Exhibit 99.1
Harrington West Announces June 2005 Quarter Earnings and Raises Its Regular
Quarterly Dividend by 13.6% to 12.5 Cents Per Share
SOLVANG, Calif.--(BUSINESS WIRE)--July 21, 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 $2.0 million
or 35 cents per share on a fully diluted basis in the June 2005 quarter compared
to $2.0 million or 35 cents per share in the same quarter a year ago. For the
first six months of 2005, HWFG earned net income of $4.2 million, or 74 cents
per share compared to $4.0 million or 72 cents per share in the same period in
2004. Return on average equity was 13.9% and 15.4% for the June 2005 quarter and
year-to-date periods, respectively. Book value per share was $10.46 at June 30,
2005, compared to $9.98 at December 31, 2004. The book value of the Company is
affected by earnings, dividends paid, and changes in other comprehensive income
due to the change in the value of cash flow hedges and investments.
Given the favorable earnings over the last several quarters, the Board of
Directors increased the regular quarterly dividend by 13.6% to 12.5 cents per
share payable on August 12, 2005 to holders of record on August 3, 2005. The
HWFG share repurchase program of up to 200,000 shares announced on May 3, 2005
remains in effect. No HWFG shares were repurchased by the Company in the June
2005 quarter.
Total assets were $1.1 billion at June 30, 2005, growing $27.9 million
since December 31, 2004. Net loans receivable increased $13.5 million in the
June quarter and $36.5 million for the year-to-date period to $634.9 million at
June 30, 2005. Loan demand remained strong in all of the Company's markets but
higher real estate loan prepayments were experienced toward the end of the June
quarter, affecting net balances. The investment portfolio was $401.0 million at
June 30, 2005, declining $30.3 million since December 31, 2004. With the tighter
spread environment and growth of the loan portfolio, management has reduced
investments selectively.
Financial Performance Analysis
The Company seeks to improve its net earnings and franchise value by
growing its core banking franchise of loans, deposits, and banking offices,
changing the mix of its loan portfolio to higher risk-adjusted margin
categories, changing the mix of its deposits to a higher portion of
lower-costing transaction accounts, and increasing fee income through growth of
existing fee income sources and adding new sources. The Company is also
opportunistic in managing the size and composition of its investment portfolio
in an effort to enhance earnings, while considering the level of risk-adjusted
market spreads on high credit quality, fixed income investments, LPB's capital
levels, and the growth of the loan portfolio. HWFG attempts to control interest
rate, credit, and operational risks to reduce the volatility of earnings.
Net interest income was $7.5 million in the June 2005 quarter and $15.0
million for the first six months of 2005 compared to $7.5 million and $14.5
million for the same periods in 2004, respectively. The net interest margin was
2.82% in the June 2005 quarter compared to 2.84% in the March 2005 quarter and
3.04% in the June 2004 quarter. For the first six months of 2005, net interest
margin was 2.82% compared to 3.00% in the same period in 2004.
The growth of 3.5% in net interest income for the year-to-date period 2005
over the same 2004 period has been a function of slightly lower net interest
margin while average earning assets over the same period grew 9.9%. The lower
net interest margin has been the result of a lag in the repricing of some
floating rate assets (tied to the 11th District Cost of Funds and trailing Prime
or Constant Maturity Treasury indices) and three month LIBOR based hedges
relative to the daily rate change on the Company's borrowings. This lag effect
is expected to correct once the Federal Reserve slows the pace of, or ceases,
the nine .25% rate increases experienced over the last year and with the mix
change of loans to higher spread earning categories. Also, in the June 2005
quarter, HWFG purchased $17.0 million of bank owned variable life insurance
(BOLI), which is invested in investment grade fixed income securities, has a
crediting rate of 7.15%, and includes a stable value wrap by an investment grade
banking institution. The net revenue from this BOLI is recorded in fee income.
This transaction, although expected to be accretive to net earnings, has the
effect of reducing HWFG's net interest margin by approximately 5 basis points.
Banking fee income was $974 thousand in the June 2005 quarter and $1.8
million for the first six months of 2005, growing 14.9% and 13.9%, respectively,
over the same periods in 2004. Fee income results are shown in the following
table:
(Dollars in thousands)
- ----------------------------------------------------------------------
June June June June
2005 2004 % 2005 2004 %
Banking Fee Type Quarter Quarter Change YTD YTD Change
- ----------------------------------------------------------------------
Mortgage Brokerage
Fee, Prepayment
Penalties & Other
Loan Fees $254 $472 (46.2%) $631 $848 (25.6%)
- ----------------------------------------------------------------------
Deposit, Other Retail
Banking Fees & Other
Fee Income 317 230 37.8% 634 469 35.2%
- ----------------------------------------------------------------------
Harrington Wealth
Management Fees 189 146 29.5% 353 291 21.3%
- ----------------------------------------------------------------------
BOLI Income, net 214 - 214
- ----------------------------------------------------------------------
Total $974 $848 14.9% $1,832 $1,608 13.9%
- ----------------------------------------------------------------------
The increase in fee income for the comparable periods is emanating from all
categories except the more volatile mortgage brokerage and loan prepayment
penalty categories. For the first six months of 2004, HWFG benefited from the
high rate of refinancing activity and loan originations. The Company has since
focused on purchase mortgage business through its branches and has reduced the
cost of its mortgage operations to improve profitability. HWFG's overdraft
protection program has largely contributed to the growth in deposits and related
fees in the 2005 year-to-date period over the same period in 2004. This program
provides HWFG's customers the privilege to overdraft their checking account up
to a set limit, whereby the Bank earns a fee but the customer avoids the
embarrassment of any additional fees from a vendor. Furthermore, to defray the
cost of HWFG's employee benefits, HWFG implemented a $17.0 million BOLI on April
8, 2005, whereby the Company earns the cash build-up from investing in a
separate account of investment grade, fixed income securities, professionally
managed on a tax deferred basis, and also receives the death benefit on insured
employees. The BOLI added $214 thousand in net revenue in the June 2005 quarter.
HWFG's income tax rate was positively influenced primarily by the BOLI,
declining from 40.6% in the March 2005 quarter to 38.9% in the June 2005
quarter. HWFG estimates its full year income tax rate to be approximately 39.8%.
General and administrative expenses were $5.1 million in the June 2005
quarter and $10.3 million for the first six months of 2005 compared with $4.9
million and $9.6 million in the same periods of 2004. The 7.7% growth in 2005
year-to-date expenses over 2004 have been largely due to HWFG's banking office
expansion in its markets, the growth in related infrastructure, the cost of
hiring of additional commercial lenders, and the expense to comply with recent
corporate governance laws and regulations. HWFG estimates that its new banking
offices take on average 12 to 18 months to become profitable, and three banking
offices have been added over the last 18 months.
Community Banking Update
HWFG continued to grow both its deposits and loans in the June 2005
quarter. In May 2005, HWFG completed the purchase and assumption of a banking
office with $42.9 million of deposits in the Thousand Oaks, California market
for a premium of $1.9 million in cash. This acquisition, coupled with the
internal growth of deposits, resulted in deposits reaching $645.3 million at
June 30, 2005 compared to $601.5 million and $598.2 million at March 31, 2005
and December 31, 2004, respectively. HWFG continues to aggressively promote its
new banking offices to reach critical mass while it seeks to increase its core
business and personal transaction deposits. As such, non-interest bearing
deposits grew to $40.1 million at June 30, 2005 from $33.6 million at December
31, 2004.
Net loan balances also increased in the June 2005 quarter and in the
year-to-date period as shown in the following chart:
HWFG Net Loan Growth and Mix
(Dollars in millions)
- ----------------------------------------------------------------------
December 31,
June 30, 2005 March 31, 2005 2004
- ---------------------------------------- -------------- --------------
% of % of % of
Loan Type Total Total Total Total Total Total
- --------------------------------- ------ ------- ------ ------- ------
Commercial Real Estate $266.8 41.5% $269.5 42.8% $260.8 43.1%
- --------------------------------- ------ ------- ------ ------- ------
Multi-family Real Estate 80.0 12.4% 83.3 13.3% 84.9 14.0%
- --------------------------------- ------ ------- ------ ------- ------
Construction (1) 46.4 7.2% 38.5 6.1% 35.0 5.8%
- --------------------------------- ------ ------- ------ ------- ------
Single-family Real Estate 106.3 16.5% 105.7 16.8% 100.5 16.6%
- --------------------------------- ------ ------- ------ ------- ------
Commercial and industrial
loans 86.5 13.5% 72.8 11.6% 72.2 11.9%
- --------------------------------- ------ ------- ------ ------- ------
Land acquisition and
development 30.1 4.7% 33.8 5.4% 27.5 4.5%
- --------------------------------- ------ ------- ------ ------- ------
Consumer loans 25.6 4.0% 24.2 3.8% 23.7 3.9%
- --------------------------------- ------ ------- ------ ------- ------
Other loans (2) 1.2 .2% 1.2 .2% 1.0 .2%
- --------------------------------- ------ ------- ------ ------- ------
Allowance, Deferred Fees &
Discounts/Premiums (8.0) (7.6) (7.2)
- --------------------------------- ------ ------- ------ ------- ------
Net loans receivable $634.9 100.0% $621.4 100.0% $598.4 100.0%
- --------------------------------- ------ ------- ------ ------- ------
(1) Includes loans collateralized by residential, commercial and land
properties.
(2) Includes loans collateralized by deposits and consumer line of
credit loans.
The drivers of the loan growth in the June 2005 quarter and year-to-date
period are centered in business and construction lending. Although the real
estate loan pipeline is favorable, growing commercial and residential real
estate loan balances has recently been more challenging with the flat yield
curve and relatively low long term interest rates and spreads, resulting in
higher loan payoffs than anticipated.
Credit quality of the loan portfolio remains generally favorable with $608
thousand of non-performing loans at June 30, 2005 compared to $112 thousand at
March 31, 2005 and $95 thousand at December 31, 2004. The non-performing loans
consist of the loans from two commercial credit relationships, which are
collateralized by all the business assets of the companies. These businesses
have experienced weaker sales and cash flow or the collateral support has
deteriorated due to aging or valuation reasons. Management is closely monitoring
these credits and working through a plan to minimize losses, if any, to the
Company. Loan losses were nominal in the quarter, equaling less than $1
thousand. The allowance for loan losses was increased $200 thousand in the
quarter to $5.6 million based on the growth in the loan portfolio and HWFG's
reserve levels for the nature and rating of the loans.
Investment Portfolio Update
The Company's investment portfolio was $401.0 million at June 30, 2005
compared with $422.1 million and $431.3 million at March 31, 2005 and December
31, 2004, respectively. Given that market spreads have tightened precipitously
on mortgage investments and home equity asset backed securities (ABS) over the
last 18 months, Management sold $34.7 million of these securities in the June
2005 quarter. Spreads did widen marginally during the June 2005 quarter on
commercial mortgage backed securities (CMBS) and ABS, as well as, HWFG's related
CMBS and ABS total return swaps, pegged and hedged to either the CMBS 8.5+ year
index and specific ABS securities. The net effect of this activity was a $71
thousand gain on securities for the quarter. On a total return basis, the total
investment portfolio produced a total return (interest income plus net gains or
losses on securities minus hedges) over one month LIBOR of 1.08%, on an annual
basis, compared to a goal of 1.25%.
Closing Comments
In commenting on the recent quarter, HWFG's Chairman and CEO, Craig J.
Cerny, stated, "The June 2005 quarter represented a period where we produced
favorable financial results, while we executed our strategic tactics for the
future growth and profitability of our banking franchise. With the purchase and
assumption of the Thousand Oaks, California branch and deposits, we were able to
provide our commercial lending team in our southern central coast markets
another depository and increase our retail deposit base to fund our loan growth.
We experienced further growth and diversification of our business and consumer
loan portfolios, and we were able to add additional capable commercial lenders
throughout the franchise. In addition, we continued to grow and diversify our
fee income toward less volatile sources. This strategic investment spending did
affect our current earnings through higher operating expenses in the quarter but
is expected to produce additional revenue in future quarters. We remain
steadfastly committed to our diversification efforts and controlling our banking
risks to enhance the value of the Company."
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 operates 15 full service banking offices on the central
coast of California, Scottsdale, Arizona, and the Kansas City metro. The Company
also owns Harrington Wealth Management Company, a trust and investment
management company with $142.6 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
June 30, March 31, June 30,
2005 2005 2004
------------ ------------ -------------
Selected Financial Condition
Data:
Total assets $1,109,266 $1,093,245 $1,050,420
Loans receivable, net 634,890 621,420 565,369
Securities available for sale 400,885 421,961 426,738
Securities held to maturity 88 91 163
Trading account assets 1,112 911 1,915
Deposits 645,315 601,513 589,789
Federal Home Loan Bank advances 296,000 325,000 295,000
Securities sold under
repurchase agreements 79,180 79,479 79,510
Subordinated debt 25,774 25,774 15,464
Stockholders' equity 56,102 55,902 48,971
Number of shares outstanding 5,363,853 5,337,828 5,269,184
For the Six Months
At or for the Three Months Ended Ended
-------------------------------- --------------------
June 30, March 31, June 30, June 30, June 30,
2005 2005 2004 2005 2004
---------- ---------- ---------- ---------- ---------
Selected Income
Statement Data:
Interest income $15,163 $14,308 $12,727 29,471 $24,974
Interest expense 7,680 6,747 5,232 14,427 10,440
---------- ---------- ---------- ---------- ---------
Net interest
income 7,483 7,561 7,495 15,044 14,534
Provision for
loan losses 200 150 230 350 320
---------- ---------- ---------- ---------- ---------
Net interest
income after
provision for
loan losses 7,283 7,411 7,265 14,694 14,214
Other income:
Income (loss)
from trading
account assets 71 712 273 783 611
Loss on
extinguishment
of debt - - (189) - (189)
Other Gain
(loss) 1 (7) (2) (6) (12)
Banking fee
income (1) 974 858 848 1,832 1,608
---------- ---------- ---------- ---------- ---------
Total other
income 1,046 1,563 930 2,609 2,018
Other expenses:
Salaries and
employee
benefits 2,615 2,811 2,704 5,426 5,387
Premises and
equipment 994 904 741 1,898 1,465
Other expenses
(2) 1,529 1,495 1,425 3,024 2,757
---------- ---------- ---------- ---------- ---------
Total other
expenses 5,138 5,210 4,870 10,348 9,609
Income before
income taxes 3,191 3,764 3,325 6,955 6,623
Income taxes 1,240 1,529 1,345 2,769 2,584
---------- ---------- ---------- ---------- ---------
Net income $1,951 $2,235 $1,980 $4,186 $4,039
========== ========== ========== ========== =========
Common Stock
Summary:
Diluted earnings
per share $0.35 $0.40 $0.35 $0.74 $0.72
Dividends per
share 0.11 0.11 0.60 0.22 0.68
Stockholders'
equity per
share 10.46 10.47 9.29 10.46 9.29
Diluted weighted
average shares
outstanding 5,639,756 5,616,246 5,613,093 5,620,992 5,576,272
Harrington West Financial Group, Inc.
(Dollars in thousands, except share and per share data)
At or for the Three For the Six
Months Ended Months Ended
----------------------- ----------------
June March June June June
30, 31, 30, 30, 30,
2005 2005 2004 2005 2004
------- ------- ------- ------- -------
Selected Operating Data (3):
Performance Ratios and Other
Data:
Return on average assets 0.71 % 0.82 % 0.77 % 0.76 % 0.78 %
Return on average equity 13.94 16.47 16.12 15.39 16.65
Equity to assets 5.06 5.11 4.66 5.06 4.66
Interest rate spread (4) 2.62 2.66 2.89 2.64 2.84
Net interest margin (4) 2.82 2.84 3.04 2.82 3.00
Average interest-earning
assets to average interest-
bearing liabilites 106.43 107.05 107.07 106.73 107.14
Total noninterest expenses to
average total assets 1.86 1.91 1.93 1.88 1.93
Efficiency ratio (5) 60.76 61.88 58.37 61.31 59.53
Asset Quality Ratios (6):
Non-performing assets and
troubled debt
restructurings to total
assets - - -
Non-performing loans and
troubled debt
restructurings to total
loans 0.09 0.02 -
Allowance for loan losses to
total loans 0.87 0.85 0.87
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 liabilites. 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
For share transfer information:
Lisa F. Watkins, 805-688-6644