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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20429



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FORM 10-K



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended December 31, 2003



Commission File Number: 000-33461



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FIRST REPUBLIC PREFERRED

CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)



|                                                                                              |  |                                     
|--------------------------------------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                                                        |  | 91-1971389                          
|(State or other jurisdiction of incorporation or organization)                                |  | (I.R.S. Employer Identification No.)
|                                                                                              | 
|111 Pine Street, 2nd Floor San Francisco, California (Address of principal executive offices) |  | 94111 (Zip code)                    



Registrants
telephone number, including area code:(415) 392-1400



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Securities registered pursuant to Section 12(b) of the Act:

None



Securities registered pursuant to Section 12(g) of the Act:

8.875% Noncumulative
Perpetual Series B Preferred Stock

7.25% Noncumulative Perpetual Series D Preferred Stock



Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.        Yes x    No ̈



Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).        Yes x    No ̈



The aggregate market value of the voting common equity held by non-affiliates
computed by reference to the book value per share of such common equity as of June 30, 2003 was approximately $18,000.



The number of shares outstanding of the registrants common stock, par value $.01 per share, as of March 8, 2004 was 29,362,633.



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FIRST REPUBLIC PREFERRED CAPITAL CORPORATION



TABLE OF CONTENTS



|                                                                                                 |  |    
|------------------------------------------------------------------------------------------------ |  | ---
|                                                                                                 | 
|PART I                                                                                           |  |    
|                                                                                                 | 
|Item 1.    Business                                                                              |  | 3  
|                                                                                                 | 
|Item 2.    Properties                                                                            |  | 12 
|                                                                                                 | 
|Item 3.    Legal Proceedings                                                                     |  | 12 
|                                                                                                 | 
|Item 4.    Submission of Matters to a Vote of Security Holders                                   |  | 12 
|                                                                                                 | 
|PART II                                                                                          |  |    
|                                                                                                 | 
|Item 5.    Market for Registrants Common Equity and Related Stockholder Matters                 |  | 12 
|                                                                                                 | 
|Item 6.    Selected Financial Data                                                               |  | 14 
|                                                                                                 | 
|Item 7.    Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 16 
|                                                                                                 | 
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                              |  | 19 
|                                                                                                 | 
|Item 8.    Financial Statements and Supplementary Data                                           |  | 25 
|                                                                                                 | 
|Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 25 
|                                                                                                 | 
|Item 9A. Controls and Procedures                                                                 |  | 25 
|                                                                                                 | 
|PART III                                                                                         |  |    
|                                                                                                 | 
|Item 10.  Directors and Executive Officers of the Registrant                                     |  | 25 
|                                                                                                 | 
|Item 11.  Executive Compensation                                                                 |  | 27 
|                                                                                                 | 
|Item 12.  Security Ownership of Certain Beneficial Owners and Management                         |  | 28 
|                                                                                                 | 
|Item 13.  Certain Relationships and Related Transactions                                         |  | 29 
|                                                                                                 | 
|Item 14.  Principal Accounting Fees and Services                                                 |  | 29 
|                                                                                                 | 
|PART IV                                                                                          |  |    
|                                                                                                 | 
|Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K                       |  | 29 
|                                                                                                 | 
|SIGNATURES                                                                                       |  | 31 
|                                                                                                 | 
|INDEX TO FINANCIAL STATEMENTS                                                                    |  | F-2





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PART I



Information Regarding Forward-Looking Statements



This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, the following:



| |  | business strategy;
| | - | ------------------



| |  | estimates regarding capital requirements and the need for additional financing; and
| | - | -----------------------------------------------------------------------------------



| |  | plans, objectives, expectations and intentions contained in this report that are not historical facts.
| | - | ------------------------------------------------------------------------------------------------------



You can identify forward-looking statements by terms such as may, will, should,
could, expect, anticipate, believe, estimate, project, predict, intend, potential, continue and similar expressions intended to
identify forward-looking statements. Statements that contain these words should be read carefully because they discuss future expectations, contain projections of future results of operations or financial condition or state other
forward-looking information. There may be events in the future, however, that cannot be accurately predicted or controlled, and that may cause actual results to differ materially from the expectations described in the forward-looking
statements. The reader is cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, competitive
pressure in the mortgage lending industry; changes in the interest rate environment that reduce margins; general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a
deterioration in credit quality and an increase in the provision for possible loan losses; changes in the regulatory environment; changes in business conditions, particularly in San Francisco and Los Angeles counties and in the home mortgage lending
industry; and changes in the securities markets. Other risks, uncertainties and factors are discussed elsewhere in this report, in other First Republic Preferred Capital Corporations filings with the SEC or in materials incorporated therein by
reference.



Throughout this document, Company,
we, our and us refers to First Republic Preferred Capital Corporation and Bank refers to First Republic Bank.



|Item  1. | BUSINESS
|-------- | --------



General



First Republic
Preferred Capital Corporation is a Nevada corporation formed by First Republic Bank in April 1999 for the purpose of raising capital for the Bank. The Bank initially capitalized the Company with $111 million. The Company used this initial capital to
acquire mortgage loans from the Bank. The Companys principal business is acquiring, holding, financing and managing assets secured by real estate mortgages and other obligations secured by real property, as well as certain other qualifying
real estate investment trust (REIT) assets (collectively referred to herein as the Mortgage Assets). The Mortgage Assets presently held by the Company are loans secured by single family and multifamily real estate properties
that were acquired from the Bank. We refer to these loans as the Mortgage Loans throughout this document. The Company expects that all, or substantially all, of its Mortgage Assets will continue to be Mortgage Loans acquired from the Bank. The
Company has elected to be taxed as a REIT and intends to make distributions to its shareholders such that the Company is relieved of substantially all income taxes relating to ordinary income under applicable tax regulations. Accordingly, no
provision for income taxes is included in the accompanying financial statements. To



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date, the Company has issued 29,362,633 shares of common stock, par value $0.01 per share. The Bank owns all of the common stock except for 9,840 shares held
by certain of the Banks employees and directors. Earnings per share data is not presented, as the common stock is not publicly traded.



General Description of Mortgage Assets



Current Mortgage Assets. The Companys Mortgage Assets as of December 31, 2003 consisted of Mortgage Loans originated by the Bank and secured
by single family (one-to-four unit) homes and multifamily properties. At December 31, 2003, the aggregate outstanding principal balance of those loans was $322.5 million.



Single Family Mortgage Loans. The Bank originates and may acquire from time to time both conforming and nonconforming
single family mortgage loans. Conventional conforming single family mortgage loans comply with the requirements for inclusion in a loan guarantee program sponsored by either the Federal Home Loan Mortgage Corporation (FHLMC) or Fannie
Mae. Substantially all of the single family mortgage loans that the Company acquires from the Bank are nonconforming because the loans have original principal balances that exceed the limits for FHLMC or Fannie Mae programs. The Company believes
that all single family mortgage loans meet the requirements for sale to national private mortgage conduit programs or other investors in the secondary mortgage market.



Each single family mortgage loan is evidenced by a promissory note secured by a mortgage or deed of trust or other similar
security instrument creating a first lien on single family (one-to-four unit) residential properties, including shares allocated to a dwelling unit in a residential cooperative housing corporation. Real estate properties underlying single family
mortgage loans consist of individual dwelling units, individual cooperative apartment units, individual condominium units, two- to four-family dwelling units, planned unit developments and townhouses. The Company currently expects that most of the
single family mortgage loans acquired will be adjustable rate or intermediate fixed rate mortgage loans; however, the Company may also purchase longer-term fixed rate single family mortgage loans.



Multifamily Mortgage Loans.The Companys multifamily mortgage
loans are predominately for established buildings in the urban neighborhoods of San Francisco and Los Angeles and for recently constructed properties in Las Vegas. The buildings securing the Companys multifamily loans are, generally, seasoned
operating properties with proven occupancy, rental rates and expense levels. The neighborhoods tend to be densely populated; the properties are generally close to employment opportunities; and rent levels are appropriate for the target occupants.
Typically, the borrowers are property owners who are experienced at managing these properties. The Companys current policy is not to acquire multifamily mortgage loans if total multifamily mortgage loans, together with commercial mortgage
loans, if any, would constitute more than 15% of Mortgage Assets immediately following the acquisition.



Commercial Mortgage Loans. Although the Company currently does not own any commercial mortgage loans, the Company may acquire from time to time in
the future commercial mortgage loans secured by industrial and warehouse properties, recreational facilities, office buildings, retail space and shopping malls, hotels and motels, hospitals, nursing homes or senior living centers. The Companys
current policy is not to acquire any interest in a commercial mortgage loan if commercial mortgage loans and multifamily mortgage loans together would constitute more than 15% of Mortgage Assets immediately following the acquisition. For a variety
of reasons, commercial mortgage loans can be significantly more risky than single family mortgage loans.



Management Policies and Programs



As discussed elsewhere in this report, the Bank administers the Companys Mortgage Assets. In doing so, the Bank has a high degree of autonomy. The Companys Board of Directors, however, has adopted certain
policies to guide the acquisition and disposition of assets, use of capital and leverage, credit risk management and certain other activities. These policies, which are discussed below, may be amended or revised from time to time at the discretion
of the Board of Directors without a vote of the shareholders.



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Asset Acquisition Policies. The Company purchases from time to time additional Mortgage Assets.
Although not required to do so, the Company expects to acquire all or substantially all of these Mortgage Assets from the Bank. As a majority-owned subsidiary of the Bank, the Company acquires loans from the Bank at prices equal to the book values
at which the Bank carries the loans in the Banks financial statements. The Company believes that the prices paid generally approximate their fair values. In the future, the Company would expect these prices to approximate the fair value for
recently originated loans; however, the prices that the Company pays will not be determined through arms-length transactions with third parties. Neither the Company nor the Bank currently has specific policies with respect to the acquisition
by the Company from the Bank of particular loans or pools of loans, other than the Companys requirement that these assets must be eligible to be held by a REIT. The Company intends to acquire only performing loans from the Bank. The Company
may also periodically acquire Mortgage Assets from unrelated third parties. To date, the Company has not entered into any arrangements or adopted any procedures to purchase Mortgage Assets from unrelated third parties and has not entered into any
agreements with third parties to purchase Mortgage Assets. The Bank, however, has purchased Mortgage Assets from unrelated third parties, and these assets are eligible to be purchased by the Company. The Company anticipates purchasing Mortgage
Assets from unrelated third parties only if neither the Bank nor any of its affiliates had amounts or types of Mortgage Assets sufficient to meet the Companys requirements. The Company currently anticipates purchasing Mortgage Assets comprised
of primarily single family mortgage loans and multifamily housing mortgage loans, although the Company may purchase commercial real estate mortgages and other types of Mortgage Assets.



In addition, the Company is permitted to invest up to 25% of the total value of assets in assets eligible to be held by
REITs other than those described above. These assets could include shares or interests in other REITs and partnership interests. Since inception, the Company has not acquired any such assets.



In order to preserve the Companys status as a REIT under the Internal
Revenue Code, substantially all of the Companys assets must consist of mortgage loans and other qualified assets of the type set forth in Section 856(c)(5)(B) of the Internal Revenue Code. The other qualifying assets include cash, cash
equivalents and securities, including shares or interests in other REITs, although the Company currently does not intend to invest in shares or interests in other REITs.



Capital and Leverage Policies. If the Companys Board of Directors decides that additional funding is required,
the Company may seek to raise funds through equity offerings or debt financings. The Company may also seek to retain cash that otherwise would be used to pay dividends, but only after considering the consequences of such action under the provisions
of the Internal Revenue Code requiring that the REIT distribute not less than 90% of its REIT taxable income (excluding deductions for any dividends paid and any net capital gains) and taking into account taxes that would be imposed on undistributed
taxable income.



The Company has no debt outstanding and
currently does not intend to incur any indebtedness. The organizational documents, however, do not contain any limitation on the amount or percentage of debt, funded or otherwise, that the Company may incur. Notwithstanding the foregoing, the terms
of the Companys preferred shares provide that the Company may not incur debt for borrowed money in excess of 25% of our total stockholders equity without the approval of a majority of the independent directors. Any debt incurred may
include intercompany advances made by the Bank to the Company.



The Company may also issue additional preferred shares. The Company is prohibited, however, from issuing preferred shares ranking senior to the Series A preferred shares, the Series B preferred shares, the Series C preferred shares or
the Series D preferred shares without consent of holders of at least two-thirds of each of the respective classes of outstanding preferred shares. The Bank has advised the Company that, at the date of this report, it owns approximately $25.3 million
of the Companys Series A preferred shares. Because the Companys articles of incorporation do not prohibit or otherwise restrict the Bank or its affiliates from holding or voting the Companys preferred shares, the Bank may be in a
position to significantly affect the outcome of any future vote by the holders of the Companys preferred shares. The Company is prohibited from issuing preferred



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shares ranking either senior or equal to the Series A preferred shares, Series B preferred shares, the Series C preferred shares, or the Series D preferred
shares without the approval of a majority of the independent directors. The Company currently does not intend to issue any additional series of preferred shares.



Credit Risk Management Policies. The Company intends that each mortgage loan acquired from the Bank or any other
party will represent a first lien position and will be originated in the ordinary course of the originators real estate lending activities based on the underwriting standards generally applied (at the time of origination) for the
originators own account. The Company also intends that all Mortgage Assets held will be serviced pursuant to a servicing agreement with the Bank, which requires servicing in conformity with accepted secondary market standards, with any
servicing guidelines promulgated by the Company and, in the case of the single family mortgage loans, with Fannie Mae and FHLMC guidelines and procedures.



Conflict of Interest Policies. Because of the nature of the Companys relationship with the Bank, conflicts of interest may arise with respect
to certain transactions, including, without limitation, the acquisition of Mortgage Assets from the Bank and the modification of the advisory agreement or the servicing agreement. Despite this potential, it is the Companys policy, and the
policy of the Bank, to keep the terms of any financial dealings with the Bank consistent with those available from unrelated third parties in the mortgage lending industry. In addition, neither the advisory agreement nor the loan purchase and
servicing agreement, each discussed elsewhere in this report, may be modified or terminated without the approval of a majority of the independent directors.



Conflicts of interest between the Company and the Bank also arise in connection with making decisions that bear upon the credit arrangements that the Bank
may have with a borrower. Additional conflicts will arise in connection with actions taken by the Bank as the Companys controlling shareholder. It is the Companys intention and the intention of the Bank that any agreements and
transactions between the Company, on the one hand, and the Bank, on the other hand, including without limitation the loan purchase and servicing agreement, are fair to both parties and are consistent with market terms for such types of transactions.
The loan purchase and servicing agreement provides that the Bank must perform foreclosures and dispositions of the Mortgage Loans with a view toward the Companys interests. There can be no assurance, however, that any such agreement or
transaction in fact will be on terms as favorable to the Company as would have been obtained from unaffiliated third parties.



There are no provisions in the Companys articles of incorporation limiting any officer, director, security holder or affiliate from having any
direct or indirect interest in any Mortgage Assets to be acquired or disposed of by the Company or in any transaction in which the Company has an interest or from engaging in acquiring, holding or managing such Mortgage Assets. As described
elsewhere in this report, the Company expects that the Bank will have direct interests in transactions with the Company, including without limitation, the transfer of Mortgage Assets to the Company. The Company does not currently anticipate,
however, that any of its officers or directors will have any interests in such Mortgage Assets.



Insurance Policies. The Bank follows what it believes to be standard practices in the mortgage banking industry by requiring borrowers to obtain
and thereafter to maintain insurance covering fire and casualty losses in respect of the mortgaged properties, but not requiring insurance coverage for natural disasters such as earthquakes. The Company believes that the properties underlying the
Mortgage Loans held are adequately insured for these types of losses.



Other Policies. The Company does not intend to make direct investments in real estate or to own other interests in real estate, except as a result of foreclosure proceedings related to Mortgage Assets. The Company does not intend to
invest in securities such as bonds, preferred stock and common stock or in the securities of or other interests in entities engaged in real estate activities, although the Company is permitted under REIT guidelines to invest up to 25% of our
portfolio in eligible real estate securities, including shares or interests in other REITs and partnership interests. The Company intends to operate in a manner that will not subject it to



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regulation under the Investment Company Act of 1940. The Company does not intend to (i) invest in the securities of other issuers for the purpose of
exercising control over such issuers, (ii) underwrite securities of other issuers, (iii) actively trade in loans and other investments, (iv) offer securities in exchange for property or (v) make loans to third parties, including, without limitation,
officers, directors or other affiliates.



The Company may,
under certain circumstances, purchase the Companys preferred shares or common shares in the open market or otherwise. The Company has no present intention of repurchasing any shares of capital stock, and any action of this type would be taken
only in conformity with applicable federal and state laws and the requirements for qualifying as a REIT, and only upon approval by the Board of Directors.



The Company currently intends to make investments and to operate its business at all times in such a manner as to be consistent with the requirements of
the Internal Revenue Code to qualify as a REIT. Future economic, market, legal, tax or other considerations, however, may cause the Board of Directors, subject to approval by a majority of the independent directors, to determine that it is in the
Companys best interests and in the best interest of the shareholders to revoke the Companys REIT status.



The Company currently does not intend to borrow money or issue securities senior to the preferred shares, or otherwise to incur any indebtedness in
connection with operations. The Company reserves the right, however, to do so at anytime, although indebtedness in excess of 25% of total stockholders equity may not be incurred without the approval of a majority of the independent directors.



The investment and operating policies described above may be
revised from time to time at the discretion of the Board of Directors without a vote of the shareholders.



Description of Loan Portfolio



General. Except for certain home loans purchased by the Bank in 1998, the Mortgage Loans held by the Company were originated by the Bank in the ordinary course of its real estate lending activities. Mortgage Loans consisted entirely
of single family mortgages through the first quarter of 2003. Beginning in the second quarter of 2003, the Company acquired multifamily mortgages with the proceeds of the Series D Preferred Stock offering. At December 31, 2003, Mortgage Loans
totaled $322.5 million, of which $296.1 million were single family mortgages and $26.4 million were multifamily mortgages. At December 31, 2002, Mortgage Loans totaled $187.9 million, all of which were single family mortgage loans.



At December 31, 2003, the Mortgage Loan portfolio had interest rates
generally ranging from 2.97% to 7.12% per annum, a weighted average note rate of 5.30% per annum, and a weighted average remaining term of approximately 24 years. The Mortgage Loans were originated between October 1983 and May 2003 and had original
terms to stated maturity of primarily 30 years. The weighted average number of months from origination of the loans through December 31, 2003 was 35 months.



The weighted average loan-to-value ratio for the Mortgage Loans was approximately 57% at December 31, 2003. Loan-to-value
ratio means the ratio (expressed as a percentage) of the current principal amount of a mortgage loan to the lesser of (i) the most recent appraised value of the underlying mortgage property, and (ii) if the mortgage loan was made to finance
the acquisition of a property, the purchase price of the mortgaged property. The provisions governing the Companys Mortgage Loans include due-on-sale clauses, which prevent the unauthorized transfer of property serving as
collateral for the mortgage loan and accelerate the obligation to repay the entire outstanding principal balance of the loan or any such transfer.



Mortgage Loans.The Mortgage Loan portfolio consists of adjustable and fixed interest rate types, which are more fully described below. The
interest rate types for adjustable rate mortgage (ARM) loans include Monthly Eleventh District Cost of Funds Index (COFI) ARM, Six-Month Eleventh District COFI ARM, and One-Year



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Treasury (CMT) ARM; intermediate fixed rate types, which are adjustable after an initial period, include 5/1 Year ARM, 7/1 Year ARM, 10/1 Year
ARM, and 5/5 Year ARM; and fixed interest rate types include 15-Year Fixed and 30-Year Fixed.



A majority of the Mortgage Loans have adjustable interest rate types. Of the total Mortgage Loans, 28% (by principal balance) are adjustable rate Mortgage Loans that bear interest at rates that adjust within one year,
and 56% are intermediate fixed rate Mortgage Loans that bear interest at rates that will adjust after an initial period during which the interest rate is fixed. The interest rate on an adjustable rate mortgage loan typically is tied to either the
COFI or the CMT index and is adjustable periodically. Generally, ARMs are subject to lifetime interest rate caps and periodic interest rate caps.



The interest rate on an adjustable rate mortgage loan generally includes a gross margin. Gross margin with respect to a mortgage
loan that is an ARM is an applicable fixed percentage that is added to the applicable index to calculate the current interest rate paid by the borrower of such mortgage loan (without taking into account any interest rate caps or minimum interest
rates). Gross margin is not applicable to longer-term fixed rate mortgage loans.



The interest rate on each type of ARM loan product such as the COFI ARM or the CMT ARM periodically adjusts subject to lifetime interest rate caps, minimum interest rates and, in the case of most ARMs, maximum
periodic adjustment increases or decreases, each as specified in the mortgage note relating to the ARM. Each ARM loan bears interest at its initial interest rate until its first rate adjustment date. Except for the Monthly Eleventh District COFI
ARMs, effective with each rate adjustment date, the monthly principal and interest payment on an ARM will be adjusted to an amount that will fully amortize the then-outstanding principal balance of such mortgage loan over its remaining term to
stated maturity and that will be sufficient to pay interest at the adjusted interest rate.



Of the $322.5 million of total Mortgage Loans, 53% are intermediate fixed rate loans that are automatically convertible (the 5/1 Year ARMs, 7/1 Year ARMs and 10/1 year ARMs). The interest rate for these automatically
convertible mortgage loans is fixed at an initial rate for a certain amount of years (five to ten years in the case of the loans referenced above), after which time the loan generally converts to a One-Year ARM, and the interest rate adjusts
annually thereafter as if the mortgage loan were a One-Year ARM with a lifetime interest rate cap. An additional 3% are mortgage loans that reprice every five years. These loans are repriced based on the 5-year CMT index.



Underwriting Standards. The Bank has represented to the Company that
all of the Mortgage Loans in the portfolio were originated or subsequently underwritten generally in accordance with the underwriting policies customarily employed by the Bank during the period in which the Mortgage Loans were originated or
purchased by the Bank, as applicable.



In the mortgage loan
approval process, the Bank assesses both the borrowers ability to repay the mortgage loan and, in the appropriate cases, the adequacy of the proposed security. Credit policies and procedures are established by the Board of Directors of the
Bank, which delegates credit approval to certain executives and senior credit officers in accordance therewith.



The approval process for all types of mortgage loans includes on-site appraisals of the properties securing such loans and a review of the
applicants financial statements and credit, payment and banking history, financial statements of any guarantors, and tax returns of guarantors of commercial mortgage loans. The Bank generally lends up to 80% of the appraised value of single
family residential owner-occupied dwellings. The maximum loan-to-value ratio generally applied by the Bank to multifamily or commercial mortgage loans has been 75% of the lesser of the appraised value of the property or the sale price.



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The Bank requires title insurance policies protecting the priority of the Banks liens for all
Mortgage Loans and fire and casualty insurance for Mortgage Loans. Generally, for any single family mortgage loan in an amount exceeding 80% of the appraised value of the security property, the Bank currently requires mortgage insurance from an
independent mortgage insurance company.



Substantially all
fixed-rate mortgage loans originated by the Bank contain a due-on-sale clause providing that the Bank may declare a mortgage loan immediately due and payable in the event, among other things, that the borrower sells the property securing
the loan without the consent of the Bank. The Banks ARMs generally are assumable by a borrower determined to be qualified by the Bank.



Geographic Distribution; Loan Size. Approximately 72% of the outstanding principal balance of the Companys $322.5 million Mortgage Loan
portfolio is secured by properties located in California. Consequently, the Companys loan portfolio will be particularly affected by adverse developments in California, including economic, political and business developments and natural
catastrophes such as storms or earthquakes, to the extent any such developments may affect the ability or willingness of property owners in that state to make payments of principal and interest on the Mortgage Loans. The Bank has historically
emphasized and specialized in the origination of loans that are nonconforming as to size.



Loan-to-Value Ratios; Insurance. The single family mortgage loans having loan-to-value ratios of greater than 80% are insured under primary mortgage guaranty insurance policies. At the time of origination of
the single family mortgage loans, each of the primary mortgage insurance policy insurers was approved by Fannie Mae or FHLMC. A standard hazard insurance policy is required to be maintained by the mortgagor with respect to each single family
mortgage loan in an amount equal to the maximum replacement cost of the improvements securing such single family mortgage loan or the principal balance of such single family mortgage loan, whichever is less. If the real estate property underlying a
single family mortgage loan is located in a flood zone, the loan may also be covered by a flood insurance policy as required by law. The Company does not maintain any special hazard insurance policy or mortgagor bankruptcy insurance with respect to
single family mortgage loans, nor is any single family mortgage loan insured by the Federal Housing Administration or guaranteed by the Veterans Administration. For multifamily loans, the Companys policies are to obtain an appraisal on each
loan and, generally, to not exceed a loan-to-value ratio of 75%.



The
Companys Relationship with the Bank



Amended and
Restated Master Loan Purchase and Servicing Agreement. The Company acquires Mortgage Loans from the Bank pursuant to an Amended and Restated Master Loan Purchase and Servicing Agreement (the Servicing Agreement). Of the Mortgage
Loans serviced by the Bank pursuant to the terms of the Servicing Agreement, the Bank, as servicer, retains a service fee equal to 0.25% per year calculated monthly based on the gross outstanding principal balances of loans in the loan portfolio.



The Servicing Agreement requires the Bank to service the
Mortgage Loans in a manner generally consistent with accepted secondary market practices, with any servicing guidelines promulgated by the Company and, in the case of single family mortgage loans, with Fannie Mae and FHLMC guidelines and procedures.
The Servicing Agreement requires the Bank to service the Mortgage Loans with a view toward the Companys interests. The Bank collects and remits principal and interest payments, administers mortgage escrow accounts, submits and pursues
insurance claims, and initiates and supervises foreclosure proceedings on the Mortgage Loans it services. The Bank also provides accounting and reporting services required by the Company for the Mortgage Loans. The Servicing Agreement requires the
Bank to follow collection procedures customary in the industry, including contacting delinquent borrowers and supervising both foreclosures and property disposition in the event of unremedied defaults in accordance with servicing guidelines
promulgated by the Company. The Bank may from time to time transfer, assign and sell all of its servicing obligations under the Servicing Agreement, subject to the Companys reasonable consent.



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The Bank is required to pay all expenses related to the performance of its duties under the Servicing
Agreement. The Bank is required to make advances of the taxes and required insurance premiums that are not collected from borrowers with respect to any mortgage loan serviced by it, unless it determines that such advances are nonrecoverable from the
mortgagor, insurance proceeds or other sources with respect to such mortgage loan. If the Bank makes advances, the Bank generally is reimbursed prior to our receipt of the proceeds of the mortgage loan. The Bank also is entitled to reimbursement for
expenses incurred by it in connection with the liquidation of defaulted mortgage loans serviced by it and in connection with the restoration of mortgaged property. The Bank is responsible to the Company for any loss suffered as a result of the
Banks failure to make and pursue timely claims or as a result of actions taken or omissions made by the Bank that cause the policies to be canceled by the insurer. The Bank may institute foreclosure proceedings, exercise any power of sale
contained in any mortgage or deed of trust, obtain a deed in lieu of foreclosure or otherwise, hold mortgage proceeds for the Companys benefit and acquire title to mortgaged property underlying a mortgage loan by operation of law or otherwise
in accordance with the terms of the Servicing Agreement. However, the Bank does not have the authority to enter into contracts in the Companys name.



The Company may terminate the Servicing Agreement upon the occurrence of one or more events specified in the Servicing Agreement. These events relate
generally to the Banks proper and timely performance of its duties and obligations under the Servicing Agreement. As long as the Series B preferred shares or Series D preferred shares remain outstanding, the Company may not terminate the
Servicing Agreement without the approval of a majority of independent directors.



As is customary in the mortgage loan servicing industry, the Bank is entitled to retain any late payment charges, prepayment fees, penalties and assumption fees collected in connection with the Mortgage Loans serviced
by it. The Bank receives any benefit derived from interest earned on collected principal and interest payments between the date of collection and the date of remittance to the Company and from interest earned on tax and insurance impound funds with
respect to Mortgage Loans serviced by it.



When any mortgaged
property underlying a mortgage loan is conveyed by a mortgagor, the Bank generally enforces any due-on-sale clause contained in the mortgage loan, to the extent permitted under applicable law and governmental regulations. The terms of a
particular mortgage loan or applicable law, however, may provide that the Bank be prohibited from exercising the due-on-sale clause under certain circumstances related to the security underlying the mortgage loan and the buyers
ability to fulfill the obligations under the loan. Upon a formal assumption of a mortgage loan by a permitted transferee, a fee equal to a specified percentage of the outstanding principal balance of the mortgage loan is often required, which the
Bank retains as additional servicing compensation.



Advisory
Agreement.The Company has an Amended and Restated Advisory Agreement (the Advisory Agreement) with the Bank pursuant to which the Bank administers the Companys day-to-day operations. As advisor, the Bank is responsible for:
(i) monitoring the credit quality of the Mortgage Assets; (ii) advising the Company with respect to the reinvestment of income from, and principal payments on, the Mortgage Assets, and with respect to the acquisition, management, financing and
disposition of the Mortgage Assets; and (iii) monitoring the Companys compliance with the requirements necessary to qualify as a REIT for federal income tax purposes. The Bank may from time to time subcontract all or a portion of its
obligations under the Advisory Agreement to one or more of its affiliates involved in the business of mortgage finance and the administration of Mortgage Assets. The Bank may, with the approval of a majority of the Companys Board of Directors
as well as a majority of the Companys independent directors, subcontract all or a portion of its obligations under the Advisory Agreement to unrelated third parties. The Bank, in connection with the subcontracting of any of its obligations
under the Advisory Agreement, may not be discharged or relieved in any respect from its obligations under the Advisory Agreement.



The Bank has substantial experience in the mortgage lending industry, both in the origination and in the servicing of Mortgage Loans. At December 31,
2003, the Bank owned approximately $2.65 billion of single



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family mortgage loans, $439.1 million of multifamily loans and $1.39 billion of other loans secured by real estate. In its single family mortgage loan
business, the Bank originates loans and then sells or securitizes the loans to investors in the secondary market, while generally retaining the rights to service the loans. At December 31, 2003, in addition to loans serviced for its own
portfolio, the Bank serviced single family mortgage loans having an aggregate principal balance of approximately $3.05 billion.



The Advisory Agreement had an initial term of one year and has been and will be renewed for additional one-year periods unless the Company terminates the
agreement, which the Company may do at any time upon 90 days prior written notice to the Bank. The Bank cannot refuse the Companys request to renew the agreement. As long as any preferred shares remain outstanding, any decision by the
Company either to renew the Advisory Agreement or to terminate the Advisory Agreement must be approved by a majority of the Companys Board of Directors, as well as by a majority of the independent directors. During 2003, the Bank received an
annual advisory fee equal to $75,000 payable in equal quarterly installments with respect to the advisory and management services. That fee may be increased with the approval of a majority of the Board of Directors, including a majority of the
independent directors.



As a result of the Companys
relationship with the Bank, certain conflicts of interest arise with respect to transactions, including future acquisitions of Mortgage Assets from the Bank, servicing Mortgage Loans, future dispositions of Mortgage Assets to the Bank, and the
renewal, termination or modification of the Advisory Agreement or the Servicing Agreement.



Employees



The Company
currently has no employees. However, the Company does have five officers who are described in Item 10 of this report. The Company does not anticipate that it will require any employees because it has retained the Bank to perform certain functions
pursuant to the Servicing Agreement and the Advisory Agreement. Each of the Companys officers currently is also an employee and/or director of the Bank. The Company maintains corporate records and audited financial statements that are separate
from those of the Bank. Currently, none of the officers, directors or employees has any direct or indirect pecuniary interest in any Mortgage Asset owned by the Company, and the Company does not expect any of the officers, directors or employees to
have any direct or indirect pecuniary interest in any Mortgage Asset acquired or disposed of in any transaction in which the Company has an interest or will engage in acquiring, holding and managing Mortgage Assets.



Competition



The Company does not engage in the business of originating mortgage loans. While the Company intends to acquire additional
Mortgage Assets, the Company anticipates that these additional Mortgage Assets will be acquired from the Bank. Accordingly, the Company does not compete or expect to compete with mortgage conduit programs, investment banking firms, savings and loan
associations, banks, thrift and loan associations, finance companies, mortgage bankers or insurance companies in acquiring the Companys Mortgage Assets. The Bank, from which the Company expects to continue to purchase most or all of its
Mortgage Assets in the future, will face competition from these organizations.



Qualification as a REIT



The Company elected
to be taxed as a REIT commencing with its initial taxable year ended December 31, 1999 and intends to comply with the provisions of the Internal Revenue Code with respect thereto. The Company qualifies as a REIT if 90% of the Companys adjusted
REIT taxable income is distributed to stockholders and as long as certain assets, income and stock ownership tests are met. For 2003, 2002 and 2001, all Internal Revenue Code requirements for a REIT were met, including the distribution of cash
dividends on common stock.



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|Item  2. | PROPERTIES
|-------- | ----------



The Company neither own nor lease any property.



|Item  3. | LEGAL PROCEEDINGS
|-------- | -----------------



The Company is not currently involved in nor, to its knowledge, currently threatened with any material litigation.



|Item  4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|-------- | ---------------------------------------------------



No matters were submitted to a vote of security holders during the fourth quarter of 2003.



PART II



|Item  5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|-------- | -------------------------------------------------------------------------



Common Stock



There is no established trading market for the Companys common stock, and the common stock is not listed on any exchange or automated quotation
system. In addition to the Bank, there are approximately 125 holders of the common stock. The Company currently expects to pay to holders of its common stock an aggregate amount of dividends equal to not less than 90% of the Companys REIT
taxable income (excluding the deduction for dividends paid on common stock and any net capital gains) in order to remain qualified as a REIT. The Company declared dividends on common stock of $1,255,000 for 2003, $2,044,000 for 2002 and $2,053,000
for 2001, which represents 100% of the Companys REIT taxable income, calculated after the deduction for dividends paid on preferred shares. Dividends on common stock generally cannot be paid, however, for periods in which less than full
dividends are paid on the Companys preferred shares.



As
of December 31, 2003, the Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.01 per share. At December 31, 2003, 29,362,633 shares were outstanding. The Company initially issued 10,000,000 shares to the Bank and
used the proceeds to acquire approximately $111 million of assets. Upon the issuance of $55 million of Series A preferred shares in June 1999, the Company made a return of capital to the Bank. In June 2001, the Company issued 1,243,472 shares of
common stock to the Bank and used the proceeds and $7 million in cash to acquire from the Bank approximately $14 million in Mortgage Assets. In January 2002, the Company issued 7,460,831 shares of common stock and used the proceeds and $42 million
in cash to acquire from the Bank approximately $80 million in Mortgage Assets. In June 2003, the Company issued 10,658,330 shares of common stock and used the proceeds and $60 million in cash to acquire approximately $120 million in Mortgage Assets
from the Bank.



Series A Preferred Shares



In June 1999, the Company completed a private offering of 55,000 shares of
its Perpetual, Exchangeable, Noncumulative Series A Preferred Shares (Series A Preferred Shares) and received proceeds of $55 million including underwriting fees contributed by the Bank. The Series A Preferred Shares have not been
registered under the Securities Act of 1933 (the Securities Act) or any other applicable securities law. The Series A Preferred Shares may not be resold, pledged or otherwise transferred by the purchaser or any subsequent holder except
(A)(i) to a person whom the transferor reasonably believes is a Qualified Institutional Buyer (QIB) in a transaction meeting the requirements of Rule 144A under the Securities Act; (ii) to Institutional Accredited Investors (of the type
described in Rule 501(a)(1) or (3) under the Securities Act) in transactions exempt from the



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registration requirements of the Securities Act; or (iii) pursuant to the exemption from registration under the Securities Act provided by Rule 144 (if
available), and (B) in accordance with all applicable securities laws of the states of the United States. The Series A Preferred Shares are not listed on any national securities exchange or for quotation through the Nasdaq National Stock Market,
Inc. The Series A Preferred Shares are eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages System of the National Association of Securities Dealers (PORTAL).



The Company used the proceeds from the offering to fund a dividend
distribution to the Bank as the holder of initially all of the common stock.



The Series A Preferred Shares are not redeemable prior to June 1, 2009. Holders of the Series A Preferred Shares are entitled to receive, if authorized and declared by the Board of Directors of the Company,
noncumulative dividends at a rate of 10.5% per annum or $105 per annum per share. Dividends on the Series A Preferred Shares, if authorized and declared, are payable semiannually in arrears on June 30 and December 30 of each year. The Company paid
dividends of $5,775,000 for the year ended December 31, 2003.



Series B
Preferred Shares



In January 2002, the Company issued and
sold 1,680,000 shares of its 8.875% Noncumulative Perpetual Series B Preferred Stock (Series B Preferred Shares) in an initial public offering. The proceeds of $42 million and the additional issuance of 7,460,831 shares of common stock
were used to acquire from the Bank approximately $80 million of single family mortgage loans and $4 million of short-term investments.



The Companys Series B Preferred Shares are quoted on the Nasdaq National Stock Market, Inc. under the symbol FRCCP. Material holders of
Series B Preferred Shares, if any, are set forth in Item 12 of this report. Holders of Series B Preferred Shares are entitled to receive, if, when and as authorized and declared by the Board of Directors, out of the Companys assets legally
available therefor, cash dividends at an annual rate of 8.875%, or $2.21875 per annum per share, of the $25.00 liquidation preference per share, and no more. Dividends on the Series B Preferred Shares are payable quarterly in arrears on March 30,
June 30, September 30, and December 30 of each year. The Company paid dividends of $3,728,000 for the year ended December 31, 2003.



The Series B Preferred Shares are not redeemable prior to December 30, 2006, except upon the occurrence of certain tax events, including, among other
things, the Banks becoming undercapitalized, being placed into bankruptcy, or being ordered by the Federal Deposit Insurance Corporation or the Commissioner of Financial Institutions of the State of Nevadas Department of Business and
Industry to perform an exchange of shares. Upon the occurrence of these events, the Series B Preferred Shares will be exchanged automatically for newly issued shares of preferred stock of the Bank.



The following table presents the high and low sales prices for the Series B
Preferred Shares for each quarter during the period from January 2003 through December 31, 2003:



|        |  |      |       |      |   |       |  |     |       |  |   |      
|------- |  | ---- | ----- | ---- | - | ----- |  | --- | ----- |  | - | -----
|        |  | 2003 |       | 2002
|Quarter |  | High |       | Low  |   | High  |  | Low
|First   |  | $    | 26.76 |      | $ | 25.26 |  | $   | 25.50 |  | $ | 24.80
|Second  |  | $    | 27.60 |      | $ | 25.75 |  | $   | 25.25 |  | $ | 24.70
|Third   |  | $    | 27.07 |      | $ | 25.62 |  | $   | 25.50 |  | $ | 24.65
|Fourth  |  | $    | 27.32 |      | $ | 26.00 |  | $   | 25.74 |  | $ | 25.05



Series C Preferred Shares



In June 2001, the Company issued and sold 7,000 shares of
its 5.7% Noncumulative Series C Exchangeable Preferred Stock (Series C Preferred Shares) in a private placement to a single holder. The Series C Preferred Shares do not have an established public trading market and are not listed on any
exchange or automated



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quotation system. The sale of the Series C Preferred Shares was effected in reliance upon the exemption from securities registration afforded by Regulation D
under the Securities Act of 1933, as amended. The holder of the Series C Preferred Shares is entitled to receive, if, when and as authorized and declared by the Board of Directors, out of the Companys assets legally available therefor, cash
dividends at an annual rate of 5.7%, or $57 per annum per share, of the $1,000 stated value per share, and no more. Dividends on the Series C Preferred Shares, if authorized and declared, are payable semiannually in arrears on June 30 and December
30 of each year. The Company paid dividends of $399,000 for the year ended December 31, 2003.



The Company used the proceeds of $7 million and the additional issuance of 1,243,000 shares of common stock to acquire from the Bank approximately $14 million of single family mortgage loans.



The Series C Preferred Shares are not redeemable by the Company prior to June
15, 2007. However, the holder of the Series C Preferred Shares has the right at any time or from time to time, at the holders option, to exchange all or any of the Series C Preferred Shares held of record by the holder into fully paid and
nonassessable shares of common stock, par value $.01 per share, of the Bank, at a rate of 32.7172 shares of Bank common stock for each Series C Preferred Share surrendered for exchange, subject to adjustment. In addition, the Series C Preferred
Shares will be exchanged automatically for newly issued shares of preferred stock of the Bank upon the occurrence of any of the tax events described above, including by order of the FDIC or the Nevada Commissioner.



Series D Preferred Shares



In June 2003, the Company completed a public offering and received $60
million from the issuance of 2,400,000 shares of its 7.25% Noncumulative Perpetual Series D Preferred Stock (Series D Preferred Shares). The Bank paid all expenses of the offering, including underwriting commissions and discounts. The
Series D Preferred Shares trade on the Nasdaq National Market under the symbol FRCCO. In connection with this transaction, the Company issued, and the Bank purchased, $60 million of additional common stock. The Series D Preferred Shares
are not redeemable prior to June 27, 2008. Holders of the Series D Preferred Shares are entitled to receive, if authorized and declared by the Board of Directors of the Company, noncumulative dividends at a rate of 7.25% per annum or $1.8125 per
annum per share. Dividends on the Series D Preferred Shares are payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year. The first dividend payment date for the Series D Preferred Shares was September 30, 2003,
when the Company paid dividends of $1,136,000 for the period from inception, June 27, 2003, to September 30, 2003. The Company paid dividends of $2,223,000 for the year ended December 31, 2003.



The Company used the proceeds from the issuance of the Series D Preferred
Shares and the additional issuance of common stock to acquire from the Bank approximately $87 million of single family, $30 million of multifamily mortgage loans and $3 million of short-term investments.



The following table presents the high and low sales prices for the Series D
Preferred Shares for each quarter during the period from July 1, 2003 through December 31, 2003:



|        |  |      |       |     |   |      
|------- |  | ---- | ----- | --- | - | -----
|        |  | 2003
|Quarter |  | High |       | Low
|First   |  | $    | n/a   |     | $ | n/a  
|Second  |  | $    | n/a   |     | $ | n/a  
|Third   |  | $    | 25.35 |     | $ | 20.75
|Fourth  |  | $    | 25.00 |     | $ | 23.43



|Item  6. | SELECTED FINANCIAL DATA
|-------- | -----------------------



The following table presents certain financial data for each year ended December 31, 2003, 2002, 2001, 2000 and the period from the Companys
inception to December 31, 1999. The selected data presented below under the captions Selected Balance Sheet Data and Selected Financial Information are derived from the



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Companys financial statements, which have been audited by KPMG LLP, independent accountants. This selected financial data is qualified in its entirety
by, and should be read in connection with, the financial statements, including the notes thereto, included in Item 8 of this report and managements discussion and analysis of the Companys financial condition and results of operations in
Item 7 of this report.



|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|--------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                                                            |  | As of December 31,                                                                                                  
|(Dollars in thousands)                                                      |  | 2003                                                                                                                 |         |   | 2002 |   |         | 2001 |  | 2000 |         | 1999
|Selected Balance Sheet Data                                                 |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Assets:                                                                     |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Cash and short-term investments                                             |  | $                                                                                                                    | 6,766   |   |      | $ | 22,296  |      |  | $    | 9,880   |      | $ | 3,400   |  | $ | 4,045  
|Single family mortgage loans                                                |  |                                                                                                                      | 296,051 |   |      |   | 187,879 |      |  |      | 116,751 |      |   | 109,195 |  |   | 108,119
|Multifamily mortgage loans                                                  |  |                                                                                                                      | 26,454  |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|Less: Allowance for loan losses                                             |  |                                                                                                                      | (481    | ) |      |   | (200    | )    |  |      |        |      |   |        |  |   |       
|Other assets                                                                |  |                                                                                                                      | 1,607   |   |      |   | 1,201   |      |  |      | 750     |      |   | 699     |  |   | 640    
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total assets                                                                |  | $                                                                                                                    | 330,397 |   |      | $ | 211,176 |      |  | $    | 127,381 |      | $ | 113,294 |  | $ | 112,804
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Liabilities:                                                                |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Dividends payable on common stock                                           |  | $                                                                                                                    | 1,255   |   |      | $ | 2,044   |      |  | $    | 2,053   |      | $ | 1,976   |  | $ | 1,488  
|Other payables                                                              |  |                                                                                                                      | 48      |   |      |   | 38      |      |  |      | 34      |      |   | 24      |  |   | 22     
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total liabilities                                                           |  |                                                                                                                      | 1,303   |   |      |   | 2,082   |      |  |      | 2,087   |      |   | 2,000   |  |   | 1,510  
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Stockholders equity:                                                       |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Series A preferred stock                                                    |  |                                                                                                                      | 55,000  |   |      |   | 55,000  |      |  |      | 55,000  |      |   | 55,000  |  |   | 55,000 
|Series B preferred stock                                                    |  |                                                                                                                      | 42,000  |   |      |   | 42,000  |      |  |      |        |      |   |        |  |   |       
|Series C preferred stock                                                    |  |                                                                                                                      | 7,000   |   |      |   | 7,000   |      |  |      | 7,000   |      |   |        |  |   |       
|Series D preferred stock                                                    |  |                                                                                                                      | 60,000  |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|Common stock                                                                |  |                                                                                                                      | 294     |   |      |   | 187     |      |  |      | 112     |      |   | 100     |  |   | 100    
|Additional paid-in capital                                                  |  |                                                                                                                      | 165,000 |   |      |   | 105,107 |      |  |      | 63,182  |      |   | 56,194  |  |   | 56,194 
|Dividends in excess of retained earnings                                    |  |                                                                                                                      | (200    | ) |      |   | (200    | )    |  |      |        |      |   |        |  |   |       
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total stockholders equity                                                  |  |                                                                                                                      | 329,094 |   |      |   | 209,094 |      |  |      | 125,294 |      |   | 111,294 |  |   | 111,294
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total liabilities and stockholders equity                                  |  | $                                                                                                                    | 330,397 |   |      | $ | 211,176 |      |  | $    | 127,381 |      | $ | 113,294 |  | $ | 112,804
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|                                                                            |  |                                                                                                                      |         |   |     
|Selected Asset Quality Information                                          |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Nonperforming loans                                                         |  | $                                                                                                                    |        |   |      | $ |        |      |  | $    |        |      | $ |        |  | $ |       
|Other real estate owned                                                     |  |                                                                                                                      |        |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|Loans 90+ days past due and in accrual status                               |  |                                                                                                                      |        |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|Nonperforming assets, as a percent of total assets                          |  |                                                                                                                      |        |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|Loans 90+ days past due and in accrual status, as a percent of total assets |  |                                                                                                                      |        |   |      |   |        |      |  |      |        |      |   |        |  |   |       
|                                                                            | 
|                                                                            |  | Year Ended December 31, 2003, 2002, 2001 and 2000 and thePeriod from Inception (April 19, 1999) to December 31, 1999
|(Dollars in thousands)                                                      |  | 2003                                                                                                                 |         |   | 2002 |   |         | 2001 |  | 2000 |         | 1999
|Selected Financial Information                                              |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Interest income:                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Interest on loans                                                           |  | $                                                                                                                    | 13,502  |   |      | $ | 11,799  |      |  | $    | 7,941   |      | $ | 7,583   |  | $ | 4,735  
|Interest on short-term investments                                          |  |                                                                                                                      | 152     |   |      |   | 154     |      |  |      | 240     |      |   | 293     |  |   | 199    
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Total interest income                                                       |  |                                                                                                                      | 13,654  |   |      |   | 11,953  |      |  |      | 8,181   |      |   | 7,876   |  |   | 4,943  
|Provision for loan losses                                                   |  |                                                                                                                      |        |   |      |   | 200     |      |  |      |        |      |   |        |  |   |       
|Operating expenses                                                          |  |                                                                                                                      | 274     |   |      |   | 246     |      |  |      | 141     |      |   | 125     |  |   | 77     
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Net income before preferred stock dividends                                 |  |                                                                                                                      | 13,380  |   |      |   | 11,507  |      |  |      | 8,040   |      |   | 7,751   |  |   | 4,857  
|Preferred stock dividends                                                   |  |                                                                                                                      | 12,125  |   |      |   | 9,663   |      |  |      | 5,987   |      |   | 5,775   |  |   | 3,369  
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Net income available to common stockholders                                 |  | $                                                                                                                    | 1,255   |   |      | $ | 1,844   |      |  | $    | 2,053   |      | $ | 1,976   |  | $ | 1,488  
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        
|Ratio of earnings to fixed charges                                          |  |                                                                                                                      | 1.10x   |   |      |   | 1.19x   |      |  |      | 1.34x   |      |   | 1.34x   |  |   | 1.44x  
|                                                                            |  |                                                                                                                      |         |   |      |   |         |      |  |      |         |      |   |         |  |   |        



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|Item  7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- | -------------------------------------------------------------------------------------



Critical Accounting Policies



The discussion and analysis of the Companys financial condition and results of operations are based upon the Companys financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to allowance for loan losses, credit risks, estimated loan lives,
interest rate risk, investments, and contingencies and litigation. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of the Companys assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



The Company considers the accounting policy for allowance for loan losses to
be a critical accounting policy because it is a complex process involving difficult and subjective judgments, assumptions and estimates. The allowance for loan losses is an estimate that can change under different assumptions and conditions. The
allowance for loan losses is recorded by transfer from the Bank at loan purchase or by charging current income in such amounts as to establish and maintain an allowance at a level that can be reasonably anticipated. The Company estimates future
losses resulting from the inability of customers to make required payments. If the financial condition of borrowers were to deteriorate, resulting in an impairment of their ability to make payments, or the value of collateral securing Mortgage Loans
were to decline, an increase in the allowance may be required. A significant decline in the credit quality of the Companys loan portfolio could have a material adverse affect on the Companys financial condition and results of operations.



Another significant estimate required in the preparation of
the Companys financial statements includes estimating the life of loans or the rate of principal repayment of loans. The life of a loan affects the amortization of purchase discounts or premiums. Since the Company amortizes purchase discounts
or premiums over the estimated life of Mortgage Loans, an adjustment to the amortization would be made for an increase in prepayment speeds.



Results of Operations



Net income before preferred stock dividends was $13,380,000 for 2003, $11,507,000 for 2002 and $8,040,000 for 2001. During 2003, the increase in average
interest-earning assets resulted in higher total interest income. However, the drop in interest rates during the past two years resulted in lower average yields compared with 2001.



Total Interest Income



The following table presents the average balances and yields on the Companys interest-earning assets for the periods indicated:



|                              |  |                |         |                |      |        |  |      |                |  |                |         |       |   |        |                |      |                |  |       |         |  |   |       |  |      |  
|----------------------------- |  | -------------- | ------- | -------------- | ---- | ------ |  | ---- | -------------- |  | -------------- | ------- | ----- | - | ------ | -------------- | ---- | -------------- |  | ----- | ------- |  | - | ----- |  | ---- | -
|                              |  | 2003           |         |                | 2002 |        |  | 2001 |               
|(Dollars in thousands)        |  | AverageBalance |         | InterestIncome |      | Yield  |  |      | AverageBalance |  | InterestIncome |         | Yield |   |        | AverageBalance |      | InterestIncome |  | Yield |        
|Loans                         |  | $              | 259,096 |                | $    | 13,502 |  | 5.21 | %              |  | $              | 195,904 |       | $ | 11,799 |                | 6.02 | %              |  | $     | 113,929 |  | $ | 7,941 |  | 6.97 | %
|Short-term investments        |  |                | 13,445  |                |      | 152    |  | 1.13 |                |  |                | 9,417   |       |   | 154    |                | 1.63 |                |  |       | 6,570   |  |   | 240   |  | 3.65 |  
|                              |  |                |         |                |      |        |  |      |                |  |                |         |       |   |        |                |      |                |  |       |         |  |   |       |  |      |  
|Total interest-earning assets |  | $              | 272,541 |                | $    | 13,654 |  | 5.01 | %              |  | $              | 205,321 |       | $ | 11,953 |                | 5.82 | %              |  | $     | 120,499 |  | $ | 8,181 |  | 6.79 | %
|                              |  |                |         |                |      |        |  |      |                |  |                |         |       |   |        |                |      |                |  |       |         |  |   |       |  |      |  



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The average yield on interest-earning assets declined to 5.01% in 2003, compared with 5.82% for 2002 and
6.79% for 2001. Loan portfolio yields were 5.21%, 6.02%, and 6.97%, respectively. The declines in yields reflect the decline in the overall rate environment over the last several years.



The average balance of short-term investments was $13.4 million, $9.4 million, and $6.6 million for the year ended December
31, 2003, 2002, and 2001, respectively. The average yield on the interest-bearing money market account dropped to 1.13% in 2003 from 1.63% in 2002 and 3.65% in 2001.



Interest income is affected by changes in volume and changes in rates. Volume changes are caused by differences in the level
of interest-earning assets and interest-bearing liabilities. Rate changes result from differences in yields earned on assets.



The following table presents a summary of the changes in interest earned resulting from changes in average asset balances (volume) and changes in average
interest rates for the periods indicated. Where significant, the changes in interest due to both volume and rate have been allocated to the changes due to volume and rate in proportion to the relationship of absolute dollar amounts in each.
Tax-exempt income from short-term investments is presented on a tax-equivalent basis.



|                          |  |               |       |      |               |        |       |  |   |        |   |      |   |       |       |   |        |   |  |   |       |  
|------------------------- |  | ------------- | ----- | ---- | ------------- | ------ | ----- |  | - | ------ | - | ---- | - | ----- | ----- | - | ------ | - |  | - | ----- | -
|                          |  | 2003 vs. 2002 |       |      | 2002 vs. 2001 |       
|(Dollars in thousands)    |  | Volume        |       | Rate |               |        | Total |  |   | Volume |   | Rate |   |       | Total |  
|Loans                     |  | $             | 3,489 |      | $             | (1,786 | )     |  | $ | 1,703  |   |      | $ | 5,151 |       | $ | (1,293 | ) |  | $ | 3,858 |  
|Short-term investments    |  |               | 57    |      |               | (59    | )     |  |   | (2     | ) |      |   | 93    |       |   | (179   | ) |  |   | (86   | )
|                          |  |               |       |      |               |        |       |  |   |        |   |      |   |       |       |   |        |   |  |   |       |  
|Total increase (decrease) |  | $             | 3,546 |      | $             | (1,845 | )     |  | $ | 1,701  |   |      | $ | 5,244 |       | $ | (1,472 | ) |  | $ | 3,772 |  
|                          |  |               |       |      |               |        |       |  |   |        |   |      |   |       |       |   |        |   |  |   |       |  



Operating Expense



The Company incurs advisory fee expenses payable to the
Bank. The Bank retains an annual servicing fee of 25 basis points on the gross average outstanding principal balance of our loan portfolio, which reduces the interest income that is received by the Company. For 2003, 2002 and 2001, the Bank earned
service fees on the Companys loans of $582,000, $428,000 and $281,000, respectively. The Company has entered into an Advisory Agreement with the Bank for services the Bank renders on the Companys behalf for which it was paid $50,000 per
annum through 2002. The Board of Directors voted to increase the annual advisory fee for 2003 to $75,000. For each year ended December 31, 2003, 2002 and 2001, advisory fees were $75,000, $50,000 and $50,000, respectively.



Other operating expenses were primarily related to credit agency fees and
audit fees. Collectively, these fees and other lesser operating expenses were $274,000, $196,000 and $91,000 for each year ended December 31, 2003, 2002, and 2001, respectively. During the year ended December 31, 2003, 2002 and 2001, credit agency
fees were $32,000, $33,000 and $45,000, respectively. Auditing fees for each year ended December 31, 2003, 2002 and 2001 were $80,000, $66,000 and $30,000, respectively.



Financial Condition



Interest-bearing Deposits with the Bank



At December 31, 2003 and 2002, interest-bearing deposits consisted entirely of a money market account held at the Bank. Generally, the balance in this
account reflects principal and interest received on our mortgage loan portfolio.



Mortgage Loans



The
loan portfolio at December 31, 2003 consisted of both single family and multifamily mortgage loans acquired from the Bank. At December 31, 2002, the loan portfolio consisted entirely of single family mortgage



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loans acquired from the Bank. The Company anticipates that in the future it will continue to acquire all of its loans from the Bank.



A loan is placed on nonaccrual status when any installment of principal or
interest is over 90 days past due, except for single family loans that are well secured and in the process of collection, or when the Company determines that the ultimate collection of all contractually due principal or interest is unlikely.



As of December 31, 2003 and 2002, there were no nonaccrual
loans, impaired loans, or loans that were troubled debt restructurings. In addition, at December 31, 2003 and 2002, there were no accruing loans that were contractually past due more than 90 days.



Significant Concentration of Credit Risk



Concentration of credit risk generally arises with respect to the loan
portfolio when a number of borrowers engage in similar business activities, or activities in the same geographical region. Concentration of credit risk indicates the relative sensitivity of our performance to both positive and negative developments
affecting a particular industry. The balance sheet exposure to geographic concentrations directly affects the credit risk of the loans within our loan portfolio.



At December 31, 2003, 54% of the Companys loans were secured by properties located in the San Francisco Bay Area,
11% in Los Angeles County, 7% in other parts of California, 19% in New York and contiguous states and 9% in other parts of the United States. At December 31, 2003, the weighted average loan to value ratio on the Mortgage Loans was approximately 57%,
based on the appraised values of the properties at the time the loans were originated.



The following table presents an analysis of the Companys loan portfolio at December 31, 2003 by major geographic location:



|                       |  |                       |         |   |                   |   |        |                      |  |   |                          |   |  |                 |        |       |  |   |       |  |   |        |   |  |   |         |  
|---------------------- |  | --------------------- | ------- | - | ----------------- | - | ------ | -------------------- |  | - | ------------------------ | - |  | --------------- | ------ | ----- |  | - | ----- |  | - | ------ | - |  | - | ------- | -
|(Dollars in thousands) |  | San FranciscoBay Area |         |   | Los AngelesCounty |   |        | OtherCaliforniaAreas |  |   | GreaterNew YorkCity Area |   |  | Las VegasNevada |        | Other |  |   | Total | 
|Single family loans    |  | $                     | 151,783 |   |                   | $ | 32,227 |                      |  | $ | 20,639                   |   |  | $               | 60,019 |       |  | $ | 653   |  | $ | 30,730 |   |  | $ | 296,051 |  
|Multifamily loans      |  |                       | 20,880  |   |                   |   | 2,257  |                      |  |   | 2,046                    |   |  |                 | 857    |       |  |   | 414   |  |   |       |   |  |   | 26,454  |  
|                       |  |                       |         |   |                   |   |        |                      |  |   |                          |   |  |                 |        |       |  |   |       |  |   |        |   |  |   |         |  
|Total                  |  | $                     | 172,663 |   |                   | $ | 34,484 |                      |  | $ | 22,685                   |   |  | $               | 60,876 |       |  | $ | 1,067 |  | $ | 30,730 |   |  | $ | 322,505 |  
|                       |  |                       |         |   |                   |   |        |                      |  |   |                          |   |  |                 |        |       |  |   |       |  |   |        |   |  |   |         |  
|Percent by location    |  |                       | 54      | % |                   |   | 11     | %                    |  |   | 7                        | % |  |                 | 19     | %     |  |   |      |  |   | 9      | % |  |   | 100     | %



Liquidity and
Capital Resources



The Companys principal liquidity
needs are to pay dividends and to fund the acquisition of additional Mortgage Assets as borrowers repay Mortgage Loans. The Company will continue to fund the acquisition of additional Mortgage Loans with the proceeds of principal repayments on its
current portfolio of Mortgage Loans. Proceeds from interest payments will be reinvested until used for the payment of operating expenses and dividends. The Company does not anticipate that it will have any other material capital expenditures. The
Company expects that the cash generated from interest and principal payments on Mortgage Assets will provide sufficient funds for operating requirements and dividend payments in accordance with the requirements to be taxed as a REIT for the
foreseeable future.



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##### Table of Contents

|Item  7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|--------- | ----------------------------------------------------------



Interest Rate Risk Management



The Company services fixed-rate dividend obligations to preferred stockholders and operating expenses by the collection of interest income from its
Mortgage Loans. To facilitate meeting dividend payments, the Company has maintained an average interest-earning asset balance of approximately two times the liquidation preference of outstanding preferred shares. The Companys earnings to fixed
charges ratio was 1.10x for the year 2003, compared with 1.19x for 2002.



With the interest rate environment declining over the last year to 40-year historical lows, the yields on average interest-earning assets have dropped. The declines in yields are primarily the result of increased
prepayment of higher-yielding assets with the proceeds of the prepaid Mortgage Loans reinvested in lower-yielding Mortgage Loans. The weighted average yield on average interest-earning assets was 5.01% for 2003, compared with 5.82% for 2002.



At December 31, 2003, 28% of the Mortgage Loans were
adjustable rate loans, 56% were intermediate fixed rate loans and 16% were fixed rate loans. The weighted average coupon rate for each loan type was 4.68%, 5.43% and 5.92%, respectively, and the weighted average maturity was 24 years. At December
31, 2002, 39% were adjustable rate loans, 39% were intermediate fixed rate loans and 22% were fixed rate loans. The weighted average coupon rate for each loan type was 5.09%, 6.66% and 6.93%, respectively, and the weighted average maturity was 28.3
years.



For adjustable rate Mortgage Loans, the timing of
changes in average yields depends on the underlying interest rate index, the timing of changes in the index, and the frequency of adjustments to the loan rate. At December 31, 2003, the weighted average coupon rate of adjustable rate loans had
declined 41 basis points to 4.68% from 5.09% at December 31, 2002. The decline in adjustable rate loan yields was mitigated by a significant volume of adjustable rate loans indexed to the 11thDistrict Cost of Funds Index (COFI). COFI is a lagging index that tends to respond more slowly to changes in the general interest rate environment
than a market rate index. At December 31, 2003, adjustable rate loans indexed to COFI were 54% of total adjustable rate mortgages (ARM), or 15% of total Mortgage Loans.



For intermediate fixed and fixed rate loans, the gross principal outstanding at December 31, 2003 was $234.4 million, or 72%
of total loans. Repayments of intermediate fixed and fixed rate loans during 2003 were a significant portion of the total repayment proceeds of $159.7 million. The high level of repayments was the result of low interest rates. The Company reinvested
these repayment proceeds in lower-yielding Mortgage Loans. The weighted average coupon rate for intermediate fixed rate loans declined 123 basis points during 2003, and the weighted average coupon rate for fixed rate loans declined 101 basis points
during 2003.



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##### Table of Contents

The following table presents the outstanding loan portfolio at December 31, 2003 by interest rate type:



|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|--------------------------- |  | ------- | ------- | ----------------- | ---- | - | ----------------------- | -- | ---------------------- | --- | -
|(Dollars in thousands)      |  | Balance |         | NetCoupon (1) (2) |      |   | Months to NextReset (1) |    | Percentageof Portfolio |    
|ARM loans:                  |  |         |         |                   |      |   |                         |    |                        |     |  
|COFI                        |  | $       | 47,901  |                   | 4.57 | % |                         | 1  |                        | 15  | %
|CMT                         |  |         | 30,803  |                   | 4.67 |   |                         | 6  |                        | 10  |  
|Libor                       |  |         | 3,291   |                   | 3.92 |   |                         | 2  |                        | 1   |  
|Prime                       |  |         | 6,087   |                   | 5.99 |   |                         | 1  |                        | 2   |  
|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|Total ARMs                  |  |         | 88,082  |                   | 4.68 |   |                         | 3  |                        | 28  |  
|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|Intermediate fixed:         |  |         |         |                   |      |   |                         |    |                        |     |  
|13 months to 36 months      |  |         | 29,015  |                   | 6.18 |   |                         | 29 |                        | 9   |  
|37 months to 60 months      |  |         | 121,098 |                   | 5.28 |   |                         | 47 |                        | 37  |  
|Greater than 60 months      |  |         | 32,310  |                   | 5.33 |   |                         | 84 |                        | 10  |  
|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|Total intermediate fixed    |  |         | 182,423 |                   | 5.43 |   |                         | 51 |                        | 56  |  
|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|Total adjustable rate loans |  |         | 270,505 |                   | 5.19 |   |                         | 35 |                        | 84  |  
|Fixed rate loans            |  |         | 52,000  |                   | 5.92 |   |                         |    |                        | 16  |  
|                            |  |         |         |                   |      |   |                         |    |                        |     |  
|Total loans                 |  | $       | 322,505 |                   | 5.30 | % |                         |    |                        | 100 | %
|                            |  |         |         |                   |      |   |                         |    |                        |     |  

---

|(1) | Weighted average.
|--- | -----------------

|(2) | Net of servicing fees retained by the Bank.
|--- | -------------------------------------------



The following table presents principal balances outstanding net of amortized principal payments by maturity dates or interest rate adjustment dates as of
December 31, 2003:



|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|---------------------------------- |  | ---------- | ------ | ----------- | - | --------- |  | --------- | ------- | ------------ | - | ----------------- |  | - | ------- |  | - | -------- | - |  | - | -------
|(Dollars in thousands)             |  | 0-6 Months |        | 7-12 Months |   | 1-3 Years |  | 3-5 Years |         | Over 5 Years |   | Not RateSensitive |  |   | Total  
|Cash and investments               |  | $          | 6,766  |             | $ |          |  | $         |        |              | $ |                  |  | $ |        |  | $ |         |   |  | $ | 6,766  
|Loans                              |  |            | 78,027 |             |   | 17,356    |  |           | 39,062  |              |   | 118,111           |  |   | 69,949  |  |   |         |   |  |   | 322,505
|Other assets                       |  |            |       |             |   |          |  |           |        |              |   |                  |  |   |        |  |   | 1,126    |   |  |   | 1,126  
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Total assets                       |  | $          | 84,793 |             | $ | 17,356    |  | $         | 39,062  |              | $ | 118,111           |  | $ | 69,949  |  | $ | 1,126    |   |  | $ | 330,397
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|                                   |  |            |        |             |   |           | 
|Other liabilities                  |  | $          |       |             | $ |          |  | $         |        |              | $ |                  |  | $ |        |  | $ | 1,303    |   |  | $ | 1,303  
|Stockholders equity               |  |            |       |             |   |          |  |           |        |              |   |                  |  |   |        |  |   | 329,094  |   |  |   | 329,094
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Total liabilities and equity       |  | $          |       |             | $ |          |  | $         |        |              | $ |                  |  | $ |        |  | $ | 330,397  |   |  | $ | 330,397
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Repricing GAP positive (negative) |  | $          | 84,793 |             | $ | 17,356    |  | $         | 39,062  |              | $ | 118,111           |  | $ | 69,949  |  | $ | (329,271 | ) |  |   |        
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Cumulative repricing GAP:          |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Dollar amount                      |  | $          | 84,793 |             | $ | 102,149   |  | $         | 141,211 |              | $ | 259,322           |  | $ | 329,271 |  |   |          |   |  |   |        
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        
|Percent of total assets            |  |            | 25.7%  |             |   | 30.9%     |  |           | 42.7%   |              |   | 78.5%             |  |   | 99.7%   |  |   |          |   |  |   |        
|                                   |  |            |        |             |   |           |  |           |         |              |   |                   |  |   |         |  |   |          |   |  |   |        



The Company does not
intend to sell mortgage loans. Furthermore, the Company has not engaged in business activities related to foreign currency transactions or commodity based instruments and has not made any investments in equity securities subject to price
fluctuations.



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Risk Factors



Our results will be affected by factors beyond our control.



The value of our mortgage loan portfolio and the amount of cash flow generated by the portfolio will be affected by a number
of factors beyond our control. These factors may include the following:



| |  | the condition of the national economy and the local economies of the regions in which our mortgage borrowers live, particularly insofar as they affect interest rates and real estate
values;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | sudden or unexpected changes in economic conditions, including changes that might result from recent or future terrorist attacks and the U.S. response to such attacks;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the financial condition of our borrowers and those borrowers ability to make mortgage payments;
| | - | ------------------------------------------------------------------------------------------------



| |  | factors that affect the rates at which obligors on Mortgage Loans may refinance them, including interest rate levels and the availability of credit; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | other factors that affect the affordability and value of real estate, including energy costs and real estate taxes.
| | - | -------------------------------------------------------------------------------------------------------------------



A decline in interest rates could reduce our earnings and affect our
ability to pay dividends.



Our income consists primarily
of interest earned on Mortgage Loans and short-term investments. A significant portion of Mortgage Assets bears interest at adjustable rates. If there is a decline in interest rates, we will experience a decrease in income available to be
distributed to our shareholders. If interest rates decline, we may also experience an increase in prepayments on Mortgage Loans and may find it difficult to purchase additional mortgage assets bearing rates sufficient to support payment of dividends
on our preferred shares. Because the dividend rates on the preferred shares are fixed, a significant and sustained decline in interest rates could materially adversely affect our ability to pay dividends on the preferred shares. Although we are
permitted to do so, we do not currently hedge our interest rate exposure, and do not expect to do so.



We may not be able to continue to purchase loans at the same volumes or with the same yields as we have historically purchased.



Although not required to do so, to date we have purchased all of the loans
in our portfolio from the Bank. Almost all of these loans were originated by the Bank. The quantity and quality of future loan originations by the Bank will depend on conditions in the markets in which the Bank operates, particularly real estate
values and interest rates. Consequently, we cannot assure you that the Bank will be able to originate loans at the same volumes or with the same yields as it has historically originated. If the volume of loans originated by the Bank declines or the
yields on those loans decline further, we would experience a material adverse effect on our business, financial condition and results of operations.



Our loans are concentrated in California and adverse conditions there could adversely affect our operations.



Properties underlying Mortgage Assets were concentrated primarily in
California. At December 31, 2003, approximately 72% of Mortgage Assets were secured by properties located in California. Adverse economic, political or business developments or natural hazards may affect California and the ability of property owners
there to make payments of principal and interest on the underlying mortgages and the values of those properties. If Californias economic, political or business conditions were to deteriorate substantially and differently from the rest of the
United States, we would likely experience higher rates of loss and delinquency on Mortgage Loans than if our loans were more geographically diverse. California has experienced dramatic volatility in energy prices, periodic energy supply shortages
and a downturn in some technology-oriented industry sectors. These conditions could adversely affect our mortgage loan portfolio and thus our future ability to pay dividends on our preferred shares.



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Defaults may negatively impact our earnings.



Increased delinquencies or loan defaults by our borrowers may negatively
affect business. A borrowers default on its obligations under one or more loans may result in lost principal and interest income. If collection efforts are unsuccessful or acceptable workout arrangements cannot be reached, we may have to
charge-off all or a part of the loan. In such situations, we may acquire any real estate or other assets, if any, that secure the loan through foreclosure or other similar available remedies. The amount owed under the defaulted loan may exceed the
value of the assets acquired.



We do not have insurance to
cover our exposure to borrowers defaults and bankruptcies or to hazard losses that are not covered by our standard hazard insurance policies.



We generally do not obtain general credit enhancements such as mortgagor bankruptcy insurance or obtain special hazard insurance for Mortgage Assets,
other than standard hazard insurance, which, in each case, will only relate to individual mortgage loans. Accordingly, we will be subject to risks of borrower defaults and bankruptcies and special hazard losses, such as losses occurring from
earthquakes or floods that are not covered by standard hazard insurance. In the event of a default on any mortgage loan held by us resulting from declining property values or worsening economic conditions, among other factors, we would bear the risk
of loss of principal to the extent of any deficiency between (i) the value of the related mortgaged property plus any payments from an insurer (or guarantor in the case of commercial mortgage loans), and (ii) the amount owing on the mortgage loan.



We could be held responsible for environmental liabilities
of properties we acquire through foreclosure.



If we are
forced to foreclose on a defaulted mortgage loan to recover our investment we may be subject to environmental liabilities related to the underlying real property. Hazardous substances or wastes, contaminants, pollutants or sources thereof may be
discovered on properties during our ownership or after a sale to a third party. The amount of environmental liability could exceed the value of the real property. There can be no assurance that we would not be fully liable for the entire cost of any
removal and clean-up on an acquired property, that the cost of removal and clean-up would not exceed the value of the property or that we could recoup any of the costs from any third party. In addition, we may find it difficult or impossible to sell
the property prior to or following any environmental remediation.



We may acquire different kinds of mortgage loans, which could be riskier than the loans we primarily hold.



Through the first quarter of 2003, our Mortgage Loans consisted entirely of single family mortgages. Beginning in the second quarter of 2003, we acquired
multifamily real estate secured mortgages from the Bank, which can be riskier investments than single family mortgage loans, and we may continue to acquire multifamily mortgages. Additionally, although we have no immediate plans to do so, we reserve
the right to acquire other types of mortgages. Loans other than single family mortgages tend to have shorter maturities and may not be fully amortizing, meaning that they may have significant principal balances or balloon payments due on
maturity. The properties that secure commercial mortgage loans, particularly industrial and warehouse properties, are generally subject to greater environmental risks than non-commercial properties and the corresponding burdens and costs of
compliance with environmental laws and regulations. Also, there may be costs and delays involved in enforcing rights of property owner against tenants in default under the terms of leases with respect to multifamily residential or commercial
properties. For example, tenants may seek the protection of the bankruptcy laws, which could result in termination of leases.



We expect to acquire all of our mortgage loans from the Bank and the composition of our portfolio will be affected by changes in the Banks credit
policies.



We have acquired all of our Mortgage Loans from
the Bank and, although we are not required to do so, we expect that we will continue to acquire all our mortgage loans from the Bank in the future. If the Bank were to relax its credit policies by, for example, lowering the credit quality standards
it applies, or increasing the loan-to-value ratios it accepts, the mortgages subsequently purchased by us would be riskier investments.



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We are dependent upon the Bank as advisor and servicer.



The Bank, which holds almost all of our common shares, is involved in
virtually every aspect of our business. We do not have any employees because we have retained the Bank to perform all necessary functions pursuant to the advisory agreement and the servicing agreement. Accordingly, we are dependent for the
selection, structuring and monitoring of Mortgage Assets on the officers and employees of the Bank, as advisor. In addition, we are dependent upon the expertise of the Bank, as servicer, for the servicing of the Mortgage Loans. Neither the advisory
agreement nor the servicing agreement resulted from arms-length negotiations. We also face significant restrictions on obtaining such services from third parties; the termination of the advisory and servicing agreements with the Bank requires
the affirmative vote of a majority of our Board of Directors, a majority of which is composed of directors and officers of the Bank. With the approval of a majority of our independent directors, the Bank, as advisor and servicer, may subcontract all
or a portion of its obligations under these agreements to non-affiliates involved in the business of managing mortgage assets. In the event the Bank subcontracts its obligations in such a manner, we will be dependent upon the subcontractor to
provide services.



Our relationship with the Bank creates
conflicts of interest.



The Bank is, and is expected to
continue to be, involved in virtually every aspect of our operations. The Bank is the holder of substantially all of our common stock shares and will administer our day-to-day activities in its role as advisor under the advisory agreement. The Bank
will also act as servicer of the Mortgage Loans on our behalf under the servicing agreement. In addition, other than the independent directors, all of our officers and directors are also officers and/or directors of the Bank. Their compensation is
paid by the Bank, and they have substantial responsibilities in connection with their work as employees and officers of the Bank. As the holder of all or almost all of our outstanding voting shares, the Bank has the right to elect all of our
directors, including the independent directors.



The Bank has
interests that are dissimilar to or in conflict with our interests. Consequently, conflicts of interest arise with respect to transactions, including without limitation, future acquisitions of mortgage assets from the Bank; servicing of mortgage
loans; and the renewal, termination or modification of the advisory agreement or the servicing agreement. It is our intention and the intention of the Bank that any agreements and transactions between us, on the one hand, and the Bank, on the other
hand, are fair to both parties and consistent with market terms, including prices that are paid and received on the acquisition of mortgage assets by us or in connection with the servicing of mortgage loans. The requirement in the terms of the
Series B Preferred Shares that certain of our actions be approved by a majority of the independent directors is also intended to ensure fair dealings between the Company and the Bank, although the independent directors are appointed by the Bank.
There can be no assurance, however, that such agreements or transactions will be on terms as favorable to us as those that could have been obtained from unaffiliated third parties.



Although not required to do so, we currently acquire all mortgage loans from the Bank under a loan purchase and servicing
agreement between the Company and the Bank. We do not have independent underwriting criteria for the loans we purchase and rely on the Banks underwriting standards for loan originations. Those criteria may change over time. Our Board of
Directors has adopted certain policies to guide the acquisition and disposition of assets, but these policies may be revised from time to time at the discretion of the board of directors without a vote of our shareholders. We intend to acquire all
or substantially all of the additional mortgage loans we may acquire in the future from the Bank on terms that are comparable to those that could be obtained by us if such mortgage loans were purchased from unrelated third parties, but we cannot
assure you that this will always be the case.



As a result of
the fact that the Bank is our controlling shareholder and our advisor, it is possible that, notwithstanding our good faith belief to the contrary, we in fact pay more for these loans than if we bought them from an unaffiliated third party and loans
purchased from the Bank in the future may be of lesser quality than those currently in our loan portfolio.



23



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##### Table of Contents

If we were to fail to qualify as a REIT, we would be subject to federal income tax at regular
corporate rates.



If we were to fail to qualify as a REIT
for any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. As a result, the amount available for distribution to our shareholders, including
the holders of our preferred shares, would be reduced for the year or years involved, and we would not be subject to the REIT requirement that we distribute substantially all of our income. In addition, unless entitled to relief under statutory
provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. The failure to qualify as a REIT would reduce our net earnings available for distribution to our
shareholders, including holders of our Series B Preferred Shares, because of the additional federal tax liability for the year or years involved. Our failure to qualify as a REIT would neither by itself give us the right to redeem the preferred
shares, nor would it give the holders of the preferred shares the right to have their shares redeemed.



Although we currently intend to operate in a manner designed to qualify as a REIT, future economic, market, legal, tax or other considerations may cause
us to determine that it is in our best interest and in the best interest of holders of our common shares and preferred shares to revoke our REIT election. The tax law generally prohibits us from electing treatment as a REIT for the four taxable
years following the year of any such revocation.



Bank
regulators may limit our ability to implement our business plan and may restrict our ability to pay dividends.



Because we are a subsidiary of the Bank, federal and state regulatory authorities will have the right to examine us and our activities and under certain
circumstances, to impose restrictions on the Bank or us that could impact our ability to conduct our business according to our business plan, which could materially adversely affect our financial condition and results of operations. Regulatory
actions might include the following:



| |  | If the Banks regulators were to determine that the Banks relationship to us results in an unsafe and unsound banking practice, the regulators could restrict our ability
to transfer assets, to make distributions to our shareholders, including dividends on our preferred shares, or to redeem our preferred shares or even require the Bank to sever its relationship with or divest its ownership interest in us. These types
of actions potentially could have a material adverse affect on our financial condition and results of operations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Regulators also could prohibit or limit the payment of dividends on our preferred shares if the Bank were to become undercapitalized. Under current regulations and guidelines, the
Bank would be deemed undercapitalized if its total risk-based capital ratio were less than 8%, its Tier 1 risk-based capital ratio were less than 4% or its Tier 1 leverage ratio were less than 4%. At December 31, 2003, the Bank had a total
risk-based capital ratio of 13.21%, a Tier 1 risk-based capital ratio of 9.18% and a Tier 1 leverage ratio of 6.11%, which are sufficient for the Bank to be considered well-capitalized.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The FDIC could limit or prohibit the payment of dividends on the preferred shares, if it determined that the payment of those dividends constituted a capital distribution by the
Bank and that the Banks earnings and regulatory capital levels were below specified levels. Under the FDICs regulations on capital distributions, the ability of the Bank to make a capital distribution varies depending primarily on the
Banks earnings and regulatory capital levels. Capital distributions are defined to include payment of dividends, share repurchases, cash-out mergers and other distributions charged against the capital accounts of an institution.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | If regulators were to impose restrictions on payment of dividends, we could be prevented from complying with the requirement for continued REIT status that we distribute 90% of our
REIT taxable income (excluding deductions for any dividends paid and any net capital gains) for any calendar year. If this caused us to cease to qualify as a REIT, we would become subject to corporate level taxation. Additional taxation would reduce
the amount of income available for us to pay dividends.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

Recent legislation may affect REITs.



Recently, legislation has been enacted which reduces the federal tax burden
with respect to certain dividends paid by regular C corporations. Such legislation decreases the tax advantage of a REIT relative to a regular C corporation, because the dividends received by an individual stockholder from the regular C Corporation
are generally subject to a lower rate of federal income tax. However, it is not possible to predict with any certainty the effects this legislation may have on the value of our preferred shares.



|Item  8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|-------- | -------------------------------------------



See index to Financial Statements on page F-2.



|Item  9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|-------- | ------------------------------------------------------------------------------------



There have been no changes in, or disagreements with, our accountants on any matter of accounting principles, practices or
financial statement disclosures since our inception in April 1999.



|Item  9A. | CONTROLS AND PROCEDURES
|--------- | -----------------------



Evaluation of Disclosure Controls and Procedures



A review and evaluation was performed by the Companys management, including the Companys chief executive officer and Chief Financial Officer
(the Officers), of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the quarterly period covered by this report. Based on that review and evaluation, the Officers
have concluded that the Companys current disclosure controls and procedures, as designed and implemented, were effective. There have been no significant changes in the internal controls of the Company, or the Bank, that could significantly
affect the Companys internal controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were
taken by the Company.



Changes in Internal Controls



There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of their evaluation.



PART III



|Item  10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
|--------- | -----------------------------------------------



Directors and Executive Officers



As the holder of substantially all of the Companys common stock shares, the Bank has the right to elect the directors, including the independent
directors. The Board of Directors consists of seven members, including three independent directors. The Company currently has five officers, four of which are also directors, and it estimated that they will spend between 5% and 10% of their time
managing the Companys business. The Company has no employees and do not anticipate requiring employees.



25



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##### Table of Contents

The Companys directors and executive officers are listed below. Each director or officer has served
in his/her capacity since our inception in April 1999, except for Mr. Willson who was elected in December 2001.



|                        |  |     |  |                                                             
|----------------------- |  | --- |  | ------------------------------------------------------------
|Name                    |  | Age |  | Position and Offices Held                                   
|James J. Baumberger     |  | 61  |  | President, Director                                         
|Thomas A. Cunningham(1) |  | 68  |  | Director                                                    
|Edward J. Dobranski     |  | 53  |  | Vice President, General Counsel, Director                   
|Jerry Lykins(1)         |  | 68  |  | Director                                                    
|Julie N. Miyachi        |  | 46  |  | Vice President, Operations and Reporting, Director          
|Willis H. Newton, Jr.   |  | 54  |  | Vice President, Chief Financial Officer, Treasurer, Director
|Diann Ward              |  | 48  |  | Assistant Vice President, Corporate Secretary               
|Kent R. Willson(1)      |  | 81  |  | Director                                                    

---

|(1) | Independent Director and Audit Committee Member.
|--- | ------------------------------------------------



The following is a summary of the experience of our executive officers and directors:



Mr. Baumberger is currently a senior consultant and director for the Bank. He was employed by the Bank and its predecessors
from 1990 to 2002. From December 1993 until October 1996, Mr. Baumberger was President of First Republic Savings Bank, an FDIC insured financial institution. Mr. Baumberger has been involved in banking and real estate lending in the Las Vegas,
Nevada area for more than thirty years.



Mr. Cunningham is
retired. From 1986 to 1994, he was President of the California Thrift Guarantee Corporation. Previously Mr. Cunningham held senior executive positions in several banking institutions. He was a member of the U.S. Marine Corp. until 1971. From 1988 to
1998, Mr. Cunningham served as a director of the Bank and one of its predecessor financial institutions.



Mr. Dobranski joined the Bank in 1992 and has served as Senior Vice President and General Counsel since that time. Mr. Dobranski currently serves as the
Secretary of the Bank and has been the Banks Compliance Officer. From 1980 to 1987, Mr. Dobranski was Vice President and Senior Counsel at Wells Fargo Bank. From 1987 to 1992, he was in private law practice in San Francisco specializing in
banking, real estate and corporate law.



Mr. Lykins is a
retired mortgage banker. His career included executive and operational management responsibilities in both California and Nevada for Mason McDufrie. From 1994 until 1998, Mr. Lykins was a director of the Bank and one of its predecessor financial
institutions.



Ms. Miyachi has been Director of Financial
Analysis and Planning in the executive offices of the Bank since 1994. In such capacity, she has assisted executive management of the Bank in complex analysis of business operations. Ms. Miyachi has over nineteen years experience with the
accounting, reporting, analysis and planning of mortgage oriented financial institutions.



Mr. Newton is Executive Vice President and Chief Financial Officer of the Bank and has held such position since August 1988. Previously, Mr. Newton was Vice President and Controller of Homestead Financial and was a
Certified Public Accountant with KPMG LLP for nine years.



Ms.
Ward joined the Las Vegas, Nevada office of the Bank in 1995 and is manager of loan servicing. She has responsibility for the investor reporting and remittance functions of the Banks mortgage loan servicing functions. She has been involved in
servicing loans for over twenty years.



Mr. Willson has been
retired since 1985. During his career as an electrical, mechanical and safety engineer, he was chief engineer for the Kaiser Permanente Foundation and a consultant for private organizations and government agencies. From 1989 to 1998, Mr. Willson
served as a director of the Bank and one of its predecessor financial institutions.



26



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##### Table of Contents

Independent Directors



The terms of the preferred shares require that, as long as any preferred shares are outstanding, certain actions by us be approved by a majority of the
Companys independent directors. In order to be considered independent, a director must not be or have been in the last three years one of the Companys officers or employees or a director, officer or employee of the Bank or an
affiliate of the Bank. Members of our Board of Directors elected by holders of preferred shares will not be deemed to be independent directors for purposes of approving actions requiring the approval of a majority of the independent directors. Mr.
Cunningham (Chairman), Mr. Lykins and Mr. Willson are currently our independent directors.



If, at the time of any of the Companys annual shareholder meetings, the Company has failed to pay or declare and set aside for payment a full quarterly dividend during any of the four preceding quarterly
dividend periods on any series of the Companys preferred shares, the number of directors then constituting our Board of Directors will be increased by two, and the holders of the Companys outstanding series of preferred shares voting as
a single class at that meeting will be entitled to elect the two additional directors to serve on the Board of Directors. Any member of the Board of Directors elected by holders of the preferred shares will not be deemed an independent director for
purposes of the actions requiring the approval of a majority of the independent directors.



Audit Committee



The
Companys Board of Directors has established an audit committee that reviews the engagement and independence of the Companys independent accountants. The audit committee also reviews the adequacy of the Companys internal accounting
controls. The audit committee is comprised of three independent directors: Messrs. Cunningham, Lykins and Willson.



Compensation of Directors



The independent directors receive no annual compensation; however, they are paid a fee of $1,000 for attendance (in person or by telephone) at each
meeting of the Board of Directors and $500 for any separate Audit Committee meeting attended (in person or by telephone). The Company does not pay any compensation or fees to our directors who are not independent.



|Item  11. | EXECUTIVE COMPENSATION
|--------- | ----------------------



The Company does not pay any compensation to its officers or employees.



27



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##### Table of Contents

|Item  12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|--------- | --------------------------------------------------------------



The following table sets forth, as of February 15, 2004, the number and percentage of outstanding shares of common shares, Series A Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares and Series D Shares beneficially owned by (i) all persons known by us to own more than five percent of such shares; (ii) each of our directors; (iii) each of our executive officers; and (iv) all
of our executive officers and directors as a group. The persons or entities named in the table have sole voting and sole investment power with respect to each of the shares beneficially owned by such person or entity. The calculations were based on
a total of 29,362,633 Common Shares, 55,000 Series A Preferred Shares, 1,680,000 Series B Preferred Shares, 7,000 Series C Preferred Shares and 2,400,000 Series D Preferred Shares outstanding as of February 15, 2004.



|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|-------------------------------------------------------------------- |  | ------------------------------------------------------- |  | ---- | ------------------------ |  | ------ | ------------------------ | ---- | - | ------------------------ | ------ |  | ------------------------ | - |  | ------ |  | ----- | - |  | ------ |  | --- | -
|                                                                     |  | Common Shares                                           |  |      | Series APreferred Shares |  |        | Series BPreferred Shares |      |   | Series CPreferred Shares |        |  | Series DPreferred Shares |  
|                                                                     |  | (Number of Shares and Percentage of Outstanding Shares) | 
|Name and Address of Beneficial Owner                                 |  | Number                                                  |  | %    |                          |  | Number |                          | %    |   |                          | Number |  | %                        |   |  | Number |  | %     |   |  | Number |  | %   |  
|First Republic Bank                                                  |  | 29,352,793                                              |  | 99.9 | %                        |  | 25,260 |                          | 45.9 | % |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|111 Pine Street San Francisco, California 94111                      |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |  
|Farm Bureau Life                                                     |  |                                                        |  |     |                          |  | 5,000  |                          | 9.1  | % |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|Insurance Company 5400 University Avenue Des Moines, Iowa 50266-5977 |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |  
|Roslyn Savings Bank                                                  |  |                                                        |  |     |                          |  | 5,000  |                          | 9.1  | % |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|One Jericho Plaza P.O. Box 9005 Jericho, New York 11753-8905         |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |  
|Credit Suisse First Boston                                           |  |                                                        |  |     |                          |  |       |                          |     |   |                          |       |  |                         |   |  | 7,000  |  | 100.0 | % |  |       |  |    |  
|11 Madison Avenue New York, New York 10010                           |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |  
|Executive Officers and Directors:                                    |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|James J. Baumberger(2)(3)                                            |  | 80                                                      |  | *    |                          |  |       |                          |     |   |                          | 12,000 |  | 0.7                      | % |  |       |  |      |   |  | 4,000  |  | 0.2 | %
|Thomas A. Cunningham(3)                                              |  |                                                        |  |     |                          |  |       |                          |     |   |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|Edward J. Dobranski(2) (3)                                           |  | 80                                                      |  | *    |                          |  |       |                          |     |   |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|Jerry Lykins(3)                                                      |  |                                                        |  |     |                          |  |       |                          |     |   |                          | 12,000 |  | 0.7                      | % |  |       |  |      |   |  | 2,000  |  | 0.1 | %
|Julie N. Miyachi(2) (3)                                              |  | 80                                                      |  | *    |                          |  |       |                          |     |   |                          | 400    |  | *                        |   |  |       |  |      |   |  |       |  |    |  
|Willis H. Newton, Jr.(2) (3)                                         |  | 80                                                      |  | *    |                          |  |       |                          |     |   |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|Diann Ward                                                           |  | 80                                                      |  | *    |                          |  |       |                          |     |   |                          |       |  |                         |   |  |       |  |      |   |  |       |  |    |  
|Kent R. Willson(3)                                                   |  |                                                        |  |     |                          |  |       |                          |     |   |                          | 4,100  |  | 0.3                      | % |  |       |  |      |   |  |       |  |    |  
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  
|All Executive Officers and Directors as a group (8 persons)          |  | 400                                                     |  | *    |                          |  |       |                          |     |   |                          | 28,500 |  | 1.7                      | % |  |       |  |      |   |  | 6,000  |  | 0.3 | %
|                                                                     |  |                                                         |  |      |                          |  |        |                          |      |   |                          |        |  |                          |   |  |        |  |       |   |  |        |  |     |  

---

|* | Less than 1/10 of 1%.
|- | ---------------------

|(1) | Unless otherwise indicated, the address of each beneficial owner is c/o First Republic Preferred Capital Corporation, 111 Pine Street, San Francisco, California 94111.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Executive Officer.
|--- | ------------------

|(3) | Director.
|--- | ---------



28



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##### Table of Contents

|Item  13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|--------- | ----------------------------------------------



Transactions with Management and Others



Please see the discussion in Item 1 of this report under the heading The Companys Relationship with the Bank.



Certain Business Relationships



All of the Companys executive officers are also officers or employees
of the Bank.



Indebtedness of Management



None of the Companys directors, officers, or any of their immediate
family or other affiliates, is indebted to the Company since the beginning of the year ended December 31, 2003, in an amount in excess of $60,000.



|Item  14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|--------- | --------------------------------------



The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Companys annual financial statements for
2003 and 2002 and fees billed for other services rendered by KPMG LLP.



|                   |  |      |         |      |   |       
|------------------ |  | ---- | ------- | ---- | - | ------
|                   |  | 2003 |         | 2002
|Audit fees         |  | $    | 161,790 |      | $ | 60,475
|Audit related fees |  |      |        |      |   |      
|Tax fees           |  |      |        |      |   |      
|All other fees     |  |      |        |      |   |      
|                   |  |      |         |      |   |       
|Total fees         |  | $    | 161,790 |      | $ | 60,475
|                   |  |      |         |      |   |       



The Audit Committee
implemented a policy in May 2003 to have all future auditing services and permitted non-audit services of KPMG LLP pre-approved by the Audit Committee, including fees and terms. Following the implementation of this policy, the Audit Committee
pre-approved all of the engagements and fees for the audit of the REIT.



PART IV



|Item  15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|--------- | ----------------------------------------------------------------



|(a) | Financial Statements.
|--- | ---------------------



Please see the index to the Financial Statements on page F-2 of this report.



|(b) | No reports on Form 8-K were filed during the last quarterly period covered by this report.
|--- | ------------------------------------------------------------------------------------------



|(c) | Exhibits.
|--- | ---------



The majority of the following exhibits were previously filed as exhibits to other reports or registration statements filed by the Company and are incorporated herein by reference to such reports or registration
statements as indicated parenthetically below.



29



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                     
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                         
|3.1         |  | Articles of Incorporation of First Republic Preferred Capital Corporation (incorporated herein by reference to Exhibit 3.1 of Form S-11 (File No. 333-72510)).                                                                      
|            | 
|3.2         |  | Certificate of Designations of First Republic Preferred Capital Corporation relating to the Noncumulative Series A Preferred Shares (incorporated herein by reference to Exhibit 3.2 of
Form S-11 (File No. 333-72510)).            
|            | 
|3.3         |  | Certificate of Designations of First Republic Preferred Capital Corporation relating to the Noncumulative Series B Preferred Shares (incorporated herein by reference to Exhibit 3 of
Form 8-K (File No. 000-33461)).               
|            | 
|3.4         |  | Certificate of Designations of First Republic Preferred Capital Corporation relating to the Noncumulative Series C Preferred Shares (incorporated herein by reference to Exhibit 3.4 of
Form S-11 (File No. 333-72510)).            
|            | 
|3.5         |  | Code of Bylaws of First Republic Preferred Capital Corporation (incorporated herein by reference to Exhibit 3.5 of Form S-11 (File No. 333-72510)).                                                                                 
|            | 
|3.6         |  | Certificate of Designations of First Republic Preferred Capital Corporation relating to the Noncumulative Series D Preferred Shares incorporated herein by reference to Exhibit 3.6 of
Form S-11 (File No. 333-105434)              
|            | 
|4           |  | Specimen certificate representing Noncumulative Series B shares (incorporated herein by reference to Exhibit 4 of Form S-11 (File No. 333-72510)).                                                                                  
|            | 
|10.1        |  | Amended and Restated Master Loan Purchase and Servicing Agreement between First Republic Preferred Capital Corporation and First Republic Bank (incorporated herein by reference to Exhibit
10.1 of Form S-11 (File No. 333-72510)).
|            | 
|10.2        |  | Amended and Restated Advisory Agreement between First Republic Preferred Capital Corporation and First Republic Bank (incorporated herein by reference to Exhibit 10.2 of Form S-11 (File
No. 333-72510)).                          
|            | 
|12*         |  | Statement regarding calculation of ratio of earnings to fixed charges.                                                                                                                                                              
|            | 
|31.1*       |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                    
|            | 
|31.2*       |  | Certification pursuant to 15 U.S.C. 7m(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                    
|            | 
|32.1*       |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                             
|            | 
|32.2*       |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                             

---

|* | Filed herewith.
|- | ---------------



30



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SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, First Republic Preferred Capital Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



FIRST REPUBLIC PREFERRED CAPITAL CORPORATION



|                                                      |  |                                                                                               |  |               
|----------------------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | --------------
|By:/s/    WILLIS H. NEWTON, JR. Willis H. Newton, Jr. |  | Vice President, Chief Financial
Officer, Treasurer and Director (Principal Financial
Officer) |  | March 11, 2004



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of First Republic Preferred Capital Corporation and in the capacities and on the dates indicated.



|                                                  |  |                                                              |  |               
|------------------------------------------------- |  | ------------------------------------------------------------ |  | --------------
|Signature                                         |  | Title                                                        |  | Date          
|                                                  |  |                                                             
|/s/    JAMES J. BAUMBERGERJames J. Baumberger     |  | President, Director                                          |  | March 11, 2004
|                                                  |  |                                                             
|/s/    THOMAS A. CUNNINGHAMThomas A. Cunningham   |  | Director                                                     |  | March 11, 2004
|                                                  |  |                                                             
|/s/    EDWARD J. DOBRANSKIEdward J. Dobranski     |  | Vice President, General Counsel, Director                    |  | March 11, 2004
|                                                  |  |                                                             
|/s/    JERRY LYKINSJerry Lykins                   |  | Director                                                     |  | March 11, 2004
|                                                  |  |                                                             
|/s/    JULIE N. MIYACHIJulie N. Miyachi           |  | Vice President, Operations and Reporting, Director           |  | March 11, 2004
|                                                  |  |                                                             
|/s/    WILLIS H. NEWTON, JR.Willis H. Newton, Jr. |  | Vice President, Chief Financial Officer, Treasurer, Director |  | March 11, 2004
|                                                  |  |                                                             
|/s/    KENT R. WILLSONKent R. Willson             |  | Director                                                     |  | March 11, 2004
|                                                  |  |                                                             
|/s/    DIANN WARDDiann Ward                       |  | Assistant Vice President, Corporate
Secretary                |  | March 11, 2004







31



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##### Table of Contents





FIRST REPUBLIC PREFERRED CAPITAL CORPORATION



(A Majority Owned Subsidiary of First Republic Bank)



Financial Statements



December 31, 2003 and 2002



(With Independent Auditors Report Thereon)



F-1



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION



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TABLE OF CONTENTS



|                                  |  |     
|--------------------------------- |  | ----
|                                  |  | Page
|                                  | 
|Independent Auditors Report      |  | F-3 
|                                  | 
|Balance Sheet                     |  | F-4 
|                                  | 
|Statement of Income               |  | F-5 
|                                  | 
|Statement of Stockholders Equity |  | F-6 
|                                  | 
|Statement of Cash Flows           |  | F-7 
|                                  | 
|Notes to Financial Statements     |  | F-8 



All other schedules
are omitted since the required information is not present in amounts sufficient to require submission of the schedules or the information required is included in the financial statements and notes thereto.



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##### Table of Contents

INDEPENDENT AUDITORS REPORT



The Board of
Directors

First Republic Preferred Capital Corporation:



We have audited the accompanying balance sheet of First Republic Preferred Capital Corporation (the Company) (a majority owned subsidiary of First
Republic Bank) as of December 31, 2003 and 2002, and the related statements of income, stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of First Republic Preferred Capital Corporation as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.





/s/    KPMG LLP

San Francisco, California

February 27, 2004



F-3



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)



BALANCE SHEET



|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                              |  | December 31, |            
|                                                                                                                                                                              |  | 2003         |             |   | 2002 |  
|ASSETS                                                                                                                                                                        |  |              |             |   |      |   |             |  
|Cash and short-term investments on deposit with First Republic Bank                                                                                                           |  | $            | 6,766,000   |   |      | $ | 22,296,000  |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Single family mortgage loans                                                                                                                                                  |  |              | 296,051,000 |   |      |   | 187,879,000 |  
|Multifamily mortgage loans                                                                                                                                                    |  |              | 26,454,000  |   |      |   |            |  
|Less: Allowance for loan losses                                                                                                                                               |  |              | (481,000    | ) |      |   | (200,000    | )
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Net loans                                                                                                                                                                     |  |              | 322,024,000 |   |      |   | 187,679,000 |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Accrued interest receivable                                                                                                                                                   |  |              | 1,593,000   |   |      |   | 1,191,000   |  
|Prepaid expenses                                                                                                                                                              |  |              | 14,000      |   |      |   | 10,000      |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Total assets                                                                                                                                                                  |  | $            | 330,397,000 |   |      | $ | 211,176,000 |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                          |  |              |             |   |      |   |             |  
|Liabilities:                                                                                                                                                                  |  |              |             |   |      |   |             |  
|Dividends payable on common stock                                                                                                                                             |  | $            | 1,255,000   |   |      | $ | 2,044,000   |  
|Payable to First Republic Bank                                                                                                                                                |  |              | 19,000      |   |      |   | 13,000      |  
|Other payables                                                                                                                                                                |  |              | 29,000      |   |      |   | 25,000      |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Total liabilities                                                                                                                                                             |  |              | 1,303,000   |   |      |   | 2,082,000   |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Stockholders equity:                                                                                                                                                         |  |              |             |   |      |   |             |  
|Preferred stock, $0.01 par value per share; 10,000,000 shares authorized:                                                                                                     |  |              |             |   |      |   |             |  
|10.5% perpetual, exchangeable, noncumulative Series A preferred stock; $1,000 liquidation value per share; 55,000 shares authorized, issued
and outstanding                   |  |              | 55,000,000  |   |      |   | 55,000,000  |  
|8.875% perpetual exchangeable, noncumulative Series B preferred stock; $25 of liquidation value per share; 1,840,000 authorized, 1,680,000
shares issued and outstanding      |  |              | 42,000,000  |   |      |   | 42,000,000  |  
|5.7% perpetual, convertible, exchangeable, noncumulative Series C preferred stock; $1,000 liquidation value per share; 10,000 shares
authorized, 7,000 issued and outstanding |  |              | 7,000,000   |   |      |   | 7,000,000   |  
|7.25% perpetual, exchangeable, noncumulative Series D preferred stock; $25 liquidation value per share; 2,400,000 shares authorized, issued
and outstanding                   |  |              | 60,000,000  |   |      |   |            |  
|Common stock; $0.01 par value, 50,000,000 shares authorized, 29,362,633 and 18,704,303 shares issued and outstanding at December 31, 2003 and
2002, respectively              |  |              | 294,000     |   |      |   | 187,000     |  
|Additional paid-in capital                                                                                                                                                    |  |              | 165,000,000 |   |      |   | 105,107,000 |  
|Retaining earnings                                                                                                                                                            |  |              |            |   |      |   |            |  
|Dividends in excess of retained earnings                                                                                                                                      |  |              | (200,000    | ) |      |   | (200,000    | )
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Total stockholders equity                                                                                                                                                    |  |              | 329,094,000 |   |      |   | 209,094,000 |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  
|Total liabilities and stockholders equity                                                                                                                                    |  | $            | 330,397,000 |   |      | $ | 211,176,000 |  
|                                                                                                                                                                              |  |              |             |   |      |   |             |  



See accompanying notes
to financial statements.



F-4



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)



STATEMENT OF INCOME



|                                                      |  |                         |            |      |   |            |  |   |          
|----------------------------------------------------- |  | ----------------------- | ---------- | ---- | - | ---------- |  | - | ---------
|                                                      |  | Year ended December 31,
|                                                      |  | 2003                    |            | 2002 |   | 2001      
|Interest income:                                      |  |                         |            |      |   |            |  |   |          
|Interest on loans                                     |  | $                       | 13,502,000 |      | $ | 11,799,000 |  | $ | 7,941,000
|Interest on short-term investments                    |  |                         | 152,000    |      |   | 154,000    |  |   | 240,000  
|                                                      |  |                         |            |      |   |            |  |   |          
|Total interest income                                 |  |                         | 13,654,000 |      |   | 11,953,000 |  |   | 8,181,000
|Provision for loan losses                             |  |                         |           |      |   | 200,000    |  |   |         
|                                                      |  |                         |            |      |   |            |  |   |          
|Total interest income after provision for loan losses |  |                         | 13,654,000 |      |   | 11,753,000 |  |   | 8,181,000
|                                                      |  |                         |            |      |   |            |  |   |          
|Operating expense:                                    |  |                         |            |      |   |            |  |   |          
|Advisory fees payable to First Republic Bank          |  |                         | 75,000     |      |   | 50,000     |  |   | 50,000   
|General and administrative                            |  |                         | 199,000    |      |   | 196,000    |  |   | 91,000   
|                                                      |  |                         |            |      |   |            |  |   |          
|Total operating expense                               |  |                         | 274,000    |      |   | 246,000    |  |   | 141,000  
|                                                      |  |                         |            |      |   |            |  |   |          
|Net income before preferred stock dividends           |  |                         | 13,380,000 |      |   | 11,507,000 |  |   | 8,040,000
|Dividends on preferred stock                          |  |                         | 12,125,000 |      |   | 9,663,000  |  |   | 5,987,000
|                                                      |  |                         |            |      |   |            |  |   |          
|Net income available to common stockholders           |  | $                       | 1,255,000  |      | $ | 1,844,000  |  | $ | 2,053,000
|                                                      |  |                         |            |      |   |            |  |   |          



See accompanying notes
to financial statements.



F-5



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)



STATEMENT OF STOCKHOLDERS EQUITY



|                                                                                  |  |                 |             |             |   |                           |  |                  |             |  |       |             |   |  |   |             |  
|--------------------------------------------------------------------------------- |  | --------------- | ----------- | ----------- | - | ------------------------- |  | ---------------- | ----------- |  | ----- | ----------- | - |  | - | ----------- | -
|                                                                                  |  | Preferred stock |             | Commonstock |   | Additionalpaid-in capital |  | Retainedearnings |             |  | Total |            
|Balance as of December 31, 2000                                                   |  | $               | 55,000,000  |             | $ | 100,000                   |  | $                | 56,194,000  |  | $     |            |   |  | $ | 111,294,000 |  
|Issuance of 7,000 shares of Series C convertible preferred stock                  |  |                 | 7,000,000   |             |   |                          |  |                  |            |  |       |            |   |  |   | 7,000,000   |  
|Capital contribution by First Republic Bank for 1,243,472 shares of common stock  |  |                 |            |             |   | 12,000                    |  |                  | 6,988,000   |  |       |            |   |  |   | 7,000,000   |  
|Net income before preferred stock dividends                                       |  |                 |            |             |   |                          |  |                  |            |  |       | 8,040,000   |   |  |   | 8,040,000   |  
|Dividends paid on Series A and Series C preferred stock                           |  |                 |            |             |   |                          |  |                  |            |  |       | (5,987,000  | ) |  |   | (5,987,000  | )
|Dividends payable on common stock                                                 |  |                 |            |             |   |                          |  |                  |            |  |       | (2,053,000  | ) |  |   | (2,053,000  | )
|                                                                                  |  |                 |             |             |   |                           |  |                  |             |  |       |             |   |  |   |             |  
|Balance as of December 31, 2001                                                   |  |                 | 62,000,000  |             |   | 112,000                   |  |                  | 63,182,000  |  |       |            |   |  |   | 125,294,000 |  
|Issuance of 1,680,000 shares of Series B preferred stock                          |  |                 | 42,000,000  |             |   |                          |  |                  |            |  |       |            |   |  |   | 42,000,000  |  
|Capital contribution by First Republic Bank for 7,460,831 shares of common stock  |  |                 |            |             |   | 75,000                    |  |                  | 41,925,000  |  |       |            |   |  |   | 42,000,000  |  
|Net income before preferred stock dividends                                       |  |                 |            |             |   |                          |  |                  |            |  |       | 11,507,000  |   |  |   | 11,507,000  |  
|Dividends paid on Series A, Series B, and Series C preferred stock                |  |                 |            |             |   |                          |  |                  |            |  |       | (9,663,000  | ) |  |   | (9,663,000  | )
|Dividends payable on common stock                                                 |  |                 |            |             |   |                          |  |                  |            |  |       | (2,044,000  | ) |  |   | (2,044,000  | )
|                                                                                  |  |                 |             |             |   |                           |  |                  |             |  |       |             |   |  |   |             |  
|Balance as of December 31, 2002                                                   |  |                 | 104,000,000 |             |   | 187,000                   |  |                  | 105,107,000 |  |       | (200,000    | ) |  |   | 209,094,000 |  
|Issuance of 2,400,000 shares of Series D preferred stock                          |  |                 | 60,000,000  |             |   |                          |  |                  |            |  |       |            |   |  |   | 60,000,000  |  
|Capital contribution by First Republic Bank for 10,658,330 shares of common stock |  |                 |            |             |   | 107,000                   |  |                  | 59,893,000  |  |       |            |   |  |   | 60,000,000  |  
|Net income before preferred stock dividends                                       |  |                 |            |             |   |                          |  |                  |            |  |       | 13,380,000  |   |  |   | 13,380,000  |  
|Dividends paid on Series A, Series B, Series C and Series D preferred stock       |  |                 |            |             |   |                          |  |                  |            |  |       | (12,125,000 | ) |  |   | (12,125,000 | )
|Dividends payable on common stock                                                 |  |                 |            |             |   |                          |  |                  |            |  |       | (1,255,000  | ) |  |   | (1,255,000  | )
|                                                                                  |  |                 |             |             |   |                           |  |                  |             |  |       |             |   |  |   |             |  
|Balance as of December 31, 2003                                                   |  | $               | 164,000,000 |             | $ | 294,000                   |  | $                | 165,000,000 |  | $     | (200,000    | ) |  | $ | 329,094,000 |  
|                                                                                  |  |                 |             |             |   |                           |  |                  |             |  |       |             |   |  |   |             |  



See accompanying notes
to financial statements.



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)



STATEMENT OF CASH FLOWS

Year Ended December 31, 2003, 2002, and 2001



|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------------ | - | ---- | - | ------------ | ---- |  | - | ----------- | -
|                                                                                  |  | Year Ended December 31, |             
|                                                                                  |  | 2003                    |              |   | 2002 |   |              | 2001 | 
|Operating Activities:                                                             |  |                         |              |   |      |   |              |      |  |   |             |  
|Net income before preferred stock dividends                                       |  | $                       | 13,380,000   |   |      | $ | 11,507,000   |      |  | $ | 8,040,000   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |              |   |      |   |              |      |  |   |             |  
|Provision for loan losses                                                         |  |                         |             |   |      |   | 200,000      |      |  |   |            |  
|Amortization of premium on loans                                                  |  |                         | 594,000      |   |      |   | 216,000      |      |  |   | 150,000     |  
|Changes in operating assets and liabilities:                                      |  |                         |              |   |      |   |              |      |  |   |             |  
|Accrued interest receivable                                                       |  |                         | (402,000     | ) |      |   | (480,000     | )    |  |   | (29,000     | )
|Receivable from First Republic Bank                                               |  |                         |             |   |      |   | 21,000       |      |  |   | (21,000     | )
|Prepaid expenses                                                                  |  |                         | (4,000       | ) |      |   | 8,000        |      |  |   | (1,000      | )
|Payable to First Republic Bank                                                    |  |                         | 6,000        |   |      |   |             |      |  |   | 1,000       |  
|Other payables                                                                    |  |                         | 4,000        |   |      |   | 4,000        |      |  |   | 9,000       |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Net cash provided by operating activities                                         |  |                         | 13,578,000   |   |      |   | 11,476,000   |      |  |   | 8,149,000   |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Investing Activities:                                                             |  |                         |              |   |      |   |              |      |  |   |             |  
|Loans purchased from First Republic Bank                                          |  |                         | (294,644,000 | ) |      |   | (182,353,000 | )    |  |   | (50,580,000 | )
|Principal payments on loans                                                       |  |                         | 159,705,000  |   |      |   | 111,009,000  |      |  |   | 42,874,000  |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Net cash used in investing activities                                             |  |                         | (134,939,000 | ) |      |   | (71,344,000  | )    |  |   | (7,706,000  | )
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Financing Activities:                                                             |  |                         |              |   |      |   |              |      |  |   |             |  
|Issuance of preferred stock                                                       |  |                         | 60,000,000   |   |      |   | 42,000,000   |      |  |   | 7,000,000   |  
|Issuance of common stock to First Republic Bank                                   |  |                         | 60,000,000   |   |      |   | 42,000,000   |      |  |   | 7,000,000   |  
|Dividends paid on preferred stock                                                 |  |                         | (12,125,000  | ) |      |   | (9,663,000   | )    |  |   | (5,987,000  | )
|Dividends paid on common stock                                                    |  |                         | (2,044,000   | ) |      |   | (2,053,000   | )    |  |   | (1,976,000  | )
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Net cash provided by financing activities                                         |  |                         | 105,831,000  |   |      |   | 72,284,000   |      |  |   | 6,037,000   |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Increase (decrease) in cash and cash equivalents                                  |  |                         | (15,530,000  | ) |      |   | 12,416,000   |      |  |   | 6,480,000   |  
|Cash and cash equivalents at beginning of year                                    |  |                         | 22,296,000   |   |      |   | 9,880,000    |      |  |   | 3,400,000   |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Cash and cash equivalents at end of year                                          |  | $                       | 6,766,000    |   |      | $ | 22,296,000   |      |  | $ | 9,880,000   |  
|                                                                                  |  |                         |              |   |      |   |              |      |  |   |             |  
|Supplemental disclosure of cash flow information:                                 |  |                         |              |   |      |   |              |      |  |   |             |  
|Common stock dividends payable                                                    |  | $                       | 1,255,000    |   |      | $ | 2,044,000    |      |  | $ | 2,053,000   |  



See accompanying notes
to financial statements.



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##### Table of Contents

FIRST REPUBLIC PREFERRED CAPITAL CORPORATION

(A Majority Owned Subsidiary of First Republic Bank)



NOTES TO FINANCIAL STATEMENTS



December 31, 2003



Note 1.    Organization and Basis of Presentation



First Republic Preferred Capital Corporation (the Company) is a
Nevada corporation formed by First Republic Bank (the Bank) in April 1999 for the purpose of raising capital for the Bank. The Companys principal business is acquiring, holding, financing and managing assets secured by real estate
mortgages and other obligations secured by real property, as well as certain other qualifying real estate investment trust (REIT) assets (collectively, the Mortgage Assets). The Mortgage Assets presently held by the Company
are loans secured by single family and multifamily real estate properties (Mortgage Loans) that were acquired from the Bank. The Company expects that all, or substantially all, of its Mortgage Assets will continue to be Mortgage Loans
acquired from the Bank. The Company has elected to be taxed as a REIT and intends to make distributions to its shareholders such that the Company is relieved of substantially all income taxes relating to ordinary income under applicable tax
regulations. Accordingly, no provision for income taxes is included in the accompanying financial statements. To date, the Company has issued 29,362,633 shares of common stock, par value $0.01 per share. The Bank owns all of the common stock, except
for 9,840 shares held by certain of the Banks employees and directors. Earnings per share data is not presented, as the common stock is not publicly traded.



In June 1999, the Company completed an initial private offering of 55,000 shares of perpetual, exchangeable, noncumulative
10.5% Series A preferred shares (the Series A Preferred Shares) and received proceeds of $55 million including underwriting fees contributed by the Bank. The Series A Preferred Shares have not been registered under the Securities Act of
1933 (the Securities Act) or any other applicable securities law, are not listed on any national securities exchange or for quotation through the Nasdaq National Stock Market, Inc. or any other quotation system and are subject to
significant restrictions on transfer.



In June 2001, the
Company completed a private placement of $7 million of perpetual, exchangeable, noncumulative 5.7% Series C preferred shares (the Series C Preferred Shares) that are convertible into common stock of the Bank. The Series C Preferred
Shares are convertible into Bank shares at a price of $30.56 per share.



In January 2002, the Company completed an initial public offering and received $42 million from the issuance of 1,680,000 shares of 8.875% noncumulative perpetual Series B preferred stock (the Series B Preferred Shares). The
Bank paid all expenses of the offering, including underwriting commissions and discounts. The Series B Preferred Shares are included for quotation on the Nasdaq National Market under the symbol FRCCP.



In June 2003, the Company completed a public offering and received $60
million from the issuance of 2,400,000 shares of 7.25% noncumulative perpetual Series D preferred stock (the Series D Preferred Shares). The Bank paid all expenses of the offering, including underwriting commissions and discounts. The
Series D Preferred Shares trade on the Nasdaq National Market under the symbol FRCCO. In connection with this transaction, the Company issued, and the Bank purchased, $60 million of additional common stock. The Company used the proceeds
from the issuance of the Series D Preferred Shares and the additional issuance of common stock to acquire from the Bank approximately $87 million of single family, $30 million of multifamily mortgage loans, and $3 million of short-term investments.



The Series A Preferred Shares, Series B Preferred
Shares, Series C Preferred Shares and Series D Preferred Shares are collectively referred to as the Preferred Shares.



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##### Table of Contents

Note 2.    Summary of Significant Accounting Policies



Mortgage Loans



Mortgage Loans are carried at the principal amount outstanding, net of
purchase discounts and premiums. Discounts or premiums on Mortgage Loans are accreted or amortized as yield adjustments over the expected lives of the loans using the interest method. Unaccredited or unamortized discounts or premiums on loans sold
or paid in full are recognized in income at the time of sale or payoff.



The Company has purchased Mortgage Loans from the Bank at the Banks carrying amount, which generally has approximated the fair value of the loans purchased. If a significant difference were to exist between the Banks carrying
amount and the fair value of loans purchased by the Company, the difference would be recorded as a capital contribution by the Bank or a capital distribution to the Bank and would not be an adjustment to the basis of the loans.



Mortgage Loans consisted entirely of single family mortgages through the
first quarter of 2003. Beginning in the second quarter of 2003, the Company acquired multifamily mortgages with the proceeds of the Series D preferred stock offering. At December 31, 2003, Mortgage Loans totaled $322.5 million, of which $296.1
million were single family mortgages and $26.4 million were multifamily mortgages. At December 31, 2002, Mortgage Loans totaled $187.9 million, all of which were single family mortgages.



Interest income from loans is recognized in the month earned and is net of service fees paid to the Bank. Interest income is
not recorded on loans when they become more than 90 days delinquent, except for single family loans that are well secured and in the process of collection, or at such earlier time as management determined that the collectibility of interest is
unlikely. When a loan is placed on nonaccrual status, interest income may be recorded when cash is received if the Companys recorded investment in such loans is deemed collectible. When, in managements judgment, the borrowers
ability to make periodic interest and principal payments resumes, the loan is returned to accrual status. There were no nonaccrual loans as of December 31, 2003 or 2002. The Company classifies a loan as impaired when, based on current information
and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.



Allowance for Loan Losses



The Company established an allowance for loan losses of $200,000 in 2002, which was the balance at December 31, 2002. In 2003, the Company increased its
allowance for loan losses by $281,000, which was the amount of the Banks allowance for loan losses associated with the loans that the Company acquired using the proceeds from the issuance of the Series D Preferred Shares. The Company maintains
an allowance for loan losses that can be reasonably anticipated based upon specific conditions at the time. The Company considers a number of factors, including the Companys and the Banks past loss experience, the Banks
underwriting policies, the amount of past due and nonperforming loans, legal requirements, recommendations or requirements of regulatory authorities, current economic conditions and other factors. If the Company determines that an additional
provision is required, the Company would provide for loan losses by charging current income.



Other Real Estate Owned



Real estate acquired through foreclosure is recorded at the lower of cost or fair value minus estimated costs to sell. Costs related to holding real estate are recorded as expenses when incurred. The Company has not owned any real estate
since inception or as of December 31, 2003 or 2002.



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##### Table of Contents

Statements of Cash Flows



For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and short-term investments on
deposit with the Bank. As a REIT making sufficient dividend distributions, the Company paid no income taxes for each year ended December 31, 2003, 2002, and 2001.



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans and the rate at which discount is accreted into interest
income.



Note 3.    Related Party Transactions



Since inception in April 1999, the Company has acquired
all of its loans from the Bank. The aggregate cost of these loans acquired by the Company was $294.6 million in 2003 and $182.4 million in 2002, including net premiums of $971,000 and $200,000, respectively. In addition, the cost in 2003 included an
allowance for loan losses of $281,000 that was transferred from the Bank. All purchases were at a price equal to the Banks carrying amount, which approximated the fair value of the loans.



The Company has entered into a loan purchase and servicing agreement with the
Bank pursuant to which the Bank performs, among other things, servicing of loans held by the Company in accordance with normal industry practice. The Bank charges an annual servicing fee of 0.25% of the outstanding principal balances of the Mortgage
Loans that the Bank services. The Company records the servicing fees as a reduction of interest income. Loan servicing fees were $582,000 and $428,000 for the year ended December 31, 2003 and 2002, respectively. In its capacity as servicer, the Bank
receives Mortgage Loan payments on behalf of the Company and holds the payments in custodial accounts at the Bank.



The Company entered into an advisory agreement with the Bank under which the Bank administers the day-to-day operations of the Company. The Bank is
responsible for: (i) monitoring the credit quality of the Mortgage Assets held by the Company; (ii) advising the Company with respect to the reinvestment of income from, and principal payments on, the Mortgage Assets, and with respect to the
acquisition, management, financing and disposition of the Mortgage Assets; and (iii) monitoring the Companys compliance with the requirements necessary to qualify as a REIT.



The advisory agreement is renewable on an annual basis. During 2003, the Board of Directors of the Company, including a
majority of the independent directors, approved an increase in the annual fee from $50,000 to $75,000, payable in equal quarterly installments. The Company had $19,000 and $13,000 payable to the Bank for advisory fees at December 31, 2003 and 2002.



During 2001, the Bank purchased 13,500 shares of the
Companys outstanding Series A Preferred Shares, with a liquidation preference value of $13.5 million. During 2002, the Bank purchased 1,500 shares of the Companys outstanding Series A Preferred Shares, with a liquidation preference value
of $1.5 million. During 2003, the Bank purchased 10,260 additional shares of the Companys outstanding Series A Preferred Shares with a liquidation preference value of $10.3 million. Accordingly, at December 31, 2003, the Bank owned 25,260
shares of the Companys Series A Preferred Shares, with a liquidation preference value of $25.3 million.



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Note 4.    Dividends Payable



Dividends on the Series A Preferred Shares, the Series B Preferred Shares, the Series C Preferred Shares and the Series D
Preferred Shares are payable at the rate of 10.5%, 8.875%, 5.7%, and 7.25% per annum, respectively, if, when and as authorized by the Companys Board of Directors. If authorized, dividends on Series A Preferred Shares and Series C Preferred
Shares are payable semiannually in arrears on the 30thday of June and December in each year. If authorized,
dividends on the Series B Preferred Shares and Series D Preferred Shares are payable quarterly in arrears on the 30thof March, June, September, and December each year.



If the Board of Directors does not authorize a dividend on any of the Preferred Shares for any respective dividend period, holders of each class of Preferred Shares will not be entitled to be paid that dividend later or to recover any
unpaid dividend whether or not funds are, or subsequently become, available. The Board of Directors, in its business judgment, may determine that it would be in the best interest of the Company to pay less than the full amount of the stated dividend
on each series of Preferred Shares for any dividend period. However, to remain qualified as a REIT, the Company must distribute annually at least 90% of its REIT taxable income (excluding deductions for any dividends paid and any net
capital gains) to stockholders, and, generally, the Company cannot pay dividends on common stock for periods in which less than full dividends are paid on each series of Preferred Shares.



For the year ended December 31, 2003, the Company paid dividends of $5,775,000 to holders of Series A Preferred Shares,
$3,728,000 to holders of the Series B Preferred Shares, $399,000 to the holders of the Series C Preferred Shares, and $2,223,000 to holders of Series D Preferred Shares. There were no dividends payable related to Preferred Shares at December 31,
2003.



The Company expects to pay the holders of common stock
an amount of dividends that when aggregated with the dividends paid to holders of the Preferred Shares is not less than 90% of the Companys REIT taxable income (excluding deductions for any dividends paid and any net capital gains)
in order to remain qualified as a REIT. The Company declared dividends to the holders of common stock of $1,255,000 for 2003, $2,044,000 for 2002 and $2,053,000 for 2001.



Note 5.    Common Stock



As of December 31, 2003, the Company was authorized to issue 50,000,000 shares of common stock with a par value of $0.01 per share. At December 31,
2003, 29,362,633 shares were outstanding. The Company initially issued 10,000,000 shares to the Bank. In June 2003, January 2002 and June 2001, the Company issued 10,658,330, 1,243,472 and 7,460,831 shares of common stock, respectively, to acquire
Mortgage Assets from the Bank.



Holders of common stock are
entitled to receive dividends if and when authorized and declared by the Board of Directors, out of funds legally available therefor after all preferred dividends have been paid for the full year. Common stock dividends of $0.0428, $0.1093 and
$0.1826 per common shares were declared on December 9, 2003, December 11, 2002 and December 11, 2001, respectively.



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Note 6.    Preferred Stock



As of December 31, 2003, the Company was authorized to issue 10,000,000 shares of preferred stock. The Company has issued
and outstanding each of the following series of preferred stock, par value $0.01 per share.



|                                                                       |  |                      |             |      |   |            
|---------------------------------------------------------------------- |  | -------------------- | ----------- | ---- | - | -----------
|                                                                       |  | At December 31, 2003
|                                                                       |  | 2003                 |             | 2002
|Series A55,000 shares authorized, issued and outstanding              |  | $                    | 55,000,000  |      | $ | 55,000,000 
|Series B1,840,000 shares authorized, 1,680,000 issued and outstanding |  |                      | 42,000,000  |      |   | 42,000,000 
|Series C10,000 shares authorized, 7,000 issued and outstanding        |  |                      | 7,000,000   |      |   | 7,000,000  
|Series D2,400,000 shares authorized, issued and outstanding           |  |                      | 60,000,000  |      |   |           
|                                                                       |  |                      |             |      |   |            
|Total preferred stock                                                  |  | $                    | 164,000,000 |      | $ | 104,000,000
|                                                                       |  |                      |             |      |   |            



In June 1999, the
Company issued 55,000 shares of Series A Preferred Stock. Proceeds from this issuance were $55 million, including underwriting fees contributed by the Bank. The Series A Preferred Shares are not redeemable prior to June 1, 2009. Holders of the
Series A Preferred Shares are entitled to receive, if authorized and declared by the Board of Directors of the Company, noncumulative dividends at a rate of 10.5% per annum, or $105 per annum per share. Dividends on the Series A Preferred Shares, if
authorized and declared, are payable semiannually in arrears on June 30 and December 30 of each year. The Company paid dividends of $5,775,000 for each year ended December 31, 2003, 2002, and 2001.



In June 2001, the Company issued 7,000 Series C Preferred Shares. Proceeds
from this issuance were $7 million, including issuance costs contributed by the Bank. The Series C Preferred Shares are not redeemable prior to June 16, 2007. The Series C Preferred Shares are convertible into common stock of the Bank at a price of
$30.56 per share. The single holder of the Series C Preferred Shares is entitled to receive, if authorized and declared by the Board of Directors of the Company, noncumulative dividends at a rate of 5.7% per annum or $57 per annum per share.
Dividends on the Series C Preferred Shares, if authorized and declared, are payable semiannually in arrears on June 30 and December 30 of each year. The Company paid dividends of $399,000 for each year ended December 31, 2003 and 2002 and $212,000
for the period from issuance, June 20, 2001, through December 31, 2001.



In January 2002, the Company issued 1,680,000 Series B Preferred Shares. Proceeds from this issuance were $42 million, including underwriting fees contributed by the Bank. The Series B Preferred Shares are not redeemable prior to December
30, 2006. Holders of the Series B Preferred Shares are entitled to receive, if authorized and declared by the Board of Directors of the Company, noncumulative dividends at a rate of 8.875% per annum or $2.21875 per annum per share. Dividends on the
Series B Preferred Shares are payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year. The Company paid dividends of $3,728,000 for the year ended December 31, 2003 and $3,489,000 for the period from issuance,
January 24, 2002, through December 31, 2002.



In June 2003, the
Company issued 2,400,000 Series D Preferred Shares. Proceeds from this issuance were $60 million, including underwriting fees contributed by the Bank. The Series D Preferred Shares are not redeemable prior to June 27, 2008. Holders of the Series D
Preferred Shares are entitled to receive, if authorized and declared by the Board of Directors of the Company, noncumulative dividends at a rate of 7.25% per annum or $1.8125 per annum per share. Dividends on the Series D Preferred Shares are
payable quarterly in arrears on March 30, June 30, September 30, and December 30 of each year. The first dividend payment date for the Series D Preferred Shares was September 30, 2003. The Company paid dividends of $2,223,000 for the period from
inception, June 27, 2003, to December 31, 2003.



Upon the
occurrence of an adverse change in relevant tax laws, the Company will have the right to redeem the Preferred Shares, in whole (but not in part). The liquidation preference for each of the Series A Preferred



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Shares and the Series C Preferred Shares is $1,000 per share plus the semiannual dividend thereon accrued through the date of redemption for the dividend
period in which the redemption occurs. The liquidation preference for each of the Series B Preferred Shares and the Series D Preferred Share is $25 per share plus the quarterly dividend thereon accrued through the date of redemption for the dividend
period in which the redemption occurs. The Preferred Shares will be exchanged into preferred shares of the Bank upon the occurrence of certain events. The exchange rate for each of the Series A Preferred Shares and the Series C Preferred Shares is
1:1. The exchange rate for each of the Series B Preferred Shares and Series D Preferred Shares is 1:1/40. Except under certain limited circumstances, the holders of the Preferred Shares have no voting rights.



Note 7.    Fair Value of Financial Instruments



The following table presents the carrying amounts and fair values of the
Companys financial instruments as of December 31, 2003 and 2002:



|                       |  |                |         |            |   |                |  |            |         |  |   |        
|---------------------- |  | -------------- | ------- | ---------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                       |  | 2003           |         | 2002      
|(Dollars in thousands) |  | CarryingAmount |         | Fair Value |   | CarryingAmount |  | Fair Value
|Cash                   |  | $              | 6,766   |            | $ | 6,766          |  | $          | 22,296  |  | $ | 22,296 
|Mortgage loans         |  | $              | 322,024 |            | $ | 324,835        |  | $          | 187,679 |  | $ | 189,086



The following methods
and assumptions were used to estimate the fair value of each type of financial instrument:



CashThe carrying value approximated the estimated fair value for cash.



Mortgage LoansThe carrying amount of loans is net of the allowance for loan losses. The estimated fair value of Mortgage Loans was based primarily
upon prices of loans with similar terms obtained by or quoted to the Company, adjusted for differences in loan characteristics and market conditions.



Note 8.    Concentration of Credit Risk



Concentration of credit risk generally arises with respect to the loan portfolio when a number of borrowers engage in similar business activities or
activities in the same geographical region. Concentration of credit risk indicates the relative sensitivity of the Companys performance to both positive and negative developments affecting a particular industry. The balance sheet exposure to
geographic concentrations directly affects the credit risk of the loans within the loan portfolio.



At December 31, 2003, 54% of the Companys loans were secured by properties located in the San Francisco Bay Area, 11% in Los Angeles County, 7%
in other areas of California, 19% in New York and contiguous states and 9% in other parts of the United States. At December 31, 2003, the weighted average loan-to-value ratio for the mortgage portfolio was approximately 57%, based on the appraised
values of the properties at the time the loans were originated.



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The following table presents an analysis of Mortgage Loans at December 31, 2003 by major geographic
location:



|                       |  |                       |         |                   |   |                      |  |                          |        |                 |   |        |  |       |       |  |   |        |  |   |        
|---------------------- |  | --------------------- | ------- | ----------------- | - | -------------------- |  | ------------------------ | ------ | --------------- | - | ------ |  | ----- | ----- |  | - | ------ |  | - | -------
|(Dollars in thousands) |  | San FranciscoBay Area |         | Los AngelesCounty |   | OtherCaliforniaAreas |  | GreaterNew YorkCity Area |        | Las VegasNevada |   | Other  |  | Total
|Single family loans    |  | $                     | 151,783 |                   | $ | 32,227               |  | $                        | 20,639 |                 | $ | 60,019 |  | $     | 653   |  | $ | 30,730 |  | $ | 296,051
|Multifamily loans      |  |                       | 20,880  |                   |   | 2,257                |  |                          | 2,046  |                 |   | 857    |  |       | 414   |  |   |       |  |   | 26,454 
|                       |  |                       |         |                   |   |                      |  |                          |        |                 |   |        |  |       |       |  |   |        |  |   |        
|Total                  |  | $                     | 172,663 |                   | $ | 34,484               |  | $                        | 22,685 |                 | $ | 60,876 |  | $     | 1,067 |  | $ | 30,730 |  | $ | 322,505
|                       |  |                       |         |                   |   |                      |  |                          |        |                 |   |        |  |       |       |  |   |        |  |   |        
|Percent by location    |  |                       | 54%     |                   |   | 11%                  |  |                          | 7%     |                 |   | 19%    |  |       |      |  |   | 9%     |  |   | 100%   



Note
9.    Quarterly Data (unaudited)



The
following table presents the Companys summary unaudited financial information on a quarterly basis for 2003 and 2002:



|                                            |  |               |       |              |   |               |  |              |       |               |   |              |  |               |       |              |   |       |  |   |       |  |   |      
|------------------------------------------- |  | ------------- | ----- | ------------ | - | ------------- |  | ------------ | ----- | ------------- | - | ------------ |  | ------------- | ----- | ------------ | - | ----- |  | - | ----- |  | - | -----
|                                            |  | 2003          |       | 2002        
|(Dollars in thousands)                      |  | FourthQuarter |       | ThirdQuarter |   | SecondQuarter |  | FirstQuarter |       | FourthQuarter |   | ThirdQuarter |  | SecondQuarter |       | FirstQuarter
|Interest income                             |  | $             | 3,831 |              | $ | 4,203         |  | $            | 2,765 |               | $ | 2,855        |  | $             | 3,091 |              | $ | 3,012 |  | $ | 3,048 |  | $ | 2,802
|Provision for loan losses                   |  |               |      |              |   |              |  |              |      |               |   |             |  |               |      |              |   | 200   |  |   |      |  |   |     
|Operating expenses                          |  |               | 65    |              |   | 68            |  |              | 68    |               |   | 73           |  |               | 59    |              |   | 59    |  |   | 63    |  |   | 65   
|                                            |  |               |       |              |   |               |  |              |       |               |   |              |  |               |       |              |   |       |  |   |       |  |   |      
|Net income before preferred stock dividends |  |               | 3,766 |              |   | 4,135         |  |              | 2,697 |               |   | 2,782        |  |               | 3,032 |              |   | 2,753 |  |   | 2,985 |  |   | 2,737
|Preferred stock dividends                   |  |               | 3,563 |              |   | 3,563         |  |              | 2,524 |               |   | 2,475        |  |               | 2,475 |              |   | 2,475 |  |   | 2,476 |  |   | 2,237
|                                            |  |               |       |              |   |               |  |              |       |               |   |              |  |               |       |              |   |       |  |   |       |  |   |      
|Net income available to common stockholders |  | $             | 203   |              | $ | 572           |  | $            | 173   |               | $ | 307          |  | $             | 557   |              | $ | 278   |  | $ | 509   |  | $ | 500  
|                                            |  |               |       |              |   |               |  |              |       |               |   |              |  |               |       |              |   |       |  |   |       |  |   |      



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