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, 2002
                                       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 28, 2002 was $456,096,000,  based on
the closing sales price of the  Registrant's  common stock on the New York Stock
Exchange  on such  date of $29.00  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 7, 2003: 16,910,212

                           DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement for Annual Meeting of  Stockholders  to be held
April 23, 2003 ("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,  2002
includes  certain   statements  that  may  be  deemed  to  be   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  (the "Securities  Act") and Section 21E of the Securities and Exchange
Act of 1934,  as  amended  (the  "Exchange  Act").  All  statements,  other than
statements  of  historical  facts,  included in this Annual  Report that address
activities,  events  or  developments  that the  Company  expects,  believes  or
anticipates will or may occur in the future, including, but not limited to, such
matters as future product development, business development, competition, future
revenues, business strategies,  expansion and growth of the Company's operations
and assets and other such matters are forward-looking statements. These kinds of
statements are signified by words such as "believes,"  "anticipates," "expects,"
"intends," "may", "could," and other similar expressions.  However,  these words
are not the exclusive means of identifying such statements. These statements are
based on certain  assumptions  and analyses  made by the Company in light of its
experience and perception of historical  trends,  current  conditions,  expected
future  developments  and other  factors  it  believes  are  appropriate  in the
circumstances. Such statements are subject to a number of assumptions, risks and
uncertainties,  including the risk factors discussed below, general economic and
business  conditions,  the business  opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in law or regulations and other
factors,  many of which are beyond the Company's control.  Specific factors that
could  cause  results  to differ  materially  from  historical  results or those
anticipated are: (1) the level of demand for adjustable rate mortgages, which is
affected  by  external  factors  such as  interest  rates,  the  strength of the
California  economy  and  Southern   California   economy  in  particular;   (2)
fluctuations  between consumer interest rates and the cost of funds; (3) federal
and  state  regulation  of  lending,  deposit  and  other  operations,  and  (4)
competition for financial  products and services within the Bank's market areas.
Investors are cautioned  that any such  statements  are not guarantees of future
performance and that actual results or developments  may differ  materially from
those projected in the forward-looking statements.

                                   2
<PAGE>



<TABLE>

                            FirstFed Financial Corp.
                                      Index
                                                                                                          Page
<S>        <C>           <C>
Part I     Item 1.       Business................................................................           4
           Item 2.       Properties..............................................................          24

           Item 3.       Legal Proceedings.......................................................          24
           Item 4.       Submission of Matters to a Vote of Security Holders.....................          24

Part II    Item 5.       Market for Registrant's Common Equity and Related
                         Stockholder Matters.....................................................          24

           Item 6.       Selected Financial Data.................................................          25
           Item 7.       Management's Discussion and Analysis of Financial
                         Condition and Results of Operations.....................................          26
           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............................................          74
           Item 9.       Changes In and Disagreements with Accountants on
                         Accounting and Financial Disclosure.....................................          75

Part III   Item 10.      Directors and Executive Officers of the Registrant......................          75
           Item 11.      Executive Compensation..................................................          75
           Item 12.      Security Ownership of Certain Beneficial Owners and
                         Management..............................................................          75
           Item 13.      Certain Relationships and Related Transactions..........................          75
           Item 14.      Controls and Procedures.................................................          75

Part IV    Item 15.      Exhibits, Consolidated Financial Statement
                         Schedules, and Reports on Form 8K.......................................          76

Signatures ......................................................................................          77
Power of Attorney................................................................................          78
Certification of Chief Executive Officer.........................................................          79
Certification of Chief Financial Officer.........................................................          80
99.1 Certification of Chief Executive Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002..........................          81
99.2 Certification of Chief Financial Officer pursuant to 18 USC Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002..........................          82

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

     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.

     At  December  31,  2002,  the  Company had assets  totaling  $4.3  billion,
compared to $4.7  billion at December  31, 2001 and $4.4 billion at December 31,
2000. The Company  recorded net earnings of $55.2 million for 2002,  compared to
net earnings of $50.3 million for 2001 and $38.5 million for 2000.

     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, 2003, the Bank operated 29 retail savings branches,  all
located in Southern California.  Permission to operate all full-service branches
must be granted by the Office of Thrift Supervision  ("OTS"). In addition to its
retail branches,  the Bank operates a call center,  which conducts  transactions
with deposit and loan customers by telephone.

     The Bank's  principal  loan market is Southern  California.  The Bank has a
residential lending group which includes a retail lending division with two loan
offices.  Additionally,  the Bank has an income property  lending group with two
offices and a commercial banking division with two offices.

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

Current Operating Environment

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

     The  Bank's  primary  market is the Los  Angeles  County  area of  Southern
California.  According to the UCLA Anderson  Forecast for  California,  December
2002 Report  ("Forecast"),  "California  and Los  Angeles,  like the rest of the
nation,  entered into a recession  during 2002.  The forces that are slowing the
recovery  here in Southern  California  are much the same as the forces that are
slowing the national recovery."  According to the Forecast,  real estate housing
prices are expected to increase  during 2003 but at a slower pace than 2002. The
growth in home values in Los Angeles County are expected to decrease from a high
of 15.2% during the third quarter of 2002 to only 2.9% during the fourth quarter
of 2003.

     Consistent  with the  favorable  real  estate  climate in the  greater  Los
Angeles area, the Bank's  non-performing  assets remained  unchanged at 0.17% of
total  assets at the end of 2002,  the same as at the end of 2001,  and compared
favorably to 0.19% at the end of 2000.

     The Bank monitors the  sufficiency  of the  collateral  supporting its loan
portfolio  based on many factors  including the property  location,  the date of
loan  origination  and the original  loan-to-value  ratio.  The Bank adjusts its
general allowance for loan losses as a result of these evaluations. No provision
for loan losses was necessary during 2002, 2001 or 2000.

                                   4
<PAGE>

     The ratio of allowances for loan losses (general  valuation  allowances and
valuation  allowances for impaired loans) to gross loans receivable was 1.96% at
the end of 2002  compared  to 1.83%  at the end of 2001 and  1.95% at the end of
2000.  The  increase  in the ratio in 2002 from 2001 was due to a  reduction  in
gross loans  receivable.  The decrease in the ratio in 2001 from 2000 was due to
growth in gross  loans  receivable.  See  "Business - Loan Loss  Allowance"  for
additional information.

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

     Current  Interest  Rate  Environment.  The Federal  Reserve  Board  ("FRB")
decreased  interest rates once during 2002 and eleven times during 2001. The FRB
increased interest rates three times during 2000. Through February 2003, the FRB
has not changed interest rates.

     The  Bank's  interest  rate  spread  typically  increases  in a  decreasing
interest rate  environment,  (savings and borrowing  costs decrease  immediately
while the loan  portfolio  yield  decreases  more  slowly).  The reverse is true
during periods of increasing interest rates. The Bank's loan portfolio typically
shrinks in a decreasing  interest rate  environment due to payoffs of adjustable
rate loans.  Furthermore,  borrowers normally prefer fixed rate loans when rates
are low,  which  hinders  the  Bank's  ability  to  originate  new loans for its
portfolio.

     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 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 loan  customers for a period of ninety
days.

     The Bank's  interest  rate spread  increased to 2.92% in 2002 from 2.71% in
2001 because the cost of its deposits and borrowings decreased more quickly than
the rates earned on its loan portfolio. The increase to 2.71% in 2001 from 2.37%
in 2000 was also due to the cost of its deposits and borrowings  decreasing 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 loans. It competes for deposits
with many of the nation's largest savings institutions and commercial banks that
have significant operations in Southern California.

     The Bank also  competes for deposits  with credit  unions,  thrift and loan
associations,  money market mutual funds,  issuers of corporate debt  securities
and the government.  In addition to the rates of interest offered to depositors,
the Bank's ability to attract and retain  deposits  depends upon the quality and
variety of services  offered,  the  convenience of the Bank's  locations and its
financial strength as perceived by depositors.

     The  Bank   competes   for  real  estate  loans   primarily   with  savings
institutions,  commercial banks, mortgage companies and insurance companies. The
primary factors in competing for loans are interest rates,  loan fees,  interest
rate caps,  interest rate  adjustment  provisions  and the quality and extent of
service to borrowers and mortgage brokers.

     Environmental  Concerns. In certain  circumstances,  such as if it actively
participates  in the  management or operation of a property  securing its loans,
the Bank could have  liability  for any  properties  found to have  pollutant or
toxic  features.  Environmental  protection laws are strict and impose joint and
several liability on numerous parties. It is possible for the cost of cleanup of
environmental  problems to exceed the value of the security  property.  The Bank
has adopted  environmental  underwriting  requirements  when  considering  loans
secured  by  properties   which  appear  to  have   environmentally   high  risk
characteristics  (e.g.  commercial 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.
                                   5
<PAGE>

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

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

     Loan  originations and purchases were $1.3 billion in 2002, $1.5 billion in
2001, and $1.1 billion in 2000. Loan  origination  volume  decreased during 2002
due to borrower  demand for fixed rate loans at very low  interest  rates.  Loan
origination  volume has improved over the last three years due to an increase in
real estate activity in the Bank's market areas.  The above amounts include loan
purchases  totaling $89 thousand  during 2002,  $132.6  million  during 2001 and
$14.1 million during 2000.

     Loans sold totaled $134.2  million in 2002,  $61.2 million in 2001 and $9.5
million in 2000. For the year ended  December 31, 2002,  $103.7 million in loans
were originated for sale compared to $64.2 million for 2001 and $10.9 million in
2000.  Loans  originated  for sale  totaled  8%, 5% and 1% of loan  originations
during 2002, 2001 and 2000,  respectively.  The increase in loans originated for
sale is due to borrower  preference  for  30-year and 15-year  fixed rate loans,
which were  available to borrowers at lower  interest  rates in 2002 compared to
2001. 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, 2002, 2001 and 2000 were $2.3 million,
$5.2  million and $2.2  million,  respectively,  constituting  0.06%,  0.13% and
0.06%, respectively, of the Bank's total loans at such dates.

     Loans  originated for sale are recorded at the lower of cost or fair value.
The time from  origination  to sale typically  takes up to 30 days.  During this
time  period  the  Bank  may be  exposed  to price  adjustments  as a result  of
fluctuations in market interest rates.

     The Bank, in prior years,  has 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 are formed, guarantee fees are 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 was recorded at fair value as
of  December  31,  2002,  2001 and 2000.  Positive  fair value  adjustments  for
mortgage-backed  securities totaling $1.6 million and $1.9 million,  net of tax,
were  recorded  in   stockholders'   equity  at  December  31,  2002  and  2001,
respectively.  A negative fair value adjustment for  mortgage-backed  securities
totaling $1.9 million,  net of taxes,  was recorded in  stockholders'  equity at
December 31, 2000.

                                   6
<PAGE>

     The Bank  serviced  $197.3  million  in loans  for  other  investors  as of
December  31,  2002.  $108.6  million of these  loans  were sold under  recourse
arrangements.  The Bank has an additional $8.1 million in loans that were formed
into mortgage-backed  securities with recourse features, but were still owned by
the Bank as of December  31,  2002.  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 decrease in the principal balance of loans sold with
recourse to $108.6  million at the end of 2002 from $137.2 million at the end of
2001 and  $159.8  million  at the end of 2000 was 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, LIBOR, starting at the end of 2002, a Three
Month Certificate of Deposit Index ("CODI").  (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
$419.7  million  in 2002,  $1.0  billion  in 2001  and  $75.9  million  in 2000.
Originations of adjustable rate loans with initial fixed interest rates declined
during 2002 because the rate  differential  between these loans and  traditional
fixed rate loans was not sufficient to attract borrowers.  Adjustable rate loans
with initial fixed interest rates were popular during 2001 because their initial
interest rates were competitive with longer term fixed rate loan products.

     Under current portfolio loan programs, the Bank normally lends no more than
95%  of a  single  family  property's  appraised  value  at  the  time  of  loan
origination.  In addition,  the Bank has special Community Reinvestment Act loan
programs in which it lends up to 97% of the property's appraised value.

     The  Bank  generally   requires  that  borrowers  obtain  private  mortgage
insurance on loans in excess of 80% of the appraised  property value. On certain
loans  originated for the portfolio,  the Bank charges premium rates and/or fees
in exchange for waiving the insurance requirement.  Management believes that the
additional  rates and fees that the Bank receives for these loans compensate for
the  additional  risk  associated  with  this  type of loan.  Subsequent  to the
origination  of a  portfolio  loan,  the  Bank  may  purchase  private  mortgage
insurance with its own funds. Under certain mortgage insurance programs the Bank
acts as  co-insurer  and  participates  with the insurer in absorbing any future
loss. As of December 31, 2002, 2001 and 2000,  loans with  co-insurance  totaled
$106.6  million,  $140.4  million  and  $212.6  million,   respectively.   Loans
originated  with an  initial  loan-to-value  greater  than 80%  with no  private
mortgage  insurance  totaled $159.7 million at December 31, 2002, $354.5 million
at December 31, 2001 and $268.2 million at December 31, 2000.

     Because AML  loan-to-value  ratios may increase above those  established at
the time of loan origination due to negative amortization, the Bank rarely lends
in  excess  of 90% of the  appraised  value on AMLs.  When the Bank does lend in
excess of 90% of the  appraised  value,  additional  fees and  higher  rates are
charged.  The amount of negative  amortization  recorded  by the Bank  increases
during  periods of rising  interest  rates.  As of December 31,  2002,  negative
amortization on all loans serviced by the Bank was immaterial.

     Although regulations permit a maximum loan term of 40 years for real estate
secured home loans and 30 years for other real estate loans, the majority of the
Bank's real estate loans  provide for a maximum  maturity  period of 30 years or
less.  Loans with 40-year terms  constituted 6%, 4% and 7% of loan  originations
during 2002, 2001 and 2000, respectively.

                                   7
<PAGE>

     The  following  table shows the  contractual  remaining  maturities  of the
Bank's loans at December 31, 2002:
<TABLE>

                                                                    Loan Maturity Analysis
                                                                        Maturity Period
                                  ------------------------------------------------------------------------------------------
                                     Total        1 Year       > 1 Year      > 5-10        > 10-20       > 20-30      > 30
                                    Balance      or Less      to 5 Years      Years         Years         Years       Years
                                  ----------    ---------    ----------     ---------    ---------     ---------    --------
                                                                        (In thousands)
<S>                            <C>           <C>          <C>           <C>           <C>          <C>           <C>
Interest rate sensitive loans:
  AMLs.........................$  3,700,219  $     87,759 $     770,733 $     612,819 $  1,232,556 $     908,951 $    87,401
  Fixed rate loans.............      94,320         5,985        44,989        26,238       11,746         5,194         168
  Commercial business loans....      20,304         4,739        15,565            --           --            --          --
  Construction loans...........       6,927         3,470         3,457            --           --            --          --
  Consumer and other loans.....      36,880        36,331           187           362           --            --          --
                                  ---------     ---------    ----------     ---------    ---------     ---------    --------
Total..........................$  3,858,650  $    138,284 $     834,931 $     639,419 $  1,244,302 $     914,145 $    87,569
                                  =========     =========    ==========     =========    =========     =========    ========
</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
                         2002      Total      2001      Total       2000      Total      1999      Total       1998     Total
                       -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
                                                                (Dollars in thousands)
<S>                 <C>           <C>    <C>           <C>     <C>           <C>    <C>           <C>     <C>          <C>
Non-accrual loans:
  Single family.....$   5,705       85%  $   6,062        93%  $   5,603       89%  $   9,626        70%  $  12,270      42%
  Multi-family......    1,017       15         422         6         662       11       3,995        29      13,005      44
  Commercial........       --       --          --        --          --       --         225         1       4,040      14
  Consumer..........       --       --          16         1          --       --          --        --          --      --
                       ------    ------    -------    -------    -------    ------    -------    -------    -------    -----
Total non-accrual
    loans...........$   6,722      100%  $   6,500       100%  $   6,265      100%  $  13,846       100%  $  29,315     100%
                       ======    ======    =======    =======    =======    ======    =======    =======    =======    =====
</TABLE>

     The allowance for delinquent interest, based on loans past due more than 90
days or in  foreclosure,  totaled $372 thousand,  $504 thousand,  $511 thousand,
$720 thousand and $1.9 million at December 31, 2002,  2001, 2000, 1999 and 1998,
respectively.

     The Bank's modified loans result primarily from temporary  modifications of
principal  and  interest  payments.  Under  these  arrangements,  loan terms are
typically  reduced to no less than a monthly interest payment required under the
note.  If the borrower is unable to return to scheduled  principal  and interest
payments at the end of the  modification  period,  foreclosure  proceedings  are
initiated or the modification  period may be extended.  As of December 31, 2002,
the Bank had modified loans totaling $3.9 million,  net of loan loss  allowances
of $496 thousand.  This compares with modified loans totaling $7.4 million,  net
of loan  loss  allowances  of $1.9  million  as of  December  31,  2001 and $9.6
million, net of loan loss allowances of $1.9 million as of December 31, 2000. No
modified loans were 90 days or more  delinquent as of December 31, 2002, 2001 or
2000.

     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.

     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.

                                   8
<PAGE>

     Valuation allowances for impaired loans totaled $496 thousand, $1.9 million
and $1.8  million as of December  31,  2002,  2001 and 2000,  respectively.  The
following  is a summary of  impaired  loans,  net of  valuation  allowances  for
impairment, for the periods indicated:
<TABLE>
                                                          Year Ended December 31,
                                                     ---------------------------------
                                                       2002         2001         2000
                                                     --------    ---------    --------
                                                                  (In thousands)
<S>                                               <C>         <C>          <C>
Non-accrual loans..............................   $        -- $       978  $       --
Modified loans.................................         1,567       6,416       8,770
                                                     --------    --------    --------
                                                  $     1,567 $     7,394  $    8,770
                                                     ========    ========    ========
</TABLE>
     All impaired  non-accrual  loans as of 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, 2002, December 31, 2001, and December 31,
2000,  impaired  loans  totaling $1.6 million,  $3.9 million,  and $5.1 million,
respectively,  had no valuation allowances established.  All impaired loans were
measured using the fair value method as of December 31, 2002,  December 31, 2001
and December 31, 2000, with values totaling $1.6 million,  $7.4 million and $8.8
million, respectively.

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

     The  following  is an  analysis  of the  activity  in the Bank's  valuation
allowance for impaired loans during the periods indicated (in thousands):

Balance at December 31, 1997...............................  $    9,775
   Provision for loan losses...............................         640
   Net charge-offs.........................................      (2,781)
                                                               --------
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 from general valuation allowance...............      (1,354)
                                                               --------
Balance at December 31, 2002...............................  $      496
                                                               ========

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

     The average  recorded  investment in impaired  loans during 2002,  2001 and
2000 was $5.0 million, $7.4 million and $8.8 million,  respectively.  The amount
of interest income recognized from impaired loans during 2002, 2001 and 2000 was
$322  thousand,  $597 thousand and $706 thousand,  respectively,  under the cash
basis  method of  accounting.  Interest  income  that was  recognized  under the
accrual  basis  method  of  accounting  for  2002,  2001 and 2000  totaled  $316
thousand, $587 thousand and $712 thousand, respectively.

                                   9
<PAGE>
Internal Asset Review System

     In accordance  with the regulations of the OTS, 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,  36+ unit  apartment  loans,  and
commercial business loans. Other non-homogeneous  assets may include investments
in subsidiaries,  investments in securities,  and significant  off-balance sheet
items.  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.

     The  remainder  of the  portfolio  is  segmented  into groups of loans with
similar risk  characteristics  for evaluation  and analysis  under  Statement of
Financial  Accounting  Standards No. 5,  "Accounting for  Contingencies"  ("SFAS
No.5").

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 rate
of loss is derived from the Bank's  historical  loss experience and adjusted for
current and anticipated conditions and trends.

     The Bank  reviews the general  valuation  allowance  for  adequacy at least
quarterly  and  evaluates  the  performance  trends  in the  loan  portfolio  to
establish adequate reserve factors. The Bank's Asset  Classification  Committee,
comprised  of senior Bank  officers,  reviews the  general  valuation  allowance
analysis and methodology on a quarterly  basis.  The Board of Directors  reviews
and approves the GVA policy annually.

                                   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,
                                                        -----------------------------------------------------------------
                                                           2002          2001           2000         1999          1998
                                                        ---------    -----------    ----------    ----------    ---------
                                                                                  (In thousands)
<S>                                                  <C>          <C>            <C>           <C>           <C>
Beginning general loan valuation allowances.......   $    72,919  $      70,809  $     69,954  $     67,638  $     61,237
Provision for loan losses.........................            --             --            --            --         6,560
General loan valuation allowances obtained in
    acquisition...................................            --          2,050            --            --            --
Charge-offs, net of recoveries:
    Single family.................................          (372)          (322)         (767)         (342)       (1,497)
    Multi-family..................................           189            286         1,692         2,650         1,354
    Commercial....................................            --             --          (105)          111           (32)
    Non-real estate...............................         1,133            154            35          (103)           16
                                                        --------    -----------    ----------    ----------     ---------
Total net recoveries (charge-offs)................           950            118           855         2,316          (159)
Transfers from (to) impaired valuation allowance..         1,354            (58)           --            --            --
                                                        --------    -----------    ----------    ----------     ---------
Ending general loan valuation allowances..........   $    75,223  $      72,919  $     70,809  $     69,954  $     67,638
                                                        ========    ===========    ==========    ==========     =========
</TABLE>
     Combining activity in the general valuation allowances and the valuation in
allowances  for impaired  loans,  the Bank recorded total net recoveries of $950
thousand,   $118  thousand  and  $51  thousand   during  2002,  2001  and  2000,
respectively.  Total net  charge-offs  of $2.7  million  and $2.9  million  were
recorded during 1999 and 1998,  respectively,  which represented 0.09% and 0.10%
of the average loan  portfolio  for such periods.  The low level of  charge-offs
over the  last  five  years is due to the  improved  condition  of the  Southern
California economy and real estate market since the recession of the mid-1990's.

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

     The Bank's total general  valuation  allowance for loans was 1.89% of total
loans with loss exposure at December 31, 2002, 1.70% at December 31, 2001, 1.81%
at December 31, 2000, 2.15% at December 31, 1999 and 2.26% at December 31, 1998.

     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
                         2002      Total      2001      Total       2000      Total      1999      Total       1998     Total
                       -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
                                                                (Dollars in thousands)
<S>                 <C>          <C>     <C>          <C>      <C>          <C>     <C>          <C>      <C>          <C>
Real estate loans:
  Single family.....$  24,952       33%  $  30,040        41%  $  37,695       53%  $  24,985        35%  $  23,061      34%
  Multi-family......   27,037       36      23,955        33      22,529       32      38,332        55      37,875      56
  Commercial........    9,938       13       7,860        11       5,797        8       6,129         9       6,034       9
  Construction......    2,281        3       3,687         5          --       --          --        --          --      --
                      -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
 Total real estate
    loans...........   64,208       85      65,542        90      66,021       93      69,446        99      66,970      99
                      -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
Non-real estate
   loans:
  Commercial........    4,977        7       5,120         7       3,214        5          65        --          --       --
  Consumer..........    5,978        8       1,918         3       1,073        1          87        --          72       --
  Other.............       60       --         339        --         501        1         356         1         596        1
                      -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
Total non-real
   estate loans.....   11,015       15       7,377        10       4,788        7         508         1         668        1
                      -------    ------    -------    -------    -------    ------    -------    -------    -------    -----
Total...............$  75,223      100%  $  72,919       100%  $  70,809      100%  $  69,954       100%  $  67,638      100%
                      =======    ======    =======    =======    =======    ======    =======    =======    =======    =====
</TABLE>
                                   11
<PAGE>

     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.

     During 2001,  certain  changes in the exposure  base of the loan  portfolio
resulted in an increase of $2.1 million in the total general valuation allowance
for loans. The exposure base of single-family  loans declined by $59 million and
the  proportion  of higher risk loans was  reduced,  resulting in a $7.7 million
reduction in the general valuation  allowance.  The increase in the multi-family
and  commercial  real estate  loan  exposure  base of $216.0  million and $117.9
million,  respectively,  was  partially  offset  by the  reduction  in the  risk
composition,  resulting  in an increase in general  valuation  allowance of $1.4
million and $2.1 million,  respectively.  The newly acquired  construction  loan
portfolio added $3.7 million to the general valuation allowance. The increase in
the  commercial  loan exposure base of $13.3 million and the  classification  of
certain  loans as  substandard  resulted in an  increase of $1.9  million in the
general valuation allowance.  The consumer loan exposure base increased by $31.5
million,  thus adding $845  thousand to the  general  valuation  allowance.  The
remainder  of the  change  in the  general  valuation  allowance  for  loans was
attributable to changes in other loan categories.

     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 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 payoffs,
and  has had  better  credit  experience  than  was  previously  estimated.  The
remaining repurchase liability of $6.9 million represents approximately 6.35% of
the total  portfolio  of loans sold with  recourse at  December  31,  2002.  The
activity in the  repurchase  liability  for loans sold with  recourse  for 2002,
2001, 2000, 1999 and 1998 is presented below (in thousands):


  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)
  Net recoveries...............................................              --
                                                                      ---------
  Balance at December 31, 2002.................................       $   6,900
                                                                      =========

     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  non-performing  loans and loans
receivable.

     Potential  Problem Loans. The Bank also had $2.1 million,  $6.2 million and
$6.7  million in  potential  problem  real estate loans as of December 31, 2002,
December 31, 2001 and December 31, 2000,  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.

                                   12
<PAGE>

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

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

     Generally,   loans  greater  than  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.

     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,
                                                    --------------------------------------
                                                       2002          2001           2000
                                                    ---------    -----------    ----------
                                                                (In thousands)
<S>                                              <C>          <C>            <C>
Beginning balance..............................  $     1,485  $       2,157  $      2,202
  Additions....................................        1,881          5,136         5,050
  Sales and other..............................       (3,047)        (5,808)       (5,095)
                                                    --------     ----------     ---------
Ending balance.................................  $       319  $       1,485  $      2,157
                                                    ========     ==========     =========
</TABLE>

     Other Interest-Earning  Assets. The Bank owned no contractually  delinquent
interest-earning assets other than loans as of December 31, 2002.

     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,
                                                    ------------------------------------------------------------------------
                                                        2002           2001            2000           1999           1998
                                                    -----------    -----------     -----------      ----------   -----------
                                                                              (Dollars in thousands)
<S>                                               <C>            <C>             <C>            <C>            <C>
U.S. treasury securities..........................$         200  $         300   $         300  $          300 $       300
U.S. agency securities............................           --         28,199          38,185          38,167      28,156
Collateralized mortgage obligations ("CMO's").....      101,802         80,013          98,562         115,704      36,380
                                                      ---------     ----------      ----------      ----------   ---------
                                                        102,002        108,512         137,047         154,171      64,836

Unrealized gain (loss) on securities available-
   for-sale.......................................        1,053          1,932            (510)         (2,976)       (503)
                                                     ----------     ----------       ---------      ----------   ---------
                                                  $     103,055  $     110,444   $     136,537  $      151,195 $    64,333
                                                     ==========     ==========       =========      ==========   =========
Weighted average yield on interest-earning
   investments end of period......................         4.77%          6.07%           5.99%           5.86%       5.38%
                                                     ==========     ==========       =========      ==========   =========
</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  savings  deposits,
advances from the FHLBSF and securities sold under agreements to repurchase.

                                   13
<PAGE>

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

     Deposits acquired through  telemarketing  efforts are typically placed with
the Bank by  professional  money managers and represented 3%, 4% and 2% of total
deposits  at  December  31,  2002,  2001 and  2000,  respectively.  The level of
telemarketing  deposits varies based on yields  available to depositors on other
investment   instruments   and  the   depositors'   perception   of  the  Bank's
creditworthiness.

     Deposits acquired through national  brokerage firms represented 6%, 14% and
18% of total  deposits at December 31, 2002,  2001 and 2000,  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 Federal Deposit Insurance  Corporation  ("FDIC") in order to accept brokered
deposits.  See  "Management's  Discussion  and Analysis - Capital  Resources and
Liquidity."

     Deposits  obtained  through the retail  branch  system were $2.3 billion at
December  31,  2002,  $2.1  billion at  December  31,  2001 and $1.7  billion at
December 31, 2000.  Retail deposits  comprised 91% of total deposits at December
31, 2002,  82% of total  deposits at December 31, 2001 and 80% of total deposits
at December  31, 2000.  Management  attributes  the increase in retail  deposits
during 2002 to  increased  deposits  from stock  market  investors  wanting more
security for their  investments.  During  2001,  the Bank  acquired  four retail
offices with  deposits  totaling  $174.8  million as part of the purchase of two
small  financial  institutions.  As of  December  31,  2002,  deposits  at these
acquired branches totaled $163.7 million. The increase in retail deposits during
2000 was the result of two branch purchases during that year.

     The Bank has concentrated its marketing efforts over the last several years
on  the  attraction  and  retention  of  non-term  accounts.  As a  result,  the
percentage of fixed-term  certificates  of deposit in the Bank's total  deposits
has  decreased  from 57% as of December 31, 2000 and 52% as of December 31, 2001
to 36% as of December 31, 2002.

     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,
                                   ----------------------------------------------------------------------------------------------
                                             2002                              2001                              2000
                                   --------------------------        --------------------------        --------------------------
                                     Average        Average            Average        Average            Average       Average
                                     Balance         Rate              Balance          Rate             Balance         Rate
                                   -----------    -----------        -----------    -----------        ----------    ------------
                                                                      (Dollars in thousands)
<S>                            <C>                <C>            <C>                <C>            <C>               <C>
Passbook accounts............  $      106,591           1.47%    $       94,067           1.53%    $        81,330           1.98%
Money market deposit accounts
                                      909,866           2.50            613,745            3.84            501,084           4.63
Interest-bearing checking
    accounts.................         164,930           0.66            141,282            0.97            128,678           1.19
Non interest-bearing
    checking accounts........         234,936             --            189,185              --            161,863             --
Fixed term certificate
    accounts.................       1,101,043           3.20          1,279,465            4.64          1,259,972           5.20
                                    ---------                         ---------                          ---------
                               $    2,517,366           2.42%    $    2,317,744            4.08%    $    2,132,927           4.70%
                                    =========                         =========                          =========
</TABLE>
     The following table shows the maturity  distribution of jumbo  certificates
of deposit ($100,000 and greater) as of December 31, 2002 (in thousands):
<TABLE>
<S>                                                                   <C>
Maturing in:
  1 month or less..............................................       $  33,256
  Over 1 month to 3 months.....................................          75,627
  Over 3 months to 6 months....................................             397
  Over 6 months to 12 months...................................          56,643
  Over 12 months...............................................          43,579
                                                                       --------
    Total......................................................       $ 209,502
                                                                       ========
</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.

                                   14
<PAGE>
     The following tables set forth information regarding the amount of deposits
in the various types of savings  programs  offered by the Bank at the end of the
years indicated and the balances and average rates for those dates:
<TABLE>

                                                                              At December 31,
                                                   ----------------------------------------------------------------------
                                                          2002                     2001                     2000
                                                   --------------------    ---------------------    ---------------------
                                                      Amount        %         Amount          %        Amount         %
                                                   -----------   ------    ------------    -----    -----------    ------
                                                                           (Dollars in thousands)
<S>                                             <C>              <C>    <C>                <C>   <C>               <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted
   average rate of 2.13%, 2.76% and 4.79%).     $    1,079,278     43%  $      741,978      29%  $      537,475      25%
Interest-bearing checking accounts
    (weighted average rate of 0.43%, 0.72%
    and 1.22%).............................            174,802      7          162,309       7          140,151       6
Passbook accounts (weighted average rate
    of 1.34%, 1.59% and 2.00%).............            111,844      4          104,488       4           80,536       4
Non-interest bearing checking accounts.....            239,695      9          205,597       8          176,059       8
                                                   -----------   -----    ------------    -----     -----------    -----
                                                     1,605,619     63        1,214,372      48          934,221      43
                                                   -----------   -----    ------------    -----     -----------    -----
Fixed-rate term certificate accounts:
Under six-month term (weighted average
    rate of 1.54%, 2.57% and 5.26%)........             37,630      1           54,626       2           61,954       3
Six-month term (weighted average rate of
    1.95%, 3.29% and 6.41%)................            104,600      4          246,161      10          282,922      13
Nine-month term (weighted average rate of
    2.76%, 3.98% and 6.74%)................            101,980      4          170,190       7          240,598      11
One year to 18-month term (weighted
    average rate of 2.63%, 4.45% and 6.11%)
                                                       331,308     14          469,113      18          367,603      17
Two year or 30-month term (weighted
    average rate of 3.55%, 5.38% and 5.83%)
                                                        41,460      2           45,993       2           31,685       2
Over 30-month term (weighted average rate
    of 4.49%, 5.31% and 5.49%).............             94,927      4           39,938       1           31,088       1
Negotiable certificates of $100,000 and
    greater, 30 day to one year terms
    (weighted average rate of 2.32%, 3.84%
    and 6.19%).............................            209,502      8          306,254      12          214,976      10
                                                   -----------   -----    ------------    -----    ------------    -----
                                                       921,407     37        1,332,275      52        1,230,826      57
                                                   -----------   -----    ------------    -----    ------------    -----
Total deposits (weighted average rate of
    1.98%, 3.02% and 4.90%)................     $    2,527,026    100%  $    2,546,647     100%  $    2,165,047     100%
                                                   ===========   =====    ============    =====    ============    =====
</TABLE>

     The  cost  of  funds,  operating  margins  and  net  earnings  of the  Bank
associated with brokered and telemarketing  deposits are generally comparable to
the cost of funds,  operating  margins and net  earnings of the Bank  associated
with retail deposits,  FHLBSF borrowings and securities sold under agreements to
repurchase.  As the cost of each source of funds  fluctuates  from time to time,
the Bank  seeks  funds from the  lowest  cost  source  until the  relative  cost
changes.  As the costs of funds,  operating margins and net earnings of the Bank
associated with each source of funds are generally comparable, the Bank does not
deem  the  impact  of a change  in  incremental  use of any one of the  specific
sources of funds at a given time to be material.

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

     Total  advances from the FHLBSF were $1.2 billion at December 31, 2002 at a
weighted  average rate of 3.90%.  This compares with advances of $1.6 billion at
December 31, 2001 and $1.6 billion at December  31, 2000 with  weighted  average
rates of 5.01% and 6.42%,  respectively.  The Bank has credit  availability with
the FHLBSF,  which allows it to borrow up to 50% of its assets or  approximately
$2.1 billion at December 31, 2002.

                                   15
<PAGE>


     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  $155.3  million  at
December  31,  2002 at a  weighted  average  rate of 1.61% and were  secured  by
mortgage-backed  securities  with principal  balances  totaling  $150.3 million.
Borrowings  under  reverse  repurchase  agreements  totaled  $211.0  million  at
December 31, 2001 and $294.1  million at December  31, 2000 at weighted  average
rates of 2.66%  and  6.65%,  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 $1.3  billion,  $1.8 billion and $1.9
billion at weighted  average  rates of 3.63%,  4.74% and 6.46% at  December  31,
2002,  2001, and 2000,  respectively.  Due to the high level of loan payoffs and
the growth in retail branch deposits, no additional borrowings were necessary to
fund asset growth during 2002 or 2001.

     The Bank's portfolio of short-term  borrowings includes short-term variable
rate credit advances and FHLB advances due in less than one year from the FHLBSF
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>
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

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

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 2002 and no material  change is  presently
foreseen.
                                       16
<PAGE>


     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.  No gains or  losses  on real  estate
development  activities  were  recorded  during  2001  or  2000.  A gain of $142
thousand was recognized during 2002 on the sale of assets from a 100% owned real
estate  partnership.  Seaside,  from  time to  time,  will  purchase  individual
properties for  investment  and sell them for a gain.  Income from this activity
totaled $285 thousand  during 2001 and $590 thousand  during 2000.  There was no
income from the sale of investment properties during 2002.

     Seaside continues to hold one condominium unit, which is rented to the Bank
for use by its  employees.  At December 31, 2002,  Seaside's  investment  in the
remaining unit totaled $28 thousand. There were no loans outstanding against the
property at December 31, 2002. The unit is located in Southern California.

     Trustee  Activities.  Seaside acts as trustee on the Bank's deeds of trust.
Trustee fees for this activity  amounted to $56  thousand,  $86 thousand and $65
thousand in 2002, 2001 and 2000, 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  and
mutual funds  conducted in the Bank's  offices by a licensed third party vendor,
Invest Financial Corporation,  a registered  broker-dealer.  Invest 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 2002, 2001 and 2000,  Oceanside received commission income of
$456 thousand, $231 thousand and $290 thousand,  respectively,  from the sale of
non-insured  investment  products.  Additionally,  Oceanside  receives insurance
commissions  from the sale of insurance to its borrowers.  Commissions  received
from this  activity  totaled  $35  thousand  in 2001 and $444  thousand in 2000.
Commission  rebates totaling $64 thousand were paid during 2002. The decrease in
premiums  during  2002 and 2001  resulted  from  rebates  of  previously  earned
commissions  when  interim  lender-placed  policies  were  replaced by permanent
policies obtained by borrowers.

Employees

     As of December 31, 2002,  the Bank had a total of 497 full time  equivalent
employees, including 119 part-time employees. No employees were represented by a
collective  bargaining  group. At present,  the Company has no employees who are
not  also  employees  of the  Bank.  The Bank  provides  its  regular  full-time
employees with a  comprehensive  benefits  program that includes basic and major
medical insurance,  long-term disability coverage, sick leave, a 401(k) plan and
a profit sharing  employee stock ownership plan. The Bank considers its employee
relations to be excellent.

Summary of Material Legislation and Regulations

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

     As a member of the FHLB System,  the Bank is required to own capital  stock
in its regional FHLB, the FHLBSF,  in an amount at least equal to the greater of
1% of the aggregate  principal amount of its unpaid residential  mortgage loans,
home purchase  contracts and similar  obligations at the end of each year, or 5%
of its outstanding  borrowings from the FHLBSF.  The Bank was in compliance with
this  requirement,  with an  investment  of $78.7  million  in  FHLBSF  stock at
December 31, 2002.

     The FHLBSF  serves as a source of  liquidity  for the  member  institutions
within its assigned region, the FHLB Eleventh  District.  It is funded primarily
from  proceeds  derived from the sale of  consolidated  obligations  of the FHLB
System.  It makes advances to members in accordance with policies and procedures
established by the Federal  Housing  Finance Board and the Board of Directors of
the FHLBSF.  At December 31, 2002, the Bank's  advances from the FHLBSF amounted
to $1.2 billion,  or 30% 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 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, 2002,  dividends paid by the FHLBSF
to the Bank totaled approximately $4.8 million.

                                       17
<PAGE>

     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.  It
repealed key provisions of the "Glass-Steagall Act" by repealing prohibitions on
affiliations  among  banks,   securities  firms  and  insurance  companies.   It
authorizes a broad range of financial services to be conducted by these types of
companies within a new structure known as a "financial holding company" ("FHC").
The FHC may engage in a number of activities  deemed to be new activities,  such
as securities  underwriting and dealing activities,  insurance  underwriting and
sales  activities,  merchant  banking  and  equity  investment  activities,  and
"incidental"  and  "complementary"   non-financial  activities.  While  the  Act
specifies  so-called   "functional   regulation,"   various  federal  and  state
regulators  have continued  authority over certain  activities of FHCs and other
regulated  financial  institutions.  However,  the Federal  Reserve Board is the
principal  regulator for FHCs. These changes do not directly affect the Company,
although  they may  dramatically  affect the business  activities of many of the
Company's financial institution competitors.

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

     The Act  establishes  a  federal  right to the  confidential  treatment  of
nonpublic  personal  information  about  consumers.  These provisions of the Act
require disclosure of privacy policies to consumers and, in some  circumstances,
will allow consumers to prevent disclosure of certain personal  information to a
nonaffiliated  third party.  Compliance with the rules was mandatory starting on
July 1, 2001.

     These  rules  affect  how  consumer   information  is  transmitted  through
diversified  financial  companies and conveyed to outside  vendors.  Because the
Company does not sell  customer  information  or give  customer  information  to
outside third parties or its affiliates except under very limited  circumstances
(e.g.,  providing customer information to the Company's data processing provider
or to third party  providers of financial  services under narrow joint marketing
arrangements),  the rules  have not had a  significant  impact on the  Company's
results of operations or financial condition.

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

     The Act also  significantly  amends 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.

     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.
                                       18
<PAGE>

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

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

     Insurance of Accounts.  The FDIC administers two separate deposit insurance
funds.  The Bank Insurance Fund ("BIF") insures the deposits of commercial banks
and other  institutions  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.

     The  OTS  also  imposes   assessments  and  examination   fees  on  savings
institutions.  OTS  assessments  for the Bank were $708  thousand in 2002,  $653
thousand in 2001 and $568 thousand in 2000.

     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,  2002,  liquidity-qualifying  balances  were 27.1% 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.

                                       19
<PAGE>

     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 an statute,  regulation  or
agreement  between the savings  institution and the OTS (or FDIC) or a condition
imposed by an OTS approval. The regulations also require a 30-day advance notice
to be filed for proposed capital  distributions that would result in the savings
institution  being less than  well-capitalized  or that involve the reduction or
retirement  of the savings  institution's  stock.  During 2002,  the Bank paid a
total of $20.0  million  in capital  distributions  to the  Company.  No capital
distributions were made to the Company during 2001.

     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,
2002.

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

     Safety  and  Soundness  Standards.  OTS  regulations  contain  "safety  and
soundness"  standards  covering  various  aspects of the  operations  of savings
institutions.  The  guidelines  relate to internal  controls 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 2003.

     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 2002 and was  eligible to accept  brokered
deposits without a waiver.

     Qualified Thrift Lender Test. In general, the QTL test requires that 65% of
an institution's  portfolio assets be invested in "qualified thrift investments"
(primarily loans, securities and other investments related to housing), measured
on a monthly  average basis for nine out of every 12 months on a rolling  basis.
Any savings institution that fails to meet the QTL test must either convert to a
bank charter or become subject to national bank-type  restrictions on branching,
business activities,  and dividends,  and its ability to obtain FHLB advances is
affected.  The Bank  met the QTL  test at  December  31,  2002,  with 92% of its
portfolio assets comprised of "qualified thrift investments."

                                       20
<PAGE>
     Transactions with Affiliates.  Federal savings  institutions are subject to
the provisions of Sections 23A and 23B of the Federal  Reserve Act.  Section 23A
restricts  loans or extensions of credit to, or investments in, or certain other
transactions with,  affiliates and as to the amount of advances to third parties
collateralized  by the  securities or  obligations  of  affiliates.  Section 23B
generally   requires   that   transactions   with   affiliates   must  be  on  a
non-preferential  basis. Federal savings institutions may not make any extension
of credit to an affiliate  which is engaged in activities  not permitted by bank
holding  companies,  and may not  invest in  securities  issued by an  affiliate
(except with respect to a subsidiary). The Company is an "affiliate" of the Bank
for the purposes of these provisions.

     Transactions with Insiders. Federal savings institutions are subject to the
restrictions of Sections 22(g) and (h) of the Federal  Reserve Act which,  among
other  things,  restrict the amount of extensions of credit which may be made to
executive  officers,  directors,  certain principal  shareholders  (collectively
"insiders"), and to their related interests. When lending to insiders, a savings
association  must  follow  credit  underwriting  procedures  that  are not  less
stringent than those applicable to comparable  transactions with persons outside
the association. The amount that a savings association can lend in the aggregate
to insiders  (and to their  related  interests) is limited to an amount equal to
the  association's  core capital and surplus.  Insiders are also prohibited from
knowingly receiving (or knowingly permitting their related interests to receive)
any extensions of credit not authorized under these statutes.

     Federal Reserve System.  Federal Reserve Board regulations  require savings
institutions to maintain non-interest bearing reserves against their transaction
accounts. The reserve for transaction accounts as of December 31, 2002 was 0% of
the first $5.5 million of such  accounts,  3% of the next $35.6  million of such
accounts and 10% (subject to adjustment by the Federal  Reserve Board between 8%
and 14%) of the balance of such accounts.  The Bank is in compliance  with these
requirements as of December 31, 2002.

     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 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, 2002
and 2001 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  that are
permitted under federal  regulations  exceed the Bank's earnings and profits (as
computed for federal income tax purposes),  such distributions  would be treated
for tax  purposes  as being made out of the Bank's  base year  reserve and would
thereby  constitute  taxable income to the Bank in an amount equal to the lesser
of the Bank's base year reserve or the amount which,  when reduced by the amount
of income tax  attributable to the inclusion of such amount in gross income,  is
equal to the amount of such  distribution.  At  December  31,  2002,  the Bank's
earnings  and  profits  (as  computed  for  federal  income tax  purposes)  were
approximately $392.6 million.

     Prior to December  31, 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.  On September 11, 2002, the Governor of
the State of California approved legislation conforming state tax to federal tax
law with regard to the method of  accounting  for bad debts used by banks.  This
legislation,  which was effective immediately,  also provided that one-half of a
bank's  reserve for bad debts as of December  31, 2002 would never be subject to
state taxes.  Any tax benefit  resulting from this  legislation will be recorded
upon agreement by the Bank and the Franchise Tax Board (the "FTB") on the Bank's
reserve balance.

     At December  31,  2002,  the Bank had $47.0  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 $33.5 million at December 31, 2002.

                                       21
<PAGE>
     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 2002, 2001 or 2000.

     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 2002, 2001 and 2000 was 10.84%.

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 1996.
The  adjustments  proposed  by the  IRS  were  primarily  related  to  temporary
differences as to the  recognition of certain  taxable income and expense items.
While  the  Company  had  provided  for  deferred  taxes for  federal  and state
purposes,  the change in the period of recognition of certain income and expense
items  resulted in  interest  due to the IRS and the FTB.  Interest  accruals of
$876,000 and  $300,000  were  recorded  during 2002 and 2001,  respectively  for
interest on amended returns.  Interest  accruals totaling $350,000 were reversed
during 2000.  The balance of accrued  interest  payable for amended  returns was
$700,000   and  $300,000  as  of  December  31,  2002  and  December  31,  2001,
respectively.  There was no balance  of accrued  interest  payable  for  amended
returns as of December 31, 2000.

     Recent and Proposed  Legislation and Regulation.  In January 2001, the four
federal banking  agencies  jointly issued  expanded  examination and supervision
guidance relating to subprime lending  activities.  In the guidance,  "subprime"
lending  generally refers to programs that target borrowers with weakened credit
histories  or lower  repayment  capacity.  The guidance  principally  applies to
institutions  with subprime  lending  programs with an aggregate credit exposure
equal to or greater  than 25 percent of an  institution's  Tier 1 capital.  Such
institutions  would be subject to more stringent risk management  standards and,
in many  cases,  additional  capital  requirements.  Based  on  current  lending
programs, management of the Bank does not expect there to be any material impact
on the conduct of its business as a result of the guidance.

     In December 2001, the Federal  Reserve Board  published  final  regulations
implementing the Home Ownership and Equity Protection Act ("HOEPA").  Compliance
with the  regulations  was  mandatory  as of  October  1,  2002.  HOEPA  imposes
additional  disclosure  requirements  and limitations on certain  mortgage loans
with rates or fees above specified levels. The regulations lower the rate levels
that  trigger  the  application  of HOEPA  and  include  additional  fees in the
calculation of the fee amount that triggers HOEPA. Currently, the loans the Bank
makes are below the rate and fee levels that trigger HOEPA.

     Effective  July 1, 2002,  the OTS issued a number of changes to its capital
regulations.  Under these new rules,  a  one-to-four  family  residential  first
mortgage  loan may  qualify  for a 50 percent  risk  weight if it meets  certain
criteria,  including a loan-to-value  ("LTV") ratio below 90 percent.  Currently
these  loans must have an LTV ratio of 80 percent or less to qualify  for the 50
percent risk  weighting.  The OTS has also  eliminated  the  requirement  that a
thrift institution must deduct from total capital that portion of a land loan or
a nonresidential  construction loan in excess of an 80 percent LTV ratio and has
eliminated  the  interest  rate  risk   component  of  the  risk-based   capital
regulations. These changes, while positive, do not have a material effect on the
Bank's operations.

     On November 29, 2001 the banking  agencies issued a final rule that changed
regulatory  capital standards to address the treatment of recourse  obligations,
residual   interests  and  direct  credit   substitutes   that  expose   banking
organizations  to credit risk. The final rule treats  recourse  obligations  and
direct credit  substitutes more consistently than the agencies' prior risk-based
capital  standards  and  adds  new  standards  for  the  treatment  of  residual
interests,  including a concentration limit for  credit-enhancing  interest-only
"carve-out" investment  instruments.  In addition, the agencies allow the use of
credit  ratings  and  certain  alternative  approaches  to match the  risk-based
capital  requirement more closely to a banking  organization's  relative risk of
loss  for  certain  positions  in  asset  securitizations.  The  final  rule was
effective on January 1, 2002.  There has been no significant  impact on the Bank
as a result of this rule.

     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.  Implementation of regulations to implement the Act have been
postponed by the Department of the Treasury,  which has required additional time
to  study  certain  industries  for  implementation  of  anti-money   laundering
regulations.  However, it is not anticipated that adoption of the regulations as
presently  proposed  will  have a  significant  adverse  impact  on  the  Bank's
operations.

                                       22
<PAGE>
     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.
Although a number of these requirements have been implemented, a large number of
proposed  and final  rules are  expected  to be issued in 2003 and  beyond.  The
following is a summary of certain key provisions of Sarbanes-Oxley.

     In addition to the  establishment of a new accounting  oversight board that
will enforce  auditing,  quality control and independence  standards and will be
funded  by fees  from  all  publicly  traded  companies,  Sarbanes-Oxley  places
restrictions  on the scope of services that may be provided by accounting  firms
to their public company audit clients.  Any non-audit services being provided to
a public company audit client will require  pre-approval  by the company's audit
committee. In addition, Sarbanes-Oxley makes certain changes to the requirements
for  partner  rotation  after a period of time.  Sarbanes-Oxley  requires  chief
executive officers and chief financial officers, or their equivalent, to certify
to the  accuracy of periodic  reports  filed with the SEC,  subject to civil and
criminal  penalties if they  knowingly or willingly  violate this  certification
requirement.  In  addition,  counsel  will be required  to report  evidence of a
material  violation of the securities  laws or a breach of fiduciary duty to its
chief  executive  officer or its chief legal officer,  and, if such officer does
not  appropriately  respond,  to report such evidence to the audit  committee or
other similar committee of the board of directors or the board itself.

     Under this new law, longer prison terms will apply to corporate  executives
who violate  federal  securities  laws; the period during which certain types of
suits can be  brought  against a company  or it is  officers  is  extended;  and
bonuses issued to top executives  prior to restatement of a company's  financial
statements  are now  subject  to  disgorgement  if such  restatement  was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods,  and loans to company executives (other than
loans by financial  institutions  permitted by federal rules or regulations) are
restricted.  In  addition,  the  legislation  accelerates  the  time  frame  for
disclosures by public companies,  as they must immediately disclose any material
changes in their  financial  condition or  operations.  Directors  and executive
officers reporting most changes in ownership in a company's  securities must now
report within two business days of the change.

     Sarbanes-Oxley  also  increases   responsibilities   and  codifies  certain
requirements  relating  to audit  committees  of public  companies  and how they
interact with the company's "registered public accounting firm." Audit committee
members must be independent and are barred from accepting  consulting,  advisory
or other  compensatory  fees from the issuer.  In  addition,  companies  will be
required  to  disclose  whether  at  least  one  member  of the  committee  is a
"financial  expert"  (as such term will be defined  by the SEC) and if not,  why
not. A company's  registered  public  accounting  firm will be  prohibited  from
performing  statutorily  mandated  audit services for a company if the company's
chief executive officer, chief financial officer,  controller,  chief accounting
officer or any person serving in equivalent  positions had been employed by such
firm and  participated  in the audit of such company during the one-year  period
preceding the audit initiation date.  Sarbanes-Oxley  also prohibits any officer
or director of a company or any other person acting under their  direction  from
taking any action to fraudulently influence,  coerce,  manipulate or mislead any
independent public or certified accountant engaged in the audit of the company's
financial  statements  for the purpose of rendering  the  financials  statements
materially misleading.

     Sarbanes-Oxley also requires the SEC to prescribe rules requiring inclusion
of any internal control report and assessment by management in the annual report
to stockholders.  The law requires the company's  registered  public  accounting
firm that  issues  the audit  report  to  attest to and  report on  management's
assessment of the company's internal controls.

     Although the Company  anticipates that it will incur additional  expense in
complying with the provisions of Sarbanes-Oxley  and the resulting  regulations,
management  does not expect that such  compliance will have a material impact on
the Company's financial condition or results of operations.

                                       23
<PAGE>
ITEM 2 -- PROPERTIES

     At December 31, 2002, 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 a 12-story  office tower in downtown
Santa Monica and a general services and corporate  operations office building in
Santa Monica. For information  concerning rental obligations,  see Note 6 of the
Notes to Consolidated Financial Statements.

ITEM 3 -- LEGAL PROCEEDINGS

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

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

         None.

                                     PART II

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

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

     (b) Holders.  As of February 7, 2003,  16,910,212  shares of Company common
stock,  representing  approximately 792 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.)  The Board of  Directors  of the Bank  declared  and paid to the
Company  $20.0  million  during 2002 and $10.0  million  during 2000. No capital
distributions  to the Company  were made during  2001.  The  distributions  made
during  2002 were for the  purpose  of  repurchasing  353,000  shares of Company
common  stock.  The  distributions  made  during  2000 were for the  purpose  of
repurchasing 821,500 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.
                                       24
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA
<TABLE>
           Selected financial data for the Company is presented below:

                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                  FIVE YEAR CONSOLIDATED SUMMARY OF OPERATIONS

                                                  2002             2001             2000            1999            1998
                                              ------------    -------------    -------------    -----------     ------------
                                                               (Dollars in thousands, except per share data)
<S>                                         <C>            <C>              <C>              <C>            <C>
For the Year Ended December 31:
  Interest income..........................$      263,878  $      333,932   $      314,320   $     260,001  $       289,769
  Interest expense.........................       128,419         201,754          206,505         161,031          186,491
  Net interest income......................       135,459         132,178          107,815          98,970          103,278
  Provision for loan losses................            --              --               --              --            7,200
  Other income.............................        18,074           8,919            7,747          12,688           13,657
  Non-interest expense.....................        58,212          53,174           48,265          49,159           48,924
  Earnings before income taxes.............        95,321          87,923           67,297          62,499           60,811
  Income taxes.............................        40,149          37,621           28,832          27,052           26,182
  Earnings before extraordinary items......        55,172          50,302           38,465          35,447           34,629
  Extraordinary item loss on early
  extinguishment of debt, net of taxes.....            --              --               --          (2,195)              --
  Net earnings.............................        55,172          50,302           38,465          33,252           34,629
Basic earnings per share:
  EPS before extraordinary item............          3.22            2.92             2.23            1.84             1.63
  Extraordinary item.......................            --              --               --           (0.11)              --
  EPS after extraordinary item.............          3.22            2.92             2.23            1.73             1.63
Dilutive earnings per share:
  EPS before extraordinary item............          3.15            2.85             2.20            1.83             1.60
  Extraordinary item.......................            --              --               --           (0.12)              --
  EPS after extraordinary item.............          3.15            2.85             2.20            1.71             1.60
End of Year:
  Loans receivable, net (1)................     3,769,235       4,004,889        3,629,284       3,060,547        2,808,221
  Mortgage-backed securities...............       200,585         284,079          374,405         428,641          556,679
  Investment securities....................       103,055         110,444          136,537         151,195           64,333
  Total assets.............................     4,253,729       4,726,289        4,365,242       3,872,051        3,677,128
  Deposits.................................     2,527,026       2,546,647        2,165,047       2,061,357        2,135,909
  Borrowings...............................     1,322,273       1,808,040        1,873,110       1,532,635        1,235,172
  Liabilities..............................     3,882,088       4,400,611        4,097,800       3,640,918        3,420,128
  Stockholders' equity.....................       371,641         325,678          267,442         231,133          257,000
  Book value per share(2)..................         21.95           18.88            15.52           12.82            12.16
  Tangible book value per share............         21.40           18.14            14.98           12.78            12.10
Selected Ratios:
  Return on average assets.................          1.24%           1.10%            0.93%           0.94%            0.88%
  Return on average equity.................         15.82%          16.93%           15.85%          14.91%           14.40%
  Ratio of non-performing
     assets to total assets................          0.17%           0.17%            0.19%           0.40%            0.84%
Other Data:
Number of Bank full service branches.......
                                                       29              29               25              24               24
</TABLE>
(1) Includes loans held for sale.
(2) All per share amounts have been adjusted for the two-for-one stock split
    declared June 25, 1998.

     Also see  summarized  results of operations on a quarterly  basis for 2002,
2001 and 2000 in Note 15 of the Notes to Consolidated Financial Statements.

                                       25
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

                                    OVERVIEW

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

     Net earnings of $55.2  million or $3.15 per diluted  share were recorded in
2002,  compared to net earnings of $50.3  million or $2.85 per diluted  share in
2001 and net earnings of $38.5 million or $2.20 per diluted share in 2000.

     The  increase in net  earnings  from 2001 to 2002 was  primarily  due to an
increase in net interest  income as a result of improved  interest  rate spreads
and income before tax of $5.9 million  resulting from a revised  estimate of the
Bank's  repurchase  liability for loans sold with recourse.  The increase in net
earnings  from 2000 to 2001 was  primarily  due to higher net  interest  income,
which  resulted  from  growth in average  interest-earning  assets and  improved
interest rate spreads.

     No loan loss  provision  was recorded in 2002,  2001 or 2000.  The Southern
California real estate market has improved over the last few years. As a result,
the Bank  recorded  net loan loss  recoveries  of $950  thousand  in 2002,  $118
thousand in 2001 and $51 thousand in 2000.

         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>
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
1998..............................................           .88         14.40           6.09
</TABLE>

     Non-performing  assets  (primarily loans 90 days past due or in foreclosure
plus foreclosed real estate)  decreased to $7.0 million or 0.17% of total assets
as of  December  31,  2002  from  $7.9  million  or 0.17% of total  assets as of
December  31, 2001 and $8.3  million or 0.19% of total  assets at  December  31,
2000. The decreasing  amount of real estate owned over the last several years is
due to lower  balances of  delinquent  loans and decreased  foreclosures  in the
improved Southern California real estate markets.

     The Company  repurchased  common shares totaling 353,000 and 821,500 during
2002 and 2000,  respectively.  No  shares  were  purchased  during  2001.  As of
February 7, 2003,  1,348,677  shares remain  eligible for  repurchase  under the
Company's authorized repurchase program.

     At December 31, 2002 the Bank's  regulatory  risk-based  capital  ratio was
14.53% and it's  tangible and core capital  ratios were 8.05%.  The Bank met the
regulatory  capital  standards  necessary  to be  deemed  "well-capitalized"  at
December 31, 2002.

     The Bank's deposits are insured by the SAIF up to a maximum of $100,000 for
each insured  depositor.  The Bank's FDIC insurance  premiums were $438 thousand
during 2002,  $418  thousand  during 2001 and $538  thousand  during  2000.  The
increase in premiums from 2001 to 2002 was the result of growth in deposits. The
decrease in  premiums  from 2001 to 2000 was the result of a drop in the deposit
insurance assessment rate.

                                       26
<PAGE>
Risks and Uncertainties

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

                             ECONOMIC RISK

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

Credit Risk

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

     The  determination  of the  allowance  for loan losses and the valuation of
real estate collateral are based on estimates that are susceptible to changes in
the economic  environment  and market  conditions.  No loan loss  provision  was
recorded  during 2002. A downward turn in the current  economic  climate or real
estate market could increase the likelihood of losses due to credit risks.  This
could create the need for additional loan loss provisions.

Market Risk

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

                              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.

                        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.

                                       27
<PAGE>
                             COMPONENTS OF EARNINGS

Net Interest Income

     Net interest income is the primary component of the Company's earnings. The
chief   determinants   of  net  interest   income  are  the  dollar  amounts  of
interest-earning assets and interest-bearing  liabilities and the interest rates
earned or paid  thereon.  The  greater  the excess of  average  interest-earning
assets over average interest-bearing liabilities, the more beneficial the impact
on net  interest  income.  The excess of average  interest-earning  assets  over
average interest-bearing  liabilities was $229.2 million in 2002, $179.2 million
in 2001 and $148.2  million in 2000.  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 immediately while
it takes  several  months for the loan yield to adjust.  This time lag decreases
the Company's net interest income during periods of rising  interest rates.  The
reverse is true during periods of declining interest rates. See "Asset-Liability
Management" 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,
                                                                        ----------------------------------------
                                                                           2002           2001           2000
                                                                        ----------    -----------    -----------
                                                                                (Dollars in thousands)
<S>                                                                  <C>           <C>             <C>
Average loans and mortgage-backed securities (1).................... $   4,091,852 $    4,181,554  $    3,793,351
Average investment securities.......................................       172,996        200,807         176,476
                                                                        ----------    -----------     -----------
Average interest-earning assets.....................................     4,264,848      4,382,361       3,969,827
                                                                        ----------    -----------     -----------
Average deposits....................................................     2,517,366      2,317,744       2,132,927
Average borrowings..................................................     1,518,283      1,885,426       1,688,738
                                                                        ----------    -----------     -----------
Average interest-bearing liabilities................................     4,035,649      4,203,170       3,821,665
                                                                        ----------    -----------     -----------
Excess of interest-earning assets over interest-bearing liabilities. $     229,199 $      179,191  $      148,162
                                                                        ==========    ===========     ===========

Yields earned on average interest-earning assets....................          6.08%           7.50%          7.77%
Rates paid on average interest-bearing liabilities..................          3.16            4.79           5.40
Interest rate spread................................................          2.92            2.71           2.37
Effective net spread................................................          3.09            2.90           2.57

Total interest income............................................... $     259,303 $       328,679 $      308,487
Total interest expense..............................................       127,526         201,420        206,473
                                                                        ----------     -----------    -----------
                                                                           131,777         127,259        102,014
Total other income (2)..............................................         3,682           4,919          5,801
                                                                        ----------    -----------     -----------
Net interest income................................................. $     135,459 $      132,178  $      107,815
                                                                        ==========    ===========     ===========
</TABLE>
       (1) Non-accrual loans were included in the average dollar amount of loans
           outstanding, but no income was recognized during the
           period that each such loan was on non-accrual status.
      (2 ) Includes dividends on FHLB stock and other miscellaneous items.

     The  Bank's  interest  rate  spread  increased  by 21 basis  points in 2002
compared to 2001 because the yield on earning assets  declined by only 142 basis
points  while the cost of funds fell by 163 basis points due to the low interest
rate  environment  throughout  the year. The Bank's cost of funds is immediately
impacted  by  decreases  in  interest  rates  while the yield on earning  assets
responds  more slowly to changes in  interest  rates due to the three month time
lag  inherent  in the  COFI-based  adjustable  rate loan  portfolio.  The Bank's
interest  rate  spread  increased  by 34 basis  points in 2001  compared to 2000
because the yield on earning  assets  declined by only 27 basis points while the
cost of funds fell by 61 basis  points in  response  to rate cuts by the Federal
Reserve Bank.
                                       28
<PAGE>
     The table below sets forth  certain  information  regarding  changes in the
interest income and interest expense of the Bank for the periods indicated.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in average  balance  multiplied  by old rate) and (ii) changes in rates
(changes in rate multiplied by prior year average balance):
<TABLE>
                                              Year Ended December 31, 2002            Year Ended December 31, 2001
                                                          Versus                                  Versus
                                                    December 31, 2001                       December 31, 2000
                                          ------------------------------------    ------------------------------------
                                                      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.........................$    (6,685) $   (58,564) $   (65,249)  $   29,831  $     (9,296) $     20,535
  Investments..........................     (1,309)      (2,818)      (4,127)       1,379        (1,722)         (343)
                                          --------    ---------    ----------    --------    ----------     ---------
    Total interest income..............     (7,994)     (61,382)     (69,376)      31,210       (11,018)       20,192
                                          --------    ---------    ----------    --------    ----------     ---------

Interest Expense:
  Deposits.............................      7,562      (41,232)     (33,670)       8,229       (13,835)       (5,606)
  Borrowings...........................    (18,628)     (21,596)     (40,224)      11,690       (11,137)          553
                                          --------    ---------    ----------    --------    ----------     ---------
    Total interest expense.............    (11,066)     (62,828)     (73,894)      19,919       (24,972)       (5,053)
                                          --------    ---------    ----------    --------    ----------     ---------

    Change in net interest income......      3,072        1,446        4,518       11,291        13,954        25,245
                                          --------    ---------    ----------    --------    ----------     ---------

Change in other items (1)..............                               (1,237)                                    (882)
                                                                   ----------                               ---------

Total change in net interest
  Income including other items.........                          $     3,281                             $     24,363
                                                                   ==========                               =========

 (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 Yield on Average Interest-Earning Assets
                                                                   Year Ended December 31,
                          --------------------------------------------------------------------------------------------------------
                                 2002                 2001                  2000                 1999                  1998
                          -----------------    ------------------    -----------------    ------------------    ------------------
                           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.........     6.18%      5.98%     7.61%      6.57%      7.85%      8.15%     7.37%      7.31%      7.63%      7.48%
Weighted average
   yield on
   investment
   portfolio (1)......     3.65       4.41      5.16       3.52       6.11       5.63      5.41       5.69       5.29       5.14
Weighted average
   yield on all
   interest-earning
   assets.............     6.08       5.94      7.50       6.40       7.77       8.04      7.26       7.25       7.54       7.39
Weighted average rate
   paid on deposits...     2.42       1.98      4.08       3.02       4.70       4.90      4.22       4.42       4.61       4.36
Weighted average rate
   paid on borrowings
   and FHLB advances..     4.39       3.63      5.67       4.74       6.29       6.46      5.59       5.88       5.81       5.66
Weighted average rate
   paid on all
   interest-bearing
   liabilities........     3.16       2.54      4.79       3.73       5.40       5.62      4.76       5.04       5.11       4.84
Interest rate spread
   (2)................     2.92       3.40      2.71       2.67       2.37       2.42      2.50       2.21       2.43       2.55
Effective net spread
   (3)................     3.09                 2.90                  2.57                 2.69                  2.60

(1) Dividends on FHLB stock and miscellaneous interest income were not
    considered in this analysis
(2) Weighted average yield on all interest-earning assets less weighted average
    rate paid on all interest-bearing liabilities
(3) Net interest income (the difference in the dollar amounts of interest earned
    and paid) divided by average interest-earning assets
</TABLE>
                                       29
<PAGE>
Loss Provision

     The Company did not record a loan loss provision during 2002, 2001 or 2000.
No provision was recorded during the last three years because, based on analysis
performed by management, existing allowances were sufficient to cover the credit
risks inherent in the loan portfolio.  Non-performing  assets  decreased to $7.0
million  in 2002  from  $7.9  million  in 2001 and $8.3  million  in 2000 due to
improvement  in the economy and real estate  markets in which the Bank operates.
The Bank has a policy of providing for general valuation allowances, unallocated
to any specific loan, but available to offset any loan losses.  The allowance is
maintained at an amount that management believes adequate to cover estimable and
probable  loan  losses.  The Company also  maintains  valuation  allowances  for
impaired  loans  and  loans  sold  with  recourse.  See  "Business  - Loan  Loss
Allowance."  Management  performs  regular risk  assessments  of the Bank's loan
portfolio to maintain  appropriate  valuation  allowances.  Additional loan loss
provisions may be required to the extent that  charge-offs are recorded  against
the valuation allowance for impaired loans, the general valuation allowance,  or
the valuation allowance for loans sold with recourse.

     The Company recorded net loan loss recoveries of $950 thousand during 2002,
$118 thousand during 2001 and $51 thousand during 2000. 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 $4.3 million in 2002  compared to $3.3
million in 2001 and $2.8 million in 2000. Fees earned during 2002, 2001 and 2000
include  adjustments  of  $311  thousand,   $134  thousand  and  $500  thousand,
respectively,  to provide for  impairment of the Bank's  servicing  asset due to
accelerated  payoffs and prepayments of loans serviced for others.  The increase
in fees during 2002 is due to an increase in loan prepayments fees.

     Retail fees were $4.6 million in 2002  compared to $3.8 million in 2001 and
$3.1  million in 2000.  The increase in retail fees is due to an increase in fee
generating deposit accounts.

     Gain on sale of loans was $7.8 million in 2002,  $656  thousand in 2001 and
$64  thousand  in 2000.  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.
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 was previously  estimated.  The gain realized on
loan sales  fluctuates  due to changes in market  pricing based on interest rate
trends. Also, the dollar amount of loans originated for sale varies based on the
availability of attractive fixed rate loan programs to borrowers compared to the
Bank's adjustable rate loan programs.

     Real estate  operations  resulted  in a net gain of $339  thousand in 2002,
$304 thousand in 2001 and $594 thousand in 2000. Real estate operations  include
gain on sale of foreclosed  properties,  operational  income and expenses during
the holding period, and recoveries of prior losses on real estate sold.

Non-interest Expense

     The ratio of  non-interest  expense to average  total  assets was 1.31% for
2002 and 1.17%  for both 2001 and 2000.  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 10% in 2002 compared to 2001  primarily
due to higher  incentives and the additional  personnel  hired in the commercial
banking group.  Salary and benefit costs  increased 12% in 2001 compared to 2000
primarily due to higher incentives, bonuses and profit sharing costs.

     Occupancy  expense  increased  3% in both  2002 and 2001 due to  additional
occupancy  costs  associated with the four retail savings  branches  acquired in
November 2001 and an increase in repair and maintenance costs.

     Other  operating  expenses  increased  17% in 2002  compared to 2001 due to
increased  amortization  of  core  deposit  intangible  costs,  data  processing
expenses and legal  expenses.  Other  operating  expenses  increased 10% in 2001
compared to 2000 due to  deconversion  costs  associated  with the  institutions
acquired during 2001 and legal expenses.

                                       30
<PAGE>
     The following table details the components of non-interest  expense for the
periods indicated:
<TABLE>
                                                                         Non-Interest Expense
                                                                        Year Ended December 31,
                                                  -------------------------------------------------------------------
                                                     2002          2001           2000          1999          1998
                                                  ----------    ----------    -----------    ----------    ----------
                                                                           (Dollars in thousands)
<S>                                            <C>           <C>           <C>            <C>           <C>
Salaries and Employee Benefits:
     Salaries..................................$     20,984  $     18,119  $      17,354  $     16,631  $     16,035
     Incentive compensation....................       3,122         2,472          1,987         1,677         1,478
     Payroll taxes.............................       1,827         1,652          1,486         1,607         1,455
     Employee benefit insurance................       1,386         1,203          1,320         1,220         1,069
     Bonus compensation........................       1,500         1,500            920         1,583         1,335
     Profit sharing............................       2,024         2,020          1,778         1,100         1,000
     SERP......................................       1,161           970            906           988           795
     401(k)....................................         310           356            354           299           235
     Other salaries and benefits...............         313         1,390            339         1,559         2,409
                                                  ---------    ----------    -----------    ----------    ----------
                                                     32,627        29,682         26,444        26,664        25,811
                                                  ---------    ----------    -----------    ----------    ----------
Occupancy:
     Rent......................................       4,673         4,439          4,539         4,395         5,105
     Equipment.................................       1,836         1,971          2,318         2,145         1,855
     Maintenance costs.........................         879           914            571           469           344
     Other occupancy...........................       1,169           978            603           850         1,189
                                                  ---------    ----------    -----------    ----------    ----------
                                                      8,557         8,302          8,031         7,859         8,493
                                                  ---------    ----------    -----------    ----------    ----------
Other Operating Expense:
     Insurance.................................         690           582            541           430           362
     Amortization of core deposit intangible...       1,962         1,564          1,965           452           565
     Data processing...........................       2,838         2,490          2,488         1,930         3,359
     Contributions.............................         363           450            518           299           509
     Professional services.....................         195           207            301             8           259
     Legal expenses............................       2,888         1,393            632         3,516         1,479
     OTS assessments...........................         708           653            568           567           599
     Federal deposit insurance premiums........         438           418            538         1,236         1,241
     Other operating costs.....................       5,568         5,633          4,822         4,334         4,288
                                                  ---------    ----------    -----------    ----------    ----------
                                                     15,650        13,390         12,373        12,772        12,661
                                                  ---------    ----------    -----------    ----------    ----------

Advertising....................................       1,378         1,800          1,417         1,864         1,959
                                                  ---------    ----------    -----------    ----------    ----------
  Total........................................$     58,212  $     53,174  $      48,265  $     49,159  $     48,924
                                                  =========    ==========    ===========    ==========    ==========

Non-interest expense as
    % of average assets........................        1.31%         1.17%          1.17%         1.30%         1.24%
                                                  =========    ==========    ===========    ==========    ==========
</TABLE>

                                       31
<PAGE>
                             BALANCE SHEET ANALYSIS

     Consolidated  assets at the end of 2002 were $4.3 billion,  representing an
10% decrease  from $4.7  billion at the end of 2001 and a 3% decrease  from $4.4
billion at the end of 2000. The reduction in assets during 2002 is  attributable
to  of  principal   repayments  on  loans  exceeding  loans   originated.   Loan
originations totaled $1.3 billion in 2002, $1.5 billion in 2001 and $1.1 billion
in 2000. Loan purchases  totaled $89,000 during 2002, $132.6 million during 2001
and $139.5  million  during 2000.  Principal  repayments  on loans  totaled $1.5
billion during 2002, $1.3 billion during 2001 and $560.5 million during 2000.

 Loan Portfolio

     At the end of 2002,  over 58% of the Bank's loans had  adjustable  interest
rates based on monthly  changes in the FHLBSF  Eleventh  District  Cost of Funds
Index.  As  part  of its  asset-liability  management  strategy,  the  Bank  has
maintained a high level of adjustable  loans in its portfolio for several years.
Management  believes that the high level of adjustable  rate mortgages will help
insulate  the Bank from  fluctuations  in interest  rates,  notwithstanding  the
several  month  time lag  between  a change in its  monthly  cost of funds and a
corresponding change in its loan yields. See "Asset - Liability Management."

     The Bank also originates  adjustable rate loans with initial fixed interest
rates with periods ranging from 3 to 10 years.  By policy,  the Bank will either
match the fixed rate period of these loans with  borrowings for the same term or
will hold unmatched  fixed rate loans in its portfolio up to 5% of total assets.
Management believes that the limited origination of hybrid fixed-rate loans will
enhance the Company's  overall return on assets and improve loan originations in
this economy. Loans originated under this limited program totaled $372.6 million
in 2002, $1.0 billion in 2001 and $75.9 million in 2000.

     In 2002, 2001 and 2000, the Bank placed $1.4 million, $5.0 million and $3.9
million,  respectively,  in mortgages with other lenders under fee arrangements.
These loans are not  included in the Bank's loan  originations.  In 2002,  loans
made on the security of single family properties  (one-to-four  units) comprised
57% of the dollar amount of new loan originations. Loans made on the security of
multi-family  properties (five or more units) comprised 34% of new originations.
Loans made on the security of commercial real estate properties  comprised 7% of
new loan originations. Business loans originated by the commercial lending units
totaled 2% of new loan originations.  Adjustable rate mortgages comprised 59% of
new loan activity during 2002 compared with 18% during 2001 and 90% during 2000.

     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,
                                          ---------------------------------------------------------------------
                                              2002           2001           2000           1999          1998
                                          -----------    -----------    -----------     ----------    ---------
                                                                      (In thousands)
<S>                                    <C>            <C>            <C>            <C>            <C>
Single family (one-to-four units)......$     728,309  $     912,974  $     658,808  $     779,698  $   594,763
Multi-family...........................      441,407        407,458        333,466        118,622       37,720
Commercial real estate.................       84,050        150,735         70,807         37,744          383
Commercial business loans..............       17,572         16,172         11,759          7,768        1,733
Other..................................       17,434         14,996          6,170            301        2,428
                                          ----------    -----------    -----------     ----------    ---------
Total..................................$   1,288,772  $   1,502,335  $   1,081,010  $     944,133  $   637,027
                                          ==========    ===========    ===========     ==========    =========
</TABLE>
     Loans  originated  upon the sale of real estate owned totaled $375 thousand
during 2002. No loans were  originated upon the sale of real estate owned during
2001 or 2000.

     The Bank's loan  products may provide for first year monthly  payments that
are lower than the  fully-indexed  interest and principal  due. Any interest not
fully paid by such lower first year payments is added to the  principal  balance
of the loan. This causes negative  amortization until payments increase to cover
interest  and  principal  repayment  shortfalls.  Due to negative  amortization,
loan-to-value ratios may increase above those calculated at the inception of the
loan.

                                       32
<PAGE>
     The  Bank  does  not  normally  lend  in  excess  of 90%  of the  appraised
collateral value on adjustable mortgage loans ("AMLs"). Where the Bank does lend
in excess of 90% of the appraised value,  additional fees and rates are charged.
Mortgage insurance is required on loans in excess of 80% or premium rates and/or
fees 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 $159.7 million at December 31, 2002
compared to $354.5  million at December 31, 2001 and $268.2  million at December
31, 2000. 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, 2002, 45% of the loan portfolio  consisted of first
liens on single family  properties while first liens on multi-family  properties
were 43% of the portfolio,  and first liens on commercial properties represented
11% of the portfolio. Commercial business loans, construction loans and consumer
loans comprised the remaining 1% of the loan portfolio at December 31, 2002.

     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,
                                              ----------------------------------------------------------------------
                                                  2002          2001           2000           1999           1998
                                              -----------    ----------    -----------    -----------    -----------
                                                                          (In thousands)
<S>                                       <C>             <C>           <C>             <C>            <C>
REAL ESTATE LOANS First trust deed
residential loans:
   One-to-four units......................$     1,723,690 $   2,121,899 $    2,158,940  $   1,813,783  $   1,564,392
   Five or more units.....................      1,646,430     1,525,749      1,308,440      1,123,308      1,127,228
                                              -----------    ----------    -----------    -----------    -----------
        Residential loans.................      3,370,120     3,647,648      3,467,380      2,937,091      2,691,620

OTHER REAL ESTATE LOANS
   Commercial and industrial..............        419,273       358,159        217,619        183,194        181,772
   Construction...........................          6,927        38,060             --             --             --
   Land...................................            203         1,481             --             --             --
   Second trust deeds.....................          5,965         9,472          8,543         13,489         15,357
                                              -----------    ----------    -----------    -----------    -----------
     Real estate loans....................      3,802,488     4,054,820      3,693,542      3,133,774      2,888,749

 NON-REAL ESTATE LOANS:
   Manufactured housing...................             --            --            391            613            893
   Deposit accounts.......................          1,185         1,267            576            683          1,002
   Commercial business loans..............         19,582        18,882         12,600          8,140          1,259
   Consumer loans.........................         35,395        19,546          6,555            593            621
                                              -----------    ----------    -----------    -----------    -----------
     Loans receivable.....................      3,858,650     4,094,515      3,713,664      3,143,803      2,892,524

LESS:
   General valuation allowance............         75,223        72,919         70,809         69,954         67,638
   Impaired loan valuation allowance......            496         1,850          1,792          2,596          7,634
   Unearned loan fees.....................         13,696        14,857         11,779         10,706          9,031
                                              -----------    ----------    -----------    -----------    -----------
     Net loans receivable (1).............      3,769,235     4,004,889      3,629,284      3,060,547      2,808,221

FHLMC AND FNMA MORTGAGE-BACKED
SECURITES (at fair value):
   Secured by single family dwellings.....        192,395       272,419        360,210        412,469        539,079
   Secured by multi-family dwellings......          8,190        11,660         14,195         16,172         17,600
                                              -----------    ----------    -----------    -----------    -----------
        Mortgage-backed securities........        200,585       284,079        374,405        428,641        556,679
                                              -----------    ----------    -----------    -----------    -----------
                TOTAL                     $     3,969,820 $   4,288,968 $    4,003,689  $   3,489,188  $   3,364,900
                                              ===========    ==========    ===========    ===========    ===========

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

                                       33
<PAGE>
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 $108.6  million as of December 31, 2002,  $137.2 million as of
December 31, 2001 and $159.8 million as of December 31, 2000. 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.


                                  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,
                                                   --------------------------------------------------------------------
                                                      2002          2001           2000          1999           1998
                                                   ----------   -----------    -----------    ----------    -----------
<S>                                                <C>          <C>            <C>            <C>           <C>
Non-performing loans to loans gross receivable
    (1).........................................         0.17%       0.16%            0.17%          0.42%         1.00%
Non-performing assets to total assets (2).......         0.17%       0.17%            0.19%          0.40%         0.84%
Loan loss allowances to non-performing loans (3)        1,126%      1,151%            1,160%          528%          243%
General loss allowances to gross loans
    receivable (4)..............................         1.96%       1.83%            1.95%          2.31%         2.60%
</TABLE>
(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.

                                       34
<PAGE>
                              NON-PERFORMING ASSETS

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

     The table below  details the  amounts of  non-performing  assets by type of
collateral. Also shown is the ratio of non-performing assets to total assets.
<TABLE>
                                                                     Non-Performing Assets
                                                                          December 31,
                        -----------------------------------------------------------------------------------------------------------
                               2002                  2001                  2000                  1999                   1998
                        ------------------    ------------------    -----------------     -----------------     -------------------
                           $          %          $          %          $          %          $          %          $           %
                        -------    -------    -------    -------    -------    ------     ------     ------     ------     --------
                                                                  (Dollars in thousands)
<S>                    <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Real estate owned:
Single family..........$   519       7.37%$   1,671       21.08%$    2,507      30.21%$    1,069       6.93%$    3,946       12.84%
Multi-family...........     --        --         164       2.06         --        --       1,483       9.62      1,309       4.26
Less: general
  valuation allowance..   (200)     (2.84)      (350)     (4.41)      (350)     (4.22)      (350)     (2.27)      (500)     (1.63)
                        ------    -------    -------    -------    -------     ------     ------     ------     ------     ------
Total real estate owned    319       4.53      1,485      18.73      2,157      25.99      2,202      14.28      4,755      15.47
Non-performing loans:
Single family..........  5,705      81.03      6,062      76.46      5,603      67.51      9,626      62.41     12,270      39.92
Multi-family...........  1,017      14.44        422       5.32        662       7.98      3,995      25.90     13,005      42.31
Commercial and                                                                                         1.46
  industrial...........     --        --          --         --         --        --         225                 4,040      13.14
Other..................     --        --          16        .21         --        --          --        --          --        --
Less: valuation
  allowance............     --        --         (57)      (.72)      (123)     (1.48)      (625)     (4.05)    (3,332)    (10.84)
                        ------    -------    -------    -------    -------     ------     ------     ------     ------     ------
Total non-performing
  loans................  6,722      95.47      6,443      81.27      6,142      74.01     13,221      85.72     25,983      84.53
                        ------    -------    -------    -------    -------     ------     ------     ------     ------     ------
Total..................$ 7,041     100.00  $   7,928     100.00  $   8,299     100.00 $   15,423     100.00 $   30,738     100.00
                        ======    =======    =======    =======    =======     ======     ======     ======     ======     ======
Ratio of
  non-performing
  assets to total
  assets...............              0.17%                 0.17%                 0.19%                 0.40%                 0.84%
                                   =======               =======               ======                ======                ======
</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.

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

     Impaired loans totaled $1.6 million,  $7.4 million and $8.8 million, net of
related  allowances  of $496  thousand,  $1.9  million  and $1.8  million  as of
December 31, 2002,  2001 and 2000,  respectively.  See "Business -  Non-accrual,
Past Due,  Impaired and Restructured  Loans" for further  discussion of impaired
loans.

     The Bank's modified loans result primarily from temporary  modifications of
principal  and  interest  payments.  Under  these  arrangements,  loan terms are
typically reduced to no less than a required monthly interest payment.  Any loss
of revenues  under the modified  terms would be  immaterial  to the Bank. If the
borrower is unable to return to scheduled principal and interest payments at the
end of the modification  period,  foreclosure  procedures are initiated,  or, in
certain  circumstances,  the modification period is extended. As of December 31,
2002,  the Bank had  modified  loans  totaling  $3.9  million,  net of loan loss
allowances of $496  thousand.  This compares with $7.4 million and $9.6 million,
net of allowances,  as of December 31, 2001 and December 31, 2000  respectively.
Modified loans included as impaired loans totaled $1.6 million, $6.4 million and
$8.8 million,  net of valuation  allowances,  as of December 31, 2002,  2001 and
2000,  respectively.  No modified  loans were 90 days or more  delinquent  as of
December 31, 2002, 2001 or 2000.

                                       35
<PAGE>
                         CAPITAL RESOURCES AND LIQUIDITY

Liquidity Requirements

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

     For several  years it has been the Bank's  strategy to keep cash and liquid
investments at a modest level due to availability  of substantial  credit lines.
After the repeal of the liquidity  regulation,  the Bank's  liquidity policy was
modified to include  unused  borrowing  capacity in the  definition of available
liquidity.  The Bank's  current  liquidity  policy  requires  that cash and cash
equivalents,  short-term investments and 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, 2002,  liquidity-qualifying
balances were 27.1% of the Bank's liquidity base.

 External Sources of Funds

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

     Deposits obtained from national  brokerage firms ("brokered  deposits") are
considered a source of funds  similar to a  borrowing.  In  evaluating  brokered
deposits as a source of funds, the cost of these deposits,  including commission
fees,  is compared  to other  funding  sources.  Brokered  deposits  were $161.3
million at December 31, 2002.  This  compares to $356.8  million at December 31,
2001 and $381.2 million at December 31, 2000.  Utilization of brokered  deposits
decreased  during 2002 due to high  levels of loan  payoffs and growth in retail
branch deposits.

     Deposits at retail savings  offices were $2.3 billion at December 31, 2002,
$2.1  billion  as of  December  31,  2001 and $1.7  billion  at  December  2000.
Management attributes the increase in retail deposits over the last two years to
increased  deposits from stock market investors  wanting more security for their
investments  due to  variability  in the stock  market.  During  2001,  the Bank
acquired four retail  offices with deposits  totaling  $174.8 million as part of
the  purchase of two small banks.  As of December  31,  2002,  deposits at these
acquired branches totaled $163.7 million.

     The  Bank   also   solicits   deposits   through   telemarketing   efforts.
Telemarketing deposits are obtained by the Bank's employees via telephone,  from
depositors  outside of the Bank's normal service areas.  Telemarketing  deposits
decreased by 36% to $64.6 million at the end of 2002.  This compares with $100.7
million at the end of 2001 and $49.1  million  at the end of 2000.  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 2002, the balance of telemarketing  deposits decreased
as a result of cash flows from loan payoffs and growth in retail deposits.

     Reverse  repurchase   agreements  are  short  term  borrowings  secured  by
mortgage-backed securities.  These borrowings decreased to $155.3 million at the
end of 2002 from $211.0 million at the end of 2001 and $294.1 million at the end
of 2000.  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.

     FHLB advances were $1.2 billion at the end of 2002 compared to $1.6 billion
at the end of both 2001 and 2000.  Due to high  levels of loan  payoffs  and the
growth in retail branch  deposits,  borrowings  from the FHLB  decreased  during
2002.

     Loan sales were $134.2  million in 2002.  This  compares  to $61.2  million
during 2001 and $9.5 million during 2000. 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 only for sale.

                                       36
<PAGE>
Internal Sources of Funds

     Internal sources of funds include scheduled loan principal  payments,  loan
payoffs,  and positive cash flows from operations.  Principal payments were $1.5
billion in 2002  compared  to $1.3  billion in 2001 and $560.5  million in 2000.
Principal  payments include both amortization and prepayments and are a function
of real estate activity and the general level of interest rates. The increase in
prepayments  during  2002  compared to 2001 was due to the low level of interest
rates available on 30-year and 15-year fixed rate loans available to customers.

Capital Requirements

     Current OTS  regulatory  capital  standards  require that the Bank maintain
tangible capital of at least 1.5% of total assets, core capital of 4.0% of total
assets,  and risk-based  capital of 8.0% of total assets,  risk-weighted.  Among
other  things,  failure to comply with these  capital  standards  will result in
restrictions  on asset growth and necessitate the preparation of a capital plan,
subject to regulatory  approval.  Generally,  any institution  with a risk-based
capital  ratio in  excess of 10% and a core  capital  ratio  greater  than 5% is
considered "well-capitalized" for regulatory purposes. Institutions who maintain
this  capital  level  can  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.

     To be considered "well  capitalized" for purposes of the prompt  corrective
action  requirements  the Bank must maintain the capital  ratios as set forth in
the table below:
<TABLE>
                                                              December 31, 2002
                                                              -----------------
                                                               Amount      %
                                                              -------    ------
                                                            (Dollars in thousands)

<S>                                                          <C>         <C>
   Core capital requirement..........................         $212,143     5.00%
   Bank's core capital...............................          341,680     8.05
                                                              --------    ------
     Excess core capital.............................         $129,537     3.05%
                                                              ========    ======

   Tier 1 risk-based capital requirement.............         $154,607     6.00%
   Bank's tier 1 risk-based capital..................          341,680    13.26
                                                              --------    ------
     Excess tier 1 risk-based capital................         $187,073     7.26%
                                                              ========    ======

   Risk-based capital requirement....................         $257,678    10.00%
   Bank's risk-based capital.........................          374,421    14.53
                                                              --------    ------
     Excess risk-based capital.......................         $116,743     4.53%
                                                              ========    ======
</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.

     The majority of the Bank's  assets are monthly  adjustable  rate  mortgages
with  interest  rates  that  fluctuate  based on  changes  in the FHLB  Eleventh
District  Cost  of  Funds.  These  mortgages  constitute  over  58% of the  loan
portfolio at the end of 2002.  Comparisons over the last several years show that
a change in the Bank's cost of funds  generally  correlates  with changes in the
Index.   The  Bank  does  not  use  any   futures,   options  or  swaps  in  its
asset-liability strategy.

     Assets and  liabilities  that are subject to repricing are considered  rate
sensitive.  The  mis-match  in  the  repricing  of  rate  sensitive  assets  and
liabilities  is  referred  to as a  company's  "GAP."  The  GAP is  positive  if
rate-sensitive  assets  exceed  rate-sensitive  liabilities  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 lag changes in interest rates by up
to three months  (COFI has a three month lag while all other  indices have two).
However,  the Bank's short-term  savings and borrowing costs adjust  immediately
causing net  interest  income to  initially  decrease  during  periods of rising
interest rates and increase during periods of declining interest rates.

     The following chart shows the interest  sensitivity of the Company's assets
and  liabilities by repricing  period at December 31, 2002 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          Repricing      Within 1-3    Within 4-10        After
                                                     Balance       Within 1 Year       Years         Years         10 Years
                                                   ------------    ------------    -----------    -----------    ------------
                                                                             (Dollars in thousands)
<S>                                             <C>             <C>             <C>            <C>            <C>
Interest-earning assets:
  FHLB interest-earning deposits............... $       9,925   $         9,925 $         --   $          --  $           --
  Investment securities........................       103,055            18,639       40,389          44,027              --
  Mortgage-backed securities...................       200,585           200,310          181              79              15
  Loans receivable.............................     3,858,650         3,014,346      589,612         250,850           3,842
                                                   ----------      ------------    ---------     -----------      ----------
    Total interest-earning assets.............. $   4,172,215   $     3,243,220 $    630,182   $     294,956  $        3,857
                                                   ==========      ============    =========     ===========      ==========
Interest-bearing liabilities:
  Demand accounts.............................. $   1,605,619   $     1,605,619 $         --   $          --  $           --
  Fixed rate term certificates.................       921,407           794,671      116,202           9,451           1,083
    FHLB advances..............................     1,167,000           427,000      445,000         295,000              --
    Reverse repurchase agreements..............       155,273           155,273           --              --              --
                                                   ----------      ------------    ---------     -----------      ----------
     Total interest-bearing liabilities........ $   3,849,299   $     2,982,563 $    561,202   $     304,451  $        1,083
                                                   ==========      ============    =========     ===========      ==========
Interest-sensitivity GAP....................... $     322,916   $       260,657 $     68,980   $      (9,495) $        2,774
                                                   ==========      ============    =========     ===========      ==========
Interest-sensitivity GAP as a percentage of
    total assets...............................                            6.13%        1.62%          (0.22)%          0.07%
                                                                   ============    =========     ===========      ==========
Cumulative interest-sensitivity GAP............                 $       260,657 $    329,637   $     320,142  $      322,916
                                                                   ============    =========     ===========      ==========
Cumulative interest-sensitivity GAP as a
    percentage of total assets.................                            6.13%        7.74%          7.53%            7.59%
                                                                   ============    =========     ===========      ==========
</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, 2002, the Company's  one-year GAP ratio
was a positive  $260.7  million or 6.13% of total  assets.  This compares with a
negative  GAP ratio of 6.1% of total  assets at December 31, 2001 and a positive
GAP  ratio of 11.8% of total  assets  at  December  31,  2000.  The  change to a
positive  GAP at December  31, 2002 from a negative  GAP at December 31, 2001 is
due to the fact that the Bank  extended 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  portfolio  value at December 31, 2002 and December
31, 2001:
                                                    Percentage
   Change in Interest Rates                 Change in Net Portfolio Value(1)
                                            -----------------------------
       (In Basis Points)                      2002                  2001
                                            -------                ------
         +300..........................       (7)%                (16)%
         +200..........................       (3)%                (11)%
         +100..........................     (.49)%                 (6)%
        --100.........................         --%                   6%
        --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, 2002 and  December  31, 2001 levels would result in
     negative  interest rates in many cases.  Therefore,  modeling the impact of
     such  declines  as of  December  31,  2002  and  December  31,  2001 is not
     meaningful or practical

                                       39
<PAGE>
     The following  table shows the fair value and contract  terms of the Bank's
interest-earning assets and interest-bearing liabilities as of December 31, 2002
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
                              2003         2004          2005         2006         2007      Thereafter     Balance      Fair Value
                           ---------    ----------    ----------    --------    ---------    ---------     ---------    -----------
                                                                       (Dollars in thousands)
<S>                        <C>          <C>           <C>           <C>         <C>          <C>          <C>          <C>
Interest-earning assets:
  Loans receivable:
    Adjustable rate loans:
     Single family........ $   543,633  $   433,890   $    280,022  $  156,308  $   89,317   $   133,228  $   1,636,398 $  1,665,635
     Average interest
     rate.................        5.89%        5.78%          5.64%       5.57%       5.53%         5.47%          5.73%
     Multi-family.........     337,266      320,688        272,430     241,432     127,350       312,152      1,611,318    1,659,295
     Average interest
     rate.................        5.85%        5.86%          5.85%       6.15%       5.74%         5.60%          5.84%
    Commercial and
     industrial...........      88,641       86,442         68,310      55,363      27,916        56,711        383,383      401,772
     Average interest
     rate.................        6.94%        6.92%          6.87%       7.05%       6.64%         6.37%          6.83%
    Fixed rate loans:
     Single family........       8,976        6,485          4,318       1,784         690           432         22,685       23,290
     Average interest
      rate................        7.49%        6.74%          6.35%       6.31%       6.30%         6.29%          6.91%
     Multi-family.........       9,623        7,920          6,646       6,328       1,499         1,979         33,995       35,969
     Average interest
      rate................        7.79%        7.64%          7.54%       7.33%       7.74%         7.89%          7.62%
    Commercial and
     industrial...........      11,020       11,064          6,115       4,298       2,571         2,572         37,640       39,916
     Average interest
      rate................        7.90%        7.79%          7.55%       7.89%       7.76%         8.11%          7.82%
    Commercial business
     loans................       4,739        5,033          5,344       5,188          --            --         20,304       20,595
     Average interest
      rate................        6.02%        6.02%          6.02%       6.02%         --            --           6.02%
     Construction loans...       3,470        3,457             --          --          --            --          6,927        7,150
     Average interest
      rate................        8.75%        8.75%             --          --          --            --           8.75%
     Consumer loans.......      36,331           40             44          49          54           362         36,880       36,891
     Average interest
      rate................        5.50%       10.10%         10.10%      10.10%      10.10%        10.10%          5.57%
     Other loans..........      18,869       21,393         16,309       8,613       3,936            --         69,120       69,410
     Average interest
      rate................        4.84%        4.96%          4.96%       4.96%       4.96%           --           4.93%
    Mortgage-backed
     securities:
    Adjustable:                 67,594       43,761         29,473      19,809      13,282        26,216        200,135      200,135
     Average interest
      rate................        3.76%        3.76%          3.76%       3.76%       3.76%         3.76%          3.76%
    Fixed:                         176          112             69          42          25            26            450          450
     Average interest
      rate................        8.00%        8.00%          8.00%       8.00%       8.00%         8.00%          8.00%
    Investment securities,
     overnight
     investments and
     interest-bearing
     deposits:                  28,564       19,790         20,599      23,184      20,843            --        112,980      112,980
     Average interest
      rate................        3.57%        5.00%          5.04%       5.06%       5.07%           --           4.66%
                             ---------    ----------    ----------    --------    ---------    ---------      ---------    ---------
Total interest-earning
     assets............... $ 1,158,902 $    960,075   $    709,679  $  522,398  $  287,483   $   533,678  $   4,172,215 $  4,273,488
                             =========    ==========    ==========    ========    =========    =========      =========    =========
Interest-bearing
     liabilities:
  Deposits:
     Checking accounts.... $   414,497  $        --   $         --  $       --  $       --   $        --  $     414,497 $    414,497
     Average interest
      rate................        0.24%          --             --          --          --            --           0.24%
     Savings accounts.....   1,191,122           --             --          --          --            --      1,191,122    1,191,122
     Average interest
      rate................        2.05%          --             --          --          --            --           2.05%
     Certificate accounts.     794,671       52,397         63,805       2,623       6,022         1,889        921,407      934,359
     Average interest
      rate................        2.47%        3.67%          4.34%       4.54%       4.43%         3.44%          1.98%
    Borrowings:
     FHLB advances........     427,000      285,000        160,000     175,000      85,000        35,000      1,167,000    1,214,044
     Average interest
      rate................        2.25%        4.74%          4.24%       5.57%       4.56%         5.88%          3.90%
    Reverse repurchase
     agreements...........     155,273           --            --           --           --           --        155,273      155,285
     Average interest
      rate................        1.61%          --            --           --           --           --           1.61%
                              ---------    --------       --------    --------    ---------     --------      ---------    ---------
Total interest-bearing
     liabilities.......... $  2,982,563 $   337,397   $    223,805  $  177,623  $    91,022   $   36,889  $   3,849,299 $  3,909,307
                              =========    ========       ========    ========    =========     ========      =========    =========
</TABLE>

(1)  Expected maturities are contractual  maturities adjusted for prepayments of
     principal.  The Bank uses certain  assumptions  to estimate fair values and
     expected  maturities.  For  assets,  expected  maturities  are  based  upon
     contractual  maturity,  projected  repayments and prepayments of principal.
     The  prepayment   experience  used  is  based  on  the  Bank's   historical
     experience.  The Bank's average CPR (Constant  Prepayment  Rate) is 36% for
     the single family  portfolio and 24% for its  multi-family  and  commercial
     real estate portfolios. For fixed rate loans, the Bank's average CPR is 60%
     and 30%  respectively.  The Bank used  estimated  deposit  runoff  based on
     available industry information.

                                       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  7,  2003,  there  remain  1,348,677  shares  eligible  for
repurchase under the Company's stock repurchase program. The Company repurchased
353,000 and 821,500  shares of its common stock during 2002 and 2000.  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>
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
1998(1)      21.19     15.94       26.41         20.41       26.94       14.75       18.56        14.13

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

                                       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,
                                                                               2002                   2001
                                                                         ----------------      ------------------
ASSETS
<S>                                                                  <C>                   <C>
Cash and cash equivalents......................................      $           45,199    $            174,171
Investment securities, available-for-sale (at fair value)
  (Note 2).....................................................                 103,055                 110,444
Mortgage-backed securities, available-for-sale (at fair value:
  $151,775 and $224,114 pledged)  (Notes 3 and 10).............                 200,585                 284,079
Loans receivable, held-for-sale (fair value of $2,300 and
  $5,250)  (Note 4)............................................                   2,293                   5,246
Loans receivable, net (Notes 4 and 9)..........................               3,766,942               3,999,643
Accrued interest and dividends receivable......................                  17,752                  22,076
Real estate, net (Note 5)......................................                     347                   1,515
Office properties and equipment, net (Note 6)..................                  10,342                  10,822
Investment in Federal Home Loan Bank (FHLB) stock, at cost (Notes
  7 and 9).....................................................                  78,728                  91,713
Other assets...................................................                  28,486                  26,580
                                                                         --------------         ---------------
                                                                     $        4,253,729    $          4,726,289
                                                                         ==============         ===============
LIABILITIES

Deposits (Note 8)..............................................      $        2,527,026    $          2,546,647
FHLB advances (Notes 7 and 9) .................................               1,167,000               1,597,000
Securities sold under agreements to repurchase (Note 10).......                 155,273                 211,040
Accrued expenses and other liabilities.........................                  32,789                  45,924
                                                                         --------------         ---------------
                                                                              3,882,088               4,400,611
                                                                         --------------         ---------------
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
  23,395,202, and 23,362,196 shares, outstanding 16,931,306 and 17,251,300
  shares.
                                                                                    234                     234
Additional paid-in capital........................................               35,680                  34,670
Retained earnings - substantially restricted......................              418,885                 363,713
Unreleased shares to employee stock
  ownership plan .................................................                 (597)                     --
Treasury stock, at cost, 6,463,896 and 6,110,896 shares...........              (84,762)                (75,930)
Accumulated other comprehensive earnings, net of taxes............                2,201                   2,991
                                                                         --------------         ---------------
                                                                                371,641                 325,678
                                                                         --------------         ---------------
                                                                     $        4,253,729    $          4,726,289
                                                                         ==============         ===============
</TABLE>
                   See accompanying notes to consolidated financial statements

                                       42
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                 (Dollars in thousands, except per share data)
<TABLE>

                                                                         2002              2001               2000
                                                                    --------------    --------------     --------------
<S>                                                              <C>               <C>                <C>
Interest income:
     Interest on loans.......................................    $        243,716  $         298,942  $       274,720
     Interest on mortgage-backed securities..................               9,154             19,803           24,448
     Interest and dividends on investments...................              11,008             15,187           15,152
                                                                   --------------     --------------    -------------
        Total interest income................................             263,878            333,932          314,320
                                                                   --------------     --------------    -------------
Interest expense:
     Interest on deposits (Note 8)...........................              60,808             94,568          100,174
     Interest on borrowings (Notes 9 and 10).................              67,611            107,186          106,331
                                                                   --------------     --------------    -------------
        Total interest expense...............................             128,419            201,754          206,505
                                                                   --------------     --------------    -------------

Net interest income..........................................             135,459            132,178          107,815
     Provision for loan losses (Note 4)......................                  --                 --               --
                                                                   --------------     --------------    -------------
Net interest income after provision for loan losses..........             135,459            132,178          107,815
                                                                   --------------     --------------    -------------
Non-interest income:
     Loan servicing and other fees...........................               4,325              3,319            2,804
     Retail office fees......................................               4,604              3,791            3,050
     Gain on sale of loans...................................               7,806                656               64
     Real estate operations, net (Note 5)....................                 339                304              594
     Other operating income..................................               1,000                849            1,235
                                                                   --------------     --------------    -------------
        Total other income...................................              18,074              8,919            7,747
                                                                   --------------     --------------    -------------
Non-interest expense:
     Salaries and employee benefits (Note 13)................              32,627             29,682           26,444
     Occupancy (Note 6)......................................               8,557              8,302            8,031
     Advertising.............................................               1,378              1,800            1,417
     Amortization of core deposit intangible.................               1,962              1,564            1,965
     Federal deposit insurance...............................                 438                418              538
     Legal...................................................               2,888              1,393              632
     Other operating expense.................................              10,362             10,015            9,238
                                                                   --------------     --------------    -------------
        Total non-interest expense...........................              58,212             53,174           48,265
                                                                   --------------     --------------    -------------

Earnings before income taxes.................................              95,321             87,923           67,297
Income taxes (Note 11).......................................              40,149             37,621           28,832
                                                                   --------------     --------------    -------------
Net earnings.................................................    $         55,172  $          50,302  $        38,465
                                                                   ==============     ==============    =============
Other comprehensive earnings (loss):
     Unrealized earnings (loss) on mortgage-backed
     securities and securities available-for-sale, net of taxes              (790)              5,149           6,122
                                                                   --------------     --------------    -------------
Comprehensive earnings.......................................    $         54,382  $          55,451  $        44,587
                                                                   ==============     ==============    =============
Earnings per share: (Notes 12 and 15)
     Basic...................................................    $           3.22  $            2.92  $          2.23
                                                                   ==============     ==============    =============
     Diluted.................................................    $           3.15  $            2.85  $          2.20
                                                                   ==============     ==============    =============
Weighted average shares outstanding:
     Basic...................................................          17,149,712         17,234,591       17,251,618
                                                                   ==============     ==============    =============
     Diluted.................................................          17,506,129         17,645,647       17,456,895
                                                                   ==============     ==============    =============
</TABLE>
                    See accompanying notes to consolidated financial statements

                                       43
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                    (Dollars in thousands, except share data)
<TABLE>

                                                                                                             Accumulated
                                                                  Retained       Unreleased                    Other
                                                                  Earnings        Shares to                 Comprehensive
                                                  Additional   (Substantially       ESOP                      Earnings
                                     Common        Paid-In       Restricted)      (Notes 12    Treasury     (Loss), Net of
                                      Stock        Capital        (Note 12)        and 13)       Stock      Taxes (Notes 2    Total
                                                                                                               and 3)
                                     ---------   ----------   --------------    ----------    ---------    ---------------  --------
<S>                                 <C>          <C>           <C>            <C>           <C>          <C>               <C>
Balance, December 31, 1999......... $       233  $     31,561  $    274,946   $     (1,759) $   (65,568) $        (8,280)  $231,133
Exercise of employee stock options.          --           793            --             --           --               --        793
Net decrease in unreleased shares
    to the ESOP....................          --           186            --            918           --               --      1,104
Unrealized gain on securities
   available-for-sale, net of taxes          --            --            --             --           --            6,122      6,122
Common stock repurchased (821,500)
   shares..........................          --            --            --             --      (10,175)              --    (10,175)
Net earnings 2000..................          --            --        38,465             --           --               --     38,465
                                      ---------    ----------   -----------      ---------    ---------      -----------   --------
Balance, December 31, 2000.........         233                     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
                                      =========     =========   ===========      =========     ========    =============    =======
</TABLE>





                     See accompanying notes to consolidated financial statements

                                       44
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                 (In thousands)
<TABLE>
                                                                             2002              2001             2000
                                                                         ------------      ------------     ------------
<S>                                                                  <C>             <C>               <C>
     CASH FLOWS FROM OPERATING ACTIVITIES:
     Net earnings.................................................   $       55,172  $         50,302  $         38,465
     Adjustments to reconcile net earnings to
      net cash provided by operating activities:
       Net change in loans held-for-sale..........................             2,953            (3,000)               57
       Depreciation and amortization..............................             1,652             1,919             1,874
       Valuation adjustments on real estate sold..................              (265)             (525)             (491)
       Amortization of fees and discounts.........................             3,926             5,913             1,703
       Decrease in servicing asset................................               737               375               905
       Change in taxes payable....................................            (1,976)           (1,738)             (323)
       (Increase) decrease in interest and dividends receivable...             4,324             7,392            (6,663)
       Increase (decrease) in interest payable....................            (5,895)          (13,855)           11,298
       Amortization of core deposit intangible asset..............             1,962             1,564             1,964
       Increase in other assets...................................           (13,784)           (5,505)           (5,179)
       Increase (decrease) in accrued expenses and
         other liabilities........................................            (7,240)           (1,575)              325
                                                                         -----------      ------------      ------------
         Total adjustments........................................           (13,606)           (9,035)            5,470
                                                                         -----------      ------------      ------------
         Net cash provided by operating activities................            41,566            41,267            43,935
                                                                         -----------      ------------      ------------
     CASH FLOWS FROM INVESTING ACTIVITIES:
       Loans made to customers and principal
         collections on loans ....................................           232,998           (96,132)         (434,026)
       Loans purchased under recourse arrangements................                --                --              (240)
       Loans purchased............................................               (89)         (132,625)          (14,077)
       Proceeds from sales of real estate owned...................             3,500             4,968             5,290
       Proceeds from maturities and principal payments of
         investment securities, available-for-sale................            87,120            48,962            20,589
       Principal reductions on mortgage-backed securities,
         available-for-sale.......................................            83,010            96,770            62,332
       Purchases of investment securities,
         available-for-sale.......................................           (80,855)          (19,964)           (3,547)
       Redemptions (purchases) of FHLB stock......................            17,585            (4,025)           (4,079)
       Other......................................................                --            (4,105)           (1,205)
       Net cash from acquisitions.................................                --            17,680            32,866
                                                                         -----------      ------------      ------------
         Net cash provided by (used in) investing activities......           343,269           (88,471)         (336,097)
                                                                         -----------      ------------      ------------
     CASH FLOWS FROM FINANCING ACTIVITIES:
       Net increase (decrease) in deposits........................           (19,621)          206,824           (64,767)
       Net increase (decrease) in short term borrowings...........          (675,767)          (65,070)          340,475
       Increase in long term borrowings...........................           190,000                --                --
       Purchases of treasury stock................................            (8,832)               --           (10,175)
       Other......................................................               413             1,944             2,499
                                                                         -----------      ------------      ------------
         Net cash provided by (used in) financing activities                (513,807)          143,698           268,032
                                                                         -----------      ------------      ------------

       Net increase (decrease) in cash and cash equivalents.......          (128,972)           96,494           (24,130)
       Cash and cash equivalents at beginning of period...........           174,171            77,677           101,807
                                                                         -----------      ------------      ------------
       Cash and cash equivalents at end of period.................   $        45,199  $        174,171  $         77,677
                                                                         ===========      ============      ============
</TABLE>

                    See accompanying notes to consolidated financial statements

                                       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  savings
branches  in  Southern  California.  The Bank's  primary  business  consists  of
attracting  retail  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 2000 and 2001  consolidated
financial statements have been reclassified to conform to the 2002 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  and
mortgage-backed  securities  reprice  based on the Federal Home Loan Bank of San
Francisco  ("FHLBSF")  Eleventh District Cost of Funds Index (the "Index").  The
repricing  of the Index tends to lag market  interest  rates.  The Bank  closely
monitors the pricing sensitivity of its financial instruments.

  Concentrations of Credit Risk

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

  Securities Purchased under Agreements to Resell

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

  Investments and Mortgage-Backed Securities

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

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

     Securities  designated  as  available-for-sale  are recorded at fair value.
Changes in the fair value of 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, 2002 or 2001.

                                       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 interest and allowances for loan losses.

Loans Held-for-Sale

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

Impaired Loans

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

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

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

Non-Accrual Loans

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

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, 2002 and 2001. Should there be an economic or market
downturn or if market  interest  rates  increase  significantly,  the Bank could
experience a material increase in the level of loan defaults and charge-offs.

Loan Origination Fees and Costs

     Loan  origination  fees and  certain  direct  loan  origination  costs  are
deferred and recognized  over the lives of the related loans as an adjustment of
loan  yields  using the  interest  method.  When a loan is  repaid or sold,  any
unamortized net deferred fee balance is credited to income.

 Gain or Loss on Sale of Loans

     The Bank primarily  sells its mortgage loans on a servicing  released basis
and recognizes  cash gains or losses  immediately in its Statement of Operations
and Comprehensive Earnings. The Bank has previously sold mortgage loans and loan
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
$536,000  and  $1,087,000  at  December  31,  2002 and  2001,  respectively.  No
additional servicing assets were recorded in 2002, 2001 or 2000.

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. This asset is being amortized
over its  estimated  useful life.  The Company  adopted  SFAS No. 142  effective
January 1, 2002.  Under the  provisions  of SFAS No. 142, the Company  amortizes
these  intangible  assets over their estimated useful lives. The balance of core
deposit intangible at December 31, 2002 was $9,323,000.  There was no impairment
of the Company's core deposit intangible as of December 31, 2002.

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

              2003...................................$        2,005
              2004...................................         2,005
              2005...................................         2,005
              2006...................................         2,005
              2007 and thereafter....................         1,303
                                                        -----------
                                                     $        9,323
                                                        ===========

                                       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,  gain is deferred and recognized under an alternative
method.

Depreciation and Amortization

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

Securities Sold Under Agreements to Repurchase

     The Company enters into sales of securities  under agreements to repurchase
("reverse repurchase agreements").  Reverse repurchase agreements are treated as
financing  arrangements  and,  accordingly,  the  obligations  to repurchase the
securities  sold are  reflected as  liabilities  in the  consolidated  financial
statements.  The mortgage-backed  securities  collateralizing reverse repurchase
agreements  are  delivered  to several  major  brokerage  firms who  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  FASB
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,
                                                           ------------------------------------------
                                                               2002            2001           2000
                                                           -----------    ------------    -----------
                                                           (In thousands, except per share data)
<S>                                                     <C>            <C>             <C>
  Net income as reported............................    $       55,172 $       50,302  $      38,465
    Deduction total stock-based employee compensation
    expense determined under fair-value-based method
    for all rewards, net of tax.....................              (976)          (978)          (773)
                                                           -----------    -----------    -----------
    Pro forma net income............................    $       54,196 $       49,324  $      37,692
                                                           ===========    ===========    ===========
  Earnings per share:
  Basic:
    As reported.....................................    $         3.22 $         2.92  $        2.23
    Pro forma.......................................    $         3.16 $         2.86  $        2.18

  Diluted:
    As reported.....................................    $         3.15 $         2.85  $        2.20
    Pro forma.......................................    $         3.11 $         2.80  $        2.17
</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 2002, 2001 and 2000,  respectively:  no dividend
yield in any year;  expected  volatility of 34%, 38% and 37%; risk free interest
rates of 5.1%, 5.1% and 6.7%; and expected average lives of 6 years in all three
periods.  The  weighted-average  grant date fair value of options granted during
the year are $12.68, $9.45 and $23.75 for 2002, 2001 and 2000, respectively. The
Company has elected to recognize forfeitures in the year they occur.

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

Cash Flows

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

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.

                                       51
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)

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.  Accounting standards require only additional  disclosures
in the  consolidated  statements;  it does not  affect the  Company's  financial
position or results of operations.

Segment Information and Disclosures

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

Derivative Instruments

     The Company accounts for derivative instruments in accordance with SFAS No.
133,   "Accounting  for  Derivative   Instruments  and  Hedging  Activities."  A
derivative  is  considered  either an asset or  liability  in the  statement  of
financial condition and measured at fair value. If a derivative is designated as
a hedging  instrument the changes in fair value of the derivative are either (a)
recognized in earnings in the period of change together with the offsetting gain
or loss on the hedged item or (b) reported as a component of other comprehensive
earnings  and  subsequently  reclassified  into  earnings  when the 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, 2002, the Company has  approximately  $13,630,000 of commitments to
originate loans,  which will be held for sale, and  approximately  $3,590,000 of
loan sale  commitments  that  qualify as  derivatives  under SFAS No.  133.  The
commitments are recorded at fair value at December 31, 2002.

Recent Accounting Pronouncements

     On July 30, 2002, the Financial  Accounting Standards Board ("FASB") issued
Statement  of  Financial  Accounting  Standards  No. 146,  Accounting  for Costs
Associated with Exit or Disposal  Activities ("SFAS No. 146"). SFAS No. 146 will
be effective for exit or disposal activities  initiated after December 31, 2002,
with early adoption  encouraged.  Management does not expect  implementation  of
SFAS No. 146 to have a material impact on its consolidated financial statements.

     On October 1, 2002,  the FASB issued  Statement  No. 147,  Acquisitions  of
Certain Financial  Institutions  ("SFAS No. 147"), which requires most financial
services  companies  to subject all their  goodwill to annual  impairment  tests
instead of amortizing some of it (the so-called Statement 72 goodwill). SFAS No.
147 applies to all new and past  financial-institution  acquisitions,  including
"branch acquisitions" that qualify as acquisitions of a business,  but excluding
acquisitions between mutual  institutions.  All acquisitions within the scope of
the new Statement will now be governed by the requirements in Statements 141 and
142. Statement 147 did not have a material impact on the Company's  consolidated
financial statements.

                                       52
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies (continued)

     In  November  2002,  the FASB  issued  Interpretation  No. 45,  Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness to Others,  an  interpretation of FASB Statements No.
5,  57  and  107  and  a  rescission  of  FASB   Interpretation   No.  34.  This
Interpretation  elaborates on the  disclosures  to be made by a guarantor in its
interim and annual financial  statements about its obligations  under guarantees
issued.  The  Interpretation  also  clarifies  that a  guarantor  is required to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken.  The disclosure  requirements are effective for financial
statements of interim and annual  periods  ending after  December 15, 2002.  The
initial  recognition  and  measurement  provisions  of  the  Interpretation  are
applicable to guarantees  issued or modified after December 31, 2002 and are not
expected to have a material effect on the Company's financial statements.

     In December 2002, the FASB issued SFAS No. 148,  Accounting for Stock-Based
Compensation  - Transition  and  Disclosure,  an amendment of FASB Statement No.
123. This Statement  amends FASB 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, this Statement amends the disclosure requirements of
Statement No. 123 to require  prominent  disclosures  in both annual and interim
financial statements.

     In January 2003, the FASB issued  Interpretation  No. 46,  Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation
addresses  the  consolidation  by  business  enterprises  of  variable  interest
entities  as  defined  in  the   Interpretation.   The  Interpretation   applies
immediately to variable  interests in variable  interest  entities created after
January 31,  2003,  and to variable  interests  in  variable  interest  entities
obtained after January 31, 2003. The Interpretation requires certain disclosures
in  financial  statements  issued  after  January 31,  2003 if it is  reasonably
possible  that the  Company  will  consolidate  or  disclose  information  about
variable  interest  entities  when the  Interpretation  becomes  effective.  The
application of this  Interpretation is not expected to have a material effect on
the  Company's  financial  statements  as the Company  has no variable  interest
entities.

(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 no
agreements  to resell  securities  at  December  31,  2002 and  $123,000,000  in
agreements  to resell  securities  at December 31, 2001.  These  agreements  are
classified  as  cash  and  cash  equivalents  in the  accompanying  Consolidated
Statements of Financial  Condition.  Securities  purchased  under  agreements to
resell  averaged  $54,054,000  and  $62,860,000  during  2002 and 2001,  and the
maximum  amounts  outstanding  at any  month  end  during  2002  and  2001  were
$83,000,000 and $123,000,000 respectively.

     The Bank also had  overnight  deposits on hand with the  Federal  Home Loan
Bank of San Francisco which totaled $9,925,000 and $18,814,000, respectively, at
December 31, 2002 and December 31, 2001.

     Investment securities,  available-for-sale,  are recorded at fair value and
summarized below for the periods indicated:
<TABLE>
                                                                 At December 31, 2002
                                                ------------------------------------------------------
                                                                  Gross          Gross
                                                Historical     Unrealized     Unrealized      Fair
                                                    Cost          Gains         Losses        Value
                                                    ----          -----         ------        -----
                                                                    (In thousands)
<S>                                          <C>            <C>            <C>            <C>
United States Government and
  Federal agency obligations.................$        200   $           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)
<TABLE>
                                                                 At December 31, 2001
                                                -----------------------------------------------------
                                                                 Gross         Gross
                                                Historical    Unrealized    Unrealized       Fair
                                                   Cost          Gains         Losses        Value
                                                   ----          -----         ------        -----
                                                                    (In thousands)
<S>                                          <C>           <C>           <C>             <C>
United States Government and
  Federal agency obligations.................$      28,499 $          3  $         (34)  $    28,468
Collateralized  Mortgage Obligations.........       80,013        1,973            (10)       81,976
                                                ----------    ---------    ------------    ---------
                                             $     108,512 $      1,976  $         (44)  $   110,444
                                                ==========    =========    ============    =========
</TABLE>
     Related   maturity  data  for  U.S.   government  and  agency   securities,
available-for-sale, is summarized below for the period indicated:
<TABLE>
                                                            At December 31, 2002
                                                ----------------------------------------------------
                                                                 Gross          Gross
                                                Historical    Unrealized     Unrealized       Fair
                                                   Cost          Gains         Losses         Value
                                                   ----          -----         ------         -----
                                                                   (In thousands)
<S>                                          <C>           <C>           <C>             <C>
Maturing within 2 years......................$        200  $           3 $         --    $      203
                                                ---------     ----------    ---------       -------
                                             $        200  $           3 $         --    $      203
                                                =========     ==========    =========       =======
</TABLE>
     Collateralized  Mortgage  Obligations  as of  December  31,  2002  all have
expected  maturities  within  five  years.  There  were no sales  of  investment
securities  during  2002,  2001 or 2000.  Accrued  interest on  investments  was
$428,000 and $1,275,000 at December 31, 2002 and 2001, 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, 2002
                                      -----------------------------------------------------------
                                                         Gross            Gross
                                      Historical      Unrealized       Unrealized         Fair
                                         Cost            Gains            Losses          Value
                                         ----            -----            ------          -----
<S>                                <C>           <C>               <C>              <C>
                                                             (In thousands)
FNMA...............................$      8,203  $           114   $           --   $       8,317
FHLMC..............................     189,638            2,630               --         192,268
                                      ---------    -------------    -------------       ---------
                                   $    197,841  $         2,744   $           --   $     200,585
                                      =========    =============    =============       =========
</TABLE>
<TABLE>
                                                          At December 31, 2001
                                      -----------------------------------------------------------
                                                         Gross             Gross
                                      Historical      Unrealized        Unrealized        Fair
                                         Cost            Gains            Losses          Value
                                         ----            -----            ------          -----
                                                              (In thousands)
<S>                                <C>           <C>               <C>               <C>
FNMA...............................$     11,657  $           173   $          --     $     11,830
FHLMC..............................     269,195            3,054              --          272,249
                                      ---------    -------------    ------------        ---------
                                   $    280,852  $         3,227   $          --     $    284,079
                                      =========    =============    ============        =========
</TABLE>
     There were no  mortgage-backed  securities created with loans originated by
the  Bank in  2002,  2001  or  2000.  There  were no  sales  of  mortgage-backed
securities during 2002, 2001 or 2000.

     Accrued  interest   receivable   related  to   mortgage-backed   securities
outstanding  at December 31, 2002 and 2001  totaled  $1,293,000  and  $2,461,000
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,
                                                                 ----------------------------
                                                                     2002            2001
                                                                 ------------    ------------
                                                                       (In thousands)
<S>                                                           <C>             <C>
Real estate loans: First trust deed residential loans:
     One-to-four units ..................................     $     1,723,690 $     2,121,899
     Five or more units ...............................             1,646,430       1,525,749
                                                                 ------------    ------------
     Residential loans ..................................           3,370,120       3,647,648
  Other real estate loans:
     Commercial and industrial ..........................             419,273         358,159
     Construction .......................................               6,927          38,060
     Land ...............................................                 203           1,481
     Second trust deeds .................................               5,965           9,472
                                                                 ------------    ------------
  Real estate loans .....................................           3,802,488       4,054,820
Non-real estate loans:
  Deposit accounts  .....................................               1,185           1,267
  Commercial business loans  ............................              19,582          18,882
  Consumer  .............................................              35,395          19,546
                                                                 ------------    ------------
     Loans receivable ...................................           3,858,650       4,094,515
Less:
  General loan valuation allowance  .....................              75,223          72,919
  Valuation allowances for impaired loans  ..............                 496           1,850
  Unearned loan fees ....................................              13,696          14,857
                                                                 ------------    ------------
     Subtotal ...........................................           3,769,235       4,004,889
Less:
    Loans held-for-sale..................................               2,293           5,246
                                                                 ------------    ------------
Loans receivable, net....................................     $     3,766,942 $     3,999,643
                                                                 ============    ============
</TABLE>
     Loans  serviced  for  others   totaled   $197,250,000,   $257,629,000   and
$322,315,000 at December 31, 2002, 2001 and 2000, respectively.

     The Bank had outstanding  commitments to fund $239,127,000 and $105,045,000
in real estate loans at December  31, 2002 and December 31, 2001,  respectively.
Of these totals,  $225,497,000  and $95,770,000 had variable  interest rates and
$13,630,000  and $9,275,000 had fixed interest  rates.  The Bank had outstanding
commitments to sell real estate loans of $3,590,000 and $5,955,000, respectively
at December 31, 2002 and December 31, 2001, respectively.

     Accrued interest  receivable  related to loans  outstanding at December 31,
2002 and 2001 totaled $15,349,000 and $17,664,000, respectively.

     Loans delinquent greater than 90 days or in foreclosure were $6,722,000 and
$6,500,000  at  December  31,  2002  and  2001,  respectively,  and the  related
allowance for delinquent interest was $372,000 and $504,000, respectively.

     Loans made to directors and executive officers (defined for this purpose as
senior vice presidents and above) totaled  $5,041,000 and $3,386,000 at December
31, 2002 and 2001, 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, 1998.................................     $       67,638 $       7,634  $     75,272
  Charge-offs................................................             (1,362)       (5,038)       (6,400)
  Recoveries.................................................              3,678            --         3,678
                                                                     -----------   -----------    ----------
Balance at December 31, 1999.................................             69,954         2,596        72,550
  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)           --        (2,206)
  Recoveries.................................................              1,322            --         3,156
                                                                     -----------   -----------    ----------
Balance at December 31, 2002.................................     $       75,223 $         496  $     75,719
                                                                     ===========   ===========    ==========
</TABLE>
     The Bank has loss exposure on certain loans sold with recourse.  The dollar
amount of loans sold with recourse  totaled  $108,606,000  and  $137,204,000  at
December  31,  2002 and  2001,  respectively.  The  maximum  potential  recourse
liability totaled  $23,325,000 and $27,274,000 at December 31, 2002 and December
31, 2001, 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   $6,900,000  and
$12,824,000 at December 31, 2002 and December 31, 2001, respectively.

     The following is a summary of impaired loans,  net of valuation  allowances
for impairment, for the periods indicated:
<TABLE>
                                                                          At December 31,
                                                                     -----------------------
                                                                        2002          2001
                                                                     ----------    ---------
                                                                         (In thousands)
<S>                                                               <C>           <C>
Non-accrual loans............................................     $         --  $        978
Modified loans...............................................            1,567         6,416
                                                                     ---------     ---------
                                                                  $      1,567  $      7,394
                                                                     =========     =========
</TABLE>

                                       56
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) Loans Receivable (continued)

     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.

     As of December 31, 2002, the Bank's total  recorded  investment in impaired
loans  identified in accordance  with SFAS 114 was $1,567,000  (after  deducting
$496,000 of impairment  allowances  attributable to such loans).  As of December
31, 2001, the total recorded investment in impaired loans was $7,394,000 (net of
$1,850,000 of impairment allowances).

     As of December  31, 2002 and December 31,  2001,  impaired  loans  totaling
$1,567,000   and   $3,929,000,   respectively,   had  no  valuation   allowances
established.

     The Average  recorded  investment in impaired  loans during the years ended
December 31, 2002 and 2001 was $2,588,000 and $7,429,000, respectively. Interest
income   recognized   for  these  same  periods  was   $322,000  and   $597,000,
respectively,  under the cash basis method of  accounting;  and was $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 for the periods indicated:
<TABLE>

                                                                                       At December 31,
                                                                                ---------------------------
                                                                                    2002            2001
                                                                                -----------    ------------
                                                                                      (In thousands)
<S>                                                                          <C>            <C>
         Real estate acquired by (or deed in lieu of) foreclosure ("REO")    $          519 $        1,835
         Valuation allowance.............................................              (200)          (350)
                                                                                -----------    -----------
                                                                                        319          1,485
         Real estate held-for-investment.................................                28             30
                                                                                -----------    -----------
           Real estate, net..............................................    $          347 $           15
                                                                                ===========    ===========
</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, 1998..........................................      $   500
         Recovery of losses on REO.............................................          (54)
         Charge-offs...........................................................          (96)
                                                                                     -------
         Balance at December 31, 1999..........................................          350
         Provision for losses on REO...........................................           --
         Charge-offs...........................................................           --
                                                                                     -------
         Balance at December 31, 2000..........................................          350
         Provision for losses on REO...........................................           --
         Charge-offs...........................................................           --
                                                                                     -------
         Balance at December 31, 2001..........................................          350
         Reversal of valuation allowance.......................................         (150)
         Charge-offs...........................................................           --
                                                                                     -------
         Balance at December 31, 2002..........................................      $   200
                                                                                     =======
</TABLE>

                                       57
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Real Estate (continued)

The following table summarizes real estate operations, net:
<TABLE>
                                                                         For the Years Ended December 31,
                                                                      ------------------------------------
                                                                          2002          2001       2000
                                                                      -----------    --------    ---------
                                                                                  (In thousands)
<S>                                                                <C>            <C>         <C>
Net income (loss) from operations:
  Gain on sales of REO........................................     $         765  $     1,501 $       949
  Other REO operations........................................              (426)      (1,197)       (355)
                                                                      ----------     --------    --------
     Real estate operations, net .............................     $         339  $       304 $       594
                                                                      ==========     ========    ========
</TABLE>
     The Bank acquired  $1,881,000,  $5,135,000 and $5,050,000 of real estate in
settlement of loans during 2002, 2001 and 2000, respectively.


(6) Office Properties, Equipment and Lease Commitments

     Office properties and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows:
<TABLE>
                                                                                At December 31,
                                                                           -----------------------
                                                                              2002          2001
                                                                           ----------    ---------
                                                                               (In thousands)
<S>                                                                     <C>           <C>
Land...............................................................     $      3,861  $     3,361
Office buildings...................................................            5,348        5,615
Furniture, fixtures and equipment..................................           16,815       15,101
Leasehold improvements.............................................           10,478       10,386
Other..............................................................              541           56
                                                                           ---------     --------
                                                                              37,043       34,519
Less accumulated depreciation and amortization.....................           26,701       23,697
                                                                           ---------     --------
                                                                        $     10,342  $    10,822
                                                                           =========     ========
</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, 2002 under all non-cancelable leases are as follows (in thousands):


2003....................................$      4,324
2004....................................       3,868
2005....................................       3,629
2006....................................       3,369
2007....................................       3,157
Thereafter..............................      21,887
                                           ---------
                                        $     40,234
                                           =========

     Rent payments under these leases were $4,665,000, $4,309,000 and $4,278,000
for 2002,  2001 and 2000,  respectively.  Certain leases require the Bank to pay
property taxes and insurance.  Additionally, certain leases have rent escalation
clauses based on specified indices.

                                       58
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) Federal Home Loan Bank Stock

     The Bank's  investment  in FHLB  stock at  December  31,  2002 and 2001 was
$78,728,000 and  $91,713,000,  respectively.  The FHLB provides a central credit
facility for member  institutions.  As a member of the FHLB system,  the Bank is
required to own  capital  stock in the FHLBSF in an amount at least equal to the
greater of 1% of the aggregate  principal amount of its unpaid home loans,  home
purchase  contracts and similar  obligations  at the end of each calendar  year,
assuming for such  purposes  that at least 30% of its assets were home  mortgage
loans,  or 5% of its  advances  (borrowings)  from  the  FHLB.  The  Bank was in
compliance with this requirement at December 31, 2002. The Bank's  investment in
FHLB stock was pledged as collateral  for advances from the FHLB at December 31,
2002 and 2001. The fair value of the Bank's FHLB stock  approximates  book value
due to the  Bank's  ability  to redeem  such  stock  with the FHLB at par value.
Accrued  dividends on FHLB stock totaled  $1,054,000  and $1,173,000 at December
31, 2002 and December 31, 2001, respectively.


(8) Deposits

         Deposit account balances are summarized as follows:
<TABLE>
                                                                      At December 31,
                                                       ---------------------------------------------
                                                              2002                     2001
                                                       --------------------     --------------------
                                                          Amount         %         Amount         %
                                                       -----------    -----     -----------    -----
                                                                   (Dollars in thousands)
<S>                                                 <C>             <C>     <C>                <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted   average
    rate of 2.13% and 2.76%)...................     $    1,079,278      43% $       741,978     29%
Interest-bearing checking accounts (weighted
    average rate of 0.43% and 0.72%)...........            174,802       7          162,309      7
Passbook accounts (weighted average rate of 1.34%
    and 1.59%).................................            111,844       4          104,488      4
Non-interest bearing checking accounts.........            239,695       9          205,597      8
                                                       -----------    -----     -----------    ----
                                                         1,605,619      63        1,214,372     48
                                                       -----------    -----     -----------    ----
Fixed-rate term certificate accounts:
Under six-month term (weighted average rate of
    1.54% and 2.57%)...........................             37,630       1           54,626      2
Six-month term (weighted average rate of 1.95% and
    3.29%).....................................            104,600       4          246,161     10
Nine-month term (weighted average rate of 2.76% and
    3.98%).....................................            101,980       4          170,190      7
One year to 18-month term (weighted average rate of
    2.63% and 4.45%)...........................            331,308      14          469,113     18
Two year or 30-month term (weighted average rate of
    3.55% and 5.38%)...........................             41,460       2           45,993      2
Over 30-month term (weighted average rate of
    4.49% and 5.31%)...........................             94,927       4           39,938      1
Negotiable certificates of $100,000 and greater, 30
    day to one year terms (weighted average rate of
    2.32% and 3.84%)...........................            209,502       8          306,254     12
                                                       -----------    -----     -----------    ----
                                                           921,407      37        1,332,275     52
                                                       -----------    -----     -----------    ----
Total deposits (weighted average rate of 1.98% and
    3.02%).....................................     $    2,527,026     100% $     2,546,647    100%
                                                       ===========    =====     ===========    ====
</TABLE>

                                       59
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Deposits (continued)

     Certificates  of deposit,  placed  through  four major  national  brokerage
firms,  totaled  $161,273,000  and  $356,819,000  at December 31, 2002 and 2001,
respectively.

     Cash  payments  for  interest on  deposits  (including  interest  credited)
totaled  $65,830,000,  $96,482,000 and  $97,624,000  during 2002, 2001 and 2000,
respectively. Accrued interest on deposits at December 31, 2002 and 2001 totaled
$3,899,000 and $8,921,000, 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  $209,502,000  and
$306,254,000 at December 31, 2002 and December 31, 2001, respectively.

     The following table indicates the maturities and weighted  average interest
rates of the Bank's deposits at December 31, 2002:
<TABLE>
                              Non-Term                                            There-
                              Accounts      2003      2004      2005      2006    after         Total
                             ---------   --------   -------   -------   ------   ------      -----------
                                                        (Dollars in thousands)
<S>                         <C>          <C>        <C>       <C>       <C>      <C>         <C>
Deposits at
 December 31, 2002.......   $1,605,619   $794,671   $52,397   $63,805   $2,623   $7,911      $2,527,026
                            ==========   ========   =======   =======   ======   ======      ==========
Weighted average
 interest rates..........         1.57%      2.47%     3.67%     4.34%    4.54%    4.28%           1.98%
</TABLE>
<TABLE>

         Interest expense on deposits is summarized as follows:
                                                                                  For the Years Ended December 31,
                                                                            ------------------------------------------
                                                                                2002           2001          2000
                                                                            -----------    -----------    ------------
                                                                                        (In thousands)
<S>                                                                      <C>            <C>            <C>
Passbook accounts...................................................     $       1,559  $        1,443 $       1,611
Money market deposits and interest-bearing checking accounts........            24,024          24,929        24,709
Certificate accounts................................................            35,225          68,196        73,854
                                                                            ----------     -----------    ----------
                                                                         $      60,808  $       94,568 $     100,174
                                                                            ==========     ===========    ==========
</TABLE>

                                       60
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Federal Home Loan Bank Advances

     Federal Home Loan Bank (FHLB) advances consist of the following at December
31, for the years indicated:
<TABLE>
                                                                                 2002             2001
                                                                             -----------       -----------
                                                                                      (In thousands)
<S>                                                                          <C>               <C>
    Advances from the FHLB of San Francisco with a weighted average interest
    rate of 3.90% and 5.01%, respectively, secured by FHLB stock and certain
    real estate loans with unpaid principal balances of approximately $3.0
    billion at December 31, 2002,
    advances mature through 2010...............................               $1,167,000        $1,597,000
                                                                              ----------        ----------
                                                                              $1,167,000        $1,597,000
</TABLE>

     At December 31, 2002 and 2001,  accrued  interest  payable on FHLB advances
totaled  $125,000  and  $219,000,  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  $2,126,865,000 at December
31, 2002, with terms up to 30 years.


     The following is a summary of FHLB advance  maturities at December 31, 2002
(in thousands):

              2003...................................$      427,000
              2004...................................       285,000
              2005...................................       160,000
              2006...................................       175,000
              2007...................................        85,000
              2008...................................        10,000
              2009...................................         5,000
              2010...................................        20,000
                                                          ---------
                                                     $    1,167,000
                                                          =========

     Cash  payments for interest on  borrowings  (including  reverse  repurchase
agreements see Note 10) totaled $67,579,000, $118,194,000 and $77,621,000 during
2002, 2001 and 2000, respectively.

     Interest  expense on borrowings is comprised of the following for the years
indicated:
<TABLE>
                                                                         For the Years Ended December 31,
                                                                    ----------------------------------------
                                                                        2002           2001         2000
                                                                    -----------    -----------    ----------
                                                                               (In thousands)
<S>                                                              <C>            <C>            <C>
FHLB Advances...............................................     $      63,253  $     94,506   $     85,603
Reverse Repurchase Agreements...............................             3,453        12,346         21,041
Other.......................................................               905           334           (313)
                                                                   -----------    ----------     ----------
                                                                 $      67,611  $    107,186   $    106,331
                                                                   ===========    ==========     ==========
</TABLE>
     Other  interest  expense in 2002,  2001 and 2000  includes  the  additional
accruals and reversals of accrued interest due to the IRS and FTB. See Note 11.

                                       61
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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, 2002,  $155,273,000 in reverse  repurchase  agreements were
collateralized by mortgages totaling $5,557,000 and  mortgage-backed  securities
with  principal   balances  totaling   $150,331,000  and  fair  values  totaling
$152,398,000.   At  December  31,  2001,   $211,040,000  in  reverse  repurchase
agreements  were  collateralized  by  mortgage-backed  securities with principal
balances totaling $221,618,000 and fair values totaling $224,114,000.

     The weighted average interest rates for borrowings under reverse repurchase
agreements were 1.61% and 2.66%, respectively, at December 31, 2002 and December
31, 2001.

     Securities sold under  agreements to repurchase  averaged  $169,335,000 and
$255,747,000  during  2002  and  2001,  respectively,  and the  maximum  amounts
outstanding  at any  month-end  during  2002  and  2001  were  $208,367,000  and
$294,110,000 respectively.


     The  following  is a  summary  of  maturities  at  December  31,  2002  (in
thousands):

               Up to 30 days..........................$    18,257
               30 to 90 days..........................     60,000
               Over 90 to 182 days....................     77,016
                                                          -------
                                                      $   155,273
                                                          =======

     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 $673,000 and  $1,452,000 at
December 31, 2002 and 2001, respectively.


(11)     Income Taxes

<TABLE>

         Income taxes (benefit) consist of the following:
                                                                          2002          2001        2000
                                                                       ----------   ----------    ---------
                                                                                (In thousands)
<S>                                                                 <C>           <C>           <C>
     Current:
       Federal.................................................     $    32,615   $    30,305   $    20,764
       State...................................................          10,866         9,889         8,391
                                                                       --------      --------       -------
                                                                         43,481       40,194         29,155
                                                                       --------     --------        -------
     Deferred:
       Federal.................................................          (2,920)      (2,492)           722
       State...................................................            (412)         (81)        (1,045)
                                                                       --------     --------        -------
                                                                         (3,332)      (2,573)          (323)
                                                                       --------     --------        -------
     Total:
       Federal.................................................          29,695       27,813         21,486
       State...................................................          10,454        9,808          7,346
                                                                       --------     --------        -------
                                                                    $    40,149   $   37,621     $   28,832
                                                                       ========     ========        =======
</TABLE>

                                       62
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Income Taxes (continued)

     A reconciliation  of the statutory federal corporate income tax rate to the
Company's effective income tax rate follows:
<TABLE>
                                                                        At December 31,
                                                             ---------------------------------------
                                                                 2002           2001          2000
                                                             ------------    ----------    ---------
<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             7.1           7.2           7.3
Core deposit intangibles.............................               --           --            0.3
Other, net...........................................               --           0.6           0.2
                                                             ----------    ----------     ---------
Effective rate.......................................             42.1%         42.8%         42.8%
                                                             ==========    ==========     =========
</TABLE>

     Cash  payments  for  income  taxes  totaled  $44,257,000,  $43,100,000  and
$28,300,000 during 2002, 2001 and 2000, respectively.  The Company received cash
refunds  totaling  $667,000 during 2000. No refunds were received during 2001 or
2002.

     Current income taxes  receivable were $6,706,000 and $4,377,000 at December
31, 2002 and December 31, 2001,  respectively.  Current  income taxes payable at
December 31, 2000 were $530,000.

     Listed below are the significant components of the net deferred tax (asset)
and liability:
<TABLE>
                                                                                 At December 31,
                                                                           --------------------------
                                                                               2002           2001
                                                                           -----------    -----------
                                                                                (In thousands)
<S>                                                                     <C>            <C>
Components of the deferred tax asset:
  Bad debts.......................................................      $    (35,307)  $     (34,501)
  Pension expense.................................................            (4,421)         (3,901)
  State taxes.....................................................            (4,093)         (3,903)
  Other...........................................................            (3,129)         (2,575)
                                                                           ---------      ----------
    Total deferred tax asset......................................           (46,950)        (44,880)
                                                                           ---------      ----------
Components of the deferred tax liability:
  Loan fees.......................................................            10,304          11,978
  Loan sales......................................................               217             477
  FHLB stock dividends............................................            21,085          20,411
  Tax effect of unrealized gain on
     securities available-for-sale................................             1,597           2,170
  Other...........................................................               312             313
                                                                           ---------       ---------
    Total deferred tax liability..................................            33,515          35,349
                                                                           ---------       ---------
Net deferred tax asset............................................      $    (13,435)  $      (9,531)
                                                                           =========       =========
</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, 2002 or 2001, 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.

                                       63
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Income Taxes (continued)

     The  Internal   Revenue   Service   ("IRS")  has  examined  the   Company's
consolidated  federal income tax returns for tax years up to and including 1996.
The  adjustments  proposed  by the  IRS  were  primarily  related  to  temporary
differences as to the  recognition of certain  taxable income and expense items.
While  the  Company  had  provided  for  deferred  taxes for  federal  and state
purposes,  the change in the period of recognition of certain income and expense
items resulted in interest due to the IRS and FTB. Interest accruals of $876,000
and $300,000 were recorded  during 2002 and 2001,  respectively  for interest on
amended returns.  Interest accruals totaling $350,000 were reversed during 2000.
The balance of accrued  interest  payable for amended  returns was  $700,000 and
$300,000 as of December 31, 2002 and December 31, 2001, respectively.  There was
no balance of accrued  interest  payable for amended  returns as of December 31,
2000.

     The Bank is required to use the specific  charge-off  method of  accounting
for 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, 2002
and 2001 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.


(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, 2002, 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, 2002  For the Year Ended December 31, 2001  For the Year Ended December 31, 2000
                    ------------------------------------  ------------------------------------  ------------------------------------
                                   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 amounts)
<S>                <C>        <C>             <C>        <C>           <C>             <C>       <C>           <C>         <C>
Basic EPS:
Net earnings.......$ 55,172   17,149,712      $  3.22    $ 50,302      17,234,591        $  2.92   $ 38,465    17,251,618   $  2.23

Diluted EPS:
Net earnings.......$ 55,172   17,149,712      $  3.22      50,302      17,234,591           2.92     38,465    17,251,618   $  2.23
Options-common
  stock equivalents      --      356,417           --          --         411,056             --         --       205,277        --
                    -------   ----------      -------    --------      ----------        -------   --------    ----------    ------
Net earnings.......$ 55,172   17,506,129      $  3.15    $ 50,302      17,645,647        $  2.85   $ 38,465    17,456,895   $  2.20
                    =======   ==========      =======    ========      ==========        =======   ========    ==========    ======

</TABLE>
     The number of  anti-dilutive  shares  excluded  from the  weighted  average
shares outstanding within the diluted EPS calculation was 118,100,  104,900, and
zero during 2002, 2001 and 2000, respectively.

                                       64
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Regulatory Capital

     The Bank is subject to various regulatory capital requirements administered
by the federal banking  agencies.  Failure to meet minimum capital  requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators  that, if undertaken,  could have a direct  material effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to qualitative  judgments by the regulators about 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, 2002.

     As of  December  31,  2002,  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,
2002 that management believes have changed the Bank's classification.

     The following table summarizes the Bank's  regulatory  capital and required
capital for the years indicated:
<TABLE>
                                                                        December 31, 2002
                                                 -----------------------------------------------------------------
                                                                                      Tier 1
                                                   Tangible          Core           Risk-based        Risk-based
                                                   Capital          Capital           Capital           Capital
                                                 -------------    ------------     --------------    -------------
                                                                      (Dollars in thousands)
<S>                                           <C>              <C>             <C>                <C>
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>
<TABLE>
                                                                        December 31, 2001
                                                 -----------------------------------------------------------------
                                                                                      Tier 1          Risk-based
                                                   Tangible          Core           Risk-based         Capital
                                                   Capital          Capital           Capital
                                                 -------------    ------------     --------------    -------------
                                                                      (Dollars in thousands)
<S>                                           <C>              <C>             <C>                <C>
Actual capital:
    Amount....................................$     302,448    $    302,448    $       302,448    $     336,556
    Ratio.....................................         6.42%           6.42%             11.24%           12.51%
FIRREA minimum required capital:
    Amount....................................$      70,617    $    188,522    $            --    $     215,184
    Ratio.....................................         1.50%           4.00%                --%            8.00%
FIRREA well capitalized required capital:
    Amount....................................$          --    $    235,391    $       161,388    $     268,980
    Ratio.....................................           --%           5.00%              6.00%           10.00%
</TABLE>

                                       65
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

     The Company may loan up to $6,000,000 to the Employee Stock  Ownership Plan
("ESOP") under a line of credit loan. At December 31, 2002, the outstanding loan
to the ESOP totaled $553,000.  There was no balance  outstanding at December 31,
2001. 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
2002 and 2001 were 2.93% and 4.79%, respectively.

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

(13) Employee Benefit Plans

     The Bank maintains a qualified defined  contribution plan established under
Section 401 (k) of the Internal  Revenue Code,  as amended (the "401(k)  Plan").
Participants  are permitted to make  contributions on a pre-tax basis, a portion
of which is matched by the Bank. The 401(k) Plan expense was $310,000,  $356,000
and $354,000 for 2002, 2001 and 2000, respectively.

     The Bank has a  Supplementary  Executive  Retirement  Plan  ("SERP")  which
covers any  individual  employed by the Bank as its Chief  Executive  Officer or
Chief  Operating  Officer.  The  pension  expense  for the SERP was  $1,161,000,
$970,000  and  $906,000  in  2002,  2001  and  2000,  respectively.  The SERP is
unfunded.

     The  discount  rates used in  determining  the  actuarial  value of benefit
obligations  were 6.50% and 7.00%,  respectively,  as of  December  31, 2002 and
2001. The rate of increase in future compensation levels used in determining the
pension  cost for the SERP was 4.0% as of December  31, 2002 and 2001.  The plan
had no assets at December 31, 2002 or 2001.

                                       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  Statements  of Financial  Condition for the years
indicated:
<TABLE>
                                                                                         At December 31,
                                                                                     ----------------------
                                                                                        2002          2001
                                                                                     ----------    --------
                                                                                         (In thousands)
<S>                                                                                <C>          <C>
Change in Benefit Obligation
        Projected benefit obligation, beginning of the year..................      $    7,885   $     6,594
        Service cost.........................................................             380           304
        Interest cost........................................................             581           468
        Benefits paid........................................................            (287)         (287)
        Actuarial loss.......................................................             602           806
                                                                                     --------      --------
        Projected benefit obligation, end of the year........................      $    9,161   $     7,885
                                                                                     ========      ========

Change in Plan Assets
        Funded status........................................................      $   (9,161)  $    (7,885)
        Unrecognized transition obligation...................................              --            --
        Unrecognized prior service cost......................................             284           419
        Unrecognized (gain)/loss.............................................           1,956         1,419
                                                                                     --------      --------
        Net amount recognized................................................      $   (6,921)  $    (6,047)
                                                                                     ========      ========

Components of Net Periodic Benefit Cost
        Service cost.........................................................      $      380   $       304
        Interest cost........................................................             581           467
        Amortization of unrecognized transition obligation...................              65            62
        Amortization of unrecognized prior service cost......................             135           135
                                                                                     --------      --------
        Pension cost.........................................................      $    1,161   $       968
                                                                                     ========      ========
</TABLE>

     The projected benefit obligation,  accumulated benefit obligation, and fair
value of assets were $9,161,000,  $7,255,000,  and $0 respectively,  at December
31, 2002 and $7,885,000, $6,131,000, and $0, respectively, at December 31, 2001.

     The Bank has a profit sharing plan (the "ESOP") for all salaried  employees
and officers who have completed one year of continuous  service. At December 31,
2002,  the ESOP held 5.20% of outstanding  stock of the Company.  Profit sharing
expense for the years ended  December  31, 2002,  2001 and 2000 was  $2,024,000,
$2,020,000 and $1,778,000,  respectively. The amount of the contribution made by
the Bank is determined each year by the Board of Directors, but is not to exceed
15% of the  participants'  aggregated  compensation.  The Bank  does  not  offer
post-retirement benefits under this plan.

Stock Compensation Plans

     At  December  31,  2002,  the  Company  had  two  stock-based  compensation
programs,  which are  described  below.  The Company  applies APB Opinion 25 and
related   interpretations   in  accounting  for  its  plans.   Accordingly,   no
compensation cost has been recognized for its stock compensation plans.

Stock Option Programs

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

                                       67
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Employee Benefit Plans (continued)

     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,
                                                                               -------------------------------------
                 Options Outstanding                                              2002          2001         2000
                                                                               ----------    ---------    ----------
     (Weighted average option prices)                                                      (In shares)
<S>                                                                            <C>           <C>          <C>
Beginning of year ($15.51, $12.84 and $12.54)                                    819,915      796,538      653,742
       Granted ($26.75, $31.44 and $13.13).............................          134,900      127,050      219,275
       Exercised ($10.98, $12.22 and $7.04)............................          (33,006)     (62,489)     (30,656)
       Canceled ($20.53, $18.12 and $13.77)............................          (64,127)     (41,184)     (45,823)
                                                                               ---------    ---------    ---------
       End of Year ($17.08, $15.51 and $12.84).........................          857,682      819,915      796,538
                                                                               =========    =========    =========
       Shares exercisable at December 31, ($13.41, $11.53 and $11.22)..          407,401      309,808      252,121
                                                                               =========    =========    =========
</TABLE>
     Additional  information  with  respect  to  stock  options  outstanding  at
December 31, 2002 follows:

<TABLE>
                                                                                Price Ranges
                                                        -------------------------------------------------------------
                                                        ($5.63 - $14.23)      ($14.24 - $22.84)      ($22.85- $31.45)
<S>                                                     <C>                 <C>                 <C>
Options outstanding:

Number of outstanding shares..........................        400,606              230,376                 226,700
Weighted-average contractual life ....................           4.71                 5.61                    8.60
Weighted-average exercise price ......................         $10.62               $16.65                  $28.92

Options exercisable:

Number of exercisable shares..........................        257,506              117,895                  32,000
Weighted-average exercise price ......................          $9.60               $16.83                  $31.44
</TABLE>

Restricted Stock Plan

     The Company's  1991  Restricted  Stock Plan (the  "Restricted  Stock Plan")
expired  November 20, 2000  pursuant to its terms.  Under the  Restricted  Stock
Plan, the Company issued shares of restricted stock to employees of the Company,
including  officers and  directors.  All shares issued under the Plan to current
employees have been vested. The remaining 43,406 shares which were available for
issuance under the Plan,  consisting of previously  issued shares  reacquired by
the Company,  are no longer  authorized  for issuance  under the Plan due to the
Plan's  termination.  Accordingly,  these shares are  included in the  Company's
treasury stock for 2001.

                                       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,
                                                                               ------------------------
                                                                                  2002          2001
                                                                               ---------    -----------
                                                                                   (In thousands)
<S>                                                                         <C>          <C>
Assets:
Cash....................................................................    $    17,947  $       6,263
Fixed assets............................................................            259            419
Investment in subsidiary................................................        353,739        319,276
                                                                               --------    -----------
                                                                            $   371,945  $     325,958
                                                                               ========    ===========
Liabilities and Stockholders' Equity:
Other liabilities.......................................................            304            280
Stockholders' equity....................................................        371,641        325,678
                                                                               --------    -----------
                                                                            $   371,945  $     325,958
                                                                               ========    ===========
</TABLE>
<TABLE>
                                                                           Years Ended December 31,
                                                                      ------------------------------------
CONDENSED STATEMENTS OF OPERATIONS AND                                   2002          2001         2000
COMPREHENSIVE EARNINGS                                                ----------    ---------    ---------
                                                                                  (In thousands)
<S>                                                                <C>           <C>          <C>
Dividends received from Bank..................................     $     20,000  $        --  $    10,000
Equity in undistributed net earnings of subsidiary ...........           35,254       52,007       29,263
Other expense, net............................................              (82)      (1,705)        (798)
                                                                      ----------    --------    ---------
Net earnings..................................................           55,172       50,302       38,465
                                                                      ==========    ========    =========

Other comprehensive earnings (loss), net of taxes.............             (790)       5,149        6,122
                                                                      ----------    --------    ---------
Comprehensive earnings........................................     $     54,382  $    55,451  $    44,587
                                                                      ==========    ========    =========
</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                                       2002          2001        2000
                                                                      ----------    ---------    ---------
                                                                                (In thousands)
<S>                                                                <C>           <C>          <C>
Net Cash Flows from Operating Activities:
  Net earnings................................................     $     55,172  $    50,302  $    38,465
  Adjustments to reconcile net earnings to
       net cash provided by operating activities:
    Equity in undistributed net
       net earnings of subsidiary.............................          (35,254)     (52,007)     (29,263)
    Depreciation expense......................................              160          184           89
    Other.....................................................            1,035        1,581           --
                                                                      ---------    ---------    ---------
    Net cash provided by operating activities.................           21,113           60        9,291
                                                                      ---------    ---------    ---------
Cash Flows from Investing Activities:
    Increase in fixed assets..................................               --         (112)        (580)
                                                                      ---------    ---------    ---------
    Net cash provided by (used in) investing activities.......               --         (112)        (580)
                                                                      ---------    ---------    ---------
Cash Flows from Financing Activities:
    Purchase of treasury stock................................           (8,832)          --      (10,175)
    (Increase) decrease in unreleased shares..................             (597)         841          918
    Other.....................................................               --        1,943          988
                                                                      ---------    ---------    ---------
Net cash provided by (used in) financing activities...........           (9,429)       2,784       (8,269)
                                                                      ---------    ---------    ---------
Net increase in cash..........................................           11,684        2,732          442
Cash at beginning of period...................................            6,263        3,531        3,089
                                                                      ---------    ---------    ---------
Cash at end of period.........................................     $     17,947  $     6,263  $     3,531
                                                                      =========    =========    =========
</TABLE>

                                       70
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) Quarterly Results of Operations: (unaudited)

     Summarized  below are the  Company's  results of  operations on a quarterly
basis for 2002, 2001 and 2000:
<TABLE>
                                                   Provision                   Non-                       Basic        Diluted
                        Interest     Interest      for Loan     Other        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
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
2000.................    71,102        45,122           --        1,725       12,245         8,835          0.50         0.49
Second quarter
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
2000.................    76,455        50,288           --        2,418       12,570         9,351          0.54         0.54
Third quarter
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
2000.................    81,980        55,290           --        1,950       12,276         9,497          0.55         0.54
Fourth quarter
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
2000.................    84,783        55,805           --        1,654       11,174        10,782          0.63         0.62
Total year
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
2000.................   314,320       206,505           --        7,747       48,265        38,465          2.23         2.20
</TABLE>

(16) Fair Value of Financial Instruments

     The  following   table  presents  fair  value   information  for  financial
instruments for which a market exists.
<TABLE>
                                                                              At December 31,
                                                     ----------------------------------------------------------------
                                                                   2002                             2001
                                                     ------------------------------    ------------------------------
                                                       Carrying                        Carrying Value
                                                        Value          Fair Value                         Fair Value
                                                     -----------    ---------------    -------------    -------------
                                                                              (In thousands)
<S>                                               <C>               <C>             <C>              <C>
Mortgage-backed securities                        $        200,585  $      200,585  $        284,079 $      284,079
U.S. Government securities ....................                203             203            28,468         28,468
Collateralized mortgage obligations ...........            102,852         102,852            81,976         81,976
Loans held-for-sale ...........................              2,293           2,300             5,246          5,250
</TABLE>

                                       71
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) Fair Value of Financial Instruments (continued)

     The  following   table  presents  fair  value   information  for  financial
instruments  shown  in  the  Company's  Consolidated   Statements  of  Financial
Condition for which there is no readily  available  market.  The fair values for
these financial  instruments were calculated by discounting expected cash flows.
Because these  financial  instruments  have not been evaluated for possible sale
and because management does not intend to sell these financial instruments,  the
Company does not know whether the fair values  shown below  represent  values at
which the respective financial instruments could be sold.
<TABLE>
                                                                               At December 31,
                                                     ------------------------------------------------------------------
                                                                   2002                              2001
                                                     ------------------------------    --------------------------------
                                                                       Calculated                          Calculated
                                                      Historical       Fair Value        Historical        Fair Value
                                                         Cost            Amount             Cost             Amount
                                                     -----------    ---------------    -------------    ---------------
                                                                               (In thousands)
<S>                                               <C>               <C>             <C>               <C>
ASSETS
Adjustable loans:
  Single family ...............................   $      1,636,398  $    1,665,635  $      2,091,298   $     2,119,245
  Multi-family ................................          1,611,318       1,659,295         1,513,077         1,540,775
  Commercial  .................................            383,383         401,772           335,245           347,592
Fixed rate loans:
  Single family                                             22,685          23,290            26,859            27,579
  Multi-family ................................             33,995          35,969            17,716            18,520
  Commercial  .................................             37,640          39,916            26,138            27,653
Consumer loans.................................             36,880          36,891            20,797            21,206
Commercial business loans......................             20,304          20,595            18,882            18,992
Construction loans.............................              6,927           7,150            38,060            38,571
Non-performing loans ..........................              6,722           6,722             6,443             6,443
LIABILITIES
Fixed-term certificate accounts ...............            921,407         934,359         1,332,275         1,347,368
Non-term deposit accounts .....................          1,605,619       1,605,619         1,214,372         1,214,372
Borrowings ....................................          1,322,273       1,369,329         1,808,040         1,847,196
</TABLE>

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

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

Cash and Cash Equivalents

     The carrying amounts  reported in the Consolidated  Statements of Financial
Condition for this item approximate fair value.

Investment Securities and Mortgage-Backed Securities

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

                                       72
<PAGE>
                     FIRSTFED FINANCIAL CORP. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) Fair Value of Financial Instruments (continued)

Loans Receivable

     The  portfolio  is  segregated  into those loans with  adjustable  rates of
interest  and those  with  fixed  rates of  interest.  Fair  values are based on
discounting  future cash flows by the current  rate  offered for such loans with
similar remaining maturities and credit risk. The amounts so determined for each
loan category are reduced by the Bank's allowance for loans losses which thereby
takes into consideration  changes in credit risk. At December 31, 2002, the Bank
had outstanding  commitments to fund $239,127,000 in real estate mortgage loans,
$3,037,000 in  construction  loans and $87,000 in non-mortgage  loans.  All loan
commitments were substantially at fair value.

Non-performing Loans

     The carrying amounts  reported in the Consolidated  Statements of Financial
Condition for this item approximate fair value.

Deposits

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

Borrowings

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


                                       73
<PAGE>














                          Independent Auditors' Report



The Board of Directors
FirstFed Financial Corp.:


We have audited the accompanying  consolidated statements of financial condition
of FirstFed Financial Corp. and subsidiary (Company) as of December 31, 2002 and
2001 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,  2002.  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, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2002 in  conformity  with  accounting  principles  generally
accepted in the United States of America.






                                    KPMG LLP








Los Angeles, California
January 29, 2003


                                       74
<PAGE>

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

None.

                                    PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information regarding directors and executive officers appearing on pages 4
through 7 of the Proxy Statement for the Annual Meeting of  Stockholders'  to be
held April 23, 2003 (the "Proxy Statement") is incorporated herein by reference.

ITEM 11 -- EXECUTIVE COMPENSATION

     Information regarding executive  compensation  appearing on pages 8 through
15 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  12 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 -- 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.

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

                                       75
<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).
(99.1) Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002 for Babette E. Heimbuch.
(99.2) Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
       Section 906 of the Sarbanes-Oxley Act of 2002 for Douglas J. Goddard.

     This 2002 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 7, 2003 and any beneficial  owner
of Company stock on such date who has not previously  received such material and
who so represents in good faith and in writing to:

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

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

(b) Reports on Form 8-K

     The Company filed reports on Form 8-K during the quarter ended December 31,
2002 on the following dates:  October 25, 2002,  November 15, 2002, November 19,
2002,  and December 18, 2002.  The November 15, 2002 8-K announced the expansion
of the Company's stock repurchase program.  The remaining reports are related to
the release of the  Company's  third  quarter  earnings  and the  disclosure  of
certain other financial data.

                                       76
<PAGE>
                                   SIGNATURES

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


                                                  FIRSTFED FINANCIAL CORP.,
                                                    a Delaware corporation

Dated this 26th day of February 2003
                                                By: /s/ Babette E. Heimbuch
                                                    -----------------------
                                                        Babette E. Heimbuch
                                                        Chief Executive Officer



                                       77
<PAGE>
                                POWER OF ATTORNEY

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

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has be signed by the following persons on behalf of the Registrant and in
the capacities indicated on the 26th day of February 2003.



<TABLE>
SIGNATURE                                      TITLE

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

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

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

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

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

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

/s/ William 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
</TABLE>

                                       78
<PAGE>
                    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) for the registrant and have:

     (i)  Designed  such  disclosure  controls  and  procedures  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) Evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     (iii)Presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

(5) The registrant's other certifying officers and I have disclosed, based on
    our most recent  evaluation,  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  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     (ii) Any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; 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
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.

Dated this 26th day of February 2003

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

                                       79
<PAGE>
                    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) for the registrant and have:

         (i) Designed such disclosure controls and procedures 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) Evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this annual report (the "Evaluation Date"); and

         (iii) Presented in this annual report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

(5)  The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, 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 in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

         (ii) Any fraud, whether or not material, that involves management or
         other employees who have a significant role in the registrant's
         internal controls; 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
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Dated this 26th day of February 2003.

                                                 By: /s/ Douglas Goddard
                                                     --------------------
                                                         Douglas Goddard
                                                         Chief Financial Officer


                                       80
<PAGE>
                                  EXHIBIT 99.1

Exhibit 99.1

                                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 26, 2003
                                           By: /s/ Babette E. Heimbuch
                                               ------------------------
                                                   Babette E. Heimbuch
                                                   Chief Executive Officer

                                       81
<PAGE>
                                  EXHIBIT 99.2

Exhibit 99.2

                                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 26, 2003
                                          By: /s/ Douglas J. Goddard
                                              ----------------------
                                                  Douglas J. Goddard
                                                  Chief Financial Officer and
                                                  Executive Vice President


                                       82