EXHIBIT 99.1
Harrington West Announces Record Earnings for the December 2004
Quarter and Calendar Year, and Raises Its Regular Quarterly Dividend
to 11 Cents Per Share
SOLVANG, Calif.--(BUSINESS WIRE)--Jan. 24, 2005--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 a record $2.2 million or 39 cents per share
on a fully diluted basis in the December 2004 quarter compared to $2.0
million or 36 cents per share in the December 2003 quarter. For the
full year of 2004, HWFG earned $8.2 million or $1.46 per share on a
fully diluted basis compared to $7.4 million or $1.36 per share in
2003. Return on average equity was 17.0% in the December 2004 quarter
and 16.3% in 2004 compared with 17.0% and 16.4% in the same periods in
2003, respectively. As a result of the earnings performance, the Board
of Directors increased HWFG's regular quarterly dividend by 10.0% to
11 cents per share, payable on February 15, 2005 to holders of record
on January 31, 2005.
HWFG's total assets were $1.1 billion at December 31, 2004
compared to $974.8 million at December 31, 2003, a $106.5 million
increase or 10.9%. In 2004, net loans grew 15.4% or $79.9 million to
$598.4 million, and investments increased 8.1% or $32.4 million to
$431.3 million. Total deposits were $598.2 million at December 31,
2004 compared to $570.7 million at the same time last year, a 4.8%
increase.
Financial Performance Analysis
HWFG's earnings performance continues to be driven by growth in
net interest income, investment portfolio performance exceeding our
expectations, favorable asset quality, and operating expense control
relative to HWFG's planned expansion of banking offices. A discussion
of these factors follows:
Net interest income before the provision for loan losses was $7.6
million in the December 2004 quarter compared to $6.7 million in the
same quarter a year ago, a 12.3% increase. For the full year 2004, net
interest income was $29.5 million compared to $26.1 million, a 13.1%
increase. The growth in net interest income is largely attributable to
the growth in interest earning assets throughout the year.
Net interest margin was 2.9% in the December 2004 and September
2004 quarters compared to 3.0% in the December 2003 quarter. This
marginal decrease in net interest margin of 10 basis points has been
attributed to a lag in the repricing of floating rate loans and
interest rate swaps compared to the repricing of floating rate
borrowings. This minor timing difference is generally expected to be
one to three months. Also, the payoff and refinancing of high coupon
fixed rate loans in HWFG's portfolio has had a slight negative impact
on net interest margin. For the full year of 2004, HWFG's net interest
margin was 2.9% compared with 3.1% in 2003.
As a result of our favorable asset quality and minimal
non-performing loans, charge offs remained low, and additional
provisions for loan losses have been primarily associated with loan
growth and not attributed to non-performing assets. In 2004, total
charge offs were $9 thousand relative to no charge-offs in 2003, and
provisions for loans losses were $650 thousand in 2004 relative to
$790 thousand in 2003.
Banking fee income was $806 thousand in the December 2004 quarter
compared to $734 thousand in the September 2004 quarter and $846
thousand in the December 2003 quarter. In 2004, banking fee income was
$3.1 million versus $4.1 million in 2003. The decline in banking fee
income in the comparative periods has been attributable to the decline
in mortgage brokerage and prepayment penalty fee income, as mortgage
refinancings declined markedly with somewhat higher interest rates. A
comparison of fee income sources is shown in the following chart:
(Dollars in thousands)
- ----------------------------------------------------------------------
December September December
2004 2004 2003
Banking Fee Type Quarter Quarter % Change Quarter % Change
- ----------------------------------------------------------------------
Mortgage Brokerage Fees
and Prepayment Penalties $298 $260 14.6% $495 (39.8%)
- ----------------------------------------------------------------------
Other Loan Fees 56 55 1.8% 40 40.0%
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Deposit, Other Retail
Banking Fee & Other
Income 289 267 8.2% 202 43.1%
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Harrington Wealth
Management Fees 163 152 7.2% 109 49.5%
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Total $806 $734 9.8% $846 (4.7%)
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(Dollars in thousands)
- ----------------------------------------------------------------------
December December
2004 2003
Banking Fee Type YTD YTD % Change
- ----------------------------------------------------------------------
Mortgage Brokerage
Fees and Prepayment
Penalties $1,290 $2,566 (49.7%)
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Other Loan Fees 226 223 1.3%
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Deposit, Other Retail
Banking Fee & Other
Income 1,022 863 18.4%
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Harrington Wealth
Management Fees 610 456 33.8%
- ----------------------------------------------------------------------
Total $3,148 $4,108 (23.4%)
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The performance of HWFG's investment portfolio continues to exceed
our expectations and has contributed to the improvement in net
earnings over the last few years. HWFG seeks to purchase investment
securities and instruments that are undervalued and profit from the
changes in spreads relative to comparable duration LIBOR funding
sources and hedges. As such, HWFG has generated more than $1.0 million
of net realized and unrealized gains in both 2003 and 2004 on
investments, total return swaps, and assets after the loss on the
extinguishment of related debt. In the December 2004 and 2003
quarters, HWFG produced $386 thousand and $398 thousand of such net
gains in each quarter, respectively.
Operating expenses were $5.0 million in the December 2004 quarter
compared to $4.5 million in the December 2003 quarter. In 2004,
operating expenses were $19.4 million compared to $17.8 million in
2003. The growth in operating expenses has been largely attributed to
the expenses required to support the growth of HWFG's banking offices.
Over the last year, HWFG has opened banking offices in Ventura,
California and in Overland Park, Kansas. The Company has also made
expenditures in administration and systems to support its growth and
has increased consulting and internal support to implement new
corporate governance regulations.
Community Banking Update
Both loans and deposits grew in 2004 despite considerable
competition in HWFG's markets and rising short-term interest rates.
All loan categories contributed to the $79.9 million in net loan
growth in 2004, as HWFG emphasized its diversified product lines and
higher spread earning loan categories of commercial real estate,
construction, and business loans. Shown in the following chart is a
comparison of loan balances in each category at December 31, 2004
relative to September 30, 2004 and December 31, 2003.
Loans Receivable
(Dollars in millions)
- ----------------------------------------------------------------------
December 31, September 30, December 31,
2004 2004 2003
- ----------------------------------------------------------------------
% of % of % of
Loan Type Total Total Total Total Total Total
- ----------------------------------------------------------------------
Commercial Real Estate $260.8 43.1% $272.2 45.0% $234.6 44.8%
- ----------------------------------------------------------------------
Multi-family Real Estate 84.9 14.0% 90.1 14.9% 82.1 15.7%
- ----------------------------------------------------------------------
Construction (1) 35.0 5.8% 21.3 3.5% 30.9 5.9%
- ----------------------------------------------------------------------
Single-family Real Estate 100.5 16.6% 99.8 16.5% 93.7 17.9%
- ----------------------------------------------------------------------
Commercial and industrial
loans 72.2 11.9% 73.1 12.1% 57.0 10.8%
- ----------------------------------------------------------------------
Land acquisition and
development 27.5 4.5% 24.1 4.0% 8.3 1.6%
- ----------------------------------------------------------------------
Consumer loans 23.8 3.9% 23.1 3.8% 16.6 3.1%
- ----------------------------------------------------------------------
Other loans (2) 1.0 0.2% 1.1 0.2% 1.0 0.2%
- ----------------------------------------------------------------------
Allowance, Deferred Fees &
Discounts/Premiums (7.2) (6.7) (5.7)
- ----------------------------------------------------------------------
Net loans receivable $598.4 100.0% $598.1 100.0% $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.
Net loan balances of $598.4 million were virtually flat at
December 31, 2004 compared to the balances at September 30, 2004. HWFG
experienced significant payoffs of loans late in the quarter, and
several new loan originations expected to close in late December 2004
were delayed into early 2005. Management believes this slowdown in
loan growth is temporary due to the preceding factors.
Loan originations in 2004 were $431.0 million for both portfolio
and brokering of residential mortgage loans compared to $481.4 million
in 2003. In the December quarter, loan originations were $79.3 million
compared to $92.6 million in the December 2003 quarter. Approximately
81.0% of loan originations in 2004 were for the Bank's portfolio.
Deposits were $598.2 million at December 31, 2004 compared to
$570.7 million at December 31, 2003. The $27.5 million growth in
deposits is attributable to the deposit development in the new Ventura
and Overland Park banking offices, which contributed $45.4 million in
deposits during the year, while the other offices lost $17.9 million
in deposits. Management has focused on growth in lower cost deposits
and building multiple product relationships and has decided not to
meet competition on very high cost and rate sensitive time deposits,
which reprice above the Bank's borrowing cost. Deposits, therefore,
declined by $14.7 million in the December 2004 quarter. With the
Bank's planned expansion and execution of its deposit development
strategy, management expects growth in its deposit base in the
quarters to come.
Asset Quality
The credit quality of the loan portfolio remained favorable with
$95 thousand of non-performing loans at December 31, 2004, compared to
$380 thousand at September 30, 2004 and $12 thousand at December 31,
2003. The allowance for loan losses had a balance of $5.2 million at
December 31, 2004 or .87% of net loans, compared with $4.6 million and
..88% of net loans at December 31, 2003.
Investment Portfolio Update
The total investment portfolio was $431.3 million at December 31,
2004, compared to $431.6 million and $398.9 million at September 30,
2004 and December 31, 2003, respectively. This investment portfolio,
comprised almost totally of investment grade, mortgage related
securities managed to a low duration, produced a total return
(interest income plus net gains and losses on investments and hedges)
over one month LIBOR of 2.12% on an annualized basis in the December
2004 quarter and 2.34% for the full year of 2004. These results
compare to an expected spread of 1.25% to 1.5%. The performance of
HWFG's total return commercial mortgage backed and asset backed
security swap portfolio has been the primary driver of the excess
performance, as spreads between the yields on the benchmarked
securities and comparable duration LIBOR yields tightened markedly in
2004, resulting in gains on these instruments. At December 31, 2004,
management estimates that a 10 basis point change in these spreads has
a $668.0 thousand impact on the value of HWFG's $120.0 million of
total return swaps.
Closing Comments
In commenting on HWFG's results for the quarter and full year
ended December 31, 2004, Craig J. Cerny, Chairman and CEO of HWFG,
stated, "We are pleased to report another year of record earnings,
while we continued to build HWFG's franchise value through strategic
banking office expansion in our primary markets and further
diversification of HWFG's loan portfolio and fee income sources. We
remain focused on further expansion of our banking presence in our
three primary markets on a controlled basis. We plan to add two to
three new banking offices over the next 15 to 18 months, with the
Scottsdale, Arizona airpark office estimated to open in late March
2005. We have reached an agreement to acquire a site to develop our
third full-service Harrington banking office in Western Johnson
County, Kansas, in the Kansas City metro, which will open in late 2005
or early 2006. We continue to work on two additional banking office
opportunities in the Phoenix metro market for a 2006 implementation.
We believe that our controlled expansion, diversified product lines,
and investment and risk management expertise will allow HWFG to
continue to grow core operating earnings and build franchise value. We
wish to thank our employees for their hard work and dedication in
producing another excellent year of results and our shareholders for
their support and investment in HWFG."
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 $134.8 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
Dec. 31, Sept. 30, Dec. 31,
2004 2004 2003
----------- ----------- --------------
Selected Financial Condition
Data:
Total assets $1,081,330 $1,082,450 $974,799
Loans receivable, net 598,442 598,070 518,496
Securities available for sale 431,206 431,503 398,691
Securities held to maturity 93 121 222
Trading account assets 1,046 1,904 2,111
Deposits 598,182 612,922 570,697
Federal Home Loan Bank advances 316,000 298,000 262,500
Securities sold under repurchase
agreements 79,689 80,090 65,728
Subordinated debt 25,774 25,774 15,464
Stockholders' equity 52,667 50,324 48,076
Number of shares outstanding 5,278,934 5,278,934 5,206,141
At or for the Three Months Ended For the Year Ended
-------------------------------- ---------------------
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2004 2004 2003 2004 2003
---------- ---------- ---------- ---------- ----------
Selected Income Statement Data:
Interest income $14,020 $13,271 $11,919 $52,266 $46,434
Interest
expense 6,434 5,846 5,173 22,718 20,308
---------- ---------- ---------- ---------- ----------
Net interest
income 7,586 7,425 6,746 29,548 26,126
Provision for
loan losses 100 230 80 650 790
---------- ---------- ---------- ---------- ----------
Net interest
income after
provision for
loan losses 7,486 7,195 6,666 28,898 25,336
Other income:
Income (loss)
from trading
account assets 386 264 398 1,261 2,647
Loss on
extinquishment
of debt 0 - 0 (189) (1,610)
Other Gain
(loss) (10) (35) (16) (57) 30
Banking fee
income (1) 806 734 846 3,148 4,108
---------- ---------- ---------- ---------- ----------
Total other
income 1,182 963 1,228 4,163 5,175
Other expenses:
Salaries and
employee
benefits 2,545 2,589 2,541 10,522 10,086
Premises and
equipment 877 811 719 3,153 2,722
Other expenses
(2) 1,554 1,428 1,245 5,741 5,041
---------- ---------- ---------- ---------- ----------
Total other
expenses 4,976 4,828 4,505 19,416 17,849
Income before
income taxes 3,692 3,330 3,389 13,645 12,662
Income taxes 1,501 1,351 1,389 5,436 5,249
---------- ---------- ---------- ---------- ----------
Net income $2,191 $1,979 $2,000 $8,209 $7,413
========== ========== ========== ========== ==========
Common Stock Summary:
Diluted
earnings per
share $0.39 $0.35 $0.36 $1.46 $1.36
Dividends per
share 0.10 0.10 0.08 0.88 0.22
Stockholders'
equity per
share 9.98 9.53 9.23 9.98 9.23
Diluted weighted
average shares
outstanding 5,644,904 5,622,519 5,527,722 5,603,680 5,455,002
Harrington West Financial Group, Inc.
(Dollars in thousands, except share and per share data)
At or for the Three Months Ended For the Year Ended
-------------------------------- ---------------------
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2004 2004 2003 2004 2003
---------- ---------- ---------- ---------- ----------
Selected Operating
Data (3):
Performance Ratios
and Other Data:
Return on
average assets 0.81% 0.74% 0.85% 0.80% 0.82%
Return on
average equity 17.02 15.94 16.96 16.30 16.37
Equity to
assets 4.87 4.65 4.93 4.87 4.93
Interest rate
spread (4) 2.72 2.74 2.83 2.77 2.90
Net interest
margin (4) 2.89 2.90 3.00 2.93 3.07
Average
interest-earning
assets to average
interest-bearing
liabilities 107.05 106.93 107.46 107.09 107.03
Total
noninterest
expenses to
average total
assets 1.86 1.82 1.93 1.88 2.04
Efficiency
ratio (5) 59.29 59.17 59.34 59.38 59.04
Asset Quality
Ratios (6):
Non-performing assets
and troubled debt
restructurings
to total assets - 0.04 -
Non-performing loans
and troubled debt
restructurings
to total loans 0.02 0.06 -
Allowance for
loan losses to
total loans 0.87 0.86 0.88
Net charge-offs
to average
loans
outstanding - - -
(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. 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 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
Lisa F. Watkins, 805-688-6644