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

[X]                  ANNUAL REPORT PURSUANT TO SECTION 13 OR
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2003
                                       OR
[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

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

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

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

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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                               Yes   X    No
                                  ------    ------

The   approximate   aggregate   market   value  of  the  voting  stock  held  by
non-affiliates of the Registrant as of June 30, 2003 was $545,323,000,  based on
the closing sales price of the  Registrant's  common stock on the New York Stock
Exchange  on such  date of $35.29  per  share.  For  purposes  of the  preceding
sentence only, all directors,  executive  officers and beneficial  owners of ten
percent or more of the common  stock,  as well as the Company's  Employee  Stock
Ownership Plan ("ESOP"), are assumed to be affiliates.

The number of shares of Registrant's $0.01 par value common stock outstanding as
of February 1, 2004: 17,067,189.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement for Annual Meeting of  Stockholders  to be held
April 21, 2004 ("Proxy Statement"), (Parts II, 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]

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

<PAGE>
Disclosure Regarding Forward-looking Statements

     This  Annual  Report  on Form 10-K for the year  ended  December  31,  2003
includes  certain   statements  that  may  be  deemed  to  be   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  (the "Securities  Act") and Section 21E of the Securities and Exchange
Act of 1934,  as  amended  (the  "Exchange  Act").  All  statements,  other than
statements  of  historical  facts,  included in this Annual  Report that address
activities,  events  or  developments  that the  Company  expects,  believes  or
anticipates will or may occur in the future, including, but not limited to, such
matters as future product development, business development, competition, future
revenues, business strategies,  expansion and growth of the Company's operations
and assets and other such matters are forward-looking statements. These kinds of
statements are signified by words such as "believes,"  "anticipates," "expects,"
"intends," "may", "could," and other similar expressions.  However,  these words
are not the exclusive means of identifying such statements. These statements are
based on certain  assumptions  and analyses  made by the Company in light of its
experience and perception of historical  trends,  current  conditions,  expected
future  developments  and other  factors  it  believes  are  appropriate  in the
circumstances. Such statements are subject to a number of assumptions, risks and
uncertainties,  including the risk factors discussed below, general economic and
business  conditions,  the business  opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in law or regulations and other
factors,  many of which are beyond the Company's control.  Specific factors that
could  cause  results  to differ  materially  from  historical  results or those
anticipated are: (1) the level of demand for adjustable rate mortgages, which is
affected  by  external  factors  such as  interest  rates,  the  strength of the
California  economy  and  Southern   California   economy  in  particular;   (2)
fluctuations  between consumer interest rates and the cost of funds; (3) federal
and  state  regulation  of  lending,  deposit  and  other  operations,  and  (4)
competition for financial  products and services within the Bank's market areas.
Investors are cautioned  that any such  statements  are not guarantees of future
performance and that actual results or developments  may differ  materially from
those projected in the forward-looking statements.

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

                                                                                                          Page

Part I     Item 1.       Business................................................................           4
           Item 2.       Properties..............................................................          23
           Item 3.       Legal Proceedings.......................................................          23
           Item 4.       Submission of Matters to a Vote of Security Holders.....................          23

Part II    Item 5.       Market for Registrant's Common Equity and Related
                         Stockholder Matters.....................................................          23
           Item 6.       Selected Financial Data.................................................          24
           Item 7.       Management's Discussion and Analysis of Financial
                         Condition and Results of Operations.....................................          25
           Item 7a.      Quantitative and Qualitative Disclosures About Market Risk..............          38
           Item 8.       Financial Statements and Supplementary Data.............................          42
                         Notes to Consolidated Financial Statements..............................          46
                         Independent Auditors' Report............................................          73
           Item 9.       Changes In and Disagreements with Accountants on
                         Accounting and Financial Disclosure.....................................          74
           Item 9a.      Controls and Procedures.................................................          74

Part III   Item 10.      Directors and Executive Officers of the Registrant......................          74
           Item 11.      Executive Compensation..................................................          74
           Item 12.      Security Ownership of Certain Beneficial Owners and
                         Management..............................................................          74
           Item 13.      Certain Relationships and Related Transactions..........................          74
           Item 14.      Principal Accounting Fees and Services..................................          74

Part IV    Item 15.      Exhibits, Consolidated Financial Statement
                         Schedules, and Reports on Form 8K.......................................          75

Signatures ......................................................................................          76
Power of Attorney................................................................................          77
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002....................................................................................          78
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002....................................................................................          79
32.1 Certification of Chief Executive Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002..........................          80
32.2 Certification of Chief Financial Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002..........................          81
</TABLE>

                                       3
<PAGE>
                                     PART I
ITEM 1 -- BUSINESS

General Description

     FirstFed Financial Corp., a Delaware  corporation  ["FFC," and collectively
with its sole and wholly owned subsidiary, First Federal Bank of California (the
"Bank"),  the "Company"],  was incorporated on February 3, 1987. Since September
22,  1987,  FFC has  operated  as a savings  and loan  holding  company  engaged
primarily  in the  business of owning the Bank.  Because  the  Company  does not
presently   engage  in  any   significant   independent   business   operations,
substantially all 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 executive  offices of the Company
are located at 401  Wilshire  Boulevard,  Santa  Monica,  California,  telephone
number (310) 319-6000.

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

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

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

     At  December  31,  2003,  the  Company had assets  totaling  $4.8  billion,
compared to $4.3  billion at December  31, 2002 and $4.7 billion at December 31,
2001. The Company  recorded net earnings of $64.5 million for 2003,  compared to
$55.2 million for 2002 and $50.3 million for 2001.

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

     As of  February  15,  2004,  the  Bank  operated  29  full-service  banking
branches, all located in Southern California. Permission to operate full-service
branches is granted by the OTS. In addition to these branches, the Bank operates
a call center,  which conducts  transactions  with deposit and loan customers by
telephone and an internet website through which customers can perform  transfers
and pay bills.

     Southern California has traditionally been the Bank's primary lending area.
The Bank plans to increase  its level of  originations  in  Northern  California
during 2004.  The  majority of the Bank's  residential  loans are obtained  from
wholesale loan brokers.  Residential loans are also offered by all of the Bank's
full-service  branches.  In addition,  the Bank has an income  property  lending
group and a commercial banking group each with one loan production office.

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

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

Current Operating Environment

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

                                       4
<PAGE>
     According  to the  Federal  Housing  Finance  Board`s  report for the third
quarter of 2003,  home prices in the Los Angeles area  increased  10.5% from one
year ago.  Already at record  highs,  California  home  prices are  expected  to
continue  increasing,  but at a slower  pace.  The UCLA  Anderson  Forecast  for
California, December 2003 Report states, "If mortgage rates remain "reasonable",
as we are  forecasting in our national  outlook,  then prices in California will
probably  continue to increase,  more likely at a single-digit  rate, during the
next two years."  Alternatively,  an  increase  in  mortgage  rates could have a
negative  affect on home  prices  in  Southern  California  and the value of the
collateral supporting the Bank's real estate loan portfolio.

     The Bank continuously monitors the sufficiency of the collateral supporting
its real estate loan  portfolio  based on many  factors  including  the property
location, the date of loan origination and the original loan-to-value ratio.

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

     The Bank adjusts its general allowance for loan losses as a result of these
evaluations.  No provision  for loan losses was necessary  during 2003,  2002 or
2001.

     The ratio of allowances for loan losses (general  valuation  allowances and
valuation  allowances for impaired loans) to gross loans receivable was 1.70% at
the end of 2003  compared  to 1.96%  at the end of 2002 and  1.83% at the end of
2001.  The  change in ratio over the last three  years is due to  variations  in
gross loans outstanding. See "--Business - Loan Loss Allowance--" for additional
information.

     Consistent  with the current  favorable  real estate climate in the greater
Los Angeles area, the Bank's non-performing assets were 0.10% of total assets at
the end of 2003 and 0.17% of total assets at the end of 2002 and 2001.

     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.  The Federal  Reserve Board  decreased
interest  rates once during 2003,  once during and 2002, and eleven times during
2001. Through February 2004, the FRB has not changed interest rates.

     Typically,  the Bank's  interest  rate  spread  increases  in a  decreasing
interest rate  environment,  (savings and borrowing costs decrease quickly while
the loan  portfolio  yield  decreases  more slowly).  The reverse is true during
periods of increasing  interest rates. The Bank's loan portfolio tends to shrink
in a decreasing  interest rate  environment  due to payoffs of  adjustable  rate
loans.  However, the adjustable rate loan portfolio increased during 2003 as the
Bank expanded into new areas of Southern California using loan brokers,  offered
new loan programs and adjusted its underwriting guidelines to better compete for
such loans in the current environment.

     Changes in interest rates impact the Bank's loan portfolio yield 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 real
estate loan  portfolio due to  operational  and  regulatory  constraints.  These
constraints  do not allow the Bank to implement  monthly  changes in the primary
index  utilized  for the  majority  of its  adjustable  rate  real  estate  loan
customers for periods of sixty to ninety days.

     The Bank's  interest  rate spread  increased to 3.22% in 2003 from 2.92% in
2002 and 2.71% in 2001 because the cost of its deposits and borrowings decreased
more quickly than the rates earned on its loan portfolio.  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 and business 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.

                                       5
<PAGE>
     The Bank competes for loans primarily with savings institutions, commercial
banks,  mortgage  companies and insurance  companies.  Commercial  banks are the
Bank's primary  competition for business loans. The primary factors in competing
for loans are interest  rates,  loan fees,  interest  rate caps,  interest  rate
adjustment  provisions  and the quality and extent of service to  borrowers  and
mortgage brokers.

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

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

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

Lending Activities

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

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

     Origination and Sale of Loans.  The Bank obtains  qualified loan applicants
from mortgage brokers,  borrower referrals,  and the clients of its full-service
banking branches.

     Loan  originations and purchases were $2.3 billion in 2003, $1.3 billion in
2002, and $1.5 billion in 2001. Loan  origination  volume  increased during 2003
because the Bank marketed its adjustable rate loans to more borrowers in a wider
geographic  area using loan  brokers,  introduced  new products and adjusted its
underwriting  guidelines  to  better  compete  for  such  loans  in the  current
environment.  Loan origination volume decreased during 2002 because borrowers in
the Bank's traditional market area preferred fixed rate loans. The above amounts
include loan purchases of $500 thousand  during 2003,  $89 thousand  during 2002
and $132.6 million during 2001.

     Loans sold totaled $86.1 million in 2003,  $134.2 million in 2002 and $61.2
million in 2001.  For the year ended  December 31, 2003,  $84.3 million in loans
were originated for sale compared to $103.7 million in 2002 and $64.2 million in
2001.  Loans  originated  for sale  totaled  4%, 8% and 5% of loan  originations
during  2003,  2002 and 2001,  respectively.  The Bank  originates  30-year  and
15-year fixed rate loans only for resale to the secondary markets.

     Loans held-for-sale at December 31, 2003, 2002 and 2001 were $492 thousand,
$2.3 million and $5.2  million.  Loans  originated  for sale are recorded at the
lower of cost or fair value.  The time from  origination to sale typically takes
up to 30  days.  During  this  time  period  the Bank  may be  exposed  to price
adjustments as a result of fluctuations in market interest rates.

                                       6
<PAGE>
     In previous  years,  the Bank  structured  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  were  formed,  guarantee  fees  were paid to the  Federal  Home Loan
Mortgage  Corporation  ("FHLMC") or the Federal  National  Mortgage  Association
("FNMA").  No loans have been converted into  mortgage-backed  securities  since
1995. 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,    classified    as
available-for-sale, was recorded at fair value as of December 31, 2003, 2002 and
2001.  Unrealized gains of $965 thousand,  $1.6 million and $1.9 million, net of
tax, were recorded in stockholders'  equity at December 31, 2003, 2002 and 2001,
respectively.

     The Bank  serviced  $145.5  million  in loans  for  other  investors  as of
December 31, 2003, $91.0 million,  which were sold under recourse  arrangements.
$6.7 million of the loans sold with  recourse  were formed into  mortgage-backed
securities  and are still  owned by the Bank as of  December  31,  2003.  Due to
regulatory requirements, the Bank maintains capital for loans sold with recourse
as if those  loans  had not been  sold.  The Bank has not  entered  into any new
recourse  arrangements  since 1989.  Loans sold with  recourse  are  analyzed in
determining the adequacy of the repurchase  liability.  The principal balance of
loans  sold with  recourse  decreased  to $91.0  million at the end of 2003 from
$108.6  million at the end of 2002 and $137.2  million at the end of 2001 due to
loan amortization and payoffs.

     Interest Rates, Terms and Fees. The Bank originates  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 ("COFI"),  the one year U.S. Treasury Security rate, the 12-month
average  U.S.  Treasury   Security  rate  ("12MAT"),   LIBOR  and,  the  3-month
certificate  of deposit Index  ("CODI").  The CODI index is the monthly yield on
3-month  certificate of deposits as published by the Federal Reserve Bank and is
a  simple  average  based  upon  the  12  most  recent  months  of  data.   (See
"--Asset-Liability  Management--" in "--Quantitative and Qualitative Disclosures
About Market Risk--.") While the monthly payment adjusts  annually,  the maximum
annual change in the payment is limited to 7.5%. Any additional  interest due 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 also originates  adjustable rate loans with initial fixed interest
rates for periods ranging from 3 to 10 years ("hybrid"  loans).  By policy,  the
Bank will  either  match the  fixed  rate  period  of these  hybrid  loans  with
borrowings  for the same term or will hold  unmatched  fixed  rate  loans in its
portfolio up to 5% of total assets.  Loans originated under this program totaled
$434.3  million  in 2003,  $419.7  million  in 2002 and  $1.0  billion  in 2001.
Originations of adjustable rate loans with initial fixed interest rates declined
during 2003 and 2002  compared to 2001  because  the rate  differential  between
these  loans and  traditional  fixed  rate loans was not  sufficient  to attract
borrowers.

     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. There are special Community Reinvestment Act loan programs in which
the  Bank  lends  up to 97% of  the  property's  appraised  value.  Because  AML
loan-to-value  ratios may increase  above those  established at the time of loan
origination due to negative amortization, 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. At December 31, 2003,  2002 and 2001,  negative  amortization on
all loans totaled $4.0 million, $7.8 million and $16.8 million, respectively.

     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, 2003, 2002 and 2001,  loans with  co-insurance  totaled
$52.3  million,  $106.6  million and $140.4  million,  respectively.  Loans with
initial loan-to-value ratios greater than 80% with no private mortgage insurance
totaled $486.7 million at December 31, 2003, $159.7 million at December 31, 2002
and $354.5 million at December 31, 2001.

                                       7
<PAGE>
     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 8%, 6% and 4% of loan  originations
during 2003, 2002 and 2001, respectively.

     The  following  table shows the  contractual  remaining  maturities  of the
Bank's loans at December 31, 2003:
<TABLE>
                                                                     Loan Maturity Analysis
                                                                         Maturity Period
                                  --------------------------------------------------------------------------------------------
                                     Total        1 Year      > 1 Year        > 5-10       > 10-20      > 20-30
                                    Balance      or Less     to 5 Years        Years        Years        Years      > 30 Years
                                  ----------    ---------    ----------     ---------    ---------     ---------    ----------
                                                                         (In thousands)
<S>                            <C>           <C>          <C>           <C>           <C>          <C>              <C>
Interest rate sensitive loans:
  AMLs.........................$  4,290,423  $     97,373 $     683,009 $     547,304 $  1,232,373 $    1,545,925 $   184,439
  Fixed rate loans.............      65,999         7,255        29,584        16,368        7,619          5,055         118
  Commercial business loans....      34,955         8,206        26,749            --           --             --          --
  Construction loans...........       9,053         4,540         4,513            --           --             --          --
  Consumer and other loans.....      50,730        50,622            38            70           --             --          --
                                  ---------     ---------    ----------     ---------    ---------     ---------    ---------
Total..........................$  4,451,160  $    167,996 $     743,893 $     563,742 $  1,239,992 $    1,550,980 $   184,557
                                  =========     =========    ==========     =========    =========     =========    =========
</TABLE>
Non-accrual, Past Due, Impaired and Restructured Loans

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

     The  following  is a summary  of  non-accrual  loans  for which  delinquent
interest  allowances had been established as of December 31, for the end of each
of the periods indicated:
<TABLE>
                                  % of                 % of                  % of                 % of                  % of
                         2003      Total      2002      Total       2001      Total      2000      Total       1999     Total
                       -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
                                                                (Dollars in thousands)
<S>                 <C>         <C>      <C>         <C>       <C>         <C>      <C>         <C>       <C>          <C>
Non-accrual loans:
  Single family.....$   3,326       99%  $   5,705        85%  $   6,062       93%  $   5,603        89%  $   9,626      70%
  Multi-family......       --       --       1,017        15         422        6         662        11       3,995      29
  Commercial........       --       --          --        --          --       --          --        --         225       1
  Consumer..........       16        1          --        --          16        1          --        --          --      --
                       ------    ------    -------    -------    -------    ------    -------    -------    -------    -----
Total non-accrual
    loans...........$   3,342      100%  $   6,722       100%  $   6,500      100%  $   6,265       100%  $  13,846     100%
                       ======    ======    =======    =======    =======    ======    =======    =======    =======    =====
</TABLE>
     The allowance for delinquent interest, based on loans past due more than 90
days or in  foreclosure,  totaled $227 thousand,  $372 thousand,  $504 thousand,
$511 thousand and $720 thousand at December 31, 2003, 2002, 2001, 2000 and 1999,
respectively.

     The Bank's modified loans result primarily from temporary  modifications of
principal and interest  payments or an extension of maturity dates.  Under these
arrangements,  loan  terms  are  typically  reduced  to no less  than a  monthly
interest payment required under the note. If the borrower is unable to return to
scheduled principal and interest payments at the end of the modification period,
foreclosure  proceedings  are  initiated  or  the  modification  period  may  be
extended.  As of December 31, 2003,  the Bank had modified  loans  totaling $5.7
million,  net of loan loss  allowances  of $496  thousand.  This  compares  with
modified  loans  totaling  $3.9  million,  net of loan loss  allowances  of $496
thousand as of December 31, 2002 and $7.4 million,  net of loan loss  allowances
of $1.9 million as of December 31, 2001. No modified  loans were 90 days or more
delinquent as of December 31, 2003, 2002 or 2001.

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

                                       8
<PAGE>
     The Bank considers a loan to be impaired when management  believes that the
Bank will be unable to collect all amounts  due under the  contractual  terms of
the loan agreement. In accordance with SFAS 114, the Bank annually evaluates the
collectibility  of commercial  business loans greater than or equal to $500,000,
single-family loans greater than or equal to $750,000, and income property loans
greater than or equal to $1,500,000  for  impairment  purposes  using its normal
loan review  procedures.  When a loan is  determined  to be  impaired,  the Bank
measures  impairment  based on either (1) the present  value of expected  future
cash flows,  discounted at the loan's  effective  interest  rate; (2) the loan's
observable  market  price,  or (3) the fair value of the  collateral.  Estimated
impairment losses are included in the Bank's impairment allowances.

     Valuation  allowances  for impaired loans totaled $496 thousand at December
31, 2003 and 2002  compared to $1.9 million at December 31, 2001.  The following
is a summary of impaired loans, net of valuation allowances for impairment,  for
the periods indicated:
<TABLE>
                                                             Year Ended December 31,
                                                        ---------------------------------
                                                          2003         2002         2001
                                                        --------    ---------    --------
                                                                  (In thousands)
<S>                                                  <C>         <C>          <C>
Non-accrual loans..............................      $     1,782 $        --  $       978
Modified loans.................................            1,488       1,567        6,416
                                                        --------    --------     --------
                                                     $     3,270 $     1,567  $     7,394
                                                        ========    ========     ========
</TABLE>
     All  impaired  non-accrual  loans as of December  31, 2003 and December 31,
2001 were single-family loans.

     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. As of December 31, 2003, December 31, 2002, and December 31,
2001,  impaired  loans  of  $3.3  million,   $1.6  million,  and  $3.9  million,
respectively,  had no valuation allowances established.  All impaired loans were
measured using the fair value method.

     The present value of an impaired  loan's expected future cash flows changes
from one  reporting  period to the next  because of the passage of time and also
because of revised  estimates  in the amount or timing of those cash flows.  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 (in thousands):
<TABLE>
<S>                                                          <C>
Balance at December 31, 1998...............................  $    7,634
   Net charge-offs.........................................      (5,038)
                                                                --------
Balance at December 31, 1999...............................       2,596
   Net charge-offs.........................................        (804)
                                                                --------
Balance at December 31, 2000...............................       1,792
   Transfer from general valuation allowance...............          58
                                                               ---------
Balance at December 31, 2001...............................       1,850
   Transfer to general valuation allowance.................      (1,354)
                                                               ---------
Balance at December 31, 2002...............................         496
   Net charge-offs.........................................          --
                                                               ---------
Balance at December 31, 2003...............................  $      496
                                                               =========
</TABLE>
     Cash payments  received from impaired loans are recorded in accordance with
the contractual  terms of the loan. The principal portion of the payment is used
to reduce the  principal  balance of the loan,  whereas the interest  portion is
recognized as interest income.

                                       9
<PAGE>
     The average  recorded  investment in impaired  loans during 2003,  2002 and
2001 was $4.3 million, $5.0 million and $7.4 million,  respectively.  The amount
of interest  income  recognized on impaired loans during 2003, 2002 and 2001 was
$226  thousand,  $322 thousand and $597 thousand,  respectively,  under the cash
basis method of accounting.  Interest income  recognized under the accrual basis
method of  accounting  for  2003,  2002 and 2001  totaled  $215  thousand,  $316
thousand and $587 thousand, respectively.

Internal Asset Review System

     In accordance  with OTS  regulations,  the Bank  maintains a system for the
on-going  risk grading of 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.

     Assets are classified  according to a nine-tiered risk grading 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 an asset, consideration
is given to information on repayment prospects,  including the value of and cash
flow provided by collateral and secondary  support provided by the borrowers and
guarantors.  Other factors  considered in the assignment of a risk grade include
other cash flow  sources,  the  stability of income  sources,  the type,  value,
condition, and liquidity of collateral pledged, the obligor's credit history and
access to alternative financing 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 Bank  officers  responsible  for
resolving  problem asset  situations),  homogeneous  assets and  non-homogeneous
assets.

     Assets  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 delinquent high balance residential and income property
loans,  commercial business loans and loans 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,  apartment  loans with 36 or more
units, and commercial business loans. Other  non-homogeneous  assets may include
investments  in  subsidiaries,   investments  in  securities,   and  significant
off-balance  sheet items.  In accordance  with SFAS No. 114, the Bank identifies
and evaluates non-homogeneous assets for impairment on an individual basis 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.  For  further  discussion  of  impaired  loans,  see
"--Business - Non-accrual, Past Due and Restructured Loans--".

     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 and
are collectively, rather than individually,  evaluated for risk grading purposes
through the identification of risk  characteristics  common to specific types of
assets.

Loan Loss Allowance

     The Bank maintains a general valuation allowance for loan losses due to the
inherent  risks  in  the  loan  portfolio  that  have  yet  to  be  specifically
identified. As discussed above, the Bank's asset classification system serves as
a foundation for  determining  the  appropriate  level of the general  valuation
allowance.  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.

     The Bank calculates the appropriate level of general valuation allowance by
applying  reserve  factors  to the  balance of assets on which the Bank has loss
exposure  ("exposure  base").  These  reserve  factors  represent  the  expected
likelihood  of default  multiplied  by the expected  rate of loss.  The expected
rates of loss and default are based on the Bank's historical loss experience and
adjusted for current and anticipated conditions and trends.

     The  Bank's  Asset  Classification  Committee,  comprised  of  senior  Bank
officers,  reviews the general valuation allowance,  methodology and performance
trends in the loan portfolio on a quarterly basis.

                                       10
<PAGE>
         The following is an analysis of the activity in the Bank's general loan
valuation allowances for the periods indicated:
<TABLE>
                                                                             Year Ended December 31,
                                                        -----------------------------------------------------------------
                                                           2003          2002           2001         2000          1999
                                                        ---------    -----------    ----------    ----------    ---------
                                                                                  (In thousands)
<S>                                                  <C>          <C>            <C>           <C>           <C>
Beginning general loan valuation allowances.......   $    75,223  $      72,919  $     70,809  $    69,954   $     67,638
General loan valuation allowances obtained in
    acquisition...................................            --             --         2,050           --             --
Charge-offs, net of recoveries:
    Single family.................................           (52)          (372)         (322)        (767)          (342)
    Multi-family..................................            14            189           286        1,692          2,650
    Commercial....................................            --             --            --         (105)           111
    Non-real estate...............................            53          1,133           154           35           (103)
                                                        --------     ----------    ----------    ---------      ---------
Total net recoveries .............................            15            950           118          855          2,316
Transfers from (to) impaired valuation allowance..            --          1,354           (58)          --             --
                                                        --------     ----------    ----------    ---------      ---------
Ending general loan valuation allowances..........   $    75,238  $      75,223  $     72,919  $    70,809   $     69,954
                                                        ========     ==========    ==========    =========      =========
</TABLE>
     The Bank recorded total net recoveries for the last five years. The lack 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 loan loss allowances to gross loans receivable was
1.70%,  1.96%, 1.83%, 1.95% and 2.31% at December 31, 2003, 2002, 2001, 2000 and
1999 respectively.

     The following  table details the general  valuation  allowance by loan type
for the periods indicated:
<TABLE>
                                                               Year Ended December 31,
                       ------------------------------------------------------------------------------------------------------
                                  % of                 % of                  % of                 % of                  % of
                         2003      Total      2002      Total       2001      Total      2000      Total       1999     Total
                       -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
                                                                (Dollars in thousands)
<S>                 <C>         <C>      <C>         <C>       <C>        <C>       <C>         <C>       <C>         <C>
Real estate loans:
  Single family.....$  28,775       38%  $  24,952        33%  $  30,040       41%  $  37,695        53%  $  24,985       35%
  Multi-family......   24,789       33      27,037        36      23,955       33      22,529        32      38,332       55
  Commercial........    6,185        8       9,938        13       7,860       11       5,797         8       6,129        9
  Construction......    2,266        3       2,281         3       3,687        5          --        --          --       --
                      -------    ------    -------    -------    -------    ------    -------    -------    -------     -----
Total real estate
    loans...........   62,015       82      64,208        85      65,542       90      66,021        93      69,446       99
                      -------    ------    -------    -------    -------    ------    -------    -------    -------     -----
Non-real estate
   loans:
  Commercial........    5,595        8       4,977         7       5,120        7       3,214         5          65       --
  Consumer..........    7,624       10       5,978         8       1,918        3       1,073         1          87       --
  Other.............        4       --          60        --         339       --         501         1         356        1
                      -------    ------    -------    -------    -------    ------    -------    -------    -------     -----
Total non-real
   estate loans.....   13,223       18      11,015        15       7,377       10       4,788         7         508
                      -------    ------    -------    -------    -------    ------    -------    -------    -------     -----
Total...............$  75,238      100%  $  75,223       100%  $  72,919      100%  $  70,809       100%  $  69,954      100%
                      =======    ======    =======    =======    =======    ======    =======    =======    =======     =====
</TABLE>
     During 2003, the exposure base of  single-family  loans increased by $733.3
million,  generating  an  increase in the general  valuation  allowance  by $3.8
million.  There were three changes  pertaining to the calculation of the general
valuation  allowance for single-family  portfolio:  segregation of the sub-prime
loans, refining for the geographic designation and re-evaluated risk factors for
the  single-family  loans  made in  Northern  California.  The  decrease  in the
multi-family  and commercial real estate loan exposure base of $98.7 million and
$74.0  million,  respectively,  resulted  in a  decrease  in  general  valuation
allowance of $2.2 million and $3.7 million,  respectively.  The exposure base of
the  construction  loan portfolio  increased by $2.1 million,  while the general
valuation  allowance  declined by $15 thousand.  The increase in the  commercial
loan exposure  base of $14.8  million  generated an increase of $617 thousand in
the general  valuation  allowance.  The consumer loan exposure base increased by
$14.3 million, which added $1.6 million to the general valuation allowance.  The
remainder  of the  change  in the  general  valuation  allowance  for  loans was
attributable to changes in miscellaneous loans.

                                       11
<PAGE>
     During 2002,  the exposure base of  single-family  loans declined by $463.8
million and the proportion of higher risk loans was reduced, resulting in a $5.1
million  reduction  in the  general  valuation  allowance.  The  increase in the
multi-family  and commercial real estate loan exposure base of $84.4 million and
$56.3 million,  respectively,  resulted in an increase in the general  valuation
allowance of $3.1 million and $2.1 million,  respectively.  The exposure base of
the  construction  loan  portfolio  declined  by  $41.3  million,  generating  a
reduction of $1.4 million to the general  valuation  allowance.  The increase in
the  commercial  loan  exposure  base of $2.1  million,  sustained  by  enhanced
experience  with  managing  commercial  loans,  resulted  in a decrease  of $143
thousand in the general  valuation  allowance.  The consumer  loan exposure base
increased by $56.2 million, which resulted in an addition of $4.1 million to the
general  valuation  allowance.  The  remainder  of the  change  in  the  general
valuation  allowance  for loans was  attributable  to changes  in  miscellaneous
loans.

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

     The 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 Bank's repurchase liability for
loans sold with recourse represents the total losses that are estimated to occur
over the remaining life of the portfolio of loans sold with recourse, discounted
to present  value.  During 2003,  the Bank  revised its current  estimate of the
required repurchase  liability for loans sold with recourse from $6.9 million to
$5.4 million. During 2002, the Bank revised its current estimate of the required
repurchase  liability  for loans sold with  recourse  from $12.8 million to $6.9
million.  These  reduced  liability  amounts  reflects  the fact  that the total
portfolio of loans sold with recourse has been experiencing significant payoffs,
and  has had  better  credit  experience  than  was  previously  estimated.  The
remaining repurchase liability of $5.4 million represents approximately 5.93% of
the total  portfolio  of loans sold with  recourse at  December  31,  2003.  The
activity in the  repurchase  liability  for loans sold with  recourse  for 2003,
2002, 2001, 2000 and 1999 is presented below (in thousands):
<TABLE>
<S>                                                                   <C>
  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
  Liability adjustment recorded as gain on sale of loans.......          (5,924)
                                                                      ----------
  Balance at December 31, 2002.................................           6,900
  Liability adjustment recorded as gain on sale of loans.......          (1,500)
                                                                      ----------
  Balance at December 31, 2003.................................       $   5,400
                                                                      ==========
</TABLE>
     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-performing  loans and loans
receivable.

     Potential  Problem Loans. The Bank also had $2.3 million,  $2.1 million and
$6.2  million in  potential  problem  real estate loans as of December 31, 2003,
December 31, 2002 and December 31, 2001,  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  quarterly  to  resolve
delinquent loan situations and to initiate  actions  enforcing the Bank's rights
in security properties pending foreclosure and liquidation.

     Non-performing  Assets. For a further discussion of non-performing  assets,
see  "--Management's  Discussion and Analysis of Financial Condition and Results
of Operations - Non-Performing Assets--."

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

                                       12
<PAGE>
     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:
<TABLE>
                                                                Year Ended December 31,
                                                        -------------------------------------
                                                          2003          2002           2001
                                                        --------    -----------    ----------
                                                                    (In thousands)
<S>                                                  <C>          <C>            <C>
Beginning balance..............................      $       319  $      1,485   $      2,157
  Additions....................................            1,582         1,881          5,136
  Sales and other..............................             (577)       (3,047)        (5,808)
                                                        --------    ----------     ----------
Ending balance.................................      $     1,324  $        319   $      1,485
                                                        ========    ==========     ==========
</TABLE>
     Other Interest-Earning  Assets. The Bank owned no contractually  delinquent
interest-earning assets other than loans as of December 31, 2003.

     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 less than 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>
                                                                       At or for the Year Ended December 31,
                                                     ------------------------------------------------------------------------
                                                         2003           2002            2001            2000          1999
                                                     -----------    ------------    -----------     ----------    -----------
                                                                              (Dollars in thousands)
<S>                                               <C>            <C>             <C>            <C>            <C>
U.S. treasury securities..........................$         200  $         200   $         300  $          300 $        300
U.S. agency securities............................           --             --          28,199          38,185       38,167
Collateralized mortgage obligations ("CMO's").....      115,992        101,802          80,013          98,562      115,704
                                                     -----------   ------------     -----------      ----------   ----------
                                                        116,192        102,002         108,512         137,047      154,171
Unrealized gain (loss) on securities available-
   for-sale.......................................          219          1,053           1,932            (510)      (2,976)
                                                     -----------   ------------     -----------      ----------   ----------
                                                  $     116,411  $     103,055   $     110,444  $      136,537 $    151,195
                                                     ===========   ============     ===========      ==========   ==========
Weighted average yield on interest-earning
   investments end of period......................         2.92%          4.77%           6.07%           5.99%        5.86%
                                                     ===========   ============     ===========      ==========   ==========
</TABLE>
     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 deposits,  principal and
interest  payments on loans,  loan sales,  advances from the FHLB and securities
sold under agreements to repurchase.

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

     Deposits obtained through the branch system were $2.5 billion, $2.3 billion
and $2.1  billion at December  31,  2003,  2002 and 2001,  respectively.  Branch
deposits  comprised  99% of total  deposits at December 31,  2003,  91% of total
deposits at December  31, 2002 and 82% of total  deposits at December  31, 2001.
Management  attributes the increase in branch  deposits  during 2003 and 2002 to
increased  funds from stock market  investors  wanting  more  security for their
investments.

     Deposits acquired through  telemarketing  efforts are typically placed with
the Bank by  professional  money managers and represented 1%, 3% and 4% of total
deposits  at  December  31,  2003,  2002 and  2001,  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.

                                       13
<PAGE>
     Deposits  acquired through national  brokerage firms represented 0%, 6% and
14% of total  deposits at December 31, 2003,  2002 and 2001,  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--."

     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 52% as of December 31, 2001 and 37% as of December 31, 2002
to 22% as of December 31, 2003.

     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,
                                   ----------------------------------------------------------------------------------------------
                                             2003                              2002                              2001
                                   --------------------------        --------------------------        --------------------------
                                    Average         Average           Average        Average            Average         Average
                                    Balance          Rate             Balance          Rate             Balance          Rate
                                   -----------    -----------        -----------    -----------        ----------    ------------
                                                                      (Dollars in thousands)
<S>                            <C>              <C>              <C>              <C>              <C>             <C>
Passbook accounts............  $      118,859           1.15%    $      106,591           1.47%    $       94,067            1.53%
Money market deposit accounts
                                    1,244,294           1.72            909,866           2.50            613,745            3.84
Interest-bearing checking
    accounts.................         178,173           0.32            164,930           0.66            141,282            0.97
Non interest-bearing
    checking accounts........         285,653             --            234,936             --            189,185              --
Fixed term certificate
    accounts.................         688,492           2.30          1,101,043           3.20          1,279,465            5.33
                                   ----------                       -----------                        ----------
                               $    2,515,471           1.55%    $    2,517,366           2.42%    $    2,317,744            4.08%
                                   ==========                       ===========                        ==========
</TABLE>

                                       14
<PAGE>
     The following tables set forth information regarding the amount of deposits
in the various types of deposit  programs  offered by the Bank at the end of the
years indicated and the balances and average rates for those dates:
<TABLE>
                                                                              At December 31,
                                                   ----------------------------------------------------------------------
                                                          2003                     2002                     2001
                                                   --------------------    ---------------------    ---------------------
                                                      Amount        %         Amount          %        Amount         %
                                                   -----------   ------    ------------    -----    -----------    ------
                                                                           (Dollars in thousands)
<S>                                            <C>             <C>      <C>              <C>     <C>            <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted
   average rate of 1.43%, 2.13% and 2.76%).
                                                $    1,373,240     54%  $    1,079,278       43% $      741,978     29%
Interest-bearing checking accounts
    (weighted average rate of 0.26%, 0.43%
    and 0.72%).............................            232,247      9          174,802        7         162,309      7
Passbook accounts (weighted average rate
    of 1.10%, 1.34% and 1.59%).............            124,427      5          111,844        4         104,488      4
Non-interest bearing checking accounts.....            239,357     10          239,695        9         205,597      8
                                                   -----------   -----      ----------     -----     ----------   -----
                                                     1,969,271     78        1,605,619       63       1,214,372     48
                                                   -----------   -----      ----------     -----     ----------   -----
Fixed-rate term certificate accounts:
Under six-month term (weighted average
    rate of 1.00%, 1.54% and 2.57%)........             32,062      1           37,630        1          54,626      2
Six-month term (weighted average rate of
    1.06%, 1.95% and 3.29%)................             79,201      3          104,600        4         246,161     10
Nine-month term (weighted average rate of
    1.25%, 2.76% and 3.98%)................             15,126      1          101,980        4         170,190      7
One year to 18-month term (weighted
    average rate of 1.53%, 2.63% and 4.45%)
                                                       178,858      6          331,308       14         469,113     18
Two year to 30-month term (weighted
    average rate of 2.63%, 3.55% and 5.38%)
                                                        42,187      2           41,460        2          45,993      2
Over 30-month term (weighted average rate
    of 3.88%, 4.49% and 5.31%).............            123,966      5           94,927        4          39,938      1
Negotiable certificates of $100,000 and
    greater, 30 day to one year terms
    (weighted average rate of 1.25%, 2.32%
    and 3.84%).............................             97,727      4          209,502        8         306,254     12
                                                   -----------   -----     -----------      ----     ----------    ----
                                                       569,127     22          921,407       37       1,332,275     52
                                                   -----------   -----     -----------      ----     ----------    ----
Total deposits (weighted average rate of
    1.29%, 1.98% and 3.02%)................     $    2,538,398    100%  $    2,527,026      100% $    2,546,647    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  deposits,   FHLB  borrowings  and  securities  sold  under  agreements  to
repurchase.  As the cost of each source of funds  fluctuates  from time to time,
the Bank  seeks  funds from the  lowest  cost  source  until the  relative  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.

     The following table shows the maturity  distribution of jumbo  certificates
of deposit ($100,000 and greater) as of December 31, 2003 (in thousands):

<TABLE>
<S>                                                                   <C>
Maturing in:
  1 month or less..............................................       $  16,207
  Over 1 month to 3 months.....................................          31,488
  Over 3 months to 6 months....................................             837
  Over 6 months to 12 months...................................          25,297
  Over 12 months...............................................          23,898
                                                                      ---------
    Total......................................................       $  97,727
                                                                      =========
</TABLE>
     Based on historical renewal  percentages at maturity,  management  believes
that jumbo  certificates of deposit are a stable source of funds. For additional
information  with respect to deposits,  see Note 8 of the Notes to  Consolidated
Financial Statements.

                                       15
<PAGE>
     Borrowings.  The  Federal  Home Loan Bank System  functions  as a source of
credit to  financial  institutions  that are members of a regional  Federal Home
Loan Bank.  The Bank may apply for  advances  from the FHLB  secured by the FHLB
capital  stock  owned by the Bank,  certain  of 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  FHLB.  See  "Summary  of  Material
Legislation  and  Regulation  -  Qualified  Thrift  Lender  Test."  In  granting
advances, the FHLB also considers a member's creditworthiness and other relevant
factors.

     Total  advances  from the FHLB were $1.7  billion at December 31, 2003 at a
weighted  average rate of 2.88%.  This compares with advances of $1.2 billion at
December 31, 2002 and $1.6 billion at December  31, 2001 with  weighted  average
rates of 3.90% and 5.01%,  respectively.  The Bank has credit  availability with
the FHLB,  which  allows it to borrow up to 50% of its  assets or  approximately
$2.4 billion at December 31, 2003.

     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  entering  into 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  $122.6  million  at
December  31,  2003 at a  weighted  average  rate of 1.12% and were  secured  by
mortgage-backed  securities with principal  balances totaling $114.4 million and
investments   totaling  $11.3  million.   Borrowings  under  reverse  repurchase
agreements  totaled  $155.3  million at December 31, 2002 and $211.0  million at
December 31, 2001 at weighted  average  rates of 1.61% and 2.66%,  respectively.
The decrease in borrowings  under  agreements to repurchase  over the last three
years is due to paydowns of the underlying mortgage-backed securities.

     Borrowings  from all sources  totaled $1.8  billion,  $1.3 billion and $1.8
billion at weighted  average  rates of 2.76%,  3.63% and 4.74% at  December  31,
2003, 2002, and 2001,  respectively.  The increase in borrowings during 2003 was
necessary  to fund asset  growth.  Due to the high level of loan payoffs and the
growth in branch deposits, no additional borrowings were necessary to fund asset
growth during 2002.

     The Bank's portfolio of short-term borrowings includes FHLB advances due in
less than one year and  securities  sold under  agreements  to  repurchase.  The
following schedule summarizes  short-term borrowings for the last three years at
December 31:
<TABLE>
                                                                           Maximum
                                                                          Month-End
                                                                         Outstanding
                                                                           Balance
                                                                          During the
                                            End of Period                   Period                        Average
                                      ---------------------------       ---------------       ----------------------------
                                      Outstanding         Rate                                  Outstanding        Rate
                                      --------------    ---------                             ----------------    --------
                                                                    (Dollars in thousands)
<S>                                <C>                 <C>           <C>                   <C>                  <C>
2003
Short-term FHLB advances.........  $       1,082,000      2.16%      $      1,082,000      $         734,000        2.25%
Securities sold under agreements
    to repurchase................            122,622      1.12                154,021                139,568        1.27

2002
Short-term FHLB advances.........  $         427,000      2.25%      $        885,000      $         611,000        4.01%
Securities sold under agreements
    to repurchase................            155,273      1.61                208,367                169,335        2.04

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                294,110                255,747        4.69
</TABLE>
Other Sources of Funds

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

                                       16
<PAGE>
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.

     Revenues and  operating  results of these  subsidiaries  accounted for less
than 1% of  consolidated  revenues in 2003 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.  A gain of $87 thousand  was  recognized
during 2003 on the sale of Seaside's remaining  condominium unit. A gain of $142
thousand was recognized during 2002 on the sale of assets from a 100% owned real
estate  partnership.  No gains or losses on real estate  development  activities
were recorded during 2001.

     Trustee  Activities.  Seaside acts as trustee on the Bank's deeds of trust.
Trustee fees for this activity  amounted to $66  thousand,  $56 thousand and $86
thousand in 2003, 2002 and 2001, respectively.

     Insurance  Brokerage  Activities.  Oceanside  engages in limited  insurance
agent  activities.  Income  to date  from this  source  has been  insignificant.
Oceanside  operates  as a  licensed  life  insurance  agent for the  purpose  of
receiving commissions on the sale of fixed and variable rate annuities conducted
in the Bank's  branches by a licensed  third party  vendor,  who is a registered
broker-dealer. The 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 2003, 2002
and 2001,  Oceanside received commission income of $219 thousand,  $456 thousand
and  $231  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
$2 thousand in 2003 and $35 thousand in 2001.  Commission  rebates  totaling $64
thousand  were paid during  2002.  The rebates  paid during 2002  resulted  from
repayments of previously earned commissions when interim lender-placed  policies
were replaced by permanent policies obtained by borrowers.

Employees

     As of December 31, 2003,  the Bank had a total of 574 full time  equivalent
employees, including 111 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  and
part-time  employees with a comprehensive  benefits  program that includes basic
and major medical insurance, long-term disability coverage, sick leave, a 401(k)
plan and a profit sharing  employee stock ownership plan. 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 FHLB, is subject to  regulation  and
examination  by the  OTS  with  respect  to  most  of its  business  activities,
including,  among  others,  lending  activities,   capital  standards,   general
investment authority,  deposit taking and borrowing authority, mergers and other
business combinations, establishment of branch offices, and permitted subsidiary
investments and activities.  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.

     The  OTS  also  imposes   assessments  and  examination   fees  on  savings
institutions.  OTS  assessments  for the Bank were $667  thousand in 2003,  $708
thousand in 2002 and $653 thousand in 2001.

     As a member of the FHLB System,  the Bank is required to own capital  stock
in its  regional  FHLB in an amount at least  equal to the  greater of 1% of the
aggregate  principal  amount of its  unpaid  residential  mortgage  loans,  home
purchase contracts and similar obligations at the end of each year, or 5% of its
outstanding  borrowings  from the  FHLB.  The Bank was in  compliance  with this
requirement,  with an  investment of $87.8 million in FHLB stock at December 31,
2003.  During 2003,  the FHLB amended the  redemption  policy  requiring 5 years
written notice to redeem stock effective 2004.

                                       17
<PAGE>
     The FHLB serves as a source of liquidity for the member institutions within
its assigned  region,  the FHLB Eleventh  District.  It is funded primarily from
proceeds  derived from the sale of consolidated  obligations of the FHLB System.
It makes  advances  to  members  in  accordance  with  policies  and  procedures
established by the Federal  Housing  Finance Board and the Board of Directors of
the FHLB.  At December 31, 2003,  the Bank's  advances from the FHLB amounted to
$1.7  billion,  or 39% of the  Company's  total  funding  sources  (deposits and
borrowings).

     The FHLBs are required to contribute to affordable housing programs through
direct  loans or interest  rate  subsidies on advances  targeted  for  community
investment and low and moderate  income housing  projects.  These  contributions
have  adversely  affected the level of dividends that the FHLBs have paid to its
members.  These  contributions also could have an adverse effect on the value of
FHLB stock in the future.  For the year ended December 31, 2003,  dividends paid
by the FHLB to the Bank totaled approximately $3.3 million.

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

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

     There  continues  to be ongoing  discussions  in Congress as to whether the
regulator of the FHLBs should be changed and if so, to which regulatory  agency.
This discussion  includes whether the FHLBs should be required to register their
securities  with the SEC,  the  composition  of their  Boards of  Directors  and
whether their "mission" should be curtailed.  Because of the level of the Bank's
borrowings from the FHLB, the outcome of these discussions could effect the cost
and availability of borrowings and the value of the FHLB stock.

         Savings and Loan Holding Company Regulations. The activities of savings
and loan holding companies are governed by the Home Owners' Loan Act of 1933, as
amended. Pursuant to that statute, the Company is subject to certain
restrictions with respect to its activities and investments.

     A savings and loan  holding  company,  like FFC,  which  controls  only one
savings  association,  is exempt from  restrictions  on the conduct of unrelated
business  activities  that are applicable to savings and loan holding  companies
that control more than one savings  association.  The  restrictions  on multiple
savings  and loan  holding  companies  are  similar to the  restrictions  on the
conduct of unrelated  business  activities  applicable to bank holding companies
under the Bank Holding  Company Act. The Company  would become  subject to these
restrictions if it were to acquire control of another savings  association 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  or the  holding  company  that  create  a  serious  risk  that  the
liabilities  of the holding  company may be imposed on the savings  institution.
Any such limits will be issued in the form of a directive having the effect of a
cease-and-desist order.

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

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

                                       18
<PAGE>
     Insurance of Accounts.  The FDIC administers two separate deposit insurance
funds.  The Bank Insurance Fund ("BIF") insures the deposits of commercial banks
and other  institutions  that were insured by the FDIC prior to the enactment of
the  Financial  Institutions  Reform,  Recovery  and  Enforcement  Act  of  1989
("FIRREA").  The SAIF  insures the deposits of savings  institutions  which were
insured by the Federal Savings and Loan Insurance Corporation ("FSLIC") prior to
the enactment of FIRREA.  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 assigned to one
of three supervisory subgroup categories based on examinations by the OTS.

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

     Liquidity.  In July 2001,  the OTS revised  its  liquidity  regulations  to
require 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 unused  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, 2003,  liquidity-qualifying  balances  were 13.54% of the Bank's
liquidity base.

     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.   Institutions  are  evaluated  based  on:  (i)
performance in lending in their assessment  areas; (ii) the provision of deposit
and other community services in their assessment areas; and (iii) the investment
in housing-related  and other qualified  community  investments.  An institution
that is found to be  deficient  in its  performance  in meeting its  community's
credit needs may be subject to enforcement  actions,  including cease and desist
orders and civil money penalties.

     Restrictions  on Dividends  and Other  Capital  Distributions.  Current OTS
regulations  require that savings  institutions  controlled  by savings and loan
holding  companies (such as 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  institution and the OTS (or FDIC) or a condition
imposed by an OTS approval. The regulations also require a 30-day advance notice
to be filed for proposed capital  distributions that would result in the savings
institution  being less than  well-capitalized  or that involve the reduction or
retirement of the savings  institution's  stock. No capital  distributions  were
made to the Company  during 2003.  During  2002,  the Bank paid a total of $20.0
million in capital distributions to the Company.

                                       19
<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.

     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,
2003.

     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 investments in its investment portfolio.

     Safety  and  Soundness  Standards.  OTS  regulations  contain  "safety  and
soundness"  standards  covering  various  aspects of the  operations  of savings
institutions.  The  guidelines  relate to internal  controls and internal  audit
systems, information systems, loan documentation,  credit underwriting, interest
rate  exposure,  asset  growth,   executive  compensation,   maximum  ratios  of
classified assets to capital,  and minimum 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 2004.

     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 2003 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. The
Bank met the QTL test at December 31, 2003, with 92.93% of its portfolio  assets
comprised of "qualified thrift investments."

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

                                       20
<PAGE>
     Transactions with Insiders. Federal savings institutions are subject to the
restrictions of Sections 22(g) and (h) of the Federal  Reserve Act which,  among
other  things,  restrict the amount of extensions of credit which may be made to
executive  officers,  directors,  certain principal  shareholders  (collectively
"insiders"), and to their related interests. When lending to insiders, a savings
association  must  follow  credit  underwriting  procedures  that  are  no  less
stringent than those applicable to comparable  transactions with persons outside
the association. The amount that a savings association can lend in the aggregate
to insiders  (and to their  related  interests) is limited to an amount equal to
the  association's  core capital and surplus.  Insiders are also prohibited from
knowingly receiving (or knowingly permitting their related interests to receive)
any extensions of credit not authorized under these statutes.

     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, 2003 was 0% of
the first $6.0 million of such  accounts,  3% of the next $36.1  million of such
accounts and 10% (subject to adjustment by the Federal  Reserve Board between 8%
and 14%) of the balance of such accounts.  The Bank is in compliance  with these
requirements as of December 31, 2003.

     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 bad debts for Federal  income tax purposes 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, 2003
and 2002 do not include a tax  liability of  $5,356,000  related to the adjusted
base year bad debt  reserve.  The bad debt 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 any of these events to occur.

     To the extent  that  distributions  by the Bank to the  Company  exceed the
Bank's  cumulative  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, 2003, the Bank's cumulative  earnings and profits
(as computed for federal income tax purposes) were approximately $465.5 million.

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

     At December  31,  2003,  the Bank had $50.1  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 $34.1 million at December 31, 2003.

     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  utilizing a
methodology  that negates the  acceleration of such deductions under the regular
tax. The adjusted  income is then reduced by an exemption  amount and is subject
to tax at a 20% rate. No alternative  minimum taxes were  applicable to the Bank
for tax years 2003, 2002 or 2001.

     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 2003, 2002 and 2001 was 10.84%.

                                       21
<PAGE>
     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 1998.
The  adjustments  proposed  by the  IRS  were  primarily  related  to  temporary
differences as to the  recognition of certain  taxable income and expense items.
While  the  Company  had  provided  for  deferred  taxes for  federal  and state
purposes,  the change in the period of recognition of certain income and expense
items  resulted in interest due to the IRS and the Franchise Tax Board  ("FTB").
The balance of accrued  interest  payable for amended returns was $400 thousand,
$700  thousand  and $300  thousand  as of  December  31,  2003,  2002 and  2001,
respectively.  No interest accruals were recorded in 2003.  Accruals of $876,000
were recorded during 2002.

     Recent Legislation. On October 26, 2001, President Bush signed into law the
USA PATRIOT Act ("Patriot  Act"). The Patriot Act includes  numerous  provisions
designed to fight  international  money laundering and to block terrorist access
to the U.S. financial system. The "Customer Identification Program" requirements
of the Patriot Act became mandatory in October of 2003. While  implementation of
these regulations has required devotion of resources to ensure compliance, it is
not anticipated  that these new rules will have a significant  adverse impact on
the Bank's operations.

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

                                       22
<PAGE>
ITEM 2 -- PROPERTIES

     At December 31, 2003, the Bank owned the building and the land for eight of
its branch  offices,  owned the building but leased the land for two  additional
offices, and leased its remaining offices. Properties leased by the Bank include
its home and  executive  offices  located in an 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
table  representing  the range of high and low stock  prices  for the  Company's
common stock for each quarterly period for the last five years.

     (b) Holders.  As of January 22, 2004,  17,056,893  shares of Company common
stock,  representing  approximately 756 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 capital  distribution to the Company.  No such  distribution may be made if
the Bank's net worth falls below  regulatory  requirements.  (See  "--Business -
Summary of Material  Legislation and Regulations--" for other regulatory capital
distributions.)  No capital  distributions to the Company were made during 2003.
The  Board of  Directors  of the Bank  declared  and paid to the  Company  $20.0
million during 2002. The distributions  made during 2002 were for the purpose of
repurchasing shares of Company common stock.

     (d) Securities  authorized for issuance  under equity  compensation  plans.
Information  appearing on page 12 of the Proxy Statement is incorporated  herein
by reference.

                                       23
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA

         Selected financial data for the Company is presented below:

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                  FIVE YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
                                                      2003            2002              2001            2000            1999
                                                 -------------    ------------     -------------    -----------    -------------
                                                                   (Dollars in thousands, except per share data)
<S>                                           <C>              <C>             <C>               <C>            <C>
For the Year Ended December 31:
  Interest income.............................$      235,881   $      263,878  $       333,932   $     314,320  $     260,001
  Interest expense............................        88,342          128,419          201,754         206,505        161,031
  Net interest income.........................       147,539          135,459          132,178         107,815         98,970
  Provision for loan losses...................            --               --               --              --             --
  Other income................................        16,741           18,074            8,919           7,747         12,688
  Non-interest expense........................        55,589           58,212           53,174          48,265         49,159
  Earnings before income taxes................       108,691           95,321           87,923          67,297         62,499
  Income taxes................................        44,216           40,149           37,621          28,832         27,052
  Earnings before extraordinary items.........        64,475           55,172           50,302          38,465         35,447
  Extraordinary item loss on early
   extinguishment of debt, net of taxes.......            --               --               --              --         (2,195)
  Net earnings................................        64,475           55,172           50,302          38,465         33,252
Basic earnings per share:
  EPS before extraordinary item...............          3.80             3.22             2.92            2.23           1.84
  Extraordinary item..........................            --               --               --              --          (0.11)
  EPS after extraordinary item................          3.80             3.22             2.92            2.23           1.73
Dilutive earnings per share:
  EPS before extraordinary item...............          3.70             3.15             2.85            2.20           1.83
  Extraordinary item..........................            --               --               --              --          (0.12)
  EPS after extraordinary item................          3.70             3.15             2.85            2.20           1.71
End of Year:
  Loans receivable, net (1)...................     4,374,112        3,769,235        4,004,889       3,629,284      3,060,547
  Mortgage-backed securities, at fair value...       135,176          200,585          284,079         374,405        428,641
  Investment securities, at fair value........       116,411          103,055          110,444         136,537        151,195
  Total assets................................     4,825,022        4,253,729        4,726,289       4,365,242      3,872,051
  Deposits....................................     2,538,398        2,527,026        2,546,647       2,165,047      2,061,357
  Borrowings..................................     1,816,622        1,322,273        1,808,040       1,873,110      1,532,635
  Liabilities.................................     4,388,455        3,882,088        4,400,611       4,097,800      3,640,918
  Stockholders' equity........................       436,567          371,641          325,678         267,442        231,133
  Book value per share........................         25.61            21.95            18.88           15.52          12.82
  Tangible book value per share...............         25.18            21.40            18.14           14.98          12.78
Selected Ratios:
  Return on average assets....................          1.43%            1.24%            1.10%            0.93%         0.94%
  Return on average equity....................         15.97%           15.82%           16.93%           15.85%        14.91%
  Ratio of non-performing
     assets to total assets...................          0.10%            0.17%            0.17%            0.19%         0.40%
Other Data:
  Number of Bank full-service branches........            29               29               29              25             24

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

     Also see  summarized  results of operations on a quarterly  basis for 2003,
2002 and 2001 in Note 15 of the Notes to Consolidated Financial Statements.

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

                          CRITICAL ACCOUNTING POLICIES

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

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

                             RISKS AND UNCERTAINTIES

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

                                  ECONOMIC RISK

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

Credit Risk

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

     The  determination  of the  allowance  for loan losses and the valuation of
real estate collateral are based on estimates that are susceptible to changes in
the economic  environment  and market  conditions.  No loan loss  provision  was
recorded  during 2003. 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.

Collateral Risk

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

Market Risk

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

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

                                 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.

                                       25
<PAGE>
                                   OTHER RISKS
Inflation

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

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.

                                    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  and the
direction and level of general market interest rates.

     Net earnings of $64.5  million or $3.70 per diluted  share were recorded in
2003,  compared to net earnings of $55.2  million or $3.15 per diluted  share in
2002 and net earnings of $50.3 million or $2.85 per diluted share in 2001.

     Net earnings increased from 2002 to 2003 due to higher net interest income,
higher prepayment fees and reduced operating expenses. In addition,  there was a
$1.6  million  reduction  in net tax  provision  resulting  from a change in the
California tax law relating to bad debts. The increase in net earnings from 2001
to 2002 was  primarily  due to higher  net  interest  income and gain on sale of
loans of $5.9 million from a revised estimate of the Bank's repurchase liability
for loans sold with recourse.

     Consolidated  assets at the end of 2003 were $4.8 billion,  representing  a
13% increase  from $4.3  billion at the end of 2002 and a 2% increase  from $4.7
billion at the end of 2001.  The increase in assets during 2003 is  attributable
to increased loan origination  activity.  Loan originations totaled $2.3 billion
in 2003, $1.3 billion in 2002 and $1.5 billion in 2001.

     No loss provision was recorded in 2003, 2002 or 2001. The Bank recorded net
loan  recoveries of $15 thousand,  $950 thousand and $118 thousand  during 2003,
2002 and 2001, respectively.

     Certain key financial ratios for the Company are presented below:
<TABLE>
                                                                 Year Ended December 31,
                                                        -----------------------------------------
                                                                                        Average
                                                         Return on     Return on       Equity to
                                                          Average       Average         Average
                                                           Assets        Equity          Assets
                                                        -----------   -----------    ------------
<S>                                                     <C>           <C>            <C>
2003..............................................          1.43%        15.97%          8.98%
2002..............................................          1.24         15.82           7.83
2001..............................................          1.10         16.93           6.52
2000..............................................           .93         15.85           5.85
1999..............................................           .94         14.91           6.29

</TABLE>

     Non-performing  assets  (primarily loans 90 days past due or in foreclosure
plus foreclosed real estate)  decreased to $4.7 million or 0.10% of total assets
as of  December  31,  2003  from  $7.0  million  or 0.17% of total  assets as of
December  31, 2002 and $7.9  million or 0.17% of total  assets at  December  31,
2001.  The  decrease in  non-performing  assets over the last  several  years is
attributable  to lower  balances  of  delinquent  loans and the  strength of the
Southern California real estate market. See --"Non-Performing Assets--."

     As of February 1, 2004,  1,348,677  shares remain  eligible for  repurchase
under the  Company's  authorized  repurchase  program.  The Company  repurchased
common shares totaling 33,800 and 353,000 during 2003 and 2002, respectively. No
shares were repurchased during 2001.

     At December 31, 2003 the Bank's  regulatory  risk-based  capital  ratio was
15.92% and its  tangible and core  capital  ratios were 8.48%.  The Bank met the
regulatory  capital  standards  necessary  to be  deemed  "well-capitalized"  at
December 31, 2003. See --"Capital Requirements--."

                                       26
<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 $262.9 million in 2003, $229.2 million
in 2002 and $179.2  million in 2001.  The increase over the last three years was
due to accumulated earnings.

     The Company's net interest  income is impacted by a time lag before changes
in the  cost of funds  can be  passed  along to  monthly  adjustable  rate  loan
customers.  Savings and borrowing  costs adjust to market rates quickly while it
takes  several  months for loan yields to adjust.  This time lag  decreases  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--" in "--Quantitative and Qualitative Disclosures
About Market Risk--" for further discussion.

     The following  table sets forth the components of  interest-earning  assets
and liabilities,  the excess of  interest-earning  assets over  interest-bearing
liabilities,  the yields  earned and rates paid and net interest  income for the
periods indicated:
<TABLE>
                                                                          At or for the Year Ended December 31,
                                                                        ----------------------------------------
                                                                           2003           2002           2001
                                                                        ----------    -----------    -----------
                                                                                (Dollars in thousands)
<S>                                                                  <C>           <C>            <C>
Average loans and mortgage-backed securities (1).................... $   4,194,404 $   4,091,852  $    4,181,554
Average investment securities.......................................       113,624       172,996         200,807
                                                                        ----------    -----------    -----------
Average interest-earning assets.....................................     4,308,028     4,264,848       4,382,361
                                                                        ----------    -----------    -----------
Average deposits....................................................     2,515,471     2,517,366       2,317,744
Average borrowings..................................................     1,529,630     1,518,283       1,885,426
                                                                        ----------    -----------    -----------
Average interest-bearing liabilities................................     4,045,101     4,035,649       4,203,170
                                                                        ----------    -----------    -----------
Excess of interest-earning assets over interest-bearing liabilities. $     262,927 $     229,199  $      179,191
                                                                        ==========    ===========    ===========

Yields earned on average interest-earning assets....................          5.40  %       6.08 %          7.50 %
Rates paid on average interest-bearing liabilities..................          2.18          3.16            4.79
Interest rate spread................................................          3.22          2.92            2.71
Effective net spread................................................          3.35          3.09            2.90

Total interest income............................................... $     232,634 $     259,303  $      328,679
Total interest expense..............................................        88,183       127,526         201,420
                                                                        ----------    -----------    -----------
                                                                           144,451       131,777         127,259
Total other income (2)..............................................         3,088         3,682           4,919
                                                                        ----------    -----------    -----------
Net interest income................................................. $     147,539 $     135,459  $      132,178
                                                                        ==========    ===========    ===========

 (1) Non-accrual loans are included in the average dollar amount of loans
     outstanding; however, no income is included for the period that each
     such loan was on non-accrual status.
 (2) Includes dividends on FHLB stock and other miscellaneous items.
</TABLE>
     The  Bank's  interest  rate  spread  increased  by 30 basis  points in 2003
compared to 2002 as the yield on earning assets declined by only 68 basis points
while the cost of funds  fell by 98 basis  points  due to  declining  short term
interests rate throughout the year. The Bank's interest rate spread increased by
21 basis points in 2002 compared to 2001 as the yield on earning assets declined
by only 142 basis points while the cost of funds fell by 163 basis points due to
the  declining  short term  interest  rates  throughout  the year.  The time lag
inherent in the Bank's  adjustable real estate loan portfolio ranges from one to
three months.

                                       27
<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 December 31, 2003            Year Ended December 31, 2002
                                                         Versus                                  Versus
                                                    December 31, 2002                       December 31, 2001
                                          ------------------------------------    -------------------------------------
                                                      Change Due To                           Change Due To
                                          ------------------------------------    -------------------------------------
                                            Volume        Rate         Total        Volume        Rate          Total
                                          ---------    ---------    ----------    ---------    ----------    ----------
                                                                          (In thousands)
<S>                                    <C>          <C>          <C>           <C>          <C>           <C>
Interest Income:
  Loans and mortgage-backed
    securities.........................$     6,163  $   (29,014) $   (22,851)  $    (6,685) $   (58,564)  $   (65,249)
  Investments..........................     (1,770)      (2,048)      (3,818)       (1,309)      (2,818)       (4,127)
                                          ---------    ---------    ---------     ---------    ----------    ---------
    Total interest income..............      4,393      (31,062)     (26,669)       (7,994)     (61,382)      (69,376)
                                          ---------    ---------    ---------     ---------    ----------    ---------
Interest Expense:
  Deposits.............................        (46)     (21,822)     (21,868)        7,562      (41,232)      (33,670)
  Borrowings...........................        496      (17,971)     (17,475)      (18,628)     (21,596)      (40,224)
                                          ---------    ---------    ---------     ---------    ----------    ---------
    Total interest expense.............        450      (39,793)     (39,343)      (11,066)     (62,828)      (73,894)
                                          ---------    ---------    ---------     ---------    ----------    ---------
    Change in net interest income......      3,943        8,731       12,674         3,072        1,446         4,518
                                          ---------    ---------    ---------     ---------    ----------    ---------
Change in other items (1)..............                                 (594)                                  (1,237)
                                                                    ---------                                ---------
Total change in net interest
  Income including other items.........                          $    12,080                              $     3,281
                                                                    =========                                =========
 (1) Includes dividends on FHLB stock and other miscellaneous items.
</TABLE>

Note: Changes in rate/volume (change in rate multiplied by the change in average
volume) have been  allocated to the change in rate or the change in volume based
upon the respective percentages of the combined totals.
<TABLE>
                                                       Interest Rate Spreads and Effective Net Spreads
                                                                   Year Ended December 31,
                          --------------------------------------------------------------------------------------------------------
                                 2003                 2002                  2001                 2000                  1999
                          -----------------    ------------------    -----------------    ------------------    ------------------
                           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.........     5.49%      5.09%     6.18%      5.98%      7.61%      6.57%     7.85%      8.15%      7.37%      7.31%
Weighted average
   yield on
   investment              2.20       2.64      3.65       4.41       5.16       3.52      6.11       5.63       5.41       5.69
   portfolio (1)......
Weighted average
   yield on all
   interest-earning        5.40       5.02      6.08       5.94       7.50       6.40      7.77       8.04       7.26       7.25
   assets.............
Weighted average
rate paid on
deposits..............     1.55       1.29      2.42       1.98       4.08       3.02      4.70       4.90       4.22       4.42
Weighted average
rate paid on
borrowings and
FHLB advances.........     3.21       2.76      4.39       3.63       5.67       4.74      6.29       6.46       5.59       5.88
Weighted average rate
   paid on all
   interest-bearing
   liabilities........     2.18       2.12      3.16       2.54       4.79       3.73      5.40       5.62       4.76       5.04
Interest rate
  spread(2)...........     3.22       2.90      2.92       3.40       2.71       2.67      2.37       2.42       2.50       2.21

Effective net
  spread(3)...........     3.35                 3.09                  2.90                 2.57                  2.69

(1) Dividends  on  FHLB  stock  and  miscellaneous  interest  income  were  not
    considered in this analysis
(2) Weighted average yield on all interest-earning  assets less weighted average
    rate paid on all interest-bearing liabilities
(3) Net interest income (excluding dividends on FHLB stock and other
    miscellaneous items) divided by average interest-earning assets
</TABLE>
                                       28
<PAGE>
Loss Provision

     The Company did not record a loan loss provision during 2003, 2002 or 2001.
No provision was recorded during the last three years because, based on analysis
performed by management,  existing  allowances  were  sufficient to cover credit
risks inherent in the loan portfolio.  Non-performing  assets  decreased to $4.7
million  in 2003  from  $7.0  million  in 2002 and $7.9  million  in 2001 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 repurchase liability for loans sold with recourse.

     The Company  recorded net loan recoveries of $15 thousand during 2003, $950
thousand during 2002 and $118 thousand during 2001. The recoveries resulted from
cash payments by borrowers on loans that had been previously charged-off.

Non-interest Income

     Loan  servicing  and other fees were $8.0 million in 2003  compared to $4.3
million in 2002 and $3.3  million in 2001.  The increase in fees during 2003 was
due to an increase in loan  prepayments  fees.  Fees earned during 2002 and 2001
include reductions of $311 thousand and $134 thousand,  respectively, to provide
for  impairment of the Bank's  servicing  asset due to  accelerated  payoffs and
prepayments of loans serviced for others.  There were no such reductions  during
2003.

     Banking  service fees were $5.1 million in 2003 compared to $4.6 million in
2002 and $3.8 million in 2001.  The increase in these fees is due to an increase
in fee-generating deposit accounts.

     Gain on sale of loans was $2.4  million in 2003,  $7.8  million in 2002 and
$656 thousand in 2001.  Loan sales were $86.1 million,  $134.2 million and $61.2
million during 2003, 2002 and 2001, respectively. The gain realized on cash loan
sales was $944 thousand,  $1.9 million and $656 thousand in 2003, 2002 and 2001,
respectively.  Cash gains  fluctuate  due to changes in market  pricing based on
interest  rate trends.  Also,  the dollar  amount of loans  originated  for sale
varies  based on the  availability  of  attractive  fixed rate loan  programs to
borrowers  compared to the Bank's adjustable rate loan programs.  In addition to
cash gains, Gain on sale of Loans includes  adjustments from prior years' sales.
During 2003,  the Bank revised its current  estimate of the required  repurchase
liability for loans sold with recourse from $6.9 million to $5.4 million. During
2002, the Bank revised its current estimate of the required repurchase liability
for loans sold with recourse  from $12.8  million to $6.9 million.  This reduced
liability  amount  reflects the fact that the total portfolio of loans sold with
recourse has been experiencing  significant pay-offs,  and has had better credit
experience than previously estimated.  As a result,  included in gain on sale of
loans for 2003 is a $1.5 million  adjustment to the Bank's repurchase  liability
for loans sold with  recourse.  Included  in gain on sale of loans for 2002 is a
$5.9 million  adjustment to the Bank's repurchase  liability for loans sold with
recourse.  The  Company's  repurchase  liability  for loans  sold with  recourse
represents  the total losses that are estimated to occur over the remaining life
of the portfolio of loans sold with recourse, discounted to present value.

     Real estate  operations  resulted  in a net gain of $780  thousand in 2003,
$339 thousand in 2002 and $304 thousand in 2001. Real estate operations  include
gain on sale of foreclosed properties, operational income and expense during the
holding period, and recoveries of prior losses on real estate sold.

Non-interest Expense

     The ratio of  non-interest  expense to average  total  assets was 1.24% for
2003,  1.31% for 2002 and 1.17% for 2001.  The decrease  during 2003 compared to
2002 is primarily the result of a reduction in legal and advertising  costs. The
higher ratio during 2002 is the result of increased compensation and legal costs
and a decrease in average total assets.

     Salary and benefit costs  increased 3% in 2003  compared to 2002  primarily
due to normal salary adjustments. Salary and benefit costs increased 10% in 2002
compared to 2001 primarily due to higher  incentives  and  additional  personnel
hired in the commercial banking group.

     Occupancy  expense decreased 5% in 2003 compared to 2002 due to a reduction
in  depreciation  expense for certain  assets that became fully  depreciated  in
2003.

                                       29
<PAGE>
     The following table details the components of non-interest  expense for the
periods indicated:
<TABLE>

                                                                         Non-Interest Expense
                                                                        Year Ended December 31,
                                                  -------------------------------------------------------------------
                                                     2003          2002           2001          2000          1999
                                                  ----------    ----------    -----------    ----------    ----------
                                                                           (Dollars in thousands)
<S>                                            <C>           <C>           <C>            <C>           <C>
Salaries and Employee Benefits:
     Salaries..................................$     21,565  $     20,984  $      18,119  $     17,354  $     16,631
     Incentive compensation....................       3,917         3,122          2,472         1,987         1,677
     Payroll taxes.............................       1,883         1,827          1,652         1,486         1,607
     Employee benefit insurance................       1,016         1,386          1,203         1,320         1,220
     Bonus compensation........................       1,275         1,500          1,500           920         1,583
     Profit sharing............................       2,030         2,024          2,020         1,778         1,100
     SERP......................................         850         1,161            970           906           988
     401(k)....................................         540           310            356           354           299
     Other salaries and benefits...............         408           313          1,390           339         1,559
                                                  ----------    ----------    -----------    ----------    ----------
                                                     33,484        32,627         29,682        26,444        26,664
                                                  ----------    ----------    -----------    ----------    ----------
Occupancy:
     Rent......................................       4,690         4,673          4,439         4,539         4,395
     Equipment.................................       1,378         1,836          1,971         2,318         2,145
     Maintenance costs.........................         904           879            914           571           469
     Other occupancy...........................       1,199         1,169            978           603           850
                                                  ----------    ----------    -----------    ----------    ----------
                                                      8,171         8,557          8,302         8,031         7,859
                                                  ----------    ----------    -----------    ----------    ----------
Other Operating Expense:
     Insurance.................................         648           690            582           541           430
     Amortization of core deposit intangible...       1,995         1,962          1,564         1,965           452
     Data processing...........................       2,905         2,838          2,490         2,488         1,930
     Contributions.............................         409           363            450           518           299
     Professional services.....................         201           195            207           301             8
     Legal expenses............................       1,103         2,888          1,393           632         3,516
     OTS assessments...........................         667           708            653           568           567
     Federal deposit insurance premiums........         394           438            418           538         1,236
     Other operating costs.....................       5,297         5,568          5,633         4,822         4,334
                                                  ----------    ----------    -----------    ----------    ----------
                                                     13,619        15,650         13,390        12,373        12,772
                                                  ----------    ----------    -----------    ----------    ----------

Advertising....................................         315         1,378          1,800         1,417         1,864
                                                  ----------    ----------    -----------    ----------    ----------
  Total........................................$     55,589  $     58,212  $      53,174  $     48,265  $     49,159
                                                  ==========    ==========    ===========    ==========    ==========
Non-interest expense as
    % of average assets........................        1.24%         1.31%          1.17%         1.17%         1.30%
                                                  ==========    ==========    ===========    ==========    ==========
</TABLE>

                                       30
<PAGE>
                             BALANCE SHEET ANALYSIS

     Consolidated  assets at the end of 2003 were $4.8 billion,  representing  a
13% increase  from $4.3  billion at the end of 2002 and a 2% increase  from $4.7
billion at the end of 2001.  The increase in assets during 2003 is  attributable
to increased loan origination  activity.  Loan originations totaled $2.3 billion
in 2003, $1.3 billion in 2002 and $1.5 billion in 2001.  Loan purchases  totaled
$500 thousand  during 2003,  $89 thousand  during 2002 and $132.6 million during
2001.  Principal  repayments  on loans  totaled $1.7 billion  during 2003,  $1.5
billion during 2002 and $1.3 billion during 2001.

Real Estate Loan Portfolio

     At the end of 2003, 37.6% of the Bank's loans had adjustable interest rates
based on monthly  changes in the COFI,  22.1% were based on the 12MAT  Index and
15.9%  were  based  on the  CODI.  As  part  of its  asset-liability  management
strategy,  the Bank has  maintained  a high  level  of  adjustable  loans in its
portfolio  for  several  years.  During  2003,  the Bank  focused  on  marketing
adjustable  loans based on the CODI. At December 31, 2003,  CODI loans comprised
15.9%  of the  loan  portfolio.  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 these hybrid  fixed-rate
loans will enhance the  Company's  overall  return on assets.  Loans  originated
under the hybrid programs totaled $434.3 million in 2003, $419.7 million in 2002
and $1.0 billion in 2001.

The following table summarizes loan  originations and purchases by loan type for
the periods indicated:
<TABLE>
                                                                       December 31,
                                                                    2003           2002
                                                               --------------- --------------
                                                                      (In thousands)
<S>                                                            <C>             <C>
 Fixed.........................................................$       64,120  $     110,154
 Hybrid........................................................       434,314        419,690

Adjustable:
 12MAT.........................................................       817,217        303,443
 CODI..........................................................       745,507         20,082
 COFI..........................................................       158,368        383,852
 LIBOR.........................................................         2,350         20,887
 Prime.........................................................        53,154         30,664
                                                                 -------------   ------------
     Total.....................................................$    2,275,030  $   1,288,772
                                                                 =============   ============
</TABLE>
     In 2003,  2002 and 2001,  the Bank placed $760  thousand,  $1.4 million and
$5.0  million,   respectively,   in  mortgages  with  other  lenders  under  fee
arrangements.  These loans are not included in the Bank's loan originations.  In
2003, loans made on the security of single-family properties (one-to-four units)
comprised 75% of the dollar amount of new loan  originations.  Loans made on the
security of multi-family  properties  (five or more units)  comprised 21% of new
originations.  Loans made on the security of commercial  real estate  properties
comprised  2% of  new  loan  originations.  Business  loans  originated  by  the
commercial  lending units totaled 1% of new loan  originations.  Adjustable rate
mortgages  comprised  78% of new loan  activity  during 2003  compared  with 59%
during 2002 and 18% during 2001.

                                       31
<PAGE>
     The following  table details loan  originations  and loan purchases by loan
type for the periods indicated:
<TABLE>
                                                          Loan Originations and Purchased by Type
                                                                  Year Ended December 31,
                                          ----------------------------------------------------------------------
                                              2003           2002           2001            2000          1999
                                          -----------    -----------    -----------     -----------    ---------
                                                                      (In thousands)
<S>                                    <C>            <C>            <C>            <C>             <C>
Single family (one-to-four units)......$  1,712,584   $     728,309  $     912,974  $      658,808  $    779,698
Multi-family...........................       470,426       441,407        407,458         333,466       118,622
Commercial real estate.................        35,237        84,050        150,735          70,807        37,744
Commercial business loans..............        31,581        17,572         16,172          11,759         7,768
Other..................................        25,702        17,434         14,996           6,170           301
                                          -----------    -----------    -----------     -----------    ---------
Total..................................$    2,275,530 $   1,288,772  $   1,502,335  $    1,081,010  $    944,133
                                          ===========    ===========    ===========     ===========    =========
</TABLE>
     No loans were  originated upon the sale of real estate owned during 2003 or
2001.  Loans originated upon the sale of real estate owned totaled $375 thousand
during 2002.

     The Bank's loan products may provide for initial monthly  payments that are
calculated based on pay rates that are lower than the fully-indexed interest and
principal  due. Any interest not fully paid by such lower first year payments is
added  to the  principal  balance  of the  loan.  This,  as well  as  shortfalls
resulting from a 7 1/2 % annual payment cap, causes negative  amortization until
payments increase to cover interest and principal repayment  shortfalls.  Due to
negative amortization,  loan-to-value ratios may increase above those calculated
at the inception of the loan.

     The  Bank  does  not  normally  lend  in  excess  of 90%  of the  appraised
collateral value on adjustable mortgage loans ("AMLs"). Where the Bank does lend
in excess of 90% of the appraised value,  additional fees and rates are charged.
Mortgage insurance is required on loans in excess of 80% or premium rates and/or
fees are charged if the mortgage insurance requirement is waived.  Subsequent to
the origination of a loan, the Bank may purchase private mortgage insurance with
its own funds. Loans originated with an initial  loan-to-value  greater than 80%
with no private mortgage  insurance  totaled $486.7 million at December 31, 2003
compared to $159.7  million at December 31, 2002 and $354.5  million at December
31, 2001. 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.  The loan portfolio
also includes  loans  secured by  multi-family  and  commercial  and  industrial
properties.  At December 31, 2003, 55% of the loan portfolio  consisted of first
liens on single-family  properties while first liens on multi-family  properties
were 35% of the portfolio,  and first liens on commercial properties represented
8% of the portfolio.  Commercial business loans,  construction  loans,  consumer
loans and other  loans  comprised  the  remaining  2% of the loan  portfolio  at
December 31, 2003.

                                       32
<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>
                                                                     Year Ended December 31,
                                              ----------------------------------------------------------------------
                                                  2003          2002           2001           2000           1999
                                              -----------    ----------    -----------    -----------    -----------
                                                                          (In thousands)
<S>                                       <C>             <C>           <C>             <C>            <C>
REAL ESTATE LOANS
 First trust deed residential loans:
   One-to-four units......................$     2,456,971 $   1,723,690 $    2,121,899  $   2,158,940  $   1,813,783
   Five or more units.....................      1,547,771     1,646,430      1,525,749      1,308,440      1,123,308
                                              -----------    ----------    -----------    -----------    -----------
        Residential loans.................      4,004,742     3,370,120      3,647,648      3,467,380      2,937,091

OTHER REAL ESTATE LOANS
   Commercial and industrial..............        345,273       419,273        358,159        217,619        183,194
   Construction...........................          9,053         6,927         38,060             --             --
   Land...................................             --           203          1,481             --             --
   Second trust deeds.....................          7,281         5,965          9,472          8,543         13,489
                                              -----------    ----------    -----------    -----------    -----------
     Real estate loans....................      4,366,349     3,802,488      4,054,820      3,693,542      3,133,774

 NON-REAL ESTATE LOANS:
   Manufactured housing...................             --            --             --            391            613
   Deposit accounts.......................            649         1,185          1,267            576            683
   Commercial business loans..............         34,424        19,582         18,882         12,600          8,140
   Consumer loans.........................         49,738        35,395         19,546          6,555            593
                                              -----------    ----------    -----------    -----------    -----------
     Loans receivable.....................      4,451,160     3,858,650      4,094,515      3,713,664      3,143,803

LESS:
   General valuation allowance............         75,238        75,223         72,919         70,809         69,954
   Impaired loan valuation allowance......            496           496          1,850          1,792          2,596
   Unearned loan fees.....................          1,314        13,696         14,857         11,779         10,706
                                              -----------    ----------    -----------    -----------    -----------
     Net loans receivable (1).............      4,374,112     3,769,235      4,004,889      3,629,284      3,060,547

FHLMC AND FNMA MORTGAGE-BACKED
SECURITES (at fair value):
   Secured by single family dwellings.....        128,465       192,395        272,419        360,210        412,469
   Secured by multi-family dwellings......          6,711         8,190         11,660         14,195         16,172
                                              -----------    ----------    -----------    -----------    -----------
        Mortgage-backed securities........        135,176       200,585        284,079        374,405        428,641
                                              -----------    ----------    -----------    -----------    -----------

                TOTAL                     $     4,509,288 $   3,969,820 $    4,288,968  $   4,003,689  $   3,489,188
                                              ===========    ==========    ===========    ===========    ===========
(1) Includes loans held-for-sale.
</TABLE>

     Unearned  loan fees  decreased  to $1.3  million at December  31, 2003 from
$13.7  million at December  31, 2002 due to the high volume of  wholesale  loans
originated  during 2003.  Wholesale  loans  typically have deferred  origination
costs in excess of loan origination income.

Loans Sold with Recourse

     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  $91.0 million as of December 31, 2003,  $108.6  million as of
December 31, 2002 and $137.2 million as of December 31, 2001. 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.

                                       33
<PAGE>
                                  ASSET QUALITY

 Asset Quality Ratios

     The following table sets forth certain asset quality ratios of the Bank for
the periods indicated:
<TABLE>
                                                                          Year Ended December 31,
                                                   --------------------------------------------------------------------
                                                       2003          2002           2001          2000           1999
                                                   ----------   -----------    -----------    ----------    -----------
<S>                                                <C>          <C>            <C>            <C>           <C>
Non-performing loans to gross loans
  receivable (1)................................         0.08%        0.17%         0.16%            0.17%         0.42%
Non-performing assets to total assets (2).......         0.10%        0.17%         0.17%            0.19%         0.40%
Loan loss allowances to non-performing
  loans (3).....................................        2,266%       1,126%        1,151%           1,160%          528%
General loss allowances to gross loans
  receivable (4)................................         1.70%        1.96%         1.83%            1.95%         2.31%

(1)    Non-performing loans are net of valuation allowances related to those
       loans. Loans receivable are before deducting unrealized loan fees,
       general valuation allowances and valuation allowances for impaired loans.

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

(3)    The Bank's loan loss allowances, including any valuation allowances for
       non-performing loans, impaired loans and the general valuation allowance.
       Non-performing loans are before deducting valuation allowances related to
       those loans.

(4)    The Bank's general valuation allowances plus the allowance for impaired
       loans as a percentage of loans receivable before deducting unrealized
       loan fees, general valuation allowances and valuation allowances for
       impaired loans.
</TABLE>

                              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,
                          ----------------------------------------------------------------------------------------------------------
                                 2003                  2002                  2001                  2000                   1999
                          ------------------    ------------------    -----------------     -----------------     ------------------
                             $          %          $          %          $          %          $          %          $           %
                          -------    -------    -------    -------    -------    ------     ------     ------     ------     -------
                                                                    (Dollars in thousands)
<S>                    <C>         <C>       <C>         <C>       <C>         <C>      <C>         <C>       <C>           <C>
Real estate owned:
Single family..........$   1,324        28%  $     519         7%  $   1,671        21% $    2,507        30% $    1,069         7%
Multi-family...........       --        --          --        --         164         2          --        --       1,483        10
Less: general
  valuation allowance..       --        --        (200)       (2)       (350)       (4)       (350)       (4)       (350)       (2)
                          -------    -------    -------    -------    -------    ------     ------     ------     ------     -------
Total real estate owned    1,324        28         319         5       1,485        19       2,157        26       2,202        15
Non-performing loans:
Single family..........    3,326        71       5,705        81       6,062        76       5,603        68       9,626        62
Multi-family...........       --        --       1,017        14         422         5         662         8       3,995        26
Commercial and                                                                                                                   1
  industrial...........       --        --          --        --          --         --         --        --         225
Other..................       16         1          --        --          16         1          --        --          --        --
Less: valuation
  allowance............       --        --          --        --         (57)       (1)       (123)       (2)       (625)       (4)
                          -------    -------    -------    -------    -------    ------     ------     ------     ------     -------
Total non-performing
  loans................    3,342        72       6,722        95       6,443        81       6,142        74      13,221        85
                          -------    -------    -------    -------    -------    ------     ------     ------     ------     -------
Total..................$   4,666       100%  $   7,041       100%  $   7,928       100% $    8,299       100% $   15,423       100%
                          =======    =======    =======    =======    =======    ======     ======     ======     ======     =======
Ratio of
  non-performing
  assets to total
  assets...............               0.10%                 0.17%                 0.17%                 0.19%                 0.40%
                                     =======               =======               ======                ======                =======
</TABLE>

     The decrease in non-performing  loans over 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.

                                       34
<PAGE>
     Single-family  non-performing  loans are  primarily  due to factors such as
unemployment  and  declining   personal  income.   Multi-family  and  commercial
non-performing  loans are attributable  primarily to factors such as declines in
occupancy rates,  employment rates and rental rates. The Bank actively  monitors
the status of all non-performing loans.

     Impaired loans totaled $3.3 million,  $1.6 million and $7.4 million, net of
related  allowances  of $496  thousand,  $496  thousand  and $1.9  million as of
December 31, 2003, 2002 and 2001,  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 or an extension of maturity dates.  Under these
arrangements,  loan  terms are  typically  reduced  to no less  than a  required
monthly interest payment. Any loss of revenues under the modified terms would be
immaterial  to 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, 2003, the Bank had modified
loans totaling $5.7 million, net of loan loss allowances of $496 thousand.  This
compares with $3.4 million and $7.4 million,  net of allowances,  as of December
31, 2002 and December 31, 2001 respectively. Modified loans included as impaired
loans  totaled $3.3  million,  $1.6 million and $6.4  million,  net of valuation
allowances,  as of December 31, 2003, 2002 and 2001,  respectively.  No modified
loans were 90 days or more delinquent as of December 31, 2003, 2002 or 2001.

                         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.

     The  Bank's  strategy  is to keep cash and liquid  investments  at a modest
level due to the availability of 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
unused 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,  2003,  liquidity-qualifying  balances  were  13.54% of the Bank's
liquidity base.

 External Sources of Funds

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

     Deposits are accepted from full-service banking branches,  national deposit
brokers  ("brokered  deposits") and  telemarketing  sources.  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 deposits,  FHLB borrowings
and repurchase  agreements.  As the cost of each source of funds fluctuates from
time to time,  based on market  rates of interest  offered by the Bank and other
depository  institutions,  the Bank  selects  funds from the lowest  cost source
until the relative costs change. As the cost 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 its use of any one of the
specific sources of funds at a given time to be material.

     Deposits at full-service banking branches were $2.5 billion at December 31,
2003,  $2.3 billion as of December  31, 2002 and $2.1 billion at December  2001.
Management  attributes  the  increase  in  deposits  over the last two  years to
increased  deposits from stock market investors  wanting more security for their
investments due to price volatility in the stock market.

     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. The Bank had no brokered deposits at
December  31,  2003.  This  compares to $161.3  million at December 31, 2002 and
$356.8 million at December 31, 2001.  Utilization of brokered deposits decreased
during  2003 due to the  availability  of cash from loan  payoffs  and growth in
full-service branch deposits.

                                       35
<PAGE>
     Telemarketing  deposits  decreased by $49.0 million to $15.6 million at the
end of 2003.  This  compares  with  $64.6  million at the end of 2002 and $100.7
million at the end of 2001.  These  deposits are normally  large  deposits  from
pension plans,  managed trusts and other  financial  institutions.  The level of
telemarketing  deposits  varies  based on the  activity  of  investors,  who are
typically   professional  money  managers.  The  availability  of  telemarketing
deposits  also  varies  based  on  the  investors'   perception  of  the  Bank's
creditworthiness.  During 2003, the balance of telemarketing  deposits decreased
as a result of cash flows from loan  payoffs and growth in  full-service  branch
deposits.

     Loan sales were $86.1  million in 2003.  This  compares  to $134.2  million
during 2002 and $61.2 million during 2001. Loan sales increased  during 2002 and
2001 due to the  increased  demand by clients for 30-year and 15-year fixed rate
mortgages  which  are  originated  by the  Bank  for  sale  to  other  financial
institutions.

     FHLB advances were $1.7 billion at the end of 2003, $1.2 billion at the end
of 2002 and $1.6 billion at the end of 2001.  Borrowings from the FHLB increased
during 2003 in order to fund loan originations which grew to $2.3 billion during
2003  compared  to $1.3  billion  during  2002.  These  funds were the most cost
effective in 2003 when compared to deposit broker and telemarketing funds.

     Reverse  repurchase   agreements  are  short-term   borrowings  secured  by
mortgage-backed and investment securities.  These borrowings decreased to $122.6
million  at the end of 2003 from  $155.3  million  at the end of 2002 and $211.0
million at the end of 2001.  Borrowings under reverse repurchase agreements have
decreased  over  the last  three  years  due to  prepayments  of the  underlying
mortgage collateral.  The Bank has not securitized any mortgage loans for use in
collateralized borrowings for several years.

Internal Sources of Funds

     Internal  sources of funds include loan principal  payments,  loan payoffs,
and positive cash flows from operations. Principal payments were $1.7 billion in
2003  compared  to $1.5  billion  in 2002 and $1.3  billion  in 2001.  Principal
payments include both scheduled  principal  paydowns and prepayments which are a
function of real estate  activity and the general level of interest  rates.  The
increase in prepayments has been attributable to the low level of interest rates
available on 30-year and 15-year fixed rate loans available to customers.

     The Company  anticipates  that it will have  sufficient  funds available to
fund current loan origination  activity. At December 31, 2003, the Company has a
credit  facility with the FHLB in the form of advances and lines of credit which
allow  borrowings of up to 50% of the Bank's  assets as computed for  regulatory
purposes.  At December 31, 2003, this amounted to approximately $2.4 billion. At
December  31,  the  Company  had  $1.7  billion  in  advances   from  the  FHLB.
Certificates of deposits which have  contractual  maturities of one year or less
from December 31, 2003, totaled $435.2 million.  If a significant portion of the
maturing  certificates are not renewed at maturity,  the Company's other sources
of liquidity  include  principal and interest  payments on loans,  proceeds from
loan sales and other borrowings,  such as reverse repurchase  transactions.  The
Company  could also choose to pay higher  rates to maintain  maturing  deposits,
which could result in an increased cost of funds. Historically,  the Company has
retained  a  significant   portion  of  maturing   deposits.   While  management
anticipates  that there may be some outflow of these  deposits upon maturity due
to the current  competitive rate  environment,  these are not expected to have a
material impact on the long-term liquidity position of the Company.

     The  table  below  details  the  amounts  of  the   Company's   contractual
obligations by maturity at December 31, 2003.
<TABLE>
                                                                     Payments due by period
                                         ------------------------------------------------------------------------------
                                                                                             Less than      More than
                                             Total           1 year        1 - 3 years      3 - 5 years      5 years
                                         -------------   -------------    ------------     ------------   -------------
                                                                         (In thousands)
<S>                                   <C>               <C>    <C>    <C>    <C>    <C>
Fixed-rate term certificates..........$      569,127   $     435,161   $      116,672  $        17,294  $          --
FHLB advances.........................     1,694,000       1,082,000          492,000           95,000         25,000
Reverse repurchase agreements.........       122,622         122,622               --               --             --
Operating lease obligations...........        20,417           4,262            7,825            6,087          2,243
                                         -----------     -----------      -----------       ----------    -----------
Total.................................$    2,406,166   $   1,644,045   $      616,497  $       118,381  $      27,243
                                         ===========     ===========      ===========       ==========    ===========
</TABLE>

                                       36
<PAGE>
Capital Requirements

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

     Management  presently  intends to maintain  its capital  position at levels
above those required by regulators to ensure  operating  flexibility  and growth
capacity  for 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.

     The following table summarizes the capital ratios of the "well capitalized"
category  and the Bank's  regulatory  capital  position at December  31, 2003 as
compared to such ratios.  As indicated in the table,  the Bank's  capital levels
exceeded the three minimum capital ratios of the "well capitalized" category:
<TABLE>
                                                                         December 31, 2003
                                                                      Amount              %
                                                                   ---------           ------
                                                                     (Dollars in thousands)
<S>                                                                <C>               <C>
   Core capital requirement..........................               $240,848             5.00%
   Bank's core capital...............................                408,524             8.48
                                                                    --------           ------
     Excess core capital.............................               $167,676             3.48%
                                                                    ========           ======

   Tier 1 risk-based capital requirement.............               $167,254             6.00%
   Bank's tier 1 risk-based capital..................                408,524            14.66
                                                                    --------            -----
     Excess tier 1 risk-based capital................               $241,270             8.66%
                                                                    ========           ======

   Risk-based capital requirement....................               $278,757            10.00%
   Bank's risk-based capital.........................                443,867            15.92
                                                                    --------            -----
     Excess risk-based capital.......................               $165,110             5.92%
                                                                    ========           ======
</TABLE>

                                       37
<PAGE>
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                           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.

     At the end of 2003, 37.6% of the Bank's loans had adjustable interest rates
based on monthly  changes in the COFI,  22.1% were based on the 12MAT  Index and
15.9% were based on the CODI.  Comparisons over the last several years show that
changes in the Bank's cost of funds  generally  correlate  with changes in these
indices.  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  for  any  specified
repricing term.  Generally,  a positive GAP benefits a company during periods of
increasing  interest  rates.  The reverse is true during  periods of  decreasing
interest rates.  The indices used by the Bank's real estate loans lag changes in
interest  rates from 60 to 90 days while  prime-based  business  loans  re-price
immediately.  However,  the Bank's short-term savings and borrowing costs adjust
quickly  causing net interest  income to initially  decrease  during  periods of
rising interest rates and increase  during periods of declining  interest rates.
The  movement  of  interest  rates,  whether  up or down,  cannot be  accurately
predicted and could have a negative impact on the earnings of the Bank.

     The following table shows the interest sensitivity of the Bank's assets and
liabilities by repricing  period at December 31, 2003 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
                                                   Total Balance     Repricing      Within 1-3    Within 4-10        After
                                                                   Within 1 Year       Years         Years         10 Years
                                                   ------------    ------------    -----------    -----------    ------------
                                                                             (Dollars in thousands)
<S>                                             <C>             <C>             <C>            <C>            <C>    <C>
Interest-earning assets:
  FHLB and other interest-earning deposits..... $      16,836   $        16,836 $         --   $          --  $           --
  Investment securities, at fair value.........       116,411             8,371       15,594          15,887          76,559
  Mortgage-backed securities, at fair value....       135,176           135,083           75              18              --
  Loans receivable.............................     4,451,161         4,114,859      298,679          35,460           2,163
                                                   ----------        ----------    ---------      ----------      ----------
    Total interest-earning assets.............. $   4,719,584   $     4,275,149 $    314,348   $      51,365  $       78,722
                                                   ==========        ==========    =========      ==========      ==========
Interest-bearing liabilities:
  Demand accounts.............................. $   1,969,271   $     1,969,271 $         --   $          --  $           --
  Fixed rate term certificates.................       569,127           435,161      116,673          16,414             879
    FHLB advances..............................     1,694,000         1,082,000      492,000         120,000              --
    Reverse repurchase agreements..............       122,622           122,622           --              --              --
                                                   ----------        ----------    ---------       ---------      ----------
     Total interest-bearing liabilities........ $   4,355,020   $     3,609,054 $    608,673   $     136,414  $          879
                                                   ==========        ==========    =========      =========       ==========

Interest-sensitivity GAP....................... $     364,564   $       666,095 $   (294,325)  $     (85,049) $       77,843
                                                   ==========        ==========    =========      ==========      ==========
Interest-sensitivity GAP as a percentage of
    total assets...............................                           13.80%       (6.10)%        (1.78)%           1.61%
                                                                     ==========    =========      ==========      ==========
Cumulative interest-sensitivity GAP............                 $       666,095 $    371,770   $     286,721  $      364,564
                                                                     ==========    =========      ==========      ==========
Cumulative interest-sensitivity GAP as a
    percentage of total assets.................                           13.80%        7.71%          5.94%           7.56%
                                                                     ==========    =========      =========       =========
</TABLE>
                                       38
<PAGE>
     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, 2003, the Bank's one-year GAP ratio was
a  positive  $666.1  million  or 13.8% of total  assets.  This  compares  with a
positive  GAP ratio of 6.1% of total  assets at December 31, 2002 and a negative
GAP ratio of 6.1% of total  assets at December  31,  2001.  The  increase in the
positive  one-year GAP at December 31, 2003 from the GAP at December 31, 2002 is
due to an increase in the Bank's  origination of monthly  adjustable  rate loans
and the early repayment of hybrid loans.  The change to a positive  one-year GAP
at  December  31, 2002 from a negative  GAP at December  31, 2001 was due to the
Bank  extending the  maturities of its FHLB advances in order to match the fixed
rate period of its hybrid loans.

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

     The  following  table  shows the  estimated  impact of a parallel  shift in
interest  rates on the Bank's  net  portfolio  value at  December  31,  2003 and
December 31, 2002:
                                                      Percentage
     Change in Interest Rates                 Change in Net Portfolio Value(1)
         (In Basis Points)                      2003                  2002
            +300..........................      (14)%                (12)%
            +200..........................      (11)%                 (9)%
            +100..........................       (8)%                 (5)%
           --100.........................        9 %                  10%
           --200.........................       --%(2)               --%(2)
           --300.........................       --%(2)               --%(2)

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

(2)  A downward  shift in interest rates of 200 basis points or 300 basis points
     for both  December  31, 2003 and  December  31, 2002 levels would result in
     negative  interest rates in many cases.  Therefore,  modeling the impact of
     such  declines  as of  December  31,  2003  and  December  31,  2002 is not
     meaningful or practical.


                                       39
<PAGE>
The  following  table  shows the  contract  terms and fair  value of the  Bank's
interest-earning assets and interest-bearing liabilities as of December 31, 2003
categorized  by type and  expected  maturity for each of the next five years and
thereafter:
<TABLE>
                                                         Expected Maturity Date as of December 31, (1)
                           --------------------------------------------------------------------------------------------------------
                                                                                                             Total
                              2004         2005          2006         2007         2008      Thereafter     Balance      Fair Value
                           ---------    ----------    ----------    --------    ---------    ---------     ---------    -----------
                                                                       (Dollars in thousands)
<S>                       <C>           <C>           <C>           <C>         <C>          <C>          <C>
Interest-earning assets:
  Loans receivable:
    Adjustable rate loans:
     Single family........ $   775,676  $   746,131   $    481,073  $  222,133  $  108,626   $   109,666  $   2,443,305 $  2,530,523
      Average interest
     rate.................        5.10%        4.96%         4.89%        4.83%       4.80%        4.78%           4.96%
     Multi-family.........     460,170      389,175        273,129     158,868      93,750       151,094      1,526,186    1,582,830
      Average interest
     rate.................        5.10%        4.94%         4.89%        4.73%       4.61%        4.58%           4.90%
     Commercial and
     industrial...........     120,924       80,708         53,419      25,292      14,641        19,540        314,524      336,909
      Average interest
     rate.................       6.35%        6.01%         6.07%        5.50%       5.39%         4.99%           6.02%
     Fixed rate loans:
     Single family........       7,087        4,281          1,662         462         126            47         13,665       14,610
      Average interest
     rate.................        6.81%        5.93%         5.78%        5.75%       5.73%        5.71%           6.36%
     Multi-family.........      10,140        6,539          3,048       1,024         423           411         21,585       23,459
      Average interest
     rate.................        7.48%        7.10%         6.81%        6.59%       6.44%        6.51%           7.19%
     Commercial and
     industrial...........      16,512        8,137          3,614       1,588         542           356         30,749       33,807
      Average interest
     rate.................        7.60%        7.50%         7.86%        7.80%       7.98%        8.20%           7.63%
     Commercial business
     loans................       7,675        8,681          9,184       8,884          --            --         34,424       35,373
      Average interest
     rate.................        5.64%        5.64%         5.64%        5.64%         --            --           6.23%
     Construction loans...       4,540        4,513             --          --          --            --          9,053        9,370
      Average interest            8.50%        8.50%            --          --          --            --           8.50%
     rate.................
     Consumer loans.......      57,562            8              9          10          11            70         57,670       49,998
      Average interest
     rate.................        5.00%        9.00%         9.00%        9.00%       9.00%         9.00%          5.01%
    Mortgage-backed
     securities:
    Adjustable:                 56,386       32,389         19,127      11,266       6,617         9,206        134,991      134,991
      Average interest
     rate.................        2.92%        2.92%         2.92%        2.92%       2.92%        2.92%           2.92%
    Fixed:                          91           50             26          13           5           --             185          185
      Average interest
     rate.................        8.00%        8.00%         8.00%        8.00%       8.00%          --            8.00%
    Investment securities,
     overnight
     investments and
     interest-bearing
     deposits:                  18,121        1,149          1,191       1,201       1,067       110,518        133,247      133,247
      Average interest
     rate.................        0.96%        3.62%         3.64%        3.59%       3.17%         3.25%          2.94%
                              ---------    ----------    ----------    --------    --------    ---------      ---------    ---------
Total interest-earning
     assets............... $ 1,534,884  $ 1,281,761  $    845,482  $   430,741  $  225,808   $   400,908  $   4,719,584 $  4,885,302
                             =========    =========     =========     ========     ========    =========      =========    =========
Interest-bearing
     liabilities:
  Deposits:
     Checking accounts.... $   471,604  $        --   $         --  $       --  $       --   $        --  $     471,604 $    471,604
      Average interest
     rate.................        0.10%          --             --          --          --            --           0.10%
     Savings accounts.....   1,497,667           --             --          --          --            --      1,497,667    1,497,667
      Average interest
     rate.................        1.41%          --             --          --          --            --           1.41%
     Certificate accounts.     434,853       85,564         31,108       6,748       8,881         1,973        569,127      578,754
      Average interest
     rate.................        1.49%        3.72%         2.96%        4.32%       3.19%        3.14%           1.97%
     Borrowings:
     FHLB advances........   1,082,000      212,000        280,000      85,000      10,000        25,000      1,694,000    1,721,309
      Average interest
     rate.................        2.16%        3.55%         4.30%        4.56%       5.43%        6.06%           2.88%
     Reverse repurchase
     agreements...........     122,622           --            --           --           --           --        122,622      122,581
      Average interest
     rate.................        1.12%          --            --           --           --           --           1.12%
                              ---------   ---------    ----------     --------    --------     ---------      ---------    ---------
Total interest-bearing
     liabilities.......... $ 3,608,746 $   297,564   $    311,108  $    91,748  $   18,881   $    26,973  $   4,355,020 $  4,391,915
                             =========    =========    ==========     ========    ========     =========      =========    =========

(1)  Expected maturities are contractual  maturities adjusted for prepayments of
     principal.  The Bank uses certain  assumptions  to estimate fair values and
     expected  maturities.  For  assets,  expected  maturities  are  based  upon
     contractual  maturity,  projected  repayments and prepayments of principal.
     The  prepayment   experience  used  is  based  on  the  Bank's   historical
     experience.  The Bank's average CPR (Constant  Prepayment  Rate) is 48% for
     the  single-family  portfolio and 36% for its  multi-family  and commercial
     real estate portfolios. For fixed rate loans, the Bank's average CPR is 72%
     and 48%  respectively.  The Bank used  estimated  deposit  runoff  based on
     available industry information.
</TABLE>
                                       40
<PAGE>

                                  STOCK PRICES

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

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

     As of  February  1,  2004,  there  remain  1,348,677  shares  eligible  for
repurchase under the Company's stock repurchase program. The Company repurchased
33,800 and 353,000  shares of its common  stock at average  prices of $28.53 and
$25.02 during 2003 and 2002,  respectively.  No shares were  repurchased  during
2001.
<TABLE>
                           PRICE RANGE OF COMMON STOCK

              First Quarter          Second Quarter           Third Quarter           Fourth Quarter
             High      Low          High           Low       High          Low        High        Low
<S>         <C>       <C>         <C>           <C>         <C>         <C>         <C>          <C>
2003        $31.30    $26.41      $35.57        $29.86      $41.50      $34.77      $49.05       $39.93
2002         27.00     24.58       29.90         26.26       28.89       23.89       29.15        23.92
2001         32.06     26.25       31.00         28.00       36.30       24.00       25.95        21.90
2000         16.63     11.88       14.56         11.69       23.00       14.06       33.13        21.31
1999         18.00     15.56       20.00         15.31       17.81       15.00       18.50        12.81
</TABLE>



                                       41
<PAGE>




ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
                                                                            December 31,            December 31,
                                                                                2003                    2002
                                                                          ---------------       -----------------
ASSETS
<S>                                                                   <C>                   <C>
Cash and cash equivalents........................................     $            54,318   $              45,199
Investment securities, available-for-sale (at fair value)
  ($11,347 and $0 pledged)  (Notes 2 and 10).....................                 116,411                 103,055
Mortgage-backed securities, available-for-sale (at fair value)
  ($114,360 and $151,775 pledged)  (Notes 3 and 10)..............                 135,176                 200,585
Loans receivable, held-for-sale (fair value of $494 and $2,300)
  (Note 4).......................................................                     492                   2,293
Loans receivable, net (Notes 4 and 9)............................               4,373,620               3,766,942
Accrued interest and dividends receivable........................                  16,941                  17,752
Real estate, net (Note 5)........................................                   1,324                     347
Office properties and equipment, net (Note 6)....................                  10,568                  10,342
Investment in Federal Home Loan Bank (FHLB) stock, at cost
  (Notes 7 and 9)................................................                  87,775                  78,728
Other assets.....................................................                  28,397                  28,486
                                                                          ---------------       -----------------
                                                                      $         4,825,022   $           4,253,729
                                                                          ===============       =================
LIABILITIES

Deposits (Note 8)................................................     $         2,538,398   $           2,527,026
FHLB advances (Notes 7 and 9) ...................................               1,694,000               1,167,000
Securities sold under agreements to repurchase (Note 10).........                 122,622                 155,273
Accrued expenses and other liabilities...........................                  33,435                  32,789
                                                                          ---------------       -----------------
                                                                                4,388,455               3,882,088
                                                                          ---------------       -----------------

COMMITMENTS AND CONTINGENT LIABILITIES
 (Notes 1, 4, 6 and 13)

STOCKHOLDERS' EQUITY (Notes 12 and 13)

Common stock, par value $.01 per share;
  Authorized 100,000,000 shares; issued 23,543,339 and 23,395,202
  shares, outstanding 17,045,643 and 16,931,306 shares..............                  235                     234
Additional paid-in capital..........................................               37,733                  35,680
Retained earnings - substantially restricted.....................                 483,360                 418,885
Unreleased shares to employee stock
  ownership plan ................................................                    (125)                   (597)
Treasury stock, at cost, 6,497,696 and 6,463,896 shares..........                 (85,727)                (84,762)
Accumulated other comprehensive earnings, net of taxes...........                   1,091                   2,201
                                                                          ---------------       -----------------
                                                                                  436,567                 371,641
                                                                          ---------------       -----------------
                                                                      $         4,825,022   $           4,253,729
                                                                          ===============       =================

                           See accompanying notes to consolidated financial statements
</TABLE>


                                       42
<PAGE>

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                  (Dollars in thousands, except per share data)
<TABLE>
                                                                         2003               2002              2001
                                                                    --------------     --------------    --------------
<S>                                                              <C>               <C>                <C>
Interest income:
     Interest on loans.......................................    $        224,779  $         243,716  $        298,942
     Interest on mortgage-backed securities..................               5,328              9,154            19,803
     Interest and dividends on investments...................               5,774             11,008            15,187
                                                                    --------------     --------------    --------------
        Total interest income................................             235,881            263,878           333,932
                                                                    --------------     --------------    --------------
Interest expense:
     Interest on deposits (Note 8)...........................              39,104             60,808            94,568
     Interest on borrowings (Notes 9 and 10).................              49,238             67,611           107,186
                                                                    --------------     --------------    --------------
        Total interest expense...............................              88,342            128,419           201,754
                                                                    --------------     --------------    --------------
Net interest income..........................................             147,539            135,459           132,178
     Provision for loan losses (Note 4)......................                  --                 --                --
                                                                    --------------     --------------    --------------
Net interest income after provision for loan losses..........             147,539            135,459           132,178
                                                                    --------------     --------------    --------------
Non-interest income:
     Loan servicing and other fees...........................               7,990              4,325             3,319
     Banking service fees....................................               5,095              4,604             3,791
     Gain on sale of loans...................................               2,444              7,806               656
     Real estate operations, net (Note 5)....................                 780                339               304
     Other operating income..................................                 432              1,000               849
                                                                    --------------     --------------    --------------
        Total other income...................................              16,741             18,074             8,919
                                                                    --------------     --------------    --------------
Non-interest expense:
     Salaries and employee benefits (Note 13)................              33,484             32,627            29,682
     Occupancy (Note 6)......................................               8,171              8,557             8,302
     Advertising.............................................                 315              1,378             1,800
     Amortization of core deposit intangible.................               1,995              1,962             1,564
     Federal deposit insurance...............................                 394                438               418
     Legal...................................................               1,103              2,888             1,393
     Other operating expense.................................              10,127             10,362            10,015
                                                                    --------------     --------------    --------------
        Total non-interest expense...........................              55,589             58,212            53,174
                                                                    --------------     --------------    --------------
Earnings before income taxes.................................             108,691             95,321            87,923
Income taxes (Note 11).......................................              44,216             40,149            37,621
                                                                    --------------     --------------    --------------
Net earnings.................................................    $         64,475  $          55,172  $         50,302
                                                                    ==============     ==============    ==============
Other comprehensive earnings (loss):
     Unrealized earnings (loss) on mortgage-backed
     securities and securities available-for-sale, net of taxes            (1,110)              (790)            5,149
                                                                    --------------     --------------    --------------
Comprehensive earnings.......................................    $         63,365  $          54,382  $         55,451
                                                                    ==============     ==============    ==============
Earnings per share: (Notes 12 and 15)
     Basic...................................................    $           3.80  $            3.22  $           2.92
                                                                    ==============     ==============    ==============
     Diluted.................................................    $           3.70  $            3.15  $           2.85
                                                                    ==============     ==============    ==============
Weighted average shares outstanding:
     Basic...................................................          16,986,725         17,149,712        17,234,591
                                                                    ==============     ==============    ==============
     Diluted.................................................          17,407,459         17,506,129        17,645,647
                                                                    ==============     ==============    ==============

                             See accompanying notes to consolidated financial statements
</TABLE>
                                       43
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                    (Dollars in thousands, except share data)
<TABLE>
                                                                                                         Accumulated Other
                                                                Retained     Unreleased                  Comprehensive
                                                                Earnings     Shares to                      Earnings
                                                 Additional  (Substantially     ESOP                     (Loss), Net of
                                     Common       Paid-In      Restricted)    (Notes 12    Treasury      Taxes (Notes 2
                                      Stock       Capital       Note 12)        and 13)     Stock            and 3)        Total
                                     -------    ---------    ------------    ----------    ---------    ---------------   --------

<S>                                 <C>       <C>           <C>             <C>         <C>          <C>               <C>
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
Exercise of employee stock options.       --         407               --           --           --                 --          407
Net decrease in unreleased shares
    to the ESOP....................       --          --               --         (597)          --                 --         (597)
Benefit from stock option tax
   adjustment......................       --         603               --           --           --                 --          603
Unrealized loss on securities
   available-for-sale, net of taxes       --          --               --           --           --               (790)        (790)
Common stock repurchased (353,000)
   shares..........................       --          --               --           --       (8,832)                --       (8,832)
Net earnings 2002..................       --          --           55,172           --           --                 --       55,172
                                    --------     -------     ------------    ---------    ---------    ---------------    ---------
Balance, December 31, 2002.........      234      35,680          418,885         (597)     (84,762)             2,201      371,641
Exercise of employee stock options.        1       1,828               --           --           --                 --        1,829
Net increase in unreleased shares
    to the ESOP....................       --          --               --          472           --                 --          472
Benefit from stock option tax
   adjustment......................       --         225               --           --           --                 --          225
Unrealized loss on securities
   available-for-sale, net of taxes       --          --               --           --           --             (1,110)      (1,110)
Common stock repurchased (33,800)
   shares..........................       --          --               --           --         (965)                --         (965)
Net earnings 2003..................       --          --           64,475           --           --                 --       64,475
                                    --------     -------     ------------    ---------    ---------    ---------------    ---------
Balance, December 31, 2003......... $    235  $   37,733  $       483,360   $     (125) $   (85,727) $           1,091  $   436,567
                                    ========     =======     ============    =========    =========    ===============    =========








                                        See accompanying notes to consolidated financial statements

</TABLE>

                                       44
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
                                 (In thousands)

<TABLE>
                                                                           2003              2002             2001
                                                                       ------------      ------------     ------------
<S>                                                                  <C>             <C>               <C>
     CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings.................................................    $       64,475  $         55,172  $        50,302
     Adjustments to reconcile net earnings to
      net cash provided by operating activities:
       Net change in loans held-for-sale..........................             1,801             2,953           (3,000)
       Depreciation and amortization..............................             1,371             1,652            1,919
       Valuation adjustments on real estate sold..................               (68)             (265)            (525)
       Amortization of fees and discounts.........................             2,009             3,926            5,913
       Decrease in servicing asset................................               240               737              375
       Change in taxes payable....................................             6,617            (1,976)          (1,738)
       Decrease in interest and dividends receivable..............               811             4,324            7,392
       Decrease in interest payable...............................            (3,298)           (5,895)         (13,855)
       Amortization of core deposit intangible asset..............             1,995             1,962            1,564
       Increase in other assets...................................           (13,844)           (8,680)          (6,442)
       Decrease in accrued expenses and
         other liabilities........................................              (726)           (7,240)          (1,575)
                                                                         ------------      ------------     ------------
         Total adjustments........................................            (3,092)           (8,502)          (9,972)
                                                                         ------------      ------------     ------------
         Net cash provided by operating activities................            61,383            46,670           40,330
                                                                         ------------      ------------     ------------
     CASH FLOWS FROM INVESTING ACTIVITIES:
       Loans made to customers and principal
         collections on loans ....................................          (589,905)          232,998          (96,132)
       Loans purchased............................................              (500)              (89)        (132,625)
       Net change in unearned loan fees...........................           (13,758)           (5,104)             937
       Proceeds from sales of real estate owned...................               884             3,500            4,968
       Proceeds from maturities and principal payments of
         investment securities, available-for-sale................           134,037            87,120           48,962
       Principal reductions on mortgage-backed securities,
         available-for-sale.......................................            64,330            83,010           96,770
       Purchases of investment securities,
         available-for-sale.......................................          (148,847)          (80,855)         (19,964)
       Redemptions (purchases) of FHLB stock, net.................            (5,787)           17,585           (4,025)
       Other......................................................                --                --           (4,105)
       Net cash from acquisitions.................................                --                --           17,680
                                                                         ------------      ------------     ------------
         Net cash provided by (used in) investing activities......          (559,546)          338,165          (87,534)
                                                                         ------------      ------------     ------------
     CASH FLOWS FROM FINANCING ACTIVITIES:
       Net increase (decrease) in deposits........................            11,372           (19,621)         206,824
       Net increase (decrease) in short term borrowings...........           622,349          (613,767)         (65,070)
       Net Increase (decrease) in long term borrowings............          (128,000)          128,000               --
       Purchases of treasury stock................................              (965)           (8,832)              --
       Other......................................................             2,526               413            1,944
                                                                         ------------      ------------     ------------
         Net cash provided by (used in) financing activities                 507,282          (513,807)         143,698
                                                                         ------------      ------------     ------------

       Net increase (decrease) in cash and cash equivalents.......             9,119          (128,972)          96,494
       Cash and cash equivalents at beginning of period...........            45,199           174,171           77,677
                                                                         ------------      ------------     ------------
       Cash and cash equivalents at end of period.................   $        54,318  $         45,199  $       174,171
                                                                         ============      ============     ============

                             See accompanying notes to consolidated financial statements
</TABLE>

                                       45
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

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

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

 Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its  subsidiary,  the  Bank.  The Bank  maintains  29  full-service  banking
branches  in  Southern  California.  The Bank's  primary  business  consists  of
attracting deposits and wholesale  borrowings and using those funds to originate
loans secured by mortgages on real estate,  consumer  loans and business  loans.
All significant  inter-company balances and transactions have been eliminated in
consolidation.  Certain  items  in the  2001  and  2002  consolidated  financial
statements have been reclassified to conform to the 2003 presentation.

Statement of Cash Flows

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

Financial Instruments

     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.  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   classified  as
available-for-sale  are traded in active markets.  The value of these securities
is susceptible to the fluctuations of the market.

                                       46
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 tends to
lag  market  interest  rates by 60 to 90 days.  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 such securities  available-for-sale are included in
stockholders'    equity   as   unrealized    gains    (losses)   on   securities
available-for-sale,  net  of  taxes.  Unrealized  losses  on  available-for-sale
securities, reflecting a decline in value judged to be other than temporary, are
charged  to  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.  Premiums  and
discounts on investment  securities  available for sale are amortized  utilizing
the interest method over the contractual term of the assets.

     The Bank did not hold any trading securities at December 31, 2003 or 2002.

                                       47
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 loan fees 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.

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.

                                       48
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)

     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, 2003 and 2002. 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 included in the Bank's  statement  of
operations.

 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
participations on a servicing retained basis with yield rates to the buyer based
upon the current market rates which may differ from the contractual  rate 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.  Servicing
assets  arising  from the sale of loans are  included  in other  assets and were
$296,000 and $536,000 at December 31, 2003 and 2002, respectively. No additional
servicing assets were originated in 2003, 2002 or 2001.

Core Deposit Intangible

     Loans, deposits and other assets and liabilities assumed in connection with
acquisitions  are accounted for under the purchase method of accounting.  Assets
and  liabilities  are  recorded  at  their  fair  values  as of the  date of the
acquisition  and the excess cost over fair values of the assets and  liabilities
is classified as a core deposit  intangible  asset. The Company adopted SFAS No.
142 effective January 1, 2002. Under the provisions of SFAS No. 142, the Company
amortizes these intangible assets on a straight- line basis over their estimated
useful lives which is seven years.  The balance of core  deposit  intangible  at
December 31, 2003 was $7,328,000.  There was no impairment of the Company's core
deposit intangible as of December 31, 2003.

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


                  2004................................... $ 2,005
                  2005...................................   2,005
                  2006...................................   2,005
                  2007...................................   1,313
                                                          -------
                                                          $ 7,328
                                                          =======

                                       49
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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. Fair value is determined by an appraisal obtained at foreclosure.
The REO balance is adjusted for any subsequent  declines in fair value through a
valuation allowance.

     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,  any gain would be deferred and recognized  under an
alternative method.

Depreciation and Amortization

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

Securities Sold Under Agreements to Repurchase

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

 Income Taxes

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

Stock Option Plans

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

                                       50
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)
<TABLE>
                                                                     Years Ended December 31,
                                                           ---------------------------------------------
                                                                2003             2002           2001
                                                           -------------    ------------    ------------
                                                             (In thousands, except per share data)
<S>                                                     <C>              <C>             <C>
  Net income as reported............................    $       64,475   $       55,172  $      50,302

  Deduction:
    Total stock-based compensation expense determined
    under fair-value-based method for all rewards, net
    of tax..........................................              (606)            (976)          (978)
                                                           ------------     ------------    -----------
    Pro forma net income............................    $       63,869   $       54,196  $      49,324
                                                           ============     ============    ===========
  Earnings per share:
  Basic:
    As reported.....................................    $         3.80   $        3.22   $        2.92
    Pro forma.......................................    $         3.76   $        3.16   $        2.86

  Diluted:
    As reported.....................................    $         3.70   $        3.15   $        2.85
    Pro forma.......................................    $         3.68   $        3.11   $        2.80
</TABLE>

     The fair value of each option  grant is  estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions  used for grants in 2003, 2002 and 2001,  respectively:  no dividend
yield in any year;  expected  volatility of 34%, 34% and 38%; risk free interest
rates of 3.8%,  5.1% and 5.1%; and expected  average lives of 5.5 years for 2003
and 6 years for 2002 and 2001.  The  weighted-average  grant  date fair value of
options granted during the year are $11.31,  $12.68 and $9.45 for 2003, 2002 and
2001, respectively. The Company has elected to recognize forfeitures in the year
they occur.

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.

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.

                                       51
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)

Segment Information and Disclosures

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

Derivative Instruments

     The Company accounts for derivative instruments in accordance with SFAS No.
133, "Accounting for Derivative  Instruments and Hedging Activities" as amended.
A derivative  is  considered  either an asset or  liability in the  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 hedged  risk
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, 2003,  the Company had  approximately  $485,000 of  commitments  to
originate loans, which will be held for sale, and approximately $977,000 of loan
sale commitments that qualify as derivatives under SFAS No. 133. The commitments
are recorded at fair value at December 31, 2003.

Recent Accounting Pronouncements

     In December 2003, the FASB issued  Interpretation No.  46R,Consolidation of
Variable  Interest  Entities,  which addresses how a business  enterprise should
evaluate  whether it has a controlling  financial  interest in an entity through
means other than voting rights and  accordingly  should  consolidate the entity.
FIN 46R  replaces  Interpretation  No. 46,  Consolidation  of Variable  Interest
Entities,  which was  issued in  January  2003.  FIN 46R  should be  applied  to
variable  interests  in VIEs  created  after  December  31,  2003.  For variable
interests  in VIEs  created  before  January 1, 2004,  the  Interpretation  will
generally  be  applied  as of  March  31,  2004.  For  any  VIEs  that  must  be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling  interests of the VIE initially would be measured
at their carrying  amounts with any  difference  between the net amount added to
the balance sheet and any previously recognized interest being recognized as the
cumulative  effect of an accounting  change. If determining the carrying amounts
is not practicable,  fair value at the date FIN 46R first applies may be used to
measure the assets,  liabilities  and  noncontrolling  interest of the VIE.  The
Company does not expect that the adoption of FIN 46 will have a material  effect
on the Company's  financial  statements as the Company has no variable  interest
entities.

     In December  2002,  SFAS  Statement  No. 148,  Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of SFAS Statement No.
123, was issued.  This Statement  amends SFAS Statement No. 123,  Accounting for
Stock-Based  Compensation,  to provide  alternative  methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation.  In addition,  Statement 148 amends the disclosure requirements of
Statement  123 to require  prominent  disclosures  in both  annual  and  interim
financial statements.  Disclosures required by this standard are included in the
notes to these consolidated financial statements.

     In December 2003, SFAS Statement No. 132 (revised),  Employers' Disclosures
about  Pensions and Other  Postretirement  Benefits,  was issued.  Statement 132
(revised)  prescribes  employers'  disclosures  about  pension  plans  and other
postretirement  benefit plans; it does not change the measurement or recognition
of those plans.  The Statement  retains and revises the disclosure  requirements
contained in the original Statement 132. It also requires additional disclosures
about the assets,  obligations,  cash flows,  and net  periodic  benefit cost of
defined  benefit  pension  plans and other  postretirement  benefit  plans.  The
Statement  generally  is effective  for fiscal  years ending after  December 15,
2003.  The Company's  disclosures  in Note 13 incorporate  the  requirements  of
Statement 132 (revised).

                                       52
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)

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

(2) Investment Securities

     The amounts  advanced  under  agreements to resell  securities  (repurchase
agreements)  represent short-term  investments.  During the agreement period the
securities are maintained by the dealer under a written custodial agreement that
explicitly  recognizes  the  Bank's  interest  in the  securities.  The Bank had
$5,000,000 in  agreements  to resell  securities at December 31, 2003 and had no
agreements  to resell  securities  at December 31, 2002.  These  agreements  are
classified  as  cash  and  cash  equivalents  in the  accompanying  Consolidated
Statements of Financial Condition.

     The Bank also had  overnight  deposits on hand with the  Federal  Home Loan
Bank which totaled  $11,836,000  and $9,925,000,  respectively,  at December 31,
2003 and December 31, 2002.

Investment  securities,  available-for-sale,  are  recorded  at fair  value  and
summarized below for the periods indicated:
<TABLE>
                                                                At December 31, 2003
                                              --------------------------------------------------------
                                                                Gross          Gross
                                              Historical     Unrealized     Unrealized
                                                  Cost          Gains         Losses        Fair Value
                                              -----------    ----------     ----------      ----------
                                                                     (In thousands)
<S>                                          <C>            <C>            <C>            <C>
United States Government and
  Federal agency obligations.................$        200   $        --    $        --   $        200
Collateralized Mortgage Obligations..........     115,992           313            (94)       116,211
                                              -----------    ----------    -----------      ---------
                                             $    116,192   $       313    $       (94)  $    116,411
                                              ===========    ==========    ===========      =========

                                                                At December 31, 2002
                                              --------------------------------------------------------
                                                                Gross          Gross
                                              Historical     Unrealized     Unrealized
                                                 Cost           Gains         Losses        Fair Value
                                              -----------    ----------     ----------      ----------
                                                                     (In thousands)
United States Government and
  Federal agency obligations.................$        200  $          3    $         --   $        203
Collateralized Mortgage Obligations..........     101,802         1,151            (101)       102,852
                                                ----------    ------------    ----------     ---------
                                             $    102,002  $      1,154    $       (101)  $    103,055
                                                ==========    ============    ==========     =========
</TABLE>

                                       53
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) Investment Securities (continued)

     Related   maturity  data  for  U.S.   government  and  agency   securities,
available-for-sale, is summarized below for the period indicated:
<TABLE>
                                                                At December 31, 2003
                                                ----------------------------------------------------
                                                                 Gross          Gross
                                                Historical    Unrealized     Unrealized      Fair
                                                   Cost          Gains         Losses        Value
                                                -----------    ----------     ----------   ---------
                                                                   (In thousands)
<S>                                          <C>           <C>           <C>             <C>
Maturing within 1 year.......................$        200  $         --  $         --    $      200
                                                ----------    ----------    ----------      --------
                                             $        200  $         --  $         --    $      200
                                                ==========    ==========    ==========      ========
</TABLE>
Collateralized  Mortgage  Obligations  as of December 31, 2003 all have expected
maturities  within  five  years.  There were no sales of  investment  securities
during 2003,  2002 or 2001.  Accrued  interest on  investments  was $332,000 and
$428,000 at December 31, 2003 and 2002, respectively.


(3) Mortgage-backed Securities

     Mortgage-backed  securities,  available-for-sale,  are due through the year
2032 and are summarized below for the periods indicated:
<TABLE>
                                                          At December 31, 2003
                                      -----------------------------------------------------------
                                                        Gross            Gross
                                      Historical     Unrealized       Unrealized           Fair
                                         Cost           Gains            Losses           Value
                                      -----------    ----------       ----------        ---------
                                                           (In thousands)
<S>                                <C>           <C>               <C>              <C>
FNMA...............................$      6,711  $            84   $           --   $       6,795
FHLMC..............................     126,800            1,581               --         128,381
                                      ----------    -------------    -------------       ---------
                                   $    133,511  $         1,665   $           --   $     135,176
                                      ==========    =============    =============       =========

                                                          At December 31, 2002
                                      -----------------------------------------------------------
                                                        Gross             Gross
                                      Historical     Unrealized        Unrealized          Fair
                                         Cost           Gains            Losses           Value
                                      -----------    ----------       ----------        ---------
                                                           (In thousands)
FNMA...............................$      8,203  $           114   $          --     $      8,317
FHLMC..............................     189,638            2,630              --          192,268
                                      ----------    -------------    -------------       ---------
                                   $    197,841  $         2,744   $          --     $    200,585
                                      ==========    =============    =============       =========
</TABLE>
     There were no  mortgage-backed  securities created with loans originated by
the  Bank in  2003,  2002  or  2001.  There  were no  sales  of  mortgage-backed
securities during 2003, 2002 or 2001.

     Accrued  interest   receivable   related  to   mortgage-backed   securities
outstanding  at  December  31, 2003 and 2002  totaled  $691,000  and  $1,293,000
respectively.

                                       54
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) Loans Receivable

The following is a summary of loans receivable for the periods indicated:
<TABLE>
                                                                        At December 31,
                                                                 ----------------------------
                                                                     2003            2002
                                                                 ------------    ------------
                                                                       (In thousands)
<S>                                                           <C>             <C>
Real estate loans: First trust deed residential loans:
     One-to-four units ..................................     $     2,456,971 $     1,723,690
     Five or more units ...............................             1,547,771       1,646,430
                                                                 ------------    ------------
     Residential loans ..................................           4,004,742       3,370,120
  Other real estate loans:
     Commercial and industrial ..........................             345,273         419,273
     Construction .......................................               9,053           6,927
     Land ...............................................                  --             203
     Second trust deeds .................................               7,281           5,965
                                                                 ------------    ------------
  Real estate loans .....................................           4,366,349       3,802,488
Non-real estate loans:
  Deposit accounts  .....................................                 649           1,185
  Commercial business loans  ............................              34,424          19,582
  Consumer  .............................................              49,738          35,395
                                                                 ------------    ------------
     Loans receivable ...................................           4,451,160       3,858,650
Less:
  General loan valuation allowance  .....................              75,238          75,223
  Valuation allowances for impaired loans  ..............                 496             496
  Unearned loan fees ....................................               1,314          13,696
                                                                 ------------    ------------
     Subtotal ...........................................           4,374,112       3,769,235
Less:
    Loans held-for-sale..................................                 492           2,293
                                                                 ------------    ------------
Loans receivable, net....................................     $     4,373,620 $     3,766,942
                                                                 ============    ============
</TABLE>
     Loans  serviced  for  others   totaled   $145,475,000,   $197,250,000   and
$257,629,000 at December 31, 2003, 2002 and 2001, respectively.

     The Bank had outstanding  commitments to fund $246,996,000 and $239,127,000
in real estate loans at December  31, 2003 and December 31, 2002,  respectively.
Of these totals,  $246,511,000 and $225,497,000 had variable  interest rates and
$485,000 and  $13,630,000  had fixed interest  rates.  The Bank had  outstanding
commitments to sell real estate loans of $977,000 and  $3,590,000,  respectively
at December 31, 2003 and December 31, 2002, respectively.

     Accrued interest  receivable  related to loans  outstanding at December 31,
2003 and 2002 totaled $15,189,000 and $15,349,000, respectively.

     Loans delinquent greater than 90 days or in foreclosure were $3,342,000 and
$6,722,000  at  December  31,  2003  and  2002,  respectively,  and the  related
allowance for delinquent interest was $227,000 and $372,000, respectively.

     Loans made to directors and executive officers (defined for this purpose as
senior vice presidents and above) totaled  $4,993,000 and $5,041,000 at December
31, 2003 and 2002, respectively.

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

                                       55
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) Loans Receivable (continued)

     The  following is a summary of the  activity in the general loan  valuation
allowance  and the  valuation  allowance  for  impaired  loans  for the  periods
indicated:
<TABLE>
                                                                                     Valuation
                                                                                     Allowance
                                                                        General         for
                                                                       Valuation      Impaired
                                                                       Allowance       Loans         Total
                                                                     ------------   -----------    ----------
                                                                                (In thousands)
<S>                                                               <C>              <C>          <C>
Balance at December 31, 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
  Transfers..................................................                (58)           58            --
  Charge-offs................................................               (369)           --          (369)
  Recoveries.................................................                487            --           487
                                                                     ------------   -----------    ----------
Balance at December 31, 2001.................................             72,919         1,850        74,769
  Transfers..................................................              1,354        (1,354)           --
  Charge-offs................................................               (372)           --          (372)
  Recoveries.................................................              1,322            --         1,322
                                                                     ------------   -----------    ----------
Balance at December 31, 2002.................................             75,223           496        75,719
  Charge-offs................................................               (103)           --          (103)
  Recoveries.................................................                118            --           118
                                                                     ------------   -----------    ----------
Balance at December 31, 2003.................................     $       75,238   $       496  $     75,734
                                                                     ============   ===========    ==========
</TABLE>
     The Bank has loss exposure on certain loans sold with recourse.  The dollar
amount of loans sold with  recourse  totaled  $91,003,000  and  $108,606,000  at
December  31,  2003 and  2002,  respectively.  The  maximum  potential  recourse
liability totaled  $20,476,000 and $23,325,000 at December 31, 2003 and December
31, 2002, 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 $5,400,000 and $6,900,000
at December 31, 2003 and December 31, 2002, respectively.

     The following is a summary of impaired loans,  net of valuation  allowances
for impairment, for the periods indicated:
<TABLE>
                                                                          At December 31,
                                                                     -----------------------
                                                                        2003          2002
                                                                     ----------    ---------
                                                                         (In thousands)
<S>                                                               <C>           <C>
Non-accrual loans............................................     $      1,782  $        --
Modified loans...............................................            1,488        1,567
                                                                     ----------    ---------
                                                                  $      3,270  $     1,567
                                                                     ==========    =========
</TABLE>
     The Bank considers a loan to be impaired when management  believes that the
Bank will be unable to collect all amounts  due under the  contractual  terms of
the loan  agreement.  In  accordance  with  SFAS  114,  the Bank  evaluates  the
collectibility  of commercial  business loans greater than or equal to $500,000,
single-family loans greater than or equal to $750,000, and income property loans
greater than or equal to $1,500,000  for  impairment  purposes  using its normal
loan review  procedures.  When a loan is  determined  to be  impaired,  the Bank
measures  impairment  based on either (1) the present  value of expected  future
cash flows,  discounted at the loan's  effective  interest  rate; (2) the loan's
observable  market  price,  or (3) the fair value of the  collateral.  Estimated
impairment losses are included in the Bank's impairment allowances.

                                       56
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) Loans Receivable (continued)

     As of December 31, 2003, the Bank's total  recorded  investment in impaired
loans  identified in accordance  with SFAS 114 was $3,270,000  (after  deducting
$496,000 of impairment  allowances  attributable to such loans).  As of December
31, 2002, the total recorded investment in impaired loans was $1,567,000 (net of
$496,000 of impairment allowances).

     As of December  31, 2003 and December 31,  2002,  impaired  loans  totaling
$3,270,000   and   $1,567,000,   respectively,   had  no  valuation   allowances
established.

     The average  recorded  investment in impaired  loans during the years ended
December 31, 2003,  2002 and 2001 was  $4,327,000,  $4,982,000  and  $7,429,000,
respectively.  Interest  income  recognized for these same periods was $226,000,
$322,000 and $597,000,  respectively, under the cash basis method of accounting;
and was $215,000, $316,000 and $587,000,  respectively,  under the accrual basis
of accounting.  There were no commitments to lend additional  funds to borrowers
whose loan terms had been modified for any of these periods.


(5) Real Estate

     The following is a summary of real estate owned at the dates indicated:
<TABLE>
                                                                              At December 31,
                                                                        --------------------------
                                                                           2003           2002
                                                                        -----------    -----------
                                                                              (In thousands)
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Real estate acquired by (or deed in lieu of) foreclosure ("REO")    $        1,324 $          519
Valuation allowance.............................................                --           (200)
                                                                        -----------    -----------
                                                                             1,324            319
Real estate held-for-investment.................................                --             28
                                                                        -----------    -----------
  Real estate, net..............................................    $        1,324 $          347
                                                                        ===========    ===========
</TABLE>

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

<TABLE>
<S>                                                                         <C>
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
Reversal of valuation allowance.......................................         (150)
Charge-offs...........................................................           --
                                                                            --------
Balance at December 31, 2002..........................................          200
Reversal of valuation allowance.......................................         (200)
                                                                            --------
Balance at December 31, 2003..........................................     $     --
                                                                            ========
</TABLE>
The following table summarizes real estate operations, net:
<TABLE>
                                                                         For the Years Ended December 31,
                                                                      ------------------------------------
                                                                         2003          2002        2001
                                                                      -----------    --------    ---------
                                                                                  (In thousands)
<S>                                                                <C>            <C>         <C>
Net income (loss) from operations:
  Gain on sale of REO.........................................     $         884  $       765 $     1,501
  Other REO operations........................................              (104)        (426)     (1,197)
                                                                      -----------    --------    ---------
     Real estate operations, net .............................     $         780  $       339 $       304
                                                                      ===========    ========    =========
</TABLE>
     The Bank acquired  $1,582,000,  $1,881,000 and $5,135,000 of real estate in
settlement of loans during 2003, 2002 and 2001, respectively.

                                       57
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) Office Properties, Equipment and Lease Commitments

     Office properties and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows:
<TABLE>
                                                                                At December 31,
                                                                           -----------------------
                                                                              2003          2002
                                                                           ----------    ---------
                                                                               (In thousands)
<S>                                                                     <C>           <C>
Land...............................................................     $      3,861  $     3,861
Office buildings...................................................            5,333        5,348
Furniture, fixtures and equipment..................................           14,773       16,815
Leasehold improvements.............................................            8,634       10,478
Other..............................................................            1,160          541
                                                                           ----------    ---------
                                                                              33,761
Less accumulated depreciation and amortization.....................           23,193       26,701
                                                                           ----------    ---------
                                                                        $     10,568  $    10,342
                                                                           ==========    =========
</TABLE>
     The Bank is obligated  under  non-cancelable  operating  leases for periods
ranging  from five to thirty  years.  The leases  are for  certain of the Bank's
office  facilities.  Approximately  half of the  leases  for  office  facilities
contain  five  and ten year  renewal  options.  Minimum  rental  commitments  at
December 31, 2003 under all non-cancelable leases are as follows (in thousands):

2004....................................$      4,262
2005....................................       4,042
2006....................................       3,783
2007....................................       3,570
2008....................................       2,517
Thereafter..............................       2,243
                                           ----------
                                        $     20,417
                                           ==========

     Rent payments under these leases were $4,690,000, $4,665,000 and $4,309,000
for 2003,  2002 and 2001,  respectively.  Certain leases require the Bank to pay
property taxes and insurance.  Additionally, certain leases have rent escalation
clauses based on specified indices.


(7) Federal Home Loan Bank Stock

     The Bank's  investment  in FHLB  stock at  December  31,  2003 and 2002 was
$87,775,000 and  $78,728,000,  respectively.  The FHLB provides a central credit
facility for member  institutions.  As a member of the FHLB system,  the Bank is
required  to own  capital  stock in the FHLB in an amount at least  equal to the
greater of 1% of the aggregate  principal amount of its unpaid home loans,  home
purchase  contracts and similar  obligations  at the end of each calendar  year,
assuming for such  purposes  that at least 30% of its assets were home  mortgage
loans,  or 5% of its  advances  (borrowings)  from  the  FHLB.  The  Bank was in
compliance with this requirement at December 31, 2003. The Bank's  investment in
FHLB stock was pledged as collateral  for advances from the FHLB at December 31,
2003 and 2002. The fair value of the Bank's FHLB stock  approximates  book value
due to the  Bank's  ability  to redeem  such  stock  with the FHLB at par value.
During 2003,  the FHLB amended the redemption  policy  requiring 5 years written
notice to redeem stock effective 2004.  Accrued  dividends on FHLB stock totaled
$711,000   and   $1,054,000   at  December  31,  2003  and  December  31,  2002,
respectively.


                                       58
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Deposits

     Deposit account balances are summarized as follows:
<TABLE>
                                                                     At December 31,
                                                       --------------------     --------------------
                                                              2003                     2002
                                                       --------------------     --------------------
                                                          Amount         %         Amount         %
                                                       -----------    -----     -----------    -----
                                                                   (Dollars in thousands)
<S>                                                 <C>              <C>    <C>               <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted   average
    rate of 1.43% and 2.13%)...................     $    1,373,240      54% $     1,079,278     43%
Interest-bearing checking accounts (weighted
    average rate of 0.26% and 0.43%)...........            232,247       9          174,802      7
Passbook accounts (weighted average rate of 1.10%
    and 1.34%).................................            124,427       5          111,844      4
Non-interest bearing checking accounts.........            239,357      10          239,695      9
                                                       -----------    -----     -----------   -----
                                                         1,969,271      78        1,605,619     63
                                                       -----------    -----     -----------   -----
Fixed-rate term certificate accounts:
Under six-month term (weighted average rate of
    1.00% and 1.54%)...........................             32,062       1           37,630      1
Six-month term (weighted average rate of 1.06% and
    1.95%).....................................             79,201       3          104,600      4
Nine-month term (weighted average rate of 1.25% and
    2.76%).....................................             15,126       1          101,980      4
One year to 18-month term (weighted average rate of
    1.53% and 2.63%)...........................            178,858       6          331,308     14
Two year to 30-month term (weighted average rate of
    2.63% and 3.55%)...........................             42,187       2           41,460      2
Over 30-month term (weighted average rate of
    3.88% and 4.49%)...........................            123,966       5           94,927      4
Negotiable certificates of $100,000 and greater, 30
    day to one year terms (weighted average rate of
    1.25% and 2.32%)...........................             97,727       4          209,502      8
                                                       -----------    -----     -----------   -----
                                                           569,127      22          921,407     37
                                                       -----------    -----     -----------   -----
Total deposits (weighted average rate of 1.29% and
    1.98%).....................................     $    2,538,398     100% $     2,527,026    100%
                                                       ===========    =====     ===========   =====
</TABLE>
     Certificates  of deposit,  placed  through  four major  national  brokerage
firms, totaled $0 and $161,273,000 at December 31, 2003 and 2002, respectively.

     Cash  payments  for  interest on  deposits  (including  interest  credited)
totaled  $42,108,000,  $65,830,000 and  $96,482,000  during 2003, 2002 and 2001,
respectively. Accrued interest on deposits at December 31, 2003 and 2002 totaled
$895,000 and $3,899,000,  respectively,  and is included in accrued expenses and
other  liabilities  in the  accompanying  Consolidated  Statements  of Financial
Condition.

     Certificates  of deposit of $100,000 or more  amounted to  $97,727,000  and
$209,502,000 at December 31, 2003 and December 31, 2002, respectively.

                                       59
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Deposits (continued)

     The following table indicates the maturities and weighted  average interest
rates of the Bank's deposits at December 31, 2003:
<TABLE>
                             Non-Term                                                    There-
                             Accounts     2004        2005         2006         2007      after         Total
                             --------  ---------    ---------   ---------     --------  ----------    -----------
                                                            (Dollars in thousands)
<S>                         <C>         <C>           <C>        <C>          <C>       <C>          <C>
Deposits at
 December 31, 2003.......   $1,969,271  $435,161      $85,564    $31,108       $6,748     $10,546       $2,538,398
Weighted average
 interest rates..........        1.10%      1.49%        3.71%      2.96%        4.32%       3.23%            1.29%
</TABLE>

     Interest expense on deposits is summarized as follows:
<TABLE>
                                                                                  For the Years Ended December 31,
                                                                            ------------------------------------------
                                                                                2003           2002          2001
                                                                            -----------    -----------    ------------
                                                                                        (In thousands)
<S>                                                                      <C>            <C>            <C>
Passbook accounts...................................................     $       1,370  $       1,559  $        1,443
Money market deposits and interest-bearing checking accounts........            21,920         24,024          24,929
Certificate accounts................................................            15,814         35,225          68,196
                                                                            -----------    -----------    ------------
                                                                         $      39,104  $      60,808  $       94,568
                                                                            ===========    ===========    ============
</TABLE>
(9) Federal Home Loan Bank Advances

         FHLB advances consist of the following at December 31, for the years
indicated:
<TABLE>
                                                                                 2003             2002
                                                                             -----------       -----------
                                                                                      (In thousands)
<S>                                                                          <C>               <C>
    Advances from the FHLB of San Francisco with a weighted average interest
    rate of 2.88% and 3.90%, respectively, secured by FHLB stock and certain
    real estate loans with unpaid principal balances of approximately $2.5
    billion at December 31, 2003,
    advances mature through 2010...............................               $1,694,000        $1,167,000
                                                                              ----------        ----------
                                                                              $1,694,000        $1,167,000
                                                                              ==========        ==========
</TABLE>
     At December 31, 2003 and 2002,  accrued  interest  payable on FHLB advances
totaled  $134,000  and  $125,000,  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 advances  and
lines of credit  which  allow  borrowings  up to 50% of the  Bank's  assets,  as
computed for regulatory  purposes,  or approximately  $2,412,511,000 at December
31, 2003, with terms up to 30 years.

     The following is a summary of FHLB advance  maturities at December 31, 2003
(in thousands):


                 2004................................... $1,082,000
                 2005...................................    212,000
                 2006...................................    280,000
                 2007...................................     85,000
                 2008...................................     10,000
                 2009...................................      5,000
                 2010...................................     20,000
                                                         ----------
                                                         $1,694,000
                                                         ==========
                                       60
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Federal Home Loan Bank Advances (continued)

     Cash  payments for interest on  borrowings  (including  reverse  repurchase
agreements  - see Note 10) totaled  $49,393,000,  $67,579,000  and  $118,194,000
during 2003, 2002 and 2001, respectively.

     Interest  expense on borrowings is comprised of the following for the years
indicated:
<TABLE>
                                                                         For the Years Ended December 31,
                                                                    ----------------------------------------
                                                                        2003           2002         2001
                                                                    -----------    -----------    ----------
                                                                               (In thousands)
<S>                                                              <C>            <C>            <C>
FHLB advances...............................................     $      47,299  $     63,253   $     94,506
Reverse repurchase agreements...............................             1,800         3,453         12,346
Other.......................................................               139           905            334
                                                                    ----------    ----------     ----------
                                                                 $      49,238  $     67,611   $    107,186
                                                                    ==========    ==========     ==========
</TABLE>
     Other interest  expense in 2002 and 2001 includes the  additional  accruals
and  reversals  of accrued  interest  due to the  Internal  Revenue  Service and
Franchise Tax Board. See Note 11.


(10) Securities Sold Under Agreements to Repurchase

     The Bank enters into sales of  securities  under  agreements  to repurchase
(reverse  repurchase  agreements)  which  require  the  repurchase  of the  same
securities. Reverse repurchase agreements are treated as financing arrangements,
and the obligation to repurchase  securities sold is reflected as a borrowing in
the  Consolidated   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, 2003,  $122,622,000 in reverse  repurchase  agreements were
collateralized  by   mortgage-backed   securities   totaling   $114,360,000  and
securities totaling $11,347,000.  At December 31, 2002,  $155,273,000 in reverse
repurchase agreements were collateralized by mortgage-backed securities totaling
$5,557,000  and  mortgage-backed  securities  with principal  balances  totaling
$150,331,000.

     The weighted average interest rates for borrowings under reverse repurchase
agreements were 1.12% and 1.61%, respectively, at December 31, 2003 and December
31, 2002.

     Securities sold under  agreements to repurchase  averaged  $139,568,000 and
$169,335,000  during  2003  and  2002,  respectively,  and the  maximum  amounts
outstanding  at any  month-end  during  2003  and  2002  were  $154,021,000  and
$208,367,000 respectively.

     The  following  is a  summary  of  maturities  at  December  31,  2003  (in
thousands):

                 Up to 30 days.......................... $ 14,500
                 30 to 90 days..........................   47,000
                 Over 90 to 182 days....................   61,122
                                                          -------
                                                         $122,622
                                                          =======

     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 $370,000 and $673,000 at
December 31, 2003 and 2002, respectively.

                                       61
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11)     Income Taxes

     Income taxes (benefit) consist of the following:
<TABLE>
                                                                          2003          2002        2001
                                                                       ----------   ----------    ---------
                                                                                   (In thousands)
<S>                                                                 <C>           <C>          <C>
     Current:
       Federal.................................................     $    32,136   $   32,615   $    30,305
       State...................................................          13,842       10,866         9,889
                                                                       --------     --------     ---------
                                                                         45,978       43,481        40,194
                                                                       --------     --------     ---------
     Deferred:
       Federal.................................................           2,694       (2,920)       (2,492)
       State...................................................          (4,456)        (412)          (81)
                                                                       --------     --------     ---------
                                                                         (1,762)      (3,332)       (2,573)
                                                                       --------     --------     ---------
     Total:
       Federal.................................................          34,830       29,695        27,813
       State...................................................           9,386       10,454         9,808
                                                                       --------     --------     ---------
                                                                    $    44,216   $   40,149   $    37,621
                                                                       ========     ========     =========
</TABLE>
         A reconciliation of the statutory federal corporate income tax rate to
the Company's effective income tax rate follows:
<TABLE>
                                                                        At December 31,
                                                             ---------------------------------------
                                                                 2003           2002          2001
                                                             ------------    ----------    ---------
<S>                                                         <C>             <C>           <C>
Statutory federal income tax rate ...................             35.0%         35.0%         35.0%
Increase in taxes resulting from:
State franchise tax, net of federal income tax benefit             5.6           7.1           7.2
Other, net...........................................              0.1           --            0.6
                                                             ----------    ----------     ---------
Effective rate.......................................             40.7%         42.1%         42.8%
                                                             ==========    ==========     =========
</TABLE>
     Cash  payments  for  income  taxes  totaled  $38,727,000,  $44,257,000  and
$43,100,000 during 2003, 2002 and 2001, respectively.

     Current income taxes  receivable were $1,675,000 and $6,706,000 at December
31, 2003 and December 31, 2002, respectively.


                                       62
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Income Taxes (continued)

     Listed below are the significant components of the net deferred tax (asset)
and liability:
<TABLE>
                                                                                 At December 31,
                                                                           --------------------------
                                                                               2003           2002
                                                                           -----------    -----------
                                                                                (In thousands)
<S>                                                                     <C>            <C>
Components of the deferred tax asset:
  Bad debts.......................................................      $    (36,965)  $    (35,307)
  Pension expense.................................................            (4,763)        (4,421)
  State taxes.....................................................            (2,745)        (4,093)
  Core deposit intangible asset...................................            (2,147)        (1,778)
  Other...........................................................            (3,443)        (1,351)
                                                                           ----------    -----------
    Total deferred tax asset......................................           (50,063)       (46,950)
                                                                           ----------    -----------
Components of the deferred tax liability:
  Loan fees.......................................................            11,002         10,304
  FHLB stock dividends............................................            21,776         21,085
  Tax effect of unrealized gain on
     securities available-for-sale................................               792          1,597
  Other...........................................................               491            529
                                                                           ----------    -----------
    Total deferred tax liability..................................            34,061         33,515
                                                                           ----------    -----------
Net deferred tax asset............................................      $    (16,002)  $    (13,435)
                                                                           ==========    ===========
</TABLE>

     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, 2003 or 2002, as it is more
likely  than not that the  deferred  tax asset  will be  realized  through  loss
carrybacks and the timing of future reversals of existing temporary differences.

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 1998.
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").
Interest  accruals  of $0 and  $876,000  were  recorded  during  2003 and  2002,
respectively  for interest on amended  returns.  The balance of accrued interest
payable for amended  returns was  $400,000  and $700,000 as of December 31, 2003
and December 31, 2002, respectively.

     The Bank is required to use the specific  charge-off  method of  accounting
for bad debts for federal  income tax purposes 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, 2003
and 2002 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.  During 2002,  legislation was passed which requires the Bank to use the
specific  charge-off  method of accounting  for bad debts for state tax purposes
starting in 2003.  The Bank recorded a state tax benefit of  $1,643,000,  net of
federal taxes during 2003 because 50% of the state reserve  balance was forgiven
as part of the change in legislation.


                                       63
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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, 2003, 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 December 31, 2003   For the Year Ended December 31, 2002    For the Year Ended December 31, 2001
                 ------------------------------------   ------------------------------------    ------------------------------------
                                 Weighted                              Weighted                                 Weighted
                                 Average                                Average                                 Average
                                  Shares       Per                       Shares        Per                         Shares     Per
                  Earnings     Outstanding    Share      Earnings      Outstanding    Share      Earnings     Outstanding    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:
Net earnings....$   64,475     16,986,725   $  3.80    $   55,172     17,149,712     $  3.22    $   50,302     17,234,591   $  2.92

Diluted EPS:
Net earnings....$   64,475     16,986,725   $  3.80    $   55,172     17,149,712     $  3.22    $   50,302     17,234,591   $  2.92
Options-common
  stock
  equivalents           --        420,734        --            --        356,417          --            --        411,056        --
                   -------    -----------    ------     ---------    ------------     ------      --------    -----------    ------
Net earnings....$   64,475     17,407,459   $  3.70    $   55,172     17,506,129     $  3.15    $   50,302     17,645,647   $  2.85
                   =======    ===========    ======     =========    ============     ======      ========    ===========    ======
</TABLE>
     The number of  anti-dilutive  shares  excluded  from the  weighted  average
shares  outstanding  within the  diluted EPS  calculation  was 0,  118,100,  and
104,900 during 2003, 2002 and 2001, respectively.

Regulatory Capital

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

     Quantitative  measures established by regulation to ensure capital adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of total and Tier I  capital  (as  defined  in the  regulations)  to risk
weighted  assets  (as  defined).  Management  believes  that the Bank  meets all
capital adequacy requirements to which it is subject as of December 31, 2003.

     As of  December  31,  2003,  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,
2003 that management believes have changed the Bank's classification.

                                       64
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     The following table summarizes the Bank's  regulatory  capital and required
capital for the years indicated:
<TABLE>
                                                                         December 31, 2003
                                                 -----------------------------------------------------------------
                                                                                      Tier 1
                                                   Tangible          Core           Risk-based        Risk-based
                                                   Capital          Capital           Capital           Capital
                                                 -------------    ------------     --------------    -------------
                                                                      (Dollars in thousands)
<S>                                           <C>              <C>             <C>                <C>
Actual capital:
    Amount....................................$     408,524    $    408,524    $       408,524    $     443,867
    Ratio.....................................         8.48%           8.48%             14.66%           15.92%
FIRREA minimum required capital:
    Amount....................................$      72,254    $    192,678    $            --    $     223,005
    Ratio.....................................         1.50%           4.00%                --%            8.00%
FIRREA well capitalized required capital:
    Amount....................................$          --    $    240,848    $       167,254    $     278,757
    Ratio.....................................           --%           5.00%              6.00%           10.00%


                                                                        December 31, 2002
                                                 -----------------------------------------------------------------
                                                                                      Tier 1
                                                   Tangible          Core           Risk-based        Risk-based
                                                   Capital          Capital           Capital           Capital
                                                 -------------    ------------     --------------    -------------
                                                                      (Dollars in thousands)
Actual capital:
    Amount....................................$     341,680    $    341,680    $       341,680    $     374,421
    Ratio.....................................         8.05%           8.05%             13.26%           14.53%
FIRREA minimum required capital:
    Amount....................................$      63,643    $    169,715    $            --    $     206,142
    Ratio.....................................         1.50%           4.00%                --%            8.00%
FIRREA well capitalized required capital:
    Amount....................................$          --    $    212,143    $       154,607    $     257,678
    Ratio.....................................           --%           5.00%              6.00%           10.00%

</TABLE>

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

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

     The Company may loan up to $6,000,000 to the Employee Stock  Ownership Plan
("ESOP") under a line of credit loan. At December 31, 2003, the outstanding loan
to the ESOP totaled  $104,000.  There was $553,000  outstanding  at December 31,
2002. 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
2003 and 2002 were 2.18% and 3.16%, respectively.

                                       65
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

(13) Employee Benefit Plans

     The Bank maintains a qualified defined  contribution plan established under
Section 401 (k) of the Internal  Revenue Code,  as amended (the "401(k)  Plan").
Participants  are permitted to make  contributions on a pre-tax basis, a portion
of which is matched by the Bank. The 401(k) Plan expense was $540,000,  $310,000
and $356,000 for 2003, 2002 and 2001, 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  $850,000,
$1,161,000  and  $970,000  in 2003,  2002 and  2001,  respectively.  The SERP is
unfunded. The expected contribution to the SERP during 2004 is $288,000.

     The  discount  rates used in  determining  the  actuarial  value of benefit
obligations  were 6.00% and 6.50%,  respectively,  as of  December  31, 2003 and
2002. The rate of increase in future compensation levels used in determining the
pension  cost for the SERP was 4.0% as of December  31, 2003 and 2002.  The plan
had no assets at December 31, 2003 or 2002.

                                       66
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Employee Benefit Plans (continued)

     The  following  table sets forth the funded  status of the SERP and amounts
recognized in the Company's financial statements for the years indicated:
<TABLE>
                                                                                         At December 31,
                                                                                     ----------------------
                                                                                        2003          2002
                                                                                     ----------    --------
                                                                                         (In thousands)
<S>                                                                                 <C>         <C>
Change in Benefit Obligation
        Projected benefit obligation, beginning of the year..................       $   9,161   $    7,885
        Service cost.........................................................             447          380
        Interest cost........................................................             586          581
        Benefits paid........................................................            (287)        (287)
        Actuarial gain.......................................................             278          602
                                                                                     ---------     --------
        Projected benefit obligation, end of the year........................       $  10,185   $    9,161
                                                                                     =========     ========
Change in Plan Assets
        Funded status........................................................         (10,185)  $   (9,161)
        Unrecognized transition obligation...................................              --           --
        Unrecognized prior service cost......................................             149          284
        Unrecognized loss....................................................           2,115        1,956
                                                                                     ---------     --------
        Net amount recognized................................................       $  (7,921)  $   (6,921)
                                                                                     =========     ========
Components of Net Periodic Benefit Cost
        Service cost.........................................................       $     447   $      380
        Interest cost........................................................             586          581
        Amortization of unrecognized transition obligation...................             119           65
        Amortization of unrecognized prior service cost......................             135          135
                                                                                     ---------     --------
        Pension cost.........................................................       $   1,287   $    1,161
                                                                                     =========     ========
</TABLE>
     The projected benefit obligation,  accumulated benefit obligation, and fair
value of assets were $10,185,000,  $8,604,000, and $0 respectively,  at December
31, 2003 and $9,161,000, $7,255,000, and $0, respectively, at December 31, 2002.

     The Bank has a profit sharing plan (the "ESOP") for all salaried  employees
and officers who have  completed  one year of  continuous  service.  The ESOP is
accounted for in accordance  with SOP 93-6. At December 31, 2003,  the ESOP held
4.75% of the  outstanding  stock of the Company.  Profit sharing expense for the
years ended  December 31, 2003,  2002 and 2001 was  $2,030,000,  $2,024,000  and
$2,020,000,  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.

     For the year ended  December 31, 2003 and 2002 total  allocated ESOP shares
were 767,486 and 819,964 shares,  respectively.  For the year ended December 31,
2003 and 2002 total  unallocated  ESOP  shares  were  3,426 and  23,105  shares,
respectively.  The fair value of unallocated  ESOP shares  totaled  $149,000 and
$669,000 at December 31, 2003 and 2002, respectively.

Stock Compensation Plans

     At  December  31,  2003,  the  Company  had  two  stock-based  compensation
programs,  which are  described  below.  The Company  applies APB Opinion 25 and
related   interpretations   in  accounting  for  its  plans.   Accordingly,   no
compensation cost has been recognized for its stock compensation plans.


                                       67
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Employee Benefit Plans (continued)

     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 following  table  summarizes  information  about stock option  activity
during the periods indicated:
<TABLE>
                                                                                         At December 31,
                                                                               ------------------------------------
                                                                                  2003          2002        2001
          Options Outstanding                                                  ----------    ---------    ---------
     (Weighted average option prices)                                                      (In shares)
<S>                                                                            <C>         <C>          <C>
Beginning of year ($17.08, $15.51 and $12.84)                                    857,682      819,915      796,538
       Granted ($29.55, $26.75 and $31.44).............................          150,510      134,900      127,050
       Exercised ($12.73, $10.98 and $12.22)...........................         (149,664)     (33,006)     (62,489)
       Canceled ($26.89, $20.53 and $18.12)............................          (50,280)     (64,127)     (41,184)
                                                                               ----------    ---------    ---------
       End of Year ($19.58, $17.08 and $15.51).........................          808,248      857,682      819,915
                                                                               ==========    =========    =========
       Shares exercisable at December 31, ($15.50, $13.41 and $11.53)..          352,004      407,401      309,808
                                                                               ==========    =========    =========
</TABLE>
     Additional  information  with  respect  to  stock  options  outstanding  at
December 31, 2003 follows:
<TABLE>
                                                                                 Price Ranges
                                                        -------------------------------------------------------------
                                                        ($5.63 - $14.23)      ($14.24 - $22.84)     ($22.85 - $31.44)
Options outstanding:
<S>                                                     <C>                   <C>                   <C>
Number of outstanding shares..........................        294,677              191,206                 322,365
Weighted-average contractual life ....................           4.08                 4.60                    8.23
Weighted-average exercise price ......................         $10.96               $16.68                  $29.17

Options exercisable:

Number of exercisable shares..........................        170,329              122,505                  59,170
Weighted-average exercise price ......................          $9.77               $16.68                  $29.54
</TABLE>

                                       68
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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
<TABLE>
                                                                                    At December 31,
                                                                               ------------------------
                                                                                  2003          2002
                                                                               ---------    -----------
                                                                                   (In thousands)
<S>                                                                         <C>         <C>
Assets:
Cash....................................................................    $    18,990  $      17,947
Fixed assets............................................................             --            259
Other assets............................................................            449             --
Investment in subsidiary................................................        417,236        353,739
                                                                               ---------    -----------
                                                                            $   436,675  $     371,945
                                                                               =========    ===========
Liabilities and Stockholders' Equity:
Other liabilities.......................................................            108            304
Stockholders' equity....................................................        436,567        371,641
                                                                               ---------    -----------
                                                                            $   436,675  $     371,945
                                                                               =========    ===========
</TABLE>
<TABLE>
                                                                           Years Ended December 31,
                                                                      ------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND                                   2003          2002        2001
                                                                      ----------    ---------    ---------
                 COMPREHENSIVE EARNINGS                                         (In thousands)
<S>                                                                <C>           <C>          <C>
Dividends received from Bank..................................     $        --   $    20,000  $        --
Equity in undistributed net earnings of subsidiary ...........           64,605       35,254       52,007
Other expense, net............................................             (130)         (82)      (1,705)
                                                                      ----------    ---------    ---------
Net earnings..................................................           64,475       55,172       50,302
                                                                      ==========    =========    =========
Other comprehensive earnings (loss), net of taxes.............           (1,110)        (790)       5,149
                                                                      ----------    ---------    ---------
Comprehensive earnings........................................     $     63,365  $    54,382  $    55,451
                                                                      ==========    =========    =========
</TABLE>


                                       69
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) Parent Company Financial Information (continued)
<TABLE>
                                                                            Years Ended December 31,
                                                                      -------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS                                       2003           2002        2001
                                                                      ----------    ----------    ---------
                                                                                 (In thousands)
<S>                                                                <C>           <C>           <C>
Net Cash Flows from Operating Activities:
  Net earnings................................................     $     64,475  $     55,172  $    50,302
  Adjustments to reconcile net earnings to
       net cash provided by operating activities:
    Equity in undistributed
       net earnings of subsidiary.............................          (64,605)      (35,254)     (52,007)
    Depreciation expense......................................               62           160          184
    Other.....................................................             (646)           25        2,760
                                                                      ----------    ----------    ---------
    Net cash provided by operating activities.................             (714)       20,103        1,239
                                                                      ----------    ----------    ---------
Cash Flows from Investing Activities:
    Decrease (increase) in fixed assets.......................              197            --         (112)
                                                                      ----------    ----------    ---------
    Net cash used in investing activities.....................              197            --         (112)
                                                                      ----------    ----------    ---------
Cash Flows from Financing Activities:
    Purchase of treasury stock................................             (965)       (8,832)          --
    (Increase) decrease in unreleased shares..................              472          (597)         841
    Exercise of stock options.................................            2,053         1,010          764
                                                                      ----------    ----------    ---------
Net cash provided by (used in) financing activities...........            1,560        (8,419)       1,605
                                                                      ----------    ----------    ---------
Net increase in cash..........................................            1,043        11,684        2,732
Cash at beginning of period...................................           17,947         6,263        3,531
                                                                      ----------    ----------    ---------
Cash at end of period.........................................     $     18,990  $     17,947  $     6,263
                                                                      ==========    ==========    =========
</TABLE>

(15) Quarterly Results of Operations: (unaudited)

     Summarized  below are the  Company's  results of  operations on a quarterly
basis for 2003, 2002 and 2001:
<TABLE>
                                                    Provision                                              Basic       Diluted
                        Interest      Interest      for Loan      Other     Non-Interest     Net         Earnings      Earnings
                         Income        Expense       Losses       Income      Expense      Earnings      per Share    per Share
                       ----------    ----------    ----------    --------    ---------    ---------     ----------   -----------
                                                         (In thousands, except per share data)
<S>                    <C>        <C>           <C>           <C>         <C>          <C>          <C>              <C>
First quarter
2003.................  $ 60,839   $     23,324  $        --   $    3,348  $    14,116  $     15,478 $        0.92    $   0.89
2002.................    70,776         36,788           --        2,699       15,311        12,368          0.72        0.70
2001.................    88,017         55,865           --        2,007       12,533        12,373          0.72        0.70
Second quarter
2003.................  $ 59,412   $     22,350  $        --   $    3,393  $    13,429  $     15,633 $        0.92    $   0.90
2002.................    65,923         32,943           --        2,494       14,233        12,287          0.71        0.70
2001.................    87,443         53,881           --        1,641       13,195        12,592          0.73        0.71
Third quarter
2003.................  $ 58,344   $     21,814  $        --   $    5,590  $    13,522  $     18,203 $        1.07    $   1.04
2002.................    64,741         31,312           --        8,711       14,107        16,226          0.94        0.92
2001.................    81,837         49,397           --        3,019       13,738        12,427          0.72        0.70
Fourth quarter
2003.................  $ 57,286   $     20,854  $        --   $    4,410  $    14,522  $     15,161 $        0.89    $   0.87
2002.................    62,438         27,376           --        4,170       14,561        14,291          0.84        0.83
2001.................    76,635         42,611           --        2,252       13,708        12,910          0.75        0.73
Total year
2003.................  $235,881   $     88,342  $        --   $   16,741  $    55,589  $     64,475 $        3.80    $   3.70
2002.................   263,878        128,419           --       18,074       58,212        55,172          3.22        3.15
2001.................   333,932        201,754           --        8,919       53,174        50,302          2.92        2.85
</TABLE>
                                       70
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) Fair Value of Financial Instruments

     The  following   table  presents  fair  value   information  for  financial
instruments for which a market exists.
<TABLE>
                                                                             At December 31,
                                                     ----------------------------------------------------------------
                                                                   2003                             2002
                                                     ------------------------------    ------------------------------
                                                       Carrying                          Carrying
                                                        Value          Fair Value         Value          Fair Value
                                                     -----------    ---------------    -------------    -------------
                                                                              (In thousands)
<S>                                               <C>            <C>                <C>              <C>
Mortgage-backed securities ....................   $      135,176 $         135,176  $       200,585  $      200,585
U.S. Government securities ....................              200               200              203             203
Collateralized mortgage obligations ...........          116,211           116,211          102,852         102,852
Loans held-for-sale ...........................              492               494            2,293           2,300
</TABLE>

     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.
<TABLE>
                                                                               At December 31,
                                                     ------------------------------------------------------------------
                                                                    2003                              2002
                                                     ------------------------------    --------------------------------
                                                                       Calculated                          Calculated
                                                      Historical       Fair Value        Historical        Fair Value
                                                         Cost            Amount             Cost             Amount
                                                     -----------    ---------------    -------------    ---------------
                                                                               (In thousands)
<S>                                               <C>               <C>             <C>              <C>
ASSETS
Adjustable loans:
  Single family ...............................   $      2,439,962  $    2,527,181  $      1,636,398 $       1,665,635
  Multi-family ................................          1,526,186       1,582,830         1,611,318         1,659,295
  Commercial  .................................            314,524         336,909           383,383           401,772
Fixed rate loans:
  Single family                                             13,665          14,610            22,685            23,290
  Multi-family ................................             21,585          23,459            33,995            35,969
  Commercial  .................................             30,749          33,807            37,640            39,916
Commercial business loans......................             34,424          35,372            20,304            20,595
Construction loans.............................              9,053           9,370             6,927             7,150
Consumer loans.................................             57,670          49,998            36,880            36,891
Non-performing loans ..........................              3,342           3,342             6,722             6,722

LIABILITIES
Fixed-term certificate accounts ...............            569,127         578,754           921,407           934,359
Non-term deposit accounts .....................          1,969,271       1,969,271         1,605,619         1,605,619
Borrowings ....................................          1,816,622       1,843,890         1,322,273         1,369,329

</TABLE>

     GAAP specifies that fair values should be calculated  based on the value of
one unit. The estimates do not  necessarily  reflect the price the Company might
receive  if it  were  to sell  the  entire  holding  of a  particular  financial
instrument at one time.

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

                                       71
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) Fair Value of Financial Instruments (continued)

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.

Loans Receivable

     The  portfolio  is  segregated  into those loans with  adjustable  rates of
interest  and those  with  fixed  rates of  interest.  Fair  values are based on
discounting  future cash flows by the current  rate  offered for such loans with
similar remaining maturities and credit risk. The amounts so determined for each
loan category are reduced by the Bank's allowance for loans losses which thereby
takes into consideration  changes in credit risk. At December 31, 2003, the Bank
had outstanding  commitments to fund $246,996,000 in real estate mortgage loans,
$11,625,000 in construction  loans and $12,000 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.


                                       72
<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, 2003 and
2002 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, 2003. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with 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, 2003 and 2002 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.






                                    KPMG LLP








Los Angeles, California
January 28, 2004


                                       73
<PAGE>


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

None.

ITEM 9A -- CONTROLS AND PROCEDURES

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

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

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

                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  regarding directors and executive officers appearing on page 5
of the Proxy Statement for the Annual Meeting of  Stockholders' to be held April
21, 2004 (the "Proxy Statement") is incorporated herein by reference.

ITEM 11 -- EXECUTIVE COMPENSATION

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

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

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

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information   regarding  certain  relationships  and  related  transactions
appearing on pages 10 through 11 of the Proxy Statement is  incorporated  herein
by reference.

ITEM 14 --PRINCIPAL ACCOUNTING FEES AND SERVICES

     Information  regarding principal  accounting fees and services appearing on
page 16 of the Proxy  Statement  and the Audit  Committee  Charter  attached  as
Exhibit A to the Proxy Statement, are incorporated herein by reference.

                                       74
<PAGE>

                                     PART IV

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

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

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

     This 2003 Annual Report on Form 10-K and the Proxy  Statement  have already
been  furnished to each  stockholder of record who is entitled to receive copies
thereof.  Copies of these items will be furnished without charge upon request in
writing by any  stockholder of record on March 5, 2004 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 year ended  December 31,
2003 on the following dates:  October 15, 2003,  October 22, 2003,  November 21,
2003,  and  December  23,  2003.  The  reports are related to the release of the
Company's  third quarter  earnings and the disclosure of certain other financial
data.

                                       75
<PAGE>

                                   SIGNATURES

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



                            FIRSTFED FINANCIAL CORP.,
                             a Delaware corporation

Dated this 24th day of February 2004
                                         By: /s/ Babette E. Heimbuch
                                             -----------------------
                                                 Babette E. Heimbuch
                                                 Chief Executive Officer

                                       76
<PAGE>


                                POWER OF ATTORNEY

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has be signed by the following  persons on behalf of the  Registrant  and in the
capacities indicated on the 24th day of February 2004.




SIGNATURE                                      TITLE

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

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

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

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

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

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

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

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

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

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

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




                                       77
<PAGE>
                                  Exhibit 31.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Babette Heimbuch, certify that:

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

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

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

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

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

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

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

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

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

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

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

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

Dated this 24th day of February 2004
                                            By: /s/ Babette E. Heimbuch
                                                -----------------------
                                                    Babette E. Heimbuch
                                                    Chief Executive Officer

                                       78
<PAGE>
                                  Exhibit 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Douglas Goddard, certify that:


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

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

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

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

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

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

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

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

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

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

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

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

Dated this 24th day of February 2004.
                                              By: /s/ Douglas Goddard
                                                  -------------------
                                                      Douglas Goddard
                                                      Chief Financial Officer
                                       79
<PAGE>



                                  EXHIBIT 32.1

                                CEO CERTIFICATION

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

(1)  the Form 10-K of FirstFed  Financial  Corp.  (the "Company") for the annual
     period  ended  December  31,  2003  (the  "Report  ")   accompanying   this
     certification  fully  complies  with the  requirements  of Section 13(a) or
     15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)  the information  contained in the Report fairly  presents,  in all material
     respects,  the financial condition and results of operations of the Company
     for such period.

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

                            FIRSTFED FINANCIAL CORP.
                                 Registrant


Date:   February 24, 2004
                                             By: /s/ Babette E. Heimbuch
                                                 -----------------------
                                                     Babette E. Heimbuch
                                                     Chief Executive Officer


                                       80
<PAGE>


                                  EXHIBIT 32.2


                                CFO CERTIFICATION

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

         (1)      the Form 10-K of FirstFed Financial Corp. (the "Company") for
                  the annual period ended December 31, 2003 (the "Report ")
                  accompanying this certification fully complies with the
                  requirements of Section 13(a) or 15(d) of the Securities
                  Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

         (2)      the information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company for such period.

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

                            FIRSTFED FINANCIAL CORP.
                                   Registrant



Date:   February 24, 2004
                                            By: /s/ Douglas J. Goddard
                                                ----------------------
                                                    Douglas J. Goddard
                                                    Chief Financial Officer and
                                                    Executive Vice President


                                       81