Harrington West Financial Group Inc
Harrington West Financial — Howe Barnes 12th Annual Bank Conference (August 2007)
44 slides from Harrington West Financial's conference presentation, Aug 8, 2007
Slide 1: Harrington West Financial Group - Howe Barnes 12th Annual Bank Conference
Harrington West Financial GroupP a r t n e r s i n C o m m u n i t y B a n k i n g (NASDAQ: HWFG) Craig J. Cerny, Chairman & CEO Mark Larrabee, President of Kansas Region and Chief Commercial Loan Officer Howe Barnes 12 Howe Barnes 12th th Annual Bank Conference Annual Bank Conference Chicago, Illin
Slide 2: Forward-looking statements
During the course of my remarks today, you will hear me make certain predictive statements regarding our plans and strategies and anticipated financial results to assist in better understanding our company. The forward looking statements about future results are not absolute. Refer to our 10K, 10Q’s
Slide 3: Presentation Overview
Presentation Overview Corporate Structure Mission Core Strategies Financial Performance Why Invest in Harrington West?
Slide 4: Corporate Structure
Corporate Structure Three more banking centers in the Phoenix metro under development for opening from late 2007 to early 2009 (1996) NASDAQ: HWFG (1983) Banking Units Harrington Wealth Management Company, Inc. (1999) Kansas City Metro (1998) Arizona (2002) California (1983) 3 banking offices 2 bank
Slide 5: Mission Statement
Mission Statement The mission of Harrington West is to be: growth oriented 8-10% plus annual growth in loans and deposits 15-20% plus annual growth in trust/investment management fees high performing on ROE and EPS growth measures ROE – low to mid teens EPS growth of 8-15%, depending on the pace of
Slide 6: Core Strategies: Grow low and non-costing deposits
Core Strategies Grow low and non-costing deposits Incentives for Loan Officers and Business Developers to gather core deposits Grass roots marketing programs to establish full banking relationships Seminars Referrals Networking Sales training Banking Center Managers and Staff Business Developers
Slide 7: Grow Lower and Non-Costing Deposits
Grow Lower and Non-Costing Deposits June 30, 2007 21% 35% 44% Core Deposits Diamond CD * Term Deposits December 31, 2000 17% 23% 60% Mix Change to Lower Cost Deposits * 10 month term CD with limited liquidity and a rate change option
Slide 8: Non-Costing Deposits
Non-Costing Deposits $0 $10 $20 $30 $40 $50 $60 2001 2002 2003 2004 2005 2006 June 2006 June 2007 Millions Compounded Annualized Growth Rate from 2001 – June 30, 2007 = 30%
Slide 9: Core Strategies: Diversify Economic Risk in Three Markets
Core Strategies Diversify Economic Risk by Building HWFG in Three Strong Markets Known Well by Management Central Coast of California Phoenix Metro Kansas City Metro
Slide 10: Diversified Markets
Diversified Markets Excellent Market Characteristics Broad Market Knowledge Loan Diversification Local Experience Shareholder Value Creation Options Centralized Administration
Slide 11: Deposits by Market
Deposits by Market June 30, 2007 (in millions) $621 $92 $62 California Kansas Arizona Total deposits $775 million
Slide 12: Loans by Market
Loans by Market June 30, 2007 (in millions) $470 $162 $127 California Kansas Arizona Total net loans $759 million
Slide 13: Market Contribution to Loan Growth
Market Contribution to Loan Growth $133 $66 $113 California Kansas Arizona Total Loan Growth = $312 million December 31, 2002 to June 30, 2007 (in millions)
Slide 14: Expand and Diversify Business Lines to Higher Margin Categories
Core Strategies Expand and Diversify Business Lines to Higher Margin Categories Business lending Construction lending Commercial real estate Wealth management
Slide 15: Company history and expansion timeline
Private Offering PO AdiStional Banking nd tora and fics hoe nk renth | Setdnle ank Hato and Kanon ly stro Modern H esr ' Vertu fie and Deposited Conmersal | ‘ational zona |B iting ng ' Expansion amet 1996 —p-1997—» 1998—P-41999 —»-2000—® 2001—P 2002» 2003 20042005» 2008 —> 2007 Strategie Kansas Ciy
Slide 16: Mix Change To Higher Spread Earning Loans
Mix Change To Higher Spread Earning Loans June 30, 2007 15% 32% 11% 16% 16% 6% 4% SFR CRE Multi Family C+I Construction Land Consumer December 31, 2000 50% 27% 17% 3% 1% 1% 1% Total Gross Loans = $396 million Total Gross Loans = $768 million
Slide 17: Diversify and Grow Banking Fee Income
Diversify and Grow Banking Fee Income $0 $1 $2 $3 $4 2001 2002 2003 2004 2005 2006* June 2006 YTD* June 2007 YTD Millions Loan/Deposit/Other Mortgage Broker HWM BOLI Compounded Annualized Growth Rate from 2001 – June 2007 = 25% *Excluding Lease Termination Income of $295 thousand
Slide 18: Deploy Capital Efficiently in an Effort to Increase ROE
Core Strategies Deploy Capital Efficiently in an Effort to Increase ROE Augment banking franchise income with investments, when spreads are favorable Maintain well capitalized status but not at excessive levels Manage capital levels through dividend policy
Slide 19: Utilize Excess Capital
Utilize Excess Capital Strategy: To utilize excess bank capital with a short duration, high quality investment portfolio Managed to a 3 to 6 month effective duration Opportunistically managed as risk-adjusted spreads dictate Experience: CEO and CIO have 15-20 years of experience in advising on inves
Slide 20: Control Operating Expenses While Investing in Franchise Growth
Core Strategies Control Operating Expenses While Investing in Franchise Growth Centralized administration Gain efficiencies from technology In-house investment management Electronic enhancements for document preparation and storage Leverage Infrastructure with new Banking Centers
Slide 21: Seek to Manage Banking Risks to a Low Level
Core Strategies Seek to Manage Banking Risks to a Low Level Credit risk underwriting and monitoring systems Disciplined interest rate risk management using both a market value and earnings approach Stringent operational controls
Slide 22: Control Banking Risks: Credit Quality Maintained
Control Banking Risks $0 $1 $2 $3 $4 $5 $6 June 2001 Dec 2001 June 2002 Dec 2002 June 2003 Dec 2003 June 2004 Dec 2004 June 2005 Dec 2005 June 2006 Dec 2006 June 2007 Millions 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Non-Performing Assets Real Estate Owned % to Total Assets Credit Quality Maintained
Slide 23: Mark Larrabee, Regional President - Kansas
Mark Larrabee Regional President – Kansas Chief Commercial Lending Officer
Slide 24: Commercial Banking Milestones
Commercial Banking Milestones 2000 Initial strategy development and planning; first C&I loans and commercial deposit products offered 2001 The acquisition of the Harrington Banking Operations in KS increased loans and enhanced operational resources 2002 Arizona operation established and full cash ma
Slide 25: Competitive Strategies
Competitive Strategies Experienced lenders Consultative Broad knowledge of local markets and industries Strong credit skills and underwriting capabilities OAS/Relationship Pricing Long term fixed rates, hedge exposure Value on relationship in pricing competitively Responsive to clients Flexibility i
Slide 26: Commercial Deposit Growth
Commercial Deposit Growth $0 $10 $20 $30 $40 $50 $60 $70 Dec. 31, 2001 Jun. 30, 2007 Millions Non-Interest Bearing Interest-Bearing% of Total Deposits: 7.7% % of Total Deposits: 1.6%
Slide 27: C&I Lending Growth
C&I Lending Growth $0 $25 $50 $75 $100 $125 $150 $175 Dec. 31, 2001 Jun. 30, 2007 Millions Outstanding Balances Unused Commitments % of Total Loans: 15.7% % of Total Loans: 6.9%
Slide 28: C&I Portfolio Composition
C&I Portfolio Composition June 30, 2007 (in millions) 27% 41% 32% Unused Lines of Credit Outstanding Balance- Lines Oustanding Balance- Term Total Commitments: $163 million Total Outstanding: $119 million
Slide 29: C&I Portfolio Diversification
C&I Portfolio Diversification June 30, 2007 8% 15%6% 7% 10% 5% 18% 16% 9% 6% Mining and Energy Construction Manufacturing Wholesale and Distribution Retail Information Finance and Insurance Real Estate Professional Other Services Based upon Total Commitments
Slide 30: Commercial Banking Impact
Commercial Banking Impact C&I Loans now comprise 11% of total assets and account for 18% of total asset growth since 2000 Commercial Deposits now comprise nearly 8% of total deposits and account for 90% of the non-interest bearing deposit growth since 2000 Progress Since 2000 Inception
Slide 31: Financial Performance 2001 to June 30, 2007
Financial Performance 2001 to June 30, 2007
Slide 32: Factors Influencing Last Three Years of Profit Performance
Recent Factors Influencing Last Three Years of Profit Performance Strategic decision to reduce investments by $144.9 million from 12/31/04 to 06/30/07 and notional amount of Total Return Swaps by $120 million Investment margins tightened precipitously Risk/return tradeoffs in investments not favorab
Slide 33: Loan Growth
Loan Growth Compounded Annualized Growth Rate from 2001 – June 30, 2007 = 10% $0 $100 $200 $300 $400 $500 $600 $700 $800 2001 2002 2003 2004 2005 2006 June 2007 Millions
Slide 34: Deposit Growth
Deposit Growth Compounded Annualized Growth Rate from 2001 – June 2007 = 13% $0 $100 $200 $300 $400 $500 $600 $700 $800 2001 2002 2003 2004 2005 2006 June 2007 Millions
Slide 35: Investment Balances with Notional Amount of Total Return Swaps
Investment Balances with Notional Amount of Total Return Swaps $0 $100 $200 $300 $400 $500 $600 2001 2002 2003 2004 2005 2006 June 2007 Millions Portfolio Balance TROR Swaps
Slide 36: Net Interest Income
Net Interest Income Compounded Annualized Growth Rate from 2001 – June 2007 = 12% $0 $5 $10 $15 $20 $25 $30 $35 2001 2002 2003 2004 2005 2006 June 2006 YTD June 2007 YTD Millions 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Net Interest Income Margin
Slide 37: Net Interest Margin Stability
Net Interest Margin Stability 0% 1% 2% 3% 4% 5% June 2004 Qtr Sept 2004 Qtr Dec 2004 Qtr March 2005 Qtr June 2005 Qtr Sept 2005 Qtr Dec 2005 Qtr March 2006 Qtr June 2006 Qtr Sept 2006 Qtr Dec 2006 Qtr March 2007 Qtr June 2007 Qtr HWFG Net Interest Margin Fed Funds Rate
Slide 38: Net Revenue
Net Revenue $0 $5 $10 $15 $20 $25 $30 $35 2001 2002 2003 2004 2005 2006 June 2006 YTD June 2007 YTD Millions Net Interest Income before Provision Banking Fee Income Compounded Annualized Growth Rate from 2001 – June 2007 = 13% Net Revenue = Net Interest Income before Provision for Loan Loss plus ban
Slide 39: Operating Expenses
Operating Expenses $0 $5 $10 $15 $20 $25 2001 2002 2003 2004 2005 2006 June 2006 YTD June 2007 YTD Millions Compounded Annualized Growth Rate from 2001 – June 2007 = 14%
Slide 40: Net Income and Diluted EPS
Net Income and Diluted EPS Excluding Trading Income and Securities Gains and Losses $0 $3 $6 $9 2001 2002 2003 2004 2005 2006 June 2006 YTD June 2007 YTD Net Income (Millions) $0.00 $0.50 $1.00 $1.50 $2.00Earnings Per Share Net Income EPS
Slide 41: Book Value Per Share
Book Value Per Share $7.49 $8.18 $9.23 $9.98 $11.06 $12.42 $12.40 $11.28 $6.13 $7.16 $8.26 $9.05 $9.82 $11.22 $4 $6 $8 $10 $12 2001 2002 2003 2004 2005 2006 June 2007 Book Value Tangible Book Value
Slide 42: Strategic Focus for 2007 and Beyond
Strategic Focus for 2007 and Beyond Improve Profitability through Net Interest Income Expansion, Fee Income Growth, and Expense Control Seek Growth of Core Deposits Banking Center Deposit Development Program Sales focus Training CRE and Business Lender Training and Incentive Program Grow and Diversi
Slide 43: Why Invest In Harrington West?
Why Invest In Harrington West? Track record of QUALITY EARNINGS in a growing franchise ATTRACTIVE MARKETS and franchises CREDIT QUALITY OPPORTUNISTIC strategy Shareholder-focused to MAXIMIZE VALUE with high inside ownership RISK MANAGEMENT emphasis ATTRACTIVE VALUATION as of June 30, 2007 PEER (1) (
Slide 44: HWFG vs. Bank Composite
HWFG vs. Bank Composite HWFG NASDAQ Bank Index November 11, 2002 July 18, 2007
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