-----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, KRl8/yNpej3JvpKivwx0L3o4R8nmPu2EBBE32x6SRrjRF0LnZZzqkm0I3iyfxcsk ntPqrXwA4D5inDoW6SYIfg== 0000950133-98-003769.txt : 19981113 0000950133-98-003769.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950133-98-003769 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981020 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981112 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: SEC FILE NUMBER: 000-01100 FILM NUMBER: 98743974 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 HAWTHORNE FINANCIAL FORM 8-K 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 October 20, 1998 - ------------------------------------------------------------------------------- (Date of earliest event reported) Hawthorne Financial Corporation - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-1100 95-2085671 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 2381 Rosecrans Avenue, El Segundo, California 90245 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (310) 725-5000 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Page 1 of 3 2 ITEM 5. OTHER EVENTS On October 20, 1998, Hawthorne Financial Corporation issued the press release which is included as Exhibit 99(a) hereto. 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 October 20, 1998 2 3 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 Date: November 11, 1998 By: /s/ Scott A. Braly --------------------------------------- Scott A. Braly President and Chief Executive Officer 3 EX-99.A 2 PRESS RELEASE 1 Exhibit 99(a) [HAWTHORNE LOGO] HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 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 THIRD QUARTER (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 from operations. 1998 THIRD QUARTER HIGHLIGHTS - Net earnings for the quarter were $3.5 million, or $0.45 per diluted share - Year-to-date net earnings were $8.5 million, or $1.33 per diluted share - The 1998 results included income tax provisions of $1.6 million (3rd quarter) and $3.5 million (year-to-date); by comparison, the 1997 results included no income tax provision (3rd quarter) and an income tax benefit of $1.6 million (year-to-date) - Return on average equity reached 22% during the third quarter and 21% for the nine months ended September 30, 1998 (including the impact of the Company's secondary offering completed in July 1998) - The Company's pretax core earnings for the quarter and year-to-date rose by 90% and 86%, respectively, over the pretax core earnings realized during the comparable periods in 1997 - The Bank's effective interest rate margin (before recurring loan loss provisions) increased to 4.29% during the 3rd quarter of 1998, an increase to the Bank's effective interest margin of 4.03% generated during the 3rd quarter of 1997 - Net new loan commitments rose to $272 million for the quarter, and to $713 million year-to-date; by comparison, net new loan commitments during 1997 were $137 million (3rd quarter) and $325 million (year-to-date) - The estimated, annualized yield on 1998 net new loan commitment volume remained above 10.00% during the 3rd quarter - Total assets reached $1.4 billion at September 30, 1998, rising over 50% from their level at the end of 1997 2 The Company earned $3.5 million, or $0.45 per diluted share, for the quarter ended September 30, 1998. These results compare with net earnings of $3.2 million, or $0.47 per diluted share, for the quarter ended September 30, 1997. Earnings for the September 1998 quarter were driven by a 58% increase, to $13.6 million, in the Bank's net interest income before credit loss provisions as compared with the 1997 3rd quarter, which was only partially offset by higher general and administrative costs, a higher income tax provision, and higher interest expense associated with the Company's Senior Notes. For the nine months ended September 30, 1998, net earnings were $8.5 million, or $1.33 per diluted share, as compared with net earnings of $8.0 million, or $1.20 per diluted share, for the nine months ended September 30, 1997. The 1997 period was substantially aided by an income tax benefit of $1.6 million (versus an income tax provision of $3.5 million for the corresponding 1998 period). At September 30, 1998, total assets were $1.4 billion, an increase from total assets of $928 million at December 31, 1997, and $891 million at September 30, 1997. As of these respective dates, net loans and total deposits were $1.2 billion and $995 million (September 30, 1998), $838 million and $800 million (December 31, 1997), and $767 million and $776 million (September 30, 1997). CORE BUSINESS ACTIVITY The Company originates real estate-secured loans throughout Southern California, generally consisting of loans collateralized by very large homes, income-producing properties and residential construction projects (principally individual home construction). The Company funds its loans predominantly with retail deposits and, to a lesser extent, with advances from the Federal Home Loan Bank of San Francisco. The spreads earned by the Company from this core business activity generally exceed the spreads available on typical real estate-secured financings within the Company's Southern California market area. The Company does not engage in any sub-prime lending, nor does the Company typically provide financing which involves conventional (e.g., FNMA-conforming) loan terms and loan pricing. The Company holds all of its loans for its own account, rather than selling loans into the secondary mortgage markets. With respect to its retail banking activities, the Company does not retain receivables arising from the issuance of Bank-sponsored credit cards, nor does the Bank provide meaningful credit extensions to customers in the form of overdraft protection, equity credit lines, and the like. CAPITALIZATION The Company's consolidated capital structure has changed significantly during the past three years, initially as a result of its recapitalization in December 1995, and then again in December 1997, due to its successful refinancing of the securities issued in the 1995 recapitalization. Finally, in July 1998, the Company successfully completed an offering of approximately 2.0 million of its common shares, which raised approximately $27.5 million of net proceeds. In addition to these positive changes to the Company's capital structure, the Company returned to taxable status during the first quarter of 1998, following several years during which it recorded substantial income tax benefits from utilization of accumulated operating loss carryforwards. Together, these factors make meaningful comparisons of consolidated operating results, and related per share amounts, between the 1998 and 1997 periods somewhat difficult. 3 HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 1998 PAGE 3 CORE OPERATING RESULTS Because of the significant changes to the Company's capital structure and taxable status, management believes that pretax core earnings are the most useful measure of the Company's underlying operating and earnings performance. Core earnings are earnings before interest on parent company debt, income taxes, real estate operations and non-operating items. For the 3rd quarter of 1998, core earnings were $5.7 million, 90% greater than the $3.0 million of core earnings produced during the 3rd quarter of 1997. For the nine months ended September 30, 1998, core earnings were $13.8 million, virtually double core earnings of $7.4 million realized during the first nine months of 1997. The substantial growth in core earnings results from the steady growth in earning assets during the past several quarters, which has been accompanied by a widening of the Bank's interest rate margin. The Company's and the Bank's core results have also been modestly aided by a decline in nonperforming assets. The growth in earning assets results directly from the continuing successful expansion of the Company's real estate-secured financing businesses. During the 3rd quarter of 1998, the Company generated net new loan commitments of $272 million which, net of repayments and undisbursed loan funds, produced net growth of nearly $100 million in the Company's retained loan portfolio during the quarter, an annualized rate of 36%. For the nine months ended September 30, 1998, net new loan commitments totaled $713 million which, net of repayments and undisbursed loan funds, produced net growth of $352 million in the Company's retained loan portfolio during the first nine months of 1998, an annualized growth rate of nearly 56%. By comparison, the Company recorded net new loan commitments of $137 million and $325 million, respectively, for the three-and-nine-month periods ended September 30, 1997. The Company's diversified mix of real estate-secured financings, and its willingness and ability to provide its customers with tailored loan terms and highly-efficient transaction execution when necessary, contributes to its ability to consistently produce premium yields on the incremental growth in its retained loan portfolio. At the same time, the Company has been successful in keeping its funding costs (excluding interest on parent company debt) virtually unchanged during the past several quarters. As a result, during the 3rd quarter of 1998, the Bank's interest margin (before interest on parent company debt and loan loss provisions) continued its steady improvement, reaching 4.29% of average interest-earning assets. This compares to the Bank's interest margin of 4.03% realized during the 3rd quarter of 1997. For the nine months ended September 30, 1998, the Bank's interest margin was 4.34%, as compared with its interest margin of 3.92% realized during the first nine months of 1997. Nonperforming assets ("NPAs"), which consist of the carrying value of properties acquired through foreclosure and loan principal delinquent 90 days or greater, stood at $16.6 million at September 30, 1998, down from their level of $20.7 million at December 31, 1997. At the end of September 1998, the Bank's portfolio of real estate owned totaled $2.2 million, or 13% of NPAs. The Bank continues to experience very modest levels of foreclosures of its collateral securing delinquent loans, with most such loans being cured by borrowers with no concessions being offered by the Bank. 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 4 HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 1998 PAGE 4 1998 by about 15% as compared with 1997. During the three-and-nine-month periods ended September 30, 1998, consolidated general and administrative costs were $7.2 million and $20.3 million, respectively. For the corresponding periods during 1997, consolidated general and administrative costs were $5.2 million and $15.9 million, respectively. The actual 28% growth rate in general and administrative expenses for the first nine months of 1998 as compared with the same period during 1997 reflects the initiatives described above plus additional costs attributable to the Company's financial performance during the first nine months of 1998. INCOME TAXES During the three-and-nine months ended September 30, 1998, the Company's effective tax rate was 32.1% and 29.4%, respectively. During the corresponding periods in 1997, the Company recorded no income tax provision (1997 3rd quarter) and an income tax benefit of $1.6 million (nine months ended September 30, 1997). 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. The Company expects that these accumulated benefits will be 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 September 30, 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. 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. During the 3rd quarter of 1998, the Company contributed $5.0 million of these net proceeds to the Bank and retained approximately $22.5 million of liquidity at that date. The Company expects to contribute the majority of this remaining parent company liquidity to the Bank, as may be necessary over time, to support the Bank's future business growth while preserving the Bank's status as a well-capitalized institution. At September 30, 1998, the Bank maintained core and risk-based capital ratios of 6.92% and 10.90%, respectively, which compared favorably to the well-capitalized regulatory ratios of 5.00% and 10.00%, respectively. 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. 5 HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 1998 PAGE 5 CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (DOLLARS AND SHARES ARE IN THOUSANDS)
THREE MONTHS ENDED ---------------------------------------------------------------------------------------------- SEP 30, JUN 30, MAR 31, DEC 31, SEP 30, JUN 30, 1998 1998 1998 1997 1997 1997 ----------- ----------- ----------- ----------- ----------- ----------- CORE OPERATIONS Net interest income $ 13,552 $ 11,850 $ 10,340 $ 9,421 $ 8,596 $ 8,418 Provision for credit losses (1,950) (1,750) (1,485) (1,398) (1,500) (1,500) ----------- ----------- ----------- ----------- ----------- ----------- Net interest income after provision for credit losses 11,602 10,100 8,855 8,023 7,096 6,918 Other operating revenues 1,372 1,452 709 909 1,126 832 General and administrative costs (7,240) (6,791) (6,280) (6,139) (5,203) (5,244) ----------- ----------- ----------- ----------- ----------- ----------- CORE EARNINGS 5,734 4,761 3,284 2,793 3,019 2,506 ----------- ----------- ----------- ----------- ----------- ----------- OTHER ITEMS Real estate operations, net 616 1,031 333 2 490 479 Other, net (10) 4 (105) 219 Interest on senior notes (1,250) (1,250) (1,264) (511) (489) (496) ----------- ----------- ----------- ----------- ----------- ----------- (644) (219) (927) (614) 220 (17) ----------- ----------- ----------- ----------- ----------- ----------- PRETAX EARNINGS 5,090 4,542 2,357 2,179 3,239 2,489 Income tax (provision) benefit (1,632) (1,370) (524) 975 (25) 935 Extraordinary item (1,534) ----------- ----------- ----------- ----------- ----------- ----------- NET EARNINGS $ 3,458 $ 3,172 $ 1,833 $ 1,620 $ 3,214 $ 3,424 =========== =========== =========== =========== =========== =========== AVERAGE INTEREST- EARNING ASSETS $ 1,272,088 $ 1,071,300 $ 953,391 $ 876,500 $ 852,184 $ 836,988 =========== =========== =========== =========== =========== =========== Net earnings available Basic earnings per share $ 0.66 $ 1.00 $ 0.58 $ 0.32 $ 0.85 $ 1.02 Diluted earnngs per share $ 0.45 $ 0.56 $ 0.32 $ 0.18 $ 0.47 $ 0.57 YTD Diluted earnings per share $ 1.33 $ 0.88 $ 0.32 $ 1.37 $ 1.20 $ 0.73 Weighted average basic shares outstanding 5,189 3,168 3,157 3,090 3,058 2,767 Weighted average diluted shares outstanding 7,708 5,663 5,681 5,622 5,532 4,959
6 HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 1998 PAGE 6 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (DOLLARS ARE IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1998 1997 1997 ------------- ------------- ------------- ASSETS (UNAUDITED) (AUDITED) (UNAUDITED) Cash and cash equivalents $ 166,454 $ 51,620 $ 17,906 Investment securities 578 65,732 Loans receivable (net of allowance for credit losses of $16,160 at Sep 1998, $13,274 at Dec 1997 and $13,253 at Sep 1997) 1,190,382 838,251 767,096 Real estate owned, net 2,178 9,859 14,598 Other assets 36,050 27,889 25,831 ------------- ------------- ------------- Total Assets $ 1,395,064 $ 928,197 $ 891,163 ============= ============= ============= LIABILITIES & STOCKHOLDERS' EQUITY Deposits $ 994,932 $ 799,501 $ 776,277 FHLB advances 264,000 40,000 40,000 Senior notes 40,000 40,000 12,560 Other liabilities 17,095 6,377 7,461 ------------- ------------- ------------- Total Liabilities 1,316,027 885,878 836,298 ------------- ------------- ------------- Preferred Stock 11,592 Common Stock 79,037 42,319 43,273 ------------- ------------- ------------- Total Stockholders' Equity 79,037 42,319 54,865 ------------- ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,395,064 $ 928,197 $ 891,163 ============= ============= ============= SUPPLEMENTAL INFORMATION - BANK CAPITAL SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1998 1997 1997 ------------- ------------- ------------- Core capital $ 94,752 $ 69,900 $ 65,863 Ratio 6.92% 7.55% 7.49% Risk-based capital $ 106,252 $ 78,454 $ 73,571 Ratio 10.90% 11.48% 11.99%
7 HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE OCTOBER 20, 1998 PAGE 7
SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (DOLLARS ARE IN THOUSANDS) ASSET QUALITY SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, 1998 1997 1997 --------------- --------------- --------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) NONPERFORMING ASSETS Real estate owned, net $ 2,178 $ 9,859 $ 14,598 Nonperforming loans, 90 days and greater delinquent 14,446 10,793 5,547 --------------- --------------- --------------- TOTAL NONPERFORMING ASSETS 16,624 20,652 20,145 OTHER CLASSIFIED LOANS Other delinquent loans, 30 - 89 days 11,738 4,435 6,533 Performing loans classified substandard 39,715 36,013 56,939 --------------- --------------- --------------- TOTAL CLASSIFIED ASSETS $ 68,077 $ 61,100 $ 83,617 =============== =============== =============== TOTAL CLASSIFIED LOANS $ 65,899 $ 51,241 $ 69,019 =============== =============== =============== Net loans receivable, exclusive of reserves on loans $ 1,222,702 $ 851,525 $ 780,349 =============== =============== =============== RESERVES ON LOANS Specific $ 4,527 $ 3,878 $ 2,327 General 11,633 9,396 10,926 --------------- --------------- --------------- Total $ 16,160 $ 13,274 $ 13,253 =============== =============== =============== SELECT ASSET QUALITY RATIOS AT PERIOD END Total nonperforming assets to total assets 1.2% 2.2% 2.3% Total reserves to net loans receivable 1.3% 1.6% 1.7% Total reserves to classified loans 24.5% 25.9% 19.2% Total reserves to nonperforming loans 111.9% 123.0% 238.9% Total classified assets to Bank core capital and general loan loss reserves 63.9% 77.1% 108.9%
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