<PAGE> 1
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
December 31, 1997
- --------------------------------------------------------------------------------
(Date of earliest event reported)
Hawthorne Financial Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-1100 95-2085671
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(State or other (Commission File Number) (IRS Employer
jurisdiction of incorporation) Identification No.)
2381 Rosecrans Avenue, El Segundo, California 90245
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(Address of principal executive offices) (Zip Code)
(310) 725-5000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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ITEM 5. OTHER EVENTS
On January 5, 1998 and January 23, 1998, Hawthorne Financial Corporation
issued the press releases which are included as Exhibits 99(a) and 99(b) hereto,
respectively.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) The following exhibit is included with this Report:
Exhibit 99(a) Press Release, dated January 5, 1998
Exhibit 99(b) Press Release, dated January 23, 1998
2
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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 thereunto duly authorized.
HAWTHORNE FINANCIAL CORPORATION
By:/s/ Scott A. Braly
--------------------------------------------
Name: Scott A. Braly
Title: President and Chief Executive Officer
Date: January 26, 1998
3
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EXHIBIT 99(a)
[LOGO]
HAWTHORNE FINANCIAL CORPORATION
PRESS RELEASE
JANUARY 5, 1998
IMMEDIATE RELEASE
Contact: Mr. Scott Braly, President and Chief Executive Officer (310) 725-5600
Mr. Norman Morales, Chief Financial Officer (310) 725-5631
HAWTHORNE FINANCIAL COMPLETES PRIVATE PLACEMENT OF NOTES
(NASDAQ:HTHR) (El Segundo, CA) Hawthorne Financial Corporation (the "Company"),
parent company of Hawthorne Savings, F.S.B. (the "Bank"), today announced that
it issued on December 31, 1997, $40.0 million of 12 1/2% Notes due 2004 in a
private placement.
Concurrent with the completion of the private placement, the Company prepaid all
of its outstanding Senior Notes due 2000, which carried a coupon rate of 12.0%,
and redeemed all of its outstanding Cumulative Perpetual Preferred Stock, Series
A, which carried a dividend rate of 18.0%. The Senior Notes and Preferred Stock,
which were issued in December 1995, were retired at par plus accrued interest
and dividends, which approximated $27.2 million.
Net proceeds after offering costs and the prepayment of the Senior Notes and
Preferred Stock amounted to approximately $10.5 million, funds which will be
utilized by the Company for general corporate purposes, including supporting the
planned business activities of the Bank.
The Notes have not been registered under the Securities Act of 1933 and may not
be offered or sold in the United States absent registration or an applicable
exemption from such registration. In connection with the private placement, the
Company has agreed to file within 120 days a registration statement with respect
to the Notes with the Securities and Exchange Commission and use its best
efforts to cause such registration statement to be declared effective within 150
days.
<PAGE> 1
EXHIBIT 99(b)
[LOGO]
HAWTHORNE FINANCIAL CORPORATION
PRESS RELEASE
JANUARY 23, 1998
IMMEDIATE RELEASE
Contact: Mr. Scott Braly, President and Chief Executive Officer (310) 725-5600
Mr. Norman Morales, Chief Financial Officer (310) 725-5631
HAWTHORNE FINANCIAL REPORTS RESULTS FOR FOURTH QUARTER
AND FULL YEAR; COMPLETION OF PRIVATE PLACEMENT OF NOTES
(NASDAQ:HTHR) (El Segundo, Ca) Hawthorne Financial Corporation (the "Company")
and its subsidiary, Hawthorne Savings, F.S.B. (the "Bank") today announced
unaudited results for the quarter ended December 31, 1997. For the quarter, the
Company reported earnings of $3.2 million before the effect of an extraordinary
item related to the early extinguishment of debt, or $0.45 per share, compared
with net earnings of $1.1 million, or $0.12 per share, for the same period in
1996. Net earnings after the extraordinary item were $1.6 million, or $0.18 per
share. The extraordinary item results from the accelerated write-off of
unamortized issue costs and original issue discount associated with the
Company's Senior Notes, due 2000, issued in December 1995, which were prepaid in
full and at par value in December 1997.
For the full year of 1997, the Company reported earnings of $11.2 million before
the extraordinary item, or $1.66 per share, as compared with net earnings of
$7.5 million, or $1.17 per share, for all of 1996. Net earnings for the full
year of 1997, after giving effect to the extraordinary item, were $9.6 million,
or $1.37 per share. The Company's results for 1996 included a pretax gain of
$6.4 million on the sale of the Company's San Diego deposit franchise and a
pretax charge of $3.8 million for the special assessment levied industry-wide to
recapitalize the Savings Association Insurance Fund ("SAIF"). Earnings per share
for all periods are calculated on a diluted basis.
As previously announced, on December 31, 1997, the Company issued $40 million of
12.5% Senior Notes, due 2004, in a private placement. The proceeds from this new
issue of Senior Notes were used, in part, to prepay all of the Company's
outstanding Senior Notes, due 2000, which carried a coupon interest rate of
12.0%, and to redeem all of its outstanding Cumulative Perpetual Preferred
Stock, Series A, which carried a dividend rate of 18.0%. The Senior Notes and
Preferred Stock, which were issued in December 1995 as part of the Company's
recapitalization, were retired at par plus accrued interest and dividends, which
approximated $27.2 million. The refinancing has the effect, on a fully-taxable
basis, of reducing the Company's cost of capital by approximately 900 basis
points while providing approximately $10 million of net proceeds for general
corporate purposes, including supporting the planned business activities of the
Bank.
<PAGE> 2
PRESS RELEASE
JANUARY 23, 1998
PAGE 2
CAPITAL RATIOS
The Bank maintained core and risk-based regulatory capital ratios of 7.6% and
11.5%, respectively, at December 31, 1997, in excess of the regulatory minimums
which define a "well capitalized" institution. These capital ratios represent an
increase from the levels reported at year end 1996, which were 6.3% and 11.1%,
for core and risk-based ratios, respectively. Total assets at December 31, 1997
were $928 million, as compared with $847 million at December 31, 1996.
CORE OPERATING RESULTS
The Company's performance for 1997 marks its second full year of operation
following the successful recapitalization of the Company in a private placement
in December 1995. During this two year period, the Company has implemented
numerous initiatives which have returned the Company and the Bank to sustainable
and growing core and net profitability, the most significant of which has been
the expansion of the Bank's specialty real estate-based financing businesses,
which produced approximately $500 million of gross loan commitments in 1997, as
compared with gross loan commitments of $332 million recorded for all of 1996.
Also, by the end of 1997, the Company had resolved the vast majority of its
asset quality-related problems dating from the early 1990's, realizing
substantial reductions in nonperforming assets, which has directly contributed
to the Company's improved operating results, through lower non-earning asset
levels and reduced loss provisions.
For the fourth quarter of 1997 and for the full year, pretax core earnings were
substantially higher than were realized for the corresponding periods in 1996.
Pretax core earnings are earnings after loan loss provisions and before interest
on parent company indebtedness, income taxes, real estate operations and
nonoperating items. For the three-month period ended December 31, 1997, pretax
core earnings were $2.8 million, compared with $1.6 million for the same period
in 1996. For the full year of 1997, pretax core earnings were $10.2 million,
compared with $0.7 million for all of 1996.
The growth in the Company's core earnings has been fueled by a combination of
steady growth in the Company's loan portfolio, and the premium yields earned
thereon, a substantial reduction to nonperforming and classified assets, and the
attendant reduction to loan loss provisions, and a stable and growing volume of
low-cost retail deposits, produced with little growth in operating costs. For
the three months ended December 31, 1997 and 1996, the Company's average
interest-earning assets and the corresponding effective net interest margin
earned thereon (before loan loss provisions and interest expense on parent
company indebtedness) were $877 million (4.30%) and $830 million (3.66%),
respectively. For the years ended December 31, 1997 and 1996, respectively,
average interest-earning assets and the corresponding net interest margin earned
thereon were $838 million (4.02%) and $775 million (3.52%). These balances and
margins translated into net interest income of $9.4 million and $7.6 million for
the three months ended December 31, 1997 and 1996, respectively, and $33.8
million and $27.3 million for the years ended December 31, 1997 and 1996,
respectively, in each instance before interest on parent company debt and loan
loss provisions.
<PAGE> 3
PRESS RELEASE
JANUARY 23, 1998
PAGE 3
Noninterest revenues from operations, which consist of loan extension,
modification, prepayment and exit fees and deposit-related service fees,
continue to mirror the growth in the Company's business operations, reaching
$0.9 million for the quarter ended December 31, 1997 as compared with $0.4
million for the same period in 1996. For the full year of 1997, these revenues
amounted to $3.6 million as compared with $1.9 million for all of 1996.
The Company recorded total credit loss provisions of $1.5 million and $6.0
million for the three and twelve months ended December 31, 1997, respectively.
These provisions included $0.1 million and $0.9 million, respectively, of
valuation adjustments for real estate owned. For the three and twelve months
ended December 31, 1996, total credit loss provisions were $1.0 million and
$10.5 million, respectively. The full year provision for 1996 included $3.0
million of valuation adjustments for real estate owned.
Operating costs totaled $6.1 million in the fourth quarter of 1997, as compared
with $5.4 million for the fourth quarter of 1996. For the full year, total
operating costs were $22.0 million, representing a modest increase from
operating costs of $21.0 million incurred in 1996. During the course of 1997,
the Company realized benefits from reduced levels in certain expenses,
principally SAIF premiums. The Company continues to redeploy these savings
through investments in its people and enhancements to its infrastructure.
INCOME TAXES
During the fourth quarter of 1997, the Company recognized an income tax benefit
of $1.0 million. For the full year, the Company recorded income tax benefits of
$2.6 million, compared with income tax benefits of $6.4 million recorded in
1996. Over the course of the past two years, the Company has utilized virtually
all of its accumulated income tax benefits, principally tax loss carryforwards,
and will begin to accrue an income tax liability, and to record an income tax
provision, in 1998, though at a moderated level until the last of these benefits
are exhausted.
ASSET QUALITY
At December 31, 1997, nonperforming assets totaled $20.7 million, or 2.2% of
total assets at period-end, consisting of the carrying value of foreclosed real
estate ($9.9 million) and loan principal three or more payments past due ($10.8
million). These two categories of nonperforming assets represent the Company's
lowest levels since the end of 1989. At December 31, 1996, nonperforming assets
were $36.8 million, or 4.3% of total assets.
Loans delinquent 30 to 89 days, which the Company places on nonaccrual status as
a matter of policy, declined to $4.4 million at December 31, 1997, from $10.1
million at December 31, 1996. All of the Company's delinquent loans at December
31, 1997 were comprised of single family residences.
Total nonaccruing assets were $25.3 million at December 31, 1997, as compared
with $48.8 million at December 31, 1996. Including performing loans which the
Company has classified as substandard, total classified assets at year end 1997
decreased to $61.1 million. The ratio of total classified assets to the Bank's
core capital and general loan loss reserves was 77% at year end 1997, compared
with a ratio of 146% at the end of 1996.
These marked improvements in asset quality have translated into reduced credit
loss provisions during each of the past three years, while permitting the
Company to increase its reserve coverage of nonperforming loans, and to maintain
its ratio of loan reserves to total loans.
PARENT COMPANY ITEMS
As previously reported, the Company issued an aggregate of $27 million of
high-cost Senior Notes and Cumulative Perpetual Preferred Stock, and issued
Warrants to purchase the Company's Common stock, in connection with the
recapitalization of the Bank in December 1995. For the three-and-twelve-month
periods ended December 31,
<PAGE> 4
PRESS RELEASE
JANUARY 23, 1998
PAGE 4
1997, interest expense on the Senior Notes was $0.5 million and $2.0 million,
respectively, and dividends on the Cumulative Perpetual Preferred Stock were
$0.6 million and $2.4 million, respectively. Other parent company costs totaled
$0.2 million and $0.9 million, respectively, for the three-and-twelve-month
periods ended December 31, 1997.
CURRENT INITIATIVES
During the fourth quarter of 1997, the Company began enacting a series of
initiatives to further enhance and support its growing financing businesses, its
retail deposit-gathering business, and its various support operations and
processes. The most significant of these initiatives, which will continue
throughout the first half of 1998, include (1) the recruitment of additional
experienced lending personnel into each of the Company's principal financing
businesses, and (2) the recruitment of personnel to support, and the acquisition
of hardware and software attendant to, the planned conversion of the Company's
technology platform during 1998, which will result in the Company replacing its
outsourced, host-based platform with an in-house, client server and PC-based
platform. A direct benefit of the planned technology platform conversion will be
to ensure that the Company's internal applications and processes are devoid of
date-related problems associated with the approaching millennium.
The costs associated with these initiatives, which are expected to increase net
operating costs by around 10% in 1998 as compared with 1997, will have the
effect of tempering growth in the Bank's core earnings for the first half of
1998 when compared to the first half of 1997. Thereafter, the Bank expects that
the rate of core earnings growth should more closely mirror growth in its loan
portfolio and earning assets.
In addition to the cost of the Bank's operating initiatives, the annual interest
costs associated with the Company's Senior Notes will increase by approximately
$3.3 million, reflecting the higher balance of notes outstanding during 1998 as
compared with 1997 ($40.0 million versus $13.5 million). Accordingly, the
Company's consolidated earnings will be depressed until such time as the excess
proceeds generated from the December 1997 Notes offering ($10.0 million) are
profitably deployed. Tempering this adverse effect on reported earnings is the
beneficial impact on reported earnings per share following the prepayment in
late 1997 of the Company's Preferred Stock, which carried an 18% dividend rate.
INVESTOR COMMUNICATIONS PROGRAM
The Company will sponsor a teleconference call on Thursday, January 29, at 8:30
a.m. PST. You may connect with the Company by dialing (888) 232-0361 and
entering the access code 112534.
<PAGE> 5
PRESS RELEASE
JANUARY 23, 1998
PAGE 5
HAWTHORNE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS ARE IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
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ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Cash and cash equivalents $ 9,520 $ 93,978
Investment securities, at market 42,678 38,371
Loans receivable (net of allowance for estimated credit
losses of $13,274 in 1997 and $13,515 in 1996) 838,251 672,401
Real estate owned, net 9,859 20,140
Other assets 27,889 22,305
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Total Assets $ 928,197 $ 847,195
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $ 799,501 $ 717,809
Borrowings 40,000 50,000
Senior notes 40,000 12,307
Other liabilities 6,377 23,157
--------- ---------
Total Liabilities 885,878 803,273
Preferred stock -- 11,592
Common stockholders' equity 42,319 32,330
--------- ---------
Total Stockholders' Equity 42,319 43,922
--------- ---------
Total Liabilities and Stockholders' Equity $ 928,197 $ 847,195
========= =========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION - BANK CAPITAL DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Core capital $ 69,900 $ 52,803
Ratio 7.55% 6.27%
Risk-based capital $ 78,454 $ 59,560
Ratio 11.48% 11.11%
</TABLE>
<PAGE> 6
PRESS RELEASE
JANUARY 23, 1998
PAGE 6
HAWTHORNE FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS ARE IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -----------------------------
1997 1996 1997 1996
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C>
Interest revenues
Loans, net of nonaccrual income $ 19,532 $ 16,564 $ 70,012 $ 59,722
Investments 948 1,525 5,604 5,632
-------- -------- -------- --------
Total interest revenues 20,480 18,089 75,616 65,354
-------- -------- -------- --------
Interest costs
Deposits 10,454 9,264 38,920 35,568
Borrowings 604 1,177 2,926 2,471
Senior notes 511 489 1,979 1,921
-------- -------- -------- --------
Total interest costs 11,569 10,930 43,825 39,960
-------- -------- -------- --------
Net interest income 8,911 7,159 31,791 25,394
Provision for credit losses 1,398 1,000 5,137 7,489
-------- -------- -------- --------
Net interest income after provision for
credit losses 7,513 6,159 26,654 17,905
Noninterest revenues, net
Operating 911 370 3,599 1,927
Non-operating (105) 430 101 3,295
Operating costs
Employee 2,785 2,832 10,606 9,800
Occupancy 857 751 3,106 2,890
Operating 1,533 1,187 5,101 4,589
Professional 735 144 1,907 1,615
SAIF premium and OTS assessment 227 523 1,289 2,152
-------- -------- -------- --------
Total operating costs 6,137 5,437 22,009 21,046
(Income) loss from real estate operations, net (2) 405 (229) 956
-------- -------- -------- --------
Total noninterest expenses 6,135 5,842 21,780 22,002
-------- -------- -------- --------
Earnings before income taxes and
extraordinary item 2,184 1,117 8,574 1,125
Income tax benefit 975 14 2,577 6,382
-------- -------- -------- --------
Earnings before extraordinary item 3,159 1,131 11,151 7,507
Extraordinary item 1,534 1,534
-------- -------- -------- --------
Net earnings $ 1,625 $ 1,131 $ 9,617 $ 7,507
======= ========= ======== =======
Diluted earnings per share before
extraordinary item $ 0.45 $ 0.12 $ 1.66 $ 1.17
Diluted earnings per share $ 0.18 $ 0.12 $ 1.37 $ 1.17
Weighted average shares outstanding (1) 5,639 4,522 5,240 4,341
</TABLE>
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(1) Calculated using the Treasury Stock Method
<PAGE> 7
PRESS RELEASE
JANUARY 23, 1998
PAGE 7
SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS
(DOLLARS ARE IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
NONPERFORMING ASSETS
Real estate owned $ 9,859 $ 20,140
Nonperforming loans 10,793 16,643
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TOTAL NONPERFORMING ASSETS 20,652 36,783
OTHER CLASSIFIED LOANS
LOAN PRINCIPAL
Other delinquent loans 4,435 10,082
Performing loans classified Substandard 36,013 46,987
------- --------
TOTAL CLASSIFIED ASSETS $ 61,100 $ 93,852
======== ========
TOTAL CLASSIFIED LOANS $ 51,241 $ 73,712
======== ========
RESERVES ON LOANS
Specific $ 3,878 $ 2,185
General 9,396 11,330
------- --------
$ 13,274 $ 13,515
======== ========
Total Reserves to Loans Receivable 1.6% 2.0%
Total Reserves to Classified Loans 25.9% 18.3%
Total Reserves to Nonperforming Loans 123.0% 81.2%
Total Nonperforming Assets to Total Assets 2.2% 4.3%
Total Classified Assets to Bank Core
Capital and General Loan Loss Reserves 77.0% 146.3%
</TABLE>
