Exhibit 99.1
Harrington West Announces Record Year-to-Date Earnings Through September 2004
and Declares Regular Quarterly Dividend
SOLVANG, Calif.--(BUSINESS WIRE)--Oct. 21, 2004--Harrington West Financial
Group, Inc. (Nasdaq:HWFG), the holding company for Los Padres Bank, FSB (LPB)
and its division, Harrington Bank, today announced that it earned net income of
$2.0 million or 35 cents per share on a fully diluted basis in the September
2004 quarter compared to $2.0 million or 37 cents per share in the same quarter
last year. For the year-to-date through September 30, 2004, HWFG has earned a
record $6.0 million or $1.08 per share on a fully diluted basis compared to $5.4
million or $1.00 per share in the same nine-month period in 2003.
HWFG's return on average equity was 15.9% and 16.3% in the September 2004
quarter and year-to-date periods versus 17.5% and 16.3% in the same periods in
2003, respectively. Book value per share was $9.53 at September 30, 2004
compared to $9.29 at June 30, 2004 and $8.89 at September 30, 2003. Dividends of
78 cents per share have been paid to shareholders in 2004 through September 30,
2004, including a special dividend per share of 50 cents paid on July 12, 2004.
Given the earnings performance, the Board of Directors declared a regular
quarterly dividend of 10 cents per share payable on November 11, 2004 to holders
of record on October 29, 2004.
Total assets were $1.1 billion at September 30, 2004, compared to $1.1
billion at June 30, 2004 and $974.8 million at December 31, 2003. Total assets
grew $32.0 million in the September quarter entirely due to an increase in net
loans of $32.7 million or 5.8%. For the first nine months of 2004, total assets
grew $107.7 million or 11.0%, including net loan growth of $79.6 million or
15.3% and net growth of investments of $32.7 million or 8.2%.
On September 27, 2004, HWFG successfully completed the issuance of the
previously announced trust preferred security (TRUP) of $10.0 million. The TRUP
issuance was priced at a more favorable cost of capital than HWFG's existing
revolving line of credit with two nationally recognized banks. With this trust
preferred issuance, HWFG was able to renegotiate a more favorable interest rate
spread to 3 month LIBOR on the existing $15.0 million revolving line of credit.
Both the TRUP and line of credit provide sources of expansion capital for HWFG.
Financial Performance Analysis
HWFG generated net interest income before the provision for loan losses of
$7.4 million in the September 2004 quarter compared to $6.9 million in the same
quarter a year ago, a 7.8% increase. For the first nine months of 2004, net
interest income before provision was $22.0 million compared to $19.4 million in
the same period in 2003, a 13.3% increase. The net interest income growth in the
first nine months of 2004 has been attributed to the growth in earning assets.
The net interest margin was 2.90% and 2.95% in the September 2004 quarter
and year-to-date periods compared to 3.24% and 3.11% in the comparable periods
in 2003, respectively. The decline in net interest margin was primarily due to
the following: (1) a temporary lag in the repricing of cost of funds and prime
indexed real estate and consumer loans that have a 15 to 45 day look back
periods, (2) some mismatch in the repricing of the floating rates on LIBOR based
swap hedges and investments (one to three months) versus the timing of the
repricing of floating rate advances (daily) and, (3) the refinancing of higher
coupon loans and investments to current market rates.
Banking fee income has declined in 2004 over the comparable periods in 2003
due to a reduction in income from the brokering of residential mortgage loans
and the prepayment penalty fees on commercial and multi-family real estate
loans. These fee income sources have declined as the refinancing of mortgage
loans also declined sharply commensurate with the higher interest rate
environment in 2004. HWFG has been emphasizing the origination of purchase
mortgages through its Los Padres Mortgage Company, LLC (LPMC) joint venture with
Resource Marketing, the holding company for RE/MAX Achievers in the Phoenix
market, and through its realty and builder origination programs within the Bank.
In evaluating the success of these programs, HWFG decided to terminate its joint
venture with Resource Marketing at September 30, 2004 and to retain selected
LPMC loan origination staff in the Bank, which will concentrate on loan
originations in the broader Phoenix metro market. Although LPMC demonstrated
some success in penetrating the RE/MAX Achievers' clientele, the penetration
rates were below the expected levels, and HWFG believed it could improve overall
performance by broadening originations on the Bank's platform throughout the
Phoenix metro. This strategy is also expected to provide economies by
eliminating duplication of loan administration in LPMC and the Bank. Thus, this
decision is expected to have a neutral to slightly positive effect on earnings
for the remainder of 2004.
In the September 2004 quarter, the Company did start to realize positive
benefits from the implementation of its overdraft protection program in mid
August. In the September 2004 quarter, overdraft related fees were $109
thousand, compared to $82 thousand and $63 thousand in the June 2004 and
September 2003 quarters, respectively. The Company expects further growth in
this fee income source over the next few quarters.
The following chart shows the comparison of banking fee income sources for
the September 2004 quarter and year-to-date periods over the same periods in
2003.
(Dollars in thousands)
- ----------------------------------------------------------------------
September September September September
Banking Fee 2004 2003 % 2004 2003 %
Type Quarter Quarter Change YTD YTD Change
- ---------------------- ---------------------------- ------------------
Mortgage
Brokerage
Fees $234 $490 (52.2%) $852 $1,650 ( 48.4%)
- ---------------------- ---------------------------- ------------------
Prepayment
Penalties
and other
Loan Fees 81 206 (60.7%) 312 603 (48.3%)
- ---------------------- ---------------------------- ------------------
Deposit &
Other Retail
Banking Fees 267 222 20.3% 731 660 10.8%
- ---------------------- ---------------------------- ------------------
Harrington
Wealth
Management
Fees 152 118 28.8% 447 347 28.8%
- ---------------------- ---------------------------- ------------------
Total $734 $1,036 (29.2%) $2,342 $3,260 (28.2%)
- ---------------------- ---------------------------- ------------------
Operating expenses in the September 2004 quarter and year-to-date periods
were $4.8 million and $14.4 million compared to $4.6 million and $13.3 million
in the comparable periods in 2003, respectively. Operating expenses have
increased in the comparable 2004 over 2003 periods due to the cost of opening
and operating two new banking offices in the Ventura, California and Kansas City
metro markets during the last 9 months, the cost of complying with new corporate
governance regulations and laws, and some increase in administration costs in
accordance with the Company's growth. The Company seeks operating efficiencies
from cost containment practices, and as such, expense growth has been minimal
over the last three quarters. From the June 2004 quarter to September 2004
quarter, operating expenses were down marginally from $4.9 million to $4.8
million.
Community Banking Update
Both net loans and deposits grew in the September 2004 quarter on a
sequential and year-to-date basis. Net loans reached $598.1 million at September
30, 2004 compared to $565.4 million and $518.5 million at June 30, 2004 and
December 31, 2003, respectively. The loan growth has emanated from almost all
loan categories. Shown in the following table is a comparison of net loan
balances by category at September 30, 2004, June 30, 2004 and December 31, 2003
with the corresponding mix percentages.
Loans Receivable
(Dollars in millions)
- ----------------------------------------------------------------------
September 30, December 31,
2004 June 30, 2004 2003
- ----------------------------------------------------------------------
% of % of % of
Loan Type Total Total Total Total Total Total
- ----------------------------------------------------------------------
Commercial Real Estate $272.2 45.0% $264.0 46.1% $234.6 44.8%
- ----------------------------------------------------------------------
Multi-family Real Estate 90.1 14.9% 86.7 15.2% 82.1 15.7%
- ----------------------------------------------------------------------
Construction (1) 21.3 3.5% 20.0 3.5% 30.9 5.9%
- ----------------------------------------------------------------------
Single-family Real Estate 99.8 16.5% 98.2 17.2% 93.7 17.9%
- ----------------------------------------------------------------------
Commercial and industrial
loans 73.1 12.1% 68.0 11.9% 57.0 10.8%
- ----------------------------------------------------------------------
Land acquisition and
development 24.1 4.0% 12.7 2.2% 8.3 1.6%
- ----------------------------------------------------------------------
Consumer loans 23.1 3.8% 21.1 3.7% 16.6 3.1%
- ----------------------------------------------------------------------
Other loans (2) 1.1 0.2% 1.0 0.2% 1.0 0.2%
- ----------------------------------------------------------------------
Allowance, Deferred Fees &
Discounts/Premiums (6.7) (6.3) (5.7)
- ----------------------------------------------------------------------
Net loans receivable $598.1 100.0% $565.4 100.0% $518.5 100.0%
- ----------------------------------------------------------------------
(1) Includes loans collateralized by residential, commercial and land
properties.
(2) Includes loans collateralized by deposits and consumer lines of
credit loans.
HWFG originated $95.3 million of loans in the September 2004 quarter and
$351.7 million for the first nine months of 2004. This production compares to
the $121.3 million of loan originations generated in September 2003 quarter and
$388.8 million in the 2003 year-to-date period. The decline in loan originations
in the comparable 2004 over 2003 periods is due to a lower level of refinancing
activity in 2004. Approximately 79.0% of the 2004 year-to-date originations were
for HWFG's loan portfolio.
Deposits reached $612.9 million at September 30, 2004 compared to $589.8
million and $570.7 million at June 30, 2004 and December 31, 2003, increasing
3.9% in the September 2004 quarter. HWFG's new banking office, opened in May
2004 in Ventura, California, reached $22.6 million in deposits at September 30,
2004, growing $13.4 million in the September 2004 quarter. Non-costing deposits
reached $35.4 million at September 30, 2004 compared with $29.2 million at
December 31, 2003. This increase in non-costing deposits has contributed to
overall deposit costs remaining relatively stable despite rising interest rates
in 2004. The cost of deposits was 1.80% in the September 2004 quarter versus
1.74% last quarter and 1.76% in the December 2003 quarter.
Asset Quality
The credit quality of the loan portfolio remained generally favorable with
$380.2 thousand of non-performing loans at September 30, 2004, consisting of
three collateralized loans, compared to non-performing loans of $4.9 thousand at
June 30, 2004 and $11.7 thousand at December 31, 2003. With the loan growth in
the September 2004 quarter and based on the Company's methodology for reserving
for credit losses, HWFG added $230 thousand to the allowance for loan losses.
The total allowance for loan losses was $5.1 million or .86% of net loans at
September 30, 2004 compared to $4.5 million at September 30, 2003 or .89% of net
loans.
Investment Portfolio Update
HWFG's investment portfolio balance remained relatively stable at $431.6
million at September 30, 2004 versus $426.9 million and $398.9 million at June
30, 2004 and December 31, 2003. This portfolio, consisting of largely investment
grade mortgage and asset backed securities, is managed to a short duration of 3
to 6 months and funded with hedged floating rate liabilities in order to earn a
total return, including interest income and net gains and losses on securities,
over one month LIBOR of 1.25% to 1.5% annualized. For the September 2004 quarter
and year-to-date periods the portfolio has generated annualized net returns on
this basis of 3.9% and 2.4%, respectively. Management expects to manage the size
of the investment portfolio opportunistically as equity capital levels warrant
and based on the growth of core banking assets and liabilities.
Closing Comments
In commenting on the September 2004 quarterly results, Chairman and CEO of
Harrington West, Craig J. Cerny stated, "We are pleased with our progress in
growing our loan portfolio at a 20% annual growth rate in 2004 and in further
adjusting the mix of the portfolio to higher spread-earning categories, although
we did experience a temporary reduction in the Company's net interest margin due
to some timing differences in the repricing of hedges, borrowings, and floating
rate loans and investments. Our deposits, too, grew at over a double digit
annual pace in the quarter. Our net earnings continue to meet our forecast due
to net interest income growth, favorable investment portfolio performance, and
operating expense control. Mortgage brokerage income and prepayment penalty fees
continue to be well below last year as refinancing interest rates remain above
the lows realized during the first nine months of 2003. We believe the
broadening of the distribution of our mortgage banking activities beyond the
RE/MAX relationship in Phoenix will be positive in enhancing the profitability
of mortgage banking operations, while we further diversify and grow other
banking fees and seek to control our operating costs. We remain fully focused on
growing our banking franchises on a profitable basis."
Harrington West Financial Group, Inc. is a $1.1 billion, diversified,
financial institution holding company for Los Padres Bank and its division
Harrington Bank. HWFG will operate 14 full service banking offices on the
central coast of California, Scottsdale Arizona, and the Kansas City metro, when
it opens its second banking office in the Scottsdale Airpark in early 2005. It
also owns Harrington Wealth Management Company, a trust and investment
management company with $126.6 million in assets under management or custody.
This Release includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act. All of the statements contained in the
Release, other than statements of historical fact, should be considered
forward-looking statements, including, but not limited to, those concerning (i)
the Company's strategies, objectives and plans for expansion of its operations,
products and services, and growth of its portfolio of loans, investments and
deposits, (ii) the Company's beliefs and expectations regarding actions that may
be taken by regulatory authorities having oversight of the operation, (iii) the
Company's beliefs as to the adequacy of its existing and anticipated allowances
for loan and real estate losses, (iv) the Company's beliefs and expectations
concerning future operating results and (v) other factors referenced in the
Company's filings with the Securities and Exchange Commission. Although the
Company believes the expectations reflected in those forward-looking statements
are reasonable, it can give no assurance that those expectations will prove to
have been correct. Investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof and are not
intended to give any assurance as to future results. The Company undertakes no
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Harrington West Financial Group, Inc.
(Dollars in thousands, except share and per share data)
At At At
Sept. 30, June 30, Sept. 30
2004 2004 2003
--------------------------------
Selected Financial Condition Data:
Total assets $1,082,450 $1,050,420 $900,345
Loans receivable, net 598,070 565,369 504,336
Securities available for sale 431,516 426,738 344,085
Securities held to maturity 121 163 2,303
Trading account assets 1,904 1,915 1,945
Deposits 612,922 589,789 539,869
Federal Home Loan Bank advances 298,000 295,000 217,500
Securities sold under repurchase
agreements 80,090 79,510 65,893
Note payable - - -
Other debt 25,774 15,464 15,000
Stockholders' equity 50,324 48,971 46,308
Number of shares outstanding 5,278,934 5,269,184 5,206,141
At or for the Three Months Ended For the Nine Months
Ended
-------------------------------- --------------------
Sept. 30, June 30, Sept. 30 Sept. 30, Sept. 30
2004 2004 2003 2004 2003
---------- ---------- ---------- ---------- ---------
Selected Income
Statement Data:
Interest income $13,271 $12,727 $11,851 $38,246 $34,515
Interest expense 5,846 5,232 4,965 16,284 15,135
---------- ---------- ---------- ---------- ---------
Net interest
income 7,425 7,495 6,886 21,962 19,380
Provision for
loan losses 230 230 100 550 710
---------- ---------- ---------- ---------- ---------
Net interest
income after
provision for
loan losses 7,195 7,265 6,786 21,412 18,670
Other income:
Income from
trading
account assets 264 273 380 875 2,249
Loss on
extinguishment
of debt - (189) (187) (189) (1,610)
Other gain
(loss) (35) (2) (2) (47) 47
Banking fee
income (1) 734 848 1,036 2,342 3,260
---------- ---------- ---------- ---------- ---------
Total other
income 963 930 1,227 2,981 3,946
Other expenses:
Salaries and
employee
benefits 2,589 2,704 2,521 7,977 7,545
Premises and
equipment 811 741 679 2,276 2,003
Other expenses
(2) 1,428 1,425 1,379 4,187 3,796
---------- ---------- ---------- ---------- ---------
Total other
expenses 4,828 4,870 4,579 14,440 13,344
Income before
income taxes 3,330 3,325 3,434 9,953 9,272
Income taxes 1,351 1,345 1,436 3,935 3,859
---------- ---------- ---------- ---------- ---------
Net income $1,979 $1,980 $1,998 $6,018 $5,413
========== ========== ========== ========== =========
Common Stock
Summary:
Diluted earnings
per share $0.35 $0.35 $0.37 $1.08 $1.00
Dividends per
share (7) 0.10 0.60 0.07 0.78 0.13
Stockholders'
equity per
share (8) 9.53 9.29 8.89 9.53 8.89
Diluted weighted
average shares
outstanding 5,622,519 5,613,093 5,472,539 5,589,300 5,424,126
Harrington West Financial Group, Inc.
(Dollars in thousands, except share and per share data)
At or for the Three For the Nine
Months Ended Months Ended
------------------- ---------------
Sept. June Sept. Sept. Sept.
30, 30, 30 30, 30
2004 2004 2003 2004 2003
------ ------ ------ ------ -------
Selected Operating Data (3):
Performance Ratios and Other Data:
Return on average assets 0.74% 0.77% 0.91% 0.78% 0.84%
Return on average equity 15.94% 16.12 17.53 16.31% 16.26
Equity to assets 4.65 4.66 5.14 4.65 5.14
Interest rate spread (4) 2.74 2.90 3.07 2.81 2.95
Net interest margin (4) 2.90 3.05 3.24 2.95 3.11
Average interest-earning assets
to average interest-
bearing liabilities 106.93 107.12 107.38 107.10 106.87
Total noninterest expenses to
average total assets 1.83 1.93 2.08 4.27 2.08
Efficiency ratio (5) 59.17 58.37 57.80 59.41 58.94
Asset Quality Ratios (6):
Non-performing assets and
troubled debt restructurings
to total assets 0.04 0.00 0.00 0.04 0.00
Non-performing loans and
troubled debt restructurings
to total loans 0.06 0.00 0.00 0.06 0.00
Allowance for loan losses to total
loans 0.86 0.87 0.89 0.86 0.89
Net charge-offs to average loans
outstanding 0.00 0.00 0.00 0.00 0.00
(1) Consists of service charges, wholesale mortgage banking income,
trust income, other commissions and fees and other miscellaneous
noninterest income.
(2) Consists of computer services, consulting fees, marketing and
other miscellaneous noninterest expenses.
(3) With the exception of return on average assets and return on
average equity (which are based on month-end balances), all ratios
are based on average daily balances. All ratios are annualized
where appropriate.
(4) Interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average rate on interest-bearing liabilities. Net interest margin
represents net interest income as a percentage of average
interest-earning assets.
(5) Efficiency ratio represents noninterest expenses as a percentage
of the aggregate of net interest income and noninterest income,
excluding gains and losses on securities, deposits, borrowings and
loans.
(6) Non-performing loans generally consist of non-accrual loans and
non-performing assets generally consist of non-performing loans
and real estate acquired by foreclosure or deed-in-lieu thereof.
(7) A six for five stock split in the form of a stock dividend
occurred on March 11, 2004, and a special dividend of 50 cents a
share was declared on June 16, 2004 payable on July 12, 2004.
(8) Calculation is based on number of outstanding shares at the end of
each period.
CONTACT: Harrington West Financial Group, Inc.
Craig J. Cerny, 913-663-0180
or
For share transfer information contact:
Lisa F. Watkins, 805-688-6644