Exhibit 99.1
Harrington West Announces June 2006 Quarter Earnings, Double-Digit
Annual Growth in Loans, Deposits and Core Earnings Per Share, and
Declares a Regular Quarterly Dividend of 12.5 Cents Per Share
SOLVANG, Calif.--(BUSINESS WIRE)--July 25, 2006--Harrington West
Financial Group, Inc (NASDAQ:HWFG), the holding company for Los Padres
Bank and its division, Harrington Bank, with $1.1 billion in assets,
today announced that it earned net income of $2.1 million or 37 cents
per share on a fully diluted basis compared to $2.0 million or 35
cents per share earned in the June 2005 quarter, increasing 7%.
Excluding net gains or losses on investments and other assets, diluted
core earnings per share on an after tax basis were 37 cents in the
June 2006 quarter compared to 34 cents in the June 2005 quarter, a 10%
increase. For the first six months of 2006, HWFG earned net income of
$4.2 million or 75 cents per share, similar to the results for the
first 6 months of 2005 or 74 cents per share. For the first 6 months
of 2006, core earnings per share after tax were 72 cents, compared to
66 cents in the same period in 2005, rising 9%. Return on average
equity was 13.0% for the June 2006 quarter and 13.5% for the first six
months of 2006. Based on the earnings performance, HWFG's Board of
Directors declared a regular quarterly dividend of 12.5 cents per
share, payable on August 11, 2006 to holders of record on August 4,
2006.
The June 2006 quarter was highlighted by the following
developments and results:
1. Net loans increased 12.8% from June 30, 2005 to June 30, 2006 and
by 4.7% in the June 2006 quarter to $716.2 million.
2. Deposit balances increased 10.2% from June 30, 2005 to June 30,
2006 and by 2.1 % in the June 2006 quarter to $711.1 million.
3. Credit quality of the loan portfolio remained favorable, with no
non-performing loans at June 30, 2006, compared to $466 thousand
and $608 thousand at March 31, 2006 and June 30, 2005,
respectively.
4. Investment Securities were reduced by $74.4 million from June 30,
2005 and $39.4 million in the June quarter 2006 to $326.5 million
at June 30, 2006, reflecting Management's desire to reduce
investments in the tight spread environment and to fund the
strong loan growth.
5. Net Interest Margin expanded slightly in the June 2006 quarter
to 2.85%, compared to 2.83% and 2.82% in the March 2006 and June
2005, respectively.
6. Banking Fee Income was $1.2 million in the June 2006 quarter,
rising $220 thousand and $279 thousand over the June 2005 and
March 2006 quarters, respectively.
7. Book Value per share was $11.87 at June 30, 2006, rising 13.5%
from June 30, 2005.
8. The previously announced HWFG share repurchase program of 200,000
shares remains in effect. No shares have been repurchased under
this program to date.
Strategy and Earnings Performance
HWFG's core strategy is to organically grow loans, deposits,
banking offices, and banking fee income on a controlled basis in the
markets of the Central Coast of California, the Phoenix metro, and the
Kansas City metro. Management has extensive knowledge of and banking
experience in these markets, which have favorable demographic and
growth characteristics. HWFG seeks to grow the core banking franchise
of loans and deposits at high single to low double-digit levels on an
annual basis through its expansion of deposit gathering offices,
adding lenders and business developers, and emphasizing its
diversified product menu and relationship banking approach. HWFG's
management also has significant expertise in managing mortgage
investments and interest rate risk and seeks to maintain banking risks
at a low level. Controlling operating costs congruent with its
expansion plans is also a key variable to HWFG's strategic plan.
Together, these long term strategies are expected to improve earnings
and build franchise and shareholder values.
The results for the June 2006 quarter were characterized by HWFG's
progress in executing its core strategy. The Company was able to grow
its loans and deposits within its targeted growth range and further
grow its banking fee and other income, while keeping operating costs
in line with its planned expansion. Although the growth in deposits
and loans has met HWFG's expectations, overall earnings growth has
been influenced by (1) the reduction of the investment portfolio and
other borrowings, and (2) the re-pricing lag in some securities and
loans (lagging Prime, Treasury, and COFI indexes) relative to the
re-pricing of deposits and borrowings and the slight re-pricing
mismatch between HWFG's 3-month LIBOR interest rate hedges and its
daily re-pricing borrowings. Counterbalancing this lag has been the
mix change of loans to higher margin categories, resulting in a
relatively stable margin over the last 6 quarters despite steadily
rising short-term market interest rates. HWFG believes that in the
current spread environment deploying its available capital to support
loan growth will provide superior returns relative to investment
securities.
As a result of HWFG's relatively stable net interest margin, net
interest income growth has mirrored the growth in average earning
assets in the comparative periods. Average earning assets in the June
2006 quarter grew 1.6% over the June 2005 quarter due to the reduction
of the investment portfolio, while net interest income before
provision grew somewhat more at 2.9% over the same period to $7.7
million due to a slightly higher margin. Although further reduction of
the investment securities portfolio is possible, Management expects
the portfolio to stabilize around the June 2006 level, while it seeks
loan and deposit growth within its target range.
Banking Fee and Other Income grew in the June 2006 quarter from
the increase in revenues from Harrington Wealth Management Company
(HWM), a trust investment subsidiary of Los Padres Bank, and growth in
deposit fees. HWFG is also adding fee income from the brokerage of
mortgages (that do not meet HWFG's spread targets) to other lenders.
However, with the higher interest rate environment, only $3 thousand
in prepayment penalty fees were earned in the June 2006 quarter as
compared to $114 thousand in the June 2005 quarter. In the June 2006
quarter, HWFG recovered unpaid rents and tenant improvements totaling
$295 thousand from the settlement with a tenant in its Metcalf, Kansas
office. For the first 6 months of 2006, fee income was $2.1 million,
growing $279 thousand over the same period in 2005.
(Dollars in thousands)
- ----------------------------------------------------------------------
Banking Fee and June June June June
Other Income by 2006 2005 2006 2005
Type Quarter Quarter % Change YTD YTD % Change
- ----------------------------------------------------------------------
Mortgage Brokerage
Fee, Prepayment
Penalties & Other
Loan Fees $166 $254 (34.6)% $375 $631 (40.6)%
- ----------------------------------------------------------------------
Deposit, Other
Retail Banking Fees
& Other Fee Income 630 317 98.7% 950 634 49.8%
- ----------------------------------------------------------------------
Harrington Wealth
Management Fees 207 189 9.5% 404 353 14.4%
- ----------------------------------------------------------------------
BOLI Income, net 191 214 (10.7)% 382 214 78.5%
- ----------------------------------------------------------------------
Total $1,194 $974 22.6% $2,111 $1,832 15.2%
- ----------------------------------------------------------------------
HWFG seeks to control its operating expenses relative to its
anticipated growth in banking offices and its infrastructure required
to produce its loan and deposit growth. Operating expenses were $5.6
million in the June 2006 quarter compared to $5.4 million and $5.1
million in the March 2006 and June 2005 quarters, respectively. The
June 2006 quarter's expenses were affected by the start-up expenses of
its new Harrington Bank office in the Kansas City market, expected to
open in August 2006, a $75 thousand retention payment on an insurance
claim, $38 thousand in real estate owned expense, and the general
growth in the corporate infrastructure to support the Company's plans.
Year-to-date operating expenses were $10.9 million compared to $10.3
million in the same period in 2005, increasing 5.8%.
The combined federal and state tax rate was 34.1% in the June 2006
quarter and was lower than the prior quarter due to more revenue being
earned and apportioned to states with lower tax rates. This factor is
expected to result in a 37.5% combined tax rate for the remainder of
2006 and a 38.0 % combined tax rate for 2007.
Loan and Deposit Development
The loan growth of $32.3 million in the quarter largely emanated
from higher margin business and construction and development lending.
HWFG is making considerable progress in gaining market share in its
Ventura County market area and is increasing business lending in the
Scottsdale and Kansas City markets.
Asset quality remains favorable. The Company was able to enter
into a contract to sell its real estate owned, acquired from the
workout of a business credit in the Kansas City market, and the
related business loans were charged off in the quarter against the
specific reserve. The sale of the real estate owned is expected to
close in the late September quarter. HWFG added $150 thousand to its
reserve for loan losses to reflect the strong growth in loans in the
quarter, and its reserve for loan losses equaled $5.6 million or .78%
of net loans at June 30, 2006.
HWFG Net Loan Growth and Mix
(Dollars in millions)
- ----------------------------------------------------------------------
December 31,
June 30, 2006 2005 June 30, 2005
- ------------------------------------------ ------------- -------------
% of % of % of
Loan Type Total Total Total Total Total Total
- ------------------------------------------ ------------- -------------
Commercial Real Estate $254.0 35.1% $253.2 37.2% $266.8 41.5%
- ------------------------------------------ ------------- -------------
Multi-family Real Estate 80.8 11.2% 80.9 11.9% 80.0 12.4%
- ------------------------------------------ ------------- -------------
Construction (1) 95.0 13.1% 70.9 10.4% 46.4 7.2%
- ------------------------------------------ ------------- -------------
Single-family Real Estate 113.5 15.6% 115.9 17.0% 106.3 16.5%
- ------------------------------------------ ------------- -------------
Commercial and industrial
loans 99.8 13.8% 96.5 14.1% 86.5 13.5%
- ------------------------------------------ ------------- -------------
Land acquisition and
development 51.2 7.1% 36.1 5.3% 30.1 4.7%
- ------------------------------------------ ------------- -------------
Consumer loans 27.8 3.8% 26.7 3.9% 25.6 4.0%
- ------------------------------------------ ------------- -------------
Other loans (2) 2.4 .3% 1.3 .2% 1.2 .2%
- ------------------------------------------ ------------- -------------
Total gross loans 724.5 100.0% 681.5 100.0% 642.9 100.0%
- ------------------------------------------ ------------- -------------
Allowance, Deferred Fees &
Discounts/Premiums (8.3) (8.6) (8.0)
- ------------------------------------------ ------------- -------------
Net loans receivable $716.2 $672.9 $634.9
- ------------------------------------------ ------------- -------------
(1) Includes loans collateralized by residential, commercial and land
properties.
(2) Includes loans collateralized by deposits and consumer line of
credit loans.
Deposit balances continued to grow by $14.4 million in the June
2006 quarter and by $42.0 million year-to-date from the popularity of
HWFG's Diamond account, which is a hybrid CD providing the customer
limited liquidity and re-pricing options over its ten month term. HWFG
continued to pursue non-costing deposits through its incentive program
for lenders and its Ultimate Checking promotion. HWFG will open its
third Harrington Bank office in its Kansas City market in August 2006,
which is the sixteenth office throughout its markets. The new office
is located in Western Johnson County, Kansas near the Lenexa business
district, the Johnson County Community College, and residential
development. HWFG's third banking office in the Phoenix metro in the
city of Surprise is in the development stages and expected to open in
the Spring of 2007. The Company has purchased a parcel for a banking
office in the growing Deer Valley Airpark in north central Phoenix and
is currently seeking a site in the Southeast Valley area of the metro.
Management is also pursuing banking office opportunities to better
serve its California markets.
Closing Comments
In commenting on the results of the June 2006 quarter, Craig J.
Cerny, Chairman and CEO of HWFG, stated "We are pleased with our
progress in the June quarter in executing our core strategy to expand
our regional banking franchises' loans, deposits, and HWM fees at
double digit annual rates, while our net interest margin expanded
slightly. This progress is being accomplished against a back drop of
rising short term interest rates, tight spreads on mortgage securities
and commodity type loans, and formidable competition. We believe our
reduction of the investment portfolio, to fund our favorable loan
growth, better utilizes our capital base. This tactic combined with
our commitment to grow our core deposits and fee income sources are
positive steps in further building HWFG's shareholder and franchise
values."
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 $148.7 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.
Consolidated Financial Data - Harrington West Financial Group, Inc.
(unaudited)
(In thousands, except per Quarter ended Year-to-date
share data) Jun. 30, Jun. 30, Jun. 30, Jun.
2006 2005 2006 30, 2005
- ---------------------------------------------------- -----------------
Interest income $18,207 $15,163 $35,868 $29,471
Interest expense 10,510 7,680 20,369 14,427
---------------- -----------------
Net interest income 7,697 7,483 15,499 15,044
Provision for loan losses 150 200 290 350
---------------- -----------------
Net interest income after provision
for loan losses 7,547 7,283 15,209 14,694
Non-interest income:
Income (loss) from trading assets (34) 71 220 783
Other gain (loss) 2 1 (3) (6)
Banking fee income 1,194 974 2,111 1,832
---------------- -----------------
Non-interest income 1,162 1,046 2,328 2,609
Non-interest expense 5,560 5,138 10,946 10,348
---------------- -----------------
Income before income taxes 3,149 3,191 6,591 6,955
Provision for income taxes 1,076 1,240 2,418 2,769
---------------- -----------------
Net income $2,073 $1,951 $4,173 $4,186
================ =================
Quarter ended Year-to-date
Jun. 30, Jun. 30, Jun. 30, Jun. 30,
2006 2005 2006 2005
---------------------- ----------------------
Per share:
Net income - basic $0.38 $0.36 $0.77 $0.79
Net income - diluted $0.37 $0.35 $0.75 $0.74
Weighted average shares
used in Basic EPS
calculation 5,446,100 5,360,331 5,428,334 5,326,363
Weighted average shares
used in Diluted EPS
calculation 5,588,019 5,639,756 5,567,063 5,620,992
Cash dividends $0.13 $0.13 $0.13 $0.11
Book value at period-end $11.87 $10.46 $11.87 $10.46
Tangible Book Value at
period end $10.67 $9.19 $10.67 $9.19
Ending shares 5,447,643 5,363,853 5,447,643 5,363,853
Financial ratios
Return on average assets 0.73% 0.71% 0.74% 0.77%
Return on average equity 13.04% 13.97% 13.52% 15.52%
Average equity to
average assets (leverage
ratio) 5.64% 5.06% 5.46% 4.95%
Net interest margin 2.85% 2.82% 2.85% 2.82%
Efficiency ratio 62.54% 60.75% 62.16% 61.32%
Period averages
Total assets $1,131,525 $1,106,249 $1,139,301 $1,098,427
Total loans, net of
allowance 697,804 631,198 691,032 622,692
Total earning assets 1,082,200 1,065,574 1,080,956 1,065,277
Total deposits 694,226 608,855 684,230 606,305
Total equity 63,781 56,002 62,249 54,385
Quarter Ended
-------------------------------------------------------
(In thousands,
except per Jun. 30, Mar. 31, Dec. 31, Sept. 30, June 30,
share data) 2006 2006 2005 2005 2005
- ----------------------------------------------------------------------
Interest income $18,207 $17,664 $16,738 $15,847 $15,163
Interest
expense 10,510 9,858 9,186 8,285 7,680
-------------------------------------------------------
Net interest
income 7,697 7,806 7,552 7,562 7,483
Provision for
loan losses 150 140 85 - 200
-------------------------------------------------------
Net interest
income after
provision for
loan losses 7,547 7,666 7,467 7,562 7,283
Non-interest
income:
Income (loss)
from trading
assets (34) 255 64 89 71
Other gain
(loss) 2 (4) (2) (7) 1
Banking fee
income 1,194 915 957 1,159 974
-------------------------------------------------------
Non-interest
income 1,162 1,166 1,019 1,241 1,046
Non-interest
expense 5,560 5,392 5,349 5,379 5,138
-------------------------------------------------------
Income before
income taxes 3,149 3,440 3,137 3,424 3,191
Provision for
income taxes 1,076 1,342 1,085 1,326 1,240
-------------------------------------------------------
Net income $2,073 $2,098 $2,052 $2,098 $1,951
=======================================================
Per share:
Net income -
basic $0.38 $0.39 $0.38 $0.39 $0.36
Net income -
diluted $0.37 $0.38 $0.36 $0.37 $0.35
Weighted
average shares
used in Basic
EPS
calculation 5,446,100 5,410,370 5,373,936 5,364,077 5,360,331
Weighted
average shares
used in
Diluted EPS
calculation 5,588,019 5,564,236 5,642,716 5,649,134 5,639,756
Cash dividends
per share $0.13 $0.13 $0.13 $0.12 $0.11
Book value at
period-end $11.87 $11.51 $11.06 $10.85 $10.46
Tangible Book
value at
period-end $10.67 $10.29 $9.82 $9.61 $9.19
Ending shares 5,447,643 5,418,843 5,384,843 5,364,498 5,363,853
Financial
ratios
Return on
average assets 0.73% 0.74% 0.72% 0.75% 0.71%
Return on
average equity 13.04% 14.02% 13.76% 14.68% 13.94%
Average equity
to average
assets
(leverage
ratio) 5.64% 5.29% 5.23% 5.03% 5.06%
Net interest
margin 2.85% 2.83% 2.81% 2.84% 2.82%
Efficiency
ratio 62.54% 61.83% 62.86% 61.68% 60.76%
Period averages
Total assets 1,131,525 1,147,547 1,132,138 1,113,282 1,106,249
Total loans,
net of
allowance 697,804 684,183 659,093 641,446 631,198
Total earning
assets 1,082,200 1,100,599 1,086,463 1,067,568 1,065,574
Total deposits 694,226 674,124 672,020 662,787 608,855
Total equity 63,781 60,700 59,181 56,002 56,002
Quarter Ended
-------------------------------------------------------
(In thousands,
except per Jun. 30, Mar. 31, Dec. 31, Sept. 30, June 30,
share data) 2006 2006 2005 2005 2005
- ----------------------------------------------------------------------
Balance sheet
at period-end
Cash and due
from banks $16,508 $18,540 $19,312 $18,314 $14,271
Investments and
fed funds sold 327,329 367,127 388,407 391,671 402,085
Loans, before
allowance for
loan losses 721,790 689,668 678,551 656,822 640,466
Allowance for
loan losses (5,614) (5,800) (5,661) (5,576) (5,576)
Goodwill and
core deposit
intangibles 6,557 6,620 6,683 6,686 6,783
Other assets 58,983 57,312 52,895 53,730 51,237
-------------------------------------------------------
Total assets $1,125,553 $1,133,467 $1,140,187 $1,121,647 $1,109,266
=======================================================
Interest
bearing
deposits $663,168 $645,390 $619,213 $622,961 $605,259
Non-interest
bearing
deposits 47,954 51,373 49,932 48,741 40,056
Other
borrowings 343,856 369,908 403,787 377,939 400,954
Other
liabilities 5,898 4,438 7,681 13,783 6,895
Shareholders'
equity 64,677 62,358 59,574 58,223 56,102
Total
liabilities
and
shareholders'
equity -------------------------------------------------------
$1,125,553 $1,133,467 $1,140,187 $1,121,647 $1,109,266
=======================================================
Asset quality
and capital -
at period-
end
Non-accrual
loans $- $- $- $20 $608
Loans past due
90 days or
more - 466 - - -
Other real
estate owned 1,021 1,050 - - -
-------------------------------------------------------
Total non
performing
assets $1,021 $1,516 $- $20 $608
=======================================================
Allowance for
losses to
loans 0.78% 0.85% 0.84% 0.85% 0.87%
Non-accrual
loans to total
loans 0.00% 0.00% 0.00% 0.00% 0.10%
Non-performing
assets total
assets 0.09% 0.13% 0.00% 0.00% 0.05%
Three months ended
(In thousands) June 30, 2006
----------------------------
Balance Income Rate
(6)
----------------------------
Interest earning assets:
Loans receivable (1) $697,804 $13,286 7.62%
FHLB stock 15,849 208 5.26%
Securities and trading account assets
(2) 357,127 4,643 5.20%
Cash and cash equivalents (3) 11,420 70 2.46%
----------- --------
Total interest earning assets 1,082,200 18,207 6.73%
--------
Non-interest-earning assets 49,325
-----------
Total assets $1,131,525
===========
Interest bearing liabilities:
Deposits:
NOW and money market accounts $100,212 $548 2.19%
Passbook accounts and certificates
of deposit 547,729 5,571 4.08%
----------- --------
Total deposits 647,941 6,119 3.79%
FHLB advances (4) 282,692 3,450 4.90%
Reverse repurchase agreements 59,116 442 2.96%
Other borrowings (5) 25,774 499 7.66%
----------- --------
Total interest-bearing liabilities 1,015,523 10,510 4.13%
--------
Non-interest-bearing deposits 46,285
Non-interest-bearing liabilities 5,936
-----------
Total liabilities 1,067,744
Stockholders' equity 63,781
-----------
Total liabilities and stockholders'
equity $1,131,525
===========
Net interest-earning assets (liabilities) $66,677
===========
Net interest income/interest rate spread $7,697 2.60%
======== =======
Net interest margin 2.85%
=======
Ratio of average interest-earning assets
to average interest-bearing liabilities 106.57%
=======
Three months ended
(In thousands) June 30, 2005
----------------------------------
Balance Income Rate (6)
----------------------------------
Interest earning assets:
Loans receivable (1) $631,198 $10,598 6.72%
FHLB stock 16,754 191 4.56%
Securities and trading account
assets (2) 408,233 4,338 4.25%
Cash and cash equivalents (3) 9,389 36 1.52%
----------- ----------
Total interest earning assets 1,065,574 15,163 5.69%
----------
Non-interest-earning assets 40,675
-----------
Total assets $1,106,249
===========
Interest bearing liabilities:
Deposits:
NOW and money market accounts $116,105 $454 1.57%
Passbook accounts and
certificates of deposit 453,760 3,046 2.69%
----------- ----------
Total deposits 569,865 3,500 2.46%
FHLB advances (4) 325,088 3,281 4.04%
Reverse repurchase agreements 80,512 526 2.62%
Other borrowings (5) 25,774 373 5.78%
----------- ----------
Total interest-bearing
liabilities 1,001,239 7,680 3.07%
----------
Non-interest-bearing deposits 38,990
Non-interest-bearing liabilities 10,018
-----------
Total liabilities 1,050,247
Stockholders' equity 56,002
-----------
Total liabilities and stockholders'
equity $1,106,249
===========
Net interest-earning assets
(liabilities) $64,335
===========
Net interest income/interest rate
spread $7,483 2.62%
========== ===========
Net interest margin 2.82%
===========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 106.43%
===========
1) Balance includes non-accrual loans. Income includes fees earned on
loans originated and accretion of deferred loan fees.
2) Consists of securities classified as available for sale, held to
maturity and trading account assets. adjustments to fair value,
which are included in other 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.
6) Annualized.
CONTACT: Harrington West Financial Group, Inc
Craig J. Cerny, 480-596-6555
or
For share transfer information:
Lisa F. Watkins, 805-688-6644