Harrington West Financial Group Inc. is courting potential investors as the next step in recapitalizing itself, Craig J. Cerny, its chairman and chief executive officer, said in an interview Thursday.

The $1.1 billion-asset company in Solvang, Calif., is looking to raise $40 million to $50 million, most likely as a mix of common and preferred stock.

"We are considering a variety of security types to get us where we need to be but with an eye on dilution for our current shareholders," Cerny said.

The sale of its Kansas operations to Arvest Bank of Fayetteville, Ark., which closed Friday, restored Harrington's Los Padres Bank to adequately capitalized status just in time to satisfy a regulatory deadline.

It now has until Dec. 31 to boost the capital ratios at its thrift unit further. A cease-and-desist order that the Office of Thrift Supervision issued in September requires a core capital ratio of at least 8% and a total risk-based capital ratio of at least 12%, levels that are above the typical minimums needed to be considered well capitalized.

Some industry observers have suggested Harrington could sell its wealth management unit for quick cash. Cerny said that all options are being considered, but that he would prefer not to part with any additional parts of the business.

"The divesture of Kansas made a lot of sense from both a capital and a strategic standpoint. Our presence there was always kind of questioned by investors and analysts," Cerny said. "But we don't want to be in the business of shrinking long term. We can't cut the heart and soul of what we built."

Observers also have said a capital raise would be difficult for Harrington because of its credit problems. In the third quarter nonperforming assets grew 461% from the year earlier and 54% from the second quarter, to $57.8 million, or 5.47% of total assets.

Cerny acknowledged the increase in nonperformers, but said classified assets are stabilizing.

"The pool of weak credits has been stabilizing over the last few quarters," he said, declining to specify the level of classified assets.

Harrington reported Tuesday that it lost $4.1 million in the third quarter, its sixth loss in as many quarters. The results included a $2.4 million provision for loan losses and a $2.4 million other-than-temporary impairment charge on mortgage-backed securities.

Its stock, which has lost about 80% of its value over the past year, closed at 53 cents a share Thursday.

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