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): April 24, 2003

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

Item 7.	Financial Statements, Pro Forma Financial Information and Exhibits
	Exhibit 99.1	Press Release dated April 24, 2003.
	Exhibit 99.2	Script of Conference Call held April 24, 2003.
Item 9.	Regulation FD Disclosure
	The following information is furnished pursuant to Item 9. “Regulation FD Disclosure” and Item 12, “Disclosure of Results of Operations and Financial Condition.”
	On April 24, 2003, the Registrant issued the press release attached as Exhibit 99.1, which is not filed but is furnished pursuant to Regulation FD.
	On April 24, 2003, the Registrant held a conference call with analysts and investors, the transcript for which is attached as Exhibit 99.2, which is not filed but is 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/ David Rosenthal
	David Rosenthal               Executive Vice President               and Chief Financial Officer
Date: April 29, 2003.

EX-99.1 3 a89625exv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 [HAWTHORNE FINANCIAL CORPORATION LOGO] HAWTHORNE FINANCIAL CORPORATION PRESS RELEASE APRIL 24, 2003 IMMEDIATE RELEASE Contact: Ms. Simone Lagomarsino, President and Chief Executive Officer (310) 725-5631 Mr. David Rosenthal, Chief Financial Officer (310) 725-1890 HAWTHORNE FINANCIAL REPORTS STRONG FIRST QUARTER EARNINGS FOR 2003 (El Segundo, CA) Hawthorne Financial Corporation (the "Company"), (NASDAQ:HTHR), parent company of Hawthorne Savings, F.S.B. (the "Bank"), today announced first quarter 2003 net income of $6.7 million, representing an increase of 14.1%, compared to $5.9 million a year earlier. Diluted earnings per share for the quarter were $0.81, representing an increase of 5.2%, compared to earnings per share of $0.77 for the first quarter 2002. FIRST QUARTER HIGHLIGHTS - The Company's strong level of net income of $6.7 million during the first quarter of 2003 represents the strength and dedication of our talented employees. - Loan volume increased 34.7% during the first quarter 2003, compared to the same period in 2002, reflecting the Bank's improved asset generation capabilities. - During the quarter, non-interest bearing checking account balances increased 35.3% on an annualized basis, and annualized deposit growth was 24.0%, reflecting the Company's focus on building franchise value. - Deposit fee income increased 16.3% while general and administrative expenses decreased by 6.9% compared to the prior quarter, demonstrating the Company's focus on improving efficiency. The efficiency ratio improved to 47.62% during the first quarter 2003, from 50.44% during the fourth quarter 2002. - Asset quality measurements remain at historically strong levels, reflecting the changes made to underwriting practices during the past four years. "Net income and other key performance measurements such as ROA/ROE and asset quality for the quarter continue to reflect the strong foundation that we have built," said Simone Lagomarsino, the Company's President and Chief Executive Officer. RETURN ON ASSETS/RETURN ON EQUITY Key performance measurements for the first quarter reflected improvements over the fourth quarter of 2002. Net income for the three months ended March 31, 2003, resulted in a return on average assets ("ROA") of 1.06%, compared with a ROA of 0.97% for the fourth quarter of 2002. Return on average equity ("ROE") was 16.46% for the three months ended March 31, 2003, compared with a ROE of 14.91% for the fourth quarter of 2002. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 2 OF 9 NET INTEREST INCOME The Company's net interest income after provision for credit losses was $21.1 million for the quarter, which was relatively flat compared to the prior quarter, and reflecting an increase of 23.8% compared to the $17.1 million for the first quarter of 2002. The Company's net interest margin for the three months ended March 31, 2003 was 3.44%, compared with 3.55% during the prior quarter, and 3.80% during the first quarter 2002. The average cost of funds for the Company decreased to 2.82% during the three months ended March 31, 2003, compared to 3.08% the prior quarter, and 3.78% during the first quarter 2002. The reduction in the cost of funds is the result of the combination of the continued downward pressure on interest rates, maturing certificates of deposit with higher than current market rates, and the shift in the deposit mix. Net interest income was positively impacted by: 1) the inclusion of the net assets from the acquisition of First Fidelity in August 2002, 2) the continued strong origination volume of $236.5 million, 3) the majority of ARM loans ($1.2 billion) reaching their contractual floors and 4) increased income from the investment securities portfolio. Both net interest income and net interest margin continue to be adversely impacted as borrowers refinance loans, which resulted in $179.8 million in prepayments with a weighted average interest rate of 7.30%, while new loan originations had a weighted average interest rate of 5.50% during the quarter. As a result, the yield on loans receivable was 6.40% during the three months ended March 31, 2003, compared to 6.74% during the prior quarter and 7.61% during the first quarter 2002. Net interest income was positively impacted by the increase in mortgage backed securities, which resulted from the deployment of the excess liquidity caused by loan prepayments. This had the effect of compressing the net interest margin. Accordingly, and due to the uncertainty regarding future prepayment speeds, we are lowering the previously announced guidance for 2003 net interest margin by 10 basis points, to the range of 3.25% to 3.35%. NONINTEREST REVENUES Noninterest revenues increased 18.9% to $1.5 million for the three months ended March 31, 2003, compared with $1.3 million during the same period in 2002. Loan and other related fees constituted 57.6% of noninterest revenues and were comprised primarily of prepayment fees resulting from the high level of refinancings. Fee income on deposits increased 22.3% during the first quarter 2003, compared with the same period in 2002, and increased 16.3% compared to the prior quarter, resulting from the growth in core transaction deposits and other fee generating initiatives. The Company continues to expand its customer product array, which will enhance customer retention and satisfaction, thereby increasing income. The ratio of products per household increased slightly to 2.46 at March 31, 2003 for the combined Bank, compared with 2.44 at December 31, 2002. The retail banking team has implemented a customer overdraft protection program. As a result of this program along with other initiatives contemplated, we reiterate prior guidance that noninterest income will increase by 10% for the year. NONINTEREST EXPENSE Total general and administrative expenses ("G&A") were $11.2 million for the three months ended March 31, 2003, compared with $12.0 million incurred in the fourth quarter of 2002. "This $0.8 million decrease in G&A to the prior quarter represents a 6.9% reduction and validates the cost containment emphasis and efforts our team continues to implement," Ms. Lagomarsino said. Annualized G&A (excluding other/legal settlements) to average assets (excluding allowance for credit losses) decreased to 1.69% for the quarter ended March 31, 2003, compared to 1.82% for the year ended 2002. The Company's efficiency ratio was 47.62% for the three months ended March 31, 2003, which was less than the fourth quarter of 2002 and the 48.07% for the year ended 2002. The Company remains focused on its goal to reduce the efficiency ratio to 45% or less in 2003. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 3 OF 9 LOANS Loans receivable averaged $2.1 billion during the first quarter of 2003, which was relatively flat compared to the prior quarter, and reflected a 24.8% increase compared to average loans outstanding during the first quarter 2002. New loan originations were $236.5 million for the first quarter of 2003, which represented an increase of 34.7% compared to originations during the first quarter 2002. "We continue to work to reduce the average loan size, and to diversify the loan portfolio across products types and geographically throughout Southern California," Ms. Lagomarsino said. DEPOSITS Total deposits increased to $1.8 billion at March 31, 2003, from $1.7 billion at December 31, 2002, a 24.0% annualized increase. As of March 31, 2003, the Bank had 67,974 total retail deposit accounts, 40,223 total households and 22,246 checking accounts, which reflected increases from the prior year of 14.3%, 16.3% and 11.1%, respectively. "I am pleased to report that the Bank has been selected as the "Best Bank in the South Bay" by the readers of a local South Bay newspaper, the Easy Reader. The Bank has been awarded this honor in three out of the last four years, which is a reflection of our commitment to providing "extreme service" to our customers throughout the Bank," said Ms. Lagomarsino. "We are bringing this same level of commitment to "extreme service" and community participation as we proceed with our branching strategy in Orange and San Diego Counties," she added. The Company also announced the planned opening of two new branches in the second quarter of 2003. Ms. Lagomarsino stated, "In April, we will open our fourteenth branch in Baldwin Hills, in Los Angeles County. This location has been the headquarters of Operation Hope, a community development organization that Hawthorne has been associated with for over five years, and we are very excited about the opportunity to convert many of their clients to Hawthorne Savings' customers. In June, we expect to open our fifteenth branch in the Oak Creek area of Irvine, in Orange County." ASSET QUALITY Management is very pleased that classified assets remain at historically low levels. At March 31, 2003, the ratio of total allowance for credit losses to loans receivable, net of specific valuation allowance, was 1.66%, compared with 1.64% at December 31, 2002. Based on the current assessment of asset quality and economic indicators, management anticipates that the provision for credit losses for the remainder of 2003 will be based primarily on loan growth. STOCK REPURCHASES/EXERCISES During the first quarter of 2003, there were 123,000 shares repurchased at an average price of $28.98. As of March 31, 2003, cumulative repurchases were 1,305,983 shares at an average price of $21.64. Currently, $2.3 million remains available for additional share repurchases under existing board approved authorizations. In February 2003, the Fort Pitt Fund LP, which is controlled by one of the Company's directors, exercised warrants to purchase 380,450 shares of common stock, in a cashless transaction. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 4 OF 9 CAPITAL LEVELS At March 31, 2003, the Bank remained well-capitalized with core, tier 1 and risk-based capital ratios of 7.46%, 10.54% and 11.80%, respectively. The minimum ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1 and risk-based capital, respectively. ABOUT HAWTHORNE SAVINGS Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates thirteen 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 loans secured by multi-family residential and commercial real estate, 3) loans for the construction of multi-family residential, commercial and individual single family residential properties and the acquisition and development of land for the construction of such projects. The Company funds its loans predominantly with retail deposits generated through its thirteen full service retail offices and FHLB advances. * * * * * When used in this press release or in future press releases, filings by Hawthorne Financial Corporation ("Company") with the Securities and Exchange Commission ("SEC"), or other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project", "believe" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers that all forward-looking statements are necessarily speculative and not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Also, the Company wishes to advise readers that various risks and uncertainties could affect the Company's financial performance and cause actual results for future period to differ materially from those anticipated or projected. Specifically, the Company cautions readers that important factors could affect the Company's business and cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company, including: general economic conditions in its market area, particularly changes in economic conditions in the real estate industry or real estate values in our market, changes in market interest rates, loan prepayments increasing or continuing at the current pace, risk associated with credit quality, outcome of pending litigation, inherent market risk associated with treasury activities, the Company's ability to successfully implement new strategic initiatives and other risks with respect to its business and/or financial results detailed in the Company's press releases and filings with the SEC. Stockholders are urged to review the risks described in such releases and filings. The risks highlighted herein should not be assumed to be the only factors that could affect future performance of the Company. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 5 OF 9 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (DOLLARS IN THOUSANDS)

MARCH 31, DECEMBER 31, 2003 2002 ------------ ------------ Assets: Cash and cash equivalents $ 17,772 $ 21,849 Investment securities available-for-sale, at fair value 329,255 267,596 Loans receivable (net of allowance for credit losses of $35,506 in 2003 and $35,309 in 2002) 2,097,835 2,114,255 Accrued interest receivable 11,652 11,512 Investment in capital stock of Federal Home Loan Bank, at cost 35,151 34,705 Office property and equipment at cost, net 5,237 5,106 Deferred tax asset, net 6,966 10,068 Goodwill 22,970 22,970 Intangible assets 1,285 1,388 Other assets 32,918 5,521 ----------- ----------- Total assets $ 2,561,041 $ 2,494,970 =========== =========== Liabilities and Stockholders' Equity: Liabilities: Deposits: Noninterest-bearing $ 43,328 $ 39,818 Interest-bearing: Transaction accounts 605,321 597,528 Certificates of deposit 1,113,790 1,025,464 ----------- ----------- Total deposits 1,762,439 1,662,810 FHLB advances 565,945 600,190 Capital securities 51,000 51,000 Accounts payable and other liabilities 15,062 17,904 ----------- ----------- Total liabilities 2,394,446 2,331,904 ----------- ----------- Stockholders' Equity: Common stock -- $0.01 par value; authorized 20,000,000 shares; issued, 8,992,402 shares (2003) and 8,576,048 shares (2002) 90 86 Capital in excess of par value -- common stock 81,553 81,087 Retained earnings 111,870 105,134 Accumulated other comprehensive income 1,391 1,504 Less: Treasury stock, at cost -- 1,311,383 shares (2003) and 1,188,383 shares (2002) (28,309) (24,745) ----------- ----------- Total stockholders' equity 166,595 163,066 ----------- ----------- Total liabilities and stockholders' equity $ 2,561,041 $ 2,494,970 =========== ===========

HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 6 OF 9 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)

THREE MONTHS ENDED MARCH 31, ------------------------------- 2003 2002 ------------ ----------- Interest revenues: Loans $ 34,173 $ 32,508 Investments and other securities 2,952 - Investment in capital stock of Federal Home Loan Bank, fed funds and other 464 861 ------------ ----------- Total interest revenues 37,589 33,369 ------------ ----------- Interest costs: Deposits 9,569 9,534 FHLB advances 5,813 5,152 Senior notes - 806 Capital securities 773 304 ------------ ----------- Total interest costs 16,155 15,796 ------------ ----------- Net interest income 21,434 17,573 Provision for credit losses 300 500 ------------ ----------- Net interest income after provision for credit losses 21,134 17,073 Noninterest revenues: Loan related and other fees 886 848 Deposit fees 456 373 Other 195 72 ------------ ----------- Total noninterest revenues 1,537 1,293 Income from real estate operations, net 1 69 Noninterest expenses: General and administrative expenses: Employee 6,190 5,032 Operating 2,401 1,503 Occupancy 1,186 914 Professional 447 107 Technology 549 369 SAIF premiums and OTS assessments 165 136 Other/legal settlements 226 20 ------------ ----------- Total general and administrative expenses 11,164 8,081 ------------ ----------- Income before income taxes 11,508 10,354 Income tax provision 4,772 4,452 ------------ ----------- Net income $ 6,736 $ 5,902 ============ =========== Basic earnings per share $ 0.89 $ 1.10 ============ =========== Diluted earnings per share $ 0.81 $ 0.77 ============ =========== Weighted average basic shares outstanding 7,575 5,372 ============ =========== Weighted average diluted shares outstanding 8,340 7,627 ============ ===========

HAWTHORNE FINANCIAL CORPORATION FIRST QUATER 2003 RESULTS APRIL 24,2003 PAGE 7 OF 9 SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED) (Dollars in thousands)

MARCH 31, DECEMBER 31, MARCH 31, 2003 2002 2002 ---------- ------------ ---------- Risk elements: Nonaccrual loans $ 8,312 $ 7,675 $ 6,295 Real estate owned, net - - - ---------- ------------ ---------- 8,312 7,675 6,295 Performing loans classified substandard or lower (1) 15,018 16,002 46,520 ---------- ------------ ---------- Total classified assets $ 23,330 $ 23,677 $ 52,815 ========== ============ ========== Total classified loans $ 23,330 $ 23,677 $ 52,815 ========== ============ ========== Loans restructured and paying in accordance with modified terms (2) $ 2,448 $ 2,468 $ 2,707 ========== ============ ========== Gross loans before allowance for credit losses $2,133,341 $ 2,149,564 $1,693,408 ========== ============ ========== Loans receivable, net of specific valuation allowance $2,133,085 $ 2,149,376 $1,692,958 ========== ============ ========== Delinquent loans: 30 - 89 days $ 8,738 $ 5,357 $ 14,405 90+ days 4,699 7,175 4,968 ---------- ------------ ---------- Total delinquent loans $ 13,437 $ 12,532 $ 19,373 ========== ============ ========== Allowance for credit losses: General valuation allowance ("GVA") $ 35,250 $ 35,121 $ 28,226 Specific valuation allowance ("SVA") 256 188 450 ---------- ------------ ---------- Total allowance for credit losses $ 35,506 $ 35,309 $ 28,676 ========== ============ ========== Net loan charge-offs: Net charge-offs for the quarter ended (3) $ 103 $ 664 $ 2,426 Percent to loans receivable, net of SVA (annualized) 0.02% 0.12% 0.57% Percent to beginning of period allowance for credit losses (annualized) 1.17% 7.40% 31.71% Selected asset quality ratios at period end: Total nonaccrual loans to total assets 0.32% 0.31% 0.34% Total allowance for credit losses to loans receivable, net of SVA 1.66% 1.64% 1.69% Total GVA to loans receivable, net of SVA 1.65% 1.63% 1.67% Total allowance for credit losses to nonaccrual loans 427.17% 460.05% 455.54% Total classified assets to Bank core capital and GVA 10.41% 10.81% 27.81%

- ----------------------------------- (1) Excludes nonaccrual loans. (2) Troubled debt restructured loans not classified and not on nonaccrual. (3) During the course of the year, charge-offs are anticipated and reflected as specific valuation allowances. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 8 OF 9 NET INTEREST INCOME (UNAUDITED) (Dollars in thousands)

THREE MONTHS ENDED MARCH 31, ----------------------------------------------------------------------- 2003 2002 ---------------------------------- ----------------------------------- WEIGHTED WEIGHTED AVERAGE REVENUES/ AVERAGE AVERAGE REVENUES/ AVERAGE BALANCE COSTS YIELD/COST BALANCE COSTS YIELD/COST ----------- --------- ---------- ----------- --------- ---------- Assets: Interest-earning assets: Loans receivable (1) $ 2,144,063 $ 34,173 6.40% $ 1,717,674 $ 32,508 7.61% Cash, fed funds and other 5,945 19 1.30 118,658 487 1.66 Investment securities 316,986 2,952 3.73 - - - Investment in capital stock of Federal Home Loan Bank 34,860 445 5.18 24,607 374 6.16 ----------- -------- ----------- -------- Total interest-earning assets 2,501,854 37,589 6.04 1,860,939 33,369 7.21 -------- ----- -------- ------ Noninterest-earning assets 51,378 1,247 ----------- ----------- Total assets $ 2,553,232 $ 1,862,186 =========== =========== Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits $ 1,675,565 $ 9,569 2.32% $ 1,161,976 $ 9,534 3.33% FHLB advances 583,337 5,813 3.99 484,000 5,152 4.26 Senior notes - - - 25,778 806 12.50 Capital securities 51,000 773 6.06 14,000 304 8.69 ----------- -------- ----------- -------- Total interest-bearing liabilities 2,309,902 16,155 2.82 1,685,754 15,796 3.78 -------- ----- -------- ------ Noninterest-bearing checking 41,302 35,957 Noninterest-bearing liabilities 38,353 19,702 Stockholders' equity 163,675 120,773 ----------- ----------- Total liabilities and stockholders' equity $ 2,553,232 $ 1,862,186 =========== =========== Net interest income $ 21,434 $ 17,573 ======== ======== Interest rate spread 3.22% 3.43% ====== ====== Net interest margin 3.44% 3.80% ====== ======

- ------------------------------ (1) Includes the interest on nonaccrual loans only to the extent it was paid and recognized as interest income. HAWTHORNE FINANCIAL CORPORATION FIRST QUARTER 2003 RESULTS APRIL 24, 2003 PAGE 9 OF 9 NET LOAN PORTFOLIO COMPOSITION (UNAUDITED) (Dollars in thousands)

MARCH 31, 2003 DECEMBER 31, 2002 ----------------------------- ----------------------------- BALANCE PERCENT BALANCE PERCENT ----------- ------- ----------- ------- Single family residential $ 847,421 39.93% $ 851,268 39.81% Income property: Multi-family 706,488 33.29% 689,100 32.22% Commercial 378,835 17.85% 387,354 18.11% Development: Multi-family 45,075 2.12% 57,037 2.67% Commercial 36,531 1.72% 41,168 1.93% Single family construction: Single family residential 68,514 3.23% 75,218 3.52% Land 34,214 1.61% 32,612 1.52% Other 5,225 0.25% 4,738 0.22% ----------- ------ ----------- ------ Total loan principal (1) $ 2,122,303 100.00% $ 2,138,495 100.00% =========== ====== =========== ======

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

SELECTED FINANCIAL DATA (UNAUDITED) (1) THREE MONTHS ENDED (Dollars in thousands) MARCH 31, ------------------------- 2003 2002 ------ ------- PERFORMANCE RATIOS Return on average assets (2) 1.06% 1.27% Return on average equity (2) 16.46% 19.55% Efficiency ratio (3) 47.62% 42.73% GROWTH RATIOS (2) Total assets 10.59% 1.52% Loans receivable, net -3.11% -10.43% Total deposits 23.97% -0.99%

MARCH 31, MARCH 31, 2003 2002 --------- --------- BANK CAPITAL RATIOS Core capital $ 188,876 $ 161,664 Ratio 7.46% 8.69% Tier 1 capital $ 188,876 $ 161,664 Ratio 10.54% 12.41% Risk-based capital $ 211,440 $ 177,455 Ratio 11.80% 13.62%

- ------------------------------- (1) All ratios were calculated based on net income. (2) Annualized for the three months ended March 31, 2003 and March 31, 2002, respectively. (3) Represents total general and administrative expenses (excluding other/legal settlements) divided by net interest income before provision for credit losses and noninterest revenues. EX-99.2 4 a89625exv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 Hawthorne Financial First Quarter 2003 Conference Call April 24, 2003 Good morning to those of you here on the West Coast and good afternoon to those of you on the East Coast. Thank you for joining Hawthorne Financial Corporation First Quarter 2003 Conference Call. My name is Simone Lagomarsino and I'm the President and Chief Executive Officer of Hawthorne Financial Corporation and Hawthorne Savings and with me is David Rosenthal our Executive Vice President and Chief Financial Officer. Hopefully everyone had an opportunity to review our press release highlighting our first quarter results. Before we begin reviewing the quarterly results, I'd like to mention that comments made during this call may contain forward looking statements based on planned expectations, events or trends. Actual results could differ materially from those discussed on this call. The speakers on this call claim the protection of the Safe Harbor provisions contained in the Securities Litigation Reform Act of 1995. 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. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from expected results, we encourage you to refer to today's earnings release, the Company's Annual Report on form 10-K for 2002 and our other SEC fillings. If you've not yet received a copy of today's earnings release you may do so now by visiting our website at www.hawthornesavings.com, clicking on our Investor Relations section and then news. Before I respond to questions I'd like to cover a few points from this morning's earnings release and then briefly cover the Southern California economy. This morning we reported net income for the quarter of $6.7 million or 81 cents per share representing a 14 percent increase compared to the $5.9 million net income figure reported in the same quarter for 2002. During the quarter our team of talented employees continued to focus on our core business, growing deposits 24 percent on an annualized basis, growing deposit fee income 16 percent and originating record levels of new loans. We continue to expand our array of products offered, in fact this quarter we'll be rolling out our courtesy overdraft program which we expect will further enhance the product array and provide us with the opportunity to continue to cross-sell our customers. Hawthorne's franchise value is significantly enhanced by our growing core deposit base. Our management team is consistently working to improve productivity and efficiency and we've made significant progress during the first quarter of 2003 in this regard as we'll discuss in a few minutes. Our strong operating results for the first quarter of 2003 translate into improvement in our performance ratios. Return on average assets for the first quarter of 2003 was 1.06 percent compared to 97 basis points for the fourth quarter of 2002. Return on average equity was 16.46 percent, which is within our target range of 15 to 20 percent and comparing favorably to prior periods. Next I'd like to make a few important observations regarding our lending and retail operations. Loan originations were strong during the first quarter totaling $237 million reflecting a 35 percent increase over the first quarter of 2002 and a four percent increase over the fourth quarter of 2002. Due to the increase in prepayments during the first quarter, however average loans outstanding remained relatively flat during the quarter and loans outstanding at the end of the quarter reflected a reduction of three percent on an annualized basis. As we indicated in our January conference call, loan prepayments averaged 45 percent during the first three quarters of 2002 annualized and then 33 percent for the fourth quarter, suggesting that prepayments had begun to slow. However, during the first quarter of 2003 we experienced prepayment fees at an annualized rate of 35 percent. We reiterate our expectation that at some point our prepayment fees will slow due in part to the fact that there is a reduced amount of higher yielding loans in our current loan portfolio. We remain very confident in the capabilities of our current loan origination team and we anticipate that this seasoned team will achieve net loan growth for the year of between five percent and 12 percent due in large part 1 to our expectation - expectations of continued strong loan originations and to our confidence in the residential housing market. The demand for housing in Southern California continues to outpace the supply. The projected population growth compared to new housing starts suggests that the gap is widening. In particular affordable housing is in high demand. As a result of this imbalance, and the expectation that it won't be resolved in the near term, we feel that residential real estate will retain their value better than other types of real estate. Currently 79 percent of our portfolio is secured by either single family or multi family residential property and, therefore we believe that we remain well positioned to maintain our current strong asset quality level. Our single family business has not been heavily dependent on refinancing as about 60 percent of our loan originations in the single family residential portfolio during the first quarter were in connection with home purchases, not refinancings. Further virtually all of our loans are originated and held in our portfolio. Therefore, we believe that we are well positioned for the time when the refinancing activity starts to slow. Turning now to deposits, during the first quarter non interest bearing checking account balances increased 35 percent on an annualized basis, and deposits grew 24 percent on an annualized basis, reflecting our focus on building franchise value. At Hawthorne we take pride in providing "extreme service." This means providing service above and beyond what anyone would ever expect from a bank. In fact this earned us once again in 2003 the title of "The Best Bank in the South Bay" as voted by the readers of the local paper, The Easy Reader. Consistently providing extreme service has been key to developing our customer loyalty. We're now taking the same strategies that we successfully implemented in the South Bay into the two new markets that we've entered as of last summer, including Orange County and San Diego County. In June of this year we'll be opening a new branch in the Irvine corridor and in May we'll be opening a new branch in L. A. County. The bank's branching strategy continues to be focused on providing convenience and access to our core customers in specifically targeted areas, where the demographics met our criteria. Rather than develop a large branch network throughout the four Southern California counties, our branching strategy entails selecting specific targeted markets within the counties, such as the South Bay region of Los Angeles County, North San Diego County, and the Irvine corridor in Orange County. Our goal is to become The Community Bank in these markets and to grown our market share to rank us within the top five in each of these regions. This is similar to what we've done in the South Bay, where we are currently ranked fifth in deposit market share, out of 47 institutions. We continue to be focused on cost containment and efficiency, and as a result, we have developed a branching strategy for expansion; wherein we will typically only open one or two branches in a twelve month period. Total deposits at March 31, 2003 were $1.8 billion, and transaction accounts comprised just under 37 percent of the deposits, down slightly from 38 percent at year end. However, considering the 24 percent annualized growth rate in deposits in the first quarter, we are very pleased with the deposit mix at March 31. Not only is the deposit composition strong, our cross-sell ratio, defined as the number of different types of loans and deposit products per household served, increased to 2.46 from 2.44 at year end. We've seen double digit increases in retail deposit accounts of 11.3 percent annualized and total checking accounts of 24.7 percent annualized during the first quarter, reflecting the momentum we've gained in strengthening the franchise. The deposit strategies will have a direct impact on our non-interest revenues in 2003 and beyond. Our goal is to focus on increasing retail and deposit related fees as a percentage of non-interest income. Due to the high level of refinancings; however, loan and other related fees, which were comprised primarily of prepayment fees, represented the majority of non-interest revenues in the first quarter. The 29 percent decrease in non-interest revenue during the first quarter of 2003 compared to the fourth quarter of 2002, was because the prepayment fees earned during the fourth quarter were more significant than the prepayment fees earned during the first quarter of 2003. Loan related non-interest revenues due to prepayment fees may vary from period to period because the individual borrowers have discretion whether and when to prepay their loan and incur a fee. Deposit fee income increased 16 percent during the first quarter of 2003 compared to the fourth quarter of 2002 and 22 percent compared to the first quarter of 2002, due to our continued focus on the development of new products that generate additional fee income. As I mentioned earlier, we will be rolling our courtesy overdraft program this 2 month; and our subsidiary, H. S. Financial Services, which commenced operations in July of 2002, continues to operate successfully, selling non-deposit investment and insurance products in the Banks' branches. As a result of the increases in revenue anticipated from these new initiatives, as well as others, we anticipate net growth in non-interest income in 2003 to be in excess of 10 percent, compared to our 2002 non-interest income. In terms of non-interest expense, non-interest expenses during the first quarter of 2003 were $800,000 less than during the fourth quarter of 2002, representing a reduction of 7 percent. The ratio of general administrative expenses to average assets was 1.69 percent for the first quarter, reflecting significant improvement over prior periods. However, we believe there is opportunity for improvement here, and lowering our efficiency ratio remains a very important strategic initiative for us. We remain very disciplined about expense control, as is evidenced by the reduction in the ratio of general and administrative expenses to average assets from 2.4 percent in 1998, down to the current level. We anticipate average assets to increase 29 percent during 2003, compared to 2002, yet we reiterate our guidance for growth in G&A of only 10 to 12 percent compared to our total G&A in 2002. As a reminder, the 2003 G&A includes 12 months of First Fidelity G&A compared to only four months in 2002. In addition, the increase is attributable to staffing requirements and related costs for the anticipated growth in the loan origination volume, and the planned branch expansion. The percentage increase is net of other contemplated cost containment benefits from our continued emphasis on increasing productivity and the deployment of technology enhancements. During the first quarter of 2003, our efficiency ratio improved to 47.62 percent compared to 50.44 percent during the fourth quarter of 2002. Consistent with our previous guidance, our goal is to reduce the efficiency ratio to 45 percent and G&A to average assets to 1.6 percent during 2003. Of course, improving the efficiency ratio is directly correlated to maintaining and improving our net interest income and other income, in addition to controlling general and administrative expenses. I will now discuss our net interest income and net interest margin. Net interest income increased 22 percent during the first quarter of 2003, compared to a year earlier and was relatively in line with net interest income for the prior quarter. The net interest margin for the first quarter of 2003 was 3.44 percent down from 3.55 the prior quarter and 3.8 percent a year earlier. The reduction in the net interest margin compared to the prior quarter was largely due to a 34 basis point reduction in yield on loans outstanding, because new loans are being originated at lower yields than the loans that are prepaying. This was partially offset by a reduction in the Company's cost of funds of 26 basis points. Net interest income was relatively in line with our expectations, because the company deployed excess liquidity from the loan prepayments into mortgage-backed securities. However, this had the effect of compressing the net interest margin. For the reasons stated above and due to the uncertainty regarding the future prepayment speeds, we are adjusting our guidance for the 2003 net interest margin to 3.25 to 3.35 percent. In addition to the positive results that I have all ready discussed, the improvement in our asset quality gives us a great deal of pride and satisfaction. Along with balance sheet growth, we continue to focus on reducing balance sheet risk. We've been extremely successful in this regard over the last four years. The ratio of non-accrual loans to total assets was 32 basis points as of March 31, 2003, well in line with our peer group. Classified assets totaled 23.3 million at quarter end, in line with year end 2002 and less than half of what they were a year earlier. Delinquent loans totaled 13.4 million at quarter end and Hawthorne had no REO properties at the end of the first quarter. Asset quality remains at the lowest level in over fifteen years. During the first quarter 2003, we provided $300,000 to loan loss reserves, primarily to replenish the reserve for a $100,000 charge-off and to establish a specific valuation allowance for a single credit. Assuming that asset quality remains at current levels, factoring in anticipated loan growth, and based on the current assessment of the economic indicators, we anticipate that the provision for credit losses for 2003 will be in the range of $100,000 to $300,000 per quarter. Loan charge-offs for the first quarter totaled $100,000 and primarily resulted from the sale of one loan. The Company reflects anticipated charge-offs in the form of specific valuation allowances, and as of March 31, total specific valuation allowances were $256,000. We will now conclude with a brief update on the California economy. According to the UCLA Anderson forecast, the outlook for California is largely unchanged from what we discussed in our January conference call. In 2003, modest growth is expected in employment, taxable sales, and personal 3 income. California experienced weakness in consumer spending in 2001 and 2002, partly related to the decline in personal income resulting from the collapse of the technology sector. California personal income will improve when employment growth resumes in 2003, but the growth trend will be constrained compared to prior years due to the absence of the stock market gains experienced during the three-year period 1998 - 2000. State-wide, the February unemployment rate of 6.6 percent was down from December's revised 6.9 percent. One of our target markets, Los Angeles, has experienced similiar decreases; however, Orange and San Diego counties have seen a slight increase in unemployment. The impact of the state government's large deficit remains unknown; however, it is clear it will be a significant impediment to growth in both state and local government programs and jobs during the next several years. From a real estate perspective, California continues to experience price appreciation and strong sales of existing homes. Medium home prices continue to rise in Los Angeles County; in fact, the trailing twelve months reflect an increase of 11 percent as of February 2003. As mentioned earlier, the imbalance in the supply and demand for housing, and the projection that this gap may be widening due to the forecasted population growth, may provide support for housing values. In terms of commercial real estate, according to the UCLA Anderson forecast, there are signs pointing to some strengthening. In Los Angeles County, industrial vacancy has fallen to 3 percent, with Orange County at 4.2 percent and San Diego County 4.6 percent. Average apartment rents rose overall in southern California by 5 percent from 2001 levels and the vacancy in multi-family markets remains stable, again due to supply and demand in the housing market. The office market, which is the weakest real estate market locally, showed modest signs of recovery, as vacancy rates fell from 17 percent in 2001 to just under 15 percent at the end of the year. In conclusion, we continue to manage the company to build long-term shareholder value. We thank you for taking the time to join us on this conference call today, and on behalf of the employees, management and the Board of Directors of Hawthorn Financial Corporation, we want to thank you. And I want to also thank our shareholders for your continued support. We will now be happy to respond to your questions. OPERATOR: Thank you, Ms. Lagomarsino. If you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, if you have a question, please press the one key. Our first question if from Terry Maltese of Sandler O'Neill Asset Management. I'm sorry. Our question is from Mike McMahon of Sandler O'Neill. MIKE MCMAHON, SANDLER O'NEILL: Hi, Simone. LAGOMARSINO: Hi, Mike. MCMAHON: Can you tell us a little more about your overdraft protection program. Is that going to be the primary generator of what appears to be a pretty significant fee increase over the last three quarters? I've seen these programs instituted elsewhere, and they have been tremendous generators of fees. I assume you have a similar program. LAGOMARSINO: We are rolling out a program, actually, this month. It's hard for us to actually know the impact at this point because we're just rolling it out. We do expect that it will add to fee income. It is a program where we will be paying overdraft for our customers and then, obviously, collecting afterwards and charging a fee for paying those overdrafts. Up to this point we have not typically paid overdrafts. We require deposits in before we would pay an overdraft. So it is a program that we arranged through Sheshunoff organization to develop internally here at the bank. And so, again, it - absent that program we still expect to have increases in fee income and we do expect that this will add to our fee income but the extent to which it's hard for us to estimate at this point because we're just rolling it out. 4 MCMAHON: OK. And then secondly, on the capital management, I'm not sure I heard you mention that and I know you can't presuppose what your board's going to do, but you've been an active acquirer of stock for the past couple of years. Is there any reason to think that would change? LAGOMARSINO: Actually we did acquire 123,000 shares of stock during the first quarter at a price just under $29 per share and we currently have about $2.3 million available for share repurchases, so that still remains available and is approved for on-going share repurchases. MCMAHON: OK. And then finally, do you have - you've done a great job at re-engineering the balance sheet over the past three plus years here. Is there any more heavy lifting to do on the liability side where you can gain some benefits? LAGOMARSINO: Well, certainly some of the deposits that we acquired in our acquisition had higher interest rates and we are currently working, as those CDs come up for maturity, to replace them either with much more local core CDs or to replace them at the more now more current lower deposit rates. So there is still more work for us to do on the liability side. We have CDs that are maturing in the next 12 months, are still at about 60 basis points higher than our current CD rate. So we still have room for lowering our cost of funds. MCMAHON: And if I could ask just one more then I'll go off the line here. To what degree - a general comment. To what degree have you been involved in informal discussions, as you are all the time with regard to M & A activity in California? Are you hearing about more interest or less interest? We saw a thrift in Northern California be announced-a deal earlier in the quarter. What's the chit-chat from the CEO level there? LAGOMARSINO: The deal I think you're referring to is Monterey Bay Bank selling to Union Bank? Is that ... MCMAHON: Yes. Yes. LAGOMARSINO: Yes, certainly we saw that at a nice deposit premium and nice multiple of earnings. There have not - I mean, to that point there have not been a lot of transactions in the thrift market here in California. But certainly it would look like there may be some opportunities for consolidation in light of the economic times that we're facing right now. MCMAHON: Thank you, Simone. OPERATOR: Thank you. And our next question is from Gary Townsend of Friedman and Billings. GARY TOWNSEND, FREEDMAN AND BILLINGS: Good morning, Simone. Or afternoon, I guess. Nice quarter and nice summary of everything that's gone on. Could you expand a bit though on your investment portfolio? You're purchasing mortgage backed securities, but could you go into what type of - what flavor of mortgage backs you prefer at this particular point in time and any characteristics with respect to duration and other financial metrics? LAGOMARSINO: Sure. I will answer briefly and then I am going to let David Rosenthal, our CFO, take it over from there. We have about 329 million in investments in our investment portfolio. Those are primarily mortgage backed securities. We have indicated that we would have shorter-term duration. I will mention that the average life is about three years on those and the duration is about two. And let me let David kind of take it from there in terms of maybe going into a little more detail of what the 329 million is comprised of in terms of the different types of investments. DAVID ROSENTHAL, CHIEF FINANCIAL OFFICER, HAWTHORNE: Gary, at the - sometime in the end of the fourth quarter we were much more concerned about the extension risk, and as it turns out in the first quarter, we're seeing pre-payments. So we're very focused on the average life of the portfolio. 5 We've been doing recently 5/1 type of securities and 10-year fully amortizing paper and balancing out the portfolio against some extension risk that we see coming up. TOWNSEND: And are you buying CMOs or is it principally ... ROSENTHAL: Principally MBSs at this time and our average coupon is around five percent. TOWNSEND: And do you see an expansion of the portfolio in coming quarters from where you see it now, or ... LAGOMARSINO: We've given guidance that we would expect that the investment portfolio would be at 15 percent, or less of our total assets. And we're currently about 13 percent and we would continue to provide that guidance that it will remain at about 15 percent or less. TOWNSEND: OK. Thank you. OPERATOR: Our next question is from Manuel Ramirez from KBW. MANUEL RAMIREZ, KBW: Hi. Good morning, Simone and Dave. Three quick questions for you. First, Simone if you could talk about - excuse me, the mix and originations in the quarter. I know you gave the aggregate number. Second, maybe you could give us sort of a little more information on why deposits grew so much sequentially. Did you have a deposit campaign in place? And maybe you could actually break-down - not to put you on the spot. But breakdown sort of deposits coming from branches that have been open in the last year or two and then the First Fidelity branches. And then three, what was the fee income that you got from the insurance investment business? Thank you very much. LAGOMARSINO: OK, Manuel, let me start - you wanted to have an idea of the breakdown of loan originations in the first quarter. About 90 million or so have been in single-family residential permanent. About 60 million was in our income property permanent. About 50 million was in our income property bridge and construction, which was primarily multi-family, and then about 35 million was in single-family construction. So that's the first question. The second question is regarding deposits and did we have a campaign in place? Yes, we had an active campaign to grow checking accounts and we grew checking accounts of - non-interest bearing checking accounts at 35 percent, so we're very pleased - on an annualized basis we're very pleased with the success of that campaign. In terms of the breakdown of the branches, I actually don't have that here with me and I apologize for that. So, I can't update you with that. RAMIREZ: OK. LAGOMARSINO: And the income on the investments, I actually don't have that here either, so I'm at a loss on two of those questions. RAMIREZ: OK. Thank you very much. OPERATOR: Thank you. Our next question is from Richard Eckert of Roth Capital. RICHARD ECKERT, ROTH CAPITAL: Hi, Simone. LAGOMARSINO: Hi, Rich. ECKERT: I just had a question about the decline in book value quarter-over-quarter. Can you talk about the warrants that were exercised and whether there are any more outstanding that are likely to be exercised? 6 LAGOMARSINO: Yes. The warrants that were exercised - there was about 380,000 warrants that were exercised. ECKERT: Yes, that's correct. LAGOMARSINO: And those pertain - relate back to the 1995 private placement that was done. There are about two and a half million warrants that were issued at the time and there's now, I think, under 500,000 that are left of those warrants. And the exercise price on those warrants were $2.13 per share. The warrants that were exercised in this first quarter were exercised in the cash-less transactions. ECKERT: OK. LAGOMARSINO: And used about 27,000 shares to exercise the warrant. ECKERT: OK. All right. Thank you. LAGOMARSINO: Thank you. OPERATOR: And our next question is from Gary Townsend from Friedman Billings. TOWNSEND: Hello again. A follow-up question on the overdraft checking, under the Sheshunoff program and just how you're choosing to do it, I was curious how - if you could describe your underwriting criteria on that? LAGOMARSINO: OK. Let me, let me first mention that there has been quite a few articles printed about some of these overdraft programs and some people have gotten fairly aggressive in terms of how they're implementing them. We, in some cases - well, people have gotten fairly aggressive. We - Sheshunoff has provided quite a bit of guidance to us in terms of how to implement to where you're not actually actively marketing to tell people that you have an overdraft program. It's literally when and if they present - checks are presented when they don't have sufficient funds that you actually then notify them that we have this program. So it's not like we blitz out to all of our customers that they can now start overdrafting their accounts. So once checks are presented, then the decision is made based on a model that Sheshunoff has provided us. And what they look at is the frequency of deposits, the amount of deposits, the frequency of checks and it's the whole model that helps us determine whether or not we would overdraft and to the extent at which we would overdraft for a particular customer. So that's the model that Sheshunoff provides us help with that decision-making on the quote, unquote underwriting. Gary, does that answer? TOWNSEND: Yes. I think so. One final question, do you have an end of period outstanding share count? LAGOMARSINO: Let me just check real quick. You know, it is actually on our proxy statement. Can you jump out and get it real quick? There's a proxy statement on my credenza. Sorry. TOWNSEND: We can find it there too if it's trouble. LAGOMARSINO: It's in the other room. It will just take one second. And it's right on ... TOWNSEND: Why don't you get to another question and you can just ... LAGOMARSINO: We'll read it in when we get it. TOWNSEND: Very good. Thank you. LAGOMARSINO: Thank you. 7 OPERATOR: Thank you. And our next question is from Darus Brawn of Endicott Partners. DARUS BRAWN, ENDICOTT PARTNERS: Hi, Simone. I just want to say great quarter. LAGOMARSINO: Thank you. BRAWN: And to see if I can get some clarification. You cited some numbers and when you're - in your discussion earlier and I just wanted to clarify. You said non-interest income, you're expecting to grow 10 percent versus 2002 levels? LAGOMARSINO: Correct. BRAWN: Non-interest expense was 10 to 12 percent? LAGOMARSINO: Correct. BRAWN: And then what was the average asset growth you mentioned? LAGOMARSINO: We expect loan growth to be between 5 and 12 percent. BRAWN: Yes. LAGOMARSINO: And the average assets will be 29 percent over 2002 average assets. BRAWN: Over the full year 2002. LAGOMARSINO: Correct. BRAWN: OK. LAGOMARSINO: Average assets in 2003 we expect to be 29 percent more than average assets in 2002. BRAWN: Great. OK. Thank you very much. LAGOMARSINO: OK. And just to read in the total shares outstanding, as of March 28th was 7,681,019 in response to Gary Townsend's question. OPERATOR: Thank you. If you have a question at this time, please press the one key. Our next question is from Terry Maltese of Sandler O'Neill Asset. TERRY MALTESE, SANDLER O'NEILL ASSET: Hi, Simone, how are you? LAGOMARSINO: Hi, Terry. Terrific, how are you doing? MALTESE: Good thanks. I've got three what I think are very quick questions. The efficiency ratio guidance that you gave of 45 percent, is that for the year or by the end of the year? LAGOMARSINO: It is for the year. MALTESE: OK, so that ... LAGOMARSINO: so we have some room to go to get ... MALTESE: Right. That means it's got to come down pretty far from here to average out to 45 for the year. LAGOMARSINO: Yes. 8 MALTESE: OK. And then I have the same question - same answer on the margin, right? 3.25 to 3.35 is for the year? LAGOMARSINO: For the year. MALTESE: So, again, you expect that to come down a fair amount I guess too, then. LAGOMARSINO: Yes. MALTESE: OK. In terms of - and I don't have the prior quarter in front of me so I apologize, but just to make my job a little bit easier, the guidance you gave last quarter of the various line items versus what you gave this quarter, is the only difference the margin? LAGOMARSINO: The margin is the difference. The only other difference is we indicated last quarter that the loan growth would be double digits and we're now saying it will be between 5 and 12 percent. That's the only two changes from last quarter. MALTESE: OK. Great. Thank you. LAGOMARSINO: Thank you. OPERATOR: Once again, if you do have a question at this time, please press the one key. Our question is from Darus Brawn of Endicott Partners. BRAWN: Hi, Simone. I just wanted to check. You were saying that loan growth is going to be 5 to 12 percent, but earning asset growth will be around 29 percent? LAGOMARSINO: Well, OK, average assets for the year will grow 29 percent over last year, in part because we did the acquisition in August of last year. BRAWN: Yes. So when you're saying the 5 to 12 percent, is that - that's growth just from the fourth quarter then? LAGOMARSINO: Correct. Period to period. BRAWN: OK. Fine. OK. Thank you. LAGOMARSINO: All right. Yes. Sorry for the confusion. OPERATOR: This concludes the question and answer session. Ms. Lagomarsino, I would now like to turn the conference back to you. LAGOMARSINO: Terrific. Again, we just, on behalf of the employees, management and Board of Directors of Hawthorn Financial Corporation we want to thank all of you for participating in the call and we want to thank our shareholders for their continued support. Thank you. OPERATOR: Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a great day. END 9 -----END PRIVACY-ENHANCED MESSAGE-----

EX-99.1

                                                                    EXHIBIT 99.1

                     [HAWTHORNE FINANCIAL CORPORATION LOGO]

                         HAWTHORNE FINANCIAL CORPORATION
                                  PRESS RELEASE

APRIL 24, 2003
IMMEDIATE RELEASE

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

HAWTHORNE FINANCIAL REPORTS STRONG FIRST QUARTER EARNINGS FOR 2003

(El Segundo, CA) Hawthorne Financial Corporation (the "Company"), (NASDAQ:HTHR),
parent company of Hawthorne Savings, F.S.B. (the "Bank"), today announced first
quarter 2003 net income of $6.7 million, representing an increase of 14.1%,
compared to $5.9 million a year earlier. Diluted earnings per share for the
quarter were $0.81, representing an increase of 5.2%, compared to earnings per
share of $0.77 for the first quarter 2002.

FIRST QUARTER HIGHLIGHTS

         -  The Company's strong level of net income of $6.7 million during the
            first quarter of 2003 represents the strength and dedication of our
            talented employees.

         -  Loan volume increased 34.7% during the first quarter 2003, compared
            to the same period in 2002, reflecting the Bank's improved asset
            generation capabilities.

         -  During the quarter, non-interest bearing checking account balances
            increased 35.3% on an annualized basis, and annualized deposit
            growth was 24.0%, reflecting the Company's focus on building
            franchise value.

         -  Deposit fee income increased 16.3% while general and administrative
            expenses decreased by 6.9% compared to the prior quarter,
            demonstrating the Company's focus on improving efficiency. The
            efficiency ratio improved to 47.62% during the first quarter 2003,
            from 50.44% during the fourth quarter 2002.

         -  Asset quality measurements remain at historically strong levels,
            reflecting the changes made to underwriting practices during the
            past four years.

"Net income and other key performance measurements such as ROA/ROE and asset
quality for the quarter continue to reflect the strong foundation that we have
built," said Simone Lagomarsino, the Company's President and Chief Executive
Officer.

RETURN ON ASSETS/RETURN ON EQUITY

Key performance measurements for the first quarter reflected improvements over
the fourth quarter of 2002. Net income for the three months ended March 31,
2003, resulted in a return on average assets ("ROA") of 1.06%, compared with a
ROA of 0.97% for the fourth quarter of 2002. Return on average equity ("ROE")
was 16.46% for the three months ended March 31, 2003, compared with a ROE of
14.91% for the fourth quarter of 2002.



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 2 OF 9

NET INTEREST INCOME

The Company's net interest income after provision for credit losses was $21.1
million for the quarter, which was relatively flat compared to the prior
quarter, and reflecting an increase of 23.8% compared to the $17.1 million for
the first quarter of 2002. The Company's net interest margin for the three
months ended March 31, 2003 was 3.44%, compared with 3.55% during the prior
quarter, and 3.80% during the first quarter 2002.

The average cost of funds for the Company decreased to 2.82% during the three
months ended March 31, 2003, compared to 3.08% the prior quarter, and 3.78%
during the first quarter 2002. The reduction in the cost of funds is the result
of the combination of the continued downward pressure on interest rates,
maturing certificates of deposit with higher than current market rates, and the
shift in the deposit mix.

Net interest income was positively impacted by: 1) the inclusion of the net
assets from the acquisition of First Fidelity in August 2002, 2) the continued
strong origination volume of $236.5 million, 3) the majority of ARM loans ($1.2
billion) reaching their contractual floors and 4) increased income from the
investment securities portfolio.

Both net interest income and net interest margin continue to be adversely
impacted as borrowers refinance loans, which resulted in $179.8 million in
prepayments with a weighted average interest rate of 7.30%, while new loan
originations had a weighted average interest rate of 5.50% during the quarter.
As a result, the yield on loans receivable was 6.40% during the three months
ended March 31, 2003, compared to 6.74% during the prior quarter and 7.61%
during the first quarter 2002.

Net interest income was positively impacted by the increase in mortgage backed
securities, which resulted from the deployment of the excess liquidity caused by
loan prepayments. This had the effect of compressing the net interest margin.
Accordingly, and due to the uncertainty regarding future prepayment speeds, we
are lowering the previously announced guidance for 2003 net interest margin by
10 basis points, to the range of 3.25% to 3.35%.

NONINTEREST REVENUES

Noninterest revenues increased 18.9% to $1.5 million for the three months ended
March 31, 2003, compared with $1.3 million during the same period in 2002. Loan
and other related fees constituted 57.6% of noninterest revenues and were
comprised primarily of prepayment fees resulting from the high level of
refinancings. Fee income on deposits increased 22.3% during the first quarter
2003, compared with the same period in 2002, and increased 16.3% compared to the
prior quarter, resulting from the growth in core transaction deposits and other
fee generating initiatives.

The Company continues to expand its customer product array, which will enhance
customer retention and satisfaction, thereby increasing income. The ratio of
products per household increased slightly to 2.46 at March 31, 2003 for the
combined Bank, compared with 2.44 at December 31, 2002. The retail banking team
has implemented a customer overdraft protection program. As a result of this
program along with other initiatives contemplated, we reiterate prior guidance
that noninterest income will increase by 10% for the year.

NONINTEREST EXPENSE

Total general and administrative expenses ("G&A") were $11.2 million for the
three months ended March 31, 2003, compared with $12.0 million incurred in the
fourth quarter of 2002. "This $0.8 million decrease in G&A to the prior quarter
represents a 6.9% reduction and validates the cost containment emphasis and
efforts our team continues to implement," Ms. Lagomarsino said. Annualized G&A
(excluding other/legal settlements) to average assets (excluding allowance for
credit losses) decreased to 1.69% for the quarter ended March 31, 2003, compared
to 1.82% for the year ended 2002. The Company's efficiency ratio was 47.62% for
the three months ended March 31, 2003, which was less than the fourth quarter of
2002 and the 48.07% for the year ended 2002. The Company remains focused on its
goal to reduce the efficiency ratio to 45% or less in 2003.



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 3 OF 9

LOANS

Loans receivable averaged $2.1 billion during the first quarter of 2003, which
was relatively flat compared to the prior quarter, and reflected a 24.8%
increase compared to average loans outstanding during the first quarter 2002.
New loan originations were $236.5 million for the first quarter of 2003, which
represented an increase of 34.7% compared to originations during the first
quarter 2002. "We continue to work to reduce the average loan size, and to
diversify the loan portfolio across products types and geographically throughout
Southern California," Ms. Lagomarsino said.

DEPOSITS

Total deposits increased to $1.8 billion at March 31, 2003, from $1.7 billion at
December 31, 2002, a 24.0% annualized increase. As of March 31, 2003, the Bank
had 67,974 total retail deposit accounts, 40,223 total households and 22,246
checking accounts, which reflected increases from the prior year of 14.3%, 16.3%
and 11.1%, respectively.

"I am pleased to report that the Bank has been selected as the "Best Bank in the
South Bay" by the readers of a local South Bay newspaper, the Easy Reader. The
Bank has been awarded this honor in three out of the last four years, which is a
reflection of our commitment to providing "extreme service" to our customers
throughout the Bank," said Ms. Lagomarsino. "We are bringing this same level of
commitment to "extreme service" and community participation as we proceed with
our branching strategy in Orange and San Diego Counties," she added.

The Company also announced the planned opening of two new branches in the second
quarter of 2003. Ms. Lagomarsino stated, "In April, we will open our fourteenth
branch in Baldwin Hills, in Los Angeles County. This location has been the
headquarters of Operation Hope, a community development organization that
Hawthorne has been associated with for over five years, and we are very excited
about the opportunity to convert many of their clients to Hawthorne Savings'
customers. In June, we expect to open our fifteenth branch in the Oak Creek area
of Irvine, in Orange County."

ASSET QUALITY

Management is very pleased that classified assets remain at historically low
levels. At March 31, 2003, the ratio of total allowance for credit losses to
loans receivable, net of specific valuation allowance, was 1.66%, compared with
1.64% at December 31, 2002.

Based on the current assessment of asset quality and economic indicators,
management anticipates that the provision for credit losses for the remainder of
2003 will be based primarily on loan growth.

STOCK REPURCHASES/EXERCISES

During the first quarter of 2003, there were 123,000 shares repurchased at an
average price of $28.98. As of March 31, 2003, cumulative repurchases were
1,305,983 shares at an average price of $21.64. Currently, $2.3 million remains
available for additional share repurchases under existing board approved
authorizations.

In February 2003, the Fort Pitt Fund LP, which is controlled by one of the
Company's directors, exercised warrants to purchase 380,450 shares of common
stock, in a cashless transaction.



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 4 OF 9

CAPITAL LEVELS

At March 31, 2003, the Bank remained well-capitalized with core, tier 1 and
risk-based capital ratios of 7.46%, 10.54% and 11.80%, respectively. The minimum
ratios for well-capitalized banks are 5%, 6% and 10% for core capital, tier 1
and risk-based capital, respectively.

ABOUT HAWTHORNE SAVINGS

Hawthorne Savings, F.S.B., with total assets of $2.6 billion, operates thirteen
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 loans secured by multi-family residential and commercial real estate,
3) loans for the construction of multi-family residential, commercial and
individual single family residential properties and the acquisition and
development of land for the construction of such projects. The Company funds its
loans predominantly with retail deposits generated through its thirteen full
service retail offices and FHLB advances.

                                    * * * * *

When used in this press release or in future press releases, filings by
Hawthorne Financial Corporation ("Company") with the Securities and Exchange
Commission ("SEC"), or other public or stockholder communications, or in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers that all forward-looking statements are necessarily speculative and not
to place undue reliance on any such forward-looking statements, which speak only
as of the date made. Also, the Company wishes to advise readers that various
risks and uncertainties could affect the Company's financial performance and
cause actual results for future period to differ materially from those
anticipated or projected. Specifically, the Company cautions readers that
important factors could affect the Company's business and cause actual results
to differ materially from those expressed in any forward-looking statement made
by, or on behalf of, the Company, including: general economic conditions in its
market area, particularly changes in economic conditions in the real estate
industry or real estate values in our market, changes in market interest rates,
loan prepayments increasing or continuing at the current pace, risk associated
with credit quality, outcome of pending litigation, inherent market risk
associated with treasury activities, the Company's ability to successfully
implement new strategic initiatives and other risks with respect to its business
and/or financial results detailed in the Company's press releases and filings
with the SEC. Stockholders are urged to review the risks described in such
releases and filings. The risks highlighted herein should not be assumed to be
the only factors that could affect future performance of the Company. The
Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions that may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 5 OF 9

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
(DOLLARS IN THOUSANDS)



                                                                                  MARCH 31,                DECEMBER 31,
                                                                                    2003                       2002
                                                                                 ------------              ------------
                                                                                                     
Assets:
  Cash and cash equivalents                                                      $    17,772               $    21,849
  Investment securities available-for-sale, at fair value                            329,255                   267,596
  Loans receivable (net of allowance for credit losses
    of $35,506 in 2003 and $35,309 in 2002)                                        2,097,835                 2,114,255
  Accrued interest receivable                                                         11,652                    11,512
  Investment in capital stock of Federal Home Loan Bank, at cost                      35,151                    34,705
  Office property and equipment at cost, net                                           5,237                     5,106
  Deferred tax asset, net                                                              6,966                    10,068
  Goodwill                                                                            22,970                    22,970
  Intangible assets                                                                    1,285                     1,388
  Other assets                                                                        32,918                     5,521
                                                                                 -----------               -----------
        Total assets                                                             $ 2,561,041               $ 2,494,970
                                                                                 ===========               ===========
Liabilities and Stockholders' Equity:
  Liabilities:
    Deposits:
      Noninterest-bearing                                                        $    43,328               $    39,818
      Interest-bearing:
        Transaction accounts                                                         605,321                   597,528
        Certificates of deposit                                                    1,113,790                 1,025,464
                                                                                 -----------               -----------
        Total deposits                                                             1,762,439                 1,662,810
    FHLB advances                                                                    565,945                   600,190
    Capital securities                                                                51,000                    51,000
    Accounts payable and other liabilities                                            15,062                    17,904
                                                                                 -----------               -----------
        Total liabilities                                                          2,394,446                 2,331,904
                                                                                 -----------               -----------
Stockholders' Equity:
  Common stock -- $0.01 par value; authorized 20,000,000
    shares; issued, 8,992,402 shares (2003) and
    8,576,048 shares (2002)                                                               90                        86
  Capital in excess of par value -- common stock                                      81,553                    81,087
  Retained earnings                                                                  111,870                   105,134
  Accumulated other comprehensive income                                               1,391                     1,504
  Less:
    Treasury stock, at cost -- 1,311,383 shares (2003) and
      1,188,383 shares (2002)                                                        (28,309)                  (24,745)
                                                                                 -----------               -----------
        Total stockholders' equity                                                   166,595                   163,066
                                                                                 -----------               -----------
        Total liabilities and stockholders' equity                               $ 2,561,041               $ 2,494,970
                                                                                 ===========               ===========




                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 6 OF 9

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)



                                                                                                      THREE MONTHS ENDED
                                                                                                           MARCH 31,
                                                                                               -------------------------------
                                                                                                   2003               2002
                                                                                               ------------        -----------
                                                                                                             
Interest revenues:
 Loans                                                                                         $     34,173        $    32,508
 Investments and other securities                                                                     2,952                  -
 Investment in capital stock of Federal Home Loan Bank, fed funds and other                             464                861
                                                                                               ------------        -----------
     Total interest revenues                                                                         37,589             33,369
                                                                                               ------------        -----------
Interest costs:
 Deposits                                                                                             9,569              9,534
 FHLB advances                                                                                        5,813              5,152
 Senior notes                                                                                             -                806
 Capital securities                                                                                     773                304
                                                                                               ------------        -----------
     Total interest costs                                                                            16,155             15,796
                                                                                               ------------        -----------
Net interest income                                                                                  21,434             17,573
Provision for credit losses                                                                             300                500
                                                                                               ------------        -----------
     Net interest income after provision for credit losses                                           21,134             17,073
Noninterest revenues:
 Loan related and other fees                                                                            886                848
 Deposit fees                                                                                           456                373
 Other                                                                                                  195                 72
                                                                                               ------------        -----------
     Total noninterest revenues                                                                       1,537              1,293
Income from real estate operations, net                                                                   1                 69
Noninterest expenses:
 General and administrative expenses:
   Employee                                                                                           6,190              5,032
   Operating                                                                                          2,401              1,503
   Occupancy                                                                                          1,186                914
   Professional                                                                                         447                107
   Technology                                                                                           549                369
   SAIF premiums and OTS assessments                                                                    165                136
   Other/legal settlements                                                                              226                 20
                                                                                               ------------        -----------
     Total general and administrative expenses                                                       11,164              8,081
                                                                                               ------------        -----------
Income before income taxes                                                                           11,508             10,354
Income tax provision                                                                                  4,772              4,452
                                                                                               ------------        -----------
Net income                                                                                     $      6,736        $     5,902
                                                                                               ============        ===========
Basic earnings per share                                                                       $       0.89        $      1.10
                                                                                               ============        ===========
Diluted earnings per share                                                                     $       0.81        $      0.77
                                                                                               ============        ===========
Weighted average basic shares outstanding                                                             7,575              5,372
                                                                                               ============        ===========
Weighted average diluted shares outstanding                                                           8,340              7,627
                                                                                               ============        ===========





                        HAWTHORNE FINANCIAL CORPORATION

FIRST QUATER 2003 RESULTS
APRIL 24,2003
PAGE 7 OF 9

SUPPLEMENTAL INFORMATION - CLASSIFIED ASSETS (UNAUDITED)
(Dollars in thousands)



                                                                                 MARCH 31,    DECEMBER 31,    MARCH 31,
                                                                                   2003           2002          2002
                                                                                ----------    ------------   ----------
                                                                                                    
Risk elements:
    Nonaccrual loans                                                            $    8,312    $      7,675   $    6,295
    Real estate owned, net                                                               -               -            -
                                                                                ----------    ------------   ----------
                                                                                     8,312           7,675        6,295
   Performing loans classified substandard or lower (1)                             15,018          16,002       46,520
                                                                                ----------    ------------   ----------
         Total classified assets                                                $   23,330    $     23,677   $   52,815
                                                                                ==========    ============   ==========
         Total classified loans                                                 $   23,330    $     23,677   $   52,815
                                                                                ==========    ============   ==========
Loans restructured and paying in accordance with modified terms (2)             $    2,448    $      2,468   $    2,707
                                                                                ==========    ============   ==========
Gross loans before allowance for credit losses                                  $2,133,341    $  2,149,564   $1,693,408
                                                                                ==========    ============   ==========
Loans receivable, net of specific valuation allowance                           $2,133,085    $  2,149,376   $1,692,958
                                                                                ==========    ============   ==========
Delinquent loans:
    30 - 89 days                                                                $    8,738    $      5,357   $   14,405
    90+ days                                                                         4,699           7,175        4,968
                                                                                ----------    ------------   ----------
        Total delinquent loans                                                  $   13,437    $     12,532   $   19,373
                                                                                ==========    ============   ==========
Allowance for credit losses:
    General valuation allowance ("GVA")                                         $   35,250    $     35,121   $   28,226
    Specific valuation allowance ("SVA")                                               256             188          450
                                                                                ----------    ------------   ----------
        Total allowance for credit losses                                       $   35,506    $     35,309   $   28,676
                                                                                ==========    ============   ==========
Net loan charge-offs:
    Net charge-offs for the quarter ended (3)                                   $      103    $        664   $    2,426
    Percent to loans receivable, net of SVA (annualized)                              0.02%           0.12%        0.57%
    Percent to beginning of period allowance for credit losses (annualized)           1.17%           7.40%       31.71%
Selected asset quality ratios at period end:
   Total nonaccrual loans to total assets                                             0.32%           0.31%        0.34%
   Total allowance for credit losses to loans receivable, net of SVA                  1.66%           1.64%        1.69%
   Total GVA to loans receivable, net of SVA                                          1.65%           1.63%        1.67%
   Total allowance for credit losses to nonaccrual loans                            427.17%         460.05%      455.54%
   Total classified assets to Bank core capital and GVA                              10.41%          10.81%       27.81%


- -----------------------------------

(1)  Excludes nonaccrual loans.

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

(3)  During the course of the year, charge-offs are anticipated and
     reflected as specific valuation allowances.



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 8 OF 9

NET INTEREST INCOME (UNAUDITED)
(Dollars in thousands)



                                                                        THREE MONTHS ENDED MARCH 31,
                                                  -----------------------------------------------------------------------
                                                                 2003                                2002
                                                  ----------------------------------  -----------------------------------
                                                                           WEIGHTED                            WEIGHTED
                                                    AVERAGE    REVENUES/   AVERAGE      AVERAGE    REVENUES/   AVERAGE
                                                    BALANCE      COSTS    YIELD/COST    BALANCE      COSTS    YIELD/COST
                                                  -----------  ---------  ----------  -----------  ---------  ----------
                                                                                            
Assets:
Interest-earning assets:
  Loans receivable (1)                            $ 2,144,063  $ 34,173     6.40%     $ 1,717,674  $ 32,508      7.61%
  Cash, fed funds and other                             5,945        19     1.30          118,658       487      1.66
  Investment securities                               316,986     2,952     3.73                -         -         -
  Investment in capital stock of
    Federal Home Loan Bank                             34,860       445     5.18           24,607       374      6.16
                                                  -----------  --------               -----------  --------
      Total interest-earning assets                 2,501,854    37,589     6.04        1,860,939    33,369      7.21
                                                               --------    -----                   --------    ------
Noninterest-earning assets                             51,378                               1,247
                                                  -----------                         -----------
      Total assets                                $ 2,553,232                         $ 1,862,186
                                                  ===========                         ===========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
    Deposits                                      $ 1,675,565  $  9,569     2.32%     $ 1,161,976  $  9,534      3.33%
    FHLB advances                                     583,337     5,813     3.99          484,000     5,152      4.26
    Senior notes                                            -         -        -           25,778       806     12.50
    Capital securities                                 51,000       773     6.06           14,000       304      8.69
                                                  -----------  --------               -----------  --------
      Total interest-bearing liabilities            2,309,902    16,155     2.82        1,685,754    15,796      3.78
                                                               --------    -----                   --------    ------

  Noninterest-bearing checking                         41,302                              35,957
  Noninterest-bearing liabilities                      38,353                              19,702
  Stockholders' equity                                163,675                             120,773
                                                  -----------                         -----------
      Total liabilities and stockholders' equity  $ 2,553,232                         $ 1,862,186
                                                  ===========                         ===========

Net interest income                                            $ 21,434                            $ 17,573
                                                               ========                            ========
Interest rate spread                                                        3.22%                                3.43%
                                                                           ======                              ======
Net interest margin                                                         3.44%                                3.80%
                                                                           ======                              ======


- ------------------------------

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



                         HAWTHORNE FINANCIAL CORPORATION

FIRST QUARTER 2003 RESULTS
APRIL 24, 2003
PAGE 9 OF 9

NET LOAN PORTFOLIO COMPOSITION (UNAUDITED)
(Dollars in thousands)



                                                        MARCH 31, 2003                        DECEMBER 31, 2002
                                                -----------------------------           -----------------------------
                                                  BALANCE             PERCENT             BALANCE             PERCENT
                                                -----------           -------           -----------           -------
                                                                                                  
Single family residential                       $   847,421            39.93%           $   851,268            39.81%
Income property:
   Multi-family                                     706,488            33.29%               689,100            32.22%
   Commercial                                       378,835            17.85%               387,354            18.11%
   Development:
       Multi-family                                  45,075             2.12%                57,037             2.67%
       Commercial                                    36,531             1.72%                41,168             1.93%
Single family construction:
   Single family residential                         68,514             3.23%                75,218             3.52%
Land                                                 34,214             1.61%                32,612             1.52%
Other                                                 5,225             0.25%                 4,738             0.22%
                                                -----------           ------            -----------           ------
          Total loan principal (1)              $ 2,122,303           100.00%           $ 2,138,495           100.00%
                                                ===========           ======            ===========           ======


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



SELECTED FINANCIAL DATA (UNAUDITED) (1)                                        THREE MONTHS ENDED
(Dollars in thousands)                                                             MARCH 31,
                                                                            -------------------------
                                                                             2003               2002
                                                                            ------            -------
                                                                                        
PERFORMANCE RATIOS
Return on average assets (2)                                                 1.06%              1.27%
Return on average equity (2)                                                16.46%             19.55%
Efficiency ratio (3)                                                        47.62%             42.73%

GROWTH RATIOS (2)
Total assets                                                                10.59%              1.52%
Loans receivable, net                                                       -3.11%            -10.43%
Total deposits                                                              23.97%             -0.99%




                                                                        MARCH 31,          MARCH 31,
                                                                          2003                2002
                                                                        ---------          ---------
                                                                                     
BANK CAPITAL RATIOS
Core capital                                                            $ 188,876          $ 161,664
Ratio                                                                        7.46%              8.69%
Tier 1 capital                                                          $ 188,876          $ 161,664
Ratio                                                                       10.54%             12.41%
Risk-based capital                                                      $ 211,440          $ 177,455
Ratio                                                                       11.80%             13.62%


- -------------------------------

(1)  All ratios were calculated based on net income.

(2)  Annualized for the three months ended March 31, 2003 and March 31, 2002,
     respectively.

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

EX-99.2

                                                                    EXHIBIT 99.2

Hawthorne Financial
First Quarter 2003 Conference Call
April 24, 2003

Good morning to those of you here on the West Coast and good afternoon to those
of you on the East Coast. Thank you for joining Hawthorne Financial Corporation
First Quarter 2003 Conference Call.

My name is Simone Lagomarsino and I'm the President and Chief Executive Officer
of Hawthorne Financial Corporation and Hawthorne Savings and with me is David
Rosenthal our Executive Vice President and Chief Financial Officer.

Hopefully everyone had an opportunity to review our press release highlighting
our first quarter results. Before we begin reviewing the quarterly results, I'd
like to mention that comments made during this call may contain forward looking
statements based on planned expectations, events or trends. Actual results could
differ materially from those discussed on this call. The speakers on this call
claim the protection of the Safe Harbor provisions contained in the Securities
Litigation Reform Act of 1995. 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. For a more complete discussion of the
risks and uncertainties that may cause actual results to differ materially from
expected results, we encourage you to refer to today's earnings release, the
Company's Annual Report on form 10-K for 2002 and our other SEC fillings. If
you've not yet received a copy of today's earnings release you may do so now by
visiting our website at www.hawthornesavings.com, clicking on our Investor
Relations section and then news.

Before I respond to questions I'd like to cover a few points from this morning's
earnings release and then briefly cover the Southern California economy.

This morning we reported net income for the quarter of $6.7 million or 81 cents
per share representing a 14 percent increase compared to the $5.9 million net
income figure reported in the same quarter for 2002. During the quarter our team
of talented employees continued to focus on our core business, growing deposits
24 percent on an annualized basis, growing deposit fee income 16 percent and
originating record levels of new loans. We continue to expand our array of
products offered, in fact this quarter we'll be rolling out our courtesy
overdraft program which we expect will further enhance the product array and
provide us with the opportunity to continue to cross-sell our customers.
Hawthorne's franchise value is significantly enhanced by our growing core
deposit base.

Our management team is consistently working to improve productivity and
efficiency and we've made significant progress during the first quarter of 2003
in this regard as we'll discuss in a few minutes.

Our strong operating results for the first quarter of 2003 translate into
improvement in our performance ratios. Return on average assets for the first
quarter of 2003 was 1.06 percent compared to 97 basis points for the fourth
quarter of 2002. Return on average equity was 16.46 percent, which is within our
target range of 15 to 20 percent and comparing favorably to prior periods.

Next I'd like to make a few important observations regarding our lending and
retail operations. Loan originations were strong during the first quarter
totaling $237 million reflecting a 35 percent increase over the first quarter of
2002 and a four percent increase over the fourth quarter of 2002. Due to the
increase in prepayments during the first quarter, however average loans
outstanding remained relatively flat during the quarter and loans outstanding at
the end of the quarter reflected a reduction of three percent on an annualized
basis.

As we indicated in our January conference call, loan prepayments averaged 45
percent during the first three quarters of 2002 annualized and then 33 percent
for the fourth quarter, suggesting that prepayments had begun to slow. However,
during the first quarter of 2003 we experienced prepayment fees at an annualized
rate of 35 percent. We reiterate our expectation that at some point our
prepayment fees will slow due in part to the fact that there is a reduced amount
of higher yielding loans in our current loan portfolio.

We remain very confident in the capabilities of our current loan origination
team and we anticipate that this seasoned team will achieve net loan growth for
the year of between five percent and 12 percent due in large part

                                       1



to our expectation - expectations of continued strong loan originations and to
our confidence in the residential housing market.

The demand for housing in Southern California continues to outpace the supply.
The projected population growth compared to new housing starts suggests that the
gap is widening. In particular affordable housing is in high demand. As a result
of this imbalance, and the expectation that it won't be resolved in the near
term, we feel that residential real estate will retain their value better than
other types of real estate. Currently 79 percent of our portfolio is secured by
either single family or multi family residential property and, therefore we
believe that we remain well positioned to maintain our current strong asset
quality level.

Our single family business has not been heavily dependent on refinancing as
about 60 percent of our loan originations in the single family residential
portfolio during the first quarter were in connection with home purchases, not
refinancings. Further virtually all of our loans are originated and held in our
portfolio. Therefore, we believe that we are well positioned for the time when
the refinancing activity starts to slow.

Turning now to deposits, during the first quarter non interest bearing checking
account balances increased 35 percent on an annualized basis, and deposits grew
24 percent on an annualized basis, reflecting our focus on building franchise
value. At Hawthorne we take pride in providing "extreme service." This means
providing service above and beyond what anyone would ever expect from a bank. In
fact this earned us once again in 2003 the title of "The Best Bank in the South
Bay" as voted by the readers of the local paper, The Easy Reader.

Consistently providing extreme service has been key to developing our customer
loyalty. We're now taking the same strategies that we successfully implemented
in the South Bay into the two new markets that we've entered as of last summer,
including Orange County and San Diego County. In June of this year we'll be
opening a new branch in the Irvine corridor and in May we'll be opening a new
branch in L. A. County. The bank's branching strategy continues to be focused on
providing convenience and access to our core customers in specifically targeted
areas, where the demographics met our criteria.

Rather than develop a large branch network throughout the four Southern
California counties, our branching strategy entails selecting specific targeted
markets within the counties, such as the South Bay region of Los Angeles County,
North San Diego County, and the Irvine corridor in Orange County. Our goal is to
become The Community Bank in these markets and to grown our market share to rank
us within the top five in each of these regions. This is similar to what we've
done in the South Bay, where we are currently ranked fifth in deposit market
share, out of 47 institutions. We continue to be focused on cost containment and
efficiency, and as a result, we have developed a branching strategy for
expansion; wherein we will typically only open one or two branches in a twelve
month period.

Total deposits at March 31, 2003 were $1.8 billion, and transaction accounts
comprised just under 37 percent of the deposits, down slightly from 38 percent
at year end. However, considering the 24 percent annualized growth rate in
deposits in the first quarter, we are very pleased with the deposit mix at March
31. Not only is the deposit composition strong, our cross-sell ratio, defined as
the number of different types of loans and deposit products per household
served, increased to 2.46 from 2.44 at year end. We've seen double digit
increases in retail deposit accounts of 11.3 percent annualized and total
checking accounts of 24.7 percent annualized during the first quarter,
reflecting the momentum we've gained in strengthening the franchise.

The deposit strategies will have a direct impact on our non-interest revenues in
2003 and beyond. Our goal is to focus on increasing retail and deposit related
fees as a percentage of non-interest income. Due to the high level of
refinancings; however, loan and other related fees, which were comprised
primarily of prepayment fees, represented the majority of non-interest revenues
in the first quarter. The 29 percent decrease in non-interest revenue during the
first quarter of 2003 compared to the fourth quarter of 2002, was because the
prepayment fees earned during the fourth quarter were more significant than the
prepayment fees earned during the first quarter of 2003. Loan related
non-interest revenues due to prepayment fees may vary from period to period
because the individual borrowers have discretion whether and when to prepay
their loan and incur a fee.

Deposit fee income increased 16 percent during the first quarter of 2003
compared to the fourth quarter of 2002 and 22 percent compared to the first
quarter of 2002, due to our continued focus on the development of new products
that generate additional fee income. As I mentioned earlier, we will be rolling
our courtesy overdraft program this

                                       2



month; and our subsidiary, H. S. Financial Services, which commenced operations
in July of 2002, continues to operate successfully, selling non-deposit
investment and insurance products in the Banks' branches. As a result of the
increases in revenue anticipated from these new initiatives, as well as others,
we anticipate net growth in non-interest income in 2003 to be in excess of 10
percent, compared to our 2002 non-interest income.

In terms of non-interest expense, non-interest expenses during the first quarter
of 2003 were $800,000 less than during the fourth quarter of 2002, representing
a reduction of 7 percent. The ratio of general administrative expenses to
average assets was 1.69 percent for the first quarter, reflecting significant
improvement over prior periods. However, we believe there is opportunity for
improvement here, and lowering our efficiency ratio remains a very important
strategic initiative for us. We remain very disciplined about expense control,
as is evidenced by the reduction in the ratio of general and administrative
expenses to average assets from 2.4 percent in 1998, down to the current level.
We anticipate average assets to increase 29 percent during 2003, compared to
2002, yet we reiterate our guidance for growth in G&A of only 10 to 12 percent
compared to our total G&A in 2002. As a reminder, the 2003 G&A includes 12
months of First Fidelity G&A compared to only four months in 2002. In addition,
the increase is attributable to staffing requirements and related costs for the
anticipated growth in the loan origination volume, and the planned branch
expansion. The percentage increase is net of other contemplated cost
containment benefits from our continued emphasis on increasing productivity and
the deployment of technology enhancements. During the first quarter of 2003, our
efficiency ratio improved to 47.62 percent compared to 50.44 percent during the
fourth quarter of 2002. Consistent with our previous guidance, our goal is to
reduce the efficiency ratio to 45 percent and G&A to average assets to 1.6
percent during 2003. Of course, improving the efficiency ratio is directly
correlated to maintaining and improving our net interest income and other
income, in addition to controlling general and administrative expenses.

I will now discuss our net interest income and net interest margin.

Net interest income increased 22 percent during the first quarter of 2003,
compared to a year earlier and was relatively in line with net interest income
for the prior quarter. The net interest margin for the first quarter of 2003 was
3.44 percent down from 3.55 the prior quarter and 3.8 percent a year earlier.
The reduction in the net interest margin compared to the prior quarter was
largely due to a 34 basis point reduction in yield on loans outstanding, because
new loans are being originated at lower yields than the loans that are
prepaying. This was partially offset by a reduction in the Company's cost of
funds of 26 basis points. Net interest income was relatively in line with our
expectations, because the company deployed excess liquidity from the loan
prepayments into mortgage-backed securities. However, this had the effect of
compressing the net interest margin. For the reasons stated above and due to the
uncertainty regarding the future prepayment speeds, we are adjusting our
guidance for the 2003 net interest margin to 3.25 to 3.35 percent.

In addition to the positive results that I have all ready discussed, the
improvement in our asset quality gives us a great deal of pride and
satisfaction.

Along with balance sheet growth, we continue to focus on reducing balance sheet
risk. We've been extremely successful in this regard over the last four years.
The ratio of non-accrual loans to total assets was 32 basis points as of March
31, 2003, well in line with our peer group. Classified assets totaled 23.3
million at quarter end, in line with year end 2002 and less than half of what
they were a year earlier. Delinquent loans totaled 13.4 million at quarter end
and Hawthorne had no REO properties at the end of the first quarter. Asset
quality remains at the lowest level in over fifteen years. During the first
quarter 2003, we provided $300,000 to loan loss reserves, primarily to replenish
the reserve for a $100,000 charge-off and to establish a specific valuation
allowance for a single credit. Assuming that asset quality remains at current
levels, factoring in anticipated loan growth, and based on the current
assessment of the economic indicators, we anticipate that the provision for
credit losses for 2003 will be in the range of $100,000 to $300,000 per quarter.
Loan charge-offs for the first quarter totaled $100,000 and primarily resulted
from the sale of one loan. The Company reflects anticipated charge-offs in the
form of specific valuation allowances, and as of March 31, total specific
valuation allowances were $256,000.

We will now conclude with a brief update on the California economy.

According to the UCLA Anderson forecast, the outlook for California is largely
unchanged from what we discussed in our January conference call. In 2003, modest
growth is expected in employment, taxable sales, and personal

                                       3



income. California experienced weakness in consumer spending in 2001 and 2002,
partly related to the decline in personal income resulting from the collapse of
the technology sector. California personal income will improve when employment
growth resumes in 2003, but the growth trend will be constrained compared to
prior years due to the absence of the stock market gains experienced during the
three-year period 1998 - 2000. State-wide, the February unemployment rate of 6.6
percent was down from December's revised 6.9 percent. One of our target markets,
Los Angeles, has experienced similiar decreases; however, Orange and San Diego
counties have seen a slight increase in unemployment.

The impact of the state government's large deficit remains unknown; however, it
is clear it will be a significant impediment to growth in both state and local
government programs and jobs during the next several years.

From a real estate perspective, California continues to experience price
appreciation and strong sales of existing homes. Medium home prices continue to
rise in Los Angeles County; in fact, the trailing twelve months reflect an
increase of 11 percent as of February 2003. As mentioned earlier, the imbalance
in the supply and demand for housing, and the projection that this gap may be
widening due to the forecasted population growth, may provide support for
housing values.

In terms of commercial real estate, according to the UCLA Anderson forecast,
there are signs pointing to some strengthening. In Los Angeles County,
industrial vacancy has fallen to 3 percent, with Orange County at 4.2 percent
and San Diego County 4.6 percent. Average apartment rents rose overall in
southern California by 5 percent from 2001 levels and the vacancy in
multi-family markets remains stable, again due to supply and demand in the
housing market. The office market, which is the weakest real estate market
locally, showed modest signs of recovery, as vacancy rates fell from 17 percent
in 2001 to just under 15 percent at the end of the year.

In conclusion, we continue to manage the company to build long-term shareholder
value. We thank you for taking the time to join us on this conference call
today, and on behalf of the employees, management and the Board of Directors of
Hawthorn Financial Corporation, we want to thank you. And I want to also thank
our shareholders for your continued support.

We will now be happy to respond to your questions.

OPERATOR: Thank you, Ms. Lagomarsino. If you have a question at this time,
please press the one key on your touch-tone telephone. If your question has been
answered or you wish to remove yourself from the queue, please press the pound
key. Again, if you have a question, please press the one key. Our first question
if from Terry Maltese of Sandler O'Neill Asset Management. I'm sorry. Our
question is from Mike McMahon of Sandler O'Neill.

MIKE MCMAHON, SANDLER O'NEILL: Hi, Simone.

LAGOMARSINO: Hi, Mike.

MCMAHON: Can you tell us a little more about your overdraft protection program.
Is that going to be the primary generator of what appears to be a pretty
significant fee increase over the last three quarters? I've seen these programs
instituted elsewhere, and they have been tremendous generators of fees. I assume
you have a similar program.

LAGOMARSINO: We are rolling out a program, actually, this month. It's hard for
us to actually know the impact at this point because we're just rolling it out.
We do expect that it will add to fee income. It is a program where we will be
paying overdraft for our customers and then, obviously, collecting afterwards
and charging a fee for paying those overdrafts.

Up to this point we have not typically paid overdrafts. We require deposits in
before we would pay an overdraft. So it is a program that we arranged through
Sheshunoff organization to develop internally here at the bank. And so, again,
it - absent that program we still expect to have increases in fee income and we
do expect that this will add to our fee income but the extent to which it's hard
for us to estimate at this point because we're just rolling it out.

                                       4



MCMAHON: OK. And then secondly, on the capital management, I'm not sure I heard
you mention that and I know you can't presuppose what your board's going to do,
but you've been an active acquirer of stock for the past couple of years. Is
there any reason to think that would change?

LAGOMARSINO: Actually we did acquire 123,000 shares of stock during the first
quarter at a price just under $29 per share and we currently have about $2.3
million available for share repurchases, so that still remains available and is
approved for on-going share repurchases.

MCMAHON: OK. And then finally, do you have - you've done a great job at
re-engineering the balance sheet over the past three plus years here. Is there
any more heavy lifting to do on the liability side where you can gain some
benefits?

LAGOMARSINO: Well, certainly some of the deposits that we acquired in our
acquisition had higher interest rates and we are currently working, as those CDs
come up for maturity, to replace them either with much more local core CDs or to
replace them at the more now more current lower deposit rates.

So there is still more work for us to do on the liability side. We have CDs
that are maturing in the next 12 months, are still at about 60 basis points
higher than our current CD rate. So we still have room for lowering our cost of
funds.

MCMAHON: And if I could ask just one more then I'll go off the line here. To
what degree - a general comment. To what degree have you been involved in
informal discussions, as you are all the time with regard to M & A activity in
California? Are you hearing about more interest or less interest? We saw a
thrift in Northern California be announced-a deal earlier in the quarter. What's
the chit-chat from the CEO level there?

LAGOMARSINO: The deal I think you're referring to is Monterey Bay Bank selling
to Union Bank? Is that ...

MCMAHON: Yes. Yes.

LAGOMARSINO: Yes, certainly we saw that at a nice deposit premium and nice
multiple of earnings. There have not - I mean, to that point there have not been
a lot of transactions in the thrift market here in California. But certainly it
would look like there may be some opportunities for consolidation in light of
the economic times that we're facing right now.

MCMAHON: Thank you, Simone.

OPERATOR: Thank you. And our next question is from Gary Townsend of Friedman and
Billings.

GARY TOWNSEND, FREEDMAN AND BILLINGS: Good morning, Simone. Or afternoon, I
guess. Nice quarter and nice summary of everything that's gone on. Could you
expand a bit though on your investment portfolio? You're purchasing mortgage
backed securities, but could you go into what type of - what flavor of mortgage
backs you prefer at this particular point in time and any characteristics with
respect to duration and other financial metrics?

LAGOMARSINO: Sure. I will answer briefly and then I am going to let David
Rosenthal, our CFO, take it over from there. We have about 329 million in
investments in our investment portfolio. Those are primarily mortgage backed
securities. We have indicated that we would have shorter-term duration.

I will mention that the average life is about three years on those and the
duration is about two. And let me let David kind of take it from there in terms
of maybe going into a little more detail of what the 329 million is comprised
of in terms of the different types of investments.

DAVID ROSENTHAL, CHIEF FINANCIAL OFFICER, HAWTHORNE: Gary, at the - sometime in
the end of the fourth quarter we were much more concerned about the extension
risk, and as it turns out in the first quarter, we're seeing pre-payments. So
we're very focused on the average life of the portfolio.

                                       5



We've been doing recently 5/1 type of securities and 10-year fully
amortizing paper and balancing out the portfolio against some extension risk
that we see coming up.

TOWNSEND: And are you buying CMOs or is it principally ...

ROSENTHAL: Principally MBSs at this time and our average coupon is around five
percent.

TOWNSEND: And do you see an expansion of the portfolio in coming quarters from
where you see it now, or ...

LAGOMARSINO: We've given guidance that we would expect that the investment
portfolio would be at 15 percent, or less of our total assets. And we're
currently about 13 percent and we would continue to provide that guidance that
it will remain at about 15 percent or less.

TOWNSEND: OK. Thank you.

OPERATOR: Our next question is from Manuel Ramirez from KBW.

MANUEL RAMIREZ, KBW: Hi. Good morning, Simone and Dave. Three quick questions
for you. First, Simone if you could talk about - excuse me, the mix and
originations in the quarter. I know you gave the aggregate number.

Second, maybe you could give us sort of a little more information on why
deposits grew so much sequentially. Did you have a deposit campaign in place?
And maybe you could actually break-down - not to put you on the spot. But
breakdown sort of deposits coming from branches that have been open in the last
year or two and then the First Fidelity branches.

And then three, what was the fee income that you got from the insurance
investment business? Thank you very much.

LAGOMARSINO: OK, Manuel, let me start - you wanted to have an idea of the
breakdown of loan originations in the first quarter. About 90 million or so have
been in single-family residential permanent. About 60 million was in our income
property permanent. About 50 million was in our income property bridge and
construction, which was primarily multi-family, and then about 35 million was in
single-family construction. So that's the first question.

The second question is regarding deposits and did we have a campaign in place?
Yes, we had an active campaign to grow checking accounts and we grew checking
accounts of - non-interest bearing checking accounts at 35 percent, so we're
very pleased - on an annualized basis we're very pleased with the success of
that campaign.

In terms of the breakdown of the branches, I actually don't have that here with
me and I apologize for that. So, I can't update you with that.

RAMIREZ: OK.

LAGOMARSINO: And the income on the investments, I actually don't have that here
either, so I'm at a loss on two of those questions.

RAMIREZ: OK. Thank you very much.

OPERATOR: Thank you. Our next question is from Richard Eckert of Roth Capital.

RICHARD ECKERT, ROTH CAPITAL: Hi, Simone.

LAGOMARSINO: Hi, Rich.

ECKERT: I just had a question about the decline in book value
quarter-over-quarter. Can you talk about the warrants that were exercised and
whether there are any more outstanding that are likely to be exercised?

                                       6



LAGOMARSINO: Yes. The warrants that were exercised - there was about 380,000
warrants that were exercised.

ECKERT: Yes, that's correct.

LAGOMARSINO: And those pertain - relate back to the 1995 private placement that
was done. There are about two and a half million warrants that were issued at
the time and there's now, I think, under 500,000 that are left of those
warrants. And the exercise price on those warrants were $2.13 per share.

The warrants that were exercised in this first quarter were exercised in the
cash-less transactions.

ECKERT: OK.

LAGOMARSINO: And used about 27,000 shares to exercise the warrant.

ECKERT: OK. All right. Thank you.

LAGOMARSINO: Thank you.

OPERATOR: And our next question is from Gary Townsend from Friedman Billings.

TOWNSEND: Hello again. A follow-up question on the overdraft checking, under the
Sheshunoff program and just how you're choosing to do it, I was curious how - if
you could describe your underwriting criteria on that?

LAGOMARSINO: OK. Let me, let me first mention that there has been quite a few
articles printed about some of these overdraft programs and some people have
gotten fairly aggressive in terms of how they're implementing them. We, in some
cases - well, people have gotten fairly aggressive. We - Sheshunoff has provided
quite a bit of guidance to us in terms of how to implement to where you're not
actually actively marketing to tell people that you have an overdraft program.
It's literally when and if they present - checks are presented when they don't
have sufficient funds that you actually then notify them that we have this
program.

So it's not like we blitz out to all of our customers that they can now start
overdrafting their accounts. So once checks are presented, then the decision is
made based on a model that Sheshunoff has provided us. And what they look at is
the frequency of deposits, the amount of deposits, the frequency of checks and
it's the whole model that helps us determine whether or not we would overdraft
and to the extent at which we would overdraft for a particular customer.

So that's the model that Sheshunoff provides us help with that decision-making
on the quote, unquote underwriting. Gary, does that answer?

TOWNSEND: Yes. I think so. One final question, do you have an end of period
outstanding share count?

LAGOMARSINO: Let me just check real quick. You know, it is actually on our proxy
statement. Can you jump out and get it real quick? There's a proxy statement on
my credenza. Sorry.

TOWNSEND: We can find it there too if it's trouble.

LAGOMARSINO: It's in the other room. It will just take one second. And it's
right on ...

TOWNSEND: Why don't you get to another question and you can just ...

LAGOMARSINO: We'll read it in when we get it.

TOWNSEND: Very good. Thank you.

LAGOMARSINO: Thank you.

                                       7



OPERATOR: Thank you. And our next question is from Darus Brawn of Endicott
Partners.

DARUS BRAWN, ENDICOTT PARTNERS: Hi, Simone. I just want to say great quarter.

LAGOMARSINO: Thank you.

BRAWN: And to see if I can get some clarification. You cited some numbers and
when you're - in your discussion earlier and I just wanted to clarify. You said
non-interest income, you're expecting to grow 10 percent versus 2002 levels?

LAGOMARSINO: Correct.

BRAWN: Non-interest expense was 10 to 12 percent?

LAGOMARSINO: Correct.

BRAWN: And then what was the average asset growth you mentioned?

LAGOMARSINO: We expect loan growth to be between 5 and 12 percent.

BRAWN: Yes.

LAGOMARSINO: And the average assets will be 29 percent over 2002 average assets.

BRAWN: Over the full year 2002.

LAGOMARSINO: Correct.

BRAWN: OK.

LAGOMARSINO: Average assets in 2003 we expect to be 29 percent more than average
assets in 2002.

BRAWN: Great. OK. Thank you very much.

LAGOMARSINO: OK. And just to read in the total shares outstanding, as of March
28th was 7,681,019 in response to Gary Townsend's question.

OPERATOR: Thank you. If you have a question at this time, please press the one
key. Our next question is from Terry Maltese of Sandler O'Neill Asset.

TERRY MALTESE, SANDLER O'NEILL ASSET: Hi, Simone, how are you?

LAGOMARSINO: Hi, Terry. Terrific, how are you doing?

MALTESE: Good thanks. I've got three what I think are very quick questions. The
efficiency ratio guidance that you gave of 45 percent, is that for the year or
by the end of the year?

LAGOMARSINO: It is for the year.

MALTESE: OK, so that ...

LAGOMARSINO: so we have some room to go to get ...

MALTESE: Right. That means it's got to come down pretty far from here to average
out to 45 for the year.

LAGOMARSINO: Yes.

                                       8



MALTESE: OK. And then I have the same question - same answer on the margin,
right? 3.25 to 3.35 is for the year?

LAGOMARSINO: For the year.

MALTESE: So, again, you expect that to come down a fair amount I guess too,
then.

LAGOMARSINO: Yes.

MALTESE: OK. In terms of - and I don't have the prior quarter in front of me so
I apologize, but just to make my job a little bit easier, the guidance you gave
last quarter of the various line items versus what you gave this quarter, is the
only difference the margin?

LAGOMARSINO: The margin is the difference. The only other difference is we
indicated last quarter that the loan growth would be double digits and we're now
saying it will be between 5 and 12 percent. That's the only two changes from
last quarter.

MALTESE: OK. Great. Thank you.

LAGOMARSINO: Thank you.

OPERATOR: Once again, if you do have a question at this time, please press the
one key. Our question is from Darus Brawn of Endicott Partners.

BRAWN: Hi, Simone. I just wanted to check. You were saying that loan growth is
going to be 5 to 12 percent, but earning asset growth will be around 29 percent?

LAGOMARSINO: Well, OK, average assets for the year will grow 29 percent over
last year, in part because we did the acquisition in August of last year.

BRAWN: Yes. So when you're saying the 5 to 12 percent, is that - that's growth
just from the fourth quarter then?

LAGOMARSINO: Correct. Period to period.

BRAWN: OK. Fine. OK. Thank you.

LAGOMARSINO: All right. Yes. Sorry for the confusion.

OPERATOR: This concludes the question and answer session. Ms. Lagomarsino, I
would now like to turn the conference back to you.

LAGOMARSINO: Terrific. Again, we just, on behalf of the employees, management
and Board of Directors of Hawthorn Financial Corporation we want to thank all of
you for participating in the call and we want to thank our shareholders for
their continued support.

Thank you.

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

END

                                       9