Hawthorne (NASDAQ:HTHR)
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Hawthorne Financial Reports First Quarter Results for 2004
EL SEGUNDO, Calif., April 22 /PRNewswire-FirstCall/ -- Hawthorne Financial
Corporation, , parent company of Hawthorne Savings, F.S.B., today announced
first quarter 2004 net income of $4.8 million, compared to $6.7 million a year
earlier. Diluted earnings per share for the quarter were $0.38, compared to
$0.54 for the first quarter of 2003.
Excluding pre-merger related costs associated with the previously announced
acquisition of Hawthorne Financial Corporation by Commercial Capital Bancorp,
Inc., net income for the first quarter of 2004 and diluted earnings per share
was $6.8 million and $0.53, respectively, which was comparable with the prior
year's first quarter results.
"Four years ago, as a company with a $40 million market capitalization and a
new management team, we committed to investors that our focus and energy would
be on increasing long term shareholder value," said Simone Lagomarsino,
president and chief executive officer of Hawthorne Financial Corporation. "Now
we are about to complete the sale of the organization for approximately $500
million, and, among the many sources of satisfaction the transaction brings to
our management team, one of the greatest is pride in having kept our promise to
shareholders," Ms. Lagomarsino added.
FIRST QUARTER OVERVIEW
* The Bank achieved loan originations of $282.1 million during the first
quarter of 2004, an increase of 19%, compared to loan originations of
$236.5 million during the first quarter of 2003. A reduction in loan
payoffs during the first quarter contributed to net loan portfolio
growth of $79.1 million, or 15%, from the prior quarter end.
* Deposit fee income increased by 27% during 2004, compared to the prior
year as a result of the Bank's continued implementation of new revenue
generating initiatives.
* Proxy materials have been mailed to shareholders' and the special
shareholder meeting has been scheduled for May 25, 2004. As
previously indicated, the acquisition is scheduled for this summer,
subject to final regulatory and shareholder approvals.
"With recent economic indicators suggesting that we may soon experience a
rising interest rate environment, we believe that Hawthorne Savings is
well-positioned as a variable rate lender, with approximately $2.14 billion or
95.1% of the loans tied to various interest rate indices including MTA, LIBOR,
CMT, Prime and COFI," said Ms. Lagomarsino. "Of these loans, $1.65 billion or
77.2% will reprice within the next twelve months," she added. "As a variable
rate lender, the rates on these loans will fluctuate with interest rates.
Additionally, Hawthorne Savings originates adjustable rate loans for its
portfolio and does not focus on long term fixed rate product for securitization
through agency or conduit markets. Further, on the liability side, 68.2% of
our funding sources, which include deposits and FHLB advances, have rates that
are contractually fixed. Accordingly, we believe the Company's balance sheet
is well-structured for a rising rate environment," Ms. Lagomarsino concluded.
RETURN ON ASSETS/RETURN ON EQUITY
The return on average assets ("ROA") for the first quarter of 2004 was 0.71%,
compared with 1.06%, for the first quarter of 2003. The return on average
equity ("ROE") was 10.21% for the first quarter of 2004, compared with 16.46%
for the first quarter of 2003.
Key performance measurements for the first quarter were significantly impacted
by the $2.0 million of pre-merger related costs. The ROA for the first quarter
of 2004 was 1.00%, as adjusted for the pre-merger related costs, compared with
1.06%, for the first quarter of 2003. The ROE was 14.43% for the first quarter
of 2004, as adjusted for the pre-merger related costs, compared with a ROE of
16.46% for the first quarter of 2003.
NET INTEREST INCOME
Net interest income of $20.9 million for the first quarter of 2004 was slightly
lower than the $21.4 million in the first quarter of 2003. The decrease was
primarily due to the low interest rate environment, which contributed to the
increase in prepayments on higher yielding loans since the first quarter of
2003.
The Company's net interest income for the first quarter of 2004 was $1.2
million higher than the fourth quarter and the net interest margin of 3.18%,
while significantly lower than the 3.44% shown in the first quarter of 2003,
increased 9 basis points over the fourth quarter of 3.09%. The increase in net
interest income compared to the prior quarter was the result of the net growth
in the loan portfolio. The increase in the net interest margin was a result of
the lower cost of funds and the $1.43 billion or 63.6% of the loan portfolio
that were at their interest rate floors. During 2004, $166.5 million in loans
prepaid with a weighted average interest rate of 6.35% (compared to $194.3
million and 6.56% during the fourth quarter of 2003), while new loan
originations had a weighted average yield of 4.92% during the same period. As
a result, the yield on loans receivable was 5.50% during the quarter ended
March 31, 2004, compared to 6.40% during the same period of 2003.
The average cost of funds decreased 15 basis points to 2.17% during the first
quarter of 2004, compared to 2.32% during the prior quarter. This reduction in
the cost of funds was due to the combination of the continued downward pressure
on interest rates, maturing certificates of deposit with higher than current
market rates, increasing FHLB overnight advances, the successful reduction of
117 basis points of cost on $130 million of FHLB putable advances, and the
continued emphasis on reducing the cost of funds.
NONINTEREST REVENUE
Noninterest revenue was $1.7 million for the quarter ended March 31, 2004, a
12.9% increase over the $1.5 million for the same period in 2003. Fee income
on deposits increased by 27.4% primarily due to a 51.1% increase in revenue
from overdrafts during 2004 compared to 2003, reflecting the significant
efforts of the management team to increase this recurring revenue stream during
the past year. Also contributing to the year over year increase was $0.2
million earned on $26.6 million in Bank Owned Life Insurance included in other
assets.
The ratio of products per household increased to 2.90 at March 31, 2004,
compared with 2.77 for the prior quarter and 2.46 for the prior year as the
Company continues to expand its household penetration.
NONINTEREST EXPENSE
Total G&A was $12.8 million for the first quarter of 2004, compared with $10.7
million incurred for the fourth quarter of 2003. The significant increase in
the current quarter was due to $2.0 million in pre-merger related costs. G&A,
after adjusting for other/legal settlements, remained flat compared to the
first quarter of 2003. The ratio of annualized G&A to average assets
(excluding other/legal settlements) decreased to 1.61% for the quarter ended
March 31, 2004, compared to 1.64% for the year ended 2003. The Company remains
focused on reducing G&A while increasing productivity. G&A to average assets
has continued to improve for the fifth consecutive year. The Company's
efficiency ratio, (defined as general and administrative expense (excluding
other/legal settlements) divided by net interest income before provision for
credit losses and noninterest revenue), was 47.91% for the first quarter of
2004, which was lower than the 48.63% during the fourth quarter of 2003. The
Company's ratio of G&A to average assets for 2004 was in line with previously
announced guidance of 1.6%.
INCOME TAXES
In accordance with generally accepted accounting principles, merger related
costs have been expensed as incurred. A significant portion of our investment
advisory fees will not be payable until the transaction is completed. No tax
benefit has been included in the financial statements for pre-merger related
costs incurred to date, since it is presently not known, how much, if any, will
be deductible for income tax purposes.
LOANS
As a result of the strong loan originations and the reduction in the loan
prepayments from the fourth quarter of 2003, the loan portfolio grew by $79.1
million, to $2.23 billion at March 31, 2004 from $2.15 billion at December 31,
2003, a 14.7% annualized increase. New loan originations were $282.1 million
for the quarter ended March 31, 2004, which represented a 19.3% increase,
compared to $236.5 million in originations during the same period of 2003. The
Company experienced loan prepayments of 30% annualized for the first quarter of
2004, compared with 38% for the year ended December 31, 2003. The Company
continues to experience a strong demand for loans and is entering the second
quarter with a pipeline of approximately $192 million, which is comparable to
the prior quarter.
DEPOSITS
Total deposits increased to $1.76 billion at March 31, 2004, from $1.72 billion
at December 31, 2003, an 8.0% annualized increase, compared to 3.6% for the
year ended 2003.
ASSET QUALITY
Asset quality remains strong. Nonaccrual loans decreased by $3.7 million to
$5.2 million at March 31, 2004 compared to December 31, 2003. Classified
assets decreased by 19.3% to $18.8 million, or 0.7% of total Bank assets,
compared to $23.3 million, or 0.9% of total Bank assets, a year earlier.
Nonaccrual loans to total assets decreased to 0.19% at March 31, 2004, compared
with 0.33% and 0.32% at December 31, 2003 and March 31, 2003, respectively.
Delinquent loans decreased to $4.0 million at March 31, 2004 from $6.6 million
and $13.4 million at December 31, 2003 and March 31, 2003, respectively. At
March 31, 2004, the ratio of total allowance for credit losses to loans
receivable, net of specific valuation allowance, was 1.45%, compared with 1.53%
and 1.66% at December 31, 2003 and March 31, 2003, respectively.
During the first quarter of 2004, the Bank foreclosed on one SFR loan and
incurred a $0.3 million write-down of this real estate owned property.
Based on the current assessment of asset quality and economic indicators, the
Bank anticipates that the provision for credit losses for 2004 will be
consistent with 2003.
STOCK ACTIVITY
There were no share repurchases during the first quarter of 2004. As of March
31, 2004, cumulative repurchases were 2,100,516 shares at an average price of
$15.15. During 2004, 55,827 warrants and 14,740 stock options were exercised.
CAPITAL LEVELS
At March 31, 2004, the Bank remained well-capitalized with core, tier 1 and
risk-based capital ratios of 7.92%, 11.04% and 12.29%, respectively. The
minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital,
tier 1 and risk-based capital, respectively.
Due to the pending acquisition of Hawthorne Financial Corporation, management
has concluded that it was appropriate to suspend future investor conference
calls.
ABOUT HAWTHORNE SAVINGS
Hawthorne Savings, F.S.B., with total assets of $2.7 billion, operates 15
branches in the coastal counties of Southern California, from Westlake Village
at the western edge of Los Angeles to Mission Bay in San Diego. The Company
specializes in real estate secured loans within the markets it serves,
including: 1) permanent loans collateralized by single family residential
property, 2) permanent loans secured by multi-family residential and commercial
real estate and 3) loans for the construction of multi-family residential,
commercial and individual single family residential properties and the
acquisition and development of land for the construction of such projects. The
Company funds its loans predominantly with retail deposits generated through
its fifteen full service retail offices and FHLB advances.
Hawthorne Savings, F.S.B., continues to keep pace with the changing face of
banking by regularly introducing its customers to new products, such as the
Global Access Check Card, online banking and investments. For more information,
please call 888-TRUE-411 or visit the Bank online at
http://www.hawthornesavings.com/.
When used in this press release or in future press releases, filings by
Hawthorne Financial Corporation ("Company") with the Securities and Exchange
Commission ("SEC"), or other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to
caution readers that all forward-looking statements are necessarily speculative
and not to place undue reliance on any such forward-looking statements, which
speak only as of the date made. Also, the Company wishes to advise readers
that various risks and uncertainties could affect the Company's financial
performance and cause actual results for future periods to differ materially
from those anticipated or projected. Specifically, the Company cautions
readers that important factors could affect the Company's business and cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company, including: general economic
conditions in its market area, particularly changes in economic conditions in
the real estate industry or real estate values in our market, changes in market
interest rates, particularly steep increases in rates, loan prepayments
continuing at the current pace or increasing, increased competition in the
Company's niche markets that impacts pricing and/or credit standards, risk
associated with credit quality, outcome of pending or threatened litigation,
inherent market risk associated with treasury activities, risks associated with
management's investment strategy, the possibility that the merger may not occur
or will take longer than anticipated, and other risks with respect to its
business and/or financial results detailed in the Company's press releases and
filings with the SEC. Stockholders are urged to review the risks described in
such releases and filings. The risks highlighted herein should not be assumed
to be the only factors that could affect future performance of the Company. The
Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
Consolidated Statements of Financial Condition (unaudited)
(Dollars in thousands)
March 31, December 31,
2004 2003
Assets:
Cash and cash equivalents $18,939 $17,829
Investment securities available-for-sale,
at fair value 371,287 381,287
Loans receivable (net of allowance for
credit losses of $32,789 in 2004 and
$33,538 in 2003) 2,233,224 2,154,114
Real estate owned 1,617 --
Investment in capital stock of Federal Home
Loan Bank, at cost 36,621 38,189
Accrued interest receivable 10,123 9,859
Office property and equipment at cost, net 4,988 5,295
Deferred tax asset, net 7,766 10,630
Goodwill 22,970 22,970
Intangible assets 872 976
Other assets 36,566 34,454
Total assets $2,744,973 $2,675,603
Liabilities and Stockholders' Equity:
Liabilities:
Deposits:
Noninterest-bearing $51,089 $51,670
Interest-bearing:
Transaction accounts 671,489 668,135
Certificates of deposit 1,034,454 1,002,759
Total deposits 1,757,032 1,722,564
FHLB advances 722,888 697,155
Junior subordinated debentures 52,600 52,600
Accounts payable and other liabilities 20,907 18,010
Total liabilities 2,553,427 2,490,329
Stockholders' Equity:
Common stock - $0.01 par value; authorized
20,000,000 shares; issued, 13,907,837 shares
(2004) and 13,837,958 shares (2003) 139 138
Capital in excess of par value - common
stock 84,642 84,360
Retained earnings 138,372 133,597
Accumulated other comprehensive income/(loss) 264 (950)
Less:
Treasury stock, at cost - 2,108,616 shares
(2004 and 2003) (31,871) (31,871)
Total stockholders' equity 191,546 185,274
Total liabilities and stockholders'
equity $2,744,973 $2,675,603
Consolidated Statements of Income (unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
2004 2003
Interest revenue:
Loans $30,405 $34,173
Investments securities 3,367 2,952
Investment in capital stock of FHLB, fed
funds and other 370 488
Total interest revenue 34,142 37,613
Interest cost:
Deposits 7,617 9,569
FHLB advances 4,835 5,813
Junior subordinated debentures 758 797
Total interest cost 13,210 16,179
Net interest income 20,932 21,434
Provision for credit losses -- 300
Net interest income after provision for
credit losses 20,932 21,134
Noninterest revenue:
Loan related and other fees 792 886
Deposit fees 581 456
Other 362 195
Total noninterest revenue 1,735 1,537
(Loss)/income from real estate owned, net (356) 1
Noninterest expense:
General and administrative expense:
Employee 6,330 6,190
Operating 2,105 2,401
Occupancy 1,347 1,186
Professional 405 447
Technology 501 549
SAIF premiums and OTS assessments 172 165
Other/legal settlements 1,977 226
Total general and administrative expense 12,837 11,164
Income before income taxes 9,474 11,508
Income tax provision 4,699 4,772
Net income $4,775 $6,736
Basic earnings per share $0.41 $0.59
Diluted earnings per share $0.38 $0.54
Weighted average basic shares outstanding 11,780 11,362
Weighted average diluted shares outstanding 12,643 12,510
Supplemental Information - Classified Assets (unaudited)
(Dollars in thousands)
March 31, December 31, March 31,
2004 2003 2003
Risk elements:
Nonaccrual loans $5,228 $8,885 $8,312
Real estate owned, net 1,617 -- --
6,845 8,885 8,312
Performing loans classified
substandard or lower (1) 11,991 5,553 15,018
Total classified assets $18,836 $14,438 $23,330
Total classified loans $17,219 $14,438 $23,330
Loans restructured and paying in
accordance with modified terms (2) $2,289 $2,310 $2,448
Gross loans before allowance for
credit losses $2,266,013 $2,187,652 $2,133,341
Loans receivable, net of specific
valuation allowance $2,266,013 $2,187,652 $2,133,085
Delinquent loans:
30 - 89 days $3,780 $1,724 $8,738
90+ days (3) 266 4,892 4,699
Total delinquent loans $4,046 $6,616 $13,437
Allowance for credit losses:
General valuation allowance ("GVA") $32,789 $33,538 $35,250
Specific valuation allowance ("SVA") -- -- 256
Total allowance for credit losses $32,789 $33,538 $35,506
Net loan charge-offs:
Net charge-offs for the quarter
ended (4) $133 $184 $103
Percent to loans receivable, net of
SVA (annualized) 0.02% 0.03% 0.02%
Percent to beginning of period
allowance for credit losses
(annualized) 1.59% 2.18% 1.17%
Selected asset quality ratios at
period end:
Total nonaccrual loans to total
assets 0.19% 0.33% 0.32%
Total allowance for credit losses
to loans receivable, net of SVA 1.45% 1.53% 1.66%
Total GVA to loans receivable,
net of SVA 1.45% 1.53% 1.65%
Total allowance for credit losses
to nonaccrual loans 627.18% 377.47% 427.17%
Total classified assets to Bank
core capital and GVA 7.60% 6.01% 10.41%
(1) Excludes nonaccrual loans.
(2) Troubled debt restructured loans not classified and not on
nonaccrual.
(3) Included in nonaccrual loans.
(4) During the course of the year, charge-offs are generally anticipated
and reflected as specific valuation allowances.
Net Interest Income (unaudited)
(Dollars in thousands)
Three Months Ended March 31,
2004 2003
Weighted Weighted
Average Revenues/ Average Average Revenues/ Average
Balance Costs Yield/Cost Balance Costs Yield/Cost
Assets:
Interest-
earning
assets:
Loans
receivable
(1) $2,210,718 $30,405 5.50% $2,144,063 $34,173 6.40%
Investment
securities 378,214 3,367 3.56 316,986 2,952 3.73
Investment
in capital
stock of
Federal Home
Loan Bank 38,461 334 3.49 34,860 445 5.18
Cash, fed
funds and
other 5,779 36 2.51 7,545 43 1.30
Total
interest-
earning
assets 2,633,172 34,142 5.18 2,503,454 37,613 6.04
Noninterest-
earning
assets 60,471 51,378
Total
assets $2,693,643 $2,554,832
Liabilities
and
Stockholders'
Equity:
Interest-
bearing
liabilities:
Deposits $1,679,372 $7,617 1.82% $1,675,565 $9,569 2.32%
FHLB
advances 698,661 4,835 2.74 583,337 5,813 3.99
Junior
subordinated
debentures 52,600 758 5.76 52,600 797 6.06
Total
interest-
bearing
liabilities 2,430,633 13,210 2.17 2,311,502 16,179 2.82
Noninterest-
bearing
checking 50,531 41,302
Noninterest-
bearing
liabilities 25,355 38,353
Stockholders'
equity 187,124 163,675
Total
liabilities
and
stockholders'
equity $2,693,643 $2,554,832
Net interest
income $20,932 $21,434
Interest rate
spread 3.01% 3.22%
Net interest
margin 3.18% 3.44%
(1) Includes the interest on nonaccrual loans only to the extent it was
paid and recognized as interest income.
Net Loan Portfolio Composition (unaudited)
(Dollars in thousands)
March 31,2004 December 31, 2003
Balance Percent Balance Percent
Single family residential $897,182 39.85% $864,510 39.76%
Income property:
Multi-family 793,196 35.23% 764,078 35.15%
Commercial 294,975 13.10% 315,015 14.49%
Development:
Multi-family 111,402 4.95% 93,299 4.29%
Commercial 14,370 0.64% 12,755 0.59%
Single family construction:
Single family residential 89,081 3.96% 78,916 3.63%
Land 44,100 1.96% 43,490 2.00%
Other 6,956 0.31% 1,987 0.09%
Total loan principal (1) $2,251,262 100.00% $2,174,050 100.00%
(1) Excludes net deferred fees and costs.
Selected Financial Data (unaudited) (1)
(Dollars in thousands) Three Months Ended March 31,
2004 2003
Excluding Including
Pre-Merger Costs (6) Pre-Merger Costs
Performance Ratios
Diluted earnings per share $0.53 $0.38 $0.54
Return on average assets (2) 1.00% 0.71% 1.06%
Return on average equity (2) 14.43% 10.21% 16.46%
Efficiency ratio (3) 47.91% 47.62%
G&A to average assets (4) 1.61% 1.71%
Growth Ratios (2)
Total assets 10.37% 10.59%(5)
Loans receivable, net 14.69% -3.11%(5)
Total deposits 8.00% 23.97%(5)
March 31, March 31,
2004 2003
Bank Capital Ratios
Core capital $214,963 $188,876
Ratio 7.92% 7.46%
Tier 1 capital $214,963 $188,876
Ratio 11.04% 10.54%
Risk-based capital $239,414 $211,440
Ratio 12.29% 11.80%
(1) Ratios were calculated based on net income.
(2) Annualized.
(3) Represents total general and administrative expense (excluding
other/legal settlements) divided by net interest income before
provision for credit losses and noninterest revenue.
(4) Represents total annualized general and administrative expense
(excluding other/legal settlements) divided by average assets.
(5) Primarily due to the acquisition of First Fidelity in August 2002.
(6) Excludes merger costs associated with the pending acquisition of
Hawthorne Financial Corporation by Commercial Capital Bancorp.
DATASOURCE: Hawthorne Financial Corporation
CONTACT: Ms. Simone Lagomarsino, President and Chief Executive Officer,
+1-310-725-5631, or Mr. David Rosenthal, Chief Financial Officer,
+1-310-725-1890, both of Hawthorne Financial Corporation
Web site: http://www.hawthornesavings.com/