Hawthorne Financial Corp., Form 8-K

Table of Contents

Table of Contents

Table of Contents

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMkRCYJ2HRWISF2GUZ5Kx3b585wuDdlz5XrjD3MDd5Di8pc3NH2Q5UZmZos4Xl5C MVVeRn2e06aTvnpsmBFesw== 0000950150-03-001157.txt : 20031024 0000950150-03-001157.hdr.sgml : 20031024 20031024172441 ACCESSION NUMBER: 0000950150-03-001157 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031023 ITEM INFORMATION: FILED AS OF DATE: 20031024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWTHORNE FINANCIAL CORP CENTRAL INDEX KEY: 0000046267 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 952085671 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01100 FILM NUMBER: 03957132 BUSINESS ADDRESS: STREET 1: 2381 ROSECRANS AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107255000 MAIL ADDRESS: STREET 1: 2381 ROSECRANS AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 8-K 1 a93927e8vk.htm FORM 8-K Hawthorne Financial Corp., Form 8-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 23, 2003

Hawthorne Financial Corporation
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		95-2085671 (I.R.S. employer identification number)

Commission file number: 0-1100

2381 Rosecrans Avenue
El Segundo, California 90245
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:
(310) 725-5000

TABLE OF CONTENTS


	Item 12. Results of Operations and Financial Condition
Exhibit No.
SIGNATURES
EXHIBIT 99.1

Item 12. Results of Operations and Financial Condition

On October 23, 2003, Hawthorne Financial Corporation issued a press release announcing its financial results for the third quarter of 2003, a copy of which is furnished herewith as Exhibit 99.1.

Exhibit No.

99.1 Text of press release dated October 23, 2003

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

EX-99.1 3 a93927exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 [HAWTHORNE LOGO] HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 23, 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 CONTINUED STRONG EARNINGS FOR THIRD QUARTER OF 2003 (El Segundo, CA) Hawthorne Financial Corporation, (NASDAQ:HTHR), parent company of Hawthorne Savings, F.S.B., today announced that third quarter 2003 net income increased 27.9% to $7.2 million, compared to $5.6 million a year earlier. Diluted earnings per share for the quarter were $0.57, representing an increase of 23.9%, compared to $0.46 for the third quarter of 2002, after adjustment for the previously announced 50% stock dividend. Year-to-date net income for 2003 grew to $20.8 million, an increase of 23.9%, compared with net income of $16.8 million, for the nine months ended September 30, 2002. Net income resulted in diluted earnings per share, for the nine months ended September 30, 2003 of $1.66, a 14.5% increase, compared to the $1.45 earned in the same period in 2002. Earnings per share computations in all periods have been adjusted for the impact of the Company's 3-for-2 stock split in the form of a 50% stock dividend announced on September 25, 2003. The stock dividend to shareholders of record as of October 6, 2003 will be distributed on or about October 27, 2003. Cash will be paid in lieu of fractional shares based on the closing stock price on the record date. In addition, shares reserved under the Company's stock incentive plan and warrants outstanding on the record date were adjusted to reflect the stock dividend. Prior to the distribution of the stock dividend, there were approximately 7.7 million shares of common stock outstanding. Following distribution of the stock dividend, the number of shares outstanding increased to 11.6 million. QUARTERLY HIGHLIGHTS - - The Company's net income of $7.2 million during the quarter and $20.8 million during the nine months ended September 30, 2003 reflect Hawthorne's consistent earnings performance. - - The Bank achieved record loan originations during the first nine months of 2003 of $773.0 million, compared to $527.9 million during 2002, an increase of 46%, a continued confirmation of the Bank's solid lending franchise and the successful integration of its first acquisition. - - During the nine months ended September 30, 2003, non-interest bearing checking account balances increased 20% on an annualized basis, demonstrating the Company's commitment to increasing franchise value. - - Deposit fee income increased 29% during the nine months ended September 30, 2003, compared to the same period in 2002 as a result of new initiatives, including the Bank's new courtesy overdraft program. - - The ratio of general and administrative expense (excluding other/legal settlement) ("G&A") to average assets improved to 1.64% for the nine months ended September 30, 2003, compared with 1.82% for the nine months ended September 30, 2002, reflecting the Company's commitment to improve efficiency. - - Asset quality measurements remain at historically strong levels. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 2 OF 11 "Quarter after quarter, our employees have delivered impressive results despite the difficult interest rate environment in which we have operated, and continue to face today," said Simone Lagomarsino, President and Chief Executive Officer of Hawthorne Financial. "This record of success fortifies our conviction that strategic decisions based on long-term objectives will best serve the interest of our shareholders," she added. "To that end, we actively evaluate all opportunities including acquisitions that are attractive strategically and financially. Our projections for EPS growth for 2004 without an acquisition are in the 7 - 12% range currently, based upon our projection for net loan growth," she concluded. RETURN ON ASSETS/RETURN ON EQUITY Key performance measurements for the third quarter improved in comparison with the second quarter of 2003. Net income for the three months ended September 30, 2003 resulted in an annualized return on average assets ("ROA") of 1.12%, compared with a ROA of 1.08% for the second quarter of 2003. The annualized return on average equity ("ROE") was 16.51% for the three months ended September 30, 2003, compared with 16.34% for the second quarter of 2003. NET INTEREST INCOME Net interest income of $19.6 million, for the current quarter, reflected an increase of 11.6% compared to the $17.6 million of net interest income earned in the third quarter of 2002. Net interest income earned in the nine months ended September 30, 2003 was $60.9 million reflecting an increase of 17.8% compared to the same period in 2002. Net interest income was positively impacted year-over-year by: 1) inclusion of the net assets from the acquisition of First Fidelity in August 2002, 2) continued strong origination volume of $773.0 million, 3) the majority of ARM loans ($1.4 billion) reaching their contractual floors and 4) income from the investment securities portfolio. Although net interest income for the third quarter of 2003 was relatively consistent with the prior quarter, net interest margin compressed by 5 basis points compared to the prior quarter, primarily due to the differential in rates on new loans, compared to the higher rates on loans that paid off, as well as 67.4% of the Company's funding sources having rates that are contractually fixed. The Company's net interest margin for the three and nine months ended September 30, 2003 was 3.13% and 3.25%, respectively, compared with 3.38% and 3.57% during the same periods in 2002. During 2003, both net interest income and net interest margin continued to be adversely impacted as borrowers refinanced loans, which resulted in $614.7 million in prepayments with a weighted average interest rate of 7.00% for the nine months ended September 30, 2003, while new loan originations had a weighted average yield of 5.27% during the same period. As a result, the yield on loans receivable was 5.81% and 6.13% during the three and nine months ended September 30, 2003, respectively, compared to 6.92% and 7.28% during the same periods in 2002. The reduction in the net interest margin was slightly mitigated by the Company's ability to reduce the overall cost of funds. The average cost of funds for the Company decreased to 2.41% during the third quarter of 2003, and to 2.65% year-to-date compared to 3.34% and 3.55%, during the same periods in 2002. The reduction in the cost of funds is due to the combination of the continued downward pressure on interest rates, maturing certificates of deposit with higher than current market rates, and the planned shift in the deposit mix. As a result, the overall cost of funds for the third quarter was 30 basis points lower than the prior quarter. During the fourth quarter of 2003, approximately $366.9 million of CDs are scheduled to mature. The weighted average cost of these CDs is 2.31%, which is approximately 1% higher than the current 6 month CD rate. The Bank believes this represents an opportunity to further lower the overall cost of deposits. Hawthorne's lending team has produced record levels of loan originations in recent quarters, yet the Bank's net interest margin has concurrently been adversely impacted due to record levels of prepayments and the resulting 2.2% annualized decrease in the loan portfolio during the year. "Continued strong loan production, coupled with aggressive efforts to lower the overall cost of funds and redistribute the deposit mix, is the combination that will produce the best long-term results," Ms. Lagomarsino said. "Loan prepayments appear to be declining. Our current volume of demands for payoff are at the lowest levels in six months. However, due to significant levels of prepayments to date, we are revising previously announced guidance for the 2003 net interest margin to 3.18% to 3.23%. Further, we project that the net interest margin during 2004 will be in a range of 3.05% to 3.15%," Ms. Lagomarsino added. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 3 OF 11 NONINTEREST REVENUE Noninterest revenue were $2.6 million for the quarter, a 47.0% increase compared to the same period in 2002. For the nine months ended September 30, 2003, noninterest revenue were $6.2 million, a 47.7% increase, compared to the $4.2 million earned during the same period in 2002. Loan and other related fees represented 57.9% of noninterest revenue for the nine months ended September 30, 2003, compared to 65.3% during the same period in 2002. During both periods, these fees were comprised primarily of prepayment fees resulting from the high level of refinancings. Fee income on deposits increased 35.8% during the third quarter 2003, compared with the same period in 2002, as a result of the growth in core transaction deposits and other fee generating initiatives. The Company continues to expand its product array and as a result, the ratio of products per household increased to 2.71 at September 30, 2003, compared with 2.64 for the prior quarter. NONINTEREST EXPENSE Total G&A was $10.3 million and $31.7 million for the three and nine months ended September 30, 2003, respectively, compared with $10.4 million and $26.8 million incurred in the same periods of 2002. "Improving efficiency continues to be a priority and the results of our continued success is evidenced by the fact that G&A to average assets decreased to 1.64% for the nine months ended September 30, 2003, compared with 1.84% for the year ended December 31, 2002," commented Ms. Lagomarsino. "As previously stated, the Company has been successful in significantly reducing G&A as a percentage of average assets in each of the last five years," she concluded. The Company's efficiency ratio was 46.90% for the nine months ended September 30, 2003, which was better than the 46.99% achieved during the first half of 2003 and the 48.07% during the year ended 2002, as previously reported. The Company's efficiency ratio measurements are better than its peer group, and the Company remains committed to reducing the ratio of G&A to average assets and the efficiency ratio. The Company anticipates that the ratio of G&A to average assets for 2003 will be in line with previous guidance of 1.6%, reflecting management's diligence in controlling expenses. However, due to the compression of the net interest margin, the efficiency ratio is expected to be slightly higher than the guidance level for 2003. The expectation is that the efficiency ratio will be slightly over 46% for 2003 rather than the previously announced guidance of 45%. The Company expects slight improvement in both of these ratios in 2004. LOANS Loans receivable averaged $2.1 billion during the third quarter of 2003, which was comparable to the prior quarter, while reflecting a 16.3% increase compared to average loans outstanding during the third quarter of 2002. New loan originations were $287.8 million and $773.0 million for the three and nine months ended September 30, 2003, respectively, which represented increases of almost 50%, compared to originations during the same periods in 2002. "We reiterate our guidance for loan growth for 2003 to between flat and 5% based on our current robust pipeline and our anticipation of a reduction in loan prepayments in the fourth quarter," Ms. Lagomarsino said. The Company has experienced loan prepayments of 44% annualized during the third quarter and 38% annualized year to date 2003. "We are encouraged because it appears that prepayments peaked in August. Prepayments in September were 10.3% less than in August, and prepayments for October to date are 14% lower than at this time in September. As a result, we are projecting prepayments to be in the range of 25% to 30% in 2004, and with our strong loan origination volume we anticipate net loan portfolio growth of between 15% to 20% in 2004," Ms. Lagomarsino concluded. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 4 OF 11 DEPOSITS Total deposits increased slightly to $1.74 billion at September 30, 2003, from $1.66 billion at December 31, 2002, a 5.9% annualized increase. As of September 30, 2003, the Bank had 68,742 total retail deposit accounts, 40,302 total households and 22,655 checking accounts (including interest-bearing and non interest-bearing), which reflected annualized increases from the year ended December 31, 2002 of 5.3%, 1.5% and 10.8%, respectively. The level of transaction accounts to total deposits at September 30, 2003, remained relatively inline with year-end 2002 levels at 39.0% compared to 38.3%. However, the annualized growth in noninterest-bearing checking balances and in the number of accounts was 19.6% and 5.8%, respectively, reflecting the Company's continued emphasis on growing these core deposits and thus lowering the cost of funds. ASSET QUALITY Management said that classified assets remain at historically low levels. At September 30, 2003, classified assets totaled $13.2 million, or 0.51% of total Bank assets, compared to $33.1 million, or 1.37% of total Bank assets, a year earlier. Year-to-date, classified assets have decreased $10.5 million, or approximately 44.4% from December 31, 2002. During the third quarter, nonaccrual loans decreased primarily due to the foreclosure of one loan in July ($2.2 million), which was subsequently sold at the approximate carrying value in September, and the payoff of three loans ($0.9 million). Nonaccrual loans to total assets remains lower than the Bank's peer group and decreased to 0.26% at September 30, 2003 from 0.37% in the prior quarter. At September 30, 2003, the ratio of total allowance for credit losses to loans receivable, net of specific valuation allowance, was 1.60%, compared with 1.64% at December 31, 2002 and 1.68% at September 30, 2002. The reduction in the number of loans greater than $10.0 million further improved the Bank's risk profile. At September 30, 2003, there was only one loan greater than $10.0 million, compared to three and seven loans at December 31, 2002 and December 31, 2001, respectively. Based on the current assessment of asset quality and economic indicators, the Bank anticipates that the provision for credit losses for the remainder of the year will be consistent with the third quarter of 2003. STOCK REPURCHASES During the third quarter of 2003, 32,752 shares were repurchased at an average price of $38.01. As of September 30, 2003, cumulative repurchases were 1,359,144 shares at an average price of $22.20. Currently, $2.4 million remains available for additional share repurchases under previously announced repurchase authorizations. CAPITAL LEVELS At September 30, 2003, the Bank remained well-capitalized with core, tier 1 and risk-based capital ratios of 7.75%, 11.21% and 12.47%, respectively. The minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1 and risk-based capital, respectively. CONFERENCE CALL The Company will host a telephone conference call today, October 23, 2003, to discuss the results of the third quarter and to answer questions of participants. The call is scheduled to begin at 1:00 p.m. Eastern time (10:00 a.m. Pacific). Audio access to the conference call will also be available through a live Webcast over the Internet at www.hawthornesavings.com. The Webcast of this conference call will be available for replay through November 21, 2003 by accessing the same link. ABOUT HAWTHORNE SAVINGS Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates fifteen 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 HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 5 OF 11 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 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 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 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 litigation, inherent market risk associated with treasury activities, risks associated with management's investment strategy, the Company's ability to successfully identify, negotiate or finance strategic acquisition targets or 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 THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 6 OF 11 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (DOLLARS IN THOUSANDS)

(1) Reflects a 3-for-2 stock split in the form of a 50% stock dividend. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 7 OF 11 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)

(1) Reflects a 3-for-2 stock split in the form of a 50% stock dividend. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 8 OF 11 SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED) (Dollars in thousands)

- -------------------- (1) Excludes nonaccrual loans. (2) Troubled debt restructured loans not classified and not on nonaccrual. (3) During the third quarter of 2003, $1.3 million in reserves for unfunded commitments were reclassified to other liabilities. (4) During the course of the year, charge-offs are generally anticipated and reflected as specific valuation allowances. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 9 OF 11 NET INTEREST INCOME (UNAUDITED) (Dollars in thousands)

- -------------- (1) Includes the interest on nonaccrual loans only to the extent it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 10 of 11 NET INTEREST INCOME (UNAUDITED) (Dollars in thousands)

- --------------- (1) Includes the interest on nonaccrual loans only to the extent it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION THIRD QUARTER 2003 RESULTS OCTOBER 23, 2003 PAGE 11 of 11 NET LOAN PORTFOLIO COMPOSITION (UNAUDITED) (Dollars in thousands)

- ------------ (1) Excludes net deferred fees and costs.

- -------------- (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 annualized total general and administrative expense (excluding other/legal settlements) divided by average assets. (5) Primarily due to the acquisition of First Fidelity in August 2002. -----END PRIVACY-ENHANCED MESSAGE-----

HAWTHORNE FINANCIAL CORPORATION

/s/ David Rosenthal

David Rosenthal
Executive Vice President
and Chief Financial Officer

October 24, 2003