UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-K
(Mark One)
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 1999
                                      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
        incorporation or organization)                   Identification No.)

            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 theAct:  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

The  approximate   aggregate   market  value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of  February 11 , 2000:  $195,035,678.


The number of shares of Registrant's  $0.01 par value common stock outstanding
as of February 11, 2000: 17,910,873

                  DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Annual Meeting of Stockholders,  April 26,
2000 (Parts III & IV).

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]



                                      1
<PAGE>





                           FirstFed Financial Corp.
                                    Index


                                                                       Page

Part I  Item 1.  Business..........................................       3
        Item 2.  Properties........................................      23

        Item 3.  Legal Proceedings.................................      23
        Item 4.  Submission of Matters to a Vote of Security Holders     23

Part II
        Item 5   Market for Registrant's Common Equity and Related
                 Stockholder Matters...............................      23

        Item 6.  Selected Financial Data...........................      24
        Item 7.  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations...............      25
        Item 8.  Financial Statements and Supplementary Data.......      47
                 Notes to Consolidated Financial Statements........      51
                 Independent Auditors' Report......................      82
        Item 9.  Changes In and Disagreements with Accountants on
                 Accounting and Financial Disclosure...............      83

Part III
        Item 10. Directors and Executive Officers of the Registrant      83
        Item 11. Executive Compensation............................      83
        Item 12. Security Ownership of Certain Beneficial Owners and
                 Management........................................      83
        Item 13. Certain Relationships and Related Transactions....      83

Part IV
        Item 14  Exhibits, Consolidated Financial Statement
                 Schedules, and Reports on Form 8K.................      83

Signatures.........................................................      85
Power of Attorney..................................................      86


                                      2
<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 earnings 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 principal  business of the Bank is  attracting  savings and checking
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, 1999,  the Company had assets  totaling  $3.9  billion,
compared  to $3.7  billion at December  31, 1998 and $4.2  billion at December
31, 1997.  The Company  recorded  net  earnings of $33.3  million for the year
ended December 31, 1999,  after an  extraordinary  item of $2.2 million from a
loss  recorded  on the  early  extinguishment  of debt.  Net  earnings  before
extraordinary  items  totaled  $35.4  million for the year ended  December 31,
1999. Net earnings before  extraordinary  items are comparable to net earnings
of $34.6  million for the year ended  December  31,  1998 and net  earnings of
$23.1 million for the year ended December 31, 1997.

      The Bank derives its  revenues  principally  from  interest on loans and
investments,  loan  origination  fees and  servicing  fees on loans sold.  Its
major items of expense are  interest on deposits and  borrowings,  and general
and administrative expense.

      As of February 11, 2000, the Bank operated 24 retail  savings  branches,
all located in Southern  California.  Permission  to operate all  full-service
branches  must be  granted  by the Office of Thrift  Supervision  ("OTS").  In
addition  to the retail  branches,  the Bank has a retail  call  center  which
conducts  transactions with deposit  customers by telephone,  four retail loan
offices,  a wholesale  loan office and  "LENDFFB",  a loan  origination  group
which operates primarily by telephone.

      The Bank's  principal loan market is Southern  California.  During 1999,
loans  originated by the LENDFFB unit were  originated  primarily for sale. As
of the beginning of the year 2000,  LENDFFB will originate  portfolio loans as
well as loans for sale.

      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."

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,  housing demand and  affordability and general levels
of interest rates.

      The Bank's  primary  market  within  Southern  California is Los Angeles
County.  The economic  climate in Los Angeles County remains strong.  However,
according to the UCLA Anderson Forecast for December,  1999 ("UCLA Forecast"),
"Though  economic  activity  is healthy in the  region,  rates of growth  have
generally diminished this year."


                                      3
<PAGE>



      The real estate  markets in the greater Los Angeles area have  continued
to improve,  but at a slower rate than 1998.  According to the UCLA  Forecast,
home  values in the Los  Angeles  County  area  increased  by 7%  during  1999
compared  to 1998 and are  expected  to  increase  by 4% in 2000.  Demand  for
housing by immigrants  in the Los Angeles area has helped to  strengthen  home
sales in the region.

      Consistent  with the  strong  real  estate  climate in the  greater  Los
Angeles  area,  the Bank's  non-performing  assets  declined to 0.40% of total
assets at the end of 1999  from  0.84% at the end of 1998 and 0.95% at the end
of 1997.

      The Bank monitors the sufficiency of the collateral  supporting its loan
portfolio based on many factors including the property  location,  the date of
origination  and the  original  loan-to-value  ratio.  The  Bank  adjusts  its
general   allowance  for  anticipated   loan  losses  as  a  result  of  these
evaluations.  There  was  no  provision  for  loan  losses  during  1999.  The
provision was $7.2 million and $20.5 million in 1998 and 1997, respectively.

      The ratio of the general  valuation  allowance to the Bank's assets with
loss  exposure   (the  Bank's  loan   portfolio,   real  estate  owned,   loan
commitments,  and  potential  loan  buybacks)  was  2.15%  at the  end of 1999
compared  to  2.26%  at the end of 1998  and  1.86%  at the end of  1997.  The
general  valuation  allowance ratio,  which decreased  slightly as of December
31, 1999 due to asset growth,  remains sufficient to cover the Banks estimated
losses.  See  "Business  -  Loan  Loss  Experience   Summary"  for  additional
information.

      The Bank also  maintains a separate  valuation  allowance  for  impaired
loans and a repurchase  liability for loans sold with recourse.  See "Business
-  Loan  Loss  Experience  Summary"  for  additional   information   regarding
valuation allowances for these loans.

      Current  Interest Rate  Environment.  The Federal  Reserve Board ("FRB")
increased  interest rates three times during the last half of 1999,  decreased
interest  rates three times  during the last  quarter of 1998 and did not make
any changes to interest  rates during 1997.  In an  increasing  interest  rate
environment,  the Bank's interest rate spread typically decreases (savings and
borrowing  costs increase  immediately  while the loan  portfolio  yield stays
approximately  the same or  increases  slowly.)  The  reverse  is true  during
periods of decreasing  interest  rates.  Changes in interest rates have a less
severe  impact  on  the  Bank's  loan  portfolio  due  to  the  interest  rate
adjustment features of its loans.  However,  changes in interest rates for the
Bank's loan  portfolio  have an inherent time lag resulting  from  operational
and  regulatory  constraints  which  do not  allow  the  Bank to pass  through
monthly  changes  in the  primary  index  utilized  for  the  majority  of its
adjustable  rate loan customers for a period of ninety days.  Therefore,  even
though  interest rates were  increasing  during 1999, the Bank's interest rate
spread  increased  to 2.50% in 1999  from  2.43% in 1998 due to this time lag.
It is expected that the Bank's  interest rate spread will decrease  during the
first part of the year 2000 as a result of the interest rate  increases at the
end of 1999. See  "Asset-Liability  Management"  and "Components of Earnings -
Net Interest  Income" in  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" for additional information.

      Competition.  The Bank experiences  strong competition in attracting and
retaining  deposits  and  originating  real  estate  loans.  It  competes  for
deposits  with  many  of  the  nation's   largest  savings   institutions  and
commercial banks that have significant operations in Southern California.

      The Bank also competes 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,  the Bank's  ability to attract and retain  deposits  depends upon
the quality and variety of services  offered,  the  convenience  of the Bank's
locations and its financial strength as perceived by depositors.

      The  Bank  competes  for  real  estate  loans   primarily  with  savings
institutions,  commercial  banks,  mortgage  banking  companies  and insurance
companies.  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.

                                      4
<PAGE>

      Environmental  Concerns.  Under  certain  circumstances,  such  as if it
actively  participates  in the management or operation of a property  securing
its loans,  the Bank could have  liability  for any  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.   The  Bank  has   adopted   environmental   underwriting
requirements  when  considering  loans secured by  properties  which appear to
have environmentally high risk characteristics  (e.g.  commercial,  industrial
and  construction  of all types,  which may contain  friable  asbestos or lead
paint  hazards).  These  requirements  are  intended to  minimize  the risk of
environmental  hazard  liability.  The Bank's  policies  are also  designed to
avoid  the  potential  for  liability   imposed  on  lenders  who  assume  the
management of a property.

      Business  Concentration.  The Bank has 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 the  Bank's  operations  or
earnings prospects.

      Yields Earned and Rates Paid. Net interest  income,  the major component
of core earnings for the Bank,  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
Financial  Condition  and Results of  Operations - Overview and  Components of
Earnings - Net Interest Income" for further analysis and discussion.

Lending Activities

      General.  The Bank's 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  multi-family  dwellings.  The loan  portfolio
also includes loans secured by commercial and industrial properties.

      For an analysis  of loan  portfolio  composition  and an analysis of the
types of loans  originated,  see  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations - Balance Sheet Analysis - Loan
Portfolio and Loan Composition."

      Origination  and Sale of Loans.  The Bank  employs  loan  officers on an
incentive  compensation  basis to obtain  qualified  applicants for loans. The
Bank also  derives  business  from other  sources  such as  mortgage  brokers,
borrower  referrals,  direct  telephone  sales  and  clients  from its  retail
banking branches.

      Loan  originations  were $944.1 million in 1999,  $637.0 million in 1998
and $481.3 million in 1997. Loan origination  volume improved in 1999 and 1998
due to an increase in real estate activity in the Bank's market areas.

      Loans sold totaled  $133.0  million in 1999,  $379.6 million in 1998 and
$52.4 million in 1997.  For the year ended  December 31, 1999,  $120.6 million
in loans  were  originated  for sale  compared  to $382.4  million in 1998 and
$86.6 million during 1997.  Loans originated for sale totaled 13%, 60% and 18%
of loan originations  during 1999, 1998 and 1997,  respectively.  The decrease
is due to borrower preference for adjustable rate loans.

      Loans  held-for-sale  at  December  31,  1999,  1998 and 1997  were $2.3
million,  $16.5 million and $40.4 million,  respectively,  constituting 0.08%,
0.59% and 1.30%, respectively, of the Bank's total loans at such dates.

      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 the Bank may be exposed  to price  adjustments  as a
result of fluctuations in market interest rates.


                                      5
<PAGE>
      The Bank structures  mortgage-backed  securities with loans from its own
loan portfolio for use 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  ("FNMA").  No loans
were  converted  into  mortgage-backed  securities in 1999,  1998 or 1997. All
loans  underlying  mortgage-backed  securities  were  originated  by the Bank.
Therefore,  mortgage-backed securities generally have the same experience with
respect  to  prepayment,  repayment,  delinquencies  and other  factors as the
remainder of the Bank's portfolio.

      The portfolio of  mortgage-backed  securities was recorded at fair value
as of December 31, 1999,  1998 and 1997.  Negative fair value  adjustments  of
$6.6 million,  $413 thousand and $78 thousand,  net of taxes, were recorded in
stockholders' equity at December 31, 1999, 1998 and 1997, respectively.

      The Bank  serviced  $377.7  million in loans for other  investors  as of
December  31,  1999.  $178.7  million of these loans were sold under  recourse
arrangements.  The Bank has an  additional  $15.6  million  in loans that were
formed into mortgage-backed  securities with recourse features, but were still
owned by the Bank as of December 31,  1999.  Due to  regulatory  requirements,
the Bank maintains  capital for loans sold with recourse as if those loans had
not been sold. The Bank had been active in these types of  transactions in the
past, but has not entered into any new recourse  arrangements  since 1989 when
a change in the capital  regulations  took  effect.  Loans sold with  recourse
are analyzed in  determining  the adequacy of the  repurchase  liability.  The
decrease  in the  principal  balance  of loans  sold with  recourse  to $178.7
million at the end of 1999 from  $203.0  million at the end of 1998 and $218.1
million  at  the  end of  1997  was  due to  loan  amortization,  payoffs  and
foreclosures.

      Interest Rates,  Terms and Fees. The Bank makes  residential  adjustable
mortgage  loans  ("AMLs")  with 30 and 40 year terms and interest  rates which
adjust each month based upon the Federal  Home Loan Bank's  Eleventh  District
Cost  of  Funds  Index  ("Index").   (See   "Asset-Liability   Management"  in
"Management's  Discussion  and Analysis of Financial  Condition and Results of
Operations.")  While the monthly payment adjusts annually,  the maximum annual
change in the payment is limited to 7.5%.  Any  additional  interest  due as a
result  of a  rising  Index  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.  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  the  Bank's  credit  standards  and  enters  into a
separate written  agreement with the Bank.  Additionally,  the new borrower is
required to pay assumption fees customarily charged for similar transactions.

      The Bank offers two primary AML products  based on the Index,  the "COFI
ONE" and the "COFI  THREE."  The  initial  interest  rate on the COFI THREE is
below-market  for the first three months of the loan term. The COFI ONE has no
below-market  initial  interest rate but starts with a pay rate similar to the
COFI THREE.  This results in immediate  negative  amortization  but allows the
loan to earn at the fully indexed  interest rate  immediately.  The difference
in  negative  amortization  on these  two  products  is  minor.  The Bank also
originates  adjustable rate loans based on the one year U.S. Treasury Security
and 12 month average U.S. Treasury Security rates.

      Under current  portfolio loan programs,  the Bank normally lends no more
than 95% of a single  family  property's  appraised  value at the time of loan
origination.  In addition,  the Bank has special  Community  Reinvestment  Act
loan programs in which it lends up to 95% of the property's appraised value.

      The Bank  generally  requires that  borrowers  obtain  private  mortgage
insurance  on loans in  excess  of 80% of the  appraised  property  value.  On
certain loans  originated  for the portfolio,  the Bank charges  premium rates
and/or fees in exchange  for waiving  the  insurance  requirement.  Management
believes that the additional  rates and fees charged on these loans compensate
the  Bank  for the  additional  risks  associated  with  this  type  of  loan.
Subsequent  to the  origination  of a portfolio  loan,  the Bank may  purchase
private  mortgage  insurance  with  its  own  funds.  Under  certain  mortgage
insurance  programs,  the Bank acts as co-insurer  and  participates  with the
insurer in  absorbing  any future  loss.  As of  December  31,  1999 and 1998,
loans  which had  co-insurance  totaled  $176.7  million  and $206.5  million,
respectively.  Loans over 80%  loan-to-value,  for which  there was no private
mortgage  insurance,  totaled  $274.2 million at December 31, 1999 compared to
$265.0 million at December 31, 1998 and $163.8 million at December 31, 1997.

                                      6
<PAGE>

      Because AML  loan-to-value  ratios may increase above those  established
at the time of loan origination due to negative amortization,  the Bank rarely
lends in  excess  of 90% of the  appraised  value on AMLs.  When the Bank does
lend in excess  of 90% of the  appraised  value,  additional  fees and  higher
rates are charged.  The amount of negative  amortization  recorded by the Bank
increases  during periods of rising  interest  rates. As of December 31, 1999,
negative amortization on all loans serviced by the Bank was immaterial.

      Although  regulations permit a maximum  amortization  period of 40 years
for real estate  secured home loans and 30 years for other real estate  loans,
the  majority  of  the  Bank's  real  estate  loans   provide  for  a  maximum
amortization  term of 30 years or less.  Loans with 40-year terms  constituted
8% and 4% of loan originations during 1999 and 1998, respectively.

      The following  table shows the contractual  remaining  maturities of the
Bank's loans at December 31, 1999:
<TABLE>
<CAPTION>

                                                        Loan Maturity Analysis
                                                          Maturity Period
                                                    >1 Year
                                  Total     1 Year     To 5      >5-10     >10-20     >20-30     >30
                                 Balance    or Less    Years      Years    Years      Years     Years
                                                       (Dollars In Thousands)
<S>                              <C>         <C>      <C>      <C>        <C>         <C>      <C>

Interest rate sensitive  loans:
 AMLs...............            $3,113,079  $56,391  $274,621  $457,928  $1,321,376  $915,057  $87,706
 Fixed-rate loans...                20,696    1,636     7,132     6,577       2,674     2,673        4
 Commercial loans...                 8,140    3,321     4,239       580           -         -        -
 Consumer and other loans            1,888    1,058       830         -           -         -        -
 Total..............            $3,143,803  $62,406  $286,822  $465,085  $1,324,050  $917,730  $87,710

</TABLE>

Non-accrual, Past Due, Impaired and Restructured Loans

      The Bank  establishes  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 the end of each of the periods
indicated:
<TABLE>
<CAPTION>

                                % of           % of          % of           % of          % of
                          1999  Total   1998   Total    1997 Total    1996  Total  1995   Total
                                             (Dollars In Thousands)
<S>                      <C>     <C>   <C>      <C>    <C>    <C>    <C>     <C>   <C>     <C>
Non-accrual Loans:
Single family..........  $9,626   70%  $12,270   42%  $16,799  49%   $25,602  35%  $25,991  26%
Multi-family...........   3,995   29    13,005   44    15,785  46     44,754  62    69,579  70
Commercial.............     225    1     4,040   14     1,533   5      2,223   3     3,313   4
Other..................       -    -         -    -         -   -          -   -       220   -
   Total Non-accrual
    Loans.............. $13,846  100%  $29,315  100%  $34,117 100%  $72,579  100%  $99,103 100%
</TABLE>
      The  allowance  for  delinquent  interest,  based on loans past due more
than 90 days or in  foreclosure,  totaled $720  thousand,  $1.9 million,  $1.8
million,  $4.2 million and $5.6 million at December 31, 1999, 1998, 1997, 1996
and 1995, respectively.

      The Bank's modified loans result primarily from temporary  modifications
of principal and interest payments.  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, 1999, the Bank had modified  loans totaling $7.4 million,  net of
loan loss  allowances of $2.6 million.  This compares with $11.0 million,  net
of loan loss  allowances  of $3.3 million as of December 31, 1998. No modified
loans were 90 days or more  delinquent as of December 31, 1999 or December 31,
1998.

                                      7
<PAGE>


      Statement of Financial  Accounting  Standards  No. 114,  "Accounting  by
Creditors  for   Impairment  of  a  Loan"  ("SFAS  No.  114"),   requires  the
measurement  of impaired  loans based on the present value of expected  future
cash flows discounted at the loan's effective  interest rate, or at the loan's
observable  market price or at the fair value of its collateral.  SFAS No. 114
does not apply to large  groups of  homogeneous  loans  that are  collectively
reviewed for impairment.

      Pursuant  to SFAS No.  114, a loan is  considered  to be  impaired  when
management  believes  that it is  probable  that the Bank  will be  unable  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,  which are  disclosed  net of valuation  allowances,  include
non-accrual  major loans (single  family loans with an  outstanding  principal
amount greater than or equal to $500 thousand and  multi-family and commercial
real estate loans with an outstanding  principal  amount greater than or equal
to  $750  thousand),  modified  loans,  and  major  loans  less  than  90 days
delinquent  in which full payment of principal and interest is not expected to
be received.

      Valuation  allowances  for impaired  loans  totaled $2.6  million,  $7.6
million  and  $9.8  million  as  of  December   31,   1999,   1998  and  1997,
respectively.  The following is a summary of impaired loans,  net of valuation
allowances for impairment, for the periods indicated:


                                           December 31,
                                  1999          1998            1997
                                      (Dollars In Thousands)


Non-accrual loans .....       $  2,079       $  5,934        $  8,260
Modified loans.........          6,534          5,976           8,090
Other impaired loans...          2,820          5,613           9,335
                              $ 11,433       $ 17,523        $ 25,685



      When a loan is considered  impaired,  the Bank measures 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,  the Bank
records an  impairment  allowance  equal to the excess of the Bank's  recorded
investment  in the loan over its  measured  value.  All  impaired  loans as of
December 1998 had valuation  allowances  established.  As of December 31, 1999
and December 31, 1997 impaired  loans  totaling $2.1 million and $2.5 million,
respectively,  had no valuation allowances established.  The following summary
details  impaired loans  measured  using the present value of expected  future
cash flows discounted at the effective  interest rate of the loan and impaired
loans measured using the fair value method for the periods indicated:



                                          December 31,
                                1999            1998        1997
                                      (Dollars In Thousands)


Present value method.       $      -       $  1,067       $  1,067
Fair value method ...         11,433         16,456         24,618
Total impaired loans.       $ 11,433       $ 17,523       $ 25,685




                                      8
<PAGE>


     The present value of an impaired  loan's expected future cash flows  will
change from one  reporting  period to the next  because of the passage of time
and also may change  because of revised  estimates  in the amount or timing of
those cash flows.  The Bank records 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.  The Bank also records 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 the Bank's  valuation
allowance  for  impaired  loans  during  the  periods  indicated  (dollars  in
thousands):

Balance at December 31, 1996..            $12,350
  Provision for loan losses...              7,345
  Net charge-offs.............             (9,920)
Balance at December 31, 1997..              9,775
  Provision for loan losses...                640
  Net charge-offs.............             (2,781)
Balance at December 31, 1998..              7,634
  Provision for loan losses...                  -
  Net charge-offs.............             (5,038)
Balance at December 31, 1999..            $ 2,596

      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.

      The average recorded  investment in impaired loans during 1999, 1998 and
1997 was $11.4  million,  $17.5 million and $24.5 million,  respectively.  The
amount of interest  income  recognized  from impaired loans during 1999,  1998
and 1997 was $1.0 million, $1.3 million and $1.9 million, respectively,  under
the cash basis method of  accounting.  Interest  income  recognized  under the
accrual  basis  method of  accounting  for 1999,  1998 and 1997  totaled  $997
thousand, $1.3 million and $1.9 million, respectively.

      The table below shows the Bank's net  investment  in  non-accrual  loans
determined to be impaired, by property type, as of the periods indicated:

                                          December 31,
                                1999         1998         1997
                                      (Dollars In Thousands)

Single family .......        $   987      $     -      $   856
Multi-family.........          1,092        5,456        6,893
Commercial...........              -          478          511
                             $ 2,079      $ 5,934      $ 8,260

      Loan Loss  Experience  Summary.  The Bank maintains a general  valuation
allowance to absorb  possible  future  losses that may be realized on its loan
portfolio.  The  allowance is reviewed and adjusted at least  quarterly  based
upon a number of factors,  including asset  classifications,  economic trends,
industry  experience,   industry  and  geographic  concentrations,   estimated
collateral  values,  management's  assessment  of credit risk  inherent in the
portfolio, historical loss experience and the Bank's underwriting practices.

                                      9
<PAGE>



      The following is an analysis of the activity in the Bank's  general loan
valuation allowance for the periods indicated:

                                             Year Ended December 31,
                                     1999     1998    1997      1996     1995
                                             (Dollars In Thousands)
Beginning General Loan Valuation
  Allowance................       $67,638  $61,237  $54,900  $42,876  $55,353
Provision for Loan Losses..             -    6,560   13,155   23,768    6,958
Charge-Offs, Net of Recoveries:
  Single Family............          (342)  (1,497)  (5,633)  (8,845)  (6,040)
  Multi-Family.............         2,650    1,354    2,341   (2,448) (13,676)
  Commercial...............           111      (32)     482      240      851
  Non-Real Estate..........          (103)      16      226        9      (67)
  Total Net Recoveries (Charge-Offs)2,316     (159)  (2,584) (11,044) (18,932)
Transfer to Liability Account for
        Loans Sold with Recourse        -        -   (4,234)       -     (503)
Transfer to Real Estate General
  Valuation Allowance......             -        -        -     (700)       -
Ending General Loan Valuation
        Allowance..........       $69,954  $67,638  $61,237  $54,900  $42,876

      The Bank also  maintains  a  repurchase  liability  for loans  sold with
recourse,  which is included in "Accrued  expenses and other  liabilities"  in
the  Company's  Statement  of  Financial   Condition.   The  activity  in  the
repurchase  liability for loans sold with recourse for 1999,  1998, 1997, 1996
and 1995 is presented below (dollars in thousands):

Balance at December 31, 1995..............    $  9,050
Net charge-offs...........................        (652)
Balance at December 31, 1996..............       8,398
Transfer from general valuation allowance.       4,234
Net recoveries............................         397
Balance at December 31, 1997..............      13,029
Net charge-offs...........................        (483)
Balance at December 31, 1998..............      12,546
Net recoveries............................         278
Balance at December 31, 1999..............     $12,824

      The Bank's total general  valuation  allowance for loans  (including the
repurchase  liability for loans sold with  recourse) was 2.41% of total assets
with loss exposure  (including loans sold with recourse) at December 31, 1999,
2.51% at December 31, 1998 and 2.12% at December  31,  1997.  Depending on the
economy and real estate markets in which the Bank  operates,  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 the Bank's general valuation  allowance.  These
agencies  may  require  the Bank to  establish  additional  general  valuation
allowances  based on their judgment of the  information  available at the time
of their examination.

      The  following  table  details the general  valuation  allowance by loan
type for the periods indicated,  including the repurchase  liability for loans
sold with recourse:

<TABLE>
<CAPTION>

                                    % of            % of            % of           % of          % of
                             1999   Total    1998   Total    1997   Total   1996  Total   1995  Total
<S>                         <C>     <C>    <C>      <C>    <C>      <C>    <C>     <C>     <C>    <C>
                                        (Dollars In Thousands)
Real Estate Loans:
  Single Family...         $30,343   37%   $27,611   34%   $21,583   29%   $15,355  24%   $ 8,887  17%
  Multi-Family....          47,005   57     47,264   59     45,029   61     44,078  70     35,278  68
  Commercial......           5,255    6      5,247    7      6,658    9      3,587   6      7,529  15
  Non-Real Estate Loans.       175    -         62    -        996    1        278   -        232   -
  Total ..........         $82,778  100%   $80,184  100%   $74,266  100%   $63,298 100%   $51,926 100%

</TABLE>

                                      10
<PAGE>




      See "Management's  Discussion  and  Analysis  of Financial Condition and
Results of Operations - Asset  Quality  Ratios" for  an analysis of the Bank's
general valuation  allowances as a percentage  of non-accrual loans, the total
loan portfolio and total loans with loss exposure.

      Net  loan  charge-offs,  including  net  charge-offs  from  the  general
valuation  allowance,  impaired loan allowance,  and the repurchase  liability
for loans  sold with  recourse  totaled  $2.4  million,  $3.4  million,  $12.1
million,  $37.5 million and $39.7 million for 1999, 1998, 1997, 1996 and 1995,
respectively,  representing  0.08%,  0.09%,  0.39%,  1.21%  and  1.28%  of the
average loan  portfolio  for such  periods.  Charge-offs  have improved due to
the improvement in the Southern California economy and real estate market.

      Any increase in charge-offs  would adversely impact the Company's future
loan loss provisions and earnings.

      Potential  Problem Loans. The Bank also had $6.9 million,  $16.6 million
and $41.6  million in  potential  problem real estate loans as of December 31,
1999, December 31, 1998 and December 31, 1997,  respectively.  These are loans
which 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 the Bank.

      The Bank's Asset  Classification  Committee  meets at least quarterly to
review and  monitor  the  condition  of the loan  portfolio.  Additionally,  a
special  workout  group of the  Bank's  officers  meets at  least  monthly  to
resolve  delinquent  loan  situations  and to initiate  actions  enforcing the
Bank's 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 Financial  Condition and
Results of Operations - Non-Performing Assets."

      Generally,  loans  greater  than  60 days  delinquent  are  placed  into
foreclosure and a valuation allowance is established,  if necessary.  The Bank
acquires 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"),  the Bank
evaluates  the property and  establishes a plan for marketing and disposing of
the property.  After inspecting the property,  the Bank determines 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  the  Bank's REO
activity for the periods indicated:

                                Real Estate Owned Activity
                                   Year Ended December 31,
                                  1999        1998        1997
                                    (Dollars In Thousands)

Beginning Balance.........       $  4,755   $ 10,218   $ 14,331
Additions.................         10,831     17,096     49,150
Sales.....................        (13,384)   (22,559)   (53,263)
Ending Balance............       $  2,202   $  4,755   $ 10,218


      Other   Interest-Earning   Assets.   The  Bank  owned  no  contractually
delinquent interest-earning assets other than loans as of December 31, 1999.



                                      11
<PAGE>


Investment Activities

      Savings  institutions are required by federal  regulations to maintain a
minimum  ratio of liquid  assets  which may be invested in certain  government
and other  specified  securities.  This level is adjusted from time to time in
response to prevailing  economic  conditions and as a means of controlling the
amount of available  mortgage  credit.  At December 31, 1999,  the  regulatory
liquidity requirement was 4.00% and the Bank's liquidity percentage was 6.39%.

      It is the Bank's policy to maintain  liquidity  investments  at a modest
level and to use available cash to originate  mortgages which normally command
higher yields. Therefore,  interest income on investments generally represents
approximately 5% of total revenues.

      The  following  table  summarizes  the  total  investment  portfolio  at
historical cost by type at the end of the periods indicated:

                                                December 31,
                                  1999      1998      1997      1996     1995
                                     (Dollars In Thousands)

U.S. Treasury Securities       $    300   $   300   $   300   $   301  $   301
U.S. Agency Securities           38,167    28,156    48,142    49,989   46,561
Collateralized Mortgage
 Obligations ("CMOs")           115,704    36,380     1,009     8,776   29,874
                                154,171    64,836    49,451    59,066   76,736
Unrealized loss on
 securities available-for-sale   (2,976)     (503)     (541)     (157)    (552)
                               $151,195   $64,333   $48,910   $58,909  $76,184

Weighted average yield on
 interest-earnings invest-
 ments end of period.              5.86%     5.38%     5.17%     5.98%    5.15%

      The  following  is a summary of the  maturities  of U.S  government  and
agency securities at amortized cost as of December 31, 1999:

<TABLE>
<CAPTION>


                                                Maturity
                                                                   Total Historical
                         Within 1 Year         1-5 Years                Value

                                Weighted            Weighted             Weighted  Average
                                Average              Average             Average  Maturity
                        Amount   Yield       Amount   Yield      Amount   Yield   Yrs/Mos
                                         (Dollars In Thousands)
<S>                      <C>      <C>        <C>       <C>      <C>        <C>      <C>

U.S. Treasury
 Securities.......     $  300    5.79%      $     -      -%    $   300    5.79%     0/4
U.S. Agency Securities      -       -        38,167   5.11      38,167    5.11      3/2
                       $  300    5.79%      $38,167   5.11     $38,467    5.11      1/7
</TABLE>



The Bank's  collateralized  mortgage  obligations all have expected maturities
within five years.


                                      12
<PAGE>


Sources of Funds

      General.  The Bank's  principal  sources of funds are savings  deposits,
advances  from the  Federal  Home Loan Bank of San  Francisco  ("FHLBSF")  and
securities sold under agreements to repurchase.

      Deposits.  The Bank obtains deposits through three different sources: 1)
its retail branch  system,  2) phone  solicitations  by designated  employees,
and 3) national brokerage firms.

      Deposits  acquired  through  telemarketing  efforts are typically placed
with the Bank by professional  money managers and represented 3%, 5% and 5% of
total deposits at December 31, 1999,  1998 and 1997,  respectively.  The level
of  telemarketing  deposits varies based on yields  available to depositors on
other  investment  instruments  and the  depositors'  perception of the Bank's
creditworthiness.

      Deposits acquired through national  brokerage firms represented 22%, 23%
and 20% of total deposits at December 31, 1999,  1998 and 1997,  respectively.
Any fees paid to deposit  brokers are amortized  over the term of the deposit.
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."

     Deposits obtained through the retail  branch  system were $1.6 billion at
December 31, 1999 and $1.5 billion at both  December 31, 1998 and December 31,
1997. Retail deposits comprised 75% of total deposits at December 31, 1999,72%
of total deposits at December 31, 1998 and 75% at December 31, 1997. The level
of deposits  has remained  approximately  the same level during the last three
years due to increased  competition  for retail  savings  deposits in Southern
California.  In order to  increase  fee  income  at the  retail  branches  and
decrease interest cost , the Bank's retail deposit marketing efforts have been
concentrated on obtaining demand deposit accounts over the last several years.
The Bank operated 24 retail branches at the end of 1999.

      The following table shows the average balances and average rates paid on
deposits by deposit type for the periods indicated:

<TABLE>
<CAPTION>


                                                  During the Year Ended December 31,
                                             1999                 1998               1997
                                       Average   Average     Average  Average    Average  Average
                                       Balance    Rate        Balance   Rate     Balance    Rate
                                                       (Dollars In Thousands)
<S>                                   <C>        <C>       <C>        <C>      <C>        <C>

Passbook Accounts                    $   82,634   1.96%   $   84,711   2.04%  $   83,958   2.06%
Money Market Deposit Accounts           380,971   4.17       251,866   3.89      138,764   3.16
Interest-bearing Checking Accounts      109,928   1.07       102,367   1.04      111,246   1.00
Fixed Term Certificate Accounts       1,492,179   4.59     1,682,080   5.06    1,638,892   5.22
                                     $2,065,712   4.22%   $2,121,024   4.61%  $1,972,860   4.70%
</TABLE>

                                      13
<PAGE>



     The   following   table  shows  the  maturity   distribution   of   jumbo
certificates  of deposit  ($100,000  and  greater)  as of  December  31,  1999
(dollars in thousands):

            Maturing in:
              1 month or less....................             $  55,000
              Over 1 month to 3 months.............              68,252
              Over 3 months to 6 months............              63,245
              Over 6 months to 12 months...........              66,915
              Over 12 months.......................                 397
                Total.............................            $ 253,809

      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.

      The  following  tables  set forth  information  regarding  the amount of
deposits in the various types of savings  programs  offered by the Bank at the
end of the years indicated and the balances and average rates for those dates:

<TABLE>
<CAPTION>


                                                            December 31,
                                              1999             1998                 1997
                                             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 4.34%,
    3.91% and 3.36%).........            $  446,771  22%    $  293,159   14%    $  156,221   8%
  Interest-bearing checking accounts
    (weighted average rate of 1.06%
    1.06% and 1.78%).........               111,366   5        108,211    5        130,765   7
  Passbook accounts (2.00%, 2.01%
    and 2.04%)...............                78,547   4         84,132    4         86,547   4
  Non-interest bearing checking
    Accounts.................               144,310   7        137,822    6        112,373   6
                                            780,994  38        623,324   29        485,906  25
Fixed term rate certificate accounts:
  Under six month term (weighted
    average rate of 5.21%, 4.18%
    and 5.07%)...............               113,324   5         62,642    3        120,637   6
  Six month term (weighted average
    rate of 5.68%, 5.14% and 6.00%)         322,696  16        301,313   14        103,901   5
  Nine month term (weighted average of
    5.73%, 5.42% and 5.64%)..               250,460  12        438,443   21        374,259  19
  One year to 18 month  term (weighted
    average rate of  4.99%, 5.14% and
    5.53%)...................               284,464  14        263,291   12        348,941  18
  Two year or 30 month term (weighted
    average rate of 5.13%, 5.28% and
    5.23%)...................                19,081   1         23,015    1         30,689   2
  Over 30 month term (weighted
    average rate of 5.33%, 5.79%
    and 5.85%)...............                36,529   2        103,030    5        125,971   7
  Negotiable certificates of $100,000
    and greater, 30 day to one year terms
    (weighted average rate of 5.20%,
    5.08% and 5.50%).........               253,809  12        320,851   15       353,343   18
                                          1,280,363  62      1,512,585   71     1,457,741   75
Total deposits (weighted average
    rate of 4.42%, 4.36% and 4.66%)      $2,061,357 100%    $2,135,909  100%   $1,943,647  100%

</TABLE>

                                      14
<PAGE>

      The  cost of  funds,  operating  margins  and net  earnings  of the Bank
associated with brokered and telemarketing  deposits are generally  comparable
to the  cost  of  funds,  operating  margins  and  net  earnings  of the  Bank
associated with retail  deposits,  Federal Home Loan Bank ("FHLB")  borrowings
and  securities  sold  under  agreements  to  repurchase.  As the cost of each
source of funds  fluctuates  from time to time,  the Bank seeks funds from the
lowest cost source until the  relative  costs  change.  As the costs of funds,
operating  margins and net earnings of the Bank associated with each source of
funds are generally comparable,  the Bank does 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.

      Borrowings.  The  FHLB  System  functions  as  a  source  of  credit  to
financial  institutions  which are  members  of a regional  Federal  Home Loan
Bank.  The Bank may apply for advances  from the FHLBSF  secured by the FHLBSF
capital  stock owned by the Bank,  certain of the Bank's  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 FHLBSF.  See "Summary
of Material  Legislation  and  Regulation - Qualified  Thrift Lender Test." In
granting advances,  the FHLBSF also considers a member's  creditworthiness and
other relevant factors.

      Total  advances  from the FHLBSF were $1.2  billion at December 31, 1999
at a weighted  average  rate of 5.91%.  This  compares  with  advances of $714
thousand  at  December  31,  1998 and $1.3  billion at  December  31,  1997 at
weighted  average  rates of 5.43% and 5.80%,  respectively.  The level of FHLB
borrowings  increased because these were often the lowest cost source of funds
available to the Bank. The Bank has credit  availability with the FHLBSF which
allows it to  borrow up to 40% of the  Bank's  assets  or  approximately  $1.5
billion at December 31, 1999.

      The Bank enters 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  Statements  of  Financial  Condition.  There are  certain  risks
involved with doing these types of  transactions.  In order to minimize  these
risks,  the Bank's  policy is to enter into  agreements  only with  well-known
national  brokerage firms which meet their  regulatory  capital  requirements.
Borrowings  under reverse  repurchase  agreements  totaled  $363.6  million at
December  31,  1999 at a weighted  average  rate of 5.76% and were  secured by
mortgage-backed  securities with principal  balances  totaling $397.0 million.
Borrowings  under reverse  repurchase  agreements  totaled  $471.2  million at
December 31, 1998 and $577.7 million at December 31, 1997 at weighted  average
rates of 5.37% and 5.66%,  respectively.  The  decrease  in  borrowings  under
agreements to  repurchase  over the last three years is due to paydowns of the
underlying mortgage-backed securities.

      The Company  redeemed  its $50 million  senior  unsecured  11.75%  notes
during  1999.  The premium and related  costs of $2.2  million,  net of taxes,
were recorded as a loss on early  extinquishment  of debt which is shown as an
extraordinary   item  in  the   Consolidated   Statements  of  Operations  and
Comprehensive Earnings.

      Borrowings  from all sources  totaled $1.5 billion,  $1.2  billion,  and
$1.9 billion at weighted average rates of 5.88%,  5.66%, and 5.91% at December
31, 1999, 1998, and 1997,  respectively.  The increased borrowings during 1999
enabled the Company to fund  increased  loan  originations  and to  repurchase
3,298,150 shares of its common stock.

                                      15
<PAGE>
      The  Bank's  portfolio  of short  term  borrowings  includes  short-term
variable  rate credit  advances  and FHLB  advances  due in less than one year
from the FHLBSF,  securities  sold under  agreements to  repurchase  and other
short  term  borrowings.   The  following   schedule   summarizes  short  term
borrowings for the last three years:

<TABLE>
<CAPTION>
                                                                      Maximum
                                                                     Month-End
                                                                    Outstanding
                                                                      Balance
                                                  End of Period      During the    Average Period
                                                Outstanding  Rate      Period     Outstanding Rate
                                                               (Dollars In Thousands)
<S>                                               <C>       <C>      <C>           <C>        <C>

1999
Short term FHLB Advances...........            $   920,000  5.97%   $   920,000   $  545,000  5.49%
Securities sold under agreements to repurchase     363,635  5.76        469,655      390,691  5.22

1998
Short term FHLB Advances...........            $   200,000  5.57%    $1,035,000   $  554,167  5.70%
Securities sold under agreements to repurchase     471,172  5.37        576,514      514,498  5.55
Other short term borrowings........                      -     -          5,500        3,250  5.73

1997
Short term variable rate credit advances       $         -     -%    $        -   $      600  6.01%
Short term FHLB Advances...........              1,310,000  5.80      1,345,000    1,170,417  5.75
Securities sold under agreements to repurchase     577,670  5.66        634,976      607,479  5.60
Other short term borrowings........                  4,000  5.85         26,500       15,703  5.63

</TABLE>
Other Sources

      See  "Management's  Discussion  and Analysis of Financial  Condition and
Results of  Operations - Sources of Funds" for a discussion  of other  funding
sources.

Subsidiaries

      The  Bank  has  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.

      As of December  31,  1999,  the Bank had  invested an  aggregate of $245
thousand  (primarily  equity) in Seaside,  Oceanside  and SMCG.  Revenues  and
operating  results  of  these  subsidiaries  accounted  for  less  than  1% of
consolidated revenues in 1999 and no material change is presently foreseen.

      Real Estate  Development  Activities.  Seaside has not been  involved in
any real estate development  activity for the last several years and there are
no plans for future real  estate  projects.  Therefore,  no gains or losses on
real estate development activities were recorded during 1999, 1998 or 1997.

      Seaside  continues to hold one  condominium  unit which is rented to the
Bank for use by its  employees.  In 1997, a  condominium,  rented to the Bank,
was sold. At December 31, 1999,  Seaside's  investment  in the remaining  unit
totaled $34  thousand.  There were no loans  outstanding  against the property
at December 31, 1999.  The unit is located in Southern California.

      Trustee  Activities.  Seaside  acts as trustee  on the  Bank's  deeds of
trust.  Trustee  fees  for  this  activity  amounted  to $165  thousand,  $274
thousand  and  $494  thousand  in  1999,  1998  and  1997,  respectively.  The
decrease  in trustee  fees over the last three  years is  consistent  with the
decrease in loan foreclosure activity.

      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 and variable  rate  annuities and
mutual  funds  conducted  in the  Bank's  offices by a  licensed  third  party
vendor.   Independent  Financial   Securities,   Inc.  ("IFS"),  a  registered
broker-dealer,  conducts its sales activities in the Bank's branch offices and
the Bank  receives a percentage of the  commissions  on such sales through its
licensed insurance agency,  Oceanside.  During 1999, 1998 and 1997,  Oceanside

                                      16
<PAGE>
received  commission income of $451 thousand, $263 thousand and $462 thousand,
respectively, from the sale of non-insured investment products by IFS.

Other Activities

      Santa Monica Capital Group was  reactivated  during 1999 to hold a short
term  interest  in certain  real  property  which was in the  process of being
liquidated  to satisfy  certain  obligations  owed to the Bank by the original
borrower.

Employees

      As of  December  31,  1999,  the  Bank  had a  total  of 459  full  time
equivalent  employees,  including 92 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.  The Bank  provides  its
regular  full-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.
The Bank considers its 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 Office of Thrift
Supervision  ("OTS").  The Bank, which is a federally  chartered  savings bank
and a member of the FHLBSF,  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.  The Bank's  deposits  are  insured by the FDIC  through the SAIF.
As insurer,  the FDIC is authorized to conduct  examinations  of the Bank. The
Bank is also subject to Federal Reserve Board regulations  concerning reserves
required to be maintained against deposits.

      As a member of the FHLB  System,  the Bank is  required  to own  capital
stock in its  regional  FHLB,  the FHLBSF,  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 5% of its outstanding  borrowings from the FHLBSF.  The Bank was
in compliance  with this  requirement,  with an investment of $71.7 million in
FHLBSF stock at December 31, 1999.

      The FHLBSF 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 FHLBSF.  At December 31, 1999,  the Bank's  advances  from
the FHLBSF  amounted to $1.2 billion,  or 33% of the  Company's  total funding
sources (deposits and borrowings).

      The  FHLBs  provide  funds  for  the  resolution  of  troubled   savings
institutions  and are required to contribute to  affordable  housing  programs
through direct loans or interest  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.  For the year  ended  December  31,  1999,
dividends paid by the FHLBSF to the Bank totaled approximately $3.7 million.

      Recent  Legislation.  On November 12, 1999, the  Gramm-Leach-Bliley  Act
(the"Act")  was  signed  into law.  The Act makes  significant  changes to the
operations  of financial  services  companies.  It repealed key  provisions of
the  66-year  old  "Glass   Steagall   Act"  by  repealing   prohibitions   on
affiliations  among  banks,  securities  firms  and  insurance  companies.  It
authorizes a broad range of financial  services to be conducted by these types
of companies  within a new structure  known as a "financial  holding  company"
("FHC").  The FHC may  engage  in a  number  of  activities  deemed  to be new
activities, such as securities underwriting and dealing activities,  insurance
underwriting  and sales  activities,  merchant  banking and equity  investment
activities,  and "incidental" and  "complementary"  non-financial  activities.
While the Act specifies  so-called, "functional  regulation,"  various federal
                                      17
<PAGE>
and  state regulators  will have continued  authority over certain  activities
of FHCs and other regulated financial  institutions.   However,  the   Federal
Reserve  Board  will be the principal  regulator for FHCs.  These  changes  do
not directly affect the Company, although  they  are  likely  to  dramatically
affect the business activities of many of the Company's  financial institution
competitors.

      Other  provisions  of the Act have a more  direct  impact on the Company
and the Bank.  The Act limits the  ability of  commercial  entities  to obtain
thrift  charters.  Commencing  with  applications  filed on and  after  May 5,
1999,  entities  seeking control of a savings  association will be required to
conform their activities to those permitted for financial  holding  companies.
Existing thrift holding  companies which control only one insured  institution
(such as the Company)  are  "grandfathered"  with respect to their  ability to
continue their activities.  However,  future sales of the savings  institution
subsidiary  of such a  unitary  thrift  holding  company  will be  limited  to
companies  and entities  that limit their  activities  to those  permitted for
financial holding companies.

      Another  aspect  of the Act that has a direct  effect on the Bank is the
establishment  for the  first  time of a  federal  right  to the  confidential
treatment of "nonpublic  personal  information"  of a consumer  customer (the
"Privacy  Legislation").  Regulations  to  implement  the Privacy  Legislation
must  be  proposed  within  six  months  from  the  date  of  the  Act.  Final
regulations  have not yet been  promulgated,  although some of the  regulatory
agencies  have issued  proposed  regulations  for  comments.  The Act requires
implementation  of the Privacy  Legislation  by November 12,  2000.  Under the
Privacy  Legislation as it is currently expected to be implemented,  financial
institutions  will be required to  promulgate  a privacy  policy at the time a
new  relationship  is established  and on an annual basis  thereafter,  and to
provide  customers  with the right to "opt-out" of disclosure of  confidential
consumer  data  to  third  parties.  Under  certain  circumstances,  nonpublic
personal  information may be disclosed to third parties,  including disclosure
made to  providers of  administrative  services  for the  institution  and its
customers  (such as data  processors)  to effect a  transaction  requested  or
authorized  by  a  consumer,   for  a  proposed  or  actual  secondary  market
transaction, or to protect the security of the financial institution.

      The Act revised  the Community  Reinvestment Act (the"CRA", as discussed
in  more  detail  below)  by,  among  other  things,   requiring  all  insured
depository  institution  members of a FHC to hold at least a satisfactory  CRA
rating in order to conduct new financial activities authorized by the Act.

      The Act also significantly  amends the Federal Home Loan Bank System, by
modifying  membership  requirements in local FHLBs to permit  membership to be
voluntary  for  both  thrift  and  bank  members.  The 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 earnings.

      Savings  and  Loan  Holding  Company  Regulations.   The  activities  of
savings and loan holding  companies are governed by the Home Owners' Loan Act,
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 or
if the Bank 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  that  create  a  serious  risk that the  liabilities  of
the holding company  and  its   affiliates   may  be imposed  on  the  savings

                                      18
<PAGE>
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 Financial  Condition  and Results of  Operations -
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. The
Bank is  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  which were insured by the FDIC prior
to  the  enactment  of  the  Financial   Institutions  Reform,   Recovery  and
Enforcement Act of 1989  ("FIRREA").  The Savings  Association  Insurance Fund
("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.  The Bank's  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  categorized  into  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 (which may be calculated
under  certain   conditions  by  including   goodwill).   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.

      The OTS  also  imposes  assessments  and  examination  fees  on  savings
institutions.  OTS  assessments  for the Bank were $567 thousand in 1999, $599
thousand in 1998 and $610 thousand in 1997.

      Liquidity.  Federal regulations  currently require a savings institution
to maintain a monthly average daily balance of liquid assets  (including cash,
certain time  deposits,  bankers'  acceptances  and  specified  United  States
government,  state or federal agency obligations) equal to at least 4% of: (i)
the average  daily  balance of its net  withdrawable  accounts and  short-term
borrowings  during the preceding  calendar  quarter or (ii) the ending balance
of its  net  withdrawable  accounts  as of the end of the  preceding  calendar
quarter.  This liquidity  requirement  may be changed from time to time by the
OTS to  any  amount  within  the  range  of 4% to 10%  of  such  accounts  and
borrowings  depending upon economic conditions and the deposit flows of member
institutions.  Prior to December 1, 1997,  the minimum  liquidity  requirement
was  5%.  Monetary  penalties  may  be  imposed  for  failure  to  meet  these
liquidity  ratio  requirements.  The Bank's  liquidity  ratio for the  quarter
ended December 31, 1999 was 6.39%, which exceeded the applicable requirements.

      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
                                      19
<PAGE>
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."  The Bank
was rated  "satisfactory" in its last CRA examination,  which was conducted in
1998. For  examinations  in 1997 and  thereafter,  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   which  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.  During the
first  quarter of 1999,  the OTS changed  its  regulations  governing  capital
distributions.  Those changes became  effective on April 1, 1999.  Under these
regulations,  all savings associations  controlled by savings and loan holding
companies  (such as the Bank) are required to 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  association and the OTS
(or FDIC) or a  condition  imposed by an OTS  condition  or  approval.  During
1999, the Bank paid a total of $99.6 million in capital  distributions  to the
Company.

      Under  these  new  regulations,   savings  associations  which  are  not
controlled   by  a  savings   and  loan   holding   company  may  pay  capital
distributions  during a calendar  year,  without  notice or application to the
OTS,  equal to net income for the  applicable  calendar year plus retained net
income for the two prior calendar  years.  Under certain  circumstances,  such
savings  associations  must  file  applications  for  approval  of a  proposed
distribution.  The new regulations  also require a 30-day advance notice to be
filed for  proposed  capital  distributions  that would  result in the savings
association being less than  well-capitalized or that involve the reduction or
retirement of the savings association's stock.

      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
FNMA; 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.   The  Bank's  loans  were  within  the  LTOB
limitations at December 31, 1999.

      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.  The Bank
has no impermissible equity 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, information systems
and internal audit systems, loan documentation,  credit underwriting, interest
rate  exposure,  asset  growth,  executive  compensation,  maximum  ratios  of
                                      20
<PAGE>

classified  assets to  capital,  and  minimum  earnings  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.  The Bank's annual  management  report on the  effectiveness  of
internal  control  standards and compliance with certain  designated laws will
be made available in March of 2000.

      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.  The Bank met the "well-capitalized"  standards during 1999 and
was 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  is  affected.  The Bank met the QTL test at
December 31, 1999,  with 98% of its 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 not 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.

      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,  1999 was 0% of the  first $5  million  of such  accounts,  3% of the next
$39.3  million of such  accounts and 10% (subject to adjustment by the Federal
Reserve  Board between 8% and 14%) of the balance of such  accounts.  The Bank
is in compliance with these requirements.


                                      21
<PAGE>

      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%.

      In August 1996,  the Small  Business Job  Protection Act was signed into
law.  One  provision  of this  legislation  repealed  the  reserve  method  of
accounting for bad debts for savings institutions  effective for taxable years
beginning  after 1995.  Therefore,  the Bank has used the specific  charge-off
method since 1996.

      The Bank may be required to recapture its "applicable  excess reserves",
if its federal tax bad debt  reserves  are in excess of its base year  reserve
amount.   As  of  December  31,  1999,  the  Bank  had  no  applicable  excess
reserves.  The base year  reserves  will be subject to recapture  and the Bank
could be  required  to  recognize  a tax  liability  if: (1) the Bank fails 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.  The  enactment  of  this
legislation  has not and is not  expected  to have a  material  impact  on the
Bank's operations or financial position.

      For state tax  purposes,  the Bank is allowed an addition to its tax bad
debt  reserves in an amount  necessary  to fill up to its tax reserve  balance
calculated using the experience method.

      To the extent that  distributions  by the Bank to the  Company  that are
permitted  under federal  regulations  exceed the Bank's  earnings and profits
(as computed for federal income tax  purposes),  such  distributions  would be
treated  for tax  purposes  as being  made out of the  Bank's  excess bad debt
reserve and would thereby  constitute  taxable income to the Bank in an amount
equal to the  lesser of the  Bank's  excess  bad debt  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,  1999,  the Bank's  excess  bad debt  reserve  was zero.  At
December  31, 1999,  the Bank's  earnings and profits (as computed for federal
income tax purposes) were approximately $253.2 million.

      At December 31, 1999,  the Bank had $50.6 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 $35.0 million at December
31, 1999.

      The Bank is 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  in a  special  manner  which  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.  The  excess of the
addition to the bad debt  reserve  computed  under the  percentage  of taxable
income  method over the  increase in the  reserve  calculated  on the basis of
actual experience is an item of tax preference.  No alternative  minimum taxes
were applicable to the Bank for tax years 1999, 1998 or 1997.

      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 rates for 1999,  1998 and 1997 were 10.84%.  The Franchise Tax
Board ("FTB") has not yet announced the rate for 2000.

      During  1997,  the  Internal  Revenue  Service  ("IRS")   completed  its
examination of the Company's  consolidated  federal income tax returns for tax
years up to and including  1992.  The  adjustments  made by the IRS related to
temporary  differences  as to the  recognition  of certain  taxable income and
expense items.  While the Company had provided  deferred taxes for federal and
state  purposes,  the changes in the period of  recognition  of certain income
and expense  items  resulted in interest  due to the IRS and FTB. As a result,
the Company  paid $7.4  million in interest to the IRS and FTB during 1997 and
accrued an  additional  $210  thousand  in interest  during that year.  During
1998,  the  Company  paid $598  thousand  in  interest  to the IRS and FTB and
reversed $300 thousand.  An additional  $150 thousand in interest was reversed
during 1999.


                                      22
<PAGE>
ITEM 2--PROPERTIES

      At December 31, 1999,  the Bank owned the building and land for seven of
its  branch  offices,  owned  the  building  but  leased  the land  for  three
additional  offices,  and leased its remaining  offices.  Properties leased by
the Bank include its home and executive  offices  located in a 12-story office
tower  in  downtown  Santa  Monica  and  a  general   services  and  corporate
operations  office  building  in  Santa  Monica.  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 Financial  Condition and Results of
Operations"  is a chart  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 February  11,  2000,  the  Company  had  17,910,873
shares of its common stock outstanding,  representing approximately 893 record
stockholders,  which 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 earnings,
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 the Bank can pay as a dividend to the  Company.  No dividend may
be paid if the Bank's net worth  falls  below  regulatory  requirements.  (See
"Business  -  Summary  of  Material  Legislation  and  Regulations"  for other
regulatory  restrictions  on  dividends.)  The Board of  Directors of the Bank
declared and paid to the Company  $99.6  million in dividends  during 1999 and
$5.9  million in  dividends  during  both 1998 and 1997.  The  dividends  paid
during 1999 enabled the Company to repurchase  3,298,150  shares of its common
stock and to service  and pay off its $50 million in senior  unsecured  11.75%
notes which were redeemed on December 30, 1999.


                                      23
<PAGE>
<TABLE>
<CAPTION>

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

                                    1999       1998        1997(1)      1996(1)    1995(1)
                           (Dollars In Thousands, Except Per Share Data)
<S>                               <C>          <C>         <C>        <C>         <C>

For the Year Ended December 31:
  Interest income......          $ 260,001  $  289,769  $  299,220  $  297,178  $  301,735
  Interest expense.....            161,031     186,491     204,226     198,031     224,077
  Net interest income..             98,970     103,278      94,994      99,147      77,658
  Provision for loan losses              -       7,200      20,500      35,155      28,376
  Other income.........             12,688      13,657      10,218      10,915       8,725
  Non-interest expense.             49,159      48,924      44,151      59,175      45,903
  Earnings before income taxes      62,499      60,811      40,561      15,732      12,104
  Income taxes.........             27,052      26,182      17,461       7,488       5,569
  Earnings before extra-
    ordinary items.....             35,447      34,629      23,100       8,244       6,535
  Extraordinary item
    Loss on early extinquishment
      of debt, net of taxes         (2,195)          -           -           -           -
  Net  earnings........             33,252      34,629      23,100       8,244       6,535
Basic earnings per share
  EPS before extraordinary item       1.84        1.63        1.09        0.39        0.31
  Extraordinary item                  (.11)        -             -           -           -
  EPS after extraordinary item        1.73        1.63        1.09        0.39        0.31
Dilutive earnings per share
  EPS before extraordinary item       1.83        1.60        1.07        0.39        0.31
  Extraordinary item                  (.12)          -           -           -           -
  EPS after extraordinary item        1.71        1.60        1.07        0.39        0.31
End of Year:
  Loans receivable, net (2).     3,060,547   2,808,221   3,145,164   3,048,469   3,059,780
  Mortgage-backed securities       428,641     556,679     676,058     746,006     843,819
  Investment securities            151,195      64,333      48,910      58,909      67,813
  Total assets.........          3,856,505   3,677,128   4,160,115   4,143,852   4,139,737
  Deposits.............          2,061,357   2,135,909   1,943,647   1,957,448   2,205,036
  Borrowings...........          1,532,635   1,235,172   1,941,670   1,940,482   1,666,943
  Liabilities..........          3,625,372   3,420,128   3,937,328   3,949,302   3,943,446
  Stockholders' equity.            231,133     257,000     222,787     194,550     196,291
  Book value per share(1)            12.82       12.16       10.52        9.24        9.25
Selected Ratios:
  Return on average assets            0.94%       0.88%       0.56%       0.20%       0.16%
  Return on average equity           14.91%      14.40%      11.25%       4.22%       3.47%
  Ratio of non-performing
    assets to total assets            0.40%       0.84%       0.95%       1.77%       2.33%
Other Data:
  Number of Bank full service
    branches..................          24          24          24          25          25

</TABLE>

(1) All per share amounts have been adjusted for the  two-for-one  stock split
declared June 25, 1998.
(2) Includes loans held for sale.

      Also see  summarized  results of  operations  on a  quarterly  basis for
1999,  1998  and  1997 in  Note  15 of the  Notes  to  Consolidated  Financial
Statements.


                                      24
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS

                                   OVERVIEW

      The  Company's  results of  operations  are  primarily  affected  by its
levels  of net  interest  income,  provisions  for loan  losses,  non-interest
income,  non-interest  expense and income  taxes.  The  Company's  results are
strongly influenced by the Southern California economy in which it operates.

      Net  earnings  of $33.3  million  or $1.71 per share  were  recorded  in
1999,  compared to net  earnings  of $34.6  million or $1.60 per share in 1998
and  $23.1  million  or $1.07 per share in 1997.  All per  share  amounts  are
presented  on a  diluted  basis  and have  been  adjusted  for the two for one
stock split  declared  June 25, 1998.  The decrease in net earnings  from 1998
to  1999  was  primarily   attributable  to  a  $2.2  million  loss  on  early
extinguishment  of debt,  net of taxes  resulting  from the  redemption of the
$50  million  senior  unsecured  11.75%  notes.  Additionally,  no  loan  loss
provision  was recorded in 1999  compared to a $7.2 million  provision in 1998
which was  offset by a  decrease  in net  interest  income by $4.3  million in
1999 from the 1998  level.  The  Southern  California  economy and real estate
market remained  strong during 1999. As a result,  loan  charge-offs  declined
to $2.4  million in 1999  compared to $3.4  million in 1998 and $12.1  million
in 1997.

      Certain key financial ratios for the Company are presented below:

                                                          Average
                                 Return on  Return on    Equity to
                                 Average     Average      Average
                                 Assets      Equity        Assets


                1999......        .94%       14.91%        6.29%
                1998......        .88        14.40         6.09
                1997......        .56        11.25         4.95
                1996......        .20         4.22         4.61
                1995......        .16         3.47         4.49


      Core earnings  reflect the Company's  results from basic  operations and
were  $61.1  million  in 1999,  $63.6  million  in 1998 and $60.6  million  in
1997.  Core earnings are defined as net interest  income before  provision for
loan  losses  plus  other  income   (excluding  gain  on  sale  of  loans  and
securities)  less  non-interest  expense.  Non-recurring  items,  income taxes
and the  provision  for loan  losses  are  excluded  from core  earnings.  The
slight  decrease in core  earnings  during  1999  compared to 1998 is due to a
reduction in interest income.

      Non-performing   assets   (primarily  loans  90  days  past  due  or  in
foreclosure  plus foreclosed real estate)  decreased to $15.4 million or 0.40%
of total  assets at December  31, 1999  compared to $30.7  million or 0.84% of
total assets at December  31, 1998 and $39.6  million or 0.95% of total assets
at December 31, 1997. The decreasing trend in  non-performing  assets over the
last  several  years  is  due  to  lower  balances  of  delinquent  loans  and
decreased  foreclosures  in  the  improved  Southern  California  real  estate
markets.

      The Company  repurchased  3,298,150  shares of its common  stock  during
1999.  Total shares  repurchased  as of December 31, 1999 were 5,245,990 at an
average  price of $12.50 per share.  As of  February  11, 2000 the Company had
repurchased  an  additional  117,400  shares at an average price of $12.35 per
share which  brought  total  shares  repurchased  to date to  5,363,390  at an
average price of $12.50 per share.



                                      25
<PAGE>
      At December  31, 1999 the Bank's  regulatory  risk-based  capital  ratio
was 11.92% and its  tangible  and core  capital  ratios were  6.02%.  The Bank
met   the   regulatory    capital    standards    necessary   to   be   deemed
"well-capitalized" at December 31, 1999.

      The  Bank's  deposits  are  insured  by  the  SAIF  up to a  maximum  of
$100,000 for each insured  depositor.  The Bank's FDIC insurance premiums were
$1.2  million in both 1999 and 1998  compared  to $1.9  million  in 1997.  The
lower  premiums  in 1999 and 1998  compared  to 1997 were due to a drop in the
Bank's  assessment  rate from 9.3 basis  points in 1997,  to 6.3 in 1998,  and
5.9 in 1999, due to an improvement in its regulatory rating.

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 two main  components of economic risk:  credit 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 "Loan Loss Provisions" and "Non-performing Assets."

      The  determination  of the  allowance  for loan losses and the valuation
of real  estate  collateral  is based on  estimates  that are  susceptible  to
changes  in the  economic  environment  and  market  conditions.  No loan loss
provision was recorded  during 1999. 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.

Market Risk

      Market  risk is the risk of loss  from  unfavorable  changes  in  market
prices and interest  rates.  The Bank's market risk arises  primarily from the
interest rate risk inherent in its lending and deposit taking activities.

      See  "Asset-Liability  Management" for additional  information  relating
to market risk.

                                   REGULATORY RISK

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


                                      26
<PAGE>

                                    OTHER RISKS



Year 2000

      Following  the  end of  1999  and  subsequently  to  date,  the  Company
experienced  no  problems  relative  to the  Y2K  issue  that  had a  material
adverse impact on the Company's financial  condition,  results of operation or
liquidity.  Because of the third  party  nature of its major  data  processing
relationships,  the  Bank  did not  incur  any  programming  costs to make its
system Year 2000  ready.  All of these  costs were borne by the  vendors.  The
Bank's  major  cost of  becoming  Year  2000  ready was  related  to staff and
management  time spent  planning,  monitoring  and  testing the  systems.  The
Company  will  continue to monitor its  significant  vendors  with  respect to
Year 2000 problems  they may  encounter as those issues may  adversely  effect
the  Company's  ability to continue  operations.  The Company does not believe
at this time  that any  potential  problems  relative  to the Year 2000  issue
will materially  impact the Company in the future,  however,  no assurance can
be given that this will be the case.

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 an additional equity investment.

Pending Lawsuits

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


                                      27
<PAGE>

                            COMPONENTS OF EARNINGS

Net Interest Income

      Net  interest   income  is  the  primary   component  of  the  Company's
earnings.  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 $139.2
million  in 1999,  $131.7  million in 1998 and  $109.9  million  in 1997.  The
increase  over the last two years was due to  continued  improvement  in asset
quality.

      The  Company's  net  interest  income is also  impacted by a three month
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  immediately  while  it  takes  several  months  for the  loan  yield to
adjust.  This time lag  decreases  the  Company's  net interest  income during
periods  of rising  interest  rates.  The  reverse is true  during  periods of
declining  interest  rates.  See  "Asset-Liability   Management"  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:



                                         1999           1998           1997
                                               (Dollars In Thousands)


Average loans and mortgage-backed
 securities (1).........             $3,328,723     $3,638,628     $3,811,179
Average investment securities           199,686        148,871        160,224
Average interest-earning assets       3,528,409      3,787,499      3,971,403
Average savings deposits              2,065,712      2,121,024      1,972,860
Average borrowings......              1,323,487      1,534,820      1,888,662
Average interest-bearing liabilities  3,389,199      3,655,844      3,861,522
Excess of interest-earning assets
 over interest-bearing liabilities   $  139,210      $ 131,655     $  109,881

Yields earned on average interest
 earning assets.........                   7.26%          7.54%          7.40%
Rates paid on average interest-
 bearing liabilities....                   4.76           5.11           5.27
Net interest rate spread                   2.50           2.43           2.13
Effective net spread....                   2.70           2.60           2.28

Total interest income...             $  256,335      $ 285,395     $  293,931
Total interest expense..                161,160        186,890        203,434
                                         95,175         98,505         90,497
Total other items (2)...                  3,795          4,773          4,497
Net interest income.....            $    98,970      $ 103,278     $   94,994



(1) Non-accrual  loans  were  included  in  the average dollar amount of loans
outstanding,but no income was recognized during the period that each such loan
was on non-accrual status.
(2) Includes dividends on FHLB stock  and other miscellaneous items, including
interest on California tax refunds at June 30, 1997.

      The yield on  earning  assets  decreased  to 7.26% in 1999 from 7.54% in
1998 due to a 34 basis  point  decrease  in the  Index  which  determines  the
yield on over 87% of the  Bank's  loan  portfolio.  The  Bank's  cost of funds
decreased  by 35 basis  points in 1999  compared  to 1998 due to lower  market
interest rates during the first half of 1999 compared to 1998.


                                      28
<PAGE>


     The  table  below sets forth  certain  information  regarding  changes in
the  interest  income  and  interest  expense  of the  Bank  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>
<CAPTION>


                                    Year Ended                       Year Ended
                                December 31, 1999               December 31, 1998
                                      Versus                          Versus
                                December 31, 1998               December 31, 1997
                                   Change Due To                  Change Due To
                              Rate    Volume    Total        Rate     Volume    Total
                                           (Dollars In Thousands)
<S>                          <C>      <C>       <C>          <C>     <C>       <C>

Interest Income:
  Loans and mortgage-backed
   Securities..........     $(8,949) $(23,073) $(32,022)    $5,324  $(13,088) $(7,764)
  Investments..........         207     2,754     2,961       (168)     (604)    (772)
    Total interest income    (8,742)  (20,319)  (29,061)     5,156   (13,692)  (8,536)

Interest Expense:
  Deposits.............      (8,058)   (2,499)  (10,557)    (1,892)    6,861    4,969
  Borrowings..........       (3,269)  (11,905)  (15,174)      (962)  (20,551) (21,513)
    Total interest expense  (11,327)  (14,404)  (25,731)    (2,854)  (13,690) (16,544)

    Change in net
     interest income        $ 2,585  $ (5,915)   (3,330)    $8,010  $     (2)   8,008

Change in other items (1)                          (978)                          276

Total change in net interest
Income including other items                   $ (4,308)                      $ 8,284
</TABLE>

(1)  Includes  dividends  on  FHLB  stock  and  other  miscellaneous items.

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.


                                      29
<PAGE>

<TABLE>
<CAPTION>

                                     Interest Rate Spreads and Yield on Average Interest-Earning Assets
                                                           Year Ended December 31,
                                     1999           1998            1997            1996            1995
                               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.........      7.37%  7.31%    7.63%  7.48%   7.49%  7.48%   7.44%   7.47%    7.31%  7.63%
Weighted average yield
 on investment portfolio(1)      5.43   5.69     5.29   5.14    5.40   6.06    5.71    5.98     5.56   5.15
Weighted average yield
 on all interest-earning
 assets....................      7.26   7.25     7.54   7.39    7.40   7.42    7.36    7.45     7.23   7.59
Weighted average rate
 paid on deposits..........      4.22   4.42     4.61   4.36    4.70   4.66    4.76    4.67     4.86   4.89
Weighted average rate
 paid on borrowings and
 FHLB advances.............      5.59   5.88     5.81   5.66    5.86   5.91    5.85(4) 5.77     6.32   6.11
Weighted average rate
 paid on all interest-
 bearing liabilities.......      4.76   5.04     5.11   4.84    5.27   5.28    5.25    5.22     5.51   5.41
Interest rate spread(2)....      2.50   2.17     2.43   2.55    2.13   2.14    2.11    2.23     1.72   2.18
Effective net spread(3)....      2.70            2.60           2.28           2.24             1.80

</TABLE>
(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 (the  difference  in the dollar  amounts of interest
earned and paid) divided by average interest-earning assets.
(4) Excludes effect of IRS accrued interest reversal.

Loss Provision

      The  Company  did not  record  a loan  loss  provision  during  1999 but
recorded  loan loss  provisions  of $7.2 million and $20.5 million in 1998 and
1997,  respectively.  No  provision  was recorded during 1999 because existing
allowances were sufficient in light of  the overall  asset quality improvement
in 1999.  Non- performing assets decreased to $15.4 million in 1999 from $30.7
million in 1998 and $39.6 million in 1997.  The Bank has a policy of providing
for  general  valuation  allowances ,  unallocated  to any  specific loan, but
available to offset any future 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 "Allowances for Loan Losses."Management performs
regular risk assessments of the Bank's 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  valuation allowance
for loans sold with recourse.  Loan charge-offs  decreased  to $2.4 million in
1999  from  $3.4  million in 1998 and $12.1 million in 1997.  Loan charge-offs
decreased from  0.09% of average loans outstanding in 1998 to 0.08% of average
loans outstanding  in 1999.   Charge-offs result from declines in the value of
the underlying collateral of the non-performing loans.

Non-interest Income

      Loan  servicing  and other fees were $4.2 million in 1999,  $4.2 million
in 1998,  and $6.2  million in 1997.  The lower  fees  earned in 1999 and 1998
compared to 1997 resulted  from  decreased  fees earned on loans  serviced for
other  lenders.  Fees earned  during 1998  included a $1.4  million  provision
for impairment of the Bank's  servicing  asset due to accelerated  payoffs and
prepayments of loans serviced for others.

      Gain on sale of loans was $1.2  million in 1999,  $4.1  million in 1998,
and $652  thousand  in 1997.  The  decrease in gain on sale of loans from 1998
to 1999 was due to a  reduction  in loans  originated  for sale in the  rising
fixed  interest  rate  environment  during the second half of 1999.  Increased
gains  from  1997 to 1998 were due to cash  gains and fees  earned on the sale
of  fixed  rate  loans  which  were  available  to  the  Bank's  borrowers  at
historically low rates during 1998.

                                      30
<PAGE>
     Real estate  operations  resulted  in a net gain of $3.2  million in 1999
compared  to gains of $1.2  million  in 1998 and $20  thousand  in 1997.  Real
estate   operations   includes   gain  on  sale  of   foreclosed   properties,
operational  income and expenses 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 for 1999 was
1.30%  compared with 1.24% in 1998.  The  increased  ratio in 1999 compared to
1998  resulted  primarily  from  increased  legal costs offset by decreases in
rent expense and data processing expense.

      Salary and benefit  costs  increased 3% in 1999  compared to 1998 due to
higher  salary  costs,  incentive  costs and bonus  expense.  Incentive  costs
were higher due to the Bank's  increase in loan  originations.  Loan  officers
are  compensated  based  on  loans   originated.   Salary  and  benefit  costs
increased  14% in 1998  compared  to 1997 due to higher  and  incentive  costs
profit sharing costs and bonus expenses.

      Occupancy  expense  decreased 7% in 1999  compared to 1998 due to market
adjustments  recorded  during 1998 of $995  thousand on leased  properties  no
longer  occupied  by  the  Bank.  Occupancy  expense  increased  23%  in  1998
compared to 1997 due to the same market adjustment described above.

      Other operating  expenses  increased to $11.5 million in 1999 from $11.4
million  in 1998 due to an  increase  in legal  costs to $3.5  million in 1999
from $1.5 million in 1998.  Legal expenses  increased  during 1999 as a result
of higher  than  normal  defense  cases that were  resolved  in 1999 and early
into the year 2000.  Offsetting  the  increase  in legal  costs was a decrease
in data  processing  costs to $1.9  million in 1999 from $3.4 million in 1998.
1998 data  processing  costs included  costs related to the Bank's  conversion
to a new computer system during that year.



                                      31
<PAGE>

      The following table details the components of  non-interest  expense for
the periods indicated:
<TABLE>
<CAPTION>


                                          Non-Interest Expense
                                        Year  Ended  December 31,
                                   1999       1998       1997       1996       1995
                                             (Dollars In Thousands)
<S>                                <C>       <C>       <C>        <C>        <C>

Salaries and Employee Benefits:
   Salaries.............         $17,461    $16,643    $15,413    $15,749    $16,436
   Incentive compensation          1,677      1,478        883        556        899
   Payroll taxes........           1,607      1,455      1,371      1,389      1,400
   Employee benefit insurance      1,220      1,069      1,048      1,137      1,180
   Bonus compensation...           1,583      1,335      1,100      1,000      1,001
   Profit sharing.......           1,100      1,000        501        500        500
   Pension..............               -          -          -        241        436
   SERP.................             988        795        628        506        408
   401(k)...............             299        235        392          -          -
   Other salaries and benefits       729      1,801      1,404        850        785
                                  26,664     25,811     22,740     21,928     23,045
Occupancy:
   Rent.................           4,395      5,105      4,351      4,270      4,250
   Equipment............           2,145      1,855      1,336        959        885
   Maintenance costs....             469        344        450        477        460
   Other occupancy......             850      1,189        741        583        663
                                   7,859      8,493      6,878      6,289      6,258
Other Operating Expense:
   Insurance............             430        362        345        381        528
   Goodwill.............             452        565        839        915        996
   Data processing......           1,930      3,359      2,539        945      1,012
   Contributions........             299        509        412        401        341
   Professional services               8        259        373        420        447
   Legal expenses.......           3,516      1,479      1,309        412        330
   Supervisory exam.....             567        599        610        611        603
   Other operating costs           4,334      4,288      3,439      4,086      4,110
                                  11,536     11,420      9,866      8,171      8,367
Federal Deposit Insurance:
   Deposit insurance premiums...   1,236      1,241      1,872      5,418      6,400
   SAIF special assessment             -          -          -     15,007          -
                                   1,236      1,241      1,872     20,425      6,400

   Advertising..........           1,864      1,959      2,795      2,362      1,833
     Total..............         $49,159    $48,924    $44,151    $59,175    $45,903

   Non-interest expense as
    % of average assets.            1.30%      1.24%      1.06%      1.43%(1)   1.10%

</TABLE>

(1) The  ratio  for  1996  includes the special SAIF assessment. Excluding the
 SAIF assessment, the ratio would have been 1.06%.


                                      32
<PAGE>

                           BALANCE SHEET ANALYSIS

     Consolidated assets  at the end of 1999 were $3.9 billion, representing a
5% increase from  $3.7  billion  at  the  end of 1998 and a 7%  decrease  from
$4.2 billion  at  the  end  of  1997.  Assets increased  during  1999  due  to
loan  originations  of $821.9  million  and  loan purchases of $122.2 million.
Offsetting  the  increase  was  accelerated  amortization  and  prepayments of
adjustable rate loans  and mortgage backed securities, particularly during the
first half of 1999 when  interest rates were low.

Loan Portfolio

     At the end of 1999, over 84% of the Bank's loans had adjustable  interest
rates based on monthly  changes in the Index.  As part of its  asset-liability
management strategy,  the Bank has maintained the level of adjustable loans in
its portfolio at over 90% for several years. Management believes that the high
level  of  adjustable   rate  mortgages  will  help  insulate  the  Bank  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."

     The Bank also  originates  loans with initial fixed  interest  rates with
periods ranging from 3 to 10 years. By policy,  the Bank will either match the
fixed rate  period of these  loans with  borrowings  for the same term or will
hold an  amount  up to $150  million  of  unmatched  fixed  rate  loans in its
portfolio.  Management  believes  that the limited  origination  of fixed-rate
loans will  enhance the  Company's  overall  return on assets and improve loan
originations in this economy.

     In 1999 and 1998,  the Bank  placed  $9.9  million  and  $21.3  million ,
respectively,  in mortgages with other lenders under fee  arrangements,  which
amount  is not  included  in loan  originations.  In 1999,  loans  made on the
security of single family  properties (one to four units) comprised 83% of the
dollar  amount  of new loan  originations  .  Loans  made on the  security  of
multi-family properties(five or more units) comprised 13% of new originations.
Loans made on the security of commercial real estate  properties  comprised 4%
of new loan  originations.  Loans  originated  through  the Bank's  commercial
lending units totaled $7.8 million.  No construction  loans were originated in
1999. Adjustable rate mortgages comprised 52% of new loan activity during 1999
compared to 49% in 1998.

     The following table details loan  originations and loan purchases by loan
type for the periods indicated:
<TABLE>
<CAPTION>
                                            Loan Originations and Purchases by Type
                                                   Year Ended December 31,
                                       1999       1998       1997      1996        1995
                                         (Dollars  In Thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>

Single Family (one to four units)    $779,698   $594,763   $430,223   $239,866   $237,508
Multi-Family............              118,622     37,720     48,033     57,414     55,832
Commercial Real Estate..               37,744        383      2,551      5,568      4,881
Commercial Business Loans               7,768      1,733          -          -          -
Other...................                  301      2,428        444          -      1,031
  Total.................             $944,133   $637,027   $481,251   $302,848   $299,252
</TABLE>
      Loans  originated  upon  the sale of the Bank's real  estate  owned were
$4.8 million or .51% of  total  originations  in  1999. $430 thousand of these
loans were  originated  based  on the security  of  single  family properties,
$4.0 million were originated based on the security of  multi-family properties
and $380  thousand  were based on the security of commercial properties.


                                      33
<PAGE>

      From  time  to  time ,  the  Bank  converts  loans into  mortgage-backed
securities for use in securitized borrowings (reverse  repurchase agreements).
No loans were  converted into  mortgage-backed  securities during  1999, 1998,
or  1997.  Securitized  loans  have a  lower  risk  weighting  for  regulatory
risk-based  capital  purposes.  In  exchange  for  the  enhanced  credit  risk
associated  with  mortgage-backed  securities, the Bank pays guarantee fees to
FHLMC and/or FNMA.

     The Bank's  adjustable  rate loan  products  often provide for first year
monthly payments 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 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.

     The  Bank  does  not  normally  lend in  excess  of 90% of the  appraised
collateral  value on adjustable  mortgage loans ("AMLs").  Where the Bank does
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,  the  Bank  may  purchase  private
mortgage insurance with its own funds. Loans originated under this program for
which  there is no  private  mortgage  insurance  totaled  $274.2  million  at
December 31, 1999  compared to $265.0  million at December 31, 1998 and $163.8
million at December 31, 1997. 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 the Bank's loan portfolio  (including
mortgage-backed securities). The loan portfolio also includes loans secured by
multi-family and commercial  properties.  At December 31, 1999,  approximately
58% of the loan and  mortgage-backed  securities  portfolio consisted of first
liens on single  family  properties.  First liens on  multi-family  properties
comprised  approximately  36% of the portfolio,  and first liens on commercial
properties represented approximately 6% of the portfolio.

     Multi-family  and  commercial  real  estate  loans  are  considered  more
susceptible to market risk than single family loans and higher  interest rates
and fees are charged to borrowers for these loans.  Approximately  13% of loan
originations  in 1999 were  multi-family  loans compared to 6% in 1998 and 10%
during 1997. Multi-family loans originated upon the sale of REO were 0.42%, 1%
and 6% of total loan originations during 1999, 1998 and 1997, respectively.

     The Bank has loss  exposure on certain  loans sold with  recourse.  These
loans are  substantially  all secured by multi-family  properties.  Loans sold
with recourse  totaled $178.7 million as of December 31, 1999,  $203.0 million
as of December 31, 1998 and $218.1  million as of December 31, 1997.  Although
no longer  owned by the Bank,  these loans are  evaluated  for the purposes of
computing the repurchase  liability and measuring risk exposure for regulatory
capital.  Under the Bank's current policy, it no longer enters into loans sold
with recourse agreements.


                                      34
<PAGE>

     The following table sets forth the composition of the Bank's portfolio of
loans and mortgage-backed securities for each of the last five years:
<TABLE>
<CAPTION>

                                                           Loan Portfolio Composition
                                                                  December 31,
                                          1999        1998           1997          1996          1995
                                                             (Dollars  In Thousands)
<S>                                   <C>            <C>          <C>           <C>           <C>

REAL ESTATE LOANS:
 First trust deed residential loans:
  One to four units.....             $ 1,813,783   $ 1,564,392   $ 1,801,608   $ 1,621,497   $ 1,573,869
  Five or more units....               1,123,308     1,127,228     1,217,577     1,277,634     1,344,866
Residential loans.......               2,937,091     2,691,620     3,019,185     2,899,131     2,918,735
OTHER REAL ESTATE LOANS
  Commercial and industrial              183,194       181,772       196,575       210,953       221,982
  Second trust deeds....                  13,489        15,357        15,441        17,497         2,213
  Other.................                       -             -         6,303         2,137         3,157
    Real estate loans...               3,133,774     2,888,749     3,237,504     3,129,718     3,146,087
NON-REAL ESTATE LOANS:
  Manufactured housing..                     613           893         1,154         1,480         1,938
  Deposit accounts......                     683         1,002         1,644         1,042         1,104
  Commercial business loans                8,140         1,259             -             -             -
  Consumer..............                     593           621           185           236           359
    Loans receivable....               3,143,803     2,892,524     3,240,487     3,132,476     3,149,488
LESS:
  General valuation allowance             69,954        67,638        61,237        54,900        42,876
  Valuation allowances -
  impaired loans........                   2,596         7,634         9,775        12,350        26,101
  Unrealized loan fees..                  10,706         9,031        24,311        16,757        20,731
    Net loans receivable (1)           3,060,547     2,808,221     3,145,164     3,048,469     3,059,780
FHLMC AND FNMA MORT-
 GAGE-BACKED SECURITIES:
  Secured by single family
    dwellings...........                 412,469       539,079       657,342       715,286       810,980
  Secured by multi-family
    dwellings...........                  16,172        17,600        18,716        20,189        24,468
    Mortgage-backed securities           428,641       556,679       676,058       735,475       835,448
      TOTAL.............             $ 3,489,188   $ 3,364,900   $ 3,821,222   $ 3,783,944   $ 3,895,228

(1) Includes loans held for sale.
</TABLE>

                                      35
<PAGE>


                                ASSET QUALITY


 Asset Quality Ratios

      The following  table sets forth certain asset quality ratios of the Bank
for the periods indicated:
<TABLE>
<CAPTION>

                                                              December 31,
                                                1999     1998      1997     1996    1995
<S>                                            <C>       <C>       <C>      <C>      <C>

Non-performing Loans to Loans Receivable(1)    .42%      .90%      .91%     1.89%   2.44%
Non-performing Assets to Total Assets(2)       .40%      .84%      .95%     1.77%   2.33%
Loan Loss Allowances to Non-performing
  Loans(3)..........................        509.74%   242.09%   193.38%    94.27%  65.62%
General Loss Allowances to Assets
  with Loss Exposure(4).............          2.15%     2.26%     1.86%     1.73%   1.35%
General Loss Allowances to Total Assets with
  Loss Exposure(5)..................          2.41%     2.51%     2.12%     1.86%   1.52%

</TABLE>

(1) Non-performing  loans  are  net of  valuation  allowances related to those
loans.  Loans  receivable  exclude  mortgage-backed  securities and 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) The Bank's loan  loss  allowances, including valuation allowances for non-
performing  loans  and  general  valuation allowances but excluding repurchase
liability  for loans sold  by  the Bank  with  full or  limited recourse. Non-
performing  loans  are  before deducting valuation allowances related to those
loans.

(4) The  Bank's  general  valuation allowances, excluding repurchase liability
for  loans  sold  with  full or limited recourse.  The Bank's assets with loss
exposure  includes its  loan  portfolio , real estate owned, loan commitments,
and potential loan buybacks but excludes mortgage-backed securities.

(5) The  Bank's general valuation allowances, repurchase  liability  for loans
sold  with  full or  limited  recourse.  Assets with loss exposure include the
Bank's  loan portfolio plus loans  sold with  recourse,  but exclude mortgage-
backed securities.


                                      36
<PAGE>



                             NON-PERFORMING ASSETS

     Non-performing  assets, as defined by the Bank,  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>
<CAPTION>


                                                            Non-Performing Assets
                                                                  December 31,
                                   1999                1998                 1997               1996               1995
                                $        %           $       %            $       %         $        %          $        %
                                                    (Dollars In Thousands)
<S>                           <C>       <C>        <C>     <C>        <C>      <C>       <C>      <C>       <C>       <C>

Real Estate Owned:
Single Family.....         $  1,069     6.93%    $ 3,946   12.84%    $ 5,806   14.66%   $ 6,840    9.32%   $  7,252    7.50%
Multi-Family......            1,483     9.62       1,309    4.26       4,034   10.19      7,339   10.00       9,827   10.17
Commercial and Industrial         -        -           -       -         826    2.09        673     .92       2,544    2.63
Less:  General Valuation
   Allowance......             (350)   (2.27)       (500)  (1.63)       (500)  (1.26)      (521)   (.71)          -       -
Other.............                -        -           -       -          52     .13          -       -          78    0.08
Total Real Estate
 Owned............            2,202    14.28       4,755   15.47      10,218   25.81     14,331   19.53      19,701   20.38
Non-Performing Loans:
Single Family.....            9,626    62.41      12,270   39.92      16,799   42.43     25,602   34.89      25,991   26.89
Multi-Family......            3,995    25.90      13,005   42.31      15,785   39.86     44,754   60.98      69,579   72.00
Commercial and Industrial       225     1.46       4,040   13.14       1,533    3.87      2,223    3.03       3,313    3.43
Other.............                -        -           -       -           -     -            -       -         220     .23
Less Valuation
 Allowances.......             (625)   (4.05)     (3,332) (10.84)     (4,738) (11.97)   (13,522) (18.43)    (22,159) (22.93)
Total Non-Performing
 Loans............           13,221    85.72      25,983   84.53      29,379   74.19     59,057   80.47      76,944   79.62
Total.............          $15,423   100.00%    $30,738  100.00%    $39,597  100.00%   $73,388  100.00%   $ 96,645  100.00%
Ratio of Non-Performing
 Assets To Total Assets:                 .40%                .84%                .95%              1.77%               2.33%
</TABLE>


     The  decrease  in  non-performing  loans  in  1999  and  1998  is  due to
reductions in delinquent loans and non-performing  loans due to improvement in
the Southern California real estate markets.

     Single family  non-performing  loans are primarily due to factors such as
layoffs and decreased  incomes.  Multi-family  and  commercial  non-performing
loans are  attributable  primarily  to factors  such as declines in  occupancy
rates and decreased real estate values.  The Bank actively monitors the status
of all non-performing loans.

     Impaired  loans totaled $11.4  million,  $17.5 million and $25.7 million,
net of related allowances of $2.6 million, $7.6 million and $9.8 million as of
December 31, 1999, December 31, 1998 and 1997,  respectively.  See "Business -
Risk Elements" for a further discussion of impaired loans.



                                      37
<PAGE>

      The Bank's modified loans result primarily from temporary  modifications
of principal and interest payments.  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 the Bank.
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, 1999,  the Bank had modified  loans  totaling $7.4 million,
net of loan loss  allowances.  This  compares  with  $11.0  million  and $16.7
million net of  allowances  as of December  31, 1998 and  December  31,  1997,
respectively.  Modified  loans  included as impaired loans total $6.5 million,
$6.0 million and $8.1  million,  net of valuation  allowances,  as of December
31, 1999, 1998 and 1997, respectively.  No modified loans were 90 days or more
delinquent as of December 31, 1999, 1998, and 1997.

 Allowances for Loan Losses

      For an  analysis  of  the  changes  in the  loan  loss  allowances,  see
"Business  - Risk  Elements."  At December  31,  1999,  the general  valuation
allowance was $70.0  million or 2.15% of the Bank's loans with loss  exposure.
This  compares  to 2.26% at the end of 1998 and  1.86% at the end of 1997.  In
addition to the general  valuation  allowance  and the  allowance for impaired
loans  mentioned  above,  the Bank also  maintains a repurchase  liability for
loans sold with recourse.  This repurchase  liability amounted to 7.18%, 6.18%
and 5.97% of loans sold with  recourse at December  31,  1999,  1998 and 1997,
respectively.  Management  considers  the  current  level  of loss  allowances
adequate to cover the Bank's loss  exposure at this time.  However,  there can
be no  assurance  that future  additions to loan loss  allowances  will not be
required.


                        CAPITAL RESOURCES AND LIQUIDITY

Liquidity Requirements

      Federal regulations  currently require a savings institution to maintain
a monthly  average  daily balance of liquid assets  (including  cash,  certain
time deposits,  bankers'  acceptances and specified United States  government,
state or federal agency  obligations) equal to at least 4% of: (i) the average
daily  balance of its net  withdrawable  accounts  and  short-term  borrowings
during the preceding  calendar  quarter or (ii) the ending  balance of its net
withdrawable  accounts as of the end of the preceding  calendar  quarter.  The
liquidity  requirement  may be  changed  from  time-to-time  by the OTS to any
amount  within  the  range  of 4% to  10%  of  such  accounts  and  borrowings
depending   upon  economic   conditions   and  the  deposit  flows  of  member
institutions.  Effective  December  1, 1997,  the OTS reduced  this  liquidity
requirement  to 4% from 5%.  The OTS also  gave  institutions  the  option  of
using a quarterly average  calculation or an end of quarter calculation of the
liquidity base and removed the  requirement  of maintaining a monthly  average
balance of short-term  liquid assets equal to at least 1% of the average daily
balance of its net withdrawable  accounts and short term borrowings.  Monetary
penalties  may  be  imposed  for  failure  to  meet  these   liquidity   ratio
requirements.  The Bank's  liquidity  ratio for the quarter ended December 31,
1999 was 6.39%, which exceeded the applicable requirements.


                                      38
<PAGE>

External Sources of Funds

      External  sources  of  funds  include  savings  deposits,   loan  sales,
advances  from  the  FHLBSF  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 1999 was advances from
the FHLBSF.

      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.  Brokered deposits were
$445.9  million at December  31,  1999.  This  compares  to $494.2  million at
December 31, 1998 and  $378.1 million at December 31, 1997.

      Deposits at retail  savings  offices were $1.6 billion at December  1999
compared  to $1.5  billion  for  1998  and  1997.  The  retail  deposits  have
remained  steady due to the  availability  of alternative  investments  paying
higher  returns to  customers  and intense  competition  for deposits by other
financial institutions.

      The  Bank  also  solicits   deposits  through   telemarketing   efforts.
Telemarketing  deposits are obtained by the Bank's  employees  via  telephone,
from  depositors  outside of the Bank's normal  service  areas.  Telemarketing
deposits  decreased by 44% to $64.5 million at the end of 1999.  This compares
with $115.6  million at the end of 1998 and $99.8  million at the end of 1997.
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 investors'  perception of the
Bank's creditworthiness.

      Reverse  repurchase  agreements  are short  term  borrowings  secured by
mortgage-backed  securities.  These borrowings decreased 23% to $363.6 million
at the end of 1999 from $471.2  million at the end of 1998 and $577.7  million
at the end of  1997.  Borrowings  under  reverse  repurchase  agreements  have
decreased  over the last  three  years due to  prepayments  of the  underlying
collateral.  The Bank did not securitize  any mortgage loans in 1999,  1998 or
1997.

      FHLB  advances  increased  to $1.2  billion at the end of 1999 from $714
million at the end of 1998  compared to $1.3 billion at the end of 1997.  FHLB
advances  increased  during  1999  because  these were  often the lowest  cost
source funds available to the Bank. FHLB advances  decreased  during 1998 from
1997 due to the availability of lower cost funds from other sources.

      Sales of loans were  $133.0  million in 1999.  This  compares  to $379.6
million  during  1998 and $52.4  million  during  1997.  Loan sales  decreased
substantially in 1999 due to increased  interest rates on fixed rate mortgages
during  the  second  half  of 1999  which  resulted  in a  decrease  in  loans
originated for sale.

Internal Sources of Funds

      Internal  sources of funds include  scheduled loan  principal  payments,
loan payoffs,  and positive  cash flows from  operations.  Principal  payments
were  $670.5  million in 1999  compared  to $658.0  million in 1998 and $289.1
million  in  1997.   Principal   payments   include  both   amortization   and
prepayments  and are a function of real estate  activity and the general level
of interest rates.  Prepayments  increased in 1999 due to refinancing activity
into fixed rate loans which were available to borrowers at favorable  interest
rates for the first half of 1999.


                                      39
<PAGE>

Capital Requirements

      Current OTS regulatory  capital standards require that the Bank 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 assets,  risk-weighted.
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 take in  brokered  deposits  at their
discretion,  and if they  achieve a  sufficient  ranking  on their  regulatory
examination, may be assessed a lower deposit insurance rate.

     Management  presently  intends to maintain its capital position at levels
above those required by regulators to ensure operating  flexibility and growth
capacity for the Bank.  The Bank's capital  position is actively  monitored by
management.  The  Bank  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.

      To  be  considered  "well   capitalized"  for  purposes  of  the  prompt
corrective  action  requirements  the Bank must maintain the capital ratios as
set forth in the table below:


                                              December 31, 1999
                                              Amount           %
                                            (Dollars In Thousands)

   Core capital requirement.........        $194,633         5.00%
   Bank's core capital..............         234,166         6.02
     Excess core capital............        $ 39,533         1.02%

   Tier 1 risk-based capital requirement    $131,942         6.00%
   Bank's tier 1 risk-based capital.         234,166        10.65
     Excess tier 1 risk-based capital       $102,224         4.65%

   Risk-based capital requirement...        $219,904        10.00%
   Bank's risk-based capital........         262,178        11.92
     Excess risk-based capital......        $ 42,274         1.92%


                                      40
<PAGE>

                          ASSET-LIABILITY MANAGEMENT

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

      The Bank's 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 earnings  from
interest  rate  fluctuations.  Under this  program,  the Bank  emphasizes  the
funding  of  monthly   adjustable   mortgages  with  short  term  savings  and
borrowings  and matching the maturities of these assets and  liabilities.  The
Bank also match funds a limited  amount of fixed rate loans with initial fixed
interest periods ranging from 3 to 10 years.

      The majority of the Bank's assets are monthly  adjustable rate mortgages
with interest  rates that  fluctuate  based on changes in the FHLBSF  Eleventh
District Cost of Funds Index  ("Index").  These mortgages  constitute over 87%
of the loan  portfolio at the end of 1999.  Comparisons  over the last several
years show that changes in the Bank's cost of funds generally  correlates with
changes in the Index.  The Bank does not use any futures,  options or swaps in
its asset-liability strategy.

      Assets and  liabilities  which 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.   Generally,   a
positive GAP benefits a company during periods of increasing  interest  rates.
The reverse is true during  periods of  decreasing  interest  rates.  However,
because the Index lags changes in market  interest rates by three months while
the Bank's  short-term  savings and borrowing  costs adjust  immediately,  the
Bank's  net  interest  income  initially  decreases  during  periods of rising
interest rates and increases during periods of declining interest rates.

      In order to  minimize  the  impact  of rate  fluctuations  on  earnings,
management's  goal is to keep  the one  year  GAP at less  than  20% of  total
assets  (positive or negative).  At December 31, 1999 the  Company's  one-year
GAP was $108.2  million or 2.81% of total assets.  This compares with positive
GAP  ratios of 13.0%  and  4.14% of total  assets  at  December  31,  1998 and
December 31, 1997, respectively.




                                      41
<PAGE>

      The  following  chart shows the interest  sensitivity  of the  Company's
assets and  liabilities  by  repricing  period at  December  31,  1999 and the
consolidated GAP position as a percentage of total assets at that time:

<TABLE>
<CAPTION>

                              INTEREST-SENSITIVITY GAP


                                                     Balances       Balances       Balances     Balances
                                                     Repricing      Repricing      Repricing    Repricing
                                         Total        Within         Within          Within       After
                                        Balance    0-3 Months     4-12 Months     1-5 Years      5 Years
                                                            (Dollars In Thousands)
<S>                                    <C>          <C>           <C>             <C>           <C>

Interest-Earning Assets:
  FHLB interest bearing deposits     $    8,937    $    8,937    $         -    $         -    $       -
  Investment Securities...              151,195           200         28,300         10,000      112,695
  Overnight Investments...               67,000        67,000              -              -            -
  Mortgage-backed Securities            428,641       426,427            103            673        1,438
  Loans Receivable........            3,060,547     2,712,843         24,032        245,223       78,449
     Total Interest-Earning
      Assets..............           $3,716,320    $3,215,407    $    52,435    $   255,896    $ 192,582

Interest-Bearing Liabilities:
   Demand Accounts........           $  636,684    $  636,684    $         -    $         -    $       -
   Fixed Rate Term Certificate        1,280,363       436,354        802,937         37,357        3,715
   Borrowings:
     FHLB Advances........            1,169,000       545,000        375,000        219,000       30,000
     Reverse Repurchase
            Agreements....              363,635       340,417         23,218              -            -
     Other Borrowings                         -             -              -              -            -
           Total Interest-Bearing
           Liabilities....           $3,449,682    $1,958,455    $ 1,201,155    $   256,357    $  33,715

Interest-Sensitivity Gap..           $  266,638    $1,256,952    $(1,148,720)   $      (461)   $ 158,867

Interest-Sensitivity Gap as a
  Percentage of Total Assets                            32.59%        (29.79)%        (0.01)%       4.12%

Cumulative Interest-Sensitivity Gap                $1,256,952    $   108,232    $   107,771    $ 266,638

Cumulative Interest-Sensitivity
  Gap as a Percentage of Total
   Assets.................                              32.59%         2.81%           2.79        6.91%

</TABLE>

                                      42
<PAGE>

      Another  measure of  interest  rate risk,  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,  which  became  effective
December 1, 1998 and replaced  TB-13,  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.  In  addition,  the Bank  monitors  the impact of the
same changes in interest  rates on its interest  income.  The following  table
shows  the  estimated  impact of a  parallel  shift in  interest  rates on the
Bank's portfolio value at December 31, 1999 and December 31, 1998:


                                                  Percentage
            Change in Interest Rates   Change in Net Portfolio Value(1)
             (In Basis Points)            1999           1998

                   +300................   (15)%          (13)%
                   +200................   (10)%           (8)%
                   +100................    (6)%           (4)%
                 -- 100..............       2%             1%
                 -- 200..............       5%             2%
                 -- 300..............      13%             7%

(1) The percentage  change  in  this  column  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.


                                      43
<PAGE>
The  following  table  shows the fair value and  contract  terms of the Bank's
interest-earning  assets and  interest-bearing  liabilities as of December 31,
1999  categorized  by type and  expected  maturity  for each of the next  five
years and thereafter:
<TABLE>
<CAPTION>

                                                      Expected  Maturity  Date  as of December 31, (1)
                                                                                       There-      Total         Fair
                                  2000      2001      2002        2003       2004      after      Balance       Value
<S>                             <C>       <C>        <C>        <C>        <C>        <C>        <C>         <C>

Interest Earning Assets
Loans Receivable:
Adjustable Rate Loans:
 Single family                $196,847   $201,547   $187,476   $164,198   $143,651   $904,353   $1,798,072   $1,812,726
   Average interest rate          7.26%      7.27%      7.27%      7.27%      7.28%      7.28%        7.28%
Multi-family                    80,259     80,783     77,586     75,810     71,357    736,134    1,121,929    1,132,896
   Average interest rate          7.29%      7.29%      7.31%      7.32%      7.35%      7.32%        7.32%
Commercial  and Industrial      13,894     13,885     14,258     16,604     20,587     97,613      176,841      182,044
   Average interest rate          7.73%      7.77%      7.48%      7.67%      8.02%      7.87%        7.82%
Fixed Rate Loans:
 Single family                   1,325      1,147        978        819        679      3,334        8,282        8,474
   Average interest rate          8.29%      8.24%      8.17%      8.18%      8.17%      7.83%        8.06%
Multi-family                       830        795        748        675        614      1,858        5,520        5,653
   Average interest rate          8.56%      8.46%      8.46%      8.53%      8.59%      7.85%        8.29%
Commercial and Industrial          609        685        544        485      1,874      2,696        6,893        7,216
   Average interest rate          9.69%      9.43%      8.79%      8.63%      8.42%      8.79%        8.92%
Business Loans                   3,321        945      1,039      1,142      1,114        579        8,140        8,309
   Average interest rate         10.06%      9.50%      9.50%      9.50%      9.50%      9.50%        9.73%
Consumer loans                   1,277        999          -          -          -          -        2,276        2,474
   Average interest rate         13.11%     13.50%        -          -          -          -        13.28%
Other loans                        192        322        395        355        307      1,058        2,629        2,660
   Average interest rate          0.62%      7.55%      7.55%      7.55%      7.55%      7.55%        4.41%
Mortgage-backed
 Securities:
 Adjustable                     58,254     51,125     44,836     39,291     34,403    209,796      437,705      426,169
   Average interest rate          5.90%      5.90%      5.90%      5.90%      5.90%      5.90%        5.90%
Fixed                              370        324        283        247        215        809        2,248        2,472
   Average interest rate          8.51%      8.51%      8.51%      8.51%      8.51%      8.48%        8.50%
Investment Securities              300      9,996     28,171          -          -    115,704      154,171      151,195
   Average interest rate          5.79%      5.38%      5.01%         -          -       6.23%        5.95%
Overnight investments           67,000          -          -          -          -          -       67,000       67,000
   Average interest rate          4.50%         -          -          -          -          -         4.50%
Total Interest-Earning
   Assets                     $424,478   $362,553   $356,314   $299,626   $274,801 $2,073,934   $3,791,706   $3,809,288
Interest-Bearing Liabilities
Deposits:
Checking Accounts           $  111,366    $     -    $     -   $      -   $      -  $       -   $  111,366   $  111,366
   Average interest rate          1.06%         -          -          -          -          -         1.06%
Savings Accounts               525,318          -          -          -          -          -      525,318      525,318
   Average interest rate          3.86%         -          -          -          -          -         3.86%
Certificate Accounts         1,239,291     20,587      6,548      6,927      3,295      3,715    1,280,363    1,275,921
   Average interest rate          5.28%      5.18%      5.48%      5.57%      4.97%      4.46%        5.28%
Borrowings:
 FHLB Advances                 920,000     72,000          -          -    147,000     30,000    1,169,000    1,167,152
   Average interest rate          5.97%      5.59%         -          -       5.74%      5.38%        5.90%
Reverse repurchase
  agreements                   363,635          -          -          -          -          -      363,635      363,634
   Average interest rate          5.75%         -          -          -          -          -         5.75%
Total Interest-Earning
   Liabilities              $3,159,610    $92,587    $ 6,548   $  6,927  $ 150,295  $  33,715   $3,449,682   $3,443,391
</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  12% for
 the  single  family  portfolio  and 6% for  its  multi-family and  commercial
 real estate  portfolios.  The Bank  used estimated  deposit  runoff based  on
 available industry information.

                                      44
<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.  The Company's
Board of  Directors  declared a  two-for-one  stock  split on June 25, 1998 to
stockholders  of  record  on  July  15,  1998.  The  additional   shares  were
distributed on July 30, 1998.

      The Company  repurchased  3,298,150  shares of its common  stock  during
1999.  Total shares  repurchased  as of December 31, 1999 were 5,245,990 at an
average  price of $12.50 per share.  As of  February  11, 2000 the Company had
repurchased  an  additional  117,400  shares at an average price of $12.35 per
share.  Total shares  repurchased  as of February  11, 2000 were  5,363,390 at
an average  price of $12.50.  As of February  11, 2000,  there remain  716,318
shares eligible for repurchase.

                             PRICE RANGE OF COMMON STOCK

        First Quarter      Second Quarter      Third Quarter     Fourth Quarter
        High     Low       High      Low        High     Low       High    Low

1999   $18.00   $15.56    $20.00    $15.31    $17.81    $15.00   $18.50  $12.81
1998    21.19    15.94     26.41     20.41     26.94     14.75    18.56   14.13
1997(1) 14.00    10.75     15.53     11.25     17.44     15.38    19.75   17.50
1996(1)  7.94     6.19      8.75      7.75      9.88      8.38    12.13    9.75
1995(1)  8.00     5.56      8.88      7.31      8.81      7.25     9.25    6.88

(1) All amounts have been adjusted for the stock split declared June 25, 1998.


                             RECENT DEVELOPMENTS

      On February 7, 2000,  the Bank entered into an agreement  with  Fidelity
Federal  Bank,  a Federal  Savings Bank  ("Fidelity")  to acquire two Fidelity
branch offices.  Pursuant to the terms of the agreement,  the Bank will assume
approximately  $160  million in deposits  held at the two  Fidelity  branches,
will  assume the  liabilities  and  related  contracts,  including  the leases
related to such  branches,  and will  acquire  approximately  $125  million in
multifamily  residential  mortgage  loans  as part of the  transaction.  It is
anticipated  that the  acquisition  will  close  late in the first  quarter or
early in the  second  quarter  of 2000,  subject to  regulatory  approval  and
satisfaction  of the other terms and  conditions  of the  agreement.  However,
there can be no assurance as to when the transaction  will be consummated,  if
at all.



                                      45
<PAGE>

                             FORWARD LOOKING STATEMENTS

      The  preceding  Management's  Discussion  and Analysis of the  Company's
Financial    Condition   and   Results   of   Operations    contain    certain
"forward-looking  statements"  within the  meaning of the  Private  Securities
Litigation  Reform Act of 1995, which provides a "safe harbor" for these types
of  statements.  This  Annual  Report  on form 10-K  contains  forward-looking
statements  which  reflect the current  views of the  Company's and the Bank's
management  with  regard to future  events and  financial  performance.  These
forward  looking  statements  are subject to certain  risks and  uncertainties
including those  identified  herein which could cause actual results to differ
materially  form  historical  results  or those  anticipated.  Forward-looking
terminology  can be  identified  by the use of terms  such as  "may",  "will",
"expect",   "anticipate",   "estimate",   "should"  or   "continue"  or  other
variations or comparable  terms.  Readers  should not place undue  reliance on
these  forward-looking  statements,  which  speak  only  of  their  date.  The
Company   undertakes  no   obligation   to  publicly   update  or  revise  any
forward-looking  statements,  whether as a result of new  information,  future
events or  otherwise.  The  following  factors  could cause actual  results to
differ materially from historical results or those anticipated:  (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,  and  demographics of the lending
areas of the Bank, (2) fluctuations  between  consumer  interest rates and the
cost of  funds;  (3)  federal  and  state  regulation  of  lending  and  other
operations, and (4) competition within the Bank's market areas.

      Investor  should  carefully  consider the risks in an  evaluation of the
Company and its common  stock.  The risk and  uncertainties  described  herein
are  not  the  only   ones   facing   the   Company.   Additional   risks  and
uncertainties,  including  but not limited to credit,  economic,  competitive,
governmental  and  financial  factors  affecting  the  Company's   operations,
markets,  financial products,  and services and other factors discussed in the
Company's  fillings  with the  Securities  and exchange  Commission,  may also
adversely  impact and  impair its  business.  If any of these  risks  actually
occur, the Company's business,  results of operation,  cash flows or financial
condition  would  likely  suffer.  In such  case,  the  trading  price  of the
Company's common stock could decline,  and an investor may lose all or part of
the money paid to buy such common stock.


                                      46
<PAGE>


      ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   FIRSTFED FINANCIAL CORP.  AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                          DECEMBER 31, 1999 AND 1998
                 (Dollars In Thousands, Except Per Share Data)

                                                      1999          1998

ASSETS
Cash and cash equivalents..                       $  101,807    $  126,280
Investment securities, available-for-sale
  (at  fair value) (Note 2)                          151,195        64,333
Mortgage-backed securities, available-for-sale
  (at fair value) (Notes 3 and 10)                   428,641       556,679
Loans receivable, held-for-sale (fair value of
  $2,303 and $16,602) (Note 4)                         2,303        16,450
Loans receivable, net (Notes 4 and 9)              3,058,244     2,791,771
Accrued interest and dividends receivable             21,825        23,476
Real estate (Note 5).......                            2,236         4,791
Office properties and equipment, net (Note 6)         11,745        11,819
Investment in Federal Home Loan Bank
  (FHLB) stock, at cost (Notes 7 and 9)               71,722        72,700
Other assets (Note 1)......                            6,787         8,829
                                                  $3,856,505    $3,677,128

LIABILITIES
Deposits (Note 8)..........                        2,061,357     2,135,909
FHLB advances and other borrowings
 (Notes 7 and 9)...........                        1,169,000       764,000
Securities sold under agreements to repurchase
  (Note 10)................                          363,635       471,172
Accrued expenses and other liabilities                31,380        49,047
                                                  $3,625,372    $3,420,128

COMMITMENTS AND CONTINGENT
   LIABILITIES (Notes 4, 6 and 13)

STOCKHOLDERS' EQUITY (Notes 12 and 13)
Common stock, par value $.01 per share;
  authorized 100,000,000 shares; issued
  23,269,051 and 23,075,266 shares,
  outstanding  18,023,061 and 21,127,426
  shares...................                              233           231
Additional paid-in capital.                           31,561        29,965
Retained earnings - substantially restricted         274,946       241,694
Loan to employee stock ownership plan                 (1,759)         (833)
Treasury stock, at cost,
  5,245,990 and 1,947,840 shares                     (65,568)      (13,354)
Accumulated other comprehensive loss,
  net of taxes.............                           (8,280)         (703)
                                                     231,133       257,000
                                                  $3,856,505    $3,677,128


See accompanying notes to consolidated financial statements.


                                      47
<PAGE>


                  FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
               YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                (Dollars In Thousands, Except Per Share Data)

                                              1999          1998         1997
Interest income:
 Interest on loans..................       $216,634      $238,171     $237,835
 Interest on mortgage-backed securities      28,700        39,462       48,652
 Interest and dividends on investments       14,667        12,136       12,733
    Total interest income ..........        260,001       289,769      299,220
Interest expense:
  Interest on deposits (Note 8) ....         87,199        97,659       92,678
  Interest on borrowings (Note 9)...         73,832        88,832      111,548
    Total interest expense .........        161,031       186,491      204,226

Net interest income ................         98,970       103,278       94,994
 Provision for loan losses (Note 4)               -         7,200       20,500
Net interest income after provision for
  loan losses.......................         98,970        96,078       74,494
Other income:
  Loan servicing and other fees ....          4,204         4,152        6,233
  Gain on sale of loans.............          1,221         4,061          652
  Real estate operations, net ......          3,217         1,182           20
  Other operating income............          4,046         4,262        3,313
    Total other income  ............         12,688        13,657       10,218

Non-interest expense:
  Salaries and employee benefits (Note 13)   26,664        25,811       22,740
  Occupancy (Note 6) ...............          7,859         8,493        6,878
  Advertising  .....................          1,864         1,959        2,795
  Federal deposit insurance  .......          1,236         1,241        1,872
  Other operating expense ..........         11,536        11,420        9,866
    Total non-interest expense  ....         49,159        48,924       44,151
Earnings before income taxes and
extraordinary item..................         62,499        60,811       40,561
Income taxes  (Note 11) ............         27,052        26,182       17,461
Earnings before extraordinary item .         35,447        34,629       23,100

Extraordinary item:
     Loss on early extinguishment
     of debt, net of taxes..........         (2,195)            -            -
Net earnings........................       $ 33,252     $  34,629    $  23,100
Other comprehensive earnings (loss)
  Unrealized gain (loss) on mortgage-backed-
  securities and securities
  available-for-sale, net of taxes..         (7,577)         (311)       3,798
Comprehensive earnings..............       $ 25,675     $  34,318    $  26,898

Earnings per share  (Notes 12 and 15):
   Basic EPS before extraordinary  item    $   1.84     $    1.63    $    1.09
   Extraordinary  item..............           (.11)            -            -
   Basic EPS after extraordinary  item     $   1.73     $    1.63    $    1.09

   Diluted EPS before extraordinary item   $   1.83     $    1.60    $    1.07
   Extraordinary  item..............           (.12)            -            -
   Diluted EPS after extraordinary  item   $   1.71     $    1.60    $    1.07

 See accompanying notes to consolidated financial statements.


                                      48
<PAGE>

<TABLE>
<CAPTION>

                                 FIRSTFED FINANCIAL CORP.  AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                              YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                                          (Dollars In Thousands)

                                                                                            Accumulated
                                                                                               Other
                                                                                           Comprehensive
                                                          Retained                            Earnings
                                                          Earnings                             (Loss),
                                                          (Sub-        Loan to                 Net of
                                            Additional   stantially     ESOP                   Taxes
                                     Common   Paid-In    Restricted)  (Notes 12   Treasury    (Notes 3
                                      Stock   Capital    (Note 12)     and 13)     Stock       and 4)      Total

<S>                                    <C>     <C>        <C>          <C>        <C>           <C>       <C>

Balance, December 31, 1996...          $115    $28,677    $183,965    $(2,132)   $(11,885)    $(4,190)    $194,550
Exercise of employee stock options        -        892           -          -           -           -          892
Net decrease in loan to employee
  stock ownership plan.....               -          -           -        388           -           -          388
Unrealized gain on securities
 available-for-sale, net of taxes         -          -           -          -           -       3,798        3,798
Benefit from stock option tax
  adjustment...............               -         59           -          -           -           -           59
Net earnings 1997..........               -          -      23,100          -           -           -       23,100

Balance, December 31, 1997.             115     29,628     207,065     (1,744)    (11,885)       (392)     222,787
Exercise of employee stock options        1        452           -          -           -           -          453
Net decrease in loan to employee
 stock ownership plan......               -          -           -        911           -           -          911
Stock split in form of stock dividend
  (Note 12)................             115       (115)          -          -           -           -            -
Unrealized loss on securities
 available-for-sale, net of taxes         -          -           -          -           -        (311)        (311)
Common stock repurchased
  (100,800) shares.........               -          -           -          -      (1,469)          -       (1,469)
Net earnings 1998..........               -          -      34,629          -           -           -       34,629
Balance, December 31, 1998.             231     29,965     241,694       (833)    (13,354)       (703)     257,000

Exercise of employee stock options        2      1,098           -          -           -           -        1,100
Net increase in loan to employee
 stock ownership plan......               -          -           -       (926)          -           -         (926)
Benefit from stock option tax
 adjustment................               -        498           -          -           -           -          498
Unrealized loss on securities
 available-for-sale, net of taxes         -          -           -          -           -      (7,577)      (7,577)
Common stock repurchased
  (3,298,150) shares.......               -          -           -          -     (52,214)          -      (52,214)
Net earnings 1999..........               -          -      33,252          -           -           -       33,252
Balance, December 31, 1999.            $233   $ 31,561    $274,946    $(1,759)   $(65,568)    $(8,280)    $231,133

See accompanying notes to consolidated financial statements.

</TABLE>

                                      49
<PAGE>
<TABLE>
<CAPTION>

                    FIRSTFED FINANCIAL CORP.  AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
                           (Dollars In Thousands)
<S>                                                  <C>            <C>          <C>

                                                        1999          1998         1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................                 $ 33,252      $ 34,629      $ 23,100
Adjustments to reconcile net earnings to
 net cash provided by operating activities:
  Net change in loans held-for-sale.                   14,147        23,932       (34,187)
  Depreciation and amortization.....                    2,645         1,546         1,775
  Provision for losses on loans.....                        -         7,200        20,500
  Provision (benefit) for losses on real
  estate owned......................                      (54)          572         1,639
  Valuation adjustments on real estate sold            (2,542)       (6,591)        3,795
  Amortization of fees and discounts                     (597)       (1,549)       (1,503)
  Decrease in servicing asset.......                      318         2,059           387
  Change in deferred taxes..........                   (1,643)       (6,988)        2,919
  Decrease in tax interest accrual..                     (150)         (881)       (7,182)
  (Increase) decrease in interest and dividends
   receivable.......................                    1,651         3,514           (80)
  Increase (decrease) in interest payable              (6,819)        2,775           633
  Increase in other assets..........                   (2,767)       (5,158)       (1,237)
  Increase (decrease) in accrued expenses and
   other liabilities................                   (2,074)        2,487           876
   Total  adjustments...............                    2,115        22,918       (11,665)
    Net cash provided by operating activities          35,367        57,547        11,435

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal collections
 on loans...........................                 (149,842)      288,360      (121,095)
Loans repurchased under recourse arrangements          (1,242)       (1,765)       (7,899)
Loans purchased.....................                 (121,522)            -             -
Proceeds from sales of real estate owned               15,980        29,150        53,263
Proceeds from maturities and principal payments
 of investment securities available-for-sale            6,809        23,892        37,912
Principal reductions of mortgage-backed
 securities available-for-sale......                  117,440       118,801        76,923
Purchases of investment securities
 available-for-sale.................                  (96,300)      (39,061)      (28,400)
Redemption of FHLB stock............                    4,823             -        (2,186)
Other...............................                   (5,536)        1,104        (1,288)
     Net cash provided by investing activities       (229,390)      420,481         7,230

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits.                  (74,552)      192,262       (13,801)
Net increase (decrease) in short term borrowings      347,463      (706,498)       51,188
Repayment of long term borrowings...                  (50,000)            -       (50,000)
Purchases of treasury stock.........                  (52,214)       (1,353)            -
Other...............................                   (1,147)          706        (5,319)
    Net cash provided (used) by financing activities  169,550      (514,883)      (17,932)
Net increase in cash and cash
 equivalents........................                  (24,473)      (36,855)          733
Cash and cash equivalents at beginning of year        126,280       163,135       162,402
Cash and cash equivalents at end of year             $101,807      $126,280      $163,135
</TABLE>

See accompanying notes to consolidated financial statements.


                                      50
<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  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

      The  consolidated  financial  statements  include  the  accounts  of the
Company and its  subsidiary,  the Bank.  The Bank  maintains  24  full-service
savings branches in Southern California.  The Bank's primary business consists
of attracting  retail deposits from the general public and  originating  loans
secured  by   mortgages  on   residential   real   estate.   All   significant
inter-company    balances   and   transactions   have   been   eliminated   in
consolidation.  Certain  items in the 1997 and  1998,  consolidated  financial
statements have been reclassified to conform to the 1999 presentation.

Statement of Cash Flows

      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

      Generally   Accepted   Accounting   Principles   ("GAAP")  requires  the
disclosure  of  the  fair  value  of  financial  instruments,  whether  or not
recognized  on  the  Statement  of  Financial  Condition,   for  which  it  is
practicable to estimate the value. A significant  portion of the Bank's 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  the  Bank's   financial   instruments  is   concentrated  in  its  loans
receivable.  Additionally, the Bank is subject to credit risk on certain loans
sold with  recourse.  The Bank has  established  a system for  monitoring  the
level of credit risk in its 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 the Bank.  The Bank's
market risk is  concentrated  in its  portfolios of loans  receivable and real
estate   acquired  by   foreclosure.   When  a  borrower  fails  to  meet  the
contractual  requirements of his or her loan agreement, the Bank is subject to
the market risk of the  collateral  securing the loan.  Likewise,  the Bank is
subject to the  volatility  of real estate  prices with respect to real estate
acquired by foreclosure.  The Bank's securities  available-for-sale are traded
in  active  markets.  The  value of these  securities  is  susceptible  to the
fluctuations of the market.

                                      51
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

 Interest Rate Risk

      Financial  instruments  are subject to interest  rate risk to the extent
that they  report on a  frequency,  degree or basis that  varies  from  market
pricing.  The Bank is subject  to  interest  rate risk to the degree  that its
interest-earning  assets reprice on a different frequency or schedule than its
interest-bearing  liabilities.  A majority of the Bank's loans  receivable and
mortgage-backed  securities  reprice  based  on the  Federal  Home  Loan  Bank
Eleventh  District  Cost of Funds Index (the  "Index").  The  repricing of the
Index  tends to lag market  interest  rates.  The Bank  closely  monitors  the
pricing sensitivity of its 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 the  Bank's  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 the Bank's  mortgage loans,
the collateral will be the underlying  mortgaged property.  The Bank's lending
activities are primarily  concentrated in Southern  California.  The Bank does
not have significant exposure to any individual customer.

 Securities Purchased under Agreements to Resell

      The Bank invests in  securities  purchased  under  agreements  to resell
("repurchase  agreements").  The Bank obtains 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.  The Bank deals only
with nationally  recognized  investment banking firms as the counterparties to
these  agreements.  The Bank's investment in repurchase  agreements  consisted
solely  of  securities   purchased  under   agreements  to  resell   identical
securities.

 Investments and Mortgage-Backed Securities

      The  Bank's  investment  in  securities  principally  consists  of  U.S.
Treasury  and  agency  securities  and  mortgage-backed  securities.  The Bank
creates  mortgage-backed  securities  when it exchanges pools of its own loans
for mortgage-backed securities.

      The Bank  classifies its investment in securities as  "held-to-maturity"
securities,   "trading"  securities  and  "available-for-sale"  securities  as
applicable.


                                      52
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

      The  Bank  classifies  all  of  its   investments  and   mortgage-backed
securities  as  "available-for-sale"  based  upon a  determination  that  such
securities  may be sold at a  future  date or that  there  may be  foreseeable
circumstances under which the Bank would sell such securities.

      Securities designated as available-for-sale  are recorded at fair value.
Changes in the fair value of debt 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 earnings  in the  Consolidated  Statements  of  Operations  and
Comprehensive  Earnings.  Unrealized  gains or  losses  on  available-for-sale
securities are computed on a specific identification basis.

      The Bank did not hold any trading  securities  at  December  31, 1999 or
1998.

Loans Held-for-Investment

      The Bank's  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 interest and allowances for loan losses.

Loans Held-for-Sale

      The  Bank  identifies  loans  that  foreseeably  may be  sold  prior  to
maturity and classifies them 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

      The Bank evaluates 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.

      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

     The Bank  establishes  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.


                                      53
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

Allowances for Loan Losses

     The Bank  maintains a general  valuation  allowance  for  loan losses for
the  inherent  risk in the loan  portfolio  which  has yet to be  specifically
identified.  The allowance is  unallocated to any specific loan. The allowance
is  maintained  at an  amount  that  management  believes  adequate  to  cover
estimable  and probable  loan losses  based on a risk  analysis of the current
portfolio.  Additionally,  management  performs  periodic  reviews of the loan
portfolio  to  identify  potential   problems  and  to  establish   impairment
allowances if losses are expected to be incurred.  Additions to the allowances
are charged to  earnings.  The  regulatory  agencies  periodically  review the
allowances  for loan losses and may require the Bank to adjust the  allowances
based on information available to them at the time of their examination.

     General allowances are provided for all loans, regardless of any specific
allowances  provided.  The  determination of the Bank's general  allowance for
loan losses is based on estimates that are affected by changes in the regional
or national economy and market  conditions.  The Bank's  management  believes,
based on economic and market  conditions,  that the general allowance for loan
losses is  adequate  as of  December  31,  1999 and 1998.  Should  there be an
economic  or  market   downturn   or  if  market   interest   rates   increase
significantly,  the Bank could experience a material  increase in the level of
loan  defaults  and   charge-offs.

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.  When a loan is repaid or sold, any
unamortized net deferred fee balance is credited to income.

Gain or Loss on Sale of Loans

     The Bank primarily sells its mortgage loans on a servicing released basis
and recognizes cash gains or losses immediately in its Statement of Operations
and  Comprehensive  Earnings.  The Bank has previously sold mortgage loans and
loan  participation's  on a servicing  retained  basis with yield rates to the
buyer  based  upon  the  current  market  rates  which  may  differ  from  the
contractual  rate  of  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.  The Bank  estimates  fair  values  by  discounting
servicing  assets  cash flows  using  discount  and  prepayment  rates that it
believes market participants would use. The Bank had no such activity in 1999,
1998 and 1997.

      Servicing  assets  arising  from the sale of loans are included in other
assets and were  $2,367,000  and  $2,685,000  at  December  31, 1999 and 1998,
respectively.  No  additional  servicing  assets were  recorded in 1999,  1998
and 1997.


                                      54
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

Real Estate

      The Bank's 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.
The Bank acquires 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.  The REO's  balance is adjusted for any  subsequent
declines in fair value through a valuation allowance.

      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 Bank or its  subsidiaries in the property sold.
If a real estate transaction does not meet certain down payment, cash flow and
loan  amortization  requirements,  gain is 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.

 Income Taxes

      The  Company  files a  consolidated  federal  income  tax  return  and a
combined  California  franchise tax report with the Bank and its subsidiaries.
The Bank  accounts for income taxes 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  bases of the
Bank'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.

 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.  Earnings  per  share  have  been  adjusted  to
reflect a two-for-one split during 1998.

Comprehensive Earnings

      GAAP   establishes   standards  for  reporting   and   presentation   of
comprehensive   income  and  its   components  in  a  full  set  of  financial
statements.   Comprehensive   earnings   consists  of  net  earnings  and  net
unrealized  gains (losses) on securities  available-for-sale  and is presented
in the consolidated  statements of operations and  comprehensive  earnings and
consolidated  statements of stockholders'  equity. The Statement requires only
additional disclosures in the consolidated statements;  it does not affect the
Company's financial position or results of operations.


                                      55
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

Segments 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.  This statement did not have
a material  effect on the  consolidated  financial  statements or disclosures.
The Company manages its business as one segment.

Recent Accounting Pronouncements

      In June of 1998,  the  Financial  Accounting  Standards  Board  ("FASB")
issued Statement of Financial  Accounting  Standards No. 133,  "Accounting for
Derivative  Instruments  and  Hedging  Activities"  ("SFAS  No.  133"),  which
establishes  accounting and reporting standards for derivative instruments and
for hedging activities.  It requires  recognition of all derivatives as either
assets  or  liabilities  in the  statement  of  financial  condition  and  the
measurement  of those  instruments  at fair value.  Recognition  of changes in
fair  value  will  be  recognized  into  income  or as a  component  of  other
comprehensive  income  depending  upon  the  type  of the  derivative  and its
related  hedge,  if  any.  As  amended  by  SFAS  No.  137,   "Accounting  for
Derivative  Instruments and Hedging  Activities-Deferral of the Effective Date
of FASB  Statement No. 133." SFAS No. 133 is effective for all fiscal  quarter
of all fiscal years beginning  after June 15, 2000.  Early  implementation  is
permitted   under  this   statement.   The  Company  has  not  adopted   early
implementation   and   management   has  not  yet  determined  the  impact  of
implementing  this  statement  on  its  financial   condition  or  results  of
operations.


(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.  The Bank
had  $67,000,000  and  $71,000,000  in  agreements  to  resell  securities  at
December  31, 1999 and 1998,  respectively  which are  classified  as cash and
cash  equivalents  in the  accompanying  Consolidated  Statements of Financial
Condition.   Securities   purchased   under   agreements  to  resell  averaged
$76,705,000  and  $101,637,000  during 1999 and 1998, and the maximum  amounts
outstanding  at any  month end  during  1999 and 1998  were  $252,000,000  and
$147,000,000 respectively.


                                      56
<PAGE>

2)  Investment Securities (continued)

      Investment  securities,  available-for-sale,  are recorded at fair value
and summarized below for the periods indicated:
                                               1999
                                            Gross        Gross
                            Historical   Unrealized   Unrealized     Fair
                              Value        Gains        Losses       Value
                                      (Dollars In Thousands)
United States Government
  and federal agency
  obligations...........     $ 38,467     $   1       $  (647)     $ 37,821
Collateralized
  Mortgage Obligations..      115,704         -        (2,330)      113,374
                             $154,171     $   1       $(2,977)     $151,195


                                               1998
                                            Gross        Gross
                             Historical  Unrealized   Unrealized     Fair
                               Value        Gains       Losses       Value
                                      (Dollars In Thousands)
United States Government
  and federal agency
  obligations...........     $ 28,456     $   4       $  (521)     $ 27,939
Collateralized
  Mortgage Obligations..       36,380        78          ( 64)       36,394
                             $ 64,836     $  82       $  (585)     $ 64,333

      Related  maturity  data  for  U.S.  government  and  agency  securities,
available-for-sale, is summarized below for the period indicated:

                                               1999
                                            Gross       Gross
                             Historical  Unrealized  Unrealized     Fair
                                Value       Gains       Losses      Value
                                       (Dollars In Thousands)

Maturing within 1 year..     $    300     $   1       $     -      $    301
Maturing 1 to 5 years...       38,167         -          (647)       37,520
                             $ 38,467     $   1       $  (647)     $ 37,821


     Collateralized  Mortgage  Obligations  as of  December  31, 1999 all have
expected  maturities  within  five  years.  There were no sales of  investment
securities  during 1999,  1998 or 1997.  Accrued  interest on investments  was
$1,215,000 and $693,000 at December 31, 1999 and 1998, respectively.


                                      57
<PAGE>

3)  Mortgage-backed Securities

     Mortgage-backed securities,  available-for-sale, are due through the year
2035 and are summarized below for the periods indicated:

                                                1999
                                             Gross       Gross
                             Historical   Unrealized  Unrealized      Fair
                                Value        Gains       Losses       Value
                                       (Dollars In Thousands)

         FNMA...........    $  16,601      $ 10     $   (390)     $  16,221
         FHLMC..........      423,351        21      (10,952)       412,420
         Total..........    $ 439,952      $ 31     $(11,342)     $ 428,641


                                                1998
                                             Gross       Gross
                             Historical  Unrealized  Unrealized       Fair
                               Value        Gains      Losses         Value
                                       (Dollars In Thousands)

         FNMA...........    $  19,038      $ 85     $      -      $  19,123
         FHLMC..........      538,352        40         (836)       537,556
         Total..........    $ 557,390      $125     $   (836)     $ 556,679



      There were no  mortgage-backed  securities created with loans originated
by the Bank in  1999,  1998 or 1997.  There  were no sales of  mortgage-backed
securities during 1999, 1998 or 1997.

      Accrued  interest  receivable  related  to  mortgage-backed   securities
outstanding  at December 31, 1999 and 1998 totaled  $4,135,000  and $5,556,000
respectively.


                                      58
<PAGE>
4)  Loans Receivable

      Loans receivable are summarized as follows:
                                                1999           1998
                                               (Dollars In Thousands)
Real estate loans:
  First trust deed residential loans:
    One to four units..........             $1,813,783     $1,564,392
    Five or more units.........              1,123,308      1,127,228
    Residential loans..........              2,937,091      2,691,620
  Other real estate loans:
    Commercial and industrial..                183,194        181,772
    Second trust deeds.........                 13,489         15,357
 Real estate loans.............              3,133,774      2,888,749
Non-real estate loans:
  Manufactured housing.........                    613            893
  Deposit accounts.............                    683          1,002
  Business banking loans.......                  8,140          1,259
  Consumer.....................                    593            621
      Loans receivable.........              3,143,803      2,892,524
Less:
  General loan valuation allowance              69,954         67,638
  Valuation allowances for impaired loans        2,596          7,634
  Unearned loan fees...........                 10,706          9,031
      Subtotal.................              3,060,547      2,808,221
Less:
  Loans held-for-sale..........                  2,303         16,450
      Loans receivable, net....             $3,058,244     $2,791,771

      Loans  serviced  for  others  totaled  $377,661,000,   $424,908,000  and
$519,353,000 at December 31, 1999, 1998 and 1997, respectively.

      The  Bank  had  outstanding  commitments  to fund  $105,649,000  in real
estate loans at December  31,1999.  The Bank had  outstanding  commitments  to
sell real estate loans of $958,000 at December 31, 1999.

      Accrued  interest  receivable  related to loans  outstanding at December
31, 1999 and 1998 totaled $16,220,000 and $18,052,000 respectively.

      Loans   delinquent   greater  than  90  days  or  in  foreclosure   were
$13,846,000 and $29,315,000 at December 31, 1999 and 1998,  respectively,  and
the related  allowances for  delinquent  interest were $720,000 and $1,896,000
respectively.

                                      59
<PAGE>

4)  Loans Receivable (continued)

      Loans  originated  upon  the  sale of real  estate  totaled  $4,792,000,
$9,966,000, and $31,649,000 during 1999, 1998 and 1997, respectively.

      See Note 9 for loans which were pledged as security for borrowings.

      The  following is a summary of the  activity in general  loan  valuation
allowances and impaired valuation allowances for the periods indicated:

                                                  General    Impaired
                                                 Valuation  Valuation
                                                 Allowance  Allowance    Total
                                                      (Dollars In Thousands)

      Balance at December 31, 1996 .............  $54,900    $12,350   $67,250
      Provision for loan losses.................   13,155      7,345    20,500
      Charge-offs...............................   (9,419)   (10,064)  (19,483)
      Recoveries................................    6,835        144     6,979
      Transfer of general valuation allowance for
       loans to repurchase liability ...........   (4,234)         -    (4,234)
      Balance at December 31, 1997..............   61,237      9,775    71,012
      Provision for loan losses.................    6,560        640     7,200
      Charge-offs...............................   (3,208)    (2,781)   (5,989)
      Recoveries................................    3,049          -     3,049
      Balance at December 31, 1998..............   67,638      7,634    75,272
      Charge-offs...............................   (1,362)    (5,038)   (6,400)
      Recoveries................................    3,678          -     3,678
      Balance at December 31, 1999..............  $69,954    $ 2,596   $72,550

      The Bank has loss  exposure  on certain  loans sold with  recourse.  The
dollar  amount  of  loans  sold  with  recourse   totaled   $178,723,000   and
$203,022,000  at  December  31,  1999  and  1998,  respectively.  The  maximum
potential recourse  liability totaled  $33,674,000 and $37,267,000 at December
31, 1999 and December 31, 1998, respectively.

      The  Bank   maintains  a  repurchase   liability  for  loans  sold  with
recourse.   This   liability  is  included  in  accrued   expenses  and  other
liabilities  in  the  Consolidated  Statements  of  Financial  Condition.  The
following is a summary of the  activity in the  repurchase  liability  for the
periods indicated (dollars in thousands):


            Balance at December 31, 1996..............    $ 8,398
            Transfer from general valuation allowance.      4,234
            Recoveries, net of charge-offs............        397
            Balance at December 31, 1997..............     13,029
            Charge-offs, net of recoveries............       (483)
            Balance at December 31, 1998..............     12,546
            Recoveries, net of charge-offs............        278
            Balance at December 31, 1999..............    $12,824

                                      60
<PAGE>
Loans Receivable (continued)

      The  following  is  a  summary  of  impaired  loans,  net  of  valuation
allowances for impairment, for the periods indicated:
                                                        1999         1998
                                                      (Dollars In Thousands)

      Non-accrual loans.........................     $  2,079     $  5,934
      Modified loans............................        6,534        5,976
      Other impaired loans......................        2,820        5,613
                                                      $11,433      $17,523

      The Bank considers a loan to be impaired when  management  believes that
it is  probable  that the Bank will be unable to collect all amounts due under
the contractual  terms of the loan.  Estimated  impairment losses are included
in  the  Bank's  impairment  allowances.  At  December  31,  1999,  the  total
recorded  amount  of  loans  for  which  impairment  had  been  recognized  in
accordance with SFAS No. 114 was $11,433,000  (after  deducting  $2,596,000 of
impairment  allowances  attributable  to  such  loans).  The  Bank's  impaired
non-accrual   loans  consist  of  single  family  loans  with  an  outstanding
principal  amount  greater  than or equal to $500,000 and  multi-family  loans
with an outstanding principal amount greater than or equal to $750,000.

      All  impaired  loans  as  of  December  1998  had  valuation  allowances
established.  As of December 1999 and December  1997,  impaired loans totaling
$2,079,000  and  $2,540,000,   respectively,   had  no  valuation   allowances
established.

      The  average  recorded  investment  in impaired  loans  during the years
ended  December  31,  1999,  1998 and 1997 was  $11,448,000,  $17,546,000  and
$24,459,000  respectively.  The  amount  of  interest  income  recognized  for
impaired  loans during the years ended  December  31, 1999,  1998 and 1997 was
$1,045,000,  $1,289,000,  and  $1,913,000  respectively,  under the cash basis
method of  accounting.  Interest  income  recognized  under the accrual  basis
method of  accounting  for the years ended  December 31,  1999,  1998 and 1997
totaled  $997,000,  $1,287,000  and  $1,900,000,  respectively.  There were no
commitments to lend  additional  funds to borrowers whose loan terms have been
modified.



                                      61
<PAGE>

(5) Real Estate

      Real estate consists of the following:

                                                       1999          1998
                                                      (Dollars In Thousands)
      Real estate acquired by
      (or deed in lieu of) foreclosure ("REO")..       $2,552       $5,255
      Valuation allowance.......................         (350)        (500)
                                                        2,202        4,755
      Real estate held-for-investment...........           34           36
        Real estate, net........................       $2,236       $4,791


      Listed  below is a summary  of the  activity  in the  general  valuation
allowance  for  real  estate  owned  for the  periods  indicated  (dollars  in
thousands):

      Balance, December 31, 1996................   $  521
      Provision for losses on REO...............    1,639
      Charge-offs...............................   (1,660)
      Balance at December 31, 1997..............      500
      Provision for losses on REO...............      572
      Charge-offs...............................     (572)
      Balance at December 31, 1998..............      500
      Provision for losses on REO...............      (54)
      Charge-offs...............................      (96)
      Balance at December 31, 1999..............   $  350


The following table summarizes real estate operations, net:

                                                        December 31,
                                              1999          1998         1997
                                                  (Dollars In Thousands)
Net income (loss) from operations
 Gain on sales of REO...............        $ 3,852       $ 3,320      $ 5,213
 Other REO operations...............           (635)       (2,138)      (5,193)
    Real estate operations, net ....        $ 3,217       $ 1,182      $    20


      The Bank  acquired  $10,831,000,  $17,096,000  and  $49,150,000  of real
estate in settlement of loans during 1999, 1998 and 1997, respectively.


                                      62
<PAGE>

6) Office Properties, Equipment and Lease Commitments

      Office properties and equipment, at cost, less accumulated  depreciation
and amortization, are summarized as follows:
                                                      1999         1998
                                                    (Dollars In Thousands)

      Land......................................     $  3,061    $  3,061
      Office buildings..........................        4,592       4,594
      Furniture, fixtures and equipment.........       15,089      15,117
      Leasehold improvements....................        9,495       8,671
      Other.....................................           56          44
                                                       32,293      31,487
      Less accumulated depreciation and amortization   20,548      19,668
                                                     $ 11,745    $ 11,819

      The Bank is obligated under  noncancelable  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, 1999 under all  noncancelable  leases are as follows  (dollars in
thousands):


                        2000................................    $ 3,920
                        2001................................      3,538
                        2002................................      3,437
                        2003................................      3,309
                        2004................................      3,234
                        Thereafter..........................     11,539
                                                                $28,977

      Rent  payments  under  these  leases  were  $3,946,000,  $4,055,000  and
$4,325,000 for 1999, 1998 and 1997,  respectively.  Certain leases require the
Bank to pay property  taxes and insurance.  Additionally,  certain leases have
rent escalation clauses based on specified indices.

(7) Federal Home Loan Bank Stock

      The Bank's  investment  in FHLB stock at December  31, 1999 and 1998 was
$71,722,000  and  $72,700,000,  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  FHLBSF 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 5% of its advances  (borrowings)  from the
FHLBSF.  The Bank was in  compliance  with this  requirement  at December  31,
1999.  The Bank's  investment  in FHLB stock was  pledged  as  collateral  for
advances  from the FHLB at December  31, 1999 and 1998.  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.  Accrued  dividends  on FHLB  stock
totaled  $975,000  and  $1,071,000  as of December  31, 1999 and  December 31,
1998, respectively.


                                      63
<PAGE>



(8)  Deposits

      Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>

                                                       1999                1998
                                                 Amount      %         Amount      %
                                                        (Dollars In Thousands)
<S>                                            <C>         <C>      <C>          <C>

Variable rate non-term accounts:
  Money market deposit accounts (weighted
   average rate of 4.34% and 3.91%)           $  446,771    22%     $  293,159    14%
  Interest-bearing checking accounts
   (weighted average rate of 1.06% and
   1.06%)..........................              111,366     5         108,211     5
  Passbook accounts (weighted average
   rate of 2.00% and 2.01%)........               78,547     4          84,132     4
  Non-interest bearing checking accounts         144,310     7         137,822     6
                                                 780,994    38         623,324    29
Fixed-rate term certificate accounts:
  Under six-month term (weighted average
   rate of 5.21% and 4.18%)........              113,324     5          62,642     3
  Six-month term (weighted average rate of
   5.68% and 5.14%)................              322,696    16         301,313    14
  Nine-month term (weighted average rate of
   5.73% and 5.42%)................              250,460    12         438,443    21
  One year to 18 month term (weighted
   average rate of 4.99% and 5.14%)              284,464    14         263,291    12
  Two year or 30 month term (weighted
    average rate of 5.13% and 5.28%)              19,081     1          23,015     1
  Over 30-month term (weighted average rate
    of 5.33% and 5.79%)............               36,529     2         103,030     5
  Negotiable certificates of $100,000 and
   greater, 30 day to one year terms (weighted
   average rate of 5.20% and 5.08%)              253,809    12         320,851    15
                                               1,280,363    62       1,512,585    71
   Total Deposits (weighted average rate of
     4.42% and 4.36%)..............           $2,061,357   100%     $2,135,909   100%

</TABLE>

                                      64
<PAGE>

8)  Deposits (continued)

      Certificates  of deposit,  placed through five major national  brokerage
firms,  totaled  $445,945,000  and $494,224,000 at December 31, 1999 and 1998,
respectively.

      Cash  payments for interest on deposits  (including  interest  credited)
totaled  $90,604,000,  $93,793,000 and $92,152,000 during 1999, 1998 and 1997,
respectively.  Accrued  interest on  deposits  at  December  31, 1999 and 1998
totaled $8,284,000 and $11,417,000,  respectively,  and is included in accrued
expenses and other liabilities in the accompanying  Consolidated Statements of
Financial Condition.

      The  following  table  indicates  the  maturities  and weighted  average
interest rates of the Bank's deposits at December 31, 1999:
<TABLE>
<CAPTION>

                     Non-Term                                                    There-
                     Accounts        2000        2001        2002      2003      after       Total
<S>                   <C>        <C>           <C>         <C>       <C>        <C>        <C>
                                                 (Dollars In Thousands)
Deposits at
 December 31, 1999   $780,994    $1,239,291    $20,587    $ 6,548    $6,927    $ 7,010    $2,061,357
Weighted average
 interest rates..        2.85%         5.39%      5.18%      5.48%     5.57%      4.70%         4.42%
</TABLE>



      Interest expense on deposits is summarized as follows:

                                              1999        1998        1997
                                                 (Dollars In Thousands)

      Passbook accounts.............       $  1,618    $  2,050    $ 1,750
      Money market deposits and
       interest-bearing checking accounts    17,035       9,308      5,705
      Certificate accounts..........         68,546      86,301     85,223
                                           $ 87,199    $ 97,659    $92,678


                                      65
<PAGE>

(9)  Federal Home Loan Bank Advances and Other Borrowings

     Federal Home Loan Bank (FHLB)  advances and other  borrowings  consist of
the following:

                                                            1999        1998
                                                        (Dollars In Thousands)
   Advances from the FHLB of San Francisco with a
    weighted average interest rate of 5.91% and 5.43%,
    respectively, secured by FHLB stock and certain
    real estate loans with unpaid principal balances of
    approximately $2.4 billion at December 31, 1999,
    advances mature through 2009........                $1,169,000    $714,000
    10 Year Senior Unsecured Notes with an interest
    rate of 11.75%, due 2004...........                          -      50,000
                                                        $1,169,000    $764,000


     At December 31, 1999 and 1998,  accrued interest payable on FHLB advances
and other borrowings totaled $190,000 and $2,050,000,  respectively,  which is
included  in  accrued  expenses  and  other  liabilities  in the  accompanying
Consolidated Statements of Financial Condition.

     The Bank has a credit facility with the FHLB in the form of FHLB advances
and letters of credit which allow  borrowings up to 40% of the Bank's  assets,
as computed  for  regulatory  purposes,  or  approximately  $1,543,000,000  at
December 31, 1999 with terms up to 30 years.

     The Company  redeemed its $50,000,000  senior unsecured 11.75% notes with
premium and related costs totaling  $2,195,000,  net of taxes during 1999. The
premium is disclosed as an extraordinary item in the accompanying Consolidated
Statements of Operations and Comprehensive Earnings.



                                      66
<PAGE>

9)  Federal Home Loan Bank Advances and Other Borrowings (continued)

      The  following  is a summary of borrowing  maturities  at December 31,
1999 (dollars in thousands):

                        2000..................  $   920,000
                        2001...................      52,000
                        2002...................      20,000
                        2003...................      17,000
                        2004...................     130,000
                        2005...................      10,000
                        2006...................       5,000
                        2008...................      10,000
                        2009...................       5,000
                                                 $1,169,000

     Cash payments for interest on borrowings  (including  reverse  repurchase
agreements)  totaled  $77,372,000,  $101,757,000 and $110,991,000 during 1999,
1998 and 1997, respectively.


     Interest  expense on  borrowings  is comprised of the  following  for the
years indicated:


                                             Year Ended December 31,

                                           1999       1998         1997
                                             (Dollars In Thousands)
        FHLB Advances...............     $48,077    $53,116    $  70,004
        Reverse Repurchase Agreements     20,396     29,915       34,335
       10 Year Senior Unsecured Notes      5,459      5,875        5,875
        Other.......................        (100)       (74)       1,334
                                         $73,832    $88,832     $111,548

     Other interest  expense in 1999 and 1998 includes the reversal of accrued
interest due to the IRS. 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  Statements  of  Financial  Condition.  The
mortgage-backed  securities  underlying the  agreements  were delivered to the
dealer who arranged the transactions or its trustee.

     At December 31, 1999,  $363,635,000 in reverse repurchase agreements were
collateralized by mortgage-backed  securities with principal balances totaling
$397,003,000  and fair values  totaling  $386,372,000.  At December  31, 1998,
$471,172,000  in  reverse   repurchase   agreements  were   collateralized  by
mortgage-backed  securities with principal balances totaling  $491,089,000 and
fair values totaling $490,354,000.

                                      67
<PAGE>

(10) Securities Sold Under Agreements to Repurchase (continued)

     The  weighted   average  interest  rates  for  borrowings  under  reverse
repurchase agreements were 5.76% and 5.37%,  respectively,  as of December 31,
1999 and December 31, 1998.

     Securities sold under agreements to repurchase averaged  $390,691,000 and
$514,498,000  during  1999 and 1998,  respectively,  and the  maximum  amounts
outstanding  at any  month-end  during  1999 and 1998  were  $469,655,000  and
$576,514,000 respectively.


     The following is a summary of maturities at December 31, 1999 (dollars in
thousands):

                        Up to 30 days...........  $106,850
                        30 to 90 days...........   233,567
                        Over 90 to 182 days.....    23,218
                                                  $363,635

     Accrued  interest on securities sold under agreements to repurchase which
is included in accrued  expenses  and other  liabilities  in the  accompanying
Consolidated  Statements of Financial  Condition was $3,561,000 and $5,657,000
at December 31, 1999 and 1998, respectively.

(11)  Income Taxes

      Income taxes (benefit) consist of the following:

                                           1999         1998         1997
                                               (Dollars In Thousands)
      Current:
        Federal.....................     $20,093     $ 24,936     $ 14,311
        State.......................       8,602        8,234          231
                                          28,695       33,170       14,542
      Deferred:
        Federal.....................        (456)      (5,812)      (1,502)
        State.......................      (1,187)      (1,176)       4,421
                                          (1,643)      (6,988)       2,919
      Total:
        Federal.....................      19,637       19,124       12,809
        State.......................       7,415        7,058        4,652
                                         $27,052     $ 26,182     $ 17,461




                                      68
<PAGE>

(11)  Income Taxes (continued)

     A reconciliation  of the statutory  federal  corporate income tax rate to
the Company's effective income tax rate follows:
                                                    1999      1998      1997

      Statutory federal income tax rate             35.0%     35.0%     35.0%
      Increase in taxes resulting from:
        State franchise tax, net of federal income
         tax benefit...................              7.7       7.5       7.4
        Core deposit intangibles.......              0.1       0.1       0.1
         Other, net....................              0.5       0.5       0.5
          Effective rate...............             43.3%     43.1%     43.0%



     Cash  payments  for income taxes  totaled  $29,609,000,  $31,762,000  and
$21,310,000  during 1999, 1998 and 1997,  respectively.  The Company  received
cash  refunds   totaling   $48,000  and  $1,158,000   during  1998  and  1997,
respectively. No refunds were received during 1999.

     Current  income  taxes  receivable  at  December  31,  1999 and 1998 were
$325,000 and $98,000 respectively.

     Listed  below are the  significant  components  of the net  deferred  tax
(asset) and liability:
                                                       1999           1998
                                                     (Dollars In Thousands)
Components of the deferred tax asset:
  Bad debts...............................          $(35,371)      $(32,819)
  Pension expense.........................            (3,640)        (2,802)
  State taxes.............................            (3,516)        (3,484)
  IRS interest accrual....................              (160)          (229)
Tax effect of unrealized loss on
   securities available-for-sale..........            (6,007)          (510)
  Other...................................            (1,857)        (1,764)
    Total deferred tax asset..............           (50,551)       (41,608)
Components of the deferred tax liability:
  Loan fees...............................            15,380         17,171
  Loan sales..............................             1,041          1,178
  FHLB stock dividends....................            16,011         14,294
  Other...................................             2,573            559
   Total deferred tax liability...........            35,005         33,202
Net deferred tax asset....................          $(15,546)      $ (8,406)
  Net federal deferred tax asset..........          $(13,926)      $ (9,399)
  Net state deferred tax liability (asset)            (1,620)           993
Net deferred tax asset....................          $(15,546)      $ (8,406)


                                      69
<PAGE>

(11)  Income Taxes (continued)

     The Company  provides  for  recognition  and  measurement  of  deductible
temporary  differences  to the extent that it is more likely than not that the
deferred  tax asset will be  realized.  The  Company  did not have a valuation
allowance  for the deferred tax asset at December 31, 1999 and 1998,  as it is
more likely than not that the deferred tax asset will be realized through loss
carrybacks  and  the  timing  of  future   reversals  of  existing   temporary
differences.

     The  Internal   Revenue   Service  ("IRS")  has  examined  the  Company's
consolidated  federal  income tax  returns  for tax years up to and  including
1992. 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  Franchise  Tax Board
("FTB").  As a result,  the Company paid $7,392,000 in interest to the IRS and
FTB and accrued an additional  $210,000 in interest during 1997.  During 1998,
the Company  paid $598  thousand  in interest to the IRS and FTB and  reversed
$300 thousand.  During 1999,  the Company  recorded a $150,000 net reversal of
accrued  interest.  The total amount of accrued  interest  payable for amended
returns,  yet  to be  filed,  recorded  as a  liability  in  the  Consolidated
Statements  of Financial  Condition,  was $350,000 and $500,000 as of December
31, 1999 and December 31, 1998, respectively.

     As a result of  legislation  enacted during 1996, the Bank is required to
use the specific  charge-off  method of  accounting  for debts for all periods
beginning  after 1995.  Prior to this  legislation,  the Bank used the reserve
method of accounting for bad debts. The  Consolidated  Statements of Financial
Condition  at  December  31,  1999 and 1998 did not  include  a  liability  of
$5,356,000  related to the adjusted base year bad debt  reserve.  This reserve
was created when the Bank was on the reserve method.

(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, 1999 no preferred shares had been issued.

     The Company's  Board of Directors  declared a two-for-one  stock split on
June 25,  1998 to  stockholders  of record on July 15,  1998.  The  additional
shares were distributed on July 30, 1998.
                                      70
<PAGE>


(12) Stockholders' Equity and Earnings Per Share (continued)

      The following is the  reconciliation  of the numerators and denominators
of the  basic  and  diluted  earnings  per  share  computations  for the years
indicated:
<TABLE>
<CAPTION>


                              For the Year Ended                For the Year Ended               For the Year Ended
                              December 31, 1999                 December 31, 1998                December 31, 1997
                                                 Per                               Per                                 Per
                        Earnings     Shares      Share    Earnings     Shares      Share    Earnings      Shares       Share
                       (Numerator)(Denominator)  Amount  (Numerator) (Denominator) Amount  (Numerator) (Denominator)   Amount
                                                      (Dollars in thousands except per share data)
<S>                       <C>       <C>           <C>      <C>        <C>           <C>        <C>       <C>            <C>

Basic EPS
Earnings before
  extraordinary item     $35,447    19,234,869    $1.84    $34,629    21,181,859    $1.63     $23,100    21,139,544    $1.09
Extraordinary item, net
  of taxes......          (2,195)            -     (.11)         -             -        -           -             -        -
Net earnings....         $33,252    19,234,869    $1.73    $34,629    21,181,859    $1.63     $23,100    21,139,544    $1.09

Diluted EPS
Earnings before
  extraordinary item     $35,447    19,234,869    $1.84    $34,629    21,181,859    $1.63     $23,100    21,139,544    $1.09
Options-common stock
  equivalents...                       168,183                           407,518                            354,472
Earnings before
  extraordinary item      35,447    19,403,052     1.83     34,629    21,589,377     1.60      23,100    21,494,016     1.07
Extraordinary item, net
  of taxes......          (2,195)            -     (.12)         -             -        -           -             -        -
Net earnings...          $33,252    19,403,052    $1.71    $34,629    21,589,377    $1.60     $23,100    21,494,016    $1.07

</TABLE>

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  components,  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,  as
of December 31, 1999,  that the Bank meets all capital  adequacy  requirements
to which it is subject.

      As of  December  31,  1999,  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,  1999  that   management   believes   have  changed  the  Bank's
classification.


                                      71
<PAGE>

12) Stockholders' Equity and Earnings Per Share (continued)

The following  table  summarizes  the Bank's  regulatory  capital and required
capital for the years indicated (dollars in thousands):
<TABLE>
<CAPTION>


                                                        December 31, 1999
                                                                    Tier 1
                                          Tangible      Core     Risk-based  Risk-based
                                          Capital     Capital      Capital     Capital
<S>                                        <C>         <C>         <C>         <C>

Actual Capital:
    Amount......................          $234,166    $234,166    $234,166    $262,178
    Ratio.......................              6.02%       6.02%      10.65%      11.92%
FIRREA minimum required capital:
    Amount......................          $ 58,390    $155,707           -    $175,923
    Ratio.......................              1.50%      4.00%           -        8.00%
FIDICIA well capitalized required capital:
    Amount......................                 -    $194,633    $131,942    $219,904
    Ratio.......................                 -        5.00%       6.00%      10.00%
</TABLE>

<TABLE>
<CAPTION>
                                                            December 31, 1998
                                                                    Tier 1
                                          Tangible      Core     Risk-based  Risk-based
                                          Capital     Capital      Capital     Capital
<S>                                        <C>         <C>         <C>         <C>
Actual Capital:
    Amount......................          $294,223    $294,223    $294,223    $320,720
    Ratio.......................              7.98%       7.98%      14.15%      15.43%
FIRREA minimum required capital:
    Amount......................          $ 55,280    $110,561           -    $166,297
    Ratio.......................              1.50%       3.00%          -        8.00%
FIDICIA well capitalized required capital:
    Amount......................                 -    $184,268    $124,722    $207,871
    Ratio.......................                 -        5.00%       6.00%      10.00%

</TABLE>

     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  earnings  and  profits  and
accumulated tax earnings 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, 1999 and 1998, the
loan to the ESOP totaled  $1,759,000 and $833,000,  respectively.  Interest on
the outstanding loan balance is due each December 31. Interest varies based on
the Bank's monthly cost of funds.  The average rates paid during 1999 and 1998
were 4.62% and 5.11%, respectively.

                                      72
<PAGE>

12) Stockholders' Equity and Earnings Per Share (continued)

     On June 25, 1998, the Company adopted an Amended and Restated 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 $200.00.  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.   The  Amended  and  Restated
Shareholder  Rights Plan replaces the previous  Shareholder Rights Plan which,
by its terms, expired on November 15, 1998.

(13)  Employee Benefit Plans

     Until August 31,  1996,  the Bank  maintained  a pension  plan  ("Pension
Plan") covering  substantially all employees who are employed on either a full
time or a part time basis.  The benefits were based on an employee's  years of
credited  service,  average annual salary and primary social security benefit,
as defined in the Pension Plan.

     Effective August 31, 1996, the Pension Plan was discontinued and benefits
accrued  to   participants   under  the  Pension  Plan  were   distributed  to
participants  in accordance with their  instructions  during 1997. The Pension
Plan's assets exceeded its liabilities by $106,000, which reverted back to the
Bank  and  are  included  in the  Company's  1997  Consolidated  Statement  of
Operations and Comprehensive Earnings.

     Effective  January 1, 1997,  the Bank made  available to its  employees 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  $299,000  and $235,000 for
1999 and 1998, 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  $988,000,
$795,000  and  $628,000  in 1999,  1998 and  1997,  respectively.  The SERP is
unfunded.

     The discount rate and rate of increase in future compensation levels used
in determining the actuarial value of benefit obligations were 7.75% and 6.5%,
respectively,  as of December 31, 1999 and 1998. The discount rate and rate of
increase in future  compensation  levels used in determining  the pension cost
for the SERP was 4.0% and 5.0% as of December 31, 1999 and 1998.  The plan had
no assets at December 31, 1999 or 1998.

                                      73
<PAGE>

(13)  Employee Benefit Plans (continued)

     The following  table sets forth the funded status of the SERP and amounts
recognized  in the Company's  Statements of Financial  Condition for the years
indicated:
                                                             1999        1998
                                                         (Dollars In Thousands)
Change in Benefit Obligation
      Projected benefit obligation, beginning of the year  $ 6,472     $ 5,548
      Service cost....................................         316         201
      Interest cost...................................         411         378
      Benefits paid...................................        (286)       (286)
      Actuarial (gain)/loss...........................      (1,076)        631
      Projected benefit obligation, end of the year...     $ 5,837     $ 6,472

Change in Plan Assets
      Funded status...................................     $(5,837)    $(6,472)
      Unrecognized transition obligation..............         125         187
      Unrecognized prior service cost.................         688         822
      Unrecognized (gain)/loss........................         274       1,411
      Net amount recognized...........................     $(4,750)    $(4,052)

Components of Net Periodic Benefit Cost
      Service cost....................................     $   316     $   201
      Interest cost...................................         411         378
      Amortization of unrecognized transition obligation        63          63
      Amortization of unrecognized prior service cost.         135         135
      Amortization of unrecognized (gain)/loss........          60          18
      Pension (income)/cost...........................     $   985     $   795


     The projected benefit obligation,  accumulated  benefit  obligation,  and
fair value of assets were $5,836,626,  $4,473,664,  and $0,  respectively,  at
December  31,  1999,  and  $6,472,394,  $4,569,322,  and $0  respectively,  at
December 31, 1998.

     The  Bank  has a  profit  sharing  plan  (the  "ESOP")  for all  salaried
employees and officers who have completed one year of continuous  service.  At
December 31, 1999,  the ESOP held 5.57% of  outstanding  stock of the Company.
Profit sharing  expense for the years ended  December 31, 1999,  1998 and 1997
was  $1,100,000,  $1,000,000  and  $501,000,  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.

Stock Compensation Plans

     At  December  31,  1999,  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.


                                      74
<PAGE>

(13)  Employee Benefit Plans (continued)

Stock Option Programs

     The Company has an employee  stock option  program  which is comprised of
two plans.  One of these plans,  the 1983 Stock Option and Stock  Appreciation
Rights Plan (the "1983  Plan"),  expired in 1993 but some grants  issued under
that plan are still  outstanding and  exercisable.  The 1983 Plan provided for
the  issuance of up to  3,142,000  shares of common  stock to employees of the
Bank. 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 both the 1983 Plan and 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 an option's maximum term is 10 years.  Options  typically begin to
vest on the second anniversary date of the grant under both plans.

      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 an option's  maximum  term is 10 years plus one
month.  Options  typically vest 100% on the one year  anniversary  date of the
grant.

      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  1999,  1998  and  1997,
respectively:  no dividend yield in any year;  expected volatility of 38%, 35%
and 35%;  risk  free  interest  rates of 6.6%,  4.7% and  6.5%;  and  expected
average  lives of 6, 6 and 10  years.  The  weighted-average  grant  date fair
value of options granted during the year are $6.04,  $7.85 and $5.15 for 1999,
1998 and 1997, respectively.  The Company has elected to recognize forfeitures
in the year they occur.

                                      75
<PAGE>

13)  Employee Benefit Plans (continued)

      Had  compensation  cost for the  Company's  stock-option  programs  been
determined  based on the fair value at the grant dates for awards  under those
plans  consistent  with  the  method  of  Statement  of  Financial   Standards
No.  123, "Accounting  for  Stock  Based  Compensation,"  the  Company's  net
earnings  and  earnings  per share  would  have been  reduced to the pro forma
amounts  indicated  below (all per share  amounts  have been  adjusted for the
two-for-one stock split declared June 25, 1998):

                                        1999       1998       1997
                              (Dollars In Thousands, Except Per Share Data)
Before Extraordinary Items:
             Earnings before
              extraordinary items:
             As reported.....         $35,447    $34,629    $23,100
             Pro forma.......         $35,085    $34,354    $22,910

            Earnings per share:

            Basic:
             As reported.....           $1.84      $1.63      $1.09
             Pro forma.......           $1.83      $1.62      $1.08

            Diluted:
             As reported.....           $1.83      $1.60      $1.07
             Pro forma.......           $1.81      $1.59      $1.06

After Extraordinary Items:
            Net earnings:
             As reported.....         $33,252    $34,629    $23,100
             Pro forma.......         $32,890    $34,354    $22,910

            Earnings per share:

            Basic:
             As reported.....           $1.73      $1.63      $1.09
             Pro forma.......           $1.71      $1.62      $1.08

            Diluted:
             As reported.....           $1.71      $1.60      $1.07
             Pro forma.......           $1.70      $1.59      $1.06


     Pro forma net  earnings  and  earnings  per share  reflect  only  options
granted since 1995.  Therefore,  the full impact of  calculating  compensation
cost for stock  options  under SFAS No. 123 is not  reflected in the pro forma
net earnings per share amounts  presented above because  compensation  cost is
reflected over the options' vesting period and  compensation  cost for options
granted prior to January 1, 1995 is not considered.

                                      76
<PAGE>

13)  Employee Benefit Plans (continued)

      Information with respect to stock options follows:

         Options Outstanding                     1999        1998       1997
       (Weighted Average option prices)                 (In Shares)

Beginning of year ($9.84, $7.85 and $6.86)      713,500     707,914    639,062
      Granted ($16.13, $17.25 and $10.88)       181,130     168,790    226,700
      Exercised ($5.68, $8.55 and $7.72).      (193,785)    (52,990)  (115,538)
      Canceled ($13.64, $8.99 and $9.01).       (47,103)   (110,214)   (42,310)
      End of Year ($12.54, $9.84 and $7.85)     653,742     713,500    707,914
      Shares exercisable at December 31..
        ($7.97, $5.69 and $5.89).........       126,544     291,560    227,200

Restricted Stock Plan

      The  Company  also  has  a  restricted   stock  plan.   Under  the  1991
Restricted  Stock Plan (the  "Restricted  Stock Plan"),  the Company may issue
shares of restricted  stock to employees of the Company and its  subsidiaries,
including  officers  and  directors.  A total of  1,000,000  shares  have been
reserved  for issuance  under the  Restricted  Stock Plan.  As of December 31,
1999 and 1998,  878,740  shares and 880,540  shares are  available  for grant.
All per share  amounts  have been  adjusted  for the  two-for-one  stock split
declared  June 25,  1998.  The shares  consist  of  previously  issued  shares
reacquired by the Company.  The shares typically vest in increments of 25% per
year,  beginning on the fourth  anniversary of the grant date. As shares vest,
they  are  released  to the  recipient,  at  which  time  the  recipient  will
recognize  ordinary  income equal to the fair market  value of the  restricted
stock at the time the  restrictions  lapse.  During  1999 and 1998,  1,800 and
1,000  shares  respectively  were issued  under this  program.  No shares were
issued  in 1997.  Compensation  costs  related  to  shares  granted  under the
Restricted Stock Plan have been recorded in previous periods.

(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.

CONDENSED STATEMENTS OF FINANCIAL CONDITION
                                                          December 31,
                                                      1999           1998
                                                     (Dollars In Thousands)
Assets:
  Cash.........................                    $  3,089       $ 12,466
  Other assets.................                       1,728          1,333
  Investment in subsidiary.....                     226,734        294,819
                                                   $231,551       $308,618
Liabilities and Stockholders' Equity:
  Notes payable................                    $      -       $ 50,000
  Other liabilities............                         418          1,618
  Stockholders' equity.........                     231,133        257,000
                                                   $231,551       $308,618


                                      77
<PAGE>

(14) Parent Company Financial Information (continued)
<TABLE>
<CAPTION>

                                                     Years Ended December 31,
CONDENSED STATEMENTS OF OPERATIONS AND              1999         1998        1997
       COMPREHENSIVE EARNINGS                          (Dollars In Thousands)
<S>                                                <C>         <C>        <C>

Dividends received from Bank...                    $99,554    $  5,875    $  5,875
Equity in undistributed (distributed) net
 earnings of subsidiary .......                    (60,508)     32,558      20,987
Other expense, net.............                     (5,794)     (3,804)     (3,762)
Net earnings...................                    $33,252     $34,629     $23,100

Other comprehensive earnings (loss), net
Net of taxes...................                     (7,577)       (311)      3,798
Comprehensive earnings.........                    $25,675     $34,318     $26,898

</TABLE>
<TABLE>
<CAPTION>

                                                      Years Ended December 31,
CONDENSED STATEMENTS OF CASH FLOWS                   1999        1998        1997
                                                       (Dollars In Thousands)
<S>                                                <C>         <C>         <C>

Net Cash Flows from Operating Activities:
  Net earnings........................            $ 33,252    $ 34,629    $ 23,100
  Adjustments to reconcile net earnings to
   net cash provided by operating
    activities:
  Equity in undistributed (distributed) net
   net earnings of subsidiary.........              60,508     (32,558)    (20,987)
  Write-off deferred issuance cost....               1,332           -           -
  Other...............................               1,326        (129)        577
  Net cash provided by operating activities         96,418       1,942       2,690
Cash Flows from Investing Activities:
  (Increase) Decrease in ESOP loan....                (926)        911         388
  Net cash (used) provided by investing
   Activities.........................                (926)        911         388
Cash Flows from Financing Activities:
  Repayment of long term borrowings...             (50,000)          -           -
  Premiums paid on early extinguishment of debt     (2,655)          -           -
  Purchase of treasury stock..........             (52,214)     (1,469)          -
  Other...............................                   -         482         952
Net cash provided (used by) financing activities  (104,869)       (987)        952
Net increase  in cash.................              (9,377)      1,866       4,030
Cash at beginning of period...........              12,466      10,600       6,570
Cash at end of period.................            $  3,089    $ 12,466    $ 10,600

</TABLE>

                                      78
<PAGE>

(15) Quarterly Results of Operations: (unaudited)

      Summarized below are the Company's  results of operations on a quarterly
basis for 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                                          Provision                Non-                Basic      Diluted
                   Interest    Interest   For Loan     Other     Interest      Net     Earnings   Earnings
                    Income     Expense     Losses      Income    Expense     Earnings  Per Share  Per Share
                                          (Dollars In Thousands, Except Per Share Data)
<S>                <C>         <C>          <C>        <C>        <C>         <C>        <C>       <C>

  First quarter
  1999........   $  64,737    $ 39,572    $      -    $ 3,133    $ 12,588    $ 8,915    $ 0.43    $ 0.43
  1998........      75,955      49,504       2,500      2,255      11,990      8,143      0.38      0.38
  1997........      73,685      49,653       6,000      2,902      11,911      5,168      0.25      0.24
  Second quarter
  1999........   $  63,697    $ 38,478    $      -    $ 4,157    $ 13,113    $ 9,103    $ 0.47    $ 0.47
  1998........      73,587      47,673       2,100      3,974      12,684      8,637      0.41      0.40
  1997........      73,946      50,917       5,500      2,890      10,996      5,348      0.25      0.25
  Third quarter
  1999........   $  63,671    $ 39,376    $      -    $ 2,813    $ 11,990    $ 8,358    $ 0.44    $ 0.44
  1998........      71,212      46,402       1,600      3,868      11,698      8,830      0.42      0.41
  1997........      75,551      51,862       5,000      2,564      10,784      5,971      0.28      0.28
  Fourth quarter
  1999........   $  67,896    $ 43,605    $      -    $ 2,585    $ 11,468    $ 6,876    $ 0.38    $ 0.37
  1998........      69,015      42,912       1,000      3,560      12,552      9,019      0.43      0.42
  1997........      76,038      51,794       4,000      1,862      10,460      6,613      0.31      0.31
  Total year
  1999........    $260,001    $161,031    $      -    $12,688    $ 49,159    $33,252    $ 1.73    $ 1.71
  1998........     289,769     186,491       7,200     13,657      48,924     34,629      1.63      1.60
  1997........     299,220     204,226      20,500     10,218      44,151     23,100      1.09      1.07
</TABLE>

(16)  Fair Value of Financial Instruments

     The  following  table  presents  fair  value  information  for  financial
instruments  for which a market  exists.  The fair values for these  financial
instruments were estimated based upon prices published in financial newspapers
or quotations received from national securities dealers.

                                           1999                   1998

                                     Carrying              Carrying
                                      Value   Fair Value    Value   Fair Value
                                               (Dollars In Thousands)

Mortgage-backed Securities ...      $428,641   $428,641   $556,679   $556,679
US Government Securities .....        37,821     37,821     27,939     27,939
Collateralized Mortgage Obligations  113,374    113,374     36,394     36,394
Loans Held-for-Sale ..........         2,303      2,303     16,602     16,602


                                      79
<PAGE>

16) Fair Value of Financial Instruments (continued)

      The  following  table  presents  fair value  information  for  financial
instruments  shown  in the  Company's  Consolidated  Statements  of  Financial
Condition 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.


                                         1999                    1998

                                             Calculated              Calculated
                                 Carrying    Fair Value   Carrying   Fair Value
                                   Value       Amount       Value      Amount
                                              (Dollars In Thousands)
Adjustable Loans:
  Single Family ..........       $1,798,072  $1,812,726  $1,530,367  $1,575,173
  Multi-Family ...........        1,121,929   1,132,896   1,119,519   1,159,688
  Commercial  ............          176,841     182,044     178,784     188,145
Fixed Rate Loans:
  Single Family ..........            8,282       8,474      21,863      21,691
  Multi-Family ...........            5,520       5,653       7,257       7,680
  Commercial .............            6,893       7,216       1,940       1,968
Other Real Estate Loans ..            2,629       2,660       5,189       5,147
Consumer Loans............            2,276       2,474       1,619       1,617
Business Loans............            8,140       8,309           -           -
Non-Performing Loans .....           13,221      13,221      25,986      25,986
Fixed-Term Certificate Accounts   1,280,363   1,275,921   1,512,585   1,516,809
Non-Term Deposit Accounts           636,684     636,684     623,324     623,324
Borrowings ...............        1,532,635   1,530,786   1,235,172   1,241,859

OFF-BALANCE SHEET:
Loans  sold with recourse.          178,723     177,899     203,022     190,476

      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   Statements  of
Financial Condition 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.

                                      80
<PAGE>
(16) Fair Value of Financial Instruments (continued)

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. As of December 31,
1999,  the Bank  had  outstanding  commitments  to fund  $105,649,000  in real
estate loans which were substantially at fair value.

Non-performing Assets

      The  carrying  amounts  reported  in  the  Consolidated   Statements  of
Financial Condition for this item 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  Statements
of Financial  Condition.  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. The
fair  value  of  long  term   borrowings  is  based  on  their  interest  rate
characteristics.  For  variable  rate  borrowings,  fair  value  is  based  on
carrying  values.   For  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.


                                      81
<PAGE>

                         INDEPENDENT AUDITORS' REPORT



The Board of Directors
FirstFed Financial Corp.



      We have audited the  accompanying  consolidated  statements of financial
condition  of  FirstFed  Financial  Corp.  and  subsidiary  ("Company")  as of
December  31,  1999 and  1998,  and the  related  consolidated  statements  of
operations and  comprehensive  earnings,  stockholders'  equity and cash flows
for each of the years in the three-year  period ended December 31, 1999. 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 generally  accepted  auditing
standards.  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, 1999 and 1998,  and the
results of their  operations and their cash flows for each of the years in the
three-year  period ended  December  31, 1999,  in  conformity  with  generally
accepted accounting principles.




                                           KPMG LLP


Los Angeles, California
January 28, 2000


                                      82
<PAGE>



ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information  regarding  directors  and executive  officers  appearing on
pages  3  through  7  of  the  Proxy  Statement  for  the  Annual  Meeting  of
Stockholders dated April 26, 2000 is incorporated herein by reference.

ITEM 11--EXECUTIVE COMPENSATION

      Information  regarding  executive  compensation  appearing  on  pages  8
through  14 of the Proxy  Statement  for the Annual  Meeting  of  Stockholders
dated April 26, 2000 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 and 3 of the  Proxy  Statement  for the
Annual Meeting of Stockholders dated April 26, 2000 is incorporated  herein by
reference.

ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   (a)Certain Relationships:  None.

   (b)Information regarding certain related transactions  appearing on page 11
      of the Proxy  Statement  for the Annual  Meeting of  Stockholders  dated
      April 26, 2000 is incorporated herein by reference.

                                       PART IV

ITEM 14--EXHIBITS,  CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8K

   (a) 1.Consolidated Financial Statements

        The  consolidated  financial  statements  included  in this Report are
listed under Item 8.

       2.Consolidated Financial Statement Schedules

     Schedules  have  been  omitted  because  they are not  applicable  or the
required information is presented in the consolidated  financial statements or
notes thereto.


                                      83
<PAGE>

                  FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
 EXHIBIT
 NUMBER
 -------------

(1) Underwriting  Agreement filed  as Exhibit 1 to Amendment No. 2 to Form S-3
dated September 7, 1994 and incorporated by reference.
(3.1) Restated Certificate of Incorporation
(3.2) By-Laws  filed as  Exhibit  (1) (a) to Form 8-A dated  June  4,1987  and
incorporated by reference.
(4.1)Amended and Restated Rights Agreement dated as of June 25, 1998, filed as
Exhibit  4.1  to Form 8-A/A, dated June 25, 1998 and incorporated by reference
(4.2)Indenture  filed  as  Exhibit  4  to  Amendment  No.  3 to Form S-3 dated
September 20, 1994 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)Bonus  Plan  filed as Exhibit 10(iii)(A)(2) to Form 10 dated November 2,
1993 and incorporated by reference.
(10.3) 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.
(10.4)  Change  of  Control  Agreement  effective  September 26, 1996 filed as
incorporated by reference.
(10.5)1997 Non-employee  Directors  Stock Incentive Plan filed as Exhibit 1 to
Form S-8 dated August 12, 1997 and incorporated by reference.
(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 86).

      This 1999  Annual  Report on Form 10-K and the Proxy  Statement  for the
Annual  Meeting  of  Stockholders  dated  April  26,  2000 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 2, 2000 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 a current  report on Form 8-K dated  October 18, 1999
which,  among other things,  announced that its Board or Directors  authorized
an expansion of its stock  repurchase  program.  The increase  authorized  the
Company  to  repurchase  an  additional  5% of the  shares  outstanding  as of
October 15, 1999.  The Company  also filed a current  report on Form 8-K dated
December 2, 1999 which announced the  extinguishment  of the Company's  senior
unsecured note.


                                      84
<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

                                       By:     /s/ Babette E. Heimbuch
                                                 Babette E. Heimbuch
                                                 President and
                                                 Chief Executive Officer

Date:   February 24, 2000


                                      85
<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 been signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated on the 24th day of February, 2000.

         SIGNATURE                                 TITLE

       /s/ Babette E. Heimbuch           Chief Executive Officer (Principal
           Babette E. Heimbuch           Executive Officer)

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

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

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

       /s/ James L. Hesburgh             Director
           James L. Hesburgh

       /s/ William S. Mortensen          Chairman of the Board
           William S. Mortensen

       /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



                                      86
<PAGE>