,963
    )
    
    $
    431,206
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Less than 12 Months
    
    12 Months or More
    
    Total(Dollars in thousands)As of June 30, 2005Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesMortgage-backed
securities  pass
through
    
    $
    43,158
    
    
    $
    (147
    )
    
    $
    55,263
    
    
    $
    (1,163
    )
    
    $
    98,421
    
    
    $
    (1,310
    )Collateralized mortgage
obligations
    
    
    18,492
    
    
    
    (139
    )
    
    
    20,675
    
    
    
    (491
    )
    
    
    39,167
    
    
    
    (630
    )Commercial
mortgage-backed
securities
    
    
    4,735
    
    
    
    (60
    )
    
    
    23,798
    
    
    
    (42
    )
    
    
    28,533
    
    
    
    (102
    )Asset-backed securities
(underlying securities
mortgages)
    
    
    23,858
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    23,858
    
    
    
    (93
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,084
    
    
    
    (114
    )
    
    
    3,084
    
    
    
    (114
    )Corporate debt securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    90,243
    
    
    $
    (439
    )
    
    $
    102,820
    
    
    $
    (1,810
    )
    
    $
    193,063
    
    
    $
    (2,249
    )
 Less than 12 Months
    
    12 Months or More
    
    Total(Dollars in thousands)As of June 30, 2004Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesMortgage-backed
securities  pass
through
    
    $
    54,582
    
    
    
    ($350
    )
    
    $
    29,319
    
    
    
    ($607
    )
    
    $
    83,901
    
    
    
    ($957
    )Collateralized
mortgage obligations
    
    
    61,773
    
    
    
    (271
    )
    
    
    11,626
    
    
    
    (224
    )
    
    
    73,399
    
    
    
    (495
    )Commercial
mortgage-backed
securities
    
    
    7,090
    
    
    
    (70
    )
    
    
    832
    
    
    
    (26
    )
    
    
    7,922
    
    
    
    (96
    )Asset-backed
securities (underlying
securities mortgages)
    
    
    18,711
    
    
    
    (64
    )
    
    
    1,302
    
    
    
    
    
    
    
    20,013
    
    
    
    (64
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    4,216
    
    
    
    (351
    )
    
    
    4,216
    
    
    
    (351
    )$
    142,156
    
    
    
    ($755
    )
    
    $
    47,295
    
    
    
    ($1,208
    )
    
    $
    189,451
    
    
    
    ($1,963
    )
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Pledged Securities
    
    Unpledged Securities
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedValue
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    Losses(Dollars in thousands)Mortgage-backed
securities  pass
through
    
    $
    55,263
    
    
    $
    (1,163
    )
    
    $
    
    
    
    $
    
    
    
    $
    55,263
    
    
    $
    (1,163
    )Collateralized
mortgage obligations
    
    
    20,675
    
    
    
    (491
    )
    
    
    
    
    
    
    
    
    
    
    20,675
    
    
    
    (491
    )Commercial
mortgage-backed
securities
    
    
    23,798
    
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    23,798
    
    
    
    (42
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    3,084
    
    
    
    (114
    )
    
    
    3,084
    
    
    
    (114
    )$
    99,736
    
    
    $
    (1,696
    )
    
    $
    3,084
    
    
    $
    (114
    )
    
    $
    102,820
    
    
    $
    (1,810
    )
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Liquidity and Capital Resources
 Liquidity.
  - 28 -




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Capital Resources.
   - 29 -




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Asset and Liability Management
      - 30 -




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i.e.,
    Accounting for Derivative Instruments and Hedging
Activities,
  Critical Accounting Policies
 General.
 - 31 -




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Allowance for loan losses Accounting for Contingencies, Accounting by Creditors for Impairment of a Loan Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures, .
 Trading and Investment Portfolio.
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Hedging Activity.
 Cautionary Statement Regarding Forward-Looking Statements.
  
    
    we may experience higher defaults on our loan portfolio than we expect;
    
    changes in managements estimate of the adequacy of the allowance for loan losses;
    
    changes in managements valuation of our mortgage-backed and related securities
portfolio and interest rate contracts;
    
    increases in competitive pressure among financial institutions;
    
    general economic conditions, either nationally or locally in areas in which we
conduct or will conduct our operations, or conditions in financial markets may be less
favorable than we currently anticipate;
    
    our net income from operations may be lower than we expect;
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
    
    natural disasters;
    
    we may lose more business or customers than we expect, or our operating costs may be
higher than we expect;
    
    the availability of capital to fund our growth and expansion;
    
    changes in the interest rate environment and their impact on customer behavior and
our interest margins;
    
    political and global changes arising from the war on terrorism;
    
    the impact of repricing and competitors pricing initiatives on loan and deposit products;
    
    our ability to adapt successfully to technological changes to meet customers needs
and developments in the market place;
    
    our ability to access cost-effective funding;
    
    our ability to successfully complete our strategy to continue to grow our business
in California, Kansas and Arizona;
    
    our returns from our securities portfolio may be lower than we expect; or
    
    legislative or regulatory changes or changes in accounting principles, policies or
guidelines may adversely affect our ability to conduct our business.
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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
    
    $
    36,884
    
    
    $
    24,980
    
    
    $
    13,561
    
    
    $
    (16,736
    )
    
    $
    (36,154
    )
    
    $
    (57,357
    )Market value gain (loss) of liabilities
    
    
    (23,131
    )
    
    
    (15,994
    )
    
    
    (8,281
    )
    
    
    8,554
    
    
    
    17,214
    
    
    
    26,004Market value gain (loss) of net assets
before interest rate contracts
    
    
    13,753
    
    
    
    8,986
    
    
    
    5,280
    
    
    
    (8,182
    )
    
    
    (18,940
    )
    
    
    (31,353
    )Market value gain (loss) of interest
rate contracts before tax
    
    
    (16,937
    )
    
    
    (10,954
    )
    
    
    (5,317
    )
    
    
    5,008
    
    
    
    9,739
    
    
    
    14,214Total change in MVPE (2)
    
    $
    (3,184
    )
    
    $
    (1,968
    )
    
    $
    (37
    )
    
    $
    (3,174
    )
    
    $
    (9,201
    )
    
    $
    (17,139
    )Change in MVPE as a percent of:MVPE(2)
    
    
    -3.43
    %
    
    
    -2.12
    %
    
    
    -0.04
    %
    
    
    -3.42
    %
    
    
    -9.91
    %
    
    
    -18.47
    %MVPE post shock ratio (3)
    
    
    -0.54
    %
    
    
    -0.36
    %
    
    
    -0.10
    %
    
    
    -0.16
    %
    
    
    -0.57
    %
    
    
    -1.17
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $92.8 million at June 30, 2005.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  
 Item 4: Controls and Procedures
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PART II - OTHER INFORMATION
 
 Item 1:
  
 Item 2:
  
 Item 3:
  - 36 -




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Item 4:
    NAME
    
    FOR
    
    WITHHELDCraig J. Cerny
    
    
    4,839,872
    
    
    
    182,745Dr. John J. McConnell
    
    
    4,836,579
    
    
    
    186,038
  FOR
    
    AGAINST
    
    ABSTAIN3,155,337
    
    
    712,524
    
    
    
    26,029
  FOR
    
    AGAINST
    
    ABSTAIN4,955,406
    
    
    62,991
    
    
    
    4,220
 
 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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SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.Date: August 12, 2005
    
    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 andAccounting Officer)
 - 38 -