##### 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, 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
    
    48-1175170(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ




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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, 2008 and December 31, 2007
    
    
    2Condensed Consolidated Statements of Income
for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    3Condensed Consolidated Statements of Stockholders Equity and Comprehensive
Income for the Six Months Ended June 30, 2008
and Year Ended December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2008 and 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4T.Controls and Procedures
    
    
    28Part II  Other InformationItem 1.Legal Proceedings
    
    
    28Item 1A.Risk Factors
    
    
    28Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3.Defaults upon Senior Securities
    
    
    29Item 4.Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.Other Information
    
    
    30Item 6.Exhibits
    
    
    30Signatures
    
    
    30EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32
  - 1 -




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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)
 June 30,
    
    December 31,2008
    
    2007Assets:Cash and cash equivalents
    
    $
    18,636
    
    
    $
    14,433Trading account assets
    
    
    967
    
    
    
    2,307Securities, available-for-sale
    
    
    290,004
    
    
    
    351,466Securities held to maturity (fair value of $53 at June 30, 2008 and $58
at December 31, 2007)
    
    
    51
    
    
    
    56Loans receivable, net of allowance for loan losses of $6,847
at June 30, 2008 and $6,446 at December 31, 2007
    
    
    802,538
    
    
    
    782,626Accrued interest receivable
    
    
    3,831
    
    
    
    5,168Real estate owned
    
    
    4,135
    
    
    
    Premises, equipment and other long-term assets
    
    
    17,887
    
    
    
    16,917Due from broker
    
    
    4
    
    
    
    1Prepaid expenses and other assets
    
    
    2,786
    
    
    
    2,848Investment in FHLB stock, at cost
    
    
    14,551
    
    
    
    12,474Income taxes receivable
    
    
    3,073
    
    
    
    Cash surrender value of life insurance
    
    
    20,764
    
    
    
    20,524Deferred tax asset
    
    
    16,374
    
    
    
    8,384Goodwill
    
    
    5,496
    
    
    
    5,496Other intangible assets
    
    
    578
    
    
    
    702Total assets
    
    $
    1,201,675
    
    
    $
    1,223,402Liabilities:Deposits:Interest-bearing deposits
    
    $
    855,900
    
    
    $
    786,263Non-interest-bearing demand deposits
    
    
    43,813
    
    
    
    50,070Total Deposits
    
    
    899,713
    
    
    
    836,333FHLB advances
    
    
    192,000
    
    
    
    247,000Securities sold under repurchase agreements
    
    
    34,351
    
    
    
    49,981Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    7,939
    
    
    
    8,769Income taxes payable
    
    
    
    
    
    
    503Total liabilities
    
    
    1,159,777
    
    
    
    1,168,360Shareholders 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 June 30, 2008
and 5,554,003 shares issued and outstanding December 31, 2007
    
    
    61
    
    
    
    56Additional paid-in capital
    
    
    39,091
    
    
    
    34,424Retained earnings
    
    
    30,850
    
    
    
    35,368Accumulated other comprehensive loss
    
    
    (28,104
    )
    
    
    (14,806
    )Total shareholders equity
    
    
    41,898
    
    
    
    55,042Total liabilities and shareholders equity
    
    $
    1,201,675
    
    
    $
    1,223,402
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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME/LOSS (Unaudited)  (Dollars in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Interest income:Loans
    
    $
    13,671
    
    
    $
    15,080
    
    
    $
    27,871
    
    
    $
    30,073Securities
    
    
    4,786
    
    
    
    4,234
    
    
    
    10,151
    
    
    
    8,560Total interest income
    
    
    18,457
    
    
    
    19,314
    
    
    
    38,022
    
    
    
    38,633Interest expense:Deposits
    
    
    7,829
    
    
    
    7,799
    
    
    
    16,312
    
    
    
    15,377Interest on FHLB advances, repos & other debt
    
    
    3,366
    
    
    
    3,891
    
    
    
    6,734
    
    
    
    7,953Total interest expense
    
    
    11,195
    
    
    
    11,690
    
    
    
    23,046
    
    
    
    23,330Net interest income
    
    
    7,262
    
    
    
    7,624
    
    
    
    14,976
    
    
    
    15,303Provision for loan losses
    
    
    400
    
    
    
    100
    
    
    
    900
    
    
    
    200Net interest income after provision for loan losses
    
    
    6,862
    
    
    
    7,524
    
    
    
    14,076
    
    
    
    15,103Non-interest income:Gain (loss) on sale of available for sale securities
    
    
    (295
    )
    
    
    (1,004
    )
    
    
    1,107
    
    
    
    (1,004
    )Income (loss) from trading assets
    
    
    6
    
    
    
    1
    
    
    
    (8,663
    )
    
    
    6Other-than-temporary loss
    
    
    (2,412
    )
    
    
    
    
    
    
    (2,482
    )
    
    
    Gain on termination of cash flow hedge
    
    
    2,338
    
    
    
    
    
    
    
    2,338
    
    
    
    Loss on write-down of real estate owned
    
    
    (2,603
    )
    
    
    
    
    
    
    (2,603
    )
    
    
    Other income
    
    
    1,048
    
    
    
    
    
    
    
    1,049
    
    
    
    Increase in cash surrender value of life insurance
    
    
    49
    
    
    
    206
    
    
    
    242
    
    
    
    407Banking fee and other income
    
    
    886
    
    
    
    924
    
    
    
    1,726
    
    
    
    1,797Total non-interest income
    
    
    (983
    )
    
    
    127
    
    
    
    (7,286
    )
    
    
    1,206Non-interest expense:Salaries and employee benefits
    
    
    3,261
    
    
    
    3,235
    
    
    
    6,797
    
    
    
    6,511Premises and equipment
    
    
    1,023
    
    
    
    969
    
    
    
    2,016
    
    
    
    1,918Insurance premiums
    
    
    227
    
    
    
    86
    
    
    
    439
    
    
    
    171Marketing
    
    
    143
    
    
    
    117
    
    
    
    239
    
    
    
    231Computer services
    
    
    290
    
    
    
    228
    
    
    
    546
    
    
    
    448Professional fees
    
    
    170
    
    
    
    204
    
    
    
    305
    
    
    
    466Office expenses and supplies
    
    
    218
    
    
    
    205
    
    
    
    427
    
    
    
    418Other
    
    
    752
    
    
    
    703
    
    
    
    1,425
    
    
    
    1,281Total non-interest expense
    
    
    6,084
    
    
    
    5,747
    
    
    
    12,194
    
    
    
    11,444Income (loss) before income taxes
    
    
    (205
    )
    
    
    1,904
    
    
    
    (5,404
    )
    
    
    4,865Provision for income tax expense (benefit)
    
    
    (74
    )
    
    
    708
    
    
    
    (2,027
    )
    
    
    1,813Net income (loss)
    
    $
    (131
    )
    
    $
    1,196
    
    
    $
    (3,377
    )
    
    $
    3,052Basic earnings/(loss) per share
    
    $
    (0.02
    )
    
    $
    0.22
    
    
    $
    (0.58
    )
    
    $
    0.55Diluted earnings/(loss) per share
    
    $
    (0.02
    )
    
    $
    0.21
    
    
    $
    (0.58
    )
    
    $
    0.54Basic weighted-average shares outstanding
    
    
    6,131,243
    
    
    
    5,546,653
    
    
    
    5,860,739
    
    
    
    5,531,530Diluted weighted-average shares outstanding
    
    
    6,131,243
    
    
    
    5,653,321
    
    
    
    5,860,739
    
    
    
    5,643,337
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##### Table of Contents



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 income/(loss)Net 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 lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,377
    )
    
    $
    (3,377
    )
    
    
    
    
    
    
    (3,377
    )Other comprehensive loss, net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,409
    )
    
    
    (13,409
    )
    
    
    (13,409
    )Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    111
    
    
    
    111Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (16,675
    )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
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Dividends on Common Stk at $.195/Shr
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )BALANCE, JUNE 30, 2008
    
    
    6,131,243
    
    
    $
    61
    
    
    $
    39,091
    
    
    $
    30,850
    
    
    
    
    
    
    $
    (28,104
    )
    
    $
    41,898
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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  (Dollars in thousands)
 Six Months EndedJune 302008
    
    2007Cash flows from operating activities:Net (loss) income
    
    $
    (3,377
    )
    
    $
    3,052Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Accretion of deferred loan fees and costs
    
    
    (295
    )
    
    
    (228
    )Depreciation and amortization
    
    
    735
    
    
    
    768Amortization of premiums and discounts on loans receivable and securities
    
    
    (467
    )
    
    
    720Deferred income taxes
    
    
    (7,990
    )
    
    
    (66
    )Provision for loan losses
    
    
    900
    
    
    
    200Activity in trading account assets
    
    
    (1,311
    )
    
    
    (25
    )Loss (gain) on sale of trading securities
    
    
    2,651
    
    
    
    (3
    )Loss (gain) on sale of available-for-sale securities
    
    
    (1,107
    )
    
    
    1,004Gain on termination of cash flow swaps
    
    
    (2,338
    )
    
    
    Loss on other-than-temporary impairment
    
    
    2,482
    
    
    
    Loss on write-down of real estate owned
    
    
    2,603
    
    
    
    FHLB stock dividend
    
    
    (346
    )
    
    
    (391
    )Earnings on bank owned life insurance
    
    
    (242
    )
    
    
    (407
    )Decrease in accrued interest receivable
    
    
    1,337
    
    
    
    71Increase in income tax receivable, net of payable
    
    
    (3,576
    )
    
    
    (649
    )Decrease in prepaid expenses and other assets
    
    
    9,634
    
    
    
    1,059Stock compensation expense
    
    
    177
    
    
    
    204Decrease in accounts payable, accrued expenses,
and other liabilities
    
    
    (706
    )
    
    
    (829
    )Net cash (used in) provided by operating activities
    
    
    (1,236
    )
    
    
    4,480Cash flows from investing activities:Net increase in loans receivable
    
    
    (43,432
    )
    
    
    (2,341
    )Proceeds from sale of loans
    
    
    16,133
    
    
    
    Proceeds from sales of securities available for sale
    
    
    171,925
    
    
    
    35,999Purchases of securities available for sale
    
    
    (162,501
    )
    
    
    (77,433
    )Principal paydowns on securities available for sale
    
    
    29,671
    
    
    
    62,681Principal paydowns on securities held to maturity
    
    
    5
    
    
    
    7Proceeds from sale of real estate acquired through foreclosure
    
    
    53
    
    
    
    Net purchase of premises and equipment
    
    
    (1,888
    )
    
    
    (272
    )Proceeds from sale of fixed assets
    
    
    1,100
    
    
    
    Redemption (purchase) of FHLB Stock
    
    
    (1,731
    )
    
    
    1,799Net cash provided by investing activities
    
    
    9,335
    
    
    
    20,440Cash flows from financing activities:Net increase in deposits
    
    
    63,380
    
    
    
    38,143Decrease in securities sold under agreements to repurchase
    
    
    (15,630
    )
    
    
    (14,984
    )Decrease in FHLB advances
    
    
    (55,000
    )
    
    
    (50,000
    )Proceeds from exercise of stock options, including tax benefits
    
    
    233
    
    
    
    661Proceeds from shares issued in private offering
    
    
    4,262
    
    
    
    Dividends paid on common stock
    
    
    (1,141
    )
    
    
    (1,394
    )Net cash used in financing activities
    
    
    (3,896
    )
    
    
    (27,574
    )Net increase (decrease) in cash and cash equivalents
    
    
    4,203
    
    
    
    (2,654
    )Cash and cash equivalents at beginning of period
    
    
    14,433
    
    
    
    21,178Cash and cash equivalents at end of period
    
    $
    18,636
    
    
    $
    18,524
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##### Table of Contents



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
  - 6 -




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##### Table of Contents

\

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
  Business Combinations.
 - 7 -




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##### Table of Contents



2. FAIR VALUE
        Fair Value Measurements at June 30, 2008 Using
 Quoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Trading securities
    
    $
    967
    
    
    
    
    
    
    $
    967
    
    
    
    Available for sale securities
    
    $
    290,004
    
    
    
    
    
    
    $
    290,004
    
    
    
    Liabilities:Interest rate swaps
    
    $
    4,799
    
    
    
    
    
    
    $
    4,799
    
    
    
    
 - 8 -




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##### Table of Contents



Fair Value Measurements at June 30, 2008 Using
 Quoted Prices in
    
    
    
    
    
    SignificantActive Markets for
    
    Significant Other
    
    UnobservableIdentical Assets
    
    Observable Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    7,113
    
    
    
    
    
    
    $
    7,113
    
    
    
    
 Loans
 3. EARNINGS (LOSS) PER SHARE
  Three months ended June 30, 2008
    
    Six months ended June 30, 2008(net income/(loss) amounts
    
    Income/(Loss)
    
    Shares
    
    Per-Share
    
    Income/(Loss)
    
    Shares
    
    Per-Sharein thousands)
    
    (Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    AmountBasic EPS
    
    $
    (131
    )
    
    
    6,131,243
    
    
    $
    (0.02
    )
    
    $
    (3,377
    )
    
    
    5,860,739
    
    
    $
    (0.58
    )Effect of dilutive
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (131
    )
    
    
    6,131,243
    
    
    $
    (0.02
    )
    
    $
    (3,377
    )
    
    
    5,860,739
    
    
    $
    (0.58
    )
 Three months ended June 30, 2007
    
    Six months ended June 30, 2007Income/(Loss)
    
    Shares
    
    Per-Share
    
    Income/(Loss)
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    Amount
    
    (Numerator)
    
    (Denominator)
    
    AmountBasic EPS
    
    $
    1,196
    
    
    
    5,546,653
    
    
    $
    0.22
    
    
    $
    3,052
    
    
    
    5,531,530
    
    
    $
    0.55Effect of dilutive
stock options
    
    
    
    
    
    
    106,668
    
    
    
    (0.01
    )
    
    
    
    
    
    
    111,807
    
    
    
    (0.01
    )Diluted EPS
    
    $
    1,196
    
    
    
    5,653,321
    
    
    $
    0.21
    
    
    $
    3,052
    
    
    
    5,643,337
    
    
    $
    0.54
 - 9 -




---



##### Table of Contents



4. OTHER-THAN-TEMPORARY IMPAIRMENT
  5. TOTAL RATE OF RETURN SWAPS
  6. LOANS SOLD
  Accounting for
Certain Mortgage Banking Activities
 
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Corporate Profile
  - 10 -




---



##### Table of Contents



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.
   Product Line Diversification
  - 11 -




---



##### Table of Contents



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.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
 - 12 -




---



##### Table of Contents



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
    - 13 -




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##### Table of Contents



Three Months Ended
    
    
    Three Months EndedJune 30, 2008
    
    
    June 30, 2007(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    805,870
    
    
    $
    13,671
    
    
    
    6.80
    %
    
    $
    760,855
    
    
    $
    15,080
    
    
    
    7.94
    %FHLB stock
    
    
    14,236
    
    
    
    210
    
    
    
    5.93
    %
    
    
    13,689
    
    
    
    149
    
    
    
    4.37
    %Securities and trading account assets (2)
    
    
    386,999
    
    
    
    4,529
    
    
    
    4.68
    %
    
    
    287,358
    
    
    
    4,011
    
    
    
    5.58
    %Cash and cash equivalents (3)
    
    
    20,221
    
    
    
    47
    
    
    
    0.93
    %
    
    
    12,353
    
    
    
    74
    
    
    
    2.40
    %Total interest earning assets
    
    
    1,227,326
    
    
    
    18,457
    
    
    
    6.02
    %
    
    
    1,074,255
    
    
    
    19,314
    
    
    
    7.20
    %Non-interest-earning assets
    
    
    37,208
    
    
    
    
    
    
    
    
    
    
    
    52,823Total assets
    
    $
    1,264,534
    
    
    
    
    
    
    
    
    
    
    $
    1,127,078Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    164,232
    
    
    $
    1,042
    
    
    
    2.55
    %
    
    $
    100,540
    
    
    $
    665
    
    
    
    2.65
    %Passbook accounts and certificates
of deposit
    
    
    686,836
    
    
    
    6,787
    
    
    
    3.97
    %
    
    
    589,713
    
    
    
    7,134
    
    
    
    4.85
    %Total deposits
    
    
    851,068
    
    
    
    7,829
    
    
    
    3.70
    %
    
    
    690,253
    
    
    
    7,799
    
    
    
    4.53
    %FHLB advances (4)
    
    
    245,013
    
    
    
    2,710
    
    
    
    4.45
    %
    
    
    233,363
    
    
    
    2,946
    
    
    
    5.06
    %Reverse repurchase agreements
    
    
    41,614
    
    
    
    311
    
    
    
    2.96
    %
    
    
    54,467
    
    
    
    426
    
    
    
    3.09
    %Other borrowings (5)
    
    
    25,774
    
    
    
    345
    
    
    
    5.30
    %
    
    
    25,774
    
    
    
    519
    
    
    
    7.97
    %Total interest-bearing liabilities
    
    
    1,163,469
    
    
    
    11,195
    
    
    
    3.85
    %
    
    
    1,003,857
    
    
    
    11,690
    
    
    
    4.65
    %Non-interest-bearing deposits
    
    
    43,961
    
    
    
    
    
    
    
    
    
    
    
    47,420Non-interest-bearing liabilities
    
    
    11,601
    
    
    
    
    
    
    
    
    
    
    
    5,842Total liabilities
    
    
    1,219,031
    
    
    
    
    
    
    
    
    
    
    
    1,057,119Stockholders equity
    
    
    45,503
    
    
    
    
    
    
    
    
    
    
    
    69,959Total liabilities and stockholders
equity
    
    $
    1,264,534
    
    
    
    
    
    
    
    
    
    
    $
    1,127,078Net interest-earning assets (liabilities)
    
    $
    63,857
    
    
    
    
    
    
    
    
    
    
    $
    70,398Net interest income/interest rate spread
    
    
    
    
    
    $
    7,262
    
    
    
    2.17
    %
    
    
    
    
    
    $
    7,624
    
    
    
    2.55
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.37
    %
    
    
    
    
    
    
    
    
    
    
    2.85
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    105.49
    %
    
    
    
    
    
    
    
    
    
    
    107.01
    %
 
 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 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



Six Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    797,473
    
    
    $
    27,871
    
    
    
    7.00
    %
    
    $
    760,559
    
    
    $
    30,073
    
    
    
    7.93
    %FHLB stock
    
    
    13,356
    
    
    
    375
    
    
    
    5.65
    %
    
    
    14,166
    
    
    
    367
    
    
    
    5.22
    %Securities and trading account assets (2)
    
    
    377,308
    
    
    
    9,654
    
    
    
    5.12
    %
    
    
    295,095
    
    
    
    8,043
    
    
    
    5.45
    %Cash and cash equivalents (3)
    
    
    18,991
    
    
    
    122
    
    
    
    1.29
    %
    
    
    12,222
    
    
    
    150
    
    
    
    2.47
    %Total interest earning assets
    
    
    1,207,128
    
    
    
    38,022
    
    
    
    6.31
    %
    
    
    1,082,042
    
    
    
    38,633
    
    
    
    7.16
    %Non-interest-earning assets
    
    
    38,601
    
    
    
    
    
    
    
    
    
    
    
    53,913Total assets
    
    $
    1,245,729
    
    
    
    
    
    
    
    
    
    
    $
    1,135,955Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    145,089
    
    
    $
    1,870
    
    
    
    2.59
    %
    
    $
    102,259
    
    
    $
    1,350
    
    
    
    2.66
    %Passbook accounts and certificates
of deposit
    
    
    686,328
    
    
    
    14,442
    
    
    
    4.23
    %
    
    
    584,238
    
    
    
    14,027
    
    
    
    4.84
    %Total deposits
    
    
    831,417
    
    
    
    16,312
    
    
    
    3.95
    %
    
    
    686,497
    
    
    
    15,377
    
    
    
    4.52
    %FHLB advances (4)
    
    
    239,935
    
    
    
    5,257
    
    
    
    4.41
    %
    
    
    238,674
    
    
    
    6,005
    
    
    
    5.07
    %Reverse repurchase agreements
    
    
    45,975
    
    
    
    699
    
    
    
    3.01
    %
    
    
    59,533
    
    
    
    915
    
    
    
    3.06
    %Other borrowings (5)
    
    
    25,774
    
    
    
    778
    
    
    
    5.97
    %
    
    
    25,774
    
    
    
    1,033
    
    
    
    7.97
    %Total interest-bearing liabilities
    
    
    1,143,101
    
    
    
    23,046
    
    
    
    4.04
    %
    
    
    1,010,478
    
    
    
    23,330
    
    
    
    4.63
    %Non-interest-bearing deposits
    
    
    44,706
    
    
    
    
    
    
    
    
    
    
    
    48,407Non-interest-bearing liabilities
    
    
    11,968
    
    
    
    
    
    
    
    
    
    
    
    7,647Total liabilities
    
    
    1,199,775
    
    
    
    
    
    
    
    
    
    
    
    1,066,532Stockholders equity
    
    
    45,954
    
    
    
    
    
    
    
    
    
    
    
    69,423Total liabilities and stockholders
equity
    
    $
    1,245,729
    
    
    
    
    
    
    
    
    
    
    $
    1,135,955Net interest-earning assets (liabilities)
    
    $
    64,027
    
    
    
    
    
    
    
    
    
    
    $
    71,564Net interest income/interest rate spread
    
    
    
    
    
    $
    14,976
    
    
    
    2.27
    %
    
    
    
    
    
    $
    15,303
    
    
    
    2.53
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.48
    %
    
    
    
    
    
    
    
    
    
    
    2.84
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    105.60
    %
    
    
    
    
    
    
    
    
    
    
    107.08
    %
 
 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 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. - 15 -




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in Thousands)
    
    
    (Dollars in Thousands)Balance at beginning of period
    
    $
    6,945
    
    
    
    6013
    
    
    $
    6,446
    
    
    $
    5,914Charge-offs:Real estate loans:Commercial
    
    
    (306
    )
    
    
    
    
    
    
    (306
    )
    
    
    Consumer and other loans
    
    
    (217
    )
    
    
    
    
    
    
    (218
    )
    
    
    (1
    )Total charge-offs
    
    
    (523
    )
    
    
    
    
    
    
    (524
    )
    
    
    (1
    )Recoveries
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    
    Net charge-offs
    
    
    (498
    )
    
    
    
    
    
    
    (499
    )
    
    
    (1
    )Provision for losses on loans
    
    
    400
    
    
    
    100
    
    
    
    900
    
    
    
    200Balance at end of period
    
    $
    6,847
    
    
    $
    6,113
    
    
    $
    6,847
    
    
    $
    6,113Allowance for loan losses as a percent of
total loans outstanding at the end of the
period
    
    
    0.85
    %
    
    
    0.80
    %
    
    
    0.84
    %
    
    
    0.80
    %Ratio of net charge-offs to average loans
outstanding during the period
    
    
    0.06
    %
    
    
    0.00
    %
    
    
    0.06
    %
    
    
    0.00
    %
  - 16 -




---



##### Table of Contents



- 17 -




---



##### Table of Contents



Banking Fee & Other Income(Dollars in thousands)June
    
    
    June
    
    
    
    
    
    
    June
    
    
    June2008
    
    
    2007
    
    
    %
    
    
    2008
    
    
    2007
    
    
    %Quarter
    
    
    Quarter
    
    
    Change
    
    
    YTD
    
    
    YTD
    
    
    ChangeBanking Fee TypeMortgage Brokerage Fee, Prepayment
Penalties
& Other Loan Fees
    
    $
    188
    
    
    $
    270
    
    
    
    (30.4
    %)
    
    $
    335
    
    
    $
    510
    
    
    
    (34.3
    %)Deposit, Other Retail Banking Fees & Other
Fee Income
    
    
    442
    
    
    
    413
    
    
    
    7.0
    %
    
    
    882
    
    
    
    809
    
    
    
    9.0
    %Harrington Wealth Management Fees
    
    
    256
    
    
    
    241
    
    
    
    6.2
    %
    
    
    509
    
    
    
    478
    
    
    
    6.5
    %Increase in Cash Surrender Value of Life
Insurance, net
    
    
    49
    
    
    
    206
    
    
    
    (76.2
    %)
    
    
    242
    
    
    
    407
    
    
    
    (40.5
    %)Total Banking Fee & Other Income
    
    $
    935
    
    
    $
    1,130
    
    
    
    (17.3
    %)
    
    $
    1,968
    
    
    $
    2,204
    
    
    
    (10.7
    %)
  Financial Condition
  Securities and Investment Activities
   - 18 -




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueJune 30, 2008Mortgage-backed securities  pass throughs
    
    $
    55,478
    
    
    $
    55,274Collateralized mortgage obligations
    
    
    92,918
    
    
    
    81,875Asset-backed securities (underlying
securities mortgages)
    
    
    180,150
    
    
    
    151,334Asset-backed securities
    
    
    1,742
    
    
    
    1,521$
    330,288
    
    
    $
    290,004
 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
  - 19 -




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueJune 30, 2008Agency
    
    $
    55,478
    
    
    $
    55,274AAA
    
    
    111,962
    
    
    
    102,753AA
    
    
    90,622
    
    
    
    77,473A
    
    
    28,382
    
    
    
    24,961BBB
    
    
    19,713
    
    
    
    15,407Below investment grade
    
    
    24,131
    
    
    
    14,136$
    330,288
    
    
    $
    290,004
 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
  - 20 -




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueJune 30, 2008Agency
    
    $
    55,478
    
    
    $
    55,274Prime
    
    
    84,062
    
    
    
    75,860Alt-A
    
    
    7,342
    
    
    
    6,102Subprime
    
    
    179,427
    
    
    
    149,549Other
    
    
    3,979
    
    
    
    3,219$
    330,288
    
    
    $
    290,004
 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
    - 21 -




---



##### Table of Contents



HWFG Net Loan Growth and Mix(Dollars in millions)June 30, 2008
    
    
    December 31, 2007
    
    
    June 30, 2007% of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % ofLoan Type
    
    Total
    
    
    Total
    
    
    Total
    
    
    % of Total
    
    
    Total
    
    
    TotalCommercial
Real Estate
    
    $
    269.6
    
    
    
    33.2
    %
    
    $
    266.3
    
    
    
    33.6
    %
    
    $
    249.7
    
    
    
    32.6
    %Multi-family Real Estate
    
    
    90.3
    
    
    
    11.1
    %
    
    
    82.7
    
    
    
    10.4
    %
    
    
    81.6
    
    
    
    10.6
    %Construction (1)
    
    
    139.6
    
    
    
    17.2
    %
    
    
    126.5
    
    
    
    16.0
    %
    
    
    126.1
    
    
    
    16.4
    %Single-family Real Estate
    
    
    119.0
    
    
    
    14.7
    %
    
    
    125.5
    
    
    
    15.9
    %
    
    
    114.4
    
    
    
    14.9
    %Commercial
and Industrial Loans
    
    
    118.2
    
    
    
    14.6
    %
    
    
    117.8
    
    
    
    14.9
    %
    
    
    119.3
    
    
    
    15.5
    %Unimproved Land
    
    
    45.5
    
    
    
    5.6
    %
    
    
    45.3
    
    
    
    5.7
    %
    
    
    49.4
    
    
    
    6.4
    %Consumer Loans
    
    
    26.0
    
    
    
    3.2
    %
    
    
    24.5
    
    
    
    3.1
    %
    
    
    24.5
    
    
    
    3.2
    %Other Loans (2)
    
    
    3.2
    
    
    
    0.4
    %
    
    
    2.8
    
    
    
    0.4
    %
    
    
    2.8
    
    
    
    0.4
    %Total Gross Loans
    
    
    811.4
    
    
    
    100.0
    %
    
    
    791.4
    
    
    
    100.0
    %
    
    
    767.8
    
    
    
    100.0
    %Allowance for loan loss
    
    
    (6.8
    )
    
    
    
    
    
    
    (6.4
    )
    
    
    
    
    
    
    (6.1
    )Deferred fees
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Discounts/Premiums
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.4
    )Net Loans Receivable
    
    $
    802.5
    
    
    
    
    
    
    $
    782.6
    
    
    
    
    
    
    $
    759.4
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At June 30,
2008, we had $46.9 million of construction loans secured by single-family residential
properties, $55.9 million secured by commercial properties, $36.7 million for land
development and $79 thousand secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.   Deposits
  - 22 -




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FHLB Advances
  Stockholders Equity
   Liquidity and Capital Resources
 Liquidity -
  - 23 -




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##### Table of Contents



Capital Resources.
 Asset and Liability Management
   - 24 -




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i.e.,
    Accounting for Derivative Instruments and Hedging
Activities,
 - 25 -




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Critical Accounting Policies
  Cautionary Statement Regarding Forward-Looking Statements.
    - 26 -




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##### Table of Contents



Item 3: Quantitative and Qualitative Disclosures about Market Risk
    Change In Interest Rates (In Basis Points) (1)-300
    
    
    -200
    
    
    -100
    
    
    Base
    
    
    +100
    
    
    +200
    
    
    +300Market value gain (loss) in assets
    
    $
    33,297
    
    
    $
    22,957
    
    
    $
    13,576
    
    
    
    
    
    
    
    ($17,571
    )
    
    
    ($36,191
    )
    
    
    ($54,691
    )Market value gain (loss) of liabilities
    
    
    (21,374
    )
    
    
    (13,823
    )
    
    
    (6,730
    )
    
    
    
    
    
    
    8,296
    
    
    
    17,771
    
    
    
    28,013Market value gain (loss) of net assets
before interest rate contracts
    
    
    11,923
    
    
    
    9,134
    
    
    
    6,846
    
    
    
    
    
    
    
    (9,275
    )
    
    
    (18,420
    )
    
    
    (26,678
    )Market value gain (loss) of interest
rate contracts
    
    
    (12,302
    )
    
    
    (7,976
    )
    
    
    (3,905
    )
    
    
    
    
    
    
    3,747
    
    
    
    7,345
    
    
    
    10,800Total change in MVPE (2)
    
    
    ($379
    )
    
    $
    1,158
    
    
    $
    2,941
    
    
    
    
    
    
    
    ($ 5,528
    )
    
    
    ($11,075
    )
    
    
    ($15,878
    )Change in MVPE as a percent of:MVPE (2)
    
    
    -0.57
    %
    
    
    1.76
    %
    
    
    4.46
    %
    
    
    
    
    
    
    -8.38
    %
    
    
    -16.80
    %
    
    
    -24.08
    %Total assets of the Bank (3)
    
    
    -0.18
    %
    
    
    -0.01
    %
    
    
    0.18
    %
    
    
    
    
    
    
    -0.38
    %
    
    
    -0.78
    %
    
    
    -1.12
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $65.9 million at June 30, 2008.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  - 27 -




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Item 4(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
 ,
  
 PART II - OTHER INFORMATION
 
 Item 1:
  
 Item 1A.
  - 28 -




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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
    
    
    
    2,084Total
    
    
    
    
    
    
    
    
    
    
    550
    
    
    $
    4,262
  
 Item 3:
  
 Item 4:
    NAME
    
    FOR
    
    WITHHELDDouglas T. Breeden
    
    
    4,122,974
    
    
    
    238,789Craig J. Cerny
    
    
    4,108,911
    
    
    
    252,852John J. McConnell
    
    
    4,113,774
    
    
    
    247,989
  FOR
    
    AGAINST
    
    ABSTAIN4,272,911
    
    
    81,652
    
    
    
    7,200
 - 29 -




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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 Officerand Chief Financial Officer furnished herewith.
 
 SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.August 6, 2008
    By:
    /s/ Craig J. CernyCraig J. CernyChairman of the Board
and Chief Executive Officer
(Principal Executive Officer)August 6, 2008
    By:
    /s/ William W. Phillips, jr.William W. Phillips, Jr.President, Chief Operating Officer
(Principal Executive Officer)August 6, 2008
    By:
    /s/ KERRIL STEELEKerril SteeleSr. Vice-President, Chief Financial Officer
(Principle Financial and Accounting Officer) - 30 -