##### Table of Contents



UNITED STATES
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, 2009
 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 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)
    
    
    3Condensed Consolidated Statements of Financial Condition as of
June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income (Loss)
for the Three and Six Months Ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss) for the Six Months Ended June 30, 2009
and Year Ended December 31, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2009 and 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4T.Controls and Procedures
    
    
    39Part II  Other InformationItem 1.Legal Proceedings
    
    
    39Item 1A.Risk Factors
    
    
    39Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3.Defaults upon Senior Securities
    
    
    39Item 4.Submission of Matters to a Vote of Security Holders
    
    
    39Item 5.Other Information
    
    
    40Item 6.Exhibits
    
    
    40Signatures
    
    
    40EX-31.1EX-31.2EX-31.3EX-32
  - 2 -




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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 31,2009
    
    2008Assets:Cash and cash equivalents
    
    $
    11,063
    
    
    $
    27,040Trading account assets
    
    
    803
    
    
    
    744Securities, available-for-sale
    
    
    244,788
    
    
    
    273,678Securities held to maturity (fair value of $36 at June 30, 2009 and $38
at December 31, 2008)
    
    
    34
    
    
    
    37Loans held for sale
    
    
    8,811
    
    
    
    Loans receivable, net of allowance for loan losses of $17,401
at June 30, 2009 and $11,449 at December 31, 2008
    
    
    722,876
    
    
    
    798,325Accrued interest receivable
    
    
    3,811
    
    
    
    3,897Real estate owned
    
    
    13,057
    
    
    
    7,449Real estate sold on contract
    
    
    864
    
    
    
    Premises, equipment and other long-term assets
    
    
    17,304
    
    
    
    17,732Due from broker
    
    
    47
    
    
    
    Prepaid expenses and other assets
    
    
    4,999
    
    
    
    3,254Investment in FHLB stock, at cost
    
    
    11,501
    
    
    
    11,501Income taxes receivable
    
    
    7,036
    
    
    
    1,468Cash surrender value of life insurance
    
    
    23,990
    
    
    
    23,712Deferred tax asset
    
    
    15,060
    
    
    
    20,748Goodwill
    
    
    5,496
    
    
    
    5,496Other intangible assets
    
    
    481
    
    
    
    554Total assets
    
    $
    1,092,021
    
    
    $
    1,195,635Liabilities:Deposits:Interest-bearing deposits
    
    $
    839,145
    
    
    $
    853,523Non-interest-bearing demand deposits
    
    
    44,514
    
    
    
    46,070Total Deposits
    
    
    883,659
    
    
    
    899,593FHLB advances
    
    
    127,597
    
    
    
    190,000Securities sold under repurchase agreements
    
    
    21,429
    
    
    
    19,499Subordinated debt
    
    
    25,774
    
    
    
    25,774Accrued interest payable and other liabilities
    
    
    4,824
    
    
    
    14,331Total liabilities
    
    
    1,063,283
    
    
    
    1,149,197Shareholders equityPreferred stock, $.01 par value; 8% non-cumulative, 5,000,000 shares authorized;
57,000 shares issued and outstanding, as of June 30, 2009
and 142,999 shares issued and outstanding December 31, 2008
Liquidation preference of $1.4 million at June 30, 2009 and $3.6 million at December 31, 2008
    
    
    1
    
    
    
    2Common stock, $.01 par value; 15,000,000 shares authorized;
7,364,089 shares issued and outstanding as of June 30, 2009
and 6,770,093 shares issued and outstanding December 31, 2008
    
    
    74
    
    
    
    72Additional paid-in capital  Common
    
    
    45,742
    
    
    
    45,437Additional paid-in capital  Preferred
    
    
    1,101
    
    
    
    4,649Stock subscriptions
    
    
    
    
    
    
    (3,857
    )Retained earnings
    
    
    6,610
    
    
    
    23,356Accumulated other comprehensive loss
    
    
    (24,790
    )
    
    
    (23,221
    )Total shareholders equity
    
    
    28,738
    
    
    
    46,438Total liabilities and shareholders equity
    
    $
    1,092,021
    
    
    $
    1,195,635
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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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Loans
    
    $
    11,794
    
    
    $
    13,671
    
    
    $
    23,995
    
    
    $
    27,871Securities
    
    
    2,076
    
    
    
    4,786
    
    
    
    4,346
    
    
    
    10,151Total interest income
    
    
    13,870
    
    
    
    18,457
    
    
    
    28,341
    
    
    
    38,022Interest expense:Deposits
    
    
    4,716
    
    
    
    7,829
    
    
    
    11,108
    
    
    
    16,312Interest on FHLB advances, repos & other debt
    
    
    2,228
    
    
    
    3,366
    
    
    
    4,328
    
    
    
    6,734Total interest expense
    
    
    6,944
    
    
    
    11,195
    
    
    
    15,436
    
    
    
    23,046Net interest income
    
    
    6,926
    
    
    
    7,262
    
    
    
    12,905
    
    
    
    14,976Provision for loan losses
    
    
    11,100
    
    
    
    400
    
    
    
    12,850
    
    
    
    900Net interest income after provision for loan losses
    
    
    (4,174
    )
    
    
    6,862
    
    
    
    55
    
    
    
    14,076Non-interest income:Other-than-temporary lossTotal impairment losses
    
    
    (7,382
    )
    
    
    (2,412
    )
    
    
    (11,268
    )
    
    
    (2,482
    )Loss recognized in other comprehensive income
    
    
    3,241
    
    
    
    
    
    
    
    4,990
    
    
    
    Net impairment losses recognized in earnings
    
    
    (4,141
    )
    
    
    (2,412
    )
    
    
    (6,278
    )
    
    
    (2,482
    )Gain (loss) on sale of available for sale securities
    
    
    
    
    
    
    (295
    )
    
    
    6
    
    
    
    1,107Gain (loss) from trading assets
    
    
    17
    
    
    
    6
    
    
    
    19
    
    
    
    (8,663
    )Gain on termination of cash flow hedge
    
    
    
    
    
    
    2,338
    
    
    
    
    
    
    
    2,338Loss on write-down of real estate owned
    
    
    (244
    )
    
    
    (2,603
    )
    
    
    (243
    )
    
    
    (2,603
    )Gain on sale of other assets
    
    
    16
    
    
    
    1,048
    
    
    
    16
    
    
    
    1,049Increase in cash surrender value of life insurance
    
    
    200
    
    
    
    49
    
    
    
    284
    
    
    
    242Banking fee and other income
    
    
    979
    
    
    
    886
    
    
    
    1,803
    
    
    
    1,726Total non-interest income
    
    
    (3,173
    )
    
    
    (983
    )
    
    
    (4,393
    )
    
    
    (7,286
    )Non-interest expense:Salaries and employee benefits
    
    
    3,345
    
    
    
    3,261
    
    
    
    6,687
    
    
    
    6,797Premises and equipment
    
    
    977
    
    
    
    1,023
    
    
    
    1,983
    
    
    
    2,016Insurance premiums
    
    
    1,062
    
    
    
    227
    
    
    
    1,335
    
    
    
    439Marketing
    
    
    68
    
    
    
    143
    
    
    
    144
    
    
    
    239Computer services
    
    
    260
    
    
    
    290
    
    
    
    511
    
    
    
    546Professional fees
    
    
    204
    
    
    
    170
    
    
    
    408
    
    
    
    305Office expenses and supplies
    
    
    170
    
    
    
    218
    
    
    
    346
    
    
    
    427Other
    
    
    1,096
    
    
    
    752
    
    
    
    2,111
    
    
    
    1,425Total non-interest expense
    
    
    7,182
    
    
    
    6,084
    
    
    
    13,525
    
    
    
    12,194Loss before income taxes
    
    
    (14,529
    )
    
    
    (205
    )
    
    
    (17,863
    )
    
    
    (5,404
    )Provision for income tax (benefit)
    
    
    1,051
    
    
    
    (74
    )
    
    
    (200
    )
    
    
    (2,027
    )Net (loss)
    
    $
    (15,580
    )
    
    $
    (131
    )
    
    
    (17,663
    )
    
    
    (3,377
    )Dividend on preferred stock
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    Income (loss) available to common shareholders
    
    $
    (15,580
    )
    
    $
    (131
    )
    
    $
    (17,663
    )
    
    $
    (3,377
    )Basic (loss) per share
    
    $
    (2.16
    )
    
    $
    (0.02
    )
    
    $
    (2.52
    )
    
    $
    (0.58
    )Diluted (loss) per share
    
    $
    (2.16
    )
    
    $
    (0.02
    )
    
    $
    (2.52
    )
    
    $
    (0.58
    )Basic weighted-average shares outstanding
    
    
    7,212,882
    
    
    
    6,131,243
    
    
    
    6,995,473
    
    
    
    5,860,739Diluted weighted-average shares outstanding
    
    
    7,212,882
    
    
    
    6,131,243
    
    
    
    6,995,473
    
    
    
    5,860,739Other comprehensive (loss)
    
    
    (14,425
    )
    
    
    (406
    )
    
    
    (19,232
    )
    
    
    (16,675
    )
  - 4 -




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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
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Subscriptions
    
    
    Earnings
    
    
    Loss
    
    
    Loss
    
    
    EquityBALANCE, DECEMBER 31, 2007
    
    
    
    
    
    
    
    
    
    
    5,554,003
    
    
    
    56
    
    
    
    34,424
    
    
    
    
    
    
    
    35,368
    
    
    
    
    
    
    
    (14,806
    )
    
    
    55,042Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,810
    )
    
    $
    (10,810
    )
    
    
    
    
    
    
    (10,810
    )Other comprehensive loss, net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,350
    )
    
    
    (5,350
    )
    
    
    (5,350
    )Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,065
    )
    
    
    (3,065
    )
    
    
    (3,065
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (19,225
    )Stock options exercised including tax benefit of $25
    
    
    
    
    
    
    
    
    
    
    27,240
    
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    233Common shares issued in
private offering at $7.75
    
    
    
    
    
    
    
    
    
    
    550,000
    
    
    
    5
    
    
    
    4,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,262Common shares issued in
private offering at $6.25
    
    
    
    
    
    
    
    
    
    
    638,850
    
    
    
    11
    
    
    
    6,153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,164Preferred shares issued in
private offering at $25.00
    
    
    142,999
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    4,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,651Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370Stock subscriptions unissued:Preferred stock 54,001
shares at $25.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,350
    )Common stock 401,150
shares at $6.25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,507
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,507
    )Dividends on preferred
stock at 8% per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    (61
    )Dividends on common
stock at $.195 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,141
    )
    
    
    
    
    
    
    
    
    
    
    (1,141
    )BALANCE, DECEMBER 31, 2008
    
    
    142,999
    
    
    $
    2
    
    
    
    6,770,093
    
    
    $
    72
    
    
    $
    50,086
    
    
    $
    (3,857
    )
    
    $
    23,356
    
    
    
    
    
    
    $
    (23,221
    )
    
    $
    46,438Comprehensive lossCumulative effect of change in accounting
principle, adoption of FSP FAS 115-2 and
124-2 (net of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    917
    
    
    
    
    
    
    
    
    
    
    
    917Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,663
    )
    
    $
    (17,663
    )
    
    
    
    
    
    
    (17,663
    )Other comprehensive loss, net of taxChange in unrealized gains (losses) on securities
available for sale, net of reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,103
    )
    
    
    (7,103
    )
    
    
    (7,103
    )Change in unrealized gains (losses) on securities
available for sale for which a portion of an other-
than-temporary impairment has been recognized in
earnings, net of reclassifications and taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,117
    
    
    
    3,117
    
    
    
    3,117Effective portion of change in fair
value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,417
    
    
    
    2,417
    
    
    
    2,417Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (19,232
    )Common shares issued in
private offering at $2.00 per share
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    2
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165Reverse stock subscriptions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    3,857
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,857Conversion of preferred stock to
common stock
    
    
    (85,999
    )
    
    
    (1
    )
    
    
    343,996
    
    
    
    
    
    
    
    (3,906
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,907
    )BALANCE, JUNE 30,2009
    
    
    57,000
    
    
    $
    1
    
    
    
    7,364,089
    
    
    $
    74
    
    
    $
    46,843
    
    
    $
    (0
    )
    
    $
    6,610
    
    
    
    
    
    
    $
    (24,790
    )
    
    $
    28,738
  - 5 -




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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 30,2009
    
    
    2008Cash flows from operating activities:Net (loss) income
    
    $
    (17,663
    )
    
    $
    (3,377
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Accretion of deferred loan fees and costs
    
    
    (1,197
    )
    
    
    (295
    )Depreciation and amortization
    
    
    1,921
    
    
    
    735Amortization and accretion of premiums and discounts on loans
receivable and securities
    
    
    (280
    )
    
    
    (467
    )Deferred income taxes
    
    
    284
    
    
    
    (7,990
    )Provision for loan losses
    
    
    12,850
    
    
    
    900Activity in trading account assets
    
    
    (39
    )
    
    
    (1,311
    )Loss (gain) on sale of trading securities
    
    
    (19
    )
    
    
    2,651Gain on sale of available-for-sale securities
    
    
    (6
    )
    
    
    (1,107
    )Gain on termination of cash flow swaps
    
    
    
    
    
    
    (2,338
    )Loss on other-than-temporary impairment
    
    
    6,278
    
    
    
    2,482Gain on real estate owned
    
    
    243
    
    
    
    2,603Gain on sale of loans
    
    
    16
    
    
    
    FHLB stock dividend
    
    
    
    
    
    
    (346
    )Earnings on bank owned life insurance
    
    
    (284
    )
    
    
    (242
    )Decrease in accrued interest receivable
    
    
    86
    
    
    
    1,337Increase in income tax receivable, net of payable
    
    
    (5,568
    )
    
    
    (3,576
    )Decrease in prepaid expenses and other assets
    
    
    5,448
    
    
    
    9,634Stock compensation expense
    
    
    165
    
    
    
    177Decrease in accounts payable, accrued expenses,
and other liabilities
    
    
    (8,227
    )
    
    
    (706
    )Net cash used in operating activities
    
    
    (5,992
    )
    
    
    (1,236
    )Cash flows from investing activities:Net (increase) decrease in loans receivable
    
    
    30,741
    
    
    
    (43,432
    )Proceeds from sale of loans
    
    
    14,540
    
    
    
    16,133Proceeds from sales of securities available for sale
    
    
    829
    
    
    
    171,925Purchases of securities available for sale
    
    
    
    
    
    
    (162,501
    )Principal paydowns on securities available for sale
    
    
    17,130
    
    
    
    29,671Principal paydowns on securities held to maturity
    
    
    2
    
    
    
    5Proceeds from sale of real estate acquired through foreclosure
    
    
    2,983
    
    
    
    53Purchase of premises and equipment
    
    
    (253
    )
    
    
    (1,888
    )Proceeds from sale of fixed assets
    
    
    
    
    
    
    1,100Redemption (purchase) of FHLB Stock
    
    
    
    
    
    
    (1,731
    )Net cash provided by investing activities
    
    
    65,972
    
    
    
    9,335Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (15,935
    )
    
    
    63,380Increase (decrease) in securities sold under agreements to repurchase
    
    
    1,930
    
    
    
    (15,630
    )Decrease in FHLB advances
    
    
    (62,403
    )
    
    
    (55,000
    )Proceeds from exercise of stock options, including tax benefits
    
    
    
    
    
    
    233Proceeds from shares issued in private offering
    
    
    451
    
    
    
    4,262Dividends paid on common stock
    
    
    
    
    
    
    (1,141
    )Net cash used in financing activities
    
    
    (75,957
    )
    
    
    (3,896
    )Net increase (decrease) in cash and cash equivalents
    
    
    (15,977
    )
    
    
    4,203Cash and cash equivalents at beginning of period
    
    
    27,040
    
    
    
    14,433Cash and cash equivalents at end of period
    
    $
    11,063
    
    
    $
    18,636
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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
  Accounting by Creditors for Impairment of a Loan  an amendment of FASB
Statements No. 5 and 15
 - 7 -




---



##### Table of Contents



Real Estate Owned
 Adoption of new accounting standards
    - 8 -




---



##### Table of Contents



Recognition and
Presentation of Other-Than-Temporary Impairments,
 Determining Fair Value When the Volume and Level of
Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
 Interim Disclosures about Fair Value of
Financial Instruments Disclosures about Fair Value of
Financial Instruments
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133. Disclosures about Derivative Instruments and Hedging Activities, an amendment of
FASB Statement No. 133)
  - 9 -




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##### Table of Contents



2. FAIR VALUE
  Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement date.
 Level 2: Significant other observable inputs other than Level 1 prices such as, quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data.
 Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions
about the assumptions that market participants would use in pricing an asset or liability.
 Fair Value Measurements
 Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly. Fair Value Measurements
  - 10 -




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##### Table of Contents



Fair Value Measurements at June 30, 2009 UsingQuoted Prices in
    
    SignificantActive Markets
    
    Other
    
    Significantfor Identical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Trading securitiesGNMA securities
    
    $
    162
    
    
    $
    
    
    
    $
    162
    
    
    $
    Mutual funds
    
    $
    641
    
    
    $
    641
    
    
    $
    
    
    
    $
    Available for sale securities:Residential mortgage backed
securities
    
    $
    244,788
    
    
    $
    
    
    
    $
    81,289
    
    
    $
    163,499Interest rate swaps
    
    $
    2,145
    
    
    $
    
    
    
    $
    2,145
    
    
    $
    
 Fair Value Measurements at December 31, 2008 UsingQuoted Prices in
    
    SignificantActive Markets
    
    Other
    
    Significantfor Identical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Trading securities
    
    $
    744
    
    
    $
    575
    
    
    $
    169
    
    
    $
    Available for sale securities
    
    $
    273,678
    
    
    $
    
    
    
    $
    121,609
    
    
    $
    152,069Liabilities:Interest rate swaps
    
    $
    10,442
    
    
    $
    
    
    
    $
    10,442
    
    
    $
    
  - 11 -




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##### Table of Contents



Fair ValueMeasurementsUsing SignificantUnobservableInputsResidentialmortgage-backedBeginning balance at January 1, 2009
    
    $
    152,069Total gains or losses (realized / unrealized)Recognized in earnings:Other-than-temporary impairment
    
    
    (6,278
    )Unrealized in other comprehensive income:Reclassification adjustment for losses
recognized in earnings
    
    
    6,278Transfers in and / or out of Level 3
    
    
    29,049Level 3 fair value adjustment
    
    
    (17,619
    )Ending balance, June 30, 2009
    
    $
    163,499
 Fair ValueMeasurementsUsing SignificantUnobservableInputsAvailable for salesecuritiesBeginning balance at January 1, 2008
    
    $
    Total gains or losses (realized / unrealized)Recognized in earnings:Other-than-temporary impairment
    
    
    (11,824
    )Unrealized in other comprehensive income:Reclassification adjustment for losses
recognized in earnings
    
    
    11,824Transfers into Level 3
    
    
    111,575Level 3 fair value adjustment
    
    
    40,494Ending balance, December 31, 2008
    
    $
    152,069
  - 12 -




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##### Table of Contents



Fair Value Measurements at June 30, 2009 UsingQuoted Prices inActive Markets
    
    Significant
    
    Significantfor Identical
    
    Other
    
    UnobservableAssets
    
    Observable
    
    InputsTotal
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    106,096
    
    
    
    
    
    
    $
    106,096
    
    
    
    Real estate owned
    
    $
    13,057
    
    
    
    
    
    
    
    
    
    
    $
    13,057
  Fair Value Measurements at December 31, 2008 UsingQuoted Prices inActive Markets
    
    Significant
    
    Significantfor Identical
    
    Other
    
    UnobservableAssets
    
    Observable
    
    InputsTotal
    
    (Level 1)
    
    Inputs (Level 2)
    
    (Level 3)Assets:Impaired loans
    
    $
    31,508
    
    
    
    
    
    
    $
    31,508
    
    
    
    
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueJune 30, 2009Mortgage-backed securities  pass throughs
    
    $
    45,365
    
    
    $
    978
    
    
    $
    (58
    )
    
    
    46,285Collateralized mortgage obligations
    
    
    74,919
    
    
    
    3
    
    
    
    (7,737
    )
    
    
    67,185Asset-backed securities (underlying securities mortgages)
    
    
    156,695
    
    
    
    348
    
    
    
    (26,601
    )
    
    
    130,442Asset-backed securities
    
    
    1,576
    
    
    
    
    
    
    
    (700
    )
    
    
    876$
    278,555
    
    
    $
    1,329
    
    
    $
    (35,096
    )
    
    $
    244,788
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2008Mortgage-backed securities  pass throughs
    
    $
    50,284
    
    
    $
    315
    
    
    $
    (317
    )
    
    $
    50,282Collateralized mortgage obligations
    
    
    83,376
    
    
    
    
    
    
    
    (6,140
    )
    
    
    77,236Asset-backed securities (underlying securities mortgages)
    
    
    165,721
    
    
    
    748
    
    
    
    (21,010
    )
    
    
    145,459Asset-backed securities
    
    
    1,655
    
    
    
    
    
    
    
    (954
    )
    
    
    701$
    301,036
    
    
    $
    1,063
    
    
    $
    (28,421
    )
    
    $
    273,678
 - 13 -




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##### Table of Contents



Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesJune 30, 2009Mortgage-backed securities  pass throughs
    
    $
    43,336
    
    
    $
    (32
    )
    
    $
    1,971
    
    
    $
    (26
    )
    
    $
    45,307
    
    
    $
    (58
    )Collateralized mortgage obligations
    
    
    5,751
    
    
    
    (1,096
    )
    
    
    61,431
    
    
    
    (6,641
    )
    
    
    67,182
    
    
    
    (7,737
    )Asset-backed securities (underlying securities mortgages)
    
    
    2,627
    
    
    
    (345
    )
    
    
    127,467
    
    
    
    (26,256
    )
    
    
    130,094
    
    
    
    (26,601
    )Asset-backed securities
    
    
    66
    
    
    
    (1
    )
    
    
    810
    
    
    
    (699
    )
    
    
    876
    
    
    
    (700
    )$
    51,780
    
    
    $
    (1,474
    )
    
    $
    191,679
    
    
    $
    (33,622
    )
    
    $
    243,459
    
    
    $
    (35,096
    )
 Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesDecember 31, 2008Mortgage-backed securities  pass throughs
    
    $
    38,969
    
    
    $
    (109
    )
    
    $
    10,998
    
    
    $
    (208
    )
    
    $
    49,967
    
    
    $
    (317
    )Collateralized mortgage obligations
    
    
    55,514
    
    
    
    (4,215
    )
    
    
    21,722
    
    
    
    (1,925
    )
    
    
    77,236
    
    
    
    (6,140
    )Asset-backed securities (underlying securities mortgages)
    
    
    17,144
    
    
    
    (1,504
    )
    
    
    127,567
    
    
    
    (19,506
    )
    
    
    144,711
    
    
    
    (21,010
    )Asset-backed securities
    
    
    12
    
    
    
    (72
    )
    
    
    689
    
    
    
    (882
    )
    
    
    701
    
    
    
    (954
    )$
    111,639
    
    
    $
    (5,900
    )
    
    $
    160,976
    
    
    $
    (22,521
    )
    
    $
    272,615
    
    
    $
    (28,421
    )
     - 14 -




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##### Table of Contents



06/30/09
    
    
    12/31/2008Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAmortized
    
    
    
    
    
    
    Average
    
    
    Amortized
    
    
    
    
    
    
    Average(Dollars in thousands)
    
    Cost
    
    
    Fair Value
    
    
    Yield
    
    
    Cost
    
    
    Fair Value
    
    
    YieldMortgage-backed securities  pass throughsDue from one to five years
    
    $
    16
    
    
    $
    15
    
    
    
    -17.51
    %
    
    $
    149
    
    
    $
    146
    
    
    
    3.17
    %Due from five to ten years
    
    
    2,489
    
    
    
    2,588
    
    
    
    5.68
    %
    
    
    2,853
    
    
    
    2,927
    
    
    
    5.89
    %Due over ten years
    
    
    42,860
    
    
    
    43,682
    
    
    
    4.45
    %
    
    
    47,282
    
    
    
    47,209
    
    
    
    4.74
    %Total mortgage backed securities  pass throughs (1)
    
    
    45,365
    
    
    
    46,285
    
    
    
    4.51
    %
    
    
    50,284
    
    
    
    50,282
    
    
    
    4.80
    %Collateralized mortgage obligationsDue over ten years
    
    
    74,919
    
    
    
    67,185
    
    
    
    3.91
    %
    
    
    83,376
    
    
    
    77,236
    
    
    
    3.94
    %Total collateralized mortgage obligations
    
    
    74,919
    
    
    
    67,185
    
    
    
    3.91
    %
    
    
    83,376
    
    
    
    77,236
    
    
    
    3.94
    %Asset backed securities (underlying securities mortgages)Due from one to five years
    
    
    1,125
    
    
    
    1,009
    
    
    
    0.86
    %
    
    
    1,125
    
    
    
    1,001
    
    
    
    1.03
    %Due over ten years
    
    
    155,570
    
    
    
    129,433
    
    
    
    2.07
    %
    
    
    164,596
    
    
    
    144,458
    
    
    
    2.33
    %Total asset backed securities
    
    
    156,695
    
    
    
    130,442
    
    
    
    2.06
    %
    
    
    165,721
    
    
    
    145,459
    
    
    
    2.32
    %Asset backed securitiesDue from one to five years
    
    
    276
    
    
    
    265
    
    
    
    3.49
    %
    
    
    355
    
    
    
    47
    
    
    
    5.35
    %Due over ten years
    
    
    1,300
    
    
    
    611
    
    
    
    1.11
    %
    
    
    1,300
    
    
    
    654
    
    
    
    2.52
    %Total asset backed securities
    
    
    1,576
    
    
    
    876
    
    
    
    1.53
    %
    
    
    1,655
    
    
    
    701
    
    
    
    3.13
    %Total
    
    $
    278,555
    
    
    $
    244,788
    
    
    
    2.93
    %
    
    $
    301,036
    
    
    $
    273,678
    
    
    
    3.16
    %
 
 (1)
    
    At June 30, 2009, AFS + HTM portfolio consisted of $9.5 million of Fannie Mae
participation certificates, $839 thousand of Freddie Mac participation certificates and $35.9
million of Ginnie Mae participation certificates. Disclosures about Fair Value of Financial Instruments
  - 15 -




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##### Table of Contents



June 30, 2009
    
    December 31, 2008Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    11,063
    
    
    $
    11,063
    
    
    $
    27,040
    
    
    $
    27,040Securities, held to maturity
    
    
    34
    
    
    
    36
    
    
    
    37
    
    
    
    38Loans held for sale
    
    
    8,811
    
    
    
    8,811
    
    
    
    
    
    
    
    Loans receivable, net, including
impaired loans
    
    
    722,876
    
    
    
    746,453
    
    
    
    798,325
    
    
    
    834,633FHLB stock
    
    
    11,501
    
    
    
    n/a
    
    
    
    11,501
    
    
    
    n/aAccrued interest receivable
    
    
    3,811
    
    
    
    3,811
    
    
    
    3,897
    
    
    
    3,897Liabilities:Demand deposits
    
    
    220,368
    
    
    
    220,368
    
    
    
    223,411
    
    
    
    223,411Certificates of deposit
    
    
    663,291
    
    
    
    666,735
    
    
    
    676,183
    
    
    
    680,331FHLB advances
    
    
    127,597
    
    
    
    128,669
    
    
    
    190,000
    
    
    
    191,538Securities sold under
repurchase agreements
    
    
    21,429
    
    
    
    22,640
    
    
    
    19,499
    
    
    
    19,997Subordinated debt
    
    
    25,774
    
    
    
    8,505
    
    
    
    25,774
    
    
    
    8,505Accrued interest payable
    
    
    4,824
    
    
    
    4,824
    
    
    
    1,158
    
    
    
    1,158
 Loans Accounting by
Creditors for Impairment of a Loan
 3. REAL ESTATE OWNED
  June 30,
    
    
    December 31,2009
    
    
    2008Beginning balance real estate owned
    
    $
    7,449
    
    
    $
    Transfer of loans to real estate owned
    
    
    9,635
    
    
    
    12,756Sale proceeds
    
    
    (2,985
    )
    
    
    Net gain from sale of OREO
    
    
    245
    
    
    
    Loan to facilitate sale of REO
    
    
    
    
    
    
    (750
    )REO sold on contract
    
    
    (803
    )
    
    
    Other reductions
    
    
    
    
    
    
    (149
    )Provision for real estate owned
    
    
    (484
    )
    
    
    (4,408
    )Ending balance real estate owned
    
    $
    13,057
    
    
    $
    7,449
 - 16 -




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##### Table of Contents



June 30,
    
    
    December 31,2009
    
    
    2008Beginning valuation on real estate owned
    
    $
    4,408
    
    
    $
    Provision charged to operations
    
    
    
    
    
    
    4,408Amounts related to properties disposed
    
    
    (101
    )
    
    
    Amounts related to properties (not disposed of)
    
    
    484
    
    
    
    Ending valuation on real estate owned
    
    $
    4,791
    
    
    $
    4,408
 4. EARNINGS (LOSS) PER SHARE
  Three months ended June 30, 2009
    
    
    Six months ended June 30, 2009Income/(Loss)
    
    
    Shares
    
    
    Per-Share
    
    
    Income/(Loss)
    
    
    Shares
    
    
    Per-Share(net income/(loss) amounts in thousands)
    
    (Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet Income (Loss)
    
    $
    (15,580
    )
    
    
    
    
    
    
    
    
    
    $
    (17,663
    )Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic EPS
    
    
    (15,580
    )
    
    
    7,212,882
    
    
    $
    (2.16
    )
    
    
    (17,663
    )
    
    
    6,995,473
    
    
    $
    (2.52
    )Effect of dilutive
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPS
    
    $
    (15,580
    )
    
    
    7,212,882
    
    
    $
    (2.16
    )
    
    $
    (17,663
    )
    
    
    6,995,473
    
    
    $
    (2.52
    )
 Three months ended June 30, 2008
    
    
    Six months ended June 30, 2008Income/(Loss)
    
    
    Shares
    
    
    Per-Share
    
    
    Income/(Loss)
    
    
    Shares
    
    
    Per-Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountNet Income (Loss)
    
    $
    (131
    )
    
    
    
    
    
    
    
    
    
    $
    (3,377
    )Preferred Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Basic 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
    )
  5. OTHER-THAN-TEMPORARY IMPAIRMENT
 .
 - 17 -




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##### Table of Contents



Recognition and Presentation of
Other-Than-Temporary Impairments,
  Other-than-temporary Lossas Reported inEarningsBeginning balance of credit losses
at January 1, 2009
    
    $
    13,977Current period credit losses
    
    
    6,278Current period illiquid market losses
    
    
    Previously recognized other-than-temporary loss related to liquidity losses
    
    
    (1,467
    )Ending balance of credit and liquidity losses at June 30, 2009
    
    $
    18,788
 6. LOANS HELD FOR SALE
  Accounting for
Certain Mortgage Banking Activities
 7. DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133 (SFAS 161)
 - 18 -




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##### Table of Contents



Accounting for Derivative Instruments and Hedging Activities,
     Amount of Gain or (Loss)Amount of Gain or (Loss)
    
    
    Location of Gain or (Loss)
    
    
    Recognized In Income onAmount of Gain or (Loss)
    
    
    Location of Gain or (Loss)
    
    
    Reclassified from
    
    
    Recognized In Income on
    
    
    Derivative (IneffectiveRecognized in OCI on
    
    
    Reclassified from
    
    
    Accumulated
    
    
    Derivative (Ineffective
    
    
    Portion and AmountDerivatives In Statement
    
    Derivative
    
    
    Accumulated OCI Into
    
    
    OCI Into Income
    
    
    Portion and Amount
    
    
    Excluded from133 Cash flow Hedging
    
    (Effective Portion)
    
    
    Income
    
    
    (Effective Portion)
    
    
    Excluded From Effectiveness
    
    
    Effectiveness Testing)Relationships
    
    6/30/2009
    
    
    6/30/2008
    
    
    (Effective Portion)
    
    
    6/30/2009
    
    
    6/30/2008
    
    
    Testing)
    
    
    6/30/2009
    
    
    6/30/2008Interest Rate Products
    
    $
    2,655
    
    
    $
    3,362
    
    
    Interest Income
    
    $
    (1,226
    )
    
    $
    
    
    
    Other non-interest expense
    
    $
    24
    
    
    $
    2$
    2,655
    
    
    $
    3,362
    
    
    
    
    
    
    $
    (1,226
    )
    
    $
    
    
    
    
    
    
    
    $
    24
    
    
    $
    2
 - 19 -




---



##### Table of Contents



Amount of Gain or (Loss)Amount of Gain or (Loss)
    
    
    Location of Gain or (Loss)
    
    
    Recognized In Income onAmount of Gain or (Loss)
    
    
    Location of Gain or (Loss)
    
    
    Reclassified from
    
    
    Recognized In Income on
    
    
    Derivative (IneffectiveRecognized in OCI on
    
    
    Reclassified from
    
    
    Accumulated
    
    
    Derivative (Ineffective
    
    
    Portion and AmountDerivatives In Statement
    
    
    
    Derivative
    
    
    
    Accumulated OCI Into
    
    
    OCI Into Income
    
    
    Portion and Amount
    
    
    Excluded from133 Cash flow Hedging
    
    (Effective Portion)
    
    
    Income
    
    
    (Effective Portion)
    
    
    Excluded From Effectiveness
    
    
    Effectiveness Testing)Relationships
    
    6/30/2009
    
    
    6/30/2008
    
    
    (Effective Portion)
    
    
    6/30/2009
    
    
    6/30/2008
    
    
    Testing)
    
    
    6/30/2009
    
    
    6/30/2008Interest Rate Products
    
    $
    2,417
    
    
    $
    (2,926
    )
    
    Interest Income
    
    $
    (1,170
    )
    
    $
    
    
    
    Other non-interest expense
    
    $
    
    
    
    $
    (3
    )$
    2,417
    
    
    $
    (2,926
    )
    
    
    
    
    
    $
    (1,170
    )
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    (3
    )
  Asset Derivatives
    
    
    
    
    
    
    Liability DerivativesAs of June 30, 2009
    
    
    As of December 31, 2008
    
    
    As of June 30, 2009
    
    
    As of December 31, 2008Balance sheet
    
    
    
    
    
    
    Balance sheet
    
    
    
    
    
    
    Balance sheet
    
    
    
    
    
    
    Balance sheetlocation
    
    
    Fair Value
    
    
    location
    
    
    Fair Value
    
    
    location
    
    
    Fair Value
    
    
    location
    
    
    Fair ValueDerivatives designated as hedging
instruments under SFAS 133Interest Rate Products
    
    Other Assets
    
    $
    2,145
    
    
    Other Assets
    
    
    
    
    
    Other Liabilities
    
    
    
    
    
    Other Liabilities
    
    $
    (10,442
    )Total derivatives designated as
hedging
instruments under SFAS 133
    
    
    
    
    
    $
    2,145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (10,442
    )
 8. AGREEMENT WITH THE OFFICE OF THRIFT SUPERVISION (OTS)
   9. SUBSEQUENT EVENT
  - 20 -




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##### Table of Contents



10. Income Taxes
    
 Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
 Corporate Profile
  Mission and Philosophy
  Multiple Market Strategy
  1.
    
    Diversification of the loan portfolio and economic and credit risk.
 - 21 -




---



##### Table of Contents



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
  Investment Management
  Control Banking Risks
  Performance Measurement
  - 22 -




---



##### Table of Contents



Long-term Profitability Drivers
  1.
    
    Growing our 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,
construction-to-permanent loan lending and selected consumer lending activities such as
home equity line of credit loans, commensurate with our credit policy and the economic
environment.
 3.
    
    Diversifying and growing our banking fee income through existing and new fee income
sources such as our overdraft protection program and other deposit fees, loan fee income
from mortgage banking, prepayment penalty fees and other loan fees, Harrington Wealth
Management trust and investment fees, and other retail banking fees.
 4.
    
    Achieving a high level of performance on our investment portfolio by earning a pre-tax
total return consisting of interest income plus net gains and losses on securities and
related total return swaps over one month LIBOR of approximately 1.00% per annum. With our
skills in investment and risk management, we have utilized 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. From 2001 to 2004, the investment portfolios
performance exceeded our goals and contributed to our record profit performance due to
favorable selection of securities and spread tightening on these securities. From 2005 to
2006 the investment portfolio underperformed our goal but still earned a total return in
excess of one-month LIBOR. In 2007, 2008 and the first half of 2009, the investment
portfolio significantly underperformed our goal as a result of the severe credit market
dislocations. Given the capital requirements in the supervisory agreement with the OTS of
12% risk based and 7% tangible capital ratios, we plan to allow the investment portfolio to
decline through principal reduction of approximately $40.0 to $50.0 million per year to
build capital ratios. We expect to manage the investment portfolio on a more traditional
basis for liquidity and management of interest rate risk after our capital ratio goals are
met.
  Strategic Response to the Current Operating Environment, Housing Downturn, and Economic Recession
   1.
    
    The economy will remain in a major recession throughout most of 2009 with some
improvement in the latter quarters. Housing prices will continue to be under pressure
until mid to late 2009 and then start to stabilize with a very slow climb.
 2.
    
    A major fiscal stimulus bill and foreclosure reduction program has been enacted. We
expect additional stimulus programs will be implemented in 2009, especially if the housing
market or employment rates do not improve.
 - 23 -




---



##### Table of Contents



3.
    
    The Federal Reserve will continue to aggressively use non-monetary policy tools to keep
interest and mortgage rates low and improve credit spreads by aggressively buying fixed
income and mortgage assets in order to stimulate buying in the housing market.
 4.
    
    The Treasury will continue to allocate more TARP funds to banks from its troubled asset
repurchase program.
 5.
    
    Combined actions will pull the US into a more normal growth environment by mid 2010.
Credit spreads and credit availability will improve moderately over the 2009 to 2010
period.
 6.
    
    Our Kansas and central California markets will be more insulated from the housing
recession and job losses but still highly affected, with Arizona having higher real estate
price depreciation on a median basis. Arizona, however, will have a faster recovery due to
its desirable weather pattern and the strong immigration due to demographic trends and job
availability (higher retirement and more migration from higher cost and colder weather
states).
 HWFGs Response
   1.
    
    Improve Capital Ratios:
   - 24 -




---



##### Table of Contents



2.
    
    Manage Aggressively Problem Assets to Positive Resolution
  3.
    
    Manage and Improve Liquidity of the Bank
  a.
    
    Leverage our intensive sales, marketing and service program that emphasizes the
building of core deposits at a lower cost. We have experienced favorable progress in
this with growth in deposits, after losing about 3% of our deposits in the September to
December 2008 quarters as the crisis of confidence in the banking industry became
elevated. The higher deposit insurance levels enacted in 2008 and the reduced amount
of high rate paying institutions in our markets starved for liquidity have improved the
situation.b.
    
    Efficiently pledge all mortgage and other eligible collateral to the FHLB and
FRB to increase borrowing capacity to maximum levels.c.
    
    Eliminate brokered deposits over time as the core franchise continues to build.d.
    
    Seek to maintain excess borrowing capacity between $75 and $100 million.
 4.
    
    Improve Net Interest Margins and Fee Income
 a.
    
    Re-price loan renewals to the current higher spread environment while adding
floors or maintaining floor rates on floating rate loans. Continue to hedge fixed rate
risk.b.
    
    Reduce NPAs to the extent possible to increase interest income.c.
    
    Re-price lower our core deposits to improve margins as the high rate paying
competition diminishes.d.
    
    Expand our deposit fee income sources, HWMC fees, and explore new fee income
programs.
 5.
    
    Continue to Manage our Banking Risks to a Low Level
 a.
    
    Interest rate risk through our rigorous assessment and applied hedging process.b.
    
    Operational risk through our policies, procedures and related controls.
 - 25 -




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##### Table of Contents



c.
    
    Liquidity Risk through our core deposit development and back up liquidity plans.d.
    
    Credit Risk though our underwriting and problem asset resolution process.
 6.
    
    Control Operating Costs
   Results of Operations
         - 26 -




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##### Table of Contents



Three Months Ended
    
    
    
    
    
    
    Three Months EndedJune 30, 2009
    
    
    
    
    
    
    June 30, 2008(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    766,811
    
    
    $
    11,794
    
    
    
    6.16
    %
    
    $
    805,870
    
    
    $
    13,671
    
    
    
    6.80
    %FHLB stock
    
    
    11,501
    
    
    
    
    
    
    
    0.00
    %
    
    
    14,236
    
    
    
    210
    
    
    
    5.93
    %Securities and trading account
assets (2)
    
    
    288,773
    
    
    
    2,071
    
    
    
    2.87
    %
    
    
    386,999
    
    
    
    4,529
    
    
    
    4.68
    %Cash and cash equivalents (3)
    
    
    5,473
    
    
    
    5
    
    
    
    0.37
    %
    
    
    20,221
    
    
    
    47
    
    
    
    0.93
    %Total interest earning assets
    
    
    1,072,558
    
    
    
    13,870
    
    
    
    5.18
    %
    
    
    1,227,326
    
    
    
    18,457
    
    
    
    6.02
    %Non-interest-earning assets
    
    
    64,689
    
    
    
    
    
    
    
    
    
    
    
    37,208Total assets
    
    $
    1,137,247
    
    
    
    
    
    
    
    
    
    
    $
    1,264,534Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    164,055
    
    
    $
    454
    
    
    
    1.11
    %
    
    $
    164,232
    
    
    $
    1,042
    
    
    
    2.55
    %Passbook accounts and certificates
of deposit
    
    
    690,351
    
    
    
    4,262
    
    
    
    2.48
    %
    
    
    686,836
    
    
    
    6,787
    
    
    
    3.97
    %Total deposits
    
    
    854,406
    
    
    
    4,716
    
    
    
    2.21
    %
    
    
    851,068
    
    
    
    7,829
    
    
    
    3.70
    %FHLB advances (4)
    
    
    141,302
    
    
    
    1,845
    
    
    
    5.24
    %
    
    
    245,013
    
    
    
    2,710
    
    
    
    4.45
    %Reverse repurchase agreements
    
    
    21,299
    
    
    
    149
    
    
    
    2.77
    %
    
    
    41,614
    
    
    
    311
    
    
    
    2.96
    %Other borrowings (5)
    
    
    25,774
    
    
    
    234
    
    
    
    3.59
    %
    
    
    25,774
    
    
    
    345
    
    
    
    5.30
    %Total interest-bearing liabilities
    
    
    1,042,781
    
    
    
    6,944
    
    
    
    2.66
    %
    
    
    1,163,469
    
    
    
    11,195
    
    
    
    3.85
    %Non-interest-bearing deposits
    
    
    45,704
    
    
    
    
    
    
    
    
    
    
    
    43,961Non-interest-bearing liabilities
    
    
    5,114
    
    
    
    
    
    
    
    
    
    
    
    11,601Total liabilities
    
    
    1,093,599
    
    
    
    
    
    
    
    
    
    
    
    1,219,031Stockholders equity
    
    
    43,648
    
    
    
    
    
    
    
    
    
    
    
    45,503Total liabilities and stockholders
equity
    
    $
    1,137,247
    
    
    
    
    
    
    
    
    
    
    $
    1,264,534Net interest-earning assets
(liabilities)
    
    $
    29,777
    
    
    
    
    
    
    
    
    
    
    $
    63,857Net interest income/interest rate
spread
    
    
    
    
    
    $
    6,926
    
    
    
    2.52
    %
    
    
    
    
    
    $
    7,262
    
    
    
    2.17
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.59
    %
    
    
    
    
    
    
    
    
    
    
    2.37
    %Ratio of average interest-earning
assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    102.86
    %
    
    
    
    
    
    
    
    
    
    
    105.49
    %
 
 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. - 27 -




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##### Table of Contents



Six Months Ended
    
    
    
    
    
    
    
    
    
    
    Six Months EndedJune 30, 2009
    
    
    
    
    
    
    
    
    
    
    June 30, 2008(In thousands)
    
    Balance
    
    
    Income
    
    
    Rate (6)
    
    
    Balance
    
    
    Income
    
    
    Rate (6)Interest earning assets:Loans receivable (1)
    
    $
    783,811
    
    
    $
    23,995
    
    
    
    6.13
    %
    
    $
    797,473
    
    
    $
    27,871
    
    
    
    7.00
    %FHLB stock
    
    
    11,501
    
    
    
    
    
    
    
    0.00
    %
    
    
    13,356
    
    
    
    375
    
    
    
    5.65
    %Securities and trading account assets (2)
    
    
    293,604
    
    
    
    4,326
    
    
    
    2.95
    %
    
    
    377,308
    
    
    
    9,654
    
    
    
    5.12
    %Cash and cash equivalents (3)
    
    
    24,398
    
    
    
    20
    
    
    
    0.17
    %
    
    
    18,991
    
    
    
    122
    
    
    
    1.29
    %Total interest earning assets
    
    
    1,113,314
    
    
    
    28,341
    
    
    
    5.10
    %
    
    
    1,207,128
    
    
    
    38,022
    
    
    
    6.31
    %Non-interest-earning assets
    
    
    61,536
    
    
    
    
    
    
    
    
    
    
    
    38,601Total assets
    
    $
    1,174,850
    
    
    
    
    
    
    
    
    
    
    $
    1,245,729Interest bearing liabilities:Deposits:NOW and money market accounts
    
    $
    165,028
    
    
    $
    1,134
    
    
    
    1.39
    %
    
    $
    145,089
    
    
    $
    1,870
    
    
    
    2.59
    %Passbook accounts and certificates
of deposit
    
    
    711,930
    
    
    
    9,974
    
    
    
    2.83
    %
    
    
    686,328
    
    
    
    14,442
    
    
    
    4.23
    %Total deposits
    
    
    876,958
    
    
    
    11,108
    
    
    
    2.55
    %
    
    
    831,417
    
    
    
    16,312
    
    
    
    3.95
    %FHLB advances (4)
    
    
    154,428
    
    
    
    3,552
    
    
    
    4.64
    %
    
    
    239,935
    
    
    
    5,257
    
    
    
    4.41
    %Reverse repurchase agreements
    
    
    20,368
    
    
    
    294
    
    
    
    2.87
    %
    
    
    45,975
    
    
    
    699
    
    
    
    3.01
    %Other borrowings (5)
    
    
    25,774
    
    
    
    482
    
    
    
    3.72
    %
    
    
    25,774
    
    
    
    778
    
    
    
    5.97
    %Total interest-bearing liabilities
    
    
    1,077,528
    
    
    
    15,436
    
    
    
    2.88
    %
    
    
    1,143,101
    
    
    
    23,046
    
    
    
    4.04
    %Non-interest-bearing deposits
    
    
    43,137
    
    
    
    
    
    
    
    
    
    
    
    44,706Non-interest-bearing liabilities
    
    
    9,603
    
    
    
    
    
    
    
    
    
    
    
    11,968Total liabilities
    
    
    1,130,268
    
    
    
    
    
    
    
    
    
    
    
    1,199,775Stockholders equity
    
    
    44,582
    
    
    
    
    
    
    
    
    
    
    
    45,954Total liabilities and stockholders equity
    
    $
    1,174,850
    
    
    
    
    
    
    
    
    
    
    $
    1,245,729Net interest-earning assets (liabilities)
    
    $
    35,786
    
    
    
    
    
    
    
    
    
    
    $
    64,027Net interest income/interest rate spread
    
    
    
    
    
    $
    12,905
    
    
    
    2.22
    %
    
    
    
    
    
    $
    14,976
    
    
    
    2.27
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.31
    %
    
    
    
    
    
    
    
    
    
    
    2.48
    %Ratio of average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    103.32
    %
    
    
    
    
    
    
    
    
    
    
    105.60
    %
 
 1)
    
    Balance includes non-accrual loans. Income includes fees earned on loans originated and
accretion of deferred loan fees.2)
    
    Consists of securities classified as available for sale, held to maturity and trading
account assets. Excludes SFAS 115 adjustments to fair value, which are included in 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   - 28 -




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in Thousands)
    
    
    (Dollars in Thousands)Balance at beginning of period
    
    $
    11,409
    
    
    $
    6,945
    
    
    $
    11,449
    
    
    $
    6,446Charge-offs:Real estate loans:Commercial
    
    
    (4,933
    )
    
    
    (306
    )
    
    
    (6,705
    )
    
    
    (306
    )Consumer and other loans
    
    
    (175
    )
    
    
    (217
    )
    
    
    (206
    )
    
    
    (218
    )Total charge-offs
    
    
    (5,108
    )
    
    
    (523
    )
    
    
    (6,911
    )
    
    
    (524
    )Recoveries
    
    
    0
    
    
    
    25
    
    
    
    13
    
    
    
    25Net charge-offs
    
    
    (5,108
    )
    
    
    (498
    )
    
    
    (6,898
    )
    
    
    (499
    )Remaining provision for losses on loans
    
    
    11,100
    
    
    
    400
    
    
    
    12,850
    
    
    
    900Balance at end of period
    
    $
    17,401
    
    
    $
    6,847
    
    
    $
    17,401
    
    
    $
    6,847Allowance
for loan losses as a percent of  total loans (including loans held for sale) outstanding at the end of the period
    
    
    2.32
    %
    
    
    0.85
    %
    
    
    2.32
    %
    
    
    0.84
    %Ratio of net charge-offs to average loans outstanding during the period
    
    
    0.67
    %
    
    
    0.06
    %
    
    
    0.88
    %
    
    
    0.06
    %
    - 29 -




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##### Table of Contents



Banking Fee & Other Income(Dollars in thousands)June
    
    
    June
    
    
    
    
    
    
    June
    
    
    June
    
    
    Annual2009
    
    
    2008
    
    
    %
    
    
    2009
    
    
    2008
    
    
    %Quarter
    
    
    Quarter
    
    
    Change
    
    
    YTD
    
    
    YTD
    
    
    ChangeBanking Fee TypeMortgage Brokerage Fee, Prepayment Penalties & Other Loan Fees
    
    $
    199
    
    
    $
    188
    
    
    
    5.9
    %
    
    $
    288
    
    
    $
    335
    
    
    
    (14.0
    )%Deposit, Other Retail Banking Fees & Other Fee Income
    
    
    587
    
    
    
    442
    
    
    
    32.8
    %
    
    
    1,134
    
    
    
    882
    
    
    
    28.6
    %Harrington Wealth Management Fees
    
    
    193
    
    
    
    256
    
    
    
    (24.6
    )%
    
    
    381
    
    
    
    509
    
    
    
    (25.1
    )%Increase in Cash Surrender Value of Life Insurance, net
    
    
    200
    
    
    
    49
    
    
    
    308.2
    %
    
    
    284
    
    
    
    242
    
    
    
    17.4
    %Total Banking Fee & Other Income
    
    $
    1,179
    
    
    $
    935
    
    
    
    26.1
    %
    
    $
    2,087
    
    
    $
    1,968
    
    
    
    6.0
    %
  HWFG Operating Expenses by Category
 Quarter Ended June 30,
    
    
    Six months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Salaries and employee benefits
    
    $
    3,345
    
    
    $
    3,261
    
    
    $
    6,687
    
    
    $
    6,797Premises and equipment
    
    
    976
    
    
    
    1,023
    
    
    
    1,983
    
    
    
    2,016FDIC Insurance Premium
    
    
    988
    
    
    
    165
    
    
    
    1,205
    
    
    
    293Insurance premiums
    
    
    73
    
    
    
    62
    
    
    
    130
    
    
    
    146Marketing
    
    
    68
    
    
    
    143
    
    
    
    144
    
    
    
    239Computer services
    
    
    260
    
    
    
    290
    
    
    
    511
    
    
    
    546Professional fees
    
    
    204
    
    
    
    170
    
    
    
    408
    
    
    
    305REO Expense
    
    
    423
    
    
    
    119
    
    
    
    654
    
    
    
    126Office expenses and supplies
    
    
    170
    
    
    
    218
    
    
    
    346
    
    
    
    427Other (1)
    
    
    675
    
    
    
    633
    
    
    
    1,457
    
    
    
    1,299Total other expenses
    
    $
    7,182
    
    
    $
    6,084
    
    
    $
    13,525
    
    
    $
    12,194
 
 (1)
    
    Consists primarily of regulatory fees, and other miscellaneous expenses. Financial Condition
  - 30 -




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##### Table of Contents



Securities and Investment Activities
    AmortizedCost
    
    
    Fair ValueJune 30, 2009Agency MBS
    
    $
    45,365
    
    
    $
    46,285Non-agency mortgage securities
    
    
    75,018
    
    
    
    67,573Subprime mortgage securities
    
    
    154,792
    
    
    
    128,380Other securities
    
    
    3,380
    
    
    
    2,550$
    278,555
    
    
    $
    244,788
 AmortizedCost
    
    
    Fair ValueDecember 31, 2008Agency MBS
    
    $
    50,284
    
    
    $
    50,282Non-agency mortgage securities
    
    
    82,878
    
    
    
    76,522Subprime mortgage securities
    
    
    164,148
    
    
    
    144,274Other securities
    
    
    3,726
    
    
    
    2,600$
    301,036
    
    
    $
    273,678
  - 31 -




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueJune 30, 2009Agency
    
    $
    45,365
    
    
    $
    46,285AAA
    
    
    23,034
    
    
    
    21,971AA
    
    
    75,368
    
    
    
    63,614A
    
    
    15,665
    
    
    
    13,164BBB
    
    
    28,893
    
    
    
    26,183Below investment grade
    
    
    90,230
    
    
    
    73,571$
    278,555
    
    
    $
    244,788
 AmortizedCost
    
    
    Fair ValueDecember 31, 2008Agency
    
    $
    50,284
    
    
    $
    50,282AAA
    
    
    49,418
    
    
    
    45,779AA
    
    
    91,981
    
    
    
    80,038A
    
    
    55,412
    
    
    
    49,840BBB
    
    
    25,016
    
    
    
    21,888Below investment grade
    
    
    30,714
    
    
    
    26,988$
    302,825
    
    
    $
    274,815
  AmortizedCost
    
    
    Fair ValueJune 30, 2009Mortgage-backed securities  pass throughs
    
    $
    45,365
    
    
    
    46,285Collateralized mortgage obligations
    
    
    74,919
    
    
    
    67,185Asset-backed securities (underlying securities mortgages)
    
    
    156,695
    
    
    
    130,442Asset-backed securities
    
    
    1,576
    
    
    
    876$
    278,555
    
    
    $
    244,788
 - 32 -




---



##### Table of Contents



AmortizedCost
    
    
    Fair ValueDecember 31, 2008Mortgage-backed securities  pass throughs
    
    $
    50,284
    
    
    $
    50,282Collateralized mortgage obligations
    
    
    83,376
    
    
    
    77,236Asset-backed securities (underlying securities mortgages)
    
    
    165,721
    
    
    
    145,459Asset-backed securities
    
    
    1,655
    
    
    
    701$
    301,036
    
    
    $
    273,678
  Loans
   - 33 -




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##### Table of Contents



HWFG Net Loan Growth and Mix
(Dollars in millions)June 30, 2009
    
    
    December 31, 2008
    
    
    June 30, 2008% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoan Type
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    Total
    
    
    TotalCommercial Real Estate
    
    $
    260.6
    
    
    
    34.6
    %
    
    $
    260.9
    
    
    
    32.2
    %
    
    $
    269.6
    
    
    
    33.2
    %Multi-family Real Estate
    
    
    70.2
    
    
    
    9.3
    %
    
    
    85.2
    
    
    
    10.4
    %
    
    
    90.3
    
    
    
    11.1
    %Construction (1)
    
    
    95.8
    
    
    
    12.8
    %
    
    
    125.7
    
    
    
    15.4
    %
    
    
    139.6
    
    
    
    17.2
    %Single-family Real Estate
    
    
    143.4
    
    
    
    19.1
    %
    
    
    139.3
    
    
    
    17.2
    %
    
    
    119.0
    
    
    
    14.7
    %Commercial and Industrial Loans
    
    
    99.6
    
    
    
    13.4
    %
    
    
    118.9
    
    
    
    14.7
    %
    
    
    118.2
    
    
    
    14.6
    %Unimproved Land
    
    
    48.8
    
    
    
    6.5
    %
    
    
    48.5
    
    
    
    6.0
    %
    
    
    45.5
    
    
    
    5.6
    %Consumer Loans
    
    
    30.2
    
    
    
    4.0
    %
    
    
    29.8
    
    
    
    3.7
    %
    
    
    26.0
    
    
    
    3.2
    %Other Loans (2)
    
    
    1.9
    
    
    
    0.3
    %
    
    
    3.1
    
    
    
    0.4
    %
    
    
    3.2
    
    
    
    0.4
    %Total Gross Loans
    
    
    750.5
    
    
    
    100.0
    %
    
    
    811.4
    
    
    
    100.0
    %
    
    
    811.4
    
    
    
    100.0
    %Allowance for loan loss
    
    
    (17.4
    )
    
    
    
    
    
    
    (11.4
    )
    
    
    
    
    
    
    (6.8
    )Deferred fees
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    (1.6
    )Discounts/Premiums
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Net Loans Receivable
    
    $
    731.7
    
    
    
    
    
    
    $
    798.3
    
    
    
    
    
    
    $
    802.5
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At June 30,
2009 we had $21.4 million of construction loans secured by single-family residential
properties, $53.4 million secured by commercial properties, $20.1 million for land
development and $982 thousand secured by multi-family residential properties.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.  Deposits
  FHLB Advances
  Stockholders Equity
  - 34 -




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity 
   Capital Resources.
  - 35 -




---



##### Table of Contents



Asset and Liability Management
    - 36 -




---



##### Table of Contents



i.e.,
    Critical Accounting Policies
  Cautionary Statement Regarding Forward-Looking Statements.
  - 37 -




---



##### 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
    
    $
    33,635
    
    
    $
    25,019
    
    
    $
    14,141
    
    
    
    
    
    
    $
    (16,406
    )
    
    $
    (33,455
    )
    
    $
    (52,461
    )Market value gain (loss) of liabilities
    
    
    (18,316
    )
    
    
    (14,395
    )
    
    
    (7,410
    )
    
    
    
    
    
    
    8,718
    
    
    
    19,048
    
    
    
    29,577Market value gain (loss) of net assets
before interest rate contracts
    
    
    15,319
    
    
    
    10,624
    
    
    
    6,731
    
    
    
    
    
    
    
    (7,688
    )
    
    
    (14,407
    )
    
    
    (22,884
    )Market value gain (loss) of interest
rate contracts
    
    
    (12,172
    )
    
    
    (7,923
    )
    
    
    (3,816
    )
    
    
    
    
    
    
    3,530
    
    
    
    6,798
    
    
    
    9,827Total change in MVPE (2)
    
    $
    3,147
    
    
    $
    2,701
    
    
    $
    2,915
    
    
    
    
    
    
    $
    (4,158
    )
    
    $
    (7,609
    )
    
    $
    (13,057
    )Change in MVPE as a percent of:MVPE (2)
    
    
    4.30
    %
    
    
    3.69
    %
    
    
    3.99
    %
    
    
    
    
    
    
    -5.69
    %
    
    
    -10.41
    %
    
    
    -17.86
    %Total assets of the Bank (3)
    
    
    0.07
    %
    
    
    0.09
    %
    
    
    0.17
    %
    
    
    
    
    
    
    -0.27
    %
    
    
    -0.49
    %
    
    
    -0.87
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $79.1 million at June 30, 2009.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  - 38 -




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##### Table of Contents



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.
  
 Item 2:
  
 Item 3:
  
 Item 4:
  - 39 -




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##### Table of Contents



NAME
    
    FOR
    
    WITHHELDTimothy Hatlestad
    
    
    4,668,353
    
    
    
    403,230William D. Ross
    
    
    4,915,665
    
    
    
    155,918
  FOR
    
    AGAINST
    
    ABSTAIN4,814,812
    
    255,771
    
    1,000
 
 Item 5:
  
 Item 6:
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Section 302 Certification by Chief Executive Officer filed herewith.31.2
    
    Section 302 Certification by Chief Operating Officer filed herewith.31.3
    
    Section 302 Certification by Chief Financial Officer filed herewith.32
    
    Section 906 Certification by Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer furnished herewith.
 
 SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.August 14, 2009
    By:
    /s/ Craig J. CernyCraig J. CernyChairman of the Board
and Chief Executive Officer
(Principal Executive Officer)August 14, 2009
    By:
    /s/ William W. Phillips, jr.William W. Phillips, Jr.President, Chief Operating Officer
(Principal Executive Officer)August 14, 2009
    By:
    /s/ Kerril SteeleKerril SteeleSr. Vice-President, Chief Financial Officer
(Principle Financial and Accounting Officer) - 40 -