UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2004
                                       OR
[ ]               TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Transition Period from     N/A   to  _____
                                                  --------   --------

                         Commission File Number: 1-9566
                            FirstFed Financial Corp.
             (Exact name of registrant as specified in its charter)

                               Delaware 95-4087449
     (State or other jurisdiction of (I. R. S. Employer Identification No.)
                         incorporation or organization)

              401 Wilshire Boulevard
            Santa Monica, California                            90401-1490
        (Address of principal executive offices)                (Zip Code)

       Registrant's telephone number, including area code: (310) 319-6000

           Securities registered pursuant to Section 12(b) of the Act:
                          Common Stock $0.01 par value
                                (Title of Class)

        Securities registered pursuant to Section 12(g) of the Act: None

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 (sub-section 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 the
Form 10-K or any amendment to this Form
                                   10-K. [X]

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

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of June 30, 2004 was $619,287,000,  based on
the closing sales price of the  Registrant's  common stock on the New York Stock
Exchange  on such  date of $41.60  per  share.  For  purposes  of the  preceding
sentence only, all directors,  executive  officers and beneficial  owners of ten
percent or more of the common  stock,  as well as the Company's  Employee  Stock
Ownership Plan ("ESOP"), are assumed to be affiliates.

The number of shares of Registrant's $0.01 par value common stock outstanding as
of February 1, 2005: 16,501,830.
                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement for Annual Meeting of  Stockholders  to be held
April 20, 2005 ("Proxy Statement"), (Parts II, III & IV).

<PAGE>


Disclosure Regarding Forward-looking Statements

     This  Annual  Report  on Form 10-K for the year  ended  December  31,  2004
includes  certain   statements  that  may  be  deemed  to  be   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  (the "Securities  Act") and Section 21E of the Securities and Exchange
Act of 1934,  as  amended  (the  "Exchange  Act").  All  statements,  other than
statements  of  historical  facts,  included in this Annual  Report that address
activities,  events  or  developments  that the  Company  expects,  believes  or
anticipates will or may occur in the future, including, but not limited to, such
matters as future product development, business development, competition, future
revenues, business strategies,  expansion and growth of the Company's operations
and assets and other such matters are forward-looking statements. These kinds of
statements are signified by words such as "believes,"  "anticipates," "expects,"
"intends," "may", "could," and other similar expressions.  However,  these words
are not the exclusive means of identifying such statements. These statements are
based on certain  assumptions  and analyses  made by the Company in light of its
experience and perception of historical  trends,  current  conditions,  expected
future  developments  and other  factors  it  believes  are  appropriate  in the
circumstances. Such statements are subject to a number of assumptions, risks and
uncertainties,  including the risk factors discussed below, general economic and
business  conditions,  the business  opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in law or regulations and other
factors,  many of which are beyond the Company's control.  Specific factors that
could  cause  results  to differ  materially  from  historical  results or those
anticipated are: (1) the level of demand for adjustable rate mortgages, which is
affected  by  external  factors  such as  interest  rates,  the  strength of the
California  economy  and  Southern   California   economy  in  particular;   (2)
fluctuations  between consumer interest rates and the cost of funds; (3) federal
and  state  regulation  of  lending,  deposit  and  other  operations,  and  (4)
competition for financial  products and services within the Bank's market areas.
Investors are cautioned  that any such  statements  are not guarantees of future
performance and that actual results or developments  may differ  materially from
those projected in the forward-looking statements.

                                       2
<PAGE>
<TABLE>
                            FirstFed Financial Corp.
                                      Index
<S>                                                                                   <C>
                                                                                      Page

Part I   Item 1.    Business....................................................         4
         Item 2.    Properties..................................................        24
         Item 3.    Legal Proceedings...........................................        24
         Item 4.    Submission of Matters to a Vote of Security Holders.........        24

Part II  Item 5.    Market for Registrant's Common Equity and Related
                    Stockholder Matters.........................................        24
         Item 6.    Selected Financial Data.....................................        25
         Item 7.    Management's Discussion and Analysis of Consolidated Balance
                    Sheets and Consolidated Statements of Income................        26
         Item 7a.   Quantitative and Qualitative Disclosures About Market Risk..        39
         Item 8.    Financial Statements and Supplementary Data.................        43
                    Notes to Consolidated Financial Statements..................        47
                    Report of Independent Registered Public Accounting Firm.....        73
         Item 9.    Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure.........................        75
         Item 9a.   Controls and Procedures.....................................        75

Part III Item 10.   Directors and Executive Officers of the Registrant..........        78
         Item 11.   Executive Compensation......................................        78
         Item 12.   Security Ownership of Certain Beneficial Owners and
                    Management..................................................        78
         Item 13.   Certain Relationships and Related Transactions..............        78
         Item 14.   Principal Accounting Fees and Services......................        78

Part IV  Item 15.   Exhibits, Consolidated Financial Statement
                    Schedules, and Reports on Form 8K...........................        79
Signatures......................................................................        80
Power of Attorney...............................................................        81
Exhibits
16   Exhibit 99.1 of Form 8-K filed September 9, 2004...........................        82
31.1 Certification of Chief Executive Officer pursuant to Section 302
       of the Sarbanes-Oxley Act of 2002........................................        83
31.2 Certification of Chief Financial Officer pursuant to Section 302
       of the Sarbanes-Oxley Act of 2002........................................        84
32.1 Certification of Chief Executive Officer pursuant to 18 USC Section
     1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
     of 2002....................................................................        85
32.2 Certification of Chief Financial Officer pursuant to 18 USC Section 1350,
     as adopted pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.................................................        86
</TABLE>
                                       3
<PAGE>

                                     PART I

ITEM 1 -- BUSINESS

General Description

     FirstFed Financial Corp., a Delaware  corporation  ["FFC," and collectively
with its sole and wholly owned subsidiary, First Federal Bank of California (the
"Bank"),  the "Company"],  was incorporated on February 3, 1987. Since September
22,  1987,  FFC has  operated  as a savings  and loan  holding  company  engaged
primarily  in the  business of owning the Bank.  Because  the  Company  does not
presently   engage  in  any   significant   independent   business   operations,
substantially  all income and performance  figures herein reflect the operations
of the Bank.

     The  Bank  was  organized  in 1929 as a  state-chartered  savings  and loan
association,  and, in 1935,  converted to a federal mutual charter.  In February
1983 the Bank obtained a federal  savings bank charter,  and, in December  1983,
converted from mutual to stock ownership.  The executive  offices of the Company
are located at 401  Wilshire  Boulevard,  Santa  Monica,  California,  telephone
number (310) 319-6000.

     The Company is a savings and loan holding company and as such is subject to
examination  and  regulation by the Office of Thrift  Supervision  ("OTS").  Our
deposits are insured by the Savings  Association  Insurance Fund ("SAIF") of the
Federal  Deposit  Insurance  Corporation  (the "FDIC").  We are regulated by the
Director of the OTS and the FDIC.  We are a member of the Federal Home Loan Bank
("FHLB") of San Francisco,  which is one of the 12 regional banks comprising the
Federal Home Loan Bank System. We are also subject to certain regulations of the
Board of  Governors  of the  Federal  Reserve  System  ("FRB")  with  respect to
reserves  required to be maintained  against deposits and certain other matters.
See "--Summary of Material Legislation and Regulations--"

     The Company's  periodic and current reports are available free of charge on
its website at www.firstfedca.com  as soon as reasonably  practicable after such
material is electronically filed with, or furnished to, the SEC.

     Our principal business is attracting checking and savings deposits from the
general  public,  and using such  deposits,  together with  borrowings and other
funds, to make real estate, business and consumer loans.

     At  December  31,  2004,  the  Company had assets  totaling  $7.5  billion,
compared to $4.8  billion at December  31, 2003 and $4.3 billion at December 31,
2002.  The Company  recorded net income of $65.8  million for 2004,  compared to
$64.5 million for 2003 and $55.2 million for 2002.

     We derive our revenues  principally  from interest on loans and investments
and loan  origination  fees. Our major items of expense are interest on deposits
and borrowings, and general and administrative expense.

     As of February 15, 2005, we operated 29 full-service banking branches,  all
located in Southern California.  Permission to operate full-service  branches is
granted by the OTS. In addition to these branches, we operate 4 lending offices,
a call center which  conducts  transactions  with deposit and loan  customers by
telephone and an internet website through which customers can perform  transfers
and pay bills.

     Southern  California has  traditionally  been our primary  lending area. In
2004 we increased our level of residential  originations in Northern California.
The majority of our residential  loans are obtained from wholesale loan brokers.
Residential  loans are also  offered  by all of our  full-service  branches.  In
addition,  we have an income  property  lending  group and a commercial  banking
group.

     The  Bank  has   three   wholly-owned   subsidiaries:   Seaside   Financial
Corporation,  Oceanside  Insurance Agency,  Inc. and Santa Monica Capital Group,
all of which are California corporations. See "--Subsidiaries--"

     In February of 2004, the Bank received  approval to begin trust operations.
We believe that the services  offered by the new trust  division  complement the
other services currently offered.

Current Operating Environment

     The Company's  operating results are  significantly  influenced by national
and regional  economic  conditions,  monetary and fiscal policies of the federal
government,  local  housing  demand and  affordability,  and  general  levels of
interest rates.

                                       4
<PAGE>
     According to the UCLA  Anderson  Forecast  for  California,  December  2004
Report, the median home price in the state increased 21% from the previous year.
UCLA  forecasters and other economists have recently warned that the residential
real  estate  market in the U.S.  is in a  "bubble",  which  means  that  market
fundamentals  and actual home prices have diverged  because  market  activity is
primarily a function of price speculation  rather than careful  consideration of
the economics of a situation.

     At this  time,  no one  can say  with  certainty  that we are in a  housing
bubble.  There is evidence to justify the appreciation to date  (availability of
reasonably-priced  financing,  tight housing  supply in certain areas and stable
employment)  and there is  evidence  to suggest  that the  market is  overheated
(increasing inventories in certain areas, decreasing rents, and historically low
cap rates on apartments).

     We continuously  monitor the  sufficiency of the collateral  supporting our
real  estate  loan  portfolio  based  on many  factors  including  the  property
location, the date of loan origination and the original loan-to-value ratio.

     Business loans  collateralized  by inventory,  accounts  receivable  and/or
other assets are monitored on a monthly or quarterly basis through the provision
of reports by the  borrower.  Site visits are required at loan  origination  and
periodically thereafter.

     We  adjust  our  general  allowance  for loan  losses  as a result of these
evaluations  and the level of  growth in the loan  portfolio.  During  2004,  we
recorded a $3.0 million  provision for loan losses. No provision for loan losses
was recorded during 2003 or 2002.

     The ratio of allowances for loan losses (general  valuation  allowances and
valuation  allowances for impaired loans) to gross loans receivable was 1.15% at
the end of 2004  compared  to 1.70%  at the end of 2003 and  1.96% at the end of
2002.  The change in the ratio over the last three years is due to variations in
gross loans  outstanding and changes to risk factors for various segments of the
portfolio. See "--Business - Loan Loss Allowance--" for additional information.

     Consistent  with the current  favorable  real estate climate in California,
our non-performing  assets fell to 0.07% of total assets at the end of 2004 from
0.10% of total assets at the end of 2003 and 0.17% of total assets at the end of
2002.

     Loans sold with  recourse are  separately  evaluated  for loan losses.  See
"--Business - Loan Loss  Allowance--" for additional  information  regarding the
repurchase liability for these loans.

     Current  Interest  Rate  Environment.  The Federal  Reserve  Board  ("FRB")
increased  interest rates five times during 2004,  decreased interest rates once
during 2003 and  decreased  interest  rates once during 2002.  Through  February
2005, the FRB has increased interest rates once.

     Typically,  our interest rate spread  decreases in an  increasing  interest
rate  environment,  (savings and borrowing costs increase quickly while the loan
portfolio  yield  increases more slowly).  The reverse is true during periods of
decreasing  interest  rates.  Our loan portfolio  tends to grow in an increasing
interest rate environment due to borrower  preference for adjustable rate loans.
Adjustable rate loans comprised 99% of loan originations during 2004.

     Changes in interest  rates impact our  portfolio  yield due to the interest
rate adjustment  features of our loans.  There is also a time lag before changes
in  interest  rates can be  implemented  with  respect to our real  estate  loan
portfolio due to operational and regulatory  constraints.  These  constraints do
not  allow  us to  implement  monthly  changes  in  the  indicies  utilized  for
adjustable rate loan customers for periods of sixty to ninety days.

     Our interest rate spread  decreased to 2.68% in 2004 from 3.22% in 2003 and
2.92% in 2002. The yield on our loan  portfolio  decreased by more than the cost
of our deposits and  borrowings.  Although  interest rates  generally  increased
during 2004,  interest rates earned and paid in 2004 were lower than 2003 due to
the time lags mentioned above. See "Asset-Liability  Management" and "Components
of Earnings - Net Interest Income" in "--Management's Discussion and Analysis of
Consolidated  Balance  Sheets  and  Consolidated  Statements  of  Income--"  for
additional information.

     Competition.  We experience strong  competition in attracting and retaining
deposits and originating real estate and business loans. We compete for deposits
with many of the nation's largest savings institutions and commercial banks that
have significant operations in Southern California.

                                       5
<PAGE>
     We  also  compete  for  deposits  with  credit  unions,   thrift  and  loan
associations,  money market mutual funds,  issuers of corporate debt  securities
and the government.  In addition to the rates of interest offered to depositors,
our ability to attract and retain deposits  depends upon the quality and variety
of services offered, the convenience of our locations and our financial strength
as perceived by depositors.

     We compete for loans primarily with savings institutions, commercial banks,
mortgage  companies and insurance  companies.  Commercial  banks are our primary
competition for business  loans.  The primary factors in competing for loans are
interest  rates,  loan  fees,  interest  rate  caps,  interest  rate  adjustment
provisions  and the  quality  and extent of service to  borrowers  and  mortgage
brokers.

     Environmental   Concerns.  In  certain  circumstances,   such  as  actively
participating  in the management or operation of properties  securing its loans,
we  could  have  liability  for  properties  found  to have  pollutant  or toxic
features.  Environmental protection laws are strict and impose joint and several
liability  on  numerous  parties.  It is  possible  for the cost of  cleanup  of
environmental  problems to exceed the value of the  security  property.  We have
adopted environmental  underwriting  requirements when considering loans secured
by properties,  which appear to have environmentally  high-risk  characteristics
(e.g.  commercial and industrial  properties  and  construction  of all property
types,  which may  contain  friable  asbestos  or lead paint  hazards).  We also
require environmental  insurance on all commercial  properties (retail,  office,
industrial)  and on  multi-family  properties  that may be near  any  commercial
influence. These requirements are intended to minimize the risk of environmental
hazard  liability.  Our policies are also  designed to avoid the  potential  for
liability imposed on lenders who assume the management of a property.

     Business  Concentration.  We have no single customer or group of customers,
either as depositors  or  borrowers,  the loss of any one or more of which would
have a material adverse effect on our operations or earnings prospects.

     Yields Earned and Rates Paid. Net interest  income,  the major component of
core income for us, depends  primarily upon the difference  between the combined
average  yield earned on the loan and  investment  security  portfolios  and the
combined average  interest rate paid on deposits and borrowings,  as well as the
relative balances of interest-earning  assets and interest-bearing  liabilities.
See "--Management's  Discussion and Analysis of Consolidated  Balance Sheets and
Consolidated  Statements  of Income - Overview  and  Components  of Income - Net
Interest Income--" for further analysis and discussion.

Lending Activities

     General. Our primary lending activity has been the origination of loans for
the  purpose  of  enabling   borrowers  to  purchase,   refinance  or  construct
improvements on residential real property. The loan portfolio primarily consists
of loans made to  homebuyers  and  homeowners  on the security of  single-family
dwellings and property owners on multi-family dwellings. The loan portfolio also
includes loans secured by commercial and industrial  properties,  consumer loans
and commercial business loans.

     For an analysis of the loan  portfolio  composition  and an analysis of the
types of loans  originated,  see  "--Management's  Discussion  and  Analysis  of
Consolidated  Balance  Sheets and  Consolidated  Statements  of Income - Balance
Sheet Analysis - Loan Portfolio and Loan Composition--"

     Origination  and Sale of Loans.  We obtain  qualified loan  applicants from
mortgage  brokers,  borrower  referrals,  and the  clients  of our  full-service
banking branches.

     Loan originations were $3.9 billion in 2004, $2.3 billion in 2003, and $1.3
billion in 2002. Loan origination  volume  increased due to borrower  preference
for adjustable  rate loans in the  increasing  rate  environment  and because we
marketed our  adjustable  rate loans to more loan  brokers.  We also widened our
geographic  area and introduced new products to better compete for such loans in
the current environment.

     Loans sold totaled $3.3 million in 2004,  $86.1  million in 2003 and $134.2
million in 2002.  For the year ended  December 31,  2004,  $2.8 million in loans
were originated for sale compared to $84.3 million in 2003 and $103.7 million in
2002.  Loans  originated for sale totaled 0.07%, 4% and 8% of loan  originations
during 2004, 2003 and 2002, respectively. We originate 30-year and 15-year fixed
rate loans only for resale to the secondary markets.

     Loans  held-for-sale  at  December  31,  2004,  2003 and 2002 were $0, $492
thousand and $2.3 million.  Loans  originated for sale are recorded at the lower
of cost or fair value.  The time from  origination to sale typically takes up to
30 days.  During  this time period we may be exposed to price  adjustments  as a
result of fluctuations in market interest rates.

                                       6
<PAGE>
     From time to time,  mortgage-backed  securities  are formed with loans from
our  loan  portfolio.  The  securities  are  used  in  collateralized  borrowing
arrangements.   In  exchange  for  the  improvement  in  credit  risk  when  the
mortgage-backed  securities  are formed,  guarantee fees are paid to the Federal
Home Loan  Mortgage  Corporation  ("FHLMC")  or the  Federal  National  Mortgage
Association  ("Fannie  Mae").  Since we  originated  the  loans  underlying  our
mortgage-backed  securities,  the mortgage-backed  securities generally have the
same experience with respect to prepayment,  repayment,  delinquencies and other
factors as our loan portfolio.

     The    portfolio   of    mortgage-backed    securities,    classified    as
available-for-sale, was recorded at fair value as of December 31, 2004, 2003 and
2002. Unrealized gains of $420 thousand,  $965 thousand and $1.6 million, net of
tax, were recorded in stockholders'  equity at December 31, 2004, 2003 and 2002,
respectively.

     We serviced  $102.5 million in loans for other investors as of December 31,
2004, $76.3 million of which were sold under recourse arrangements. $5.7 million
of the loans sold with recourse were formed into mortgage-backed  securities and
are still owned by us as of December 31, 2004.  Due to regulatory  requirements,
we maintain  capital for loans sold with recourse as if those loans had not been
sold.  Loans sold with recourse are analyzed in determining  the adequacy of the
repurchase  liability.  The  principal  balance  of  loans  sold  with  recourse
decreased to $76.3  million at the end of 2004 from $91.0  million at the end of
2003 and $108.6 million at the end of 2002 due to loan amortization and payoffs.

     In January of 2005, we completed a loan  securitization  with Fannie Mae in
which $1.3 billion in  multi-family  loans from our loan  portfolio  were formed
into  mortgage-backed  securities.  Because we  retained  full  recourse  on the
securitized loans, the mortgage-backed  securities will continue to be accounted
for as part of the  loan  portfolio  under  Statement  of  Financial  Accounting
Standards  No.  140,  Accounting  for and  Servicing  of  Financial  Assets  and
Extinguishments of Liabilities.  These  mortgage-backed  securities will also be
used in collateralized borrowing arrangements.

     Interest  Rates,  Terms  and  Fees.  We  originate  residential  adjustable
mortgage  loans  ("AMLs")  with 30 and 40 year terms and  interest  rates  which
adjust each month based upon  various  indicies.  The indices  used  include the
Federal Home Loan Bank's  Eleventh  District Cost of Funds Index  ("COFI"),  the
12-month  average U.S.  Treasury  Security rate ("12MAT"),  the London Interbank
Offered Rate ("LIBOR") and, the 3-month  certificate of deposit Index  ("CODI").
The CODI  index is the  monthly  yield on 3-month  certificate  of  deposits  as
published by the Federal  Reserve Bank and is a simple average based upon the 12
most recent months of data.  Commercial  business  loans are generally  based on
prime.  Most loans  originated  during 2004 have  interest  rates  which  adjust
monthly based on the CODI index.  CODI loans were 69% of loans originated during
2004. (See  "--Asset-Liability  Management--" in "--Quantitative and Qualitative
Disclosures  About Market Risk--") While the monthly  payment adjusts  annually,
the  maximum  annual  change in the payment is limited to 7.5%.  Any  additional
interest  due  is  added  to  the  principal  balance  of  the  loan  ("negative
amortization").  Payments are adjusted  every five years  without  regard to the
7.5% limitation to provide for full amortization  during the balance of the loan
term Payments may also be adjusted more frequently if certain levels of negative
amortization  occur.  Although the interest  rates are adjusted  monthly,  these
loans have maximum  interest rates which can be charged  ranging from 400 to 750
basis points above their initial  interest rate.  Generally,  these loans may be
assumed at any time during their term provided that the person assuming the loan
meets our credit standards and enters into a separate written agreement with us.
Additionally,  the new borrower is required to pay assumption  fees  customarily
charged for similar transactions.

     We also originate  adjustable  rate loans with initial fixed interest rates
for periods  ranging from 3 to 10 years  ("hybrid"  loans).  By policy,  we will
either match the fixed rate period of these hybrid loans with borrowings for the
same term or will hold  unmatched  fixed rate loans in our portfolio up to 5% of
total assets.  Loans originated under this program totaled $4.5 million in 2004,
$434.3  million in 2003 and $419.7 million in 2002.  Originations  of adjustable
rate loans with  initial  fixed  interest  rates  declined  during 2004  because
management decided to focus on the origination of monthly adjustable loans.

     Under current portfolio loan programs, we normally lend no more than 95% of
a  single-family  property's  appraised  value at the time of loan  origination.
There are special  Community  Reinvestment Act loan programs in which we lend up
to 97% of the property's  appraised value.  Because AML loan-to-value ratios may
increase above those established at the time of loan origination due to negative
amortization,  we rarely lend in excess of 90% of the  appraised  value on AMLs.
When we do lend in excess of 90% of the  appraised  value,  additional  fees and
higher rates are charged. The amount of negative  amortization  increases during
periods of rising interest rates. At December 31, 2004, 2003 and 2002,  negative
amortization  on all loans totaled $5.6 million,  $4.0 million and $7.8 million,
respectively.

                                       7
<PAGE>
     We generally  require that borrowers obtain private  mortgage  insurance on
loans in  excess  of 80% of the  appraised  property  value.  On  certain  loans
originated  for the  portfolio,  we charge premium rates and/or fees in exchange
for waiving the insurance  requirement.  Management believes that the additional
rates and fees that we receive for these  loans  compensate  for the  additional
risk  associated  with this type of loan.  Subsequent  to the  origination  of a
portfolio loan, we may purchase private  mortgage  insurance with our own funds.
Under certain mortgage  insurance  programs we act as co-insurer and participate
with the insurer in absorbing any future loss. As of December 31, 2004, 2003 and
2002, loans with co-insurance  totaled $193.9 million,  $52.3 million and $106.6
million, respectively.  Loans with initial loan-to-value ratios greater than 80%
with no private mortgage  insurance totaled $812.7 million at December 31, 2004,
$486.7 million at December 31, 2003 and $159.7 million at December 31, 2002.

     Although regulations permit a maximum loan term of 40 years for real estate
secured  loans,  the  majority  of our real estate  loans  provide for a maximum
maturity period of 30 years or less.  Loans with 40-year terms  constituted 27%,
8% and 6% of loan  originations  during 2004, 2003 and 2002,  respectively.  The
increase in loans with 40-year  terms was  attributable  to increased  marketing
efforts  for this  product as a response  to the  decreased  "affordability"  of
houses in our market area.

        The following table shows the contractual remaining maturities of our
loans at December 31, 2004:
<TABLE>
                                                       Loan Maturity Analysis
                                                           Maturity Period
                             --------------------------------------------------------------------------
                              Total     1 Year    > 1 Year    > 5-10    > 10-20   > 20-30
                             Balance   or Less   to 5 Years    Years     Years     Years    > 30 Years
                             -------   -------    --------    -------  --------   -------    -------
                                                           (In thousands)
<S>                       <C>         <C>       <C>       <C>        <C>        <C>
Interest rate sensitive
  loans:
  AMLs....................$ 6,708,887 $ 104,646 $ 773,205 $ 542,578 $ 1,226,945 $ 2,927,801 $ 1,133,712
  Fixed rate loans........     36,487     6,169    18,500     3,997       4,981       2,726         114
  Commercial business
   loans..................     58,157    16,597    41,560        --          --          --          --
  Construction loans......     19,690     5,411    14,279        --          --          --          --
  Consumer and other loans     59,515    17,005    42,510        --          --          --          --
                              -------   -------   -------   -------    --------   ---------   ---------
Total.....................$ 6,882,736 $ 149,828 $ 890,054 $ 546,575 $ 1,231,926 $ 2,930,527 $ 1,133,826
                            =========   =======   =======   =======   =========   =========   =========
</TABLE>

Non-accrual, Past Due, Impaired and Restructured Loans

     We establish  allowances  for  delinquent  interest  equal to the amount of
accrued  interest on all loans 90 days or more past due or in foreclosure.  This
practice  effectively  places  such loans on  non-accrual  status for  financial
reporting purposes.

     The  following  is a summary  of  non-accrual  loans  for which  delinquent
interest  allowances  had been  established  as of  December  31, at each of the
periods indicated:
<TABLE>
                             % of             % of             % of              % of             % of
                     2004    Total    2003    Total    2002    Total    2001     Total   2000     Total
                    ------   -----   ------   -----   ------   -----    -----    ----    -----    ----
                                                  (Dollars in thousands)
<S>                <C>      <C>     <C>       <C>    <C>     <C>      <C>        <C>   <C>       <C>
Non-accrual loans:
  Single family... $ 4,590     92%  $ 3,326     99%  $ 5,705     85%  $  6,062     93% $  5,603     89%
  Multi-family....     391      8        --      --    1,017     15        422      6       662     11
  Commercial......      --     --        --      --       --     --         --     --        --     --
  Consumer........       4     --        16      1        --     --         16      1        --     --
                     ------  -----   ------   -----   ------   -----     -----    ----    -----    ----
Total non-accrual
   loans.......... $ 4,985    100%  $ 3,342    100%  $ 6,722    100%  $  6,500    100% $  6,265    100%
                    ======   =====   ======   =====   ======   =====     =====    ====    =====    ====
</TABLE>
     The allowance for delinquent interest, based on loans past due more than 90
days or in  foreclosure,  totaled $256 thousand,  $227 thousand,  $372 thousand,
$504 thousand and $511 thousand at December 31, 2004, 2003, 2002, 2001 and 2000,
respectively.

                                       8
<PAGE>

     Our  modified  loans  result  primarily  from  temporary  modifications  of
principal and interest  payments or an extension of maturity dates.  Under these
arrangements,  loan  terms  are  typically  reduced  to no less  than a  monthly
interest payment required under the note. If the borrower is unable to return to
scheduled principal and interest payments at the end of the modification period,
foreclosure  proceedings  are  initiated  or  the  modification  period  may  be
extended.  As of December 31, 2004,  the Bank had modified  loans  totaling $1.4
million.  This compares with modified loans totaling $1.5 million as of December
31, 2003 and $1.6  million as of December 31,  2002.  No modified  loans were 90
days or more delinquent as of December 31, 2004, 2003 or 2002.

     Statement  of  Financial  Accounting  Standards  No.  114,  "Accounting  by
Creditors for Impairment of a Loan" ("SFAS No. 114"),  requires the  measurement
of impaired  loans.  SFAS No. 114 does not apply to large groups of  homogeneous
loans that are collectively reviewed for impairment.

     We consider a loan to be impaired when management  believes that we will be
unable to  collect  all  amounts  due under  the  contractual  terms of the loan
agreement.  In accordance with SFAS 114, we annually evaluate the collectibility
of commercial  business  loans greater than or equal to $500,000,  single-family
loans greater than or equal to $750,000,  and income property loans greater than
or equal to  $1,500,000  for  impairment  purposes  using its normal loan review
procedures.  When a loan is  determined  to be impaired,  we measure  impairment
based on either (1) the present value of expected future cash flows,  discounted
at the loan's effective  interest rate; (2) the loan's  observable market price,
or (3) the  fair  value  of the  collateral.  Estimated  impairment  losses  are
included in our impairment allowances.

     Valuation  allowances  for impaired loans totaled $496 thousand at December
31, 2004,  2003 and 2002. The following is a summary of impaired  loans,  net of
valuation allowances for impairment, at the dates indicated:

<TABLE>
                                                        At December 31,
                                               --------------------------------
                                                 2004         2003        2002
                                               ---------    --------    -------
                                                        (In thousands)
<S>                                         <C>          <C>         <C>
Non-accrual loans......................     $        --  $    1,782  $      --
Modified loans.........................           1,360       1,488      1,567
                                               ---------    --------    -------
                                            $     1,360  $    3,270  $   1,567
                                               =========    ========    =======
</TABLE>
     All impaired  non-accrual loans as of December 31, 2004,  December 31, 2003
and December 31, 2002 were single-family loans.

     The present value of an impaired  loan's expected future cash flows changes
from one  reporting  period to the next  because of the passage of time and also
because of revised  estimates  in the amount or timing of those cash  flows.  We
record the entire change in the present value of the expected  future cash flows
as an impairment valuation  allowance,  which may necessitate an increase in the
provision  for loan losses.  Similarly,  the fair value of the  collateral of an
impaired  collateral-dependent  loan may change from one reporting period to the
next.  We also  record a change in the  measure  of these  impaired  loans as an
impairment  valuation  allowance,  which may  necessitate  an  adjustment to the
provision for loan losses.

     The following is an analysis of the activity in our valuation allowance for
impaired loans during the periods indicated (in thousands):
<TABLE>
<S>                                               <C>
Balance at December 31, 1999....................  $  2,596
  Net charge-offs...............................      (804)
                                                   -------
Balance at December 31, 2000....................     1,792
  Transfer from general valuation allowance.....        58
                                                   -------
Balance at December 31, 2001....................     1,850
  Transfer to general valuation allowance.......    (1,354)
                                                   -------
Balance at December 31, 2002....................       496
  Net charge-offs...............................        --
                                                   -------
Balance at December 31, 2003....................       496
  Net charge-offs...............................        --
                                                  --------
Balance at December 31, 2004....................  $    496
                                                  ========
</TABLE>
     Cash payments  received from impaired loans are recorded in accordance with
the contractual  terms of the loan. The principal portion of the payment is used
to reduce the  principal  balance of the loan,  whereas the interest  portion is
recognized as interest income.

                                        9
<PAGE>
        The following is a summary of information pertaining to impaired and
non-accrual loans:
<TABLE>
                                                              At December 31,
                                                         ------------------------
                                                             2004         2003
                                                         -----------   ----------
                                                             (In thousands)
<S>                                                   <C>              <C>
     Impaired loans without a valuation allowance     $       1,360   $     3,270
     Impaired loans with a valuation allowance..      $         496   $       496
     Valuation allowance related to impaired loans    $         496   $       496

     Total non-accrual loans......................    $       4,985   $     3,342
</TABLE>
<TABLE>
                                                         Year Ended December 31,
                                                  --------------------------------------
                                                     2004           2003          2002
                                                  ----------    ----------    ----------
                                                            (In thousands)
<S>                                            <C>           <C>           <C>
  Average investment in impaired loans....     $         602 $       4,327 $       4,982
  Interest income recognized on impaired loans $          22 $         226 $         322
  Interest income recognized on a cash basis
   on impaired loans......................     $          16 $         215 $         316
</TABLE>

Internal Asset Review System

     We classify our assets  according to a nine-tier  risk rating  system.  The
nine risk grades are segmented into three general groups: "Unclassified" (Pass 1
through 5),  "Criticized"  (Special  Mention),  and  "Classified"  (Substandard,
Doubtful and Loss).  In  determining  the  appropriate  Risk Grade for an asset,
consideration is given to a number of factors  affecting the timely  liquidation
of the  asset,  including  but not  limited  to: the cash flow  provided  by the
collateral;  the financial  condition of borrowers,  guarantors  and  endorsers;
collateral value; and payment history.

     For internal asset review purposes,  assets are segregated into two groups:
homogeneous and non-homogeneous assets.

     Homogeneous  Assets.  These are  defined  as groups  of assets  that  share
similar  risk  characteristics   that  are  collectively   evaluated  for  asset
classification  purposes.  Homogeneous assets include single-family  residential
loans  with  balances  less  than $1.0  million,  multi-family  residential  and
commercial real estate loans ("income  property  loans") with balances less than
$1.5  million,  commercial  business  loans with  balances  less than  $500,000,
consumer loans, and high-grade investment securities.

     Non-Homogeneous   Assets.   These  are  individually   reviewed  for  asset
classification  purposes due to their relatively  higher balances or complexity.
Non-homogeneous assets include single-family  residential loans with balances of
$1.0 million or greater,  income  property  loans of $1.5  million or more,  and
commercial business loans of $500,000 or greater.  Other non-homogeneous  assets
include modified or restructured  loans, real estate owned through  foreclosure,
investments in subsidiaries, and significant off-balance sheet items.

Loan Loss Allowance

     We  maintain  a general  valuation  allowance  for loan  losses  due to the
inherent  risks  in  the  loan  portfolio  that  have  yet  to  be  specifically
identified.  Our loan  portfolio is  stratified  based on factors  affecting the
perceived level and concentration of risk, such as type of collateral,  level of
loan documentation,  the borrowers credit rating, year of origination,  original
loan-to-value ratio and geographic location.

     The  appropriate  level of general  valuation  allowance is  calculated  by
applying  reserve  factors  to the  balance  of  assets  on which  we have  loss
exposure.  These reserve  factors  represent the expected  likelihood of default
multiplied by the expected rate of loss.  The expected rates of loss and default
are based on our historical loss experience and adjusted for current  conditions
and trends in our lending areas.

     Based on this  methodology,  we recorded a $3.0 million  provision for loan
losses during 2004. We did not record any loan loss provision in 2003 or 2002.

                                       10
<PAGE>
     Loans that allow for a reduced level of documentation at origination are an
increasing  percentage  of loans  originated  in our  market  areas.  On "Stated
Income/Stated  Asset" (SISA) loans, the borrower includes information on his/her
level of income and assets  that is not  subject to  verification.  "On  "Stated
Income/Verified  Assets"  ("SIVA") loans, the borrower  includes  information on
his/her  level of income,  but his/her  assets are  verified.  For "No Income/No
Asset"  (NINA)  loans,  the  borrower is not required to submit  information  on
his/her level of income or assets.  The  underwriting of these loans is based on
the  borrower's  credit score and the value of the  collateral.  At December 31,
2004,  approximately  8%, 29% and 39% of our single  family loan  portfolio  was
comprised of NINA,  SIVA or SISA loans,  respectively.  This compares to 2%, 26%
and 30% of our single family loan  portfolio  being NINA,  SIVA or SISA loans at
December 31, 2003,  respectively.  Our portfolios of multi-family and other real
estate loans all require full documentation by the borrowers.

     The following is an analysis of the activity in our general loan  valuation
allowances for the periods indicated:
<TABLE>
                                                                 Year Ended December 31,
                                               ----------------------------------------------------------
                                                 2004          2003        2002        2001        2000
                                               ---------    ---------    --------    --------    --------
                                                                     (In thousands)
<S>                                         <C>          <C>          <C>         <C>         <C>
Beginning general loan valuation allowances $    75,238  $    75,223  $    72,919 $    70,809 $   69,954
Provision for loan losses................         3,000           --           --          --         --
General loan valuation allowances obtained
   in acquisition........................            --           --           --       2,050         --
Charge-offs, net of recoveries:
   Single family.........................           120          (52)        (372)       (322)      (767)
   Multi-family..........................           237           14          189         286      1,692
   Commercial............................            (7)          --           --          --       (105)
   Non-real estate.......................            87           53        1,133         154         35
                                               ---------    ---------    --------    --------    --------
Total net recoveries ....................           437           15          950         118        855
Transfers from (to) impaired valuation
   allowance.............................            --           --        1,354         (58)        --
                                               ---------    ---------    --------    --------    --------
Ending general loan valuation allowances.   $    78,675  $    75,238  $    75,223 $    72,919 $   70,809
                                               =========    =========    ========    ========    ========
</TABLE>
     We recorded  total net recoveries  during each of the last five years.  The
lack of  charge-offs  over the last five years is due to the strong  economy and
real estate market in Southern California.

     Any increase in  charge-offs  would  adversely  impact our future loan loss
provisions and income.

     Our total general loan loss allowances to gross loans receivable was 1.15%,
1.70%,  1.96%,  1.83% and 1.95% at December 31, 2004, 2003, 2002, 2001 and 2000,
respectively.

                                       11
<PAGE>
     The following table details the general valuation allowance by loan type at
the dates indicated:
<TABLE>
                                                               December 31,
                           ------------------------------------------------------------------------------------
                                   % of             % of             % of               % of             % of
                           2004    Total    2003    Total    2002     Total    2001     Total    2000     Total
                           -----   -----    -----   -----   ------   ------    -----    -----    -----   ------
                                                          (Dollars in thousands)
<S>                     <C>        <C>   <C>       <C>     <C>        <C>   <C>        <C>    <C>        <C>
Real estate loans:
  Single family.........$  48,271     61% $  28,775     38% $ 24,952     33%  $  30,040    41%  $  37,695    53%
  Multi-family..........   19,570     25     24,789     33    27,037     36      23,955    33      22,529    32
  Commercial............    5,053      6      6,185      8     9,938     13       7,860    11       5,797     8
  Construction..........      508      1      2,266      3     2,281      3       3,687     5          --    --
                           -----   -----      -----   -----   ------   -----      -----   ----     ------   ----
Total real estate loans.   73,402     93     62,015     82    64,208     85      65,542    90      66,021    93
                           -----   -----     ------   -----   ------   -----     ------   ----     ------   ----
Non-real estate loans:
  Commercial............    2,618      3      5,595      8     4,977      7       5,120     7       3,214     5
  Consumer..............    2,655      4      7,624     10     5,978      8       1,918     3       1,073     1
  Other.................       --     --          4     --        60     --         339    --         501     1
                            -----   -----     -----   -----   ------   -----      -----   ----      -----   ----
Total non-real estate
  loans.................    5,273      7     13,223     18    11,015     15       7,377    10       4,788     7
                            -----   -----    ------   -----   ------   -----      -----   ----      -----   ----
Total...................$  78,675    100% $  75,238   100%  $ 75,223    100%  $  72,919   100%  $  70,809   100%
                           ======   =====    ======   ====    ======   =====     ======   ====     ======   ====
</TABLE>
     During 2004,  the exposure base of  single-family  loans  increased by $2.1
billion,  generating  an increase in the general  valuation  allowance  by $19.6
million.  There were three changes  pertaining to the calculation of the general
valuation  allowance for the single-family  portfolio:  segregation of sub-prime
loans;  refining for the geographic  designation,  and re-evaluated risk factors
for  single-family  loans made in Northern  California.  The  exposure  base for
multi-family loans increased by $279.8 million;  however,  the general valuation
allowance decreased by $5.2 million. The decrease in general valuation allowance
is attributable  to lowered risk factors for certain  geographic  locations.  We
also reduced the loss factors  associated with anticipated loss on this product.
The exposure base for commercial real estate decreased $20.2 million, generating
a decrease in the general valuation allowance by $1.1 million. The exposure base
of the construction loan portfolio decreased by $4.5 million,  while the general
valuation  allowance  declined by $1.8 million.  The non-real estate  commercial
loan exposure base increased by $47.0 million;  however,  the general  valuation
allowance  decreased by $3.0 million.  The consumer loan exposure base increased
by $29.8 million;  however,  the general valuation  allowance  decreased by $5.0
million.  The  decrease in general  valuation  allowances  for  non-real  estate
consumer and commercial loans is attributable to a decline in the expected rates
of default as we have gained  experience with these product lines. The remainder
of the change in the general  valuation  allowance for loans was attributable to
changes in miscellaneous loans.

     During 2003, the exposure base of  single-family  loans increased by $733.3
million and the proportion of higher risk loans was reduced, resulting in a $3.8
million  increase  in the  general  valuation  allowance.  The  decrease  in the
multi-family  and commercial real estate loan exposure base of $98.7 million and
$74.0  million,  respectively,  resulted in a decrease in the general  valuation
allowance of $2.2 million and $3.7 million,  respectively.  The exposure base of
the  construction  loan  portfolio  increased  by  $2.1  million,  generating  a
reduction of $15 thousand to the general  valuation  allowance.  The increase in
the  commercial  loan exposure base of $14.8 million  resulted in an increase of
$617  thousand in the general  valuation  allowance.  The consumer loan exposure
base increased by $14.3  million,  which resulted in an addition of $1.6 million
to the general valuation  allowance.  The remainder of the change in the general
valuation  allowance  for loans was  attributable  to changes  in  miscellaneous
loans.

     Depending  on the  economy  and real  estate  markets in which we  operate,
increases in the general valuation  allowance may be required in future periods.
In  addition,  various  regulatory  agencies,  as  an  integral  part  of  their
examination process,  periodically review our general valuation allowance. These
agencies may require us to establish  additional  general  valuation  allowances
based  on  their  judgment  of the  information  available  at the time of their
examination.

                                       12
<PAGE>
During  2004,  we  revised  our  current  estimate  of the  required  repurchase
liability  for loans sold with  recourse  from $5.4 million to $0. We eliminated
the repurchase  liability for loans sold with recourse  because we do not expect
to incur any future losses on this  portfolio.  No charge-offs  have occurred on
these  loans  since 1997 and the loan  balances  have  declined  since they were
originated  in the late 1980's.  The activity in the  repurchase  liability  for
loans sold with recourse for 2004,  2003, 2002, 2001 and 2000 is presented below
(in thousands):
<TABLE>
<S>                                                     <C>
  Balance at December 31,  2000.....................     $ 12,824
  Balance at December 31,  2001.....................       12,824
  Liability adjustment recorded as gain on sale of loans   (5,924)
                                                          --------
  Balance at December 31,  2002.....................        6,900
  Liability adjustment recorded as gain on sale of loans   (1,500)
                                                          --------
  Balance at December 31,  2003.....................        5,400
  Liability adjustment recorded as gain on sale of loans   (5,400)
                                                          --------
  Balance at December 31,  2004.....................     $      -
                                                          ========
</TABLE>
     See "--Management's  Discussion and Analysis of Consolidated Balance Sheets
and Consolidated  Statements of Income - Asset Quality Ratios--" for an analysis
of our general valuation  allowances as a percentage of non-performing loans and
loans receivable.
     Potential  Problem Loans.  We also had $2.1 million,  $2.3 million and $2.1
million in potential problem real estate loans as of December 31, 2004, December
31, 2003 and December 31, 2002,  respectively.  These are loans that do not meet
the criteria of impaired or non-performing loans but have displayed some past or
present  weakness.  If the weakness is not corrected,  the loan could eventually
result in a loss to us.

     Our Asset  Classification  Committee meets at least quarterly to review and
monitor the condition of the loan  portfolio.  Additionally,  a special  workout
group of our  officers  meets at least  quarterly  to  resolve  delinquent  loan
situations and to initiate actions  enforcing our rights in security  properties
pending foreclosure and liquidation.

     Non-performing  Assets. For a further discussion of non-performing  assets,
see "--Management's  Discussion and Analysis of Consolidated  Balance Sheets and
Consolidated Statements of Income - Non-Performing Assets--"

     Generally,  real estate loans  greater than 90 days  delinquent  are placed
into  foreclosure  and a valuation  allowance is established,  if necessary.  We
acquire title to the property in most  foreclosure  actions in which the loan is
not reinstated by the borrower.  Once real estate is acquired in settlement of a
loan, the property is recorded at fair value less estimated costs to sell.

     Following the acquisition of foreclosed  real estate  ("REO"),  we evaluate
the property and  establish a plan for  marketing and disposing of the property.
After inspecting the property, we determine whether the property may be disposed
of in its present  condition or if repairs,  rehabilitation  or improvements are
necessary.

The  following  table  provides  information  regarding our REO activity for the
periods indicated:
<TABLE>
                                                     Year Ended December 31,
                                               ----------------------------------
                                                 2004          2003        2002
                                               ---------    ---------    --------
                                                         (In thousands)
<S>                                        <C>           <C>         <C>
Beginning balance......................     $     1,324  $       319  $     1,485
  Additions............................              --        1,582        1,881
  Sales and other......................          (1,324)        (577)      (3,047)
                                               ---------    ---------    --------
Ending balance.........................     $        --  $     1,324  $       319
                                               =========    =========    ========
</TABLE>
     Other  Interest-Earning   Assets.  We  owned  no  contractually  delinquent
interest-earning assets other than loans as of December 31, 2004.

     Investment  Activities.  It is our policy to maintain liquidity investments
at a modest level and to use available cash to originate mortgages that normally
command  higher yields.  Therefore,  interest  income on  investments  generally
represents less than 5% of total revenues.

                                       13
<PAGE>
     The following table summarizes the total investment portfolio at historical
cost by type at the end of the periods indicated:
<TABLE>
                                                                    At December 31,
                                             ------------------------------------------------------------
                                               2004         2003          2002         2001         2000
                                             ---------    ---------    ---------    ---------    --------
                                                                (Dollars in thousands)
<S>                                      <C>            <C>          <C>          <C>          <C>
U.S. treasury securities.................$         --   $      200  $       200  $       300  $       300
U.S. agency securities...................          --           --           --       28,199       38,185
Collateralized mortgage obligations
   ("CMO's").............................     249,781      115,992      101,802       80,013       98,562
                                             ---------    ---------    ---------    ---------    --------
                                              249,781      116,192      102,002      108,512      137,047

Unrealized gain (loss) on securities
   available-for-sale....................         805          219        1,053        1,932         (510)
                                             ---------    ---------    ---------    ---------    --------
                                         $    250,586  $   116,411  $   103,055  $   110,444  $   136,537
                                             =========    =========    =========    =========    ========
Weighted average yield on
   interest-earning investments end of
   period................................        2.82%        2.92%        4.77%        6.07%       5.99%
                                             =========    =========    =========    =========    ========
</TABLE>
     Our collateralized mortgage obligations all have expected maturities within
five years.

Sources of Funds

     General.  Our  principal  sources  of funds  are  deposits,  principal  and
interest  payments on loans,  loan sales,  advances from the FHLB and securities
sold under agreements to repurchase.

     Deposits.  We obtain  deposits  through  three  different  sources:  1) our
full-service  branch  system,  2) phone  solicitations  by designated  employees
(telemarketing deposits), and 3) national brokerage firms.

     Deposits obtained through the branch system were $2.5 billion, $2.5 billion
and $2.3  billion at December  31,  2004,  2003 and 2002,  respectively.  Branch
deposits  comprised  67% of total  deposits at December 31,  2004,  99% of total
deposits at December 31, 2003 and 91% of total deposits at December 31, 2002.

     Deposits acquired through  telemarketing  efforts are typically placed with
us by  professional  money  managers  and  represented  1%,  1% and 3% of  total
deposits  at  December  31,  2004,  2003 and  2002,  respectively.  The level of
telemarketing  deposits varies based on yields  available to depositors on other
investment instruments and the depositors' perception of our creditworthiness.

     Deposits acquired through national  brokerage firms represented 32%, 0% and
6% of total deposits at December 31, 2004, 2003 and 2002, respectively. Any fees
paid to deposit brokers are amortized over the term of the deposit. We increased
our use of this type of deposit in 2004 to fund our  increased  loan growth.  We
have used brokered  deposits in varying amounts since 1983.  Based on historical
renewal percentages, management believes that these deposits are a stable source
of funds.  Institutions meeting the regulatory capital standards necessary to be
deemed  well-capitalized  are not  required  to obtain a waiver from the FDIC in
order to accept brokered deposits. See "--Management's Discussion and Analysis -
Capital Resources and Liquidity--"

     The percentage of fixed-term  certificates of deposit in our total deposits
was 47% at December 31,  2004,  22% at December 31, 2003 and 37% at December 31,
2002. The increase during 2004 is due to growth in our deposits acquired through
national   brokerage  firms.   Excluding  the  brokered   deposits,   fixed-term
certificates of deposit were 22% of deposits at December 31, 2004.

                                       14
<PAGE>
     The  following  table shows the average  balances and average rates paid on
deposits by deposit type for the periods indicated:
<TABLE>
                                                  During the Year Ended December 31,
                             -----------------------------------------------------------------------------
                                     2004                        2003                        2002
                             ---------------------       ---------------------       ---------------------
                             Average     Average         Average      Average        Average     Average
                             Balance       Rate          Balance       Rate          Balance       Rate
                             ---------   ---------       ---------    --------       --------    ---------
                                                        (Dollars in thousands)
<S>                       <C>           <C>          <C>              <C>        <C>            <C>
Passbook accounts.......  $    124,923      1.03%     $    118,859      1.15%    $     106,591      1.47%
Money market deposit
   accounts.............     1,383,119      1.47         1,244,294      1.72           909,866      2.50
Interest-bearing
   checking accounts....       198,084      0.31           178,173      0.32           164,930      0.66
Non interest-bearing
   checking accounts....       338,692        --           285,653        --           234,936        --
Fixed term certificate
   accounts.............       923,939      2.16           688,492      2.30         1,101,043      3.20
                             ---------                   ---------                   ---------
                          $  2,968,757      1.42%     $  2,515,471      1.55%    $   2,517,366      2.42%
                             =========                   =========                   =========
</TABLE>
     The following tables set forth information regarding the amount of deposits
in the various types of deposit  programs  offered by us at the end of the years
indicated and the balances and average rates for those dates:
<TABLE>
                                                                At December 31,
                                           -----------------------------------------------------------
                                                2004                  2003                 2002
                                           ----------------     -----------------    -----------------
                                            Amount        %      Amount        %       Amount       %
                                           ---------   ----     ---------   -----    ---------   -----
                                                              (Dollars in thousands)
<S>                                     <C>            <C>  <C>            <C>    <C>          <C>
Variable rate non-term accounts:
Money market deposit accounts
   (weighted average rate of 1.61%,
   1.43% and 2.13%).................    $  1,328,230    35% $   1,373,240    54%  $  1,079,278    43%
Interest-bearing checking accounts
   (weighted average rate of 0.23%,
   0.26% and 0.43%).................         279,912     8        232,247     9        174,802     7
Passbook accounts (weighted average
   rate of 1.00%, 1.10% and 1.34%)..         121,355     3        124,427     5        111,844     4
Non-interest bearing checking
accounts............................         276,438     7        239,357    10        239,695     9
                                           ---------   ----     ---------   -----    ---------   -----
                                           2,005,935    53      1,969,271    78      1,605,619    63
                                           ---------   ----     ---------   -----    ---------   -----
Fixed-rate term certificate
accounts:
Under six-month term (weighted
   average rate of 2.06%, 1.00% and
   1.54%)...........................         373,907    10         32,062     1         37,630     1
Six-month term (weighted average
   rate of 1.96%, 1.06% and 1.95%)..         359,871    10         79,201     3        104,600     4
Nine-month term (weighted average
   rate of 2.27%, 1.25% and 2.76%)..         526,587    14         15,126     1        101,980     4
One year to 18-month term (weighted
   average rate of 1.84%, 1.53% and
   2.63%)...........................         193,038     5        178,858     6        331,308    14
Two year to 30-month term (weighted
   average rate of 2.40%, 2.63% and
   3.55%)...........................          52,441     1         42,187     2         41,460     2
Over 30-month term (weighted
   average rate of 3.71%, 3.88% and
   4.49%)...........................         133,402     4        123,966     5         94,927     4
Negotiable certificates of $100,000
   and greater, 30 day to one year
   terms (weighted average rate of
   1.97%, 1.25% and 2.32%)..........         115,984     3         97,727     4        209,502     8
                                           ---------   ----     ---------   -----    ---------   -----
                                           1,755,230    47        569,127    22        921,407    37
                                           ---------   ----     ---------   -----    ---------   -----
Total deposits (weighted average
   rate of 1.65%, 1.29% and 1.98%)..    $  3,761,165   100% $   2,538,398   100%  $  2,527,026   100%
                                           =========   ====     =========   =====    =========   =====
</TABLE>

                                       15
<PAGE>
     We choose the lowest cost  source of funds  considering  both the  interest
rate and  administrative  cost.  As the cost of each source of funds  fluctuates
from time to time,  we seek funds from the lowest cost source until the relative
cost  changes.  As the costs of funds,  operating  margins and net income of the
Bank  associated with each source of funds are generally  comparable,  we do not
deem  the  impact  of a change  in  incremental  use of any one of the  specific
sources of funds at a given time to be material.

     The following table shows the maturity  distribution of jumbo  certificates
of deposit ($100,000 and greater) as of December 31, 2004 (in thousands):

<TABLE>
<S>                                                      <C>
Maturing in:
  1 month or less...................................     $ 17,863
  Over 1 month to 3 months..........................       32,084
  Over 3 months to 6 months.........................          209
  Over 6 months to 12 months........................       31,701
  Over 12 months....................................       34,127
                                                         --------
   Total............................................     $115,984
                                                         ========
</TABLE>
     Based on historical renewal  percentages at maturity,  management  believes
that jumbo  certificates of deposit are a stable source of funds. For additional
information  with respect to deposits,  see Note 8 of the Notes to  Consolidated
Financial Statements.

     Borrowings.  The  Federal  Home Loan Bank System  functions  as a source of
credit to  financial  institutions  that are members of a regional  Federal Home
Loan Bank.  The Bank may apply for  advances  from the FHLB  secured by the FHLB
capital  stock  owned by the Bank,  certain of our  mortgages  and other  assets
(principally obligations issued or guaranteed by the United States government or
agencies  thereof).  Advances can be requested for any sound  business  purpose,
which an institution is authorized to pursue.  Any  institution  not meeting the
qualified  thrift lender test will be subject to  restrictions on its ability to
obtain  advances  from the  FHLB.  See  "Summary  of  Material  Legislation  and
Regulation - Qualified Thrift Lender Test" In granting  advances,  the FHLB also
considers a member's creditworthiness and other relevant factors.

     Total  advances  from the FHLB were $3.0  billion at December 31, 2004 at a
weighted  average rate of 2.59%.  This compares with advances of $1.7 billion at
December 31, 2003 and $1.2 billion at December  31, 2002 with  weighted  average
rates of 2.88% and 3.90%,  respectively.  We have credit  availability  with the
FHLB,  which allows us to borrow up to 60% of our total assets or  approximately
$4.5 billion at December 31, 2004.

     We enter into sales of securities under  agreements to repurchase  (reverse
repurchase agreements) which require the repurchase of the same securities.  The
agreements  are treated as  borrowings  in the  Company's  Consolidated  Balance
Sheets.  There are certain  risks  involved  with  entering  into these types of
transactions.  In order to  minimize  these  risks,  our policy is to enter into
agreements  only with  well-known  national  brokerage  firms  that  meet  their
regulatory capital requirements.  Borrowings under reverse repurchase agreements
totaled $187.0 million at December 31, 2004 at a weighted  average rate of 2.24%
and were secured by mortgage-backed  securities with principal balances totaling
$80.7 million and investments totaling $116.6 million.  Borrowings under reverse
repurchase  agreements  totaled  $122.6  million at December 31, 2003 and $155.3
million at  December  31,  2002 at  weighted  average  rates of 1.12% and 1.61%,
respectively.  We increased our borrowings  under repurchase  agreements  during
2004 by  pledging  additional  securities  from our  investment  portfolio.  The
decrease in borrowings  under  agreements to repurchase in 2003 and 2002 was due
to paydowns of the underlying mortgage-backed securities.

     Borrowings  from all sources  totaled $3.2  billion,  $1.8 billion and $1.3
billion at weighted  average  rates of 2.57%,  2.76% and 3.63% at  December  31,
2004, 2003, and 2002,  respectively.  The increase in borrowings during 2004 was
necessary  to fund asset  growth.  Due to the high level of loan payoffs and the
growth in branch deposits, no additional borrowings were necessary to fund asset
growth during 2003.

                                       16
<PAGE>
     Our portfolio of short-term  borrowings  includes FHLB advances due in less
than one year and securities sold under agreements to repurchase.  The following
schedule summarizes  short-term  borrowings for the last three years at December
31:
<TABLE>
                                                             Maximum
                                                            Month-End
                                                           Outstanding
                                                             Balance
                                                           During the
                                   End of Period             Period                  Average
                               ----------------------      ------------       ----------------------
                               Outstanding     Rate                           Outstanding     Rate
                               -----------    -------                         ------------    ------
                                                      (Dollars in thousands)
<S>                        <C>               <C>        <C>                <C>               <C>
2004
----
Short-term FHLB advances.  $     2,604,600      2.30%   $    2,604,600     $     1,789,575      2.05%
Securities sold under
   agreements to
   repurchase............          187,000      2.24           192,000             129,192      1.52

2003
----
Short-term FHLB advances.  $     1,082,000      2.16%   $    1,082,000     $       734,000      2.25%
Securities sold under
   agreements to
   repurchase............          122,622      1.12           154,021             139,568      1.27

2002
----
Short-term FHLB Advances.  $       427,000      2.25%   $      885,000     $       611,000      4.01%
Securities sold under
   agreements to
   repurchase............          155,273      1.61           208,367             169,335      2.04
</TABLE>
Other Sources of Funds

     See "--Management's  Discussion and Analysis of Consolidated Balance Sheets
and Consolidated  Statements of Income - Sources of Funds--" for a discussion of
other funding sources.

Subsidiaries

     We have three  wholly-owned  subsidiaries:  Seaside  Financial  Corporation
("Seaside"),  Oceanside Insurance Agency, Inc.  ("Oceanside"),  and Santa Monica
Capital Group  ("SMCG"),  all of which are California  corporations.  SMCG is an
inactive corporation.

     Revenues and  operating  results of these  subsidiaries  accounted for less
than 1% of  consolidated  revenues in 2004 and no material  change is  presently
foreseen.

     Trustee Activities.  Seaside acts as trustee on our deeds of trust. Trustee
fees for this activity  amounted to $41 thousand,  $66 thousand and $56 thousand
in 2004, 2003 and 2002, respectively.

     Insurance  Brokerage  Activities.  Oceanside  engages in limited  insurance
agent  activities.  Income  to date  from this  source  has been  insignificant.
Oceanside  operates  as a  licensed  life  insurance  agent for the  purpose  of
receiving  commissions  on the sale of fixed  rate  annuities  conducted  in our
branches by a licensed third party vendor, which is a registered  broker-dealer.
The registered broker-dealer conducts its sales activities in our branch offices
and we receive a percentage of the commissions on such sales through  Oceanside.
During  2004,  2003 and  2002,  Oceanside  received  commission  income  of $178
thousand,  $222  thousand  and  $461  thousand,  respectively,  from the sale of
non-insured  investment  products.  Additionally,  Oceanside  receives insurance
commissions  from the sale of insurance to its borrowers.  Commissions  received
from  this  activity  totaled  $3  thousand  in 2004  and $2  thousand  in 2003.
Commission rebates totaling $64 thousand were paid during 2002. The rebates paid
during 2002 resulted  from  repayments of  previously  earned  commissions  when
interim  lender-placed  policies were replaced by permanent policies obtained by
borrowers.

                                       17
<PAGE>
Employees

     As of  December  31,  2004,  we had a total  of 604  full  time  equivalent
employees, including 121 part-time employees. No employees were represented by a
collective  bargaining  group. At present,  the Company has no employees who are
not also  employees of the Bank. We provide our regular  full-time and part-time
employees with a  comprehensive  benefits  program that includes basic and major
medical insurance,  long-term disability coverage, sick leave, a 401(k) plan and
a profit  sharing  employee  stock  ownership  plan.  We consider  our  employee
relations to be excellent.

Summary of Material Legislation and Regulations

     General. FFC, as a savings and loan holding company, is registered with and
subject to regulation and examination by the OTS. The Bank, which is a federally
chartered  savings bank and a member of the FHLB, is subject to  regulation  and
examination  by the  OTS  with  respect  to  most  of its  business  activities,
including,  among  others,  lending  activities,   capital  standards,   general
investment authority,  deposit taking and borrowing authority, mergers and other
business combinations, establishment of branch offices, and permitted subsidiary
investments  and  activities.  Our  deposits are insured by the FDIC through the
SAIF. As insurer, the FDIC is authorized to conduct examinations of the Bank. We
are also  subject to  Federal  Reserve  Board  regulations  concerning  reserves
required to be maintained against deposits.

     The  OTS  also  imposes   assessments  and  examination   fees  on  savings
institutions.  OTS assessments were $751 thousand in 2004, $667 thousand in 2003
and $708 thousand in 2002.

     As a member of the FHLB System,  the Bank is required to own capital  stock
in its  regional  FHLB in an amount at least  equal to the  greater of 1% of the
aggregate  principal  amount of its  unpaid  residential  mortgage  loans,  home
purchase  contracts and similar  obligations at the end of each year, or 4.7% of
its  outstanding  borrowings  from the  FHLB.  We were in  compliance  with this
requirement,  with an investment of $143.4 million in FHLB stock at December 31,
2004.  During 2003,  the FHLB amended the  redemption  policy  requiring 5 years
written notice to redeem stock effective 2004.

     The FHLB serves as a source of liquidity for the member institutions within
its assigned  region,  the FHLB Eleventh  District.  It is funded primarily from
proceeds  derived from the sale of consolidated  obligations of the FHLB System.
It makes  advances  to  members  in  accordance  with  policies  and  procedures
established by the Federal  Housing  Finance Board and the Board of Directors of
the FHLB.  At December 31, 2004,  our  advances  from the FHLB  amounted to $3.0
billion,   or  43%  of  the  Company's  total  funding  sources   (deposits  and
borrowings).

     The FHLBs are required to contribute to affordable housing programs through
direct  loans or interest  rate  subsidies on advances  targeted  for  community
investment and low and moderate  income housing  projects.  These  contributions
have  adversely  affected the level of dividends that the FHLBs have paid to its
members.  These  contributions also could have an adverse effect on the value of
FHLB stock in the  future.  The  dividend  yield  earned on FHLB stock was 4.01%
during 2004 compared to 4.29% in 2003 and 5.45% in 2002.

     Financial  Services  Modernization  Legislation.  On November 12, 1999, the
Gramm-Leach-Bliley  Financial  Modernization  Act of 1999  (the  "GLB  Act") was
signed  into law.  The GLB Act made  significant  changes to the  operations  of
financial services companies,  including provisions affecting affiliations among
banks,  securities  firms and  insurance  companies,  the ability of  commercial
entities to obtain  thrift  charters,  the  confidential  treatment of nonpublic
personal  information about consumers,  and the Community  Reinvestment Act (the
"CRA", as discussed in more detail below).

     The GLB Act also  significantly  amended the Federal Home Loan Bank System,
by modifying  membership  requirements in regional FHLBs to permit membership to
be voluntary  for both thrift and bank  members.  The GLB Act changed  corporate
governance of the FHLBs by eliminating  the right of the Federal Housing Finance
Board to select the management of the local FHLBs,  and returning that authority
to the boards of directors of the FHLBs.  Additionally,  the  obligations of the
FHLBs to repay  federal  borrowings  to  finance  the  thrift  bailout  has been
restructured  from a fixed  dollar  amount to a fixed  percentage  of the FHLBs'
annual net income.

     There  continues  to be ongoing  discussions  in Congress as to whether the
regulator of the FHLBs should be changed and if so, to which regulatory  agency.
Recently,  the FHFB  required  the  FHLBanks to register a class of their equity
securities  with the SEC.  The FHFB also  recently  required all the FHLBanks to
submit a  "retained  earnings"  policy,  the  purpose  of which is to cause  the
FHLBanks to retain more of their earning versus paying dividends. Because of the
level of our borrowings  from the FHLB, the outcome of these changes will effect
the cost and availability of borrowings and the dividends we receive on our FHLB
stock.
                                       18
<PAGE>
     Savings and Loan Holding Company Regulations. The activities of savings and
loan holding  companies  are  governed by the Home Owners' Loan Act of 1933,  as
amended.   Pursuant  to  that  statute,   the  Company  is  subject  to  certain
restrictions with respect to its activities and investments.

     A savings and loan  holding  company,  like FFC,  which  controls  only one
savings  association,  is exempt from  restrictions  on the conduct of unrelated
business  activities  that are applicable to savings and loan holding  companies
that control more than one savings  association.  The  restrictions  on multiple
savings  and loan  holding  companies  are  similar to the  restrictions  on the
conduct of unrelated  business  activities  applicable to bank holding companies
under the Bank Holding  Company Act. The Company  would become  subject to these
restrictions if it were to acquire  control of another  savings  association and
maintain that association as a separate entity or if we were to fail to meet its
qualified thrift lender ("QTL") test. See "--Qualified Thrift Lender Test--"

     The OTS may impose  restrictions  when it has  reasonable  cause to believe
that the  continuation of any particular  activity by a savings and loan holding
company  constitutes  a  serious  risk to the  financial  safety,  soundness  or
stability of such holding company's savings institution.  Specifically,  the OTS
may,  as  necessary,   (i)  limit  the  payment  of  dividends  by  the  savings
institution;  (ii) limit  transactions  between the savings  institution and its
holding company or its affiliates; and (iii) limit any activities of the savings
institution  or the  holding  company  that  create  a  serious  risk  that  the
liabilities  of the holding  company may be imposed on the savings  institution.
Any such limits will be issued in the form of a directive having the effect of a
cease-and-desist order.

     Regulatory Capital  Requirements.  The capital  regulations of the OTS (the
"Capital  Regulations")  require federally insured institutions such as the Bank
to meet certain minimum capital requirements. See "--Management's Discussion and
Analysis of Consolidated Balance Sheets and Consolidated  Statements of Income -
Capital Resources and Liquidity - Capital Requirements--" The OTS may establish,
on a case-by-case basis,  individual minimum capital  requirements for a savings
institution  which vary from the  requirements  that would otherwise apply under
the Capital Regulations.

     The OTS has adopted rules based upon five capital tiers:  well-capitalized,
adequately capitalized,  undercapitalized,  significantly undercapitalized,  and
critically   undercapitalized.   An   institution   falls   into  one  of  these
classifications  depending primarily on its capital ratios. We are considered to
be "well-capitalized" for purposes of these capital measures.

     Insurance of Accounts.  The FDIC administers two separate deposit insurance
funds.  The Bank Insurance Fund ("BIF") insures the deposits of commercial banks
and other  institutions  that were insured by the FDIC prior to the enactment of
the  Financial  Institutions  Reform,  Recovery  and  Enforcement  Act  of  1989
("FIRREA").  The SAIF  insures the deposits of savings  institutions  which were
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC") prior to
the  enactment  of FIRREA.  Our  deposits  are insured by the SAIF.  The FDIC is
authorized  to  increase  deposit  insurance  premiums  if  it  determines  such
increases are appropriate to maintain the reserves of either the SAIF or the BIF
or to fund the  administration of the FDIC. In addition,  the FDIC is authorized
to levy emergency special assessments on BIF and SAIF members.

     The FDIC has  implemented a risk-based  assessment  system,  under which an
institution's  deposit insurance assessment is based on the probability that the
deposit  insurance fund will incur a loss with respect to the  institution,  the
likely amount of any such loss,  and the revenue needs of the deposit  insurance
fund.  Under  the  risk-based   assessment  system,  a  savings  institution  is
categorized into one of three capital categories:  well capitalized,  adequately
capitalized, and undercapitalized. A savings institution is also assigned to one
of three supervisory subgroup categories based on examinations by the OTS.

     The FDIC may terminate the deposit  insurance of any insured  depository if
the FDIC  determines,  after a hearing,  that the  institution has engaged or is
engaging in unsafe or unsound practices, is in an unsafe or unsound condition to
continue  operations or has violated any applicable law,  regulation or order or
any condition  imposed in writing by the FDIC. The FDIC may also suspend deposit
insurance  temporarily  during the  hearing  process if the  institution  has no
tangible  capital.  In  addition,  FDIC  regulations  provide  that any  insured
institution that falls below a 2% minimum leverage ratio will be subject to FDIC
deposit insurance  termination  proceedings  unless it has submitted,  and is in
compliance with, a capital plan with its primary federal regulator and the FDIC.

     Liquidity.  The OTS requires a savings  institution to maintain  sufficient
liquidity  to ensure its safe and sound  operation.  The  determination  of what
constitutes  safe and sound  operation is left to the  discretion of management.
For several  years it has been our strategy to keep cash and liquid  investments
at a modest level due to availability of substantial credit lines. Our liquidity
policy  includes  unused  borrowing  capacity  in the  definition  of  available
liquidity. Our current liquidity policy requires that cash and cash equivalents,
short-term  investments and unused borrowing capacity be maintained at a minimum
level of 10% of our  liquidity  base  (defined as deposits  and  borrowings  due
within one year).  At December  31,  2004,  liquidity-qualifying  balances  were
14.99% of our liquidity base.

                                       19
<PAGE>
     Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
each savings institution, as well as commercial banks and certain other lenders,
to identify the communities served by the institution's  offices and to identify
the  types of  credit  the  institution  is  prepared  to  extend  within  those
communities.   The  CRA  also  requires  the  OTS  to  assess  an  institution's
performance in meeting the credit needs of its identified communities as part of
its  examination  of  the  institution,   and  to  take  such  assessments  into
consideration in reviewing  applications  with respect to branches,  mergers and
other business combinations,  including acquisitions by savings and loan holding
companies.  An  unsatisfactory  CRA rating may be the basis for denying  such an
application and community groups have successfully protested applications on CRA
grounds.  In connection with its assessment of CRA performance,  the OTS assigns
CRA ratings of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." We were rated "satisfactory" in its last CRA examination,  which
was conducted in 2003.  Institutions  are evaluated based on: (i) performance in
lending in their  assessment  areas;  (ii) the  provision  of deposit  and other
community  services  in their  assessment  areas;  and (iii) the  investment  in
housing-related and other qualified community  investments.  An institution that
is found to be deficient in its  performance in meeting its  community's  credit
needs may be subject to enforcement  actions,  including cease and desist orders
and civil money penalties.

     Restrictions  on Dividends  and Other  Capital  Distributions.  Current OTS
regulations  require that savings  institutions  controlled  by savings and loan
holding companies (such as ourselves) file a 30-day advance notice of a proposed
capital  distribution.  The OTS may disapprove a notice if it finds that (a) the
savings association will be undercapitalized,  significantly undercapitalized or
critically undercapitalized following the distribution, (b) the proposed capital
distribution  raises  safety  and  soundness  concerns;   or  (c)  the  proposed
distribution  violates  a  prohibition  contained  in a statute,  regulation  or
agreement  between the savings  institution and the OTS (or FDIC) or a condition
imposed by an OTS approval. The regulations also require a 30-day advance notice
to be filed for proposed capital  distributions that would result in the savings
institution  being less than  well-capitalized  or that involve the reduction or
retirement of the savings  institution's  stock . During 2004 and 2002, the Bank
paid a total of $30.0  million  and  $20.0  million,  respectively,  in  capital
distributions to the Company. No capital  distributions were made to the Company
during 2003.

     Limits on Types of Loans and Investments.  Federal savings institutions are
authorized,  without quantitative limits, to make loans on the security of liens
upon residential real property and to invest in a variety of instruments such as
obligations of, or fully  guaranteed as to principal and interest by, the United
States;  stock or bonds of the FHLB;  certain mortgages,  obligations,  or other
securities  which have been sold by FHLMC or Fannie Mae; and certain  securities
issued by, or fully guaranteed as to principal and interest by, the Student Loan
Marketing Association and the Government National Mortgage Association.  Certain
other  types of loans or  investments  may be acquired  subject to  quantitative
limits:  secured or unsecured  loans for  commercial,  corporate,  business,  or
agricultural  purposes,  loans on the security of liens upon nonresidential real
property,   investments  in  personal  property,   consumer  loans  and  certain
securities such as commercial paper and corporate debt, and  construction  loans
without security.

     Savings institutions are subject to the same loans-to-one borrower ("LTOB")
restrictions that are applicable to national banks, with limited  provisions for
exceptions.  In general,  the national bank standard restricts loans to a single
borrower to no more than 15% of a bank's unimpaired capital and surplus, plus an
additional  10% if the loan is  collateralized  by  certain  readily  marketable
collateral. Our loans were within the LTOB limitations at December 31, 2004.

     Savings  institutions and their  subsidiaries are prohibited from acquiring
or retaining any corporate  debt security that, at the time of  acquisition,  is
not  rated  in one  of the  four  highest  rating  categories  by at  least  one
nationally recognized statistical rating organization.  We have no impermissible
investments in its investment portfolio.

     Safety  and  Soundness  Standards.  OTS  regulations  contain  "safety  and
soundness"  standards  covering  various  aspects of the  operations  of savings
institutions.  The  guidelines  relate to internal  controls and internal  audit
systems, information systems, loan documentation,  credit underwriting, interest
rate  exposure,  asset  growth,   executive  compensation,   maximum  ratios  of
classified  assets to capital,  and minimum  income  sufficient to absorb losses
without impairing capital.  If the OTS determines that a savings institution has
failed  to  meet  the  safety  and  soundness  standards,  it  may  require  the
institution to submit to the OTS, and thereafter  comply with, a compliance plan
acceptable to the OTS describing the steps the  institution  will take to attain
compliance  with the  applicable  standard and the time within which those steps
will be taken.

     Federal  regulations contain a number of measures intended to promote early
identification of management  problems at depository  institutions and to ensure
that regulators intervene promptly to require corrective action by institutions.
Our annual  management report on the effectiveness of internal control standards
and compliance  with certain  designated laws will be made available in March of
2005.

                                       20
<PAGE>
     Prompt  Corrective  Action.  The  "prompt  corrective  action"  regulations
require  insured  depository  institutions  to be  classified  into  one of five
categories   based   primarily  upon  capital   adequacy,   ranging  from  "well
capitalized"  to  "critically  undercapitalized".   These  regulations  require,
subject to certain  exceptions,  the appropriate  federal banking agency to take
"prompt  corrective  action"  with  respect  to  an  institution  which  becomes
"undercapitalized"  and to take additional  actions if the  institution  becomes
"significantly undercapitalized" or "critically undercapitalized".

     Only "well capitalized" institutions may obtain brokered deposits without a
waiver.  An "adequately  capitalized"  institution can obtain brokered  deposits
only if it receives a waiver from the FDIC.  An  "undercapitalized"  institution
may  not  accept  brokered  deposits  under  any   circumstances.   We  met  the
"well-capitalized"  standards  during 2004 and were eligible to accept  brokered
deposits without a waiver.

     Qualified Thrift Lender Test. In general, the QTL test requires that 65% of
an institution's  portfolio assets be invested in "qualified thrift investments"
(primarily loans, securities and other investments related to housing), measured
on a monthly  average basis for nine out of every 12 months on a rolling  basis.
Any savings institution that fails to meet the QTL test must either convert to a
bank charter or become subject to national bank-type  restrictions on branching,
business activities,  and dividends, and its ability to obtain FHLB advances. We
met the QTL test at  December  31,  2004,  with  98.1% of the  portfolio  assets
comprised of "qualified thrift investments".

     Transactions with Affiliates.  Federal savings  institutions are subject to
the provisions of Sections 23A and 23B of the Federal  Reserve Act.  Section 23A
restricts  loans or extensions of credit to, or investments in, or certain other
transactions with,  affiliates and as to the amount of advances to third parties
collateralized  by the  securities or  obligations  of  affiliates.  Section 23B
generally   requires   that   transactions   with   affiliates   must  be  on  a
non-preferential  basis. Federal savings institutions may not make any extension
of credit to an affiliate  which is engaged in activities  not permitted by bank
holding  companies,  and may not  invest in  securities  issued by an  affiliate
(except with respect to a subsidiary). The Company is an "affiliate" of the Bank
for the purposes of these provisions.

     Transactions with Insiders. Federal savings institutions are subject to the
restrictions of Sections 22(g) and (h) of the Federal  Reserve Act which,  among
other  things,  restrict the amount of extensions of credit which may be made to
executive  officers,  directors,  certain principal  shareholders  (collectively
"insiders"), and to their related interests. When lending to insiders, a savings
association  must  follow  credit  underwriting  procedures  that  are  no  less
stringent than those applicable to comparable  transactions with persons outside
the association. The amount that a savings association can lend in the aggregate
to insiders  (and to their  related  interests) is limited to an amount equal to
the  association's  core capital and surplus.  Insiders are also prohibited from
knowingly receiving (or knowingly permitting their related interests to receive)
any extensions of credit not authorized under these statutes.  All of the Bank's
loans to insiders are made in strict compliance with these regulations.

     Federal Reserve System.  Federal Reserve Board regulations  require savings
institutions to maintain non-interest bearing reserves against their transaction
accounts. The reserve for transaction accounts as of December 31, 2004 was 0% of
the first $7.0 million of such  accounts,  3% of the next $47.6  million of such
accounts and 10% (subject to adjustment by the Federal  Reserve Board between 8%
and 14%) of the  balance  of such  accounts.  We are in  compliance  with  these
requirements as of December 31, 2004.

     Taxation.  The Company,  the Bank and its subsidiaries  file a consolidated
federal income tax return on a calendar year basis using the accrual method. The
maximum marginal federal tax rate is currently 35%.

     We are required to use the specific charge-off method of accounting for bad
debts for Federal income tax purposes. Prior to 1995, we used the reserve method
of accounting  for bad debts.  The  Consolidated  Balance Sheets at December 31,
2004 and 2003 do not  include  a tax  liability  of  $5,356,000  related  to the
adjusted base year bad debt reserve that was created when we were on the reserve
method. The base year reserve is subject to recapture if: (1) we fail to qualify
as a "bank" for federal income tax purposes;  (2) certain distributions are made
with  respect to the stock of the Bank;  (3) the bad debt  reserves are used for
any purpose  other than to absorb bad debt  losses;  or (4) there is a change in
federal tax law. Management does not expect any of these events to occur.

     To the extent  that  distributions  by the Bank to the  Company  exceed our
cumulative  income and profits (as  computed for federal  income tax  purposes),
such  distributions  would be treated for tax  purposes as being made out of our
base year reserve and would thereby constitute taxable income to ourselves in an
amount  equal to the lesser of our base year reserve or the amount  which,  when
reduced by the amount of income tax attributable to the inclusion of such amount
in gross income,  is equal to the amount of such  distribution.  At December 31,
2004,  our  cumulative  income and profits (as computed  for federal  income tax
purposes) were approximately $530.3 million.

                                       21
<PAGE>
     We are  required  to use the  specific  charge-off  method  for  state  tax
purposes for all periods  beginning after 2002. Prior to 2002, we made additions
to our state tax bad debt  reserves in amounts  necessary  to "fill up" to a tax
reserve balance  calculated using the experience  method. A change in California
tax law during 2002  eliminated  the bad debt reserve  method for California tax
purposes  and  conformed  state tax law to  federal  tax law with  regard to the
method of accounting for bad debts used by banks. After a review of our bad debt
reserves by the California  Franchise Tax Board,  we recorded a reduction in tax
expense of  approximately  $1.6  million,  or $0.09 per  diluted  share,  net of
federal income tax expense in 2003.

     At December 31, 2004, we had $52.8 million in gross deferred tax assets. No
valuation  allowance was established because management believes that it is more
likely than not that the deferred tax assets will be  realized.  Gross  deferred
tax liabilities totaled $28.3 million at December 31, 2004.

     We are subject to an alternative minimum tax if such tax is larger than the
tax  otherwise  payable.  Generally,  alternative  minimum  taxable  income is a
taxpayer's  regular taxable  income,  increased by the taxpayer's tax preference
items for the year and  adjusted by  computing  certain  deductions  utilizing a
methodology  that negates the  acceleration of such deductions under the regular
tax. The adjusted  income is then reduced by an exemption  amount and is subject
to tax at a 20% rate. No alternative  minimum taxes were  applicable to the Bank
for tax years 2004, 2003 or 2002.

     California tax laws  generally  conform to federal tax laws. For California
franchise  tax  purposes,   federal   savings  banks  are  taxed  as  "financial
corporations"  at a  rate  2%  higher  than  that  applicable  to  non-financial
corporations  because of exemptions from certain state and local taxes.  The tax
rate for 2004, 2003 and 2002 was 10.84%.

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 2000.
The adjustments proposed by the IRS were primarily related to timing differences
as to the  recognition of certain  taxable  income and expense items.  While the
Company had  provided  for deferred  taxes for federal and state  purposes,  the
change in the period of recognition of certain income and expense items resulted
in  interest  due to the IRS and  the  Franchise  Tax  Board  ("FTB").  Interest
accruals  of  $260  thousand  and  $0  were  recorded   during  2004  and  2003,
respectively for interest on amended  returns.  During 2004,  interest  payments
totaling $252 thousand were paid in settlement  for tax years 1999 and 2000. The
balance of accrued  interest  payable for amended  returns was $408 thousand and
$400 thousand as of December 31, 2004 and December 31, 2003, respectively.

     Recent  Legislation.  On July 30, 2002,  President Bush signed into law the
Sarbanes-Oxley  Act of 2002  ("Sarbanes-Oxley"),  which implemented  legislative
reforms  intended to address  corporate  and  accounting  fraud.  Sarbanes-Oxley
contains reforms of various business practices and numerous aspects of corporate
governance.  While many of the  Sarbanes-Oxley  reforms  took effect in 2002,  a
large number of the provisions of Sarbanes-Oxley  were implemented upon adoption
of final rules and regulations during 2003 and 2004. Sarbanes-Oxley, among other
things,  places  additional  responsibilities  on  management  and the boards of
directors of public companies.  The Company has incurred and expects to continue
to incur costs associated with compliance with the provisions of  Sarbanes-Oxley
and other related changes to federal  securities and corporate  governance laws.
The Company  expects to experience  an increase in the cost of its  professional
fees,  including  but  not  limited  to,  accounting  and  compliance.  However,
management does not anticipate  that such compliance  costs will have a material
impact on the Company's balance sheets or statements of income.

     Financial  Privacy.  In  accordance  with  the  GLB  Act,  federal  banking
regulators  adopted  rules  that limit the  ability  of savings  banks and other
financial  institutions to disclose  non-public  information  about consumers to
nonaffiliated  third parties.  These limitations  require  disclosure of privacy
policies to consumers  and, in some  circumstances,  allow  consumers to prevent
disclosure of certain personal  information to a nonaffiliated  third party. The
privacy provisions of the GLB Act affect how consumer information is transmitted
through diversified financial companies and conveyed to outside vendors.

     Anti-Money Laundering Initiatives and the USA Patriot Act. A major focus of
governmental policy on financial  institutions in recent years has been aimed at
combating money laundering and terrorist financing.  The USA PATRIOT Act of 2001
(the "USA  Patriot  Act")  substantially  broadened  the scope of United  States
anti-money   laundering  laws  and  regulations  by  imposing   significant  new
compliance and due diligence obligations,  creating new crimes and penalties and
expanding the  extra-territorial  jurisdiction of the United States.  The United
States Treasury Department has issued a number of implementing regulations which
apply to various  requirements of the USA Patriot Act to financial  institutions
such as the Bank. These regulations impose obligations on financial institutions
to maintain appropriate policies, procedures and controls to detect, prevent and
report money  laundering  and terrorist  financing and to verify the identity of
their  customers.  Failure of a financial  institution to maintain and implement
adequate  programs to combat money  laundering  and terrorist  financing,  or to
comply with all of the relevant  laws or  regulations,  could have serious legal
and reputational consequences for the institution.

                                       22
<PAGE>
     Legislative  Initiatives.  From  time  to  time,  various  legislative  and
regulatory  initiatives  are introduced in Congress and state  legislatures,  as
well as by regulatory agencies. Such initiatives may include proposals to expand
or contract  the powers of savings and loan  holding  companies  and  depository
institutions  or proposals to  substantially  change the  financial  institution
regulatory  system.  Such  legislation  could  change  banking  statutes and the
operating  environment of the Company in substantial and unpredictable  ways. If
enacted, such legislation could increase or decrease the cost of doing business,
limit or expand permissible  activities or affect the competitive  balance among
banks, savings  associations,  credit unions, and other financial  institutions.
The Company cannot predict whether any such legislation will be enacted, and, if
enacted, the effect that it, or any implementing regulations,  would have on the
consolidated balance sheets or consolidated statements of income of the Company.
A change in statutes,  regulations or regulatory policies applicable to the Bank
could have a material effect on the business of the Company.

                                       23
<PAGE>
ITEM 2 -- PROPERTIES

     At December  31,  2004,  we owned the building and the land for nine of our
branch  offices,  owned the  building  but  leased  the land for two  additional
offices,  and leased our remaining offices.  Properties leased by us include our
corporate and  executive  offices  located in an office tower in downtown  Santa
Monica,  a general  services  and banking  operations  office  building in Santa
Monica  and  a  residential  lending  operations  office  in  Los  Angeles.  For
information  concerning  rental  obligations,   see  Note  6  of  the  Notes  to
Consolidated Financial Statements.

ITEM 3 -- LEGAL PROCEEDINGS

     The  Company is  involved  as a plaintiff  or  defendant  in various  legal
actions incident to its business, none of which are believed by management to be
material to the Company.

ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

                                     PART II

ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS

     (a) Market  Information.  The  Company's  common stock is traded on the New
York Stock Exchange  ("NYSE") under the symbol "FED".  Included in "Management's
Discussion  and  Analysis  of  Consolidated   Balance  Sheets  and  Consolidated
Statements  of Income" is a table  representing  the range of high and low stock
prices for the  Company's  common stock for each  quarterly  period for the last
five years.

     (b) Holders.  As of January 21, 2005,  16,498,754  shares of Company common
stock,  representing  approximately 721 stockholders were on record.  This total
does not  include  the number of  stockholders  whose  shares are held in street
name.

     (c) Dividends.  As a publicly traded company, the Company has no history of
dividend  payments on its common stock.  However,  the Company may in the future
adopt a policy of  paying  dividends,  depending  on its net  income,  financial
position  and capital  requirements,  as well as  regulatory  restrictions,  tax
consequences  and the ability of the Company to obtain a dividend  from the Bank
for payment to stockholders.  OTS regulations limit amounts that we can pay as a
capital distribution to the Company. No such distribution may be made if our net
worth falls below regulatory requirements. See "--Business - Summary of Material
Legislation and Regulations--" for other regulatory capital  distributions.  The
Board of Directors of the Bank  declared and paid to the Company  $30.0  million
and $20.0 million during 2004 and 2002,  respectively.  No capital distributions
to the Company were made during  2003.  The  distributions  made during 2004 and
2002 were for the purpose of repurchasing shares of Company common stock.

     (d) Securities  authorized for issuance  under equity  compensation  plans.
Information  appearing on page 11 of the Proxy Statement is incorporated  herein
by reference.

                                       24
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA

        Selected financial data for the Company is presented below:

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                  FIVE YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
                                          2004           2003          2002           2001           2000
                                       ----------     ----------    -----------    -----------    ----------
                                                   (Dollars in thousands, except per share data)
<S>                                 <C>           <C>            <C>            <C>            <C>
For the Year Ended December 31:
  Interest income...................$    262,722  $     235,881  $    263,878   $    333,932   $    314,320
  Interest expense..................     101,190         88,342       128,419        201,754        206,505
  Net interest income...............     161,532        147,539       135,459        132,178        107,815
  Provision for loan losses.........       3,000             --            --             --             --
  Other income......................      21,296         16,741        18,074          8,919          7,747
  Non-interest expense..............      66,372         55,589        58,212         53,174         48,265
  income before income taxes........     113,456        108,691        95,321         87,923         67,297
  Income taxes......................      47,614         44,216        40,149         37,621         28,832
  Net income........................      65,842         64,475        55,172         50,302         38,465
Basic earnings per share............        3.95           3.80          3.22           2.92           2.23
Dilutive earnings per share.........        3.85           3.70          3.15           2.85           2.20
End of Year:
  Loans receivable, net (1).........   6,837,945      4,374,112     3,769,235      4,004,889      3,629,284
  Mortgage-backed securities, at
    fair value......................      97,059        135,176       200,585        284,079        374,405
  Investment securities, at fair
     value..........................     250,586        116,411       103,055        110,444        136,537
  Total assets......................   7,468,983      4,825,022     4,253,729      4,726,289      4,365,242
  Deposits..........................   3,761,165      2,538,398     2,527,026      2,546,647      2,165,047
  Borrowings........................   3,191,600      1,816,622     1,322,273      1,808,040      1,873,110
  Liabilities.......................   6,991,509      4,388,455     3,882,088      4,400,611      4,097,800
  Stockholders' equity..............     477,474        436,567       371,641        325,678        267,442
  Book value per share..............       28.94          25.61         21.95          18.88          15.52
  Tangible book value per share.....       28.62          25.18         21.40          18.14          14.98
Selected Ratios:
  Return on average assets..........        1.12%          1.43%         1.24%          1.10%          0.93%
  Return on average equity..........       14.54%         15.97%        15.82%         16.93%         15.85%
  Ratio of non-performing
     assets to total assets.........        0.07%          0.10%         0.17%          0.17%          0.19%
  Effective net spread..............        2.78%          3.35%         3.09%          2.90%          2.57%
   Ratio of non-interest expense to
   average assets...................        1.13%          1.24%         1.31%          1.17%          1.30%
Other Data:
 Number of retail banking offices...          29             29            29             29             25
 Number of lending only offices.....

Number of lending only offices                 4              2             2              2              2
(1)  Includes loans held for sale.

     Also see  summarized  results of operations on a quarterly  basis for 2004,
2003 and 2002 in Note 15 of the Notes to Consolidated Financial Statements.
</TABLE>
                                       25
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIATED BALANCE SHEETS
                 AND CONSOLIDATED STATEMENTS OF INCOME

                          CRITICAL ACCOUNTING POLICIES

     The  discussion and analysis of the balance sheets and statements of income
are based upon the consolidated  financial statements,  which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to
make  estimates  and  judgments  that affect the reported  amounts of assets and
liabilities at the date of the financial  statements.  Actual results may differ
from these estimates under different assumptions or conditions.

     Accounting  for  the  allowances  for  loan  losses  involves   significant
judgments  and  assumptions  by management  which have a material  impact on the
carrying value of net loans receivable.  Management considers the accounting for
loan valuation  allowances to be a critical accounting policy. The judgments and
assumptions  used by  management  are based on historical  experience  and other
factors,  which are believed  reasonable under the circumstances as described in
the "Business - Loan Loss Allowance" section.

     The majority of our  residential  loans are obtained  from  wholesale  loan
brokers.  Loan origination  costs for residential  loans obtained from wholesale
loan brokers will  generally  include fees paid to those  brokers,  resulting in
loan  origination  costs  exceeding  loan  fees  received.   These  excess  loan
origination  costs re  amortized  as an  adjustment  of loan yield  based on the
expected  lives of the related  loans,  including an estimate of the  prepayment
speeds on the portfolio.

                             RISKS AND UNCERTAINTIES

     In the normal course of business,  the Company  encounters two  significant
types of risk: economic risk and regulatory risk.

                                  ECONOMIC RISK

     There are three main components of economic risk:  credit risk,  collateral
risk and market risk (which includes interest rate risk).

Credit Risk

     Credit risk is the risk of default in the  Company's  loan  portfolio  that
results from a borrower's inability to make contractually required payments. See
"--Loss Provision--" and "--Non-performing Assets--"

     The  determination  of the  allowance  for loan losses and the valuation of
real estate collateral are based on estimates that are susceptible to changes in
the economic environment and market conditions.  We recorded a $3.0 million loss
provision during 2004. No loan loss provisions were recorded in 2003 and 2002. A
downward turn in the current  economic  climate could increase the likelihood of
losses due to credit risks.  This could create the need for additional loan loss
provisions above those required for loan growth.

Collateral Risk

     Collateral  risk is the  risk  that  the  collateral  securing  our  loans,
primarily  real estate,  declines in value.  A downward  turn in the real estate
market could  increase the likelihood of losses if the loan exceeds the value of
the collateral. This could create the need for additional loan loss provisions.

Market Risk

     Market risk is the risk of loss from  unfavorable  changes in market prices
and interest rates. Our market risk arises primarily from the interest rate risk
inherent  in its  lending  and deposit  taking  activities.  Should  there be an
economic or market downturn or if market interest rates increase  significantly,
we could  experience  a  material  increase  in the level of loan  defaults  and
charge-offs.

     See  "--Asset-Liability  Management--" in  "--Quantitative  and Qualitative
Disclosures About Market Risk--" for additional  information  relating to market
risk.

                                       26
<PAGE>
                                 REGULATORY RISK

     Regulatory risk is the risk that  regulations will change or the regulators
will  reach  different  conclusions  than  management  regarding  the  financial
position of the Company.  The OTS examines our financial results  annually.  The
OTS  reviews  the  allowance  for loan  losses and may  require us to adjust the
allowance based on information available at the time of their examination.

                                   OTHER RISKS
Inflation

     Inflation  substantially  impacts the financial  position and operations of
financial intermediaries, such as banks and savings institutions. These entities
primarily  hold monetary  assets and  liabilities  and, as such,  can experience
significant  purchasing  power gains and losses over relatively short periods of
time. In addition,  interest rate changes during inflationary periods change the
amounts  and   composition   of  assets  and   liabilities   held  by  financial
intermediaries  and could  result in  regulatory  pressure  for  increasing  our
capital.

Pending Lawsuits

     We have been named as a  defendant  in various  lawsuits,  none of which is
expected to have a materially adverse effect on the Company.
                                    OVERVIEW

     Our  results of  operations  are  primarily  affected  by our levels of net
interest income, provisions for loan losses,  non-interest income,  non-interest
expense and income taxes. Our results are strongly  influenced by the California
economy  in which we  operate  and the  direction  and level of  general  market
interest rates.

     Net income of $65.8  million or $3.85 per  diluted  share were  recorded in
2004, compared to net income of $64.5 million or $3.70 per diluted share in 2003
and net income of $55.2 million or $3.15 per diluted share in 2002.

     Net income  increased from 2003 to 2004 due to higher net interest  income,
higher prepayment fees and a $5.4 million reduction in the repurchase  liability
for loans sold with  recourse.  Operating  expenses  increased  primarily due to
costs associated with loan originations. The increase in net income from 2002 to
2003 was primarily due to higher net interest income, higher prepayment fees and
lower operating expenses due to a reduction in legal costs. In addition,  during
2003, there was a $1.6 million  reduction in net tax provision  resulting from a
change in the California tax law relating to bad debts.

     Consolidated  assets at the end of 2004 were $7.5 billion,  representing  a
55% increase  from $4.8 billion at the end of 2003 and a 76% increase  from $4.3
billion at the end of 2002.  The increase in assets during 2004 is  attributable
to increased loan origination  activity.  Loan originations totaled $3.9 billion
in 2004, $2.3 billion in 2003 and $1.3 billion in 2002.

     The Company  recorded $3.0 million in loan loss  provision in 2004. No loss
provision was recorded in 2003 or 2002. We recorded net loan  recoveries of $437
thousand,   $15  thousand  and  $950  thousand   during  2004,  2003  and  2002,
respectively.

        Certain key financial ratios for the Company are presented below:
<TABLE>
                                                    Year Ended December 31,
                                              ----------------------------------
                                                                        Average
                                              Return on   Return on    Equity to
                                               Average     Average      Average
                                               Assets       Equity      Assets
                                              ---------   ---------   ----------
<S>                                           <C>         <C>         <C>
2004.....................................         1.12%      14.54%       7.69%
2003.....................................         1.43       15.97        8.98
2002.....................................         1.24       15.82        7.83
2001.....................................         1.10       16.93        6.52
2000.....................................          .93       15.85        5.85
</TABLE>
     Non-performing  assets  (primarily loans 90 days past due or in foreclosure
plus  foreclosed  real  estate)  were $5.0 million or .07% of total assets as of
December  31,  2004  compared  to $4.7  million  or 0.10% of total  assets as of
December  31, 2003 and $7.0  million or 0.17% of total  assets at  December  31,
2002.  The  decrease in  non-performing  assets over the last  several  years is
attributable  to lower  balances  of  delinquent  loans and the  strength of the
California real estate market. See --"Non-Performing Assets--"

                                       27
<PAGE>
     As of February 1, 2005,  1,472,079  shares remain  eligible for  repurchase
under the  Company's  authorized  repurchase  program.  The Company  repurchased
common shares totaling  696,900,  33,800 and 353,000 during 2004, 2003 and 2002,
respectively.

     At December 31, 2004 our regulatory risk-based capital ratio was 11.96% and
our tangible and core capital ratios were 5.99%.  We met the regulatory  capital
standards  necessary to be deemed  "well-capitalized"  at December 31, 2004. See
--"Capital Requirements--"
                              COMPONENTS OF INCOME
Net Interest Income

     Net  interest  income is the primary  component  of our  income.  The chief
determinants of net interest  income are the dollar amounts of  interest-earning
assets and  interest-bearing  liabilities  and the interest rates earned or paid
thereon. The greater the excess of average  interest-earning assets over average
interest-bearing  liabilities,  the more  beneficial  the impact on net interest
income.   The   excess  of  average   interest-earning   assets   over   average
interest-bearing  liabilities was $292.3 million in 2004, $262.9 million in 2003
and $229.2 million in 2002.

     Our net  interest  income is impacted  by a time lag before  changes in the
cost of funds can be passed  along to monthly  adjustable  rate loan  customers.
Savings  and  borrowing  costs  adjust to market  rates  quickly  while it takes
several  months  for loan  yields to  adjust.  This time lag  decreases  our net
interest  income during periods of rising  interest  rates.  The reverse is true
during periods of declining interest rates. See "--Asset-Liability Management--"
in "--Quantitative and Qualitative  Disclosures About Market Risk--" for further
discussion.

     The following  table sets forth the components of  interest-earning  assets
and liabilities,  the excess of  interest-earning  assets over  interest-bearing
liabilities,  the yields  earned and rates paid and net interest  income for the
periods indicated:
<TABLE>
                                                                 Year Ended December 31,
                                                            ------------------------------------
                                                              2004          2003          2002
                                                            ---------    ----------    ---------
                                                                  (Dollars in thousands)
<S>                                                      <C>          <C>           <C>
Average loans and mortgage-backed securities (1).......  $  5,325,910 $  4,194,404  $  4,091,852
Average investment securities..........................       252,708      113,624       172,996
                                                            ---------    ---------     ---------
Average interest-earning assets........................     5,578,618    4,308,028     4,264,848
                                                            ---------    ---------     ---------

Average deposits.......................................     2,968,757    2,515,471     2,517,366
Average borrowings.....................................     2,317,518    1,529,630     1,518,283
                                                            ---------    ---------     ---------
Average interest-bearing liabilities...................     5,286,275    4,045,101     4,035,649
                                                            ---------    ---------     ---------
Excess of interest-earning assets over interest-bearing
liabilities............................................  $    292,343 $    262,927  $    229,199
                                                            =========    =========     =========

Yields earned on average interest-earning assets.......          4.59 %       5.40 %        6.08 %
Rates paid on average interest-bearing liabilities.....          1.91         2.18          3.16
Interest rate spread...................................          2.68         3.22          2.92
Effective net spread...................................          2.78         3.35          3.09

Total interest income..................................  $    256,059 $    232,634  $    259,303
Total interest expense.................................       100,968       88,183       127,526
                                                            ---------    ---------     ---------
                                                              155,091      144,451       131,777
Total other income (2).................................         6,441        3,088         3,682
                                                            ---------    ---------     ---------
Net interest income....................................  $    161,532 $    147,539  $    135,459
                                                            =========    =========     =========
</TABLE>
      (1) Non-accrual loans are included in the average dollar amount of loans
          outstanding; however, no income is included for the period that each
          such loan was on non-accrual status.
      (2) Includes dividends on FHLB stock and other miscellaneous items.

     Our interest  rate spread  decreased by 54 basis points in 2004 compared to
2003 as the yield on earning  assets  declined by 81 basis points while the cost
of funds  fell by only 27 basis  points.  The  yield on the loan  portfolio  was
impacted by lower  interest  rates from 2003 and early  2004.  The rates paid on
savings  and  borrowings  also  decreased  in 2004  compared  to 2003,  but they
decreased  to a lesser  extent  because  they were more  impacted by  increasing
interest rates throughout most of 2004.

     Our interest  rate spread  increased by 30 basis points in 2003 compared to
2002 as the yield on earning  assets  declined by only 68 basis points while the
cost of funds fell by 98 basis points due to the  declining  short term interest
rates  throughout the year. The time lag inherent in our adjustable  real estate
loan portfolio ranges from one to three months.

                                       28
<PAGE>
     The table below sets forth  certain  information  regarding  changes in our
interest  income  and  interest  expense  for the  periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in average  balance  multiplied  by old rate) and (ii) changes in rates
(changes in rate multiplied by prior year average balance):
<TABLE>
                                    Year Ended December 31, 2004         Year Ended December 31, 2003
                                                Versus                               Versus
                                           December 31, 2003                    December 31, 2002
                                    --------------------------------     -------------------------------
                                             Change Due To                        Change Due To
                                    --------------------------------     -------------------------------
                                     Volume       Rate       Total       Volume       Rate       Total
                                    --------    --------    --------     -------    --------    --------
                                                               (In thousands)
<S>                              <C>         <C>         <C>         <C>         <C>         <C>
Interest Income:
  Loans and mortgage-backed
    securities................... $  56,132  $  (37,250) $   18,882  $     6,163 $  (29,014) $  (22,851)
  Investments....................     3,728         815       4,543       (1,770)    (2,048)     (3,818)
                                    --------    --------    --------     -------    --------    --------
    Total interest income........    59,860     (36,435)     23,425        4,393    (31,062)    (26,669)
                                    --------    --------    --------     -------    --------    --------
Interest Expense:
  Deposits.......................     6,647      (3,446)      3,201          (46)   (21,822)    (21,868)
  Borrowings.....................    21,531     (11,947)      9,584          496    (17,971)    (17,475)
                                    --------    --------    --------     -------    --------    --------
    Total interest expense.......    28,178     (15,393)     12,785          450    (39,793)    (39,343)
                                    --------    --------    --------     -------    --------    --------

    Change in net interest income $  31,682  $  (21,042)     10,640  $     3,943 $    8,731      12,674
                                    ========    ========    --------     =======    ========    --------
Change in other items (1)........                             3,353                                (594)
                                                            --------                            --------
Total change in net interest
  Income including other items...                        $   13,993                          $   12,080
                                                            ========                            ========
 (1) Includes dividends on FHLB stock and other miscellaneous items.
</TABLE>
Note:Changes in rate/volume  (change in rate multiplied by the change in average
     volume)  have been  allocated to the change in rate or the change in volume
     based upon the respective percentages of the combined totals.
<TABLE>
                                            Interest Rate Spreads and Effective Net Spreads
                                                        Year Ended December 31,
                         -------------------------------------------------------------------------------------
                              2004              2003              2002             2001               2000
                         --------------    --------------   ---------------   --------------    --------------
                         During  End of    During  End of   During   End of   During   End of   During   End of
                         Period  Period    Period  Period   Period   Period   Period   Period   Period   Period
                         -----    -----    -----   ------   ------   ------   ------   -----    -----    -----
<S>                     <C>      <C>      <C>      <C>      <C>     <C>       <C>      <C>      <C>      <C>
Weighted average
  yield on loans and
  mortgage-backed
  securities.........     4.68%   4.98%     5.49%  5.09%     6.18%    5.98%    7.61%    6.57%    7.85%    8.15%
Weighted average
  yield on
  investment
  portfolio (1)......     2.79    2.62      2.20   2.64      3.65     4.41     5.16     3.52     6.11     5.63
Weighted average
  yield on all
  interest-earning
  assets.............     4.59    4.89      5.40   5.02      6.08     5.94     7.50     6.40     7.77     8.04
Weighted average
  rate paid on
  deposits...........     1.42    1.65      1.55   1.29      2.42     1.98     4.08     3.02     4.70     4.90
Weighted average
  rate paid on
  borrowings and
  FHLB advances......     2.53    2.57      3.21   2.76      4.39     3.63     5.67     4.74     6.29     6.46
Weighted average
  rate paid on all
  interest-bearing
  liabilities........     1.91    2.07      2.18   2.12      3.16     2.54     4.79     3.73     5.40     5.62
Interest rate spread
  (2)................     2.68    2.82      3.22   2.90      2.92     3.40     2.71     2.67     2.37     2.42
Effective net spread
  (3)................     2.78              3.35             3.09              2.90              2.57

  (1) Dividends on FHLB stock and miscellaneous interest income were not
      considered in this analysis.
  (2) Weighted average yield on all interest-earning assets less weighted
      average rate paid on all interest-bearing liabilities.
  (3) Net interest income (excluding dividends on FHLB stock and other
      miscellaneous items) divided by average interest-earning assets.
</TABLE>
                                       29
<PAGE>
Loss Provision

     The Company  recorded $3.0 million in loan loss provision  during 2004. The
loan loss  provision  was  attributable  to the  significant  growth in the loan
portfolio. The Company did not record any provision for loan loss during 2003 or
2002. No provision was recorded during 2003 and 2002 because,  based on analysis
performed by management,  existing  allowances  were  sufficient to cover credit
risks inherent in the loan portfolio. Non-performing assets were $5.0 million at
December 31, 2004 compared to $4.7 million at December 31, 2003 and $7.0 million
at December  31,  2002.  We have a policy of  providing  for  general  valuation
allowances,  unallocated  to any specific loan, but available to offset any loan
losses.  The  allowance  is  maintained  at an amount that  management  believes
adequate to cover estimable and probable loan losses. The Company also maintains
valuation  allowances  for  impaired  loans and loans  sold with  recourse.  See
"--Business  -  Loan  Loss   Allowance--"   Management   performs  regular  risk
assessments of our loan portfolio to maintain appropriate  valuation allowances.
Additional loan loss  provisions may be required to the extent that  charge-offs
are recorded  against the valuation  allowance for impaired  loans,  the general
valuation allowance, or the repurchase liability for loans sold with recourse.

     The Company  recorded net loan recoveries of $437 thousand during 2004, $15
thousand during 2003 and $950 thousand during 2002. The recoveries resulted from
cash payments by borrowers on loans that had been previously charged-off.

Non-interest Income

     Loan  servicing  and other fees were $9.5 million in 2004  compared to $8.0
million in 2003 and $4.3  million in 2002.  The  increase  in fees  during  2004
compared to 2003 was primarily due to an increase in loan prepayment  fees. Loan
prepayment  fees grew to $8.0 million in 2004  compared to $6.0 million in 2003,
because a greater  number of loans subject to  prepayment  fees were paid off by
borrowers.

     Banking  service fees were $5.6 million in 2004 compared to $5.1 million in
2003 and $4.6 million in 2002.  The increase in these fees is due to an increase
in fee-generating deposit accounts.

     Gain on sale of loans was $5.4  million in 2004,  $2.4  million in 2003 and
$7.8 million in 2002.  Loan sales were $3.3  million,  $86.1  million and $134.2
million during 2004, 2003 and 2002, respectively. The gain realized on cash loan
sales was $34 thousand,  $944 thousand and $1.9 million in 2004,  2003 and 2002,
respectively.  Cash gains  fluctuate  due to changes in market  pricing based on
interest  rate trends.  Also,  the dollar  amount of loans  originated  for sale
varies  based on the  availability  of  attractive  fixed rate loan  programs to
borrowers  compared to our adjustable  rate loan  programs.  In addition to cash
gains,  gain on sale of loans  includes  adjustments  from prior  years'  sales.
During  2004,  we  revised  our  current  estimate  of the  required  repurchase
liability  for loans sold with recourse from $5.4 million to $0. During 2003, we
revised our current estimate of the required repurchase liability for loans sold
with recourse from $ 6.9 million to $5.4 million.  This reduced liability amount
reflects  the fact  that the  portfolio  of loans  sold with  recourse  has been
experiencing  significant  pay-offs,  and has had better credit  experience than
previously estimated. As a result, included in gain on sale of loans for 2004 is
a $5.4  million  adjustment  to our  repurchase  liability  for loans  sold with
recourse and 2003  results  include an  adjustment  of $1.5  million.  We do not
expect to incur any future losses on loans sold with recourse.

     Real estate  operations  resulted  in a net gain of $308  thousand in 2004,
$780 thousand in 2003 and $339 thousand in 2002. Real estate operations  include
gain on sale of foreclosed properties, operational income and expense during the
holding period, and recoveries of prior losses on real estate sold.

Non-interest Expense

     The ratio of  non-interest  expense to average  total  assets was 1.13% for
2004,  1.24% for 2003 and 1.31% for 2002.  The decrease  during 2004 compared to
2003 is due to an increase in average  total  assets.  The decrease  during 2003
compared to 2002 is the result of lower legal costs.

     Salary and benefit costs  increased 22% in 2004 compared to 2003  primarily
due to higher  compensation and incentive costs  attributable to our significant
loan growth and the additional staffing of our business banking unit. Salary and
benefit  costs  increased 3% in 2003  compared to 2002  primarily  due to normal
salary adjustments and incentive costs.

     Occupancy expense increased 6% in 2004 compared to 2003 due to expansion of
our loan  divisions  in Southern  and  Northern  California.  Occupancy  expense
decreased 5% in 2003 compared to 2002 due to a reduction in depreciation expense
for certain assets that became fully depreciated in 2003.

     Other  operating costs increased 34% in 2004 compared to 2003 due to higher
operating costs (delivery, telephone and supplies) associated with the expansion
of our loan divisions.

                                       30
<PAGE>
     The following table details the components of non-interest  expense for the
periods indicated:
<TABLE>
                                                               Non-Interest Expense
                                                              Year Ended December 31,
                                          ---------------------------------------------------------------
                                             2004        2003          2002          2001          2000
                                          ---------    ---------    ----------    ----------    ---------
                                                                (Dollars in thousands)
<S>                                    <C>          <C>          <C>           <C>           <C>
Salaries and Employee Benefits:
     Salaries..........................$    25,992  $    21,565  $    20,984   $    18,119   $   17,354
     Incentive compensation............      4,217        3,480        3,122         2,472        1,987
     Payroll taxes.....................      2,334        1,883        1,827         1,652        1,486
     Employee benefit insurance........      1,629        1,016        1,386         1,203        1,320
     Bonus compensation................      1,500        1,275        1,500         1,500          920
     Profit sharing....................      2,530        2,030        2,024         2,020        1,778
     SERP..............................      1,381        1,287        1,161           970          906
     401(k)............................        500          540          310           356          354
     Other salaries and benefits.......        824          408          313         1,390          339
                                          ---------    ---------    ---------    ----------    ---------
                                            40,907       33,484       32,627        29,682       26,444
                                          ---------    ---------    ---------    ----------    ---------
Occupancy:
     Rent..............................      4,836        4,690        4,673         4,439        4,539
     Equipment.........................      1,826        1,378        1,836         1,971        2,318
     Maintenance costs.................        861          904          879           914          571
     Other occupancy...................      1,168        1,199        1,169           978          603
                                          ---------    ---------    ---------    ----------    ---------
                                             8,691        8,171        8,557         8,302        8,031
                                          ---------    ---------    ---------    ----------    ---------
Other Operating Expense:
     Insurance.........................        746          648          690           582          541
     Amortization of core deposit
       intangible......................      1,995        1,995        1,962         1,564        1,965
     Data processing...................      2,587        2,905        2,838         2,490        2,488
     Contributions.....................        502          409          363           450          518
     Professional services.............        292          201          195           207          301
     Legal expenses....................      1,686        1,103        2,888         1,393          632
     OTS assessments...................        751          667          708           653          568
     Federal deposit insurance premiums        388          394          438           418          538
     Other operating costs.............      7,122        5,297        5,568         5,633        4,822
                                          ---------    ---------    ---------    ----------    ---------
                                            16,069       13,619       15,650        13,390       12,373
                                          ---------    ---------    ---------    ----------    ---------
Advertising............................        705          315        1,378         1,800        1,417
                                          ---------    ---------    ---------    ----------    ---------
  Total................................$    66,372  $    55,589  $    58,212   $    53,174   $   48,265
                                          =========    =========    =========    ==========    =========
Non-interest expense as
    % of average assets................       1.13%        1.24%        1.31%         1.17%        1.17%
                                          =========    =========    =========    ==========    =========
</TABLE>
                                       31
<PAGE>
                             BALANCE SHEET ANALYSIS

     Consolidated  assets at the end of 2004 were $7.5 billion,  representing  a
55% increase  from $4.8 billion at the end of 2003 and a 76% increase  from $4.3
billion at the end of 2002.  The increase in assets during 2004 is  attributable
to increased loan origination  activity.  Loan originations totaled $3.9 billion
in 2004, $2.3 billion in 2003 and $1.3 billion in 2002.  Principal repayments on
loans  totaled $1.4  billion  during  2004,  $1.7  billion  during 2003 and $1.5
billion during 2002.

Real Estate Loan Portfolio

     At the end of 2004, 45% of our loans had adjustable interest rates based on
monthly  changes  in the CODI,  24% were  based on the 12MAT  Index and 19% were
based on the COFI index. As part of our asset-liability  management strategy, we
have  maintained a high level of  adjustable  loans in our portfolio for several
years. During 2004, we focused on marketing  adjustable loans based on the CODI.
At  December  31,  2004,  CODI  loans  comprised  69% of the loan  originations.
Management  believes that the high level of adjustable  rate mortgages will help
insulate us from  fluctuations  in interest rates,  notwithstanding  the several
month time lag between a change in its monthly cost of funds and a corresponding
change in its loan yields. See "--Asset - Liability Management--"

     We also originate  adjustable  rate loans with initial fixed interest rates
with  periods  ranging from 3 to 10 years.  By policy,  we will either match the
fixed rate period of these loans with  borrowings for the same term or will hold
unmatched fixed rate loans in its portfolio up to 5% of total assets. Management
believes  that the limited  origination  of these hybrid  fixed-rate  loans will
enhance the Company's overall return on assets.  However, loans originated under
the hybrid  programs  totaled $4.5 million in 2004 compared to $434.3 million in
2003 and  $419.7  million  in 2002  because  management  decided to focus on the
origination of monthly adjustable loans.

The following table summarizes loan  originations and purchases by loan type for
the periods indicated:
<TABLE>
                                                                 Loan Originations and
                                                                 Purchases by Loan Type
                                                                Year ended December 31,
                                                           -----------------------------------
                                                              2004        2003        2002
                                                           -----------  ---------- -----------
                                                                     (In thousands)
<S>                                                      <C>          <C>         <C>
      Fixed.............................................. $    19,609 $    64,120 $   110,154
      Hybrid.............................................       4,484     434,314     419,690

     Adjustable:
      12MAT..............................................     988,123     817,217     303,443
      CODI...............................................   2,678,739     745,507      20,082
      COFI...............................................     109,331     158,868     383,852
      LIBOR..............................................       9,832       2,350      20,887
      Prime..............................................      70,691      53,154      30,664
                                                           ----------  ----------  ----------
         Total........................................... $ 3,880,809 $ 2,275,530 $ 1,288,772
                                                           ==========  ==========  ==========
</TABLE>
                                       32
<PAGE>
     The  following  table  details  loan  originations  and loan  purchases  by
property type for the periods indicated:
<TABLE>
                                       Loan Originations and Purchases by Property Type
                                                    Year Ended December 31,
                                 ------------------------------------------------------------
                                   2004          2003        2002         2001         2000
                                 ---------    ---------   ---------    ---------   ----------
                                                        (In thousands)
<S>                           <C>          <C>           <C>        <C>          <C>
Single family (one-to-four
 units)....................... $ 3,095,010 $  1,712,584 $   728,309  $   912,974 $   658,808
Multi-family..................     647,326      470,426     441,407      407,458     333,466
Commercial real estate........      66,010       35,237      84,050      150,735      70,807
Commercial business loans.....      43,226       31,581      17,572       16,172      11,759
Other.........................      29,237       25,702      17,434       14,996       6,170
                                 ---------    ---------   ---------    ---------   ---------
Total......................... $ 3,880,809 $  2,275,530 $ 1,288,772  $ 1,502,335 $ 1,081,010
                                 =========    =========   =========    =========   =========
</TABLE>
     No loans were originated upon the sale of real estate owned during 2004 and
2003.  Loans originated upon the sale of real estate owned totaled $375 thousand
during 2002.

     Our loan  products  may  provide  for  initial  monthly  payments  that are
calculated based on pay rates that are lower than the fully-indexed interest and
principal  due. Any interest not fully paid by such lower first year payments is
added  to the  principal  balance  of the  loan.  This,  as well  as  shortfalls
resulting from a 7.5% annual payment cap,  causes  negative  amortization  until
payments increase to cover interest and principal repayment  shortfalls.  Due to
negative amortization,  loan-to-value ratios may increase above those calculated
at the inception of the loan.

     We do not normally lend in excess of 90% of the appraised  collateral value
on adjustable mortgage loans ("AMLs").  Where we do lend in excess of 90% of the
appraised value,  additional fees and rates are charged.  Mortgage  insurance is
required on loans in excess of 80% or premium  rates  and/or fees are charged if
the mortgage insurance requirement is waived. Subsequent to the origination of a
loan,  we may purchase  private  mortgage  insurance  with our own funds.  Loans
originated  with an  initial  loan-to-value  greater  than 80%  with no  private
mortgage  insurance  totaled  $812.7  million at December  31, 2004  compared to
$486.7 million at December 31, 2003 and $159.7 million at December 31, 2002. See
"--Business - Interest Rates, Terms and Fees--"

Loan Composition

     Loans based on the security of single-family properties (one-to-four units)
comprise the largest  category of our loan  portfolio.  The loan  portfolio also
includes loans secured by multi-family and commercial and industrial properties.
At December  31,  2004,  67% of the loan  portfolio  consisted of first liens on
single-family  properties while first liens on multi-family  properties were 27%
of the portfolio, and first liens on commercial properties represented 5% of the
portfolio.  Commercial business loans,  construction  loans,  consumer loans and
other loans  comprised  the  remaining 1% of the loan  portfolio at December 31,
2004.

                                       33
<PAGE>

     The following  table sets forth the  composition  of our portfolio of loans
and mortgage-backed securities at December 31, for each of the last five years:
<TABLE>
                                                              December 31,
                                       -----------------------------------------------------------
                                          2004        2003         2002         2001        2000
                                       ---------    --------     --------    ---------   ---------
                                                             (In thousands)
<S>                                 <C>          <C>         <C>           <C>         <C>
REAL ESTATE LOANS
First trust deed residential loans:
   One-to-four units................$  4,585,962 $  2,456,971 $  1,723,690  $ 2,121,899 $ 2,158,940
   Five or more units...............   1,825,564    1,547,771    1,646,430    1,525,749   1,308,440
                                       ---------    ---------    ---------   ---------    ---------
       Residential loans............   6,411,526    4,004,742    3,370,120    3,647,648   3,467,380

OTHER REAL ESTATE LOANS
   Commercial and industrial........     324,805      345,273      419,273      358,159     217,619
   Construction.....................      20,902        9,053        6,927       38,060          --
   Land.............................          --           --          203        1,481          --
   Second trust deeds...............       5,466        7,281        5,965        9,472       8,543
                                       ---------    ---------    ---------   ----------   ---------
    Real estate loans...............   6,762,699    4,366,349    3,802,488    4,054,820   3,693,542

 NON-REAL ESTATE LOANS
   Manufactured housing.............          --           --           --           --         391
   Deposit accounts.................         491          649        1,185        1,267         576
   Commercial business loans........      58,869       34,424       19,582       18,882      12,600
   Consumer loans...................      60,677       49,738       35,395       19,546       6,555
                                       ---------     --------     --------    ---------   ---------
    Loans receivable................   6,882,736    4,451,160    3,858,650    4,094,515   3,713,664

LESS:
   General valuation allowance......      78,675       75,238       75,223       72,919      70,809
   Impaired loan valuation allowance         496          496          496        1,850       1,792
   Deferred loan origination
    (costs) fees....................    (34,380)        1,314       13,696       14,857      11,779
                                       ---------     --------     --------    ---------   ---------
    Net loans receivable (1)........   6,837,945    4,374,112    3,769,235    4,004,889   3,629,284

FHLMC AND Fannie Mae MORTGAGE-BACKED SECURITES
(at fair value):
   Secured by single family
    dwellings.......................      91,308      128,465      192,395      272,419     360,210
   Secured by multi-family dwellings       5,751        6,711        8,190       11,660      14,195
                                       ---------     --------     --------    ---------   ---------
       Mortgage-backed securities...      97,059      135,176      200,585      284,079     374,405
                                       ---------     --------     --------    ---------   ---------
              TOTAL                  $ 6,935,004  $ 4,509,288  $ 3,969,820  $ 4,288,968 $ 4,003,689
                                       =========    =========    =========    =========   =========
(1) Includes loans held-for-sale.
</TABLE>
     Net  deferred  loan  origination  costs were $34.4  million at December 31,
2004. Net deferred loan  origination fees were $1.3 million at December 31, 2003
and $13.7  million at December 31, 2002.  The change to net deferred  loan costs
from net  deferred  loan fees was  attributable  to the high volume of wholesale
loans originated  during 2004 and 2003.  Wholesale single family loans typically
have loan  deferred  origination  costs in excess of deferred  loan  origination
income due to commissions paid to mortgage loan brokers.

Loans Sold with Recourse

     Loans sold with recourse are primarily secured by multi-family  properties.
Loans sold with recourse  totaled  $76.3 million as of December 31, 2004,  $91.0
million as of December  31, 2003 and $108.6  million as of  December  31,  2002.
Although no longer  owned by us, these loans are  evaluated  for the purposes of
computing the  repurchase  liability and measuring  risk exposure for regulatory
capital.

     In January of 2005, we completed a multi-family  loan  securitization  with
Fannie Mae in which $1.3  billion in loans from our loan  portfolio  were formed
into  mortgage-backed  securities.  Because we  retained  full  recourse  on the
securitized loans, the mortgage-backed  securities will continue to be accounted
for as part of our loan  portfolio  under  SFAS No.  133.  These  loans  will be
evaluated for risk along with the remainder of our multi-family loan portfolio.

                                       34
<PAGE>
                                  ASSET QUALITY

 Asset Quality Ratios

     The following  table sets forth  certain asset quality  ratios at the dates
indicated:
<TABLE>
                                                           December 31,
                                 ----------------------------------------------------------------
                                    2004         2003         2002          2001           2000
                                 ----------   ----------   ----------    ----------    ----------
<S>                              <C>         <C>          <C>           <C>            <C>
Non-performing loans to gross
   loans receivable (1)........       0.07%        0.08%        0.17%          0.16%         0.17%
Non-performing assets to total
   assets (2)..................       0.07%        0.10%        0.17%          0.17%         0.19%
Loan loss allowances to
   non-performing loans (3)....      1,588%       2,266%       1,126%         1,151%        1,160%
General loss allowances to
   gross loans receivable (4)..       1.15%        1.70%        1.96%          1.83%         1.95%

</TABLE>
(1)   Loans receivable are before deducting unrealized loan fees, general
      valuation allowances and valuation allowances for impaired loans.

(2)   Non-performing assets are net of valuation allowances related to those
      assets.

(3)   Our loan loss allowances, including general valuation allowances and
      valuation allowances for impaired loans.

(4)   Our general valuation allowances plus the allowance for impaired loans as
      a percentage of loans receivable before deducting unrealized loan fees,
      general valuation allowances and valuation allowances for impaired loans.

                              NON-PERFORMING ASSETS

     Non-performing  assets,  as defined by ourselves,  include loans delinquent
over 90 days or in foreclosure, real estate acquired in settlement of loans, and
other  loans  less  than 90 days  delinquent  but for  which  collectibility  is
questionable.

The  table  below  details  the  amounts  of  non-performing  assets  by type of
collateral. Also shown is the ratio of non-performing assets to total assets.

<TABLE>
                                                          Non-Performing Assets
                                                               December 31,
                         ---------------------------------------------------------------------------------------
                               2004              2003              2002              2001              2000
                         ---------------   ---------------   ---------------   ---------------   ---------------
                           $         %       $         %       $         %       $         %       $         %
                         ------   ------   ------   ------   ------   ------   ------   ------   ------   ------
                                                         (Dollars in thousands)
<S>                     <C>       <C>    <C>        <C>      <C>      <C>      <C>      <C>      <C>      <C>
Real estate owned:
Single family.......... $    --       --% $  1,324      28%  $   519      7%   $ 1,671     21%  $ 2,507      30%
Multi-family...........      --       --        --      --        --     --        164      2        --      --
Less: general
  valuation allowance..      --       --        --      --      (200)    (2)      (350)    (4)     (350)     (4)
                          -----    -----    ------   -----    ------   ----     ------   -----   ------   -----
Total real estate owned      --       --     1,324      28       319      5      1,485     19     2,157      26
Non-performing loans:
Single family..........   4,590       92     3,326      71     5,705     81      6,062     75     5,603      66
Multi-family...........     391        8        --      --     1,017     14        422      5       662       8
Commercial and
  industrial...........      --       --        --      --        --     --         --     --        --      --
Other..................       4       --        16       1        --     --         16      1        --      --
                          -----    -----    ------   -----    ------   ----     ------   -----   ------   -----
Total non-performing
  loans................   4,985      100     3,342      72     6,722     95      6,500     81     6,265      74
                          -----    -----    ------   -----    ------   ----     ------   -----   ------   -----
Total..................$  4,985      100%  $ 4,666     100%  $ 7,041    100%   $ 7,985    100%  $ 8,422     100%
                          =====    =====    ======   =====    ======   ====     ======   =====   ======   =====
Ratio of
  non-performing
  assets to total
  assets...............             0.07%             0.10%            0.17%             0.17%             0.19%
                                   ======            ======           ======            ======            ======
</TABLE>
The decrease in non-performing loans and real estate owned over the last several
years is due to continued strength in the California real estate markets.

                                       35
<PAGE>
     Single-family  non-performing  loans are  primarily  due to factors such as
unemployment  and  declining   personal  income.   Multi-family  and  commercial
non-performing  loans are attributable  primarily to factors such as declines in
occupancy  rates,  employment  rates and rental rates.  We actively  monitor the
status of all non-performing loans.

     Impaired loans totaled $1.4 million,  $3.3 million and $1.6 million, net of
related  allowances  of $496  thousand,  $496  thousand and $496  thousand as of
December 31, 2004, 2003 and 2002,  respectively.  See "--Business - Non-accrual,
Past Due, Impaired and Restructured  Loans--" for further discussion of impaired
loans.

     Our  modified  loans  result  primarily  from  temporary  modifications  of
principal and interest  payments or an extension of maturity dates.  Under these
arrangements,  loan  terms are  typically  reduced  to no less  than a  required
monthly interest payment. Any loss of revenues under the modified terms would be
immaterial to us. If the borrower is unable to return to scheduled principal and
interest payments at the end of the modification period,  foreclosure procedures
are  initiated,  or,  in  certain  circumstances,  the  modification  period  is
extended.  As of December 31, 2004, we had modified loans totaling $1.4 million.
This  compares  with $1.5  million and $1.6  million as of December 31, 2003 and
December  31,  2002,  respectively.  No  modified  loans  were  90  days or more
delinquent as of December 31, 2004, 2003 or 2002.

                         CAPITAL RESOURCES AND LIQUIDITY

Liquidity Requirements

     As  permitted  by the OTS,  management  determines  the level of  liquidity
required for safe and sound  operation.  Our strategy is to keep cash and liquid
investments  at a modest level due to the  availability  of credit lines.  These
credit  lines are  considered  in our  definition  of available  liquidity.  Our
liquidity policy requires that cash and cash equivalents, short-term investments
and unused  borrowing  capacity be  maintained  at a minimum level of 10% of our
liquidity base (defined as deposits and  borrowings due within one year).  As of
December 31, 2004,  liquidity-qualifying  balances  were 14.99% of our liquidity
base.

 External Sources of Funds

     External sources of funds include deposits,  loan sales,  advances from the
FHLB and  reverse  repurchase  agreements  ("reverse  repos").  For  purposes of
funding asset growth,  the source or sources of funds with the lowest total cost
for the desired term are generally  selected.  The  incremental  source of funds
used most often during the last three years was FHLB advances.

     Deposits are accepted from full-service banking branches,  national deposit
brokers  ("brokered  deposits") and  telemarketing  sources.  The cost of funds,
operating  margins and our net income associated with brokered and telemarketing
deposits are generally  comparable to the cost of funds,  operating  margins and
our  net  income  associated  with  deposits,  FHLB  borrowings  and  repurchase
agreements.  As the cost of each source of funds  fluctuates  from time to time,
based  on  market  rates  of  interest   offered  by  us  and  other  depository
institutions,  we select  funds from the lowest cost source  until the  relative
costs change. As the cost of funds,  operating margins and net income associated
with each source of funds are generally comparable, we do not deem the impact of
its  use of any one of the  specific  sources  of  funds  at a given  time to be
material.

     Deposits at full-service banking branches were $2.5 billion at December 31,
2004,  $2.5  billion as of December  31, 2003 and $2.3  billion at December  31,
2002.

     Deposits obtained from national  brokerage firms ("brokered  deposits") are
considered a source of funds  similar to a  borrowing.  In  evaluating  brokered
deposits as a source of funds, the cost of these deposits,  including commission
fees,  is compared to other  funding  sources.  We had $1.2  billion in brokered
deposits at December 31,  2004.  There were none at December 31, 2003 and $161.3
million at December 31, 2002.  Utilization of brokered deposits increased during
2004 due to funds required to fund loan originations.

                                       36
<PAGE>
     Telemarketing deposits were $45.1 million at the end of 2004, $15.6 million
at the end of 2003 and $64.6  million  at the end of 2002.  These  deposits  are
normally large deposits from pension plans,  managed trusts and other  financial
institutions.  The level of telemarketing  deposits varies based on the activity
of investors, who are typically professional money managers. The availability of
telemarketing deposits also varies based on the rates offered and the investors'
perception of our creditworthiness.

     Loan sales were $3.3 million in 2004. This compares to $86.1 million during
2003 and $134.2 million during 2002. Loan sales  decreased  during 2004 and 2003
because  management  focused on the origination of monthly  adjustable loans for
portfolio growth.

     FHLB advances were $3.0 billion at the end of 2004, $1.7 billion at the end
of 2003 and $1.2 billion at the end of 2002.  Borrowings from the FHLB increased
during 2004 in order to fund loan originations.

     Reverse  repurchase   agreements  are  short-term   borrowings  secured  by
mortgage-backed and investment securities.  These borrowings increased to $187.0
million  at the end of 2004 from  $122.6  million  at the end of 2003 and $155.3
million at the end of 2002. The increase during 2004 occurred because we pledged
additional  securities  from our  investment  portfolio.  These  borrowings  are
expected  to  increase   during  2005,   because  $1.3  billion  in   additional
mortgage-backed  securities  were formed with loans from our loan  portfolio  in
January of 2005.

Internal Sources of Funds

     Internal  sources of funds include loan principal  payments,  loan payoffs,
and positive cash flows from operations. Principal payments were $1.4 billion in
2004  compared  to $1.7  billion  in 2003 and $1.5  billion  in 2002.  Principal
payments include both scheduled  principal  paydowns and prepayments which are a
function of real estate activity and the general level of interest rates.

     The Company  anticipates  that it will have  sufficient  funds available to
fund current loan origination  activity. At December 31, 2004, the Company has a
credit  facility with the FHLB in the form of advances and lines of credit which
allow borrowings of up to 60% of our assets as computed for regulatory purposes.
At December 31, 2004, this amounted to approximately  $4.5 billion.  At December
31, 2004 the Company had $3.0 billion in advances from the FHLB. Certificates of
deposits which have contractual maturities of one year or less from December 31,
2004,  totaled $1.6 billion.  The Company's  other sources of liquidity  include
principal  and interest  payments on loans,  proceeds  from loan sales and other
borrowings,  such as reverse  repurchase  transactions.  The Company  could also
choose to pay higher rates to maintain maturing deposits,  which could result in
an increased cost of funds. Historically, the Company has retained a significant
portion of maturing  deposits.  While  management  anticipates that there may be
some outflow of these deposits upon maturity due to the current competitive rate
environment,  they are not expected to have a material  impact on the  long-term
liquidity position of the Company.

     The  table  below  details  the  amounts  of  the   Company's   contractual
obligations by maturity at December 31, 2004.
<TABLE>
                                                       Payments due by period
                                  ----------------------------------------------------------------
                                                 Less than                               More than
                                    Total         1 year     1 - 3 years   3 - 5 years    5 years
                                  ----------    ----------   ----------    ---------    ----------
                                                           (In thousands)
<S>                             <C>          <C>           <C>          <C>          <C>
Fixed-rate term certificates.... $1,755,230  $  1,643,035  $    95,155  $     17,040 $         --
FHLB advances...................  3,004,600     2,604,600      365,000        15,000       20,000
Reverse repurchase agreements...    187,000       187,000           --            --           --
Operating lease obligations.....     19,030         4,968        9,041         3,613        1,408
                                  ---------     ---------   ----------     ---------     ---------
Total........................... $4,965,860  $  4,439,603  $   469,196  $     35,653 $     21,408
                                  =========     =========   ==========     =========     =========
</TABLE>
                                       37
<PAGE>
Capital Requirements

     Current OTS regulatory  capital standards require that we maintain tangible
capital of at least 1.5% of total assets,  core capital of 4.0% of total assets,
and  risk-based  capital  of 8.0% of total  risk-weighted  assets.  Among  other
things,   failure  to  comply  with  these  capital  standards  will  result  in
restrictions  on asset growth and necessitate the preparation of a capital plan,
subject to regulatory  approval.  Generally,  any institution  with a risk-based
capital  ratio in  excess of 10% and a core  capital  ratio  greater  than 5% is
considered "well-capitalized" for regulatory purposes. Institutions who maintain
this  capital  level  can  utilize  brokered   deposits  at  their   discretion.
Additionally,   if  they  achieve  a  sufficient  ranking  on  their  regulatory
examination, they may be assessed lower deposit insurance premiums.

     Management  presently  intends to maintain  its capital  position at levels
above those required by regulators to ensure  operating  flexibility  and growth
capacity  for  ourselves.   Our  capital  position  is  actively   monitored  by
management.   We  met   the   regulatory   capital   standards   to  be   deemed
"well-capitalized"  for purposes of the various  regulatory  measures of capital
including the prompt corrective action regulations.

     The following table summarizes the capital ratios of the "well capitalized"
category and our regulatory capital position at December 31, 2004 as compared to
such ratios.  As indicated in the table,  our capital levels  exceeded the three
minimum capital ratios of the "well capitalized" category:
<TABLE>
                                                        Amount           %
                                                    -----------        ------
                                                      (Dollars in thousands)
<S>                                                 <C>              <C>
   Core capital requirement.................          $ 373,111          5.00%
   Bank's core capital......................            446,662          5.99
                                                      ---------         -----
     Excess core capital....................          $  73,551           .99%
                                                      =========         =====

   Tier 1 risk-based capital requirement....          $ 250,378          6.00%
   Bank's tier 1 risk-based capital.........            446,662         10.70
                                                       --------         -----
     Excess tier 1 risk-based capital.......          $ 196,284          4.70%
                                                       ========         =====

   Risk-based capital requirement...........          $ 417,297         10.00%
   Bank's risk-based capital................            499,151         11.96
                                                       --------         -----
     Excess risk-based capital..............          $  81,854          1.96%
                                                      =========         =====
</TABLE>
Recent Accounting Pronouncements

     In December 2004,  SFAS Statement No. 123 (revised),  Share-Based  Payment,
was issued. Statement 123 (revised) requires a public entity to measure the cost
of employee  services  received in exchange  for an award of equity  instruments
based on the grant-date fair value of the award (with limited exceptions).  That
cost will be recognized over the period which an employee is required to provide
service in exchange for the  award-the  requisite  service  period  (usually the
vesting period).  No compensation cost is recognized for equity  instruments for
which  employees do not render the requisite  service.  Employee  share purchase
plans will not result in recognition of compensation cost if certain  conditions
are  met;  those  conditions  are much the  same as the  related  conditions  in
Statement 123.

     A public  entity  will  initially  measure  the cost of  employee  services
received in exchange for an award of liability  instruments based on its current
fair value;  the fair value of that award will be  re-measured  subsequently  at
each reporting date through the  settlement  date.  Changes in fair value during
the requisite  service period will be recognized as compensation  cost over that
period.  The  grant-date  fair  value of  employee  share  options  and  similar
instruments  will be  estimated  using  option-pricing  models  adjusted for the
unique  characteristics of those instruments  (unless)  observable market prices
for the same or  similar  instruments  are  available).  If an  equity  award is
modified after the grant date, incremental  compensation cost will be recognized
in an amount  equal to the excess of the fair value of the  modified  award over
the fair value of the original award immediately  before the  modification.  The
Statement is effective for the Company on July 1, 2005.

     SFAS Statement No. 150,  Accounting for Certain Financial  Instruments with
Characteristics  of both  Liabilities  and Equity,  was issued in May 2003. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments  within its scope. For the Company,  the Statement was effective for
instruments  entered into or modified  after May 31, 2003 and otherwise  will be
effective as of January 1, 2004,  except for  mandatorily  redeemable  financial
instruments.  For certain  mandatorily  redeemable  financial  instruments,  the
Statement is effective for the Company on January 1, 2005.  The  effective  date
has been deferred indefinitely for certain other types of mandatorily redeemable
financial  instruments.  The  Company  currently  does not  have  any  financial
instruments that are within the scope of this Statement.
                                       38
<PAGE>
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                             ASSET-LIABILITY MANAGEMENT

     Our primary  objective  in managing  interest  rate risk is to minimize the
adverse  impact of  changes in  interest  rates on our net  interest  income and
capital,  while, at the same time,  adjusting our asset-liability mix to achieve
the most favorable impact on income.

     Our  asset-liability  management  policy is designed to improve the balance
between  the   maturities  and   repricings  of   interest-earning   assets  and
interest-bearing  liabilities  in order  to  better  insulate  net  income  from
interest  rate  fluctuations.  Under this  program,  we emphasize the funding of
monthly  adjustable  mortgages with short-term  savings and borrowings and match
the repricing of these assets and liabilities. We also originate adjustable rate
loans with initial fixed interest rates for periods  ranging from 3 to 10 years.
By  policy,  we will  either  match the fixed  rate  period of these  loans with
borrowings  for the same term or will hold  unmatched  fixed  rate  loans in its
portfolio up to 5% of total assets.

     At the end of 2004, 45% of our loans had adjustable interest rates based on
monthly  changes  in the CODI,  24% were  based on the 12MAT  Index and 19% were
based on the COFI.  Comparisons over the last several years show that changes in
our cost of funds generally  correlate with changes in these indices.  We do not
use any futures, options or swaps in our asset-liability strategy.

     Assets and  liabilities  that are subject to repricing are considered  rate
sensitive.  The  mis-match  in  the  repricing  of  rate  sensitive  assets  and
liabilities  is  referred  to as a  company's  "GAP".  The  GAP is  positive  if
rate-sensitive  assets  exceed  rate-sensitive  liabilities  for  any  specified
repricing term.  Generally,  a positive GAP benefits a company during periods of
increasing  interest  rates.  The reverse is true during  periods of  decreasing
interest  rates.  The indices we use lag changes in interest rates from 60 to 90
days  while  prime-based  business  loans  re-price  immediately.  However,  our
short-term  savings and  borrowing  costs  adjust  quickly  causing net interest
income  to  initially  decrease  during  periods  of rising  interest  rates and
increase during periods of declining  interest  rates.  The movement of interest
rates,  whether  up or down,  cannot be  accurately  predicted  and could have a
negative impact on our income.

     The  following  table  shows the  interest  sensitivity  of our  assets and
liabilities by repricing  period at December 31, 2004 and the  consolidated  GAP
position as a percentage of total assets at that time:
<TABLE>
                                       INTEREST-SENSITIVITY GAP

                                           -----------------------------------------------------------
                                                        Balances     Balances    Balances    Balances
                                                        Repricing    Repricing   Repricing   Repricing
                                             Total      Within       Within      Within        After
                                            Balance     1 Year       1-3 Years   4-10 Years   10 Years
                                           ---------   ----------    --------    ---------   ---------
                                                              (Dollars in thousands)
<S>                                     <C>            <C>        <C>          <C>          <C>
Interest-earning assets:
  FHLB and other interest-earning
   deposits............................ $     29,914  $    29,914 $        -- $        --   $       --
  Investment securities, at fair value.      250,586      249,710         808          68           --
  Mortgage-backed securities, at fair
   value...............................       97,059       97,010          43           6           --
  Loans receivable.....................    6,882,736    6,717,547     144,320      18,512        2,357
                                           ---------   ----------    --------    ---------   ---------
    Total interest-earning assets...... $  7,260,295  $ 7,094,181 $   145,171 $    18,586   $    2,357
                                           =========   ==========    ========    =========   =========
Interest-bearing liabilities:
  Demand accounts...................... $  2,005,935  $ 2,005,935 $        -- $        --   $       --
  Fixed rate term certificates.........    1,755,230    1,642,919      95,155      16,626          530
  FHLB advances........................    3,004,600    2,604,600     365,000      35,000           --
  Reverse repurchase agreements........      187,000      187,000          --          --           --
                                           ---------   ----------    --------    ---------   ---------
    Total interest-bearing liabilities. $  6,952,765  $ 6,440,454 $   460,155 $    51,626   $      530
                                           =========   ==========    ========    =========   =========

Interest-sensitivity GAP............... $    307,530  $   653,727 $  (314,984)$   (33,040)  $    1,827
                                           =========   ==========    ========    =========   =========
Interest-sensitivity GAP as a
   percentage of total assets..........                     8.75%     (4.22)%      (0.44)%       0.02%
                                                       ==========    ========    =========   =========
Cumulative interest-sensitivity GAP....               $   653,727 $   338,743 $   305,703   $  307,530
                                                       ==========    ========    =========   =========
Cumulative interest-sensitivity GAP as
   a percentage of total assets........                     8.75%       4.54%        4.09%       4.12%
                                                       ==========    ========    =========   =========
</TABLE>

                                       39
<PAGE>
     In  order  to  minimize  the  impact  of  rate   fluctuations   on  income,
management's  goal is to keep the  one-year GAP at less than 20% of total assets
(positive  or  negative).  At December  31,  2004,  our one-year GAP ratio was a
positive  $654 million or 8.75% of total  assets.  This compares with a positive
GAP ratio of 13.8% of total assets at December 31, 2003 and a positive GAP ratio
of 6.1% of total  assets at December  31,  2002.  The  positive  one-year GAP at
December 31, 2004  decreased  from December 31, 2003 because we funded one month
adjustable  loans  with  liabilities  due in one year or less.  The  change to a
positive  one-year  GAP at December 31, 2003 from a negative GAP at December 31,
2002  resulted from the early payoff of loans with initial fixed periods and the
increased origination of monthly adjustable rate loans.

     Another  measure of interest rate risk, that is required to be performed by
OTS-regulated  institutions,  is an analysis  specified  by OTS Thrift  Bulletin
TB-13a,   "Management  of  Interest  Rate  Risk,  Investment   Securities,   and
Derivatives  Activities".  Under this  regulation  institutions  are required to
establish  limits  on the  sensitivity  of their  net  interest  income  and net
portfolio value to changes in interest rates. Such changes in interest rates are
defined as instantaneous and sustained  movements in interest rates in 100 basis
point increments.

     The  following  table  shows the  estimated  impact of a parallel  shift in
interest rates on our net portfolio  value at December 31, 2004 and December 31,
2003:
                                                         Percentage
               Change in Interest Rates        Change in Net Portfolio Value(1)
                  (In Basis Points)                 2004              2003
                                                    ----              ----
                       +300....................      (5)%            (14)%
                       +200....................      (4)%            (11)%
                       +100....................      (3)%             (8)%
                       --100...................      (1)%              9 %
                       --200...................      --%(2)            --%(2)
                       --300...................      --%(2)            --%(2)

    (1) The percentage change represents the projected change in the net
        portfolio value of the Bank in a stable interest rate environment versus
        the net portfolio value in the various rate scenarios. The OTS defines
        net portfolio value as the present value of expected cash flows from
        existing assets minus the present value of expected cash flows from
        existing liabilities.

    (2) A downward shift in interest rates of 200 basis points or 300 basis
        points for both December 31, 2004 and December 31, 2003 levels would
        result in negative interest rates in many cases. Therefore, modeling the
        impact of such declines as of December 31, 2004 and December 31, 2003 is
        not meaningful or practical.



                                       40
<PAGE>
The   following   table  shows  the  contract   terms  and  fair  value  of  our
interest-earning assets and interest-bearing liabilities as of December 31, 2004
categorized  by type and  expected  maturity for each of the next five years and
thereafter:
<TABLE>
                                             Expected Maturity Date as of December 31, (1)
                         -------------------------------------------------------------------------------------
                                                                                           Total      Fair
                           2005      2006        2007       2008     2009      Thereafter Balance     Value
                         --------   -------    --------    ------   -------     --------  --------  ---------
                                                         (Dollars in thousands)
<S>                     <C>         <C>        <C>         <C>      <C>        <C>        <C>       <C>
Interest-earning
    assets:
  Loans receivable:
    Adjustable rate
    loans:
     Single family.... $1,232,648  $1,347,949  $ 963,174  $ 501,079 $ 257,456  $ 274,365  $ 4,576,671  $ 4,619,960
    Average
    interest rate.....       5.04%       5.04%      5.04%      5.04%     5.04%      5.04%        5.04%
     Multi-family.....    527,577     454,803    333,703    194,452   143,919    163,273    1,817,727    1,820,991
    Average
    interest rate.....       4.75%       4.61%      4.44%      4.41%     4.37%      4.44%        4.56%
     Commercial and
      industrial......    109,819      82,687     48,089     28,558    17,068     23,270      309,491      315,807
    Average
    interest rate.....       6.02%       5.92%      5.49%      5.41%     5.35%      5.01%        5.74%
    Fixed rate loans:
     Single family....      5,526       2,403        923        260        71         27        9,210        9,390
    Average
    interest rate.....       6.97%       6.47%      6.21%      6.15%     6.13%      6.12%        6.73%
     Multi-family.....      6,796       2,363        542        270       203         76       10,250       10,571
    Average
    interest rate.....       7.60%       7.53%      8.04%      8.00%     7.98%      8.04%        7.63%
     Commercial and
    industrial........      9,959       4,454      2,257        701       252         87       17,710       18,342
    Average
    interest rate.....       7.46%       7.80%      7.61%      7.84%     8.17%      7.95%        7.59%
    Non-mortgage
    loans:
     Commercial
     business loans...     18,433      19,398     20,413      1,749        --          --      59,993       59,845
    Average
    interest rate.....       5.11%       5.11%      5.11%      5.11%       --          --        5.11%
     Construction
      loans...........      6,009       6,540      7,118        621        --          --      20,288       21,476
    Average
    interest rate.....       8.50%       8.50%      8.50%      8.50%       --          --        8.50%
    Consumer loans....     18,886      19,853     20,870      1,787        --          --      61,396       61,641
    Average
    interest rate.....       5.00%       5.00%      5.01%      5.01%       --          --        5.00%
  Mortgage-backed
    securities:
    Adjustable:            40,403      23,420     13,789      8,094     4,737       6,513      96,956       97,681
    Average
    interest rate.....       2.81%       2.81%      2.81%      2.81%     2.81%       2.81%       2.81%
    Fixed:                     55          28         14          6        --          --         103          103
    Average
    interest rate.....       8.00%       8.00%      8.00%      8.00%       --          --        8.00%
  Investment
    securities,
    overnight
    investments and
    interest-bearing
    deposits:              35,885       5,342      5,520       5,705    5,897     222,151     280,500      281,301
    Average
    interest rate.....       0.49%       3.29%      3.30%       3.31%    3.32%       3.45%       3.07%
                          --------    -------    --------    ------   -------    --------    --------    ---------
    Total interest-
    earning assets.... $2,011,996  $1,969,240 $1,416,412    $743,282 $429,603    $689,762  $7,260,295   $7,317,108
                        =========  =========  ==========     =======  =======     =======   =========    =========
Interest-bearing
 liabilities:
  Deposits:
    Checking accounts  $  556,350 $       -- $       --    $     --  $    --    $     --  $  556,350   $  556,350
    Average
    interest rate.....       0.10%        --         --          --       --          --        0.10%
    Savings accounts..  1,449,585         --         --          --       --          --   1,449,585    1,449,585
    Average
    interest rate.....       1.59%        --         --          --       --          --        1.59%
     Certificate
    accounts..........  1,642,919     70,175     24,980       8,959    6,221       1,976   1,755,230    1,754,787
    Average
    interest rate.....       2.15%      2.75%      3.45%       3.20%    3.70%       3.49%       2.21%
Borrowings:
     FHLB advances....  2,604,600    280,000     85,000      10,000    5,000      20,000   3,004,600    3,003,161
    Average
    interest rate.....       2.30%      4.30%      4.56%       5.43%    5.49%       6.20%       2.59%
     Reverse
    repurchase
    agreements........    187,000         --         --          --       --          --     187,000      186,325
    Average
    interest rate.....       2.24%        --         --          --       --          --        2.24%
                         --------     ------    -------      ------    ------     ------    --------     ---------
Total interest-
 bearing liabilities.. $6,440,454   $350,175  $ 109,980   $  18,959   $11,221   $ 21,976  $6,952,765   $6,950,208
                        =========    =======    =======      ======    ======     ======   =========    =========
</TABLE>
     (1) Expected maturities are contractual maturities adjusted for prepayments
of  principal.  The Bank uses certain  assumptions  to estimate  fair values and
expected maturities.  For assets, expected maturities are based upon contractual
maturity,  projected  repayments and  prepayments  of principal.  The prepayment
experience used is based on the Bank's historical experience. The Bank's average
CPR (Constant Prepayment Rate) is 48% for the adjustable single-family portfolio
and 36% for its adjustable  multi-family and commercial real estate  portfolios.
For fixed rate loans,  the Bank's average CPR is 72% and 48%  respectively.  The
Bank used estimated deposit runoff based on available industry information.

                                       41
<PAGE>
                                  STOCK PRICES

     The common  stock of  FirstFed  Financial  Corp.  is traded on the New York
Stock  Exchange  under the trading  symbol  "FED".  The  quarterly  high and low
information  presented  below is based on  information  supplied by the New York
Stock Exchange.

     The Company has never declared or paid a cash dividend to its stockholders.

     As of  February  1,  2005,  there  remain  1,472,079  shares  eligible  for
repurchase under the Company's stock repurchase program. The Company repurchased
696,900,  33,800 and  353,000  shares of its common  stock at average  per share
prices of $40.25, $28.53 and $25.02 during 2004, 2003 and 2002, respectively.

<TABLE>
                                      PRICE RANGE OF COMMON STOCK

           First Quarter      Second Quarter       Third Quarter       Fourth Quarter
           -------------      --------------       -------------       --------------
          High     Low       High         Low     High        Low      High      Low
          ----     ---       ----         ---     ----        ---      ----      ---
<S>      <C>     <C>       <C>         <C>      <C>       <C>       <C>       <C>
2004     $46.38  $40.40    $46.15      $38.16   $49.16    $41.23    $54.30    $48.50
2003      31.30   26.41     35.57       29.86    41.50     34.77     49.05     39.93
2002      27.00   24.58     29.90       26.26    28.89     23.89     29.15     23.92
2001      32.06   26.25     31.00       28.00    36.30     24.00     25.95     21.90
2000      16.63   11.88     14.56       11.69    23.00     14.06     33.13     21.31

</TABLE>

                                       42
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands, except share data)

<TABLE>
                                                                    December 31,      December 31,
                                                                       2004               2003
                                                                  -------------     ---------------
<S>                                                           <C>               <C>
ASSETS

Cash and cash equivalents..................................   $        68,343   $          54,318
Investment securities, available-for-sale (at fair value)
  ($116,644 and $11,347 pledged)  (Notes 2 and 10).........           250,586             116,411
Mortgage-backed securities, available-for-sale (at fair
  value) ($80,687  and $114,360 pledged)  (Notes 3 and 10).            97,059             135,176
Loans receivable, held-for-sale (fair value of $0 and
  $494) (Note 4)..........................................                 --                 492
Loans receivable, net of allowance for loan losses of
  $79,171 and $75,734 (Notes 4 and 9)......................         6,837,945           4,373,620
Accrued interest and dividends receivable..................            24,115              16,941
Real estate owned, net (Note 5)............................                --               1,324
Real estate held for investment (Note 5)...................               986                  --
Office properties and equipment, net (Note 6)..............            15,881              10,568
Investment in Federal Home Loan Bank (FHLB) stock, at cost
  (Notes 7 and 9)..........................................           143,425              87,775
Other assets...............................................            30,643              28,397
                                                                  -------------     ---------------
                                                              $     7,468,983   $       4,825,022
                                                                  =============     ===============
LIABILITIES

Deposits (Note 8)..........................................   $     3,761,165   $       2,538,398
FHLB advances (Notes 7 and 9) .............................         3,004,600           1,694,000
Securities sold under agreements to repurchase (Note 10)...           187,000             122,622
Accrued expenses and other liabilities.....................            38,744              33,435
                                                                  -------------     ---------------
                                                                    6,991,509           4,388,455
                                                                  -------------     ---------------
COMMITMENTS AND CONTINGENT LIABILITIES
 (Notes 1, 4, 6 and 13)

STOCKHOLDERS' EQUITY (Notes 12 and 13)

Common stock, par value $.01 per share;
  Authorized 100,000,000 shares; issued 23,693,350 and
  23,543,339 shares, outstanding 16,498,754 and 17,045,643
  shares...................................................               237                 235
Additional paid-in capital.................................            40,977              37,733
Retained earnings..........................................           549,202             483,360
Unreleased shares to employee stock
  ownership plan ..........................................               (53)               (125)
Treasury stock, at cost, 7,194,596 and 6,497,696 shares....          (113,776)            (85,727)
Accumulated other comprehensive income, net of taxes.......               887               1,091
                                                                  -------------     ---------------
                                                                      477,474             436,567
                                                                  -------------     ---------------
                                                              $     7,468,983   $       4,825,022
                                                                  =============     ===============

     The accompanying notes are in integral part of these consolidated financial statements
</TABLE>
                                       43
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                   YEAR ENDED DECEMBER 31, 2004, 2003 AND 2002
                  (Dollars in thousands, except per share data)
<TABLE>
                                                             2004          2003            2002
                                                        ------------   ------------    -----------
<S>                                                   <C>            <C>            <C>
Interest and dividend income:
    Interest on loans.............................    $     247,892  $     224,779  $     243,716
    Interest on mortgage-backed securities........            3,312          5,328          9,154
    Interest and dividends on investments.........           11,518          5,774         11,008
                                                        ------------   ------------    -----------
       Total interest income......................          262,722        235,881        263,878
                                                        ------------   ------------    -----------
Interest expense:
    Interest on deposits (Note 8).................           42,159         39,104         60,808
    Interest on borrowings (Notes 9 and 10).......           59,031         49,238         67,611
                                                        ------------   ------------    -----------
       Total interest expense.....................          101,190         88,342        128,419
                                                        ------------   ------------    -----------
Net interest income...............................          161,532        147,539        135,459
    Provision for loan losses (Note 4)............            3,000             --             --
                                                        ------------   ------------    -----------
Net interest income after provision for loan losses         158,532        147,539        135,459
                                                        ------------   ------------    -----------
Non-interest income:
    Loan servicing and other fees.................            9,545          7,990          4,325
    Banking service fees..........................            5,639          5,095          4,604
    Gain on sale of loans.........................            5,434          2,444          7,806
    Real estate operations, net (Note 5)..........              308            780            339
    Other operating income........................              370            432          1,000
                                                        ------------   ------------    -----------
       Total other income.........................           21,296         16,741         18,074
                                                        ------------   ------------    -----------
Non-interest expense:
    Salaries and employee benefits (Note 13)......           40,907         33,484         32,627
    Occupancy (Note 6)............................            8,691          8,171          8,557
    Advertising...................................              705            315          1,378
    Amortization of core deposit intangible.......            1,995          1,995          1,962
    Federal deposit insurance.....................              388            394            438
    Legal.........................................            1,686          1,103          2,888
    Other operating expense.......................           12,000         10,127         10,362
                                                        ------------   ------------    -----------
       Total non-interest expense.................           66,372         55,589         58,212
                                                        ------------   ------------    -----------
Income before income taxes........................          113,456        108,691         95,321
Income taxes (Note 11)............................           47,614         44,216         40,149
                                                        ------------   ------------    -----------
Net income........................................    $      65,842  $      64,475  $      55,172
                                                        ============   ============    ===========
Earnings per share: (Notes 12 and 15)
    Basic.........................................    $        3.95  $        3.80  $        3.22
                                                        ============   ============    ===========
    Diluted.......................................    $        3.85  $        3.70  $        3.15
                                                        ============   ============    ===========
Weighted average shares outstanding:
    Basic.........................................       16,679,927     16,986,725     17,149,712
                                                        ============   ============    ===========
    Diluted.......................................       17,090,227     17,407,459     17,506,129
                                                        ============   ============    ===========

     The accompanying notes are in integral part of these consolidated financial statements
</TABLE>
                                       44
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                        (In thousands, except share data)
<TABLE>
                                                                                           Accumulated
                                                      Retained     Unreleased                  Other
                                                      Earnings       Shares                Comprehensive
                                         Additional (Substantially  to ESOP                Income, Net
                             Common       Paid-In    Restricted)   (Notes 12    Treasury     of Taxes
                              Stock       Capital    (Note 12)      and 13)      Stock   (Notes 2 and 3)  Total
                             -------     --------   -----------    --------    -------   -------------   -------
<S>                       <C>        <C>            <C>         <C>          <C>         <C>             <C>
Balance, December 31,
 2001....................  $      234 $     34,670   $  363,713  $        --  $  (75,930) $        2,991 $ 325,678
Comprehensive income:
  Net income.............          --           --       55,172           --          --              --    55,172
   Change in net
      unrealized gain on
      securities
      available for
      sale, net of
      reclassification
      adjustment and tax
      effect.............          --           --           --           --           --           (790)     (790)
                                                                                                            -------
      Total
        comprehensive
        income...........                                                                                   54,382
Exercise of employee
   stock options.........          --          407           --           --           --             --       407
Net decrease in
   unreleased shares to            --           --           --         (597)          --             --      (597)
   the ESOP..............
Benefit from stock
   option tax adjustment.          --          603           --           --           --             --       603
Common stock repurchased
   (353,000) shares......          --           --           --           --       (8,832)            --    (8,832)
                               -------     --------   -----------    --------     -------   -------------   -------
Balance, December 31,
  2002...................         234       35,680      418,885         (597)     (84,762)         2,201   371,641
Comprehensive income:
  Net income.............          --           --       64,475           --           --             --    64,475
   Change in net
      unrealized gain on
      securities
      available for
      sale, net of
      reclassification
      adjustment and tax
      effect.............          --           --           --           --           --         (1,110)   (1,110)
                                                                                                            -------
      Total
        comprehensive
        income...........                                                                                   63,365
Exercise of employee
   stock options.........           1        1,828           --           --           --              --    1,829
Net increase in
   unreleased shares to            --           --           --          472           --              --      472
   the ESOP..............
Benefit from stock
   option tax adjustment.          --          225           --           --           --              --      225
Common stock
   repurchased  (33,800)
   shares................          --           --           --           --         (965)             --     (965)
                               -------     --------   -----------    --------     -------   -------------   -------
Balance, December 31,
 2003....................         235       37,733      483,360         (125)     (85,727)          1,091   436,567
Comprehensive income:
   Net income............          --           --       65,842           --           --              --    65,842
   Change in net
      unrealized gain on
      securities
      available for
      sale, net of
      reclassification
      adjustment and tax
      effect.............          --           --           --           --           --            (204)     (204)
                                                                                                             -------
      Total
        comprehensive
        income...........                                                                                    65,638
Exercise of employee
   stock options.........           2        1,979           --           --           --              --     1,981
Net increase in
   unreleased shares to            --          (52)          --           72           --              --        20
   the ESOP..............
Benefit from stock
   option tax adjustment.          --        1,317           --           --           --              --     1,317
Common stock
   repurchased
   (696,900) shares......          --           --           --           --      (28,049)             --   (28,049)
                              -------     --------   -----------     --------     -------   -------------   -------
Balance, December 31,
 2004.................... $     237   $     40,977   $  549,202     $    (53)  $ (113,776)         $ 887  $ 477,474
                             =======      ========   ===========    ========      ========  =============   =======
             The accompanying notes are in integral part of these consolidated financial statements
</TABLE>
                                       45
<PAGE>

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
                                 (In thousands)

<TABLE>
                                                                2004          2003           2002
                                                             ---------     ----------     ----------
<S>                                                      <C>           <C>            <C>
    CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income........................................   $      65,842 $      64,475  $      55,172
    Adjustments to reconcile net  income to
     net cash provided by operating activities:
      Net change in loans held-for-sale...............             492         1,801          2,953
      Depreciation and amortization...................           1,335         1,371          1,652
      Provision for loan losses.......................           3,000            --             --
      Valuation adjustments on real estate sold.......              --           (68)          (265)
      Amortization of fees and discounts..............          14,215         2,009          3,926
      Gain on sale of loans...........................          (5,434)       (2,444)        (7,806)
      Decrease in servicing asset.....................             105           240            737
      FHLB stock dividends............................          (3,863)       (3,260)        (4,950)
      Increase (decrease) in taxes payable............           1,175         6,617         (1,976)
      (Increase) decrease in interest and dividends
       receivable.....................................          (7,174)          811          4,324
      Increase (decrease) in interest payable.........           7,356        (3,298)        (5,895)
      Amortization of core deposit intangible asset...           1,995         1,995          1,962
      (Increase) decrease in other assets.............          (8,147)       (8,043)         5,248
      (Increase) decrease in accrued expenses and
        other liabilities.............................           4,441           774         (7,240)
                                                             ---------     ----------     ----------
        Total adjustments.............................           9,496        (1,495)        (7,330)
                                                             ---------     ----------     ----------
        Net cash provided by operating activities.....          75,338        62,980         47,842
                                                             ---------     ----------     ----------
    CASH FLOWS FROM INVESTING ACTIVITIES:
      Loans made to customers and principal
        collections on loans .........................      (2,430,543)     (589,905)       232,998
      Loans purchased.................................            (422)         (500)           (89)
      Net change in unearned loan fees................         (49,314)      (13,758)        (5,104)
      Proceeds from sales of real estate owned........           1,324           884          3,500
      Proceeds from maturities and principal reductions
        on investment securities, available-for-sale..          64,379       134,037         87,120
      Principal reductions on mortgage-backed
        securities, available-for-sale................          37,178        64,330         83,010
      Purchases of investment securities,
        available-for-sale............................        (198,494)     (148,847)       (80,855)
      Redemptions (purchases) of FHLB stock, net......         (51,787)       (5,787)        17,585
      Purchases of premises and equipment.............          (6,648)       (1,597)        (1,172)
                                                             ---------    ----------     ----------
        Net cash provided by (used in) investing
        activities....................................      (2,634,327)     (561,143)       336,993
                                                             ---------    ----------     ----------
    CASH FLOWS FROM FINANCING ACTIVITIES:
      Net increase (decrease) in deposits.............       1,222,767        11,372        (19,621)
      Net increase (decrease) in short term borrowings       1,586,978       622,349       (613,767)
      Net Increase (decrease) in long term borrowings.        (212,000)     (128,000)       128,000
      Purchases of treasury stock.....................         (28,049)         (965)        (8,832)
      Other...........................................           3,318         2,526            413
                                                             ---------     ----------     ----------
        Net cash provided by (used in) financing
        activities....................................       2,573,014       507,282       (513,807)
                                                             ---------     ----------     ----------

      Net increase (decrease) in cash and cash
        equivalents...................................          14,025         9,119       (128,972)
      Cash and cash equivalents at beginning of period          54,318        45,199        174,171
                                                             ---------     ----------     ----------
      Cash and cash equivalents at end of period......   $      68,343 $      54,318  $      45,199
                                                             =========     ==========     ==========

      The accompanying notes are in integral part of these consolidated financial statements
</TABLE>
                                       46
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

     The  following  is a summary  of the  significant  accounting  policies  of
FirstFed  Financial Corp.  ("Company")  and its  wholly-owned  subsidiary  First
Federal Bank of California ("Bank").

     The  preparation of the Company's  financial  statements in conformity with
Generally  Accepted  Accounting  Principles  in the  United  States  of  America
("GAAP")  requires  management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  at the  date of the  financial  statements  and  the  reported
operations of the Company for the periods  presented.  Actual results may differ
from those estimates calculated by management.

 Principles of Consolidation and Nature of Operations

     The consolidated  financial  statements include the accounts of the Company
and its subsidiary,  the Bank. We maintain 29 full-service  banking branches and
four loan offices.  Our primary  business  consists of  attracting  deposits and
wholesale  borrowings  and using  those  funds to  originate  loans  secured  by
mortgages on real estate,  consumer loans and business  loans.  All  significant
inter-company  balances and transactions  have been eliminated in consolidation.
Certain items in the 2002 and 2003 consolidated  financial  statements have been
reclassified to conform to the 2004 presentation.

Uses of Estimates

     In preparing consolidated financial statements in conformity with generally
accepted  accounting  principles,  management is required to make  estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and 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  loan  losses,  the
determination  of the  expected  lives of  residential  loans  used to  amortize
deferred origination costs and the valuation of deferred tax assets.

Cash and Cash Equivalents

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
cash, overnight  investments and securities purchased under agreements to resell
with maturities within 90 days of the date of purchase.

Financial Instruments

     GAAP requires the  disclosure  of the fair value of financial  instruments,
whether or not  recognized on the Balance  Sheet,  whenever it is practicable to
estimate the value.  A  significant  portion of our assets and  liabilities  are
financial  instruments  as  defined  under  GAAP.  Fair  values,  estimates  and
assumptions are set forth in Note 16, Fair Value of Financial Instruments.

Risks Associated with Financial Instruments

     The credit risk of a financial  instrument is the  possibility  that a loss
may result from the failure of another party to perform in  accordance  with the
terms of the contract.  The most  significant  credit risk  associated  with our
financial instruments is concentrated in our loans receivable.  Additionally, we
are  subject  to  credit  risk on  certain  loans  sold with  recourse.  We have
established  a  system  for  monitoring  the  level of  credit  risk in the loan
portfolio and for loans sold with recourse.

     The market risk of a financial  instrument is the  possibility  that future
changes  in market  prices may reduce  the value of a  financial  instrument  or
increase  the  contractual   obligations  of  ourselves.   Our  market  risk  is
concentrated  in our  portfolios of loans  receivable.  When a borrower fails to
meet the contractual  requirements of his or her loan agreement,  we are subject
to the market risk of the collateral securing the loan. Likewise, we are subject
to the volatility of real estate prices with respect to real estate  acquired by
foreclosure.  Our  securities  classified  as  available-for-sale  are traded in
active markets. The value of these securities is susceptible to the fluctuations
of the market.


                                       47
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

 Interest Rate Risk

     Financial  instruments are subject to interest rate risk to the extent that
they  reprice on a frequency,  degree or basis that varies from market  pricing.
Interest rate risk occurs to the degree that interest-earning  assets reprice on
a different frequency or schedule than  interest-bearing  liabilities.  The loan
portfolio  tends to lag  market  interest  rates by 60 to 90  days.  We  closely
monitor the pricing sensitivity of our financial instruments.

 Concentrations of Credit Risk

     Concentrations of credit risk would exist for groups of borrowers when they
have similar  economic  characteristics  that would cause their  ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions.  The  ability  of  our  borrowers  to  repay  their  commitments  is
contingent  on  several  factors,   including  the  economic  condition  in  the
borrowers'  geographic  area  and  the  individual  financial  condition  of the
borrowers.  The  Company  generally  requires  collateral  or other  security to
support  borrower  commitments  on loans  receivable.  This  collateral may take
several forms.  Generally,  on our mortgage  loans,  the collateral  will be the
underlying  mortgaged  property.  Our lending  activities  are  concentrated  in
California. We do not have significant exposure to any individual customer.

 Securities Purchased under Agreements to Resell

     The company  invests in  securities  purchased  under  agreements to resell
("repurchase  agreements").  We obtain  collateral for these  agreements,  which
normally  consists of U.S.  treasury  securities or  mortgage-backed  securities
guaranteed  by agencies of the U.S.  government.  The  collateral is held in the
custody of a trustee,  who is not a party to the  transaction.  The  duration of
these  agreements  is  typically  1 to 30 days.  We deal  only  with  nationally
recognized  investment  banking firms as the counterparties to these agreements.
The Company's investment in repurchase agreements consisted solely of securities
purchased under agreements to resell identical securities.

 Investments and Mortgage-Backed Securities

     Investment  securities  principally  consist  of U.S.  Treasury  and agency
securities,  collateralized mortgage obligations and mortgage-backed securities.
Mortgage-backed  securities  are created when we exchange pools of our own loans
for mortgage-backed securities.

     We  classify  all of our  investments  and  mortgage-backed  securities  as
"available-for-sale"  based upon a determination  that such securities  might be
sold at a future date or that there may be foreseeable circumstances under which
we would sell such securities.

     Securities  designated  as  available-for-sale  are recorded at fair value.
Changes in the fair value of such securities  available-for-sale are included in
stockholders'    equity   as   unrealized    gains    (losses)   on   securities
available-for-sale,  net  of  taxes.  Unrealized  losses  on  available-for-sale
securities,  reflecting a decline in value judged to be other than temporary are
charged to income in the Consolidated Statements of Income.  Unrealized gains or
losses  on   available-for-sale   securities   are   computed   on  a   specific
identification  basis. Premiums and discounts on investment securities available
for sale are amortized  utilizing the interest method over the contractual  term
of the assets.  Interest income on securities is accrued on the unpaid principal
balance.

     We did not hold any trading securities at December 31, 2004 or 2003.

                                       48
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

Loans Held-for-Investment

     Our loan  portfolio is primarily  comprised  of single  family  residential
loans (one-to-four  units),  and multi-family loans (five or more units).  Loans
are  generally  recorded at the  contractual  amounts  owed by  borrowers,  less
unearned loan fees and allowances for loan losses.  Interest  income on loans is
accrued on the unpaid principal balance.

Loans Held-for-Sale

     Loans that may  foreseeably  be sold prior to maturity  are  classified  as
held-for-sale.  These loans are carried at the lower of  amortized  cost or fair
value  on an  aggregate  basis  by type of  asset.  For  loans,  fair  value  is
calculated on an aggregate  basis as determined by current market investor yield
requirements.

Impaired Loans

     We evaluate loans for impairment whenever the collectibility of contractual
principal and interest payments is questionable.  A loan is impaired when, based
on current  circumstances  and events,  a creditor will be unable to collect all
amounts  contractually  due under a loan  agreement.  Large  groups  of  smaller
balance homogenous loans that are collectively  evaluated for impairment are not
subject to the evaluation of impairment on an individual basis.

     When a loan is  considered  impaired,  we measure  impairment  based on the
present  value of  expected  future  cash  flows  (over a period not to exceed 5
years) discounted at the loan's effective interest rate. However, if the loan is
"collateral-dependent"  or a probable foreclosure,  impairment is measured based
on the fair value of the  collateral.  When the measure of an  impaired  loan is
less than the recorded investment in the loan, we record an impairment allowance
equal to the excess of our  recorded  investment  in the loan over its  measured
value.

     Cash payments  received from impaired loans are recorded in accordance with
the contractual  terms of the loan. The principal portion of the payment is used
to reduce the  principal  balance of the loan,  whereas the interest  portion is
recognized as interest income.

Non-Accrual Loans

     We establish  allowances  for  delinquent  interest  equal to the amount of
accrued  interest on all loans 90 days or more past due or in foreclosure.  This
practice  effectively  places  such loans on  non-accrual  status for  financial
reporting purposes.  Loans are returned to accrual status only when the ultimate
collectibility of current interest is no longer in doubt.

Allowances for Loan Losses

     The Bank maintains a general valuation allowance for loan losses due to the
inherent  risks  in  the  loan  portfolio  that  have  yet  to  be  specifically
identified.  The Bank's loan portfolio is stratified based on factors  affecting
the perceived level and concentration of risk, such as type of collateral, level
of loan  documentation,  the  borrowers  credit  rating,  year  of  origination,
original loan-to-value ratio and geographic location.

     The  appropriate  level of general  valuation  allowance is  calculated  by
applying  reserve  factors  to the  balance of assets on which the Bank has loss
exposure.  These reserve  factors  represent the expected  likelihood of default
multiplied by the expected rate of loss.  The expected rates of loss and default
are based on the Bank's  historical  loss  experience  and  adjusted for current
conditions and trends in the Bank's lending areas.

     Based on this methodology,  the Bank recorded $3.0 million in provision for
loan losses during 2004.  The Bank did not record a loan loss  provision  during
2003 and 2002.

     Loans that require a reduced level of  documentation  at origination are an
increasing  percentage of the Bank's loan  portfolio.  On "Stated  Income/Stated
Asset"  (SISA)  loans,  the borrower  includes  information  on his/her level of
income and assets that is not subject to  verification  by the Bank.  On "Stated
Income/Verified  Assets"  ("SIVA") loans, the borrower  includes  information on
his/her  level of income,  but his/her  assets are  verified.  For "No Income/No
Asset"  (NINA)  loans,  the  borrower is not required to submit  information  on
his/her level of income or assets.  The Bank's  portfolios of  multi-family  and
other real estate loans all require full documentation by the borrowers.

                                       49
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

     The  Bank  attempts  to  mitigate  the  inherent  risk  of  making  reduced
documentation loans by evaluating the other credit characteristics of the loans,
such as the  creditworthiness  of the borrower and the loan to value ratio based
on the collateral's  appraised value at the origination date. One measure of the
creditworthiness  of the  borrower  is the  borrower's  FICO  score,  which is a
standardized credit scoring system developed by Fair Isaac & Co.

     General  allowances are provided for all loans,  regardless of any specific
allowances provided.  The determination of our general allowance for loan losses
is based on  estimates  that are affected by changes in the regional or national
economy and market conditions. Management believes, based on economic and market
conditions,  that the  general  allowance  for loan  losses  is  adequate  as of
December 31, 2004 and 2003. Should there be an economic or market downturn or if
market interest rates increase  significantly,  a material increase in the level
of loan defaults and charge-offs could result.

Loan Origination Fees and Costs

     Loan  origination  fees and  certain  direct  loan  origination  costs  are
deferred and recognized  over the lives of the related loans as an adjustment of
loan yields using the interest method.  Loan  origination  costs for residential
loans obtained from  wholesale loan brokers will generally  include fees paid to
those brokers, resulting in loan origination costs exceeding loan fees received.
These excess loan origination costs are amortized as an adjustment of loan yield
based on the expected lives of the related  loans,  including an estimate of the
prepayment  speeds  on the  portfolio.  When a  loan  is  repaid  or  sold,  any
unamortized net deferred fee balance is included in our statement of operations.

 Gain or Loss on Sale of Loans

     Mortgage  loans are  primarily  sold on a servicing  released  basis and we
recognize  cash gains or losses  immediately  in our Statement of Operations and
Comprehensive   Income.   We  have  previously  sold  mortgage  loans  and  loan
participations on a servicing retained basis with yield rates to the buyer based
upon the current market rates which may differ from the contractual  rate earned
on the  loans  sold.  Under  GAAP,  servicing  assets or  liabilities  and other
retained  interests are required to be recorded as an allocation of the carrying
amount of the loans  sold based on the  estimated  relative  fair  values of the
loans sold and any retained  interests,  less  liabilities  incurred.  Servicing
assets are evaluated for impairment based on the asset's fair value. We estimate
fair  values by  discounting  servicing  assets cash flows  using  discount  and
prepayment rates that we believe market participants would use. Servicing assets
arising from the sale of loans are  included in other  assets and were  $192,000
and  $296,000  at  December  31,  2004 and  2003,  respectively.  No  additional
servicing assets were originated in 2004, 2003 or 2002.

Core Deposit Intangible

     Loans, deposits and other assets and liabilities assumed in connection with
acquisitions  are accounted for under the purchase method of accounting.  Assets
and  liabilities  are  recorded  at  their  fair  values  as of the  date of the
acquisition  and the excess cost over fair values of the assets and  liabilities
is classified as a core deposit  intangible  asset. The Company adopted SFAS No.
142 effective January 1, 2002. Under the provisions of SFAS No. 142, the Company
amortizes these intangible assets on a straight-line  basis over their estimated
useful lives,  which is seven years.  The balance of core deposit  intangible at
December 31, 2004 was $5,333,000.  There was no impairment of the Company's core
deposit intangible as of December 31, 2004.

     The following is a projection of estimated amortization of the core deposit
intangible at December 31, for the periods indicated (in thousands):

                             2005.............................  $   2,005
                             2006.............................      2,005
                             2007.............................      1,323
                                                                ---------
                                                                $   5,333
                                                                =========
Real Estate

     Our real  estate  acquired  in  settlement  of loans  ("REO")  consists  of
property  acquired  through  foreclosure  proceedings  or by  deed  in  lieu  of
foreclosure.  Generally,  all loans greater than 60 days  delinquent  are placed
into foreclosure  and, if necessary,  a valuation  allowance is established.  We
acquire  title  to the  property  in  most  foreclosure  actions  that  are  not
reinstated  by the  borrower.  Once real estate is acquired in  settlement  of a
loan,  the  property is recorded as REO at fair  market  value,  less  estimated
selling costs. Fair value is determined by an appraisal obtained at foreclosure.
The REO balance is adjusted for any subsequent  declines in fair value through a
valuation allowance.

                                       50
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

     The recognition of gain on the sale of real estate is dependent on a number
of factors relating to the nature of the property, terms of sale, and any future
involvement of the Company or its  subsidiaries  in the property sold. If a real
estate  transaction  does not meet  certain  down  payment,  cash  flow and loan
amortization  requirements,  any gain would be deferred and recognized  under an
alternative method.

Depreciation and Amortization

     Depreciation  of office  properties and equipment is provided by use of the
straight-line  method over the  estimated  useful  lives of the related  assets.
Amortization of leasehold  improvements is provided by use of the  straight-line
method over the lesser of the life of the improvement or the term of the lease.

Securities Sold Under Agreements to Repurchase

     The Company enters into sales of securities  under agreements to repurchase
("reverse repurchase agreements").  Reverse repurchase agreements are treated as
financing  arrangements  and,  accordingly,  the  obligations  to repurchase the
securities  sold are  reflected as  liabilities  in the  consolidated  financial
statements.  The  mortgage-backed  securities  and  investments  collateralizing
reverse repurchase agreements are delivered to several major brokerage firms who
arrange  the  transactions.  These  securities  are  reflected  as assets in the
Company's consolidated  financial statements.  The brokerage firms may loan such
securities to other parties in the normal course of their  operations  and agree
to return  the  identical  securities  to the  Company  at the  maturity  of the
agreements.

 Income Taxes

     The Company files a  consolidated  Federal income tax return and a combined
California  franchise  tax  report  with  its  subsidiaries.  Income  taxes  are
accounted for using the asset and liability  method.  In the asset and liability
method,  deferred tax assets and liabilities are established as of the reporting
date for the realizable  cumulative temporary  differences between the financial
reporting and tax return basis of the Company's assets and liabilities.  The tax
rates  applied  are the  statutory  rates  expected  to be in  effect  when  the
temporary differences are realized or settled.

Stock Option Plans

     The  Company  applies  the   intrinsic-value-based   method  of  accounting
prescribed by Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock  Issued  to  Employees,   and  related   interpretations   including  SFAS
Interpretation  No. 44,  Accounting  for Certain  Transactions  involving  Stock
Compensation,  an interpretation of APB Opinion No. 25, issued in March 2000, to
account  for its  fixed-plan  stock  options.  Under this  method,  compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock  exceeded the exercise  price.  SFAS No. 123,  Accounting  for
Stock-Based  Compensation,  established  accounting and disclosure  requirements
using  a  fair-value-based   method  of  accounting  for  stock-based   employee
compensation  plans.  As allowed by SFAS No.  123,  the  Company  has elected to
continue  to apply  the  intrinsic-value-based  method of  accounting  described
above, and has adopted only the disclosure requirements of SFAS No. 123.

                                       51
<PAGE>
     The  following   table   illustrates  the  effect  on  net  income  if  the
fair-value-based  method had been applied to all outstanding and unvested awards
in each period:
<TABLE>
                                                         Year Ended December 31,
                                                  --------------------------------------
                                                     2004           2003          2002
                                                  ----------    ----------    ----------
                                                (In thousands, except per share data)
<S>                                            <C>           <C>           <C>
  Net income as reported..................     $     65,842  $     64,475  $     55,172

  Deduction:
    Total stock-based compensation expense
   determined under fair-value-based method
   for all rewards, net of tax............             (740)         (606)         (976)
                                                  ----------    ----------    ----------
    Pro forma net income..................     $     65,102  $     63,869  $     54,196
                                                  ==========    ==========    ==========
  Earnings per share:
  Basic:
    As reported...........................     $      3.95   $      3.80   $      3.22
    Pro forma.............................     $      3.90   $      3.76   $      3.16

  Diluted:
    As reported...........................     $      3.85   $      3.70   $      3.15
    Pro forma.............................     $      3.82   $      3.68   $      3.11
</TABLE>
     The fair value of each option  grant is  estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions  used for grants in 2004, 2003 and 2002,  respectively:  no dividend
yield in any year;  expected  volatility of 32%, 34% and 34%; risk free interest
rates of 4.2%,  3.8% and 5.1%; and expected  average lives of 5.5 years for 2004
and 5.5 years for 2003 and 6 years for 2002. The weighted-average  fair value of
options granted during the year are $15.82, $11.31 and $12.68 for 2004, 2003 and
2002, respectively. The Company has elected to recognize forfeitures in the year
they occur.

Earnings Per Share

     The Company  reports both basic and diluted net  earnings per share.  Basic
net  earnings  per share is  determined  by dividing net earnings by the average
number of shares of common  stock  outstanding,  while  diluted net earnings per
share is determined by dividing net earnings by the average  number of shares of
common  stock  outstanding  adjusted  for the  dilutive  effect of common  stock
equivalents.

                                       52
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

Earnings per common share have been computed based on the following:
<TABLE>
                                                         Year Ended December 31,
                                                  --------------------------------------
                                                     2004           2003          2002
                                                  ----------    ----------    ----------
                                                  (In thousands, except share data)
<S>                                            <C>           <C>           <C>
  Net income..............................     $      65,842 $      64,475 $      55,172
                                                  ==========    ==========    ==========

  Average number of common shares outstanding     16,679,927    16,986,725    17,149,712
  Effect of dilutive options..............           410,300       420,734       356,417
                                                  ----------    ----------    ----------
   Average number of common shares outstanding
   used to calculate diluted earnings per
   common share...........................        17,090,227    17,407,459    17,506,129
                                                  ==========    ==========    ==========
</TABLE>
     The number of  anti-dilutive  shares  excluded  from the  weighted  average
shares  outstanding  within the  diluted EPS  calculation  was 0, 0, and 118,100
during 2004, 2003 and 2002, respectively.

Comprehensive Income

     Accounting  principles  generally  require  that  the  recognized  revenue,
expenses,  gains and losses be included in net income.  Although certain changes
in  assets   and   liabilities,   such  as   unrealized   gains  and  losses  on
available-for-sale  securities,  are  reported  as a separate  component  of the
equity section of the consolidated  balance sheets,  such items,  along with net
income, are components of comprehensive income.

Segment Information and Disclosures

     GAAP establishes  standards to report  information about operating segments
in annual financial  statements and requires  reporting of selected  information
about operating segments in interim reports to stockholders. It also establishes
standards for related disclosures about products and services,  geographic areas
and major customers. The Company manages its business as one segment.

Derivative Instruments

     The Company accounts for derivative instruments in accordance with SFAS No.
133, Accounting for Derivative  Instruments and Hedging Activities as amended. A
derivative is considered  either an asset or liability in the balance sheets and
measured at fair value.  If a derivative is  designated as a hedging  instrument
the changes in fair value of the  derivative are either (a) recognized in income
in the period of change  together with the offsetting gain or loss on the hedged
item  or  (b)  reported  as  a  component  of  other  comprehensive  income  and
subsequently reclassified into income when the hedged risk affects income. For a
derivative  not  designated as a hedging  instrument,  changes in fair value are
recognized  in income in the period of change.  As of  December  31,  2004,  the
Company had no commitments to originate loans held for sale, and had no loan
sale commitments that would qualify as derivatives under SFAS No. 133.

Litigation

     The Company is engaged in various legal  actions  incident to the nature of
its business. Management is of the opinion that none of the litigation will have
a material effect on the Company's Consolidated Balance Sheets and Statements of
Income.

Recent Accounting Pronouncements

     In December 2004,  SFAS Statement No. 123 (revised),  Share-Based  Payment,
was issued. Statement 123 (revised) requires a public entity to measure the cost
of employee  services  received in exchange  for an award of equity  instruments
based on the grant-date fair value of the award (with limited exceptions).  That
cost will be recognized over the period which an employee is required to provide
service in exchange for the  award-the  requisite  service  period  (usually the
vesting period).  No compensation cost is recognized for equity  instruments for
which  employees do not render the requisite  service.  Employee  share purchase
plans will not result in recognition of compensation cost if certain  conditions
are  met;  those  conditions  are much the  same as the  related  conditions  in
Statement 123.


                                       53
<PAGE>
(1) Summary of Significant Accounting Policies (continued)

     A public  entity  will  initially  measure  the cost of  employee  services
received in exchange for an award of liability  instruments based on its current
fair value;  the fair value of that award will be  re-measured  subsequently  at
each reporting date through the  settlement  date.  Changes in fair value during
the requisite  service period will be recognized as compensation  cost over that
period.  The  grant-date  fair  value of  employee  share  options  and  similar
instruments  will be  estimated  using  option-pricing  models  adjusted for the
unique  characteristics of those instruments  (unless)  observable market prices
for the same or  similar  instruments  are  available).  If an  equity  award is
modified after the grant date, incremental  compensation cost will be recognized
in an amount  equal to the excess of the fair value of the  modified  award over
the fair value of the original award immediately  before the  modification.  The
Statement is effective for the Company on July 1, 2005.

     SFAS Statement No. 150,  Accounting for Certain Financial  Instruments with
Characteristics  of both  Liabilities  and Equity,  was issued in May 2003. This
Statement  establishes  standards  for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.   The  Statement  also  includes  required   disclosures  for  financial
instruments  within its scope. For the Company,  the Statement was effective for
instruments  entered into or modified  after May 31, 2003 and otherwise  will be
effective as of January 1, 2004,  except for  mandatorily  redeemable  financial
instruments.  For certain  mandatorily  redeemable  financial  instruments,  the
Statement is effective for the Company on January 1, 2005.  The  effective  date
has been deferred indefinitely for certain other types of mandatorily redeemable
financial  instruments.  The  Company  currently  does not  have  any  financial
instruments that are within the scope of this Statement.


(2) Investment Securities

     The amounts  advanced  under  agreements to resell  securities  (repurchase
agreements)  represent short-term  investments.  During the agreement period the
securities are maintained by the dealer under a written custodial agreement that
explicitly  recognizes  the Bank's  interest  in the  securities.  There were no
agreements to resell securities as of December 31, 2004. The Bank had $5,000,000
in agreements to resell  securities at December 31, 2003.  These  agreements are
classified as cash and cash equivalents in the accompanying Consolidated Balance
Sheets.

     The Bank also had  overnight  deposits on hand with the  Federal  Home Loan
Bank which totaled  $29,814,000 and $11,836,000,  respectively,  at December 31,
2004 and December 31, 2003.

Investment  securities,  available-for-sale,  are  recorded  at fair  value  and
summarized below for the periods indicated:
<TABLE>
                                                     At December 31, 2004
                                        ---------------------------------------------
                                                      Gross       Gross
                                        Historical  Unrealized  Unrealized    Fair
                                          Cost        Gains       Losses      Value
                                        ---------   ---------   ----------  --------
                                                         (In thousands)
<S>                                    <C>          <C>        <C>         <C>
Collateralized Mortgage Obligations... $ 249,781    $   1,121  $     (316) $  250,586
                                        =========   =========   ==========   ========
</TABLE>

                                       54
<PAGE>
(2) Investment Securities (continued)
<TABLE>
                                                       At December 31, 2003
                                         ------------------------------------------------
                                                        Gross         Gross
                                         Historical  Unrealized    Unrealized      Fair
                                           Cost         Gains        Losses        Value
                                        ---------     ---------   ----------     --------
                                                         (In thousands)
<S>                                   <C>         <C>          <C>           <C>
United States Government and
  Federal agency obligations..........$      200  $        --   $         --  $      200
Collateralized Mortgage Obligations...   115,992          313            (94)    116,211
                                         --------    ----------    ----------    --------
                                      $  116,192  $       313   $        (94) $  116,411
                                         ========    ==========    ==========    ========
</TABLE>
     Collateralized  Mortgage  Obligations  as of  December  31,  2004  all have
contractual maturities greater than 10 years and have expected maturities within
five years.  There were no sales of investment  securities  during 2004, 2003 or
2002.  Accrued interest on investments was $739,000 and $332,000 at December 31,
2004 and 2003, respectively.


(3) Mortgage-backed Securities

     Mortgage-backed  securities,   available-for-sale,   all  have  contractual
maturities  greater  than  10  years  and  are  summarized  below  at the  dates
indicated:
<TABLE>
                                                       At December 31, 2004
                                        --------------------------------------------------
                                                       Gross         Gross
                                        Historical  Unrealized    Unrealized       Fair
                                          Cost         Gains        Losses        Value
                                        ---------     ---------   ----------     --------
                                                            (In thousands)
<S>                                  <C>         <C>            <C>             <C>
Fannie Mae...........................$     5,752 $          43  $          --    $    5,795
FHLMC................................     90,582           682             --        91,264
                                        --------    ----------    -----------       -------
                                     $    96,334 $         725  $          --    $   97,059
                                        ========    ==========    ===========       =======
</TABLE>
<TABLE>
                                                       At December 31, 2003
                                        --------------------------------------------------
                                                        Gross        Gross
                                        Historical    Unrealized  Unrealized      Fair
                                          Cost          Gains       Losses        Value
                                        ---------     ---------   ----------     --------
                                                            (In thousands)
<S>                                  <C>         <C>            <C>              <C>
Fannie Mae...........................$     6,711 $          84  $          --    $    6,795
FHLMC................................    126,800         1,581             --       128,381
                                        --------    ----------    -----------      --------
                                     $   133,511 $       1,665  $          --    $  135,176
                                        ========    ==========    ===========      ========
</TABLE>
     There were no  mortgage-backed  securities created with loans originated by
the  Bank in  2004,  2003  or  2002.  There  were no  sales  of  mortgage-backed
securities during 2004, 2003 or 2002.

     Accrued  interest   receivable   related  to   mortgage-backed   securities
outstanding  at  December  31,  2004 and 2003  totaled  $478,000  and  $691,000,
respectively.

                                       55
<PAGE>
(4) Loans Receivable

The following is a summary of loans receivable at the periods indicated:
<TABLE>
                                                           At December 31,
                                                      ------------------------
                                                          2004         2003
                                                      -----------   ----------
                                                          (In thousands)
<S>                                                <C>            <C>
Real estate loans:
First trust deed residential loans:
     One-to-four units ........................    $   4,585,962  $  2,456,971
     Five or more units .....................          1,825,564     1,547,771
                                                      -----------   ----------
     Residential loans ........................        6,411,526     4,004,742
  Other real estate loans:
     Commercial and industrial ................          324,805       345,273
     Construction .............................           20,902         9,053
     Land .....................................               --            --
     Second trust deeds .......................            5,466         7,281
                                                      -----------   ----------
  Real estate loans ...........................        6,762,699     4,366,349
Non-real estate loans:
  Deposit accounts  ...........................              491           649
  Commercial business loans  ..................           58,869        34,424
  Consumer  ...................................           60,677        49,738
                                                      -----------   ----------
     Loans receivable .........................        6,882,736     4,451,160
Less:
  General loan valuation allowance  ...........           78,675        75,238
  Valuation allowances for impaired loans  ....              496           496
  Deferred loan origination (costs) fees ......          (34,380)        1,314
                                                      -----------   ----------
     Subtotal .................................        6,837,945     4,374,112
Less:
   Loans held-for-sale.........................               --           492
                                                      -----------   ----------
Loans receivable, net..........................    $   6,837,945  $  4,373,620
                                                      ===========   ==========
</TABLE>
     Loans serviced for others totaled $102,546,000 and $145,475,000 at December
31, 2004 and 2003, respectively.

     The Bank had outstanding  commitments to fund $681,320,000 and $246,996,000
in real estate loans at December  31, 2004 and December 31, 2003,  respectively.
Of these totals,  $681,320,000 and $246,511,000 had variable interest rates. The
Bank had  outstanding  commitments to sell real estate loans of $0 and $977,000,
respectively at December 31, 2004 and December 31, 2003.

     The Bank had undisbursed loan funds totaling $76,884,000 and $58,608,000 in
commercial   business  loans  at  December  31,  2004  and  December  31,  2003,
respectively and undisbursed  loan funds totaling  $141,862,000 and $122,791,000
in consumer loans at December 31, 2004 and December 31, 2003, respectively.

     Accrued interest  receivable  related to loans  outstanding at December 31,
2004 and 2003 totaled $21,502,000 and $15,189,000, respectively.

     Loans delinquent greater than 90 days or in foreclosure were $4,985,000 and
$3,342,000  at  December  31,  2004  and  2003,  respectively,  and the  related
allowance for delinquent interest was $256,000 and $227,000, respectively.

     Loans made to directors and executive officers (defined for this purpose as
senior vice presidents and above) totaled  $4,435,000 and $4,993,000 at December
31, 2004 and 2003, respectively.

     See Note 9 for loans that were  pledged as security  for  borrowings  as of
December 31,
2004.

                                       56
<PAGE>
(4) Loans Receivable (continued)

     The  following is a summary of the  activity in the general loan  valuation
allowance  and the  valuation  allowance  for  impaired  loans  for the  periods
indicated:
<TABLE>
                                                                      Valuation
                                                                       Allowance
                                                          General      for
                                                          Valuation    Impaired
                                                          Allowance      Loans         Total
                                                          ---------    ---------     --------
                                                                  (In thousands)
<S>                                                    <C>          <C>          <C>
Balance at December 31, 2001......................     $     72,919 $     1,850  $      74,769
  Transfers.......................................            1,354      (1,354)            --
  Charge-offs.....................................             (372)         --           (372)
  Recoveries......................................            1,322          --          1,322
                                                          ---------    ---------      --------
Balance at December 31, 2002......................           75,223         496         75,719
  Charge-offs.....................................             (103)         --           (103)
  Recoveries......................................              118          --            118
                                                          ---------    ---------      --------
Balance at December 31, 2003......................           75,238         496         75,734
  Provision for loan losses.......................            3,000          --          3,000
  Charge-offs.....................................              (19)         --            (19)
  Recoveries......................................              456          --            456
                                                          ---------    ---------      --------
Balance at December 31, 2004......................     $     78,675 $       496  $      79,171
                                                          =========    =========      ========
</TABLE>
     The Bank has  certain  loans  that  were sold with  recourse.  These  loans
totaled $76,338,000 and $91,003,000 at December 31, 2004 and 2003, respectively.
The  maximum  potential  recourse  liability  associated  with  loans  sold with
recourse  totaled  $18,320,000 and $20,476,000 at December 31, 2004 and December
31,  2003,  respectively.   Because  no  additional  losses  are  expected,  the
repurchase liability associated with these loans was eliminated during 2004.

     The following is a summary of impaired loans,  net of valuation  allowances
for impairment, for the periods indicated:
<TABLE>
                                                             At December 31,
                                                          --------------------
                                                            2004         2003
                                                          --------     -------
                                                            (In thousands)
<S>                                                    <C>         <C>
Non-accrual loans.................................     $        -- $      1,782
Modified loans....................................           1,360        1,488
                                                          --------      -------
                                                       $     1,360 $      3,270
                                                          ========      =======
</TABLE>
     The Bank  considers a loan  impaired  when  management  believes that it is
probable  that the Bank will not be able to collect  all  amounts  due under the
contractual  terms of the loan.  Estimated  impairment  losses are  recorded  as
separate  valuation  allowances  and may be  subsequently  adjusted  based  upon
changes in the  measurement  of  impairment.  Impaired  loans,  disclosed net of
valuation allowances, include non-accrual major loans (commercial business loans
with an outstanding  principal amount greater than or equal to $500 thousand and
single-family loans greater than or equal to $750 thousand,  and income property
loans  with an  outstanding  principal  amount  greater  than or  equal  to $1.5
million),  modified loans, and major loans less than 90 days delinquent in which
full payment of principal and interest is not expected to be received.




                                       57
<PAGE>
(4) Loans Receivable (continued)

     As of December 31, 2004, the Bank's total  recorded  investment in impaired
loans  identified in accordance  with SFAS 114 was $1,360,000  (after  deducting
$496,000 of impairment  allowances  attributable to such loans).  As of December
31, 2003, the total recorded investment in impaired loans was $3,270,000 (net of
$496,000 of impairment allowances).

     The  following  is a summary of  information  pertaining  to  impaired  and
non-accrual loans:
<TABLE>
                                                                   At December 31,
                                                              ------------------------
                                                                  2004         2003
                                                              -----------   ----------
                                                                  (In thousands)
<S>                                                        <C>             <C>
          Impaired loans without a valuation allowance .   $       1,360   $     3,270
          Impaired loans with a valuation allowance..      $         496   $       496
          Valuation allowance related to impaired loans.   $         496   $       496

          Total non-accrual loans......................    $       4,985   $     3,342

</TABLE>
<TABLE>
                                                       Years Ended December 31,
                                                  --------------------------------------
                                                     2004           2003          2002
                                                  ----------    ----------    ----------
                                                (In thousands, except per share data)
<S>                                            <C>           <C>           <C>
  Average investment in impaired loans....     $         602 $       4,327 $       4,982
  Interest income recognized on impaired loans $          22 $         226 $         322
  Interest income recognized on a cash basis
   on impaired loans......................     $          16 $         215 $         316
</TABLE>
     There were no commitments to lend additional  funds to borrowers whose loan
terms had been modified for any of these periods.


(5) Real Estate
<TABLE>
        The following is a summary of real estate owned at the dates indicated:
                                                                       At December 31,
                                                                   -----------------------
                                                                      2004          2003
                                                                   ---------    ----------
                                                                      (In thousands)
<S>                                                             <C>           <C>
        Real estate acquired by (or deed in lieu of)            $        --   $      1,324
        foreclosure ("REO").................................
        Valuation allowance.................................             --             --
                                                                   ---------    ----------
          Real estate, net..................................    $        --   $      1,324
                                                                   =========    ==========
</TABLE>
     Listed  below  is a  summary  of  the  activity  in the  general  valuation
allowance for real estate owned for the periods indicated (in thousands):

       Balance at December 31, 2001.............................    $     350
       Reversal of valuation allowance..........................         (150)
                                                                       -------
       Balance at December 31, 2002.............................          200
       Reversal of valuation allowance..........................         (200)
                                                                       -------
       Balance at December 31, 2003.............................           --
                                                                       -------
       Balance at December 31, 2004.............................    $      --
                                                                       =======

     At  December  31,  2004,  the Bank had  $986,000  in real  estate  held for
investment.  These  properties  were  acquired  from  borrowers in settlement of
judgments.

                                       58
<PAGE>
(5) Real Estate (continued)
<TABLE>
        The following table summarizes real estate operations, net:
                                                            For the Years Ended December 31,
                                                           ---------------------------------
                                                             2004         2003       2002
                                                           --------     --------    --------
                                                                  (In thousands)
<S>                                                     <C>         <C>          <C>
Net income from operations:
  Gain on sale of REO and real estate held for
    investment.....................................     $       496 $        884 $       765
  Other REO operations.............................            (188)        (104)       (426)
                                                           --------     --------    --------
     Real estate operations, net ..................     $       308 $        780 $       339
                                                           ========     ========    ========
</TABLE>
     The  Bank  acquired  $0,  $1,582,000  and  $1,881,000  of  real  estate  in
settlement of loans during 2004, 2003 and 2002, respectively.


(6) Office Properties, Equipment and Lease Commitments

     Office properties and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows:
<TABLE>
                                                                 At December 31,
                                                              ---------------------
                                                                2004         2003
                                                              ---------    --------
                                                                (In thousands)
<S>                                                        <C>          <C>
Land...................................................    $     6,713  $     3,861
Office buildings.......................................          6,568        5,333
Furniture, fixtures and equipment......................         17,195       14,773
Leasehold improvements.................................          9,102        8,634
Other..................................................            646        1,160
                                                              ---------    --------
                                                                40,224       33,761
Less accumulated depreciation and amortization.........         24,343       23,193
                                                              ---------    --------
                                                           $    15,881  $    10,568
                                                              =========    ========
</TABLE>
     The Bank is obligated  under  non-cancelable  operating  leases for periods
ranging  from five to thirty  years.  The leases  are for  certain of the Bank's
office  facilities.  Approximately  half of the  leases  for  office  facilities
contain  five  and ten year  renewal  options.  Minimum  rental  commitments  at
December 31, 2004 under all non-cancelable leases are as follows (in thousands):

<TABLE>
<S>                              <C>
2005.............................$     4,968
2006.............................      4,694
2007.............................      4,347
2008.............................      3,008
2009.............................        605
Thereafter.......................      1,408
                                    ---------
                                 $    19,030
                                    =========
</TABLE>
     Rent expense under these leases was  $4,836,000,  $4,690,000 and $4,673,000
for 2004,  2003 and 2002,  respectively.  Certain leases require the Bank to pay
property taxes and insurance.  Additionally, certain leases have rent escalation
clauses based on specified indices.


                                       59
<PAGE>
(7) Federal Home Loan Bank Stock

     The Bank's  investment  in FHLB  stock at  December  31,  2004 and 2003 was
$143,425,000 and $87,775,000,  respectively.  The FHLB provides a central credit
facility for member  institutions.  As a member of the FHLB system,  the Bank is
required  to own  capital  stock in the FHLB in an amount at least  equal to the
greater of 1% of the aggregate  principal amount of its unpaid home loans,  home
purchase  contracts and similar  obligations  at the end of each calendar  year,
assuming for such  purposes  that at least 30% of its assets were home  mortgage
loans,  or 4.7% of its  advances  (borrowings)  from the  FHLB.  The Bank was in
compliance with this requirement at December 31, 2004. The Bank's  investment in
FHLB stock was pledged as collateral  for advances from the FHLB at December 31,
2004 and 2003. The fair value of the Bank's FHLB stock  approximates  book value
due to the  Bank's  ability  to redeem  such  stock  with the FHLB at par value.
During 2003,  the FHLB amended the redemption  policy  requiring 5 years written
notice to redeem stock effective 2004.  Accrued  dividends on FHLB stock totaled
$1,310,000 and $711,000 at December 31, 2004 and December 31, 2003,
respectively.

(8) Deposits

        Deposit account balances are summarized as follows:
<TABLE>
                                                               At December 31,
                                                    -----------------    -----------------
                                                          2004                 2003
                                                    -----------------    -----------------
                                                     Amount        %       Amount        %
                                                    ---------   -----    ---------    ----
                                                            (Dollars in thousands)
<S>                                              <C>           <C>    <C>          <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted average
   rate of 1.61% and 1.43%)..................    $  1,328,230    35%  $  1,373,240     54%
Interest-bearing checking accounts (weighted
   average rate of 0.23% and 0.26%)..........         279,912     8        232,247      9
Passbook accounts (weighted average rate of
   1.00%                                              121,355     3        124,427      5
      and 1.10%).............................
Non-interest bearing checking accounts.......         276,438     7        239,357     10
                                                    ---------   -----    ---------    ----
                                                    2,005,935    53      1,969,271     78
                                                    ---------   -----    ---------    ----
Fixed-rate term certificate accounts:
Under six-month term (weighted average rate of
   2.06% and 1.00%)..........................         373,907    10         32,062      1
Six-month term (weighted average rate of 1.96%
   and 1.06%)................................         359,871    10         79,201      3
Nine-month term (weighted average rate of 2.27%
   and 1.25%)................................         526,587    14         15,126      1
One year to 18-month term (weighted average rate
   of 1.84% and 1.53%).......................         193,038     5        178,858      6
Two year to 30-month term (weighted average rate
   of 2.40% and 2.63%).......................          52,441     1         42,187      2
Over 30-month term (weighted average rate of
   3.71% and 3.88%)..........................         133,402     4        123,966      5
Negotiable certificates of $100,000 and greater,
   30 day to one year terms (weighted average
   rate of   1.97% and 1.25%)................         115,984     3         97,727      4
                                                    ---------   -----    ---------    ----
                                                    1,755,230    47        569,127     22
                                                    ---------   -----    ---------    ----
Total deposits (weighted average rate of 1.65%
   and 1.29%)................................    $  3,761,165   100%  $  2,538,398    100%
                                                    =========   =====    =========    ====
</TABLE>
     Certificates  of deposit,  placed  through  four major  national  brokerage
firms,   totaled   $1,192,657,000   and  $0  at  December  31,  2004  and  2003,
respectively.

     Cash  payments  for  interest on  deposits  (including  interest  credited)
totaled  $35,308,000,  $42,108,000 and  $65,830,000  during 2004, 2003 and 2002,
respectively. Accrued interest on deposits at December 31, 2004 and 2003 totaled
$7,746,000 and $895,000,  respectively,  and is included in accrued expenses and
other liabilities in the accompanying Consolidated Balance Sheets.

                                       60
<PAGE>
(8) Deposits (continued)

     Certificates  of deposit of  $100,000 or more with 30 day to one year terms
amounted to  $115,984,000  and $97,727,000 at December 31, 2004 and December 31,
2003, respectively.

     The following table indicates the maturities and weighted  average interest
rates of the Bank's deposits:

<TABLE>
                            Non-Term                                              There-
                            Accounts         2005        2006         2007        after       Total
                            ---------     ---------    ----------   ----------   ---------   --------
                                                      (Dollars in thousands)
<S>                      <C>          <C>           <C>            <C>          <C>         <C>
Deposits at
  December 31, 2004......$  2,005,935 $   1,643,035 $     70,175   $   24,980   $   17,040  $ 3,761,165
Weighted average
  Interest rates.........        1.16%         2.15%        2.75%        3.45%        3.43%        1.65%
</TABLE>
        Interest expense on deposits is summarized as follows:
<TABLE>
                                                                  For the Years Ended December 31,
                                                               -------------------------------------
                                                                  2004          2003        2002
                                                               ----------    ---------    ----------
                                                                        (In thousands)
<S>                                                         <C>           <C>          <C>
Passbook accounts.......................................    $      1,287  $      1,370 $      1,559
Money market deposits and interest-bearing checking
  accounts..............................................          20,953        21,920       24,024
Certificate accounts....................................          19,919        15,814       35,225
                                                               ----------    ---------    ----------
                                                            $     42,159  $     39,104 $     60,808
                                                               ==========    =========    ==========
</TABLE>

(9) Federal Home Loan Bank Advances

        FHLB advances consist of the following at December 31:
<TABLE>
                                                                  2004          2003
                                                               ---------      ---------
                                                                    (In thousands)
<S>                                                          <C>            <C>
    Advances from the FHLB of San Francisco with
    a weighted average interest rate of 2.59% and
    2.88%, respectively, secured by FHLB stock
    and certain real estate loans with unpaid
    principal balances of approximately $4.4
    billion at December 31, 2004,
    advances mature through 2010.........................     $3,004,600     $1,694,000
                                                              ==========     ==========
</TABLE>
     At December 31, 2004 and 2003,  accrued  interest  payable on FHLB advances
totaled  $213,000  and  $134,000,  respectively,  which is  included  in accrued
expenses and other liabilities in the accompanying Consolidated Balance Sheets.

     The Bank has a credit  facility  with the FHLB in the form of advances  and
lines of credit  which  allows  borrowings  up to 60% of the Bank's  assets,  as
computed for regulatory  purposes,  or approximately  $4,481,399 at December 31,
2004, with terms up to 30 years.

     The following is a summary of FHLB advance  maturities at December 31, 2004
(in thousands):
<TABLE>
                    <S>                               <C>
                    2005............................ $2,604,600
                    2006............................    280,000
                    2007............................     85,000
                    2008............................     10,000
                    2009............................      5,000
                    Thereafter.......................    20,000
                                                      ---------
                                                     $3,004,600
                                                      =========
</TABLE>
                                       61
<PAGE>
(9) Federal Home Loan Bank Advances (continued)

     Cash  payments for interest on  borrowings  (including  reverse  repurchase
agreements  - see Note 10)  totaled  $58,248,000,  $49,393,000  and  $67,579,000
during 2004, 2003 and 2002, respectively.

     Interest  expense on borrowings is comprised of the following for the years
indicated:
<TABLE>
                                                           For the Years Ended December 31,
                                                         ------------------------------------
                                                           2004          2003        2002
                                                         ---------     --------    ----------
                                                                  (In thousands)
<S>                                                   <C>          <C>          <C>
FHLB advances....................................     $     56,789 $     47,299 $     63,253
Reverse repurchase agreements....................            1,964        1,800        3,453
Other............................................              278          139          905
                                                         ---------     --------    ----------
                                                      $     59,031 $     49,238 $     67,611
                                                         =========     ========    ==========
</TABLE>

     Other interest  expense in 2003 and 2002 includes the  additional  accruals
and  reversals  of accrued  interest  due to the  Internal  Revenue  Service and
Franchise Tax Board. See Note 11.


(10) Securities Sold Under Agreements to Repurchase

     The Bank enters into sales of  securities  under  agreements  to repurchase
(reverse  repurchase  agreements)  which  require  the  repurchase  of the  same
securities. Reverse repurchase agreements are treated as financing arrangements,
and the obligation to repurchase  securities sold is reflected as a borrowing in
the Consolidated Balance Sheets. The mortgage-backed  securities  underlying the
agreements  were  delivered to the dealer who arranged the  transactions  or its
trustee.

     At December 31, 2004,  $187,000,000 in reverse  repurchase  agreements were
collateralized  by  mortgage-backed  securities  totaling  $80,687,000 and CMO's
totaling $116,644,000.  At December 31, 2003, $122,622,000 in reverse repurchase
agreements  were   collateralized   by   mortgage-backed   securities   totaling
$114,360,000 and CMO's with principal balances totaling $11,347,000.

        The weighted average interest rates for borrowings under reverse
repurchase agreements were 2.24% and 1.12%, respectively, at December 31, 2004
and December 31, 2003.

     Securities sold under  agreements to repurchase  averaged  $129,192,000 and
$139,568,000  during  2004  and  2003,  respectively,  and the  maximum  amounts
outstanding  at any  month-end  during  2004  and  2003  were  $192,000,000  and
$154,021,000 respectively.


     The  following  is a  summary  of  maturities  at  December  31,  2004  (in
thousands):
<TABLE>
                    <S>                               <C>
                    Up to 30 days.................... $ 12,000
                    30 to 90 days....................       --
                    Over 90 to 182 days..............  175,000
                                                      --------
                                                      $187,000
                                                      ========
</TABLE>
     Accrued interest on securities sold under agreements to repurchase which is
included  in  accrued  expenses  and  other   liabilities  in  the  accompanying
Consolidated  Balance  Sheets was $796,000 and $370,000 at December 31, 2004 and
2003, respectively.


                                       62
<PAGE>
(11)    Income Taxes

        Income taxes (benefit) consist of the following:
<TABLE>
                                                              2004         2003       2002
                                                            --------     -------     --------
                                                                   (In thousands)
<S>                                                     <C>          <C>         <C>
    Current:
      Federal.......................................    $     42,297 $    32,136 $     32,615
      State.........................................          13,747      13,842       10,866
                                                            --------     -------     --------

                                                              56,044      45,978       43,481
                                                            --------     -------     --------
    Deferred:
      Federal.......................................          (6,842)      2,694       (2,920)
      State.........................................          (1,588)     (4,456)        (412)
                                                            --------     -------     --------
                                                              (8,430)     (1,762)      (3,332)
                                                            --------     -------     --------
    Total:
      Federal.......................................          35,455      34,830       29,695
      State.........................................          12,159       9,386       10,454
                                                            --------     -------     --------
                                                        $     47,614 $    44,216 $     40,149
                                                            ========     =======     ========
</TABLE>
     A reconciliation  of the statutory federal corporate income tax rate to the
Company's effective income tax rate follows:
<TABLE>
                                                       Year Ended December 31,
                                                   --------------------------------
                                                     2004         2003       2002
                                                   ---------    -------    --------
<S>                                                <C>          <C>        <C>
Statutory federal income tax rate ..........           35.0%      35.0%      35.0%
Increase in taxes resulting from:
State franchise tax, net of federal income tax          7.0        5.6        7.1
benefit.....................................
Other, net..................................             --        0.1         --
                                                   ---------    -------    --------
Effective rate..............................           42.0%      40.7%      42.1%
                                                   =========    =======    ========
</TABLE>

     Cash  payments  for  income  taxes  totaled  $53,471,000,  $38,727,000  and
$44,257,000 during 2004, 2003 and 2002, respectively.

     There were no income taxes  receivable at December 31, 2004 or December 31,
2003.


                                       63
<PAGE>
(11) Income Taxes (continued)

     Listed below are the significant components of the net deferred tax (asset)
and liability:
<TABLE>
                                                                  At December 31,
                                                              -----------------------
                                                                 2004          2003
                                                              ----------    ---------
                                                                 (In thousands)
<S>                                                        <C>           <C>
Components of the deferred tax asset:
  Bad debts...........................................     $   (36,064)  $   (36,965)
  Pension expense.....................................          (5,565)       (4,763)
  State taxes.........................................          (4,303)       (2,745)
  Core deposit intangible asset.......................          (2,535)       (2,147)
  Other...............................................          (4,374)       (3,443)
                                                              ----------    ---------
    Total deferred tax asset..........................         (52,841)      (50,063)
                                                              ----------    ---------
Components of the deferred tax liability:
  Loan fees...........................................           3,346        11,002
  FHLB stock dividends................................          23,820        21,776
  Tax effect of unrealized gain on
     securities available-for-sale....................             644           792
  Other...............................................             451           491
                                                              ----------    ---------
    Total deferred tax liability......................          28,261        34,061
                                                              ----------    ---------
Net deferred tax asset................................     $   (24,580)  $   (16,002)
                                                              ==========    =========
</TABLE>
     The Company did not have a valuation  allowance  for the deferred tax asset
at December  31, 2004 or 2003,  as it is more likely than not that the  deferred
tax asset will be realized.

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 2000.
The  adjustments  proposed  by the  IRS  were  primarily  related  to  temporary
differences as to the  recognition of certain  taxable income and expense items.
While  the  Company  had  provided  for  deferred  taxes for  federal  and state
purposes,  the change in the period of recognition of certain income and expense
items  resulted in interest due to the IRS and the Franchise Tax Board  ("FTB").
Interest  accruals  of  $260,000  and $0 were  recorded  during  2004 and  2003,
respectively for interest on amended  returns.  During 2004,  interest  payments
totaling  $252,000  were paid in  settlement  for tax years  1999 and 2000.  The
balance of accrued  interest  payable  for  amended  returns  was  $408,000  and
$400,000 as of December 31, 2004 and December 31, 2003, respectively.

     The Bank is required to use the specific  charge-off  method of  accounting
for bad debts for Federal income tax purposes.  Prior to 1995, the Bank used the
reserve method of accounting for bad debts. The  Consolidated  Balance Sheets at
December 31, 2004 and 2003 do not include a tax liability of $5,356,000  related
to the adjusted  base year bad debt reserve that was created when we were on the
reserve method. The base year reserve is subject to recapture if: (1) we fail to
qualify as a "bank" for federal income tax purposes;  (2) certain  distributions
are made with  respect to the stock of the Bank;  (3) the bad debt  reserves are
used for any  purpose  other than to absorb bad debt  losses;  or (4) there is a
change in federal  tax law.  Management  does not expect any of these  events to
occur.


                                       64
<PAGE>
(12) Stockholders' Equity and Earnings Per Share

     The Company's stock charter authorizes 5,000,000 shares of serial preferred
stock. As of December 31, 2004, no preferred shares had been issued.

Regulatory Capital

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators  that, if undertaken,  could have a direct  material effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to qualitative  judgments by the regulators about asset risk weightings,
and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of total and Tier I  capital  (as  defined  in the  regulations)  to risk
weighted  assets  (as  defined).  Management  believes  that the Bank  meets all
capital adequacy requirements to which it is subject as of December 31, 2004.

     As of  December  31,  2004,  the  most  recent  notification  from  the OTS
indicated that the Bank was well capitalized under the regulatory  framework for
prompt corrective  action.  There are no conditions or events since December 31,
2004 that management believes have changed the Bank's classification.

     The following table summarizes the Bank's  regulatory  capital and required
capital as of the dates indicated:
<TABLE>
                                                          December 31, 2004
                                         -----------------------------------------------------
                                                                      Tier 1
                                          Tangible      Core         Risk-based    Risk-based
                                          Capital       Capital       Capital        Capital
                                         ----------    ----------   ------------   -----------
                                                        (Dollars in thousands)
<S>                                   <C>           <C>           <C>            <C>
Actual capital:
   Amount.............................$  446,662    $  446,662    $   446,662    $  499,151
   Ratio.............................       5.99%         5.99%         10.70%        11.96%
FIRREA minimum required capital:
   Amount.............................$  111,933    $  298,489    $        --    $  333,838
   Ratio..............................      1.50%         4.00%            --%         8.00%
FIRREA well capitalized required capital:
   Amount.............................$       --    $  373,111    $   250,378    $  417,297
   Ratio..............................        --%         5.00%          6.00%        10.00%
</TABLE>
<TABLE>
                                                          December 31, 2003
                                         -----------------------------------------------------
                                                                      Tier 1
                                         Tangible      Core         Risk-based     Risk-based
                                          Capital       Capital       Capital       Capital
                                         ----------    ----------   ------------   -----------
                                                        (Dollars in thousands)
<S>                                   <C>           <C>           <C>            <C>
Actual capital:
   Amount.............................$  408,524    $  408,524    $   408,524    $  443,867
   Ratio..............................      8.48%         8.48%         14.66%        15.92%
FIRREA minimum required capital:
   Amount.............................$   72,254    $  192,678    $        --    $  223,005
   Ratio..............................      1.50%         4.00%            --%         8.00%
FIRREA well capitalized
 required capital:
   Amount.............................$       --    $  240,848    $   167,254    $  278,757
   Ratio..............................        --%         5.00%          6.00%        10.00%

</TABLE>


                                       65
<PAGE>
(12) Stockholders' Equity and Earnings Per Share (continued)

     The  payment  of  dividends  is  subject  to  certain  federal  income  tax
consequences.  Specifically,  the Bank is  capable  of paying  dividends  to the
Company in any year without  incurring tax liability  only if such  dividends do
not exceed both the tax basis  current  year income and profits and  accumulated
tax income and profits as of the beginning of the year.

     Thirty days' prior notice to the OTS of the intent to declare  dividends is
required for the  declaration  of such  dividends by the Bank. The OTS generally
allows  a  savings   institution   which  meets  its  fully  phased-in   capital
requirements  to  distribute  without OTS  approval  dividends up to 100% of the
institution's  net income for the  applicable  calendar  year plus  retained net
income for the two prior calendar years.  However,  the OTS has the authority to
preclude the declaration of any dividends or adopt more stringent amendments to
its capital regulations.

     The Company may loan up to $6,000,000 to the Employee Stock  Ownership Plan
("ESOP") under a line of credit loan. At December 31, 2004, the outstanding loan
to the ESOP totaled  $45,000.  At December 31, 2003, the outstanding loan to the
ESOP  totaled  $104,000.  Interest on any  outstanding  loan balance is due each
December  31.  Interest  varies based on the Bank's  monthly cost of funds.  The
average rates paid during 2004 and 2003 were 1.91% and 2.18%, respectively.

     The Company  maintains a Shareholder  Rights Plan ("Rights  Plan") which is
designed to protect shareholders from attempts to acquire control of the Company
at an  inadequate  price.  Under the  Rights  Plan,  the owner of each  share of
Company  stock  received a  dividend  of one right  ("Right")  to  purchase  one
one-thousandth  of a share of a new series of preferred  stock for its estimated
long term value of $200. In the event of certain  acquisitions of 15% or more of
the voting  stock or a tender  offer for 15% or more of the voting  stock of the
Company,  each holder of a Right who exercises such Right will receive shares of
the Company  with a market  value equal to two times the  exercise  price of the
Right. Also, in the event of certain business combination transactions following
the  acquisition  by a person of 15% or more of the Company  stock,  each Rights
holder will have the right to receive upon exercise of the Right common stock of
the surviving company in such transaction having a market value of two times the
exercise price of the Right. The Company may redeem the Rights at any time prior
to such  acquisition  or  tender  offer  should  the  Board  of  Directors  deem
redemption to be in its stockholders' best interests.

(13) Employee Benefit Plans

     The Bank maintains a qualified defined  contribution plan established under
Section 401 (k) of the Internal  Revenue Code,  as amended (the "401(k)  Plan").
Participants  are permitted to make  contributions on a pre-tax basis, a portion
of which is matched by the Bank. The 401(k) Plan expense was $500,000,  $540,000
and $310,000 for 2004, 2003 and 2002, respectively.

     The Bank has a  Supplementary  Executive  Retirement  Plan  ("SERP")  which
covers any  individual  employed by the Bank as its Chief  Executive  Officer or
Chief  Operating  Officer.  The  pension  expense  for the SERP was  $1,381,000,
$1,287,000  and  $1,161,000 in 2004,  2003 and 2002,  respectively.  The SERP is
unfunded. The expected contribution to the SERP during 2005 is $287,000.

     The  discount  rates used in  determining  the  actuarial  value of benefit
obligations  were 5.75% and 6.00%,  respectively,  as of  December  31, 2004 and
2003. The rate of increase in future compensation levels used in determining the
pension  cost for the SERP was 4.0% as of December 31, 2004 and 4.0% as of 2003.
The plan had no assets at December 31, 2004 or 2003.

                                       66
<PAGE>
(13) Employee Benefit Plans (continued)

     The  following  table sets forth the funded  status of the SERP and amounts
recognized in the Company's financial statements for the years indicated:
<TABLE>
                                                                          At December 31,
                                                                       ---------------------
                                                                         2004         2003
                                                                       ---------    --------
                                                                         (In thousands)
<S>                                                                <C>           <C>
Change in Benefit Obligation
       Projected benefit obligation, beginning of the year.....     $   10,185   $    9,161
       Service cost............................................            488          447
       Interest cost...........................................            607          586
       Benefits paid...........................................           (286)        (287)
       Actuarial gain..........................................            754          278
                                                                       ---------    --------
       Projected benefit obligation, end of the year...........     $   11,748   $   10,185
                                                                       =========    ========
Change in Plan Assets
       Benefits Paid...........................................     $     (286)  $       --
       Employer contributions..................................            286           --
       Funded status...........................................        (11,748)     (10,185)
       Unrecognized transition obligation......................             --           --
       Unrecognized prior service cost.........................             15          149
       Unrecognized loss.......................................          2,717        2,115
                                                                       ---------    --------
       Net amount recognized...................................     $   (9,016)  $   (7,921)
                                                                       =========    ========
Components of Net Periodic Benefit Cost
       Service cost............................................     $      488   $      447
       Interest cost...........................................            607          586
       Amortization of net loss................................            151          119
       Amortization of unrecognized prior service cost.........            135          135
                                                                       ---------    --------
       Pension cost............................................     $    1,381   $    1,287
                                                                       =========    ========
</TABLE>
     The projected benefit obligation,  accumulated benefit obligation, and fair
value of assets were $11,748,000,  $9,944,000, and $0 respectively,  at December
31, 2004 and  $10,185,000,  $8,604,000,  and $0,  respectively,  at December 31,
2003.

     The Bank has a profit sharing plan (the "ESOP") for all eligible  employees
and officers who have  completed  one year of  continuous  service.  The ESOP is
accounted for in accordance  with SOP 93-6. At December 31, 2004,  the ESOP held
4.46% of the  outstanding  stock of the Company.  Profit sharing expense for the
years ended  December 31, 2004,  2003 and 2002 was  $2,530,000,  $2,030,000  and
$2,024,000,  respectively.  The amount of the  contribution  made by the Bank is
determined each year by the Board of Directors,  but is not to exceed 15% of the
participants' aggregated  compensation.  The Bank does not offer post-retirement
benefits under this plan.

     At December 31, 2004 and 2003 total  allocated ESOP shares were 695,245 and
767,486 shares,  respectively.  At December 31, 2004 and 2003 total  unallocated
ESOP  shares  were  1,162  and 3,426  shares,  respectively.  The fair  value of
unallocated  ESOP shares  totaled  $60,000 and $149,000 at December 31, 2004 and
2003, respectively.

Stock Compensation Plans

     At  December  31,  2004,  the  Company  had  two  stock-based  compensation
programs,  which are  described  below.  The Company  applies APB Opinion 25 and
related   interpretations   in  accounting  for  its  plans.   Accordingly,   no
compensation cost has been recognized for its stock compensation plans.


                                       67
<PAGE>
(13) Employee Benefit Plans (continued)

     The  Company  applies  the   intrinsic-value-based   method  of  accounting
prescribed by Accounting  Principles Board (APB) Opinion No. 25,  Accounting for
Stock  Issued  to  Employees,   and  related   interpretations   including  SFAS
Interpretation  No. 44,  Accounting  for Certain  Transactions  involving  Stock
Compensation,  an interpretation of APB Opinion No. 25, issued in March 2000, to
account  for its  fixed-plan  stock  options.  Under this  method,  compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock  exceeded the exercise  price.  SFAS No. 123,  Accounting  for
Stock-Based  Compensation,  established  accounting and disclosure  requirements
using  a  fair-value-based   method  of  accounting  for  stock-based   employee
compensation  plans.  As allowed by SFAS No.  123,  the  Company  has elected to
continue  to apply  the  intrinsic-value-based  method of  accounting  described
above, and has adopted only the disclosure requirements of SFAS No. 123.

     Under the 1994 Stock Option and Stock  Appreciation  Rights Plan (the "1994
Plan"),  the  Company  may  grant  options  to  employees  of the Bank for up to
3,000,000  shares of common stock,  subject to  limitations  set forth under the
1994 Plan.  Under the 1994 Plan,  the exercise  price of each option  equals the
market value of the  Company's  stock on the date of the grant,  and the maximum
term of an option is 10 years.  Options  typically  begin to vest on the  second
anniversary date of the grant.

     The Company  also has a stock option plan for outside  directors,  the 1997
Non-employee  Directors Stock Incentive Plan (the "Directors  Stock Plan").  The
Directors Stock Plan provides for the issuance of up to 400,000 shares of common
stock to  non-employee  directors  of the Company.  The  exercise  price of each
option equals the market value of the Company's  stock on the date of the grant,
and the maximum term of an option is 10 years plus one month.  Options typically
vest 100% on the one year anniversary date of the grant.

The following table  summarizes  information  about stock option activity during
the periods indicated:
<TABLE>
                                                                 --------------------------------
                 Options Outstanding                               2004         2003      2002
                                                                 ---------   ---------   --------
     (Weighted average option prices)                                      (In shares)

<S>                                                              <C>        <C>         <C>
Beginning of Year ($19.68, $17.08 and $15.51)..............       808,248     857,682     819,915
       Granted ($42.24, $29.55 and $26.75).................       131,785     150,510     134,900
       Exercised ($13.20, $12.73 and $10.98)...............      (150,011)   (149,664)    (33,006)
       Canceled ($30.67, $26.89 and $20.53)................       (64,564)    (50,280)    (64,127)
                                                                 ---------   ---------   --------
End of Year ($48.07, $19.68 and $17.08)....................       725,458     808,248     857,682
                                                                 =========   =========   ========
       Shares exercisable at December 31, ($17.39, $15.50
         and $13.41).......................................       354,398     352,004     407,401
                                                                 =========   =========   ========
</TABLE>
     Additional  information  with  respect  to  stock  options  outstanding  at
December 31, 2004 follows:
<TABLE>
                                                                  Price Ranges
                                              -----------------------------------------------------
                                              ($6.94 - $16.13) ($16.14 - $27.05)  ($27.06 - $43.00)
Options outstanding:
<S>                                           <C>               <C>               <C>
Number of outstanding shares.................    276,671           173,312            275,475
Weighted-average contractual life ...........       3.83              5.63               7.96
Weighted-average exercise price .............     $13.28            $23.07             $35.44

Options exercisable:

Number of exercisable shares.................    207,778           115,880             30,740
Weighted-average exercise price .............     $12.75            $22.08             $31.06
</TABLE>

                                       68
<PAGE>
(14) Parent Company Financial Information

     The following condensed parent company financial information should be read
in conjunction with the other Notes to the Consolidated Financial Statements.

<TABLE>
CONDENSED BALANCE SHEETS

                                                                      At December 31,
                                                                  ----------------------
                                                                    2004         2003
                                                                  ---------    ---------
                                                                     (In thousands)
<S>                                                            <C>          <C>
Assets:
Cash.......................................................    $    23,607  $    18,990
Other assets...............................................            908          449
Investment in subsidiary...................................        453,074      417,236
                                                                  ---------    ---------
                                                               $   477,589  $   436,675
                                                                  =========    =========
Liabilities and Stockholders' Equity:
Other liabilities..........................................            115          108
Stockholders' equity.......................................        477,474      436,567
                                                                  ---------    ---------
                                                               $   477,589  $   436,675
                                                                  =========    =========
</TABLE>
<TABLE>
                                                                Year Ended December 31,
                                                           ----------------------------------
CONDENSED STATEMENTS OF INCOME AND                           2004         2003        2002
                                                           --------     --------    ---------
                 COMPREHENSIVE INCOME                               (In thousands)
<S>                                                     <C>         <C>           <C>
Dividends received from Bank.......................     $    30,000 $        --  $     20,000
Equity in undistributed net income of subsidiary ..          36,077      64,605        35,254
Other expense, net.................................            (235)       (130)          (82)
                                                           --------     --------    ---------
Net Income.........................................          65,842      64,475        55,172

Change in other comprehensive income, net of taxes.            (204)     (1,110)         (790)
                                                           --------     --------    ---------
Comprehensive Income...............................     $    65,638 $    63,365  $     54,382
                                                           ========     ========    =========
</TABLE>
<TABLE>
                                                               Year Ended December 31,
                                                           --------------------------------
CONDENSED STATEMENTS OF CASH FLOWS                           2004        2003        2002
                                                           --------    --------     -------
                                                                   (In thousands)
<S>                                                     <C>         <C>         <C>
Net Cash Flows from Operating Activities:
  Net income.......................................     $   65,842  $   64,475  $    55,172
  Adjustments to reconcile net income to
       net cash provided by operating activities:
    Equity in undistributed
       net income of subsidiary....................        (36,077)    (64,605)     (35,254)
    Depreciation expense...........................             --          62          160
    Other..........................................           (415)       (646)          25
                                                           --------    --------     -------
    Net cash provided (used) by operating activities        29,350        (714)      20,103
                                                           --------    --------     -------
Cash Flows from Investing Activities:
    Decrease in fixed assets.......................             --         197           --
                                                           --------    --------     -------
    Net cash used in investing activities..........             --         197           --
                                                           --------    --------     -------
Cash Flows from Financing Activities:
    Purchase of treasury stock.....................        (28,049)       (965)      (8,832)
    (Increase) decrease in unreleased shares.......             72         472         (597)
    Exercise of stock options......................          3,244       2,053        1,010
                                                           --------    --------     -------
Net cash provided by (used in) financing activities        (24,733)      1,560       (8,419)
                                                           --------    --------     -------
Net increase in cash...............................          4,617       1,043       11,684
Cash at beginning of period........................         18,990      17,947        6,263
                                                           --------    --------     -------
Cash at end of period..............................     $   23,607  $   18,990  $    17,947
                                                           ========    ========     =======
</TABLE>
                                       69
<PAGE>
(15) Quarterly Results of Operations (unaudited)

     Summarized  below are the  Company's  results of  operations on a quarterly
basis for 2004, 2003 and 2002:
<TABLE>
                                                                                                 Diluted
                                        Provision                                     Basic     Earnings
                   Interest  Interest   for Loan     Other  Non-Interest   Net      Earnings       per
                   Income    Expense     Losses     Income    Expense     Income    per Share     Share
                   -------   --------   --------    ------    -------    --------    -------    --------
                                           (In thousands, except per share data)
<S>             <C>        <C>         <C>        <C>       <C>        <C>           <C>        <C>
First quarter
2004............$   58,517 $  20,804   $      --  $   3,461 $   15,282 $   14,977     $   0.88  $   0.86
2003............    60,839    23,324          --      3,348     14,116     15,478         0.92      0.89
2002............    70,776    36,788          --      2,699     15,311     12,368         0.72      0.70
Second quarter
2004............$   61,360 $  21,373   $      --  $   4,040 $   15,351 $   16,553     $   0.99  $   0.96
2003............    59,412    22,350          --      3,393     13,429     15,633         0.92      0.90
2002............    65,923    32,943          --      2,494     14,233     12,287         0.71      0.70
Third quarter
2004............$   64,999 $  26,133   $      --  $   9,326 $   17,694 $   17,872     $   1.09  $   1.06
2003............    58,344    21,814          --      5,590     13,522     18,203         1.07      1.04
2002............    64,741    31,312          --      8,711     14,107     16,226         0.94      0.92
Fourth quarter
2004............$   77,846 $  32,880   $   3,000  $   4,469 $   18,045 $   16,440     $   1.00  $   0.97
2003............    57,286    20,854          --      4,410     14,522     15,161         0.89      0.87
2002............    62,438    27,376          --      4,170     14,561     14,291         0.84      0.83
Total year
2004............$  262,722 $ 101,190   $   3,000  $  21,296 $   66,372 $   65,842     $   3.95  $   3.85
2003............   235,881    88,342          --     16,741     55,589     64,475         3.80      3.70
2002............   263,878   128,419          --     18,074     58,212     55,172         3.22      3.15
</TABLE>

(16) Fair Value of Financial Instruments

     The  following   table  presents  fair  value   information  for  financial
instruments for which a market exists:
<TABLE>
                                                                 At December 31,
                                            --------------------------------------------------------
                                                        2004                          2003
                                            ---------------------------    -------------------------
                                            Carrying                       Carrying
                                              Value         Fair Value       Value        Fair Value
                                            ----------    -------------    ----------     ----------
                                                                 (In thousands)
<S>                                      <C>           <C>              <C>           <C>
Mortgage-backed securities ............  $     97,059  $       97,059   $     135,176 $     135,176
U.S. Government securities ............            --              --             200           200
Collateralized mortgage obligations ...       250,586         250,586         116,211       116,211
Loans held-for-sale ...................            --              --             492           494

</TABLE>


                                       70
<PAGE>
(16) Fair Value of Financial Instruments (continued)

     The  following   table  presents  fair  value   information  for  financial
instruments shown in the Company's  Consolidated  Balance Sheets for which there
is no readily available market. The fair values for these financial  instruments
were  calculated by  discounting  expected cash flows.  Because these  financial
instruments  have not been  evaluated for possible  sale and because  management
does not intend to sell these financial  instruments,  the Company does not know
whether the fair values  shown below  represent  values at which the  respective
financial instruments could be sold.
<TABLE>
                                                                  At December 31,
                                            -----------------------------------------------------------
                                                        2004                            2003
                                            ----------------------------    ---------------------------
                                                             Calculated                     Calculated
                                             Historical      Fair Value     Historical      Fair Value
                                                Cost           Amount          Cost           Amount
                                            ------------    ------------    -----------    ------------
                                                                   (In thousands)
<S>                                      <C>             <C>             <C>            <C>
ASSETS
Adjustable loans:
  Single family .......................  $   4,576,671   $    4,619,960  $   2,439,962  $    2,527,181
  Multi-family ........................      1,817,727        1,820,991      1,526,186       1,582,830
  Commercial  .........................        309,491          315,807        314,524         336,909
Fixed rate loans:
  Single family .......................          9,210            9,390         13,665          14,610
  Multi-family ........................         10,250           10,571         21,585          23,459
  Commercial  .........................         17,710           18,342         30,749          33,807
Commercial business loans..............         59,993           59,845         34,424          35,372
Construction loans.....................         20,288           21,476          9,053           9,370
Consumer loans.........................         61,396           61,641         57,670          49,998
Non-performing loans ..................          4,985            4,985          3,342           3,342

LIABILITIES
Fixed-term certificate accounts .......      1,755,230        1,754,787        569,127         578,754
Non-term deposit accounts .............      2,005,935        2,005,935      1,969,271       1,969,271
Borrowings ............................      3,191,600        3,189,486      1,816,622       1,843,890
</TABLE>
     GAAP specifies that fair values should be calculated  based on the value of
one unit. The estimates do not  necessarily  reflect the price the Company might
receive  if it  were  to sell  the  entire  holding  of a  particular  financial
instrument at one time.

     Fair value  estimates are based on the following  methods and  assumptions,
some  of  which  are  subjective  in  nature.   Changes  in  assumptions   could
significantly affect the estimates.

Cash and Cash Equivalents

     The carrying amounts  reported in the Consolidated  Balance Sheets for this
item approximate fair value.

Investment Securities and Mortgage-Backed Securities

     Fair values are based on bid prices  published in financial  newspapers  or
bid quotations received from national securities dealers.

Loans Receivable

     The  portfolio  is  segregated  into those loans with  adjustable  rates of
interest  and those  with  fixed  rates of  interest.  Fair  values are based on
discounting  future cash flows by the current  rate  offered for such loans with
similar remaining maturities and credit risk. The amounts so determined for each
loan category are reduced by the Bank's allowance for loans losses which thereby
takes into consideration  changes in credit risk. At December 31, 2004, the Bank
had outstanding  commitments to fund $681,320,000 in real estate mortgage loans,
and  undisbursed  funds totaling  $76,884,000  in commercial  business loans and
$141,862,000  in  consumer  loans,   respectively.   All  loan  commitments  are
substantially at fair value. There is no value associated with the Bank's
commitment to originate these loans.

                                       71
<PAGE>
(16) Fair Value of Financial Instruments (continued)

Non-performing Loans

     The carrying amounts reported in the Consolidated  Balance Sheets for these
assets approximate fair value.

Deposits

     The fair value of deposits  with no stated term,  such as regular  passbook
accounts,  money market accounts and checking  accounts,  is defined by SFAS No.
107 as the carrying  amounts reported in the  Consolidated  Balance Sheets.  The
fair value of deposits with a stated maturity,  such as certificates of deposit,
is based on  discounting  future cash flows by the current rate offered for such
deposits with similar remaining maturities.

Borrowings

     For short-term  borrowings,  fair value  approximates  carrying value.  For
long-term  fixed  rate  borrowings,  fair value is based on  discounting  future
contractual cash flows by the current interest rate paid on such borrowings with
similar remaining maturities.


                                       72
<PAGE>





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Board of Directors and Stockholders

FirstFed Financial Corp. and Subsidiary

We have audited the consolidated  balance sheet of FirstFed  Financial Corp. and
subsidiary as of December 31, 2004, and the related  consolidated  statements of
income,  stockholders'  equity,  and cash flows for the year ended  December 31,
2004.  These  financial  statements are the  responsibility  of management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of FirstFed Financial
Corp. and subsidiary as of December 31, 2004,  and the  consolidated  results of
their operations and their  consolidated  cash flows for the year ended December
31, 2004, in conformity with  accounting  principles  generally  accepted in the
United States of America.

We have also  audited,  in  accordance  with  standards  of the  Public  Company
Accounting  Oversight  Board  (United  States),  the  effectiveness  of FirstFed
Financial Corp. and subsidiary's internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  and our report  dated  February 24, 2005  expressed  an  unqualified
opinion thereon.



Grant Thornton LLP



Los Angeles, California
February 24, 2005










                                       73

<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







The Board of Directors
FirstFed Financial Corp.:

We  have  audited  the  accompanying  consolidated  balance  sheet  of  FirstFed
Financial  Corp  and  subsidiary  as of  December  31,  2003,  and  the  related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for each of the years in the  two-year  period  ended  December  31, 2003.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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 consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of FirstFed Financial
Corp.  and  subsidiary  as of  December  31,  2003,  and the  results  of  their
operations  and their  cash flows for each of the years in the  two-year  period
ended December 31, 2003, in conformity with U.S. generally  accepted  accounting
principles.



KPMG LLP



Los Angeles, California
January 28, 2004



                                       74
<PAGE>
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

Effective September 2, 2004, based on a recommendation of the Audit Committee of
our Board of Directors,  we dismissed our independent public  accountants,  KPMG
LLP.  KPMG LLP's  reports on our  financial  statements  for the past two fiscal
years ended  December 31, 2003 did not contain an adverse  opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty,  audit scope or
accounting  principles.  During the two fiscal years ended December 31, 2003 and
during the subsequent interim period through the date of dismissal, September 2,
2004, there were not any disagreements between us and KPMG LLP on any matters of
accounting  principles or practices,  financial statement disclosure or auditing
scope or procedure,  or any reportable events as defined under Item 304(a)(1)(v)
of Regulation S-K promulgated by the Securities and Exchange Commission.

A copy of a letter addressed to the Securities and Exchange Commission from KPMG
LLP  stating  that it  agrees  with the  above  statements  is  incorporated  by
reference into this Form 10-K as Exhibit 16.

Also  effective  September  2, 2004,  based upon a  recommendation  of the Audit
Committee of our Board of Directors,  we engaged the firm of Grant  Thornton LLP
to be our  independent  registered  public  accounting  firm. We did not consult
Grant Thornton LLP prior to September 2, 2004 with respect to the application of
accounting principles to a specified transaction,  either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements,
or concerning any disagreement or reportable event with KPMG LLP.

Item 9A.  Controls and Procedures
--------  -----------------------

Management's Evaluation of Disclosure Controls and Procedures

(a)  Under  the  supervision  and  with  the   participation  of  the  Company's
     management,   including  its  principal  executive  officer  and  principal
     accounting  officer,  the Company conducted an evaluation of its disclosure
     controls  and  procedures,  as such term is defined  under  Rule  13a-14(c)
     promulgated  under the  Securities  Exchange  Act of 1934,  as amended (the
     "Exchange Act"), within 90 days of the filing date of this report. Based on
     their evaluation,  the Company's  principal executive officer and principal
     accounting  officer  concluded that the Company's  disclosure  controls and
     procedures are effective to alert them to any material information relating
     to the  Company  (including  its  consolidated  subsidiaries)  that must be
     included in the  Company's  periodic  Securities  and  Exchange  Commission
     filings.

(b)  There have been no significant  changes (including  corrective actions with
     regard to significant deficiencies or material weaknesses) in the Company's
     internal controls or in other factors that could significantly affect these
     controls  subsequent to the date of the evaluation  referenced in paragraph
     (a) above.

(c)  The Company intends to review and evaluate the design and  effectiveness of
     its  disclosure  controls  and  procedures  from  time to time in  order to
     improve its controls and procedures.  If any deficiencies are discovered in
     the future,  corrective action will be taken in order to ensure that senior
     management  has timely access to all material  financial and  non-financial
     information  concerning the Company's  business.  While management believes
     that  the  Company's  disclosure  controls  and  procedures  are  currently
     effective to achieve these results,  future events  affecting the Company's
     business  may  cause  management  to modify  its  disclosure  controls  and
     procedures.

Management's Report on Internal Control over Financial Reporting

Management is responsible for  establishing  and maintaining  adequate  internal
control  over  financial  reporting  for the  Company.  In order to evaluate the
effectiveness  of internal  control  over  financial  reporting,  as required by
Section 404 of the Sarbanes-Oxley  Act,  management has conducted an assessment,
including  testing,   using  the  criteria  in  Internal  Control  -  Integrated
Framework,  issued by the Committee of Sponsoring  Organizations of the Treadway
Commission  (COSO).  The  Company's  system of internal  control over  financial
reporting is designed to provide reasonable  assurance regarding the reliability
of financial reporting and the preparation of financial  statements for external
purposes in accordance with generally accepted accounting principles. Because of
its inherent  limitations,  internal  control over  financial  reporting may not
prevent  or  detect  misstatements.  Also,  projections  of  any  evaluation  of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

                                       75
<PAGE>
Based on its  assessment,  management has concluded that the Company  maintained
effective  internal  control over  financial  reporting as of December 31, 2004,
based on criteria in Internal Control - Integrated Framework issued by the COSO.
Management's  assessment of the effectiveness of the Company's  internal control
over  financial  reporting as of December  31,  2004,  has been audited by Grant
Thornton LLP, an independent  registered  public  accounting  firm, as stated in
their report which is included herein.

Management's Certifications


The  certifications of the Company's Chief Executive Officer and Chief Financial
Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and
32 in the  Company's  Form 10-K.  In  addition,  in 2004,  the  Company's  Chief
Executive  Officer  provided  to the New York  Stock  Exchange  the  annual  CEO
certification  regarding  the  Company's  compliance  with  the New  York  Stock
Exchange's corporate governance listing standards.

                                       76
<PAGE>

               REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
             FIRM ON MANAGEMENT'S ASSESSMENT OF THE EFFECTIVENESS OF
         INTERNAL CONTROL OVER FINANCIAL REPORTING AND THE EFFECTIVENESS
                  OF INTERNAL CONTROL OVER FINANCIAL REPORTING


Board of Directors and Stockholders
FirstFed Financial Corp. and Subsidiary

We have audited management's  assessment,  included in the accompanying FirstFed
Financial Corp. and subsidiary's  "Management's  Report on Internal Control over
Financial  Reporting," that FirstFed  Financial Corp. and subsidiary  maintained
effective  internal  control over  financial  reporting as of December 31, 2004,
based on criteria established in Internal  Control--Integrated  Framework issued
by the Committee of Sponsoring  Organizations of the Treadway Commission (COSO).
FirstFed  Financial  Corp.  and  subsidiary's   management  is  responsible  for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility  is to express an opinion on management's  assessment and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion,  management's  assessment  that  FirstFed  Financial  Corp.  and
subsidiary  maintained effective internal control over financial reporting as of
December 31, 2004, is fairly stated, in all material respects, based on criteria
established  in  COSO.  Also  in  our  opinion,  FirstFed  Financial  Corp.  and
subsidiary maintained, in all material respects, effective internal control over
financial  reporting as of December 31, 2004,  based on criteria  established in
COSO.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated  balance sheet of
FirstFed Financial Corp. and subsidiary as of December 31, 2004, and the related
consolidated statements of income,  stockholders' equity, and cash flows for the
year ended December 31, 2004 and our report dated February 24, 2005 expressed an
unqualified opinion.



Grant Thornton LLP

Los Angeles, California
February 24, 2005

                                       77
<PAGE>
                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  regarding directors and executive officers appearing on page 5
of the Proxy Statement for the Annual Meeting of  Stockholders' to be held April
20, 2005 (the "Proxy Statement") is incorporated herein by reference.

ITEM 11 -- EXECUTIVE COMPENSATION

     Information  regarding  executive  compensation  appearing on page 8 of the
Proxy Statement is incorporated herein by reference.

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  regarding  security ownership of certain beneficial owners and
management  appearing on pages 2, 3 and 11 of the Proxy  Statement  incorporated
herein by reference.  Information  regarding securities  authorized for issuance
under equity  compensation  plans appearing on page 11 of the Proxy Statement is
incorporated herein by reference.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information   regarding  certain  relationships  and  related  transactions
appearing on page 11 of the Proxy Statement is incorporated herein by reference.

ITEM 14 --PRINCIPAL ACCOUNTING FEES AND SERVICES

     Information  regarding principal  accounting fees and services appearing on
page 15 of the Proxy Statement is incorporated herein by reference.

                                       78
<PAGE>

                                     PART IV

ITEM 15 -- EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8K

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
 EXHIBIT
 NUMBER
 -------------
  (3.1) Restated Certificate of Incorporation filed as Exhibit 3.1 to Form 10-K
        for the fiscal year ended December 31, 1999 and incorporated by
        reference.
  (3.2) By-laws filed as Exhibit (1)(a) to Form 8-A dated September 4,1987 and
        incorporated by reference.
  (4.1) Amended and Restated Rights Agreement dated as of September 25, 1998,
        filed as Exhibit 4.1 to Form 8-A/A, dated September 25, 1998 and
        incorporated by reference.
 (10.1) Deferred Compensation Plan filed as Exhibit 10.3 to Form 10-K for the
        fiscal year ended December 31, 1983 and incorporated by reference.
 (10.2) Supplemental Executive Retirement Plan dated January 16, 1986 filed as
        Exhibit 10.5 to Form 10-K for the fiscal year ended December 31, 1992
        and incorporated by reference.
 (10.3) Change of Control Agreement effective September 26, 1996 filed as
        Exhibit 10.4 to Form 10-Q for the Quarter ended September 30, 1996 and
        Amendment filed as Exhibit 10.3 10.4 for change of control to Form 10-Q
        for the Quarter ended September 30, 2000 and incorporated by reference.
 (10.4) 1997 Non-employee Directors Stock Incentive Plan filed as Exhibit 1 to
        Form S-8 dated August 12, 1997 and Amendment filed as Exhibit 10.5 to
        Form 10-Q for the Quarter ended September
        30, 2000, and incorporated by reference.
   (16) Letter from KPMG LLP dated September 8, 2004.
   (21) Registrant's sole subsidiary is First Federal Bank of California, a
        federal savings bank.
   (23) Independent Auditors' consent. (24) Power of Attorney (included at page
        78).
 (31.1) Certification of Babette E. Heimbuch, Chairman, President and Chief
        Executive Officer of the Company, pursuant to Rule 13a-14(a) of the
        Exchange Act.
 (31.2) Certification of Douglas J. Goddard, Executive Vice President and Chief
        Financial Officer of the Company, pursuant to Rule 13a-14(a) of the
        Exchange Act.
 (32.1) Certification of Babette E. Heimbuch, Chairman, President and Chief
        Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350.
 (32.1)  Certification of Douglas J. Goddard, Executive Vice President and Chief
        Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350.

     This 2004 Annual Report on Form 10-K and the Proxy  Statement  have already
been  furnished to each  stockholder of record who is entitled to receive copies
thereof.  Copies of these items will be furnished without charge upon request in
writing by any  stockholder of record on March 1, 2005 and any beneficial  owner
of Company stock on such date who has not previously  received such material and
who so represents in good faith and in writing to:

                               Corporate Secretary
                            FirstFed Financial Corp.
                             401 Wilshire Boulevard
                         Santa Monica, California 90401

     Other  exhibits will be supplied to any such  stockholder at a charge equal
to the Company's cost of copying, postage, and handling.

(b) Reports on Form 8-K

     The Company  filed  reports on Form 8-K during the last quarter of the year
ended  December 31, 2004 on the following  dates:  October 7, 2004,  October 29,
2004,  November 19, 2004,  and December 20, 2004. The reports are related to the
release of the Company's  third quarter  earnings and the  disclosure of certain
other financial data.



                                       79
<PAGE>

                                   SIGNATURES

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



                                 FIRSTFED FINANCIAL CORP.,
                                 a Delaware corporation

Dated this 24th day of February, 2005
                                         By: /s/ Babette E. Heimbuch
                                             -----------------------
                                                 Babette E. Heimbuch
                                                 Chief Executive Officer


                                       80
<PAGE>


                                POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes  Babette E. Heimbuch
and Douglas J. Goddard,  and each of them or either of them, as attorney-in-fact
to sign on his or her  behalf  as an  individual  and in every  capacity  stated
below,  and to file  all  amendments  to the  Registrant's  Form  10-K,  and the
Registrant hereby confers like authority to sign and file in its behalf.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has be signed by the following  persons on behalf of the  Registrant  and in the
capacities indicated on the 24th day of February, 2005.



SIGNATURE                              TITLE

                                    Chairman of the Board and
                                    Chief Executive Officer (Principal Executive
/s/ Babette E. Heimbuch             Officer)
---------------------------------
    Babette E. Heimbuch

                                    Director, President and Chief Operating
/s/ James P. Giraldin               Officer
---------------------------------
    James P. Giraldin

                                    Executive Vice President and Chief Financial
/s/ Douglas J. Goddard              Officer
---------------------------------   (Principal Financial Officer)
    Douglas J. Goddard

/s/ Brenda J. Battey                Senior Vice President and Controller
---------------------------------   (Principal Accounting Officer)
    Brenda J. Battey

/s/ Jesse Casso, Jr.                   Director
---------------------------------
    Jesse Casso, Jr.

/s/ Christopher M. Harding             Director
---------------------------------
    Christopher M. Harding

/s/ William G. Ouchi                   Director
---------------------------------
    William G. Ouchi

/s/ William P. Rutledge                Director
---------------------------------
    William P. Rutledge

/s/ Charles F. Smith                   Director
---------------------------------
    Charles F. Smith

/s/ Steven L. Soboroff                 Director
---------------------------------
    Steven L. Soboroff

/s/ John R. Woodhull                   Director
---------------------------------
    John R. Woodhull




                                       81
<PAGE>

                                   Exhibit 16





                Exhibit 99.1 of Form 8-K filed September 9, 2004


                                  Exhibit 99.1




September 8, 2004







Securities and Exchange Commission
Washington, D.C.  20549

Ladies and Gentlemen:


We were previously principal accountants for FirstFed Financial Corp. and, under
the  date of  January  28,  2004,  we  reported  on the  consolidated  financial
statements of FirstFed  Financial  Corp. as of and for the years ended  December
31,  2003  and  2002.  On  September  2,  2004,  our  appointment  as  principal
accountants was terminated.  We have read FirstFed  Financial Corp.'s statements
included  under Item  4.01(b) of its Form 8-K dated  September  8, 2004,  and we
agree with the statements  contained in paragraph (b), except that we are not in
a position to agree or disagree with FirstFed  Financial Corp.'s statements that
the change was approved by the Board of Directors.


Very truly yours,

KPMG LLP

                                       82
<PAGE>

                                  Exhibit 31.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Babette Heimbuch, certify that:

1)  I have reviewed this annual report on Form 10-K of FirstFed Financial Corp.;

2)  Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

3)  Based on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in all material
    respects the consolidated balance sheets, consolidated statements of income
    and cash flows of the registrant as of, and for, the periods presented in
    this annual report;

(4) The registrant's other certifying officer and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial
    reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
    registrant and have:

     (i)  Designed such disclosure controls and procedures, or caused such
          disclosure controls and  procedures to be designed  under our
          supervision,  to ensure that  material  information  relating  to
          the  registrant,  including  its consolidated  subsidiaries,  is made
          known to us by  others  within  those entities,  particularly  during
          the period in which this  annual  report is being prepared;

     (ii) Designed such internal  control over  financial  reporting,  or caused
          such internal  control  over  financial  reporting  to  be  designed
          under  our supervision,  to provide reasonable  assurance regarding
          the reliability of financial  reporting  and  the  preparation  of
          financial  statements  for external  purposes  in  accordance  with
          generally   accepted   accounting principles;

     (iii)Evaluated the  effectiveness  of the registrant's  disclosure controls
          and procedures  and  presented  in  this  report  our  conclusions
          about  the effectiveness of the disclosure  controls and procedures,
          as of the end of the period covered by this report based on such
          evaluation; and

     (iv) Disclosed in this report any change in the  registrant's  internal
          control over  financial  reporting  that occurred  during the
          registrant's  fourth fiscal quarter that has  materially  affected,
          or is reasonably  likely to materially  affect,  the  registrant's
          internal  control  over  financial reporting;

(5) The registrant's other certifying officer and I have disclosed, based on our
    most recent evaluation of internal control over financial reporting, to the
    registrant's auditors and the audit committee of the registrant's board of
    directors:

     (i)  All significant deficiencies and material weaknesses in the design
          or operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (ii) Any fraud, whether or not material, that involves management or
          other employees who have a significant role in the registrant's
          internal control over financial reporting; and

(6) The registrant's other certifying officer and I have indicated in this
    annual report whether or not there were significant changes in internal
    control over financial reporting or in other factors that could
    significantly affect internal control over financial reporting subsequent to
    the date of our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.

Dated this 24th day of February, 2005

                                            By: /s/ Babette E. Heimbuch
                                                -----------------------
                                                 Babette E. Heimbuch
                                                 Chief Executive Officer

                                       83
<PAGE>
                                  Exhibit 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Douglas J. Goddard, certify that:

(1) I have reviewed this annual report on Form 10-K of FirstFed Financial Corp.;

(2) Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

(3) Based on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in all material
    respects the consolidated balance sheets, consolidated statements of income
    and cash flows of the registrant as of, and for, the periods presented in
    this annual report;

(4) The registrant's other certifying officer and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) and internal control over financial
    reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
    registrant and have:

    (i)  Designed such disclosure controls and procedures or caused such
         disclosure controls and procedures to be designed under our
         supervision, to ensure that material information relating to the
         registrant, including its consolidated subsidiaries, is made known to
         us by others within those entities, particularly during the period in
         which this annual report is being prepared;

    (ii) Designed such internal control over financial reporting, or caused such
         internal control over financial reporting to be designed under our
         supervision, to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial statements for
         external purposes in accordance with generally accepted accounting
         principles;

    (iii)Evaluated the effectiveness of the registrant's disclosure controls and
         procedures and presented in this report our conclusions about the
         effectiveness of the disclosure controls and procedures, as of the end
         of the period covered by this report based on such evaluation; and

    (iv) Disclosed in this report any change in the registrant's internal
         control over financial reporting that occurred during the registrant's
         fourth fiscal quarter that has materially affected, or is reasonably
         likely to materially affect, the registrant's internal control over
         financial reporting;

(5) The registrant's other certifying officer and I have disclosed, based on our
    most recent evaluation of internal control over financial reporting, to the
    registrant's auditors and the audit committee of the registrant's board of
    directors:

    (i) All significant deficiencies and material weaknesses in the design
        or operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

    (ii)Any fraud, whether or not material, that involves management or
        other employees who have a significant role in the registrant's
        internal control over financial reporting; and

(6) The registrant's other certifying officer and I have indicated in this
    annual report whether or not there were significant changes in internal
    control over financial reporting or in other factors that could
    significantly affect internal control over financial reporting subsequent to
    the date of our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.

Dated this 24th day of February, 2005.

                                            By: /s/ Douglas J. Goddard
                                                -----------------------
                                                    Douglas J. Goddard
                                                    Chief Financial Officer
                                       84
<PAGE>
                                  EXHIBIT 32.1

                                CEO CERTIFICATION

The undersigned, as Chief Executive Officer hereby certifies, to the best of her
knowledge and belief, that:

(1)  the Form 10-K of FirstFed  Financial  Corp.  (the "Company") for the annual
     period  ended  December  31,  2004  (the  "Report  ")   accompanying   this
     certification  fully  complies  with the  requirements  of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)  the information  contained in the Report fairly  presents,  in all material
     respects,  the consolidated  balance sheets and consolidated  statements of
     income of the Company for such period.

This  certification is made solely for purposes of complying with the provisions
of Section 906 of the Sarbanes-Oxley Act of 2003, 18 U.S.C. Section 1350.

                                    FIRSTFED FINANCIAL CORP.
                                    ------------------------
                                    Registrant


Date: February 24, 2005
                           By: /s/ Babette E. Heimbuch
                               -----------------------
                                   Babette E. Heimbuch
                                   Chief Executive Officer

                                       85
<PAGE>


                                  EXHIBIT 32.2


                                CFO CERTIFICATION

The undersigned, as Chief Financial Officer hereby certifies, to the best of his
knowledge and belief, that:

(1)  the Form 10-K of FirstFed  Financial  Corp.  (the "Company") for the annual
     period  ended  December  31,  2004  (the  "Report  ")   accompanying   this
     certification  fully  complies  with the  requirements  of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)  the information  contained in the Report fairly  presents,  in all material
     respects,  the consolidated  balance sheets and consolidated  statements of
     income of the Company for such period.

This  certification is made solely for purposes of complying with the provisions
of Section 906 of the Sarbanes-Oxley Act of 2003, 18 U.S.C. Section 1350.


                                    FIRSTFED FINANCIAL CORP.
                                    ------------------------
                                    Registrant



Date: February 24, 2005
                           By: /s/ Douglas J. Goddard
                               ----------------------
                                   Douglas J. Goddard
                                   Chief Financial Officer and
                                   Executive Vice President


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