##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50066
 HARRINGTON WEST FINANCIAL GROUP, INC.
  Delaware
    
    48-1175170(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
 
 (Former
name, former address and former fiscal year, if changed since last
report)
 þ o
 o þ
 o þ




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HARRINGTON WEST FINANCIAL GROUP, INC.
 TABLE OF CONTENTS
 PagePart I  Financial InformationItem 1.Condensed Consolidated Financial Statements
    
    
    2Condensed Consolidated Statements of Financial Condition as of September 30, 2005 (Unaudited) and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    3Condensed Consolidated Statements of Shareholders Equity and Comprehensive Income for the Nine months ended September 30, 2005 (Unaudited) and Year Ended December 31, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    8Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    38Item 4.Controls and Procedures
    
    
    38Part II  Other InformationItem 1.Legal Proceedings
    
    
    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
    
    
    39Item 6.Exhibits
    
    
    40Signatures
    
    
    41Exhibit 31.1Exhibit 31.2Exhibit 32
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##### Table of Contents



PART 1-FINANCIAL INFORMATION
 
 Item 1: Condensed Consolidated Financial Statements
 HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
 (Dollars in thousands, except share data)
 September 30, 2005
    
    
    December 31, 2004ASSETSCash and cash equivalents
    
    $
    18,314
    
    
    $
    13,238Trading account assets
    
    
    544
    
    
    
    1,046Securities available for sale
    
    
    391,043
    
    
    
    431,206Securities held to maturity
    
    
    84
    
    
    
    93Loans
receivable, (net of allowance for loan losses of $5,576 and $5,228 at September 30, 2005 and December 31,
2004, respectively)
    
    
    651,246
    
    
    
    598,442Accrued interest receivable
    
    
    3,971
    
    
    
    3,322Premises and equipment, net
    
    
    9,574
    
    
    
    8,886Due from broker
    
    
    1,768
    
    
    
    Prepaid expenses and other assets
    
    
    3,852
    
    
    
    3,745Investment in FHLB stock, at cost
    
    
    16,336
    
    
    
    15,134Bank owned life insurance
    
    
    17,448
    
    
    
    Deferred tax asset
    
    
    781
    
    
    
    1,314Goodwill
    
    
    4,025
    
    
    
    3,981Core deposit intangible, net
    
    
    2,661
    
    
    
    923TOTAL ASSETS
    
    $
    1,121,647
    
    
    $
    1,081,330LIABILITIES & STOCKHOLDERS EQUITYDeposits:Interest bearing
    
    $
    622,961
    
    
    $
    564,552Non-interest bearing
    
    
    48,741
    
    
    
    33,630Total Deposits
    
    
    671,702
    
    
    
    598,182FHLB advances
    
    
    293,000
    
    
    
    316,000Securities sold under repurchase agreements
    
    
    59,165
    
    
    
    79,689Subordinated debt
    
    
    25,774
    
    
    
    25,774Due to broker
    
    
    7,465
    
    
    
    Accounts payable and accrued expenses
    
    
    5,392
    
    
    
    8,563Income taxes payable
    
    
    926
    
    
    
    462TOTAL LIABILITIES
    
    
    1,063,424
    
    
    
    1,028,670COMMITMENTS AND CONTINGENCIES (Note 3)STOCKHOLDERS EQUITYPreferred stock, $.01 par value: 1,000,000 shares authorized:none issued and outstandingCommon stock, $.01 par value; 10,800,000 shares authorized:5,364,498 and 5,278,934 shares issued and outstanding as
of September 30, 2005 and December 31, 2004, respectively
    
    
    54
    
    
    
    53Additional paid-in capital
    
    
    31,939
    
    
    
    31,225Retained earnings
    
    
    28,078
    
    
    
    23,637Accumulated other comprehensive (loss), net of tax
    
    
    (1,848
    )
    
    
    (2,255
    )Total Stockholders Equity
    
    
    58,223
    
    
    
    52,660TOTAL LIABILITIES & STOCKHOLDERS EQUITY
    
    $
    1,121,647
    
    
    $
    1,081,330
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##### Table of Contents



HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Dollars in thousands, except share data
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004INTEREST INCOMEInterest on loans
    
    $
    11,122
    
    
    $
    9,182
    
    
    $
    31,628
    
    
    $
    26,526Interest and dividends on securities
    
    
    4,725
    
    
    
    4,089
    
    
    
    13,690
    
    
    
    11,720Total interest income
    
    
    15,847
    
    
    
    13,271
    
    
    
    45,318
    
    
    
    38,246INTEREST EXPENSEInterest on deposits
    
    
    4,230
    
    
    
    2,705
    
    
    
    10,815
    
    
    
    7,761Interest on FHLB advances and other borrowings
    
    
    4,055
    
    
    
    3,141
    
    
    
    11,897
    
    
    
    8,523Total interest expense
    
    
    8,285
    
    
    
    5,846
    
    
    
    22,712
    
    
    
    16,284NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES
    
    
    7,562
    
    
    
    7,425
    
    
    
    22,606
    
    
    
    21,962PROVISION FOR LOAN LOSSES
    
    
    
    
    
    
    230
    
    
    
    350
    
    
    
    550NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
    
    
    7,562
    
    
    
    7,195
    
    
    
    22,256
    
    
    
    21,412OTHER INCOME (LOSS)Income from trading assets
    
    
    89
    
    
    
    264
    
    
    
    872
    
    
    
    875Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (189
    )Other income (loss)
    
    
    (7
    )
    
    
    (35
    )
    
    
    (13
    )
    
    
    (47
    )Banking fee income
    
    
    1,159
    
    
    
    734
    
    
    
    2,991
    
    
    
    2,342Total other income
    
    
    1,241
    
    
    
    963
    
    
    
    3,850
    
    
    
    2,981OTHER EXPENSESSalaries & employee benefits
    
    
    2,844
    
    
    
    2,589
    
    
    
    8,270
    
    
    
    7,977Premises & equipment
    
    
    969
    
    
    
    811
    
    
    
    2,867
    
    
    
    2,276Insurance premiums
    
    
    127
    
    
    
    128
    
    
    
    378
    
    
    
    397Marketing
    
    
    129
    
    
    
    83
    
    
    
    301
    
    
    
    312Computer services
    
    
    203
    
    
    
    184
    
    
    
    573
    
    
    
    507Consulting fees
    
    
    281
    
    
    
    274
    
    
    
    994
    
    
    
    854Office expenses & supplies
    
    
    201
    
    
    
    215
    
    
    
    642
    
    
    
    641Other
    
    
    625
    
    
    
    544
    
    
    
    1,702
    
    
    
    1,476Total other expenses
    
    
    5,379
    
    
    
    4,828
    
    
    
    15,727
    
    
    
    14,440INCOME BEFORE INCOME TAXES
    
    
    3,424
    
    
    
    3,330
    
    
    
    10,379
    
    
    
    9,953INCOME TAXES
    
    
    1,326
    
    
    
    1,351
    
    
    
    4,095
    
    
    
    3,935NET INCOME
    
    $
    2,098
    
    
    $
    1,979
    
    
    $
    6,284
    
    
    $
    6,018BASIC EARNINGS PER SHARE
    
    $
    0.39
    
    
    $
    0.38
    
    
    $
    1.18
    
    
    $
    1.15DILUTED EARNINGS PER SHARE
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    1.12
    
    
    $
    1.08BASIC WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,364,077
    
    
    
    5,276,774
    
    
    
    5,338,935
    
    
    
    5,248,339DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
    
    
    5,649,134
    
    
    
    5,622,519
    
    
    
    5,626,599
    
    
    
    5,589,300
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)
 (Dollars in thousands, except share data)
 AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Amt
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    Loss
    
    
    EquityBalance, January 1, 2004
    
    
    5,206,109
    
    
    $
    52
    
    
    $
    30,710
    
    
    $
    20,073
    
    
    
    
    
    
    $
    (2,759
    )
    
    $
    48,076Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,209
    
    
    $
    8,209
    
    
    
    
    
    
    
    8,209Other comprehensive income,
net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (324
    )
    
    
    (324
    )
    
    
    (324
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    828
    
    
    
    828
    
    
    
    828Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,713Stock options exercised
    
    
    72,825
    
    
    
    1
    
    
    
    515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    516Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,645
    )
    
    
    
    
    
    
    
    
    
    
    (4,645
    )Balance, December 31, 2004
    
    
    5,278,934
    
    
    
    53
    
    
    
    31,225
    
    
    
    23,637
    
    
    
    
    
    
    
    (2,255
    )
    
    
    52,660Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,284
    
    
    $
    6,284
    
    
    
    
    
    
    
    6,284Other comprehensive income,
net of taxUnrealized losses on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,507
    )
    
    
    (1,507
    )
    
    
    (1,507
    )Effective portion in change in
fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,914
    
    
    
    1,914
    
    
    
    1,914Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,691Stock options exercised
    
    
    85,564
    
    
    
    1
    
    
    
    714
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715Dividends on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,843
    )
    
    
    
    
    
    
    
    
    
    
    (1,843
    )Balance, September 30, 2005
    
    
    5,364,498
    
    
    $
    54
    
    
    $
    31,939
    
    
    $
    28,078
    
    
    
    
    
    
    $
    (1,848
    )
    
    $
    58,223
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HARRINGTON WEST FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (Unaudited)  Dollars in thousands)
 Nine months endedSeptember 30,2005
    
    
    2004DISCLOSURE OF RECLASSIFICATION AMOUNT:Unrealized holding (loss) gain arising during period,
net of tax (benefit) expense of $(688) and $116 for the
nine-months ended September 30, 2005 and 2004, respectively
    
    $
    (1,035
    )
    
    $
    242Less: Reclassification adjustment for gains included
in net income, net of tax expense (benefit) of $311 and
$279 for the nine months ended September 30, 2005 and 2004,
respectively
    
    
    472
    
    
    
    406Net unrealized (loss) on securities, net of tax (benefit)
of $(999) and $(112) for the nine months ended,
September 30, 2005 and 2004, respectively
    
    $
    (1,507
    )
    
    $
    (164
    )Unrealized net gain on cash flow hedges, net of tax
expense of $1,307 and $47 for the nine months
ended September 30, 2005 and 2004, respectively
    
    $
    1,904
    
    
    $
    69Less: Reclassification adjustment for net (loss) gains on cash
flow hedges included in net income, net of tax
(benefit) expense of $(7) and $54 for the nine months ended
September 30, 2005 and 2004, respectively.
    
    
    (10
    )
    
    
    79Net unrealized gain (loss) on cash flow hedges, net of tax expense
(benefit) of $1,314 and $(7) for the nine months ended
September 30, 2005 and 2004, respectively
    
    $
    1,914
    
    
    $
    (10
    )Total change in other comprehensive (loss) income
    
    $
    407
    
    
    $
    (174
    )
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
 Nine months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    6,284
    
    
    $
    6,018Adjustments to reconcile net income
to net cash provided by operating activities:Accretion of deferred loan fees and costs
    
    
    446
    
    
    
    211Depreciation and amortization
    
    
    1,064
    
    
    
    839Amortization of premiums and discounts on loans
receivable and securities
    
    
    1,976
    
    
    
    2,218Provision for loan losses
    
    
    350
    
    
    
    550(Gain) on sale of investment securities
    
    
    (787
    )
    
    
    (685
    )Activity in securities held for trading
    
    
    505
    
    
    
    204FHLB stock dividend
    
    
    (485
    )
    
    
    (423
    )(Increase) decrease in accrued interest receivable
    
    
    (649
    )
    
    
    (271
    )Increase (decrease) in income taxes payable
    
    
    464
    
    
    
    256(Decrease) increase in deferred income taxes
    
    
    (781
    )
    
    
    314(Increase) decrease in prepaid expenses and other assets
    
    
    (1,513
    )
    
    
    (473
    )(Decrease) increase in accounts payable and accrued expenses
    
    
    (1,007
    )
    
    
    108Net cash provided by operating activities
    
    
    5,867
    
    
    
    8,866CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) in loans receivable
    
    
    (53,739
    )
    
    
    (80,619
    )Proceeds from sales of securities available for sale
    
    
    48,881
    
    
    
    26,604Principal paydowns on securities available for sale
    
    
    59,917
    
    
    
    71,380Principal paydowns on securities held to maturity
    
    
    10
    
    
    
    102Purchases of securities available for sale
    
    
    (63,728
    )
    
    
    (132,198
    )Purchase of premises and equipment
    
    
    (1,379
    )
    
    
    (1,836
    )Purchase of bank owned life insurance
    
    
    (17,000
    )
    
    
    Acquisition, net of cash acquired
    
    
    (1,954
    )
    
    
    (Purchase) of FHLB Stock
    
    
    (717
    )
    
    
    (722
    )Net cash used in investing activities
    
    
    (29,709
    )
    
    
    (117,289
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    73,569
    
    
    
    42,240Increase (decrease) in securities sold under agreements to repurchase
    
    
    (20,523
    )
    
    
    14,362Increase (decrease) in FHLB advances
    
    
    (23,000
    )
    
    
    35,500Increase in subordinated debt
    
    
    
    
    
    
    10,310Exercise of stock options on common stock
    
    
    715
    
    
    
    516Dividends paid on common stock
    
    
    (1,843
    )
    
    
    (1,488
    )Net cash provided by financing activities
    
    
    28,918
    
    
    
    101,440NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    5,076
    
    
    
    (6,983
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    13,238
    
    
    
    22,856CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    18,314
    
    
    $
    15,873SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -Cash paid during the period for:Interest
    
    $
    21,146
    
    
    $
    13,254Income Taxes
    
    $
    2,562
    
    
    $
    3,502
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HARRINGTON WEST FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (Dollars in thousands)
 Nine months endedSeptember 30,2005SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIESPurchase of Thousand Oaks Office:Cash and cash equivalents acquired
    
    $
    59Fair value of assets acquired
    
    
    1,945Purchase price of acquisition
    
    
    40,866Liabilities assumed
    
    $
    42,870
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HARRINGTON WEST FINANCIAL GROUP, INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Business of the Company 
 Basis of Presentation 
    Allowance for Loan Losses
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Accounting by Creditors for Impairment of a Loan
    Fair Value of Stock Options  Accounting for Stock-based Compensation, Accounting for Stock Issued to Employees
 Share Based Payment
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Three months endedPro Forma Results
    
    September 30, 2005
    
    September 30, 2004Net income:As reported
    
    $
    2,098
    
    
    $
    1,979Pro forma
    
    $
    2,039
    
    
    $
    1,939Earnings per share  basic:As reported
    
    $
    0.39
    
    
    $
    0.38Pro forma
    
    $
    0.38
    
    
    $
    0.37Earnings per share  diluted:As reported
    
    $
    0.37
    
    
    $
    0.35Pro forma
    
    $
    0.36
    
    
    $
    0.34
 Nine months endedPro Forma Results
    
    September 30, 2005
    
    September 30, 2004Net income:As reported
    
    $
    6,284
    
    
    $
    6,018Pro forma
    
    $
    6,109
    
    
    $
    5,899Earnings per share  basic:As reported
    
    $
    1.18
    
    
    $
    1.15Pro forma
    
    $
    1.14
    
    
    $
    1.12Earnings per share  diluted:As reported
    
    $
    1.12
    
    
    $
    1.08Pro forma
    
    $
    1.09
    
    
    $
    1.06
  2005
    
    2004Risk free interest rate:
    
    
    4.31
    %
    
    
    4.06
    %Expected life (years):
    
    
    9
    
    
    
    9Dividend yield
    
    
    2.49
    %
    
    
    2.33
    %Estimated volatility:
    
    
    41.12
    %
    
    
    32.67
    %
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Recent Accounting Pronouncements
 Exchanges of Nonmonetary Assets Accounting for Nonmonetary Transactions
 Accounting Changes and Error
Corrections,
 Implementation Guidance for the Application of Paragraph 16 of EITF Issue No. 03-1 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments Recognition of
Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities Accounting for Noncurrent Marketable Equity Securities The Equity Method of Accounting for Investments in Common Stock
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2. EARNINGS PER SHARE
  Three months ended September 30, 2005
    
    
    Nine months ended September 30, 2005Per-Income
    
    
    Shares
    
    
    Per-Share
    
    
    Income
    
    
    Shares
    
    
    Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS
    
    $
    2,098
    
    
    
    5,364,077
    
    
    $
    .39
    
    
    $
    6,284
    
    
    
    5,338,935
    
    
    $
    1.18Effect of
dilutive stock options
    
    
    
    
    
    
    285,057
    
    
    
    (.02
    )
    
    
    
    
    
    
    287,664
    
    
    
    (.06
    )Diluted EPS
    
    $
    2,098
    
    
    
    5,649,134
    
    
    $
    .37
    
    
    $
    6,284
    
    
    
    5,626,599
    
    
    $
    1.12
 Three months ended September 30, 2004
    
    
    Nine months ended September 30, 2004Per-Income
    
    
    Shares
    
    
    Per-Share
    
    
    Income
    
    
    Shares
    
    
    Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPS
    
    $
    1,979
    
    
    
    5,276,774
    
    
    $
    .38
    
    
    $
    6,018
    
    
    
    5,248,339
    
    
    $
    1.15Effect of
dilutive stock options
    
    
    
    
    
    
    345,745
    
    
    
    (.03
    )
    
    
    
    
    
    
    340,961
    
    
    
    (.07
    )Diluted EPS
    
    $
    1,979
    
    
    
    5,622,519
    
    
    $
    .35
    
    
    $
    6,018
    
    
    
    5,589,300
    
    
    $
    1.08
 - 12 -




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##### Table of Contents



3. COMMITMENTS AND CONTINGENCIES
  Payment due periodLess than
    
    
    One to
    
    
    Three to
    
    
    More thanTotal
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)Contractual obligations:Certificates of deposit
    
    $
    483,870
    
    
    $
    443,183
    
    
    $
    29,992
    
    
    $
    10,546
    
    
    $
    149FHLB advances
    
    
    293,000
    
    
    
    274,000
    
    
    
    
    
    
    
    19,000
    
    
    
    Reverse Repurchase Agreements
    
    
    59,165
    
    
    
    165
    
    
    
    44,000
    
    
    
    15,000
    
    
    
    Leases
    
    
    22,771
    
    
    
    1,364
    
    
    
    2,798
    
    
    
    2,779
    
    
    
    15,830Subordinated debt
    
    
    25,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,774Due from broker
    
    
    1,768
    
    
    
    1,768
    
    
    
    
    
    
    
    
    
    
    
    Due to broker
    
    
    7,465
    
    
    
    7,465
    
    
    
    
    
    
    
    
    
    
    
    Accrued interest payable
    
    
    57,690
    
    
    
    4,776
    
    
    
    8,552
    
    
    
    7,004
    
    
    
    37,358Total contractual
obligations
    
    $
    951,503
    
    
    $
    732,721
    
    
    $
    85,342
    
    
    $
    54,329
    
    
    $
    79,111
 Amount of Commitment Expiration Per PeriodUnfunded
    
    
    Less than
    
    
    One to
    
    
    Three to
    
    
    AfterCommitments
    
    
    One Year
    
    
    Three Years
    
    
    Five Years
    
    
    Five Years(In Thousands)Commitments:Commercial lines of credit
    
    $
    31,491
    
    
    $
    25,389
    
    
    $
    1,618
    
    
    $
    691
    
    
    $
    3,793Consumer lines of credit(1)
    
    
    42,623
    
    
    
    1,995
    
    
    
    
    
    
    
    252
    
    
    
    40,376Undisbursed portion of loans in process
    
    
    60,850
    
    
    
    33,091
    
    
    
    27,759
    
    
    
    
    
    
    
    Approved but, unfunded mortgage loans
    
    
    8,961
    
    
    
    8,961
    
    
    
    
    
    
    
    
    
    
    
    Approved but, unfunded commercial
loans
    
    
    2,250
    
    
    
    2,250
    
    
    
    
    
    
    
    
    
    
    
    Approved but, unfunded consumer loans
    
    
    1,492
    
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    Letters of credit
    
    
    4,938
    
    
    
    3,438
    
    
    
    1,500
    
    
    
    
    
    
    
    Total commitments
    
    $
    152,605
    
    
    $
    76,616
    
    
    $
    30,877
    
    
    $
    943
    
    
    $
    44,169
 
 (1)
    
    Lines of credit with no stated maturity date are included in commitments for less than one year. 4. ACQUISITION OF BRANCH
  
 Item 2: Managements Discussion and Analysis and Analysis of Financial Condition
and Results of Operations
 Corporate Profile
  - 13 -




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##### Table of Contents



Mission and Philosophy
  Multiple Market Strategy
    1.
    
    Diversify its loan portfolio and thus economic and credit risk2.
    
    Capitalize on the most favorable growth markets3.
    
    Deploy elements of our diverse product mix that are best suited for
each market4.
    
    Price products strategically among the markets to maximize
profitability.
  Product Line Diversification
  - 14 -




---



##### Table of Contents



Modern Financial and Investment Management Skills
  Control Banking Risks
  Concentrate on Selected Performance Measures
  Profitability Drivers
  1.
    
    Increasing loans, deposits, and investment management and trust accounts in all
of our markets.2.
    
    Changing the loan mix to higher risk-adjusted spread earning categories such as
business lending, commercial real estate lending, small tract construction and
construction-to-permanent loan lending, and selected consumer lending activities such
as home equity lines of credit.3.
    
    Growing our non-interest bearing consumer and commercial deposits and
continuing to shift the deposit mix toward core deposit accounts.4.
    
    Diversifying and increasing our banking fee income through existing and new fee
income sources such as our overdraft privilege program and other deposit fees, loan fee
income, Harrington Wealth Management trust and investment fees, and other retail
banking fees.5.
    
    Achieving a high level of performance on our investment portfolio by earning a
pre-tax total return over one month LIBOR of approximately 1.00% to 1.25% per annum.
 - 15 -




---



##### Table of Contents



6.
    
    Controlling interest rate risk of the institution and seeking high credit
quality of the loan and investment portfolios.
  Results of Operations
 
  - 16 -




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##### Table of Contents



Three months ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/ Cost
    
    
    Balance
    
    
    Interest
    
    
    Yield/ Cost(Dollars in thousands)Interest-earning assets:Loans receivable (1)
    
    $
    641,446
    
    
    $
    11,122
    
    
    
    6.94
    %
    
    $
    581,250
    
    
    $
    9,182
    
    
    
    6.32
    %FHLB stock
    
    
    16,502
    
    
    
    180
    
    
    
    4.36
    %
    
    
    14,406
    
    
    
    191
    
    
    
    5.30
    %Securities and trading account assets (2)
    
    
    399,818
    
    
    
    4,500
    
    
    
    4.50
    %
    
    
    425,735
    
    
    
    3,880
    
    
    
    3.65
    %Cash and cash equivalents (3)
    
    
    9,802
    
    
    
    45
    
    
    
    1.84
    %
    
    
    12,271
    
    
    
    18
    
    
    
    0.59
    %Total interest-earning assets
    
    
    1,067,568
    
    
    
    15,847
    
    
    
    5.94
    %
    
    
    1,033,662
    
    
    
    13,271
    
    
    
    5.14
    %Noninterest-earning assets
    
    
    45,714
    
    
    
    
    
    
    
    
    
    
    
    24,749Total assets
    
    $
    1,113,282
    
    
    
    
    
    
    
    
    
    
    $
    1,058,411Interest-bearing liabilities:Deposits:NOW and money market accounts
    
    $
    123,596
    
    
    
    543
    
    
    
    1.76
    %
    
    $
    121,312
    
    
    
    298
    
    
    
    0.98
    %Passbook accounts and certificates of
deposit
    
    
    491,668
    
    
    
    3,687
    
    
    
    3.00
    %
    
    
    451,051
    
    
    
    2,407
    
    
    
    2.13
    %Total deposits
    
    
    615,264
    
    
    
    4,230
    
    
    
    2.75
    %
    
    
    572,363
    
    
    
    2,705
    
    
    
    1.89
    %FHLB advances (4)
    
    
    301,848
    
    
    
    3,197
    
    
    
    4.24
    %
    
    
    298,989
    
    
    
    2,429
    
    
    
    3.25
    %Reverse Repurchase Agreements
    
    
    60,023
    
    
    
    451
    
    
    
    3.01
    %
    
    
    79,853
    
    
    
    524
    
    
    
    2.62
    %Other borrowings (5)
    
    
    25,774
    
    
    
    407
    
    
    
    6.32
    %
    
    
    15,435
    
    
    
    188
    
    
    
    4.87
    %Total interest-bearing liabilities
    
    
    1,002,909
    
    
    
    8,285
    
    
    
    3.30
    %
    
    
    966,640
    
    
    
    5,846
    
    
    
    2.42
    %Non-interest-bearing deposits
    
    
    47,523
    
    
    
    
    
    
    
    
    
    
    
    33,077Non-interest-bearing liabilities
    
    
    6,848
    
    
    
    
    
    
    
    
    
    
    
    9,046Total liabilities
    
    
    1,057,280
    
    
    
    
    
    
    
    
    
    
    
    1,008,763Stockholders equity
    
    
    56,002
    
    
    
    
    
    
    
    
    
    
    
    49,648Total liabilities and stockholders equity
    
    $
    1,113,282
    
    
    
    
    
    
    
    
    
    
    $
    1,058,411Net interest-earning assets (liabilities)
    
    $
    64,659
    
    
    
    
    
    
    
    
    
    
    $
    67,022Net interest income/interest rate spread
    
    
    
    
    
    $
    7,562
    
    
    
    2.64
    %
    
    
    
    
    
    $
    7,425
    
    
    
    2.72
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    2.88
    %Ratio of average interest-earnings assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.45
    %
    
    
    
    
    
    
    
    
    
    
    106.93
    %
 
 1)
    
    Includes non-accrual loans. Interest 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. Interest income includes amortization of premiums paid for
securities.3)
    
    Consists of cash and due from banks and federal funds sold.4)
    
    Interest on FHLB advances is net of hedging costs. Hedging costs include
interest income and expense and ineffectiveness adjustments for cash flow hedges. The
Company uses pay-fixed, receive floating LIBOR swaps to hedge the short term repricing
characteristics of the floating FHLB advances.5)
    
    Consists of other debt and a note payable under a revolving line of credit. - 17 -




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##### Table of Contents



Nine months ended September 30,2005
    
    
    2004Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    Cost(Dollars in thousands)Interest-earning assets:Loans receivable (1)
    
    $
    628,943
    
    
    $
    31,628
    
    
    
    6.71
    %
    
    $
    549,557
    
    
    $
    26,526
    
    
    
    6.44
    %FHLB stock
    
    
    16,215
    
    
    
    516
    
    
    
    4.24
    %
    
    
    14,001
    
    
    
    456
    
    
    
    4.34
    %Securities and trading account assets (2)
    
    
    411,519
    
    
    
    13,058
    
    
    
    4.23
    %
    
    
    414,908
    
    
    
    11,223
    
    
    
    3.61
    %Cash and cash equivalents (3)
    
    
    9,363
    
    
    
    116
    
    
    
    1.65
    %
    
    
    12,590
    
    
    
    41
    
    
    
    0.43
    %Total interest-earning assets
    
    
    1,066,040
    
    
    
    45,318
    
    
    
    5.67
    %
    
    
    991,056
    
    
    
    38,246
    
    
    
    5.15
    %Noninterest-earning assets
    
    
    37,338
    
    
    
    
    
    
    
    
    
    
    
    24,533Total assets
    
    $
    1,103,378
    
    
    
    
    
    
    
    
    
    
    $
    1,015,589Interest-bearing liabilities:Deposits:NOW and money market accounts
    
    $
    119,729
    
    
    
    1,383
    
    
    
    1.54
    %
    
    $
    119,518
    
    
    
    815
    
    
    
    0.91
    %Passbook accounts and certificates of deposit
    
    
    464,844
    
    
    
    9,432
    
    
    
    2.71
    %
    
    
    439,617
    
    
    
    6,946
    
    
    
    2.11
    %Total deposits
    
    
    584,573
    
    
    
    10,815
    
    
    
    2.47
    %
    
    
    559,135
    
    
    
    7,761
    
    
    
    1.85
    %FHLB advances (4)
    
    
    315,945
    
    
    
    9,290
    
    
    
    3.92
    %
    
    
    276,971
    
    
    
    6,549
    
    
    
    3.15
    %Reverse Repurchase Agreements
    
    
    73,382
    
    
    
    1,491
    
    
    
    2.71
    %
    
    
    74,074
    
    
    
    1,455
    
    
    
    2.62
    %Other borrowings (5)
    
    
    25,774
    
    
    
    1,116
    
    
    
    5.77
    %
    
    
    15,146
    
    
    
    519
    
    
    
    4.57
    %Total interest-bearing liabilities
    
    
    999,674
    
    
    
    22,712
    
    
    
    3.03
    %
    
    
    925,326
    
    
    
    16,284
    
    
    
    2.35
    %Non-interest-bearing deposits
    
    
    40,559
    
    
    
    
    
    
    
    
    
    
    
    29,946Non-interest-bearing liabilities
    
    
    8,761
    
    
    
    
    
    
    
    
    
    
    
    11,117Total liabilities
    
    
    1,048,994
    
    
    
    
    
    
    
    
    
    
    
    966,389Stockholders equity
    
    
    54,384
    
    
    
    
    
    
    
    
    
    
    
    49,200Total liabilities and stockholders equity
    
    $
    1,103,378
    
    
    
    
    
    
    
    
    
    
    $
    1,015,589Net interest-earning assets (liabilities)
    
    $
    66,366
    
    
    
    
    
    
    
    
    
    
    $
    65,730Net interest income/interest rate spread
    
    
    
    
    
    $
    22,606
    
    
    
    2.64
    %
    
    
    
    
    
    $
    21,962
    
    
    
    2.80
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.83
    %
    
    
    
    
    
    
    
    
    
    
    2.95
    %Ratio of average interest-earnings assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    106.64
    %
    
    
    
    
    
    
    
    
    
    
    107.10
    %
 
 1)
    
    Includes non-accrual loans. Interest 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. Interest income includes amortization of premiums paid for
securities.3)
    
    Consists of cash and due from banks and federal funds sold.4)
    
    Interest on FHLB advances is net of hedging costs. Hedging costs include
interest income and expense and ineffectiveness adjustments for cash flow hedges. The
Company uses pay-fixed, receive floating LIBOR swaps to hedge the short term repricing
characteristics of the floating FHLB advances.5)
    
    Consists of other debt and a note payable under a revolving line of credit. - 18 -




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##### Table of Contents



Three Months EndedSeptember 30, 2004 vs. September 30, 2005Increase (decrease) due to
    
    
    Total NetRate/
    
    
    IncreaseRate
    
    
    Volume
    
    
    Volume
    
    
    (Decrease)(In Thousands)Interest-earning assets:Loans receivable (1)
    
    $
    3,585
    
    
    $
    3,804
    
    
    $
    (5,449
    )
    
    $
    1,940FHLB stock
    
    
    (135
    )
    
    
    111
    
    
    
    13
    
    
    
    (11
    )Securities and trading account assets (2)
    
    
    3,647
    
    
    
    (945
    )
    
    
    (2,082
    )
    
    
    620Cash and cash equivalents (3)
    
    
    153
    
    
    
    (14
    )
    
    
    (112
    )
    
    
    27TotalTotal net change in income on interest-
earning assets
    
    
    7,250
    
    
    
    2,956
    
    
    
    (7,630
    )
    
    
    2,576Interest-bearing liabilities:DepositsNOW and money market accounts
    
    
    940
    
    
    
    22
    
    
    
    (717
    )
    
    
    245Passbook accounts and certificates
of deposit
    
    
    3,902
    
    
    
    867
    
    
    
    (3,489
    )
    
    
    1,280Total deposits
    
    
    4,842
    
    
    
    889
    
    
    
    (4,206
    )
    
    
    1,525FHLB advances (4)
    
    
    2,951
    
    
    
    93
    
    
    
    (2,276
    )
    
    
    768Reverse Repurchase Agreements
    
    
    304
    
    
    
    (521
    )
    
    
    144
    
    
    
    (73
    )Other borrowings (5)
    
    
    223
    
    
    
    504
    
    
    
    (508
    )
    
    
    219Total net change in expense on interest-
bearing liabilities
    
    
    8,320
    
    
    
    965
    
    
    
    (6,846
    )
    
    
    2,439Change in net interest income
    
    $
    (1,070
    )
    
    $
    1,991
    
    
    $
    (784
    )
    
    $
    137
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on
loans originated.2)
    
    Consists of securities classified as available for sale, held to
maturity and trading account assets.3)
    
    Consists of cash and due from banks and federal funds sold.4)
    
    Interest on FHLB advances is net of hedging costs. Hedging costs
include interest income and expense and ineffectiveness adjustments for cash flow
hedges. The Company uses pay-fixed, receive floating LIBOR swaps to hedge the
short term repricing characteristics of the floating FHLB advances.5)
    
    Consists of other debt and a note payable under a revolving line of credit. - 19 -




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##### Table of Contents



Nine Months EndedSeptember 30, 2005 vs. September 30, 2004Increase (decrease) due to
    
    
    Total NetRate/
    
    
    IncreaseRate
    
    
    Volume
    
    
    Volume
    
    
    (Decrease)(In Thousands)Interest-earning assets:Loans receivable (1)
    
    $
    1,480
    
    
    $
    5,109
    
    
    $
    (1,487
    )
    
    $
    5,102FHLB stock
    
    
    (14
    )
    
    
    96
    
    
    
    (22
    )
    
    
    60Securities and trading account assets (2)
    
    
    2,590
    
    
    
    (122
    )
    
    
    (633
    )
    
    
    1,835Cash and cash equivalents (3)
    
    
    153
    
    
    
    (14
    )
    
    
    (64
    )
    
    
    75Total net change in income on interest-
earning assets
    
    
    4,209
    
    
    
    5,069
    
    
    
    (2,206
    )
    
    
    7,072Interest-bearing liabilities:DepositsNOW and money market accounts
    
    
    754
    
    
    
    2
    
    
    
    (188
    )
    
    
    568Passbook accounts and certificates
of deposit
    
    
    2,632
    
    
    
    531
    
    
    
    (677
    )
    
    
    2,486Total deposits
    
    
    3,386
    
    
    
    533
    
    
    
    (865
    )
    
    
    3,054FHLB advances (4)
    
    
    2,127
    
    
    
    1,229
    
    
    
    (615
    )
    
    
    2,741Reverse Repurchase Agreements
    
    
    67
    
    
    
    (18
    )
    
    
    (13
    )
    
    
    36Other borrowings (5)
    
    
    182
    
    
    
    486
    
    
    
    (71
    )
    
    
    597Total net change in expense on interest-
bearing liabilities
    
    
    5,762
    
    
    
    2,230
    
    
    
    (1,564
    )
    
    
    6,428Change in net interest income
    
    $
    (1,553
    )
    
    $
    2,839
    
    
    $
    (642
    )
    
    $
    644
 
 1)
    
    Includes non-accrual loans. Interest income includes fees earned on
loans originated.2)
    
    Consists of securities classified as available for sale, held to
maturity and trading account assets.3)
    
    Consists of cash and due from banks and federal funds sold.4)
    
    Interest on FHLB advances is net of hedging costs. Hedging costs
include interest income and expense and ineffectiveness adjustments for cash flow
hedges. The Company uses pay-fixed, receive floating LIBOR swaps to hedge the
short term repricing characteristics of the floating FHLB advances.5)
    
    Consists of other debt and a note payable under a revolving line of
credit. - 20 -




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##### Table of Contents



.
   - 21 -




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##### Table of Contents



For the Quarter Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of period
    
    $
    5,576
    
    
    $
    4,903
    
    
    $
    5,228
    
    
    $
    4,587Charge-offs:Real estate loansSingle-family
residentialMulti-family residentialCommercialConsumer and other loans
    
    
    
    
    
    
    (5
    )
    
    
    ( 2
    )
    
    
    (9
    )Total charge-offs
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )
    
    
    (9
    )Net charge-offs
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )
    
    
    (9
    )Provision for losses on loans
    
    
    
    
    
    
    230
    
    
    
    350
    
    
    
    550Balance at end of period
    
    $
    5,576
    
    
    $
    5,128
    
    
    $
    5,576
    
    
    $
    5,128Allowance for loan losses as
a percent of total loans
outstanding
    
    
    0.85
    %
    
    
    0.85
    %
    
    
    0.85
    %
    
    
    0.85
    %Ratio of net charge-offs to
average loans outstanding
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %
   - 22 -




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---



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(Dollars in thousands)September
    
    
    September
    
    
    
    
    
    
    September
    
    
    September2005
    
    
    2004
    
    
    %
    
    
    2005
    
    
    2004
    
    
    %Banking Fee Type
    
    Quarter
    
    
    Quarter
    
    
    Change
    
    
    YTD
    
    
    YTD
    
    
    ChangeMortgage
Brokerage Fee,
Prepayment
Penalties & Other
Loan Fees
    
    $
    409
    
    
    $
    315
    
    
    
    29.8
    %
    
    $
    1,040
    
    
    $
    1,164
    
    
    
    (10.7
    %)Deposit, Other
Retail Banking Fees
& Other Fee Income
    
    
    334
    
    
    
    267
    
    
    
    25.1
    %
    
    
    967
    
    
    
    731
    
    
    
    32.3
    %Harrington Wealth
Management Fees
    
    
    183
    
    
    
    152
    
    
    
    20.4
    %
    
    
    536
    
    
    
    447
    
    
    
    19.9
    %BOLI Income, net
    
    
    233
    
    
    
    
    
    
    
    
    
    
    
    448
    
    
    
    Total
    
    $
    1,159
    
    
    $
    734
    
    
    
    57.9
    %
    
    $
    2,991
    
    
    $
    2,342
    
    
    
    27.7
    %
   Financial Condition
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##### Table of Contents



YTDSeptember 30, 2005
    
    
    December 31, 2004
    
    
    ChangeAmount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount(Dollars in thousands)Real Estate Loans:Single-family
    
    $
    109,043
    
    
    
    16.5
    %
    
    $
    100,485
    
    
    
    16.6
    %
    
    $
    8,558Multi-family
    
    
    76,033
    
    
    
    11.5
    
    
    
    84,937
    
    
    
    14.0
    
    
    
    (8,904
    )Commercial
    
    
    260,732
    
    
    
    39.6
    
    
    
    260,759
    
    
    
    43.1
    
    
    
    (27
    )Construction (1)
    
    
    55,495
    
    
    
    8.4
    
    
    
    34,981
    
    
    
    5.8
    
    
    
    20,514Land acquisition and
development
    
    
    34,458
    
    
    
    5.2
    
    
    
    27,460
    
    
    
    4.5
    
    
    
    6,998Commercial and industrial
loans
    
    
    94,286
    
    
    
    14.3
    
    
    
    72,240
    
    
    
    11.9
    
    
    
    22,046Consumer loans
    
    
    28,066
    
    
    
    4.3
    
    
    
    23,757
    
    
    
    3.9
    
    
    
    4,309Other loans (2)
    
    
    1,289
    
    
    
    0.2
    
    
    
    1,044
    
    
    
    0.2
    
    
    
    245Total loans receivable
    
    $
    659,402
    
    
    
    100.0
    %
    
    $
    605,663
    
    
    
    100.0
    %
    
    $
    53,739Less:Allowance for loan
loss
    
    $
    (5,576
    )
    
    
    
    
    
    $
    (5,228
    )
    
    
    
    
    
    $
    (348
    )Net deferred loan fees
    
    
    (2,175
    )
    
    
    
    
    
    
    (1,730
    )
    
    
    
    
    
    
    (445
    )Net premiums
    
    
    (405
    )
    
    
    
    
    
    
    (263
    )
    
    
    
    
    
    
    (142
    )(8,156
    )
    
    
    
    
    
    
    (7,221
    )
    
    
    
    
    
    
    (935
    )Loans receivable, net
    
    $
    651,246
    
    
    
    
    
    
    $
    598,442
    
    
    
    
    
    
    $
    52,804
 
 (1)
    
    Includes loans secured by residential, land and commercial properties. At September
30, 2005, we had $29.5 million of construction loans secured by residential properties,
$13.3 million secured by commercial properties, $9.9 secured by Multi-family properties and
$2.8 million for land development.(2)
    
    Includes loans collateralized by deposits and consumer line of credit loans.  - 25 -




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities Available for Sale:September 30, 2005Mortgage-backed securities  pass through
    
    $
    133,029
    
    
    $
    206
    
    
    $
    (1,824
    )
    
    $
    131,411Collateralized mortgage obligations
    
    
    66,716
    
    
    
    1
    
    
    
    (879
    )
    
    
    65,838Commercial mortgage-backed securities
    
    
    42,000
    
    
    
    
    
    
    
    (397
    )
    
    
    41,603Asset-backed securities (underlying
securities mortgages)
    
    
    147,655
    
    
    
    980
    
    
    
    (145
    )
    
    
    148,490Asset-backed securities
    
    
    3,726
    
    
    
    79
    
    
    
    (104
    )
    
    
    3,701$
    393,126
    
    
    $
    1,266
    
    
    $
    (3,349
    )
    
    $
    391,043
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(Dollars in thousands)Securities Available for Sale:December 31, 2004Mortgage-backed securities  pass through
    
    $
    114,365
    
    
    $
    294
    
    
    $
    (957
    )
    
    $
    113,702Collateralized mortgage obligations
    
    
    73,894
    
    
    
    
    
    
    
    (495
    )
    
    
    73,399Commercial mortgage-backed securities
    
    
    47,545
    
    
    
    472
    
    
    
    (96
    )
    
    
    47,921Asset-backed securities (underlying
securities mortgages)
    
    
    187,949
    
    
    
    1,504
    
    
    
    (64
    )
    
    
    189,389Asset-backed securities
    
    
    5,460
    
    
    
    34
    
    
    
    (351
    )
    
    
    5,143Corporate debt securities
    
    
    1,569
    
    
    
    83
    
    
    
    
    
    
    
    1,652$
    430,782
    
    
    $
    2,387
    
    
    $
    (1,963
    )
    
    $
    431,206
   - 26 -




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Less than 12 Months
    
    
    12 Months or More
    
    
    Total(Dollars in thousands)Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAs of September 30, 2005
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage-backed
securities  pass
through
    
    $
    30,750
    
    
    $
    (145
    )
    
    $
    78,784
    
    
    $
    (1,679
    )
    
    $
    109,534
    
    
    $
    (1,824
    )Collateralized
mortgage obligations
    
    
    12,257
    
    
    
    (193
    )
    
    
    30,754
    
    
    
    (686
    )
    
    
    43,011
    
    
    
    (879
    )Commercial
mortgage-backed
securities
    
    
    40,825
    
    
    
    (359
    )
    
    
    779
    
    
    
    (38
    )
    
    
    41,604
    
    
    
    (397
    )Asset-backed
securities (underlying
securities mortgages)
    
    
    17,733
    
    
    
    (89
    )
    
    
    8,285
    
    
    
    (56
    )
    
    
    26,018
    
    
    
    (145
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    2,781
    
    
    
    (104
    )
    
    
    2,781
    
    
    
    (104
    )$
    101,565
    
    
    $
    (786
    )
    
    $
    121,383
    
    
    $
    (2,563
    )
    
    $
    222,948
    
    
    $
    (3,349
    )
 Less than 12 Months
    
    
    12 Months or More
    
    
    Total(Dollars in thousands)Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedAs of December 31, 2004
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMortgage-backed
securities  pass
through
    
    $
    54,582
    
    
    $
    (350
    )
    
    $
    29,319
    
    
    $
    (607
    )
    
    $
    83,901
    
    
    $
    (957
    )Collateralized
mortgage obligations
    
    
    61,773
    
    
    
    (271
    )
    
    
    11,626
    
    
    
    (224
    )
    
    
    73,399
    
    
    
    (495
    )Commercial
mortgage-backed
securities
    
    
    7,090
    
    
    
    (70
    )
    
    
    832
    
    
    
    (26
    )
    
    
    7,922
    
    
    
    (96
    )Asset-backed
securities (underlying
securities mortgages)
    
    
    18,711
    
    
    
    (64
    )
    
    
    1,302
    
    
    
    
    
    
    
    20,013
    
    
    
    (64
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    4,216
    
    
    
    (351
    )
    
    
    4,216
    
    
    
    (351
    )$
    142,156
    
    
    $
    (755
    )
    
    $
    47,295
    
    
    $
    (1,208
    )
    
    $
    189,451
    
    
    $
    (1,963
    )
  - 27 -




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Pledged Securities
    
    
    Unpledged Securities
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(Dollars in thousands)Mortgage-backed
securities  pass
through
    
    $
    78,784
    
    
    $
    (1,679
    )
    
    $
    
    
    
    $
    
    
    
    $
    78,784
    
    
    $
    (1,679
    )Collateralized
mortgage obligations
    
    
    30,754
    
    
    
    (686
    )
    
    
    
    
    
    
    
    
    
    
    30,754
    
    
    
    (686
    )Commercial
mortgage-backed
securities
    
    
    779
    
    
    
    (38
    )
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    (38
    )Asset-backed
securities (underlying
securities mortgages)
    
    
    8,285
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    8,285
    
    
    
    (56
    )Asset-backed securities
    
    
    
    
    
    
    
    
    
    
    2,781
    
    
    
    (104
    )
    
    
    2,781
    
    
    
    (104
    )$
    118,602
    
    
    $
    (2,459
    )
    
    $
    2,781
    
    
    $
    (104
    )
    
    $
    121,383
    
    
    $
    (2,563
    )
   - 28 -




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Amortized
    
    Unrealized
    
    Fair
    
    PledgedCost
    
    Gains (Losses)
    
    Value
    
    Securities(Dollars in thousands)September 30, 2005
    
    $
    869
    
    
    $
    (325
    )
    
    $
    544
    
    
    $
    299December 31, 2004
    
    $
    943
    
    
    $
    103
    
    
    $
    1,046
    
    
    $
    388
  Amortized
    
    Unrealized
    
    
    
    
    
    PledgedCost
    
    Gains (Losses)
    
    Fair Value
    
    Securities(Dollars in thousands)September 30, 2005
    
    $
    84
    
    
    $
    6
    
    
    $
    90
    
    
    $
    December 31, 2004
    
    $
    93
    
    
    $
    6
    
    
    $
    99
    
    
    $
    
    - 29 -




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- 30 -




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Liquidity and Capital Resources
 Liquidity.
    Capital Resources.
 - 31 -




---



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Asset and Liability Management
   - 32 -




---



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i.e.,
    Accounting for Derivative Instruments and Hedging Activities
as amended,
 - 33 -




---



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Critical Accounting Policies
 General.
  Allowance for loan losses
 - 34 -




---



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Accounting for Contingencies, Accounting by Creditors for Impairment of a Loan Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures, .
 Trading and Investment Portfolio.
 Hedging Activity.
 - 35 -




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Cautionary Statement Regarding Forward-Looking Statements.
  
    
    we may experience higher defaults on our loan portfolio than we expect;
    
    changes in managements estimate of the adequacy of the allowance for loan losses;
    
    changes in managements valuation of our mortgage-backed and related securities
portfolio and interest rate contracts;
    
    increases in competitive pressure among financial institutions;
    
    general economic conditions, either nationally or locally in areas in which we
conduct or will conduct our operations, or conditions in financial markets may be less
favorable than we currently anticipate;
    
    our net income from operations may be lower than we expect;
    
    natural disasters;
    
    we may lose more business or customers than we expect, or our operating costs may be
higher than we expect;
    
    the availability of capital to fund our growth and expansion;
    
    changes in the interest rate environment and their impact on customer behavior and
our interest margins;
    
    political and global changes arising from the war on terrorism;
    
    the impact of repricing and competitors pricing initiatives on loan and deposit products;
    
    our ability to adapt successfully to technological changes to meet customers needs
and developments in the market place;
    
    our ability to access cost-effective funding;
    
    our ability to successfully complete our strategy to continue to grow our business
in California, Kansas and Arizona;
    
    our returns from our securities portfolio may be lower than we expect; or
    
    legislative or regulatory changes or changes in accounting principles, policies or
guidelines may adversely affect our ability to conduct our business.
 - 36 -




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Item 3: Quantitative and Qualitative Disclosures about Market Risk
    Change In Interest Rates (In Basis Points)(1)-300
    
    
    -200
    
    
    -100
    
    
    +100
    
    
    +200
    
    
    +300(Dollars in Thousands)Market value gain (loss) in assets
    
    $
    33,429
    
    
    $
    24,309
    
    
    $
    13,679
    
    
    $
    (16,852
    )
    
    $
    (35,879
    )
    
    $
    (56,083
    )Market value gain (loss) of liabilities
    
    
    (24,217
    )
    
    
    (16,735
    )
    
    
    (8,583
    )
    
    
    8,733
    
    
    
    17,544
    
    
    
    26,511Market value gain (loss) of net assets
before interest rate contracts
    
    
    9,212
    
    
    
    7,574
    
    
    
    5,096
    
    
    
    (8,119
    )
    
    
    (18,335
    )
    
    
    (29,572
    )Market value gain (loss) of interest
rate contracts before tax
    
    
    (15,374
    )
    
    
    (9,947
    )
    
    
    (4,834
    )
    
    
    4,561
    
    
    
    8,874
    
    
    
    12,964Total change in MVPE (2)
    
    $
    (6,162
    )
    
    $
    (2,373
    )
    
    $
    262
    
    
    $
    (3,558
    )
    
    $
    (9,461
    )
    
    $
    (16,608
    )Change in MVPE as a percent of:MVPE(2)
    
    
    -6.66
    %
    
    
    -2.57
    %
    
    
    0.28
    %
    
    
    -3.85
    %
    
    
    -10.23
    %
    
    
    -17.96
    %MVPE post shock ratio (3)
    
    
    -0.77
    %
    
    
    -0.38
    %
    
    
    -0.08
    %
    
    
    -0.20
    %
    
    
    -0.60
    %
    
    
    -1.13
    %
 
 (1)
    
    Assumes an instantaneous parallel change in interest rates at all maturities.(2)
    
    Based on the Companys pre-tax tangible MVPE of $92.5 million at September 30, 2005.(3)
    
    Pre-tax tangible MVPE as a percentage of tangible assets.  
 Item 4: Controls and Procedures
  - 38 -




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PART II OTHER INFORMATION
 
 Item 1:
  
 Item 2:
  
 Item 3:
  
 Item 4:
  
 Item 5:
  - 39 -




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Item 6:
 EXHIBIT NO.
    
    DESCRIPTION31.1
    
    Section 302 Certification by Chief Executive Officer filed herewith.31.2
    
    Section 302 Certification by Chief Financial Officer filed herewith.32
    
    Section 906 Certification by Chief Executive Officer and Chief Financial
Officer furnished herewith.
 - 40 -




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SIGNATURES
  HARRINGTON WEST FINANCIAL GROUP, INC.Date: November 10, 2005
    
    By:
    
    /S/ CRAIG J. CERNYCraig J. Cerny, Chief Executive Officer(Principal Executive Officer)By:
    
    /S/ WILLIAM W. PHILLIPSWilliam W. Phillips,President, Chief Operating Officer andChief Financial Officer(Principal Financial andAccounting Officer)
 - 41 -