Harrington West Financial Group Inc
Harrington West Financial — Investor Presentation (March 2007)
44 slides from Harrington West Financial's investor presentation, Mar 21, 2007
Slide 1: Institutional Investors Meetings, March 21, 2007
(NASDAQ: HWFG) Craig J. Cerny, Chairman & CEO Mark Larrabee, President of Kansas Region and Chief Commercial Loan Officer Craig J. Cerny, Chairman & CEO Mark Larrabee, President of Kansas Region and Chief Commercial Loan Officer Institutional Investors Meetings March 21, 2007 San Francisco, Californ
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 you better in understanding our company. The forward looking statements about future results are not absolute. Refer to our 10K, 1
Slide 3: Presentation Overview
Presentation Overview ⑀ History ⑀ Mission ⑀ Core Strategies ⑀ Financial Performance ⑀ Why Invest in Harrington West?
Slide 4: History
History ⑀ Cerny was the managing principal of the bank consulting group of Smith Breeden and Associates, Inc. (SBA) from 1985 to 1996. ⑀ Principals of SBA decided to make bank investments ⑀ Harrington West was second bank related investment led by Cerny ⑀ Harrington West was formed to acquire Los Pa
Slide 5: Banking Units and Locations
* 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 banking offices 11 ba
Slide 6: Mission of Harrington West
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 invest
Slide 7: Core Strategies
Core Strategies ⑀⍽ Grow low and non-costing deposits ⑀⍽ Expand business lines to higher margin categories ⑀⍽ Commercial real estate, business, construction and HELOC lending ⑀⍽ Trust and investment management and banking fee income ⑀⍽ Diversify economic risk by building HWFG in three strong markets
Slide 8: Mix Change to Lower Cost Deposits
December 31, 2006 25% 37% 38% 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 9: Non Costing Deposits
Non Costing Deposits $0 $10 $20 $30 $40 $50 $60 2001 2002 2003 2004 2005 2006 Millions Compounded Annualized Growth Rate from 2001 - 2006 = 35.6%
Slide 10: Enhanced Product Menu
⑀⍽ Commercial banking ⑀⍽ Mortgage lending ⑀⍽ Commercial ⑀⍽ Multi Family ⑀⍽ Single Family ⑀⍽ Consumer lending concentrating on HELOCs ⑀⍽ Full menu of retail and business deposit and cash management products ⑀⍽ Trust and investment management through Harrington Wealth Management Company (HWM) Enhanced
Slide 11: New Product and Project Timeline
New Product and Project Timeline
Slide 12: Loan Mix 2006 vs 2000
December 31, 2006 14% 34% 10% 16% 15% 7% 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 = $765 million SFR CRE Multi Family C+I Construction Land Consumer
Slide 13: CRE Loan Mix
CRE Loan Mix December 31, 2006 25% 33% 9% 4% 1% 14% 9% 3% 2% Office Medical Retail Warehouse Light Industrial Self Storage Mixed-Use Hotel/Motel Miscellaneous
Slide 14: Growth in C&I Loans
Growth in C&I Loans $0 $25 $50 $75 $100 $125 2001 2002 2003 2004 2005 2006 Millions Compounded Annualized Growth Rate from 2001 - 2006 = 30.9%
Slide 15: C&I Loan Mix by Major Industry
June 30, 2006 4% 15% 8% 8% 9% 2% 6% 14% 20% 9% 5% Mining & Energy Construction Manufacturing Wholesale Retail Transportation Communications Finance & Insurance Real Estate Services Hospitality C&I Loan Mix by Major Industry
Slide 16: Construction Loan Growth
Compounded Annualized Growth Rate from 2001 - 2006 = 42.9% Construction Loan Growth $0 $25 $50 $75 $100 $125 $150 $175 $200 2001 2002 2003 2004 2005 2006 Millions Construction Land and Development
Slide 17: Consumer Loans
Consumer Loans $0 $5 $10 $15 $20 $25 $30 2001 2002 2003 2004 2005 2006 Millions Compounded Annualized Growth Rate from 2001 - 2006 = 18.1%
Slide 18: Diversified Markets
Diversified Markets ⑀⍽ Excellent Market Characteristics ⑀⍽ Broad Market Knowledge ⑀⍽ Loan Diversification ⑀⍽ Local Experience ⑀⍽ Shareholder Wealth Creation Options ⑀⍽ Centralized Administration
Slide 19: Deposits by Market
Deposits by Market December 31, 2006 (in millions) $584 $89 $59 California Kansas Arizona Total deposits $733 million
Slide 20: Loans by Market
Loans by Market December 31, 2006 (in millions) $450 $190 $117 California Kansas Arizona Total net loans $757 million
Slide 21: Market Contribution to Loan Growth
Market Contribution to Loan Growth $112 $94 $103 California Kansas Arizona Total Loan Growth = $309 million December 31, 2002 to December 31, 2006 (in millions)
Slide 22: Banking Fee Income Growth
Banking Fee Income Growth $0 $1 $2 $3 $4 2001 2002 2003 2004 2005 2006 Millions Loan/Deposit/Other Mortgage Broker HWM BOLI Compounded Annualized Growth Rate from 2001 - 2006 = 29.1%
Slide 23: Utilize Excess Capital
Utilize Excess Capital ⑀⍽ Strategy: To utilize excess bank capital with a short duration, high quality investment portfolio ⑀⍽ REDUCE as core banking assets increase ⑀⍽ Managed to a 3 to 6 month effective duration ⑀⍽ Experience: ⑀⍽ CEO and CIO have 15-20 years of experience in advising on investment
Slide 24: Residential Mortgage ABS Portfolio
Residential Mortgage ABS Portfolio ⑀⍽ No rating downgrades, only upgrades ⑀⍽ Well seasoned issues, well diversified ⑀⍽ Housing price appreciation ⑀⍽ Cash flow experience ⑀⍽ Limited purchases in 2006 and 2007 ABS Portfolio 100.0% Total 0.4 BBB 51.8 A 42.1 AA 5.7 AAA % to Total Rating 100.0% Total 4.0
Slide 25: Control Banking Risks: Credit Quality Maintained
Control Banking Risks $0 $1 $2 $3 $4 $5 $6 2001 2002 2003 2004 2005 2006 Millions 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Nonperforming Assets % to Total Assets Credit Quality Maintained
Slide 26: Underwriting Standards by Loan Type
Predominantly Fully Guaranteed ≥ 1.2X ≤ 80% MF Fully Guaranteed by Principals N/A ≤ 75% Land Dev. Fully Guaranteed by Principals N/A ≤ 65% Land Generally 700+ N/A ≤ 90% HELOCs Predominantly Fully Guaranteed ≥ 1.3X ≤ 80% CRE * N/A FHLMC Standards ≤ 90% SFR Other/FICO DSCR LTV * Hotels/Ins Require ≥ 1
Slide 27: Mortgage Portfolio LTV Characteristics
Mortgage Portfolio LTV Characteristics 64% 90% MF 52% 88% Land Dev./ Construction Bulk Value 83% 86% Land 69% 99% HELOCs 50% 94% CRE 58% 87% SFR LTV ≤ 70% * LTV ≤ 80% * * At origination Percent of Portfolio Type
Slide 28: Financial Performance 2001 to 2006
Financial Performance 2001 to 2006
Slide 29: Recent Factors Influencing Last Three Years of Profit Performance
⑀⍽ Strategic decision to reduce investments by $121 million from 12/31/04 to 12/31/06 and notional amount of Total Return Swaps by $120 million ⑀⍽ Investment margins tightened precipitously ⑀⍽ Risk/return tradeoffs in investments not favorable ⑀⍽ Loans grew $159 million over the 2004 to 2006 period
Slide 30: Loan Growth
$0 $100 $200 $300 $400 $500 $600 $700 $800 2001 2002 2003 2004 2005 2006 Compounded Annualized Growth Rate from 2001 - 2006 = 11.0% Loan Growth
Slide 31: Deposit Growth
Deposit Growth Compounded Annualized Growth Rate from 2001 - 2006 = 7.1% $0 $100 $200 $300 $400 $500 $600 $700 2001 2002 2003 2004 2005 2006 Millions
Slide 32: Investment Balances with 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 Millions Portfolio Balance TROR Swaps
Slide 33: Net Interest Income and Margin
0 $5 $10 $15 $20 $25 $30 $35 2001 2002 2003 2004 2005 2006 Millions 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Net Interest Income Margin Compounded Annualized Growth Rate from 2001 - 2006 = 15% Net Interest Income
Slide 34: 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 HWFG Net Interest Margin Fed Funds Rate Net Interest Margin Stability
Slide 35: Net Revenue
$0 $5 $10 $15 $20 $25 $30 $35 2001 2002 2003 2004 2005 2006 Millions Net Interest Income before Provision Banking Fee Income Compounded Annualized Growth Rate from 2001 - 2006 = 16.8% Net Revenue = Net Interest Income before Provision for Loan Loss plus banking fee income Net Revenue
Slide 36: Operating Expenses
$0 $5 $10 $15 $20 $25 2001 2002 2003 2004 2005 2006 Millions Compounded Annualized Growth Rate from 2001 - 2006 = 17.0% Operating Expenses
Slide 37: Core Income
$0 $2 $4 $6 $8 $10 $12 $14 2001 2002 2003 2004 2005 2006 Millions Compounded Annualized Growth Rate from 2001 - 2006 = 14.9% Core Income = Net Interest Income plus Fee Income minus Operating Expenses Core Income
Slide 38: Net Income and ROA
Net Income Compounded Annualized Growth Rate from 2001 - 2006 = 16.7% 0.66% 0.68% 0.82% 0.72% 0.75% 0.80% $0 $3 $6 $9 2001 2002 2003 2004 2005 2006 Millions 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% Net Income ROA (Annualized)
Slide 39: Core Diluted and Net Earnings Per Share
Core Diluted and Net Earnings Per Share $1.03 $1.14 $1.24 $1.38 $1.43 $1.12 $1.39 $1.36 $1.46 $1.48 $1.48 $1.36 $0.0 $0.5 $1.0 $1.5 2001 2002 2003 2004 2005 2006 Core Diluted Earnings per Share Fully Diluted Earning per Share Compounded Annualized Growth Rate Core EPS from 2001 - 2006 = 6.8% Compoun
Slide 40: Book Value Per Share
Book Value Per Share $7.49 $8.18 $9.23 $9.98 $11.06 $12.40 $6.13 $7.16 $8.26 $9.05 $9.82 $11.22 $4 $6 $8 $10 $12 2001 2002 2003 2004 2005 2005 Book Value Tangible Book Value
Slide 41: Return on Average Equity
13.7% 15.4% 16.4% 16.3% 14.6% 12.9% 0% 4% 8% 12% 16% 2001 2002 2003 2004 2005 2006 Return on Average Equity
Slide 42: Strategic Focus for 2007 and Beyond
Strategic Focus for 2007 and Beyond ⑀⍽ Maintain favorable financial performance and asset quality ⑀⍽ Seek growth of core deposits ⑀⍽ Banking Center Deposit Development Program ⑀⍽ Sales focus ⑀⍽ Training ⑀⍽ CRE and Business Lender Training and Incentive Program ⑀⍽ Grow and Diversify the Loan Portfoli
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 - CEO Cerny owns 13% of HWFG ⑀⍽ RISK MANAGEMENT emphasis ⑀⍽ A
Slide 44: HWFG vs. Bank Composite
HWFG vs. Bank Composite November 11, 2002 March 12, 2007 HWFG NASDAQ Bank Index
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