EXHIBIT 99.1
[HAWTHORNE FINANCIAL CORPORATION LOGO]
HAWTHORNE FINANCIAL CORPORATION
PRESS RELEASE
APRIL 24, 2003
IMMEDIATE RELEASE
Contact: Ms. Simone Lagomarsino, President and Chief Executive Officer
(310) 725-5631
Mr. David Rosenthal, Chief Financial Officer (310) 725-1890
HAWTHORNE FINANCIAL REPORTS STRONG FIRST QUARTER EARNINGS FOR 2003
(El Segundo, CA) Hawthorne Financial Corporation (the "Company"), (NASDAQ:HTHR),
parent company of Hawthorne Savings, F.S.B. (the "Bank"), today announced first
quarter 2003 net income of $6.7 million, representing an increase of 14.1%,
compared to $5.9 million a year earlier. Diluted earnings per share for the
quarter were $0.81, representing an increase of 5.2%, compared to earnings per
share of $0.77 for the first quarter 2002.
FIRST QUARTER HIGHLIGHTS
- The Company's strong level of net income of $6.7 million during the
first quarter of 2003 represents the strength and dedication of our
talented employees.
- Loan volume increased 34.7% during the first quarter 2003, compared
to the same period in 2002, reflecting the Bank's improved asset
generation capabilities.
- During the quarter, non-interest bearing checking account balances
increased 35.3% on an annualized basis, and annualized deposit
growth was 24.0%, reflecting the Company's focus on building
franchise value.
- Deposit fee income increased 16.3% while general and administrative
expenses decreased by 6.9% compared to the prior quarter,
demonstrating the Company's focus on improving efficiency. The
efficiency ratio improved to 47.62% during the first quarter 2003,
from 50.44% during the fourth quarter 2002.
- Asset quality measurements remain at historically strong levels,
reflecting the changes made to underwriting practices during the
past four years.
"Net income and other key performance measurements such as ROA/ROE and asset
quality for the quarter continue to reflect the strong foundation that we have
built," said Simone Lagomarsino, the Company's President and Chief Executive
Officer.
RETURN ON ASSETS/RETURN ON EQUITY
Key performance measurements for the first quarter reflected improvements over
the fourth quarter of 2002. Net income for the three months ended March 31,
2003, resulted in a return on average assets ("ROA") of 1.06%, compared with a
ROA of 0.97% for the fourth quarter of 2002. Return on average equity ("ROE")
was 16.46% for the three months ended March 31, 2003, compared with a ROE of
14.91% for the fourth quarter of 2002.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 2 OF 9
NET INTEREST INCOME
The Company's net interest income after provision for credit losses was $21.1
million for the quarter, which was relatively flat compared to the prior
quarter, and reflecting an increase of 23.8% compared to the $17.1 million for
the first quarter of 2002. The Company's net interest margin for the three
months ended March 31, 2003 was 3.44%, compared with 3.55% during the prior
quarter, and 3.80% during the first quarter 2002.
The average cost of funds for the Company decreased to 2.82% during the three
months ended March 31, 2003, compared to 3.08% the prior quarter, and 3.78%
during the first quarter 2002. The reduction in the cost of funds is the result
of the combination of the continued downward pressure on interest rates,
maturing certificates of deposit with higher than current market rates, and the
shift in the deposit mix.
Net interest income was positively impacted by: 1) the inclusion of the net
assets from the acquisition of First Fidelity in August 2002, 2) the continued
strong origination volume of $236.5 million, 3) the majority of ARM loans ($1.2
billion) reaching their contractual floors and 4) increased income from the
investment securities portfolio.
Both net interest income and net interest margin continue to be adversely
impacted as borrowers refinance loans, which resulted in $179.8 million in
prepayments with a weighted average interest rate of 7.30%, while new loan
originations had a weighted average interest rate of 5.50% during the quarter.
As a result, the yield on loans receivable was 6.40% during the three months
ended March 31, 2003, compared to 6.74% during the prior quarter and 7.61%
during the first quarter 2002.
Net interest income was positively impacted by the increase in mortgage backed
securities, which resulted from the deployment of the excess liquidity caused by
loan prepayments. This had the effect of compressing the net interest margin.
Accordingly, and due to the uncertainty regarding future prepayment speeds, we
are lowering the previously announced guidance for 2003 net interest margin by
10 basis points, to the range of 3.25% to 3.35%.
NONINTEREST REVENUES
Noninterest revenues increased 18.9% to $1.5 million for the three months ended
March 31, 2003, compared with $1.3 million during the same period in 2002. Loan
and other related fees constituted 57.6% of noninterest revenues and were
comprised primarily of prepayment fees resulting from the high level of
refinancings. Fee income on deposits increased 22.3% during the first quarter
2003, compared with the same period in 2002, and increased 16.3% compared to the
prior quarter, resulting from the growth in core transaction deposits and other
fee generating initiatives.
The Company continues to expand its customer product array, which will enhance
customer retention and satisfaction, thereby increasing income. The ratio of
products per household increased slightly to 2.46 at March 31, 2003 for the
combined Bank, compared with 2.44 at December 31, 2002. The retail banking team
has implemented a customer overdraft protection program. As a result of this
program along with other initiatives contemplated, we reiterate prior guidance
that noninterest income will increase by 10% for the year.
NONINTEREST EXPENSE
Total general and administrative expenses ("G&A") were $11.2 million for the
three months ended March 31, 2003, compared with $12.0 million incurred in the
fourth quarter of 2002. "This $0.8 million decrease in G&A to the prior quarter
represents a 6.9% reduction and validates the cost containment emphasis and
efforts our team continues to implement," Ms. Lagomarsino said. Annualized G&A
(excluding other/legal settlements) to average assets (excluding allowance for
credit losses) decreased to 1.69% for the quarter ended March 31, 2003, compared
to 1.82% for the year ended 2002. The Company's efficiency ratio was 47.62% for
the three months ended March 31, 2003, which was less than the fourth quarter of
2002 and the 48.07% for the year ended 2002. The Company remains focused on its
goal to reduce the efficiency ratio to 45% or less in 2003.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 3 OF 9
LOANS
Loans receivable averaged $2.1 billion during the first quarter of 2003, which
was relatively flat compared to the prior quarter, and reflected a 24.8%
increase compared to average loans outstanding during the first quarter 2002.
New loan originations were $236.5 million for the first quarter of 2003, which
represented an increase of 34.7% compared to originations during the first
quarter 2002. "We continue to work to reduce the average loan size, and to
diversify the loan portfolio across products types and geographically throughout
Southern California," Ms. Lagomarsino said.
DEPOSITS
Total deposits increased to $1.8 billion at March 31, 2003, from $1.7 billion at
December 31, 2002, a 24.0% annualized increase. As of March 31, 2003, the Bank
had 67,974 total retail deposit accounts, 40,223 total households and 22,246
checking accounts, which reflected increases from the prior year of 14.3%, 16.3%
and 11.1%, respectively.
"I am pleased to report that the Bank has been selected as the "Best Bank in the
South Bay" by the readers of a local South Bay newspaper, the Easy Reader. The
Bank has been awarded this honor in three out of the last four years, which is a
reflection of our commitment to providing "extreme service" to our customers
throughout the Bank," said Ms. Lagomarsino. "We are bringing this same level of
commitment to "extreme service" and community participation as we proceed with
our branching strategy in Orange and San Diego Counties," she added.
The Company also announced the planned opening of two new branches in the second
quarter of 2003. Ms. Lagomarsino stated, "In April, we will open our fourteenth
branch in Baldwin Hills, in Los Angeles County. This location has been the
headquarters of Operation Hope, a community development organization that
Hawthorne has been associated with for over five years, and we are very excited
about the opportunity to convert many of their clients to Hawthorne Savings'
customers. In June, we expect to open our fifteenth branch in the Oak Creek area
of Irvine, in Orange County."
ASSET QUALITY
Management is very pleased that classified assets remain at historically low
levels. At March 31, 2003, the ratio of total allowance for credit losses to
loans receivable, net of specific valuation allowance, was 1.66%, compared with
1.64% at December 31, 2002.
Based on the current assessment of asset quality and economic indicators,
management anticipates that the provision for credit losses for the remainder of
2003 will be based primarily on loan growth.
STOCK REPURCHASES/EXERCISES
During the first quarter of 2003, there were 123,000 shares repurchased at an
average price of $28.98. As of March 31, 2003, cumulative repurchases were
1,305,983 shares at an average price of $21.64. Currently, $2.3 million remains
available for additional share repurchases under existing board approved
authorizations.
In February 2003, the Fort Pitt Fund LP, which is controlled by one of the
Company's directors, exercised warrants to purchase 380,450 shares of common
stock, in a cashless transaction.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 4 OF 9
CAPITAL LEVELS
At March 31, 2003, the Bank remained well-capitalized with core, tier 1 and
risk-based capital ratios of 7.46%, 10.54% and 11.80%, respectively. The minimum
ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1
and risk-based capital, respectively.
ABOUT HAWTHORNE SAVINGS
Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates thirteen
branches in the coastal counties of Southern California. The Company specializes
in real estate secured loans in the niche markets that it serves, including: 1)
permanent loans collateralized by single family residential property, 2)
permanent loans secured by multi-family residential and commercial real estate,
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 thirteen full
service retail offices and FHLB advances.
* * * * *
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 period 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,
loan prepayments increasing or continuing at the current pace, risk associated
with credit quality, outcome of pending litigation, inherent market risk
associated with treasury activities, the Company's ability to successfully
implement new strategic initiatives 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.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 5 OF 9
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Assets:
Cash and cash equivalents $ 17,772 $ 21,849
Investment securities available-for-sale, at fair value 329,255 267,596
Loans receivable (net of allowance for credit losses
of $35,506 in 2003 and $35,309 in 2002) 2,097,835 2,114,255
Accrued interest receivable 11,652 11,512
Investment in capital stock of Federal Home Loan Bank, at cost 35,151 34,705
Office property and equipment at cost, net 5,237 5,106
Deferred tax asset, net 6,966 10,068
Goodwill 22,970 22,970
Intangible assets 1,285 1,388
Other assets 32,918 5,521
----------- -----------
Total assets $ 2,561,041 $ 2,494,970
=========== ===========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits:
Noninterest-bearing $ 43,328 $ 39,818
Interest-bearing:
Transaction accounts 605,321 597,528
Certificates of deposit 1,113,790 1,025,464
----------- -----------
Total deposits 1,762,439 1,662,810
FHLB advances 565,945 600,190
Capital securities 51,000 51,000
Accounts payable and other liabilities 15,062 17,904
----------- -----------
Total liabilities 2,394,446 2,331,904
----------- -----------
Stockholders' Equity:
Common stock -- $0.01 par value; authorized 20,000,000
shares; issued, 8,992,402 shares (2003) and
8,576,048 shares (2002) 90 86
Capital in excess of par value -- common stock 81,553 81,087
Retained earnings 111,870 105,134
Accumulated other comprehensive income 1,391 1,504
Less:
Treasury stock, at cost -- 1,311,383 shares (2003) and
1,188,383 shares (2002) (28,309) (24,745)
----------- -----------
Total stockholders' equity 166,595 163,066
----------- -----------
Total liabilities and stockholders' equity $ 2,561,041 $ 2,494,970
=========== ===========
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 6 OF 9
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2003 2002
------------ -----------
Interest revenues:
Loans $ 34,173 $ 32,508
Investments and other securities 2,952 -
Investment in capital stock of Federal Home Loan Bank, fed funds and other 464 861
------------ -----------
Total interest revenues 37,589 33,369
------------ -----------
Interest costs:
Deposits 9,569 9,534
FHLB advances 5,813 5,152
Senior notes - 806
Capital securities 773 304
------------ -----------
Total interest costs 16,155 15,796
------------ -----------
Net interest income 21,434 17,573
Provision for credit losses 300 500
------------ -----------
Net interest income after provision for credit losses 21,134 17,073
Noninterest revenues:
Loan related and other fees 886 848
Deposit fees 456 373
Other 195 72
------------ -----------
Total noninterest revenues 1,537 1,293
Income from real estate operations, net 1 69
Noninterest expenses:
General and administrative expenses:
Employee 6,190 5,032
Operating 2,401 1,503
Occupancy 1,186 914
Professional 447 107
Technology 549 369
SAIF premiums and OTS assessments 165 136
Other/legal settlements 226 20
------------ -----------
Total general and administrative expenses 11,164 8,081
------------ -----------
Income before income taxes 11,508 10,354
Income tax provision 4,772 4,452
------------ -----------
Net income $ 6,736 $ 5,902
============ ===========
Basic earnings per share $ 0.89 $ 1.10
============ ===========
Diluted earnings per share $ 0.81 $ 0.77
============ ===========
Weighted average basic shares outstanding 7,575 5,372
============ ===========
Weighted average diluted shares outstanding 8,340 7,627
============ ===========
HAWTHORNE FINANCIAL CORPORATION
FIRST QUATER 2003 RESULTS
APRIL 24,2003
PAGE 7 OF 9
SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED)
(Dollars in thousands)
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
---------- ------------ ----------
Risk elements:
Nonaccrual loans $ 8,312 $ 7,675 $ 6,295
Real estate owned, net - - -
---------- ------------ ----------
8,312 7,675 6,295
Performing loans classified substandard or lower (1) 15,018 16,002 46,520
---------- ------------ ----------
Total classified assets $ 23,330 $ 23,677 $ 52,815
========== ============ ==========
Total classified loans $ 23,330 $ 23,677 $ 52,815
========== ============ ==========
Loans restructured and paying in accordance with modified terms (2) $ 2,448 $ 2,468 $ 2,707
========== ============ ==========
Gross loans before allowance for credit losses $2,133,341 $ 2,149,564 $1,693,408
========== ============ ==========
Loans receivable, net of specific valuation allowance $2,133,085 $ 2,149,376 $1,692,958
========== ============ ==========
Delinquent loans:
30 - 89 days $ 8,738 $ 5,357 $ 14,405
90+ days 4,699 7,175 4,968
---------- ------------ ----------
Total delinquent loans $ 13,437 $ 12,532 $ 19,373
========== ============ ==========
Allowance for credit losses:
General valuation allowance ("GVA") $ 35,250 $ 35,121 $ 28,226
Specific valuation allowance ("SVA") 256 188 450
---------- ------------ ----------
Total allowance for credit losses $ 35,506 $ 35,309 $ 28,676
========== ============ ==========
Net loan charge-offs:
Net charge-offs for the quarter ended (3) $ 103 $ 664 $ 2,426
Percent to loans receivable, net of SVA (annualized) 0.02% 0.12% 0.57%
Percent to beginning of period allowance for credit losses (annualized) 1.17% 7.40% 31.71%
Selected asset quality ratios at period end:
Total nonaccrual loans to total assets 0.32% 0.31% 0.34%
Total allowance for credit losses to loans receivable, net of SVA 1.66% 1.64% 1.69%
Total GVA to loans receivable, net of SVA 1.65% 1.63% 1.67%
Total allowance for credit losses to nonaccrual loans 427.17% 460.05% 455.54%
Total classified assets to Bank core capital and GVA 10.41% 10.81% 27.81%
- -----------------------------------
(1) Excludes nonaccrual loans.
(2) Troubled debt restructured loans not classified and not on nonaccrual.
(3) During the course of the year, charge-offs are anticipated and
reflected as specific valuation allowances.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 8 OF 9
NET INTEREST INCOME (UNAUDITED)
(Dollars in thousands)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
2003 2002
---------------------------------- -----------------------------------
WEIGHTED WEIGHTED
AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE
BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST
----------- --------- ---------- ----------- --------- ----------
Assets:
Interest-earning assets:
Loans receivable (1) $ 2,144,063 $ 34,173 6.40% $ 1,717,674 $ 32,508 7.61%
Cash, fed funds and other 5,945 19 1.30 118,658 487 1.66
Investment securities 316,986 2,952 3.73 - - -
Investment in capital stock of
Federal Home Loan Bank 34,860 445 5.18 24,607 374 6.16
----------- -------- ----------- --------
Total interest-earning assets 2,501,854 37,589 6.04 1,860,939 33,369 7.21
-------- ----- -------- ------
Noninterest-earning assets 51,378 1,247
----------- -----------
Total assets $ 2,553,232 $ 1,862,186
=========== ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits $ 1,675,565 $ 9,569 2.32% $ 1,161,976 $ 9,534 3.33%
FHLB advances 583,337 5,813 3.99 484,000 5,152 4.26
Senior notes - - - 25,778 806 12.50
Capital securities 51,000 773 6.06 14,000 304 8.69
----------- -------- ----------- --------
Total interest-bearing liabilities 2,309,902 16,155 2.82 1,685,754 15,796 3.78
-------- ----- -------- ------
Noninterest-bearing checking 41,302 35,957
Noninterest-bearing liabilities 38,353 19,702
Stockholders' equity 163,675 120,773
----------- -----------
Total liabilities and stockholders' equity $ 2,553,232 $ 1,862,186
=========== ===========
Net interest income $ 21,434 $ 17,573
======== ========
Interest rate spread 3.22% 3.43%
====== ======
Net interest margin 3.44% 3.80%
====== ======
- ------------------------------
(1) Includes the interest on nonaccrual loans only to the extent it was paid and
recognized as interest income.
HAWTHORNE FINANCIAL CORPORATION
FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 9 OF 9
NET LOAN PORTFOLIO COMPOSITION (UNAUDITED)
(Dollars in thousands)
MARCH 31, 2003 DECEMBER 31, 2002
----------------------------- -----------------------------
BALANCE PERCENT BALANCE PERCENT
----------- ------- ----------- -------
Single family residential $ 847,421 39.93% $ 851,268 39.81%
Income property:
Multi-family 706,488 33.29% 689,100 32.22%
Commercial 378,835 17.85% 387,354 18.11%
Development:
Multi-family 45,075 2.12% 57,037 2.67%
Commercial 36,531 1.72% 41,168 1.93%
Single family construction:
Single family residential 68,514 3.23% 75,218 3.52%
Land 34,214 1.61% 32,612 1.52%
Other 5,225 0.25% 4,738 0.22%
----------- ------ ----------- ------
Total loan principal (1) $ 2,122,303 100.00% $ 2,138,495 100.00%
=========== ====== =========== ======
- ---------------------------------
(1) Excludes net deferred fees and costs.
SELECTED FINANCIAL DATA (UNAUDITED) (1) THREE MONTHS ENDED
(Dollars in thousands) MARCH 31,
-------------------------
2003 2002
------ -------
PERFORMANCE RATIOS
Return on average assets (2) 1.06% 1.27%
Return on average equity (2) 16.46% 19.55%
Efficiency ratio (3) 47.62% 42.73%
GROWTH RATIOS (2)
Total assets 10.59% 1.52%
Loans receivable, net -3.11% -10.43%
Total deposits 23.97% -0.99%
MARCH 31, MARCH 31,
2003 2002
--------- ---------
BANK CAPITAL RATIOS
Core capital $ 188,876 $ 161,664
Ratio 7.46% 8.69%
Tier 1 capital $ 188,876 $ 161,664
Ratio 10.54% 12.41%
Risk-based capital $ 211,440 $ 177,455
Ratio 11.80% 13.62%
- -------------------------------
(1) All ratios were calculated based on net income.
(2) Annualized for the three months ended March 31, 2003 and March 31, 2002,
respectively.
(3) Represents total general and administrative expenses (excluding other/legal
settlements) divided by net interest income before provision for credit
losses and noninterest revenues.