Selling its Kansas branches helped Harrington West Financial Group Inc. hit a capital deadline this month.

But with loan trouble escalating and a regulatory order to boost capital at its Los Padres Bank unit even further, the Solvang, Calif., company is far from mended.

Theodore Kovaleff, an analyst at Horwitz & Associates Inc., said Harrington's options are narrowing. It might just have to decide what to sell next — stock, loans or possibly its wealth management unit.

"They have a higher bar to reach, and it seems to me they have a few choices," said Kovaleff, who focuses on thrift companies but does not follow the $1.1 billion-asset Harrington. "None of them are going to be easy."

Though he could not estimate the capital hole, Kovaleff said it would be a challenge to get the thrift unit — now only adequately capitalized — to the elevated levels regulators want by yearend.

Harrington, which reported its sixth consecutive quarterly loss late Tuesday, did not return a call.

But Kovaleff said that a stock offering is possible if the company is willing to take a deep enough discount, though credit trends might spook investors.

"I wouldn't be looking at buying stock in them," Kovaleff said. "They have a serial set of losses. It is not a good scene. It is just one bath after another."

Harrington's third-quarter loss widened by 28% from a year earlier, to $4.1 million. It reported a second-quarter loss of $15.6 million.

Though its thrift unit remained undercapitalized at Sept. 30, a branch sale this month restored it to adequately capitalized just in time for a Nov. 6 deadline imposed in a cease-and-desist order.

Now the thrift unit must boost its core capital ratio to 8% and its total risk-based capital ratio to 12% by Dec. 31, under the order it received from the Office of Thrift Supervision.

Richard Levenson, the president of the San Diego investment bank Western Financial Corp., said that some struggling companies have managed to buy themselves time with branch sales, but that in general he sees little other benefit from divesting under pressure.

"First off, you usually have to sell the best stuff, and at the end of the day you don't get enough to make a difference anyway," he said.

Levenson said that he is not very familiar with Harrington, but that one potential positive with its sale might be the ability to refocus on its core California markets rather than having to deal with a far-flung network.

"That could help them," he said. "But broadly speaking, I don't think branch sales provide all that much help to the situation."

Harrington said in a press release that a $2.4 million provision for loan losses and a $2.4 million other-than-temporary impairment charge on mortgage-backed securities hurt its third-quarter results.

The provision jumped 60% from a year earlier, but shrank 78% from the second quarter.

Still, nonperforming assets grew compared with both periods, rising to 5.47% of total assets.

The nonperformers totaled $57.8 million at Sept. 30, up 461% from a year earlier and 54% from the second quarter.

Kovaleff said the nonperformer ratio is likely to swell further after the branch sale.

Besides the Kansas branches, Arvest Bank in Fayetteville, Ark., bought $91.8 million in loans and $93.6 million in deposits, at book value plus a $4.1 million deposit premium. It is unclear if Arvest took any nonperforming assets, but observers said buyers typically only want performing assets in branch deals.

Harrington closed the sale Nov. 6 — earlier than its initial December target.

It said that the capital levels at its thrift unit would benefit this quarter from the deal and the reversal of a portion of the valuation allowance for its deferred tax asset.

The thrift unit is adequately capitalized now, even though it had been undercapitalized at Sept. 30, with a total risk-based capital ratio of 6.34%, the company said. It did not specify the thrift unit's current capital levels.

Harrington said it is trying to raise capital, but cannot offer assurances that it will succeed.

It also is looking for ways to reduce the high risk-weighting of its assets, which would relieve some capital pressure.

It warned that falling short of the regulatory target could result in further enforcement actions and jeopardize its ability to survive.

Harrington's stock, which has been trading under $1 since late last month, fell 27% Wednesday, to 51 cents a share.

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