FIRSTFED FINANCIAL CORP, S-3, 1994-07-19

FIRSTFED FINANCIAL CORP
S-3, 1994-07-19
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1994

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

FIRSTFED FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

------------------------

<TABLE>
<S> <C>
DELAWARE 95-4087449
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

401 WILSHIRE BOULEVARD
SANTA MONICA, CALIFORNIA 90401
(310) 319-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)

------------------------

ANN E. LEDERER
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
FIRSTFED FINANCIAL CORP.
401 WILSHIRE BOULEVARD
SANTA MONICA, CALIFORNIA 90401
(310) 319-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

------------------------
COPIES OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
DAVID K. ROBBINS STANLEY F. FARRAR
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON SULLIVAN & CROMWELL
725 SOUTH FIGUEROA STREET, SUITE 3890 444 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90017 LOS ANGELES, CALIFORNIA 90071
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH PROPOSED MAXIMUM AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------
% Notes due , 2004 $50,000,000.00 $1,000.00 $50,000,000.00 $17,241.38
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED JULY 18, 1994

$50,000,000

[LOGO] FIRSTFED FINANCIAL CORP.
% NOTES DUE 2004

Interest on the % Notes due 2004 to be issued by FFC is payable
semiannually on and of each year, beginning
, 1995. The Notes are redeemable at any time after , 199 , at the
option of FFC as a whole or from time to time in part, at the redemption prices
set forth herein plus accrued interest to the date of redemption. The Notes will
constitute unsecured and unsubordinated indebtedness of FFC and will rank
equally and ratably with other unsecured and unsubordinated indebtedness of FFC.

The Notes will be represented by one or more global Notes registered in the
name of the nominee of The Depositary Trust Company. Beneficial interests in the
global Notes will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as described
herein, Notes in definitive form will not be issued. The Notes will be issued
only in denominations of $1,000 and integral multiples thereof. The Notes will
trade in DTC's Same-Day Funds Settlement System until maturity, and secondary
market trading activity for the Notes will therefore settle in immediately
available funds. All payments of principal and interest will be made by FFC in
immediately available funds. See "Description of Notes -- Same-Day Settlement
and Payment."

The Notes are a new issue of securities with no established trading market.
FFC does not intend to list the Notes on any securities exchange. The
Underwriters have advised FFC that the Underwriters intend to make a market in
the Notes but are not obligated to do so and may discontinue market making at
any time without notice.

THE NOTES ARE NOT SAVINGS ACCOUNTS DEPOSITS OR OTHER OBLIGATIONS OF ANY
BANK OR NONBANK SUBSIDIARY OF FFC AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.

PROSPECTIVE INVESTORS SHOULD REVIEW AND CONSIDER THE DISCUSSIONS UNDER "RISK
FACTORS."
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS
OFFERING PRICE(1) DISCOUNT(2) TO FFC(2)(3)
- ----------------------------------------------------------------------------------------------------
Per Note................................... % % %
- ----------------------------------------------------------------------------------------------------
Total...................................... $50,000,000 $ $
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>

(1) Plus accrued interest, if any, from , 1994.

(2) FFC has agreed to indemnify the Underwriters against and contribute toward
certain liabilities, including liabilities under applicable securities laws.
See "Underwriting".

(3) Before deducting expenses payable by FFC, estimated at $ .
------------------------

The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of DTC
in New York, New York, on or about , 1994, against payment therefore
in immediately available funds.

GOLDMAN, SACHS & CO. MONTGOMERY SECURITIES
------------------------

The date of this Prospectus is , 1994.
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

FirstFed Financial Corp. ("FFC") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, FFC's common stock is listed on the New
York Stock Exchange, Inc. (the "NYSE"), and reports, proxy statements and other
information concerning FFC may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.

This Prospectus does not contain all of the information set forth or
incorporated by reference in the registration statement filed with the
Commission (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
and reference is hereby made to the Registration Statement, including the
exhibits thereto and the documents incorporated by reference therein.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

FFC hereby incorporates by reference in this Prospectus its Annual Report
on Form 10-K for the year ended December 31, 1993, as amended by a Form 10-K/A
filed on July 18, 1994, and its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994, as amended by a Form 10-Q/A filed on July 18, 1994, filed
pursuant to Section 13 under the Exchange Act.

All documents filed by FFC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date such documents are filed.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

FFC will provide without charge to each person (including any beneficial
owner of the Notes) to whom this Prospectus is delivered, on the written or oral
request of such person, a copy of any document incorporated herein by reference
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference into such documents). Written or oral requests should
be directed to FirstFed Financial Corp., Attention: Ann E. Lederer, Vice
President, General Counsel and Secretary, at FFC's principal executive offices
located at 401 Wilshire Boulevard, Santa Monica, California 90401, telephone
(310) 319-6000.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following material is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the documents
incorporated in this Prospectus by reference.

THE COMPANY

FirstFed Financial Corp. ("FFC"), a Delaware corporation, is the holding
company for First Federal Bank of California, fsb (the "Bank" and, together with
FFC, the "Company"), a federally chartered savings bank with 25 retail branches
and eight loan origination offices located in Los Angeles, Orange and Ventura
counties. The Bank, headquartered in Santa Monica, California, is primarily in
the business of attracting deposits and utilizing those funds, together with
borrowings from other sources, to originate mortgage loans secured by single
family and multi-family residential real estate located in Southern California.
FFC has no material assets other than its equity interest in the Bank. At March
31, 1994, the Company had total assets of $3.7 billion, total deposits of $2.3
billion and stockholders' equity of $202.2 million.

The Bank originated $745.8 million of loans in 1993, of which 67.0% were
secured by single family properties and 31.7% were secured by multi-family
properties. In order to minimize its interest rate risk, the Bank originates
primarily adjustable rate mortgage loans ("AMLs") with interest rates that reset
monthly based upon the Federal Home Loan Bank ("FHLB") Eleventh District cost of
funds index ("COFI" or the "Index"). In 1993, 88.2% of the loans originated by
the Bank were AMLs, with fixed rate loans accounting for the remaining 11.8%.
The Bank sells into the secondary market substantially all of the fixed rate
mortgage loans that it originates as well as a portion of its AMLs. The Bank
converts into mortgage-backed securities ("MBS") a portion of loans originated
by it that meet the guidelines established by the Federal Home Loan Mortgage
Corporation ("FHLMC") and the Federal National Mortgage Association ("FNMA").
The Bank generally retains the right to service loans that it sells or
securitizes.

At March 31, 1994, the Bank had $2.7 billion of loans held for investment
("loans receivable"), $22.6 million of loans held for sale and $698.6 million of
MBS (collectively referred to as the "loan portfolio"). The Bank's loan
portfolio comprised 93.6% of the Company's total assets. Substantially all of
the loans securing the Bank's MBS were single family loans originated by the
Bank. At March 31, 1994, the Bank's loan portfolio was secured 54.1% by single
family properties and 38.1% by multi-family properties. AMLs represented 98.6%
of the Bank's loan portfolio at March 31, 1994.

To fund its residential lending activities, the Bank relies primarily on
deposits, advances from the Federal Home Loan Bank of San Francisco ("FHLBSF")
and sales of securities under agreements to repurchase ("reverse repurchase
agreements"). At March 31, 1994, the Bank had deposits of $2.3 billion, advances
from the FHLBSF of $514.7 million and reverse repurchase agreements of $599.2
million, collectively representing 97.8% of total liabilities. Approximately
65.1% of deposits at March 31, 1994 were generated by the Bank's 25 retail
branches ("retail deposits"), with the remainder obtained from national
brokerage firms ("brokered deposits") and a telemarketing solicitation effort
("telemarketing deposits"). On any given date, the Bank seeks to utilize the
source of funds with the lowest overall cost. The Bank's solicitation and use of
brokered deposits and telemarketing deposits has expanded the geographical scope
of its deposit activities. Other sources of funds for use in lending and for
other general business purposes are loan payments and loan sales. See
"Business -- Source of Funds."

The Bank strives to minimize its non-interest expenses as a means of
enhancing operating results. The Bank's ratio of non-interest expense to average
assets in 1993 was 1.26%, down from 1.36% in 1992. During the quarter ended
March 31, 1994, this ratio was 1.32%.

The Bank has historically experienced a modest level of loan losses;
however, beginning in 1990, the Bank's level of non-performing assets increased
primarily as a result of the economic recession in Southern California, the 1992
civil unrest in Los Angeles and the Los Angeles earthquake in Janu-

3
<PAGE> 5

ary 1994. Because the Bank's lending activities are concentrated in the Los
Angeles area, these events have had a negative impact on the Bank's loan loss
exposure. The Bank's provisions for loan losses increased from $824,000 in 1989
to $67.7 million in 1993, and its ratio of non-performing assets to total assets
rose from 0.33% at year-end 1989 to 3.05% at March 31, 1994, having peaked at
4.25% at July 31, 1993.

The Bank announced on June 20, 1994 that it will record a $55.0 million
provision for loan losses during the quarter ended June 30, 1994, which is in
addition to the $24.7 million provision for loan losses recorded during the
quarter ended March 31, 1994. Management of the Bank believes that these
provisions for loan losses fully reflect the extent to which collateral
supporting the Bank's loans receivable, loans held for sale, and loans sold with
recourse (collectively, "loans with loss exposure") and real estate acquired in
settlement of loans ("REO") was damaged by the earthquake and affected by
continuing weakness in the Southern California real estate market, and provide
adequate protection for anticipated loan charge-offs. While management believes
that its second quarter provision for loan losses is adequate given currently
available information, there can be no assurance that additional provisions for
loan losses will not be required as a result of adverse changes in economic
conditions or the discovery of additional earthquake-related damage. The table
below shows the actual and pro forma loan loss allowances and their relationship
to non-performing loans and non-performing assets (non-performing loans and REO)
at March 31, 1994:

<TABLE>
<CAPTION>
AT MARCH 31, 1994 PRO FORMA(1)
----------------- ------------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
General Valuation Allowances(2)................................ $ 41,078 $ 82,747
Non-Performing Loans(3)........................................ 106,909 106,909
Non-Performing Assets(3)....................................... 137,710 137,710
General Valuation Allowances to Non-Performing Loans........... 38.42% 77.40%
General Valuation Allowances to Non-Performing Assets.......... 29.83% 60.09%
</TABLE>

- ---------------

(1) Giving effect to the $41.7 million general valuation allowance portion of
the $55.0 million provision for loan losses announced on June 20, 1994 as
though such provision was recorded at March 31, 1994.

(2) General valuation allowances represent the Bank's loan loss allowances on
the Bank's loan portfolio, less specific loan loss allowances which result
from charge-offs. See "Business -- Loan Portfolio."

(3) Before deducting specific loan loss allowances.

The Bank's principal regulators are the Office of Thrift Supervision (the
"OTS") and the Federal Deposit Insurance Corporation (the "FDIC"). See
"Regulation." The Bank is subject to OTS regulations that establish minimum
capital standards for savings institutions. At March 31, 1994, the Bank exceeded
its fully phased-in regulatory capital requirements and met the regulatory
standards necessary to be deemed "adequately capitalized" under the OTS' "prompt
corrective action" regulations. After giving pro forma effect to the second
quarter provision for loan losses announced on June 20, 1994, but before giving
pro forma effect to the contribution by FFC to the Bank of the net proceeds of
the sale of the Notes offered hereby (the "Offering"), at March 31, 1994, the
Bank would have continued to meet the standards necessary to be deemed
"adequately capitalized." The table below sets forth the Bank's regulatory
capital ratios at March 31, 1994, on an actual and pro forma basis:

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL AT --------------------------------------
MARCH 31, BEFORE CAPITAL AFTER CAPITAL
CAPITAL RATIOS 1994 CONTRIBUTION(1) CONTRIBUTION(1)(2) REQUIREMENTS(3)
- ------------------------------ --------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Tangible Capital.............. 5.31% 4.51% 5.84% 1.5%
Core Capital.................. 5.31 4.51 5.84 3.0
Total Risk-Based Capital...... 9.94 8.68 10.91 8.0
</TABLE>

- ---------------

(1) Adjusted to reflect the $55.0 million provision for loan losses announced on
June 20, 1994.

4
<PAGE> 6

(2) Adjusted to reflect the contribution by FFC to the Bank of the net proceeds
of the Offering.

(3) Minimum capital requirements for a savings institution to qualify as
"adequately capitalized" under the OTS' "prompt corrective action"
regulations. See "Regulation -- Prompt Corrective Action."

Dividend payments from the Bank are the sole source of operating cash flow
to FFC, which owns 100% of the capital stock of the Bank. Payments of dividends
by the Bank to FFC are subject to limitations under applicable laws and
regulations. The ability of the Bank to pay dividends in the future will depend
in large part on the Bank's ability to continue to meet its fully phased-in
capital requirement and to continue to meet the regulatory standards necessary
to be deemed at least "adequately capitalized" under the OTS' "prompt corrective
action" regulations. See "Regulation -- Regulatory Capital Requirements."

THE OFFERING

Securities Offered......... $50 million aggregate principal amount of %
Notes due 2004 (the "Notes").

Maturity Date.............. , 2004.

Interest Payment Dates..... and , commencing ,
1995.

Interest Rate.............. per annum.

Certain Covenants.......... The Indenture will contain certain covenants which,
among other things, (i) limit the incurrence of
debt by FFC, (ii) limit the payment of dividends
and the making of certain other distributions by
FFC and its subsidiaries, (iii) limit the
disposition of, and the existence of liens on,
the stock of certain of FFC's subsidiaries, (iv)
limit the existence of certain liens on other
property or assets of FFC and (v) limit the
ability of FFC to enter into certain transactions
with affiliates. See "Description of
Notes -- Certain Covenants."

Optional Redemption........ The Notes are redeemable at any time after
, 1999, at the option of FFC, as a
whole or from time to time in part, at the
redemption prices set forth herein plus accrued
interest to the date of redemption.

Ranking.................... The Notes will be general unsecured obligations of
FFC and will rank on a parity in right of payment
to all existing and future unsubordinated
indebtedness of FFC.

Use of Proceeds............ Substantially all of the net proceeds from the sale
of the Notes will be used to make a capital
contribution to the Bank. The Bank intends to use
such contribution to facilitate its growth. See
"Use of Proceeds."

Risk Factors............... The purchase of Notes involves investment risks
particular to FFC and to the financial
institution industry in general, and risks
particular to the Offering. Investors are urged
to read and consider carefully the information
set forth under the heading "Risk Factors."

5
<PAGE> 7

SELECTED CONSOLIDATED FINANCIAL DATA

The following sets forth selected consolidated financial data of the
Company which should be read in conjunction with, and is qualified in its
entirety by reference to, the more detailed information and consolidated
financial statements and notes thereto included and incorporated herein by
reference. The year-end data are derived from consolidated financial statements
of the Company, which have been audited by KPMG Peat Marwick, independent
certified public accountants. The interim data are unaudited but reflect all
adjustments (all of which are of a normal recurring nature) which, in the
opinion of management, are necessary for a fair statement of results for the
interim periods. The results for interim periods presented herein are not
necessarily indicative of results to be expected for any other period or for the
entire fiscal year.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest Income..................... $ 55,725 $ 58,247 $ 229,445 $ 255,612 $ 296,530 $ 291,436 $ 245,101
Interest Expense.................... 32,106 33,198 131,616 151,510 195,756 207,817 185,059
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income................. 23,619 25,049 97,829 104,102 100,774 83,619 60,042
Provision for Loan Losses........... 24,670 44,123 67,679 41,384 11,833 4,126 824
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income (Expense) After
Provision for Loan Losses......... (1,051) (19,074) 30,150 62,718 88,941 79,493 59,218
Other Income........................ 2,810 2,718 12,054 12,634 7,059 7,025 7,963
Non-Interest Expense................ 12,133 11,454 45,298 46,125 40,482 39,355 32,817
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (Loss) Before Income
Taxes............................. (10,374) (27,810) (3,094) 29,227 55,518 47,163 34,364
Income Taxes (Benefit).............. (4,259) (11,408) (1,046) 11,198 27,091 20,112 13,862
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle......................... (6,115) (16,402) (2,048) 18,029 28,427 27,051 20,502
Cumulative Effect of Change in
Accounting Principle.............. -- -- -- 4,075 -- -- --
Net Earnings (Loss)................. $ (6,115) $ (16,402) $ (2,048) $ 22,104 $ 28,427 $ 27,051 $ 20,502
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Total Assets........................ $3,674,469 $3,591,073 $3,661,117 $3,446,573 $3,287,059 $3,051,808 $2,583,705
Loans Receivable.................... 2,718,425 2,511,552 2,692,036 2,481,225 2,339,446 2,126,341 1,953,835
Mortgage-Backed Securities
("MBS")........................... 698,557 665,330 708,283 693,072 519,499 521,384 267,659
Loans and MBS Held for Sale......... 22,630 87,681 23,627 91,558 154,115 98,498 110,575
Investment Securities, Certificates
of Deposit, Federal Funds Sold and
FHLB Stock, at Cost............... 137,694 99,715 142,803 79,278 139,392 102,537 164,284
REO................................. 30,801 25,995 26,878 23,858 8,172 422 --
Deposits............................ 2,282,129 1,999,190 2,305,480 1,982,745 1,740,103 1,739,653 1,552,789
FHLB Advances and Other
Borrowings........................ 546,500 711,150 544,500 705,150 656,800 541,825 487,688
Securities Sold Under Agreements to
Repurchase........................ 599,218 628,761 548,649 491,091 623,572 520,979 327,413
Stockholders' Equity................ 202,186 191,214 208,292 207,511 190,176 161,438 134,971
</TABLE>

6
<PAGE> 8

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS
ENDED MARCH 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REGULATORY CAPITAL RATIOS:
Tangible.......................... 5.31% 5.18% 5.64% 5.97% 5.70% 5.26% 5.13%
Core.............................. 5.31 5.18 5.64 5.97 5.70 5.26 5.13
Risk-Based........................ 9.94 9.26 10.25 10.20 9.36 8.61 6.85
ASSET QUALITY DATA(1):
Non-Performing Loans.............. $ 106,909 $ 121,782 $ 106,076 $ 71,009 $ 57,518 $ 25,388 $ 8,986
REO............................... 30,801 25,995 26,878 23,858 8,172 422 --
Non-Performing Assets............. 137,710 147,777 132,954 94,867 65,690 25,810 8,986
Loan Loss Allowances(2)........... 73,313 70,373 57,501 27,194 18,010 10,217 8,774
Net Charge-Offs................... 24,670 12,460 48,633 27,467 9,077 1,339 122
Non-Performing Assets to Total
Assets(3)....................... 3.05% 3.72% 3.23% 2.62% 1.83% 0.82% 0.33%
Net Charge-Offs to Average
Loans(4)........................ 0.88 0.47 1.82 1.11 0.40 0.06 0.01
Loan Loss Allowances to
Non-Performing Loans............ 68.57 57.79 54.21 38.30 31.31 40.24 97.64
Loan Loss Allowances to
Non-Performing Assets........... 53.24 47.62 43.25 28.67 27.42 39.59 97.64
OTHER DATA:
Interest Rate Spread During the
Period.......................... 2.43% 2.65% 2.67% 2.95% 2.97% 2.62% 2.22%
Non-Interest Expenses to Average
Assets.......................... 1.32 1.30 1.26 1.36 1.28 1.40 1.39
Return on Average Assets
("ROAA")........................ (0.67) (1.86) (0.06) 0.65 0.90 0.96 0.87
Return on Average Stockholders'
Equity ("ROAE")................. (11.92) (32.91) (0.99) 11.12 16.17 18.25 16.48
Stockholders' Equity to Total
Assets.......................... 5.50 5.32 5.69 6.02 5.79 5.29 5.22
Number of Branch Offices.......... 25 24 25 24 18 18 16
Number of Loan Origination
Offices......................... 8 8 8 8 6 7 7
Number of Employees............... 510 479 499 468 395 398 374
Earnings (Loss) Per Share Before
Cumulative Effect of Change in
Accounting Principle............ $ (0.58) $ (1.57) $ (0.19) $ 1.66 $ 2.61 $ 2.49 $ 1.88
Earnings (Loss) Per Share......... (0.58) (1.57) (0.19) 2.04 2.61 2.49 1.88
Book Value Per Share.............. 19.20 18.33 19.78 19.98 18.28 15.81 13.14
RATIO OF EARNINGS TO FIXED
CHARGES(5):
Including Interest on Deposits.... -- -- -- 1.19x 1.28x 1.23x 1.18x
Excluding Interest on Deposits.... -- -- -- 1.45 1.68 1.60 1.52
</TABLE>

- ---------------

(1) All loan amounts are before deducting specific loan loss allowances
attributable to such loans.

(2) Loan loss allowances exclude general valuation allowances attributable to
loans sold with recourse, which allowances are recorded as a contingent
liability on the Company's statement of financial condition.

(3) Non-performing assets after deducting specific loan loss allowances.

(4) Average loan amounts represent the Bank's loan portfolio, excluding MBS, and
before deducting loan loss allowances and unrealized loan fees.

(5) Earnings represent earnings before income taxes and accounting changes and
fixed charges. Fixed charges, including interest on deposit accounts,
represent all interest expense (including the portion of rental expense
deemed to be representative of the interest factor). Fixed charges,
excluding interest on deposit accounts, represent other interest expense.
Earnings were inadequate to cover fixed charges for the three months ended
March 31, 1994 and 1993, and the year ended December 31, 1993, by $10.4
million, $27.8 million and $3.1 million, respectively, including interest on
deposits, and by $10.4 million, $27.8 million and $3.1 million,
respectively, excluding interest on deposits.

7
<PAGE> 9

RISK FACTORS

PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD
CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS.

HOLDING COMPANY STRUCTURE

The Notes are obligations exclusively of FFC, which has no material assets
other than its ownership of 100% of the common stock of the Bank. Because the
operations of FFC currently are conducted through the Bank, the ability of FFC
to meet its obligations with respect to the Notes is dependent upon the payment
of dividends by the Bank to FFC. As discussed below, the ability of the Bank to
pay dividends to FFC is dependent upon the Bank's earnings and subject to a
number of regulatory restrictions. See "-- Source of Funds" and
"Regulation -- Regulatory Capital Requirements." The Bank is a separate and
distinct legal entity and has no obligation, contingent or otherwise, to pay any
amounts due pursuant to the Notes or to make any funds available therefor,
whether by dividends or other payments. As a result, in the event of any default
under the Notes, claims of holders of the Notes would be subordinated to those
of depositors and other creditors of the Bank.

SOURCE OF FUNDS

The Bank' s ability to pay dividends to FFC is dependent upon the economic
factors that permit it to generate net income, as well as current and future
statutory and regulatory limitations. The Bank generally may not pay a dividend
at any time if, after the payment of the dividend, it would be deemed
"undercapitalized" under the "prompt corrective action" standards of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). See
"Regulation -- Regulatory Capital Requirements." A savings institution that has
a total risk-based capital ratio (total capital to risk-weighted assets) of less
than 8.0%, a Tier 1 risk-based capital ratio (core capital to risk-weighted
assets) of less than 4.0% or a core (or leverage) capital ratio (core capital to
total assets) of less than 4.0%, is considered to be "undercapitalized." At
March 31, 1994, the Bank had a total risk-based capital ratio of 9.9%, a Tier 1
risk-based capital ratio of 8.9%, and a core (or leverage) capital ratio of
5.3%. At those percentages, the Bank is considered to be "adequately
capitalized" for purposes of the "prompt corrective action" standards of FDICIA.
At March 31, 1994, after giving pro forma effect to (i) the provisions for loan
losses for the second quarter of 1994 announced on June 20, 1994 and (ii) the
contribution by FFC to the Bank of the net proceeds from the Offering, the Bank
would have had a total risk-based capital ratio of 10.9%, a Tier 1 risk-based
capital ratio of 9.8%, and a core (or leverage) capital ratio of 5.8%. At those
percentages, the Bank would meet the capital standards necessary to be deemed
"well capitalized" for purposes of the "prompt corrective action" standards of
FDICIA. See "Regulation -- Regulatory Capital Requirements."

The Bank's ability to pay dividends to FFC may also be limited by the OTS'
capital distribution regulations. Under those regulations, savings institutions
generally are required to provide not less than thirty days' advance notice to
their OTS District Director of any proposed declaration of a dividend. The
regulations establish "safe harbor" amounts of capital distributions that
institutions can make after providing notice to the OTS, but without needing
prior approval. The safe harbor amounts vary depending on the level of
capitalization of the institution. For an institution that meets its fully
phased-in capital requirement under the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and the implementing regulations of the
OTS, immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution (a "Tier 1" institution), the safe harbor amount
of capital distributions during any calendar year is the greater of (i) 100% of
its net income to date during the calendar year, plus the amount that would
reduce by not more than one-half its surplus capital ratio at the beginning of
the calendar year (the amount by which the institution's actual capital exceeds
its fully phased-in capital requirement at the determination date) or (ii) 75%
of its net income over the most recent four-quarter period. An institution's
fully phased-in capital requirement means its capital requirement under
standards to be applicable on January 1, 1995, after all scheduled increases in
capital requirements are given effect and all scheduled exclusions from capital
requirements are implemented.

8
<PAGE> 10

An institution that meets its current minimum capital requirement but not
its fully phased-in capital requirement immediately prior to, and on a pro forma
basis after giving effect to, a proposed capital distribution (a "Tier 2"
institution), may make capital distributions of up to 75% of its net income over
the most recent four-quarter period, as reduced by the amounts of any capital
distributions previously made during such period. An institution that does not
meet its minimum regulatory capital requirement immediately prior to, or on a
pro forma basis after giving effect to, a proposed capital distribution (a "Tier
3" institution) is not authorized to make any capital distributions unless it
receives prior written approval from the OTS, or the distributions are in
accordance with the express terms of an OTS approved capital plan. See
"Regulation -- Restrictions on Dividends and Other Capital Distributions." Under
these regulations, the OTS has discretion to treat any Tier 1 institution that
has been notified that it is in need of more than normal supervision as a Tier 2
or Tier 3 institution for purposes of these dividend restrictions. The OTS also
has the authority to prohibit any capital distribution otherwise permitted under
these regulations, if the OTS determines that the capital distribution would
constitute an unsafe or unsound practice. Among the circumstances posing such
risk would be capital distributions by a Tier 1 or Tier 2 institution with
decreasing capital because of substantial losses.

At March 31, 1994, the Bank met its fully phased-in capital requirement
and, accordingly, qualifies as a Tier 1 institution for purposes of the capital
distribution regulations. As a result, $13.1 million would have been available
at March 31, 1994 under such regulations for distribution by the Bank without
prior OTS approval. At March 31, 1994, after giving pro forma effect to (i) the
provision for loan losses for the second quarter of 1994 announced on June 20,
1994 and (ii) the contribution by FFC to the Bank of the net proceeds from the
Offering, the Bank would also have met the capital requirements necessary to
qualify as a Tier 1 institution, and, accordingly, would have had available up
to $33.5 million for distribution to FFC without prior OTS approval under such
regulations.

The ability of the Bank to pay dividends to FFC in the future will depend
in large part on the Bank's ability to continue to meet its capital requirements
and its continuing to qualify as a Tier 1 institution under the capital
distribution regulations. If the Bank continues to experience losses, the OTS
could object to any dividend payments by the Bank based on safety and soundness
concerns. Moreover, if such losses resulted in the Bank being deemed
"undercapitalized" for purposes of the "prompt corrective action" rules of
FDICIA, the Bank would not be permitted to pay cash dividends.

ASSET QUALITY; SOUTHERN CALIFORNIA REAL ESTATE

At March 31, 1994, approximately 99.5% of the Bank's loans were secured by
properties located in Southern California. The market for real estate in
Southern California has been negatively affected over the past several years by
the economic recession experienced by the region. The recession has been marked
by increased unemployment, declines in real estate values and reduced occupancy
rates for multi-family properties. In addition, during 1993, the economy of
Southern California was affected by fires that burned over one thousand homes.
The civil unrest in Los Angeles in 1992 has had continuing effects in 1993 and
1994. Furthermore, in January 1994, Los Angeles and Ventura counties experienced
a severe earthquake and related aftershocks. As a result, the Bank has
experienced an increase in total non-performing assets (non-performing loans and
REO) in recent years. The Bank's non-performing assets reached a high of $153.3
million, or 4.25%, of total assets at July 31, 1993. At March 31, 1994, the
Bank's non-performing assets were $112.1 million, or 3.05% of total assets.
There can be no assurance that the Bank's prior experience in reducing
non-performing assets can be repeated or maintained. See "Business -- Loan
Portfolio."

Approximately $1.1 billion of the Bank's loans receivable, loans held for
sale and loans sold with recourse (collectively, "loans with loss exposure"), or
35.5% of such loans at March 31, 1994, were collateralized by properties in
areas directly affected by the earthquake. On June 20, 1994, management
announced that the Bank would record a $55.0 million provision for loan losses
during the quarter ended June 30, 1994, approximately $31.9 million of which was
attributable to continuing weakness in the Southern California real estate
market and approximately $23.1 million of which was directly attributable to
effects of the earthquake. Provisions for loan losses recorded during the
quarter ended March 31, 1994

9
<PAGE> 11

were $24.7 million, $7.5 million of which were directly attributable to effects
of the earthquake. The Bank anticipates that provisions for loan losses
associated with the current economic conditions and the January 1994 earthquake
will result in the Bank experiencing a net loss for 1994. See "Business --
Provisions for Loan Losses."

Based on currently available information, management believes that such
provisions for loan losses fully reflect the extent to which losses are
anticipated due to earthquake damage to collateral supporting the Bank's loan
portfolio; however, management believes that increases in non-performing assets
indirectly associated with the earthquake are likely to continue for some time.
There can be no assurance that additional earthquake related damages will not be
identified or that current estimates of damage and potential losses to the Bank
will not increase as additional information about affected properties becomes
available. The Bank intends to closely monitor the situation and to continue to
reflect the longer-term effects in its operating results and financial
condition. In accordance with customary industry practices among thrifts
operating in Southern California, the Bank does not, except in limited
circumstances, require that borrowers obtain earthquake insurance in connection
with the Bank's origination of new loans.

The Bank maintains loan loss allowances to absorb future losses that may be
realized on its loan-related assets, other investments and off-balance sheet
items. The Bank's loan loss allowances consist of three components: (i) specific
loan loss allowances; (ii) general valuation allowances for the Bank's loan
portfolio; and (iii) general valuation allowances for loans sold by the Bank
with full or limited recourse, which allowances are recorded as a contingent
liability on the Company's statement of financial condition. (Items (ii) and
(iii) are referred to herein collectively as the "combined general valuation
allowances.") The total loan loss allowances for the Bank's loans with loss
exposure were $63.7 million at December 31, 1993 and $79.1 million at March 31,
1994, and represented approximately 47.9% and 57.5%, respectively, of the value
of the Bank's total non-performing assets at such dates (before deducting
specific loan loss allowances established with respect to the Bank's
non-performing assets). A specific loan loss allowance is established (and
charged off from the combined general valuation allowance) for any loan which is
90 days or more delinquent or in foreclosure, or when the Bank's management has
determined that it is unlikely that the loan will be fully collectible. As a
result of weaknesses in the Southern California real estate market, increases in
provisions for loan losses, which result in increases in combined general
valuation allowances and are charges against earnings, may be required in future
periods. See "Business -- Asset Quality." In addition, the OTS and the FDIC, as
an integral part of their examination processes, periodically review the Bank's
loan loss allowances. These agencies may require the Bank to establish
additional loan loss allowances, based on their respective judgments of the
information available at the time of the examinations. Any such requirement that
the Bank increase its loan loss allowances generally would require the Bank to
record additional provisions for loan losses, and would thus reduce the Bank's
net income, which may affect the Bank's ability to pay dividends to FFC.

MULTI-FAMILY LENDING

The Bank's lending activities include the origination of multi-family
loans, which are generally considered to involve more risk than single family
loans. Multi-family loans typically involve higher principal amounts and
repayment of the loan generally is dependent, in large part, on sufficient cash
flow being generated by the project to cover operating expenses and loan
repayments. Market values may vary as a result of economic events or
governmental regulations which are outside the control of the borrower or lender
and which can affect the future cash flow of the properties.

Over the past four years, the Bank's multi-family portfolio has had
increasing delinquency rates. At March 31, 1994, multi-family loans accounted
for 38.1% of the Bank's total loan portfolio, and 63.6% of the Bank's
non-performing assets (before deducting specific loan loss allowances
attributable to such assets). Contributing factors to this increase have been
(i) increasing vacancy rates, (ii) the substantial decreases in the value of
multi-family properties experienced in recent periods (resulting, in some cases,
in appraised values which are lower than the outstanding loan balances), and
(iii) the potentially greater

10
<PAGE> 12

willingness of investors to abandon such properties or seek bankruptcy
protection, particularly when such properties are experiencing negative cash
flow and the loans are not cross-collateralized by other performing properties.

The Bank intends to continue to originate new multi-family loans, but
currently seeks to maintain the level of such originations at no more than 40%
of its total loan originations. Since 1992, the Bank has strengthened the
underwriting criteria that it applies to new multi-family loan applications in
an effort to reduce future levels of losses on its multi-family loan portfolio;
however, there can be no assurance that the Bank will be successful in reducing
these losses or that multi-family loans will not continue to represent a
disproportionate amount of the Bank's non-performing assets.

EFFECTS OF INTEREST RATES

Like most financial institutions, the Bank's operating results are affected
by changes in interest rates. In order to mitigate these effects, the Bank
emphasizes the origination of AMLs and sells substantially all of the fixed rate
loans it originates. At March 31, 1994, AMLs comprised approximately 98.6% of
the Bank's loan portfolio; of such loans, approximately 96.5% were indexed to
the COFI. Historically, the Bank's cost of funds has closely matched the COFI so
that increases in the Bank's cost of funds are accompanied by increases in
interest rates on its COFI loans. However, due to the timing of both the
calculation of and the publication of the COFI by the FHLBSF, changes in the
published Index generally lag behind changes in market interest rates. This
market lag, together with required borrower notice provisions and other
repricing procedures, results in a delay of up to 90 days between the beginning
of a month in which there is a change in the COFI and the date on which the
interest rate on an AML in the Bank's loan portfolio is reset. Accordingly,
during periods of increases or decreases in interest rates, the Bank's cost of
funds may change more quickly than the interest rates on its AMLs. Because of
these timing disparities, the Bank's interest rate spreads generally can be
expected initially to increase as market rates fall and initially to decrease as
market rates rise. See "Business -- Net Interest Income." AMLs allow the Bank to
increase the sensitivity of its asset base to changes in interest rates;
however, the extent of this interest sensitivity is limited by the lifetime
interest rate adjustment limitation. In addition, in an increasing rate
environment, payment increases associated with rising rates can increase the
risk of default on AMLs. Accordingly, there can be no assurance that yields on
the Bank's AMLs will adjust sufficiently to compensate for increases in the
Bank's costs of funds and the increased risk of default during periods of
interest rate increases.

The Bank's net interest income is dependent to a large extent on its net
interest spread (the difference between the yield earned on average
interest-earning assets and the rate paid on average interest-bearing
liabilities). During the years ended December 31, 1992 and 1991, the decline in
market interest rates generally resulted in increased net interest spreads for
lending institutions. The Bank's net interest spread has declined since January
1993, primarily as a result of increases in non-performing assets. The excess of
average interest-earning assets over average interest-bearing liabilities
increased slightly to $102.4 million for the three months ended March 31, 1994,
after decreasing to $90.8 million for the year ended December 31, 1993, from
$142.6 million for the year ended December 31, 1992, and $147.3 million for the
year ended December 31, 1991. A reduction in the excess of average interest-
earning assets over interest-bearing liabilities has a negative impact on the
net interest income earned by the Bank. See "-- Asset Quality; Southern
California Real Estate." Commencing in February 1994, market interest rates have
been increasing. If interest rates continue to rise, the Bank's net interest
spread is likely to decline, which may result in a decrease in the Bank's net
interest income.

Changes in interest rates also can affect the amount of loans originated by
the Bank and thus, the amount of the Bank's interest income and loan and
commitment fees, as well as the value of the Bank's loans, MBS, investment
securities and other earning assets. Moreover, changes in interest rates can
result in disintermediation, which is the flow of funds away from savings
institutions into direct investments, such as U.S. Government and corporate
securities and other investment vehicles which, because of the absence of
federal deposit insurance premiums and reserve requirements or due to a

11
<PAGE> 13

higher degree of risk associated with certain of these other investments,
generally pay higher rates of interest than savings institutions.

COMPETITION FOR ASSETS

The Bank competes with commercial banks, other savings banks and
associations, mortgage companies, finance companies, money market funds, credit
unions and other financial institutions, some of which have substantially
greater financial resources than the Bank. The Bank faces strong competition in
originating and purchasing residential mortgage loans, the Bank's primary source
of interest income. That competition may be increased if legislation currently
pending in Congress is enacted into law permitting, among other things, some
form of national interstate branching by commercial banks which, today, are
generally permitted to establish branches on a statewide basis and to make
acquisitions on a regional rather than a nationwide basis. The Bank's future
performance will be dependent on its ability to originate a sufficient volume of
mortgage loans in its local market areas.

REGULATION

The thrift industry is subject to extensive regulation that has materially
affected the business of the Bank and other thrift institutions in the past, and
is likely to do so in the future. Regulations now affecting the Bank may be
changed at any time, and the interpretation of these regulations is also subject
to change. There can be no assurance that future changes in such regulations or
in their interpretation will not adversely affect the business of the Company.

FIRREA, among other regulatory changes, imposed higher regulatory capital
requirements on savings institutions, limited the amount of goodwill that could
be included in capital, provided additional limitations on investments and
raised insurance and examination assessments. More recently, FDICIA added new
requirements and penalties for failure to comply therewith, and gave regulators
additional powers to enforce these requirements. FDICIA specified five capital
categories and imposed a system pursuant to which federal banking regulators are
authorized or required to take certain "prompt corrective action" under some
circumstances. The five categories are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." The OTS has by regulation established the levels
of capital that relate to each category. See "Regulation -- Prompt Corrective
Action." FDICIA, however, permits the OTS at any time to reclassify an
institution into the next lower category if the institution has received a less
than satisfactory rating (on the OTS "CAMEL" rating system) in its most recent
examination for capital adequacy levels, asset quality, management, earnings or
liquidity.

The severity of the prompt corrective actions authorized or required to be
taken by the OTS increases as an institution's capital position deteriorates
within the three undercapitalized categories. The OTS is required to monitor
closely and to restrict asset growth, acquisitions, branching and new lines of
business with respect to an undercapitalized institution. FDICIA prohibits
dividends and other capital distributions if, following such distribution, the
institution would be undercapitalized. It also requires an undercapitalized
savings institution to submit to the OTS a capital restoration plan. At March
31, 1994, and on a pro forma basis at such date after giving effect to the
additional provision for loan losses announced on June 20, 1994, the Bank's
regulatory capital was in excess of the amount necessary to be "adequately
capitalized." If, however, the Bank incurs losses that result in it becoming
undercapitalized or is otherwise reclassified as an undercapitalized
institution, it would become subject to the foregoing limitations which would
have an adverse effect on its operations and future prospects.

TAX MATTERS

The Bank's federal income tax returns for tax years 1984, 1985 and 1986
have been under examination by the IRS since 1989. See "Regulation -- Taxation."
There are pending industry issues which relate to the timing of income
recognition on loan sales and loan fees. While the Company has provided for
deferred taxes for both federal and state purposes, a change in the period of
income

12
<PAGE> 14

recognition could result in additional interest due to the government. Although
the outcome of the audit is not known at this time, and it may take several
years to resolve any disputed matters, the Bank recorded charges of $1.8
million, $3.4 million and $2.3 million in 1993, 1992 and 1991, respectively, as
accrued interest on possible tax adjustments (based on probability-weighted
estimates) which may be required in connection with federal and state tax
returns for all periods affected by such income recognition issue. The estimated
interest accruals will be continually updated in the future based on relevant
tax rulings and the progression of the audit and other cases in the courts. In
December 1993, the IRS began examining the Company's federal income tax returns
for tax years 1987 and 1988. There can be no assurance that the amounts accrued
for interest on such tax liabilities will be adequate to satisfy amounts which
may become due when such issues are resolved.

LIQUIDITY OF INVESTMENT

The Notes are a new issue of securities with no established trading market.
The Company does not intend to list the Notes on any securities exchange. The
Underwriters have advised the Company that the Underwriters intend to make a
market in the Notes but are not obligated to do so and may discontinue market
making at any time without notice. There can be no assurance as to the liquidity
of the trading market for the Notes.

USE OF PROCEEDS

FFC intends to contribute to the capital of the Bank the net proceeds from
the Offering, estimated to be approximately $48.0 million after deducting
underwriting discounts and commissions and other expenses payable by the
Company. The Bank will use the contributed capital to facilitate its growth,
consistent with regulatory capital requirements.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1994 on an actual basis and as adjusted to give effect to the Offering. In
addition to the indebtedness of the Company reflected below, at March 31, 1994,
the Company had other debt consisting of deposits ($2.3 billion) and FHLB
borrowing and other funding liabilities ($1.1 billion) incurred in the ordinary
course of business. See "Business -- Sources of Funds." The table should be read
in conjunction with the consolidated financial statements of the Company and the
notes thereto incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
ACTUAL AT
MARCH 31, 1994 AS ADJUSTED(1)
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-Term Debt:
Notes......................................................... -- $ 50,000
Stockholders' Equity:
Common Stock, Par Value $.01 Per Share, 25,000,000 Shares
Authorized; 11,329,706 Shares Issued; 10,533,186 Shares
Outstanding................................................ $ 113 113
Preferred Stock, Par Value $.01 Per Share, 5,000,000 Shares
Authorized; No Shares Issued or Outstanding................ -- --
Additional Paid-In Capital.................................... 27,315 27,315
Retained Earnings............................................. 187,535 187,535
Loan to Employee Stock Ownership Plan......................... (2,945) (2,945)
Treasury Stock, at Cost, 796,520 Shares....................... (9,832) (9,832)
-------- --------
Total Stockholders' Equity................................. 202,186 202,186
-------- --------
Total Capitalization....................................... $202,186 $252,186
======== ========
</TABLE>

- ---------------

(1) Does not reflect results of operations for periods after March 31, 1994,
including the additional provision for loan losses announced on June 20,
1994.

14
<PAGE> 16

BUSINESS

GENERAL

The Bank, organized in 1929, is engaged primarily in the business of
attracting savings and checking deposits from the general public and investing
those deposits, together with borrowings and other funds, in real estate secured
adjustable rate and fixed rate mortgage loans for the purchase and refinancing
of single family and multi-family residential property in Southern California.
Headquartered in Santa Monica, California, the Bank operates 25 retail branches
and eight loan origination offices located in Los Angeles, Orange and Ventura
counties.

LOAN ORIGINATION

GENERAL

The Bank's primary lending activity has been and continues to be the
origination of loans for the purpose of enabling borrowers to purchase or
refinance residential real property. The Bank's loan portfolio primarily
consists of loans made to home buyers and homeowners on the security of single
family properties (one to four units) and multi-family properties (five or more
units) as well as MBS, which are comprised solely of Bank-originated residential
mortgage loans. The Bank's loan portfolio also includes loans secured by
commercial properties.

The tables below set forth information about the average sizes of loans
originated by the Bank and the uses made by borrowers of the proceeds of such
loans, in each case during the periods indicated.

AVERAGE LOAN SIZE

- ---------------

(1) Represents a single commercial loan made during the period.

LOAN ORIGINATIONS BY USE OF PROCEEDS

The Bank has a long-standing policy of originating primarily monthly AMLs
for its loan portfolio. The Bank has maintained the level of AMLs in its
portfolio at over 90% for the last seven years. Management believes that the
high level of AMLs helps to insulate the Bank from fluctuations in interest
rates, notwithstanding the delay between changes in its monthly cost of funds
and corresponding changes in its loan rates. See "-- Asset-Liability Management"
and "Risk Factors -- Interest Rate Risk."

The Bank's residential loans are originated principally through
commissioned loan consultants and non-exclusive mortgage brokers. The
commissioned loan consultants market exclusively the Bank's loan products to
potential applicants for loans, with incentive compensation paid to these
consultants based upon funded loans made to such applicants. All loan
applications received by the Bank, including applications submitted through
non-exclusive mortgage brokers, are reviewed by the Bank's credit and appraisal
personnel in accordance with the Bank's loan approval and underwriting criteria.

15
<PAGE> 17

Normally, upon approval of a residential loan application, the Bank gives a
commitment to the applicant that it will fund the approved loan at any time
during a given period. The loan is typically funded within 15 days after all
documents are executed, at a rate of interest and on other terms based on market
conditions at the date of the commitment. The Bank does not engage in
transactions to hedge interest rate exposure between commitment and funding.

The table below sets forth certain information concerning the types of
loans originated by the Bank.

LOAN ORIGINATIONS BY PROPERTY TYPE

SINGLE FAMILY RESIDENTIAL LENDING

The Bank emphasizes the origination of single family loans. Such loans
represented 66.9%, 67.0%, 70.2% and 55.3% of total loans originated in the three
months ended March 31, 1994 and the years ended December 31, 1993, 1992 and
1991, respectively, and are all secured by properties located in Southern
California. To attract applicants for such loans, the Bank offers what it
believes to be competitive rates for a variety of loan programs. As part of its
single family lending strategy, the Bank markets loan programs established
specifically for qualified first-time home buyers. In addition, the Bank markets
its loans in low income and minority communities due to (i) the lower historical
delinquency rates of loans made by the Bank to residents of these communities,
on average, than other loans in the Bank's loan portfolio, and (ii) the Bank's
view that this is an underserved segment of the market.

MULTI-FAMILY RESIDENTIAL LENDING

The Bank has historically relied on multi-family residential lending for a
portion of its loan origination activity. Such loans represented 32.3%, 31.7%,
28.3% and 42.2% of total loans originated in the three months ended March 31,
1994 and the years ended December 31, 1993, 1992 and 1991, respectively.
Multi-family loans are considered more susceptible to market risk (the risk of
changes in the value of the collateral underlying the loans) than single family
loans; as a result, the Bank charges higher interest rates and fees. At March
31, 1994, multi-family loans represented 63.6% of the Bank's non-performing
assets (before deducting specific loan loss allowances attributable to such
assets). The Bank has strengthened its underwriting criteria for multi-family
loans to require lower loan-to-value ratios and increased cash flow coverage for
new multi-family loans originated by the Bank. The Bank's management believes
that with its strengthened underwriting criteria, the higher interest rates and
fees charged in connection with multi-family loans generally compensate for the
higher risk associated with such loans.

At March 31, 1994, the Bank's management was aware of only four savings
banks (including the Bank) with significant operations in Southern California
that continue to offer new multi-family loans. Management currently intends,
however, to seek to reduce somewhat the percentage of its portfolio representing
multi-family loans. See "Risk Factors -- Multi-Family Lending."

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<PAGE> 18

COMMERCIAL LENDING

OTS regulations generally limit the amount that any federal savings
institution may invest in nonresidential real estate loans to 400% of its total
regulatory capital. Originations of real estate secured commercial loans as a
percentage of total loan originations totaled 2.3% or less during the three
months ended March 31, 1994 and each of the years ended December 31, 1993, 1992
and 1991. The Bank anticipates that it will continue to originate real estate
secured commercial loans from time to time in the future.

REO

Loans originated upon the sale of the Bank's REO were $8.2 million and
$69.6 million, or 5.3% and 9.3%, of total loan originations during the three
months ended March 31, 1994 and the year ended December 31, 1993, respectively.
Of these loans, $1.5 million and $8.2 million, respectively, were secured by
single family properties and $6.8 million and $61.4 million, respectively, were
secured by multi-family properties. Of the Bank's total REO sold during the
three months ended March 31, 1994 and the year ended December 31, 1993, the Bank
provided financing for 53.3% and 70.5%, respectively.

LOANS ORIGINATED FOR SALE

During the fourth quarter of 1993, the Bank started a new mortgage banking
program to take advantage of borrower demand for fixed rate and other loan
products the Bank typically does not retain for its portfolio. Under this
program, competitively priced loans are originated for immediate sale in the
secondary market. Although the Bank generally retains AMLs in its portfolio, it
originates for sale AMLs which (i) have interest rates subject to adjustment on
bases other than monthly or other than in accordance with the COFI or (ii) are
monthly adjustable COFI loans originated in any period in which the amount of
loans originated for the Bank's portfolio has exceeded the amount deemed prudent
by the Bank for strategic or regulatory purposes. See "-- Interest Rates and
Terms." The terms of loans originated by the Bank for sale conform to the
guidelines established by FHLMC, FNMA and other purchasers of loans in the
secondary market.

LOANS PURCHASED FROM OTHERS

As a result of recent consumer preferences for AMLs over fixed rate loans
due to the rising interest rate environment, the Bank recently has been offered
opportunities to purchase whole AMLs from mortgage bankers and other
institutions that originate loans for sale. The Bank reviews these opportunities
on an individual basis, and may purchase such loans for its own portfolio or for
resale in the secondary market. In each case, the Bank reviews such loans in
accordance with its loan evaluation and underwriting criteria, and accepts only
those loans meeting the criteria the Bank would apply to loans originated by it.
While the Bank does not currently anticipate that such purchases will constitute
a significant source of loans over the long-term, the Bank is considering
actively soliciting such opportunities from selected originators for the purpose
of supplementing its loan origination activities. At June 30, 1994, the Bank had
entered into one agreement to purchase $43.0 million of whole AMLs from a third
party.

LOAN UNDERWRITING

The underwriting process is intended to assess the prospective borrower's
credit standing and ability to repay the loan on a fully-indexed basis (based
upon the contractual interest rate without regard to any initial discount), as
well as the value and adequacy of the real property which serves as collateral
for the mortgage loan. Each prospective borrower completes an application that
includes information with respect to the applicant's bank accounts, assets,
liabilities, income, credit history, employment history, personal information
and, for multi-family properties, the cash flow generated by the property. The
application also includes the amount of, and reason for, the loan being
requested. In addition, the Bank typically obtains verification of an
applicant's employment and income. Appraisals, which are part of the

17
<PAGE> 19

application process, are performed by qualified staff appraisers or
Bank-approved independent appraisers. All independent appraisals are reviewed by
a staff appraiser. The Bank's salaried loan underwriters analyze the loan
application, the credit information and the appraisal and, depending on the size
of the loan, either approve or deny the loan or make a recommendation concerning
approval of a requested loan. The Bank requires approval at various levels of
management depending on the amount of the loan; residential loans of over
$750,000 require approval of a loan committee composed of senior officers of the
Bank, and a loan of any type in an amount over $3 million requires approval of
the Board of Directors of the Bank.

For all real estate loans, the Bank requires title insurance insuring the
priority of its lien, fire and extended coverage casualty insurance, and may
also require flood insurance in order to protect the Bank's interest in the
secured property. In accordance with industry practice, the Bank does not
require earthquake insurance except in limited instances. Mortgage insurance is
required on loans in excess of 80% of the appraised value or increased rates
and/or fees are charged if the mortgage insurance requirement is waived. Loans
in the Bank's portfolio on which the mortgage insurance requirement has been
waived totaled $171.5 million and $155.3 million at March 31, 1994 and December
31, 1993, respectively, or less than 5% of the Bank's loan portfolio at such
dates. The Bank's delinquency experience on these loans is comparable to that of
the entire portfolio.

Because AML loan-to-value ratios may increase above those established at
the time of loan origination due to negative amortization, the Bank's policy is
generally not to lend in excess of 90% of the appraised value on AMLs. See
"-- Interest Rates and Terms." On fixed rate loans originated for sale, the
Bank's policy is generally not to lend in excess of 95% of the appraised value,
in accordance with the criteria for loans acceptable for purchase by FHLMC and
FNMA. The Bank most often lends less than or equal to 80% of a single family
property's appraised value, although it has a loan program in which a higher
loan-to-value ratio is available to first time home buyers who occupy the
premises. The Bank most often lends less than or equal to 75% of a multi-family
property's appraised value at the time of loan origination. The average
loan-to-value ratio, calculated at the time of origination, for the Bank's loans
with loss exposure was 70.2% at March 31, 1994.

LOAN PORTFOLIO

GENERAL

The Bank's loan portfolio consists of loans receivable, MBS and loans held
for sale. Loans based on the security of single-family properties (one to four
units) comprise the largest category of the Bank's loan portfolio. The Bank's
loan portfolio also includes loans secured by multi-family and commercial
properties. At March 31, 1994, 54.1%, 38.1% and 6.9% of the Bank's loan
portfolio (before deducting combined general valuation allowances and unrealized
loan fees) consisted of loans secured by single family properties, multi-family
properties and commercial properties, respectively. At March 31, 1994, $3.3
billion, or 92.9%, of the Bank's loan portfolio consisted of COFI-based, monthly
AMLs.

The Bank maintains a small portfolio of consumer loans but no longer
markets this type of loan product other than as a service ancillary to its
savings products. Less than one half of 1% of new loans originated during the
three month period ended March 31, 1994 and during each of the years ended
December 31, 1993, 1992 and 1991 were consumer loans. Such loans, in the
aggregate, represented less than 1% of the Bank's loan portfolio at March 31,
1994.

18
<PAGE> 20

The following table sets forth information regarding the composition of the
Bank's loan portfolio. Amounts shown represent loan amounts outstanding, net of
specific loan loss allowances.

LOAN PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------------------------------------------
1994 1993 1992 1991 1990 1989
------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans
First Trust Deed
Residential Loans:
One Unit................. $ 875,611 $ 864,874 $ 771,870 $ 763,233 $ 761,429 $ 855,132
Two to Four Units........ 346,338 340,035 296,550 258,825 227,535 239,446
Five or More Units....... 1,305,211 1,296,260 1,178,595 1,075,829 853,173 621,833
---------- ---------- ---------- ---------- ---------- ----------
Residential Loans...... 2,527,160 2,501,169 2,247,015 2,097,887 1,842,137 1,716,411
Other Real Estate Loans:
Commercial................. 240,845 245,387 256,474 263,183 266,258 260,809
Second Trust Deeds......... 23,297 24,606 29,441 35,245 41,957 57,336
Other...................... 5,733 5,861 10,733 4,193 5,298 4,289
---------- ---------- ---------- ---------- ---------- ----------
Real Estate Loans...... 2,797,035 2,777,023 2,543,663 2,400,508 2,155,650 2,038,845
Non-Real Estate Loans:
Manufactured Housing....... 2,728 2,880 3,481 4,031 4,873 5,778
Deposit Accounts........... 1,105 1,086 1,184 1,615 1,884 1,297
Consumer................... 736 847 1,494 2,705 4,324 6,450
---------- ---------- ---------- ---------- ---------- ----------
Loans Receivable....... 2,801,604 2,781,836 2,549,822 2,408,859 2,166,731 2,052,370
Less:
General Valuation
Allowances --
Loan Portfolio........... 41,078 40,669 22,074 12,588 9,305 8,394
General Valuation
Allowances --
Loans Sold with
Recourse............... 5,822 6,231 5,780 1,349 1,876 --
Unrealized Loan Fees....... 13,649 19,273 25,268 26,126 23,633 19,640
---------- ---------- ---------- ---------- ---------- ----------
Net Loans Receivable... 2,741,055 2,715,663 2,496,700 2,368,796 2,131,917 2,024,336
---------- ---------- ---------- ---------- ---------- ----------
FHLMC and FNMA MBS:
Secured by Single-Family
Properties............... 670,094 678,884 660,673 524,969 487,842 213,514
Secured by Multi-Family
Properties............... 28,463 29,399 108,482 119,295 126,464 94,219
---------- ---------- ---------- ---------- ---------- ----------
MBS.................... 698,557 708,283 769,155 644,264 614,306 307,733
---------- ---------- ---------- ---------- ---------- ----------
Total Loans......... $3,439,612 $3,423,946 $3,265,855 $3,013,060 $2,746,223 $2,332,069
========== ========== ========== ========== ========== ==========
</TABLE>

MORTGAGE-BACKED SECURITIES

All of the MBS included in the Bank's loan portfolio are collateralized by
loans originated by the Bank. MBS generally yield less than the loans that
underlie such securities due to the cost of guarantee fees or other forms of
credit enhancement. However, MBS are more liquid than individual mortgage loans
and are used by the Bank to collateralize borrowings such as reverse repurchase
agreements and FHLB advances. Also, MBS issued or guaranteed by FHLMC and FNMA
and most double "A"-rated, privately-issued pass-through MBS are "weighted" at
not more than 20% for risk-based capital purposes. This compares to an assigned
risk weighting of 50% to 100% for residential mortgage loans. Thus, holding
these securities allows the Bank to optimize the use of its capital for
regulatory purposes. See "Regulation -- Regulatory Capital Requirements." The
Bank converted $13.9 million, $111.7 million,

19
<PAGE> 21

$187.5 million and $157.3 million of loans into MBS during the three months
ended March 31, 1994 and the years ended December 31, 1993, 1992 and 1991,
respectively.

LOANS SERVICED FOR OTHERS

The Bank is involved in the secondary mortgage market as a seller of whole
loans, loan participations and MBS to financial institutions, other
institutional investors and governmental entities including FHLMC and FNMA.
Under its various servicing agreements, the Bank usually continues to collect
payments as they become due, inspect the security properties, and otherwise
service the loans. The purchaser of the loan or participation is paid an agreed
upon yield, which is usually less than the interest rate paid by the borrower.
The difference is retained by the Bank as a servicing fee.

The Bank serviced $773.9 million in loans for other investors (excluding
loans underlying the Bank-owned MBS serviced for FHLMC and FNMA) at March 31,
1994. Of the total amount of loans serviced by the Bank for other investors at
such date, $306.1 million of these loans had been sold by the Bank under
recourse arrangements. Loans sold under recourse arrangements are primarily
multi-family loans. Due to applicable regulatory requirements which became
effective in 1989, the Bank maintains capital for loans sold with recourse as if
those loans had not been sold. The Bank had been active in these types of
transactions prior to 1989, but has not entered into any new recourse
arrangements since those regulations took effect. Loans sold with recourse are
considered along with the Bank's own loans in determining the adequacy of the
combined general valuation allowances. The principal balance of loans sold with
recourse decreased to $306.1 million at March 31, 1994 from $317.6 million at
December 31, 1993, $405.4 million at December 31, 1992 and $448.1 million at
December 31, 1991, due to loan payoffs and foreclosures.

INTEREST RATES AND TERMS

The table below sets forth certain additional information concerning the
types of loans originated by the Bank.

LOAN ORIGINATIONS BY TYPE OF LOAN

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AMLs...................... $127,738 $168,681 $657,675 $684,668 $585,530 $853,991 $ 927,175
AMLs Originated for
Sale.................... 9,081 -- -- -- -- -- --
Fixed Rate Mortgages
Originated for Sale..... 17,884 17,669 87,208 154,052 60,032 46,392 66,791
Other..................... -- -- 945 2,035 1,692 6,647 11,300
-------- -------- -------- -------- -------- -------- ----------
Total................. $154,703 $186,350 $745,828 $840,755 $647,254 $907,030 $1,005,266
======== ======== ======== ======== ======== ======== ==========
</TABLE>

The Bank has emphasized the origination of AMLs for its portfolio, in an
effort to minimize its interest rate risk. At March 31, 1994, approximately
98.6% of the Bank's loan portfolio was AMLs. At such date, approximately 96.5%
of such AMLs were monthly AMLs indexed to the COFI. AMLs have features that can
cause interest rate and corresponding payment increases. Subject to market
conditions, however, the Bank's AMLs generally provide for a limit or "cap" on
increases from their initial interest rates, thereby protecting borrowers from
unlimited interest rate increases. Also, some of the Bank's AML programs offer
loans, subject to competitive conditions, at fixed rates of interest during the
initial one-month to three-year period, which may be below the rate equal to the
contractual margin over the applicable index at the time of origination. The
Bank's COFI loans also provide for an annual change in payment limit, except
that at the end of each five-year interval payments may be adjusted by more than
such annual payment limit to provide for amortization of the AMLs by their
maturity. It is possible that during periods of rising interest rates, the risk
of default on AMLs may increase due to the upward adjustment of interest costs,
and the

20
<PAGE> 22

resulting payment increases, to the borrower. Further, although AMLs allow the
Bank to increase the sensitivity of its asset base to changes in interest rates,
the extent of this interest sensitivity is limited by the lifetime interest rate
adjustment limitation. See "Risk Factors -- Effects of Interest Rates."

The Bank primarily markets AMLs with interest rates which adjust each month
based upon the COFI. Generally, the monthly payment is changed annually, but the
maximum annual change in the payment amount is limited to 7.5% of the amount of
the prior year's payment. Any additional interest due is added to the principal
balance of the loan. The Bank's AMLs typically 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 also is added to the
principal balance of the loan, causing negative amortization. Although interest
rates are adjusted monthly, these loans have a lifetime cap ranging from 400 to
850 basis points above their initial interest rate. Payments are adjusted
without regard to the 7.5% limitation every five years or at any time the loan
balance exceeds 110% of the original principal balance to provide for full
amortization during the balance of the loan term.

The Bank offers three variations of the AML based on the COFI: the "AML
IIC," the "AML IID" and the "AML IIH". Most of the Bank's new AML volume is
composed of the AML IIC and the AML IID. The initial rate on the AML IIC is
below market for the first three months of the loan term. The AML IID has no
below market initial rate, but starts with a pay rate similar to the AML IIC.
This results in immediate negative amortization, but allows the loan to earn
interest at the fully indexed rate immediately. The difference in negative
amortization on these two products is minor. The interest rate and payment on
the AML IIH is fixed for three years. Thereafter, the loan becomes a typical,
monthly AML except that the first payment adjustment is limited to the amount
that would result in annual payments of no higher than 15% over the annual
payments required during the prior period.

The Bank also offers the "AML IIIP," a six month AML based on the six month
London Interbank Offering Rate ("LIBOR"). Rate changes are subject to a 2% cap
per annum. There is no negative amortization on this product. The AML IIH and
AML IIIP comprise less than 3% of new loan originations for the Bank.

Because of the change in payment limit provided on the Bank's COFI-based
AMLs and the different times at which interest rate adjustments and payment
adjustments are made, monthly payments may not be sufficient to pay the interest
accruing on an AML, causing negative amortization. The amount of any negative
amortization is added to the principal balance of the loan to be repaid through
future monthly payments, which could cause increases in the amount of principal
owed to the Bank over that which was originally lent. Significant negative
amortization, if it should occur, can increase the credit risk accrued on these
loans originated. The amount of negative amortization on all loans serviced by
the Bank decreased to $526,000 at March 31, 1994, from $602,000, $3.1 million
and $21.2 million, at December 31, 1993, 1992 and 1991, respectively. The
decrease in negative amortization during those periods was primarily due to the
significant decline in the COFI during the period, with such decline resulting
in continuing increases in the relative proportion of each scheduled monthly
payment being allocated to principal repayment (or to reduce negative
amortization). The COFI declined from 7.963%, published at December 31, 1990, to
a low of 3.629%, published at March 31, 1994. Since March 1994, however, the
COFI has begun to rise and, accordingly, an increase in negative amortization on
the Bank's COFI AMLs could occur, depending upon the extent of future interest
rate increases. To date, the Bank's delinquency experience on loans with
negative amortization has not been materially different than that on the fully-
amortizing loans in the Bank's loan portfolio.

Substantially all of the Bank's real estate loans provide for a maximum
amortization term of 30 years or less. Generally, the Bank's AMLs may be assumed
at any time during their term provided that the Bank enters into a separate
written agreement with the current borrower and the qualified borrower to whom
the property is transferred. In such cases, the Bank charges an assumption fee.

21
<PAGE> 23

The following table shows the contractual maturities of the Bank's loan
portfolio, excluding MBS, at March 31, 1994.

LOAN MATURITY ANALYSIS

<TABLE>
<CAPTION>
MATURITY PERIOD
---------------------------------------------------------------------
TOTAL 1 YEAR >1 YEAR >5-10 >10-20 OVER
BALANCE OR LESS TO 5 YEARS YEARS YEARS 20 YEARS
---------- -------- ----------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Sensitive
Loans...................... $2,695,284 $3,475 $3,806 $44,536 $ 89,441 $2,554,026
Fixed Rate Loans:
1st Mortgages.............. 43,944 36 2,825 10,479 18,628 11,976
2nd Mortgages.............. 406 -- 42 269 95 --
Consumer and Other Loans... 1,421 1,421 -- -- -- --
---------- ------ ------ ------- -------- ----------
Total Fixed Rate
Loans................. 45,771 1,457 2,867 10,748 18,723 11,976
---------- ------ ------ ------- -------- ----------
Total Loans........ $2,741,055 $4,932 $6,673 $55,284 $108,164 $2,566,002
========== ====== ====== ======= ======== ==========
</TABLE>

ASSET QUALITY

NON-PERFORMING ASSETS

Beginning in 1991, the Bank experienced substantial increases in
non-performing assets as a result of the negative impact on the Southern
California real estate market of the economic recession that began in 1989, the
1992 civil unrest in Los Angeles and, most recently, the January 1994
earthquake. Due to these factors, the Bank has established increasing provisions
for loan losses and, in 1993, experienced its first annual net loss in over
eleven years. The Bank anticipates that provisions for loan losses associated
with the current economic conditions and the January 1994 earthquake will result
in the Bank experiencing a net loss for 1994. See "-- Provisions for Loan
Losses."

During the past three years, multi-family loans have experienced a rate of
delinquency and foreclosure significantly higher than single family loans. At
March 31, 1994, multi-family loans comprised 63.6% of the Bank's total
non-performing assets (before deducting specific loan loss allowances
attributable to such assets). Prior to 1991, the Bank had never foreclosed on a
multi-family loan in its portfolio.

Recently, the Bank has instituted programs and procedures designed to
increase significantly its scrutiny of and reduce its response time to loans
evidencing any type of non-compliance, and has improved and expanded its
procedures in an effort to speed the disposition of and maximize the proceeds
from the Bank's REO.

The Bank's asset classification committee meets at least monthly to review
and monitor the condition of the loan portfolio on an ongoing basis.
Additionally, a special workout group of the Bank's officers meets at least
weekly to resolve delinquent loan situations and to initiate actions enforcing
the Bank's rights in security properties pending foreclosure and liquidation.

22
<PAGE> 24

The table below sets forth certain information concerning the Bank's
non-performing assets and loan loss allowances at the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ---------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ -------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
REO:
Single Family............. $ 11,984 $ 10,052 $ 8,268 $ 3,015 $ 422 --
Multi-Family.............. 17,856 16,015 15,590 4,881 -- --
Commercial................ 485 327 -- 276 -- --
Other..................... 476 484 -- -- -- --
-------- -------- ------- ------- ------- ------
Total REO.............. 30,801 26,878 23,858 8,172 422 --
-------- -------- ------- ------- ------- ------
Non-Performing Loans:
Single Family............. 23,542 25,317 24,634 21,441 6,063 $3,849
Multi-Family.............. 69,705 70,207 42,481 34,347 18,937 432
Commercial................ 13,298 10,307 3,623 1,536 -- 4,476
Other..................... 364 245 271 194 388 229
-------- -------- ------- ------- ------- ------
Total Non-Performing
Loans..................... 106,909 106,076 71,009 57,518 25,388 8,986
Less Specific Loan Loss
Allowances................ 25,579 14,732 4,582 5,422 912 380
-------- -------- ------- ------- ------- ------
Net Non-Performing
Loans(1).................. 81,330 91,344 66,427 52,096 24,476 8,606
-------- -------- ------- ------- ------- ------
Total Non-Performing
Assets(1)................. $112,131 $118,222 $90,285 $60,268 $24,898 $8,606
======== ======== ======= ======= ======= ======
Ratio of Non-Performing
Assets to Total
Assets(1)................. 3.05% 3.23% 2.62% 1.83% 0.82% 0.33%
</TABLE>

- ---------------

(1) Non-performing loans and non-performing assets after deducting specific
loan loss allowances attributable to such assets.

LOAN LOSS ALLOWANCES

The Bank maintains loan loss allowances to absorb possible future losses
that may be realized on its loan portfolio and REO. The Bank's loan loss
allowances consist of three components: (i) specific loan loss allowances; (ii)
general valuation allowances for the Bank's loan portfolio; and (iii) general
valuation allowances for loans sold by the Bank with full or limited recourse,
which allowances are recorded as a contingent liability on the Company's
statement of financial condition. (Items (ii) and (iii) are referred to herein
collectively as "combined general valuation allowances.") A specific loan loss
allowance is established (and charged off from the combined general valuation
allowances) for any loan which is 90 days or more delinquent, in foreclosure, or
when the Bank's management has determined that it is unlikely to be fully
collectible. The combined general valuation allowances included in the loan loss
allowances are reviewed and adjusted quarterly based upon a number of factors,
including asset classifications, economic trends, geographic concentrations,
asset-type concentrations, estimated collateral values, management's assessment
of credit risk inherent in the portfolio, historical loss experience and the
Bank's underwriting practices. In response to these factors, the Bank has
increased its combined general valuation allowances over the last three years to
$46.9 million, or 1.49% of loans with loss exposure at March 31, 1994. This
compares to combined general valuation allowances of $46.9 million, or 1.51% of
loans with loss exposure at December 31, 1993, $27.9 million, or 0.94%, of loans
with loss exposure at December 31, 1992 and $13.9 million, or 0.49% of loans
with loss exposure at December 31, 1991. Loans with loss exposure consist of the
Bank's loan portfolio, excluding MBS, and including loans sold with recourse.

23
<PAGE> 25

The following tables set forth information concerning the components of the
Bank's loan loss allowances, at the dates indicated. All loan amounts included
in the table are shown before deducting specific loan loss allowances in respect
of such loans.

COMPONENTS OF LOAN LOSS ALLOWANCES

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Specific Loan Loss
Allowances....... $ 32,235 $ 16,832 $ 5,120 $ 5,422 $ 912 $ 380
Combined General
Valuation
Allowances:
For Loans Owned
by the Bank... 41,078 40,669 22,074 12,588 9,305 8,394
For Loans Sold
with Recourse
to the Bank... 5,822 6,231 5,780 1,349 1,876 --
---------- ---------- ---------- ---------- ---------- ----------
Combined General
Valuation
Allowances....... 46,900 46,900 27,854 13,937 11,181 8,394
---------- ---------- ---------- ---------- ---------- ----------
Total Loan Loss
Allowances....... $ 79,135 $ 63,732 $ 32,974 $ 19,359 $ 12,093 $ 8,774
========== ========== ========== ========== ========== ==========
Non-Performing
Loans............ $ 106,909 $ 106,076 $ 71,009 $ 57,518 $ 25,388 $ 8,986
REO................ 30,801 26,878 23,858 8,172 422 --
---------- ---------- ---------- ---------- ---------- ----------
Non-Performing
Assets........... $ 137,710 $ 132,954 $ 94,867 $ 65,690 $ 25,810 $ 8,986
========== ========== ========== ========== ========== ==========
Total Loans
Receivable(1).... $2,833,839 $2,798,668 $2,554,942 $2,414,281 $2,167,643 $2,052,750
Loans Sold with
Recourse......... 306,100 317,600 405,400 448,100 485,300 --
---------- ---------- ---------- ---------- ---------- ----------
Total Loans with
Loss Exposure.... $3,139,939 $3,116,268 $2,960,342 $2,862,381 $2,652,943 $2,052,750
========== ========== ========== ========== ========== ==========
Total Loan Loss
Allowances to
Total Loans with
Loss Exposure.... 2.52% 2.05% 1.11% 0.68% 0.46% 0.43%
</TABLE>

- ---------------

(1) Loans receivable before deduction of specific loan loss allowances.

24
<PAGE> 26

LOAN LOSS ALLOWANCES BY TYPE OF PROPERTY

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, ----------------------------------------------
1994 1993 1992 1991 1990 1989
------------ ------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Single Family................... $ 7,699 $ 7,308 $ 4,166 $ 4,814 $ 3,017 $1,664
Multi-Family.................... 62,966 52,435 25,597 11,729 6,893 4,974
Commercial and Industrial....... 8,306 3,938 3,154 2,544 2,066 1,940
Non-Real Estate Loans............. 164 51 57 272 117 196
------- ------- ------- ------- ------- ------
Total................... $79,135 $63,732 $32,974 $19,359 $12,093 $8,774
======= ======= ======= ======= ======= ======
</TABLE>

The Bank regularly assesses the adequacy of the loan loss allowances. In
assessing the adequacy of the Bank's loan loss allowances, management makes
certain assumptions about interest rate trends, general and local economic
conditions and other factors that may ultimately affect whether the Bank will
suffer a loss on either a class of loans or any particular loan. Management
believes that the Bank's loan loss allowances are adequate to provide for
potential losses on the Bank's loans with loss exposure, including its
non-performing loans. However, there can be no assurance that the Bank's
existing loan loss allowances will be adequate to absorb such losses if and when
they occur.

PROVISIONS FOR LOAN LOSSES

Provisions for loan losses may be necessary in any period to the extent
that the combined general valuation allowances are not adequate to cover
anticipated loan charge-offs. Provisions for loan losses were $67.7 million in
1993 compared with $41.4 million in 1992 and $11.8 million in 1991. Net loan
charge-offs were $24.7 million for the three months ended March 31, 1994 and
$48.6 million for the year ended December 31, 1993. The increased charge-offs
were due to losses recorded on certain problem assets based on declines in the
estimated value of the underlying collateral. On June 20, 1994, the Bank
announced that it would record a provision for loan losses of $55.0 million for
the quarter ended June 30, 1994, of which management estimates that
approximately $31.9 million is attributable to declines in real estate values
resulting from the recession in Southern California and approximately $23.1
million is directly attributable to anticipated earthquake losses.

The following is an analysis of the activity in the Bank's combined general
valuation allowances for the periods indicated.

COMBINED GENERAL VALUATION ALLOWANCES AND LOAN CHARGE-OFF ACTIVITY

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- ------- ------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Combined General Valuation
Allowances................................ $ 46,900 $ 27,854 $ 27,854 $ 13,937 $11,181 $ 8,394 $7,692
Provisions for Loan Losses.................. 24,670 44,123 67,679 41,384 11,833 4,126 824
Net Charge-Offs............................. (24,670) (12,460) (48,633) (27,467) (9,077) (1,339) (122)
-------- -------- -------- -------- ------- ------- ------
Ending Combined General Valuation
Allowances................................ $ 46,900 $ 59,517 $ 46,900 $ 27,854 $13,937 $11,181 $8,394
======== ======== ======== ======== ======= ======= ======
Charge-Offs as Percentage of Average Loans
Receivable (Excluding MBS)................ 0.88% 0.48% 1.82% 1.11% 0.40% 0.06% 0.01%
</TABLE>

The $55.0 million provision for loan losses announced on June 20, 1994 for
the quarter ended June 30, 1994 is allocated among the Bank's total loan loss
allowances based on available information concerning the loans in the Bank's
loan portfolio. At May 31, 1994, $13.3 million of such provision for loan losses
was allocated to specific loan loss allowances and $41.7 million was allocated
to the general valuation allowances for the Bank's loan portfolio; however,
additional amounts will be charged off from

25
<PAGE> 27

the combined general valuation allowances as additional loans or properties
requiring specific loan loss allowances are identified.

NON-ACCRUAL AND PAST DUE 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 and loan loss allowance purposes.

The additional amount of interest income that would have been reported had
there been no loans 90 days or more contractually delinquent would have been
$5.7 million, $4.3 million, $2.9 million, $1.5 million and $437,000 at December
31, 1993, 1992, 1991, 1990 and 1989, respectively.

LOAN MODIFICATIONS AND IMPAIRED LOANS

The Bank, from time to time, makes temporary modifications or offers
temporary payment forbearance with respect to its mortgage loans. Under these
arrangements, monthly payments required to be made on a loan are reduced during
a fixed period (generally three to six months) to an amount not less than the
interest payments required under the original terms of the loan. At March 31,
1994, the Bank had modified loans with an aggregate principal amount of $68.3
million. At that date, specific loan loss allowances of $6.1 million were
attributable to such loans. No modified loans were 90 days or more delinquent at
March 31, 1994. In addition, the Bank offered temporary loan modifications to
borrowers with properties damaged in the January 1994 earthquake. Generally, the
modifications involved deferral of both principal and interest payments for a
period of three months. At March 31, 1994, the Bank had modified loans with an
aggregate principal amount of $115.7 million for earthquake-related reasons.

At March 31, 1994, the Bank implemented Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114"). Pursuant to SFAS No. 114, the Bank considers a loan to be impaired when
management believes that it is probable that the Bank will be unable to collect
all amounts due under the contractual terms of the loan. Estimated impairment
losses are included in the Bank's specific loan loss allowances. Subsequent
adjustments to estimated impairment losses are included in the Bank's provisions
for loan losses. At March 31, 1994, the total recorded amount of loans for which
impairment has been recognized in accordance with SFAS No. 114 was $119.2
million (after deducting $24.4 million of specific loan loss allowances
attributable to such loans). The Bank's impaired loans at March 31, 1994 were
composed of non-accrual major loans (single family loans with an outstanding
principal amount greater than or equal to $500,000 and multi-family loans with
an outstanding principal amount greater than or equal to $750,000) of $39.6
million, modified loans of $50.6 million and major loans less than 90 days
delinquent in which full payment of principal and interest is not expected of
$29.0 million.

REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

The Bank's REO consists of property acquired through foreclosure
proceedings or, infrequently, by deed in lieu of foreclosure. At March 31, 1994,
the Bank's REO was $30.8 million, representing 0.8% of the Bank's total assets.
The Bank begins foreclosure proceedings on single family loans after they have
been delinquent for 15 days after the grace period and begins foreclosure
proceedings on multi-family and commercial loans after they have been delinquent
for 10 days after the grace period. Generally, all loans greater than 90 days
delinquent are placed into foreclosure and, if necessary, a specific loan loss
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 Bank ceases to accrue and reserve for
interest income and the property is recorded as REO at the lower of the unpaid
loan balance or fair market value in accordance with appraisals, OTS guidelines
and generally accepted accounting principles.

26
<PAGE> 28

The following table sets forth the Bank's REO by asset type, and as a
percentage of total REO, at March 31, 1994.

REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS

<TABLE>
<CAPTION>
AT MARCH 31, 1994
------------------------------
AMOUNT % OF TOTAL REO
------- --------------
(IN THOUSANDS, EXCEPT
PERCENTAGES)
<S> <C> <C>
Single Family.................................. $11,984 38.9%
Multi-Family................................... 17,856 58.0
Commercial..................................... 485 1.6
Other.......................................... 476 1.5
------- -----
Total........................................ $30,801 100.0%
======= =====
</TABLE>

Following the acquisition of REO, the Bank evaluates the property and
establishes a plan for marketing and disposition. The Bank inspects the
property, using independent professionals when necessary. After inspecting such
property, the Bank determines whether the property may be disposed of in its
present condition or whether repairs, rehabilitation or improvements are
necessary. In response to the increased levels of REO, the Bank has established
a committee that meets weekly for the purpose of supervising the disposition of
the Bank's REO.

The average percentages of appraised value (based on appraisals performed
at the time the REO was acquired by the Bank) recovered by the Bank in its sales
of REO were 99.4% and 92.4%, for the three months ended March 31, 1994 and the
year ended December 31, 1993, respectively. Of the Bank's total REO sold during
the three months ended March 31, 1994 and the year ended December 31, 1993, the
Bank provided financing for 53.3% and 70.5%, respectively.

While management intends to maintain its emphasis on REO disposition
activities at the current level for as long as necessary, there can be no
assurance that the Bank's experience can be repeated or maintained either with
respect to the efficient disposition of REO or the percentages of appraised
value recovered.

OTHER INTEREST-EARNING ASSETS

At March 31, 1994, the Bank owned no other contractually delinquent
interest-earning assets other than loans.

INVESTMENT ACTIVITIES

Savings institutions are required by federal regulations to maintain a
minimum ratio of liquid assets which may be invested in certain government and
other specified securities. This level is adjusted by the OTS from time to time
in response to prevailing economic conditions and as a means of controlling the
amount of available mortgage credit. See "Regulation -- Liquidity." At March 31,
1994, the liquidity requirement applicable to the Bank under OTS regulations was
5.00% and the Bank's regulatory liquidity percentage was 5.27%.

It is the Bank's policy to maintain liquid investment securities at the
regulatory minimum and to use available cash to originate mortgages which
normally command higher yields. Therefore, interest income on liquid investment
securities generally represents less than 3% of total revenues.

The Bank implemented Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, effective
January 1, 1994. All investment securities are carried at amortized cost (with
any premium or discount amortized over the term of the security using the
interest method) because such investments are classified by the Bank as
"held-to-maturity" securities. Gross unrealized gains and gross unrealized
losses totaled $254,000 and $1.8 million, respectively, at

27
<PAGE> 29

March 31, 1994. At March 31, 1994, the Bank had no investments in the
available-for-sale or trading categories.

The following table sets forth information concerning the types of
securities comprising the Bank's total investment portfolio at the end of the
periods indicated.

COMPOSITION OF INVESTMENT PORTFOLIO

<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, --------------------------------------------------
1994 1993 1992 1991 1990 1989
------------ -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities...... $ 4,110 $ 5,111 $ 7,113 $ 7,115 $ 9,020 $ 5,009
U.S. Agency Securities........ 40,576 42,600 11,034 6,054 -- 5,000
Corporate Bonds............... -- -- -- 3,003 3,005 --
Repurchase Agreements......... -- -- -- 95,000 60,000 45,000
Overnight Investments......... -- -- -- -- -- 80,000
Certificates of Deposit....... -- -- -- -- 4,228 6,259
Collateralized Mortgage
Obligations................. 43,498 47,352 22,235 -- -- --
MBS........................... 10,187 8,773 3,354 -- -- --
------- -------- ------- -------- ------- --------
$98,371 $103,836 $43,736 $111,172 $76,253 $141,268
======= ======== ======= ======== ======= ========
Weighted Average Yield on
Interest-Earning Investments
at End of Period............ 5.16% 5.16% 6.18% 4.90% 7.74% 8.42%
======= ======== ======= ======== ======= ========
</TABLE>

Despite the decreasing interest rate trend in the financial marketplace
during 1993, the yield on the investment security portfolio increased during the
year ended December 31, 1993 to 4.70% from 4.24% during the year ended December
31, 1992 because management selected securities for the Bank's investment
portfolio with longer maturities. See "-- Net Interest Income -- Yields Earned
and Rates Paid."

The following is a summary of the maturities and market values of
investment securities at March 31, 1994.

TERMS OF INVESTMENT SECURITIES

<TABLE>
<CAPTION>
MATURITY
-------------------------------------
TOTAL CARRYING
WITHIN 1 YEAR 1-5 YEARS VALUE
----------------- ------------------ ------------------ GROSS
WEIGHTED WEIGHTED WEIGHTED TOTAL UNREALIZED AVERAGE
AVERAGE AVERAGE AVERAGE MARKET --------------- MATURITY
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD VALUE GAINS LOSSES YRS/MOS
------ -------- ------- -------- ------- -------- ------- ----- ------ ----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities... $1,002 7.34% $ 3,108 8.17% $ 4,110 7.97% $ 4,282 $174 $ (2) 1 yr/8 mos
U.S. Agency
Securities... 2,004 7.55 38,572 5.22 40,576 5.34 39,598 30 (1,008) 2 yr/8 mos
Collateral
Mortgage
Obligations... -- -- 43,498 4.67 43,498 4.67 43,030 39 (507) 3 yr/6 mos
MBS............ -- -- 10,187 5.43 10,187 5.43 9,957 11 (241) 3 yr/9 mos
------ ------- ------- ------- ---- -------
Total........ $3,006 7.48% $95,365 5.09% $98,371 5.16% $96,867 $254 $(1,758) 3 yr/2 mos
====== ======= ======= ======= ==== =======
</TABLE>

SOURCES OF FUNDS

GENERAL

The Bank's principal sources of funds for use in lending are savings
deposits, advances from the FHLBSF and other borrowings. Other sources of funds
for use in lending and for other general business

28
<PAGE> 30

purposes are loan payments and loan sales. The determination of funding sources
is established by the Bank's management based on an analysis of the respective
financial and other costs and burdens associated with the various funding
sources. On any given date, the Bank seeks to utilize the source of funds with
the lowest overall cost.

DEPOSITS

The Bank obtains deposits through three different sources: (i) its retail
branch system; (ii) its telemarketing department (phone solicitations by
employees); and (iii) national brokerage houses.

The table below sets forth the Bank's level of deposits, by source, at the
dates indicated.

DEPOSITS BY SOURCE

29
<PAGE> 31

The interest rates paid on deposits are a major determinant of the average
cost of funds available for lending. The following table sets forth information
regarding the average balances and rates for the various types of savings
programs offered by the Bank during the periods indicated.

DEPOSITS BY TYPE OF ACCOUNT

YEAR ENDED DECEMBER 31,
THREE MONTHS -------------------------------------------------------------------------
ENDED MARCH 31, 1993 1992 1991
--------------------- --------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
---------- -------- ---------- -------- ---------- -------- ---------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate Non-
Term Accounts:
Money Market
Deposit
Accounts......... $ 205,330 2.30% $ 196,467 2.40% $ 186,721 2.75% $ 144,440 4.08%
Interest Bearing
Checking
Accounts......... 164,292 2.06 148,460 2.18 127,985 2.39 72,846 3.85
Passbook Accounts.. 121,708 2.25 118,455 2.29 106,247 2.64 61,700 4.25
Non-interest
Bearing Checking
Accounts......... 32,518 -- 44,868 -- 33,177 -- 16,070 --
---------- ---------- ---------- ----------
523,848 508,250 454,130 295,056
Fixed-Term Rate
Certificate
Accounts:
Under Six Month
Term............. 65,833 2.73 69,132 2.77 117,954 3.20 120,841 5.23
Six Month Term..... 287,325 3.43 299,368 3.13 230,489 3.50 123,040 5.68
Nine Month Term.... 95,417 3.76 200,269 3.36 45,852 3.77 118,249 6.45
One Year to 18
Months Term...... 495,402 3.72 474,853 3.67 333,798 4.14 308,945 6.39
Two Year to 30
Months Term...... 248,374 4.67 148,993 4.67 186,473 6.16 107,866 7.13
Over 30 Month
Term............. 237,374 6.04 307,513 5.80 141,713 6.56 68,152 7.77
Discounted
Accounts......... -- -- -- -- -- -- 34 7.50
Negotiable
Certificates of
$100,000 and
Greater, 30 Day
to One Year...... 328,556 3.46 297,102 3.43 472,336 3.82 597,920 5.84
---------- ---------- ---------- ----------
1,758,281 1,797,230 1,528,615 1,445,047
---------- ---------- ---------- ----------
Total Deposits....... $2,282,129 3.58 $2,305,480 3.60 $1,982,745 3.97 $1,740,103 5.74
========== ========== ========== ==========
</TABLE>

The following table shows the maturity distribution of jumbo certificates
of deposit ($100,000 and greater) at March 31, 1994 (in thousands).

<TABLE>
<S> <C>
Maturing in:
1 month or less................................................ $ 64,579
Over 1 month to 3 months....................................... 121,221
Over 3 months to 6 months...................................... 79,563
Over 6 months to 12 months..................................... 62,001
Over 12 months................................................. 1,192
--------
Total.................................................. $328,556
========
</TABLE>

Based on historical renewal percentages at maturity, management believes
that jumbo certificates of deposit are a stable source of funds; however, jumbo
deposits are more likely to be shifted to other financial institutions than
smaller retail deposits in response to relative variations in interest rates
paid by the Bank and its competitors.

30
<PAGE> 32

RETAIL BRANCHES

The Company currently maintains 25 retail branch offices, the highest
concentration of which is located in Santa Monica and the surrounding westside
area of Los Angeles.

Deposits at retail branches were 65.1%, 64.7%, 66.1% and 57.3% of total
deposits, at March 31, 1994, December 31, 1993, 1992 and 1991, respectively.
Increased deposits during 1993 and 1992 resulted primarily from branch
acquisitions and, to a lesser extent, from additional deposits brought in by the
overall branch system.

The Bank acquired two retail branches from the Resolution Trust Corporation
("RTC") in December 1993 with deposits totaling $113.3 million, and acquired
seven retail branches during 1992 with deposits totaling $290.6 million. One of
the two branches acquired in 1993 was closed and the deposits were merged into
the other acquired branch. One previously existing branch which was located near
a branch acquired in 1992 was merged with that acquired branch. At March 31,
1994, deposits at these branches totaled $286.1 million, including new deposits
obtained at these branches since the acquisition dates, and excluding deposits
attributable to the Bank's branch prior to the merger. The Bank may seek to
acquire additional retail branches from the RTC from time to time if available
on an individual basis. The Company does not currently intend to acquire any
institutions offered by the RTC on a "whole-bank" basis.

TELEMARKETING

Deposits acquired through the Bank's telemarketing department are obtained
from depositors throughout the United States, and are typically placed by
managers of pension funds. Telemarketing deposits were $314.3 million, $285.6
million, $389.2 million and $439.6 million, representing 13.8%, 12.4%, 19.6% and
25.3% of total deposits, at March 31, 1994, December 31, 1993, 1992 and 1991,
respectively. The percentage of deposits in telemarketing funds varies based
upon competition from other investment products available to depositors. These
deposits are not subject to brokered deposit restrictions discussed below as
long as the rates offered for such deposits are not significantly higher than
the prevailing rates on deposits by other federally insured savings banks in the
Bank's normal market area. Based on weekly rate surveys conducted by the Bank,
the Bank has determined that the rates it offers on these deposits are not
significantly higher than such prevailing rates.

Under FDIC insurance rules, employee benefit plan deposits (which
constitute the largest segment of telemarketing deposits) are provided "pass
through" insurance (providing insurance up to $100,000 per participant rather
than $100,000 per plan) only if the depository institution is able to accept
brokered deposits, either by meeting the standards necessary to be deemed well
capitalized, or by meeting the standards necessary to be deemed adequately
capitalized and having obtained permission from the FDIC to accept brokered
deposits in the form of a waiver. See "-- Brokered Deposits." If the Bank were
unable to satisfy the criteria necessary to accept brokered deposits and, as a
result, employee benefit plan telemarketing deposits were not entitled to such
pass-through insurance, it is likely that employee benefit plan telemarketing
deposits would not be renewed at their maturity. Such deposits would be
difficult to replace until the Bank again satisfied the criteria necessary to
accept brokered deposits so that employee benefit plan telemarketing deposits
would be entitled to such pass-through insurance.

BROKERED DEPOSITS

Deposits acquired through national brokerage houses were $474.5 million,
$518.9 million, $273.6 million and $291.6 million, representing 20.8%, 22.5%,
13.8% and 16.8% of total deposits at March 31, 1994, December 31, 1993, 1992 and
1991, 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; however, brokered deposits are
more likely than smaller retail deposits to be shifted to other financial
institutions in response to relative variations in interest rates paid by the
Bank and its competitors.

31
<PAGE> 33

The Bank currently accepts brokered deposits pursuant to a waiver obtained
from the FDIC that expires on August 27, 1994. Well-capitalized institutions are
not required to obtain a waiver from the FDIC. Adequately capitalized
institutions, such as the Bank, can only accept brokered deposits under a waiver
from the FDIC. See "Regulation -- Prompt Corrective Action." Furthermore, an
institution granted a waiver is prohibited from paying an effective yield on any
brokered deposits which exceeds by more than (i) 75 basis points the effective
yield paid on deposits of comparable size and maturity in such institution's
normal market area for deposits accepted from within its normal market area or
(ii) 120 basis points for retail deposits and 130 basis points for wholesale
deposits, respectively, the current yield on comparable maturity U.S. Treasury
obligations for deposits accepted outside the institution's normal market area.

Management of the Bank intends to request another waiver effective at
August 27, 1994 if another waiver is required in order to continue accepting
brokered deposits. There can be no assurance that the Bank will be able to
continue accepting brokered deposits, or that the law may not again change and
further limit the Bank's ability to accept these funds. If the Bank is not
permitted to accept brokered deposits after August 27, 1994, it will seek
alternative sources of funds, principally by offering rates sufficient to
attract additional retail deposits and by borrowing additional amounts from the
FHLBSF. Giving effect, on a pro forma basis, to the contribution by FFC to the
Bank of the net proceeds from the Offering, and the $55.0 million provision for
loan losses announced on June 20, 1994, the Bank would have met the regulatory
standards to be deemed well capitalized at March 31, 1994. As long as the Bank
is well capitalized, a waiver will not be required for the Bank to continue
accepting brokered deposits.

BORROWINGS

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

Total advances from the FHLBSF were $514.7 million at March 31, 1994 at a
weighted average rate of 4.65%. This compares with advances of $514.7 million at
December 31, 1993, $654.5 million at December 31, 1992 and $524.0 million at
December 31, 1991, at weighted average rates of 4.70%, 5.20% and 5.86%,
respectively. The decrease in 1993 was due to advances repaid with funds from
the branches acquired in December 1993. At March 31, 1994, the Bank had
available $388.6 million for borrowing from the FHLBSF without providing any
additional collateral.

The Bank enters into reverse repurchase agreements, which are short-term
borrowings secured by MBS and require the repurchase of the same securities.
Reverse repurchase agreements are treated as borrowings in the Bank's statement
of financial condition. In order to minimize the risks associated with these
types of transactions, the Bank's policy is to enter into reverse repurchase
agreements only with primary dealers. Borrowings under reverse repurchase
agreements totaled $599.2 million, $548.6 million, $491.1 million and $623.6
million at March 31, 1994 and December 31, 1993, 1992 and 1991, respectively,
and were secured by MBS with principal balances totaling $618.7 million, $559.0
million, $506.6 million and $638.8 million, respectively.

Borrowings from all sources totaled $1.1 billion, $1.1 billion, $1.2
billion and $1.3 billion at weighted average rates of 4.06%, 3.99%, 4.48% and
5.47% at March 31, 1994, December 31, 1993, 1992 and 1991, respectively.

32
<PAGE> 34

The following schedule summarizes short term borrowings for the last three
years.

SHORT TERM BORROWINGS

<TABLE>
<CAPTION>
MAXIMUM MONTH-END OUTSTANDING BALANCE
----------------------------------------------------------
END OF PERIOD AVERAGE FOR PERIOD
-------------------- DURING THE --------------------
OUTSTANDING RATE PERIOD OUTSTANDING RATE
----------- ---- ---------- ----------- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
1993:
Short Term FHLBSF Credit Advances...... $ 30,000 3.94% $ 245,000 $ 116,538 3.56%
Securities Sold Under Agreements to
Repurchase.......................... 548,649 3.32 650,033 594,314 3.06
Other Short Term Borrowings............ 29,800 3.95 76,650 48,473 3.38
1992:
Short Term FHLBSF Rate Credit
Advances............................ 140,000 3.34 195,000 88,462 4.07
Securities Sold Under Agreements to
Repurchase.......................... 491,091 3.61 594,680 527,528 4.16
Other Short Term Borrowings............ 50,650 3.73 157,950 93,069 3.96
1991:
Short Term FHLBSF Credit Advances...... 95,000 5.06 105,000 44,167 6.41
Securities Sold Under Agreements to
Repurchase.......................... 623,572 4.94 645,783 598,655 4.94
Other Short Term Borrowings............ 71,800 4.92 87,050 55,583 6.12
</TABLE>

OTHER SOURCES OF FUNDS

Other sources of funds include sales of loans and MBS and principal
payments on loans in the Bank's loan portfolio. Sales of loans and MBS were
$36.5 million, $153.0 million, $154.4 million and $55.0 million for the three
months ended March 31, 1994 and for the years ended December 31, 1993, 1992 and
1991, respectively. The volume of loans and MBS sold varies based on a number of
factors, including the dollar amount of saleable loans originated.

Principal payments on loans in the Bank's loan portfolio were $65.7
million, $354.7 million, $321.7 million and $278.4 million for the three months
ended March 31, 1994 and for the years ended December 31, 1993, 1992 and 1991,
respectively. Principal payments include both amortization and prepayments and
are a function of real estate activity and general levels of interest rates.
Principal payments have increased over the last several years due to growth in
average loans outstanding and increased mortgage refinancing due to low interest
rates. As interest rates have increased over the last several months, the Bank
has experienced a decline in refinancing activity.

NET INTEREST INCOME

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 Bank's 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.

33
<PAGE> 35

YIELDS EARNED AND RATES PAID

The following tables set forth information concerning the yields earned and
rates paid by the Bank for and at the end of the periods indicated.

WEIGHTED AVERAGE RATES FOR PERIOD

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Yield on Loan
Portfolio......................... 6.24% 6.80% 6.64% 7.92% 9.96% 10.87% 10.84%
Weighted Average Yield on Investment
Portfolio(1)...................... 4.77 4.47 4.70 4.24 6.03 8.16 9.46
Weighted Average Yield on All
Interest-Earning Assets........... 6.18 6.71 6.56 7.78 9.82 10.78 10.80
Weighted Average Rate Paid on
Deposits.......................... 3.59 3.93 3.76 4.66 6.70 7.93 8.19
Weighted Average Rate Paid on
Borrowings and FHLB Advances...... 4.06 4.25 4.09 5.10 7.08 8.59 9.39
Weighted Average Rate Paid on All
Interest-Bearing Liabilities...... 3.75 4.06 3.89 4.83 6.85 8.16 8.58
Net Yield on Average
Interest-Earning Assets(2)........ 2.54 2.81 2.77 3.16 3.29 3.02 2.54
Interest Rate Spread(3)............. 2.43 2.65 2.67 2.95 2.97 2.62 2.22
</TABLE>

WEIGHTED AVERAGE RATES AT END OF PERIOD

<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, ------------------------------------------
1994 1993 1992 1991 1990 1989
--------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Yield on Loan
Portfolio............................. 6.09% 6.20% 7.25% 9.20% 10.45% 10.94%
Weighted Average Yield on Investment
Portfolio(1).......................... 5.16 5.16 6.18 4.90 7.74 8.42
Weighted Average Yield on All Interest-
Earning Assets........................ 6.06 6.17 7.24 9.05 10.37 10.80
Weighted Average Rate Paid on
Deposits.............................. 3.58 3.60 3.97 5.74 7.67 8.21
Weighted Average Rate Paid on Borrowings
and FHLB Advances..................... 4.05 3.99 4.48 5.47 8.07 8.82
Weighted Average Rate Paid on All
Interest-Bearing Liabilities.......... 3.74 3.73 4.16 5.63 7.82 8.42
Interest Rate Spread(3)................. 2.32 2.44 3.08 3.42 2.55 2.38
</TABLE>

- ---------------

(1) Includes earnings on certificates of deposit and overnight investments. Does
not include earnings on FHLB stock.

(2) Net interest income (the difference between the dollar amounts of interest
earned and paid) divided by average interest earning assets.

(3) Weighted average yield on all interest-earning assets less weighted average
rate paid on all interest-bearing liabilities.

The tables above reflect the decreasing trend in interest rates over the
past three years. The Bank's AML portfolio is based primarily on changes in the
COFI. Changes in the COFI closely parallel changes in the Bank's cost of funds.
Therefore, the yield on the Bank's loan portfolio has decreased along with the
cost of deposits and borrowings. In a decreasing rate environment, the cost of
the Bank's deposits and borrowings typically decrease faster than the yield on
loans and investments. However, increased non-

34
<PAGE> 36

performing assets had a negative impact on the Bank's loan portfolio yield over
the last three years. The effect was more pronounced in 1993 when the interest
rate spread fell to 2.67% from the prior year's 2.95% due to a 40.1% increase in
non-performing assets (before deducting specific loan loss allowances
attributable to such assets). For the three months ended March 31, 1994, the
Bank's interest rate margin was 2.43%. This decrease was attributable to
increases in market interest rates during 1994 as well as the continuing higher
level of non-performing assets.

An increase in non-performing assets caused the excess of average
interest-earning assets over average interest-bearing liabilities to decrease to
$90.8 million for the year ended December 31, 1993 from $142.6 million for the
year ended December 31, 1992 and $147.3 million for the year ended December 31,
1991. At March 31, 1994, the excess of average interest-earning assets over
average interest-earning liabilities increased slightly, to $102.4 million. A
reduction in the excess of average interest-earning assets over interest-bearing
liabilities has a negative impact on the dollar amount of net interest income
earned by the Bank.

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). 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. Dividends on FHLB stock and
miscellaneous interest income are excluded.

INTEREST INCOME AND EXPENSE

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991
VERSUS 1992 CHANGES VERSUS 1991 CHANGES VERSUS 1990 CHANGES
DUE TO DUE TO DUE TO
----------------------------- ----------------------------- -----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------- -------- -------- ------- -------- -------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans................. $14,144 $(41,930) $(27,786) $23,675 $(62,620) $(38,945) $31,417 $(24,797) $ 6,620
Investments........... 513 592 1,105 977 (2,088) (1,111) 1,240 (2,083) (843)
------- -------- -------- ------- -------- -------- ------- -------- --------
Total Interest
Income............ 14,657 (41,338) (26,681) 24,652 (64,708) (40,056) 32,657 (26,880) 5,777
Interest Expense:
Deposits.............. 7,914 (17,988) (10,074) 9,864 (37,682) (27,818) 6,116 (21,070) (14,954)
Borrowings............ 3,346 (13,018) (9,672) 7,697 (23,944) (16,247) 17,956 (14,863) 3,093
------- -------- -------- ------- -------- -------- ------- -------- --------
Total Interest
Expense............. 11,260 (31,006) (19,746) 17,561 (61,626) (44,065) 24,072 (35,933) (11,861)
------- -------- -------- ------- -------- -------- ------- -------- --------
Change in Net
Interest Income... $ 3,397 $(10,332) $ (6,935) $ 7,091 $ (3,082) $ 4,009 $ 8,585 $ 9,053 $ 17,638
======== ========= ========= ======== ========= ========= ======== ========= =========
</TABLE>

NON-INTEREST INCOME AND NON-INTEREST EXPENSE

NON-INTEREST INCOME

Loan and other fees were $1.6 million and $1.8 million for the three months
ended March 31, 1994 and 1993, respectively, and $6.5 million, $5.9 million and
$6.0 million for the years ended December 31, 1993, 1992 and 1991, respectively.
Such fees are primarily earned on loans originated by the Bank.

Gain on sale of loans and securities was $440,000 and $400,000 for the
three months ended March 31, 1994 and 1993, respectively, and $4.3 million, $2.1
million and $1.1 million for the years ended December 31, 1993, 1992 and 1991,
respectively. Of the gain recognized during 1993, $2.0 million resulted from the
sale of a single issue of MBS from the Bank's portfolio of loans and securities
held for sale.

Real estate operations recorded a net gain of $382,000 in the three months
ended March 31, 1994, and a net gain of $143,000 for the three months ended
March 31, 1993. Real estate operations recorded

35
<PAGE> 37

a net loss of $437,000 in 1993, a net gain of $2.6 million in 1992 and a net
loss of $1.3 million in 1991. Losses recorded in 1993 resulted primarily from
the operation of foreclosed properties prior to sale. Foreclosed multi-family
properties, which have provided net income from operations in the past, have
been severely affected by the recession. See "Risk Factors -- Asset Quality;
Southern California Real Estate."

During 1993, the Bank assumed liability for various charges on these
foreclosed properties, including delinquent property taxes, unpaid utility
charges and rehabilitation costs. Many of the properties were in a general state
of disrepair with high vacancy rates and rent collection problems. These
problems can take several months to correct. The Bank normally sells these
properties within a few months after foreclosure, usually after the property has
been rehabilitated. Gains recorded during the first quarters of 1994 and 1993
and during 1992 were due to recoveries of loss allowances which had been
established prior to the sale of foreclosed properties. Gains from real estate
operations increased for the quarter ended March 31, 1994 compared to the
quarter ended March 31, 1993 due to an increase in the percentage of appraised
value recovered on the sale of foreclosed properties and a decrease in net
operating expenses on foreclosed properties.

Other operating income consists primarily of fees earned for services
provided by the retail savings branches. Other operating income was $354,000 and
$384,000 for the three months ended March 31, 1994 and 1993, respectively, and
$1.7 million, $2.1 million and $1.3 million for the years ended December 31,
1993, 1992 and 1991, respectively. The decrease in other operating income in
1993 compared to 1992 was due to a lawsuit settlement and a refund of business
license taxes from the City of Los Angeles received in 1992.

NON-INTEREST EXPENSE

The table below sets forth certain information concerning the Bank's
non-interest expense.

NON-INTEREST EXPENSE

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries.............. $ 4,227 $ 4,012 $16,636 $15,399 $12,776 $11,697 $10,720
Employee Benefits..... 1,233 1,519 6,244 8,054 8,769 9,072 7,100
Occupancy Expense..... 1,337 1,222 5,531 5,119 4,424 3,992 3,847
Equipment............. 363 343 1,285 1,523 1,290 1,294 1,111
Advertising........... 672 604 2,486 2,235 1,731 1,579 1,168
Federal Deposit
Insurance........... 1,426 1,147 4,622 4,156 3,890 3,205 2,742
Outside Data
Processing.......... 251 152 1,036 2,213 1,147 938 768
Insurance............. 130 149 570 556 537 499 383
Contributions......... 163 228 591 751 761 784 520
Stockholders'
Relations........... 93 75 143 251 576 257 213
Professional
Services............ 222 147 755 709 580 331 566
Lawsuits.............. -- -- -- -- -- 1,400 --
Other Operating
Expense............. 2,016 1,856 5,399 5,159 4,001 4,307 3,679
------- ------- ------- ------- ------- ------- -------
Total................. $12,133 $11,454 $45,298 $46,125 $40,482 $39,355 $32,817
======= ======= ======= ======= ======= ======= =======
Non-Interest Expense
to Average Assets... 1.32%(1) 1.30%(1) 1.26% 1.36% 1.28% 1.40% 1.39%
</TABLE>

- ---------------

(1) Annualized basis.

36
<PAGE> 38

Non-interest expense increased 5.9% during the first quarter of 1994
compared to the first quarter of 1993 due to higher deposit insurance, normal
salary adjustments, and costs associated with the integration of one savings
branch acquired after March 31, 1993. Non-interest expenses increased 10.8%
compared to the fourth quarter of 1993 due to lower expenses recorded in the
fourth quarter for annual discretionary compensation expenses due to reduced
earnings. Non-interest expense decreased to 1.26% of average total assets in
1993 from 1.36% of average total assets in 1992 and 1.28% of total assets in
1991. The increased expenses in 1992 resulted from data processing conversion
costs and expenses associated with the acquisition of seven branches from the
RTC in that year. Two new branches were acquired from the RTC during 1993.
However, since the acquisition occurred in December, it had little impact on the
expenses for the year. Management has continuing programs to control general and
administrative expenses.

Salary and benefit costs decreased slightly since 1992 because lower
amounts were contributed to the Bank's bonus and profit sharing plans in 1993
based on decreased earnings. Salary and benefit costs increased 8.9% in 1992
compared to 1991 due to employment costs associated with the branches acquired
from the RTC during 1992.

Occupancy expense increased slightly since 1992 due to higher lease costs
resulting from the effect of lease escalation clauses. Occupancy expense
increased by 15.7% in 1992 compared to 1991 due to the costs of the additional
branches plus the effect of lease escalation clauses.

Advertising expense increased by 11.2% for the three months ended March 31,
1994 compared to the prior period, due to advertising campaigns promoting
various savings and loan products, particularly the Bank's new mortgage banking
products. The 29.1% increase in advertising expense during 1992 over 1991 was
primarily due to savings promotions for the seven branches acquired in that
year.

The cost of federal deposit insurance increased by 24.3% in the three
months ended March 31, 1994 compared to the prior period, and by 11.2% in 1993
compared to 1992, due to growth in average total deposits. The increase for the
year ended December 31, 1993 was offset by a lower insurance rate applicable to
the first half of the year because the Bank achieved a 10% risk-based capital
ratio at the end of 1992. Deposit insurance increased by 6.8% during 1992
compared to 1991 due to growth in average total deposits.

Other operating expenses increased 8.6% in the three months ended March 31,
1994 compared to the prior period, primarily due to costs associated with the
acquisition of a new branch in December 1993. Third party data processing costs
decreased 53.2% in 1993 compared to 1992 due to costs incurred in 1992 in
connection with the Bank's conversion to a new data processing system during
1992.

ASSET-LIABILITY MANAGEMENT

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 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. Generally, the maturities of
fixed rate assets are matched with fixed cost liabilities. The Bank currently
does not use any futures, options or swaps in its asset-liability management
strategy.

Assets and liabilities which are subject to repricing are considered rate
sensitive. The mismatch 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. A positive gap benefits
a company during periods of increasing interest rates. The reverse is true
during periods of decreasing interest rates. In order to minimize the impact of
rate fluctuations on earnings, management's goal is to keep the one year gap at
less than 20% of total assets (positive or negative). At March 31, 1994, the
Bank's one year gap was 14.1% of total assets, or a positive $518.5 million. At
December 31, 1993, the Bank's one year gap

37
<PAGE> 39

was 14.8% of total assets, or a positive $541.9 million. This compares with
positive gap ratios of 11.6% of total assets at both December 31, 1992 and
December 31, 1991.

The following table shows the composition of the Bank's (unconsolidated)
gap position at March 31, 1994 and the gap position as a percentage of total
assets at that time.

INTEREST SENSITIVITY GAP

<TABLE>
<CAPTION>
AT MARCH 31, 1994
---------------------------------------
BALANCES BALANCES
REPRICING REPRICING
TOTAL WITHIN AFTER
BALANCE ONE YEAR ONE YEAR
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Interest-Earning Assets:
Investment Securities.............................. $ 98,371 $ 3,006 $ 95,365
MBS................................................ 698,557 689,061 9,496
Loans Receivable:
Interest Rate Sensitive Loans................... 2,695,284 2,695,284 --
Fixed Rate Loans................................ 45,771 12,309 33,462
---------- ---------- --------
Total Interest-Earning Assets................. $3,537,983 $3,399,660 $138,323
========== ========== ========
Interest-Bearing Liabilities.........................
Demand Accounts.................................... $ 524,796 $ 524,796 --
Fixed Rate Term Certificate........................ 1,758,281 1,334,377 $423,904
Borrowings.........................................
FHLB Advances................................... 514,700 391,000 123,700
Reverse Repurchase Agreements................... 599,218 599,218 --
Other Borrowings................................ 31,800 31,800 --
---------- ---------- --------
Total Interest-Bearing Liabilities............ $3,428,795 $2,881,191 $547,604
========== ========== ========
Interest-Sensitivity Gap............................. $ 518,469
==========
Interest-Sensitivity Gap as a Percentage of Total
Assets............................................. 14.1%
</TABLE>

COMPETITION

DEPOSITS AND OTHER FUNDS

The Bank experiences strong competition in attracting and retaining
deposits and in originating real estate loans. It competes for deposits with
many of the nation's largest savings institutions and commercial banks which
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 its branch locations and its perceived financial strength.

The Bank believes that it is able to compete effectively for retail
deposits principally on the basis of its customer service. It has established
programs designed to offer specific incentives, financial and otherwise, to its
employees to encourage a high level of customer service, including monetary
awards, recognition within the Bank, and an emphasis on customer service in
performance reviews. In addition, the Bank offers its long-term and
high-balance customers special services, principally fee discounts and waivers.

38
<PAGE> 40

LOANS

The Bank competes for real estate loans primarily with savings
institutions, commercial banks, mortgage banking companies and insurance
companies. The primary factors in competing for loans are interest rates, loan
fees, interest rate caps, interest rate adjustment provisions and the quality
and extent of service to borrowers, real estate brokers and mortgage brokers.
The Bank's management believes that its loan terms currently are sufficiently
competitive with other lenders to originate its desired volume of loans while
maintaining its loan approval and underwriting criteria.

In order to compete more effectively for new loans, the Bank began a
mortgage banking program in October 1993 in which competitively-priced fixed and
adjustable rate mortgages are originated for sale in the secondary loan markets.

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.

SUBSIDIARIES

FFC owns 100% of the capital stock of the Bank, and has no other
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.

At December 31, 1993, the Bank had invested $457,000 (primarily equity) in
Seaside, Oceanside and SMCG. Revenues and operating results of these
subsidiaries accounted for less than 1% of consolidated operating results in
1993, and no material change is presently foreseen. The only subsidiary active
during 1993 was Seaside.

REAL ESTATE DEVELOPMENT ACTIVITIES

Seaside has not been involved in any real estate development activity for
the last three years and therefore, no gains or losses on real estate activities
were recorded during 1993, 1992 or 1991. There are no plans for future real
estate development projects.

Seaside continues to hold three condominium units which are rented to the
Bank for use by its employees. At March 31, 1994, Seaside's investment in the
units totaled $367,000. There were no loans outstanding against the properties
at March 31, 1994. All three units are located in Southern California.

TRUSTEE ACTIVITIES

Seaside acts as trustee on the Bank's loans. Trustee fees for this activity
amounted to $74,000, $612,000, $599,000 and $218,000 for three months ended
March 31, 1994, and the years ended December 31, 1993, 1992 and 1991,
respectively. Increases are due to additional foreclosure activity by the Bank.

EMPLOYEES

At March 31, 1994, the Bank had a total of 510 full time equivalent
employees, including 79 part-time employees, none of whom 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 pension plan,
and a profit sharing employee stock ownership plan (the "ESOP"). At March 31,
1994, the ESOP owned 8.8% of the outstanding common stock of FFC. The Bank
considers its employee relations to be excellent.

39
<PAGE> 41

REGULATION

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. Financial institutions, including the Bank, may also be
subject, under certain circumstances, to liability under various statutes and
regulations applicable to property owners generally, including statutes and
regulations relating to the environmental condition of real property and the
remediation thereof.

The OTS's enforcement authority over savings institutions and their holding
companies includes, among other things, the ability to assess civil money
penalties, to issue cease and desist orders and to initiate removal and
prohibition orders against officers, directors and certain other persons. In
general, these enforcement actions may be initiated for violations of laws and
regulations and unsafe or unsound conditions or practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or
untimely reports filed with the OTS. FIRREA significantly increased the amount
of, and grounds for, civil money penalties. FIRREA requires, except under
certain circumstances, public disclosure of final enforcement actions by the
OTS.

The FDIC has authority to recommend that the OTS take any authorized
enforcement action with respect to any federally insured savings institution. If
the OTS does not take the recommended action or provide an acceptable plan for
addressing the FDIC's concerns within 60 days after receipt of a recommendation
from the FDIC, the FDIC may take such action if the FDIC board of directors
determines that the institution is in an unsafe or unsound condition or that
failure to take such action will result in the continuation of unsafe or unsound
practices in conducting the business of the institution. The FDIC may also take
action prior to the expiration of the 60-day time period in exigent
circumstances after notifying 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. 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 FDIC may also suspend deposit insurance
temporarily during the hearing process if the institution has no tangible
capital.

As 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 $39.3 million in FHLBSF stock at March 31,
1994.

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 March 31, 1994, the Bank's advances from the FHLBSF amounted to
$514.7 million, or 15.0% of the Bank's total funding sources (deposits and
borrowings).

40
<PAGE> 42

As a result of FIRREA, the Federal Home Loan Banks are required to provide
funds for the resolution of troubled savings associations and 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 FHLB
dividends paid and could continue to do so in the future. These contributions
also could have an adverse effect on the value of FHLB stock in the future. For
the three months ended March 31, 1994, dividends paid by the FHLBSF to the Bank
totaled approximately $393,000.

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

The activities of savings and loan holding companies are governed by the
Home Owners' Loan Act, as amended. Pursuant to that statute, FFC is subject to
certain restrictions with respect to its activities and investments. Among other
things, FFC is generally prohibited, either directly or indirectly, from
acquiring more than 5% of the voting shares of any savings association or
savings and loan holding company which is not a subsidiary, without prior
approval from OTS.

Similarly, OTS approval must be obtained prior to any person acquiring
control of FFC or the Bank. Control is deemed to exist if, among other things, a
person acquires more than 25% of any class of voting stock of the institution or
holding company or controls in any manner the election of a majority of the
directors of the insured institution or the holding company. Control is also
presumed to exist if, among other things, a person acquires more than 10% of any
class of voting stock of the institution or holding company and is subject to
any "control factor," as defined by the OTS.

FFC is considered an "affiliate" of the Bank for regulatory purposes.
Savings associations are subject to the rules relating to transactions with
affiliates and loans to insiders generally applicable to commercial banks that
are members of the Federal Reserve System and certain additional limitations. In
addition, savings associations are generally prohibited from extending credit to
an affiliate, other than the association's subsidiaries, unless the affiliate is
engaged only in activities which the Federal Reserve Board has determined to be
permissible for bank holding companies and which the OTS has not disapproved.

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. FFC 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 QTL test. See "-- Qualified Thrift Lender
Test."

REGULATORY CAPITAL REQUIREMENTS

FIRREA and the capital regulations of the OTS promulgated thereunder (the
"Capital Regulations") established three capital requirements for savings
associations. These requirements require the Bank to maintain "tangible capital"
of at least 1.5% of adjusted total assets, "core capital" of at least 3% of
adjusted total assets, and "risk-based capital" of at least 8% of
"risk-weighted" assets. The relevant provisions of FIRREA and the Capital
Regulations, however, also contain various transitional provisions, including
phase-in provisions pursuant to which institutions have been required to meet
the higher FIRREA capital standards in stages, and phase-out provisions pursuant
to which various exclusions of types of assets formerly includable in regulatory
capital calculations have been implemented in stages. Moreover, 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.

"Core capital" generally includes common stockholders' equity,
noncumulative perpetual preferred stock, including any related surplus, and
minority interests in the equity accounts of fully consolidated subsidiaries.
"Tangible capital" means core capital less any intangible assets (including
supervisory

41
<PAGE> 43

goodwill), plus purchased mortgage servicing rights and purchased credit card
relationships, subject to certain limitations. "Risk-based capital" is defined
as total capital divided by total assets after the assets have been
risk-weighted in accordance with certain percentages developed by the OTS and
the other bank regulatory agencies. Total capital for purposes of the risk-based
capital requirement consists of core capital and supplementary capital.
Supplementary capital includes, among other things, general loan valuation
allowances, subject to certain limitations. General loan valuation allowances
may generally be included in supplementary capital up to 1.25% of risk-weighted
assets. At March 31, 1994, $27.8 million of the Bank's $46.9 million in combined
general valuation allowances was included in supplementary capital.
Supplementary capital may be used to satisfy an institution's risk-based capital
only to the extent of its core capital.

The Bank exceeded all three capital requirements at March 31, 1994 and
December 31, 1993, as indicated by the chart below.

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1994 1993
----------------- ------------------
AMOUNT % AMOUNT %
-------- ---- -------- -----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Tangible Capital Requirement........................ $ 55,309 1.50% $ 54,921 1.50%
Bank's Tangible Capital............................. 195,843 5.31 206,616 5.64
Excess Tangible Capital................... 140,534 3.81 151,695 4.14
Core Capital Requirement............................ 110,618 3.00 109,843 3.00
Bank's Core Capital................................. 195,843 5.31 206,616 5.64
Excess Core Capital....................... 85,225 2.31 96,773 2.64
Risk-Based Capital Requirement...................... 176,903 8.00 180,406 8.00
Bank's Risk-Based Capital........................... 219,852 9.94 231,081 10.25
Excess Risk-Based Capital................. 42,949 1.94 50,675 2.25
</TABLE>

In April 1991, the OTS issued a notice proposing amendments to the minimum
core capital requirements to reflect recent changes in the core capital
requirements applicable to national banks. Under the proposed amendments, only
savings associations receiving the highest rating under the OTS supervisory
rating system would be permitted to operate at or near the minimum core capital
requirements of 3% of adjusted total assets. All other savings associations
would be required to meet a minimum core capital requirement at least 1% to 2%
greater than the minimum requirement. In determining the amount of additional
capital required, the OTS stated that it would asses both the quality of risk
management systems and the level of overall risk in each individual savings
institution on a case by case basis. The Company cannot predict whether or in
what form this amendment will be adopted or whether it will be withdrawn in
light of the "prompt corrective action" provisions of FDICIA, described below.
In addition, the OTS stated in connection with its adoption of a final interest
rate risk capital regulation (see below) that it intends to propose a reduction
in the minimum core capital requirement to 3% of assets effective July 1, 1994,
consistent with an agreement among the other federal banking agencies.

The Capital Regulations substantially changed the capital requirements for
asset sales with recourse or the retention of the subordinated portion of a
senior/subordinated loan participation or interest in a package of loans sold.
Essentially, the Capital Regulations treat asset sales with recourse as if they
had not occurred, and generally require a savings institution to maintain
capital against the entire amount of assets sold with recourse, even if the
recourse is for less than the full amount of assets sold, with one limited
exception. The exception is that assets sold with recourse with respect to which
the recourse percentage is less than the applicable risk-based capital
requirement are not included in risk-weighted assets; however, capital is
required to be maintained in an amount equal to such recourse amount. A savings
institution's retention of the subordinated portion of a senior/subordinated
loan participation or interest in a package of loans sold is treated in the same
manner as an asset sale with recourse. Since the change in regulation, the Bank
has not been active in such loan sales. At March 31, 1994, the outstanding
principal balances of loans the Bank had sold with recourse or subordination
totaled $306.1 million, and the amount of capital required to be maintained
against such off-balance sheet items

42
<PAGE> 44

was $16.6 million. On May 25, 1994, the OTS and the other federal bank
regulatory agencies proposed revisions to their risk-based capital standards
with respect to the regulatory capital treatment of recourse arrangements and
direct credit substitutes. The proposal would generally allow banks and thrifts
to maintain lower amounts of capital against recourse arrangements. The Bank has
not quantified the impact, if any, of this proposal; however, the Bank does not
expect that this proposal, if adopted, would have a material effect on its
operations or financial condition.

In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest rate risk will be
subject to a deduction of its interest rate risk component from total capital
for purposes of calculating its risk-based capital requirement. As a result,
such an institution will be required to maintain additional capital in order to
comply with such requirement. An institution with a greater than "normal"
interest rate risk is defined as an institution that would suffer a loss of net
portfolio value exceeding 2.0% of the estimated market value of its assets in
the event of a 200 basis point increase or decrease (with certain minor
exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0%, multiplied by the market
value of its assets. The rule also authorizes the OTS to waive or defer an
institution's interest rate risk component on a case-by-case basis. The final
rule is effective at January 1, 1994, subject, however, to a two quarter "lag"
time between the reporting date of the data used to calculate an institution's
interest rate risk and the effective date of each quarter's interest rate risk
component. Thus, an institution with greater than "normal" risk will not be
subject to any deduction from total capital until July 1, 1994 (based on the
calculation of the interest rate risk component using data at December 31,
1993). Management of the Bank does not believe that the OTS' adoption of an
interest-rate risk component to the risk-based capital requirement will
adversely affect the Bank.

FIRREA requires a savings institution which fails to meet its capital
standards to submit a capital restoration plan to the OTS District Director
which describes the manner in which the institution proposes to increase its
capital and the activities in which it will engage, and requires that any
increase in its assets be met with a commensurate increase in tangible capital
and risk-based capital. As part of the submission of a capital plan, a savings
institution is required to certify that, during the pendency of its application
for approval of its capital plan, it will adhere to certain growth restrictions,
and will not make any capital distributions or engage in certain other
prohibited or restricted activities. The OTS must, with certain limited
exceptions, limit the asset growth of any such institution.

Upon approval of a capital plan by the OTS, the submitting savings
institution is not generally subject to enforcement sanctions for failure to
meet its statutory capital standards as long as it is in compliance with the
approved capital plan. However, there is no limit on the authority of the OTS to
take any appropriate action with respect to any unsafe or unsound practice or
condition of a savings institution, other than the failure to comply with the
capital standards. As a result, approval of a capital plan by the OTS does not
limit any authority of the Director of the OTS under any other provisions of
law.

The OTS has the authority to issue a capital directive to a savings
institution that does not satisfy its minimum capital requirements. The capital
directive may also specify corrective actions to be taken and a capital
directive, including any plan submitted pursuant to a capital directive, is
directly enforceable in a court of law. The Capital Regulations provide that
material failure of a savings institution to comply with any plan, regulation,
written agreement, undertaking, order or directive issued pursuant to the
Capital Regulations, including a material noncompliance with the capital
requirements, shall be treated by the Director as an unsafe and unsound
practice. The existence of an unsafe and unsound practice authorizes the OTS to
take enforcement or supervisory action against a savings institution, including
the appointment of a conservator or receiver. Moreover, other regulations
restrict growth and prohibit savings institutions not meeting minimum capital
requirements from paying dividends and from making certain types of investments
without the prior approval of the OTS. The FDIC may also terminate a savings
institution's deposit insurance upon failure to meet applicable capital
requirements and may temporarily suspend a savings institution's deposit
insurance if the FDIC finds that the institution has no tangible capital (which
may be calculated under certain conditions by including goodwill). If such
termination

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<PAGE> 45

were to occur, accounts outstanding at the time of such termination would
continue to be insured for a period of at least six months.

CAPITAL MAINTENANCE OBLIGATIONS OF FFC

In connection with its organization in September 1987, as was customary at
the time, FFC entered into a regulatory capital maintenance agreement with the
Federal Savings and Loan Insurance Corporation ("FSLIC"), the former insurer of
the Bank's deposits, pursuant to which FFC agreed that it would maintain the
Bank's regulatory capital at the levels required by present and future FSLIC
regulations (including regulations of successor agencies) and would infuse any
additional capital required to comply with such regulations. Under the terms of
the regulatory capital maintenance agreement, FFC's capital injection obligation
is unlimited in amount, and is not terminated unless or until it no longer
controls the Bank. In the event the Bank's capital levels fall below those
required under OTS capital regulations, the agreement requires FFC to inject
additional capital into the Bank regardless of the amount. The failure to inject
such capital could lead to enforcement proceedings, including cease and desist
proceedings, against FFC. In addition, in the event FFC were to seek bankruptcy
law protection, the obligation to maintain the Bank's capital at required
regulatory levels would be required to be assumed by a bankruptcy trustee and
would be entitled to priority over the claims of unsecured creditors, including
holders of the Notes.

INSURANCE OF ACCOUNTS

The FDIC administers two separate deposit insurance funds. The Bank
Insurance Fund (the "BIF") insures the deposits of commercial banks and other
institutions which were insured by the FDIC prior to the enactment of FIRREA.
The SAIF insures the deposits of savings institutions which were insured by the
FSLIC prior to the enactment of FIRREA. 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.

FDICIA required the FDIC to implement a risk-based assessment system, under
which an institution's 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. The FDIC adopted a transitional risk-based assessment system effective
January 1, 1993.

During 1993, the FDIC adopted a final rule to implement the risk-based
assessment system, effective January 1, 1994. The final rule uses the same
assessment rates as a percentage of deposits and the same assessment categories
as specified in the transitional risk-based assessment system.

Under the risk-based assessment system, a savings institution is
categorized into one of three capital categories: well capitalized, adequately
capitalized, and undercapitalized. A savings institution is also categorized
into one of three supervisory subgroup categories based on evaluations by the
OTS: Group A, financially sound with only a few minor weaknesses; Group B,
demonstrated weaknesses that could result in significant deterioration; and
Group C, poses a substantial probability of loss to the SAIF. The capital ratios
used by the FDIC to define well capitalized, adequately capitalized and
undercapitalized are the same as defined in the OTS's "prompt corrective action"
regulation. A schedule detailing the FDIC assessment rates as a percentage of
deposits follows:

<TABLE>
<CAPTION>
GROUP A GROUP B GROUP C
------- ------- -------
<S> <C> <C> <C>
Well Capitalized............................... 0.23% 0.26% 0.29%
Adequately Capitalized......................... 0.26 0.29 0.30
Undercapitalized............................... 0.29 0.30 0.31
</TABLE>

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<PAGE> 46

In addition to the above deposit insurance assessments, the OTS has imposed
assessments and examination fees on savings institutions. OTS assessments for
the Bank increased to $531,000 in 1993, from $482,000 in 1992 and $433,000 in
1991.

In December 1993, President Clinton signed legislation which provides
funding for the RTC and the SAIF. Among other things, the legislation authorizes
$8 billion to provide the SAIF with funds for the resolution of troubled savings
associations upon the expiration of the RTC's new case resolution authority.
Appropriation of the $8 billion would only occur after the Chairperson of the
FDIC certifies to the Congress that funds from that source are necessary under
certain conditions set forth in the legislation. In the absence of such
certification, an increase in SAIF premiums is likely since the legislation
requires that both the SAIF and the BIF can be recapitalized to a reserve ratio
of 1.25% of insured deposits. Such an increase would perpetuate the current
disparity in deposit insurance premiums between members of SAIF and members of
BIF administered by the FDIC. A significant increase in SAIF insurance premiums
and a long-term reduction in BIF insurance premiums would have an adverse effect
on the Bank's operating expenses and results of operations and could place the
Bank and other SAIF-insured institutions at a competitive disadvantage relative
to BIF-insured institutions.

LIQUIDITY

Federal regulations currently require a savings institution to maintain a
monthly average daily balance of liquid assets (including cash, certain time
deposits, bankers' acceptances and specified United States government, state or
federal agency obligations) equal to at least 5% of the average daily balance of
its net withdrawable accounts and short-term borrowings during the preceding
calendar month. This liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10% of such accounts and
borrowings depending upon economic conditions and the deposit flows of member
institutions. Federal regulations also require each member institution to
maintain a monthly average daily balance of short-term liquid assets (generally
those having maturities of 12 months or less) equal to at least 1% of the
average daily balance of its net withdrawable accounts and short-term borrowings
during the preceding calendar month. Monetary penalties may be imposed for
failure to meet these liquidity ratio requirements. The Bank's liquidity and
short-term liquidity ratios for the calculation period ended March 31, 1994,
were 5.3% and 2.1%, respectively, which exceeded the applicable requirements.

COMMUNITY REINVESTMENT ACT

The Community Reinvestment Act ("CRA") requires each savings institution,
as well as commercial banks and certain other lenders, to identify the
communities served by the institution 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 savings and loan holding company acquisitions. An unsatisfactory CRA
rating may be the basis for denying such an application and community groups
have successfully protested applications on CRA grounds. 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 1994. A new CRA regulation has been proposed by the OTS
which would significantly change the manner in which the OTS assesses CRA
compliance. Under the proposed regulations, institutions would be evaluated
based on: (i) performance in lending in their delineated service areas; (ii) the
provision of deposit services in their delineated service areas; and (iii) the
impact their investments have on their delineated service areas. The current
regulations focus on an institution's adherence to procedures designed to serve
its community's credit needs rather than an institution's actual performance in
meeting its community's credit needs. Under the proposed regulations an
institution which is found to be deficient in its performance in meeting its
community's credit needs may be subject to enforcement actions, including cease
and desist orders and civil money penalties. The Company is unable to predict
whether the proposed regulations will be adopted and, if so, what form they will
take.

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<PAGE> 47

CLASSIFICATION OF ASSETS

Federal regulations require savings institutions to review their assets on
a regular basis and to classify them as "substandard," "doubtful" or "loss" if
warranted. Adequate valuation allowances for loan losses, consistent with
generally accepted accounting principles, are required to be established for
assets classified as substandard or doubtful. If an asset is classified as loss,
the institution must either charge it off, or establish a specific allowance for
loss in an amount equal to the amount classified as loss. An asset which
currently does not warrant classification as substandard but which possesses
weaknesses or deficiencies deserving close attention is required to be
designated as "special mention." The institution's OTS District Director has the
authority to approve, disapprove or modify any asset classification and any
amounts established as allowances for loan losses.

RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS

Savings association subsidiaries of holding companies generally are
required to provide not less than thirty days' advance notice to their OTS
District Director of any proposed declaration of a dividend on the association's
stock.

Under OTS regulations limitations are imposed on "capital distributions" by
savings institution, including cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger and other distributions charged against capital. The
regulations, which establish a three-tiered system of regulation, establish
"safe-harbor" amounts of capital distributions that institutions can make after
providing notice to the OTS, but without needing prior approval. Institutions
can distribute amounts in excess of the safe-harbor only with the prior approval
of the OTS. Under the OTS regulation, a Tier 1 association, which is a savings
association that before and after the proposed distribution meets or exceeds its
fully phased-in capital requirements, may make capital distributions during any
calendar year up to the higher of 100% of net income for the calendar
year-to-date plus 50% of its "surplus capital ratio" at the beginning of the
calendar year, or 75% of its net income over the most recent four-quarter
period. The "surplus capital ratio" is defined as the percentage by which the
association's ratio of total capital to assets exceeds the ratio of its fully
phased-in capital requirement to assets and "fully phased-in capital
requirement" is defined to mean an association's capital requirement under the
statutory and regulatory standards to be applicable on January 1, 1995, as
modified to reflect any applicable individual minimum capital requirements
imposed upon an association. At March 31, 1994, the Bank qualified as a Tier 1
institution for purposes of this regulation.

Tier 2 associations, which are associations that before and after the
proposed distribution meet or exceed their minimum capital requirements, may
make capital distributions over the most recent four quarter period up to 75% of
their net income during that four quarter period.

Tier 3 associations, which are associations that do not meet current
minimum capital requirements, or are in need of more than normal supervision,
cannot make any capital distribution without obtaining prior OTS approval.

Although the OTS has not prohibited the Bank from making an otherwise
authorized capital distribution, the OTS nevertheless retains the authority to
prohibit any capital distribution otherwise authorized under the regulation if
the OTS determines that the capital distribution would constitute an unsafe or
unsound practice. The regulation also states that the capital distribution
limitations apply to direct and indirect distributions to affiliates, including
those occurring in connection with corporate reorganizations. Moreover, the Bank
would not be permitted to pay cash dividends if it were deemed to be an
"undercapitalized" institution for purposes of the "prompt corrective action"
rules of FDICIA. At March 31, 1994, the Bank met the standards necessary to be
deemed to be "adequately capitalized" for purposes of the "prompt corrective
action" rules and, at the same date, would have met the standards necessary to
be deemed "well capitalized," after giving pro forma effect to (i) the
provisions for loan losses announced on June 20, 1994 and (ii) the contribution
by FFC to the Bank of the net proceeds of the Offering.

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<PAGE> 48

LIMITS ON TYPES OF LOANS AND INVESTMENTS

Federal savings associations 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 FHLB or
stock of FNMA; certain mortgages, obligations, or other securities which have
been sold by FHLMC; and certain securities issued by, or fully guaranteed as to
principal and interest by, FNMA, 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, limited to
10% of assets; loans on the security of liens upon nonresidential real property,
limited to 400% of capital except when the Director of the OTS permits an
association to exceed such limits; investments in personal property, limited to
10% of assets; consumer loans and certain securities such as commercial paper
and corporate debt, limited to 35% of assets; and construction loans without
security, which may not exceed the greater of an association's capital or 5% of
its assets.

SAFETY AND SOUNDNESS STANDARDS

The OTS has proposed various "safety and soundness" standards covering
various aspects of the operations of savings institutions pursuant to a
requirement of FDICIA that such standards be adopted by the federal banking
agencies. The proposed regulations include standards relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, maximum
ratios of classified assets to capital (a maximum ratio of classified assets to
risk-based total capital plus ineligible general valuation allowances of 1.0 has
been proposed, but lower ratios are also being considered), and minimum earnings
sufficient to absorb losses without impairing capital. A savings institution not
meeting one or more of such standards would be required 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. FFC is unable to
predict the form in which such regulations will be adopted or the impact, if
any, that such adoption would have on the Bank or FFC.

PROMPT CORRECTIVE ACTION

FDICIA contains "prompt corrective action" provisions pursuant to which
insured depository institutions are to be classified into one of five categories
based primarily upon capital adequacy, ranging from "well capitalized" to
"critically undercapitalized" and which 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." These provisions expand the powers and duties
of the OTS and the FDIC and expressly authorize, or in many cases direct,
regulatory intervention at an earlier state than was previously the case.

The OTS regulations implementing the "prompt corrective action" provisions
of FDICIA define the five capital categories as follows: (i) a savings
institution is "well capitalized" if it has a total risk-based capital ratio
(total capital to risk-weighted assets) of 10% or greater, has a Tier 1
risk-based capital ratio (Tier 1 capital to risk-weighted assets) of 6% or
greater, has a core capital ratio (core capital to total assets) of 5% or
greater and is not subject to any written capital order or directive to meet and
maintain a specific capital level or any capital measure; (ii) a savings
institution is "adequately capitalized" if it has a total risk-based capital
ratio of 8% or greater, has a Tier 1 risk-based capital ratio of 4% or greater
and has a core capital ratio of 4% or greater (3% for certain highly rated
institutions); (iii) a savings institution is "undercapitalized" if it has a
total risk-based capital ratio of less than 8% or has either a Tier 1 risk-based
or a core capital ratio that is less than 4%; (iv) a savings institution is
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6%, or has either a Tier 1 risk-based or a core capital ratio that
is less than 3%; and (v) a savings institution is "critically undercapitalized"
if its "tangible equity" (defined in the "prompt corrective action" regulations
to mean

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<PAGE> 49

core capital plus cumulative perpetual preferred stock) is equal to or less than
2% of its total assets. The OTS also has authority, after an opportunity for a
hearing, to downgrade a savings institution from "well capitalized" to
"adequately capitalized", or to subject an "adequately capitalized" or
"undercapitalized" savings institution to the supervisory actions applicable to
the next lower category, for supervisory concerns. At March 31, 1994, the Bank's
regulatory capital was in excess of the amount necessary to be "adequately
capitalized." At March 31, 1994, after giving pro forma effect to (i) the $55.0
million provision for loan losses announced on June 20, 1994, and (ii) the
contribution by FFC to the Bank of the net proceeds of the Offering, the Bank's
regulatory capital would have been in excess of the amount necessary to be "well
capitalized."

Generally, FDICIA requires that an "undercapitalized" institution submit an
acceptable capital restoration plan to the appropriate federal banking agency
within 45 days after the institution becomes undercapitalized and the agency
must take action on the plan within 60 days. The appropriate federal banking
agency may not accept a capital restoration plan unless, among other
requirements, each company having control of the institution has guaranteed that
the institution will comply with the plan until the institution has been
adequately capitalized on average during each of four consecutive calendar
quarters and has provided adequate assurance of performance. The aggregate
liability under this provision of all companies having control of an institution
is limited to the lesser of (i) 5% of the institution's total assets at the time
the institution became "undercapitalized" or (ii) the amount which is necessary,
or would have been necessary, to bring the institution into compliance with all
capital standards applicable to the institution at the time the institution
fails to comply with a plan filed pursuant to FDICIA.

Pursuant to FDICIA and implementing regulations adopted by the FDIC, 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 currently obtains
brokered deposits pursuant to a waiver obtained from the FDIC, which expires on
August 27, 1994. The Bank will be able to continue to obtain new brokered
deposits after this date only if it is either "well capitalized" or receives
another waiver. See "Business -- Sources of Funds."

An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan and the agency determines that the proposed
action is consistent with and will further the achievement of the plan, or the
FDIC determines that the proposed action will further the purpose of the "prompt
corrective action" sections of FDICIA.

Under FDICIA, the OTS must place a "critically undercapitalized,"
institution in conservatorship or receivership within 90 days after it becomes
"critically undercapitalized" or take such other actions as the OTS, with the
concurrence of the FDIC, deems appropriate. In addition, the institution must
comply with the restriction described above and must discontinue, beginning 60
days after becoming critically undercapitalized, any payment of principal and
interest on its subordinated debt unless the FDIC determines that an exception
to this provision would further the purposes of FDICIA. The FDIC is authorized
to restrict the activities of any critically undercapitalized institution and to
prohibit such an institution, with the FDIC's prior written approval, from: (i)
entering into any material transaction other than in the usual course of
business; (ii) engaging in any covered transaction (as defined in Section 23A(b)
of the Federal Reserve Act) with affiliates; (iii) paying excessive compensation
or bonuses; and (iv) paying interest on new or renewed liabilities at a rate
that would increase the institution's weighted average cost of funds to a level
significantly exceeding the prevailing rates of interest on insured deposits in
the institution's normal market areas.

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<PAGE> 50

QUALIFIED THRIFT LENDER TEST

In general, the Qualified Thrift Lender ("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 become subject to restrictions on its
ability to obtain FHLB advances. The Bank met the QTL test at March 31, 1994,
with 93.4% of its portfolio assets comprised of "qualified thrift investments."

TRANSACTIONS WITH AFFILIATES

Federal savings associations are subject to the provisions of Section 23A
of the Federal Reserve Act, which place limits as to the amount of 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. In addition, most of these loans
and certain other transactions must be secured in prescribed amounts. Federal
savings associations may not make any extension of credit to an affiliate which
is engaged in activities not permitted to bank holding companies, and may not
invest in securities issued by an affiliate (except with respect to a
subsidiary). FFC is an "affiliate" of the Bank for the purposes of these
provisions.

Federal savings associations are also subject to the provisions of Section
23B of the Federal Reserve Act which, among other things, prohibit an
institution from engaging in certain transactions (including, for example,
loans) with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable to such institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
or involving non-affiliated companies. In the absence of such comparable
transactions, any transaction between a savings association and its affiliates
must be on terms and under circumstances, including credit standards, that in
good faith would be offered to, or would apply to, nonaffiliated companies.

TRANSACTIONS WITH INSIDERS

Federal savings associations 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 that 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
unimpaired 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 is 3% of the first $42.2 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 Federal Reserve Board eliminated its reserve
requirements for non-personal time deposits during 1990. A depository
institution is exempt from reserve requirements with respect to amounts not in
excess of $3.4 million, applied first to transaction accounts and then to
non-personal time deposits, if any. The Bank is in compliance with these
requirements.

ACCOUNTING MATTERS

The Director of the OTS must prescribe uniform accounting and disclosure
standards for savings institutions. The uniform accounting standards must
incorporate generally accepted accounting princi-

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<PAGE> 51

ples ("GAAP") to the same degree used to determine compliance with federal
banking agency regulations, with an exception for the regulatory capital
requirement described above. No allowance for a deviation from full compliance
with such standards may be permitted after December 31, 1993. All regulations
and policies of the OTS governing the safe and sound operation of savings
institutions, including regulation of the Bank and policies governing asset
classification and appraisals, must be no less stringent than those established
by the Office of the Comptroller of the Currency ("OCC") for national banks. The
Bank's financial statements are prepared in accordance with GAAP.

A policy statement issued by the OTS and applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies and must be accounted for in accordance with
GAAP. Management must support its classification of and accounting for loans and
securities (i.e., whether held for investment, sale or trading) with appropriate
documentation.

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 Bank can elect annually one of two methods to compute its additions to
the bad debt reserve on qualifying real property loans: (i) the percentage of
taxable income method or (ii) the experience method. Qualifying real property
loans are generally loans secured by an interest in real property, and
non-qualifying loans are all other loans. The deduction with respect to
non-qualifying loans must be computed under the experience method. The Bank
intends to compute its annual bad debt reserve deduction for qualifying real
property loans under the method which permits the maximum allowable deduction.

The allowable deduction under the percentage of taxable income method is
available in a particular taxable year only if at least 60% of the Bank's total
assets are qualifying assets at the close of such year. Qualifying assets
include, among other things, cash, U.S. government obligations, certificates of
deposit, loans secured by an interest in residential real property and loans
made for payment of expenses of college or university education. Qualifying
savings banks, such as the Bank, which file consolidated income tax returns as
part of an affiliated group, are required to reduce the basis for computing
their bad debt reserve deduction (if computed under the percentage of taxable
income method) for tax losses attributable to activities of the non-savings and
loan members of the group that are functionally related to the activities of the
savings and loan members. The percentage of taxable income method deduction is
also subject to other limitations which did not affect the Bank's bad debt
deduction under the percentage of taxable income method in 1991 when the Bank
deducted an amount equal to 8% of its taxable income as an addition to its bad
debt reserve.

In 1993 and 1992, the Bank was allowed an addition to its tax bad debt
reserves under the experience method equal to the amount necessary to bring the
tax reserve balance to the level that was established at December 31, 1987. In
accordance with the Tax Reform Act of 1986, the Bank generally may maintain the
balance of its tax reserve at the December 31, 1987 level, even if the result
would be less using the experience method; however, if the amount of the Bank's
loans outstanding at the end of a particular year is less than the Bank's loans
outstanding on December 31, 1987, then for such year the Bank may maintain the
balance of its tax reserve at a level equal to the amount which bears the same
ratio to loans outstanding at the close of such year as the balance of the
reserve on December 31, 1987 bears to the amount of loans outstanding on
December 31, 1987. If the Bank were to fail the 60% qualifying asset test, it
would no longer be permitted to calculate its bad debt deductions under the
reserve method. In that case, the Bank would be required generally to change to
the specific charge-off method of accounting for bad debts and would be required
to include the amount of its reserve in income over a six-year period.

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

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<PAGE> 52

To the extent that distributions by the Bank to FFC that are permitted
under federal regulations exceed the Bank's earnings and profits (as computed
for federal income tax purposes), such distributions would be treated for tax
purposes as being made out of the Bank's excess bad debt reserve and would
thereby constitute taxable income to the Bank in an amount equal to the lesser
of the Bank's excess bad debt reserve or the amount which, when reduced by the
amount of income tax attributable to the inclusion of such amount in gross
income, is equal to the amount of such distribution. At December 31, 1993, the
Bank's excess debt reserve was zero. At March 31, 1994, the Bank's earnings and
profits (as computed for federal income tax purposes) were approximately $141.5
million.

The maximum marginal federal corporate income tax rate was 34% in 1991 and
1992. Under the Omnibus Tax Act of 1993, the maximum marginal corporate tax rate
was increased to 35%.

The Company implemented Statement of Financial Accounting Standards No. 109
("SFAS No. 109") on a prospective basis during 1992. SFAS No. 109 establishes
new accounting principles for calculating income taxes using the asset and
liability method instead of the deferred method. In applying the asset and
liability method using SFAS No. 109, deferred tax assets and liabilities are
established at the reporting date for the realizable cumulative temporary
differences between the financial reporting and tax return bases of the Bank's
assets and liabilities. The tax rates applied are the statutory rates expected
to be in effect when the temporary differences are realized or settled. The
application of SFAS No. 109 entitled the Bank to a tax benefit of $4.1 million
during 1992, due primarily to the fact that the difference between the federal
and state tax bad debt reserves and the book bad debt reserves is now deductible
as a timing difference under SFAS No. 109.

At December 31, 1993, the Bank had $20.4 million in 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. Deferred tax
liabilities totaled $36.8 million at December 31, 1993.

The Bank is subject to an alternative minimum tax if such tax is larger
than the tax otherwise payable. Generally, alternative minimum taxable income is
a taxpayer's regular taxable income, increased by the taxpayer's tax preference
items for the year and adjusted by computing certain deductions in a special
manner which negates the acceleration of such deductions under the regular tax.
The adjusted income is then reduced by an exemption amount and is subject to tax
at a 20% rate. (In addition, the Bank is subject to an additional environmental
tax of 0.12% of its alternative minimum taxable income with certain adjustments
and exclusions.) The excess of the addition to the bad debt reserve computed
under the percentage of taxable income method over the increase in the reserve
calculated on the basis of actual experience is an item of tax preference. No
alternative minimum taxes were applicable to the Bank for tax years 1993, 1992
or 1991.

California tax laws have generally conformed to federal tax laws since
several provisions of the Tax Act of 1986 were adopted in September 1987.

For California franchise tax purposes, federal savings banks are taxed as
"financial corporations" at a higher rate than that applicable to non-financial
corporations because of exemptions from certain state and local taxes. Under
present law, the California franchise tax rate applicable to financial
corporations may vary each year. The tax rates for 1991, 1992 and 1993 were
10.741%, 11.007% and 11.107%, respectively. The tax rate for 1994 will be
11.469%.

In 1991, the California Supreme Court's decision in California Federal
Savings and Loan Association vs. City of Los Angeles which upheld the statutory
exemption of savings institutions and other non-bank financial corporations from
local business taxes, became final. The Bank was a plaintiff in this lawsuit and
received a $365,000 refund during 1992.

The Company's tax returns have been audited by the IRS through December 31,
1983 and by the California Franchise Tax Board through December 31, 1988. For
additional information regarding the federal income and California franchise
taxes payable by the Company, see note 9 of the Notes to Consolidated Financial
Statements.

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<PAGE> 53

The Bank's federal income tax returns for tax years 1984, 1985 and 1986
have been under examination by the IRS since 1989. There are pending industry
issues which relate to the timing of income recognition on loan sales and loan
fees. While the Company has provided for deferred taxes for both federal and
state purposes, a change in the period of income recognition could result in
additional interest due to the government. Although the outcome of the audit is
not known at this time, and it may take several years to resolve any disputed
matters, the Bank recorded charges of $1.8 million, $3.4 million and $2.3
million in 1993, 1992 and 1991, respectively, as accrued interest on possible
tax adjustments (based on probability weighted estimates) which may be required
in connection with federal and state tax returns for all periods affected by
such income recognition issue. The estimated interest accruals will be
continually updated in the future based on relevant tax rulings and the
progression of the audit and other cases in the courts. In December 1993, the
IRS began examining the Company's federal income tax returns for tax years 1987
and 1988. There can be no assurance that the amounts accrued for interest on
such tax liabilities will be adequate to satisfy amounts which may become due
when such issues are resolved.

DESCRIPTION OF THE NOTES

The Notes are to be issued under an Indenture, to be dated at ,
1994 (the "Indenture"), between FFC and , as Trustee (the
"Trustee").

The Indenture is by its terms subject to and governed by the Trust
Indenture Act of 1939, as amended. The statements under this caption relating to
the Notes and the Indenture are summaries and do not purport to be complete, and
where reference is made to particular provisions of the Indenture, such
provisions, including the definition of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. Unless otherwise indicated, references under this
caption to sections, "sec." or articles are references to the Indenture. A copy
of the Indenture substantially in the form in which it is to be executed has
been filed with the Commission as an exhibit to the Registration Statement of
which this Prospectus is a part.

GENERAL

The Notes will be general unsecured obligations of FFC, will be limited to
$50 million aggregate principal amount and will mature on , 2004. The
Notes are not savings accounts or deposits of the Bank and are not insured by
the FDIC or any other governmental agency.

The Notes will bear interest at the rate per annum shown on the front cover
of this Prospectus from , 1995 or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semi-annually on and of each year, commencing
, 1995, to the Person in whose name the Note (or any predecessor Note)
is registered at the close of business on the preceding or
, as the case may be. Interest on the Notes will be computed on
the basis of a 360-day year of twelve 30-day months. (sec.sec. 301, 307 and 310)
Principal of and premium, if any, and interest on the Notes will be payable at
the Corporate Trust Office of the paying agent, in New York, New York.
At the option of FFC, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register.
(Sections 301, 305 and 1002)

OPTIONAL REDEMPTION

The Notes will be subject to redemption, at the option of FFC, in whole or
in part, at any time on or after , 1999 and prior to maturity,
upon not less than 30 nor more than 60 days' notice mailed to each Holder of
Notes to be redeemed at his address appearing in the Security Register, in
amounts of $1,000 or an integral multiple of $1,000, at the following Redemption
Prices (expressed as percentages of principal amount) plus accrued interest to
but excluding the Redemption Date (subject to the right of Holders of Record on
the relevant Regular Record Date to receive interest due on an

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<PAGE> 54

Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning of the years indicated:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1999..................................... %
2000..................................... %
---
2001 and thereafter...................... 100%
</TABLE>

(Sections 203, 1101, 1105 and 1107)

If less than all the Notes are to be redeemed, the Trustee shall select, in
such manner as it shall deem fair and appropriate, the particular Notes to be
redeemed or any portion thereof that is an integral multiple of $1,000. (sec.
1104)

The Notes will not have the benefit of any sinking fund obligation.

Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar. (sec. 305)

FORM, DENOMINATION AND BOOK-ENTRY PROCEDURES

The Notes initially will be represented by a global Note or Notes
(collectively, the "Book-Entry Notes") in definitive fully registered form
without coupons, which will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") as depositary and registered in the name of DTC's nominee.
Accordingly, beneficial interests in the Notes will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. Except as set forth below, owners of beneficial interests in the
Book-Entry Notes will not be entitled to receive Notes in definitive form and
will not be considered Holders of Notes under the Indenture.

The Depositary has advised FFC and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under the Exchange Act. The Depositary was created
to hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
Depositary agrees with and represents to its participants that it will
administer its book-entry system in accordance with its rules and by-laws and
requirements of law.

In connection with the issuance of the Book-Entry Notes, DTC will credit on
its book-entry registration and transfer system the respective principal amounts
of Book-Entry Notes represented by the global Note or Notes deposited with it to
the accounts of institutions that have accounts with DTC or its nominee
("participants") and that beneficially own (or hold for persons who beneficially
own) such Book-Entry Notes. Ownership of beneficial interests in Book-Entry
Notes will be limited to participants or persons that may hold beneficial
interests through participants. Ownership of beneficial interests in Book-Entry
Notes will be shown on, and the transfer of those ownership interests will be
effected only through, records maintained by DTC (with respect to participants'
interests) or such participants (with respect to persons that may hold
beneficial interests in the Book-Entry Notes through such participants).

So long as DTC or its nominee is the registered holder and owner of a
global Note representing Book-Entry Notes, DTC or such nominee, as the case may
be, will be considered the sole owner and Holder of

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<PAGE> 55

the related Book-Entry Notes for all purposes of such Book-Entry Notes and for
all purposes under the Indenture. Therefore, neither FFC, the Trustee nor any
paying agent has any direct responsibility or liability for the payment of
principal or interest or premium, if any, on the Notes to owners of beneficial
interests in the Book-Entry Notes. DTC has advised FFC and the Trustee that its
current practice is, upon receipt of any payment of principal or interest or
premium, if any, to immediately credit the accounts of the participants with
such payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Book-Entry Notes as shown in the records
of DTC. Payments by participants and indirect participants to owners of
beneficial interests in the Book-Entry Notes will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of the participants or indirect participants.

Owners of beneficial interests in the Book-Entry Notes will not be entitled
to have Notes registered in their names, will not receive or be entitled to
receive physical delivery of certificated Notes in definitive form and will not
be considered to be the owners or holders of any Notes under the Indenture or of
such Book-Entry Notes, unless (a) DTC notifies FFC that it is unwilling or
unable to continue as depositary for such Book-Entry Notes, (b) DTC ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, (c) FFC
delivers to the Trustee a written notice that all Book-Entry Notes shall be
exchangeable for definitive Notes or (d) an Event of Default or event that after
notice or lapse of time, or both, would become an Event of Default has occurred
and is continuing with respect to the Notes.

Payment of principal of and premium and interest, if any, on Book-Entry
Notes will be made to the depositary or its nominee, as the case may be, as the
registered owner and holder thereof.

The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that FFC believes to be reliable, but FFC takes
no responsibility for the accuracy thereof.

CERTAIN COVENANTS

The Indenture contains, among others, the following covenants:

LIMITATION ON FFC FUNDED DEBT

FFC may not Incur any Funded Debt unless, after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds thereof,
FFC's Funded Debt would be less than 90% of FFC's Tangible Net Worth at the date
of the most recent financial statements filed with the Commission and, of this
amount, Funded Debt of FFC that would rank by its terms, in bankruptcy or
otherwise, pari passu with the Notes would be less than 50% of FFC's Tangible
Net Worth at the date of the most recent financial statements filed with the
Commission.

Notwithstanding the foregoing limitation, FFC may Incur Funded Debt
Incurred to renew, extend, refinance or refund (each, a "refinancing") any
outstanding Funded Debt (or Debt which at the time of original Incurrence was
Funded Debt) Incurred in compliance with the Indenture in an aggregate principal
amount not to exceed the principal amount of the Debt so refinanced plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt so refinanced or the amount of any premium
reasonably determined by FFC as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the expenses of
FFC incurred in connection with such refinancing; provided, however, that Funded
Debt the proceeds of which are used to refinance Debt which is pari passu to the
Notes or subordinate in right of payment to the Notes shall only be permitted if
(A) in the case of any refinancing of Debt which is pari passu to the Notes, the
refinancing Debt is made pari passu to the Notes or subordinated to the Notes,
and, in the case of any refinancing of Debt which is subordinated to the Notes,
the refinancing Debt constitutes Subordinated Debt and (B) in either case, the
refinancing Funded Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Funded Debt is issued, (x) does not provide
for payments of principal of such Funded Debt at the stated maturity thereof or
by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by FFC (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances,

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<PAGE> 56

but excluding any retirement required by virtue of acceleration of such Funded
Debt upon any event of default thereunder), in each case prior to the stated
maturity of the Debt being refinanced and (y) does not permit redemption or
other retirement (including pursuant to an Offer to Purchase made by FFC) of
such Funded Debt at the option of the holder thereof prior to the final stated
maturity of the Debt being refinanced, other than a redemption or other
retirement at the option of the holder of such Funded Debt (including pursuant
to an Offer to Purchase made by FFC) which is conditioned upon a change
substantially similar to those described under "Change of Control". (sec. 1008)

LIMITATION ON RESTRICTED PAYMENTS

FFC may not, and may not permit any Subsidiary of FFC to, directly or
indirectly, (i) declare or pay any dividend, or make any distribution, in
respect of its Capital Stock or to the holders thereof (including pursuant to a
merger or consolidation of FFC or such Subsidiary, but excluding (a) any pro
rata dividend or distribution payable solely in shares of its Capital Stock or
in options, warrants or rights to acquire shares of its Capital Stock, (b) any
dividends or distributions payable by any Subsidiary to FFC or another
Subsidiary) and (c) any dividends or distributions payable by any Subsidiary pro
rata to the holders of such Subsidiary's Capital Stock, (ii) purchase, redeem,
or otherwise retire or acquire for value (a) any Capital Stock of FFC, any
Subsidiary of FFC (other than a Wholly Owned Subsidiary) or any Related Person
of FFC or (b) any options, warrants or rights to purchase or acquire shares of
Capital Stock of FFC, any Subsidiary of FFC or any Related Person of FFC or any
securities convertible or exchangeable into shares of Capital Stock of FFC, any
Subsidiary of FFC or any Related Person of FFC, (iii) make any Investment in any
Person, other than a Permitted Investment, (iv) redeem, defease, repurchase,
retire or otherwise acquire or retire for value prior to any scheduled maturity,
repayment or sinking fund payment, Debt of FFC (other than the Notes and other
than in exchange for, or in an amount not in excess of the net proceeds of, a
substantially concurrent issue and sale (other than to a Subsidiary) of shares
of any class of Capital Stock (other than Redeemable Stock) of FFC), and (v)
make any Investment in any Unrestricted Subsidiary (each of clauses (i) through
(v) being a "Restricted Payment") if: (1) an Event of Default, or an event that
with the lapse of time or the giving of notice, or both, would constitute an
Event of Default, shall have occurred and be continuing, (2) upon giving effect
to such Restricted Payment, FFC would not be able to Incur $1 of additional Debt
in accordance with the limitations described under the first paragraph of
"Limitation on FFC Funded Debt", or (3) upon giving effect to such Restricted
Payment, the aggregate of all Restricted Payments from the date of the Indenture
exceeds the sum of: (a) $7.5 million plus (b) 50% of cumulative Consolidated
Adjusted Net Income after June 30, 1994 through the last day of the last full
fiscal quarter immediately preceding such Restricted Payment for which quarterly
or annual financial statements of FFC are available (or if such cumulative
Consolidated Adjusted Net Income shall be a deficit, minus 100% of such deficit)
plus (c) 100% of the aggregate net proceeds, including the fair value of
property other than cash (determined in good faith by the Board of Directors of
FFC as evidenced by a resolution of the Board of Directors filed with the
Trustee), (without duplication, including the issuance of Capital Stock in (iv)
above) from (1) the issuance of Capital Stock (other than Redeemable Stock) of
FFC; (2) the issuance or exercise of options, warrants or other rights on
Capital Stock (other than Redeemable Stock) of FFC (other than to a Subsidiary
of FFC); and (3) the amount by which Debt or Redeemable Stock of FFC is reduced
on FFC's balance sheet upon the conversion of such Debt or Redeemable Stock into
Capital Stock (other than Redeemable Stock) of FFC (other than by a Subsidiary
of FFC) after the date of the Indenture plus (d) any dividends or distributions
or other similar payments paid to FFC or any Subsidiary of FFC by any
Unrestricted Subsidiary after the date of the Indenture plus (e) the amount of
any repayment (other than a dividend, distribution or other similar payment) to
the Company or a Subsidiary of FFC of any Investment in, an Unrestricted
Subsidiary, Affiliate or Related Person to the extent such Investment resulted
in the making of a Restricted Payment; provided that, in the case of clauses (d)
and (e), Consolidated Adjusted Net Income for the purposes of clause (b) above
only, shall not include the amount of any such payments.

The foregoing provision will not be violated by reason of (i) the payment
of any dividend within 60 days after the declaration thereof if at the
declaration date such payment would have complied with

55
<PAGE> 57

the foregoing provision, (ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of FFC or any Related
Person of FFC, in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which cash is
paid in lieu of the issuance of fractional shares or scrip) or out of the net
cash proceeds of a substantially concurrent issue and sale of shares of Capital
Stock (other than Redeemable Stock) of FFC, (iii) the purchase, redemption,
acquisition, cancellation or other retirement for value of shares of Capital
Stock of FFC, options on any such shares or related stock appreciation rights or
similar securities held by officers or employees or former officers or employees
(or their estates or beneficiaries under their estates) or by any employee
benefit plan, upon death, disability, retirement or termination of employment or
pursuant to the terms of any employee benefit plan or any other agreement under
which such shares of stock or related rights were issued, provided that the
aggregate cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock after the date
of the Indenture does not exceed $1 million in any fiscal year; (iv) the
repurchase, redemption, defeasance, retirement, refinancing, acquisition for
value or payment of principal of any Subordinated Debt (other than Redeemable
Stock) (a "refinancing") through the issuance of new Subordinated Debt of FFC,
new Bank Subordinated Debt or new Debt of any other Subsidiary of FFC which is
subordinated to the Notes to the same extent as Subordinated Debt, provided that
any such new Debt (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Debt provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration or acceleration thereof, then such lesser amount calculated at the
date of determination), plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so refinanced
or the amount of any premium reasonably determined by FFC as necessary to
accomplish such refinancing by means of a tender offer or privately negotiated
repurchase, plus the expenses of FFC incurred in connection with such
refinancing; (2) has an average life to stated maturity greater than or equal to
the remaining average life to stated maturity of the Debt so refinanced (or, if
shorter, the Notes); and (3) is expressly subordinated in right of payment to
the Notes at least to the same extent as the Subordinated Debt to be refinanced,
(v) unsecured loans to directors or executive officers of FFC or any of its
Subsidiaries made after the date of the Indenture not in the ordinary course of
business in an amount not to exceed $1.5 million in the aggregate at any one
time outstanding, (vi) mortgage and consumer loans to officers, directors or
employees of FFC or its Subsidiaries made by the Bank after the date of the
Indenture in the ordinary course of business, or (vii) payments made pursuant to
tax sharing or tax allocation agreements from Subsidiaries of FFC to FFC or
another Subsidiary of FFC. (sec. 1009)

LIMITATIONS CONCERNING DISTRIBUTIONS BY SUBSIDIARIES

FFC may not, and may not permit any Subsidiary of FFC to, suffer to exist
any consensual encumbrance or restriction (other than pursuant to a Regulatory
Requirement) on the ability of such Subsidiary (i) to pay directly or indirectly
dividends or make any other distributions in respect of its Capital Stock or pay
any Debt or other obligation owed to FFC or any other Subsidiary of FFC; (ii) to
make loans or advances to FFC or any Subsidiary of FFC; or (iii) to transfer any
of its property or assets to FFC. Notwithstanding the foregoing, FFC may permit
a Subsidiary to suffer to exist any such encumbrance or restriction (a) pursuant
to an agreement relating to any Debt Incurred by such Subsidiary prior to the
date on which such Subsidiary was acquired, directly or indirectly, by FFC and
outstanding on such date and not Incurred in anticipation of becoming a
Subsidiary of FFC; (b) pursuant to any agreement existing on the date of the
Indenture, and any extension or renewal thereof; (c) pursuant to agreements
governing Bank Subordinated Debt that (1) prohibit distributions when (A) an
event of default under such agreement has occurred, (B) after giving effect to
such distribution, the Bank would fail to meet the regulatory capital standards
necessary to be deemed a "Tier 1 Institution" under OTS regulations, and (C)
provide for restrictions on distributions that are no more restrictive than the
provisions set forth in the "Limitations on Restricted Payments" covenant
described above, or (d) pursuant to an agreement effecting a renewal, refunding,
refinancing or extension of Debt or Preferred Stock Incurred pursuant to an
agreement referred to in clause (a) above; provided, however, that the
provisions contained in such renewal, refunding, refinancing or extension
agreement relating to

56
<PAGE> 58

such encumbrance or restriction are no more restrictive in any material respect
than the provisions contained in the agreement the subject thereof in the
reasonable judgment of the Board of Directors of FFC as evidenced by a
resolution of the Board of Directors. (sec. 1010)

LIMITATION ON DISPOSITIONS OF CERTAIN CAPITAL STOCK AND ASSETS OF SUBSIDIARIES
THAT ARE INSURED DEPOSITORY INSTITUTIONS

FFC may not, and may not permit any Subsidiary of FFC to, directly or
indirectly, (i) transfer, convey, sell, lease or otherwise dispose of any
outstanding Common Stock or Voting Stock of any Subsidiary of FFC that is an
Insured Depository Institution (a "Bank Subsidiary") to any Person other than
FFC or a Wholly Owned Subsidiary of FFC or such Subsidiary, unless such
transfer, conveyance, sale, lease or other disposition shall consist of a sale
of all of the Common Stock and Voting Stock of such Bank Subsidiary owned by FFC
and any Subsidiary of FFC, FFC receives consideration at the time of such sale
at least equal to the fair market value of the Common Stock or Voting Stock sold
(as determined in good faith by the Board of Directors of FFC), of which the
lesser of 75% of such consideration or the then outstanding principal balance of
and accrued interest on the Notes shall be in the form of cash or readily
marketable cash equivalents and the Net Available Proceeds from such sale are
applied in accordance with the next sentence, (ii) permit any Bank Subsidiary to
merge or consolidate with any other Person either unless (a) the surviving
entity is FFC, a Wholly Owned Subsidiary of FFC or, in the case of a Bank
Subsidiary that is a Subsidiary of another Subsidiary of FFC, such other
Subsidiary or a Wholly Owned Subsidiary thereof, or (b) FFC receives
consideration at the time of the merger or consolidation at least equal to the
fair market value of the properties and assets of the Bank Subsidiary that is
merged or consolidated (as determined in good faith by the Board of Directors of
FFC), of which the lesser of 75% of such consideration or the then outstanding
principal balance of and accrued interest on the Notes shall be in the form of
cash or readily marketable cash equivalents and the Net Available Proceeds from
such sale are applied in accordance with the next sentence, (iii) permit any
Bank Subsidiary to convey or transfer its properties and assets substantially as
an entirety to any Person except FFC, a Wholly Owned Subsidiary of FFC or, in
the case of a Bank Subsidiary that is a Subsidiary of another Subsidiary of FFC,
such other Subsidiary or a Wholly Owned Subsidiary thereof unless FFC receives
consideration at the time of the conveyance or transfer at least equal to the
fair market value of the properties and assets sold (as determined in good faith
by the Board of Directors of FFC), of which the lesser of 75% of such
consideration or the then outstanding principal balance of and accrued interest
on the Notes shall be in the form of cash or readily marketable cash equivalents
and the Net Available Proceeds from such sale are applied in accordance with the
next sentence, and (iv) permit any Bank Subsidiary to issue shares of its Common
Stock or Voting Stock (other than directors' qualifying shares), or securities
convertible into, or warrants, rights or options to subscribe for or purchase
shares of, its Common Stock or Voting Stock, to any Person other than FFC or a
Wholly Owned Subsidiary of FFC or, in the case of a Bank Subsidiary that is a
Subsidiary of another Subsidiary of FFC, such other Subsidiary or a Wholly Owned
Subsidiary thereof. Net Available Proceeds from transactions described in the
preceding sentence shall be applied, within 270 days from the later of (x) the
closing of any such transaction or (y) the receipt of such Net Available
Proceeds, (i) first, to the extent FFC elects, to make an Investment in an
Insured Depository Institution, (ii) second, to the extent FFC elects, to
prepay, repay or repurchase Debt of a Wholly Owned Subsidiary (other than Debt
owed to FFC or an Affiliate of FFC), (iii) third, to the extent Net Available
Proceeds exceed the amount applied in accordance with clauses (i) and (ii)
("Excess Proceeds"), to make an offer to apply the Excess Proceeds, once such
Excess Proceeds exceed $5 million, to make an Offer to Purchase the Notes at a
purchase price in cash equal to 100% of their principal amount plus accrued and
unpaid interest to the date of purchase. To the extent Excess Proceeds exist
after application in accordance with clauses (i), (ii) and (iii), FFC may apply
such Excess Proceeds for any general business purposes not otherwise prohibited
by the Indenture. (sec. 1011)

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LIMITATION ON LIENS

FFC will not incur or suffer to exist any Lien other than a Permitted Lien
on (i) the Voting Stock of the Bank (other than directors' qualifying shares) as
security for Debt or (ii) any of its assets (other than the Voting Stock of the
Bank) as security for Funded Debt, without, in the cases of either (i) or (ii),
effectively providing that the Notes will be equally and ratably secured with
(or, in the case of Subordinated Debt, prior to) such Debt. (sec. 1012)

LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS

FFC may not, and may not permit any Subsidiary of FFC to, enter into any
transaction or series of related transactions with an Affiliate or Related
Person of FFC (other than between FFC and Wholly Owned Subsidiaries of FFC or
between Wholly Owned Subsidiaries of FFC) unless (i) such transaction is on
terms no less favorable to FFC or such Subsidiary (as conclusively evidenced by
a resolution of the Board of Directors of FFC) than those that could be obtained
in a comparable arm's length transaction with an entity that is not an Affiliate
or a Related Person, (ii) with respect to a transaction or series of
transactions involving aggregate value in excess of $2.5 million, the
transaction or series of transactions is approved by a majority of the Board of
Directors of FFC and (iii) with respect to a transaction or series of
transactions not reported to the OTS involving aggregate value in excess of $10
million, FFC delivers to the Trustee an opinion of a nationally recognized
investment banking firm stating that the transaction or series of transactions
is fair (from a financial point of view) to FFC. Notwithstanding the foregoing,
the following shall not be deemed to be a transaction for purposes of the
foregoing: (i) the issuance by FFC or any Subsidiary of FFC of Debt otherwise
permitted under the Indenture, (ii) any issuance of securities, or other
payments, awards, or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, benefit plans, stock options and stock
ownership plans approved by the Board of Directors of FFC or any Subsidiary of
FFC, (iii) loans or advances to officers, directors and employees of FFC or any
Subsidiary of FFC made in the ordinary course of business or approved by the
Board of Directors, (iv) any transaction with an officer or director of FFC or
any Subsidiary of FFC entered into in the ordinary course of business, (v) the
payment of reasonable fees to directors of FFC and of any Subsidiary of FFC who
are not employees of FFC or any Subsidiary of FFC, (vi) reasonable and customary
indemnification arrangements between FFC or any Subsidiary of FFC and their
respective directors and officers, (vii) transactions between FFC or its
Subsidiaries, on the one hand, and the Underwriters, their respective
Affiliates, or any other investment banking firm and its Affiliates on the other
hand, involving the provision of financial, consulting or underwriting services,
(viii) any Permitted Investment (ix) any payments, distributions or dividends
permitted under the provisions of the "Limitation on Restricted Payments"
covenant, (x) payments made by FFC or any Subsidiary of FFC pursuant to any tax
sharing or tax allocation agreement between FFC and any Subsidiary of FFC, or
(xi) allocation of corporate overhead expenses by FFC to any Subsidiary of FFC.
(sec. 1013)

MAINTENANCE OF STATUS

FFC will cause the Bank to do all things necessary to maintain the Bank's
status as an "insured depository institution" within the meaning of the Federal
Deposit Insurance Act. (sec. 1014)

CHANGE OF CONTROL

Upon the occurrence of a Change of Control, FFC will be required to make an
Offer to Purchase all Outstanding Notes at a purchase price equal to 101% of
their principal amount plus accrued interest to the date of purchase. A "Change
of Control" will be deemed to have occurred in the event that, after the date of
the Indenture, either (a) any Person or any Persons acting together that would
constitute a group (for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto) (a "Group"), together with any Affiliates or
Related Persons thereof, shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act, or any successor provision thereto) at least 50% of the
aggregate voting power of all classes of Capital Stock of FFC entitled to vote
generally in the election of directors; or (b) any Person or Group, together
with any Affiliates or Related Persons thereof, shall succeed in having a

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sufficient number of its nominees elected to the Board of Directors of FFC such
that such nominees, when added to any existing director remaining on the Board
of Directors of FFC after such election who is an Affiliate or Related Person of
such Group, will constitute a majority of the Board of Directors of FFC.
(sec. 1015)

In the event that FFC makes an Offer to Purchase the Notes, FFC intends to
comply with any applicable securities laws and regulations, including any
applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange
Act.

NOTICE REQUIREMENT

FFC will deliver a notice to the Trustee within 30 days after the Bank
receives notice from the OTS that it has ceased to be a "Tier 1 association" as
defined in the OTS regulation regarding capital distributions. (sec. 1016)

PROVISION OF FINANCIAL INFORMATION

Whether or not FFC is subject to Section 13(a) or 15(d) of the Exchange
Act, or any successor provision thereto, FFC shall prepare the annual reports,
quarterly reports and other documents which FFC would have been required to file
with the Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto if FFC were so required, and, unless such filing is not
permitted under the Exchange Act, file such reports and other documents with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which FFC would have been required so to file such documents if FFC were so
required. FFC shall also in any event (a) within 15 days of each Required Filing
Date (i) transmit by mail to all Holders, as their names and addresses appear in
the Security Register, without cost to such Holders, and (ii) file with the
Trustee copies of such annual reports, quarterly reports and other documents and
(b) if filing such documents by FFC with the Commission is not permitted under
the Exchange Act, promptly upon written request supply copies of such documents
to any prospective Holder or prospective purchaser of Book-Entry Notes.
(sec. 1017)

MERGERS, CONSOLIDATIONS AND CERTAIN SALES AND PURCHASES OF ASSETS

FFC (i) may not consolidate with or merge into any other Person or permit
any other Person to consolidate with or merge into FFC; and (ii) may not,
directly or indirectly, transfer, convey, sell, lease or otherwise dispose of
all or substantially all of its consolidated properties and assets; unless: (1)
in a transaction in which FFC does not survive or in which FFC directly or
indirectly transfers, conveys, sells, leases or otherwise disposes of all or
substantially all of its consolidated assets, the successor entity is organized
under the laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume, by a supplemental indenture
executed and delivered to the Trustee in form satisfactory to the Trustee, all
of FFC's obligations under the Indenture; (2) immediately after giving effect to
such transaction and treating any Debt which becomes an obligation of FFC or a
Subsidiary as a result of such transaction as having been Incurred by FFC or
such Subsidiary at the time of the transaction, no Event of Default or event
that with the passing of time or the giving of notice, or both, would constitute
an Event of Default shall have happened and be continuing; and (3) immediately
after giving effect to such transaction, the Consolidated Adjusted Net Worth of
FFC or the successor entity is equal to or greater than that of FFC immediately
prior to the transaction. (sec. 801)

The foregoing covenant shall not apply to the consolidation or merger of
any Wholly Owned Subsidiary of FFC with or into FFC, provided that FFC is the
surviving entity.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (sec. 101)

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"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person.

"Bank Subordinated Debt" means Debt of any Bank Subsidiary which is
permitted under Regulatory Requirements to be included in the capital of the
Bank for regulatory purposes.

"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.

"Capital Stock" of any Person means any and all shares, interests,
participation or other equivalents (however designated) of corporate stock of
such Person.

"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.

"Consolidated Adjusted Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom (a) the net income (or loss) of
any Person acquired by such Person or a Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (but not net loss) of any Subsidiary of such
Person which is subject to restrictions which prevent the payment of dividends
or the making of distributions to such Person to the extent of such
restrictions, (c) the net income (or loss) of any Person that is not a
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (d) all extraordinary gains (other than tax credits to the extent
they result in cash benefits to the owner thereof) and extraordinary losses;
provided, further, that there shall be added thereto the aggregate amount of
dividends paid with respect to preferred stock of Subsidiaries of FFC to the
extent such amount was otherwise deducted in the foregoing calculation of
Consolidated Adjusted Net Income.

"Consolidated Adjusted Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of such Person; provided that, with respect to
FFC, adjustments following the date of the Indenture to the accounting books and
records of FFC in accordance with Accounting Principles Board Opinions Nos. 16
and 17 (or successor opinions thereto) or otherwise for goodwill resulting from
the application of pushdown accounting from the acquisition of control of FFC by
another Person shall not be given effect to.

"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) all Capital Lease
Obligations, (v) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business), (vi)
the maximum fixed redemption or repurchase price of Redeemable Stock of such
Person at the time of determination, (vii) every payment obligation of such
Person other than the Bank or any other Insured Depository Institution under
interest rate swap or similar agreements or foreign currency hedge, exchange or
similar agreements at the time of determination and (viii) every obligation of
the type referred to in clauses (i) through (vii) of another Person and all
dividends of another Person the payment

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of which, in either case, such Person has Guaranteed or is responsible or liable
for, directly or indirectly, as obligor, Guarantor or otherwise. Notwithstanding
the foregoing, Debt shall not include any obligations of FFC with respect to any
Wholly Owned Bank Subsidiary pursuant to any Regulatory Requirement.

"Funded Debt" means all Debt of any Person (including the Notes), whether
secured or unsecured, which by its terms has a final maturity, duration or
payment date more than one year from the date on which Funded Debt is to be
determined (including any Debt of any Person having a final maturity, duration
or payment date within one year from such date which, pursuant to the terms of
any agreement under which it is issued or otherwise, may be renewed or extended
at the option of such Person for more than one year from such date).

"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Debt of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and including, without limitation,
any obligation of such Person (i) to purchase or pay (or advance or supply funds
for the purchase of payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the term "Guarantee"
shall not include (a) endorsements for collection or deposit, in either case, in
the ordinary course of business or (b) any obligations of FFC with respect to
any Wholly Owned Bank Subsidiary pursuant to any Regulatory Requirement.

"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person; provided, however, that a change in generally accepted
accounting principles that results in an obligation of such Person that exists
at such time becoming Debt shall not be deemed an Incurrence of such Debt.

"Investment" in any Person means (without duplication) the acquisition or
ownership of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt of such Person, any capital contribution to such Person, any
deposit with, or advance, loan or other extension of credit to, such Person, any
Guarantee of, or other contingent obligation with respect to, Debt or other
liability of such Person or any amount committed to be advanced, lent or
extended to such Person.

"Insured Depository Institution" means an insured depository
institution within the meaning of 12 U.S.C. sec. 1813(c)(2) or any
successor law, rule or regulation.

"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).

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such Person or joint ventures as a result of such disposition, and (iv)
appropriate amounts to be provided by such Person or any Subsidiary thereof, as
the case may be, as a reserve in accordance with generally accepted accounting
principles against any liabilities associated with such assets and retained by
such Person or such Subsidiary thereof, as the case may be, after such
disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee-termination costs
associated with such disposition.

"Offer to Purchase" means a written offer (the "Offer") sent by FFC by
first class mail, postage prepaid, to each Holder at his address appearing in
the Security Register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to this Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. FFC
shall notify the Trustee at least 15 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of FFC's obligation
to make an Offer to Purchase, and the Offer shall be mailed by FFC or, at FFC's
request, by the Trustee in the name and at the expense of FFC. The Offer shall
contain information concerning the business of FFC and its Subsidiaries which
FFC in good faith believes will enable such Holders to make an informed decision
with respect to the Offer to Purchase (which at a minimum will include (i) the
most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in FFC's business subsequent
to the date of the latest of such financial statements referred to in Clause (i)
(including a description of the events requiring FFC to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring FFC to make the Offer
to Purchase and (iv) any other information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Offer to
Purchase. The Offer shall also state:

(1) the Section of the Indenture pursuant to which the Offer to
Purchase is being made;

(2) the Expiration Date and the Purchase Date;

(3) the aggregate principal amount of the Outstanding Notes offered to
be purchased by FFC pursuant to the Offer to Purchase (including, if less
than 100%, the manner by which such has been determined) (the "Purchase
Amount");

(4) the purchase price to be paid by FFC for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to
the Indenture) (the "Purchase Price");

(5) that the Holder may tender all or any portion of the Notes
registered in the name of such Holder and that any portion of a Note
tendered must be tendered in an integral multiple of $1,000 principal
amount;

(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;

(7) that interest on any Note not tendered or tendered but not
purchased by FFC pursuant to the Offer to Purchase will continue to accrue;

(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;

(9) that each Holder electing to tender a Note pursuant to the Offer
to Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of

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business on the Expiration Date (such Note being, if FFC or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to FFC and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing);

(10) that Holders will be entitled to withdraw all or any portion of
Notes tendered if FFC (or its Paying Agent) receives, not later than the
close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder tendered, the certificate number of the Note
the Holder tendered and a statement that such Holder is withdrawing all or
a portion of his tender;

(11) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, FFC shall purchase all such Notes and (b) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, FFC shall
purchase Notes having an aggregate principal amount equal to the Purchase
Amount on a pro rata basis (with such adjustments as may be deemed
appropriate so that only Notes in denominations of $1,000 or integral
multiples thereof shall be purchased; and

(12) that in case of any Holder whose Note is purchased only in part,
FFC shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.

Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.

"Permitted Investments" means (i) any Investment in an Affiliate or Related
Person of FFC which is a Wholly Owned Subsidiary prior to the Investment, (ii)
any Investment of Net Available Proceeds in an Insured Depository Institution
resulting in such institution becoming a Wholly Owned Bank Subsidiary, (iii) any
Investment of Excess Proceeds in accordance with the provisions of the covenant
"Limitation on Dispositions of Certain Capital Stock and Assets of Subsidiaries
that are Insured Depository Institutions", (iv) any extension, renewal or
replacement of Investments of any Person in effect at the date of the Indenture,
(v) any Investment by an Insured Depository Institution (other than an
Investment in an Unrestricted Subsidiary) permitted in accordance with all
applicable Regulatory Requirements, (vi) any Investment (other than an
Investment in an Unrestricted Subsidiary) that would be permitted to FFC or any
Subsidiary of FFC on the date such Investment is made if FFC on that date were a
multiple savings and loan holding company (as defined in 12 CFR Section 583.12)
in accordance with all applicable Regulatory Requirements, (vii) any investment
in a Person as a result of which such Person becomes a Wholly Owned Subsidiary,
(viii) any payments or contributions of any kind by FFC to a Bank Subsidiary
required pursuant to Regulatory Requirements, or (ix) Investments in the
following types of instruments:

(a) direct obligations of the United States of America or any agency
or instrumentality thereof, or obligations guaranteed by the United States
of America or any agency or instrumentality thereof, provided that such
obligations mature within one year from the date of acquisition thereof;

(b) demand deposit accounts, or certificates of deposit or other
obligations, maturing within one year after acquisition thereof, either
fully insured by the FDIC (or any successor Federal agency) or issued by a
national or state bank, trust or thrift institution having capital, surplus
and undivided profits of at least $250,000,000, and having (or being the
Wholly Owned Subsidiary of a holding company having) a short-term credit
rating, at the time of purchase, within one of the two then-highest rating
categories of Moody's Investors Service or Standard & Poor's Corporation;
or

(c) commercial paper rated at the time of purchase in one of the two
then-highest rating categories by Moody's Investors Service or by Standard
& Poor's Corporation and maturing not more than 270 days from the date of
creation thereof; or

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(d) guaranteed investment contracts of insurance companies whose
claims-paying ability at the time of purchase is rated AA/Aa or higher by
Moody's Investors Service or by Standard & Poor's Corporation, provided
that the total amount of investments in such contracts which may constitute
Permitted Investments at any one time pursuant to this section (d) shall
not at any time exceed 20% of FFC's total Permitted Investments; or

(e) repurchase agreements with respect to direct obligations of the
United States of America or any agency or instrumentality thereof, or
obligations guaranteed by the United States of America or any agency or
instrumentality thereof, provided that such repurchase agreements mature
within one year from the date of creation thereof; or

(f) cash.

"Permitted Lien" means the following:

(i) any Lien existing, or provided for under arrangements existing, at
the date of the Indenture;

(ii) any Lien on Capital Stock of FFC sold or contributed to the
Banks' employee stock ownership plan;

(iii) any Lien arising by reason of (1) any judgment, decree or order
of any court or other governmental authority, if appropriate legal
proceedings which may have been duly initiated for the review of such
judgment, decree or order shall not have been finally terminated or the
period within which such proceedings may be initiated shall not have
expired; (2) taxes, assessments or similar charges not yet delinquent or
which are being contested in good faith; (3) security for the payment of
insurance-related obligations (including but not limited to in respect of
deductibles, self-insured retention amounts and premiums and adjustments
thereto); (4) deposits or pledges in connection with bids, tenders, leases
and contracts (other than contracts for the payment of money); (5) zoning
restrictions, easements, licenses, reservations, provisions, covenants,
conditions, waivers, restrictions on the use of property or minor
irregularities of title (and with respect to leasehold interests,
mortgages, obligations, liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a landlord
or owner of the leased property, with or without consent of the lessee),
none of which materially impairs the use of any parcel of property material
to the operation of the business of FFC and its Subsidiaries taken as a
whole or the value of such property for the purpose of such business; (6)
deposits or pledges to secure public or statutory obligations, progress
payments, surety and appeal bonds or other obligations of like nature
incurred in the ordinary course of business; (7) title defects,
encumbrances, easements, reservations of, or rights of others for, rights
of way, sewers, electric lines, telegraph or telephone lines and other
similar purposes or zoning or other restrictions as to the use of real
property not materially interfering with the ordinary conduct of the
business of FFC and its Subsidiaries taken as a whole; or (8) operation of
law, in favor of landlords, mechanics, carriers, warehousemen, materialmen,
laborers, employees, suppliers, banks or others, incurred in the ordinary
course of business for sums which are not yet delinquent or are being
contested in good faith by negotiations or by appropriate proceedings which
suspend the collection thereof;

(iv) any Lien on any computer or management information systems
equipment acquired after the date of the Indenture; and

(v) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clause (i) (in addition to any
such extension, renewal, refinancing or replacement permitted pursuant to
such clause) so long as the amount of security is not increased thereby.

"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior to, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.

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"Redeemable Stock" of any Person means any equity security of such Person
that by its terms or otherwise is required to be redeemed prior to the final
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time prior to the final Stated Maturity of the Notes.

"Regulatory Requirement", as to any Person, means any law, ordinance,
administrative or governmental rule, regulation, official interpretation
applicable to it or any of its properties, any formal or informal written
demand, directive or notice to such Person by any administrative or governmental
agency requiring or prohibiting action by such Person, any written agreement
between any administrative or governmental agency and such Person, or any order
or decree of any court or governmental agency or body having jurisdiction over
such Person or any of its properties.

"Related Person" of any Person means any other Person directly or
indirectly owning (a) 10% or more of the outstanding Common Stock of such Person
(or, in the case of a Person that is not a corporation, 10% or more of the
equity interest in such Person) or (b) 10% or more of combined voting power of
the Voting Stock of such Person.

"Subordinated Debt" means Debt of FFC as to which the payment of principal
of (and premium, if any) and interest and other payment obligations in respect
of such Debt shall be subordinate to the prior payment in full of the Notes to
at least the following extent: (i) no payments of principal of (or premium, if
any) or interest on or otherwise due in respect of such Debt may be permitted
for so long as any default in the payment of principal (or premium, if any) or
interest on the Notes exists; (ii) in the event that any other default that with
the passing of time or the giving of notice, or both, would constitute an event
of default exists with respect to the Notes, upon notice by 25% or more in
principal amount of the Notes to the Trustee, the Trustee shall have the right
to give notice to FFC and the holders of such Debt (or trustees or agents
therefor) of a payment blockage, and thereafter no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
made for a period of 179 days from the date of such notice; and (iii) such Debt
may not (x) provide for payments of principal of such Debt at the stated
maturity thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by FFC
(including any redemption, retirement or repurchase which is contingent upon
events or circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by FFC) of
such other Debt at the option of the holder thereof prior to the final Stated
Maturity of the Notes (unless the Notes shall no longer then be Outstanding),
other than a redemption or other retirement at the option of the holder of such
Debt (including pursuant to an offer to purchase made by FFC) which is
conditioned upon the change of control of FFC pursuant to provisions
substantially similar to those contained in the Indenture.

"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof. For purposes of the Indenture, no Unrestricted
Subsidiary created in accordance with the definition of Unrestricted Subsidiary
shall be deemed to be a Subsidiary of FFC.

"Tangible Net Worth" of any Person means its net worth calculated in
accordance with generally accepted accounting principles, less goodwill.

"Unrestricted Subsidiary" means (1) any entity which, but for its
designation as an Unrestricted Subsidiary by the Board of Directors, would be a
Subsidiary of FFC, but only if (a) neither FFC nor any of its other Subsidiaries
(i) provides credit support for, or a Guarantee of, any Debt of such entity
(including any undertaking, agreement or instrument evidencing such Debt) or
(ii) is directly or indirectly liable for any Debt of such entity, and (b) no
default with respect to any Debt of such entity (including any right which the
holders thereof may have to take enforcement action against such entity)

65
<PAGE> 67

would permit (upon notice, lapse of time or both) any holder of any other Debt
of FFC and its Subsidiaries to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary (other than the Bank or its successor) to
be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of,
or owns or holds any Lien on any property of, any other Subsidiary of FFC which
is not a Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary, provided that either (x) the Subsidiary to be so
designated has total assets of $1,000 or less or (y) immediately after giving
pro forma effect to such designation, FFC would then be permitted to make a
Restricted Payment pursuant to the "Limitation on Restricted Payments" covenant
in an amount equal to the greater of (A) the aggregate amount of all Investments
made by FFC and all Subsidiaries of FFC in such Subsidiary and its Subsidiaries
prior to such designation and (B) the Consolidated Adjusted Net Worth of such
Subsidiary, and upon such designation such amount shall be deemed to be a
Restricted Payment. The Board of Directors may designate any Unrestricted
Subsidiary to be a Subsidiary, provided that (i) had such Unrestricted
Subsidiary been a Subsidiary of FFC immediately prior thereto there would not
have occurred and be continuing any Event of Default or event that with the
lapse of time or the giving of notice, or both, would constitute an Event of
Default, and (ii) for purposes of the definition of "Consolidated Adjusted Net
Income," only the net income of such entity for the period beginning on the date
of such designation shall be included therein. Any such designation by the Board
of Directors shall be evidenced by filing a resolution with the Trustee and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.

"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.

EVENTS OF DEFAULT

The following are Events of Default under the Indenture: (a) failure to pay
principal of (or premium, if any, on) any Note when due; (b) failure to pay any
interest on any Note when due, continued for 30 days; (c) default in the payment
of principal and interest on Notes required to be repurchased pursuant to an
Offer to Purchase as described under "Limitation on Dispositions of Certain
Capital Stock and Assets of Subsidiaries that are Insured Depository
Institutions" and "Change of Control" when due and payable; (d) failure to
perform or comply with the provisions described under "Mergers, Consolidations
and Certain Sales and Purchases of Assets"; (e) failure to perform any other
covenant or agreement of FFC under the Indenture or the Notes continued for 60
days after written notice to FFC by the Trustee or Holders of at least 25% in
aggregate principal amount of Outstanding Notes; (f) the occurrence of any event
under the terms of any instrument evidencing or securing Debt for money borrowed
by FFC or any Subsidiary in an aggregate principal amount in excess of $10
million, individually or in the aggregate, (I) which shall consist of the
failure to pay any portion of principal of such Debt when due beyond any
applicable grace period therefor or (II) which results in such Debt becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable; (g) the rendering of a final judgment or judgments
(not subject to appeal and not covered by insurance) against FFC or any
Subsidiary in an amount in excess of $10 million which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal has
expired; and (h) certain events of bankruptcy, insolvency or reorganization
affecting FFC or any Subsidiary. (sec. 501) Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event of Default
shall occur and be continuing, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the

66
<PAGE> 68

Trustee reasonable security or indemnity. (sec. 603) Subject to such provisions
for the indemnification of the Trustee, the Holders of a majority in aggregate
principal amount of the Outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. (sec.
512)

If an Event of Default (other than an Event of Default described in clause
(h) above) shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Notes may
accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of Outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture. If an Event of Default specified in clause
(h) above occurs, the Outstanding Notes will ipso facto become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. (sec. 502) For information as to waiver of defaults, see
"Modification and Waiver."

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also (i) the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
(ii) the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and (iii) the Trustee shall have failed to institute such
proceeding within 60 days. (sec. 507) However, such limitations do not apply to
a suit instituted by a Holder of a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. (sec. 508)

FFC will be required to furnish to the Trustee annually a statement as to
the performance by FFC of certain of its obligations under the Indenture and as
to any default in such performance. (sec. 1018)

GOVERNING LAW

The Indenture and the Notes will be governed by the laws of the State of
New York.

MODIFICATION AND WAIVER

Modifications and amendments of the Indenture may be made by FFC and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (b) reduce the principal amount of, or the
premium or interest on, any Note, (c) change the place or currency of payment of
principal of, or premium or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) reduce the above-stated percentage of Outstanding Notes necessary to
modify or amend the Indenture, (f) reduce the percentage of aggregate principal
amount of Outstanding Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past defaults or covenants, except as otherwise
specified, or (h) following the mailing of any Offer to Purchase, modify any
Offer to Purchase for the Notes required under the "Limitation on Dispositions
of Certain Capital Stock and Assets of Subsidiaries that are Insured Depository
Institutions" and "Change of Control" covenants contained in the Indenture in a
manner materially adverse to the Holders thereof. (sec. 902)

The Holders of a majority in aggregate principal amount of the Outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by FFC with
certain restrictive provisions of the Indenture. (sec. 1017) Subject to certain
rights of the Trustee, as provided in the Indenture, the Holders of a majority

67
<PAGE> 69

in aggregate principal amount of the Outstanding Notes, on behalf of all Holders
of Notes, may waive any past default under the Indenture, except a default in
the payment of principal, premium or interest or a default arising from a Change
of Control. (sec. 513)

DEFEASANCE

The Indenture provides that (A) if applicable, FFC will be discharged from
any and all obligations in respect of then Outstanding Notes, other than the
obligation to duly and punctually pay the principal of, and premium and interest
on, the Notes in accordance with the terms of the Notes and the Indenture, or
(B) if applicable, FFC may omit to comply with certain restrictive covenants,
and that such omission shall not be deemed to be an Event of Default under the
Indenture or the Notes, in either case (A) or (B) upon irrevocable deposit with
the Trustee, in trust, of money and/or U.S. government obligations which will
provide money in an amount sufficient in the opinion of a nationally recognized
accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the Outstanding Notes. With respect to
clause (B), the obligations under the Indenture other than with respect to such
covenants shall remain in full force and effect. Such trust may only be
established if, among other things, (i) with respect to clause (A), FFC has
received from, or there has been published by, the Internal Revenue Service a
ruling or there has been a change in law, which in the opinion of counsel
provides that Holders of the Notes will not recognize gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge and
will be subject to Federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or with respect to clause (B), FFC has delivered to
the Trustee an opinion of counsel to the effect that the Holders of the Notes
will not recognize gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred; (ii) no Event of Default
or event that with the passing of time or the giving of notice, or both, shall
constitute an Event of Default shall have occurred or be continuing; and (iii)
certain other customary conditions precedent are satisfied. (Article Twelve)

THE TRUSTEE

The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. (Sections
601 and 605)

The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of FFC, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with FFC or any Affiliate; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign. (sec. 608)

68
<PAGE> 70

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters has severally agreed to purchase, the
respective principal amount of the Notes set forth opposite its name below:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Goldman, Sachs & Co.......................................... $
Montgomery Securities........................................
---------------
Total................................................... $
===============
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to pay for all of the Notes, if any are taken.

The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering prices set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed % of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.

The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.

FFC has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.

At June 20, 1994, Goldman, Sachs & Co. and its affiliate, The Goldman Sachs
Group, L.P., beneficially owned 870,468 shares, or 8.3%, of FFC's common stock
on behalf of third parties for which Goldman, Sachs & Co., and The Goldman Sachs
Group, L.P. have voting and/or dispositive power.

VALIDITY OF THE NOTES

The validity of the Notes to which this Prospectus relates will be passed
upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), Los Angeles, California, and for the
Underwriters by Sullivan & Cromwell, Los Angeles, California.

EXPERTS

The financial statements of FFC, at December 31, 1993 and 1992, and for
each of the years in the three-year period ended December 31, 1993, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick, independent certified public accountants, included herein,
and upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick refers to a change in the method of accounting for
income taxes upon the adoption of Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.

69
<PAGE> 71

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Statements of Financial Condition -- December 31, 1993 and 1992.......... F-3
Consolidated Statements of Operations -- Years Ended December 31, 1993, 1992 and
1991................................................................................ F-4
Consolidated Statements of Stockholders' Equity -- Years Ended December 31, 1993, 1992
and 1991............................................................................ F-5
Consolidated Statements of Cash Flows -- Years Ended December 31, 1993, 1992 and
1991................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Consolidated Statements of Financial Condition -- March 31, 1994 (unaudited) and
December 31, 1993................................................................... F-24
Consolidated Statements of Operations (unaudited) -- Three-Months Ended March 31, 1994
and 1993............................................................................ F-25
Consolidated Statements of Cash Flows (unaudited) -- Three-Months Ended March 31, 1994
and 1993............................................................................ F-26
Notes to Consolidated Financial Statements............................................ F-27
</TABLE>

F-1
<PAGE> 72

INDEPENDENT AUDITORS' REPORT

The Board of Directors
FirstFed Financial Corp.
Santa Monica, California:

We have audited the accompanying consolidated statements of financial
condition of FirstFed Financial Corp. and subsidiary ("Company") as of December
31, 1993 and 1992, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FirstFed
Financial Corp. and subsidiary at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles.

As discussed in note 9 to the consolidated financial statements, FirstFed
Financial Corp. and subsidiary adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, in 1992.

KPMG Peat Marwick

January 27, 1994
Los Angeles, California

F-2
<PAGE> 73

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 1993 AND 1992

ASSETS

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Cash.............................................................. $ 17,491 $ 23,985
Investment securities, at cost ( market of $104,282 and
$44,059)........................................................ 103,836 43,736
Loans receivable (Notes 3, 7 and 8)............................... 2,692,036 2,481,225
Mortgage-backed securities (market of $715,726 and $706,827)
(Notes 3 and 8)................................................. 708,283 693,072
Loans and mortgage-backed securities held for sale (market of
$24,030 and $92,899) (Note 3)................................... 23,627 91,558
Accrued interest and dividends receivable......................... 21,018 23,016
Real estate (Note 4).............................................. 27,249 24,243
Office properties and equipment, at cost less accumulated
depreciation (Note 5)........................................... 8,923 9,520
Investment in Federal Home Loan Bank (FHLB) stock, at cost
(Note 7)........................................................ 38,967 35,542
Other assets (Note 1)............................................. 19,687 20,676
---------- ----------
$3,661,117 $3,446,573
========== ==========
LIABILITIES
Deposits (Note 6)................................................. $2,305,480 $1,982,745
FHLB advances and other borrowings (Note 7)....................... 544,500 705,150
Securities sold under agreements to repurchase (Note 8)........... 548,649 491,091
Deferred income taxes (Note 9).................................... 16,366 21,849
Accrued expenses and other liabilities............................ 37,830 38,227
---------- ----------
3,452,825 3,239,062
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES ( Notes 3, 5, and 11)
STOCKHOLDERS' EQUITY (Notes 10 and 11)
Common stock, par value $.01 per share; authorized 25,000,000
shares; issued 11,326,191 and 11,180,221 shares, outstanding
10,529,671 and 10,383,701 shares................................ 113 112
Additional paid-in capital........................................ 27,279 24,524
Retained earnings -- substantially restricted..................... 193,650 195,698
Loan to employee stock ownership plan............................. (2,918) (2,991)
Treasury stock, at cost, 796,520 shares........................... (9,832) (9,832)
---------- ----------
208,292 207,511
---------- ----------
$3,661,117 $3,446,573
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 74

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Interest income:
Interest on loans and mortgage-backed
securities..................................... $221,177 $249,104 $287,909
Interest and dividends on investments............. 8,268 6,508 8,621
-------- -------- --------
Total interest income.......................... 229,445 255,612 296,530
-------- -------- --------
Interest expense:
Interest on deposits (Note 6)..................... 77,741 87,802 115,627
Interest on borrowings............................ 53,875 63,708 80,129
-------- -------- --------
Total interest expense......................... 131,616 151,510 195,756
-------- -------- --------
Net interest income................................. 97,829 104,102 100,774
Provision for loan losses (Note 3).................. 67,679 41,384 11,833
-------- -------- --------
Net interest income after provision for loan
losses............................................ 30,150 62,718 88,941
-------- -------- --------
Other income (expense):
Loan and other fees............................... 6,530 5,863 5,972
Gain on sale of loans and mortgage-backed
securities..................................... 4,257 2,098 1,133
Real estate operations, net....................... (437) 2,604 (1,319)
Other operating income............................ 1,704 2,069 1,273
-------- -------- --------
Total other income............................. 12,054 12,634 7,059
-------- -------- --------
Non-interest expense:
Salaries and employee benefits (Note 11).......... 22,880 23,453 21,545
Occupancy (Note 5)................................ 6,816 6,642 5,714
Advertising....................................... 2,486 2,235 1,731
Federal deposit insurance......................... 4,622 4,156 3,890
Other operating expense........................... 8,494 9,639 7,602
-------- -------- --------
Total non-interest expense..................... 45,298 46,125 40,482
-------- -------- --------
Earnings (loss) before income taxes (benefit) and
cumulative effect of change in accounting
principle......................................... (3,094) 29,227 55,518
Income taxes (benefit) (Note 9)..................... (1,046) 11,198 27,091
-------- -------- --------
Earnings (loss) before cumulative effect of change
in accounting principle........................... (2,048) 18,029 28,427
Cumulative effect of change in accounting principle
(Note 9).......................................... -- 4,075 --
-------- -------- --------
Net earnings (loss)............................... $ (2,048) $ 22,104 $ 28,427
========= ========= =========
Earnings (loss) per share (Note 10):
Earnings (loss) before cumulative effect of change
in accounting principle........................... $ (0.19) $ 1.66 $ 2.61
Cumulative effect of change in accounting
principle......................................... -- 0.38 --
-------- -------- --------
Earnings (loss) per share........................... $ (0.19) $ 2.04 $ 2.61
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 75

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

<TABLE>
<CAPTION>
RETAINED
EARNINGS LOAN TO
ADDITIONAL (SUBSTANTIALLY ESOP
COMMON PAID-IN RESTRICTED) (NOTES 10 TREASURY
STOCK CAPITAL (NOTE 10) AND 11) STOCK TOTAL
------ ---------- -------------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990..... $ 86 $23,350 $145,167 $(1,929) $(5,236) $161,438
Stock split in form of stock
dividend (Note 10)........... 21 (35) -- -- -- (14)
Exercise of employee stock
options...................... 2 359 -- -- -- 361
Net increase in loan to
employee stock ownership
plan......................... -- -- -- (36) -- (36)
Net earnings 1991.............. -- -- 28,427 -- -- 28,427
---- ------- -------- ------- ------- --------
Balance, December 31, 1991..... 109 23,674 173,594 (1,965) (5,236) 190,176
Exercise of employee stock
options...................... 3 850 -- -- -- 853
Net increase in loan to
employee stock ownership
plan......................... -- -- -- (1,026) -- (1,026)
Treasury stock purchases....... -- -- -- -- (4,596) (4,596)
Net earnings 1992.............. -- -- 22,104 -- -- 22,104
---- ------- -------- ------- ------- --------
Balance, December 31, 1992..... 112 24,524 195,698 (2,991) (9,832) 207,511
Exercise of employee stock
options...................... 1 400 -- -- -- 401
Net decrease in loan to
employee stock ownership
plan......................... -- -- -- 73 -- 73
Benefit from stock option tax
adjustment................... -- 2,355 -- -- -- 2,355
Net loss 1993.................. -- -- (2,048) -- -- (2,048)
---- ------- -------- ------- ------- --------
Balance, December 31, 1993..... $113 $27,279 $193,650 $(2,918) $(9,832) $208,292
==== ======= ======== ======= ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 76

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................ $ (2,048) $ 22,104 $ 28,427
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Net change in loans and mortgage-backed
securities held for sale...................... 67,931 62,557 (55,617)
Depreciation and amortization................... 1,710 1,712 711
Provision for losses on loans................... 67,679 41,384 11,833
Valuation adjustments on real estate............ (1,151) (2,890) --
Amortization of fees and discounts.............. (763) (1,111) (976)
Write off of discount on bonds.................. -- -- 2,411
Decrease in deferred premium on sale of loans... 3,079 3,998 4,862
(Increase) decrease in negative amortization.... (2,008) 15,005 7,047
Decrease in deferred taxes...................... (5,483) (5,080) (2,665)
(Increase) decrease in interest and dividends
receivable.................................... 1,998 5,782 (388)
Increase (decrease) in interest payable......... 2,242 (3,513) (12,869)
Increase in other assets........................ (3,458) (2,333) (905)
Increase (decrease) in accrued expenses and
other liabilities............................. (521) 422 5,543
--------- --------- ---------
Net cash provided (used) by operating
activities.................................... 129,207 138,037 (12,586)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal collections
of loans........................................ (335,534) (428,790) (274,993)
Loans purchased.................................... (55,188) (17,277) --
Proceeds from sales of real estate................. 96,120 69,405 34,694
Proceeds from maturities of investment
securities...................................... 11,710 3,510 6,338
Purchases of investment securities................. (71,682) (31,124) (6,200)
Purchases of FHLB stock............................ (2,415) (6,559) (330)
Other.............................................. 1,007 (6,399) (2,661)
--------- --------- ---------
Net cash used by investing activities.............. (355,982) (417,234) (243,152)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits........................... 209,488 52,246 450
Acquisitions of branches, net...................... 113,247 190,396 --
Net increase (decrease) in short term borrowings... (73,292) (198,631) 251,996
Proceeds from long term borrowings................. -- 214,500 --
Repayment of long term borrowings.................. (29,800) (100,000) (36,839)
Payments to acquire treasury stock................. -- (4,596) --
Other.............................................. 638 (7,308) (1,167)
--------- --------- ---------
Net cash provided by financing activities.......... 220,281 146,607 214,440
--------- --------- ---------
Net decrease in cash and cash equivalents.......... (6,494) (132,590) (41,298)
Cash and cash equivalents at beginning of year..... 23,985 156,575 197,873
--------- --------- ---------
Cash and cash equivalents at end of year........... $ 17,491 $ 23,985 $ 156,575
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 77

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. (the "Company"), and its wholly-owned subsidiary First
Federal Bank of California (the "Bank").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.

Certain items in the 1992 and 1991 consolidated financial statements have
been reclassified to conform to the 1993 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.

Allowance for Loan Losses

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

Allowance for Delinquent Interest

The Bank provides an allowance for accrued interest receivable on
delinquent loans when such interest is deemed uncollectible, generally at the
time the loan is 90 days past due. This allowance reduces interest receivable
for financial statement purposes.

Loans and Mortgage-Backed Securities Held for Sale

The Bank identifies loans and mortgage-backed securities that foreseeably
may be sold prior to maturity and classifies them as held for sale. They are
carried at the lower of amortized cost or market value on an aggregate basis by
type of asset. For loans, market value is calculated on an aggregate basis as
determined by the current market investor yield requirement. Market values for
mortgage-backed securities are determined by financial market quotes.

Gain or Loss on Sale of Loans

The Bank sells mortgage loans and loan participations with yield rates to
the buyer based upon the current market rates which may differ from the
contractual rate on the loans sold. Gain or loss is recognized and a premium or
discount is recorded at the time of sale based upon the net present value of
amounts expected to be received or paid resulting from the difference between
the contractual interest rates and the yield to the buyer, excluding a normal
servicing fee to be earned for continuing to service the loans. Amortization of
discount or premium represents an adjustment of yield and is reflected as an
addition to or reduction of interest income using the interest method over the
life of such loans adjusted for estimated prepayments. Excess service fees are
written down for impairment if the present value of

F-7
<PAGE> 78

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the estimated remaining future excess service fee revenue, using the same
discount factor used to calculate the original excess service fee receivable,
exceeds the recorded amount.

Deferred premiums arising from the sale of loans are included in other
assets and were $7,738,000 and $10,817,000 at December 31, 1993 and 1992,
respectively.

Investment Securities

Investment securities held for investment are carried at cost. Any premium
or discount is amortized over the term of the security using the interest
method. The securities are not carried at the lower of cost or market because
management has the ability to and intends to hold such securities until
maturity.

Real Estate

Real estate acquired through foreclosure is recorded at fair value (net of
estimated selling costs) at the date of foreclosure, and is adjusted for any
subsequent declines in fair value.

In years previous to 1993, some loans were classified as real estate
("in-substance foreclosure") under certain circumstances when the collateral for
the loan or the financial condition of the borrower had been impaired.
Consistent with recent accounting guidance issued in 1993, certain impaired
loans are no longer accounted for as real estate. These in-substance
foreclosures were reclassified, for financial reporting purposes, to loans
receivable as of December 31, 1993 and 1992. Additionally, any related loss
allowances were reclassified to specific loan valuation allowances. These
impaired loans continue to be recorded at the fair value of the underlying
collateral. There was no change in reported net earnings (loss) as a result of
these reclassifications.

The recognition of gain on the sale of real estate is dependent on a number
of factors relating to the nature of the property sold, 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, income is deferred and recognized under an
alternative method.

Depreciation and Amortization

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

Income Taxes

The Company accounts for income taxes using the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109. In the
asset and liability method, deferred tax assets and liabilities are established
as of the reporting date for the realizable cumulative temporary differences
between the financial reporting and tax return bases of the Bank's assets and
liabilities. The tax rates applied are the statutory rates expected to be in
effect when the temporary differences are realized or settled.

Recent Accounting Pronouncements

In May of 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"),
"Accounting by Creditors for Impairment of a Loan". SFAS No. 114 requires that
impaired loans be measured based on the present value of expected future

F-8
<PAGE> 79

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cash flows discounted at the loan's effective interest rate or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. SFAS No. 114 applies to financial statements for fiscal
years beginning after December 15. 1994. In the opinion of management,
implementation of this standard will not have a material impact on the Company.

In May of 1993, the FASB also issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Statement addresses the
accounting and reporting for investments in debt securities. The Statement
requires that all securities be classified, at acquisition, into one of three
categories: held-to maturity securities, trading securities, and
available-for-sale securities. Held-to-maturity securities are those securities
the Company has the positive intent and ability to hold to maturity and are
carried at amortized cost. Trading securities are those securities that are
bought and held principally for the purpose of selling them in the near term and
are reported at fair value, with unrealized gains and losses included in
earnings. Available-for-sale securities are those securities that do not fall
into the other two categories and are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
shareholders' equity. This Statement is effective for fiscal years beginning
after December 15, 1993. In the opinion of management, implementation of this
standard will not have a material impact on the Company.

(2) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

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 31,1993 or December 31, 1992.
Securities purchased under agreements to resell averaged $48,761,000 and
$94,918,000 during 1993 and 1992, and the maximum amounts outstanding at any
month end during 1993 and 1992 were $95,000,000 and $120,000,000, respectively.

F-9
<PAGE> 80

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES

Loans receivable and mortgage-backed securities are summarized as follows:

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real Estate Loans:
First trust deed residential loans:
One unit............................................ $1,543,758 $1,432,543
Two to four units................................... 340,035 296,550
Five or more units.................................. 1,325,659 1,287,077
---------- ----------
Residential loans.............................. 3,209,452 3,016,170
Other real estate loans:
Commercial and industrial........................... 245,387 256,474
Second trust deeds.................................. 24,606 29,441
Other............................................... 5,861 10,733
---------- ----------
Real estate loans.............................. 3,485,306 3,312,818
Non-real estate loans:
Manufactured housing................................ 2,880 3,481
Deposit accounts.................................... 1,086 1,184
Consumer............................................ 847 1,494
---------- ----------
Loans receivable............................... 3,490,119 3,318,977
Less:
General loan valuation allowances................... 46,900 27,854
Unearned loan fees.................................. 19,273 25,268
---------- ----------
Subtotal....................................... 3,423,946 3,265,855
---------- ----------
Less:
Mortgage-backed securities.......................... 708,283 693,072
Loans and mortgage-backed securities held for
sale.............................................. 23,627 91,558
---------- ----------
Loans receivable, net.......................... $2,692,036 $2,481,225
========== ==========
</TABLE>

Mortgage-backed securities created with loans originated by the Bank
totaled $111,701,000, $187,479,000 and $157,266,000, during 1993, 1992, and
1991, respectively. At December 31, 1993, the Bank owned $674,372,000 in FHLMC
mortgage-backed securities and $33,911,000 in FNMA mortgage-backed securities
with combined market values of $715,726,000. At December 31, 1992, $731,127,000
in FHLMC mortgage-backed securities and $38,028,000 in FNMA mortgage-backed
securities were owned with combined market values of $783,677,000. All
mortgage-backed securities mature in periods greater than ten years. There were
no mortgage-backed securities held for sale at December 31, 1993.
Mortgage-backed securities held for sale totaled $76,083,000 at December 31,
1992.

Loans serviced for others totaled $786,809,000, $891,484,000 and
$1,052,980,000 at December 31, 1993, 1992 and 1991, respectively.

At December 31, 1993 the Bank had outstanding commitments to fund
$62,015,000 in real estate loans.

Accrued interest receivable related to loans and mortgage-backed securities
outstanding at December 31, 1993 and 1992 totaled $25,450,000 and $26,931,000,
respectively.

F-10
<PAGE> 81

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES (CONTINUED)
Loans delinquent greater than 90 days or in foreclosure were $106,076,000
and $47,814,000 as of December 31, 1993 and 1992, respectively, and the related
allowances for delinquent interest were $5,723,000 and $4,325,000, respectively.

Loans originated upon sale of real estate totaled $69,808,000, $48,132,000,
and $11,963,000 during 1993, 1992 and 1991, respectively.

The following is a summary of the activity in general loan valuation
allowances for the periods indicated (in thousands):

<TABLE>
<S> <C>
Balance at December 31, 1990............................. $ 11,181
Charge-offs.............................................. (9,077)
Provisions for loan losses............................... 11,833
--------
Balance at December 31, 1991............................. 13,937
Charge-offs.............................................. (27,467)
Provisions for loan losses............................... 41,384
--------
Balance at December 31, 1992............................. 27,854
Charge-offs.............................................. (48,633)
Provisions for loan losses............................... 67,679
--------
Balance at December 31, 1993............................. $ 46,900
========
</TABLE>

(4) REAL ESTATE

Real estate consists of the following:

<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Real estate held for investment................................ $ 371 $ 385
Real estate acquired by (or deed in lieu of) foreclosure....... 26,878 23,858
------- -------
$27,249 $24,243
======= =======
</TABLE>

The Bank acquired $135,577,000, $93,807,000, and $27,804,000 of real estate
in settlement of loans during 1993, 1992, and 1991, respectively.

F-11
<PAGE> 82

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) OFFICE PROPERTIES, EQUIPMENT AND LEASE COMMITMENTS

Office properties and equipment, at cost, less accumulated depreciation and
amortization, are summarized as follows:

<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 2,907 $ 2,907
Office buildings............................................... 3,759 3,742
Furniture, fixtures and equipment.............................. 9,511 9,115
Leasehold improvements......................................... 8,541 8,527
Other.......................................................... 93 84
------- -------
24,811 24,375
Less accumulated depreciation and amortization................. 15,888 14,855
------- -------
$ 8,923 $ 9,520
======= =======
</TABLE>

The Bank is obligated under noncancelable operating leases for periods
ranging from five to thirty years. The leases are for certain of the office
facilities. Approximately half of the leases for office facilities contain five
and ten year renewal options. Minimum rental commitments at December 31, 1993
under all noncancelable leases are as follows:

<TABLE>
<CAPTION>
REAL PROPERTY
---------------
(IN THOUSANDS)
<S> <C>
1994......................... $ 4,302
1995......................... 4,253
1996......................... 4,223
1997......................... 4,004
1998......................... 3,069
Thereafter................... 6,273
-------
$26,124
=======
</TABLE>

Rent payments under these leases were $3,898,000, $3,390,000, and
$2,942,000 for 1993, 1992 and 1991, respectively. Certain leases require the
Bank to pay property taxes and insurance. Additionally, certain leases have rent
escalation clauses based on specified indices.

F-12
<PAGE> 83

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) DEPOSITS

Deposit account balances are summarized as follows:

<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
AMOUNT % AMOUNT %
---------- --- ---------- ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Variable rate non-term accounts:
Money market deposit accounts (weighted
average rate of 2.40% and 2.75%)............ $ 196,467 9% $ 186,721 9%
Interest-bearing checking accounts (weighted
average rate of 2.18% and 2.39%)............ 148,460 6 127,985 7
Passbook accounts (weighted average rate of
2.29% and 2.64%)............................ 118,455 5 106,247 5
Non-interest bearing checking accounts........ 44,868 2 33,177 2
---------- --- ---------- ---
508,250 22 454,130 23
---------- --- ---------- ---
Fixed rate term certificate accounts:
Under six month term (weighted average rate
of 2.77% and 3.20%)...................... 69,132 3 117,954 6
Six month term (weighted average rate of
3.13% and 3.50%)......................... 299,368 13 230,489 12
Nine month term (weighted average rate of
3.36% and 3.77%)......................... 200,269 9 45,852 2
One year to 18 month term (weighted average
rate of 3.67% and 4.14%)................. 474,853 20 333,798 17
Two year or 30 months term (weighted average
rate of 4.67% and 6.16%)................. 148,993 7 186,473 9
Over 30 month term (weighted average rate of
5.80% and 6.56%)......................... 307,513 13 141,713 7
Negotiable certificates of $100,000 and
greater, 30 day to one year terms
(weighted average rate of 3.43% and
3.82%)................................... 297,102 13 472,336 24
---------- --- ---------- ---
1,797,230 78 1,528,615 77
---------- --- ---------- ---
Total deposit (weighted average rate
of 3.60% and 3.97%)............... $2,305,480 100% $1,982,745 100%
========== ==== ========== ===
</TABLE>

Certificates of deposit, placed through five major national brokerage
firms, totaled $518,888,000 in 1993 and $273,635,000 in 1992.

Cash payments for interest on deposits (including interest credited)
totaled $95,544,000, $82,973,000, and $126,266,000 during 1993, 1992 and 1991,
respectively. Accrued interest on deposits at December 31, 1993 and 1992 totaled
$8,201,000 and $6,270,000, respectively.

The following table indicates the maturities and weighted average interest
rates of the Bank's deposits at December 31, 1993:

<TABLE>
<CAPTION>
NON-TERM
ACCOUNTS 1994 1995 1996 1997 THEREAFTER TOTAL
--------- ---------- -------- ------- ------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Deposits at December 31,
1993..................... $508,250 $1,414,006 $171,317 $89,872 $16,361 $ 105,674 $2,305,480
======== ========== ======== ======= ======= ========= ==========
Weighted average interest
rates.................... 2.10% 3.68% 4.78% 5.47% 5.87% 5.93% 3.60%
======== ========== ======== ======= ======= ========= ==========
</TABLE>

F-13
<PAGE> 84

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) DEPOSITS (CONTINUED)
Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Passbook accounts.................................. $ 2,580 $ 2,806 $ 3,319
Money market deposits and interest-bearing checking
accounts......................................... 7,918 8,328 7,524
Certificate accounts............................... 67,243 76,668 104,784
------- ------- --------
$77,741 $87,802 $115,627
======= ======= ========
</TABLE>

(7) FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

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

<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Advances from the FHLB of San Francisco with a weighted
average interest rate of 4.70% and 5.20%, secured by FHLB
stock and certain real estate loans with unpaid principal
balances of approximately $1,262,008,000 at December 31,
1993, payable through 1996................................. $514,700 $654,500
Unsecured term funds with a weighted average interest rate of
3.33% and 3.52%, maturing within one year.................. 24,800 47,650
Unsecured promissory note with an interest rate of prime plus
1% (7% and 7%), maturing within one year................... 5,000 3,000
-------- --------
$544,500 $705,150
======== ========
</TABLE>

The following is a summary of maturities at December 31, 1993 (in
thousands):

Cash payments for interest on borrowings (including reverse repurchase
agreements) totaled $31,011,000, $54,472,000, and $80,403,000 during 1993, 1992,
and 1991, respectively.

(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Bank enters into sales of securities and whole loans under agreements
to repurchase (reverse repurchase agreements) which require the repurchase of
the same securities or loans. Reverse repurchase agreements are treated as
financing arrangements, and the obligation to repurchase securities or loans
sold is reflected as a borrowing in the statement 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, 1993, $548,649,000 in reverse repurchase agreements were
collateralized by mortgage-backed securities with principal balances totaling
$559,004,000 and market values totaling $564,768,000. All borrowings under
reverse repurchase agreements mature within 96 days after December 31, 1993,
with a weighted average interest rate of 3.32%. Securities sold under agreements
to repurchase averaged $594,314,000 and $527,528,000 during 1993 and 1992,
respectively, and the

F-14
<PAGE> 85

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (CONTINUED)

maximum amounts outstanding at any month end during 1993 and 1992 were
$650,033,000 and $594,680,000, respectively.

(9) INCOME TAXES

Income taxes (benefit) consist of the following:

<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $ 4,317 $12,590 $21,065
State............................................. 120 3,688 8,179
------- ------- -------
4,437 16,278 29,244
------- ------- -------
Deferred:
Federal........................................... (5,114) (3,764) (1,751)
State............................................. (369) (1,316) (402)
------- ------- -------
(5,483) (5,080) (2,153)
------- ------- -------
Total:
Federal........................................... (797) 8,826 19,314
State............................................. (249) 2,372 7,777
------- ------- -------
$(1,046) $11,198 $27,091
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
1993 1992 1991
----- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... (35.0)% 34.0% 34.0%
Increase (reductions) in taxes resulting from:
Bad debt deduction based upon a percentage of income, net
of preference tax..................................... -- -- (3.0)
State franchise tax, net of federal income tax benefit... (6.4) 4.2 9.2
Provisions for losses on loans and real estate held for
sale.................................................. -- -- 8.0
Goodwill................................................. 7.4 .6 .2
Other, net............................................... .2 (.5) .4
---- ---- ----
Effective rate........................................ (33.8)% 38.3% 48.8%
</TABLE>

Cash payments for income taxes totaled $2,158,000, $20,645,000 and
$27,005,000 during 1993, 1992, and 1991, respectively.

F-15
<PAGE> 86

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) INCOME TAXES (CONTINUED)

Deferred income taxes in 1993 and 1992 represent the realizable cumulative
temporary differences between the financial reporting and tax bases of the
Company's assets and liabilities. Prior to 1992, deferred taxes resulted from
timing differences in the recognition of income and expense for tax and
financial statement purposes. The source of these differences and the effect of
each are shown as follows for 1991(in thousands):

<TABLE>
<S> <C>
Loan fees................................................................. $ (14)
Provision for loan losses, net of federal bad debt deduction, net of
preference tax.......................................................... 137
Accrued franchise taxes, net of federal benefit........................... (731)
Gain on sale of loans..................................................... (1,914)
Divided on FHLB stock..................................................... 722
Other, net................................................................ (353)
-------
$(2,153)
=======
</TABLE>

The Company implemented Statement of Financial Accounting Standards No. 109
("SFAS No. 109") on a prospective basis during 1992. SFAS No. 109 established
new accounting principles for calculating income taxes using the asset and
liability method instead of the deferred method. In applying the asset and
liability method using SFAS No. 109, deferred tax assets and liabilities are
established as of the reporting date for the realizable cumulative difference
between the financial reporting and tax return bases of the Company's assets and
liabilities. The tax rates applied are the statutory rates expected to be in
effect when the temporary differences are realized or settled.

Listed below are the significant components of the net deferred
liability(in thousands):

<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Components of the deferred tax asset:
Bad debts.................................................. $(16,850) $(10,789)
State taxes................................................ (1,822) (2,833)
Pension expense............................................ (1,773) (1,353)
-------- --------
Total deferred tax asset................................ (20,445) (14,975)
Valuation allowance........................................ -- --
-------- --------
Total deferred tax asset, net of valuation allowance.... (20,445) (14,975)
-------- --------
Components of the deferred tax liability:
Loan fees.................................................. 25,197 23,588
Loan sales................................................. 4,146 4,879
FHLB stock dividends....................................... 5,705 4,892
Other...................................................... 1,763 3,465
-------- --------
Total deferred tax liability............................ 36,811 36,824
-------- --------
Net deferred tax liability................................... $ 16,366 $ 21,849
======== ========
Net state deferred tax liability........................... $ 6,049 $ 6,418
Net federal deferred tax liability......................... 10,317 15,431
-------- --------
Net deferred tax liability................................... $ 16,366 $ 21,849
======== ========
</TABLE>

SFAS No. 109 allows for recognition and measurement of deductible temporary
differences (including general valuation allowances) to the extent that it is
more likely than not that the deferred tax asset will be realized. As a result
of implementing SFAS No. 109, the Bank recognized $4,075,000 in tax benefits
during 1992 due primarily to additions to its general valuation allowances.

F-16
<PAGE> 87

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) STOCKHOLDERS' EQUITY AND EARNINGS (LOSS) PER SHARE

The Company's stock charter authorizes 5,000,000 shares of serial preferred
stock. As of December 31, 1993 no preferred shares have been issued.

The Company declared a five-for four stock split on September 26, 1991.
Fractional shares were paid in cash. All per share amounts in the accompanying
consolidated financial statements have been adjusted for the split.

The computation of net earnings (loss) per share is based on the weighted
average shares of common stock and dilutive common stock equivalents (employee
stock options) outstanding during the year which were 10,659,214, 10,856,815 and
10,907,635 for 1993, 1992 and 1991, respectively.

On August 9, 1989, the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") was signed into law. FIRREA abolished the Federal
Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation and
transferred many of their previous regulatory functions to the Office of Thrift
Supervision ("OTS"). Additionally, FIRREA changed the regulatory capital
requirements for savings institutions. As of December 31, 1993 the Bank met all
current capital requirements.

For federal income tax purposes, savings institutions meeting certain
definitional and other tests are allowed a special bad debt reserve deduction
for qualifying loans computed as percentage of taxable income before such
deduction. If amounts appropriated to these tax bad debt reserves in excess of
the amount allowable under the experience method ("excess tax bad debt
reserves") are used for the payment of return of capital dividends or other
distributions to stockholders (including distributions in dissolution,
liquidation or redemption of stock), an amount will generally be includable in
taxable income. The amount includable in taxable income is equal to the
distribution plus the federal income tax attributable thereto, up to the
aggregate amount of excess tax bad debt reserves. At December 31, 1993 the
Company had no excess bad debt reserves and at December 31, 1992 the Company had
approximately $5,775,000 of excess bad debt reserves.

FirstFed Financial Corp. may loan $6,000,000 to the ESOP under a line of
credit loan. At December 31, 1993 and 1992 loans to the ESOP totaled $2,918,000
and $2,991,000, respectively. Interest on the outstanding loan balance is due
each December 31. Interest varies based on the Bank's monthly cost of funds. The
average rates paid during 1993 and 1992 were 3.90% and 4.75%, respectively.

(11) EMPLOYEE BENEFIT PLANS

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

Pension expense including administration costs was $468,000, $475,000 and
$350,000 for 1993, 1992 and 1991, respectively. The Bank uses the projected unit
credit actuarial method and bases its funding policy on the entry age normal
method.

The discount rate and rate of increase in future compensation levels used
in determining the actuarial value of benefit obligations and pension cost at
December 31, 1993 and December 31, 1992 were 7.0% and 7.5%, respectively. The
expected long-term rates of return on assets were 7.0% at December 31, 1993 and
7.5% at December 31, 1992.

The Bank has a Supplementary Executive Retirement Plan ("SERP") which
covers any individual employed by the Bank as its President or Chairman of the
Board. The pension expense for the SERP was

F-17
<PAGE> 88

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)

$434,000, $418,000 and $439,000 in 1993, 1992 and 1991, respectively. The SERP
uses the same actuarial assumptions as the pension plan. The plan is unfunded.

The following table sets forth the funded status and amounts recognized in
the Bank's statement of the financial condition for the pension plan and the
SERP for the years indicated (in thousands):

<TABLE>
<CAPTION>
PENSION PLAN SERP
---------------- -----------------
1993 1992 1993 1992
------- ------ ------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefits obligations:
Accumulated benefits obligation....................... $ 2,703 $2,186 $ 2,781 $ 2,474
======= ====== ======= =======
Vested benefit obligation............................. $ 2,567 $2,092 $ 2,423 $ 2,215
======= ====== ======= =======
Plan assets at fair value............................... $ 2,268 $2,340 $ -- $ --
Projected benefit obligation for service rendered to
date.................................................. 4,156 3,611 3,414 2,945
------- ------ ------- -------
Shortage of plan assets over the projected benefit
obligation............................................ (1,888) (1,271) (3,414) (2,945)
Unrecognized net loss (gain) from past experience
different from that assumed........................... 729 414 131 (149)
Prior service cost not yet recognized in net periodic
pension cost.......................................... 247 283 838 934
Additional minimum liability............................ -- -- (846) (888)
Unrecognized net (asset) obligation at transition....... (230) (321) 510 574
------- ------ ------- -------
Accrued pension liability............................... $(1,142) $ (895) $(2,781) $(2,474)
======= ====== ======= =======
Net pension cost for the year ended December 31, 1993
and December 31, 1992 included the following
components:
Service cost-benefits earned during the period..... $ 396 $ 392 $ 57 $ 54
Interest cost on projected benefit obligation...... 264 255 217 204
Actual return on plan assets....................... (106) (179) -- --
Net amortization................................... (50) (45) 160 160
Deferral of asset gains............................ (73) 17 -- --
------- ------ ------- -------
Net period pension cost............................... $ 431 $ 440 $ 434 $ 418
======= ====== ======= =======
</TABLE>

The Bank has a profit sharing plan for all salaried employees and officers
who have completed one year of continuous service. The plan is a leveraged
employee stock ownership plan ("ESOP"). At December 31, 1993 the ESOP held 8.94%
of outstanding stock of the Company. Profit sharing expense for the years ended
December 31, 1993, 1992 and 1991 was $200,000, $1,007,000 and $1,510,000,
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.

F-18
<PAGE> 89

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)

The Company has a Stock Option and Stock Appreciation Rights Plan which
allows the issuance of 342,375 shares (as adjusted for stock splits) at December
31, 1993. Options prices are based upon the market value of the common stock on
the date of grant. Granted options are exercisable as follows:

<TABLE>
<C> <C> <S>
50,853 shares -- 100% exercisable
21,202 shares -- 25% exercisable on the date of grant and 25% at the
third, fifth and seventh anniversary dates of the
grant
184,382 shares -- 25% exercisable on the second, fourth, sixth and eighth
anniversary dates of the grant
85,938 shares -- 33% immediately exercisable and 33% on the first and
second anniversary dates
</TABLE>

Options expire ten years after the date of grant, or sixty days after
termination of employment other than retirement, death or disability. Stock
appreciation rights have also been authorized under the plan, but none have as
yet been granted.

Information with respect to stock options follows:

<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN SHARES)
<S> <C> <C>
Options Outstanding
(Average option prices for 1993)
Beginning of year ($9.45).................................... 516,616 720,729
Granted ($19.58)............................................. 15,322 56,968
Excised ($4.10).............................................. (33,026) (261,077)
Canceled ($16.11)............................................ (156,537) (4)
-------- --------
End of Year ($11.70)......................................... 342,375 516,616
======== ========
Shares exercisable at December 31 ($9.07).................... 215,795 348,585
======== ========
</TABLE>

(12) PARENT COMPANY FINANCIAL INFORMATION

This parent company only financial information should be read in
conjunction with the other notes to consolidated financial statements.

STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash....................................................... $ 923 $ 586
Other assets............................................... 25 25
Investment in subsidiary................................... 212,226 209,841
-------- --------
$213,174 $210,452
======== ========
Liabilities and Stockholders' Equity:
Note payable............................................... $ 5,000 $ 3,000
Other liabilities.......................................... (118) (59)
Stockholders' equity....................................... 208,292 207,511
-------- --------
$213,174 $210,452
======== ========
</TABLE>

F-19
<PAGE> 90

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Other income (expense), net......................... $ (78) $ (28) $ (48)
Equity in undistributed net earnings (loss) of
subsidiary........................................ (1,970) 22,132 28,475
------- ------- -------
Net earnings (loss)................................. $(2,048) $22,104 $28,427
======= ======= =======
</TABLE>

STATEMENTS OF CASH FLOWS

<TABLE>
<S> <C> <C> <C>
Net Cash Flows from Operating Activities:
Net earnings (loss)............................... $(2,048) $22,104 $28,427
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating
activities:
Equity in net (earnings) loss of subsidiary.... 1,970 (22,132) (28,475)
Other.......................................... (10) (2) (1)
------- ------- -------
Net cash used by operating activities.......... (88) (30) (49)
------- ------- -------
Cash Flows from Investing Activities:
(Increase) decrease in ESOP loan.................. 73 (1,026) (36)
(Increase) decrease in other assets............... -- (25) 22
------- ------- -------
Net cash (used) by provided for investing
activities........................................ 73 (1,051) (14)
------- ------- -------
Cash Flows from Financing Activities:
Dividend from subsidiary.......................... 3,000 4,250 1,000
Capital contribution to subsidiary................ (7,355) (4,000) --
Increase in notes payable......................... 2,000 3,000 --
Purchase of treasury stock........................ -- (4,596) --
Benefit from stock option tax adjustment.......... 2,355 -- --
Other............................................. 352 815 347
------- ------- -------
Net cash provided (used) by financing activities.... 352 (531) 1,347
------- ------- -------
Net increase (decrease) in cash..................... 337 (1,612) 1,284
Cash at beginning of period......................... 586 2,198 914
------- ------- -------
Cash at end of period............................... $ 923 $ 586 $ 2,198
======= ======= =======
</TABLE>

F-20
<PAGE> 91

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) QUARTERLY RESULTS OF OPERATIONS: (UNAUDITED)

Summarized below are the Company's results of operations on a quarterly
basis for 1993, 1992 and 1991:

<TABLE>
<CAPTION>
PROVISION NON NET NET EARNINGS
INTEREST INTEREST FOR LOAN OTHER INTEREST EARNINGS (LOSS)
INCOME EXPENSE LOSSES INCOME EXPENSE (LOSS) PER SHARE
-------- -------- --------- ------- -------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
First quarter
1993................................... $ 58,247 $ 33,198 $44,123 $ 2,718 $ 11,454 $(16,402) $(1.53)
1992................................... 67,984 41,787 10,716 2,873 11,052 6,774 .62
1991................................... 75,641 52,618 1,203 2,131 10,454 7,762 .71
Second quarter
1993................................... $ 56,526 $ 32,918 $ 1,849 $ 4,023 $ 11,443 $ 8,328 $ .78
1992................................... 65,800 37,889 5,847 3,370 11,818 7,972 .73
1991................................... 76,420 51,532 1,004 1,389 10,823 8,200 .75
Third quarter
1993................................... $ 58,875 $ 32,586 $11,590 $ 2,964 $ 11,453 $ 3,629 $ .34
1992................................... 61,647 36,765 18,098 4,077 11,993 703 .06
1991................................... 73,657 47,177 3,363 1,474 8,658 8,246 .75
Fourth quarter
1993................................... $ 55,797 $ 32,914 $10,117 $ 2,349 $ 10,948 $ 2,397 $ .22
1992................................... 60,181 35,069 6,723 2,314 11,262 6,655 .62
1991................................... 70,812 44,429 6,263 2,065 10,547 4,219 .39
Total year
1993................................... $229,445 $131,616 $67,679 $12,054 $ 45,298 $ (2,048) $ (.19)
1992................................... 255,612 151,510 41,384 12,634 46,125 22,104 2.04
1991................................... 296,530 195,756 11,833 7,059 40,482 28,427 2.61
</TABLE>

(14) FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments ("SFAS No. 107"), requires that the Bank disclose
estimated fair value for its financial instruments as of December 31, 1993 and
1992. Set forth below are tables showing the financial instruments shown in the
Bank's statements of financial condition for which fair value are estimated to
be different from their carrying value. Financial instruments whose carrying
value is estimated to be equal to fair value are not included below. The
following table presents fair value information for financial instruments for
which a market exists. The fair values for these financial instruments were
estimated based upon prices published in financial newspapers or quotations
received from national securities dealers.

<TABLE>
<CAPTION>
1993 1992
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
-------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage-backed Securities..................... $708,283 $ 715,726 $769,155 $ 783,677
Investment securities.......................... 47,711 48,054 21,501 21,984
Collateralized Mortgage Obligations............ 56,125 56,228 22,235 22,075
</TABLE>

The following table presents fair value information for financial
instruments shown in the Bank's 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 the
particulars of these financial instruments have not been evaluated for possible
sale and because management does not

F-21
<PAGE> 92

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(14) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

intend to sell these financial instruments, the Bank does not know whether the
fair values shown below represent values at which the respective financial
instruments could be sold.

<TABLE>
<CAPTION>
1993 1992
----------------------- -----------------------
CALCULATED CALCULATED
CARRYING FAIR VALUE CARRYING FAIR VALUE
VALUE AMOUNT VALUE AMOUNT
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Adjustable Loans:
Single Family......................... $1,112,144 $1,154,316 $ 998,502 $1,010,208
Multi-Family.......................... 1,206,197 1,215,606 1,112,523 1,121,786
Commercial............................ 227,712 213,268 244,511 224,270
Fixed Rate Loans:
Single Family......................... 24,520 25,393 30,935 31,236
Multi-Family.......................... 13,624 14,288 26,569 27,082
Commercial............................ 4,409 4,483 4,429 4,539
Other Real Estate Loans.................. 8,654 8,800 10,500 10,638
Non-Real Estate Loans.................... 4,453 5,334 5,563 6,029
Fixed Term Certificate Accounts............ 1,797,230 1,803,457 1,528,615 1,540,170
Borrowings................................. 514,700 517,953 654,500 666,493
</TABLE>

SFAS No. 107 specifies that fair values should be calculated based on the
value of one unit. The estimates do not necessary 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 were based on the following methods and assumptions,
some of which are subjective in nature. Changes in assumptions could
significantly affect the estimates.

Cash

The carrying amounts reported in the statements of financial conditions for
this item approximate fair value.

Investment securities and Mortgage-Backed securities

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

Loans Receivable

The portfolio was segregated into those loans with adjustable rates of
interest and those with fixed rates of interest. Fair values were 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.

Deposits

The fair value of deposits with no stated term such as regular passbook
accounts, money market accounts and NOW accounts, is defined by SFAS No. 107 as
the carrying accounts reported in the statement of financial condition. The
Company had $508,250,000 in non-term accounts at December 31,

F-22
<PAGE> 93

FIRSTFED FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(14) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)

1993. These non-term accounts provide a source of funds to the Bank at a cost
significantly below the cost of borrowing funds in the financial markets.
Management believes that the Bank's non-term accounts, as a continuing source of
less costly funds, provide significant additional value to the Bank that is not
reflected above. 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 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.

(15) SUBSEQUENT EVENT

On January 17, 1994, a significant earthquake struck the Southern
California area. This earthquake and the related aftershocks caused damage to
certain areas of Los Angeles and Ventura Counties. The Bank is still in the
early stages of assessing the damage to its assets. It is estimated that less
than 30% of the Bank's loans are in areas severely affected by the earthquake.
At this time, the extent of damage to the collateral securing the Bank's loans
or the impact on the Company's financial condition is not known.

F-23
<PAGE> 94

FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
1994 DECEMBER 31,
(UNAUDITED) 1993
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................ $ 15,900 $ 17,491
U.S. Government and other securities, at cost (market of $96,867
and $104,282).................................................. 98,371 103,836
Loans receivable................................................. 2,718,425 2,692,036
Mortgage-backed securities (market of $679,929 and $715,726)..... 698,557 708,283
Loans held for sale (market of $22,840 and $24,030).............. 22,630 23,627
Accrued interest and dividends receivable........................ 21,065 21,018
Real estate...................................................... 31,177 27,249
Office properties and equipment, net............................. 8,938 8,923
Investment in Federal Home Loan Bank Stock, at cost.............. 39,323 38,967
Other assets..................................................... 20,083 19,687
---------- ----------
$3,674,469 $3,661,117
========== ==========
LIABILITIES
Deposits......................................................... $2,282,129 $2,305,480
Federal Home Loan Bank advances and other borrowings............. 1,145,718 1,093,149
Income taxes payable............................................. 16,592 16,366
Accrued expenses and other liabilities........................... 27,844 37,830
---------- ----------
3,472,283 3,452,825
CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized 25,000,000
shares; issued 11,329,706 and 11,326,191 shares, outstanding
10,533,186 and 10,529,671 shares............................... 113 113
Additional capital............................................... 27,315 27,279
Retained earnings -- substantially restricted.................... 187,535 193,650
Loan to employee stock ownership plan............................ (2,945) (2,918)
Treasury stock, at cost, 796,520 shares.......................... (9,832) (9,832)
---------- ----------
202,186 208,292
---------- ----------
$3,674,469 $3,661,117
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-24
<PAGE> 95

FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Interest Income:
Interest on loans and mortgage-backed securities................... $ 53,562 $ 56,361
Interest and dividends on investments.............................. 2,163 1,886
-------- --------
Total interest income...................................... 55,725 58,247
-------- --------
Interest expense:
Interest on deposits............................................... 20,274 19,168
Interest on borrowings............................................. 11,832 14,030
-------- --------
Total interest expense..................................... 32,106 33,198
-------- --------
Net interest income.................................................. 23,619 25,049
Provision for loan losses............................................ 24,670 44,123
-------- --------
Net interest income (loss) after provision for losses................ (1,051) (19,074)
-------- --------
Other income:
Loan and other fees................................................ 1,634 1,791
Gain on sale of loans.............................................. 440 400
Real estate operations, net........................................ 382 143
Other operating income............................................. 354 384
-------- --------
Total other income......................................... 2,810 2,718
-------- --------
Non-interest expense................................................. 12,133 11,454
-------- --------
Loss before income taxes............................................. (10,374) (27,810)
Income tax benefit................................................... (4,259) (11,408)
-------- --------
Net loss............................................................. $ (6,115) $(16,402)
======== ========
Loss per share....................................................... $ (0.58) $ (1.57)
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-25
<PAGE> 96

FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1994 1993
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (6,115) $ (16,402)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Provision for loan losses......................................... 24,670 44,123
Amortization of fees and discounts................................ (289) (214)
Net change to loans held for sale................................. 9,533 (210)
Valuation adjustments on real estate sold......................... (2,038) (2,520)
(Increase) decrease in interest and dividends receivable.......... (403) 660
Decrease in negative amortization................................. 62 1,175
Decrease in interest payable...................................... (2,781) (1,374)
Other............................................................. (251) 3,805
--------- ----------
Net cash provided by operating activities...................... 22,388 29,043
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans made to customers and principal collections of loans.......... (62,041) (80,221)
Loans repurchased................................................... (2,908) (24,239)
Proceeds from sales of real estate.................................. 14,943 10,708
Purchase of investment securities................................... (2,247) (22,337)
Proceeds from maturities of investment securities................... 7,648 2,000
Other............................................................... 10 (1,257)
--------- ----------
Net cash used by investing activities.......................... (44,595) (115,346)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings deposits......................... (23,351) 16,445
Net increase in short term borrowings............................... 52,569 183,670
Net decrease in long term borrowings................................ -- (40,000)
Other............................................................... (8,602) (1,797)
--------- ----------
Net cash provided by financing activities...................... 20,616 158,318
--------- ----------
Net increase (decrease) in cash and cash equivalents................ (1,591) 72,015
Cash and cash equivalents at beginning of quarter................... 17,491 23,985
--------- ----------
Cash and cash equivalents at end of quarter......................... $ 15,900 $ 96,000
========= ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE> 97

FIRSTFED FINANCIAL CORP.
AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The unaudited financial statements included herein have been prepared
by the Registrant pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of the Registrant, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
results of operations for the periods covered have been made. Certain
information and note disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Registrant believes that the disclosures are adequate to make the information
presented not misleading.

It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Registrant's latest annual report on Form 10-K. The results for the periods
covered hereby are not necessarily indicative of the operating results for a
full year.

2. Earnings per share were computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period plus the
effect of dilutive stock options. Weighted average shares outstanding for the
primary earnings per share calculation were 10,531,702 for the three months
ended March 31, 1994 and 10,417,143 for the three months ended March 31, 1993.

3. For purposes of reporting cash flows on the "Consolidated Statement of
Cash Flows", cash and cash equivalents include cash, overnight investments and
securities purchased under agreements to resell.

4. The Bank adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," ("SFAS No. 114") effective
March 31, 1994. SFAS No. 114 requires the measurement of impaired loans based on
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price or the fair
value of its collateral. SFAS No. 114 does not apply to large groups of smaller
balance homogeneous loans that are collectively evaluated for impairment. For
the Bank, loans collectively reviewed for impairment include all single family
loans less than $500 thousand and multi-family loans less than $750 thousand.
The adoption of SFAS No. 114 did not result in material additions to the Bank's
provision for loan losses.

F-27
<PAGE> 98

- ------------------------------------------------------
- ------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES DESCRIBED IN THIS
PROSPECTUS OR AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AT ANY TIME SUBSEQUENT
TO ITS DATE.

------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Selected Consolidated Financial
Data................................ 6
Risk Factors.......................... 8
Use of Proceeds....................... 13
Capitalization........................ 14
Business.............................. 15
Regulation............................ 40
Description of the Notes.............. 52
Underwriting.......................... 69
Validity of the Notes................. 69
Experts............................... 69
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------

$50,000,000

FIRSTFED FINANCIAL CORP.

% NOTES

DUE 2004

-------------------

[LOGO]

-------------------

GOLDMAN, SACHS & CO.

MONTGOMERY SECURITIES

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Estimated expenses in connection with the issuance and distribution of the
securities to be registered, other than underwriting discounts and commissions,
are as follows:

<TABLE>
<S> <C>
Registration Fee............................................... $ 17,241
Blue Sky Fees and Expenses..................................... *
Printing and Engraving Expenses................................ *
Legal Fees and Expenses........................................ 150,000
Accounting Fees and Expenses................................... 70,000
Indenture Trustee's Fees....................................... 10,500
Consultant Fees................................................ 250,500
NASD Filing Fees............................................... 5,500
Depository Fees................................................ *
Rating Agency Fees............................................. *
Miscellaneous.................................................. *
--------
Total........................................................ $ *
========
</TABLE>

- ---------------

* To be filed by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Set forth below is a description of certain provisions of the Certificate
of Incorporation (the "Certificate") of FFC and the General Corporation Law of
the State of Delaware (the "DGCL") as it relates to the indemnification of the
directors and officers of FFC. This description is intended only as a summary
and is qualified in its entirety by reference to the Certificate and the DGCL.

Elimination of Liability in Certain Circumstances

The Certificate provides that to the fullest extent provided by law a
director will not be personally liable for monetary damages to FFC or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as a director, except for liability (i) for any breach of the
director's duty of loyalty to such corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase in violation of Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit.

While Article Eleventh of the Certificate provides directors with
protection from awards for monetary damages for breaches of the duty of care, it
does not eliminate the directors' duty of care. Accordingly, Article Eleventh
will have no effect on the availability of equitable remedies such as an
injunction or rescission based on a director's breach of the duty of care. The
provisions of Article Eleventh as described above apply to officers of FFC only
if they are directors of FFC and are acting in their capacity as directors, and
does not apply to officers of FFC who are not directors.

Indemnification and Insurance

Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best

<PAGE> 100

interest of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.

Article Twelfth of the Certificate provides to directors and officers
indemnification to the fullest extent provided by law, thereby affording the
directors and officers of FFC the protections available to directors and
officers of Delaware corporations. FFC has obtained directors and officers
liability insurance providing coverage to its directors and officers.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1 Proposed form of Underwriting Agreement

3.1 Certificate of Incorporation of FFC (incorporated by reference to
Exhibit 10(a) to FFC's Registration Statement on Form 8-A dated
June 4, 1987)

3.2 By-Laws of FFC (incorporated by reference to Exhibit 3.2 to FFC's
Registration Statement on Form S-4 dated February 5, 1987)

4 Proposed form of Indenture

5* Opinion of Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), regarding the validity of the
Notes

12 Computation of Ratio of Earnings to Fixed Charges

21 Subsidiaries

23.1 Consent of KPMG Peat Marwick

23.2* Consent of Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations) (included in Exhibit 5)

24 Power of Attorney (included in page II-4)

25 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1
</TABLE>

- ---------------

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-2
<PAGE> 101

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement at the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 102

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, State of California, on July 18, 1994.

FIRSTFED FINANCIAL CORP.

By: James P. Giraldin
--------------------------------
Name: James P. Giraldin
Title: Executive Vice President,
Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Babette
E. Heimbuch, James P. Giraldin and Ann E. Lederer, or any one of them, his or
her attorney-in-fact, with full power of substitution, for him or her in any and
all capacities, to sign any amendments to this registration statement, and to
file the same with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may do or cause
to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
WILLIAM S. MORTENSEN Director, Chairman of the July 18, 1994
------------------------- Board, and Chief Executive
William S. Mortensen Officer (principal
executive officer)

JAMES P. GIRALDIN Executive Vice President, July 18, 1994
------------------------- Chief Financial Officer
James P. Giraldin (principal financial
officer)

MICHAEL R. HILTON Senior Vice President, July 18, 1994
------------------------- Controller (principal
Michael R. Hilton accounting officer)

SAMUEL J. CRAWFORD, JR. Director July 18, 1994
-------------------------
Samuel J. Crawford, Jr.

CHRISTOPHER M. HARDING Director July 18, 1994
-------------------------
Christopher M. Harding

BABETTE E. HEIMBUCH Director, President and July 18, 1994
------------------------- Chief Operating Officer
Babette E. Heimbuch

JAMES L. HESBURGH Director July 18, 1994
-------------------------
James L. Hesburgh
</TABLE>

II-4
<PAGE> 103

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
JUNE LOCKHART Director July 18, 1994
-------------------------
June Lockhart

CHARLES F. SMITH Director July 18, 1994
-------------------------
Charles F. Smith

STEVEN L. SOBOROFF Director July 18, 1994
-------------------------
Steven L. Soboroff

JOHN R. WOODHULL Director July 18, 1994
-------------------------
John R. Woodhull
</TABLE>

II-5
<PAGE> 104

<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-----------------

EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
1 Proposed form of Underwriting Agreement

3.1 Certificate of Incorporation of FFC (incorporated by reference to
Exhibit 10(a) to FFC's Registration Statement on Form 8-A dated
June 4, 1987)

3.2 By-Laws of FFC (incorporated by reference to Exhibit 3.2 to FFC's
Registration Statement on Form S-4 dated February 5, 1987)

4 Proposed form of Indenture

5* Opinion of Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), regarding the validity of the
Notes

12 Computation of Ratio of Earnings to Fixed Charges

21 Subsidiaries

23.1 Consent of KPMG Peat Marwick

23.2* Consent of Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations) (included in Exhibit 5)

24 Power of Attorney (included in page II-4)

25 Statement of Eligibility under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1
</TABLE>

- ---------------

* To be filed by amendment.

<PAGE> 1
EXHIBIT 1

Draft of July 12, 1994

FIRSTFED FINANCIAL CORP.
__________% Notes due 2004

Underwriting Agreement
_____ __, 1994

Goldman, Sachs & Co.,
Montgomery Securities,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004

Ladies and Gentlemen:

FirstFed Financial Corp., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of $50,000,000 principal amount of the ________ Notes specified above
(the "Securities").

1. The Company represents and warrants to, and agrees with, each of
the Underwriters that:

(a) A registration statement on Form S-3 (File No. 33-________)
in respect of the Securities has been filed with the Securities and
Exchange Commission (the "Commission"); such registration statement and
any post-effective amendment thereto, each in the form heretofore
delivered to you, have been declared effective by the Commission in such
form; no other document with respect to such registration statement or
document incorporated by reference therein has heretofore been filed
with the Commission; and no stop order suspending the effectiveness of
such registration statement has been issued and no proceeding for that
purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in such registration statement or filed
with the Commission pursuant to Rule 424(a) of the rules and regulations
of the Commission under the Securities Act of 1933, as amended (the
"Act"), is hereinafter called a "Preliminary Prospectus"; the various
parts of such registration statement, including all exhibits thereto but
excluding Form T-1 and including (i) the information contained in the
form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the registration
statement at the time it was declared effective and (ii) the documents
incorporated by reference in the prospectus contained in the
registration statement at the time such part of the registration
statement became effective, each as amended at the time such part of the
registration statement became effective, are hereinafter collectively
called the "Registration Statement"; such form of final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus"; and any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Act, as of the date of such Preliminary
Prospectus or Prospectus, as the case may be; any reference to any
amendment or supplement to any Preliminary Prospectus or the Prospectus
shall be deemed to refer to and

<PAGE> 2

include any documents filed after the date of such Preliminary
Prospectus or Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated
by reference in such Preliminary Prospectus or Prospectus, as the case
may be; and any reference to any amendment to the Registration
Statement shall be deemed to refer to and include any annual report of
the Company filed pursuant to Section 13(a) or 15(d) of the Exchange
Act after the effective date of the Registration Statement that is
incorporated by reference in the Registration Statement);

(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply
to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by an Underwriter
expressly for use therein;

(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further amendment
or supplement thereto, when such documents become effective or are filed
with the Commission, as the case may be, will conform in all material
respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter expressly for use
therein;

(d) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the
requirements of the Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and
in conformity with information furnished in writing to the Company by an
Underwriter expressly for use therein;

(e) The Company has no direct subsidiaries other than First
Federal Bank of California (the "Bank"), a federally chartered savings
bank, and the Bank has no subsidiaries other than

-2-

<PAGE> 3
Seaside Financial Corporation, a California corporation, Oceanside
Insurance Agency, Inc., a California corporation, and Santa Monica
Capital Group, a California corporation, none of which is a significant
subsidiary within the meaning of Rule 1-02 of Regulation S-X. Neither
the Company nor any of its subsidiaries has sustained since the date of
the latest audited financial statements included or incorporated by
reference in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in
the Prospectus; and, since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or any increase in the debt of the
Company or any of its subsidiaries which, in the aggregate, exceeds
$_________ or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the general
affairs, management, consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries,
taken as a whole, otherwise than as set forth or contemplated in the
Prospectus;

(f) The Company is duly registered with the Office of Thrift
Supervision (the "OTS") as a savings and loan holding company, has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of Delaware, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, or is
subject to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction; and each subsidiary of the
Bank has been duly incorporated and is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation or
organization, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each jurisdiction in
which it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material liability or
disability by reason of the failure to be so qualified in any
jurisdiction;

(g) The Bank has been duly organized and is validly existing as
a federal stock savings bank under the laws of the United States, with
power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus and is not in
violation of its charter or by-laws; the Bank is a member of the Federal
Home Loan Bank of San Francisco ("FHLB"); the Bank's deposits are
insured through the Savings Association Insurance Fund (the "SAIF") to
the fullest extent provided by the Federal Deposit Insurance Act and the
rules and regulations promulgated thereunder, which are administered by
the Federal Deposit Insurance Corporation (the "FDIC"), and the Bank's
accounts are insured by the FDIC in accordance with applicable law; no
proceedings for the termination or revocation of such membership or
insurance are pending or, to the knowledge of the Company or of the
Bank, threatened; and the activities of all of its subsidiaries are
permitted to be engaged in by subsidiaries of a federal savings bank;

(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly authorized and validly

-3-
<PAGE> 4
issued and are fully paid and non-assessable; and all of the issued
shares of capital stock of the Bank and each subsidiary of the Bank have
been duly authorized and validly issued, are fully paid and
non-assessable and (except for directors' qualifying shares and except
as otherwise set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;

(i) The Securities have been duly authorized and, upon the
execution, authentication, issuance and delivery of the Securities in
accordance with the Indenture and payment therefor as provided pursuant
to this Agreement, will have been duly executed, authenticated, issued
and delivered and will constitute valid and legally binding obligations
of the Company entitled to the benefits provided by the Indenture to be
dated as of _____ __, 1994 (the "Indenture") between the Company and
____________, as Trustee (the "Trustee"), under which they are to be
issued, which will be substantially in the form filed as an exhibit to
the Registration Statement; the Indenture has been duly authorized and
duly qualified under the Trust Indenture Act and, when executed and
delivered by the Company and the Trustee, the Indenture will constitute
a valid and legally binding instrument, enforceable in accordance with
its terms, except to the extent that enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, and other laws relating to or
affecting enforcement of creditors rights generally or by general equity
principles (regardless of whether enforcement is considered in a
proceeding in equity or in law); and the Securities and the Indenture
will conform to the descriptions thereof in the Prospectus;

(j) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the Indenture
and this Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, sale/leaseback agreement,
loan agreement or other similar financing agreement or instrument or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of the its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, which violations,
individually or in the aggregate, would have a material adverse effect
on the general affairs, prospects, management, consolidated financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties
(including, without limitation, regulations and orders of the OTS, the
FDIC, the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the FHLB (each, a "Depository Institution Agency"
and collectively, the "Depository Institution Agencies")); and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required for
the issue and sale of the Securities or the consummation by the Company
of the transactions contemplated by this Agreement or the Indenture
except the registration under the Act of the Securities, such as have
been obtained under the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws or by the National
Association of Securities Dealers, Inc. (the "NASD") in connection with
the purchase and distribution of the Securities by the Underwriters;

-4-
<PAGE> 5
(k) Neither the Company nor any of its subsidiaries is in
violation of its certificate of incorporation or charter, as the case
may be, or by-laws or in default in the performance or observance of any
material obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or its properties may
be bound;

(l) The statements set forth in the Prospectus under the
caption "Description of Notes", insofar as they purport to constitute a
summary of the terms of the Securities, and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the documents referred to therein, are accurate summaries and fairly
present the information called for with respect to such documents;

(m) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company and
its subsidiaries, taken as a whole; is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a material adverse effect on the current or
future consolidated financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole;
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others;

(n) The Company and its subsidiaries have all permits,
licenses, franchises, authorizations, approvals and orders of and from
all governmental or regulatory authorities as are necessary to own their
properties and to conduct their businesses in the manner described in
the Prospectus, subject to such qualifications as may be set forth in
the Prospectus except for such permits, licenses, franchises,
authorizations, approvals and orders as are not, individually or in the
aggregate, material to the consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; the Company and each of its subsidiaries has fulfilled and
performed all its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or result in any other
material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus, and, except as described in the Prospectus, none of such
permits contains any restriction that is materially burdensome to the
Company or any of its subsidiaries.

(o) The Company is not and, after giving effect to the offering
and sale of the Securities, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");

(p) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes; and

(q) KPMG Peat Marwick, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.

2. Subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price of ____% of the principal amount thereof, plus

-5-
<PAGE> 6
accrued interest, if any, from ____________________, 1994 to the Time of
Delivery hereunder, the principal amount of Securities set forth opposite the
name of such Underwriter in Schedule I hereto.

3. Upon the authorization by the Underwriters of the release of the
Securities, the several Underwriters propose to offer the Securities for sale
upon the terms and conditions set forth in the Prospectus.

4. Securities to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as the Underwriters may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to you
for the account of such Underwriter, against payment by such Underwriter or on
its behalf of the purchase price therefor by certified or official bank check
or checks, payable to the order of the Company in New York Clearing House
funds, all at the office of Sullivan & Cromwell 444 South Flower Street, Los
Angeles, California 90071, at 9:30 a.m., New York time, on _______, 1994 or at
such other place, time and date as the Underwriters and the Company may agree
upon in writing, such place, time and date being herein called the "Time of
Delivery". Such certificates will be made available for checking and packaging
at least twenty-four hours prior to the Time of Delivery at the office of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004.

5. The Company agrees with each of the Underwriters:

(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later
than the Commission's close of business on the second business day
following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Act; to make no further amendment or any supplement to the
Registration Statement or Prospectus which shall be disapproved by the
Underwriters promptly after reasonable notice thereof; to advise the
Underwriters, promptly after it receives notice thereof, of the time
when the Registration Statement, or any amendment thereto, has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Underwriters with
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Securities; to advise the Underwriters, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus, of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, to promptly use its best efforts to obtain the withdrawal
of such order;

(b) Promptly from time to time to take such action as the
Underwriters may reasonably request to qualify the Securities for
offering and sale under the securities laws of such jurisdictions as the
Underwriters may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the
Securities, provided that in connection

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<PAGE> 7
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;

(c) To furnish the Underwriters with copies of the Prospectus
in such quantities as the Underwriters may from time to time reasonably
request, and, if the delivery of a prospectus is required at any time
prior to the expiration of nine months after the time of issue of the
Prospectus in connection with the offering or sale of the Securities and
if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary during such same period to amend or supplement the Prospectus
or to file under the Exchange Act any document incorporated by reference
in the Prospectus in order to comply with the Act, the Exchange Act or
the Trust Indenture Act, to notify the Underwriters and upon their
request to file such documents and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
the Underwriters may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance; and in case any
Underwriter is required to deliver a prospectus in connection with sales
of any of the Securities at any time nine months or more after the time
of issue of the Prospectus, upon request of an Underwriter but at the
expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as such Underwriter may request of an amended or
supplemented Prospectus complying with Section 10(a)(3) of the Act;

(d) To make generally available to its securityholders as soon
as practicable, but in any event not later than eighteen months after
the effective date of the Registration Statement (as defined in Rule
158(c) under the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);

(e) During the period beginning from the date hereof and
continuing to and including the Time of Delivery, not to offer, sell,
contract to sell or otherwise dispose of any debt securities of the
Company which mature more than one year after the Time of Delivery and
which are substantially similar to the Securities, without the prior
written consent of the Underwriters;

(f) To furnish to the holders of the Securities as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income, stockholders'
equity and cash flows of the Company and its consolidated subsidiaries
certified by independent public accountants) and, as soon as practicable
after the end of each of the first three quarters of each fiscal year
(beginning with the fiscal quarter ending after the effective date of
the Registration Statement), consolidated summary financial information
of the Company and its subsidiaries for such quarter in reasonable
detail;

(g) During a period of five years from the effective date of
the Registration Statement, to furnish to the Underwriters copies of all
reports or other communications (financial or other) furnished to
stockholders, and to deliver to the Underwriters (i) as soon as they are
available, copies of any reports and financial statements furnished to
or filed with the Commission or any national securities exchange on
which the Securities or any class of securities of the

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<PAGE> 8
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as the Underwriters may
from time to time reasonably request (such financial statements to be on
a consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission); and

(h) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Prospectus under the caption "Use of Proceeds".

6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Securities under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Indenture, the Blue Sky
and Legal Investment Memoranda and any other documents in connection with the
offering, purchase, sale and delivery of the Securities, including any
corporate histories or bound volumes prepared for the Company, its counsel and
its accountants; (iii) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as provided in
Section (b) hereof, including the fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky and legal investment surveys; (iv) any fees charged by securities
rating services for rating the Securities; (v) the filing fees incident to any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Securities; (vi) the cost of preparing the Securities;
(vii) the fees and expenses of the Trustee and any agent of the Trustee and the
fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities; and (ix) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees
of their counsel, transfer taxes on resale of any of the Securities by them,
and any advertising expenses connected with any offers they may make.

7. The respective obligations of the Underwriters hereunder shall be
subject, in the sole discretion of the Underwriters to the condition that all
representations and warranties and other statements of the Company herein are,
at and as of the Time of Delivery, true and correct, the condition that the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:

(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance
with Section 5(a) hereof; no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with
to the reasonable satisfaction of the Underwriters;

(b) Sullivan & Cromwell, counsel for the Underwriters, shall
have furnished to the Underwriters such opinion or opinions, dated the
Time of Delivery, with respect to certain of

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<PAGE> 9
the matters covered in subsection (c) below as well as such other
related matters as the Underwriters may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;

(c) Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company, shall have furnished to the Underwriters their written opinion,
dated the Time of Delivery, in form and substance satisfactory to the
Underwriters, to the effect that:

(i) The Company is duly registered with the OTS as a
savings and loan holding company and has been duly incorporated
and is validly existing as a corporation in good standing under
the laws of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;

(ii) The Company has an authorized capitalization as set
forth in the Prospectus under the caption "Capitalization";

(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of the State of California;

(iv) The Bank is validly existing as a federal stock
savings bank; and all of the issued shares of capital stock of
the Bank and each such subsidiary have been duly authorized and
validly issued, are fully paid and non-assessable, and (except
for directors' qualifying shares) to the actual knowledge of such
counsel based on certificates of officers of the Company are
owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that
both the Underwriters and they are justified in relying upon such
opinions and certificates);

(v) The Bank is a member of the Federal Home Loan Bank of
San Francisco; the savings accounts of the Bank are insured by
the FDIC in accordance with applicable law; and no proceedings
for the termination or revocation of such membership or insurance
are pending or, to the best knowledge of such counsel,
threatened, and the activities of all of the Bank's subsidiaries
are permitted to be engaged in by subsidiaries of a federal
savings bank, the deposits of which are insured by the FDIC;

(vi) This Agreement has been duly authorized, executed
and delivered by the Company;

(vii) The Securities have been duly authorized, executed,
authenticated, issued and delivered by the Company and when duly
executed and authenticated by the Trustee and delivered to and
paid for by the Underwriters will constitute valid and legally
binding obligations of the Company entitled to the benefits
provided by the Indenture; and the Securities and the Indenture
conform, in all material respects to the descriptions thereof
under the caption "Description of the Notes" in the Prospectus;

(viii) The Indenture has been duly authorized, executed and
delivered by the parties thereto and constitutes a valid and
legally binding instrument, enforceable in accordance with its
terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, and other laws
relating to or affecting enforcement of creditors rights
generally or by general equity principles (regardless of

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<PAGE> 10
whether enforcement is considered in a proceeding in equity or
in law); and the Indenture has been duly qualified under the
Trust Indenture Act;

(ix) The execution and delivery of this Agreement and the
Indenture and the consummation of the transactions herein
contemplated do not and will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a
default under, the certificate of incorporation or by-laws of the
Company or any of the Bank's subsidiaries, the charter or by-
laws of the Bank, or any agreement or instrument filed as an
exhibit to the Registration Statement to which the Company, the
Bank, or the Bank's subsidiaries is a party or by which the
Company, the Bank, or the Bank's subsidiaries may be bound;

(x) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Securities or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture
except such as have been obtained under the Act and the Trust
Indenture Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws or National Association of Securities
Dealers, Inc. in connection with the purchase and distribution of
the Securities by the Underwriters (as to which such counsel may
express no opinion);

(xi) The statements set forth in the Prospectus under the
caption "Description of Notes", insofar as they purport to
constitute a summary of the terms of the Securities, and under
the caption "Underwriting", insofar as they purport to describe
the provisions of the documents referred to therein, are accurate
summaries and fairly present the information called for with
respect to such documents;

(xii) The Company is not an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;

(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to the Time of Delivery (other than the financial
statements and related schedules thereto, or other financial
information included therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Act and the Trust Indenture Act and
the rules and regulations thereunder; although they do not assume
any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xiii) of this Section 7, no facts have come to their
attention which cause them to believe that, as of its effective
date, the Registration Statement or any further amendment thereto
made by the Company prior to the Time of Delivery (other than the
financial statements and related schedules thereto, or other
financial information included therein, as to which such counsel
need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to the
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make

-10-
<PAGE> 11
the statements therein, in the light of the circumstances under
which they were made, not misleading or that, as of the Time of
Delivery, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company
prior to the Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contains an untrue statement
of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and they do not know
of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement
or required to be incorporated by reference into the Prospectus
or required to be described in the Registration Statement or
the Prospectus which are not filed or incorporated by reference
or described as required;

(d) Ann E. Lederer, counsel for the Company, shall have
furnished to the Underwriters their written opinion, dated the Time of
Delivery, in form and substance satisfactory to the Underwriters, to the
effect that:

(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable;

(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties, or conducts any business, so as to
require such qualification, or is subject to no material
liability or disability by reason of the failure to be so
qualified in any such jurisdiction (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions of
local counsel and in respect of matters of fact upon certificates
of officers of the Company, provided that such counsel shall
state that they believe that both the Underwriters and they are
justified in relying upon such opinions and certificates);

(iv) The Bank is validly existing as a federal stock
savings bank and each subsidiary of the Bank has been duly
incorporated and each of the subsidiaries of the Bank is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;

(v) The Company and each of its subsidiaries has all
permits, licenses, franchises, authorizations, approvals and
orders of and from all governmental or regulatory authorities as
are necessary to own its properties and to conduct its business
in the manner described in the Prospectus and any amendments or
supplements thereto, subject to such qualifications as may be set
forth in the Prospectus and any amendments or supplements thereto
except for such permits, licenses, franchises, authorizations,
approvals and orders as are not, individually or in the
aggregate, material to the consolidated financial position,
stockholders' equity or results of operations of the

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<PAGE> 12
Company and its subsidiaries; and to the best of such counsel's
knowledge, the Company and each of its subsidiaries has fulfilled
and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination hereof or
result in any other material impairment of the rights of the
holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectus and any
amendments or supplements thereto, and, except as described in
the Prospectus and any amendments or supplements thereto, none of
such permits contains any restriction that is materially
burdensome to the Company or its subsidiaries;

(vi) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;

(vii) The issue and sale of the Securities and the
compliance by the Company with all of the provisions of the
Securities, the Indenture and this Agreement and the consummation
of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, sale/leaseback agreement,
loan agreement or other financing agreement or any other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties;

(viii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation, or Charter, as the
case may be, or By-laws or in default in the performance or
observance of any material obligation, covenant or condition
contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is
a party or by which it or its properties may be bound;

(ix) The documents incorporated by reference in the
Prospectus or any further amendment or supplement thereto made by
the Company prior to the Time of Delivery (other than the
financial statements and related schedules therein, as to which
such counsel need express no opinion), when they became effective
or were filed with the Commission, as the case may be, complied
as to form in all material respects with the requirements of the
Act or the Exchange Act and the rules and regulations of the
Commission thereunder, and they have no reason to believe that
any of such documents, when such documents became effective or
were so filed, as the case may be, contained, in the case of a
registration statement which became effective under the

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<PAGE> 13
Act, an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, or, in the case of
other documents which were filed under the Act or the Exchange
Act with the Commission, an untrue statement of a material fact
or omitted to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which
they were made when such documents were so filed, not misleading;
and

(e) At 10:00 a.m., New York City time, on the effective date of
the Registration Statement and the effective date of the most recently
filed post-effective amendment to the Registration Statement and also at
the Time of Delivery, KPMG Peat Marwick shall have furnished to the
Underwriters a letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to the Underwriters, to the
effect set forth in Annex I hereto;

(f) (i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus any
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than
as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock or long-term
debt or short-term debt (except for increases in funding liabilities of
the Bank in the ordinary course of business consisting of deposits,
advances of the FHLB and repurchase agreements) of the Company or any of
its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Underwriters
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities on
the terms and in the manner contemplated in the Prospectus;

(g) Prior to the date hereof, the Company shall have obtained a
rating of the Securities of [____] by Standard & Poor's Corporation and
[____] by Moody's Investors Service Inc. and on or after the date hereof
(i) no downgrading shall have occurred in the rating accorded the
Company's debt securities by any "nationally recognized statistical
rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization
shall have publicly announced that it has under surveillance or review,
with possible negative implications, its rating of any of the Company's
debt securities;

(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange; (ii) a
suspension or material limitation in trading in the Company's securities
on the New York Stock Exchange; (iii) a general moratorium on commercial
banking activities in New York declared by either Federal or New York or
California State authorities; (iv) outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in
this Clause (iv) in the judgment of the Underwriters makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Securities on the terms and in the manner contemplated
in the Prospectus; or (v) the occurrence of any material adverse change
in the existing financial,

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<PAGE> 14
political or economic conditions in the United States or elsewhere
which, in the judgment of the Underwriters would materially and
adversely affect the financial markets or the market for the Securities
and other debt securities; and

(i) The Company shall have furnished or caused to be furnished
to the Underwriters at the Time of Delivery certificates of officers of
the Company satisfactory to the Underwriters as to the accuracy of the
representations and warranties of the Company herein at and as of such
Time of Delivery, as to the performance by the Company of all of its
obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (f) of this
Section and as to such other matters as the Underwriters may reasonably
request.

8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by the Underwriters expressly for use therein.

(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by the
Underwriters expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.

(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under

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<PAGE> 15
such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party which shall not unreasonably be withheld, be
counsel to the indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any Indemnified party.

(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Securities. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law or if the indemnified party failed to give the notice
required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with

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<PAGE> 16
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.

(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.

9. (a) If either Underwriter shall default in its obligation to
purchase the Securities which it has agreed to purchase hereunder, the
non-defaulting Underwriter may in its discretion arrange for it or another
party or other parties to purchase such Securities on the terms contained
herein. If within thirty-six hours after such default by the defaulting
Underwriter the non-defaulting Underwriter does not arrange for the purchase of
such Securities, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to the non-defaulting Underwriter to purchase such Securities on
such terms. In the event that, within the respective prescribed periods, the
non-defaulting Underwriter notifies the Company that it has so arranged for the
purchase of such Securities, or the Company notifies the non-defaulting
Underwriter that it has so arranged for the purchase of such Securities, the
non-defaulting Underwriter or the Company shall have the right to postpone the
Time of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in the opinion of the non-defaulting Underwriter may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if such
person had originally been a party to this Agreement with respect to such
Securities.

(b) If, after giving effect to any arrangements for the purchase
of the Securities of a defaulting Underwriter by a non-defaulting Underwriter
and the Company as provided in subsection (a) above, the aggregate principal
amount of such Securities which remains unpurchased does not exceed
one-eleventh of the aggregate principal amount of all the Securities, then the
Company shall have the right to require the non-defaulting Underwriter to
purchase the principal amount of Securities which such Underwriter agreed to
purchase hereunder and, in addition, to require the non-defaulting Underwriter
to purchase its pro rata share (based on the principal amount of Securities
which such Underwriter agreed to purchase hereunder) of the Securities of the
defaulting Underwriter for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.

-16-
<PAGE> 17
(c) If, after giving effect to any arrangements for the purchase
of the Securities of a defaulting Underwriter by the non-defaulting
Underwriter and the Company as provided in subsection (a) above, the aggregate
principal amount of Securities which remains unpurchased exceeds one-eleventh
of the aggregate principal amount of all the Securities, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Securities of a defaulting Underwriter,
then this Agreement shall thereupon terminate, without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses to be
borne by the Company and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.

10. The respective indemnities, agreements, representations,
warranties and other statements of the Company and the several Underwriters, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or on
behalf of any Underwriter or any controlling person of any Underwriter or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Securities.

11. If this Agreement shall be terminated pursuant to Section 9
hereof, the Company shall not then be under any liability to any Underwriter
except as provided in Section 6 and Section 8 hereof; but, if for any other
reason, the Securities are not delivered by or on behalf of the Company as
provided herein, the Company will reimburse the Underwriters for all
out-of-pocket expenses, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Securities, but the Company shall then be under no further
liability to any Underwriter except as provided in Sections 6 and 8 hereof.

All statements, requests, notices, and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to the Underwriters at the following address: in
care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004,
Attention: Registration Department; and if to the Company shall be delivered
or sent by mail, telex or facsimile transmission to the address of the Company
set forth in the Registration Statement, Attention: Secretary. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.

12. This Agreement shall be binding upon the Underwriters and the
Company, and inure solely to the benefit of, the Underwriters, the Company and,
to the extent provided in Sections 8 and 10 hereof, the officers and directors
of the Company and each person who controls the Company or any Underwriter, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Securities from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.

13. Time shall be of the essence of this Agreement. As used herein,
the term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.

14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.

-17-
<PAGE> 18
15. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one
and the same instrument.

-18-
<PAGE> 19
If the foregoing is in accordance with your understanding, please sign
and return to us four counterparts hereof, and upon the acceptance hereof by
the Underwriters, this letter and such acceptance hereof shall constitute a
binding agreement between each of the Underwriters and the Company.

Very truly yours,

FirstFed Financial Corp.

By:__________________________
Name:
Title:

Accepted as of the date hereof:

_____________________________
(Goldman, Sachs & Co.)

Montgomery Securities

By:__________________________
Name:
Title:

-19-
<PAGE> 20

SCHEDULE I

<TABLE>
<CAPTION>
Principal
Amount of
Designated
Securities to
Underwriter be Purchased
----------- -------------
<S> <C>
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Montgomery Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
--------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $
==============
</TABLE>

<PAGE> 21
ANNEX I

Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:

(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;

(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included or incorporated by reference in the Registration
Statement or the Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act or the Exchange
Act, as applicable, and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the consolidated interim financial statements, selected
financial data, pro forma financial information, financial forecasts
and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been separately
furnished to the Underwriters;

(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus and/or included in the Company's quarterly report on Form 10-Q
incorporated by reference into the Prospectus as indicated in their
reports thereon copies of which have been separately furnished to the
Underwriters; and on the basis of specified procedures including inquiries
of officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply as
to form in the related in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the Exchange Act and the
related published rules and regulations;

(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
and included or incorporated by reference in Item 6 of the Company's
Annual Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;

(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d) respectively, of Regulation S-K;

(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim

<PAGE> 22
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:

(A) (i) the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements
of cash flows included or incorporated by reference in the
Company's Quarterly Reports on Form 10-Q incorporated by
reference in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Exchange Act as it applies to Form 10-Q and the related
published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed
consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included or
incorporated by reference in the Company's Quarterly Reports on
Form 10-Q incorporated by reference in the Prospectus, for them
to be in conformity with generally accepted accounting
principles;

(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
or incorporated by reference in the Company's Annual Report on
Form 10-K for the most recent fiscal year;

(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived the
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the
basis for the audited financial statements included or
incorporated by reference in the Company's Annual Report on Form
10-K for the most recent fiscal year;

(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;

(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest balance sheet included or incorporated by
reference in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each
case as compared with amounts shown in the latest balance sheet
included or incorporated by reference in the Prospectus, except
in each case for changes, increases or decreases which the

-2-
<PAGE> 23
Prospectus discloses have occurred or may occur or which are described in
such letter; and

(F) for the period from the date of the latest financial
statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E) there
were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net
income or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in each
case as compared with the comparable period of the preceding year
and with any other period of corresponding length specified by
the Underwriters, except in each case for increases or decreases
which the Prospectus discloses have occurred or may occur or
which are described in such letter; and

(vii) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (vi) above, they have carried out
certain specified procedures, not constituting an examination in
accordance with generally accepted auditing standards, with respect to
certain amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus
(excluding documents incorporated by reference) or in Part II of, or in
exhibits and schedules to, the Registration Statement specified by the
Underwriters or in documents incorporated by reference in the Prospectus
specified by the Underwriters, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.

-3-

<PAGE> 1
EXHIBIT 4

Draft of July 13, 1994

- --------------------------------------------------------------------------------

FIRSTFED FINANCIAL CORP.

________________________
Trustee

________________

Indenture

Dated as of ________, 1994

________________

$50,000,000

____% Notes due 1994

- --------------------------------------------------------------------------------

<PAGE> 2
FIRSTFED FINANCIAL CORP.

Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of ________, 1994

<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 310(a)(1) ............................... 609
(a)(2) ............................... 609
(a)(3) ............................... Not
Applicable
(a)(4) ............................... Not
Applicable
(b) ............................... 608
610
Section 311(a) ............................... 613(a)
(b) ............................... 613(b)
(b)(2) ............................... 703(a)(2)
703(b)
Section 312(a) ............................... 701
702(a)
(b) ............................... 702(b)
(c) ............................... 702(c)
Section 313(a) ............................... 703(a)
(b) ............................... 703(b)
(c) ............................... 703(a)
703(b)
(d) ............................... 703(c)
Section 314(a) ............................... 704
(b) ............................... Not
Applicable
(c)(1) ............................... 102
(c)(2) ............................... 102
(c)(3) ............................... Not
Applicable
(d) ............................... Not
Applicable
(e) ............................... 102
Section 315(a) ............................... 601(a)
(b) ............................... 602
703(a)(6)
(c) ............................... 601(b)
(d) ............................... 601(c)
(d)(1) ............................... 601(a)(1)
(d)(2) ............................... 601(c)(2)
(d)(3) ............................... 601(c)(3)
(e) ............................... 514
</TABLE>

-i-

<PAGE> 3
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 316(a) ............................... 101
(a)(1)(A) ............................... 502
512
(a)(1)(B) ............................... 513
(a)(2) ............................... Not
Applicable
(b) ............................... 508
Section 317(a)(1) ............................... 503
(a)(2) ............................... 504
(b) ............................... 1003
Section 318(a) ............................... 107
</TABLE>

______________

Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.

-ii-
<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE ONE

Definitions and Other Provisions
of General Application

<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 101. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Lease Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Adjusted Net Income . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Adjusted Net Worth . . . . . . . . . . . . . . . . . . . . . . .
Corporate Trust Office . . . . . . . . . . . . . . . . . . . . . . . . . . . .
corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Global Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insured Depository Institution . . . . . . . . . . . . . . . . . . . . . . . .
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

___________
Note: This table of contents shall not, for any purpose, be
deemed to be a part of the Indenture.
<PAGE> 5
<TABLE>
<CAPTION>

Page
----
<S> <C>
Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Available Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offer to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Predecessor Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regular Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stated Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government Obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Unrestricted Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wholly Owned Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 102. Compliance Certificates and Opinions . . . . . . . . . . . . . . . .
SECTION 103. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . .
SECTION 104. Acts of Holders; Record Date . . . . . . . . . . . . . . . . . . . .
SECTION 105. Notices, etc., to Trustee and Company . . . . . . . . . . . . . . . .
SECTION 106. Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . .
SECTION 107. Application of Trust Indenture Act . . . . . . . . . . . . . . . . .
</TABLE>

-ii-
<PAGE> 6

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 108. Effect of Headings and Table of Contents . . . . . . . . . . . . . .
SECTION 109. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . .
SECTION 110. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 111. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 112. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 114. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE TWO

Security Forms

<TABLE>
<S> <C> <C>
SECTION 201. Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 202. Form of Face of Security . . . . . . . . . . . . . . . . . . . . . .
SECTION 203. Form of Reverse of Security . . . . . . . . . . . . . . . . . . . . .
SECTION 204. Form of Trustee's Certificate of Authentication . . . . . . . . . . .
</TABLE>

ARTICLE THREE

The Securities

<TABLE>
<S> <C> <C>
SECTION 301. Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 302. Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 303. Execution, Authentication, Delivery and Dating . . . . . . . . . . .
SECTION 304. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 305. Registration, Registration of Transfer and Exchange . . . . . . . . .
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . .
SECTION 307. Payment of Interest; Interest Rights Preserved . . . . . . . . . . .
SECTION 308. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 309. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 310. Computation of Interest . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE FOUR

Satisfaction and Discharge

<TABLE>
<S> <C> <C>
SECTION 401. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . .
SECTION 402. Application of Trust Money . . . . . . . . . . . . . . . . . . . . .
</TABLE>

-iii-
<PAGE> 7

ARTICLE FIVE

Remedies

Page
----
<S> <C> <C>
SECTION 501. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 502. Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . . . . . . . .
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . .
SECTION 504. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 505. Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . . . . . . . .
SECTION 506. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 507. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . .
SECTION 509. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 510. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 511. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 512. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 513. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 514. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 515. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

</TABLE>

ARTICLE SIX

The Trustee

<TABLE>
<S> <C> <C>
SECTION 601. Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 602. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 603. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 604. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . . . . . .
SECTION 605. May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 606. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 607. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 608. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 609. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 610. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . .
SECTION 611. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . .

</TABLE>
-iv-
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 612. Merger, Conversion, Consolidation or Succession to Business . . . .
SECTION 613. Preferential Collection of Claims Against Company . . . . . . . . .
</TABLE>

ARTICLE SEVEN

Holders' Lists and Reports by Trustee and Company

<TABLE>
<S> <C> <C>
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders . . . . .
SECTION 702. Preservation of Information; Communications to Holders . . . . . .
SECTION 703. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 704. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE EIGHT

Consolidation, Merger, Conveyance, Transfer or Lease

<TABLE>
<S> <C> <C>
SECTION 801. Company May Consolidate, etc. Only on Certain Terms . . . . . . . .
SECTION 802. Successor Substituted . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE NINE

Supplemental Indentures

<TABLE>
<S> <C> <C>
SECTION 901. Supplemental Indentures Without Consent of Holders . . . . . . . .
SECTION 902. Supplemental Indentures with Consent of Holders . . . . . . . . . .
SECTION 903. Execution of Supplemental Indentures . . . . . . . . . . . . . . .
SECTION 904. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . .
SECTION 905. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . .
SECTION 906. Reference in Securities to Supplemental Indentures . . . . . . . .
</TABLE>

-v-
<PAGE> 9

ARTICLE TEN

Covenants

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1001. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1002. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1003. Money for Security Payments to be Held in Trust . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1004. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1005. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1006. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1007. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1008. Limitation on Company Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1009. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1010. Limitations Concerning Distributions By Subsidiaries, etc. . . . . . . . . . . . . . . . . .
SECTION 1011. Limitation on Dispositions of Certain Capital Stock and
Assets of Subsidiaries that are Insured Depository Institutions . . . . . . . . . . . . . . .
SECTION 1012. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1013. Limitation on Transactions with Affiliates and Related Persons . . . . . . . . . . . . . . .
SECTION 1014. Maintenance of Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1015. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1016. Notice Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1017. Provision of Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1018. Statement by Officers as to Default; Compliance Certificates . . . . . . . . . . . . . . . .
SECTION 1019. Waiver of Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ARTICLE ELEVEN

Redemption of Securities

<TABLE>
<S> <C> <C>
SECTION 1101. Right of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1102. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1103. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1104. Selection by Trustee of Securities to Be Redeemed . . . . . . . . . . . . . . . . . . . . . .
SECTION 1105. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1106. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1107. Securities Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1108. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

-vi-
<PAGE> 10

ARTICLE TWELVE

Defeasance and Covenant Defeasance

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . .
SECTION 1202. Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1203. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1204. Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1206. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

-vii-
<PAGE> 11
INDENTURE, dated as of ________, 1994, between FirstFed
Financial Corp., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal
office at 401 Wilshire Blvd., Santa Monica, CA 90401, and ______________, a
____________ duly organized and existing under the laws of the State of
____________, as Trustee (herein called the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of
$50,000,000 aggregate principal amount of its ____% Notes due 2004 (the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.

All things necessary to make the Securities, when executed by
the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually covenanted and agreed,
for the equal and proportionate benefit of all Holders of the Securities, as
follows:

ARTICLE ONE

Definitions and Other Provisions
of General Application

SECTION 101. Definitions.

For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;

(2) all other terms used herein which are defined in the
Trust Indenture Act,
<PAGE> 12
either directly or by reference therein, have the meanings assigned to
them therein;

(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally
accepted accounting principles (whether or not such is indicated
herein), and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted as consistently applied by the
Company at the date of such computation;

(4) unless otherwise specifically set forth herein, all
calculations or determinations of a Person shall be performed or made
on a consolidated basis in accordance with generally accepted
accounting principles; and

(5) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in
that Article.

"Act", when used with respect to any Holder, has the meaning
specified in Section 104.

"Affiliate" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For the purposes of this definition, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

"Bank" means First Federal Bank of California, a federally
chartered savings bank.

"Bank Subsidiary" means any Subsidiary of the Company that is
an Insured Depository Institution.

-2-
<PAGE> 13
"Bank Subordinated Debt" means Debt of any Bank Subsidiary
which is permitted under Regulatory Requirements to be included in the capital
of the Bank for Regulatory purposes.

"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.

"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on the
date of such certification, and delivered to the Trustee.

"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of New
York, New York are authorized or obligated by law or executive order to close.

"Capital Lease Obligation" of any Person means the obligation
to pay rent or other payment amounts under a lease of (or other Debt
arrangements conveying the right to use) real or personal property of such
Person which is required to be classified and accounted for as a capital lease
or a liability on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles. The stated maturity of such
obligation shall be the date of the last payment of rent or any other amount
due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.

"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock of such Person.

"Change of Control" has the meaning specified in Section 1015.

"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.

"Common Stock" of any Person means Capital Stock of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding

-3-
<PAGE> 14
up of such Person, to shares of Capital Stock of any other class of such
Person.

"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter
"Company" shall mean such successor Person.

"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee.

"Consolidated Adjusted Net Income" of any Person means for any
period the net income (or loss) of such Person and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (a) the
net income (or loss) of any Person acquired by such Person or a Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (b) the net income (but not net loss) of any
Subsidiary of such Person which is subject to restrictions which prevent the
payment of dividends or the making of distributions to such Person to the
extent of such restrictions, (c) the net income (or loss) of any Person that is
not a Subsidiary of such Person except to the extent of the amount of dividends
or other distributions actually paid to such Person by such other Person during
such period, (d) all extraordinary gains (other than tax credits to the extent
they result in cash benefits to the owner thereof) and extraordinary losses;
provided, further, that there shall be added thereto the aggregate amount of
dividends paid with respect to preferred stock of Subsidiaries of the Company
to the extent such amount was otherwise deducted in the foregoing calculation
of Consolidated Adjusted Net Income.

"Consolidated Adjusted Net Worth" of any Person means the
stockholders' equity of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
less amounts attributable to Redeemable Stock of such Person; provided that,
with respect to the Company, adjustments following the date of this Indenture
to the accounting books and records of the Company in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise for goodwill resulting from the application of pushdown
accounting from

-4-
<PAGE> 15
the acquisition of control of the Company by another Person shall not be given
effect to.

"Corporate Trust Office" means the principal office of the
Trustee in the City of New York, New York at which at any particular time its
corporate trust business shall be administered.

"corporation" means a corporation, association, company,
joint-stock company, partnership or business trust.

"Debt" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person
and whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) all Capital Lease Obligations, (v) every obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business), (vi) the maximum fixed redemption or repurchase price of
Redeemable Stock of such Person at the time of determination, (vii) every
payment obligation of such Person other than the Bank or any other Insured
Depositary Institution under interest rate swap or similar agreements or
foreign currency hedge, exchange or similar agreements at the time of
determination and (viii) every obligation of the type referred to in Clauses
(i) through (vii) of another Person and all dividends of another Person the
payment of which, in either case, such Person has Guaranteed or is responsible
or liable, directly or indirectly, as obligor, Guarantor or otherwise.
Notwithstanding the foregoing, Debt shall not include any obligations of the
Company with respect to any Wholly Owned Bank Subsidiary pursuant to any
Regulatory Requirement.

"Depositary" means, the Person designated to act as Depositary
by the Company in Section 301 until a successor Depositary shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
Depositary shall mean or include each Person who is then a Depositary
hereunder.

"Event of Default" has the meaning specified in Section 501.

-5-
<PAGE> 16
"Exchange Act" refers to the Securities Exchange Act of 1934,
as it may be amended and any successor act thereto.

"Expiration Date" has the meaning specified in the definition
of Offer to Purchase.

"FDIC" means the Federal Deposit Insurance Corporation or any
successor Federal agency.

"Funded Debt" means all Debt of any Person (including the
Securities), whether secured or unsecured, which by its terms has a final
maturity, duration or payment date more than one year from the date on which
Funded Debt is to be determined (including any Debt of any Person having a
final maturity, duration or payment date within one year from such date which,
pursuant to the terms of any agreement under which it is issued or otherwise,
may be renewed or extended at the option of such Person for more than one year
from such date).

"Global Security" means a Security that evidences all or part
of the Securities issued to the Depositary in accordance with Section 303 and
bearing the legend prescribed in Section 303.

"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Debt of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and
including, without limitation, any obligation of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or to
purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (ii) to purchase property, securities or services for
the purpose of assuring the holder of such Debt of the payment of such Debt, or
(iii) to maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor"
shall have meanings correlative to the foregoing); provided, however, that the
Guarantee by any Person shall not include (a) endorsements by such Person for
collection or deposit, in either case, in the ordinary course of business or
(b) any obligations of the Company with respect to any Wholly Owned Bank
Subsidiary pursuant to any Regulatory Requirement.

"Holder" means a Person in whose name a Security is registered
in the Security Register.

-6-
<PAGE> 17
"Incur" means, with respect to any Debt or other obligation of
any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing); provided,
however, that a change in generally accepted accounting principles that results
in an obligation of such Person that exists at such time becoming Debt shall
not be deemed an Incurrence of such Debt.

"Indenture" means this instrument as originally executed or as
it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
Indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental Indenture,
respectively.

"Interest Payment Date" means the Stated Maturity of an
instalment of interest on the Securities.

"Investment" in any Person means the acquisition or ownership
of Capital Stock, bonds, notes, debentures or other securities or evidence of
Debt of such Person, any capital contribution to such Person, any deposit with,
or advance, loan or other extension of credit to, such Person, any Guarantee
of, or other contingent obligation with respect to, Debt or other liability of
such Person or any amount committed to be advanced, lent or extended to such
Person.

"Insured Depository Institution" means an insured depository
institution within the meaning of 12 U.S.C. Section 1813(c)(2) or any
successor law, rule or regulation.

"Lien" means, with respect to any property or assets, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).

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<PAGE> 18
"Maturity", when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.

"Net Available Proceeds" from any disposition by any Person
means cash or readily marketable cash equivalents received (including by way of
sale or discounting of a note, instalment receivable or other receivable)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses Incurred and all federal,
state, provincial, foreign and local taxes required to be accrued as a
liability as a consequence of such disposition, (ii) all payments made by such
Person or its Subsidiaries on any Debt which is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Lien, or in order to obtain a necessary consent
to such disposition or by applicable law be repaid out of the proceeds from
such disposition, and (iii) all distributions and other payments made to
minority interest holders in Subsidiaries of such Person or joint ventures as a
result of such disposition, and (iv) appropriate amounts to be provided by such
Person or any Subsidiary thereof, as the case may be, as a reserve in
accordance with generally accepted accounting principles against any
liabilities associated with such assets and retained by such Person or such
Subsidiary thereof, as the case may be, after such disposition, including,
without limitation, liabilities under any indemnification obligations and
severance and other employee-termination costs associated with such
disposition.

"Offer" has the meaning specified in the definition of Offer
to Purchase.

"Offer to Purchase" means a written offer (the "Offer") sent
by the Company by first class mail, postage prepaid, to each Holder at his
address appearing in the Security Register on the date of the Offer offering to
purchase up to the principal amount of Securities specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to this
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be, subject to any contrary requirements of applicable law, not
less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of Securities within five
Business Days after the Expiration Date. The Company shall notify the Trustee
at least

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<PAGE> 19
15 Business Days (or such shorter period as is acceptable to the Trustee) prior
to the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The
Offer shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such Holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee pursuant to Section 1017 (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in Clause (i) (including a
description of the events requiring the Company to make the Offer to Purchase),
(iii) if applicable, appropriate pro forma financial information concerning the
Offer to Purchase and the events requiring the Company to make the Offer to
Purchase and (iv) any other information required by applicable law to be
included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Offer to
Purchase. The Offer shall also state:

(1) the Section of this Indenture pursuant to which the
Offer to Purchase is being made;

(2) the Expiration Date and the Purchase Date;

(3) the aggregate principal amount of the Outstanding
Securities offered to be purchased by the Company pursuant to the
Offer to Purchase (including, if less than 100%, the manner by which
such has been determined pursuant to the Section hereof requiring the
Offer to Purchase) (the "Purchase Amount");

(4) the purchase price to be paid by the Company for each
$1,000 aggregate principal amount of Securities accepted for payment
(as specified pursuant to this Indenture) (the "Purchase Price");

(5) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any portion
of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount

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<PAGE> 20
(6) the place or places where Securities are to be
surrendered for tender pursuant to the Offer to Purchase;

(7) that interest on any Security not tendered or tendered
but not purchased by the Company pursuant to the Offer to Purchase
will continue to accrue;

(8) that on the Purchase Date the Purchase Price will
become due and payable upon each Security accepted for payment
pursuant to the Offer to Purchase and that interest thereon shall
cease to accrue on and after the Purchase Date;

(9) that each Holder electing to tender a Security
pursuant to the Offer to Purchase will be required to surrender such
Security at the place or places specified in the Offer prior to the
close of business on the Expiration Date (such Security being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing);

(10) that Holders will be entitled to withdraw all or any
portion of Securities tendered (subject to paragraph (5) above) if the
Company (or its Paying Agent) receives, not later than the close of
business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Security the Holder tendered, the certificate
number of the Security the Holder tendered and a statement that such
Holder is withdrawing all or a portion of his tender;

(11) that (a) if Securities in an aggregate principal
amount less than or equal to the Purchase Amount are duly tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase all such Securities and (b) if Securities in an aggregate
principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall
purchase Securities having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis (with such adjustments as may be
deemed appropriate so that only Securities in denominations of $1,000
or integral multiples thereof shall be purchased); and

(12) that in case of any Holder whose Security is
purchased only in part, the Company shall execute, and

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<PAGE> 21
the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion
of the Security so tendered.

Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.

"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary, of the
Company, and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who
may be counsel for the Company, and who shall be acceptable to the Trustee.

"OTS" means the Office of Thrift Supervision or any successor
Federal Agency.

"Outstanding", when used with respect to Securities, means, as
of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:

(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;

(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Securities;provided that, if
such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and

(iii) Securities which have been defeased pursuant to Section
1202 hereof; and

(iv) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this

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<PAGE> 22
Indenture, other than any such Securities in respect of which there
shall have been presented to the Trustee proof satisfactory to it that
such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Securities
and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.

"Paying Agent" means any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.

"Permitted Investments" means (i) any Investment in an
Affiliate or Related Person of the Company which is a Wholly Owned Subsidiary
prior to the Investment, (ii) any Investment of Net Available Proceeds in an
Insured Depository Institution resulting in such institution becoming a Wholly
Owned Bank Subsidiary, (iii) any Investment of Excess Proceeds in accordance
with the provisions of Section 1011, (iv) any extension, renewal or replacement
of Investments of any Person in effect as of the date of the Indenture, (v) any
Investment by an Insured Depository Institution (other than an Investment in an
Unrestricted Subsidiary) permitted in accordance with all applicable Regulatory
Requirements, (vi) any Investment (other than an Investment in an Unrestricted
Subsidiary) that would be permitted to the Company or any Subsidiary of the
Company on the date such Investment is made if the Company on that date were a
multiple savings and loan holding company (as defined in 12 CFR Section 583.12)
in accordance with all applicable Regulatory Requirements, (vii) any investment
in a Person as a result of which such Person becomes a Wholly Owned Subsidiary,
(viii) any payments or contributions of any kind by the Company to a

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<PAGE> 23
Bank Subsidiary required pursuant to Regulatory Requirements, or (ix)
Investments in the following types of instruments:

(a) direct obligations of the United States of America or any
agency or instrumentality thereof, or obligations guaranteed by the
United States of America or any agency or instrumentality thereof,
provided that such obligations mature within one year from the date of
acquisition thereof;

(b) demand deposit accounts, or certificates of deposit or
other obligations, maturing within one year after acquisition thereof,
either fully insured by the FDIC (or any successor Federal agency) or
issued by a national or state bank, trust or thrift institution having
capital, surplus and undivided profits of at least $[250,000,000], and
having (or being the Wholly Owned Subsidiary of a holding company
having) a short-term credit rating, at the time of purchase, within
one of the two then-highest rating categories of Moody's Investors
Service or Standard & Poor's Corporation; or

(c) commercial paper rated at the time of purchase in one of
the two then-highest rating categories by Moody's Investors Service or
by Standard & Poor's Corporation and maturing not more than 270 days
from the date of creation thereof; or

(d) guaranteed investment contracts of insurance companies
whose claims-paying ability at the time of purchase is rated AA/Aa or
higher by Moody's Investors Service or by Standard & Poor's
Corporation, provided that the total amount of investments in such
contracts which may constitute Permitted Investments at any one time
pursuant to this section (d) shall not at any time exceed 20% of the
Company's total Permitted Investments; or

(e) repurchase agreements with respect to direct obligations
of the United States of America or any agency or instrumentality
thereof, or obligations guaranteed by the United States of America or
any agency or instrumentality thereof, provided that such repurchase
agreements mature within one year from the date of creation thereof;
or

(f) cash.

"Permitted Lien" means the following:

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<PAGE> 24
(i) any Lien existing, or provided for under arrangements
existing, as of the date of the Indenture;

(ii) any Lien on Capital Stock of the Company sold or
contributed to the Banks' employee stock ownership plan;

(iii) any Lien arising by reason of (1) any judgment, decree or
order of any court or other governmental authority, if appropriate legal
proceedings which may have been duly initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired; (2) taxes,
assessments or similar charges not yet delinquent or which are being contested
in good faith; (3) security for the payment of insurance-related obligations
(including but not limited to in respect of deductibles, self-insured retention
amounts and premiums and adjustments thereto); (4) deposits or pledges in
connection with bids, tenders, leases and contracts (other than contracts for
the payment of money); (5) zoning restrictions, easements, licenses,
reservations, provisions, covenants, conditions, waivers, restrictions on the
use of property or minor irregularities of title (and with respect to leasehold
interests, mortgages, obligations, liens and other encumbrances incurred,
created, assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without consent of the
lessee), none of which materially impairs the use of any parcel of property
material to the operation of the business of the Company and its Subsidiaries
taken as a whole or the value of such property for the purpose of such
business; (6) deposits or pledges to secure public or statutory obligations,
progress payments, surety and appeal bonds or other obligations of like nature
incurred in the ordinary course of business; (7) title defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines and other similar purposes or
zoning or other restrictions as to the use of real property not materially
interfering with the ordinary conduct of the business of the Company and its
Subsidiaries taken as a whole; or (8) operation of law, in favor of landlords,
mechanics, carriers, warehousemen, materialmen, laborers, employees, suppliers,
banks or others, incurred in the ordinary course of business for sums which are
not yet delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof;

(iv) any Lien on any computer or management information system
equipment acquired after the date of the Indenture; and

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<PAGE> 25
(v) any extension, renewal, refinancing or replacement, in
whole or in part, of any Lien described in the foregoing clause (i) (in
addition to any such extension, renewal, refinancing or replacement permitted
pursuant to such clause) so long as the amount of security is not increased
thereby.

"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.

"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.

"Preferred Stock", as applied to the Capital Stock of any
Person, means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.

"Purchase Amount" has the meaning specified in the definition
of Offer to Purchase.

"Purchase Date" has the meaning specified in the definition of
Offer to Purchase.

"Purchase Price" has the meaning specified in the definition
of Offer to Purchase.

"Redeemable Stock" of any Person means any equity security of
such Person that by its terms or otherwise is required to be redeemed prior to
the final Stated Maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to the final Stated Maturity of the
Securities.

"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.

"Regulatory Requirement", as to any Person, means any law,
ordinance, administrative or governmental rule,

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<PAGE> 26
regulation, official interpretation applicable to it or any of its properties,
any formal or informal written demand, directive or notice to such Person by
any administrative or governmental agency requiring or prohibiting action by
such Person, any written agreement between any administrative or governmental
agency and such Person, or any order or decree of any court or governmental
agency or body having jurisdiction over such Person or any of its properties,
including any such order or directive by the OTS applicable to OTS regulated
institutions generally, including such Person.

"Related Person" of any Person means any other Person directly
or indirectly owning (a) 10% or more of the outstanding Common Stock of such
Person (or, in the case of a Person that is not a corporation, 10% or more of
the equity interest in such Person) or (b) 10% or more of combined voting power
of the Voting Stock of such Person.

"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.

"Restricted Payments" has the meaning specified in Section
1011.

"Securities" has the meaning stated in the first recital of
this Indenture.

"Securities Act" refers to the Securities Act of 1933, as it
may be amended and any successor act thereto.

"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.

"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.

"Stated Maturity", when used with respect to any Security or
any instalment of interest thereon, means the

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<PAGE> 27
date specified in such Security as the fixed date on which the principal of
such Security or such instalment of interest is due and payable.

"Subordinated Debt" means Debt of the Company as to which the
payment of principal of (and premium, if any) and interest and other payment
obligations in respect of such Debt shall be subordinate to the prior payment
in full of the Securities to at least the following extent: (i) no payments of
principal of (or premium, if any) or interest on or otherwise due in respect of
such Debt may be permitted for so long as any default in the payment of
principal (or premium, if any) or interest on the Securities exists; (ii) in
the event that any other default that with the passing of time or the giving of
notice, or both, would constitute an Event of Default exists with respect to
the Securities, upon notice by 25% or more in principal amount of the
Securities to the Trustee, the Trustee shall have the right to give notice to
the Company and the holders of such Debt (or trustees or agents therefor) of a
payment blockage, and thereafter no payments of principal of (or premium, if
any) or interest on or otherwise due in respect of such Debt may be made for a
period of 179 days from the date of such notice; and (iii) such Debt shall not
(x) provide for payments of principal of such Debt at the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue
of acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Securities or (y) permit redemption
or other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the option of the holder thereof prior to the
final Stated Maturity of the Securities (unless the Securities shall no longer
be Outstanding), other than a redemption or other retirement at the option of
the holder of such Debt (including pursuant to an offer to purchase made by the
Company) which is conditioned upon the change of control of the Company
pursuant to provisions substantially similar to those contained in Section 1016
hereof.

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<PAGE> 28
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof. "Subsidiary" shall not include an Unrestricted
Subsidiary created in accordance with the definition of "Unrestricted
Subsidiary".

"Tangible Net Worth" of any Person means its net worth
calculated in accordance with generally accepted accounting principles less
goodwill.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.

"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.

"U.S. Government Obligations" has the meaning specified in
Section 1204.

"Unrestricted Subsidiary" means (1) any entity which, but for
its designation as an Unrestricted Subsidiary by the Board of Directors, would
be a Subsidiary of the Company, but only if (a) neither the Company nor any of
its other Subsidiaries (i) provides credit support for, or a Guarantee of, any
Debt of such entity or any Subsidiary of such entity (including any
undertaking, agreement or instrument evidencing such Debt) or (ii) is directly
or indirectly liable for any Debt of such entity or any Subsidiary of such
entity, and (b) no default with respect to any Debt of such entity or any
Subsidiary of such entity (including any right which the holders thereof may
have to take enforcement action against such entity or Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Debt of the
Company and its Subsidiaries to declare a default on such other Debt or cause
the payment thereof to be accelerated or payable prior to its final scheduled
maturity and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Subsidiary (other than the Bank or its successor)
to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, any other Subsidiary of the
Company which is not a Subsidiary of the Subsidiary to be so designated or
otherwise an Unrestricted Subsidiary, provided that either

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<PAGE> 29
(x) the Subsidiary to be so designated has total assets of $1,000 or less or
(y) immediately after giving pro forma effect to such designation, the Company
would then be permitted to make a Restricted Payment pursuant to the
"Limitation on Restricted Payments" covenant in an amount equal to the greater
of (A) the aggregate amount of all Investments made by the Company and all
Subsidiaries of the Company in such proposed Unrestricted Subsidiary and its
Subsidiaries prior to such designation and (B) the Consolidated Adjusted Net
Worth of such proposed Unrestricted Subsidiary, and upon such designation such
amount shall be deemed to be a Restricted Payment. The Board of Directors may
designate any Unrestricted Subsidiary to be a Subsidiary, provided that (i) had
such Unrestricted Subsidiary been a Subsidiary of the Company immediately prior
thereto there would not have occurred and be continuing any Event of Default or
event that with the lapse of time or the giving of notice, or both, would
constitute an Event of Default, and (ii) for purposes of the definition of
"Consolidated Adjusted Net Income," only the net income of such entity for the
period beginning on the date of such designation shall be included therein.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.

"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".

"Voting Stock" of any Person means Capital Stock of such
Person which ordinarily has voting power for the election of directors (or
persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason
of any contingency.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned
by such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.

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<PAGE> 30
SECTION 102. Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee such certificates and opinions as may be required under
the Trust Indenture Act. Each such certificate or opinion shall be given in
the form of an Officers' Certificate, if to be given by an officer of the
Company, or an Opinion of Counsel, if to be given by counsel, and shall comply
with the requirements of the Trust Indenture Act and any other requirement set
forth in this Indenture.

Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include

(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and
the definitions herein relating thereto;

(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;

(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been complied
with; and

(4) a statement as to whether, in the opinion of
each such individual, such condition or covenant has been
complied with.

SECTION 103. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary
that all such matters be certified by, or covered by the opinion of, only one
such Person, or that they be so certified or covered by only one document,
but one such Person may certify or give an opinion with respect to some
matters and one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents.

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<PAGE> 31
Any certificate or opinion of an officer of the
Company may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
of counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.

Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.

SECTION 104. Acts of Holders; Record Date.

(a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture
to be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
601) conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section.

Without limiting the generality of the foregoing, a
Holder, including the Depositary that is a Holder of a Global Security, may
make, give or take, by a proxy, or proxies, duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted in this Indenture to be made, given or taken by
Holders, and the Depositary that is a

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<PAGE> 32
Holder of a Global Security may provide its proxy or proxies to the beneficial
owners of interest in any such Global Security.

(b) The fact and date of the execution by any
Person of any such instrument or writing may be proved by the affidavit of a
witness of such execution or by a certificate of a notary public or other
officer authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.

(c) The Company may, in the circumstances permitted
by the Trust Indenture Act, fix any future day as the record date for the
purpose of determining the Holders entitled to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action, or
to vote on any action, authorized or permitted to be given or taken by Holders.
If not set by the Company prior to the first solicitation of a Holder made by
any Person in respect of any such action, or, in the case of any such vote,
prior to such vote, the record date for any such action or vote shall be the
30th day (or, if later, the date of the most recent list of Holders required to
be provided pursuant to Section 701) prior to such first solicitation or vote,
as the case may be. With regard to any record date, only the Holders on such
date (or their duly designated proxies) shall be entitled to give or take, or
vote on, the relevant action.

(d) The ownership of Securities shall be proved
by the Security Register.

(e) Any request, demand, authorization,
direction, notice, consent, waiver or other Act of the Holder of any Security
shall bind every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.

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<PAGE> 33
SECTION 105. Notices, etc., to Trustee and Company.

Any request, demand, authorization, direction,
notice, consent, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with,

(1) the Trustee by any Holder or by the Company
shall be sufficient for every purpose hereunder if made,
given, furnished or filed in writing to or with the Trustee at
its Corporate Trust Office, Attention: _________
_____________________, or

(2) the Company by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at
the address of its principal office specified in the first
paragraph of this instrument, Attention: General Counsel, or
at any other address previously furnished in writing to the
Trustee by the Company.

SECTION 106. Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders
of any event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date (if any), and not earlier
than the earliest date (if any), prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.

In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable to give such
notice by mail, then such

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<PAGE> 34
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.

SECTION 107. Application of Trust Indenture Act.

The Trust Indenture Act shall apply as a matter of
contract to this Indenture for purposes of interpretation, construction and
defining the rights and obligations hereunder. If any provision hereof limits,
qualifies or conflicts with a provision of the Trust Indenture Act that is
required under such Act to be part of and govern this Indenture, the latter
provision shall control. If any provision of this Indenture modifies or
excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.

SECTION 108. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the construction
hereof.

SECTION 109. Successors and Assigns.

All covenants and agreements in this Indenture by the
Company shall bind its successors and assigns, whether so expressed or not.

SECTION 110. Separability Clause.

In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

SECTION 111. Benefits of Indenture.

Nothing in this Indenture or in the Securities,
express or implied, shall give to any Person, other than the parties hereto
and their successors hereunder, any Paying Agent, the Security Registrar and
the Holders of Securities, any benefit or any legal or equitable right, remedy
or claim under this Indenture.

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<PAGE> 35

SECTION 112. GOVERNING LAW.

THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

SECTION 113. Legal Holidays.

In any case where any Interest Payment Date,
Redemption Date, Purchase Date or Stated Maturity of any Security shall not be
a Business Day, then (notwithstanding any other provision of this Indenture or
of the Securities) payment of interest or principal (and premium, if any) need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment Date,
Redemption Date or Purchase Date, or at the Stated Maturity, provided that no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Purchase Date or Stated Maturity, as the case may be.

SECTION 114. No Recourse Against Others.

This Indenture and the Securities are solely
corporate obligations of the Company. No recourse shall be had against, and no
personal liability shall attach to, any director, officer, employee,
incorporator, stockholder or Affiliate, past, present or future, of the Company
or any successor thereto, or any of them, because of the creation of the
indebtedness hereby authorized, or under, upon or by reason of any obligation,
covenant or agreement contained in this Indenture or in any of the Securities
or implied therefrom or any claim based thereon or in respect thereof; it being
expressly understood that all such recourse and personal liability are hereby
expressly waived and released as a condition of, and as consideration for, the
execution of this Indenture and the issuance of such Securities.

ARTICLE TWO

Security Forms

SECTION 201. Forms Generally.

The Securities and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture, and may have such letters,

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<PAGE> 36
numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such Securities, as evidenced by their execution of the Securities.

The definitive Securities shall be printed,
lithographed or engraved or produced by any combination of these methods or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution of such
Securities.

SECTION 202. Form of Face of Security.

[If a Global Security to be held by The Depository
Trust Company, then insert -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.

[If a Global Security, then insert - THIS IS A GLOBAL
SECURITY WITHIN THE MEANING OF THE INDENTURE. UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY, THIS
GLOBAL SECURITY SHALL NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE
TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.]

FIRSTFED FINANCIAL CORP.

____% NOTES DUE 1994

No. __________ $________

FirstFed Financial Corp., a corporation duly
organized and existing under the laws of Delaware (herein called the "Company",
which term includes any successor

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<PAGE> 37
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to _______________, or registered assigns, the principal sum of
_______________ Dollars on ______, 2004, and to pay interest thereon from
________, 1994 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on _______ and _______ in
each year, commencing ________, 1994, at the rate of ____% per annum, until the
principal hereof is paid or made available for payment, and (to the extent that
the payment of such interest shall be legally enforceable) at the rate of ____%
per annum on any overdue principal and premium and on any overdue installment
of interest until paid. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the _________ or ________ (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.

Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York,
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register.

Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further provisions shall
for all purposes have the same effect as if set forth at this place.

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<PAGE> 38
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by manual
signature, this Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.

FIRSTFED FINANCIAL CORP.

[Seal]

By_______________________
Title:
Attest:

______________________________
Title:

SECTION 203. Form of Reverse of Security.

This Security is one of a duly authorized issue of
Securities of the Company designated as its ____% Notes due 2004 (the
"Securities") issued under an Indenture, dated as of _________, 1994 (herein
called the "Indenture"), between the Company and _______________, as Trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture). The Securities are limited in aggregate principal amount to
$50,000,000. Reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms
upon which the Securities are, and are to be, authenticated and delivered.

The Securities are subject to redemption upon not
less than 30 nor more than 60 days' notice by mail at any time on or after
_______, 1999 and prior to maturity, as a whole or in part, at the election of
the Company, at the following Redemption Prices (expressed as percentages of
the principal amount): If redeemed during the 12-month period beginning
_____________ of the years indicated,

<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999 ____
2000 ____
</TABLE>

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<PAGE> 39
<TABLE>
<S> <C>
2001 and thereafter 100%
</TABLE>

Upon the occurrence of a Change of Control, the Company may at its option
redeem the Securities in whole but not in part at 101% of their principal
amount plus accrued interest to the date of redemption. If within 15 days of
such Change of Control the Company has not exercised its option to redeem the
Securities, the Company shall be required to make an Offer to Purchase for all
of the Securities at 101% of their principal amount plus accrued interest to
the date of purchase. The Indenture further provides that, subject to certain
conditions, if certain Net Available Proceeds are available to the Company as a
result of certain dispositions of certain capital stock of Subsidiaries that
are Insured Depository Institutions, the Company shall be required to make an
Offer to Purchase for a specified portion of the Securities at 100% of their
principal amount plus accrued interest to the date of purchase.

The Securities do not have the benefit of any sinking
fund obligations.

In the event of redemption purchase pursuant to an
Offer to Purchase of this Security in part only, a new Security or Securities
for the unredeemed unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.

The Indenture contains provisions for defeasance at
any time of (i) the entire indebtedness of this Security or (ii) certain
restrictive covenants and Events of Default with respect to this Security, in
each case upon compliance with certain conditions set forth therein.

If an Event of Default shall occur and be continuing,
the principal of all the Securities may be declared due and payable in the
manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of a majority in aggregate principal amount of the Securities at
the time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the
Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under

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<PAGE> 40
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.

Unless the context otherwise requires, the Securities
shall constitute one series for all purposes under the Indenture, including
without limitation, amendments, waivers, redemptions and Offers to Purchase.

No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable in
the Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in the Borough of Manhattan,
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.

The Securities are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities are exchangeable for a like aggregate principal amount of
Securities of a different authorized denomination, as requested by the Holder
surrendering the same.

No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

Prior to due presentment of this Security for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security is registered
as the owner hereof for all purposes, whether or not this Security be overdue,

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<PAGE> 41
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.

The Indenture provides that no Holder of any
Securities thereunder may enforce any remedy or institute any proceeding under
the Indenture except to the extent and on the conditions specified therein.

Interest on this Security shall be computed on the
basis of a 360-day year of twelve 30-day months.

All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.

The Indenture and this Security shall be governed by
and construed in accordance with the laws of the State of New York.

OPTION OF HOLDER TO ELECT PURCHASE

If you want to elect to have this Security purchased
in its entirety by the Company pursuant to Section 1011 or 1015 of the
Indenture, check the box:

[ ]

If you want to elect to have only a part of this
Security purchased by the Company pursuant to Section 1011 or 1015 of the
Indenture, state the amount: $

Dated: Your Signature:_____________________
(Sign exactly as name
appears on the other
side of this Security)

Signature Guarantee:___________________________________
(Signature must be guaranteed by
a member firm of the New York Stock
Exchange or a commercial bank or
trust company)

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<PAGE> 42
SECTION 204. Form of Trustee's Certificate of Authentication.

This is one of the Securities referred to in the
within-mentioned Indenture.

Dated:

_________________________
as Trustee

By ____________________
Authorized Signatory

ARTICLE THREE

The Securities

SECTION 301. Title and Terms.

The aggregate principal amount of Securities which
may be authenticated and delivered under this Indenture is limited to
$50,000,000, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities pursuant to Section 304, 305, 306, or 906 or in connection with an
Offer to Purchase pursuant to Section 1011 or 1015.

The Securities shall be known and designated as the
"____% Notes due 2004" of the Company. The Stated Maturity of the Securities
shall be ______, 2004. The Securities shall bear interest at the rate of ____%
per annum, from _______, 1994 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, as the case may be, payable
semi-annually on ______ and _______, commencing _______, 1994, until the
principal thereof is paid or made available for payment.

The principal of (and premium, if any) and interest
on the Securities shall be payable at the office or agency of the Company in
the City of New York, New York maintained for such purpose and at any other
office or agency maintained by the Company for such purpose; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.

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<PAGE> 43
The Securities shall be subject to repurchase by the
Company pursuant to an Offer to Purchase as provided in Sections 1011 and 1015.

The Securities shall be redeemable as provided in
Article Eleven.

The Securities shall be subject to defeasance at the
option of the Company as provided in Article Twelve.

SECTION 302. Denominations.

The Securities shall be issuable only in registered
form without coupons and only in denominations of $1,000 and any integral
multiple thereof.

SECTION 303. Execution, Authentication, Delivery and Dating.

The Securities shall be executed on behalf of the
Company by its Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures
of individuals who were at any time the proper officers of the Company shall
bind the Company, notwithstanding that such individuals or any of them have
ceased to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Securities executed by
the Company to the Trustee for authentication, together with a Company Order
for the authentication and delivery of such Securities; and the Trustee in
accordance with such Company Order shall authenticate and deliver such
Securities.

Each Security shall be dated the date of its
authentication.

No Security shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears
on such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such

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<PAGE> 44
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.

The Company shall execute and the Trustee shall
authenticate one or more Global Securities that (i) shall represent an
aggregate amount equal to the aggregate principal amount of such of the
Outstanding Securities as the Company shall have directed the Trustee to
authenticate in the form of a Global Security or Global Securities, (ii) shall
be registered in the name of the Depositary or the nominee of the Depositary,
(iii) shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instruction and (iv) shall bear a legend substantially to the
following effect (or in the form required by the Depositary): "THIS IS A
GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY,
THIS GLOBAL SECURITY Shall not BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY."

The Depositary must, at all times while it serves as
such Depositary, be a clearing agency registered under the Securities Exchange
Act of 1934, as amended, and any other applicable statute or regulation.

SECTION 304. Temporary Securities.

Pending the preparation of definitive Securities, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.

If temporary Securities are issued, the Company will
cause definitive Securities to be prepared without unreasonable delay. After
the preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary

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<PAGE> 45
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities
of authorized denominations. Until so exchanged the temporary Securities shall
in all respects be entitled to the same benefits under this Indenture as
definitive Securities.

SECTION 305. Registration, Registration of Transfer and Exchange.

The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained in such office
and in any other office or agency designated pursuant to Section 1002 being
herein sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities and of transfers of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.

Upon surrender for registration of transfer of any
Security at an office or agency of the Company designated pursuant to Section
1002 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of any authorized denominations and of
a like aggregate principal amount.

At the option of the Holder, Securities may be
exchanged for other Securities of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.

All Securities issued upon any registration of
transfer or exchange of Securities shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.

Every Security presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company
or the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly

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<PAGE> 46
executed, by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration
of transfer or exchange of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906 or 1108 or in
accordance with any Offer to Purchase pursuant to Section 1011 or 1015 not
involving any transfer.

The Company shall not be required (i) to issue,
register the transfer of or exchange any Security during the period beginning
at the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities under Section 1105 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.

Notwithstanding any other provision of this Section,
unless and until it is exchanged in whole or in part for the individual
Securities represented thereby, a Global Security representing all or a portion
of the Securities shall not be transferred except as a whole by the Depositary
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.

If at any time the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary or if at any time the
Depositary shall no longer be eligible under Section 303, the Company shall
appoint a successor Depositary. If a successor Depositary is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, the Company will execute, and the Trustee, upon
receipt of a Company Order for the authentication and delivery of individual
Securities, will authenticate and delivery, individual Securities in an
aggregate principal amount equal to the principal amount of the Global Security
or Global Securities representing Securities in exchange for such Global
Security or Global Securities.

The Company may at any time and in its sole
discretion determine that individual Securities issued in the form of one or
more Global Securities shall in whole or in part no longer be represented by
such Global Security or

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<PAGE> 47
Global Securities. In such event, or if an Event of Default has occurred and
is continuing, the Company will execute, and the Trustee, upon receipt of a
Company Order for the authentication and delivery of individual Securities,
will authenticate and deliver, individual Securities in an aggregate principal
amount equal to the principal amount of the Global Security or Global
Securities to be exchanged therefor.

The Depositary may surrender a Global Security in
exchange in whole or in part for individual Securities on such terms as are
acceptable to the Company and such Depositary. Thereupon, the Company shall
execute, and the Trustee shall authenticate and deliver, without service
charge,

(i) to each Person specified by such Depositary a
new individual Security or Securities of any authorized denomination as
requested by such Person in aggregate principal amount equal to and in exchange
for such Person's beneficial interest in the Global Security; and

(ii) to such Depositary a new Global Security in a
denomination equal to the difference, if any, between the principal amount of
the surrendered Global Security and the aggregate principal amount of
individual Securities delivered to Holders thereof.

Upon the exchange of a Global Security for individual
Securities, such Global Security shall be cancelled by the Trustee. Individual
Securities issued in exchange for a Global Security pursuant to this Section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Security, pursuant to instructions from its direct
or indirect participants or otherwise, shall instruct the Trustee. The Trustee
and the Company shall not have any liability for the accuracy of the
instructions received from the Depositary. The Trustee shall deliver such
Securities to the Persons in whose names such Securities are so registered.

Neither the Company nor the Trustee shall have any
responsibility or obligation to any participant in the Depositary, any Person
claiming a beneficial ownership interest in the Securities under or through the
Depositary or any such participant, or any other Person which is not shown on
the Security Register as being a Holder, with respect to (1) the Securities;
(2) the accuracy of any records maintained by the Depositary or any such
participant; (3) the payment by the Depositary or any such participant of any
amount in respect of the principal of or

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premium or interest on the Securities; (4) any notice which is permitted or
required to be given to Holders of Securities under this Indenture; (5) the
selection by the Depositary or any such participant of any Person to receive
payment in the event of a partial redemption of the Securities; or (6) any
consent given or other action taken by the Depositary as Holder of Securities.

SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security is surrendered to the
Trustee, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of like tenor and principal amount
and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the
Trustee (i) evidence to their satisfaction of the destruction, loss or theft of
any Security and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.

In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this
Section, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee) connected
therewith.

Every new Security issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly issued hereunder.

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The provisions of this Section are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.

SECTION 307. Payment of Interest; Interest Rights Preserved.

The Company hereby appoints the Trustee as Paying
Agent and the Trustee hereby accepts such appointment.

Interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.

Any interest on any Security which is payable, but is
not punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:

(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the
Securities (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the
proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less

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than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage
prepaid, to each Holder at his address as it appears in the
Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to
the following Clause (2).

(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to
this Clause, such manner of payment shall be deemed
practicable by the Trustee.

Subject to the foregoing provisions of this Section,
each Security delivered under this Indenture upon registration of transfer of
or in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

SECTION 308. Persons Deemed Owners.

Prior to due presentment of a Security for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name such Security is registered
as the owner of such Security for the purpose of receiving payment of principal
of (and premium, if any) and (subject to Section 307) interest on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and

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neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.

SECTION 309. Cancellation.

All Securities surrendered for payment, redemption,
registration of transfer or exchange or any Offer to Purchase pursuant to
Section 1011 or 1015 shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section, except as expressly permitted by this Indenture. All
cancelled Securities held by the Trustee shall be disposed of as directed by a
Company Order; provided, however, that the Trustee shall not be required to
destroy such cancelled Securities.

SECTION 310. Computation of Interest.

Interest on the Securities shall be computed on the
basis of a 360-day year of twelve 30-day months.

ARTICLE FOUR

Satisfaction and Discharge

SECTION 401. Satisfaction and Discharge of Indenture.

This Indenture shall upon Company request cease to be
of further effect (except as to any surviving rights of registration of
transfer or exchange of Securities herein expressly provided for), and the
Trustee, upon Company request and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when

(1) either

(A) all Securities theretofore authenticated
and delivered (other than (i) Securities which have
been destroyed, lost or stolen and which have

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been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or

(B) all such Securities not theretofore
delivered to the Trustee for cancellation

(i) have become due and payable, or

(ii) will become due and payable at
their Stated Maturity within one year, or

(iii) are to be called for redemption
within one year under arrangements
satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the
name, and at the expense, of the Company,

and the Company, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with
the Trustee as trust funds in trust for the purpose
an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the
date of such deposit (in the case of Securities which
have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;

(2) the Company has paid or caused to be paid all
other sums payable hereunder by the Company; and

(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent herein provided for

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relating to the satisfaction and discharge of this Indenture
have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.

SECTION 402. Application of Trust Money.

Subject to the provisions of the last paragraph of
Section 1003, all money deposited with the Trustee pursuant to Section 401
shall be held in trust and applied by it, in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee.

ARTICLE FIVE

Remedies

SECTION 501. Events of Default.

"Event of Default", wherever used herein, means any
one of the following events (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

(1) default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity; or

(2) default in the payment of any interest upon any
Security when it becomes due and payable, and continuance of
such default for a period of 30 days; or

(3) default, on the applicable Purchase Date, in the
purchase of Securities required to be purchased by the Company
pursuant to an

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Offer to Purchase as to which an Offer has been mailed to
Holders; or

(4) default in the performance, or breach, of
Section 801; or

(5) default in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other
than a covenant or warranty a default in the performance of
which or the breach of which is elsewhere in this Section
specifically dealt with), and continuance of such default or
breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25%
in principal amount of the Outstanding Securities a written
notice specifying such default or breach and requiring it to
be remedied and stating that such notice is a "Notice of
Default" hereunder; or

(6) the occurrence of any event under the terms of
any bond(s), debenture(s), note(s) or other evidence(s) of
Debt by the Company or any Subsidiary of the Company or under
any mortgage(s), indenture(s) or instrument(s) under which
there may be issued or by which there may be secured or
evidenced any Debt of such type by the Company or any such
Subsidiary with a principal amount then outstanding,
individually or in the aggregate, in excess of $10 million,
whether such Debt now exists or shall hereafter be created,
which (i) shall constitute a failure to pay any portion of the
principal of such Debt when due and payable or any portion of
interest on such Debt when due and payable after the
expiration of any applicable grace period with respect thereto
or (ii) shall have resulted in such Debt becoming or being
declared due and payable prior to the date on which it would
otherwise have become due and payable; or

(7) a final judgment or final judgments (not subject
to appeal and not covered by insurance) for the payment of
money are entered against the Company or any Subsidiary of the
Company in an aggregate amount in excess of $10 million by a
court or courts of

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competent jurisdiction, which judgments remain undischarged or
unbonded or unstayed for a period (during which execution
shall not be effectively stayed) of 60 days after the right to
appeal all such judgments has expired; or

(8) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the
Company or any Subsidiary of the Company in an involuntary
case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or
(B) a decree or order adjudging the Company or any such
Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or
any such Subsidiary under any applicable Federal or State law,
or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company
or any such Subsidiary or of any substantial part of the
property of the Company or any such Subsidiary, or ordering
the winding up or liquidation of the affairs of the Company or
any such Subsidiary, and the continuance of any such decree or
order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or

(9) the commencement by the Company or any
Subsidiary of the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Company or any such Subsidiary to the entry of
a decree or order for relief in respect of the Company or any
Subsidiary of the Company in an involuntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against the
Company or any Subsidiary of the Company, or the filing by the
Company or any such Subsidiary of a petition or answer or
consent seeking reorganization or relief under any

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applicable Federal or State law, or the consent by the Company
or any such Subsidiary to the filing of such petition or to
the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Company or any Subsidiary of the
Company or of any substantial part of the property of the
Company or any Subsidiary of the Company, or the making by the
Company or any Subsidiary of the Company of an assignment for
the benefit of creditors, or the admission by the Company or
any such Subsidiary in writing of its inability to pay its
debts generally as they become due, or the taking of corporate
action by the Company or any such Subsidiary in furtherance of
any such action.

SECTION 502. Acceleration of Maturity; Rescission and Annulment.

If an Event of Default (other than an Event of
Default specified in Section 501(8) or (9)) occurs and is continuing, then and
in every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal and any accrued interest shall become immediately due and
payable. If an Event of Default specified in Section 501(8) or (9) occurs, the
principal of and any accrued interest on the Securities then Outstanding shall
ipso facto become immediately due and payable without any declaration or other
Act on the part of the Trustee or any Holder.

At any time after such a declaration of acceleration
has been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in principal amount of the Outstanding Securities, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if

(1) the Company has paid or deposited with the
Trustee a sum sufficient to pay

(A) all overdue interest on all Securities,

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(B) the principal of (and premium, if any,
on) any Securities which have become due otherwise
than by such declaration of acceleration (including
any Securities required to have been purchased on the
Purchase Date pursuant to an Offer to Purchase made
by the Company) and, to the extent that payment of
such interest is lawful, interest thereon at the rate
provided by the Securities,

(C) to the extent that payment of such
interest is lawful, interest upon overdue interest at
the rate provided by the Securities, and

(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel;

and

(2) all Events of Default, other than the
non-payment of the principal of Securities which have become
due solely by such declaration of acceleration, have been
cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.

The Company covenants that if

(1) default is made in the payment of any interest
on any Security when such interest becomes due and payable and
such default continues for a period of 30 days, or

(2) default is made in the payment of the principal
of (or premium, if any, on) any Security at the Maturity
thereof or, with respect to any Security required to have been
purchased pursuant to an Offer to Purchase made by the
Company, at the Purchase Date thereof,

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the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the
rate provided by the Securities, and, in addition thereto, such further amount
as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.

If the Company fails to pay such amounts forthwith
upon such demand, the Trustee, in its own name and as trustee of an express
trust, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.

If an Event of Default occurs and is continuing, the
Trustee may in its discretion proceed to protect and enforce its rights and the
rights of the Holders by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.

SECTION 504. Trustee May File Proofs of Claim.

In case of any judicial proceeding relative to the
Company (or any other obligor upon the Securities), its property or its
creditors, the Trustee shall be entitled and empowered, by intervention in such
proceeding or otherwise, to take any and all actions authorized under the Trust
Indenture Act in order to have claims of the Holders and the Trustee allowed in
any such proceeding. In particular, the Trustee shall be authorized to collect
and receive any moneys or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such
judicial proceeding is hereby authorized by each Holder to make such payments
to the Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
it for the reasonable

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compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 607.

No provision of this Indenture shall be deemed to
authorize the Trustee to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

SECTION 505. Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture
or the Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.

SECTION 506. Application of Money Collected.

Any money collected by the Trustee pursuant to this
Article shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal (or premium, if any) or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee
under Section 607; and

SECOND: To the payment of the amounts then due and
unpaid for principal of (and premium, if any) and interest on
the Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable
on such Securities for principal (and premium, if any) and
interest, respectively.

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SECTION 507. Limitation on Suits.

No Holder of any Security shall have any right to
institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless

(1) such Holder has previously given written notice
to the Trustee of a continuing Event of Default;

(2) the Holders of not less than 25% in principal
amount of the Outstanding Securities shall have made written
request to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee hereunder;

(3) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;

(4) the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity has failed to
institute any such proceeding; and

(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Holders of a majority in principal amount of the
Outstanding Securities;

it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.

SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.

Notwithstanding any other provision in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment of the

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principal of (and premium, if any) and (subject to Section 307) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date or in the case of an
Offer to Purchase made by the Company and required to be accepted as to such
Security, on the Purchase Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.

SECTION 509. Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.

SECTION 510. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities in
the last paragraph of Section 306, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.

SECTION 511. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder
of any Security to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article or by law to the Trustee or to the Holders may be exercised
from time to time, and as often as

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may be deemed expedient, by the Trustee or by the Holders, as the case may be.

SECTION 512. Control by Holders.

The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided that

(1) such direction shall not be in conflict with any
rule of law or with this Indenture, and

(2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such
direction.

SECTION 513. Waiver of Past Defaults.

The Holders of not less than a majority in principal
amount of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any past default hereunder and its consequences, except a
default

(1) in the payment of the principal of (or premium,
if any) or interest on any Security (including any Security
which is required to have been purchased pursuant to an Offer
to Purchase which has been made by the Company);

(2) arising from a Change of Control; or

(3) in respect of a covenant or provision hereof
which under Article Nine cannot be modified or amended without
the consent of the Holder of each Outstanding Security
affected.

Upon any such waiver, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.

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SECTION 514. Undertaking for Costs.

In any suit by a Security Holder for the enforcement
of any right or remedy under this Indenture, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, a court may require
any party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and
to the extent provided in the Trust Indenture Act; provided, that neither this
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such an undertaking or to make such an assessment in any suit
instituted by the Company or the Trustee.

SECTION 515. Waiver of Stay or Extension Laws.

The Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.

ARTICLE SIX

The Trustee

SECTION 601. Certain Duties and Responsibilities.

(a) Except during the continuance of an Event of
Default,

(1) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and

(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions

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furnished to the Trustee and conforming to the requirements of
this Indenture.

(b) In case an Event of Default has occurred and
is continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.

(c) No provision of this Indenture shall be
construed to relieve the Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct, except that

(1) this Subsection shall not be construed to
limit the effect of Subsection (a) of this Section;

(2) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer,
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;

(3) the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of a majority
in principal amount of the Outstanding Securities relating to
the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee, under this Indenture with
respect to the Securities of such series; and

(4) no provision of this Indenture shall require
the Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.

(d) Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section.

SECTION 602. Notice of Defaults.

The Trustee shall give the Holders notice of any
default hereunder as and to the extent provided by the Trust

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Indenture Act; provided, however, that in the case of any default of the
character specified in Section 501(5), no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.

SECTION 603. Certain Rights of Trustee.

Subject to the provisions of Section 601:

(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;

(d) the Trustee may consult with counsel of its selection and
the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this
Indenture, unless such

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Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;

(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;

(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder; and

(h) any expenses and compensation for any services rendered
by the Trustee after the occurrence of an Event of Default specified
in Section 501(8) or 501(9) shall, to the extent permitted by
applicable law, constitute expenses and compensation for services of
administration under all applicable federal or state bankruptcy,
insolvency, reorganization or other similar laws.

The provisions of this Section shall survive the
termination of this Indenture.

SECTION 604. Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities,
except the Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the

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Trustee assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.

SECTION 605. May Hold Securities.

The Trustee, any Paying Agent, any Security Registrar
or any other agent of the Company, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to Sections 608 and 613,
may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Paying Agent, Security Registrar or such other agent.

SECTION 606. Money Held in Trust.

Money held by the Trustee in trust hereunder need not
be segregated from other funds except to the extent required by law. The
Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Company.

SECTION 607. Compensation and Reimbursement.

The Company agrees

(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust);

(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and

(3) to indemnify the Trustee for, and to hold it harmless
against, any and all

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loss, liability, damage, claim or expense incurred without negligence
or bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties hereunder.

As security for the performance of the obligations of
the Company under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as
such, except funds held in trust for payment of principal of (and premium, if
any) or interest on Securities.

SECTION 608. Disqualification; Conflicting Interests.

If the Trustee has or shall acquire a conflicting
interest within the meaning of the Trust Indenture Act, the Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.

SECTION 609. Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which
shall be a Person that is eligible pursuant to the Trust Indenture Act to act
as such and has a combined capital and surplus of at least $50,000,000 and its
Corporate Trust Office in the City of New York, New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.

SECTION 610. Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this

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Article shall become effective until the acceptance of appointment by the
successor Trustee under Section 611.

(b) The Trustee may resign at any time by giving
written notice thereof to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.

(c) The Trustee may be removed at any time by Act of
the Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.

(d) If at any time:

(1) the Trustee shall fail to comply with Section
608 after written request therefor by the Company or by any Holder
who has been a bonafide Holder of a Security for at least six months,
or

(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written request therefor
by the Company or by any such Holder, or

(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor

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Trustee shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor Trustee shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.

(f) The Company shall give notice of each
resignation and each removal of the Trustee and each appointment of a successor
Trustee to all Holders in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.

SECTION 611. Acceptance of Appointment by Successor.

Every successor Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.

No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee shall be qualified
and eligible under this Article.

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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.

SECTION 613. Preferential Collection of Claims Against Company.

If and when the Trustee shall be or become a creditor
of the Company (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection
of claims against the Company (or any such other obligor).

ARTICLE SEVEN

Holders' Lists and Reports by Trustee and Company

SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.

The Company will furnish or cause to be furnished to
the Trustee

(a) semi-annually, not more than 15 days after
each Regular Record Date, a list, in such form as the Trustee
may reasonably require, of the names and addresses of the
Holders as of such Regular Record Date, and

(b) at such other times as the Trustee may
request in writing, within 30 days after the receipt by the
Company of any such request, a list of similar form and
content

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as of a date not more than 15 days prior to the time such list
is furnished;

excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.

SECTION 702. Preservation of Information; Communications to Holders.

(a) The Trustee shall preserve, in as current a
form as is reasonably practicable, the names and addresses of Holders
contained in the most recent list furnished to the Trustee as provided in
Section 701 and the names and addresses of Holders received by the Trustee in
its capacity as Security Registrar. The Trustee may destroy any list furnished
to it as provided in Section 701 upon receipt of a new list so furnished.

(b) The rights of Holders to communicate with
other Holders with respect to their rights under this Indenture or under the
Securities and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.

(c) Every Holder of Securities, by receiving and
holding the same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any agent of either of them shall be held
accountable by reason of any disclosure of information as to the names and
addresses of Holders made pursuant to the Trust Indenture Act.

SECTION 703. Reports by Trustee.

(a) Within 60 days after April 15 of each year
commencing with the first April 15 following the first issuance of Securities
hereunder, if required by Section 313(a) of the Trust Indenture Act, the
Trustee shall transmit pursuant to Section 313(c) of the Trust Indenture Act, a
brief report dated as of such April 15 with respect to any of the events
specified in said Section 313(a) which may have occurred since the later of the
immediately preceding April 15 and the date of this Indenture.

The Trustee shall transmit the reports required by
Section 313(b) of the Trust Indenture Act and Section 602 at the times
specified therein.

Reports pursuant to this Section shall be transmitted
in the manner and to the persons required by Section 313(c) and 312(d) of the
Trust Indenture Act.

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(b) A copy of each such report shall, at the time
of such transmission to Holders, be filed by the Trustee with each stock
exchange upon which the Securities are listed, with the Commission and with the
Company. The Company will notify the Trustee when the Securities are listed on
any stock exchange.

SECTION 704. Reports by Company.

The Company shall file with the Trustee and the
Commission, and transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided that any such information, documents or reports required to be filed
with Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.

ARTICLE EIGHT

Consolidation, Merger, Conveyance, Transfer or Lease

SECTION 801. Company May Consolidate, etc. Only on Certain Terms.

The Company (a) shall not consolidate with or merge
into any other Person; (b) shall not permit any other Person to consolidate
with or merge into the Company; and (c) shall not, directly or indirectly,
transfer, convey, sell, lease or otherwise dispose of all or substantially all
of its consolidated properties and assets as an entirety; unless, in any such
transaction:

(1) immediately after giving effect to such
transaction and treating any Debt Incurred by the Company or a
Subsidiary of the Company as a result of such transaction as
having been Incurred by the Company or such Subsidiary at the
time of such transaction, no Event of Default, and no event
which, after notice or lapse of time, or both, would become an
Event of Default, shall have happened and be continuing;

(2) in case the Company shall consolidate with or
merge into another Person or shall directly or indirectly
transfer, convey, sell, lease or otherwise dispose of

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all or substantially all of its properties and assets as an
entirety, the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by
transfer, conveyance, sale, lease or other disposition all or
substantially all of the properties and assets of the Company
as an entirety (for purposes of this Article Eight, a
"Successor Company") shall be a corporation, partnership or
trust, shall be organized and validly existing under the laws
of the United States of America, any State thereof or the
District of Columbia and shall expressly assume by an
indenture supplemental hereto executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any) and
interest on all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be
performed or observed;

(3) immediately after giving effect to such
transaction, the Consolidated Adjusted Net Worth of the
Company or, if applicable, the Successor Company shall be
equal to or greater than the Consolidated Adjusted Net Worth
of the Company immediately prior to such transaction;

(4) immediately after giving effect to such
transaction, the Company shall be able to Incur $1 of
additional Debt in accordance with the limitations described
in Section 1008;

(5) if, as a result of any such transaction,
property and assets of the Company would become subject to a
Lien which would not be permitted by Section 1012, the Company
or, if applicable, the Successor Company, as the case may be,
shall take such steps as shall be necessary effectively to
secure the Securities equally and ratably with (or prior to)
Debt secured by such Lien; and

(6) the Company has delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer, lease
or acquisition and, if a supplemental

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indenture is required in connection with such transaction,
such supplemental indenture, complies with this Article and
that all conditions precedent herein provided for relating to
such transaction have been complied with, and, with respect to
such Officer's Certificate, setting forth the manner of
determination of the Consolidated Adjusted Net Worth of the
Company or, if applicable, of the Successor Company as
required pursuant to the foregoing.

The foregoing covenant shall not apply to the
consolidation or merger of any Wholly Owned Subsidiary of the Company with or
into the Company, provided that the Company is the surviving entity.

SECTION 802. Successor Substituted.

Upon any consolidation of the Company with, or merger
of the Company into, any other Person or any transfer, conveyance, sale, lease
or other disposition of all or substantially all of the properties and assets
of the Company as an entirety in accordance with Section 801, the Successor
Company shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Indenture and the Securities.

ARTICLE NINE

Supplemental Indentures

SECTION 901. Supplemental Indentures Without Consent of Holders.

Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:

(1) to evidence the succession of another Person
to the Company and the assumption by any such successor of the

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covenants of the Company herein and in the Securities; or

(2) to add to the covenants of the Company for
the benefit of the Holders, or to surrender any right or power
herein conferred upon the Company; or

(3) to secure the Securities pursuant to the
requirements of Section 1013 or otherwise; or

(4) to comply with any requirements of the
Commission in order to effect and maintain the qualification
of this Indenture under the Trust Indenture Act; or

(5) to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with
any other provision herein, or to make any other provisions
with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions
of this Indenture, provided such action pursuant to this
Clause (5) shall not adversely affect the interests of the
Holders in any material respect.

SECTION 902. Supplemental Indentures with Consent of Holders.

With the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture
or of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,

(1) change the Stated Maturity of the principal
of, or any instalment of interest on, any Security, or reduce
the principal amount thereof or the rate of interest thereon
or any premium payable thereon, or change the place of payment
where, or the

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coin or currency in which, any Security or any premium or the
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date or, in the case of an Offer to
Purchase which has been made, on or after the applicable
Purchase Date), or

(2) reduce the percentage in principal amount of
the Outstanding Securities, the consent of whose Holders is
required for any such supplemental indenture, or the consent
of whose Holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain defaults
hereunder and their consequences) provided for in this
Indenture, or

(3) modify any of the provisions of this Section,
Section 513 or Section 1019, except to increase any such
percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby, or

(4) following the mailing of an Offer with
respect to an Offer to Purchase pursuant to Section 1011 or
1015, modify the provisions of this Indenture with respect to
such Offer to Purchase in a manner adverse to such Holder.

It shall not be necessary for any Act of Holders
under this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

SECTION 903. Execution of Supplemental Indentures.

In executing, or accepting the additional trusts
created by, any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the Trustee
shall be entitled to receive, and (subject to Section 601) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture

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which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.

SECTION 904. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture
under this Article, this Indenture shall be modified in accordance therewith,
and such supplemental indenture shall form a part of this Indenture for all
purposes; and every Holder of Securities theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

SECTION 905. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to
this Article shall conform to the requirements of the Trust Indenture Act.

SECTION 906. Reference in Securities to Supplemental Indentures.

Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company
shall so determine, new Securities so modified as to conform, in the opinion of
the Trustee and the Company, to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.

ARTICLE TEN

Covenants

SECTION 1001. Payment of Principal, Premium and Interest.

The Company will duly and punctually pay the
principal of (and premium, if any) and interest on the Securities in accordance
with the terms of the Securities and this Indenture.

SECTION 1002. Maintenance of Office or Agency.

The Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where

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Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.

The Company may also from time to time designate one
or more other offices or agencies (in or outside the Borough of Manhattan, The
City of New York) where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency.

SECTION 1003. Money for Security Payments to be Held in Trust.

If the Company shall at any time act as its own
Paying Agent, it will, on or before each due date of the principal of (and
premium, if any) or interest on any of the Securities, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying
Agents, it will, prior to each due date of the principal of (and premium, if
any) or interest on any Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.

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The Company will cause each Paying Agent other than
the Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:

(1) hold all sums held by it for the payment of
the principal of (and premium, if any) or interest on
Securities in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Securities) in the
making of any payment of principal (and premium, if any) or
interest; and

(3) at any time during the continuance of any
such default, upon the written request of the Trustee,
forthwith pay to the Trustee all sums so held in trust by such
Paying Agent.

The Company may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to pay, to the
Trustee all sums held in trust by the Company or such Paying Agent, such sums
to be held by the Trustee upon the same trusts as those upon which such sums
were held by the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.

Any money deposited with the Trustee or any Paying
Agent, or then held by the Company, in trust for the payment of the principal
of (and premium, if any) or interest on any Security and remaining unclaimed
for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in a newspaper published
in the English

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language, customarily published on each Business Day and of general circulation
in The City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.

SECTION 1004. Existence.

Subject to Article Eight, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (charter and statutory) and franchises; provided,
however, that the Company shall not be required to preserve any such right or
franchise if the Board of Directors in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Holders.

SECTION 1005. Maintenance of Properties.

The Company will cause all properties used or useful
in the conduct of its business or the business of any Subsidiary of the Company
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as
in the judgment of the Company may be necessary so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, as determined by the Board of Directors
in good faith, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the Holders.

SECTION 1006. Payment of Taxes and Other Claims.

The Company will pay or discharge or cause to be paid
or discharged, before the same shall become delinquent, (1) all taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Subsidiaries or upon the income, profits or property of the Company or
any of its Subsidiaries, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any of its

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Subsidiaries; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings.

SECTION 1007. Maintenance of Insurance.

The Company shall, and shall cause its Subsidiaries
to, keep at all times all of their properties which are of an insurable nature
insured against loss or damage with insurers believed by the Company to be
responsible to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties in
accordance with good business practice. The Company shall, and shall cause its
Subsidiaries to, use the proceeds from any such insurance policy to repair,
replace or otherwise restore the property to which such proceeds relate, unless
in the good faith judgment of the Company such use is not in the best interests
of the Company or would be disadvantageous to the holders of the Securities.

SECTION 1008. Limitation on Company Funded Debt.

The Company shall not Incur any Funded Debt unless,
after giving effect to the Incurrence of such Debt and the receipt and
application of the proceeds thereof, the Company's Funded Debt would be less
than 90% of the Company's Tangible Net Worth as of the date of the most recent
financial statements filed with the Commission and, of this amount, Funded Debt
of the Company that would rank by its terms, in bankruptcy or otherwise, pari
passu with the Securities would be less than 50% of the Company's Tangible Net
Worth as of the date of the most recent financial statements filed with the
Commission.

Notwithstanding the foregoing limitation, the Company
may Incur Funded Debt Incurred to renew, extend, refinance or refund (each, a
"refinancing") any outstanding Funded Debt or Debt which at the time of
original Incurrence was Funded Debt. Incurred in compliance with the Indenture
in an aggregate principal amount not to exceed the principal amount of the Debt
so refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Debt so refinanced or the
amount of any premium reasonably determined by the Company as necessary to
accomplish such refinancing by means of a tender offer or privately negotiated
repurchase, plus the expenses of the Company incurred in connection with such
refinancing; provided, however, that Funded Debt the

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proceeds of which are used to refinance Debt which is pari passu to the
Securities or subordinate in right of payment to the Securities shall only be
permitted if (A) in the case of any refinancing of Debt which is pari passu to
the Securities, the refinancing Funded Debt is made pari passu to the
Securities or subordinated to the Securities, and, in the case of any
refinancing of Debt which is subordinated to the Securities, the refinancing
Funded Debt constitutes Subordinated Debt and (B) in either case, the
refinancing Funded Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Funded Debt is issued, (x) does not provide
for payments of principal of such Funded Debt at the stated maturity thereof or
by way of a sinking fund applicable thereto or by way of any mandatory
redemption, defeasance, retirement or repurchase thereof by the Company
(including any redemption, retirement or repurchase which is contingent upon
events or circumstances, but excluding any retirement required by virtue of
acceleration of such Funded Debt upon any event of default thereunder), in each
case prior to the stated maturity of the Debt being refinanced and (y) does not
permit redemption or other retirement (including pursuant to an Offer to
Purchase made by the Company) of such Funded Debt at the option of the holder
thereof prior to the final stated maturity of the Debt being refinanced, other
than a redemption or other retirement at the option of the holder of such
Funded Debt (including pursuant to an Offer to Purchase made by the Company)
which is conditioned upon a change substantially similar to those described in
Section 1015.

SECTION 1009. Limitation on Restricted Payments.

The Company shall not, and shall not permit any
Subsidiary of the Company to, directly or indirectly, (i) declare or pay any
dividend, or make any distribution, in respect of its Capital Stock or to the
holders thereof (including pursuant to a merger or consolidation of the Company
or such Subsidiary, but excluding (a) any pro rata dividend or distribution
payable solely in shares of its Capital Stock or in options, warrants or rights
to acquire shares of its Capital Stock, (b) any dividends or distributions
payable by any Subsidiary to the Company or another Subsidiary) and (c) any
dividends or distributions payable by any Subsidiary pro rata to the holders of
such Subsidiary's Capital Stock, (ii) purchase, redeem, or otherwise retire or
acquire for value (a) any Capital Stock of the Company, any Subsidiary of the
Company (other than a Wholly Owned Subsidiary) or any Related Person of the
Company or (b) any options, warrants or rights to purchase or acquire shares of
Capital Stock of the Company, any

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Subsidiary of the Company or any Related Person of the Company or any
securities convertible or exchangeable into shares of Capital Stock of the
Company, any Subsidiary of the Company or any Related Person of the Company,
(iii) make any Investment in any Person, other than a Permitted Investment,
(iv) redeem, defease, repurchase, retire or otherwise acquire or retire for
value prior to any scheduled maturity, repayment or sinking fund payment, Debt
of the Company (other than the Securities and other than in exchange for, or in
an amount not in excess of the net proceeds of, a substantially concurrent
issue and sale (other than to a Subsidiary) of shares of any class of Capital
Stock (other than Redeemable Stock) of the Company), and (v) make any
Investment in any Unrestricted Subsidiary (each of clauses (i) through (v)
being a "Restricted Payment") if: (1) an Event of Default, or an event that
with the lapse of time or the giving of notice, or both, would constitute an
Event of Default, shall have occurred and be continuing, (2) upon giving effect
to such Restricted Payment, the Company would not be able to Incur $1 of
additional Debt in accordance with the limitations described under the first
paragraph of Section 1008, or (3) upon giving effect to such Restricted
Payment, the aggregate of all Restricted Payments from the date of the
Indenture exceeds the sum of: (a) $7.5 million plus (b) 50% of cumulative
Consolidated Adjusted Net Income after June 30, 1994 through the last day of
the last full fiscal quarter immediately preceding such Restricted Payment for
which quarterly or annual financial statements of the Company are available (or
if such cumulative Consolidated Adjusted Net Income shall be a deficit, minus
100% of such deficit) plus (c) 100% of the aggregate net proceeds, including
the fair value of property other than cash (determined in good faith by the
Board of Directors of the Company as evidenced by a resolution of the Board of
Directors filed with the Trustee), (without duplication, including the issuance
of Capital Stock in (iv) above) from (1) the issuance of Capital Stock (other
than Redeemable Stock) of the Company; (2) the issuance or exercise of options,
warrants or other rights on Capital Stock (other than Redeemable Stock) of the
Company (other than to a Subsidiary of the Company); and (3) the amount by
which Debt or Redeemable Stock of the Company is reduced on the Company's
balance sheet upon the conversion of such Debt or Redeemable Stock into Capital
Stock (other than Redeemable Stock) of the Company (other than by a Subsidiary
of the Company) after the date of the Indenture plus (d) any dividends or
distributions or other similar payments paid to the Company or any Subsidiary
by any Unrestricted Subsidiary after the date of the Indenture plus (e) the
amount of any repayment (other than a dividend, distribution or other similar
payment) to the Company or a Subsidiary of the Company of any Investment in, an

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Unrestricted Subsidiary, Affiliate or Related Person to the Subsidiary of the
Company of any Investment in, an Unrestricted Subsidiary, Affiliate or Related
Person to the extent such Investment resulted in the making of a Restricted
Payment; provided that, in the case of clauses (d) and (e), Consolidated
Adjusted Net Income for the purposes of clause (b) above only, shall not
include the amount of any such payments.

The foregoing provision will not be violated by
reason of (i) the payment of any dividend within 60 days after the declaration
thereof if at the declaration date such payment would have complied with the
foregoing provision, (ii) the repurchase, redemption or other acquisition or
retirement of any shares of any class of Capital Stock of the Company or any
Related Person of the Company, in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in connection with
which cash is paid in lieu of the issuance of fractional shares or scrip) or
out of the net cash proceeds of a substantially concurrent issue and sale of
shares of Capital Stock (other than Redeemable Stock) of the Company, (iii) the
purchase, redemption, acquisition, cancellation or other retirement for value
of shares of Capital Stock of the Company, options on any such shares or
related stock appreciation rights or similar securities held by officers or
employees or former officers or employees (or their estates or beneficiaries
under their estates) or by any employee benefit plan, upon death, disability,
retirement or termination of employment or pursuant to the terms of any
employee benefit plan or any other agreement under which such shares of stock
or related rights were issued, provided that the aggregate cash consideration
paid for such purchase, redemption, acquisition, cancellation or other
retirement of such shares of Capital Stock after the date of the Indenture does
not exceed $1 million in any fiscal year; the repurchase, redemption,
defeasance, retirement, refinancing, acquisition for value or payment of
principal of any Subordinated Debt (other than Redeemable Stock) (a
"refinancing") through the issuance of new Subordinated Debt of the Company, or
any Subsidiary, provided that any such new Debt (1) shall be in a principal
amount that does not exceed the principal amount so refinanced (or, if such
Subordinated Debt provides for an amount less than the principal amount thereof
to be due and payable upon a declaration or acceleration thereof, then such
lesser amount calculated as of the date of determination); (2) has an average
life to stated maturity greater than or equal to the remaining average life to
stated maturity of the Debt so refinanced (or, if shorter, the Securities); and
(3) is expressly subordinated in right of payment to the Securities at least to
the same extent as

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the Subordinated Debt to be refinanced, (v) unsecured loans to directors or
executive officers of the Company or any of its Subsidiaries made after the
date of this Indenture not in the ordinary course of business in an amount not
to exceed $1.5 million in the aggregate at any one time outstanding, (vi)
mortgage and consumer loans to officers, directors or employees of the Company
or its Subsidiaries made by the Bank after the date of the Indenture in the
ordinary course of business, or (vii) payments made pursuant to tax sharing or
tax allocation agreements from Subsidiaries the Company or another Subsidiary
of the Company.

SECTION 1010. Limitations Concerning Distributions By Subsidiaries, etc.

The Company shall not, and shall not permit any
Subsidiary of the Company to, suffer to exist any consensual encumbrance or
restriction (other than pursuant to a Regulatory Requirement) on the ability of
such Subsidiary (i) to pay directly or indirectly dividends or make any other
distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Subsidiary of the Company; (ii) to
make loans or advances to the Company or any Subsidiary of the Company; or
(iii) to transfer any of its property or assets to the Company.

Notwithstanding the foregoing, the Company may permit
a Subsidiary to suffer to exist any such encumbrance or restriction (a)
pursuant to an agreement relating to any Debt Incurred by such Subsidiary prior
to the date on which such Subsidiary was acquired, directly or indirectly, by
the Company and outstanding on such date and not Incurred in anticipation of
becoming a Subsidiary of the Company; (b) pursuant to any agreement existing on
the date of the Indenture, and any extension or renewal thereof; (c) pursuant
to agreements governing Bank Subordinated Debt that (1) prohibit distributions
when (A) an event of default under such agreement has occurred, (B) after
giving effect to such distribution, the Bank would fail to meet the regulatory
capital standards necessary to be deemed a "Tier 1 Institution" under OTS
regulations, and (C) provide for restrictions on distributions that are no more
restrictive than the provisions set forth in Section 1009 or (d) pursuant to an
agreement effecting a renewal, refunding, refinancing or extension of Debt or
Preferred Stock Incurred pursuant to an agreement referred to in clause (a)
above; provided, however, that the provisions contained in such renewal,
refunding, refinancing or extension agreement relating to such encumbrance or
restriction are no more

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restrictive in any material respect than the provisions contained in the
agreement the subject thereof in the reasonable judgment of the Board of
Directors of the Company as evidenced by a resolution of the Board of
Directors.

SECTION 1011. Limitation on Dispositions of Certain Capital Stock and Assets
of Subsidiaries that are Insured Depository Institutions.

(a) The Company shall not, and shall not permit
any Subsidiary of the Company to, directly or indirectly, (i) transfer, convey,
sell, lease or otherwise dispose of any outstanding Common Stock or Voting
Stock of any Bank Subsidiary to any Person other than the Company or a Wholly
Owned Subsidiary of the Company or such Subsidiary, unless such transfer,
conveyance, sale, lease or other disposition shall consist of a sale of all of
the Common Stock and Voting Stock of such Bank Subsidiary owned by the Company
and any Subsidiary of the Company, the Company receives consideration at the
time of such sale at least equal to the fair market value of the Common Stock
or Voting Stock sold (as determined in good faith by the Board of Directors of
the Company), of which the lesser of 75% of such consideration or the then
outstanding principal balance of and accrued interest on the Securities shall
be in the form of cash or readily marketable cash equivalents and the Net
Available Proceeds from such sale are applied in accordance with the next
sentence, (ii) permit any Bank Subsidiary to merge or consolidate with any
other Person either unless (a) the surviving entity is the Company, a Wholly
Owned Subsidiary of the Company or, in the case of a Bank Subsidiary that is a
Subsidiary of another Subsidiary of the Company, such other Subsidiary or a
Wholly Owned Subsidiary thereof, or (b) the Company receives consideration at
the time of the merger or consolidation at least equal to the fair market value
of the properties and assets of the Bank Subsidiary that is merged or
consolidated (as determined in good faith by the Board of Directors of the
Company), of which the lesser of 75% of such consideration or the then
outstanding principal balance of and accrued interest on the Securities shall
be in the form of cash or readily marketable cash equivalents and the Net
Available Proceeds from such sale are applied in accordance with the next
sentence, (iii) permit any Bank Subsidiary to convey or transfer its properties
and assets substantially as an entirety to any Person except the Company, a
Wholly Owned Subsidiary of the Company or, in the case of a Bank Subsidiary
that is a Subsidiary of another Subsidiary of the Company, such other
Subsidiary or a Wholly Owned Subsidiary thereof unless the Company receives
consideration at the time of the conveyance or transfer at least equal to the

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fair market value of the properties and assets sold (as determined in good
faith by the Board of Directors of the Company), of which the lesser of 75% of
such consideration or then the outstanding principal balance of and accrued
interest on the Securities shall be in the form of cash or readily marketable
cash equivalents and the Net Available Proceeds from such sale are applied in
accordance with the next sentence, and (iv) permit any Bank Subsidiary to issue
shares of its Common Stock or Voting Stock (other than directors' qualifying
shares), or securities convertible into, or warrants, rights or options to
subscribe for or purchase shares of, its Common Stock or Voting Stock, to any
Person other than the Company or a Wholly Owned Subsidiary of the Company or,
in the case of a Bank Subsidiary that is a Subsidiary of another Subsidiary of
the Company, such other Subsidiary or a Wholly Owned Subsidiary thereof. Net
Available Proceeds from transactions described in the preceding sentence shall
be applied, within 270 days from the later of (x) the closing of any such
transaction or (y) the receipt of such Net Available Proceeds, (i) first, to
the extent the Company elects to make an Investment in an Insured Depository
Institution, (ii) second, to the extent the Company elects, to prepay, repay or
repurchase Debt of a Wholly Owned Subsidiary (other than Debt owed to the
Company or an Affiliate of the Company), (iii) third, to the extent Net
Available Proceeds exceed the amount applied in accordance with clauses (i) and
(ii) ("Excess Proceeds"), to make an offer to apply the Excess Proceeds, once
such Excess Proceeds exceed $5 million, to make an Offer to Purchase the
Securities at a purchase price in cash equal to 100% of their principal amount
plus accrued and unpaid interest to the date of purchase. To the extent Excess
Proceeds exist after application in accordance with clauses (i), (ii) and
(iii), the Company may apply such Excess Proceeds for any general business
purposes not otherwise prohibited under this Indenture.

(b) The Company will mail the Offer for an Offer
to Purchase required pursuant to Section 1011(a) not more than 90 days after
consummation of the disposition referred to in Section 1011(a). The aggregate
principal amount of the Securities to be offered to be purchased pursuant to
the Offer to Purchase shall equal the Net Available Proceeds available therefor
pursuant to Clause (3) of Section 1011(a) (rounded down to the next lowest
integral multiple of $1,000). Each Holder shall be entitled to tender all or
any portion of the Securities owned by such Holder pursuant to the Offer to
Purchase, subject to the requirement that any portion of a Security tendered
must be tendered in an integral multiple of $1,000 principal amount, and
subject to the provisions of Section 302.

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The Company shall not be entitled to any credit
against its obligations under this Section 1011 for the principal amount of any
Securities acquired by the Company otherwise than pursuant to the Offer to
Purchase pursuant to this Section 1011.

(c) Not later than the date of the Offer with
respect to an Offer to Purchase pursuant to this Section 1011, the Company
shall deliver to the Trustee an Officers' Certificate as to (i) the Purchase
Amount, and (ii) the allocation of the Net Available Proceeds from the
disposition pursuant to which such Offer is being made, including, if amounts
are reinvested in a Wholly Owned Subsidiary, the amount and nature of any
Investment in a Wholly Owned Subsidiary.

The Company and the Trustee shall perform their
respective obligations specified in the Offer for the Offer to Purchase. On or
prior to the Purchase Date, the Company shall (i) accept for payment (on a pro
rata basis, if necessary) Securities or portions thereof tendered pursuant to
the Offer, (ii) deposit with the Paying Agent (or, if the Company is acting as
its own paying agent, segregate and hold in trust as provided in Section 1003)
money sufficient to pay the purchase price of all Securities or portions
thereof so accepted and (iii) deliver or cause to be delivered to the Trustee
all Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent (or the Company, if so acting) shall promptly mail or deliver to Holders
of Securities so accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Security not accepted for payment shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Offer on or as soon as practicable after
the Purchase Date.

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SECTION 1012. Limitation on Liens.

The Company shall not incur or suffer to exist any Lien other
than a Permitted Lien on (i) the Voting Stock of the Bank (other than
directors' qualifying shares) as security for Debt or (ii) any of its assets
(other than the Voting Stock of the Bank) as security for Funded Debt, without,
in the cases of either (i) or (ii), effectively providing that the Securities
will be equally and ratably secured with (or, in the case of Subordinated Debt,
prior to) such Debt.

SECTION 1013. Limitation on Transactions with Affiliates and Related
Persons.

The Company shall not, and shall not permit any
Subsidiary of the Company to, enter into any transaction or series of related
transactions with an Affiliate or Related Person of the Company (other than
between the Company and Wholly Owned Subsidiaries of the Company or between
Wholly Owned Subsidiaries of the Company) unless (i) such transaction is on
terms no less favorable to the Company or such Subsidiary (as conclusively
evidenced by a resolution of the Board of Directors of the Company) than those
that could be obtained in a comparable arm's length transaction with an entity
that is not an Affiliate or a Related Person, (ii) with respect to a
transaction or series of transactions involving aggregate value in excess of
$2.5 million, the transaction or series of transactions is approved by a
majority of the Board of Directors of the Company and (iii) with respect to a
transaction or series of transactions not reported to the OTS involving
aggregate value in excess of $10 million, the Company delivers to the Trustee
an opinion of a nationally recognized investment banking firm stating that the
transaction or series of transactions is fair (from a financial point of view)
to the Company.

Notwithstanding the foregoing, the following shall
not be deemed to be a transaction for purposes of the foregoing: (i) the
issuance by the Company or any Subsidiary of the Company of Debt otherwise
permitted under the Indenture, (ii) any issuance of securities, or other
payments, awards, or grants in cash, securities or otherwise pursuant to, or
the funding of, employment arrangements, benefit plans, stock options and stock
ownership plans approved by the Board of Directors of the Company or any
Subsidiary of the Company, (iii) loans or advances to officers, directors and
employees of the Company or any Subsidiary of the Company made in the ordinary
course of business or approved by the Board of Directors, (iv) any transaction
with an officer or director of the Company or any Subsidiary of the Company
entered into in the ordinary

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course of business, (v) the payment of reasonable fees to directors of the
Company and of any Subsidiary of the Company who are not employees of the
Company or any Subsidiary of the Company, (vi) reasonable and customary
indemnification arrangements between the Company or any Subsidiary of the
Company and their respective directors and officers, (vii) transactions between
the Company or its Subsidiaries, on the one hand, and any investment banking
firm and its Affiliates on the other hand, involving the provision of
financial, consulting or underwriting services, (viii) any Permitted Investment
(ix) any payments, distributions or dividends permitted under Section 1009, (x)
payments made by the Company or any Subsidiary of the Company pursuant to any
tax sharing or tax allocation agreement between the Company and any Subsidiary
of the Company, or (xi) allocation of corporate overhead expenses by the
Company to any Subsidiary of the Company.

SECTION 1014. Maintenance of Status.

The Company shall cause the Bank to do all things
necessary to maintain the Bank's status as an "insured depository institution"
within the meaning of the Federal Deposit Insurance Act.

SECTION 1015. Change of Control.

(a) Upon the occurrence of a Change of Control, the
Company shall be required to make an Offer to Purchase all Outstanding
Securities at a purchase price equal to 101% of their principal amount plus
accrued interest to the Redemption Date. The Company shall comply with the
provisions of Article Eleven if it exercises its redemption option.

The Company shall, within 45 days following the date
of the consummation of a transaction resulting in a Change in Control, mail an
Offer with respect to an Offer to Purchase all Outstanding Securities at a
purchase price equal to 101% of their principal amount plus accrued interest to
the Purchase Date (provided, however, that installments of interest whose
Stated Maturity is on or prior to the Purchase Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered
as such at the close of business on the relevant Record Dates according to
their terms and the provisions of Section 307). Each Holder shall be entitled
to tender all or any portion of the Securities owned by such Holder pursuant to
the Offer to Purchase, subject to the

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requirement that any portion of a Security tendered must be tendered in an
integral multiple of $1,000 principal amount.

(b) The Company and the Trustee shall perform
their respective obligations specified in the Offer for the Offer to Purchase.
Prior to the Purchase Date, the Company shall (i) accept for payment Securities
or portions thereof tendered pursuant to the Offer, (ii) deposit with the
Paying Agent (or, if the Company is acting as its own Paying Agent, segregate
and hold in trust as provided in Section 1003) money sufficient to pay the
purchase price of all Securities or portions thereof so accepted and (iii)
deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail or deliver to Holders of Securities so accepted payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Security or Securities equal in principal amount
to any unpurchased portion of the Security surrendered as requested by the
Holder. Any Security not accepted for payment shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.

(c) A "Change of Control" shall be deemed to have
occurred in the event that, after the date of the Indenture, either (A) any
Person or any Persons acting together that would constitute a group (for
purposes of Section 13(d) of the Exchange Act, or any successor provision
thereto) (a "Group"), together with any Affiliates or Related Persons thereof,
shall beneficially own (as defined in Rule 13d-3 under the Exchange Act, or any
successor provision thereto) at least 50% of the aggregate voting power of all
classes of Capital Stock of the Company entitled to vote generally in the
election of directors; or (B) any Person or Group, together with any Affiliates
or Related Persons thereof, shall succeed in having a sufficient number of its
nominees elected to the Board of Directors of the Company such that such
nominees, when added to any existing director remaining on the Board of
Directors of the Company after such election who is an Affiliate or Related
Person of such Group, will constitute a majority of the Board of Directors of
the Company.

In the event that the Company makes an Offer to
Purchase the Securities, the Company intends to comply with any applicable
securities laws and regulations, including any applicable requirements of
Section 14(e) of, and Rule 14e-1 under, the Securities Exchange Act of 1934.

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SECTION 1016. Notice Requirement.

The Company will deliver a notice to the Trustee
within 30 days after the Bank receives notice from the OTS that it has ceased
to be a "Tier 1 association" as defined in the OTS regulation regarding capital
distributions.

SECTION 1017. Provision of Financial Information.

Whether or not the Company is subject to Section
13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the
Company shall prepare the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Section 13(a) or 15(d) or any successor provision thereto if the
Company were so required, and, unless such filing is not permitted under the
Exchange Act, file such reports and other documents with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so required. The Company shall also in any event (a) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, without cost to such Holders, and
(ii) file with the Trustee copies of such annual reports, quarterly reports and
other documents and (b) if filing such documents by the Company with the
Commission is not permitted under the Exchange Act, promptly upon written
request supply copies of such documents to any prospective Holder or
prospective purchaser of Securities.

SECTION 1018. Statement by Officers as to Default; Compliance Certificates.

(a) The Company will deliver to the Trustee, within
90 days after the end of each fiscal year[, and within 60 days after the end of
each fiscal quarter (other than the fourth fiscal quarter),] of the Company
ending after the date hereof an Officers' Certificate of the principal
executive, financial or accounting officer of the Company, stating whether or
not to the best knowledge of the signers thereof the Company is in default in
the performance and observance of any of the terms, provisions and conditions
of Section 801 or Sections 1004 to 1017, inclusive, and if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.

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<PAGE> 94
(b) The Company shall deliver to the Trustee, as
soon as possible and in any event within 10 days after the Company becomes
aware or should reasonably become aware of the occurrence of an Event of
Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which the Company
proposes to take with respect thereto.

(c) The Company shall deliver to the Trustee
within 90 days after the end of each fiscal year a written statement by the
Company's independent public accountants stating (A) that their audit
examination has included a review of the terms of this Indenture and the
Securities as they relate to accounting matters, and (B) whether, in connection
with their audit examination, any event which, with notice or the lapse of time
or both, would constitute an Event of Default has come to their attention and,
if such a default has come to their attention, specifying the nature and period
of the existence thereof.

SECTION 1019. Waiver of Certain Covenants.

The Company may omit in any particular instance to
comply with any covenant or condition set forth in Section 801 or Sections 1004
to 1017, if before the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Securities shall, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver shall extend to
or affect such covenant or condition except to the extent so expressly waived,
and, until such waiver shall become effective, the obligations of the Company
and the duties of the Trustee in respect of any such covenant or condition
shall remain in full force and effect; provided, however, with respect to an
Offer to Purchase as to which an Offer has been mailed, no such waiver may be
made or shall be effective against any Holder tendering Securities pursuant to
such Offer, and the Company shall not omit to comply with the terms of such
Offer as to such Holder.

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<PAGE> 95
ARTICLE ELEVEN

Redemption of Securities

SECTION 1101. Right of Redemption.

The Securities may be redeemed at the election of the
Company, as a whole or from time to time in part, at any time on or after
__________________, 1999, at the Redemption Prices specified in the form of
Security hereinbefore set forth.

SECTION 1102. Applicability of Article.

Redemption or Securities at the election of the
Company, as permitted by any provision of this Indenture, shall be made in
accordance with such provision and this Article.

SECTION 1103. Election to Redeem; Notice to Trustee.

The election of the Company to redeem any Securities
pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of
any redemption at the election of the Company of less than all the Securities,
the Company shall, at least 60 days prior to the Redemption Date fixed by the
company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities
to be redeemed.

SECTION 1104. Selection by Trustee of Securities to Be Redeemed.

If less than all the Securities are to be redeemed,
the particular Securities to be redeemed shall be selected not more than 60
days prior to the Redemption Date by the Trustee, from the outstanding
Securities not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions (equal to $1,000 or any integral multiple thereof) of
the principal amount of Securities of a denomination larger than $1,000.

The Trustee shall promptly notify the Company and
each Securities Registrar in writing of the Securities selected for redemption
and, in the case of any Securities selected for partial redemption, the
principal amount thereof to be redeemed.

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<PAGE> 96
For all purposes of this Indenture, unless the
context otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed or to be
redeemed only in part, to the portion of the principal amount of such
Securities which has been or is to be redeemed.

SECTION 1105. Notice of Redemption.

Notice of redemption shall be given by first-class
mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each Holder of Securities to be redeemed, at his
address appearing in the Security Register.

All notices of redemption shall state:

(1) the Redemption Date,

(2) the Redemption Price,

(3) that on the Redemption Date the Redemption Price
will become due and payable upon each such Security to be
redeemed and that interest thereon will cease to accrue on and
after said date,

(4) the place or places where such Securities are to
be surrendered for payment of the Redemption Price, and

(5) the CUSIP number.

Notice of redemption of Securities shall be given by
the Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.

SECTION 1106. Deposit of Redemption Price.

Prior to any Redemption Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the Company is acting
as its own Paying Agent, segregate and hold in trust as provided in Section
1003) an amount of money sufficient to pay the Redemption Price of and (except
if the Redemption Date shall be an Interest Payment Date) accrued interest on,
the Securities.

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<PAGE> 97
SECTION 1107. Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid,
the Securities shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with accrued
interest to but excluding the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.

If any Security called for redemption shall not be so
paid upon surrender thereof for redemption, the principal (and premium, if any)
shall, until paid, bear interest from the Redemption Date at the rate provided
by the Security.

SECTION 1108. Securities Redeemed in Part.

Any Security which is to be redeemed only in part
shall be surrendered at an office or agency of the Company designated for that
purpose pursuant to Section 1002 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of any
authorized denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of the principal of
the Security so surrendered.

ARTICLE TWELVE

Defeasance and Covenant Defeasance

SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance.

The Company may at its option by Board Resolution, at
any time, elect to have either Section 1202 or Section 1203 applied to the
Outstanding Securities upon compliance

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<PAGE> 98
with the conditions set forth below in this Article Fourteen.

SECTION 1202. Defeasance and Discharge.

Upon the Company's exercise of the option provided in
Section 1201 applicable to this Section, the Company shall be deemed to have
been discharged from its obligations with respect to the Outstanding Securities
on the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by
the Outstanding Securities and to have satisfied all its other obligations
under such Securities and this Indenture insofar as such Securities are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Securities to receive, solely from the trust fund described in
Section 1204 and as more fully set forth in such Section, payments in respect
of the principal of (and premium, if any) and interest on such Securities when
such payments are due, (B) the Company's obligations with respect to such
Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Twelve. Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203.

SECTION 1203. Covenant Defeasance.

Upon the Company's exercise of the option provided in
Section 1201 applicable to this Section, (i) the Company shall be released
from its obligations under Sections 1005 through 1017, inclusive, and Clauses
(3) and (4) of Section 801 and (ii) the occurrence of an event specified in
Sections 501(3), 501(4) (with respect to Clauses (1), (3) or (4) of Section
801), 501(5) (with respect to any of Sections 1005 through 1017, inclusive),
501(6) and 501(7), shall not be deemed to be an Event of Default on and after
the date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance"). For this purpose, such covenant defeasance means that the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such Section or Clause, whether
directly or indirectly by reason of any reference elsewhere herein to any such
Section or Clause or

-88-
<PAGE> 99
by reason of any reference in any such Section or Clause to any other provision
herein or in any other document, but the remainder of this Indenture and such
Securities shall be unaffected thereby.

SECTION 1204. Conditions to Defeasance or Covenant Defeasance.

The following shall be the conditions to application
of either Section 1202 or Section 1203 to the then Outstanding Securities:

(1) The Company shall irrevocably have deposited
or caused to be deposited with the Trustee (or another
trustee satisfying the requirements of Section 609 who shall
agree to comply with the provisions of this Article Fourteen
applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in an amount, or (B)
U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one
day before the due date of any payment, money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by
the Trustee (or other qualifying trustee) to pay and
discharge, the principal of, premium, if any, and each
instalment of interest on the Securities on the Stated
Maturity of such principal or instalment of interest in
accordance with the terms of this Indenture and of such
Securities. For this purpose, "U.S. Government Obligations"
means securities that are (x) direct obligations of the United
States of America for the payment of which its full faith and
credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of
the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit
obligation by the United States of

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<PAGE> 100
America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to
any such U.S. Government Obligation or a specific payment of
principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian
in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.

(2) In the case of an election under Section
1202, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (x) the Company has received
from, or there has been published by, the Internal Revenue
Service a ruling, or (y) since the date of this Indenture
there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of the Outstanding
Securities will not recognize gain or loss for Federal income
tax purposes as a result of such deposit, defeasance and
discharge and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge
had not occurred.

(3) In the case of an election under Section
1203, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of the
Outstanding Securities will not recognize gain or loss for
Federal income tax purposes as a result of such deposit and
covenant defeasance and will be subject to Federal income tax
on the same amount, in the same manner and at the same times
as would have

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<PAGE> 101
been the case if such deposit and covenant defeasance had not
occurred.

(4) The Company shall have delivered to the
Trustee an Officer's Certificate to the effect that the
Securities, if then listed on any securities exchange, will
not be delisted as a result of such deposit.

(5) Such defeasance or covenant defeasance shall
not cause the Trustee to have a conflicting interest as
defined in Section 608 and for purposes of the Trust Indenture
Act with respect to any securities of the Company.

(6) No Event of Default or event which with
notice or lapse of time or both would become an Event of
Default shall have occurred and be continuing on the date of
such deposit or, insofar as subsections 501(8) and (9) are
concerned, at any time during the period ending on the 121st
day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the
expiration of such period).

(7) Such defeasance or covenant defeasance shall
not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the
Company is a party or by which it is bound.

(8) The Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided for
relating to either the defeasance under Section 1202 or the
covenant defeasance under Section 1203 (as the case may be)
have been complied with.

(9) Such defeasance or covenant defeasance shall
not result in the trust arising from such deposit constituting
an investment company as defined in the Investment Company Act
of 1940, as amended, or such trust shall be qualified under
such act or exempt from regulation thereunder.

-91-
<PAGE> 102
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.

Subject to the provisions of the last paragraph of
Section 1003, all money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying
trustee--collectively, for purposes of this Section 1205, the "Trustee")
pursuant to Section 1204 in respect of the Securities shall be held in trust
and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities, of all sums due and
to become due thereon in respect of principal (and premium, if any) and
interest, but such money need not be segregated from other funds except to the
extent required by law.

The Company shall pay and indemnify the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Government Obligations deposited pursuant to Section 1204 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding
Securities.

Anything in this Article Twelve to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it
as provided in Section 1204 which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent defeasance or
covenant defeasance.

SECTION 1206. Reinstatement.

If the Trustee or the Paying Agent is unable to apply
any money in accordance with Section 1202 or 1203 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Fourteen until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1202 or 1203; provided, however, that if the Company makes any payment
of principal of (and premium, if any) or inter-

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<PAGE> 103
est on any Security following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money held by the Trustee or the Paying Agent.

____________________

This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.

IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.

FIRSTFED FINANCIAL CORP.

By:__________________________
Name:
Title:

Attest:

____________________ _____________________________
Name:
Title:

[NAME OF TRUSTEE]

By:__________________________
Name:
Title:

Attest:

____________________
Name:
Title:

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<PAGE> 104
STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )

On the ____ day of _______, 1994, before me
personally came _______________, to me known, who, being by me duly sworn, did
depose and say that he is __________ of FIRSTFED FINANCIAL CORP., one of the
corporations described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.

_______________________

STATE OF NEW YORK ) ss.:
COUNTY OF NEW YORK )

On the ____ day of ____, 1994, before me personally
came ________________, to me known, who, being by me duly sworn, did depose and
say that he is _______________ of [NAME OF TRUSTEE], one of the corporations
-----------------
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation, and that he signed his name thereto by like authority.

___________________________

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<PAGE> 105
ANNEX I

Certificate as to Capital Distribution Requirement

The undersigned, ______________, the Chief Executive Officer of First
Federal Bank of California (the "Bank"), and _______________, the Chief
Financial Officer of the Bank, hereby certify pursuant to the definition of
"Capital Distribution Requirement" in Section 101 of the Indenture, dated as of
________, 1994 (the "Indenture"), between FirstFed Financial Corp. (the
"Company"), a Delaware corporation, and _________________, as Trustee, relating
to the _________% Notes due 2004 issued by the Company, that, in our good faith
judgment and based upon such information as we believe is necessary or
appropriate as a basis for such belief, we reasonably believe that the Bank
would be granted all regulatory approvals that may be necessary to permit the
Bank to make in a timely fashion capital distributions to the Company in
amounts as are necessary in order for the Company to make the next two
scheduled interest payments with respect to the Securities, as such payments
become due.

Dated:_________________

By:___________________________
Name:
Title:

___________________________
Name:
Title:

<PAGE> 1

EXHIBIT 12

STATEMENT RE COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax Income (Loss)
(Before Cumulative
Effect of Accounting
Changes)................ $(10,374) $(27,810) $ (3,094) $ 29,227 $ 55,518 $ 47,163 $ 34,364
Fixed Charges (Including
Interest on Deposit
Accounts)(1)............ 32,463 33,500 132,915 152,640 196,737 208,652 185,829
-------- -------- -------- -------- -------- -------- --------
Earnings (Including Total
Interest Expense as
Fixed Charge)........... $ 22,089 $ 5,690 $129,821 $181,867 $252,255 $255,815 $220,193
========= ========= ========= ========= ========= ========= =========
Pretax Income (Loss)
(Before Cumulative
Effect of Accounting
Changes)................ $(10,374) $(27,810) $ (3,094) $ 29,227 $ 55,518 $ 47,163 $ 34,364
Fixed Charges (Excluding
Interest on Deposit
Accounts)(1)............ 12,189 14,332 55,174 64,838 81,110 78,061 66,425
-------- -------- -------- -------- -------- -------- --------
Earnings (Excluding
Interest on Deposit
Accounts as Fixed
Charge)................. $ 1,815 $(13,478) $ 52,080 $ 94,065 $136,628 $125,224 $100,789
========= ========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed
Charges(2):
Including Deposit
Interest............. -- -- -- 1.19x 1.28x 1.23x 1.18x
Excluding Deposit
Interest............. -- -- -- 1.45 1.68 1.60 1.52
</TABLE>

- ---------------

(1) Fixed charges include the portion of rental expense deemed to be
representative of the interest factor.

(2) Earnings were inadequate to cover fixed charges for the three months ended
March 31, 1994 and 1993, and for the year ended December 31, 1993, by $10.4
million, $27.8 million and $3.1 million, respectively, including interest on
deposits, and $10.4 million, $27.8 million and $3.1 million, respectively,
excluding interest on deposits.

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES

First Federal Bank of California, fsb, a federal savings bank (the "Bank"),
is the sole subsidiary of FirstFed Financial Corp., which owns 100% of the
capital stock of the Bank.

Subsidiaries of the Bank (all of which are wholly owned) are set forth
below.

<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION
------------------ -------------
<S> <C>
Oceanside Insurance Agency, Inc................. California
Santa Monica Capital Group...................... California
Seaside Financial Corporation................... California
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS
FIRSTFED FINANCIAL CORP.:

We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus. Our report refers to a change in the method of accounting for
income taxes upon the adoption of Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.

KPMG Peat Marwick
Los Angeles, California
July 18, 1994

<PAGE> 1
EXHIBIT 25

_____________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_____________________

FORM T-1

STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

_____________________

HARRIS TRUST COMPANY OF CALIFORNIA
(Exact name of trustee as specified in its charter)

<TABLE>
<S> <C>
California 94-0304530
(State of incorporation (I.R.S. employer
if not a national bank) Identification No.)
</TABLE>

601 South Figueroa Street, 49th Floor
Los Angeles, California 90017
(Address of principal executive offices)

Esther Cervantes, Harris Trust Company of California
601 South Figueroa Street, 49th Floor
Los Angeles, California 90017
(213) 239-0675
(Name, address and telephone number for agent for service)

----------------------

FIRSTFED FINANCIAL CORP.
(Exact name of obligor as specified in its charter)

<TABLE>
<S> <C>
Delaware 95-4087749
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
</TABLE>

401 Wilshire Boulevard
Santa Monica, California 90401
(Address of principal executive offices, including zip code)

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

_____________________

NOTES
<PAGE> 2
(Title of the indenture securities)

GENERAL

Item 1. General Information.

Furnish the following information as to the Trustee:

(a) Name and address of each examining or supervisory authority to
which it is subject.

State Banking Department
111 Pine Street
Suite 1100
San Francisco, California 94104

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

Item 2. Affiliations with Obligor.

If the obligor is an affiliate of the Trustee, describe each
affiliation.

None.

<PAGE> 3

Item 16. List of Exhibits.

Exhibit T-1A. A copy of the articles of association of Trustee as
presently in effect: Restated Articles of
Incorporation and Amendment of February 9, 1994

Exhibit T-1B. A copy of the certificate of authority of the Trustee
to commence business, if not contained in the
articles of association: Certificate of Authority to
commence business.

Exhibits T-1B is incorporated herein by reference to
S.E.C. File No. 33-69382 of the Registration
Statement of Pacific Gulf Properties, Inc. Exhibit
T-1B.

Exhibit T-1C. A copy of the authorization of the Trustee to
exercise corporate trust powers, if such
authorization is not contained in the documents
specified in paragraph (1) and (2) above.

Exhibits T-1C is incorporated herein by reference to
S.E.C. File No. 33-69382 of the Registration
Statement of Pacific Gulf Properties, Inc. Exhibit
T-1C.

Exhibit T-1D. Copy of the existing bylaws of the Trustee or
instruments corresponding thereto: By-Laws of Harris
Trust Company of California as of March 30, 1988, as
presently in effect.

Exhibits T-1D is incorporated herein by reference to
S.E.C. File No. 33-69382 of the Registration
Statement of Pacific Gulf Properties, Inc. Exhibit
T-1D.

Exhibit T-1E. A copy of each indenture referred to in Item 4, if
obligor is in default.

Not Applicable.

Exhibit T-1F. The consents of United States institutional trustees
required by Section 321 of the Act.

Exhibits T-1F is incorporated herein by reference to
S.E.C. File No. 33-69382 of the Registration
Statement of Pacific Gulf Properties, Inc. Exhibit
T-1F.

Exhibit T-1G. A copy of the latest report of condition of the
Trustee published pursuant to law or the requirement
of its supervising or examining authority: Statement
of Condition as published in the Daily Journal and
provided to the Administrator of Local Agency
Security for the period ending March 31, 1994.
<PAGE> 4

Exhibit T-1H. A copy of any order pursuant to which the foreign
trustee is authorized to act as sole trustee under
the indentures qualified or to be qualified under the
Act.

Not Applicable.

Exhibit T-1I. Foreign trustees are required to file a consent to
service of process on Forms F-X.

Not Applicable.
<PAGE> 5

SIGNATURES

Pursuant to the requirements of the Trust Indenture
Act of 1939 the Trustee, Harris Trust Company of California, a corporation
organized and existing under the laws of California, has duly caused this
Statement of Eligibility and Qualification to the signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, State
of California, on July 18, 1994.

HARRIS TRUST COMPANY OF
CALIFORNIA

By /s/ ESTHER CERVANTES
---------------------------------
Esther Cervantes
Assistant Vice President
<PAGE> 6
CERTIFICATE OF AMENDMENT AND RESTATEMENT

RESTATED ARTICLES OF INCORPORATION OF
HARRIS TRUST COMPANY OF CALIFORNIA

Steven R. Rothbloom and Blanche O. Hurt certify:

1. That they are the President and Secretary, respectively, of
Harris Trust Company of California, a California corporation.

2. That at a special meeting of the board of directors of the
corporation duly held by conference telephone on October 28,
1993, the board duly approved and adopted amendments to the
Articles of Incorporation. The Articles of Incorporation of
this corporation are amended and restated in full to read as
follows:

FIRST: The name of this corporation is:
Harris Trust Company of California

SECOND: The purpose of this corporation is to engage in
trust business and any other lawful activities
which are not, by applicable laws or regulations,
prohibited to a trust company.

THIRD: This corporation is authorized to issue only one
class of shares of stock which shall be designated
"common" stock. The total number of shares which
the corporation is authorized to issue is 25,000.

The common shares of this corporation shall be
subject to assessment by the Board of Directors
upon order of the Superintendent of Banks of the
State of California for the purpose of restoring an
impairment or reduction of capital in the manner
and to the extent provided by the Financial Code of
the State of California.

FOURTH: This corporation elects to be governed by

(a) all of the provisions of the General
Corporation Law of California not otherwise
applicable to it under Chapter 23 thereof, and

(b) all of the provisions of the Revised Banking
Law effective January 1, 1979 not otherwise
applicable to it under Chapter 1.5 thereof, to
the extent applicable to trust companies.

<PAGE> 7
3. The foregoing amendment and restatement of the Articles of Incorporation
have been duly adopted and approved by written consent of the sole
shareholder.

In witness whereof, the undersigned have executed this Certificate of Amendment
on October 28, 1993.

/s/ STEVEN R. ROTHBLOOM
--------------------------------
Steven R. Rothbloom, President

/s/ BLANCHE O. HURT
--------------------------------
Blanche O. Hurt, Secretary

AFFIDAVIT

I, Steven R. Rothbloom, being duly sworn, do hereby swear under penalty of
perjury and affirm that the information set forth in the certificate above is
true and accurate of my own personal knowledge.

FURTHER AFFIANT SAYETH NOT.

/s/ STEVEN R. ROTHBLOOM
--------------------------------

SUBSCRIBED AND SWORN TO
before me this 4th day of
February, 1994
at Chicago, Illinois

OFFICIAL SEAL
KIMBERLY LANGE
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 12-14-97

/s/ KIMBERLY LANGE
- ----------------------------
Notary Public
My commission expires:

AFFIDAVIT

I, Blanche O. Hurt, being duly sworn, do hereby swear under penalty of
perjury and affirm that the information set forth in the certificate above is
true and accurate of my own personal knowledge.

FURTHER AFFIANT SAYETH NOT.

/s/ BLANCHE O. HURT
--------------------------------

SUBSCRIBED AND SWORN TO
before me this 4th day of
February, 1994
at Chicago, Illinois

OFFICIAL SEAL
KIMBERLY LANGE
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 12-14-97

/s/ KIMBERLY LANGE
- ----------------------------
Notary Public
My commission expires:

<PAGE> 8
TRUST COMPANY PUBLISHER'S COPY

Consolidated Report of Condition of "Harris Trust Company of California"
------------------------------------------

Located at Los Angeles Los Angeles California 90017
-------------------------------------------------------------------
(City) (County) (State) (Zip)

as of close of business on March 31, 1994 Bank No. 642
-------------- -------
===============================================================================
ASSETS Dollar Amounts in Thousands
===============================================================================

1. Cash and due from banks................................. 64 1
2. U.S. Treasury securities................................ 5 731 2
3. Obligations of other U.S. Government agencies and
corporations............................................ 4 501 3
4. Obligations of States and political subdivisions........ 4
5. Other securities (including $ 0 corporate stocks)..... 475 5
------
6. (a) Loans............................................... 6a
(b) Less: Reserve for possible loan losses.............. 6b
(c) Loans (Net)......................................... 6c
7. Bank premises, furniture and fixtures and other assets
representing bank premises
(including $ 0 capital leases)........................ 39 7
------
8. Real estate owned other than bank premises.............. 8
9. Investments in subsidiaries not consolidated............ 9
10. Other assets (including $659 intangibles)............... 1 226 10
----
11. TOTAL ASSETS............................................ 8 036 11

LIABILITIES

12. Liabilities for borrowed money.......................... 12
13. Mortgage indebtedness (including $ 0 capital leases) ... 13
14. Other liabilities....................................... 451 14
15. TOTAL LIABILITIES....................................... 451 15
16. Capital notes and debentures............................ 16

SHAREHOLDERS EQUITY

17. Preferred stock --
(Number shares outstanding )......Amount $.......XXX XXX XXX 17
-----
18. Common stock --
(Number shares authorized )
-----
(Number shares outstanding )......Amount $2,500 XXX XXX XXX 18
----- ------
19. Surplus.................................Amount $2,500 XXX XXX XXX 19
-----------------------
20. TOTAL CONTRIBUTED CAPITAL............................... 5 000 20
21. Retained earnings and other capital reserves............ 2 585 21
22. TOTAL CAPITAL ACCOUNTS.................................. 7 585 22
23. TOTAL LIABILITIES, AND CAPITOL ACCOUNTS................. 8 036 23

MEMORANDA

1. Assets deposited with State Treasurer to qualify for 1
exercise of fiduciary powers (market value)............. 255
- -------------------------------------------------------------------------------
The undersigned, M. Valoise Douglas, VP, GM and Steven Rothbloom, Pres., Chrmn.
-------------------------- -------------------------------
(Name and Title) (Name and Title)

of the above-named trust company, each declares, for himself alone and not for
the other: I have personal knowledge of the matters contained in this report
and I believe that each statement in said report is true. Each of the
undersigned, for himself alone and not for the other, certifies under penalty
of perjury that the foregoing is true and correct.

Executed on April 27, 1994, at Los Angeles, California.
-------------- ------------
(Date) (City)

M. Valoise Douglas Steven Rothbloom
-------------------------------- -----------------------------
(Signature) (Signature)

LA1-DJC 8202789 5/5/94

<PAGE> 9
READ CAREFULLY THE FOLLOWING INSTRUCTIONS

Section 1935 of Banking Law (Division 1 of Financial Code) provides
that every Trust Company at the time of furnishing a report under Section 1931
publish a condensed statement of its financial condition setting forth such
information and in such form as may be required by the Superintendent of Banks.

Each Consolidated Report of Condition which is required to be made by a
Trust Company shall be published by such Trust Company within ____ days from
receipt of the Call therefor.

The report shall be printed in a newspaper of general circulation
published in the city or town where the head office of the Trust Company is
located or, if there is no newspaper of general circulation published in such
city or town, then in a newspaper of general circulation published in the
county where the head office of the Trust Company is located.

The copy of the report for the use of the printer should be prepared on
the face side of this form. The published information must agree in every
respect with that shown on the Consolidated Report of Condition, except that
any item for which no amount is shown may be omitted in the published
statement. The signatures must be the same in the published statement as in the
original report, but they may be typewritten or otherwise copied on the report
for publication.

Printer's proof of the report for publication should be carefully
checked, since republication will be required of reports in which errors
appear.

PROOF OF PUBLICATION

I, STELLA H. LEE , declare:
-----------------
(Name)

[ ] printer

I am the [ ] foreman of the printer of L.A. DAILY JOURNAL
--------------------
[X] principal clerk of (Name of Newspaper)
the printer

Said newspaper has been adjudicated to be a newspaper of general circulation
pursuant to Article 2 (commencing with Section 6020), Chapter 1, Division 7,
Title 1 of the California Government Code, and is published in the City
of LOS ANGELES, County of LOS ANGELES, State of California.
----------- -----------

The report of HARRIS TRUST CO. , of which the annexed is a true printed
---------------------
(Name of Institution)

copy, was published in said newspaper on 05/05/94.
--------
(Date)

I declare under penalty of perjury that the foregoing is true and correct.

Executed on 05/05/94, at LOS ANGELES, California.
-------- -----------
(Date) (City)

S. LEE
-----------
(Signature)