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, 2001
                                      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 the Act:  None

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

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of February 5, 2002: $399,729,000.

The number of shares of Registrant's $0.01 par value common stock outstanding as
of February 5, 2002: 17,252,604

                  DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Annual Meeting of Stockholders,  April 24,
2002 (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]



<PAGE>

                           FirstFed Financial Corp.
                                    Index


                                                                       Page

Part I  Item 1.  Business..........................................       3
        Item 2.  Properties........................................      22

        Item 3.  Legal Proceedings.................................      22
        Item 4.  Submission of Matters to a Vote of Security Holders     22

Part II Item 5.  Market for Registrant's Common Equity and Related
                 Stockholder Matters...............................      22

        Item 6.  Selected Financial Data...........................      23
        Item 7.  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations...............      24
        Item 8.  Financial Statements and Supplementary Data.......      41
                 Notes to Consolidated Financial Statements........      45
                 Independent Auditors' Report......................      74
        Item 9.  Changes In and Disagreements with Accountants on
                 Accounting and Financial Disclosure...............      75

Part III
        Item 10. Directors and Executive Officers of the Registrant      75
        Item 11. Executive Compensation............................      75
        Item 12. Security Ownership of Certain Beneficial Owners and
                 Management........................................      75
        Item 13. Certain Relationships and Related Transactions....      75

Part IV Item 14. Exhibits, Consolidated Financial Statement
                 Schedules, and Reports on Form 8K.................      76

Signatures.........................................................      77
Power of Attorney..................................................      78

                                      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,  2001,  the  Company had assets  totaling  $4.7  billion,
compared to $4.4  billion at December  31, 2000 and $3.9 billion at December 31,
1999. The Company  recorded net earnings of $50.3 million for 2001,  compared to
net earnings of $38.5 million for 2000 and $33.3  million for 1999.  Results for
1999 included an extraordinary item of $2.2 million,  which resulted from a loss
recorded on the early  extinguishment of debt. Net earnings before extraordinary
items totaled $35.4 million for 1999.

     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 15, 2002, the Bank operated 29 retail savings branches,  all
located in Southern  California.  The increased number of branches resulted from
the  acquisition  in November  2001 of  Frontier  State Bank and Del Amo Savings
Bank.  Permission  to operate all  full-service  branches must be granted by the
Office of Thrift Supervision  ("OTS").  In addition to its retail branches,  the
Bank operates a retail call center,  which  conducts  transactions  with deposit
customers by telephone.

     The Bank's  principal  loan market is Southern  California.  The Bank has a
residential  lending group which  includes a retail  lending  division with four
loan offices,  a wholesale  loan office,  a  correspondent  lending  group,  and
"LENDFFB", a loan origination group which operates primarily by telephone.

     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 is the Los  Angeles  County  area of  Southern
California.  According to the UCLA Anderson  Forecast for  California,  December
2001 Report ("Forecast"),  California, like the rest of the nation, entered into
a recession  during 2001.  The recession is expected to be  short-lived  for the
nation,  as well as  California,  with a slow  rebound  starting  in the  second
quarter of 2002. Average  unemployment levels in California are expected to rise
from 5.2% in 2001 to 6.2% for both 2002 and 2003.  The rise in  unemployment  is
due to decreased  employment levels in the state's service sector  (particularly
computer  service jobs.) Personal income in California,  which increased by 2.1%
in 2001,  is expected to increase by only 1.3% from 2001 to 2002 but is expected
to improve by 5.6% from 2002 to 2003.

     Real estate  prices in Southern  California  are expected to remain  stable
over the next several  years due to the low  production of new housing units and
moderate interest rates.  According to the Forecast,  home values in Los Angeles
County  increased by 7.3% during 2001, but are expected to increase by only 3.8%
in 2002 and 3.5% in 2003.

<PAGE>
     Consistent  with the  favorable  real  estate  climate in the  greater  Los
Angeles area, the Bank's non-performing assets declined to 0.17% of total assets
at the end of 2001 from 0.19% at the end of 2000 and 0.40% at the end of 1999.

                                      3

     The Bank monitors the  sufficiency  of the  collateral  supporting its loan
portfolio  based on many factors  including the property  location,  the date of
loan  origination  and the original  loan-to-value  ratio.  The Bank adjusts its
general allowance for anticipated loan losses as a result of these  evaluations.
No provision for loan losses was necessary during 2001, 2000 or 1999.

     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 1.70% at the end of 2001 compared to 1.81% at the
end of 2000 and 2.15% at the end of 1999. The decline in the ratio over the last
three years is due to asset  growth.  See "Business - Loan Loss  Allowance"  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 Allowance" for additional  information  regarding valuation  allowances for
these loans.

     Current Interest Rate  Environment.  In its attempts to encourage  economic
activity at the national  level,  the Federal  Reserve Board  ("FRB")  decreased
interest  rates eleven  times during 2001.  This is in contrast to 2000 and 1999
when the FRB  increased  interest  rates three times  during each year.  Through
March 5, 2002, the FRB has not changed interest rates.

     The  Bank's  interest  rate  spread  typically  increases  in a  decreasing
interest rate  environment,  (savings and borrowing  costs decrease  immediately
while  the loan  portfolio  yield  stays  approximately  the  same or  decreases
slowly).  The  reverse is true  during  periods of  increasing  interest  rates.
Changes in interest  rates have a moderate  impact on the Bank's loan  portfolio
due to the interest rate adjustment  features of its loans. There is also a time
lag before  changes in interest  rates can be  implemented  with  respect to the
Bank's loan  portfolio due to  operational  and  regulatory  constraints.  These
constraints 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.

     The Bank's  interest  rate spread  increased to 2.71% in 2001 from 2.37% in
2000 because the cost of its deposits and borrowings decreased more quickly than
the rates earned on its loan portfolio. The decrease to 2.37% in 2000 from 2.50%
in 1999  was due to the  fact  that  the  cost of its  deposits  and  borrowings
increased  more  quickly  than the  rates  earned on the loan  portfolio.  It is
expected that the Bank's  interest rate spread will compress during 2002 because
the loan yield on adjustable  rate mortgages will decrease due to the ninety-day
time lag mentioned above. However, the Bank's cost of funds may remain stable or
decrease  at a much  slower  pace,  particularly  if the FRB does  not  decrease
interest rates further in the near future. 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 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.

<PAGE>
     Environmental  Concerns. In 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.
                                       4

     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 and purchases were $1.5 billion in 2001, $1.1 billion in
2000, and $944.1 million in 1999. Loan origination  volume has improved over the
last three years due to an increase in real estate activity in the Bank's market
areas.  The above amounts include loan purchases  totaling $132.6 million during
2001, $139.5 million during 2000 and $122.8 million during 1999.

     Loans sold totaled $61.2  million in 2001,  $9.5 million in 2000 and $133.0
million in 1999.  For the year ended  December 31, 2001,  $64.2 million in loans
were  originated  for sale compared to $10.9 million for 2000 and $120.6 million
in 1999. Loans  originated for sale totaled 5%, 1% and 14% of loan  originations
during 2001, 2000 and 1999,  respectively.  The increase in loans originated for
sale is due to borrower  preference  for  30-year and 15-year  fixed rate loans,
which were  available to borrowers at lower  interest  rates in 2001 compared to
2000. The Bank originates 30-year and 15-year fixed rate loans only for sale.

     Loans  held-for-sale at December 31, 2001, 2000 and 1999 were $5.2 million,
$2.2  million and $2.3  million,  respectively,  constituting  0.13%,  0.06% and
0.08%, 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.

<PAGE>
     The Bank  structures  mortgage-backed  securities  with loans from its 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 during 2001, 2000 or 1999. The Bank originated
all loans  underlying the  mortgage-backed  securities that it owns.  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, 2001, 2000 and 1999. A positive fair adjustment of $1.9 million,
net of tax, was recorded for  mortgage-backed  securities during 2001.  Negative
fair value adjustments for mortgage-backed  securities totaling $1.9 million and
$6.6 million,  net of taxes,  were recorded in stockholders'  equity at December
31, 2000 and 1999, respectively.

     The Bank  serviced  $257.6  million  in loans  for  other  investors  as of
December  31,  2001.  $126.4  million of these  loans  were sold under  recourse
arrangements. The Bank has an additional $10.8 million in loans that were formed
into mortgage-backed  securities with recourse features, but were still owned by
the Bank as of December  31,  2001.  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 $126.4  million at the end of
2001 from  $146.5  million at the end of 2000 and  $178.7  million at the end of
1999 is due to loan amortization and payoffs.

                                         5

     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.

     The Bank also originates  adjustable rate loans with initial fixed interest
rates for 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  unmatched  fixed rate loans in its portfolio up to 5%of total assets.
Loans  originated under this program totaled $1.0 billion in 2001, $75.9 million
in 2000 and $205.7  million in 1999.  Adjustable  rate loans with initial  fixed
interest  rates were popular  during 2001 because their initial  interest  rates
were competitive with longer term fixed rate loan products.
<PAGE>
     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 that the Bank receives for these loans compensate for
the  additional  risk  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, 2001, 2000 and 1999,  loans with  co-insurance  totaled
$140.4 million, $212.6 million and $176.7 million, respectively.  Loans over 80%
loan-to-value, for which there was no private mortgage insurance, totaled $354.5
million at December  31,  2001,  $268.2  million at December 31, 2000 and $274.2
million at December 31, 1999.

     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,  2001,  negative
amortization on all loans serviced by the Bank was immaterial.

     Although regulations permit a maximum loan term 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  maturity  period of 30 years or
less.  Loans with 40-year terms  constituted 4%, 6% and 8% of loan  originations
during 2001, 2000 and 1999, respectively.

     The  following  table shows the  contractual  remaining  maturities  of the
Bank's loans at December 31, 2001:
<TABLE>
                                               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...............            $3,946,047  $80,962   $743,297   $638,758  $1,385,898   $1,018,555 $78,577
 Fixed-rate loans...                70,713    3,413     25,094     24,759      11,692        5,742      13
 Commercial business loans          18,882    4,534     14,348          -           -            -       -
 Construction loans.                38,060   17,505     20,555          -           -            -       -
 Consumer and other loans           20,813   18,437      1,879        487          10            -       -
 Total..............            $4,094,515 $124,851   $805,173   $664,004  $1,397,600   $1,024,297 $78,590
</TABLE>

                                           6

<PAGE>
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>
                               % of          % of           % of             % of            % of
                        2001   Total   2000  Total  1999    Total   1998     Total   1997    Total
                                              (Dollars In Thousands)
<S>                    <C>     <C>   <C>     <C>    <C>     <C>     <C>      <C>     <C>     <C>
Non-accrual Loans:
Single family......... $6,062   93%  $5,603  89%    $9,626  70%     $12,270  42%     $16,799  49%
Multi-family..........    422    6      662  11      3,995  29       13,005  44       15,785  46
Commercial   ..             -    -        -   -        225   1        4,040  14        1,533   5
Consumer                   16    1        -   -          -   -            -   -            -   -
   Total Non-accrual
    Loans............. $6,500  100%  $6,265 100%   $13,846 100%     $29,315 100%     $34,117 100%
</TABLE>

     The allowance for delinquent interest, based on loans past due more than 90
days or in  foreclosure,  totaled $504 thousand,  $511 thousand,  $720 thousand,
$1.9 million and $1.8 million at December 31, 2001,  2000,  1999, 1998 and 1997,
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, 2001,
the Bank had modified loans totaling $7.4 million,  net of loan loss  allowances
of $1.9 million. This compares with modified loans totaling $9.6 million, net of
loan loss  allowances  of $1.9 million as of December 31, 2000 and $7.4 million,
net of loan loss allowances of $2.6 million as of December 31, 1999. No modified
loans were 90 days or more delinquent as of December 31, 2001, 2000 or 1999.

     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 $1.9 million,  $1.8 million
and $2.6  million as of December  31,  2001,  2000 and 1999,  respectively.  The
following  is a summary of  impaired  loans,  net of  valuation  allowances  for
impairment, for the periods indicated:

                                              December 31,
                                  2001            2000              1999
                                      (Dollars In Thousands)

Non-accrual loans .....   $        978     $         -      $      2,079
Modified loans.........          6,416           8,770             6,534
Other impaired loans...              -               -             2,820
                          $      7,394     $     8,770      $     11,433
<PAGE>

     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

                                        7

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. As of December 31, 2001, December 31, 2000, and December 31,
1999,  impaired  loans  totaling $3.9 million,  $5.1 million,  and $3.9 million,
respectively,  had no valuation allowances established.  All impaired loans were
measured using the fair value method as of December 31, 2001,  December 31, 2000
and December 31, 1999, with values totaling $7.4 million, $8.8 million and $11.4
million, respectively.

     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, 1998..           $  7,634
  Provision for loan losses...                  -
  Net charge-offs.............             (5,038)
Balance at December 31, 1999..              2,596
  Provision for loan losses...                  -
  Net charge-offs.............               (804)
Balance at December 31, 2000..              1,792
......Provision for loan losses                 58
  Net charge-offs.............                  -
Balance at December 31, 2001..            $ 1,850

     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 2001,  2000 and
1999 was $7.4 million, $8.8 million and $11.4 million,  respectively. The amount
of interest income recognized from impaired loans during 2001, 2000 and 1999 was
$597  thousand,  $706  thousand and $1.0 million,  respectively,  under the cash
basis  method of  accounting.  Interest  income  that was  recognized  under the
accrual  basis  method  of  accounting  for  2001,  2000 and 1999  totaled  $587
thousand, $712 thousand and $997 thousand, respectively.

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

                                              December 31,
                                  2001            2000             1999
                                      (Dollars In Thousands)

Single family .......          $   978         $     -          $   987
Multi-family.........                -               -            1,092
                               $   978         $     -          $ 2,079


                                           8
<PAGE>
Loan Loss Allowance

     The Bank  maintains a general  valuation  allowance for loan losses for the
inherent  risks  in  the  loan  portfolio  which  have  yet  to be  specifically
identified.  Management  evaluates the adequacy of the valuation  allowance on a
quarterly basis.  This evaluation is based on a detailed  analysis of the entire
loan portfolio;  considering  both internal and external factors that may impact
collectibility and risks involved with the various types of lending.  The Bank's
Internal  Asset Review System is used to determine the adequacy of the valuation
allowance.  In accordance  with SFAS No. 114, the Bank  identifies and evaluates
loans for impairment on an individual  basis.  The remainder of the portfolio is
segmented into groups of loans with similar risk  characteristics for evaluation
and  analysis  under  Statement  of  Financial   Accounting   Standards  No.  5,
"Accounting for Contingencies" ("SFAS No.5").

     Internal Asset Review  System.  In accordance  with the  regulations of the
Office of Thrift Supervision  ("OTS"),  the Bank maintains a risk grading system
for all  assets  based  on an  assessment  of the  repayment  capacities  of the
borrower,  the collateral property,  guarantors and endorsers.  The risk grading
system provides a tool for risk measurement,  early problem asset identification
and  proper  pricing  for new  extensions  of  credit.  Loans  are  assigned  an
appropriate  risk grade by underwriters at the time of loan  origination.  These
assignments are reviewed by employees responsible for monitoring and classifying
assets on an ongoing basis.

     Assets are  classified  according to a nine-tiered  risk grade system.  The
nine risk grades are segmented into three general groups:  "unclassified"  (risk
grades  1  through  5),  "criticized"  (risk  grade 6 -  special  mention),  and
"classified" (risk grade 7 - substandard, risk grade 8 - doubtful and risk grade
9 -  loss).  In  determining  the  appropriate  risk  grade  for a  loan  asset,
consideration  is given to  information  on repayment  prospects,  including the
value of and cash flow provided by the  collateral  supporting the loan, and any
support  provided  by the  borrowers  and  financially  responsible  guarantors.
Several factors are considered in assigning a risk grade - income,  cash flow to
service existing debt, stability of income sources,  liquidity,  credit history,
access to alternative financing,  collateral type, value, property condition and
market influences.

     All  assets are  subject  to  on-going  classification  through  the Bank's
internal  review system.  For internal asset review  purposes,  the Bank's asset
portfolio is segregated into three distinct groups:  assets subject to review by
the Loan Workout  Committee,  a committee of officers  responsible for resolving
problem asset situations, homogeneous assets and non-homogeneous assets.

     Asset  Subject to Review by the Loan  Workout  Committee - The Loan Workout
Committee monitors and develops repayment strategies for the Bank's most complex
problem assets, such as residential loans greater than $500,000, income property
loans with unpaid  principal  balances  of  $750,000  or  greater,  30 days more
contractually  delinquent,  or with collateral properties currently managed by a
court- appointed receiver.

     Non-Homogeneous  Assets.  These are performing  income  property loans with
unpaid  balances  greater  than $1.5  million,  36+ unit  apartment  loans,  and
commercial business loans. Other non-homogeneous  assets may include investments
in subsidiaries,  investments in securities,  and significant  off-balance sheet
items.

     Homogeneous Assets. These assets are other than non-homogeneous  assets and
those reviewed by the Loan Workout  Committee.  Generally,  these assets include
residential  loans,  lower-balance  income property  loans,  and consumer loans.
These assets are reviewed through a series of monthly tracking reports.

     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.  For a detailed  discussion of
impaired loans, see "Business - Non-accrual, Past Due and Restructured Loans".

     For loans  evaluated  on a group  basis under SFAS No.5,  the Bank  defined
segments of the loan  portfolio by  identifying  risk  characteristics  that are
common to  specified  groups of loans.  All loans in the  Bank's  portfolio  are
subject to this analysis.

     The  Bank's  asset  classification   system  serves  as  a  foundation  for
determining the appropriate level of General Valuation  Allowances (GVA). Within
the classification  categories,  loans are stratified based on factors affecting
the perceived level and concentration of risk, such as type of collateral,  year
of origination, original loan-to-value ratio and geographic location.
<PAGE>
     The  Bank  calculates  the  appropriate  level of GVA by  applying  reserve
factors to the balance of assets on which the Bank has loss exposure  ("exposure
base").  The  reserve  factors  represent  the  expected  likelihood  of default
multiplied by the expected rate of loss, derived from the Bank's historical loss
experience and adjusted for current and anticipated conditions and trends.

                                          9

     Additionally,  due to the  economic  cycle and its  effect  on real  estate
values,  the Bank  believes that loans  originated  within the past 12-24 months
pose an additional  risk. A downturn in the  California  economy may affect real
estate  values and,  consequently,  loans  originated at the "top of the market"
have the greatest  loss  exposure.  Historical  loss analysis  provides  further
insight into risk concentrations within the loan portfolio.

     The Bank reviews the GVA for adequacy at least  quarterly and evaluates the
performance  trends in the loan portfolio to establish adequate reserve factors.
The Asset Classification Committee reviews the GVA analysis and methodology on a
quarterly basis. The Board of Directors reviews the GVA policy annually.

     The  following  is an analysis of the  activity in the Bank's  general loan
valuation allowance for the periods indicated:
<TABLE>
                                                      Year Ended December 31,
                                         2001           2000        1999        1998        1997
                                                      (Dollars In Thousands)
<S>                                   <C>            <C>         <C>         <C>         <C>
Beginning General Loan Valuation
  Allowance................           $70,809        $69,954     $67,638     $61,237     $54,900
Provision for Loan Losses..               (58)             -           -       6,560      13,155
General Loan Valuation Allowance
   Obtained in Acquisition.             2,050              -           -           -           -
Charge-offs, Net of Recoveries:
  Single Family............              (322)          (767)       (342)     (1,497)     (5,633)
  Multi-Family.............               286          1,692       2,650       1,354       2,341
  Commercial...............                 -           (105)        111         (32)        482
  Non-Real Estate..........               154             35        (103)         16         226
  Total Net Recoveries (Charge-offs)      118            855       2,316        (159)     (2,584)
Transfer to Liability Account for
        Loans Sold with Recourse            -              -           -           -      (4,234)
Ending General Loan Valuation
        Allowance..........           $72,919        $70,809     $69,954     $67,638     $61,237

</TABLE>

     The Bank recorded net loan loss recoveries of $118 thousand during 2001 and
$51  thousand  during  2000.  During  the  previous  three  years,  charge-offs,
including net charge-offs from the general valuation allowance and impaired loan
allowance  totaled $2.7 million,  $2.9 million and $12.5 million,  respectively,
representing  0.09%,  0.10% and 0.39% of the  average  loan  portfolio  for such
periods.  The low level of  charge-offs  over the last five  years is due to the
improved  condition of the Southern  California  economy and real estate  market
since the recession of the mid-1990's.

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

     The Bank's total general  valuation  allowance for loans was 1.70% of total
loans with loss exposure at December 31, 2001, 1.81% at December 31, 2000, 2.15%
at December  31, 1999,  2.26% at December  31,  1998,  and 1.86% at December 31,
1997.
<PAGE>
     The following table details the general valuation allowance  (stratified by
loan type) for the periods indicated:
<TABLE>
                                  % of             % of           % of          % of            % of
                        2001     Total   2000     Total  1999    Total   1998  Total   1997    Total
                                         (Dollars In Thousands)
<S>                     <C>      <C>     <C>      <C>    <C>     <C>     <C>   <C>     <C>     <C>
Real Estate Loans:
  Single Family         $30,040    41%   $37,695     53% $24,985    36%  $23,061  34%  $23,640    39%
  Multi-Family.          23,955    33     22,529     32   38,332    55    37,875  56    30,569    50
  Commercial...           7,860    11      5,797      8    6,129     9     6,034   9     6,986    11
  Construction.           3,687     5          -      -        -     -         -   -         -     -
Total Real Estate Loans  65,542    90     66,021     93   69,446    99    66,970  99    61,195   100

Non-Real Estate Loans:
  Commercial ..           5,120     7      3,214      5       65     -         -   -         -     -
  Consumer ....           1,918     3      1,073      1       87     -        72   -        42     -
  Other........             339     0        501      1      356     1       596   1         -     -
Total Non-Real Estate
 Loans.........           7,377    10      4,788      7      508     1       668   1        42     -
Total .........         $72,919   100%   $70,809    100% $69,954   100%  $67,638 100%  $61,237   100%
</TABLE>
                                             10

     During 2001,  certain  changes in the exposure  base of the loan  portfolio
resulted in an increase of $2.1 million in the total general valuation allowance
for loans. The exposure base of single-family  loans declined by $59 million and
the  proportion  of higher risk loans was  reduced,  resulting in a $7.7 million
reduction in the general valuation  allowance.  The increase in the multi-family
and commercial  real estate loan exposure base of $216 million and $118 million,
respectively,  was partially  offset by the  reduction in the risk  composition,
resulting in an increase in general valuation allowance of $1.4 million and $2.1
million, respectively. The newly acquired construction loan portfolio added $3.7
million to the general valuation allowance.  The increase in the commercial loan
exposure  base of $13.3  million  and the  classification  of  certain  loans as
substandard  resulted in an increase  of $1.9  million in the general  valuation
allowance.  Consumer loan exposure base increased by $31.5 million,  thus adding
$845 thousand to the general valuation allowance. The remainder of the change in
the general  valuation  allowance for loans was attributable to changes in other
loan categories.

     During 2000, the total general  valuation  allowance for loans increased by
$854 thousand.  The increase of $12.7 million in the general valuation allowance
for single  family  loans was due to an increase of $361 million in the exposure
base and to increased risk concentration in the portfolio.  The increase of $186
million in the exposure  base of multi family loans was offset by the  reduction
in risk composition,  resulting in a decline in the general valuation  allowance
of  $15.8  million.  The  increase  of $3.1  million  in the  general  valuation
allowance for commercial  non-real estate loans resulted from an increase of $20
million in the exposure base and an increased risk concentration.  Consumer loan
exposure  base  increased  by $38.3  million,  resulting  in an increase of $985
thousand in the general valuation allowance.  The remainder of the change in the
general valuation  allowance for loans was attributable to changes in other loan
categories.

     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.
<PAGE>
     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 2001,  2000,  1999,  1998 and 1997 is
presented below (dollars in thousands):


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
Net recoveries............................              -
Balance at December 31, 2000..............         12,824
Net recoveries............................              -
Balance at December 31, 2001..............      $  12,824


     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.

     Potential  Problem Loans. The Bank also had $6.2 million,  $6.7 million and
$6.9  million in  potential  problem  real estate loans as of December 31, 2001,
December 31, 2000 and December 31, 1999,  respectively.  These are loans that do
not meet the  criteria of impaired or  non-performing  loans but have  displayed
some past or present weakness. If the weakness is not corrected,  the loan could
eventually result in a loss to 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.
<PAGE>
     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

                                        11

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,
                                    2001         2000        1999
                                        (Dollars In Thousands)

Beginning Balance.........     $   2,157    $   2,202    $  4,755
Additions.................         5,136        5,050      10,831
Sales.....................        (5,808)      (5,095)    (13,384)
Ending Balance............     $   1,485    $   2,157    $  2,202

     Other Interest-Earning  Assets. The Bank owned no contractually  delinquent
interest-earning assets other than loans as of December 31, 2001.

Investment Activities

     It is the Bank's policy to maintain liquidity investments at a modest level
and to use available cash to originate  mortgages  that normally  command higher
yields.   Therefore,   interest  income  on  investments   generally  represents
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:

<TABLE>
                                                     December 31,
                                2001         2000        1999        1998         1997
                                               (Dollars In Thousands)
<S>                             <C>          <C>         <C>         <C>          <C>

U.S. Treasury Securities        $    300      $    300   $    300    $    300     $    300
U.S. Agency Securities            28,199        38,185     38,167      28,156       48,142
Collateralized Mortgage
 Obligations ("CMOs")             80,013        98,562    115,704      36,380        1,009
                                 108,512       137,047    154,171      64,836       49,451
Unrealized gain (loss) on
 securities available-for-sale     1,932          (510)    (2,976)       (503)        (541)
                                $110,444      $136,537   $151,195    $ 64,333     $ 48,910

Weighted average yield on
 interest-earnings invest-
 ments end of period.               6.07%         5.99%      5.86%       5.38%        5.17%
</TABLE>
                                            12
<PAGE>
As of December 31, 2001,  the Bank's U.S  government  and agency  securities all
matured  within  one year  with a  weighted  average  life of two  months  and a
weighted average yield of 6.00%. The Bank's collateralized  mortgage obligations
all have expected maturities within five years.


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 4%, 2% and 3% of total
deposits  at  December  31,  2001,  2000 and  1999,  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 14%, 18% and
22% of total  deposits at December 31, 2001,  2000 and 1999,  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 $2.1 billion at
December  31,  2001,  $1.7  billion at  December  31,  2000 and $1.6  billion at
December 31, 1999.  Retail deposits  comprised 82% of total deposits at December
31, 2001,  80% of total  deposits at December 31, 2000 and 75% of total deposits
at December  31, 1999.  Management  attributes  the increase in retail  deposits
during 2001 to  increased  deposits  from stock  market  investors  wanting more
security  for  their  investments  due  to  variability  in  the  stock  market.
Additionally,  the Bank  acquired  four retail  offices with  deposits  totaling
$174.8  million as part of the purchase of two small banks on November 30, 2001.
As of December 31, 2001,  deposits at these  acquired  branches  totaled  $174.4
million.  The  increase  in retail  deposits  during  2000 was the result of two
branch purchases during that year.

     The Bank has concentrated its marketing efforts over the last several years
on  the  attraction  and  retention  of  non-term  accounts.  As a  result,  the
percentage of fixed-term  certificates  of deposit in the Bank's total  deposits
has  decreased  from 62% as of December 31, 1999 and 57% as of December 31, 2000
to 52% as of December 31, 2001.

     The  following  table shows the average  balances and average rates paid on
deposits by deposit type for the periods indicated:
<TABLE>
                                                     During the Year Ended December 31,
                                            2001                       2000                    1999
                                    Average     Average        Average      Average     Average     Average
                                    Balance      Rate          Balance       Rate       Balance      Rate
                                                            (Dollars In Thousands)
<S>                                 <C>          <C>           <C>           <C>        <C>          <C>
Passbook Accounts                   $   94,067   1.53%         $   81,330    1.98%      $   82,634   1.96%
Money Market Deposit Accounts          613,745   3.84             501,084    4.63          380,971   4.17
Interest-bearing Checking Accounts     141,282   0.97             128,678    1.19          109,928   1.07
Fixed Term Certificate Accounts      1,468,650   4.64           1,421,835    5.20        1,492,179   4.59
                                    $2,317,744   4.08%         $2,132,927    4.70%      $2,065,712   4.22%
</TABLE>

     The following table shows the maturity  distribution of jumbo  certificates
of  deposit  ($100,000  and  greater)  as  of  December  31,  2001  (dollars  in
thousands):
            Maturing in:
              1 month or less......................            $    66,378
              Over 1 month to 3 months.............                 80,548
              Over 3 months to 6 months............                 88,591
              Over 6 months to 12 months...........                 68,798
              Over 12 months.......................                  1,939
                Total..............................            $   306,254

                                           13
<PAGE>
     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>
                                                                   December 31,
                                                   2001                  2000              1999
                                                 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 2.76%,
    4.79% and 4.34%).........               $ 741,978       29%      $  537,475  25%    $  446,771  22%
  Interest-bearing checking accounts
    (weighted average rate of 0.72%
    1.22% and 1.06%).........                 162,309        7          140,151   6        111,366   5
  Passbook accounts (1.59%, 2.00%
    and 2.00%)...............                 104,488        4           80,536   4         78,547   4
  Non-interest bearing checking
    Accounts.................                 205,597        8          176,059   8        144,310   7
                                            1,214,372       48          934,221  43        780,994  38
Fixed-rate term certificate accounts:
  Under six month term (weighted
    average rate of 2.57%, 5.26%
    and 5.21%)...............                  54,626        2           61,954   3        113,324   5
  Six month term (weighted average
    rate of 3.29%, 6.41% and 5.68%)           246,161       10          282,922  13        322,696  16
  Nine-month term (weighted average of
    3.98%, 6.74% and 5.73%)..                 170,190        7          240,598  11        250,460  12
  One year to 18-month term (weighted
    average rate of  4.45%, 6.11% and
    4.99%)...................                 469,113       18          367,603  17        284,464  14
  Two year or 30-month term (weighted
    average rate of 5.38%, 5.83% and
    5.13%)...................                  45,993        2           31,685   2         19,081   1
  Over 30-month term (weighted
    average rate of 5.31%, 5.49%
    and 5.33%)...............                  39,938        1           31,088   1         36,529   2
  Negotiable certificates of $100,000
    and greater, 30 day to one year terms
    (weighted average rate of 3.84%,
    6.19% and 5.20%).........                 306,254       12          214,976  10        253,809  12
                                            1,332,275       52        1,230,826  57      1,280,363  62
Total deposits (weighted average
    rate of 3.02%, 4.90% and 4.42%)        $2,546,647     100%       $2,165,047 100%    $2,061,357 100%
</TABLE>

     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,  FHLBSF 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  cost
changes.  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  Federal  Home Loan Bank System  functions  as a source of
credit to  financial  institutions  that are members of a regional  Federal Home
Loan Bank. The Bank may apply for advances from the 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.
                                       14
<PAGE>
     Total  advances from the FHLBSF were $1.6 billion at December 31, 2001 at a
weighted  average rate of 5.01%.  This compares with advances of $1.6 billion at
December 31, 2000 and $1.2 million at December  31, 1999 with  weighted  average
rates of 6.42% and 5.91%,  respectively.  The level of FHLB borrowings increased
because  they 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 50% of its assets or approximately $2.4 billion at December 31, 2001.

     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 that meet their  regulatory  capital  requirements.  Borrowings
under reverse repurchase  agreements totaled $211.0 million at December 31, 2001
at a  weighted  average  rate of  2.66%  and  were  secured  by  mortgage-backed
securities with principal  balances  totaling $221.6 million.  Borrowings  under
reverse  repurchase  agreements  totaled $294.1 million at December 31, 2000 and
$363.6  million at  December  31, 1999 at  weighted  average  rates of 6.65% and
5.76%,  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 for
1999.

     Borrowings  from all sources  totaled $1.8  billion,  $1.9 billion and $1.5
billion at weighted  average  rates of 4.74%,  6.46% and 5.88% at  December  31,
2001,  2000, and 1999,  respectively.  Due to the high level of loan payoffs and
the growth in retail branch deposits, no additional borrowings were necessary to
fund asset growth during 2001.

     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>
                                                                         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>
2001
Short-term FHLB Advances...........             $985,000     4.86%    $  987,000       $  900,895    5.68%
Securities sold under agreements to repurchase   211,040     2.66        290,528          251,914    4.69

2000
Short-term FHLB Advances...........             $957,000     6.58%    $1,250,000       $1,065,000    6.38%
Securities sold under agreements to repurchase   294,110     6.65        355,995          322,593    6.39

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
</TABLE>
                                             15
<PAGE>
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.  SMCG is an
inactive corporation.

     As of December 31, 2001, the Bank's  investment in these  subsidiaries  had
been  totally  repaid by  dividends.  Revenues  and  operating  results of these
subsidiaries  accounted for less than 1% of consolidated revenues in 2001 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 2001, 2000 or 1999. Seaside,
from time to time, will purchase  individual  properties for investment and sell
them for a gain. Income from this activity totaled $285 thousand during 2001 and
$590 thousand  during 2000.  The decrease  during 2001 compared to 2000 resulted
from the closure of a storage  facility  on leased land  operated by Seaside for
the last several years. Seaside's lease for this facility expired during 2001.

     Seaside continues to hold one condominium unit, which is rented to the Bank
for use by its  employees.  At December 31, 2001,  Seaside's  investment  in the
remaining unit totaled $30 thousand. There were no loans outstanding against the
property at December 31, 2001. 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 $86 thousand,  $65 thousand and $165
thousand in 2001, 2000 and 1999, 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,
Invest Financial  Corporation,  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  2001,  2000 and  1999,  Oceanside  received  commission  income  of $231
thousand,  $290  thousand  and  $451  thousand,  respectively,  from the sale of
non-insured  investment  products.  Additionally,  Oceanside  receives insurance
commissions  from the sale of insurance to its borrowers.  Commissions  received
from this activity totaled $35 thousand in 2001 and $444 thousand in 2000. There
was no commission  income  recorded during 1999. The decrease in premiums during
2001  resulted  from the  rebate of  previously  earned  commissions  as interim
lender-placed   policies  were  replaced  by  permanent   policies  obtained  by
borrowers.

Employees
     As of December 31, 2001,  the Bank had a total of 508 full time  equivalent
employees, including 106 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 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.
                                       16
<PAGE>
     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 $91.7  million  in  FHLBSF  stock at
December 31, 2001.

     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, 2001, the Bank's  advances from the FHLBSF amounted
to $1.6 billion,  or 37% 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, 2001,  dividends paid by the FHLBSF
to the Bank totaled approximately $5.2 million.

     Financial  Services  Modernization  Legislation.  On November 12, 1999, the
Gramm-Leach-Bliley  Act of 1999  (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 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 also may have an 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  that  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.

     The Act  establishes  a  federal  right to the  confidential  treatment  of
nonpublic  personal  information  about  consumers.  These provisions of the Act
require disclosure of privacy policies to consumers and, in some  circumstances,
will allow consumers to prevent disclosure of certain personal  information to a
nonaffiliated  third party. The OTS and other banking regulatory agencies issued
final rules to implement these  provisions of the Act on May 10, 2000. The rules
were effective  November 13, 2000, and compliance was mandatory starting on July
1, 2001. Pursuant to these rules, a financial institution must provide:

-     initial notices to customers (as defined in the rules) about the
      institution's privacy policies, describing the circumstances under
      which the institution may disclose nonpublic personal information to
      nonaffiliated third parties and affiliates;
-     annual notices of the institution's privacy policies to all customers;
      and
-     a reasonable method for customers to "opt out" of disclosure to
      nonaffiliated third parties (except where disclosure is required or
      otherwise permitted by law).

<PAGE>
     These new rules will affect how consumer information is transmitted through
diversified  financial  companies  and  conveyed to outside  vendors.  It is not
possible  at this time to assess the  impact of the  privacy  provisions  on the
Company's  operations.  However,  because the Company  does not sell or give its
customer  information  to outside third parties or its  affiliates  except under
very  limited  circumstances  (e.g.,   providing  customer  information  to  the
Company's  data  processing  provider or to third party  providers  of financial
services under certain types of narrow joint marketing arrangements),  it is not
anticipated  that the new rules will have a significant  impact on the Company's
results of operations or financial condition.

     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.

                                         17

     On December 21, 2000, the federal bank regulatory  agencies  approved final
rules required by the Act for annual reporting and public  disclosure of certain
written   agreements   ("covered   agreements")   between   insured   depository
institutions  and  non-governmental  entities that are made in  connection  with
fulfillment  of CRA. A covered  agreement  must be made  public by being  placed
immediately in the institution's  public CRA file and disclosed annually as part
of the CRA statement. These new requirements are not expected to have a material
impact on the Company's operations.

     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  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.

<PAGE>

     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  that 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

                                        18

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 $653  thousand in 2001,  $568
thousand in 2000 and $567 thousand in 1999.

     Liquidity.  In July 2001,  the OTS removed the  regulation  that required a
savings  institution to maintain an average daily balance of liquid assets of at
least four percent of its liquidity  base, and retained a provision  requiring a
savings  institution  to maintain  sufficient  liquidity  to ensure its safe and
sound operation.  The determination of what constitutes safe and sound operation
was left to the discretion of management.

     For several  years it has been the Bank's  strategy to keep cash and liquid
investments at a modest level due to availability  of substantial  credit lines.
After the repeal of the liquidity  regulation,  the Bank's  liquidity policy was
modified to include  unused  borrowing  capacity in the  definition of available
liquidity.  The Bank's  current  liquidity  policy  requires  that cash and cash
equivalents,  short-term investments and excess borrowing capacity be maintained
at a minimum level of 10% of the Bank's  liquidity base (defined as deposits and
borrowings  due within one year).  At December  31,  2001,  liquidity-qualifying
balances were 27.5% of the Bank's liquidity base.
<PAGE>
     Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
each savings institution, as well as commercial banks and certain other lenders,
to identify the communities served by the institution's  offices and to identify
the  types of  credit  the  institution  is  prepared  to  extend  within  those
communities.   The  CRA  also  requires  the  OTS  to  assess  an  institution's
performance in meeting the credit needs of its identified communities as part of
its  examination  of  the  institution,   and  to  take  such  assessments  into
consideration in reviewing  applications  with respect to branches,  mergers and
other business combinations,  including acquisitions by savings and loan holding
companies.  An  unsatisfactory  CRA rating may be the basis for denying  such an
application and community groups have successfully protested applications on CRA
grounds.  In connection with its assessment of CRA performance,  the OTS assigns
CRA ratings of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance."  The Bank was rated  "satisfactory" in its last CRA examination,
which  was  conducted  in  2000.  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 that is found to be deficient in
its  performance  in  meeting  its  community's  credit  needs may be subject to
enforcement  actions,   including  cease  and  desist  orders  and  civil  money
penalties.

     Restrictions on Dividends and Other Capital Distributions. During the first
quarter  of  1999,   the  OTS  changed   its   regulations   governing   capital
distributions.  Those changes,  which became effective on April 1, 1999, require
that savings associations controlled by savings and loan holding companies (such
as the Bank) 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.

     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.

     No capital distributions were made to the Company during 2001. During 2000,
the Bank paid a total of $10.0 million in capital distributions to the Company.
<PAGE>
     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.
                                         19

     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,
2001.

     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
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 2002.

     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 2001 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,  2001,  with 94% 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
<PAGE>
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, 2001 was 0% of
the first $5.5 million of such  accounts,  3% of the next $37.3  million of such
accounts and 10% (subject to

                                       20

adjustment  by the Federal  Reserve  Board between 8% and 14%) of the balance of
such accounts. The Bank is in compliance with these requirements.

     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%.

     The Bank is required to use the specific  charge-off  method of  accounting
for debts for all periods  beginning  after 1995.  Prior to that date,  the Bank
used the reserve method of accounting for bad debts. The Consolidated Statements
of Financial  Condition at December 31, 2001 and 2000 do 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.

     These  reserves are subject to recapture  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. Management does not expect for any of these events to occur.

     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  base year  reserve and would
thereby  constitute  taxable income to the Bank in an amount equal to the lesser
of the Bank's base year reserve or the amount which,  when reduced by the amount
of income tax  attributable to the inclusion of such amount in gross income,  is
equal to the amount of such  distribution.  At  December  31,  2001,  the Bank's
earnings  and  profits  (as  computed  for  federal  income tax  purposes)  were
approximately $340.9 million.

     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.

     At December  31,  2001,  the Bank had $44.9  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 $35.3 million at December 31, 2001.

     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. No alternative  minimum taxes were applicable to the Bank for tax
years 2001, 2000 or 1999.
<PAGE>
     California tax laws  generally  conform to federal tax laws. For California
franchise  tax  purposes,   federal   savings  banks  are  taxed  as  "financial
corporations"  at a  rate  2%  higher  than  that  applicable  to  non-financial
corporations  because of exemptions from certain state and local taxes.  The tax
rate for 2001, 2000 and 1999 was 10.84%. The Franchise Tax Board ("FTB") has not
yet announced any new rate for 2002.

     The Internal  Revenue  Service  ("IRS") has completed  examinations  of the
Company's  consolidated  federal  income  tax  returns  for tax  years up to and
including 1996.  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.  During 2001, the Company accrued an additional
$300 thousand for interest  potentially due on IRS adjustments.  No interest was
paid as of  December  31,  2001.  During  1999 and 2000,  the  Company  reversed
interest accruals totaling $150 thousand and $350 thousand, respectively.

                                            21

ITEM 2--PROPERTIES

     At December 31, 2001, the Bank owned the building and the land for eight 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 5, 2002,  17,252,604  shares of Company common
stock,  representing  approximately 814 record  stockholders,  were outstanding,
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  $10.0
million in dividends  during 2000 and $99.6  million  during 1999.  No dividends
were paid during 2001.  The  dividends  paid during 2000 were for the purpose of
repurchasing 821,500 shares of Company common stock.  Dividends paid during 1999
were for the purpose of  repurchasing  3,298,150  shares of Company common stock
and  servicing  and paying off the  Company's  $50  million in senior  unsecured
11.75% notes, which were redeemed on December 30, 1999.

                                           22
<PAGE>
ITEM 6--SELECTED FINANCIAL DATA

      Selected financial data for the Company is presented below:
<TABLE>
                                    FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                                 FIVE YEAR CONSOLIDATED SUMMARY OF OPERATIONS

                                     2001        2000         1999        1998       1997
                                 (Dollars In Thousands, Except Per Share Data)
<S>                             <C>         <C>          <C>          <C>         <C>
For the Year Ended December 31:
  Interest income......         $  333,932  $  314,320   $  260,001   $ 289,769   $ 299,220
  Interest expense.....            201,754     206,505      161,031     186,491     204,226
  Net interest income..            132,178     107,815       98,970     103,278      94,994
  Provision for loan losses              -           -            -       7,200      20,500
  Other income.........              8,919       7,747       12,688      13,657      10,218
  Non-interest expense.             53,174      48,265       49,159      48,924      44,151
  Earnings before income taxes      87,923      67,297       62,499      60,811      40,561
  Income taxes.........             37,621      28,832       27,052      26,182      17,461
  Earnings before extra-
    ordinary items.....             50,302      38,465       35,447      34,629      23,100
  Extraordinary item
    Loss on early extinquishment
      of debt, net of taxes              -           -       (2,195)          -           -
  Net  earnings........             50,302      38,465       33,252      34,629      23,100
Basic earnings per share
  EPS before extraordinary item       2.92        2.23         1.84        1.63        1.09
  Extraordinary item                     -           -         (.11)          -           -
  EPS after extraordinary item        2.92        2.23         1.73        1.63        1.09
Dilutive earnings per share
  EPS before extraordinary item       2.85        2.20         1.83        1.60        1.07
  Extraordinary item                     -           -         (.12)          -           -
  EPS after extraordinary item        2.85        2.20         1.71        1.60        1.07
End of Year:
  Loans receivable, net (2).     4,004,889   3,629,284    3,060,547   2,808,221   3,145,164
  Mortgage-backed securities       284,079     374,405      428,641     556,679     676,058
  Investment securities            110,444     136,537      151,195      64,333      48,910
  Total assets.........          4,726,289   4,365,242    3,872,051   3,677,128   4,160,115
  Deposits.............          2,546,647   2,165,047    2,061,357   2,135,909   1,943,647
  Borrowings...........          1,808,040   1,873,110    1,532,635   1,235,172   1,941,670
  Liabilities..........          4,400,611   4,097,800    3,640,918   3,420,128   3,937,328
  Stockholders' equity.            325,678     267,442      231,133     257,000     222,787
  Book value per share(1)            18.88       15.52        12.82       12.16       10.52
  Tangible book value per share      18.22       14.98        12.78       12.10       10.43
Selected Ratios:
  Return on average assets            1.10%       0.93%       0.94%        0.88%       0.56%
  Return on average equity           16.93%      15.85%      14.91%       14.40%      11.25%
  Ratio of non-performing
    assets to total assets            0.17%       0.19%       0.40%        0.84%       0.95%
Other Data:
  Number of Bank full service
    branches..................          29          25          24           24          24
</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 2001,
2000 and 1999 in Note 15 of the Notes to Consolidated Financial Statements.

                                          23
<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 $50.3  million or $2.85 per diluted  share were recorded in
2001,  compared to net earnings of $38.5  million or $2.20 per diluted  share in
2000 and net earnings of $33.3 million or $1.71 per diluted share in 1999.

     The increase in net earnings  from 2000 to 2001 was primarily due to higher
net interest  income,  which  resulted  from growth in average  interest-earning
assets and improved  interest spreads due to repeated  interest rate cuts by the
Federal Reserve Bank throughout  2001. The increase in net earnings from 1999 to
2000  was  primarily  due  to  higher  net  interest  income  due to  growth  in
interest-earning assets.

     No loan loss  provision  was recorded in 2001,  2000 or 1999.  The Southern
California  economy and real estate market has remained stable over the last few
years. As a result,  the Bank recorded net loan loss recoveries of $118 thousand
in 2001 and $51 thousand in 2000.  Net loan  charge-offs  totaling  $2.4 million
were recorded in 1999.

      Certain key financial ratios for the Company are presented below:

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


                2001......         1.10%        16.93%        6.52%
                2000......          .93         15.85         5.85
                1999......          .94         14.91         6.29
                1998......          .88         14.40         6.09
                1997......          .56         11.25         4.95
                1996......          .20          4.22         4.61


     Non-performing  assets  (primarily loans 90 days past due or in foreclosure
plus foreclosed real estate)  decreased to $7.9 million or 0.17% of total assets
as of  December  31,  2001  from  $8.3  million  or 0.19% of total  assets as of
December  31, 2000 and $15.4  million or 0.40% of total  assets at December  31,
1999. The decreasing  amount of real estate owned 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 common shares totaling 821,500 and 3,298,150 during
2000 and 1999,  respectively.  As of February 14, 2002,  889,016  shares  remain
eligible for repurchase under the Company's  authorized  repurchase  program. No
additional shares were purchased during 2001 or thus far during 2002.

     At December 31, 2001 the Bank's  regulatory  risk-based  capital  ratio was
12.51% and its  tangible and core  capital  ratios were 6.42%.  The Bank met the
regulatory  capital  standards  necessary  to be  deemed  "well-capitalized"  at
December 31, 2001.

     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 $418 thousand
during 2001,  $538 thousand  during 2000 and $1.2 million during 1999. The lower
premiums  paid during 2001 and 2000 were due to a drop in the deposit  insurance
assessment  rate from 5.9 basis  points in 1999 to 2.07 basis points in 2000 and
1.90  basis  points in 2001,  due to an  improvement  in the  Bank's  regulatory
rating.

                                         24
<PAGE>

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
"Loss Provision" and "Non-performing Assets."

     The  determination  of the  allowance  for loan losses and the valuation of
real estate collateral are based on estimates that are susceptible to changes in
the economic  environment  and market  conditions.  No loan loss  provision  was
recorded  during 2001. 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.

                                     OTHER RISKS

Inflation

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

                              CRITICAL ACCOUNTING POLICIES

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

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

                                          25
<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 $179.2 million in 2001, $148.2 million
in 2000 and $144.4  million in 1999.  The increase over the last three years was
due to improvement in asset quality and asset growth.

     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:

                                           2001           2000           1999
                                                 (Dollars In Thousands)

Average loans and mortgage-backed
 securities (1).........             $4,181,554     $3,793,351     $3,328,723
Average investment securities           200,807        176,476        204,741
Average interest-earning assets       4,382,361      3,969,827      3,533,464
Average deposits........              2,317,744      2,132,927      2,065,712
Average borrowings......              1,885,426      1,688,738      1,323,362
Average interest-bearing liabilities  4,203,170      3,821,665      3,389,074
Excess of interest-earning assets
 over interest-bearing liabilities   $  179,191     $  148,162     $  144,390

Yields earned on average interest
 earning assets.........                   7.50%          7.77%          7.26%
Rates paid on average interest-
 bearing liabilities....                   4.79           5.40           4.76
Net interest rate spread                   2.71           2.37           2.50
Effective net spread....                   2.90           2.57           2.69

Total interest income...               $328,679       $308,487       $256,335
Total interest expense..                201,420        206,473        161,160
                                        127,259        102,014         95,175
Total other items (2)...                  4,919          5,801          3,795
Net interest income.....               $132,178       $107,815       $ 98,970


(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.

     The  Bank's  interest  rate  spread  increased  by 34 basis  points in 2001
compared to 2000 because the yield on earning  assets  declined by only 27 basis
points while the cost of funds fell by 61 basis points in response to aggressive
rate cuts by the Federal  Reserve Bank.  The Bank's cost of funds is immediately
impacted  by  decreases  in  interest  rates  while the yield on earning  assets
responds  more slowly to changes in  interest  rates due to the three month time
lag inherent in the adjustable rate loan portfolio and the increased  percentage
of  hybrid/adjustable  products  originated by the Bank during 2001.  The Bank's
interest  rate spread fell by 13 basis  points in 2000  compared to 1999 because
the cost of funds was increasing by more than the yield on earning assets during
that time. The Federal Reserve was increasing rates during the 1999 to 2000 time
frame.

                                          26
<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>
                                             Year Ended                    Year Ended
                                          December 31, 2001              December 31, 2000
                                               Versus                         Versus
                                          December 31, 2000              December 31, 1999
                                           Change Due To                  Change Due To
                                     Volume       Rate     Total       Volume      Rate    Total
                                                        (Dollars In Thousands)
<S>                                  <C>         <C>       <C>         <C>        <C>      <C>
Interest Income:
  Loans and mortgage-backed
   Securities..........              $29,831     $(9,296)  $20,535     $35,723    $16,485  $52,208
  Investments..........                1,379      (1,722)     (343)     (1,629)     1,339     (290)
    Total interest income             31,210     (11,018)   20,192      34,094     17,824   51,918

Interest Expense:
  Deposits.............                8,229     (13,835)   (5,606)      2,910     10,037   12,947
  Borrowings..........                11,690     (11,137)      553      22,176     10,191   32,367
    Total interest expense            19,919     (24,972)   (5,053)     25,086     20,228   45,314

    Change in net interest income     11,291      13,954    25,245       9,008     (2,404)   6,604

Change in other items (1)                                     (882)                          2,241

Total change in net interest
  income including other items                             $24,363                         $ 8,845
</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.

<TABLE>
                             Interest Rate Spreads and Yield on Average Interest-Earning Assets
                                                Year Ended December 31,
                                   2001            2000            1999            1998            1997
                              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.........   7.61%   6.57%   7.85%   8.15%   7.37%   7.31%   7.63%   7.48%   7.49%   7.48%
Weighted average yield
 on investment portfolio(1)   5.20    3.52    6.11    5.63    5.41    5.69    5.29    5.14    5.40    6.06
Weighted average yield
 on all interest-earning
 assets..................     7.50    6.40    7.77    8.04    7.26    7.25    7.54    7.39    7.40    7.42
Weighted average rate
 paid on deposits...........  4.08    3.02    4.70    4.90    4.22    4.42    4.61    4.36    4.70    4.66
Weighted average rate
 paid on borrowings and
 FHLB advances.............   5.67    4.74    6.29    6.46    5.59    5.88    5.81    5.66    5.86    5.91
Weighted average rate
 paid on all interest-
 bearing liabilities.......   4.79    3.73    5.40    5.62    4.76    5.04    5.11    4.84    5.27    5.28
Interest rate spread(2)....   2.71    2.67    2.37    2.42    2.50    2.21    2.43    2.55    2.13    2.14
Effective net spread(3)....   2.90            2.57            2.69            2.60            2.28
</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

                                            27
<PAGE>
Loss Provision

     The Company did not record a loan loss provision during 2001, 2000 or 1999.
No provision was recorded during the last three years because, based on analysis
done by  management,  existing  allowances  were  sufficient to cover the credit
risks inherent in the loan portfolio.  Non- performing  assets decreased to $7.9
million  in 2001 from $8.3  million  in 2000 and  $15.4  million  in 1999 due to
improvement  in the economy and real estate  markets in which the Bank operates.
The Bank has a policy of providing for general valuation allowances, unallocated
to any specific loan, but available to offset any loan losses.  The allowance is
maintained at an amount that management believes adequate to cover estimable and
probable  loan  losses.  The Company also  maintains  valuation  allowances  for
impaired  loans  and  loans  sold  with  recourse.  See  "Business  - Loan  Loss
Allowance."  Management  performs  regular risk  assessments  of 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.

     The Company  recorded net loan loss recoveries of $118 thousand during 2001
and $51 thousand  during 2000. Net loan  charge-offs  totaling $2.4 million were
recorded in 1999.  The  recoveries  recorded  during 2001 and 2000 resulted from
cash payments by borrowers on loans that had been  previously  charged-off.  The
charge-offs  during 1999 were 0.08% of average  loans  outstanding.  Charge-offs
primarily result from declines in the value of the underlying  collateral of the
non-performing loans.

Non-interest Income

     Loan  servicing  and other fees were $3.3 million in 2001  compared to $2.8
million  in 2000 and $4.2  million in 1999.  Fees  earned  during  2001 and 2000
include adjustments of $134 thousand and $500 thousand, respectively, to provide
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 $656  thousand in 2001,  $64 thousand in 2000 and
$1.2 million in 1999. The gain realized on loan sales  fluctuates due to changes
in market  pricing  based on interest  rate trends.  Also,  the dollar amount of
loans  originated for sale varies based on the  availability of attractive fixed
rate loan  programs to  borrowers  compared to the Bank's  adjustable  rate loan
programs.

     Real estate  operations  resulted  in a net gain of $304  thousand in 2001,
$594 thousand in 2000 and $3.2 million in 1999. Real estate  operations  include
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 was 1.17% for
both 2001 and 2000,  a decrease  from 1.30% for 1999.  The  additional  costs of
acquiring and operating the four branches  purchased  during 2001 were offset by
asset growth  during 2001.  The decrease from 1999 to 2000 was  attributable  to
decreased  legal  costs and  federal  deposit  insurance,  offset by  additional
amortization  of core deposit  intangible  assets and increased data  processing
costs.

     Salary and  benefit  costs  increased  12% in 2001  compared to 2000 due to
higher  incentives,  bonuses and profit sharing costs.  Salary and benefit costs
were  approximately  the  same  in  2000  compared  to  1999  because  increased
compensation  and  incentive  costs  were  offset by  decreased  bonus and other
benefit costs.

     Occupancy  expense  increased  slightly  in 2001  compared  to 2000  due to
additional  occupancy  costs  associated  with the four retail savings  branches
acquired  during the year and  increased  repair and  maintenance  costs for the
remaining  branches.  Occupancy expense  increased  slightly in 2000 compared to
1999 due to the  acquisition  of two  branches.  One  branch  was closed and its
deposits were transferred to one of the acquired branches.
<PAGE>
     Other  operating  expenses  increased  10% in 2001  compared to 2000 due to
deconversion  costs  associated with the  institutions  acquired during 2001 and
other  legal  expense.  Other  operating  expenses  increased  slightly  in 2000
compared to 1999 due to increases in data processing  costs  associated with the
creation of the Bank's new web page and internet site. Also, the amortization of
core deposit intangible assets increased  substantially in 2000 compared to 1999
due to the write off of the core  deposit  intangible  asset  associated  with a
closed  branch and a  re-evaluation  of the core deposit  intangible  asset on a
second branch location.

                                          28


     The following table details the components of non-interest  expense for the
periods indicated:


                                             Non-Interest Expense
                                           Year  Ended  December 31,
                                   2001     2000     1999      1998     1997
                                             (Dollars In Thousands)
Salaries and Employee Benefits:
   Salaries...................  $18,119  $17,354  $16,631   $16,035  $15,157
   Incentive compensation.....    2,472    1,987    1,677     1,478      883
   Payroll taxes..............    1,652    1,486    1,607     1,455    1,371
   Employee benefit insurance.    1,203    1,320    1,220     1,069    1,048
   Bonus compensation.........    1,500      920    1,583     1,335    1,100
   Profit sharing.............    2,020    1,778    1,100     1,000      501
   SERP.......................      970      906      988       795      628
   401(k).....................      356      354      299       235      392
   Other salaries and benefits    1,390      339    1,559     2,409    1,660
                                 29,682   26,444   26,664    25,811   22,740
Occupancy:
   Rent.......................    4,439    4,539    4,395     5,105    4,351
   Equipment..................    1,971    2,318    2,145     1,855    1,336
   Maintenance costs..........      914      571      469       344      450
   Other occupancy............      978      603      850     1,189      741
                                  8,302    8,031    7,859     8,493    6,878
Other Operating Expense:
   Insurance..................      582      541      430       362      345
   Amortization of core
    deposit intangible            1,564    1,965      452       565      839
   Data processing............    2,490    2,488    1,930     3,359    2,539
   Contributions..............      450      518      299       509      412
   Professional services......      207      301        8       259      373
   Legal expenses.............    1,393      632    3,516     1,479    1,309
   Supervisory exam...........      653      568      567       599      610
   Federal deposit insurance
    premiums                        418      538    1,236     1,241    1,872
   Other operating costs......    5,633    4,822    4,334     4,288    3,439
                                 13,390   12,373   12,772    12,661   11,738

   Advertising................    1,800    1,417    1,864     1,959    2,795
     Total....................  $53,174  $48,265  $49,159   $48,924  $44,151

   Non-interest expense as
    % of average assets.......     1.17%    1.17%    1.30%     1.24%    1.06%


                                          29

<PAGE>
                            BALANCE SHEET ANALYSIS

     Consolidated  assets at the end of 2001 were $4.7 billion,  representing an
8% increase  from $4.4 billion at the end of 2000 and a 22%  increase  from $3.9
billion at the end of 1999. Assets have increased over the last two years due to
strong loan  originations,  which totaled $1.5 billion in 2001,  $1.1 billion in
2000 and $944.1 million in 1999.  Loan  purchases  totaled $132.6 million during
2001, $139.5 million during 2000 and $122.8 million during 1999.

 Loan Portfolio

     At the end of 2001,  over 67% of the Bank's loans had  adjustable  interest
rates based on monthly  changes in the FHLBSF  Eleventh  District  Cost of Funds
Index.  As  part  of its  asset-liability  management  strategy,  the  Bank  has
maintained a high level of adjustable  loans in its portfolio 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  adjustable rate 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 unmatched  fixed rate loans in its portfolio up to 5% of total assets.
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.  Loans  originated under this limited program totaled $1.0 billion
in 2001, $75.9 million in 2000 and $205.7 million in 1999.

     In 2001, 2000 and 1999, the Bank placed $5.0 million, $3.9 million and $9.9
million,  respectively,  in mortgages with other lenders under fee arrangements.
These loans are not not included in the Bank's loan originations. In 2001, loans
made on the security of single family  properties (one to four units)  comprised
62% of the dollar amount of new loan originations. Loans made on the security of
multi-family  properties (five or more units) comprised 27% of new originations.
Loans made on the security of commercial real estate properties comprised 11% of
new loan originations. Business loans originated by the commercial lending units
totaled 1% of new loan originations.  Adjustable rate mortgages comprised 18% of
new loan activity during 2001 compared with 90% during 2000 and 63% during 1999.

     The following  table details loan  originations  and loan purchases by loan
type for the periods indicated:
<TABLE>
                                                 Loan Originations and Purchases by Type
                                                          Year Ended December 31,
                                          2001          2000        1999        1998       1997
                                                          (Dollars  In Thousands)
<S>                                 <C>           <C>           <C>         <C>        <C>
Single Family (one to four units)   $  924,794    $  658,808    $779,698    $594,763   $430,223
Multi-Family............               402,022       333,466     118,622      37,720     48,033
Commercial Real Estate..               158,169        70,807      37,744         383      2,551
Commercial Business Loans               16,172        11,759       7,768       1,733          -
Other...................                 1,178         6,170         301       2,428        444
  Total.................            $1,502,335    $1,081,010    $944,133    $637,027   $481,251
</TABLE>

      No  loans  were  originated  upon the  sale of real  estate  owned
during 2001.

     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 2001, 2000 or 1999. 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.

<PAGE>
     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

                                        30

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  $354.5  million at December  31, 2001  compared to
$268.2 million at December 31, 2000 and $274.2 million at December 31, 1999. 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, 2001, approximately 55%
of the loan and mortgage-backed securities portfolio consisted of first liens on
single family properties while first liens on multi-family  properties comprised
approximately  35% of the  portfolio,  and first liens on commercial  properties
represented approximately 8% of the portfolio.  Construction loans, the majority
of which were acquired in the Bank's purchase of two small banks on November 30,
2001, comprised 1% of the loan portfolio. Commercial business loans and consumer
loans comprised the remaining 1% of the loan portfolio at December 31, 2001.

     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  37% of loan
originations in 2001 and 2000 were multi-family, commercial and industrial loans
compared to 17% in 1999. No multi-family  loans were originated upon the sale of
REO during 2001.  During 2000 and 1999, 0.1% and 0.4% of total loan originations
were originated upon the sale of multi-family loans, 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 $126.4  million as of December 31, 2001,  $146.5 million as of
December 31, 2000 and $178.7 million as of December 31, 1999. 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.

                                          31
<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>
                                                               December 31,
                                            2001        2000       1999        1998        1997
                                                           (Dollars In Thousands)
<S>                                   <C>         <C>         <C>        <C>         <C>
REAL ESTATE LOANS:
 First trust deed residential loans:
  One to four units........           $2,121,899  $2,158,940  $1,813,783 $1,564,392  $1,801,608
  Five or more units.......            1,525,749   1,308,440   1,123,308  1,127,228   1,217,577
Residential loans..........            3,647,648   3,467,380   2,937,091  2,691,620   3,019,185
OTHER REAL ESTATE LOANS
  Commercial and industrial              358,159     217,619     183,194    181,772     196,575
  Construction.............               38,060           -           -          -           -
  Land.....................                1,481           -           -          -           -
  Second trust deeds.......                9,472       8,453      13,489     15,357      15,441
  Other....................                    -           -           -          -       6,303
    Real estate loans......            4,054,820   3,693,542   3,133,774  2,888,749   3,237,504
NON-REAL ESTATE LOANS:
  Manufactured housing.....                    -         391         613        893       1,154
  Deposit accounts.........                1,267         576         683      1,002       1,644
  Commercial business loans               18,882      12,600       8,140      1,259           -
  Consumer.................               19,546       6,555         593        621         185
    Loans receivable.......            4,094,515   3,713,664   3,143,803  2,892,524   3,240,487
LESS:
  General valuation allowance             72,919      70,809      69,954     67,638      61,237
  Impaired loan valuation allowance        1,850       1,792       2,596      7,634       9,775
  Unrealized loan fees.....               14,857      11,779      10,706      9,031      24,311
    Net loans receivable (1)           4,004,889   3,629,284   3,060,547  2,808,221   3,145,164
FHLMC AND FNMA MORTGAGE-
   BACKED SECURITIES:
  Secured by single family dwellings     272,419     360,210     412,469    539,079     657,342
  Secured by multi-family dwellings       11,660      14,195      16,172     17,600      18,716
    Mortgage-backed securities           284,079     374,405     428,641    556,679     676,058
      TOTAL................           $4,288,968  $4,003,689  $3,489,188 $3,364,900  $3,821,222
</TABLE>
(1)   Includes loans held for sale.

                                              32
<PAGE>

                                ASSET QUALITY

 Asset Quality Ratios

     The following table sets forth certain asset quality ratios of the Bank for
the periods indicated:
<TABLE>
                                                                    December 31,
                                                  2001       2000    1999     1998     1997
<S>                                               <C>        <C>     <C>      <C>      <C>
Non-performing Loans to Loans Receivable(1)       0.16%     0.17%    0.42%    0.90%    0.91%
Non-performing Assets to Total Assets(2)          0.17%     0.19%    0.40%    0.84%    0.95%
Loan Loss Allowances to Non-performing
  Loans(3)..........................           1122.71%  1132.19%  509.74%  242.09%  193.38%
General Loss Allowances to Assets
  with Loss Exposure(4).............              1.70%     1.81%    2.15%    2.26%    1.86%
General Loss Allowances to Total Assets with
  Loss Exposure(5)..................              1.94%     2.06%    2.41%    2.51%    2.12%
</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 with full or limited recourse. Non-performing loans are
before deducting specific 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.


                                        33
<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>
                                                           Non-Performing Assets
                                                                 December 31,
                                2001            2000           1999             1998           1997
                             $        %      $       %       $        %       $       %       $        %
                                                          (Dollars In Thousands)
<S>                         <C>      <C>    <C>     <C>     <C>      <C>     <C>     <C>     <C>      <C>
Real Estate Owned:
Single Family.....          $1,671   21.08% $2,507  30.21%  $1,069   6.93%   $3,946  12.84%  $5,806   14.66%
Multi-Family......             164    2.06       -      -    1,483   9.62     1,309   4.26    4,034   10.19
Commercial and Industrial        -       -       -      -        -      -         -      -      826    2.09
Less:  General Valuation
   Allowance......            (350)  (4.41)   (350) (4.22)    (350) (2.27)     (500) (1.63)    (500)  (1.26)
Other.............               -       -       -      -        -     -         -      -        52     .13
Total Real Estate
 Owned............           1,485   18.73   2,157  25.99    2,202  14.28     4,755   15.47   10,218  25.81
Non-Performing Loans:
Single Family.....           6,062   76.46   5,603  67.51    9,626  62.41    12,270   39.92   16,799  42.43
Multi-Family......             422    5.32     662   7.98    3,995  25.90    13,005   42.31   15,785  39.86
Commercial and Industrial        -       -       -      -      225   1.46     4,040   13.14    1,533   3.87
Other.............              16     .21       -      -        -      -         -       -        -      -
Less Valuation
 Allowances.......             (57)   (.72)   (123) (1.48)    (625) (4.05)   (3,332) (10.84)  (4,738)(11.97)
Total Non-Performing
 Loans............           6,443   81.27   6,142  74.01   13,221  85.72    25,983   84.53   29,379  74.19
Total.............          $7,928  100.00% $8,299 100.00% $15,423 100.00%  $30,738  100.00% $39,597 100.00%
Ratio of Non-Performing
 Assets To Total Assets:              0.17%          0.19%           0.40%             0.84%           0.95%
</TABLE>

     The decrease in  non-performing  loans for the last several years is due to
reductions  in  delinquent  loans  and  non-performing  loans  due to  continued
strength 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 $7.4 million, $8.8 million and $11.4 million, net of
related allowances of $1.9 million, $1.8 million and $2.6 million as of December
31, 2001, 2000 and 1999,  respectively.  See "Business - Non-accrual,  Past Due,
Impaired and Restructured Loans" for further discussion of impaired loans.

     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,
2001,  the Bank had  modified  loans  totaling  $7.4  million,  net of loan loss
allowances  of $1.9  million.  This compares with $9.6 million and $7.4 million,
net of allowances,  as of December 31, 2000 and December 31, 1999  respectively.
Modified loans included as impaired loans totaled $6.4 million, $8.8 million and
$6.5 million,  net of valuation  allowances,  as of December 31, 2001,  2000 and
1999,  respectively.  No modified  loans were 90 days or more  delinquent  as of
December 31, 2001, 2000 or 1999.

                                         34
<PAGE>

                        CAPITAL RESOURCES AND LIQUIDITY

Liquidity Requirements

     In July,  2001,  the OTS removed  the  regulation  that  required a savings
institution  to maintain an average  daily  balance of liquid assets of at least
four percent of its liquidity base, and retained a provision requiring a savings
institution  to  maintain  sufficient  liquidity  to  ensure  its safe and sound
operation.  The  determination  of what constitutes safe and sound operation was
left to the discretion of management.

     For several  years it has been the Bank's  strategy to keep cash and liquid
investments at a modest level due to availability  of substantial  credit lines.
After the repeal of the liquidity  regulation,  the Bank's  liquidity policy was
modified to include  unused  borrowing  capacity in the  definition of available
liquidity.  The Bank's  current  liquidity  policy  requires  that cash and cash
equivalents,  short-term investments and excess borrowing capacity be maintained
at a minimum level of 10% of the Bank's  liquidity base (defined as deposits and
borrowings  due within one year.) As of December 31, 2001,  liquidity-qualifying
balances were 27.5% of the Bank's liquidity base.

 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 the last  three  years 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 $356.8
million at December 31, 2001.  This  compares to $381.2  million at December 31,
2000 and $445.9 million at December 31, 1999.

     Deposits at retail savings  offices were $2.1 billion at December 31, 2001,
$1.7  billion  as of  December  31,  2000 and $1.6  billion  at  December  1999.
Management  attributes the increase in retail  deposits during 2001 to increased
deposits from stock market investors wanting more security for their investments
due to  variability  in the stock market.  Additionally,  the Bank acquired four
retail offices with deposits  totaling $174.8 million as part of the purchase of
two small banks on November 30, 2001. As of December 31, 2001, deposits at these
acquired branches totaled $174.4 million.

     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
increased by 105% to $100.7 million at the end of 2001. This compares with $49.1
million at the end of 2000 and $84.5  million  at the end of 1999.  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 28% to $211.0 million at
the end of 2001 from $294.1 million at the end of 2000 and $363.6 million at the
end of 1999.  Borrowings under reverse repurchase agreements have decreased over
the last three years due to prepayments of the underlying  collateral.  The Bank
has not securitized any mortgage loans for use in collateralized  borrowings for
several years.

     FHLB  advances  remained  flat at $1.6  billion at the end of 2001 and 2000
compared to and $1.2 billion at the end of 1999.  FHLB  advances  were often the
lowest  cost  source  funds  available  to the Bank.  Due to high levels of loan
payoffs and the growth in retail branch deposits,  no additional borrowings were
required to fund asset growth during 2001.

     Loan sales were $61.2 million in 2001. This compares to $9.5 million during
2000 and $133.0 million during 1999. Loan sales increased during 2001 due to the
increased  demand for 30-year and 15-year  fixed rate  mortgages  which are only
originated by the Bank for sale.

                                           35
<PAGE>

Internal Sources of Funds

     Internal sources of funds include scheduled loan principal  payments,  loan
payoffs,  and positive cash flows from operations.  Principal payments were $1.3
billion in 2001 compared to $560.5  million in 2000 and $670.5  million in 1999.
Principal  payments include both amortization and prepayments and are a function
of real estate activity and the general level of interest rates. The increase in
prepayments  during 2001 was due to the low level of interest rates available on
30-year and 15-year  fixed rate loans  available to  customers.  The decrease in
prepayments  during  2000  compared to 1999 is due to higher  interest  rates on
fixed rate loans that decreased  refinancing  activity.  Prepayment activity was
very high 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.


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, 2001
                                              Amount          %
                                              (Dollars In Thousands)

   Core capital requirement.........       $ 235,391         5.00%
   Bank's core capital..............         302,448         6.42
     Excess core capital............       $  67,057         1.42%

   Tier 1 risk-based capital requirement   $ 161,388         6.00%
   Bank's tier 1 risk-based capital.         302,448        11.24
     Excess tier 1 risk-based capital      $ 141,060         5.24%

   Risk-based capital requirement...       $ 268,980        10.00%
   Bank's risk-based capital........         336,556        12.51
     Excess risk-based capital......       $  67,576         2.51%


                                         36
<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
originates  adjustable  rate loans with initial fixed interest rates for 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 unmatched
fixed rate loans in its portfolio up to 5%of total assets.

     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.  These  mortgages  constitute  over  67% of the  loan
portfolio at the end of 2001.  Comparisons over the last several years show that
a change 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  that are subject to repricing are considered  rate
sensitive.  The  mis-match  in  the  repricing  of  rate  sensitive  assets  and
liabilities  is  referred  to as a  company's  "GAP."  The  GAP is  positive  if
rate-sensitive assets exceed rate-sensitive  liabilities.  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, 2001, the Company's  one-year GAP was a
negative $288.7 million or 6.1% of total assets. This compares with positive GAP
ratios of 11.8% and 2.81% of total  assets at December 31, 2000 and December 31,
1999,  respectively.  The change from a positive  GAP ratio at December 31, 2000
reflects  the increase in  adjustable  rate loans with  initial  fixed  interest
periods which do not reprice within the first year. The Bank has also lengthened
the  maturities  of its  borrowings,  but not to the same extent due to the high
level of payoffs anticipated within the next year.

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

     The  following  table  shows the  estimated  impact of a parallel  shift in
interest rates on the Bank's  portfolio  value at December 31, 2001 and December
31, 2000:
                                    Percentage
            Change in Interest Rates   Change in Net Portfolio Value(1)
             (In Basis Points)            2001           2000
                   +300................   (16)%           (8)%
                   +200................   (11)%           (4)%
                   +100................    (6)%           (2)%
                   --100...............     6%            (2)%
                   --200...............     -%(2)         (4)%
                   --300...............     -%(2)         (2)%

(1)   The  percentage  change  represents  the  projected  change  in the  net
      portfolio  value  of the  Bank in a  stable  interest  rate  environment
      versus the net portfolio  value in the various rate  scenarios.  The OTS
      defines  net  portfolio  value as the  present  value of  expected  cash
      flows from  existing  assets  minus the present  value of expected  cash
      flows from existing liabilities.
(2)   A  downward  shift in  interest  rates of 200 basis  points or 300
      basis  points from the December 31, 2001 levels would result in negative
      interest  rates in many cases.  Therefore,  modeling  the impact of such
<PAGE>
      declines as of December 31, 2001 is not meaningful or practical.

                                          37

     The percentage  change in net portfolio value is affected by many different
factors.  While the Bank's  approach to interest  rate risk  management  has not
changed  significantly  since 2000,  a  combination  of factors  resulted in net
portfolio  values as of December 31, 2001 that were  different  from those as of
December 31, 2000. The net portfolio  value was affected by lower interest rates
at  December  31, 2001  compared to December  31,  2000.  In a  decreasing  rate
scenario,  interest  rates on certain  loans  within the Bank's  loan  portfolio
reached  lifetime  floors.  Additionally,  interest  rates  on  interest-bearing
checking  deposits and passbook accounts reached very low levels from which they
could not drop farther.

     The following chart shows the interest  sensitivity of the Company's assets
and  liabilities by repricing  period at December 31, 2001 and the  consolidated
GAP position as a percentage of total assets at that time:
<TABLE>
                                                        INTEREST-SENSITIVITY GAP

                                                Balances    Balances        Balances        Balances
                                                Repricing   Repricing       Repricing       Repricing
                                    Total       Within      Within          Within          After
                                    Balance     0-12 Months 1-3 Years       4-10            10 Years
                                                         (Dollars In Thousands)
<S>                                 <C>         <C>         <C>             <C>             <C>
Interest-Earning Assets:
  FHLB Interest Bearing Deposits    $   18,814  $   18,814  $        -      $         -     $        -
  Overnight Investments......          123,000     123,000           -                -              -
    Investment Securities....          110,444      42,863      33,634           33,947              -
  Mortgage-backed Securities.          284,079     283,353         480              222             24
  Loans Receivable...........        4,004,890   2,914,676     712,458          372,996          4,760
     Total Interest-Earning

      Assets.................       $4,541,227  $3,382,706  $  746,572      $   407,165     $    4,784

Interest-Bearing Liabilities:
   Demand Accounts...........       $1,214,372  $1,214,372  $        -      $         -     $        -
   Fixed Rate Term Certificate       1,332,275   1,260,976      58,496           11,800          1,003
   Borrowings:
     FHLB Advances...........        1,597,000     985,000     347,000          265,000              -
     Reverse Repurchase
            Agreements.......          211,040     211,040           -                -              -
     Other Borrowings........                -           -           -                -              -
           Total Interest-Bearing
           Liabilities.......       $4,354,687  $3,671,388  $  405,496      $   276,800     $    1,003

Interest-Sensitivity Gap.....       $  188,540  $ (288,682) $  341,076      $   130,365     $    3,781
         ....................
Interest-Sensitivity Gap as a
  Percentage of Total Assets.                       (6.11)%       7.22%            2.76%         0.08%

Cumulative Interest-Sensitivity Gap            $ (288,682)  $   52,394      $   182,759     $  186,540

Cumulative Interest-Sensitivity
  Gap as a Percentage of Total
   Assets....................                       (6.11)%       1.11%            3.87%          3.95%

</TABLE>
                                              38
<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, 2001
categorized  by type and  expected  maturity for each of the next five years and
thereafter:
<TABLE>
                                                          Expected  Maturity  Date  as  of
                                                                   December 31, (1)

                                                                              There-    Total       Fair
                          2002        2003      2004       2005     2006      after     Balance     Value
                                                              (Dollars In Thousands)
<S>                       <C>         <C>       <C>        <C>      <C>       <C>       <C>         <C>
Interest Earning Assets
Loans Receivable:
Adjustable Rate Loans:
 Single family            $  578,695  $505,385  $372,304  $239,042  $148,380  $247,492  $2,091,298  $2,119,245
   Average interest rate        6.76%     6.79%     6.79%     6.79%     6.79%     6.79%       6.78%
Multi-family                 317,605   286,382   244,202   176,607   192,950   295,331   1,513,077   1,540,775
   Average interest rate        6.68%     6.72%     6.71%     6.72%     6.88%     6.65%       6.72%
Commercial  and Industrial    61,420    65,195    58,953    42,517    46,401    60,759     335,245     347,592
   Average interest rate       7.36%      7.42%     7.26%     7.50%     7.60%     7.42%       7.46%
Fixed Rate Loans:
 Single family                8,452      6,295     4,573     2,903     1,794     2,842      26,859      27,579
   Average interest rate       7.90%      7.57%     7.34%     7.31%     7.30%     7.28%       7.56%
Multi-family                  3,489      3,777     2,873     2,122     3,384     2,071      17,716      18,520
   Average interest rate       8.33%      8.14%     7.93%     7.90%     7.55%     7.93%       7.98%
Commercial and Industrial     5,499      5,315     5,375     2,582     3,510     3,857      26,138      27,653
   Average interest rate       8.67%      8.50%     8.39%     8.31%     8.05%     8.46%       8.43%
Commercial Business Loans     4,534      4,816     5,114     3,950       468         -      18,882      18,992
Average interest rate          6.03%      6.03%     6.03%     6.03%     6.03%        -        6.03%
Construction Loans           17,506     18,911     1,643         -         -         -      38,060      38,571
Average interest rate          7.75%      7.75%     7.75%        -         -         -        7.75%
Consumer loans               18,421      1,668        65        70        76       497      20,797      21,206
    Average interest rate      5.90%      5.98%     8.12%     8.12%     8.12%     8.12%       5.98%
Mortgage-backed
 Securities:
 Adjustable                  91,993     62,365    42,205    28,504    19,211    38,546     282,824     282,824
   Average interest rate       4.97%      4.97%     4.97%     4.97%     4.97%     4.97%       4.97%
Fixed                           490        312       196       119        71        67       1,255       1,255
    Average interest rate      8.00%      8.00%     8.00%     8.00%     8.00%     8.00%       8.00%
Investment Securities,
  Overnight Investments &
  Interest-Bearing Deposits  186,223     15,424   16,402     17,441    16,768         -     252,258    252,258
Average interest rate           2.64%      6.16%    6.16%      6.16%    6.15%         -        3.56%
Total Interest-Earning
   Assets                 $1,293,779   $975,013 $753,296   $515,399  $432,666  $651,027  $4,621,180 $4,577,669
Interest-Bearing Liabilities
Deposits:
Checking Accounts         $  365,790   $      - $      -   $      -  $      -  $      -  $  367,906 $  367,906
   Average interest rate        0.30%         -        -          -         -         -        0.30%
Savings Accounts             848,582          -        -          -         -         -     846,466    846,466
   Average interest rate        2.64%         -        -          -         -         -        2.64%
Certificate Accounts       1,260,976     40,371   18,125       8,768     2,361     1,674  1,332,275  1,347,368
   Average interest rate        3.88%      4.66%   5.02%       6.04%     4.70%     4.48%       3.93%
Borrowings:
 FHLB Advances                985,000    62,000  285,000     55,000   175,000    35,000   1,597,000  1,636,275
   Average interest rate         4.86%     6.24%    4.74%      5.54%     5.57%     5.88%       5.01%
Reverse repurchase
  agreements                  211,040         -        -          -         -         -     211,040    210,921
   Average interest rate         2.66%        -        -          -         -         -        2.66%
Total Interest-Earning
   Liabilities             $3,671,388  $102,371 $303,125    $63,768  $177,361  $ 36,674  $4,354,687 $4,408,936
</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 36% for
 the single family  portfolio and 24% for its multi-family and commercial real
 estate   portfolios.   The  Bank  used  estimated  deposit  runoff  based  on
 available industry information.


                                            39

<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.

     As of February 5, 2002, there remain 889,016 shares eligible for repurchase
under the Company's stock repurchase  program. No shares were repurchased during
2001 or 2002. The Company  repurchased 821,500 shares of its common stock during
2000 and 3,298,150 shares of its common stock during 1999.


                             PRICE RANGE OF COMMON STOCK

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

2001       $32.06 $26.25  $31.00    $28.00  $36.30   $24.00  $25.95  $21.90
2000        16.63  11.88   14.56     11.69   23.00    14.06   33.13   21.31
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

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


                             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.

     Investors  should  carefully  consider  the risks in an  evaluation  of the
Company and its common stock. The risks 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.

                                         40
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   (Dollars in thousands, except share data)

                                               December 31,       December 31,
ASSETS                                               2001              2000

Cash and cash equivalents                       $  174,171          $  77,677
Investment securities, available-for-sale
  (at fair value)  (Note 2)                        110,444            136,537
Mortgage-backed securities, available-for-sale
  (at fair value;$224,114 and $308,836 pledged)
  (Notes 3 and 10)                                 284,079            374,405
Loans receivable, held-for-sale (fair value of
  $5,246 and $2,246) (Note 4)                        5,246              2,246
Loans receivable, net (Notes 4 and 9)            3,999,643          3,627,038
Accrued interest and dividends receivable           22,076             28,488
Real estate (Note 5)                                 1,515              2,189
Office properties and equipment, net (Note 6)       10,822             10,651
Investment in Federal Home Loan Bank
 (FHLB) stock, at cost (Notes 7 and 9)              91,713             80,885
Other assets  (Note 1)                              26,580             25,126
                                                $4,726,289         $4,365,242

LIABILITIES

Deposits  (Note 8)                              $2,546,647         $2,165,047
FHLB advances (Notes 7 and 9)                    1,597,000          1,579,000
Securities sold under agreements to repurchase
  (Note 10)                                        211,040            294,110
Accrued expenses and other liabilities              45,924             59,643
                                                 4,400,611          4,097,800
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 23,362,196
 and 23,299,707 shares, outstanding
 17,251,300 and 17,232,217 shares                      234                233
Additional paid-in capital                          34,670             32,540
Retained earnings - substantially restricted       363,713            313,411
Unreleased shares to employee stock
  ownership plan                                         -               (841)
Treasury stock, at cost, 6,110,896 shares and
 6,067,490 shares                                  (75,930)           (75,743)
Accumulated other comprehensive
 earnings (loss), net of taxes                       2,991             (2,158)
                                                   325,678            267,442
                                               $ 4,726,289        $ 4,365,242

See accompanying notes to consolidated financial statements.


                                          41
<PAGE>
<TABLE>
                          FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
                       YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                      (Dollars In Thousands, Except Per Share Data)

                                              2001          2000         1999
<S>                                        <C>           <C>          <C>
Interest income:
 Interest on loans.....................    $298,942      $274,720     $216,634
 Interest on mortgage-backed securities      19,803        24,448       28,700
 Interest and dividends on investments.      15,187        15,152       14,667
    Total interest income .............     333,932       314,320      260,001
Interest expense:
  Interest on deposits (Note 8) .......      94,568       100,174       87,199
  Interest on borrowings (Notes 9 and 10)   107,186       106,331       73,832
    Total interest expense ............     201,754       206,505      161,031

Net interest income ...................     132,178       107,815       98,970
 Provision for loan losses (Note 4) ...           -             -            -
Net interest income after provision for
  loan losses..............                 132,178       107,815       98,970
Other income:
  Loan servicing and other fees .......       3,319         2,804        4,204
  Gain on sale of loans................         656            64        1,221
  Real estate operations, net .........         304           594        3,217
  Other operating income...............       4,640         4,285        4,046
    Total other income  ...............       8,919         7,747       12,688

Non-interest expense:
  Salaries and employee benefits (Note 13)   29,682        26,444       26,664
  Occupancy (Note 6) ..................       8,302         8,031        7,859
  Advertising  ........................       1,800         1,417        1,864
  Federal deposit insurance  ..........         418           538        1,236
  Other operating expense .............      12,972        11,835       11,536
    Total non-interest expense  .......      53,174        48,265       49,159

Earnings before income taxes and
 extraordinary item                          87,923        67,297       62,499
Income taxes  (Note 11) ...............      37,621        28,832       27,052
Earnings before extraordinary item ....      50,302        38,465       35,447

Extraordinary item:
     Loss on early extinguishment  of debt,
     net of taxes.......................          -             -       (2,195)
Net earnings...........................   $  50,302     $  38,465    $  33,252
Other comprehensive earnings (loss):
  Unrealized gain (loss) on mortgage-backed-
  securities and securities
  available-for-sale, net of taxes.....       5,149         6,122       (7,577)
Comprehensive earnings.................     $55,451     $  44,587    $  25,675

Earnings per share  (Notes 12 and 15):
   Basic EPS before extraordinary  item     $  2.92     $    2.23    $    1.84
   Extraordinary  item     ............           -             -         (.11)
   Basic EPS after extraordinary  item.     $  2.92     $    2.23    $    1.73

   Diluted EPS before extraordinary  item   $  2.85     $    2.20    $    1.83
   Extraordinary  item     ............           -             -         (.12)
   Diluted EPS after extraordinary  item    $  2.85     $    2.20    $    1.71
</TABLE>
 See accompanying notes to consolidated financial statements.


                                            42
<PAGE>
<TABLE>
                   FIRSTFED FINANCIAL CORP.  AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                            (Dollars In Thousands)


                                                                                                 Accumulated
                                                                                                     Other
                                                           Retained                             Comprehensive
                                                           Earnings     Unreleased             Earnings(Loss),
                                                            (Sub-        Shares to                Net of
                                             Additional   stantially       ESOP                   Taxes
                                   Common    Paid-In      Restricted)   (Notes 12    Treasury    (Notes 2
                                     Stock    Capital      (Note 12)       and 13)     Stock         and 3)    Total
<S>                                <C>       <C>          <C>           <C>          <C>        <C>            <C>


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 unreleased shares
 to the ESOP...............            -            -            -           (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

Exercise of employee stock options     -          793            -              -            -         -            793
Net decrease in unreleased shares
 to the ESOP...............            -          186            -            918            -         -          1,104
Unrealized gain on securities
 available-for-sale, net of taxes      -            -            -              -            -     6,122          6,122
Common stock repurchased
  (821,500) shares.........            -            -            -              -      (10,175)        -        (10,175)
Net earnings 2000..........            -            -       38,465              -            -         -         38,465
Balance, December 31, 2000.          233       32,540      313,411           (841)     (75,743)   (2,158)       267,442

Exercise of employee stock options     1          764            -              -            -         -            765
Net decrease in unreleased shares
 to the ESOP...............            -        1,179            -            841            -         -          2,020
Unrealized gain on securities
 available-for-sale, net of taxes      -           -             -              -            -      5,149         5,149
Restricted common stock forfeited      -         187             -              -         (187)         -             -
Net earnings 2001..........            -           -        50,302              -            -          -        50,302
Balance, December 31, 2001.      $   234    $ 34,670      $363,713     $        -    $ (75,930)  $  2,991    $  325,678

</TABLE>
See accompanying notes to consolidated financial statements.



                                             43
<PAGE>
<TABLE>
                    FIRSTFED FINANCIAL CORP.  AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                           (Dollars In Thousands)
                                                            2001           2000           1999
<S>                                                     <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings........................                    $   50,302      $   38,465     $   33,252
Adjustments to reconcile net earnings to
 net cash provided by operating activities:
  Net change in loans held-for-sale.                        (3,000)             57         14,147
  Depreciation and amortization.....                         1,919           1,874          2,193
  Provision (benefit) for losses on real estate owned            -               -            (54)
  Valuation adjustments on real estate sold                   (525)           (491)        (2,542)
  Amortization of fees and discounts                         5,913           1,703           (597)
  Decrease in servicing asset.......                           375             905            318
  Change in taxes payable...........                        (1,738)           (323)        (1,643)
  Increase (decrease) in tax interest accrual                  300            (350)          (150)
  (Increase) decrease in interest and dividends
   receivable.......................                         7,392          (6,663)         1,651
  Increase (decrease) in interest payable                  (13,855)         11,298         (6,819)
  Amortization of core deposit intangible asset              1,564           1,964            452
  Increase in other assets..........                        (5,505)         (5,179)        (2,767)
  Increase (decrease) in accrued expenses and
   other liabilities................                        (1,875)            675         (2,074)
   Total adjustments................                        (9,035)          5,470          2,115
    Net cash and cash equivalents
       provided by operating activities                     41,267          43,935         35,367

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal collections
 on loans...........................                       (96,132)       (434,026)      (149,842)
Loans repurchased under recourse arrangements                    -            (240)        (1,242)
Loans purchased.....................                      (132,625)        (14,077)      (121,522)
Proceeds from sales of real estate owned                     4,968           5,290         15,980
Proceeds from maturities and principal payments
 of investment securities available-for-sale                48,962          20,589          6,809
Principal reductions of mortgage-backed
 securities available-for-sale......                        96,770          62,332        117,440
Purchases of investment securities
 available-for-sale.................                       (19,964)         (3,547)       (96,300)
Redemption (purchase) of FHLB stock.                        (4,025)         (4,079)         4,823
Other...............................                        (4,105)         (1,205)        (5,536)
Net cash from acquisitions..........                        17,680          32,866              -
        Net cash and cash equivalents
           used by investing activities                    (88,471)       (336,097)      (229,390)

  CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits.                       206,824         (64,767)       (74,552)
Net increase (decrease) in short term borrowings           (65,070)        340,475        347,463
Repayment of long-term borrowings...                             -               -        (50,000)
Purchases of treasury stock.........                             -         (10,175)       (52,214)
Other...............................                         1,944           2,499         (1,147)
    Net cash and cash equivalents
       provided by financing activities                    143,698         268,032        169,550
Net decrease in cash and cash
 equivalents........................                        96,494         (24,130)       (24,473)
Cash and cash equivalents at beginning of year              77,677         101,807        126,280
Cash and cash equivalents at end of year               $   174,171      $   77,677     $  101,807
</TABLE>

See accompanying notes to consolidated financial statements.


                                           44
<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
Accounting  Principles  Generally  Accepted  in the  United  States  of  America
("GAAP")  requires  management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  at the  date of the  financial  statements  and  the  reported
operations of the Company for the periods  presented.  Actual results may differ
from those estimates calculated by management.

 Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its  subsidiary,  the  Bank.  The Bank  maintains  29  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
1999 and 2000,  consolidated  financial  statements  have been  reclassified  to
conform to the 2001 presentation.

     First Federal Bank acquired the assets and  liabilities  of Del Amo Savings
Bank and Frontier State Bank as of November 30, 2001.  The financial  results of
the acquired entities since the date of acquisition have been included herein.

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

     GAAP requires the  disclosure  of the fair value of financial  instruments,
whether or not recognized on the Statement of Financial  Condition,  whenever 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.


                                           45
<PAGE>

(1) Summary of Significant Accounting Policies (continued)

 Interest Rate Risk

     Financial  instruments are subject to interest rate risk to the extent that
they  reprice on a frequency,  degree or basis that varies from market  pricing.
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 all of its investments and  mortgage-backed  securities
as "available-for-sale" based upon a determination that such securities might be
sold at a future date or that there may be foreseeable circumstances under which
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, 2001 or 2000.


                                        46
<PAGE>
(1) Summary of Significant Accounting Policies (continued)


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.

     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.

     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.  Loans are returned to accrual status only when the ultimate
collectibility of current interest is no longer in doubt.


                                         47

<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 not allocated 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, 2001 and 2000. 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 during 2001, 2000 or 1999.

     Servicing  assets  arising  from the sale of loans  are  included  in other
assets  and were  $1,087,000  and  $1,462,000  at  December  31,  2001 and 2000,
respectively.  No additional  servicing  assets were  recorded in 2001,  2000 or
1999.

Core Deposit Intangible

     Loans, deposits and other assets and liabilities assumed in connection with
acquisitions  are accounted for under the purchase method of accounting.  Assets
and  liabilities  are  recorded  at  their  fair  values  as of the  date of the
acquisition  and the excess cost over fair values of the assets and  liabilities
is  classified  as goodwill or a core deposit  intangible  asset.  This asset is
being amortized over its estimated useful life.


                                          48
<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 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.

Securities Sold Under Agreements to Repurchase

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

 Income Taxes

     The Company files a  consolidated  federal income tax return and a combined
California  franchise  tax report with 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.

Cash Flows

     Cash and cash equivalents  include  short-term,  highly liquid  investments
that generally have an original maturity date of three months or less.  Non-cash
investing  transactions  during 2001 include the  acquisition of $158,654,000 of
loans and other assets and the assumption of  $176,334,000 in deposits and other
liabilities and the recognition of $3,573,000 of intangible  assets. A net total
of $17,680,000 in cash was received in the acquisition of two small banks during
2001.  Non-cash  investing  transactions  during 2000 include the acquisition of
$125,171,000  of loans and the  assumption of  $168,457,000  in deposits and the
recognition of $10,420,000 of intangible  assets.  A net total of $32,866,000 in
cash was received related to the acquisition of certain branches during 2000.


                                         49
<PAGE>

(1)   Summary of Significant Accounting Policies (continued)


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.

Comprehensive Earnings

     GAAP establishes  standards for reporting and presentation of comprehensive
earnings 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.

Segment Information and Disclosures

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

Derivative Instruments

     The Company accounts for derivative instruments in accordance with SFAS No.
133,   "Accounting  for  Derivative   Instruments  and  Hedging  Activities."  A
derivative  is  considered  either an asset or  liability  in the  statement  of
financial condition and measured at fair value. If a derivative is designated as
a hedging  instrument the changes in fair value of the derivative are either (a)
recognized in earnings in the period of change together with the offsetting gain
or loss on the hedged item or (b) reported as a component of other comprehensive
earnings  and  subsequently  reclassified  into  earnings  when  the  forecasted
transaction  affects  earnings.  For a derivative  not  designated  as a hedging
instrument,  changes in fair value are  recognized  in earnings in the period of
change. As of December 31, 2001, the Company has  approximately  $9.3 million of
commitments to originate  loans,  which will be held for sale and  approximately
$6.0 million of loan sale commitments that qualify as derivatives under SFAS No.
133. The commitments are recorded at fair value at December 31, 2001.

Recent Accounting Pronouncements

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 141, Business Combinations ("SFAS No. 141") and Statement No. 142,
Goodwill and Other  Intangible  Assets ("SFAS No.  142").  SFAS No. 141 requires
that the purchase  method of  accounting  be used for all business  combinations
initiated  after  June 30,  2001.  SFAS No.  141 also  applies  to all  business
combinations  using the purchase method  completed after June 30, 2001. SFAS No.
141 specifies the criteria that intangible  assets acquired in a purchase method
business combination must meet in order to be recognized and reported apart from
goodwill.  SFAS No. 142  requires  that  goodwill  and  intangible  assets  with
indefinite  useful  lives  no  longer  be  amortized,  but  instead  tested  for
impairment at least annually in accordance  with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their residual values,
and reviewed for impairment in accordance  with SFAS No.121,  Accounting for the
Impairment of Long-Lived Assets and for long-lived Assets to be Disposed Of.

                                         50
<PAGE>

     The  Company  was  required  to  adopt  the  provisions  of  SFAS  No.  141
immediately and SFAS No. 142 effective January 1, 2002. As of December 31, 2001,
the  Company  has no  assets  to be  classified  as  goodwill  under  these  new
pronouncements. All assets and liabilities acquired in the purchase of two small
banks were deemed to be at fair value  except for the retail  savings  deposits.
The Company recorded $3,573,000 in core deposit intangible assets related to the
acquisition of the retail savings  deposits during 2001. Under the provisions of
SFAS No. 142, the Company expects to continue amortizing these intangible assets
over their  estimated  useful lives.  Amortization  of the Company's  total core
deposit  intangible  assets was  $1,564,000  and  $1,965,000 for the years ended
December 31, 2001 and 2000,  respectively.  Total core deposit intangible assets
were  $11,312,000 and $9,304,000 for the years ended December 31, 2001 and 2000,
respectively.

     On October 3, 2001, the Financial  Accounting  Standards Board (FASB or the
Board)  issued  FASB  Statement  No.  144 (SFAS  No.  144),  Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets,   which  addresses   financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
While SFAS No. 144  supersedes  FASB  Statement  No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", it
retains many of the fundamental  provisions of that statement.  The statement is
effective for fiscal years beginning after December 15, 2001 and must be adopted
as of the  beginning  of  the  fiscal  year.  Management  does  not  expect  the
implementation  of SFAS  No.  144 to have a  material  impact  on the  Company's
consolidated financial statements.

                                          51
<PAGE>
(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
$123,000,000 and $33,000,000 in agreements to resell  securities at December 31,
2001 and 2000,  respectively,  which are classified as cash and cash equivalents
in the accompanying  Consolidated Statements of Financial Condition.  Securities
purchased under agreements to resell averaged  $62,860,000 and $5,333,000 during
2001 and 2000, and the maximum amounts  outstanding at any month end during 2001
and 2000 were $123,000,000 and $33,000,000 respectively.

     The Bank also had  overnight  deposits on hand with the  Federal  Home Loan
Bank of San Francisco which totaled  $18,814,000 and $15,245,000,  respectively,
as of December 31, 2001 and December 31, 2000.

     Investment securities,  available-for-sale,  are recorded at fair value and
summarized below for the periods indicated:

                                                     2001
                                         Gross                     Gross
                               Historical  Unrealized    Unrealized     Fair
                                 Cost        Gains         Losses       Value
                                           (Dollars In Thousands)
United States Government
  and federal agency
  obligations...........      $  28,499    $       3     $      (34)   $ 28,468
Collateralized
  Mortgage Obligations..         80,013        1,973            (10)     81,976
                               $108,512       $1,976     $      (44)   $110,444

                                                     2000
                                         Gross                     Gross
                               Historical  Unrealized    Unrealized      Fair
                                 Cost         Gains        Losses        Value
                                           (Dollars In Thousands)
United States Government
  and federal agency
  obligations...........       $   38,485  $       3     $     (424)   $ 38,064
Collateralized
  Mortgage Obligations..           98,562        254           (343)     98,473
                                 $137,047  $     257     $     (767)   $136,537

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

                                                2001
                                         Gross                     Gross
                               Historical  Unrealized     Unrealized     Fair
                                  Cost       Gains          Losses       Value
                                      (Dollars In Thousands)
Maturing within 1 year..       $ 28,499    $      3      $     (34)    $ 28,468
                               $ 28,499    $      3      $     (34)    $ 28,468

     Collateralized  Mortgage  Obligations  as of  December  31,  2001  all have
expected  maturities  within  five  years.  There  were no sales  of  investment
securities  during  2001,  2000 or 1999.  Accrued  interest on  investments  was
$1,275,000 and $1,257,000 at December 31, 2001 and 2000, respectively.


                                          52
<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:

                                                    2001
                                         Gross                  Gross
                               Historical  Unrealized   Unrealized     Fair
                                  Cost       Gains        Losses       Value
                                            (Dollars In Thousands)

         FNMA...........      $   11,657   $     173    $       -      $ 11,830
         FHLMC..........         269,195       3,054            -       272,249
         Total..........      $  280,852   $   3,227    $       -      $284,079



                                                   2000
                                         Gross                   Gross
                               Historical  Unrealized    Unrealized     Fair
                                 Cost        Gains       Losses         Value
                                           (Dollars In Thousands)

         FNMA...........      $   14,234   $      17    $     (99)     $ 14,152
         FHLMC..........         363,386          21       (3,154)      360,253
         Total..........      $  377,620   $      38    $  (3,253)     $374,405


     There were no  mortgage-backed  securities created with loans originated by
the  Bank in  2001,  2000  or  1999.  There  were no  sales  of  mortgage-backed
securities during 2001, 2000 or 1999.

     Accrued  interest   receivable   related  to   mortgage-backed   securities
outstanding  at December 31, 2001 and 2000  totaled  $2,461,000  and  $4,945,000
respectively.

                                           53
<PAGE>

(4)  Loans Receivable

      Loans receivable are summarized as follows:
                                                2001         2000
                                              (Dollars In Thousands)
Real estate loans:
  First trust deed residential loans:
    One to four units..........             $2,121,899   $2,158,940
    Five or more units.........              1,525,749    1,308,440
    Residential loans..........              3,647,648    3,467,380
  Other real estate loans:
    Commercial and industrial..                358,159      217,619
    Construction...............                 38,060            -
    Land.......................                  1,481            -
    Second trust deeds.........                  9,472        8,543
 Real estate loans.............              4,054,820    3,693,542
Non-real estate loans:
  Manufactured housing.........                      -          391
  Deposit accounts.............                  1,267          576
  Commercial business loans....                 18,882       12,600
  Consumer.....................                 19,546        6,555
      Loans receivable.........              4,094,515    3,713,664
Less:
  General loan valuation allowance              72,919       70,809
  Valuation allowances for impaired loans        1,850        1,792
  Unearned loan fees...........                 14,857       11,779
      Subtotal.................              4,004,889    3,629,284
Less:
  Loans held-for-sale..........                  5,246        2,246
      Loans receivable, net....              $3,999,643  $3,627,038

     Loans  serviced  for  others   totaled   $257,629,000,   $322,315,000   and
$377,661,000 at December 31, 2001, 2000 and 1999, respectively.

     The Bank had outstanding  commitments to fund $105,045,000 and $150,276,000
in real estate loans at December 31,2001 and December 31, 2000, respectively. Of
these totals,  $95,770,000  and  $140,007,000  had variable  interest  rates and
$9,275,000 and $10,269,000  had fixed interest  rates.  The Bank had outstanding
commitments to sell real estate loans of $5,955,000 and $2,091,000, respectively
at December 31, 2001 and December 31, 2000, respectively.

     Accrued interest  receivable  related to loans  outstanding at December 31,
2001 and 2000 totaled $17,664,000 and $21,619,000, respectively.

     Loans  delinquent  greater than 90 days or in foreclosure  were $16,205,000
and  $6,265,000  at December  31, 2001 and 2000,  respectively,  and the related
allowances for delinquent interest were $504,000 and $511,000 respectively.

     There were no loans  originated  upon the sale of real estate  owned during
2001.  Loans  originated upon the sale of real estate owned totaled $645,000 and
$4,792,000 during 2000 and 1999, respectively.

     Loans made to directors and officers  totaled  $3,386,000 and $1,767,000 as
of December 31, 2001 and 2000, respectively.

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


                                           54
<PAGE>
4)  Loans Receivable (continued)

     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, 1998..............  $67,638    $ 7,634    $75,272
      Charge-off................................   (1,362)    (5,038)    (6,400)
      Recoveries................................    3,678          -      3,678
      Balance at December 31, 1999..............   69,954      2,596     72,550
      Charge-offs...............................   (1,443)      (804)    (2,247)
      Recoveries................................    2,298          -      2,298
      Balance at December 31, 2000..............   70,809      1,792     72,601
      Balance obtained from acquisition.........    2,050          -      2,050
      Provision for loan losses.................      (58)        58          -
      Charge-offs...............................     (369)         -       (369)
      Recoveries................................      487          -        487
      Balance at December 31, 2001..............  $72,919    $ 1,850    $74,769


     The Bank has loss exposure on certain loans sold with recourse.  The dollar
amount of loans sold with recourse  totaled  $126,432,000  and  $146,537,000  at
December  31,  2001 and  2000,  respectively.  The  maximum  potential  recourse
liability totaled  $27,274,000 and $32,177,000 at December 31, 2001 and December
31, 2000, 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 and was $12,824,000 at December
31, 2001, December 31, 2000 and December 31, 1999.

     The following is a summary of impaired loans,  net of valuation  allowances
for impairment, for the periods indicated:
                                                       2001         2000
                                                      (Dollars In Thousands)

      Non-accrual loans.........................     $    978      $     -
      Modified loans............................        6,416        8,770
                                                     $  7,394      $ 8,770

                                          55
<PAGE>
(4)  Loans Receivable (continued)


     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, 2001, the total recorded amount of
loans for which  impairment had been  recognized in accordance with SFAS No. 114
was $7,394,000 (after deducting $1,850,000 of impairment allowances attributable
to such loans).  At December 31, 2000,  the total  recorded  amount of loans for
which  impairment  had been  recognized  in  accordance  with  SFAS No.  114 was
$8,770,000 (after deducting $1,792,000 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.

     As of December 2001 and December 2000,  impaired loans totaling  $3,929,000
and $5,075,000, respectively, had no valuation allowances established.

     The average  recorded  investment in impaired  loans during the years ended
December 31, 2001,  2000 and 1999 was  $7,429,000,  $8,784,000  and  $11,448,000
respectively. The amount of interest income recognized for impaired loans during
the years ended  December 31, 2001,  2000 and 1999 was $597,000,  $706,000,  and
$1,045,000  respectively,  under the cash basis method of  accounting.  Interest
income  recognized  under the accrual basis method of  accounting  for the years
ended December 31, 2001, 2000 and 1999 totaled $587,000,  $712,000 and $997,000,
respectively.  There were no commitments to lend  additional  funds to borrowers
whose loan terms have been modified.



(5) Real Estate

      Real estate consists of the following:

                                                          2001           2000
                                                        (Dollars In Thousands)
      Real estate acquired by
      (or deed in lieu of) foreclosure ("REO")..     $  1,835        $  2,507
      Valuation allowance.......................         (350)           (350)
                                                        1,485           2,157
      Real estate held-for-investment...........           30              32
        Real estate, net........................     $  1,515        $  2,189

     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 at December 31, 1998..............     $500
      Provision for losses on REO...............      (54)
      Charge-offs...............................      (96)
      Balance at December 31, 1999..............      350
      Provision for losses on REO...............        -
      Charge-offs...............................        -
      Balance at December 31, 2000..............      350
      Provision for losses on REO...............        -
      Charge-offs...............................        -
      Balance at December 31, 2001..............     $350


                                           56
<PAGE>

 (5) Real Estate (continued)

The following table summarizes real estate operations, net:

                                                     For the Years Ended
                                                        December 31,
                                              2001          2000         1999

(Dollars In Thousands)
Net income (loss) from operations:
 Gain on sales of REO...............        $ 1,501         $ 949      $ 3,852
 Other REO operations...............         (1,197)         (355)        (635)
    Real estate operations, net ....        $   304         $ 594      $ 3,217


     The Bank acquired $5,135,000,  $5,050,000 and $10,831,000 of real estate in
settlement of loans during 2001, 2000 and 1999, respectively.

(6) Office Properties, Equipment and Lease Commitments

     Office properties and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows:
                                                       2001        2000
                                                    (Dollars In Thousands)

      Land......................................     $ 3,361     $ 3,061
      Office buildings..........................       5,615       4,603
      Furniture, fixtures and equipment.........      15,101      15,129
      Leasehold improvements....................      10,386      10,076
      Other.....................................          56          56
                                                      34,519      32,925
      Less accumulated depreciation and amortization  23,697      22,274
                                                     $10,822     $10,651

The Bank is obligated under non-cancelable  operating leases for periods ranging
from five to thirty  years.  The  leases are for  certain  of the Bank's  office
facilities.  Approximately half of the leases for office facilities contain five
and ten year renewal  options.  Minimum rental  commitments at December 31, 2001
under all non-cancelable leases are as follows (dollars in thousands):


                        2002................................   $  4,151
                        2003................................      3,857
                        2004................................      3,415
                        2005................................      3,192
                        2006................................      2,969
                        Thereafter..........................      6,212
                                                                $23,796

     Rent payments under these leases were $4,309,000, $4,278,000 and $4,055,000
for 2001,  2000 and 1999,  respectively.  Certain leases require the Bank to pay
property taxes and insurance.  Additionally, certain leases have rent escalation
clauses based on specified indices.


                                           57
<PAGE>


(7) Federal Home Loan Bank Stock

     The Bank's  investment  in FHLB  stock at  December  31,  2001 and 2000 was
$91,713,000 and  $80,885,000,  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, 2001. The Bank's  investment in
FHLB stock was pledged as collateral  for advances from the FHLB at December 31,
2001 and 2000. 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 $1,173,000 and $1,178,000 as of December
31, 2001 and December 31, 2000, respectively.

(8)  Deposits

      Deposit account balances are summarized as follows:

                                                    2001                2000
                                             Amount       %         Amount    %
                                                (Dollars In Thousands)
Variable rate non-term accounts:
  Money market deposit accounts (weighted
   average rate of 2.76% and 4.79%)        $  741,978   29%     $  537,475   25%
  Interest-bearing checking accounts
   (weighted average rate of 0.72% and
   1.22%)..........................           162,309    7         140,151    6
  Passbook accounts (weighted average
   rate of 1.59% and 2.00%)........           104,488    4          80,536    4
  Non-interest bearing checking accounts      205,597    8         176,059    8
                                            1,214,372   48         934,221   43
Fixed-rate term certificate accounts:
  Under six-month term (weighted average
   rate of 2.57% and 5.26%)........            54,626    2          61,954    3
  Six-month term (weighted average rate of
   3.29% and 6.41%)................           246,161   10         282,922   13
  Nine-month term (weighted average rate of
   3.98% and 6.74%)................           170,190    7         240,598   11
  One year to 18-month term (weighted
   average rate of 4.45% and 6.11%)           469,113   18         367,603   17
  Two year or 30-month term (weighted
    average rate of 5.38% and 5.83%)           45,993    2          31,685    2
  Over 30-month term (weighted average rate
    of 5.31% and 5.49%)............            39,938    1          31,088    1
  Negotiable certificates of $100,000 and
   greater, 30 day to one year terms (weighted
   average rate of 3.84% and 6.19%)           306,254   12         214,976   10
                                            1,332,275   52       1,230,826   57
   Total Deposits (weighted average rate of
     3.02% and 4.90%)..............        $2,546,647  100%     $2,165,047  100%


                                           58
<PAGE>
(8)  Deposits (continued)

     Certificates  of deposit,  placed  through  five major  national  brokerage
firms,  totaled  $356,819,000  and  $381,196,000  at December 31, 2001 and 2000,
respectively.

     Cash  payments  for  interest on  deposits  (including  interest  credited)
totaled  $96,482,000,  $97,624,000 and  $90,604,000  during 2001, 2000 and 1999,
respectively. Accrued interest on deposits at December 31, 2001 and 2000 totaled
$8,921,000 and  $10,834,000,  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, 2001:
<TABLE>
                       Non-Term                                          There-
                       Accounts    2002        2003     2004     2005    after     Total
                                     (Dollars In Thousands)
<S>                    <C>         <C>         <C>      <C>      <C>     <C>     <C>
Deposits at
 December 31, 2001     $1,214,372  $1,260,976  $40,371  $18,125  $8,768  $4,035  $2,546,647
Weighted average
 interest rates..            2.01%       3.88%    4.66%    5.02%   6.04%   4.61%       3.02%
</TABLE>

      Interest expense on deposits is summarized as follows:

                                                  For the Years Ended
                                             2001        2000        1999
                                                (Dollars In Thousands)

      Passbook accounts.............       $  1,443    $   1,611   $   1,618
      Money market deposits and
       interest-bearing checking accounts    24,929       24,709      17,035
      Certificate accounts..........         68,196       73,854      68,546
                                           $ 94,568    $ 100,174   $  87,199


                                          59
<PAGE>
(9)  Federal Home Loan Bank Advances

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

                                                          2001        2000
                                                        (Dollars In Thousands)
    Advances from the FHLB of San Francisco with a
     weighted average interest rate of 5.01% and 6.42%,
     respectively, secured by FHLB stock and certain
     real estate loans with unpaid principal balances of
     approximately $3.2 billion at December 31, 2001,
     advances mature through 2010........               $1,597,000  $1,579,000
                                                        $1,597,000  $1,579,000

     At December 31, 2001 and 2000,  accrued  interest  payable on FHLB advances
totaled  $219,000  and  $8,687,000,  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 50% of the Bank's assets,  as
computed for regulatory  purposes,  or approximately  $2,363,145,000 at December
31, 2001 with terms up to 30 years.


     The following is a summary of FHLB advance  maturities at December 31, 2001
(dollars in thousands):

                        2002...................$  985,000
                        2003...................    62,000
                        2004...................   285,000
                        2005...................    55,000
                        2006...................   175,000
                        2008...................    10,000
                        2009...................     5,000
                        2010...................    20,000
                                               $1,597,000

     Cash  payments for interest on  borrowings  (including  reverse  repurchase
agreements) totaled $118,194,000,  $77,621,000 and $77,372,000 during 2001, 2000
and 1999, respectively.

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


                                                Year Ended December 31,
                                               2001         2000          1999
                                                (Dollars In Thousands)
        FHLB Advances...............      $  94,506    $  85,603     $  48,077
        Reverse Repurchase Agreements        12,346       21,041        20,396
       10 Year Senior Unsecured Notes             -            -         5,459
        Other.......................            334         (313)         (100)
                                          $ 107,186    $ 106,331      $ 73,832

     Other  interest  expense in 2001,  2000 and 1999  includes  the  additional
accruals and reversals of accrued interest due to the IRS. See Note 11.


                                          60
<PAGE>

(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, 2001,  $211,040,000 in reverse  repurchase  agreements were
collateralized by  mortgage-backed  securities with principal  balances totaling
$221,618,000  and fair  values  totaling  $224,114,000.  At December  31,  2000,
$294,110,000   in  reverse   repurchase   agreements  were   collateralized   by
mortgage-backed  securities with principal  balances  totaling  $311,840,000 and
fair values totaling $308,836,000.

     The weighted average interest rates for borrowings under reverse repurchase
agreements  were 2.66% and 6.65%,  respectively,  as of  December  31,  2001 and
December 31, 2000.

     Securities sold under  agreements to repurchase  averaged  $255,747,000 and
$326,004,000  during  2001  and  2000,  respectively,  and the  maximum  amounts
outstanding  at any  month-end  during  2001  and  2000  were  $294,110,000  and
$355,995,000 respectively.


     The  following is a summary of  maturities at December 31, 2001 (dollars in
thousands):

                        Up to 30 days...........    $  19,556
                        30 to 90 days...........      102,058
                        Over 90 to 182 days.....       89,426
                                                     $211,040

     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 $1,452,000 and $4,326,000 at
December 31, 2001 and 2000, respectively.


(11)  Income Taxes

      Income taxes (benefit) consist of the following:

                                            2001          2000       1999
                                                 (Dollars In Thousands)
      Current:
        Federal.....................     $30,305      $ 20,764   $ 20,093
        State.......................       9,889         8,391      8,602
                                          40,194        29,155     28,695
      Deferred:
        Federal.....................      (2,492)          722       (456)
        State.......................         (81)       (1,045)    (1,187)
                                          (2,573)         (323)    (1,643)
      Total:
        Federal.....................      27,813        21,486     19,637
        State.......................       9,808         7,346      7,415
                                         $37,621       $28,832    $27,052


                                            61
<PAGE>

(11)  Income Taxes (continued)

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

                                                    2001       2000       1999
      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...................              7.2        7.3        7.7
        Core deposit intangibles.......                -        0.3        0.1
         Other, net....................              0.6        0.2        0.5
          Effective rate...............             42.8%      42.8%      43.3%


     Cash  payments  for  income  taxes  totaled  $43,100,000,  $28,300,000  and
$29,609,000 during 2001, 2000 and 1999, respectively.  The Company received cash
refunds totaling  $667,000 during 2000. No refunds were received during 2001 and
1999.

     Current  income tax  receivable  were $2.0 million at December 31, 2001 and
$325,000 at December 31, 1999. Current income taxes payable at
December 31, 2000 were $530,000.

     Listed below are the significant components of the net deferred tax (asset)
and liability:

                                                           2001         2000
                                                        (Dollars In Thousands)
Components of the deferred tax asset:
  Bad debts...............................            $ (34,501)   $ (33,533)
  Pension expense.........................               (3,901)      (3,580)
  State taxes.............................               (3,903)      (3,003)
  Tax effect of unrealized loss on
   securities available-for-sale..........                    -       (1,566)
  Other...................................               (2,575)      (2,592)
    Total deferred tax asset..............              (44,880)     (44,274)
Components of the deferred tax liability:
  Loan fees...............................               11,978       14,349
  Loan sales..............................                  477          639
  FHLB stock dividends....................               20,411       18,049
  Tax effect of unrealized gain on
   securities available for sale..........                2,170            -
  Other...................................                  313          543
    Total deferred tax liability..........               35,349       33,580
Net deferred tax asset....................             $ (9,531)    $(10,694)

     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, 2001 or 2000, 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.


                                          62
<PAGE>


(11)  Income Taxes (continued)

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 1996.
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").  A
liability of $300,000 was recorded during 2001 for interest on amended  returns.
Interest accruals totaling  $350,000 and $150,000,  respectively,  were reversed
during 2000 and 1999, respectively.  The balance of accrued interest payable for
amended  returns was $300,000 as of December  31, 2001.  There was no balance of
accrued interest payable for amended returns as of December 31, 2000.

     The Bank is required to use the specific  charge-off  method of  accounting
for debts for all periods  beginning  after 1995.  Prior to that date,  the Bank
used the reserve method of accounting for bad debts. The Consolidated Statements
of Financial  Condition at December 31, 2001 and 2000 do 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, 2001 no preferred shares had been issued.

     The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the years indicated:

<TABLE>
                          For the  Year Ended              For the Year Ended               For the Year Ended
                          December 31, 2001                December 31, 2000                December 31, 1999
                                                 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    $50,302    17,270,579    $2.91   $38,465    17,372,225   $2.23    $35,447    19,234,869   $1.84
Unreleased shares                     (35,988)                        (120,607)                               -       -
Extraordinary item, net
  of taxes......              -             -        -         -             -             (2,195)            -    (0.11)
Net earnings....        $50,302    17,234,591    $2.92   $38,465    17,251,618   $2.23    $33,252    19,234,869    $1.73

Diluted EPS:
Earnings before
  extraordinary item    $50,302    17,270,579    $2.91   $38,465    17,372,225   $2.23    $35,447    19,234,869    $1.84
Unreleased shares                     (35,988)                        (120,607)                               -
Options-common stock
  equivalents...                      411,056                          205,277                          168,183
Earnings before
  extraordinary item    50,302     17,645,647     2.85    38,465    17,456,895    2.20     35,447    19,403,052     1.83
Extraordinary item, net
  of taxes......             -              -        -         -             -       -     (2,195)            -    (0.12)
Net earnings....       $50,302     17,645,647    $2.85   $38,465    17,456,895   $2.20    $33,252    19,403,052    $1.71
</TABLE>


                                              63
<PAGE>

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

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  that the Bank  meets all
capital adequacy requirements to which it is subject as of December 31, 2001.

     As of  December  31,  2001,  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,
2001 that management believes have changed the Bank's classification.

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

                                                   December 31, 2001
                                                         Tier 1
                                  Tangible     Core     Risk-based  Risk-based
                                  Capital     Capital     Capital     Capital
Actual Capital:
    Amount......................  $302,448   $302,448   $302,448    $336,556
    Ratio.......................      6.42%      6.42%     11.24%      12.51%
FIRREA minimum required capital:
    Amount......................  $ 70,617   $188,522          -    $215,184
    Ratio.......................      1.50%      4.00%         -        8.00%
FIDICIA well capitalized required capital:
    Amount......................         -   $235,391   $161,388    $268,980
    Ratio.......................         -       5.00%      6.00%      10.00%

                                                   December 31, 2000
                                                         Tier 1
                                  Tangible     Core     Risk-based  Risk-based
                                  Capital     Capital     Capital     Capital
Actual Capital:
    Amount......................  $254,974   $254,974   $254,974    $286,937
    Ratio.......................      5.84%      5.84%     10.13%      11.39%
FIRREA minimum required capital:
    Amount......................  $ 65,471   $174,588          -    $201,454
    Ratio.......................      1.50%      4.00%         -        8.00%
FIDICIA well capitalized required capital:
    Amount......................         -   $218,236   $151,091    $251,818
    Ratio.......................         -       5.00%      6.00%      10.00%


                                            64
<PAGE>

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


     The  payment  of  dividends  is  subject  to  certain  federal  income  tax
consequences.  Specifically,  the Bank is  capable  of paying  dividends  to the
Company in any year without  incurring tax liability  only if such  dividends do
not exceed both the tax basis current year 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.  There was no balance  outstanding  as of
December 31, 2001. At December 31, 2000, the loan to the ESOP totaled  $656,000.
Interest on any  outstanding  loan  balance is due each  December  31.  Interest
varies based on the Bank's monthly cost of funds.  The average rates paid during
2001 and 2000 were 4.79% and 5.40%, respectively.

     The Company  maintains a Shareholder  Rights Plan ("Rights  Plan") which is
designed to protect shareholders from attempts to acquire control of the Company
at an  inadequate  price.  Under the  Rights  Plan,  the owner of each  share of
Company  stock  received a  dividend  of one right  ("Right")  to  purchase  one
one-thousandth  of a share of a new series of preferred  stock for its estimated
long term value of $200.00. 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.



                                           65
<PAGE>

(13)  Employee Benefit Plans

     The Bank maintains a qualified defined  contribution plan established under
Section 401 (k) of the Internal  Revenue Code,  as amended (the "401(k)  Plan").
Participants  are permitted to make  contributions on a pre-tax basis, a portion
of which is matched by the Bank. The 401(k) Plan expense was $356,000,  $354,000
and $299,000 for 2001, 2000 and 1999, 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 $970,000, $906,000
and $988,000 in 2001, 2000 and 1999, respectively. The SERP is unfunded.

     The  discount  rate used in  determining  the  actuarial  value of  benefit
obligations  were 7.00% and 7.25%,  respectively,  as of  December  31, 2001 and
2000. The rate of increase in future compensation levels used in determining the
pension  cost for the SERP was 4.0% as of December  31, 2001 and 2000.  The plan
had no assets at December 31, 2001 or 2000.

     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:
                                                            2001         2000
                                                        (Dollars In Thousands)
Change in Benefit Obligation
      Projected benefit obligation, beginning of the year $  6,594   $  5,837
      Service cost....................................         304        264
      Interest cost...................................         468        441
      Benefits paid...................................        (287)      (287)
      Actuarial loss..................................         806        339
      Projected benefit obligation, end of the year...    $  7,885   $  6,594

Change in Plan Assets
      Funded status...................................    $ (7,885)  $ (6,594)
      Unrecognized transition obligation..............           -         63
      Unrecognized prior service cost.................         419        553
      Unrecognized (gain)/loss........................       1,419        613
      Net amount recognized...........................    $ (6,047)  $ (5,365)

Components of Net Periodic Benefit Cost
      Service cost....................................    $    304   $    264
      Interest cost...................................         467        441
      Amortization of unrecognized transition obligation        62         62
      Amortization of unrecognized prior service cost.         135        135
      Pension cost....................................    $    968   $    902


     The projected benefit obligation,  accumulated benefit obligation, and fair
value of assets were $7,885,000,  $6,131,000,  and $0 respectively,  at December
31, 2001 and $6,594,000, $5,255,000, and $0, respectively, at December 31, 2000.


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


     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,
2001,  the ESOP held 4.87% of outstanding  stock of the Company.  Profit sharing
expense  for the  years  ended  December  31,  2001,  2000 and 1999  $2,020,000,
$1,778,000 and $1,100,000,  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,  2001,  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.

Stock Option Programs

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

     The Company  also has a stock option plan for outside  directors,  the 1997
Non-employee  Directors Stock Incentive Plan (the "Directors  Stock Plan").  The
Directors Stock Plan provides for the issuance of up to 400,000 shares of common
stock to  non-employee  directors  of the Company.  The  exercise  price of each
option equals the market value of the Company's  stock on the date of the grant,
and 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 2001, 2000 and 1999,  respectively:  no dividend
yield in any year;  expected  volatility of 38%, 37% and 38%; risk free interest
rates of 5.1%, 6.7% and 6.6%; and expected average lives of 6 years in all three
periods.  The  weighted-average  grant date fair value of options granted during
the year are $9.45, $23.75 and $6.04 for 2001, 2000 and 1999, respectively.  The
Company has elected to recognize forfeitures in the year they occur.

     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:


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

                                         2001      2000     1999
                                 (Dollars In Thousands, Except Per Share Data)
Before Extraordinary Items:
                      Earnings before
                      extraordinary items:
             As reported.....         $50,302   $38,465  $35,447
             Pro forma.......         $49,368   $37,677  $35,085

            Earnings per share:
            Basic:
             As reported.....           $2.92     $2.23    $1.84
             Pro forma.......           $2.83     $2.18    $1.83

            Diluted:
             As reported.....           $2.85     $2.20    $1.83
             Pro forma.......           $2.76     $2.16    $1.81

After Extraordinary Items:
            Net earnings:
             As reported.....         $50,302   $38,465  $33,252
             Pro forma.......         $49,368   $37,677  $32,890

            Earnings per share:
            Basic:
             As reported.....           $2.92     $2.23    $1.73
             Pro forma.......           $2.83     $2.18    $1.71

            Diluted:
             As reported.....           $2.85     $2.20    $1.71
             Pro forma.......           $2.76     $2.16    $1.70


     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.

The following table  summarizes  information  about stock option activity during
the periods indicated:

         Options Outstanding                      2001         2000       1999
   (Weighted average option prices)                       (In Shares)

Beginning of year ($12.84, $12.54 and $9.84)   796,538      653,742    713,500
      Granted ($31.44, $13.13 and $16.13)      127,050      219,275    181,130
      Exercised ($12.22, $7.04 and $5.68)      (62,489)     (30,656)  (193,785)
      Canceled ($18.12, $13.77 and $13.64)     (41,184)     (45,823)   (47,103)
      End of Year ($15.51, $12.84 and $12.54)  819,915      796,538    653,742
      Shares exercisable at December 31..
        ($11.53, $11.22 and $10.09)......      309,808      252,121    193,684


                                            68
<PAGE>
(13)  Employee Benefit Plans (continued)

     Additional  information  with  respect  to  stock  options  outstanding  at
December 31, 2001 follows:

                                                  Price Ranges
                               ($5.63 - $14.23)($14.24 - $22.84)($22.85- $31.45)
Options outstanding:

Number of outstanding shares.........  449,195          252,620         118,100
Weighted-average contractual life ...     5.73             6.60            9.07
Weighted-average exercise price .....   $10.67           $16.66          $31.44

Options exercisable:

Number of exercisable shares.........  220,884           88,924               -
Weighted-average exercise price .....    $9.45           $16.67              $-


Restricted Stock Plan

     The Company's 1991 Restricted Stock Plan (the "Restricted  Stock Plan") has
expired  pursuant to its terms.  Under the  Restricted  Stock Plan,  the Company
issued shares of restricted to employees of the Company,  including officers and
directors.  All  shares  issued  under the Plan to current  employees  have been
vested.  The remaining 43,406 shares which were available for issuance under the
Plan,  consisting of previously issued shares reacquired by the Company,  are no
longer  authorized  for issuance  under the Plan due to the Plan's  termination.
Accordingly, these shares are included in the Company's treasury stock.


(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,
                                                     2001          2000
                                                   (Dollars In Thousands)
Assets:
Cash...........................                   $   6,263       $   3,531
Fixed assets...................                         419             491
Other assets...................                           -           1,334
Investment in subsidiary.......                     319,276         262,119
                                                  $ 325,958       $ 267,475
Liabilities and Stockholders' Equity:
Other liabilities..............                         280              33
  Stockholders' equity.........                     325,678         267,442
                                                  $ 325,958       $ 267,475

                                          69
<PAGE>

(14) Parent Company Financial Information (continued)

                                                  Years Ended December 31,
CONDENSED STATEMENTS OF OPERATIONS AND         2001          2000          1999
             COMPREHENSIVE EARNINGS                (Dollars In Thousands)

Dividends received from Bank...             $    -        $10,000       $99,554
Equity in undistributed (distributed) net
 earnings of subsidiary .......              52,007        29,263       (60,508)
Other expense, net.............              (1,705)         (798)       (5,794)
Net earnings...................             $50,302       $38,465       $33,252

Other comprehensive earnings (loss),
 net of taxes..................               5,149         6,122        (7,577)
Comprehensive earnings.........             $55,451       $44,587       $25,675


                                                   Years Ended December 31,
CONDENSED STATEMENTS OF CASH FLOWS                   2001      2000       1999
                                                    (Dollars In Thousands)
Net Cash Flows from Operating Activities:
  Net earnings........................           $  50,302  $ 38,465  $  33,252
  Adjustments to reconcile net earnings to
   net cash provided by operating
    activities:
  Equity in undistributed (distributed) net
   net earnings of subsidiary.........             (52,007)   (29,263)   60,508
  Write-off deferred issuance cost....                   -         -      1,332
  Depreciation expense................                 184        89          -
  Other...............................               1,581         -      1,326
  Net cash provided (used) by operating activities      60     9,291     96,418
Cash Flows from Investing Activities:
  Increase in fixed assets............                (112)     (580)         -
  (Increase) decrease in unreleased shares            (841)      918       (926)
  Net cash (used) provided by investing
   Activities.........................                (953)      338       (926)
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..........                   -   (10,175)   (52,214)
  Other...............................               3,625       988          -
Net cash provided (used by) financing activities     3,625    (9,187)  (104,869)
Net increase in cash..................               2,732       442     (9,377)
Cash at beginning of period...........               3,531     3,089     12,466
Cash at end of period.................           $   6,263  $  3,531  $   3,089




                                             70

<PAGE>
(15) Quarterly Results of Operations: (unaudited)

     Summarized  below are the  Company's  results of  operations on a quarterly
basis for 2001, 2000 and 1999:
<TABLE>
                                      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
  2001........   $ 88,017   $ 55,865  $      -     $ 2,007   $ 12,533    $ 12,373  $ 0.72      $ 0.70
  2000........     71,102     45,122         -       1,725     12,245       8,835    0.50        0.49
  1999........     64,737     39,572         -       3,133     12,588       8,915    0.43        0.43
  Second quarter
  2001........   $ 87,443   $ 53,881  $      -     $ 1,641   $ 13,195    $ 12,592  $ 0.73      $ 0.71
  2000........     76,455     50,288         -       2,418     12,570       9,351    0.54        0.54
  1999........     63,697     38,478         -       4,157     13,113       9,103    0.47        0.47
  Third quarter
  2001........   $ 81,837   $ 49,397  $      -     $ 3,019   $ 13,738    $ 12,427  $ 0.72      $ 0.70
  2000........     81,980     55,290         -       1,950     12,276       9,497    0.55        0.54
  1999........     63,671     39,376         -       2,813     11,990       8,358    0.44        0.44
  Fourth quarter
  2001........   $ 76,635   $ 42,611  $      -     $ 2,252   $ 13,708    $ 12,910  $ 0.75      $ 0.73
  2000........     84,783     55,805         -       1,654     11,174      10,782    0.63        0.62
  1999........     67,896     43,605         -       2,585     11,468       6,876    0.38        0.37
  Total year
  2001........   $333,932   $201,754  $      -     $ 8,919   $ 53,174    $ 50,302  $ 2.92      $ 2.85
  2000........    314,320    206,505         -       7,747     48,265      38,465    2.23        2.20
  1999........    260,001    161,031         -      12,688     49,159      33,252    1.73        1.71
</TABLE>

(16)  Fair Value of Financial Instruments

     The  following   table  presents  fair  value   information  for  financial
instruments for which a market exists.

                                           2001                    2000
                                    Carrying                Carrying
                                    Value     Fair Value    Value     Fair Value
                                                (Dollars In Thousands)

Mortgage-backed Securities ...      $284,079    $284,079    $374,405    $374,405
US Government Securities .....        28,468      28,468      38,064      38,064
Collateralized Mortgage Obligations   81,976      81,976      98,473      98,473
Loans Held-for-Sale ..........         5,246       5,246       2,246       2,246


                                            71
<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.

                                          2001                    2000
                                             Calculated              Calculated
                                 Historical  Fair Value   Historical Fair Value
                                    Cost       Amount        Cost      Amount

  (Dollars In Thousands)
Adjustable Loans:
  Single Family ..........      $2,091,298   $2,119,245  $2,148,016  $2,191,467
  Multi-Family ...........       1,513,077    1,540,775   1,299,356   1,327,018
  Commercial  ............         335,245      347,592     206,032     213,293
Fixed Rate Loans:
  Single Family ..........          26,859       27,579       8,068       8,106
  Multi-Family ...........          17,716       18,520      13,924      14,175
  Commercial .............          26,138       27,653      12,004      12,480
Consumer Loans............          20,797       21,206       7,522       7,599
Commercial Business Loans.          18,882       18,992      12,600      12,626
Construction Loans........          38,060       38,571           -           -
Non-Performing Loans .....           6,443        6,443       6,142       6,142
Fixed-Term Certificate Accounts  1,332,275    1,347,368
1,230,826........1,229,886
Non-Term Deposit Accounts        1,214,372    1,214,372     758,162     758,162
Borrowings ...............       1,808,040    1,847,196   1,873,110   1,885,252

     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.


                                          72
<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, 2001,  the
Bank had  outstanding  commitments to fund  $105,045,000 in real estate mortgage
loans,  $15,523,000 in construction loans and $3,483,000 in non-mortgage  loans.
All loan commitments were substantially at fair value.

Non-performing Loans

     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.


                                           73
<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, 2001 and
2000 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,  2001.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the 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, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2001 in  conformity  with  accounting  principles  generally
accepted in the United States of America.







Los Angeles, California
January 25, 2002

                                           74
<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 4
through 7 of the Proxy  Statement for the Annual Meeting of  Stockholders  dated
April 24, 2002 is incorporated herein by reference.

ITEM 11--EXECUTIVE COMPENSATION

     Information regarding executive  compensation  appearing on pages 8 through
10, 12 through  14,  and 16 of the Proxy  Statement  for the  Annual  Meeting of
Stockholders dated April 24, 2002 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  24,  2002  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 24, 2002 is incorporated herein by reference.



                                         75
<PAGE>

                                       PART IV

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

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

(3.1)Restated  Certificate  of  Incorporation  filed as Exhibit 3.1 to Form 10-K
     for the fiscal year ended December 31, 1999 and incorporated by reference.
(3.2)By-laws  filed as  Exhibit  (1)(a) to Form 8-A dated  September  4,1987 and
     incorporated by reference.
(4.1)Amended and  Restated  Rights  Agreement  dated as of  September  25, 1998,
     filed  as  Exhibit  4.1  to  Form  8-A/A,  dated  September  25,  1998  and
     incorporated by reference.
(10.1)Deferred  Compensation  Plan  filed as  Exhibit  10.3 to Form 10-K for the
      fiscal year ended December 31, 1983 and incorporated by reference.
(10.2)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 Exhibit
     10.4 to Form 10-Q for the Quarter  ended  September  30, 1996 and Amendment
     filed as  Exhibit  10.3  10.4 for  change of  control  to Form 10-Q for the
     Quarter ended September 30, 2000 and incorporated by reference.
(10.5)1997  Non-employee  Directors  Stock  Incentive Plan filed as Exhibit 1 to
     Form S-8 dated August 12, 1997 and Amendment  filed as Exhibit 10.5 to Form
     10-Q  for the  Quarter  ended  September  30,  2000,  and  incorporated  by
     reference.
(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 77).

     This 2001 Annual Report on Form 10-K and the Proxy Statement for the Annual
Meeting of Stockholders dated April 24, 2002 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 4, 2002 and any beneficial owner of Company stock
on such date who has not previously received such material and who so represents
in good faith and in writing to:

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

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

(b) Reports on Form 8-K

     The Company filed reports on Form 8-K during the quarter ended December 31,
2001 on the following dates:  October 26, 2001,  November 21, 2001, November 30,
2001,  and December 19, 2001. The November 30, 2001 8-K announced the completion
of the  acquisition  of Del Amo  Savings  Bank  and  Frontier  State  Bank.  The
remaining  reports  are related to the release of the  Company's  third  quarter
earnings and the disclosure of certain other financial data.


                                       76
<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 27, 2002







                                          77






























<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 27th day of February, 2002.

         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




                                            78