SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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): February 9, 1999
HAWTHORNE FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-1100 95-2085671
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2381 Rosecrans Avenue
El Segundo, California 90245
(Address of Principal Executive Offices)
(310) 725-5000
(Registrant's Telephone Number)
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ITEM 5. Other Events
On February 9, 1999, Hawthorne Financial Corporation issued the press
release which is included as Exhibit 99.1 hereto.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
99.1 Press release dated February 9, 1999
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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 hereunto duly authorized.
March 2, 1999 HAWTHORNE FINANCIAL CORPORATION
By: /S/ SCOTT A. BRALY
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Scott A. Braly
President and Chief Executive Officer
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EXHIBIT INDEX
EXHIBITS PAGE NUMBER
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99.1 Press Release dated February 9, 1999
Exhibit 99.1
[HAWTHORNE LOGO]
HAWTHORNE FINANCIAL CORPORATION
PRESS RELEASE
FEBRUARY 9, 1999
IMMEDIATE RELEASE
Contact: Mr. Scott Braly, President and Chief Executive Officer (310)725-5600
HAWTHORNE FINANCIAL REPORTS RESULTS FOR 1998
(NASDAQ:HTHR) (El Segundo, CA) Hawthorne Financial Corporation (the
"Company"), parent company of Hawthorne Savings, F.S.B. (the "Bank"),
today announced the following results for 1998.
1998 HIGHLIGHTS
o Net earnings for 1998 were $11.0 million, or $1.65 per diluted
share. Net earnings for 1997 were $9.6 million, or $1.00 per
diluted share.
o The 1998 results included an income tax provision of $4.7
million; by comparison, the 1997 full-year results included an
income tax benefit of $2.6 million.
o Diluted earnings per share for 1998 were calculated using 6.7
million weighted average common shares (which reflects the
issuance of approximately 2.0 million common shares in July
1998); by comparison, diluted earnings per share for 1997 were
calculated using 5.2 million weighted average common shares.
o Net earnings for the 4th Quarter of 1998 were $2.6 million, or
$0.34 per diluted share; by comparison, net earnings for the 4th
Quarter of 1997 were $1.6 million, or a loss per diluted share
of ($0.16). The loss per share resulted from the treatment
afforded the effective premium paid the holders of the Company's
Preferred Stock when such Preferred Stock was redeemed in
December 1997.
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o The Bank's effective interest margin (before interest on parent
company debt and recurring loan loss provisions) was 4.52%
during 1998; by comparison, the Bank's effective interest margin
was 4.26% for 1997. During the 4th Quarter of 1998, the Bank's
effective interest margin was 4.34%.
o Nonperforming assets declined to 1.3% of total assets at
December 31, 1998, from 2.2% of total assets at December 31,
1997.
o Total assets were $1.4 billion at December 31, 1998.
CORE OPERATING RESULTS
Because of the significant changes to the Company's capital structure and
taxable status since 1995, management believes that pretax core earnings ("Bank
Core Earnings") are the most useful measure of the Company's underlying
operating and earnings performance. Bank Core Earnings are earnings before
interest on parent company debt, income taxes, real estate operations and
non-operating items.
For all of 1998, Bank Core Earnings were $18.8 million, 85% greater than the
$10.2 million of Bank Core Earnings produced for all of 1997. For the 4th
Quarter of 1998, Bank Core Earnings were $5.0 million, as compared with Bank
Core Earnings of $2.8 million generated during the 4th Quarter of 1997. The
substantial growth in Bank Core Earnings results from the steady growth in
earning assets and a gradual widening of the Bank's effective interest margin.
The growth in earning assets results directly from the continuing successful
development of the Company's real estate-secured financing businesses. During
1998, the Company generated net new loan commitments of $964 million which, net
of repayments and undisbursed loan funds, produced net loan growth of $490
million for the year. By comparison, the Company recorded net new loan
commitments of $495 million for all of 1997 which, net of repayments and
undisbursed loan funds, produced net loan growth during 1997 of $166 million.
During the 4th Quarter of 1998, the Company recorded net new loan commitments of
$251 million, which translated into net loan growth of $137 million for the
quarter.
The growth realized during 1998 in the Bank's loan portfolio was accompanied by
a slight growth in its effective interest margin. For all of 1998, the Bank's
effective interest margin (before loan loss provisions and interest on parent
company debt) increased to 4.52%, from 4.26% during 1997. During the 4th Quarter
of 1998, the Bank's effective interest margin was 4.34%.
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Nonperforming assets ("NPAs"), which consist of the carrying value of properties
acquired through foreclosure and loan principal delinquent three or more
payments, stood at $17.9 million at December 31, 1998 (or 1.3% of total assets),
a slight increase from their level of $16.6 million at September 30, 1998 (or
1.2% if total assets), and down slightly from their level of $20.7 million at
December 31, 1997 (or 2.2% of total assets).
As previously reported, in mid-1997 the Company commenced a series of
initiatives intended to enhance its management depth, to convert its technology
platform from an outsourced, host-based system to an in-house, client
server-based system, and to design and to implement a plan to ensure Year 2000
compliance. These and related initiatives were expected to increase the
Company's consolidated general and administrative costs during 1998 by about 15%
as compared with 1997. For all of 1998, general and administrative costs were
$28.8 million, an increase of 31% over general and administrative costs of $22.0
million incurred during all of 1997. This greater-than-expected growth in
general and administrative costs reflects (1) a 38% growth in the total number
of employees (measured year-over-year), which was occasioned by the Company's
greater-than-expected success in developing its financing businesses and
increasing its retail deposit share of market, (2) incentive compensation earned
by employees for the greater-than-expected results produced, and (3) modestly
higher technology-related systems conversion costs than originally anticipated.
INCOME TAXES
For all of 1998, the Company's effective tax rate was 29.7%. During 1997, the
Company recorded an income tax benefit of $2.6 million. During the past several
years, the Company has benefited from utilization of income tax benefits,
principally tax loss carryforwards, accumulated during the early 1990's. These
accumulated benefits were fully utilized during 1998.
CAPITALIZATION
The Company's capital structure has changed significantly during the past three
years. The Company's issues of Preferred Stock ($13.5 million face amount;
dividend rate of 18.00%) and Senior Notes ($13.5 million face amount; 12.00%
coupon interest rate), issued in December 1995 in connection with the
recapitalization of the Company and the Bank, were repaid in full in December
1997 with the proceeds from a single, $40.0 million issue of Senior Notes, due
2004, which carry a coupon interest rate of 12.50% and an effective cost of
approximately 13.40% (after including the effect of issue cost amortization).
Through December 31, 1998, the Company had contributed all of the proceeds from
its current Senior Notes issue to the Bank, which has permitted the Bank to
support its recent asset growth while maintaining core and risk-based capital
ratios well above the regulatory ratios which define a well-capitalized
institution.
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During 1996 and 1997, the Company reported interest costs of $1.9 million and
$2.0 million, respectively, on its 1995 issue of Senior Notes. During this same
period, net earnings available to common shareholders were reduced by dividends
on the Company's 1995 issue of Preferred Stock of $2.4 million (1996) and $2.5
million (1997), and by the premium paid ($1.9 million) upon the redemption of
the Company's Preferred Stock in December 1997. During 1998, the Company
incurred interest costs of $5.0 million in connection with its 1997 issue of
Senior Notes.
In July 1998, the Company completed an offering of approximately 2.0 million of
its common shares, realizing net proceeds (after offering costs) of
approximately $27.5 million. Through December 31, 1998, the Company had
contributed $15.0 million of these net proceeds to the Bank and had made its
December 1998 semi-annual interest payment of approximately $2.5 million on its
Senior Notes. Accordingly, approximately $10.0 million of the offering proceeds
remained with the Company at December 31, 1998. Management expects that all or a
substantial portion of these remaining proceeds will be contributed to the Bank
during the first six months of 1999.
At December 31, 1998, the Bank maintained core and risk-based capital ratios of
7.57% and 11.10%, respectively, which compared favorably to the well-capitalized
regulatory ratios of 5.00% and 10.00%, respectively.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements as referenced in the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
inherently unreliable and actual results may differ. Factors which could cause
actual results to differ from these forward-looking statements include changes
in the competitive marketplace, economic conditions in the industry and factors
discussed in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS ARE IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
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ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
Cash and cash equivalents $ 45,449 $ 51,620
Investment securities 0 578
Loans receivable (net of allowance for estimated
credit losses of $17,111 in 1998 and $13,274 in 1997) 1,326,791 838,251
Real estate owned, net 4,070 9,859
Other assets 36,124 27,889
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Total Assets $ 1,412,434 $ 928,197
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LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $ 1,019,450 $ 799,501
FHLB advances 264,000 40,000
Senior notes 40,000 40,000
Other liabilities 7,560 6,377
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Total Liabilities 1,331,010 885,878
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Total Stockholders' Equity 81,424 42,319
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Total Liabilities and Stockholders' Equity $ 1,412,434 $ 928,197
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SUPPLEMENTAL INFORMATION - BANK CAPITAL DECEMBER 31, DECEMBER 31,
1998 1997
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Core capital $ 107,468 $ 69,900
Ratio 7.57% 7.55%
Risk-based capital $ 119,400 $ 78,454
Ratio 11.10% 11.48%
</TABLE>
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SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS
(DOLLARS ARE IN THOUSANDS)
<TABLE>
<CAPTION>
ASSET QUALITY DECEMBER 31, DECEMBER 31,
1998 1997
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(UNAUDITED) (AUDITED)
<S> <C> <C>
NONPERFORMING ASSETS
Real estate owned, net $ 4,070 $ 9,859
Nonperforming loans, 90 days and greater
delinquent 13,832 10,793
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TOTAL NONPERFORMING ASSETS 17,902 20,652
OTHER CLASSIFIED LOANS
Other delinquent loans, 30 - 89 days 37,307 4,435
Performing loans classified loss
doubtful or substandard 41,946 36,013
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TOTAL CLASSIFIED ASSETS $ 97,155 $ 61,100
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TOTAL CLASSIFIED LOANS $ 93,085 $ 51,241
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Net loans receivable, exclusive of reserves
on loans $ 1,343,902 $ 851,525
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RESERVES ON LOANS
Specific $ 5,184 $ 3,878
General 11,927 9,396
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Total $ 17,111 $ 13,274
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SELECT ASSET QUALITY RATIOS AT PERIOD END
Total nonperforming assets to total assets 1.3% 2.2%
Total reserves to net loans receivable
(exclusive of allowance) 1.3% 1.6%
Total reserves to classified loans 18.4% 25.9%
Total reserves to nonperforming loans 123.7% 123.0%
Total classified assets to Bank core capital and
general loan loss reserves 81.4% 77.1%
</TABLE>
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CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(DOLLARS AND SHARES ARE IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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DEC 31, SEP 30, JUN 30, MAR 31, DEC 31, SEP 30,
1998 1998 1998 1998 1997 1997
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<S> <C> <C> <C> <C> <C> <C>
CORE OPERATIONS
Net interest income $ 14,376 $ 13,552 $ 11,850 $ 10,340 $ 9,421 $ 8,596
Provision for credit losses (1,950) (1,950) (1,750) (1,485) (1,398) (1,500)
----------- ----------- ----------- --------- --------- ---------
Net interest income after
provision for credit losses 12,426 11,602 10,100 8,855 8,023 7,096
Other operating revenues 1,106 1,372 1,452 709 909 1,126
General and administrative costs (8,495) (7,240) (6,791) (6,280) (6,139) (5,203)
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CORE EARNINGS 5,037 5,734 4,761 3,284 2,793 3,019
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OTHER ITEMS
Real estate operations, net (68) 616 1,031 333 2 490
Other, net (10) (10) 4 (105) 219
Interest on senior notes (1,236) (1,250) (1,250) (1,264) (511) (489)
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(1,314) (644) (219) (927) (614) 220
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PRETAX EARNINGS 3,723 5,090 4,542 2,357 2,179 3,239
Income tax (provision)
benefit (1,148) (1,632) (1,370) (524) 975 (25)
Extraordinary item (1,534)
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NET EARNINGS 2,575 3,458 3,172 1,833 1,620 3,214
Preferred Stock Dividends (626) 608
Premium on redemption of
Preferred Stock (1,908)
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NET EARNINGS (LOSS) AVAILABLE
FOR COMMON STOCK $ 2,575 $ 3,458 $ 3,172 $ 1,833 $ (914) $ 2,606
=========== =========== =========== ========= ========= =========
AVERAGE INTEREST-
EARNING ASSETS $ 1,382,469 $ 1,254,456 $ 1,071,300 $ 953,391 $ 876,500 $ 852,184
=========== =========== =========== ========= ========= =========
Basic earnings, (loss) per share $ 0.50 $ 0.67 $ 1.00 $ 0.58 $ (0.30) $ 0.85
Diluted earnings, (loss) per share $ 0.34 $ 0.45 $ 0.56 $ 0.32 $ (0.16) $ 0.47
YTD Diluted earnings per share* $ 1.65 $ 1.33 $ 0.88 $ 0.32 $ 1.00 $ 1.21
Weighted average basic
shares outstanding 5,190 5,189 3,168 3,157 3,090 3,058
Weighted average diluted
shares outstanding 7,650 7,708 5,663 5,681 5,622 5,507
*Difference in the 4th Quarter cumulative number due to rounding.
</TABLE>
