Back to GetFilings.com



Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q
     
x   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the quarter ended September 30, 2003
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
   
For the transition period from ____________ to ____________.
Commission File Number 0-1100

HAWTHORNE FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)
     
Delaware   95-2085671
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)
     
2381 Rosecrans Avenue, El Segundo, CA   90245
(Address of Principal Executive Offices)   (Zip Code)
Registrant’s telephone number, including area code  (310) 725-5000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes x No o

     Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock as of the latest practicable date: The Registrant had 11,554,852 shares of Common Stock, $0.01 par value, per share outstanding as of October 31, 2003.

 

TABLE OF CONTENTS

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
ITEM 4. Controls and Procedures
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

Table of Contents

HAWTHORNE FINANCIAL CORPORATION

FORM 10-Q INDEX
For the quarter ended September 30, 2003

                     
                Page
       
PART I — FINANCIAL INFORMATION
        
ITEM 1.  
Financial Statements
        
       
Consolidated Statements of Financial Condition
        
         
at September 30, 2003 and December 31, 2002 (unaudited)
     1  
       
Consolidated Statements of Income
        
         
for the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)
     2  
       
Consolidated Statement of Stockholders’ Equity
        
         
for the Nine Months Ended September 30, 2003 (unaudited)
     3  
       
Consolidated Statements of Cash Flows
        
         
for the Nine Months Ended September 30, 2003 and 2002 (unaudited)
     4  
       
Notes to Unaudited Consolidated Financial Statements
     6  
ITEM 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
     10  
ITEM 3.  
Quantitative and Qualitative Disclosures About Market Risk
     34  
ITEM 4.  
Controls and Procedures
     35  
PART II — OTHER INFORMATION
        
ITEM 1.  
Legal Proceedings
     35  
ITEM 2.  
Changes in Securities
     35  
ITEM 3.  
Defaults upon Senior Securities
     35  
ITEM 4.  
Submission of Matters to a Vote of Security Holders
     35  
ITEM 5.  
Other Information
     35  
ITEM 6.  
Exhibits and Reports on Form 8-K
     36  

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

Certain statements in this filing constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited, to 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 implemented new strategic initiatives, and other factors discussed in our reports filed with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2002.

i

Table of Contents

HAWTHORNE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

                         
            September 30,   December 31,
(Dollars in thousands)   2003   2002
 
 
Assets:
                
 
Cash and cash equivalents
   $ 12,724     $ 21,849  
 
Investment securities available-for-sale, at fair value
     365,127       267,596  
 
Loans receivable (net of allowance for credit losses of $33,745 in 2003 and $35,309 in 2002)
     2,079,373       2,114,255  
 
Accrued interest receivable
     10,176       11,512  
 
Investment in capital stock of Federal Home Loan Bank, at cost
     33,602       34,705  
 
Office property and equipment at cost, net
     5,474       5,106  
 
Deferred tax asset, net
     10,199       10,068  
 
Goodwill
     22,970       22,970  
 
Intangible assets
     1,080       1,388  
 
Other assets
     33,594       5,521  
 
 
    
     
 
       
Total assets
   $ 2,574,319     $ 2,494,970  
 
    
     
 
Liabilities and Stockholders’ Equity:
                
 
Liabilities:
                
   
Deposits:
                
     
Noninterest-bearing
   $ 45,671     $ 39,818  
     
Interest-bearing:
                
       
Transaction accounts
     631,225       597,528  
       
Certificates of deposit
     1,059,995       1,025,464  
 
    
     
 
       
Total deposits
     1,736,891       1,662,810  
   
FHLB advances
     586,572       600,190  
   
Capital securities
     51,000       51,000  
   
Accounts payable and other liabilities
     22,383       17,904  
 
 
    
     
 
       
Total liabilities
     2,396,846       2,331,904  
 
    
     
 
Stockholders’ Equity:
                
 
Common stock — $0.01 par value; authorized 20,000,000 shares; issued, 13,641,453 shares (2003) and 12,864,072 shares (2002) (1)
     91       86  
 
Capital in excess of par value — common stock
     83,654       81,087  
 
Retained earnings
     125,950       105,134  
 
Accumulated other comprehensive (loss)/income
     (1,997 )     1,504  
 
Less:
                
   
Treasury stock, at cost — 2,046,816 shares (2003) and 1,782,575 shares (2002) (1)
     (30,225 )     (24,745 )
 
    
     
 
       
Total stockholders’ equity
     177,473       163,066  
 
 
    
     
 
       
Total liabilities and stockholders’ equity
   $ 2,574,319     $ 2,494,970  
 
    
     
 

(1)   Reflects a 3-for-2 stock split in the form of a 50% stock dividend.

See Accompanying Notes to Consolidated Financial Statements

1

Table of Contents

HAWTHORNE FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

                                         
            Three Months Ended   Nine Months Ended
            September 30,   September 30,
           
 
(In thousands, except per share data)   2003   2002   2003   2002
 
 
 
 
Interest revenue:
                                
 
Loans
   $ 30,766     $ 31,496     $ 97,566     $ 94,389  
 
Investments securities
     2,672       1,149       8,227       1,218  
 
Investment in capital stock of FHLB, fed funds and other
     372       985       1,167       2,935  
 
 
    
     
     
     
 
       
Total interest revenue
     33,810       33,630       106,960       98,542  
 
 
    
     
     
     
 
Interest cost:
                                
 
Deposits
     8,505       8,975       27,477       27,002  
 
FHLB advances
     4,923       5,610       16,320       15,903  
 
Senior notes
     —       801       —       2,412  
 
Capital securities
     736       633       2,264       1,536  
 
 
    
     
     
     
 
       
Total interest cost
     14,164       16,019       46,061       46,853  
 
 
    
     
     
     
 
Net interest income
     19,646       17,611       60,899       51,689  
Provision for credit losses
     50       100       450       770  
 
 
    
     
     
     
 
       
Net interest income after provision for credit losses
     19,596       17,511       60,449       50,919  
Noninterest revenue:
                                
 
Loan related and other fees
     1,656       1,125       3,620       2,763  
 
Deposit fees
     554       408       1,476       1,144  
 
Other
     349       208       1,152       322  
 
 
    
     
     
     
 
       
Total noninterest revenue
     2,559       1,741       6,248       4,229  
(Loss)/income from real estate owned, net
     (48 )     2       (51 )     71  
Noninterest expense:
                                
 
General and administrative expense:
                                
     
Employee
     5,324       5,683       16,989       15,415  
     
Operating
     2,329       2,282       7,008       5,301  
     
Occupancy
     1,357       1,027       3,933       2,882  
     
Professional
     710       658       1,496       1,364  
     
Technology
     478       423       1,562       1,163  
     
SAIF premiums and OTS assessments
     173       145       503       413  
     
Other/legal settlements
     (54 )     198       210       218  
 
 
    
     
     
     
 
       
Total general and administrative expense
     10,317       10,416       31,701       26,756  
 
 
    
     
     
     
 
Income before income taxes
     11,790       8,838       34,945       28,463  
Income tax provision
     4,614       3,227       14,129       11,666  
 
 
    
     
     
     
 
Net income
   $ 7,176     $ 5,611     $ 20,816     $ 16,797  
 
 
    
     
     
     
 
Basic earnings per share (1)
   $ 0.62     $ 0.54     $ 1.81     $ 1.86  
 
 
    
     
     
     
 
Diluted earnings per share (1)
   $ 0.57     $ 0.46     $ 1.66     $ 1.45  
 
 
    
     
     
     
 
Weighted average basic shares outstanding (1)
     11,598       10,365       11,499       9,051  
 
 
    
     
     
     
 
Weighted average diluted shares outstanding (1)
     12,567       12,135       12,512       11,568  
 
 
    
     
     
     
 

(1)   Reflects a 3-for-2 stock split in the form of a 50% stock dividend.

See Accompanying Notes to Consolidated Financial Statements

2

Table of Contents

HAWTHORNE FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)

                                                                   
                      Capital in                                        
                      Excess of           Accumulated                        
      Number of     Par Value     Other       Total  
      Common   Common   Common   Retained   Comprehensive   Treasury   Stockholders’   Comprehensive
(In thousands)   Shares (1)   Stock   Stock   Earnings   Income/(Loss)   Stock   Equity   Income/(Loss)
     
 
 
 
 
 
 
 
Balance at January 1, 2003
     11,082     $ 86     $ 81,087     $ 105,134     $ 1,504     $ (24,745 )   $ 163,066          
Exercised stock options
     192       1       1,339       —       —       —       1,340          
Exercised warrants
     585       4       16       —       —       —       20          
Tax benefit for stock options exercised
     —       —       1,212       —       —       —       1,212          
Treasury stock
     (264 )     —       —       —       —       (5,480 )     (5,480 )        
Net income
     —       —       —       20,816       —       —       20,816     $ 20,816  
Other comprehensive income (loss), net:
                                                                
 
Unrealized loss on investment securities available-for-sale, net of tax
     —       —       —       —       (3,501 )(2)     —       (3,501 )     (3,501 )
 
                                                            
 
Comprehensive income
     —       —       —       —       —       —       —     $ 17,315  
 
    
     
     
     
     
     
     
     
 
Balance at September 30, 2003
     11,595     $ 91     $ 83,654     $ 125,950     $ (1,997 )   $ (30,225 )   $ 177,473         &nbs