HTHR Hawthorne Finl (MM)

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/

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