8-K

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

Date of Report (Date of earliest event reported): July 22, 2002

Hawthorne Financial Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 95-2085671
(I.R.S. employer identification number)

Commission file number: 0-1100

2381 Rosecrans Avenue
El Segundo, California 90245
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:

(310) 725-5000

TABLE OF CONTENTS

	Item 5. Other Events
	Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
	Item 9. Regulation FD Disclosure
SIGNATURES
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2

Item 5.   Other Events

     On July 22, 2002, the Registrant issued a press release announcing its 2002 second quarter and year to date results. The title and paragraphs 1 through 3, 6 through 10, 11 (except for the last sentence), 12 through 13, 14 (except for the last two sentences), 15 through 16, 17 (except for the last sentence) and 19 through 20 of the press release, which appear as part of Exhibit 99.1, are filed and incorporated herein by reference.

Item 7.   Financial Statements, Pro Forma Financial Information and Exhibits

Exhibit 99.1	Press Release dated July 22, 2002
Exhibit 99.2	Script of Conference Call Held July 22, 2002

Item 9.   Regulation FD Disclosure

     Paragraphs 4, 5, the last sentence of 11, the last two sentences of 14, the last sentence of 17 and 18 of the press release appearing in Exhibit 99.1 and Exhibit 99.2 are not filed but are furnished pursuant to Regulation FD.

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.

	HAWTHORNE FINANCIAL CORPORATION
	By:	/s/  Karen Abajian       Karen Abajian       Executive Vice President and Chief       Financial Officer
Date:  July 23, 2002

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated July 22, 2002
99.2	Script of Conference Call Held July 22, 2002

EX-99.1 3 a83099exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 [HAWTHORNE LOGO] HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE JULY 22, 2002 IMMEDIATE RELEASE Contact: Ms. Simone Lagomarsino, President and Chief Executive Officer (310) 725-5631 Ms. Karen Abajian, Chief Financial Officer (310) 725-1890 HAWTHORNE FINANCIAL ANNOUNCES SECOND QUARTER 2002 RESULTS (El Segundo, CA) Hawthorne Financial Corporation (NASDAQ:HTHR), parent company of Hawthorne Savings, F.S.B., today announced second quarter earnings for 2002 of $5.3 million, or $0.69 per diluted share, compared with earnings of $3.6 million, or $0.48 per diluted share after extraordinary item, for the second quarter of 2001. Net earnings year-to-date for 2002 were $11.2 million, or $1.46 per diluted share, compared with net earnings of $6.6 million, or $0.88 per diluted share, for the six months ended June 30, 2001. Net income for the three and six months ended June 30, 2002, resulted in an annualized return on average assets ("ROA") of 1.14% and 1.20%, respectively, and an annualized return on average equity ("ROE") of 17.03% and 18.27%, respectively, compared with an annualized ROA of 0.82% and 0.75%, respectively, and an annualized ROE of 13.30% and 12.36%, respectively, for the three and six months ended June 30, 2001. Income before income taxes and extraordinary item increased 46.83% and 63.47%, respectively, for the three and six months ended June 30, 2002, to $9.3 million from $6.3 million and to $19.6 million from $12.0 million, during the same periods in 2001. The Company's net interest income before provision for credit losses increased 13.44% to $16.5 million and 17.43% to $34.1 million, during the three and six months ended June 30, 2002, compared with $14.6 million and $29.0 million for the three and six months ended June 30, 2001. The Company's resulting net interest margin for the three and six months ended June 30, 2002, was 3.56% and 3.68%, compared with 3.30% for both the three and six months ended June 30, 2001. The Company's yield on average earning assets was 6.80% and 7.00% for the three and six months ended June 30, 2002, compared with 8.40% and 8.59% during the same periods in 2001. During the three and six months ended June 30, 2002, interest of $0.6 million and $1.0 million, respectively, was collected on loans that were brought current, producing a positive but nonrecurring impact on the Company's net interest margin of 13 basis points and 11 basis points, respectively. The Bank experienced strong loan originations during the first six months of 2002, recording new commitments of $334.3 million, consistent with the same period in 2001. Although loan production was strong, the Bank experienced accelerated prepayments of higher yielding assets during the first six months of 2002, which totaled $327.7 million, with a weighted average rate of 7.77%. The new loans originated were recorded at an average yield of 6.47%. The average cost of funds for the Company decreased to 3.57% and 3.67% during the three and six months ended June 30, 2002, compared with 5.59% and 5.81% during the same periods in 2001. "We are extremely pleased with our loan origination levels for the first half of the year," said Simone Lagomarsino, president and chief executive officer of Hawthorne Financial Corporation. "In a lending environment dominated by mortgage refinancing, we capitalized on our superior customer service and originated $177.5 million in single family residential loans, of which 67% were for home purchase transactions." "Growing our loan portfolio by originating quality loans, continues, as always, to be a key focus. We believe our acquisition of First Fidelity will assist us in this process, as First Fidelity's results show that they have a proven asset generating capability. First Fidelity's net loans have grown 11.3%, on an annualized basis, this year, and have averaged a growth rate of approximately 12.3% over the past three years," Ms. Lagomarsino added. "I am pleased not only with the strength of our financial performance, but more importantly with the integrity of our results," said Ms. Lagomarsino. "A culture of high ethical standards is deeply ingrained throughout the HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 2 OF 10 Company beginning with our Board of Directors, six out of seven of whom are outside directors. Our management team and Board of Directors enthusiastically support the call for higher standards of corporate governance, and we are committed to ensuring that trust, integrity and honesty are never compromised at Hawthorne." Provisions for credit losses totaled $0.2 million and $0.7 million for the three and six months ended June 30, 2002, compared with $1.0 million and $2.5 million for the three and six months ended June 30, 2001. The decrease in the provision for credit losses was due to the overall improvement in asset quality. At June 30, 2002, the ratio of total allowance for credit losses to loans receivable, net of specific allowance and deferred fees and costs was 1.77%, compared with 1.76% at December 31, 2001 and 1.75% at June 30, 2001. Nonaccrual loans totaled $6.1 million at June 30, 2002 (or 0.33% of total assets), compared with nonaccrual loans of $20.7 million (or 1.11% of total assets) at December 31, 2001 and $27.5 million (or 1.52% of total assets) at June 30, 2001. Total classified loans were $45.1 million at June 30, 2002, compared with $58.0 million at December 31, 2001. Delinquent loans totaled $11.9 million at June 30, 2002, compared with $7.7 million at December 31, 2001. The Company held no other real estate owned properties at June 30, 2002, compared with $1.3 million at December 31, 2001. Underwriting standards for construction loans were further tightened during the first six months of 2002. As a result, construction loans decreased to 12.0% of the total loan portfolio from 15.9% at December 31, 2001. The Bank remains committed to the seasoned builders with whom it has established relationships, but believes it is prudent to reduce construction exposure until the national economy is on a stronger footing. The California housing market continues to show surprising strength with pockets of softness only in higher-end homes. Noninterest revenues were $1.2 million and $2.5 million for the three and six months ended June 30, 2002, compared with noninterest revenues of $1.5 million and $3.0 million earned during the same periods in 2001. For 2002, loan related fees decreased due to the lower risk nature of the loans underwritten and the competitive lending environment during the last three years. The Company remains focused on becoming more efficient. Over the past three years, the Company has maintained a consistent expense run rate while continuing to grow earning assets. This performance is depicted in the ratio of general and administrative expenses as a percentage of average assets. On an annualized basis, this ratio has improved to 1.76% for the six months ended June 30, 2002, compared with 2.00% and 2.08% for the comparable periods in 2001 and 2000, respectively. Total general and administrative expenses ("G&A") were $8.3 million and $16.3 million for the three and six months ended June 30, 2002, compared with $8.7 million and $17.7 million of G&A incurred during the same periods in 2001. The decrease in G&A for the six months ended June 30, 2002 was primarily due to a decrease of $1.2 million in professional fees, as a result of first quarter 2002 insurance company reimbursements totaling $0.7 million for legal fees related to litigation and fewer outstanding legal issues. The efficiency ratios were 46.66% and 44.63% for the three and six months ended June 30, 2002 compared with 54.36% and 54.87% for the three and six months ended June 30, 2001. Excluding the $0.7 million insurance reimbursement for legal fees related to litigation, the efficiency ratio for the six months ended June 30, 2002 was 46.58% Total assets were $1.84 billion at June 30, 2002, down slightly from total assets of $1.86 billion at December 31, 2001. Net loans receivable at June 30, 2002, totaled $1.59 billion, reflecting an annualized decrease of 13.70% compared with net loans receivable of $1.71 billion at December 31, 2001. As previously mentioned, the Bank continued to experience an increase in loan prepayments during the first six months of 2002 as borrowers refinanced out of their variable rate loans into fixed rate loans. For the three and six months ended June 30, 2002, average earning assets were $1.86 billion for both periods, an increase of 5.36% and 5.42%, over average earning assets of $1.76 billion for both the three and six month periods ended June 30, 2001. Ms Lagomarsino said, "We have taken steps in recent months to invest excess liquidity on our balance sheet into an investment portfolio of U.S. Government Agency mortgage backed securities with an average life of 2 to 4 years. We anticipate that the yield on this portfolio will be approximately 300 basis points higher than the current yield earned on these assets, which will provide support to the net interest margin during the last half of the year." HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 3 OF 10 Total deposits of $1.19 billion at June 30, 2002, remained consistent with the $1.20 billion at December 31, 2001. Certificates of deposit decreased $163.9 million, while transaction accounts increased $156.2 million, or 83.43% annualized, to $530.7 million at June 30, 2002, from $374.5 million at December 31, 2001. As a percentage of total deposits, transaction accounts have increased to 44.52% at June 30, 2002, compared with 31.21% of total deposits at December 31, 2001. Certificates of deposit totaled $661.3 million, or 55.48% of total deposits at June 30, 2002, compared with 68.79% of total deposits, or $825.2 million, at December 31, 2001. The change in the deposit mix had a positive impact on the Company's total interest costs during 2002. Once again, Hawthorne's outstanding customer service was recognized by the community earlier this year when voted "The Best Bank in the South Bay" by the readers of a local South Bay newspaper, the Easy Reader. Our "extreme service" continues to translate into an improved cross-sell ratio, defined as the number of different types of loan and/or deposit products and services per household serviced, which increased to 2.69 per household at June 30, 2002, from 2.37 at December 31, 2001. Consistent with our ongoing commitment to improve shareholder value, on June 21, 2002, the Company repurchased 500,000 shares of stock from members of the Bass Family, for an aggregate purchase price of $14.5 million. Prior to the repurchase, members of the Bass Family exercised warrants to purchase an aggregate of 314,978 shares of common stock. Assuming the repurchase transaction was executed on the first day of the second quarter of 2002, diluted earnings per share for the second quarter would have been positively impacted by $0.03. Due to the additional shares that are expected to be issued, for the pending acquisition, the impact of this repurchase on earnings per share in the future, although still accretive, will not be as significant. At June 30, 2002, the Bank is categorized as well-capitalized with core, tier 1 and risk-based capital ratios of 9.12%, 13.31% and 14.57%, respectively. The minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1 and risk-based capital, respectively. The Company was recently included in the Russell 2000 Index for 2002. The Russell 2000 Index is a broad-based market index that is based on total market capitalization. Ms. Lagomarsino added, "We are proud to be included in the Russell 2000. This important milestone is attributable to our strategy of building value for our shareholders." In March 2002, the Company announced the execution of a definitive agreement to acquire First Fidelity Bancorp, Inc. and its subsidiary, First Fidelity Investment and Loan. The acquisition, which is subject to shareholder and regulatory approval, provides for the Company to issue 1,266,555 shares of Hawthorne Financial Corporation stock and $37.4 million in cash for the 1,815,115 shares of First Fidelity Bancorp, Inc. stock and 88,000 options outstanding. The Company's stockholders are being asked to approve the issuance of shares at the annual stockholders' meeting, to be held on July 23, 2002. Regulatory applications have been filed and, pending shareholder and regulatory approval, completion of the transaction is expected to occur in August 2002. Second quarter and year-to-date results for First Fidelity Investment and Loan can be found at www.1stFidelity.com or by contacting their headquarters in Tustin, CA, at (949) 936-3235. During the Hawthorne Financial Corporation investor conference call scheduled for Monday, July 22, 2002, at 1:00 p.m. EDT, additional information regarding the acquisition will be discussed. To participate in the conference call, please call (800) 521-5428 Toll Free and reference "Hawthorne Savings -- ID #2061921." Audio access to the conference call will also be available through a live Webcast over the Internet at www.hawthornesavings.com. The Webcast of this conference call will be available for replay through August 19, 2002 by accessing the same link. Hawthorne Savings, F.S.B., operates nine branches in the coastal counties of Southern California. The Company specializes in real estate secured loans in the niche markets that it serves, including: 1) permanent loans collateralized by single family residential property, 2) permanent and construction loans secured by multi-family residential and commercial real estate, 3) loans for the construction of individual single family residential homes and the acquisition and development of land for the construction of such homes. The Company funds its loans predominantly with retail deposits generated through its nine full service retail offices. Provided the acquisition of First Fidelity is completed, the Bank will add four branches, two each in coastal Orange and San Diego counties. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 4 OF 10 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 vary. Factors which could cause actual results to differ from these forward-looking statements include changes in the competitive marketplace, changes in the interest rate environment, potential increased prepayment speeds on the Company's outstanding loan portfolio, economic conditions, outcome of pending litigation, risks associated with credit quality, the possibility that the Company will not obtain stockholder or regulatory approval of the merger of Hawthorne and First Fidelity, and other 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. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 5 OF 10

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (Dollars in thousands) JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- Assets: Cash and cash equivalents $ 185,740 $ 98,583 Investment securities, at fair value 19,720 -- Loans receivable (net of allowance for estimated credit losses of $28,657 in 2002 and $30,602 in 2001) 1,592,200 1,709,283 Real estate owned -- 1,312 Accrued interest receivable 8,742 9,677 Investment in capital stock of Federal Home Loan Bank, at cost 25,220 24,464 Office property and equipment at cost, net 4,152 4,237 Deferred tax asset 2,668 4,363 Other assets 6,342 4,278 ----------- ----------- Total assets $ 1,844,784 $ 1,856,197 =========== =========== Liabilities and Stockholders' Equity: Liabilities: Deposits: Noninterest-bearing $ 37,268 $ 35,634 Interest-bearing 1,154,651 1,164,011 ----------- ----------- Total deposits 1,191,919 1,199,645 FHLB advances 459,000 484,000 Senior notes 25,778 25,778 Capital securities 36,000 14,000 Accounts payable and other liabilities 12,623 12,325 ----------- ----------- Total liabilities 1,725,320 1,735,748 ----------- ----------- Stockholders' Equity: Common stock -- $0.01 par value; authorized 20,000,000 shares; issued and outstanding, 6,763,628 shares (2002) and 5,920,266 shares (2001) 68 59 Capital in excess of par value-- common stock 46,880 44,524 Retained earnings 93,621 82,435 ----------- ----------- 140,569 127,018 Accumulated other comprehensive income 11 -- Less: Treasury stock, at cost-- 1,060,802 shares (2002) and 560,719 shares (2001) (21,116) (6,569) ----------- ----------- Total stockholders' equity 119,464 120,449 ----------- ----------- Total liabilities and stockholders' equity $ 1,844,784 $ 1,856,197 =========== ===========

SUPPLEMENTAL INFORMATION - BANK CAPITAL JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- Core capital $ 167,964 $ 154,981 Ratio 9.12% 8.36% Tier 1 capital $ 167,964 $ 154,981 Ratio 13.31% 11.63% Risk-based capital $ 183,888 $ 169,278 Ratio 14.57% 12.70%

HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 6 OF 10

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Dollars in thousands) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2002 2001 -------- -------- -------- -------- Interest revenues: Loans $ 30,385 $ 35,838 $ 62,893 $ 72,754 Investment and other securities 69 -- 69 -- Fed funds and other 1,089 1,128 1,950 2,726 -------- -------- -------- -------- Total interest revenues 31,543 36,966 64,912 75,480 -------- -------- -------- -------- Interest costs: Deposits 8,493 16,146 18,027 33,447 FHLB advances 5,141 5,085 10,293 10,613 Senior notes 805 956 1,611 2,162 Capital securities 599 229 903 237 -------- -------- -------- -------- Total interest costs 15,038 22,416 30,834 46,459 -------- -------- -------- -------- Net interest income 16,505 14,550 34,078 29,021 Provision for credit losses 170 1,000 670 2,500 -------- -------- -------- -------- Net interest income after provision for credit losses 16,335 13,550 33,408 26,521 Noninterest revenues: Loan related and other fees 832 1,164 1,752 2,362 Deposit fees 363 308 736 641 -------- -------- -------- -------- Total noninterest revenues 1,195 1,472 2,488 3,003 Income from real estate operations, net -- 2 69 162 Noninterest expenses: General and administrative expenses: Employee 4,700 4,519 9,732 9,009 Operating 1,516 1,586 3,019 3,150 Occupancy 941 1,064 1,855 2,009 Professional 599 786 706 1,895 Technology 371 517 740 1,027 SAIF premiums and OTS assessments 132 238 268 481 Legal settlements/other -- -- 20 110 -------- -------- -------- -------- Total general and administrative expenses 8,259 8,710 16,340 17,681 -------- -------- -------- -------- Income before income taxes and extraordinary item 9,271 6,314 19,625 12,005 Income tax provision 3,987 2,685 8,439 5,128 -------- -------- -------- -------- Income before extraordinary item 5,284 3,629 11,186 6,877 Extraordinary item, related to early extinguishment of debt (net of taxes of $185) -- -- -- (255) -------- -------- -------- -------- Net income $ 5,284 $ 3,629 $ 11,186 $ 6,622 ======== ======== ======== ======== Basic earnings per share before extraordinary item $ 0.91 $ 0.69 $ 2.00 $ 1.32 ======== ======== ======== ======== Basic earnings per share after extraordinary item $ 0.91 $ 0.69 $ 2.00 $ 1.27 ======== ======== ======== ======== Diluted earnings per share before extraordinary item $ 0.69 $ 0.48 $ 1.46 $ 0.91 ======== ======== ======== ======== Diluted earnings per share after extraordinary item $ 0.69 $ 0.48 $ 1.46 $ 0.88 ======== ======== ======== ======== Weighted average basic shares outstanding 5,821 5,277 5,597 5,228 ======== ======== ======== ======== Weighted average diluted shares outstanding 7,665 7,512 7,646 7,555 ======== ======== ======== ========

HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 7 OF 10

SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED) (Dollars in thousands) JUNE 30, DECEMBER 31, JUNE 30, 2002 2001 2001 ---------- ------------ ---------- Risk elements: Nonaccrual loans $ 6,081 $ 20,666 $ 27,508 Real estate owned, net -- 1,312 336 ---------- ---------- ---------- 6,081 21,978 27,844 Performing loans classified substandard or lower(1) 38,984 37,341 28,128 ---------- ---------- ---------- Total classified assets $ 45,065 $ 59,319 $ 55,972 ========== ========== ========== Total classified loans $ 45,065 $ 58,007 $ 55,636 ========== ========== ========== Loans restructured and paying in accordance with modified terms(2) $ 2,317 $ 4,506 $ 12,710 ========== ========== ========== Gross loans before allowance for credit losses $1,620,857 $1,739,885 $1,710,602 ========== ========== ========== Loans receivable, net of specific allowance and deferred (fees) and costs $1,619,807 $1,736,310 $1,704,901 ========== ========== ========== Delinquent loans: 30 - 89 days $ 9,920 $ 2,742 $ 8,105 90 + days 1,931 4,982 5,309 ---------- ---------- ---------- Total delinquent loans $ 11,851 $ 7,724 $ 13,414 ========== ========== ========== Allowance for credit losses: General $ 27,607 $ 27,027 $ 24,151 Specific(3) 1,050 3,575 5,701 ---------- ---------- ---------- Total allowance for credit losses $ 28,657 $ 30,602 $ 29,852 ========== ========== ========== Net loan charge-offs: Net charge-offs for the quarter ended $ 189 $ 13 $ 1,881 Percent to loans receivable, net of specific allowance and deferred (fees) and costs (annualized) 0.05% 0.00% 0.44% Percent to beginning of period allowance for credit losses (annualized) 2.64% 0.17% 24.48% Selected asset quality ratios at period end: Total nonaccrual loans to total assets 0.33% 1.11% 1.52% Total allowance for credit losses to loans receivable, net of specific allowance and deferred (fees) and costs 1.77% 1.76% 1.75% Total general allowance for credit losses to loans receivable, net of specific allowance and deferred (fees) and costs 1.70% 1.56% 1.42% Total allowance for credit losses to nonaccrual loans 471.25% 148.08% 108.52% Total classified assets to Bank core capital and general 23.04% 32.59% 32.89% allowance for credit losses

- -------------- (1) Excludes nonaccrual loans. (2) Troubled debt restructured loans not classified and not on nonaccrual. (3) In December 2000, a $5.2 million specific allowance was identified for one nonaccrual commercial loan, whose major tenant filed for Chapter 11 bankruptcy protection. The required reserve was reclassified from general allowance to specific allowance. A 51% controlling interest in this tenant was acquired by a strong investor during 2001. During the third quarter of 2001, the tenant ratified a renegotiated lease, which enabled the Bank to revise its internal valuation and consequently, reduce the specific allowance for this loan to $3.0 million. This loan was discounted at payoff in March 2002, which resulted in a charge-off of $2.2 million. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 8 OF 10

THREE MONTHS ENDED JUNE 30, ----------------------------------------------------------------------------------- 2002 2001 ---------------------------------------- ---------------------------------------- WEIGHTED WEIGHTED AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE (DOLLARS IN THOUSANDS) BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST ---------- ---------- ---------- ---------- ---------- ---------- Assets: Interest-earning assets: Loans receivable (1) $1,654,830 $ 30,385 7.35% $1,664,754 $ 35,838 8.62% Cash and cash equivalents 169,220 707 1.68 77,356 858 4.45 Investment securities 8,722 69 3.17 -- -- Investment in capital stock of Federal Home Loan Bank 25,001 382 6.13 21,184 270 5.11 ---------- ---------- ---------- ---------- Total interest-earning assets 1,857,773 31,543 6.80 1,763,294 36,966 8.40 ---------- ---- ---------- ----- Noninterest-earning assets 2,479 1,944 ---------- ---------- Total assets $1,860,252 $1,765,238 ========== ========== Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits $1,151,892 $ 8,493 2.96% $1,178,962 $ 16,146 5.49% FHLB advances 468,615 5,141 4.34 384,000 5,085 5.24 Senior notes 25,778 805 12.50 30,628 956 12.50 Capital securities 33,824 599 7.08 9,000 229 10.18 ---------- ---------- ---------- ---------- Total interest-bearing liabilities 1,680,109 15,038 3.57 1,602,590 22,416 5.59 ---------- ----- ---------- ----- Noninterest-bearing checking 37,130 33,269 Noninterest-bearing liabilities 18,891 20,260 Stockholders' equity 124,122 109,119 ---------- ---------- Total liabilities and stockholders' equity $1,860,252 $1,765,238 ========== ========== Net interest income $ 16,505 $ 14,550 ========== ========== Interest rate spread 3.23% 2.81% ===== ===== Net interest margin 3.56% 3.30% ===== =====

- -------------- (1) Includes the interest on nonaccrual loans only to the extent that it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 9 OF 10

SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------------------- 2002 2001 ---------------------------------------- ------------------------------------- WEIGHTED WEIGHTED AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE (DOLLARS IN THOUSANDS) BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST ---------- ---------- ---------- ---------- --------- ---------- Assets: Interest-earning assets: Loans receivable (1) $1,686,078 $ 62,893 7.48% $1,658,493 $72,754 8.81% Cash and cash equivalents 144,078 1,194 1.67 84,308 2,117 5.06 Investment securities 4,385 69 3.17 -- -- Investment in capital stock of Federal Home Loan Bank 24,805 756 6.15 21,032 609 5.84 ---------- ---------- ---------- ------- Total interest-earning assets 1,859,346 64,912 7.00 1,763,833 75,480 8.59 ---------- ----- ------- ----- Noninterest-earning assets 1,751 1,700 ---------- ---------- Total assets $1,861,097 $1,765,533 ========== ========== Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits $1,156,907 $ 18,027 3.14% $1,182,799 $33,447 5.70% FHLB advances 476,265 10,293 4.30 384,000 10,613 5.50 Senior notes 25,778 1,611 12.50 34,556 2,162 12.51 Capital securities 23,967 903 7.54 4,724 237 10.03 ---------- ---------- ---------- ------- Total interest-bearing liabilities 1,682,917 30,834 3.67 1,606,079 46,459 5.81 ---------- ----- ------- ----- Noninterest-bearing checking 36,546 32,495 Noninterest-bearing liabilities 19,177 19,825 Stockholders' equity 122,457 107,134 ---------- ---------- Total liabilities and stockholders' equity $1,861,097 $1,765,533 ========== ========== Net interest income $ 34,078 $29,021 ========== ======= Interest rate spread 3.33% 2.78% ===== ===== Net interest margin 3.68% 3.30% ===== =====

- -------------- (1) Includes the interest on nonaccrual loans only to the extent that it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION SECOND QUARTER 2002 RESULTS JULY 22, 2002 PAGE 10 OF 10 HAWTHORNE FINANCIAL CORPORATION (UNAUDITED) (Dollars in thousands)

NET LOAN PORTFOLIO COMPOSITION JUNE 30, 2002 DECEMBER 31, 2001 ----------------------- ----------------------- BALANCE PERCENT BALANCE PERCENT ---------- ------- ---------- ------- Single family residential $ 887,770 55.05% $ 913,255 52.68% Income property: Multi-family 284,315 17.63% 254,530 14.68% Commercial 208,965 12.96% 235,156 13.57% Development: Multi-family 77,199 4.79% 102,682 5.92% Commercial 38,514 2.39% 68,431 3.95% Single family construction: Single family residential 78,249 4.85% 104,158 6.01% Land 33,282 2.06% 48,719 2.81% Other 4,359 0.27% 6,617 0.38% ---------- ------ ---------- ------ Total loan principal(1) $1,612,653 100.00% $1,733,548 100.00% ========== ====== ========== ======

- -------------- (1) Excludes net deferred fees and costs.

SELECTED FINANCIAL DATA THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2002 2001 2002 2001 ----- ----- ----- ----- PERFORMANCE RATIOS Return on average assets(1) 1.14% 0.82% 1.20% 0.75% Return on average equity(1) 17.03% 13.30% 18.27% 12.36% Efficiency ratio(2) 46.66% 54.36% 44.63% 54.87% GROWTH RATIOS(1) Total assets -1.23% 6.17% Loans receivable, net -13.70% 9.04% Total deposits -1.29% 7.08%

JUNE 30, ------------------- 2002 2001 ----- ----- Bank Capital Ratios Core capital 9.12% 8.09% Tier 1 capital 13.31% 11.35% Risk-based capital 14.57% 12.41% BOOK VALUE PER SHARE AS OF JUNE 30, 2002 Basic $20.95 Diluted $16.26

- -------------------- (1) Annualized. (2) Represents total general and administrative expenses (excluding legal settlements/other) divided by net interest income before provision for credit losses and noninterest revenues. JUNE 30, EX-99.2 4 a83099exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 HAWTHORNE SAVINGS, F.S.B. SECOND QUARTER CONFERENCE CALL JULY 22, 2002 Good morning to those of you joining us here on the West Coast and good afternoon to those on the East Coast. You've joined the conference call for Hawthorne Financial Corporation. Hawthorne is traded on NASDAQ under the ticker symbol HTHR. My name is Simone Lagomarsino and I am the President and Chief Executive Officer of Hawthorne Financial Corporation and Hawthorne Savings Bank. With me is Karen Abajian, our Chief Financial Officer. During this call we will provide you with a brief overview of the Company, discuss our second quarter and year to date earnings, provide a strategic overview of Hawthorne and our acquisition of First Fidelity Bancorp, Inc., which is scheduled to close later this quarter, give a snapshot of our quarter end balance sheet and end with a brief discussion of the California economy. For your information, First Fidelity also issued an earnings release on July 19th, that can be found on their website, www.1stFidelity.com. (And that is www.1stfidelity.com) I'll preface our discussion with the following disclaimer: During this call we may make forward looking statements as referenced in the Private Securities Litigation Reform Act of 1995. Forward looking statements are inherently unreliable and actual results may vary. Factors which could cause actual results to vary from these forward looking statements include changes in the competitive marketplace, changes in the interest rate environment, economic conditions, outcome of pending or threatened litigation, risks associated with credit quality, risks associated with completing the merger of Hawthorne and First Fidelity and successfully combining the companies' operations, and other factors discussed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise 1 any forward looking statements whether as a result of new information, future events or otherwise. Now that we have fulfilled that obligation, I will provide you with a brief overview of the Company. We are headquartered in the South Bay coastal region of Los Angeles County with a strategic focus on all coastal counties of Southern California. Hawthorne currently has nine retail branches, seven of which are in the South Bay. Two branches are in the San Fernando Valley, and one of those is in Ventura County. With the addition of the four First Fidelity branches, we will have a two-branch presence in both Orange and San Diego Counties. Leveraging off of the strong demographics in these coastal counties we will geographically expand Hawthorne's reputation for providing extreme customer service. Hawthorne is a real estate lender with three distinct product lines including single family residential, single family construction and income property lending. Our income property portfolio is primarily comprised of multi-family loans, both construction and permanent, as well as construction and permanent loans for retail, industrial, office, and other income producing real estate. First Fidelity is also a real estate secured lender with a very efficient asset generating function in the income property permanent lending arena. Currently, approximately 92% of Hawthorne's loans are variable rate. At the close of the First Fidelity transaction, approximately 90% of the loan portfolio will be variable rate. The ongoing low interest rate environment continues to fuel consumer demand for fixed rate loan refinancing, creating significant loan origination and retention challenges for variable rate lenders like Hawthorne. Hawthorne has endeavored to meet the challenge, generating $334.3 million in new loans in the first half of 2002, right in line with the $347.2 million originated in the first six months of last year. Over 67% of our loan originations in the single- 2 family residential portfolio were in connection with home purchases, not refinancings, which reflects our strong reputation for providing extreme service in what is currently a refinance market. Our ability to continue our origination performance in this fixed rate environment will be fortified by the strong asset generating capabilities of First Fidelity. They originated $96.7 million of new loans during the first half of 2002, a 74% increase over the $55.6 million originated in the comparable period in 2001. And their net loans have increased $28 million, to $526 million at June 30, 2002 compared to December 31, 2001. Additionally, we have fortified our asset generation capability by hiring four new loan officers in the last four months. They have built momentum, which is evidenced by the fact that June loan production was at the highest level in the last twelve months. Once the merger is complete, we expect that the combined asset generating strength of Hawthorne and First Fidelity will demonstrate our potential for growing earning assets. Our earnings performance for the second quarter of 2002 and year to date was very strong. During the second quarter of 2002, Hawthorne earned $5.3 million, or 69 cents per share. This resulted in year to date earnings for 2002 of $11.2 million or $1.46 per share, a 69% increase in net earnings over the six months ended June 30, 2001. The earnings resulted in an annualized return on assets of 1.20% and an annualized return on equity of 18.27% for the six months ended June 30, 2002. First Fidelity Investment & Loan generated core earnings of $5.3 million for the first six months of 2002 excluding the impact of a pretax loss of $3.3 million realized from the sale of corporate securities in the first quarter. In our previous guidance, we anticipated that our net interest margin would trend down in the second quarter and the first half of 2002 would be relatively in line with the fourth quarter of 3 2001. In line with this guidance, the net interest margin was 3.68% for the first half of 2002 consistent with the 3.66% in the fourth quarter of 2001. The net interest margin for the three months ended June 30, 2002, was 3.56%, compared with 3.80% in the first quarter of 2002, and 3.66% during the fourth quarter of 2001 and 3.30% in the second quarter of 2001. Several factors affected the Company's net interest margin in the second quarter of 2002. During the quarter, interest of $600 thousand was collected on loans that were brought current, producing a positive, but nonrecurring impact on the net interest margin. Normalizing for this collected interest, the second quarter net interest margin would have been 13 basis points lower. On a year to date basis, the net interest margin was positively impacted by $1.0 million of interest collected on loans that were brought current, producing a positive but nonrecurring impact of 11 basis points. Although actual prepayments slowed during April 2002, that did not hold true for May and June. During the second quarter as a whole, loan prepayments were $160.2 million, with a weighted average interest rate of 7.50%. Loan originations for the second quarter totaled $158.7 million at an average yield of 6.20%. On a year to date basis, loan prepayments were $328 million, with a weighted average interest rate of 7.77%, whereas loan originations were $334 million at an average yield of 6.47%. The impact of elevated loan prepayment speeds may be partially mitigated by the reduced amount of higher yielding loans in the portfolio. In other words, since the average yields in our portfolio have decreased, we expect that fewer customers will refinance. As of June 30, 2002, $83 million of the outstanding gross single family residential and income property permanent 4 loans had a yield of 9.0% or higher, a decrease of $154 million, or 65%, from a year ago. As a result, we would expect loan prepayment speeds to slow. On a year over year basis, the Company's net interest margin was impacted by a 475 basis point drop in interest rates during 2001. The average yield on earning assets decreased 41 basis points to 6.80% in the second quarter of 2002 compared to 7.21% in the first quarter of 2002 and decreased 160 basis points to 7.00% in the first six months of 2002 compared to 8.60% in first six months of 2001. Although the declining rate environment has resulted in increased prepayment speeds, as discussed, the negative impact on the net interest margin was partially mitigated by interest rate floors in the loan portfolio. As of June 30, 2002, 60% of the loans in the portfolio had reached their contractual floor rates and were not subject to further interest rate declines. We are pleased to report further improvement in reducing our cost of funds. The average cost of funds decreased 21 basis points to 3.57% in the second quarter of 2002 compared to 3.78% in the first quarter of 2002. Year over year, the average cost of funds decreased 214 basis points to 3.67% in the first six months of 2002 compared to 5.81% in the first six months of 2001. We will continue to reprice liabilities to current market rates. For instance at June 30, 2002, the weighted average interest rate on savings accounts was 1.03%, and the weighted average interest rate on our checking accounts was 1.13% with a total weighted average interest rate on our deposits of 2.8%. If the interest rate environment remains stable for the balance of 2002, we anticipate continued compression of the net interest margin of 10 to 20 basis points on a post merger basis, compared to the net interest margin of 3.68% earned in the first half of 2002. This 5 compression would be more significant absent the merger. The lower net interest margin is the reflection of the projected lower yields on forecasted new loan production, runoff of existing loans and repricing of existing assets, including those tied to the MTA index. Currently, 37% of the Bank's total loan portfolio is indexed off of the MTA, which is the 12-month maturing treasury. The MTA was 2.67% at July 1, 2002, compared to 3.06% at April 1, 2002. Our current forecast projects that the MTA, based on historical CMT rates, will continue to trend down over the balance of 2002. There are numerous strategic initiatives currently underway at Hawthorne. Our primary focus continues to be asset generation, to provide continued earnings strength. Along with overall balance sheet growth, we continue to focus on balance sheet risk, which, as you know, has undergone dramatic improvement in past quarters. Nonaccrual loans were $6 million at June 30, 2002, a slight decrease from $6.3 million at March 31, 2002, and $14.6 million lower than December 31, 2001. Our ratio of nonaccrual loans to total assets is 33 basis points, our lowest level in over 15 years and well in line with our peer group in this category. First Fidelity's nonaccrual loans to total assets ratio has consistently been at, or below, 17 basis points over the past five years. Based on First Fidelity's June 30, 2002 nonaccrual loan total of $600 thousand and our quarter end totals, on a combined basis, our ratio of nonaccrual loans to total assets would improve to 27 basis points, 20 basis points below our peer group average. Classified assets totaled $45.1 million at June 30, 2002, down $7.8 million from first quarter end and down $14.3 million from one year ago. Consistent with First Fidelity's low nonaccrual totals, their classified assets totaled $4.3 million at June 30, 2002. Delinquent loans totaled $11.9 million at June 30, 2002, a decrease of $7.5 million from $19.4 million at March 31, 2002, and up from the $7.7 million at the end of last year. Subsequent to June 30th, a $3.5 million delinquent loan was paid in 6 full. First Fidelity's delinquent loans totaled $3.6 million at June 30, 2002. Both Hawthorne and First Fidelity currently have no real estate owned properties. Hawthorne's total reserve to loans receivable was 1.77% at June 30th, an increase from 1.69% at first quarter end and in line with 1.76% at year end 2001. The first quarter was impacted by the $2.2 million charge-off resulting from a discounted payoff of the $11.5 million income property construction loan that had been on nonaccrual status since the fourth quarter of 2000. A specific valuation allowance had been established for this loan in 2000. On a year to date basis, our net charge-offs have been $2.6 million. First Fidelity's total reserve to loans receivable was 1.15% at June 30th. Based on quarter end totals, and before any adjusting entries, our combined ratio would be 1.62%. Our improved asset quality and strong reserve level has resulted in Hawthorne making a lower loan loss provision during the first half of 2002. The provision for loan losses in the quarter was $200 thousand, resulting in a year to date provision of $700 thousand. First Fidelity's provisions were $200 thousand and $300 thousand in the second quarter and year to date respectively. As our loan portfolios and asset generating capabilities are combined, and assuming that asset quality remains at current levels, we would expect provision levels to be driven primarily by loan growth. A significant strategic benefit from the acquisition of First Fidelity arises from Hawthorne's proven success in shifting our deposit mix from rate driven certificates of deposits to core, transaction accounts. At June 30, 2002, Hawthorne's transaction accounts represent 44.5% of our total deposits compared with 31% at year end 2001 and 26% at June 30, 2001. Our concerted effort to enhance franchise value is certainly reflected in the improved deposit mix. But it is only fair to say that the current levels are likely inflated due to customers taking 7 advantage of the unusually small differential between money market rates and time account rates to keep their funds liquid until rates begin to rise. Nevertheless, we are looking forward, post merger, to the opportunity to apply our expertise in retail deposit repositioning, to align First Fidelity's transaction account levels with ours. First Fidelity had just under 20% in transaction accounts at June 30, 2002. On a combined basis at June 30, 2002, transaction accounts represent 37.6% of total deposits. Our ongoing strategic initiative to improve our efficiency ratio will be bolstered by the efficient and consistent performance of First Fidelity. Our efficiency ratio was 46.7% in the second quarter of 2002 and 44.6% on a year to date basis. Excluding the $0.7 million insurance reimbursement for legal fees related to litigation, collected in the first quarter, the year to date efficiency ratio was 46.6%. First Fidelity Bancorp, Inc., the holding company of First Fidelity, also owned PSP Financial Services, Inc., a mortgage banking business, that is in the final stages of liquidation. Due to the historical impact of this discontinued mortgage banking operation, it is appropriate to analyze the bank only financial performance. At the bank only level, First Fidelity's efficiency ratio was 33.0% in the second quarter of 2002 and 33.6% on a year to date basis, excluding the impact of the first quarter loss realized from the sale of corporate securities. Over the past three years, their efficiency ratio has not exceeded 36%. On a post merger basis, excluding the projected one-time acquisition charges of approximately $300 thousand, the proforma combined efficiency ratio goal for the second half of 2002 will range from 45 to 50 percent. Improving our efficiency ratio is directly correlated with maintaining and improving our earnings growth, as well as controlling general and administrative expenses. Over the past three years, we have been able to maintain consistent headcount levels by leveraging off of our 8 technology base. General and administrative expenses were $8.3 million for the second quarter of 2002, an increase of $0.2 million compared to the first quarter. However, excluding the $700 thousand insurance reimbursement I mentioned earlier, the second quarter G&A expense decreased $500 thousand from the first quarter. Compared to the second quarter of 2001, G&A expenses decreased $400 thousand. Year to date, G&A expenses totaled $16.3 million, reflecting a 7.58% decrease in G&A, or a 3.63% decrease excluding the insurance reimbursement, versus the same period last year. We are pleased that we have maintained a consistent expense run rate for the past three years while continuing to grow earning assets. As a result, from an expense leveraging standpoint, G&A annualized as a percentage of average assets, adjusted for the insurance premium has improved to 1.83% for the six months ended June 30, 2002, compared to 2.00% for the comparable period in 2001. This ratio compares favorably with our peer group of publicly traded western thrifts with assets between $1.0 and $5.0 billion. The most recently available data from the first quarter of this year shows an average peer group ratio of 2.12%. Excluding projected one-time charges from our acquisition of First Fidelity, we anticipate the G&A to average assets ratio to range between 1.65 to 1.80% in the second half of 2002 on a post merger basis. As announced on June 21, 2002, the Company repurchased 500,000 shares of common stock for $29.09 per share from members of the Bass Family. We believe the deployment of capital this transaction represents is in the best interest of our shareholders and consistent with our ongoing strategic initiatives. Assuming the repurchase transaction was executed on the first day of the second quarter of 2002, diluted earnings per share for the second quarter would have been positively impacted by $0.03. Due to the additional shares that are expected to be issued, 9 for the pending acquisition, the impact of this repurchase on earnings per share in the future, although still accretive, will not be as significant. Moving now to a quick snapshot of our balance sheet: Our total assets were $1.84 billion at June 30, 2002, a slight decrease from December 31, 2001. Loans receivable decreased to $1.59 billion from $1.66 billion at March 31, 2002. This decrease is a direct result of the increased prepayment levels previously discussed. Although the resulting excess liquidity was invested in overnight Fed Funds and mutual funds at quarter end, we have implemented an investment portfolio strategy with $35.0 million in outstanding commitments at June 30, 2002, for purchases of U.S. Agency mortgage backed securities with an estimated average life of 2 to 4 years. At June 30, 2002, with our initial commitments, the investment portfolio on a combined basis was $164 million, or 6.6% of total assets. Assuming prepayment speeds remain stable for the balance of 2002, this portfolio will yield approximately 4.70%, or approximately 300 basis points more than the assets would have otherwise earned in fed-funds. Total deposits were $1.19 billion at June 30, 2002, a 1.29% decrease from year end 2001. The deposit mix, however, continues to improve, with 44.5% of deposits in transaction accounts at quarter end compared to 31.2% at December 31, 2001. Not only has the deposit composition improved, our cross-sell ratio, defined as the number of different product types of loan and deposit products per household served, increased to 2.69 per household at quarter's end, from 2.37 products per household at year end 2001. In July 2002, we rolled out our alternative investment product program in our branches. We are now offering mutual funds and will soon add annuities and other insurance products to our array of products offered. Initial activity over the first three weeks has been very encouraging with 9 accounts opened and $800 thousand in sales. We expect a positive impact on our cross-sell ratio. 10 In anticipation of funding the cash portion of the acquisition of First Fidelity, in April 2002 the Company participated in a pooled private offering of trust preferred securities, raising $22.0 million. This transaction brought the outstanding capital securities total to $36.0 million at June 30, 2002. From a regulatory capital perspective, Hawthorne Savings was well capitalized at June 30, 2002, and will remain well capitalized after the acquisition. The Bank's core capital ratio was 9.12% and the risk-based capital ratio was 14.57% at June 30th. If the acquisition was completed as of June 30th, the capital ratios would have been 7.59% and 11.85%, respectively. The regulatory minimums are 5% and 10%, respectively. As I said at the beginning of the call, we are anticipating that our acquisition of First Fidelity will close later this quarter, tomorrow we will have our annual shareholders meeting, during which we will vote on the issuance of the shares for the transaction. Wednesday, First Fidelity will hold its annual shareholders meeting, during which the shareholders will vote on the transaction. The final step will be to obtain the approval from the OTS. Our application has been deemed complete and we expect to obtain approval within the next three weeks. Now I'd like to brief you now on how the process of integrating the two companies is going. Starting with the announcement of the acquisition in mid-March, we conducted bi-weekly meetings with the sixteen of the senior executives of both firms. These meetings were designed to resolve practical issues such as retention, employee benefits, and job allocation. The overarching objective was to carefully analyze the cultures of both companies, including strengths and areas of opportunity and to emerge from the meetings identifying the best of the respective cultural attributes as they apply to procedures, organizational structure and systems. 11 By the first of July we had completed that process and for the past three weeks we have been focused on the tactical, operational aspects of the acquisition. From the beginning, we have insisted that conservation of the goodwill of First Fidelity's customers, on both the asset and liability sides of the business, was paramount. That means that the transition of First Fidelity into Hawthorne must cause the very least possible intrusion for First Fidelity's customers and its staff. We have spent a great deal of time assuring ourselves that this will be the case, and believe our plan to gradually assimilate Fidelity's processes and procedures into Hawthorne's will succeed. We feel that our concept of extreme service will be welcomed in First Fidelity's outstanding branch culture. I hope you can see that we are keenly aware of how important this, our first acquisition, is from every standpoint. We hired an outside consulting firm to perform a readiness review of the integration plan. Additionally, we have developed templates for the process and will continue to enhance the plan and process as we proceed. We feel that this extra step adds additional assurance and will be beneficial for us in the future as well. Before I comment on the economy, I want first to reflect with sadness and concern about what is currently going on in corporate America, specifically with regard to accounting practices and corporate governance. I want to personally comment that I am proud of the integrity of Hawthorne's financial reporting, and more importantly, on behalf of our Board of Directors, management and employees, I want to assure our existing shareholders and customers that a culture of high ethical standards is deeply ingrained throughout all levels at Hawthorne, and we are committed to ensuring that trust, integrity and honesty are never compromised at Hawthorne. A few comments now about the California economy: 12 The statistics on our statewide economy point to an economy that is still trying to recover. This lag in recovery, due to the states higher dependence on the technology sector, is depicted in the June unemployment rate of 6.4%, compared to 5.2% in June 2001. The Southern California region posted an unemployment rate of 6.1% in June, up slightly from a year earlier. However the trend in job losses over the past few months has started to moderate in almost all sectors. From the local coastal counties where we have our strongest presence, the impact from the recession has not been as significant. Los Angeles County unemployment rate was 6.7% for the first quarter of 2002, with softness in the aerospace manufacturing, trade and tourism. However, the economy is forecasted to improve later this year. The housing market remained stable as the median sales price jumped 15% and existing home sales increased 20%, year over year. Orange County's economy showed little effect from the recent recession. Tourism started to rebound, creating more jobs in the service sector. In fact, a number of high-tech firms experienced an increase in orders in the first quarter of 2002. These factors contributed to a steady unemployment rate of 4.0%. The housing market remained strong as the median sales price jumped 11% and existing home sales and single-family permits recorded annual gains of over 20%. San Diego County's economy actually grew in the first quarter of 2002 with a 2.2% increase in annual employment. This gain was in construction, government and services. Strong in-migration trends continue to contribute to San Diego having one of the strongest housing markets in the nation. Substantial gains were recorded in the median sales price, existing home sales and single-family permits, while still having a low inventory of homes. 13 Vacancy rates in the office and industrial markets showed an increasing trend in the first quarter of 2002 versus year-end 2001, with Los Angeles County's office market vacancy rate increasing to 15.9% from 15.0%, and the industrial vacancy rate increasing to 4.6% from 4.5%. Orange County had a more significant increase with office vacancy rates up 25% to 16.8% and the industrial vacancy rate increasing to 9.7% from 8.6%. San Diego County's office vacancy rate was 9.6%, up from 8.2%, and the industrial vacancy rate was 6.9% compared to 6.1%. At June 30, 2002, the Bank's total loan commitments had limited exposure to these two sectors with the portfolio composition of 5.7% office and 2.4% industrial. Apartment vacancy rates also showed a slightly deteriorating trend in the first quarter of 2002 versus year-end 2001, but not as significant as the office and industrial markets. The national housing sector continues to show strength with strong price appreciation and strong sales of existing homes so far in 2002. In fact, during the week of July 10, applications for mortgages to purchase homes rose 8%, moving the Mortgage Bankers Association of America's purchase index to the second highest level since the survey was initiated in 1990. California, just like the nation, also continues to experience price appreciation and strong home sales. The statewide average price of an existing home sold increased 12.9% from year end 2001 to April 2002, or a 44% increase on an annualized basis. UCLA Anderson Forecast reported in June of this year that Los Angeles county home values will increase steadily through the end of 2004. With Southern California displaying even stronger real estate data than the state as a whole, our lending and deposit strategies continue to be supported in the coastal counties we serve. On behalf of the employees, management and the board of directors of Hawthorne Financial Corporation, and our colleagues at First Fidelity, I want to thank our shareholders for your continued support. And now we'll be happy to respond to your questions. Our first question comes from Mike McMann. MIKE MCMANN, SANDLER O'NEILL: Good morning, Simone. LAGOMARSINO: Hi, Mike. MCMANN: That was a wealth of information you provided. It was hard to keep up. If - would it be fair to assume that you anticipate closing the transaction with First Fidelity as soon as possible after the regulatory approval date so that we should probably factor in perhaps in a month of earnings in the third quarter? LAGOMARSINO: The - as I mentioned, we have a three week period that during which we're expecting to get regulatory approval. There is a 15-day period after we've obtained regulatory approval that we have to wait before we can close the transaction. So, I guess, in answer, yes, approximately a month of combined earnings would most likely be the most realistic at this point for the third quarter. MCMANN: Great. Thank you, Simone. LAGOMARSINO: Thank you. OPERATOR: Once again, if you do have a question, please press the number one. One moment for questions. We have a follow-up question from Mike McMann. MCMANN: Well, interesting request I have here. You - I believe you read all of that information that I'm sure was carefully reviewed by your counsel. Is there any chance that we could obtain a copy of that since you already have publicly disclosed it verbally at least? LAGOMARSINO: We can file it in the form of a SEC document 8-K, and then it will be available. MCMANN: OK. LAGOMARSINO: So, yes, we will do that. MCMANN: I was just trying to save listening to the recording and then stopping and writing everything down, et cetera. That's fine. Thank you. LAGOMARSINO: Thank you. OPERATOR: I am showing no further questions at this time. LAGOMARSINO: OK. Again, on behalf of the management, employees and board of directors of Hawthorn, we'd like to thank all of you for your participation in this call. OPERATOR: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time, and have a good day. END 14 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    EXHIBIT 99.1

                                [HAWTHORNE LOGO]

                         HAWTHORNE FINANCIAL CORPORATION
                                  PRESS RELEASE

JULY 22, 2002

IMMEDIATE RELEASE

Contact: Ms. Simone Lagomarsino, President and Chief Executive Officer
         (310) 725-5631
         Ms. Karen Abajian, Chief Financial Officer (310) 725-1890

HAWTHORNE FINANCIAL ANNOUNCES SECOND QUARTER 2002 RESULTS

(El Segundo, CA) Hawthorne Financial Corporation (NASDAQ:HTHR), parent company
of Hawthorne Savings, F.S.B., today announced second quarter earnings for 2002
of $5.3 million, or $0.69 per diluted share, compared with earnings of $3.6
million, or $0.48 per diluted share after extraordinary item, for the second
quarter of 2001. Net earnings year-to-date for 2002 were $11.2 million, or $1.46
per diluted share, compared with net earnings of $6.6 million, or $0.88 per
diluted share, for the six months ended June 30, 2001.

Net income for the three and six months ended June 30, 2002, resulted in an
annualized return on average assets ("ROA") of 1.14% and 1.20%, respectively,
and an annualized return on average equity ("ROE") of 17.03% and 18.27%,
respectively, compared with an annualized ROA of 0.82% and 0.75%, respectively,
and an annualized ROE of 13.30% and 12.36%, respectively, for the three and six
months ended June 30, 2001. Income before income taxes and extraordinary item
increased 46.83% and 63.47%, respectively, for the three and six months ended
June 30, 2002, to $9.3 million from $6.3 million and to $19.6 million from $12.0
million, during the same periods in 2001.

The Company's net interest income before provision for credit losses increased
13.44% to $16.5 million and 17.43% to $34.1 million, during the three and six
months ended June 30, 2002, compared with $14.6 million and $29.0 million for
the three and six months ended June 30, 2001. The Company's resulting net
interest margin for the three and six months ended June 30, 2002, was 3.56% and
3.68%, compared with 3.30% for both the three and six months ended June 30,
2001. The Company's yield on average earning assets was 6.80% and 7.00% for the
three and six months ended June 30, 2002, compared with 8.40% and 8.59% during
the same periods in 2001. During the three and six months ended June 30, 2002,
interest of $0.6 million and $1.0 million, respectively, was collected on loans
that were brought current, producing a positive but nonrecurring impact on the
Company's net interest margin of 13 basis points and 11 basis points,
respectively. The Bank experienced strong loan originations during the first six
months of 2002, recording new commitments of $334.3 million, consistent with the
same period in 2001. Although loan production was strong, the Bank experienced
accelerated prepayments of higher yielding assets during the first six months of
2002, which totaled $327.7 million, with a weighted average rate of 7.77%. The
new loans originated were recorded at an average yield of 6.47%. The average
cost of funds for the Company decreased to 3.57% and 3.67% during the three and
six months ended June 30, 2002, compared with 5.59% and 5.81% during the same
periods in 2001.

"We are extremely pleased with our loan origination levels for the first half of
the year," said Simone Lagomarsino, president and chief executive officer of
Hawthorne Financial Corporation. "In a lending environment dominated by mortgage
refinancing, we capitalized on our superior customer service and originated
$177.5 million in single family residential loans, of which 67% were for home
purchase transactions." "Growing our loan portfolio by originating quality
loans, continues, as always, to be a key focus. We believe our acquisition of
First Fidelity will assist us in this process, as First Fidelity's results show
that they have a proven asset generating capability. First Fidelity's net loans
have grown 11.3%, on an annualized basis, this year, and have averaged a growth
rate of approximately 12.3% over the past three years," Ms. Lagomarsino added.

 "I am pleased not only with the strength of our financial performance, but more
importantly with the integrity of our results," said Ms. Lagomarsino. "A culture
of high ethical standards is deeply ingrained throughout the



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 2 OF 10

Company beginning with our Board of Directors, six out of seven of whom are
outside directors. Our management team and Board of Directors enthusiastically
support the call for higher standards of corporate governance, and we are
committed to ensuring that trust, integrity and honesty are never compromised at
Hawthorne."

Provisions for credit losses totaled $0.2 million and $0.7 million for the three
and six months ended June 30, 2002, compared with $1.0 million and $2.5 million
for the three and six months ended June 30, 2001. The decrease in the provision
for credit losses was due to the overall improvement in asset quality. At June
30, 2002, the ratio of total allowance for credit losses to loans receivable,
net of specific allowance and deferred fees and costs was 1.77%, compared with
1.76% at December 31, 2001 and 1.75% at June 30, 2001.

Nonaccrual loans totaled $6.1 million at June 30, 2002 (or 0.33% of total
assets), compared with nonaccrual loans of $20.7 million (or 1.11% of total
assets) at December 31, 2001 and $27.5 million (or 1.52% of total assets) at
June 30, 2001. Total classified loans were $45.1 million at June 30, 2002,
compared with $58.0 million at December 31, 2001. Delinquent loans totaled $11.9
million at June 30, 2002, compared with $7.7 million at December 31, 2001. The
Company held no other real estate owned properties at June 30, 2002, compared
with $1.3 million at December 31, 2001.

Underwriting standards for construction loans were further tightened during the
first six months of 2002. As a result, construction loans decreased to 12.0% of
the total loan portfolio from 15.9% at December 31, 2001. The Bank remains
committed to the seasoned builders with whom it has established relationships,
but believes it is prudent to reduce construction exposure until the national
economy is on a stronger footing. The California housing market continues to
show surprising strength with pockets of softness only in higher-end homes.

Noninterest revenues were $1.2 million and $2.5 million for the three and six
months ended June 30, 2002, compared with noninterest revenues of $1.5 million
and $3.0 million earned during the same periods in 2001. For 2002, loan related
fees decreased due to the lower risk nature of the loans underwritten and the
competitive lending environment during the last three years.

The Company remains focused on becoming more efficient. Over the past three
years, the Company has maintained a consistent expense run rate while continuing
to grow earning assets. This performance is depicted in the ratio of general and
administrative expenses as a percentage of average assets. On an annualized
basis, this ratio has improved to 1.76% for the six months ended June 30, 2002,
compared with 2.00% and 2.08% for the comparable periods in 2001 and 2000,
respectively. Total general and administrative expenses ("G&A") were $8.3
million and $16.3 million for the three and six months ended June 30, 2002,
compared with $8.7 million and $17.7 million of G&A incurred during the same
periods in 2001. The decrease in G&A for the six months ended June 30, 2002 was
primarily due to a decrease of $1.2 million in professional fees, as a result of
first quarter 2002 insurance company reimbursements totaling $0.7 million for
legal fees related to litigation and fewer outstanding legal issues. The
efficiency ratios were 46.66% and 44.63% for the three and six months ended June
30, 2002 compared with 54.36% and 54.87% for the three and six months ended June
30, 2001. Excluding the $0.7 million insurance reimbursement for legal fees
related to litigation, the efficiency ratio for the six months ended June 30,
2002 was 46.58%

Total assets were $1.84 billion at June 30, 2002, down slightly from total
assets of $1.86 billion at December 31, 2001. Net loans receivable at June 30,
2002, totaled $1.59 billion, reflecting an annualized decrease of 13.70%
compared with net loans receivable of $1.71 billion at December 31, 2001. As
previously mentioned, the Bank continued to experience an increase in loan
prepayments during the first six months of 2002 as borrowers refinanced out of
their variable rate loans into fixed rate loans. For the three and six months
ended June 30, 2002, average earning assets were $1.86 billion for both periods,
an increase of 5.36% and 5.42%, over average earning assets of $1.76 billion for
both the three and six month periods ended June 30, 2001. Ms Lagomarsino said,
"We have taken steps in recent months to invest excess liquidity on our balance
sheet into an investment portfolio of U.S. Government Agency mortgage backed
securities with an average life of 2 to 4 years. We anticipate that the yield on
this portfolio will be approximately 300 basis points higher than the current
yield earned on these assets, which will provide support to the net interest
margin during the last half of the year."




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 3 OF 10

Total deposits of $1.19 billion at June 30, 2002, remained consistent with the
$1.20 billion at December 31, 2001. Certificates of deposit decreased $163.9
million, while transaction accounts increased $156.2 million, or 83.43%
annualized, to $530.7 million at June 30, 2002, from $374.5 million at December
31, 2001. As a percentage of total deposits, transaction accounts have increased
to 44.52% at June 30, 2002, compared with 31.21% of total deposits at December
31, 2001. Certificates of deposit totaled $661.3 million, or 55.48% of total
deposits at June 30, 2002, compared with 68.79% of total deposits, or $825.2
million, at December 31, 2001. The change in the deposit mix had a positive
impact on the Company's total interest costs during 2002.

Once again, Hawthorne's outstanding customer service was recognized by the
community earlier this year when voted "The Best Bank in the South Bay" by the
readers of a local South Bay newspaper, the Easy Reader. Our "extreme service"
continues to translate into an improved cross-sell ratio, defined as the number
of different types of loan and/or deposit products and services per household
serviced, which increased to 2.69 per household at June 30, 2002, from 2.37 at
December 31, 2001.

Consistent with our ongoing commitment to improve shareholder value, on June 21,
2002, the Company repurchased 500,000 shares of stock from members of the Bass
Family, for an aggregate purchase price of $14.5 million. Prior to the
repurchase, members of the Bass Family exercised warrants to purchase an
aggregate of 314,978 shares of common stock. Assuming the repurchase transaction
was executed on the first day of the second quarter of 2002, diluted earnings
per share for the second quarter would have been positively impacted by $0.03.
Due to the additional shares that are expected to be issued, for the pending
acquisition, the impact of this repurchase on earnings per share in the future,
although still accretive, will not be as significant.

At June 30, 2002, the Bank is categorized as well-capitalized with core, tier 1
and risk-based capital ratios of 9.12%, 13.31% and 14.57%, respectively. The
minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital,
tier 1 and risk-based capital, respectively.

The Company was recently included in the Russell 2000 Index for 2002. The
Russell 2000 Index is a broad-based market index that is based on total market
capitalization. Ms. Lagomarsino added, "We are proud to be included in the
Russell 2000. This important milestone is attributable to our strategy of
building value for our shareholders."

In March 2002, the Company announced the execution of a definitive agreement to
acquire First Fidelity Bancorp, Inc. and its subsidiary, First Fidelity
Investment and Loan. The acquisition, which is subject to shareholder and
regulatory approval, provides for the Company to issue 1,266,555 shares of
Hawthorne Financial Corporation stock and $37.4 million in cash for the
1,815,115 shares of First Fidelity Bancorp, Inc. stock and 88,000 options
outstanding. The Company's stockholders are being asked to approve the issuance
of shares at the annual stockholders' meeting, to be held on July 23, 2002.
Regulatory applications have been filed and, pending shareholder and regulatory
approval, completion of the transaction is expected to occur in August 2002.

Second quarter and year-to-date results for First Fidelity Investment and Loan
can be found at www.1stFidelity.com or by contacting their headquarters in
Tustin, CA, at (949) 936-3235. During the Hawthorne Financial Corporation
investor conference call scheduled for Monday, July 22, 2002, at 1:00 p.m. EDT,
additional information regarding the acquisition will be discussed. To
participate in the conference call, please call (800) 521-5428 Toll Free and
reference "Hawthorne Savings -- ID #2061921." Audio access to the conference
call will also be available through a live Webcast over the Internet at
www.hawthornesavings.com. The Webcast of this conference call will be available
for replay through August 19, 2002 by accessing the same link.

Hawthorne Savings, F.S.B., operates nine branches in the coastal counties of
Southern California. The Company specializes in real estate secured loans in the
niche markets that it serves, including: 1) permanent loans collateralized by
single family residential property, 2) permanent and construction loans secured
by multi-family residential and commercial real estate, 3) loans for the
construction of individual single family residential homes and the acquisition
and development of land for the construction of such homes. The Company funds
its loans predominantly with retail deposits generated through its nine full
service retail offices. Provided the acquisition of First Fidelity is completed,
the Bank will add four branches, two each in coastal Orange and San Diego
counties.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 4 OF 10

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 vary. Factors which could cause
actual results to differ from these forward-looking statements include changes
in the competitive marketplace, changes in the interest rate environment,
potential increased prepayment speeds on the Company's outstanding loan
portfolio, economic conditions, outcome of pending litigation, risks associated
with credit quality, the possibility that the Company will not obtain
stockholder or regulatory approval of the merger of Hawthorne and First
Fidelity, and other 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.




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 5 OF 10



CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(Dollars in thousands)
                                                                                     JUNE 30,         DECEMBER 31,
                                                                                       2002               2001
                                                                                   -----------        -----------
                                                                                                
Assets:
    Cash and cash equivalents                                                      $   185,740        $    98,583
    Investment securities, at fair value                                                19,720                 --
    Loans receivable (net of allowance for estimated credit losses
       of $28,657 in 2002 and $30,602 in 2001)                                       1,592,200          1,709,283
    Real estate owned                                                                       --              1,312
    Accrued interest receivable                                                          8,742              9,677
    Investment in capital stock of Federal Home Loan Bank, at cost                      25,220             24,464
    Office property and equipment at cost, net                                           4,152              4,237
    Deferred tax asset                                                                   2,668              4,363
    Other assets                                                                         6,342              4,278
                                                                                   -----------        -----------
            Total assets                                                           $ 1,844,784        $ 1,856,197
                                                                                   ===========        ===========

Liabilities and Stockholders' Equity:
    Liabilities:
       Deposits:
         Noninterest-bearing                                                       $    37,268        $    35,634
         Interest-bearing                                                            1,154,651          1,164,011
                                                                                   -----------        -----------
            Total deposits                                                           1,191,919          1,199,645
       FHLB advances                                                                   459,000            484,000
       Senior notes                                                                     25,778             25,778
       Capital securities                                                               36,000             14,000
       Accounts payable and other liabilities                                           12,623             12,325
                                                                                   -----------        -----------
            Total liabilities                                                        1,725,320          1,735,748
                                                                                   -----------        -----------

Stockholders' Equity:
    Common stock -- $0.01 par value; authorized 20,000,000 shares; issued and
       outstanding, 6,763,628 shares (2002) and 5,920,266 shares (2001)                     68                 59
    Capital in excess of par value-- common stock                                       46,880             44,524
    Retained earnings                                                                   93,621             82,435
                                                                                   -----------        -----------
                                                                                       140,569            127,018
Accumulated other comprehensive income                                                      11                 --

Less:
    Treasury stock, at cost-- 1,060,802 shares (2002) and
          560,719 shares (2001)                                                        (21,116)            (6,569)
                                                                                   -----------        -----------
            Total stockholders' equity                                                 119,464            120,449
                                                                                   -----------        -----------
            Total liabilities and stockholders' equity                             $ 1,844,784        $ 1,856,197
                                                                                   ===========        ===========




SUPPLEMENTAL INFORMATION - BANK CAPITAL                                              JUNE 30,         DECEMBER 31,
                                                                                       2002               2001
                                                                                   -----------        -----------
                                                                                                
Core capital                                                                       $   167,964        $   154,981
Ratio                                                                                     9.12%              8.36%

Tier 1 capital                                                                     $   167,964        $   154,981
Ratio                                                                                    13.31%             11.63%

Risk-based capital                                                                 $   183,888        $   169,278
Ratio                                                                                    14.57%             12.70%




                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 6 OF 10



CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
                                                                 THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                      JUNE 30,                    JUNE 30,
                                                               ----------------------      ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)                            2002          2001          2002          2001
                                                               --------      --------      --------      --------
                                                                                             
Interest revenues:
  Loans                                                        $ 30,385      $ 35,838      $ 62,893      $ 72,754
  Investment and other securities                                    69            --            69            --
  Fed funds and other                                             1,089         1,128         1,950         2,726
                                                               --------      --------      --------      --------
        Total interest revenues                                  31,543        36,966        64,912        75,480
                                                               --------      --------      --------      --------
Interest costs:
  Deposits                                                        8,493        16,146        18,027        33,447
  FHLB advances                                                   5,141         5,085        10,293        10,613
  Senior notes                                                      805           956         1,611         2,162
  Capital securities                                                599           229           903           237
                                                               --------      --------      --------      --------
        Total interest costs                                     15,038        22,416        30,834        46,459
                                                               --------      --------      --------      --------
Net interest income                                              16,505        14,550        34,078        29,021
Provision for credit losses                                         170         1,000           670         2,500
                                                               --------      --------      --------      --------
      Net interest income after provision for credit losses      16,335        13,550        33,408        26,521
Noninterest revenues:
   Loan related and other fees                                      832         1,164         1,752         2,362
   Deposit fees                                                     363           308           736           641
                                                               --------      --------      --------      --------
      Total noninterest revenues                                  1,195         1,472         2,488         3,003
Income from real estate operations, net                              --             2            69           162
Noninterest expenses:
  General and administrative expenses:
      Employee                                                    4,700         4,519         9,732         9,009
      Operating                                                   1,516         1,586         3,019         3,150
      Occupancy                                                     941         1,064         1,855         2,009
      Professional                                                  599           786           706         1,895
      Technology                                                    371           517           740         1,027
      SAIF premiums and OTS assessments                             132           238           268           481
      Legal settlements/other                                        --            --            20           110
                                                               --------      --------      --------      --------
         Total general and administrative expenses                8,259         8,710        16,340        17,681
                                                               --------      --------      --------      --------
Income before income taxes and extraordinary item                 9,271         6,314        19,625        12,005
Income tax provision                                              3,987         2,685         8,439         5,128
                                                               --------      --------      --------      --------
Income before extraordinary item                                  5,284         3,629        11,186         6,877
Extraordinary item, related to early extinguishment of
     debt (net of taxes of $185)                                     --            --            --          (255)
                                                               --------      --------      --------      --------
Net income                                                     $  5,284      $  3,629      $ 11,186      $  6,622
                                                               ========      ========      ========      ========
Basic earnings per share before extraordinary item             $   0.91      $   0.69      $   2.00      $   1.32
                                                               ========      ========      ========      ========
Basic earnings per share after extraordinary item              $   0.91      $   0.69      $   2.00      $   1.27
                                                               ========      ========      ========      ========
Diluted earnings per share before extraordinary item           $   0.69      $   0.48      $   1.46      $   0.91
                                                               ========      ========      ========      ========
Diluted earnings per share after extraordinary item            $   0.69      $   0.48      $   1.46      $   0.88
                                                               ========      ========      ========      ========
Weighted average basic shares outstanding                         5,821         5,277         5,597         5,228
                                                               ========      ========      ========      ========
Weighted average diluted shares outstanding                       7,665         7,512         7,646         7,555
                                                               ========      ========      ========      ========



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 7 OF 10




SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED)
(Dollars in thousands)
                                                                                  JUNE 30,       DECEMBER 31,       JUNE 30,
                                                                                    2002             2001             2001
                                                                                 ----------      ------------      ----------
                                                                                                          
Risk elements:
    Nonaccrual loans                                                             $    6,081       $   20,666       $   27,508
    Real estate owned, net                                                               --            1,312              336
                                                                                 ----------       ----------       ----------
                                                                                      6,081           21,978           27,844
   Performing loans classified substandard or lower(1)                               38,984           37,341           28,128
                                                                                 ----------       ----------       ----------
         Total classified assets                                                 $   45,065       $   59,319       $   55,972
                                                                                 ==========       ==========       ==========
         Total classified loans                                                  $   45,065       $   58,007       $   55,636
                                                                                 ==========       ==========       ==========
Loans restructured and paying in accordance with modified terms(2)               $    2,317       $    4,506       $   12,710
                                                                                 ==========       ==========       ==========
Gross loans before allowance for credit losses                                   $1,620,857       $1,739,885       $1,710,602
                                                                                 ==========       ==========       ==========
Loans receivable, net of specific allowance and deferred (fees) and costs        $1,619,807       $1,736,310       $1,704,901
                                                                                 ==========       ==========       ==========
Delinquent loans:
    30 - 89 days                                                                 $    9,920       $    2,742       $    8,105
    90 + days                                                                         1,931            4,982            5,309
                                                                                 ----------       ----------       ----------
        Total delinquent loans                                                   $   11,851       $    7,724       $   13,414
                                                                                 ==========       ==========       ==========
Allowance for credit losses:
    General                                                                      $   27,607       $   27,027       $   24,151
    Specific(3)                                                                       1,050            3,575            5,701
                                                                                 ----------       ----------       ----------
        Total allowance for credit losses                                        $   28,657       $   30,602       $   29,852
                                                                                 ==========       ==========       ==========
Net loan charge-offs:
    Net charge-offs for the quarter ended                                        $      189       $       13       $    1,881
    Percent to loans receivable, net of specific allowance and
       deferred (fees) and costs (annualized)                                          0.05%            0.00%            0.44%
    Percent to beginning of period allowance for credit losses (annualized)            2.64%            0.17%           24.48%
Selected asset quality ratios at period end:
   Total nonaccrual loans to total assets                                              0.33%            1.11%            1.52%
   Total allowance for credit losses to loans receivable, net of
       specific allowance and deferred (fees) and costs                                1.77%            1.76%            1.75%
   Total general allowance for credit losses to loans receivable,
       net of specific allowance and deferred (fees) and costs                         1.70%            1.56%            1.42%
   Total allowance for credit losses to nonaccrual loans                             471.25%          148.08%          108.52%
   Total classified assets to Bank core capital and general                           23.04%           32.59%           32.89%
       allowance for credit losses

- --------------
(1)   Excludes nonaccrual loans.

(2)   Troubled debt restructured loans not classified and not on nonaccrual.

(3)   In December 2000, a $5.2 million specific allowance was identified for one
      nonaccrual commercial loan, whose major tenant filed for Chapter 11
      bankruptcy protection. The required reserve was reclassified from general
      allowance to specific allowance. A 51% controlling interest in this tenant
      was acquired by a strong investor during 2001. During the third quarter of
      2001, the tenant ratified a renegotiated lease, which enabled the Bank to
      revise its internal valuation and consequently, reduce the specific
      allowance for this loan to $3.0 million. This loan was discounted at
      payoff in March 2002, which resulted in a charge-off of $2.2 million.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 8 OF 10



                                                                           THREE MONTHS ENDED JUNE 30,
                                               -----------------------------------------------------------------------------------
                                                                  2002                                      2001
                                               ----------------------------------------   ----------------------------------------
                                                                              WEIGHTED                                   WEIGHTED
                                                 AVERAGE        REVENUES/      AVERAGE      AVERAGE        REVENUES/      AVERAGE
(DOLLARS IN THOUSANDS)                           BALANCE          COSTS      YIELD/COST     BALANCE          COSTS      YIELD/COST
                                               ----------      ----------    ----------   ----------      ----------    ----------
                                                                                                         
Assets:
Interest-earning assets:
  Loans receivable (1)                         $1,654,830      $   30,385       7.35%     $1,664,754      $   35,838       8.62%
  Cash and cash equivalents                       169,220             707       1.68          77,356             858       4.45
  Investment securities                             8,722              69       3.17              --              --
  Investment in capital stock of
    Federal Home Loan Bank                         25,001             382       6.13          21,184             270       5.11
                                               ----------      ----------                 ----------      ----------
      Total interest-earning assets             1,857,773          31,543       6.80       1,763,294          36,966       8.40
                                                               ----------      ----                       ----------      -----
Noninterest-earning assets                          2,479                                     1,944
                                               ----------                                 ----------
      Total assets                             $1,860,252                                 $1,765,238
                                               ==========                                 ==========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Deposits                                   $1,151,892      $    8,493       2.96%     $1,178,962      $   16,146       5.49%
    FHLB advances                                 468,615           5,141       4.34         384,000           5,085       5.24
    Senior notes                                   25,778             805      12.50          30,628             956      12.50
    Capital securities                             33,824             599       7.08           9,000             229      10.18
                                               ----------      ----------                 ----------      ----------
      Total interest-bearing liabilities        1,680,109          15,038       3.57       1,602,590          22,416       5.59
                                                               ----------      -----                      ----------      -----

  Noninterest-bearing checking                     37,130                                     33,269
  Noninterest-bearing liabilities                  18,891                                     20,260
  Stockholders' equity                            124,122                                    109,119
                                               ----------                                 ----------
      Total liabilities and stockholders'
        equity                                 $1,860,252                                 $1,765,238
                                               ==========                                 ==========

Net interest income                                            $   16,505                                 $   14,550
                                                               ==========                                 ==========
Interest rate spread                                                            3.23%                                      2.81%
                                                                               =====                                      =====
Net interest margin                                                             3.56%                                      3.30%
                                                                               =====                                      =====

- --------------
(1)   Includes the interest on nonaccrual loans only to the extent that it was
      paid and recognized as interest income.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 9 OF 10



                                                                            SIX MONTHS ENDED JUNE 30,
                                               --------------------------------------------------------------------------------
                                                                  2002                                      2001
                                               ----------------------------------------   -------------------------------------
                                                                              WEIGHTED                                WEIGHTED
                                                 AVERAGE        REVENUES/      AVERAGE      AVERAGE      REVENUES/     AVERAGE
(DOLLARS IN THOUSANDS)                           BALANCE          COSTS      YIELD/COST     BALANCE        COSTS     YIELD/COST
                                               ----------      ----------    ----------   ----------     ---------   ----------
                                                                                                      
Assets:
Interest-earning assets:
  Loans receivable (1)                         $1,686,078      $   62,893       7.48%     $1,658,493      $72,754       8.81%
  Cash and cash equivalents                       144,078           1,194       1.67          84,308        2,117       5.06
  Investment securities                             4,385              69       3.17              --           --
  Investment in capital stock of
    Federal Home Loan Bank                         24,805             756       6.15          21,032          609       5.84
                                               ----------      ----------                 ----------      -------
      Total interest-earning assets             1,859,346          64,912       7.00       1,763,833       75,480       8.59
                                                               ----------      -----                      -------      -----
Noninterest-earning assets                          1,751                                      1,700
                                               ----------                                 ----------
      Total assets                             $1,861,097                                 $1,765,533
                                               ==========                                 ==========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Deposits                                   $1,156,907      $   18,027       3.14%     $1,182,799      $33,447       5.70%
    FHLB advances                                 476,265          10,293       4.30         384,000       10,613       5.50
    Senior notes                                   25,778           1,611      12.50          34,556        2,162      12.51
    Capital securities                             23,967             903       7.54           4,724          237      10.03
                                               ----------      ----------                 ----------      -------
      Total interest-bearing liabilities        1,682,917          30,834       3.67       1,606,079       46,459       5.81
                                                               ----------      -----                      -------      -----

  Noninterest-bearing checking                     36,546                                     32,495
  Noninterest-bearing liabilities                  19,177                                     19,825
  Stockholders' equity                            122,457                                    107,134
                                               ----------                                 ----------
      Total liabilities and stockholders'
        equity                                 $1,861,097                                 $1,765,533
                                               ==========                                 ==========

Net interest income                                            $   34,078                                 $29,021
                                                               ==========                                 =======
Interest rate spread                                                            3.33%                                   2.78%
                                                                               =====                                   =====
Net interest margin                                                             3.68%                                   3.30%
                                                                               =====                                   =====

- --------------
(1)   Includes the interest on nonaccrual loans only to the extent that it was
      paid and recognized as interest income.



                         HAWTHORNE FINANCIAL CORPORATION

SECOND QUARTER 2002 RESULTS
JULY 22, 2002

PAGE 10 OF 10

HAWTHORNE FINANCIAL CORPORATION
(UNAUDITED)
(Dollars in thousands)



NET LOAN PORTFOLIO COMPOSITION                                    JUNE 30, 2002             DECEMBER 31, 2001
                                                            -----------------------      -----------------------
                                                              BALANCE       PERCENT        BALANCE       PERCENT
                                                            ----------      -------      ----------      -------
                                                                                             
Single family residential                                   $  887,770       55.05%      $  913,255       52.68%
Income property:
   Multi-family                                                284,315       17.63%         254,530       14.68%
   Commercial                                                  208,965       12.96%         235,156       13.57%
   Development:
       Multi-family                                             77,199        4.79%         102,682        5.92%
       Commercial                                               38,514        2.39%          68,431        3.95%
Single family construction:
   Single family residential                                    78,249        4.85%         104,158        6.01%
Land                                                            33,282        2.06%          48,719        2.81%
Other                                                            4,359        0.27%           6,617        0.38%
                                                            ----------      ------       ----------      ------
          Total loan principal(1)                           $1,612,653      100.00%      $1,733,548      100.00%
                                                            ==========      ======       ==========      ======

- --------------
(1)   Excludes net deferred fees and costs.



SELECTED FINANCIAL DATA                                           THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                       JUNE 30,                    JUNE 30,
                                                                 -------------------         -------------------
                                                                  2002          2001          2002          2001
                                                                 -----         -----         -----         -----
                                                                                               
PERFORMANCE RATIOS

Return on average assets(1)                                       1.14%         0.82%         1.20%         0.75%
Return on average equity(1)                                      17.03%        13.30%        18.27%        12.36%
Efficiency ratio(2)                                              46.66%        54.36%        44.63%        54.87%

GROWTH RATIOS(1)

Total assets                                                                                 -1.23%         6.17%
Loans receivable, net                                                                       -13.70%         9.04%
Total deposits                                                                               -1.29%         7.08%




                                                                                                   JUNE 30,
                                                                                             -------------------
                                                                                              2002          2001
                                                                                             -----         -----
                                                                                                     
Bank Capital Ratios
Core capital                                                                                  9.12%         8.09%
Tier 1 capital                                                                               13.31%        11.35%
Risk-based capital                                                                           14.57%        12.41%

BOOK VALUE PER SHARE AS OF JUNE 30, 2002

        Basic    $20.95
        Diluted  $16.26


- --------------------
(1)   Annualized.

(2)   Represents total general and administrative expenses (excluding legal
      settlements/other) divided by net interest income before provision for
      credit losses and noninterest revenues. JUNE 30,

EX-99.2

                                                                    EXHIBIT 99.2

HAWTHORNE SAVINGS, F.S.B.
SECOND QUARTER CONFERENCE CALL
JULY 22, 2002

      Good morning to those of you joining us here on the West Coast and good
afternoon to those on the East Coast. You've joined the conference call for
Hawthorne Financial Corporation. Hawthorne is traded on NASDAQ under the ticker
symbol HTHR. My name is Simone Lagomarsino and I am the President and Chief
Executive Officer of Hawthorne Financial Corporation and Hawthorne Savings Bank.
With me is Karen Abajian, our Chief Financial Officer. During this call we will
provide you with a brief overview of the Company, discuss our second quarter and
year to date earnings, provide a strategic overview of Hawthorne and our
acquisition of First Fidelity Bancorp, Inc., which is scheduled to close later
this quarter, give a snapshot of our quarter end balance sheet and end with a
brief discussion of the California economy. For your information, First Fidelity
also issued an earnings release on July 19th, that can be found on their
website, www.1stFidelity.com. (And that is www.1stfidelity.com)

      I'll preface our discussion with the following disclaimer: During this
call we may make forward looking statements as referenced in the Private
Securities Litigation Reform Act of 1995. Forward looking statements are
inherently unreliable and actual results may vary. Factors which could cause
actual results to vary from these forward looking statements include changes in
the competitive marketplace, changes in the interest rate environment, economic
conditions, outcome of pending or threatened litigation, risks associated with
credit quality, risks associated with completing the merger of Hawthorne and
First Fidelity and successfully combining the companies' operations, and other
factors discussed in the Company's filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update or revise



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any forward looking statements whether as a result of new information, future
events or otherwise.

      Now that we have fulfilled that obligation, I will provide you with a
brief overview of the Company. We are headquartered in the South Bay coastal
region of Los Angeles County with a strategic focus on all coastal counties of
Southern California. Hawthorne currently has nine retail branches, seven of
which are in the South Bay. Two branches are in the San Fernando Valley, and one
of those is in Ventura County. With the addition of the four First Fidelity
branches, we will have a two-branch presence in both Orange and San Diego
Counties. Leveraging off of the strong demographics in these coastal counties we
will geographically expand Hawthorne's reputation for providing extreme customer
service.

         Hawthorne is a real estate lender with three distinct product lines
including single family residential, single family construction and income
property lending. Our income property portfolio is primarily comprised of
multi-family loans, both construction and permanent, as well as construction and
permanent loans for retail, industrial, office, and other income producing real
estate. First Fidelity is also a real estate secured lender with a very
efficient asset generating function in the income property permanent lending
arena. Currently, approximately 92% of Hawthorne's loans are variable rate. At
the close of the First Fidelity transaction, approximately 90% of the loan
portfolio will be variable rate.

      The ongoing low interest rate environment continues to fuel consumer
demand for fixed rate loan refinancing, creating significant loan origination
and retention challenges for variable rate lenders like Hawthorne. Hawthorne has
endeavored to meet the challenge, generating $334.3 million in new loans in the
first half of 2002, right in line with the $347.2 million originated in the
first six months of last year. Over 67% of our loan originations in the single-



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family residential portfolio were in connection with home purchases, not
refinancings, which reflects our strong reputation for providing extreme service
in what is currently a refinance market. Our ability to continue our origination
performance in this fixed rate environment will be fortified by the strong asset
generating capabilities of First Fidelity. They originated $96.7 million of new
loans during the first half of 2002, a 74% increase over the $55.6 million
originated in the comparable period in 2001. And their net loans have increased
$28 million, to $526 million at June 30, 2002 compared to December 31, 2001.
Additionally, we have fortified our asset generation capability by hiring four
new loan officers in the last four months. They have built momentum, which is
evidenced by the fact that June loan production was at the highest level in the
last twelve months. Once the merger is complete, we expect that the combined
asset generating strength of Hawthorne and First Fidelity will demonstrate our
potential for growing earning assets.

      Our earnings performance for the second quarter of 2002 and year to date
was very strong. During the second quarter of 2002, Hawthorne earned $5.3
million, or 69 cents per share. This resulted in year to date earnings for 2002
of $11.2 million or $1.46 per share, a 69% increase in net earnings over the six
months ended June 30, 2001. The earnings resulted in an annualized return on
assets of 1.20% and an annualized return on equity of 18.27% for the six months
ended June 30, 2002. First Fidelity Investment & Loan generated core earnings of
$5.3 million for the first six months of 2002 excluding the impact of a pretax
loss of $3.3 million realized from the sale of corporate securities in the first
quarter.

      In our previous guidance, we anticipated that our net interest margin
would trend down in the second quarter and the first half of 2002 would be
relatively in line with the fourth quarter of



                                       3

2001. In line with this guidance, the net interest margin was 3.68% for the
first half of 2002 consistent with the 3.66% in the fourth quarter of 2001.

      The net interest margin for the three months ended June 30, 2002, was
3.56%, compared with 3.80% in the first quarter of 2002, and 3.66% during the
fourth quarter of 2001 and 3.30% in the second quarter of 2001.

      Several factors affected the Company's net interest margin in the second
quarter of 2002. During the quarter, interest of $600 thousand was collected on
loans that were brought current, producing a positive, but nonrecurring impact
on the net interest margin. Normalizing for this collected interest, the second
quarter net interest margin would have been 13 basis points lower. On a year to
date basis, the net interest margin was positively impacted by $1.0 million of
interest collected on loans that were brought current, producing a positive but
nonrecurring impact of 11 basis points.

      Although actual prepayments slowed during April 2002, that did not hold
true for May and June. During the second quarter as a whole, loan prepayments
were $160.2 million, with a weighted average interest rate of 7.50%. Loan
originations for the second quarter totaled $158.7 million at an average yield
of 6.20%. On a year to date basis, loan prepayments were $328 million, with a
weighted average interest rate of 7.77%, whereas loan originations were $334
million at an average yield of 6.47%.

      The impact of elevated loan prepayment speeds may be partially mitigated
by the reduced amount of higher yielding loans in the portfolio. In other words,
since the average yields in our portfolio have decreased, we expect that fewer
customers will refinance. As of June 30, 2002, $83 million of the outstanding
gross single family residential and income property permanent



                                       4

loans had a yield of 9.0% or higher, a decrease of $154 million, or 65%,
from a year ago. As a result, we would expect loan prepayment speeds to slow.

      On a year over year basis, the Company's net interest margin was impacted
by a 475 basis point drop in interest rates during 2001. The average yield on
earning assets decreased 41 basis points to 6.80% in the second quarter of 2002
compared to 7.21% in the first quarter of 2002 and decreased 160 basis points to
7.00% in the first six months of 2002 compared to 8.60% in first six months of
2001. Although the declining rate environment has resulted in increased
prepayment speeds, as discussed, the negative impact on the net interest margin
was partially mitigated by interest rate floors in the loan portfolio. As of
June 30, 2002, 60% of the loans in the portfolio had reached their contractual
floor rates and were not subject to further interest rate declines.

      We are pleased to report further improvement in reducing our cost of
funds. The average cost of funds decreased 21 basis points to 3.57% in the
second quarter of 2002 compared to 3.78% in the first quarter of 2002. Year over
year, the average cost of funds decreased 214 basis points to 3.67% in the first
six months of 2002 compared to 5.81% in the first six months of 2001. We will
continue to reprice liabilities to current market rates. For instance at June
30, 2002, the weighted average interest rate on savings accounts was 1.03%, and
the weighted average interest rate on our checking accounts was 1.13% with a
total weighted average interest rate on our deposits of 2.8%.

      If the interest rate environment remains stable for the balance of 2002,
we anticipate continued compression of the net interest margin of 10 to 20 basis
points on a post merger basis, compared to the net interest margin of 3.68%
earned in the first half of 2002. This



                                       5

compression would be more significant absent the merger. The lower net interest
margin is the reflection of the projected lower yields on forecasted new loan
production, runoff of existing loans and repricing of existing assets, including
those tied to the MTA index. Currently, 37% of the Bank's total loan portfolio
is indexed off of the MTA, which is the 12-month maturing treasury. The MTA was
2.67% at July 1, 2002, compared to 3.06% at April 1, 2002. Our current forecast
projects that the MTA, based on historical CMT rates, will continue to trend
down over the balance of 2002.

      There are numerous strategic initiatives currently underway at Hawthorne.
Our primary focus continues to be asset generation, to provide continued
earnings strength. Along with overall balance sheet growth, we continue to focus
on balance sheet risk, which, as you know, has undergone dramatic improvement in
past quarters. Nonaccrual loans were $6 million at June 30, 2002, a slight
decrease from $6.3 million at March 31, 2002, and $14.6 million lower than
December 31, 2001. Our ratio of nonaccrual loans to total assets is 33 basis
points, our lowest level in over 15 years and well in line with our peer group
in this category. First Fidelity's nonaccrual loans to total assets ratio has
consistently been at, or below, 17 basis points over the past five years. Based
on First Fidelity's June 30, 2002 nonaccrual loan total of $600 thousand and our
quarter end totals, on a combined basis, our ratio of nonaccrual loans to total
assets would improve to 27 basis points, 20 basis points below our peer group
average. Classified assets totaled $45.1 million at June 30, 2002, down $7.8
million from first quarter end and down $14.3 million from one year ago.
Consistent with First Fidelity's low nonaccrual totals, their classified assets
totaled $4.3 million at June 30, 2002. Delinquent loans totaled $11.9 million at
June 30, 2002, a decrease of $7.5 million from $19.4 million at March 31, 2002,
and up from the $7.7 million at the end of last year. Subsequent to June 30th, a
$3.5 million delinquent loan was paid in



                                       6

full. First Fidelity's delinquent loans totaled $3.6 million at June 30, 2002.
Both Hawthorne and First Fidelity currently have no real estate owned
properties.

      Hawthorne's total reserve to loans receivable was 1.77% at June 30th, an
increase from 1.69% at first quarter end and in line with 1.76% at year end
2001. The first quarter was impacted by the $2.2 million charge-off resulting
from a discounted payoff of the $11.5 million income property construction loan
that had been on nonaccrual status since the fourth quarter of 2000. A specific
valuation allowance had been established for this loan in 2000. On a year to
date basis, our net charge-offs have been $2.6 million. First Fidelity's total
reserve to loans receivable was 1.15% at June 30th. Based on quarter end totals,
and before any adjusting entries, our combined ratio would be 1.62%.

      Our improved asset quality and strong reserve level has resulted in
Hawthorne making a lower loan loss provision during the first half of 2002. The
provision for loan losses in the quarter was $200 thousand, resulting in a year
to date provision of $700 thousand. First Fidelity's provisions were $200
thousand and $300 thousand in the second quarter and year to date respectively.
As our loan portfolios and asset generating capabilities are combined, and
assuming that asset quality remains at current levels, we would expect provision
levels to be driven primarily by loan growth.

      A significant strategic benefit from the acquisition of First Fidelity
arises from Hawthorne's proven success in shifting our deposit mix from rate
driven certificates of deposits to core, transaction accounts. At June 30, 2002,
Hawthorne's transaction accounts represent 44.5% of our total deposits compared
with 31% at year end 2001 and 26% at June 30, 2001. Our concerted effort to
enhance franchise value is certainly reflected in the improved deposit mix. But
it is only fair to say that the current levels are likely inflated due to
customers taking



                                       7

advantage of the unusually small differential between money market rates and
time account rates to keep their funds liquid until rates begin to rise.
Nevertheless, we are looking forward, post merger, to the opportunity to apply
our expertise in retail deposit repositioning, to align First Fidelity's
transaction account levels with ours. First Fidelity had just under 20% in
transaction accounts at June 30, 2002. On a combined basis at June 30, 2002,
transaction accounts represent 37.6% of total deposits.

      Our ongoing strategic initiative to improve our efficiency ratio will be
bolstered by the efficient and consistent performance of First Fidelity. Our
efficiency ratio was 46.7% in the second quarter of 2002 and 44.6% on a year to
date basis. Excluding the $0.7 million insurance reimbursement for legal fees
related to litigation, collected in the first quarter, the year to date
efficiency ratio was 46.6%. First Fidelity Bancorp, Inc., the holding company of
First Fidelity, also owned PSP Financial Services, Inc., a mortgage banking
business, that is in the final stages of liquidation. Due to the historical
impact of this discontinued mortgage banking operation, it is appropriate to
analyze the bank only financial performance. At the bank only level, First
Fidelity's efficiency ratio was 33.0% in the second quarter of 2002 and 33.6% on
a year to date basis, excluding the impact of the first quarter loss realized
from the sale of corporate securities. Over the past three years, their
efficiency ratio has not exceeded 36%. On a post merger basis, excluding the
projected one-time acquisition charges of approximately $300 thousand, the
proforma combined efficiency ratio goal for the second half of 2002 will range
from 45 to 50 percent.

      Improving our efficiency ratio is directly correlated with maintaining and
improving our earnings growth, as well as controlling general and administrative
expenses. Over the past three years, we have been able to maintain consistent
headcount levels by leveraging off of our



                                       8

technology base. General and administrative expenses were $8.3 million for the
second quarter of 2002, an increase of $0.2 million compared to the first
quarter. However, excluding the $700 thousand insurance reimbursement I
mentioned earlier, the second quarter G&A expense decreased $500 thousand from
the first quarter. Compared to the second quarter of 2001, G&A expenses
decreased $400 thousand. Year to date, G&A expenses totaled $16.3 million,
reflecting a 7.58% decrease in G&A, or a 3.63% decrease excluding the insurance
reimbursement, versus the same period last year.

      We are pleased that we have maintained a consistent expense run rate for
the past three years while continuing to grow earning assets. As a result, from
an expense leveraging standpoint, G&A annualized as a percentage of average
assets, adjusted for the insurance premium has improved to 1.83% for the six
months ended June 30, 2002, compared to 2.00% for the comparable period in 2001.
This ratio compares favorably with our peer group of publicly traded western
thrifts with assets between $1.0 and $5.0 billion. The most recently available
data from the first quarter of this year shows an average peer group ratio of
2.12%. Excluding projected one-time charges from our acquisition of First
Fidelity, we anticipate the G&A to average assets ratio to range between 1.65 to
1.80% in the second half of 2002 on a post merger basis.

      As announced on June 21, 2002, the Company repurchased 500,000 shares of
common stock for $29.09 per share from members of the Bass Family. We believe
the deployment of capital this transaction represents is in the best interest of
our shareholders and consistent with our ongoing strategic initiatives. Assuming
the repurchase transaction was executed on the first day of the second quarter
of 2002, diluted earnings per share for the second quarter would have been
positively impacted by $0.03. Due to the additional shares that are expected to
be issued,



                                       9

for the pending acquisition, the impact of this repurchase on earnings per share
in the future, although still accretive, will not be as significant.

      Moving now to a quick snapshot of our balance sheet: Our total assets were
$1.84 billion at June 30, 2002, a slight decrease from December 31, 2001. Loans
receivable decreased to $1.59 billion from $1.66 billion at March 31, 2002. This
decrease is a direct result of the increased prepayment levels previously
discussed. Although the resulting excess liquidity was invested in overnight Fed
Funds and mutual funds at quarter end, we have implemented an investment
portfolio strategy with $35.0 million in outstanding commitments at June 30,
2002, for purchases of U.S. Agency mortgage backed securities with an estimated
average life of 2 to 4 years. At June 30, 2002, with our initial commitments,
the investment portfolio on a combined basis was $164 million, or 6.6% of
total assets. Assuming prepayment speeds remain stable for the balance of 2002,
this portfolio will yield approximately 4.70%, or approximately 300 basis points
more than the assets would have otherwise earned in fed-funds.

      Total deposits were $1.19 billion at June 30, 2002, a 1.29% decrease from
year end 2001. The deposit mix, however, continues to improve, with 44.5% of
deposits in transaction accounts at quarter end compared to 31.2% at December
31, 2001. Not only has the deposit composition improved, our cross-sell ratio,
defined as the number of different product types of loan and deposit products
per household served, increased to 2.69 per household at quarter's end, from
2.37 products per household at year end 2001. In July 2002, we rolled out our
alternative investment product program in our branches. We are now offering
mutual funds and will soon add annuities and other insurance products to our
array of products offered. Initial activity over the first three weeks has been
very encouraging with 9 accounts opened and $800 thousand in sales. We expect a
positive impact on our cross-sell ratio.



                                       10

      In anticipation of funding the cash portion of the acquisition of First
Fidelity, in April 2002 the Company participated in a pooled private offering of
trust preferred securities, raising $22.0 million. This transaction brought the
outstanding capital securities total to $36.0 million at June 30, 2002.

      From a regulatory capital perspective, Hawthorne Savings was well
capitalized at June 30, 2002, and will remain well capitalized after the
acquisition. The Bank's core capital ratio was 9.12% and the risk-based capital
ratio was 14.57% at June 30th. If the acquisition was completed as of June 30th,
the capital ratios would have been 7.59% and 11.85%, respectively. The
regulatory minimums are 5% and 10%, respectively.

      As I said at the beginning of the call, we are anticipating that our
acquisition of First Fidelity will close later this quarter, tomorrow we will
have our annual shareholders meeting, during which we will vote on the issuance
of the shares for the transaction. Wednesday, First Fidelity will hold its
annual shareholders meeting, during which the shareholders will vote on the
transaction. The final step will be to obtain the approval from the OTS. Our
application has been deemed complete and we expect to obtain approval within the
next three weeks.

      Now I'd like to brief you now on how the process of integrating the two
companies is going.

      Starting with the announcement of the acquisition in mid-March, we
conducted bi-weekly meetings with the sixteen of the senior executives of both
firms. These meetings were designed to resolve practical issues such as
retention, employee benefits, and job allocation. The overarching objective was
to carefully analyze the cultures of both companies, including strengths and
areas of opportunity and to emerge from the meetings identifying the best of the
respective cultural attributes as they apply to procedures, organizational
structure and systems.



                                       11

      By the first of July we had completed that process and for the past three
weeks we have been focused on the tactical, operational aspects of the
acquisition. From the beginning, we have insisted that conservation of the
goodwill of First Fidelity's customers, on both the asset and liability sides of
the business, was paramount. That means that the transition of First Fidelity
into Hawthorne must cause the very least possible intrusion for First Fidelity's
customers and its staff. We have spent a great deal of time assuring ourselves
that this will be the case, and believe our plan to gradually assimilate
Fidelity's processes and procedures into Hawthorne's will succeed. We feel that
our concept of extreme service will be welcomed in First Fidelity's outstanding
branch culture.

      I hope you can see that we are keenly aware of how important this, our
first acquisition, is from every standpoint. We hired an outside consulting firm
to perform a readiness review of the integration plan. Additionally, we have
developed templates for the process and will continue to enhance the plan and
process as we proceed. We feel that this extra step adds additional assurance
and will be beneficial for us in the future as well.

      Before I comment on the economy, I want first to reflect with sadness and
concern about what is currently going on in corporate America, specifically with
regard to accounting practices and corporate governance. I want to personally
comment that I am proud of the integrity of Hawthorne's financial reporting, and
more importantly, on behalf of our Board of Directors, management and employees,
I want to assure our existing shareholders and customers that a culture of high
ethical standards is deeply ingrained throughout all levels at Hawthorne, and we
are committed to ensuring that trust, integrity and honesty are never
compromised at Hawthorne.

      A few comments now about the California economy:



                                       12

      The statistics on our statewide economy point to an economy that is still
trying to recover. This lag in recovery, due to the states higher dependence on
the technology sector, is depicted in the June unemployment rate of 6.4%,
compared to 5.2% in June 2001. The Southern California region posted an
unemployment rate of 6.1% in June, up slightly from a year earlier. However the
trend in job losses over the past few months has started to moderate in almost
all sectors.

      From the local coastal counties where we have our strongest presence, the
impact from the recession has not been as significant. Los Angeles County
unemployment rate was 6.7% for the first quarter of 2002, with softness in the
aerospace manufacturing, trade and tourism. However, the economy is forecasted
to improve later this year. The housing market remained stable as the median
sales price jumped 15% and existing home sales increased 20%, year over year.

      Orange County's economy showed little effect from the recent recession.
Tourism started to rebound, creating more jobs in the service sector. In fact, a
number of high-tech firms experienced an increase in orders in the first quarter
of 2002. These factors contributed to a steady unemployment rate of 4.0%. The
housing market remained strong as the median sales price jumped 11% and existing
home sales and single-family permits recorded annual gains of over 20%.

      San Diego County's economy actually grew in the first quarter of 2002 with
a 2.2% increase in annual employment. This gain was in construction, government
and services. Strong in-migration trends continue to contribute to San Diego
having one of the strongest housing markets in the nation. Substantial gains
were recorded in the median sales price, existing home sales and single-family
permits, while still having a low inventory of homes.



                                       13

      Vacancy rates in the office and industrial markets showed an increasing
trend in the first quarter of 2002 versus year-end 2001, with Los Angeles
County's office market vacancy rate increasing to 15.9% from 15.0%, and the
industrial vacancy rate increasing to 4.6% from 4.5%. Orange County had a more
significant increase with office vacancy rates up 25% to 16.8% and the
industrial vacancy rate increasing to 9.7% from 8.6%. San Diego County's office
vacancy rate was 9.6%, up from 8.2%, and the industrial vacancy rate was 6.9%
compared to 6.1%. At June 30, 2002, the Bank's total loan commitments had
limited exposure to these two sectors with the portfolio composition of 5.7%
office and 2.4% industrial.

      Apartment vacancy rates also showed a slightly deteriorating trend in the
first quarter of 2002 versus year-end 2001, but not as significant as the office
and industrial markets.

      The national housing sector continues to show strength with strong price
appreciation and strong sales of existing homes so far in 2002. In fact, during
the week of July 10, applications for mortgages to purchase homes rose 8%,
moving the Mortgage Bankers Association of America's purchase index to the
second highest level since the survey was initiated in 1990. California, just
like the nation, also continues to experience price appreciation and strong home
sales. The statewide average price of an existing home sold increased 12.9% from
year end 2001 to April 2002, or a 44% increase on an annualized basis. UCLA
Anderson Forecast reported in June of this year that Los Angeles county home
values will increase steadily through the end of 2004. With Southern California
displaying even stronger real estate data than the state as a whole, our lending
and deposit strategies continue to be supported in the coastal counties we
serve.

      On behalf of the employees, management and the board of directors of
Hawthorne Financial Corporation, and our colleagues at First Fidelity, I want to
thank our shareholders for your continued support. And now we'll be happy to
respond to your questions.

Our first question comes from Mike McMann.

MIKE MCMANN, SANDLER O'NEILL: Good morning, Simone.

LAGOMARSINO:  Hi, Mike.

MCMANN: That was a wealth of information you provided. It was hard to keep up.
If - would it be fair to assume that you anticipate closing the transaction with
First Fidelity as soon as possible after the regulatory approval date so that we
should probably factor in perhaps in a month of earnings in the third quarter?

LAGOMARSINO: The - as I mentioned, we have a three week period that during which
we're expecting to get regulatory approval. There is a 15-day period after we've
obtained regulatory approval that we have to wait before we can close the
transaction. So, I guess, in answer, yes, approximately a month of combined
earnings would most likely be the most realistic at this point for the third
quarter.

MCMANN:  Great.  Thank you, Simone.

LAGOMARSINO:  Thank you.

OPERATOR: Once again, if you do have a question, please press the number one.
One moment for questions. We have a follow-up question from Mike McMann.

MCMANN: Well, interesting request I have here. You - I believe you read all of
that information that I'm sure was carefully reviewed by your counsel. Is there
any chance that we could obtain a copy of that since you already have publicly
disclosed it verbally at least?

LAGOMARSINO: We can file it in the form of a SEC document 8-K, and then it will
be available.

MCMANN:  OK.

LAGOMARSINO:  So, yes, we will do that.

MCMANN: I was just trying to save listening to the recording and then stopping
and writing everything down, et cetera. That's fine. Thank you.

LAGOMARSINO:  Thank you.

OPERATOR:  I am showing no further questions at this time.

LAGOMARSINO: OK. Again, on behalf of the management, employees and board of
directors of Hawthorn, we'd like to thank all of you for your participation in
this call.

OPERATOR: Ladies and gentlemen, this concludes today's conference. Thank you for
your participation. You may disconnect at this time, and have a good day.

END



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