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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003

OR

FOR THE TRANSITION PERIOD FROM                  TO                 

COMMISSION FILE NUMBER: 0-22528

QUAKER CITY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (562) 907-2200

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

YES x        NO ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES x        NO ¨

Number of shares outstanding of the registrant’s sole class of common stock at February 9, 2004: 6,281,783.

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QUAKER CITY BANCORP, INC.

Index

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PART I. FINANCIAL INFORMATION

Quaker City Bancorp, Inc.

Consolidated Statements of Financial Condition

Unaudited

(In thousands, except share data)

See accompanying notes to consolidated financial statements.

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Quaker City Bancorp, Inc.

Consolidated Statements of Operations

Unaudited

(In thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

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QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited

(In thousands)

See accompanying notes to consolidated financial statements.

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QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(In thousands)

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QUAKER CITY BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

Unaudited

(In thousands)

See accompanying notes to consolidated financial statements.

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QUAKER CITY BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

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Had compensation cost been determined using the fair value based method prescribed by SFAS 123, “Accounting for Stock Based Compensation,” the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

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QUAKER CITY BANCORP, INC.

This Quarterly Report on Form 10-Q (and documents referred to in this report) includes “forward-looking statements” within the meaning of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this report that address results or developments that the Company expects or anticipates will or may occur in the future, including such things as (i) business strategy; (ii) economic trends, including the condition of the real estate market in southern California, and the direction of interest rates and prepayment speeds of mortgage loans and mortgage-backed securities (“MBS”); (iii) the adequacy of the Company’s allowance for loan losses; (iv) goals; and (v) expansion and growth of the Company’s business and operations are forward-looking statements. These statements often include words such as “believe,” ”expect,” “anticipate,” “estimate,” “intend,” “may,” or similar expressions. These statements are based upon certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances.

These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the Company, including, but not limited to, (i) general economic, market or business conditions in the U.S. and southern California, including changes in market interest rates; (ii) real estate market conditions, particularly in southern California; (iii) the opportunities (or lack thereof) that may be presented to and pursued by the Company; (iv) competitive actions by other financial institutions; (v) changes in federal, state and local laws, regulations and policies affecting the Company’s business; and (vi) other factors. Actual results could differ materially from those contemplated by these forward-looking statements. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company and its business or operations. Forward-looking statements made in this report speak as of the date hereof. The Company undertakes no obligation to update or revise any forward-looking statement made in this report.

GENERAL OVERVIEW AND ORGANIZATION OF INFORMATION

Quaker City Bancorp, Inc., incorporated in Delaware, is primarily engaged in the savings and loan business through its wholly owned subsidiary Quaker City Bank (the “Bank”). At December 31, 2003, the Bank operated twenty-five retail banking offices in southern California, including fourteen “in-store” Wal-Mart branches. During the month of January 2004, the Bank opened another “in-store” Wal-Mart branch in the community of San Marcos (north San Diego area). Also, the Bank is currently scheduled to open an additional Wal-Mart in-store branch in the community of La Quinta (Palm Springs area) in March of 2004.

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The La Quinta branch will be located in what is scheduled to be Wal-Mart’s first “super center” in California. The Bank is subject to the regulations of various government agencies and undergoes periodic examinations by those regulatory authorities.

The Bank’s principal business has been and continues to be attracting retail deposits from the general public in its primary deposit market area surrounding its offices and investing those deposits and other available funds (primarily Federal Home Loan Bank (“FHLB”) advances), in loans secured by multifamily mortgages, one-to-four family residential mortgages, commercial real estate mortgages and MBS.

Historically, the Company’s principal business has been making and purchasing one-to-four family, multifamily (five or more units) and commercial real estate loans. To a lesser extent, the Bank also makes home equity loans, credit lines and second trust deed loans secured by property. At December 31, 2003, the Company’s gross loan portfolio (including loans held-for-sale) totaled $1.38 billion, 68.20% of which was secured by multifamily properties (approximately $658.5 million) and commercial real estate (approximately $285.3 million). From December 31, 2002 to December 31, 2003, the net decrease in the Company’s multifamily portfolio was $15.2 million, representing a 2.25% decrease in the size of the portfolio. From December 31, 2002 to December 31, 2003, the net decrease in the Company’s commercial real estate loan portfolio was $2.5 million, representing a 0.90% decrease in the size of the portfolio.

Management’s discussion and analysis presented below provides a narrative on the Company’s financial performance and condition and is intended to provide information that will assist in understanding the Company’s consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that caused those changes, including how certain accounting principles, policies and estimates affect such financial statements. The discussion and analysis that follows should be read in conjunction with the accompanying financial statements and the related notes appearing elsewhere in this report, and includes the following sections:

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CRITICAL ACCOUNTING POLICIES

Management has established various accounting policies which govern the application of accounting policies generally accepted in the United States of America in the preparation of the Company’s consolidated financial statements. Management believes that the determination of the level of the allowance for loan losses is the Company’s only critical accounting policy. This policy requires the use of estimates and assumptions in the preparation of the Company’s consolidated financial statements that are most susceptible to significant change. For further information, please see “Results of Operations – Provision for Loan Losses.”

Certain other accounting policies require management to make estimates and assumptions which have a material impact on the carrying value of certain assets and liabilities; management considers these to be significant accounting policies. Those significant accounting policies are described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2003. The estimates and assumptions management uses are based on historical experience and other factors, which management believes to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and the Company’s results of operations for the reporting periods.

RESULTS OF OPERATIONS

Net Earnings. The Company recorded net earnings of $5.4 million, $0.84 per diluted share, for the quarter ended December 31, 2003, a 1.2% decrease in earnings per diluted share from the same period last year, with net earnings of $5.6 million, $0.85 per diluted share. The company recorded net earnings of $10.8 million, $1.68 per diluted share, for the six months ended December 31, 2003, representing no change in earnings per diluted share from the same period last year, with net earnings of $11.2 million, $1.68 per diluted share. Net earnings for the six months ended December 31, 2003 declined primarily due to an increase in general and administrative (“G&A”) expenses of $1.7 million, partially offset by an increase in other income of $1.3 million, compared to the six months ended December 31, 2002.

Interest Income. Interest income amounted to $23.1 million for the quarter ended December 31, 2003, compared to $24.9 million for the quarter ended December 31, 2002. Interest income amounted to $46.3 million for the six months ended December 31, 2003, compared to $49.9 million for the six months ended December 31, 2002. The decrease in interest income for the three and six months ended December 31, 2003 is primarily a result of a decline in the yield on average interest-earning assets. The yield on average interest-earning assets was 5.52% for the quarter ended December 31, 2003, compared to 6.62% for the quarter ended December 31, 2002. The yield on average interest-earning assets was 5.70% for the six months ended December 31, 2003, compared to 6.71% for the six months ended December 31, 2002. Loan payoffs, although slightly less than loan payoffs during the quarter ended September 30, 2003, continued to be substantial, with an annualized loan payoff rate of 42.5% of average loan balances for the current quarter, compared to 49.5% for the quarter ended September 30, 2003 and 33.16% for the quarter ended December 31, 2002. Loan payoffs for the six months ended December 31, 2003 as compared to the six months ended December 31, 2002 increased as a result of sustained low interest rates. Multifamily and commercial and industrial real estate borrowers have continued to refinance loans to lower priced mortgage products. The reduction in payoffs for the quarter ended December 31, 2003 as compared to the quarter ended September 30, 2003 reflects the general slow down in refinance activity in the last part of the quarter ended December 31, 2003.

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Interest Expense. Interest expense for the quarter ended December 31, 2003 was $8.6 million, compared to $10.3 million for the same period last year. Interest expense for the six months ended December 31, 2003 was $17.4 million, compared to $20.8 million for the same period last year. The decrease in interest expense for the three and six months ended December 31, 2003 was primarily a result of a decrease in the cost of average interest-bearing liabilities, partially offset by an increase in average interest-bearing liabilities. The average cost of funds was 2.28% for the quarter ended December 31, 2003, compared to 3.06% for the quarter ended December 31, 2002, a decrease of 78 basis points or 25.5% over the comparable period last year. The average cost of funds was 2.36% for the six months ended December 31, 2003, compared to 3.14% for the six months ended December 31, 2002, a decrease of 78 basis points or 24.8% over the comparable period last year.

Net Interest Income Before Provision for Loan Losses. Net interest income before provision for loan losses for the quarter ended December 31, 2003 amounted to $14.5 million, compared to $14.6 million for the same period last year. Net interest income before provision for loan losses for the six months ended December 31, 2003 amounted to $29.0 million, compared to $29.1 million for the same period last year. The net interest margin for the three months ended December 31, 2003 was 3.46% compared to 3.88% for the same period last year. The net interest margin for the six months ended December 31, 2003 was 3.57%, compared to 3.91% for the same period last year. The decrease in net interest margins for the three and six month periods ended December 31, 2003 compared to the same periods last year was due to the yield on interest-earning assets decreasing more quickly than the cost of interest-bearing liabilities. Approximately $539.1 million of the Bank’s adjustable rate loans were constrained by floor rates that were above the then current market rates as of the quarter ended December 31, 2003. Accordingly, should market rates rise, these assets will not reprice upwards until the fully indexed loan rate once again exceeds the lifetime floor rate.

The following table displays average interest rates on the Company’s interest-earning assets and interest-bearing liabilities:

Provision for Loan Losses. The Company maintains valuation allowances for losses on loans that the Company’s management believes to be inherent in those portfolios. The Company’s management evaluates the adequacy of the level of the allowance for loan losses quarterly as a function of its internal asset review process.

The Company’s Internal Asset Review Committee meets monthly to review and determine asset classifications and to recommend any changes to the asset valuation allowance. This committee is

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comprised of the Senior Loan Servicing Officer (Chairperson), Chief Executive Officer, Chief Financial Officer, Senior Residential Lending Officer, Senior Capital Markets Officer, Senior Income Property Lending Officer, Assistant Treasurer and Controller. The internal auditors of the Company also attend the meeting. The Chairperson of the Internal Asset Review Committee prepares reports for the Board of Directors’ Loan Committee regarding asset quality.

The Company’s management considers various factors when assessing the adequacy of the allowance for loan losses including risk characteristics inherent in the collateral types, asset classifications, estimated collateral values, local and national economic conditions, historical loan loss experience, and the Company’s underwriting policies.

The Company’s internal asset review system and allowance for loan losses methodology are designed to provide for timely identification of problem assets and recognition of losses. The current asset monitoring process includes the use of asset classification to segregate the assets, primarily real estate loans, into types of loans. Currently, loan type classifications include one-to-four family loans, multifamily loans, commercial, construction and land loans, and other loans.

The allowance for loan losses consists of three elements: (i) specific valuation allowances, (ii) general valuation allowances based on historical loan loss experience and current trends, and (iii) adjustments to general valuation allowances based on general economic conditions and other risk factors in the Company’s individual markets.

Specific Valuation Allowances. A specific valuation allowance for losses on a loan is established when management determines the loan to be impaired and the loss can be reasonably estimated. Generally, the Company’s loans are collateral dependent, therefore, specific reserves would be established based upon the value of the underlying collateral. To comply with this policy, management has established a monitoring system that requires an annual review of real estate loans on commercial properties with balances in excess of $500,000, for multifamily loans in excess of $750,000 and for one-to-four family loans in excess of $1.0 million. In addition, all assets considered to be adversely classified or criticized are reviewed monthly for impairment. The annual review process requires an analysis of current operating statements requested from the borrower (although they are not always received from the borrower), an evaluation of the property’s current and past performance, an evaluation of the borrower’s ability to repay, and an evaluation of the overall condition and estimated value of the collateral.

General Valuation Allowances. These allowances relate to assets with no well-defined deficiencies or weaknesses and take into consideration incurred losses that are inherent within the portfolio but that have not yet been realized. General valuation allowances are determined by applying factors that include the mix of loan products within the portfolio, any change in underwriting standards, past loss experience and general economic conditions and other risk factors. Past loss experience within homogeneous loan categories is analyzed at least annually. The Company may revise general valuation allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a given loan category.

General Economic Conditions and Other Risk Factors. The Company considers general economic conditions and other risk factors when establishing valuation allowances. These factors are based on local marketplace conditions and/or events that could affect loan repayment. The

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assessment of general economic conditions inherently involves a higher degree of uncertainty as it requires management to anticipate the impact that economic trends, legislative actions or other unique market and/or portfolio issues have on estimated credit losses. For example, in assessing economic risks in the marketplace, management considers local unemployment trends, expansion and contraction plans of major employers, and other similar indicators. Consideration of other risk factors typically includes recent loss experience in specific portfolio segments, trends in loan quality, concentrations of credit risk together with any internal administrative risk factors. These risk factors are carefully reviewed by management and are revised as conditions dictate.

Multifamily and commercial real estate loans are generally considered to involve a higher degree of credit risk and to be more vulnerable to adverse conditions in the real estate market and to deteriorating economic conditions, particularly changes in interest rates, than one-to-four family residential mortgage loans. As a result of the potentially higher risk of these loans, a higher level of general allowance for loan losses has been allocated to the multifamily and commercial real estate portfolios. These loans typically involve higher loan principal amounts and the repayment of such loans generally depends on the income produced by the operation or sale of the property being sufficient to cover operating expenses and debt service. In addition, multifamily and commercial real estate values tend to be more cyclical and, while the southern California real estate market remained strong in fiscal 2003, although there are signs of weakness in certain segments of the California real estate market, recessionary economic conditions of the type that prevailed in prior years in the Company’s lending market area tend to result in higher vacancy and reduced rental rates and net operating incomes from multifamily and commercial real estate properties.

The following table sets forth the Company’s allowance for loan losses as a percentage of total loans and the percentage of loans to total loans for each of the loan types listed:

The Company recorded a $100,000 provision to the allowance for loan losses due to growth in the real estate loan portfolio for the quarter ended December 31, 2003, as compared to the $200,000 addition to the allowance for the quarter ended December 31, 2002. The provision for loan losses was $100,000 for the six months ended December 31, 2003, compared to $400,000 for the same

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period last year. The amounts added to the allowance for loan losses during the quarter and six months ended December 31, 2003 as compared to December 31, 2002 were lower than in the previous reporting periods as a result of changes in the mix of loans outstanding, general economic conditions and other risk factors. As a result of the potential weakness in certain segments of real estate markets and other economic factors, increases in the allowance for loan losses, however, may be required in future periods.

In addition, the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation (“FDIC”), as an integral part of their respective examination processes, periodically review the Company’s allowance for loan losses. These agencies may require the Company to increase the allowance for loan losses based on their judgments of the information available at the time of their examination.

The following is a summary of the activity in the allowance for loan losses:

The specific allowance for loan and real estate losses was $29,000 at December 31, 2003, compared to $38,000 at December 31, 2002. The specific allowance decreased due to loan principal amortization.

Other Income. Other income for the three months ended December 31, 2003 was $3.1 million, compared to $2.4 million for the same period last year, an increase of 28.1%. The increase during the quarter was due to an increase in retail deposit fees to $1.5 million for the current quarter (compared to $1.2 million for the same period last year), an increase in loan servicing charges and fees to $565,000 (compared to $474,000 for the same period last year) and an increase in other income to $339,000 (compared to $14,000 for the same period last year) as a result of collections on loans purchased that the Company owned with a zero basis. Gain on sale of loans held-for-sale of $443,000 for the current quarter included a gain on the sale of loans purchased at a discount and subsequently sold at a pretax gain of $374,000. Gain on sale of loans held-for-sale for the quarter ended December 31, 2002 of $489,000 primarily included gains on the sale of loans originated by the Company.

Other income for the six months ended December 31, 2003 was $6.0 million, compared to $4.6 million for the same period last year, an increase of 28.4%. The increase during the six months ended December 31, 2003 was primarily due to an increase in retail deposit fees to $3.0 million (compared to $2.4 million for the same period last year), an increase in gain on sale of loans held-for-sale to $893,000 (compared to $601,000 for the same period last year) and an increase in other income to $439,000 (compared to $151,000 for the same period last year) as a result of collections on loans purchased that the Company owned with a zero basis. Gain on sale of loans held-for-sale of $893,000 for the six months ended December 31, 2003 included a gain on the sale of loans purchased

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at a discount and subsequently sold at a pretax gain of $374,000. Gain on sale of loans held-for-sale for the six months ended December 31, 2002 of $601,000 primarily included gains on the sale of loans originated by the Company.

Other Expense. Other expense for the three months ended December 31, 2003 increased to $7.8 million, compared to $6.9 million for the same period last year, an increase of 13.1%. Other expenses for the six months ended December 31, 2003 increased to $15.4 million, compared to $13.8 million for the same period last year, an increase of 12.1%. The increase in other expense for the three months ended December 31, 2003 compared to the same period in the previous year, was primarily the result of a $636,000, or 17.2%, increase in compensation expense. This increase in compensation expense was primarily attributable to staff additions relating to expansion of the branch network, loan origination and loan service divisions. Other items contributing to this increase in compensation expense included a $66,000 increase in costs related to the Employee Stock Ownership Plan (“ESOP”) and a $48,000 expense adjustment to the accrued employee vacation compensation liability. The increase in other expense for the six months ended December 31, 2003 compared to the same period in the previous year was primarily the result of a $1.1 million, or 14.2%, increase in compensation expense. From December 31, 2002 to December 31, 2003, the Company experienced an increase in compensation expense as a result of an increase in full and part time employees of 8.7%, which primarily was attributable to staff additions relating to expansion of the branch network, loan origination and loan service divisions. Other items contributing to the increase in compensation expense for the six months ended December 31, 2003 compared to the six months ended December 31, 2002 included a $141,000 increase in costs related to the ESOP and a $48,000 expense adjustment to the accrued employee vacation compensation liability.

The ratio of G&A expenses to average assets (the “G&A ratio”) was 1.79% for the quarter ended December 31, 2003, compared to 1.77% for the same period last year. The G&A ratio for the six months ended December 31, 2003 was 1.83%, compared to 1.81% for the same period last year. The increase in the G&A ratio for the three and six month periods ended December 31, 2003 as compared to the three and six month periods ended December 31, 2002 was primarily a result of costs related to planned branch network expansion, branch computer technology upgrades and increased marketing expense.

The efficiency ratio for the current quarter increased to 44.30%, compared to 40.55% for the quarter ended December 31, 2002, as other income grew at a faster rate than G&A expenses during the quarter. The efficiency ratio is the measurement of G&A expenses as a percentage of net interest income before provision for loan losses and noninterest income.

Income Taxes. The Company’s effective tax rates were 43.89% and 43.14% for the quarters ended December 31, 2003 and 2002, respectively. The Company’s effective tax rates were 43.80% and 42.32% for the six months ended December 31, 2003 and 2002, respectively. The effective tax rates were comparable to the applicable statutory rates in effect.

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FINANCIAL CONDITION

Total stockholders’ equity for the Company was $143.1 million at December 31, 2003, representing 8.2% of total assets, compared to $139.1 million at June 30, 2003, representing 8.6% of total assets. Total assets were $1.76 billion at December 31, 2003, representing an increase of $133.0 million or 8.2% compared to June 30, 2003.

At a meeting held on January 22, 2004, the Board of Directors declared a cash dividend of $0.20 per outstanding share of common stock, payable on February 27, 2004 to stockholders of record at the close of business on February 13, 2004.

Pursuant to previously announced plans to repurchase Company stock, the Company acquired in the open market 80,250 shares of common stock at an average price per share of $42.68 during the quarter and 146,750 shares of common stock at an average price per share of $41.37 for the six months ended December 31, 2003. Up to an additional 276,317 shares may be repurchased under the current Board of Directors authorization.

Total loans receivable (including loans receivable held-for-sale) amounted to $1.37 billion at December 31, 2003, compared to $1.33 billion at June 30, 2003. The following table presents loans receivable at the dates indicated:

Loan originations totaled $107.4 million and loan purchases totaled $112.7 million for the quarter ended December 31, 2003, compared to loan originations of $128.5 million and loan purchases of $29.8 million for the quarter ended December 31, 2002. Loan originations totaled $213.1 million and loan purchases totaled $165.3 million for the six months ended December 31, 2003, compared to loan originations of $231.2 million and loan purchases of $84.0 million for the six months ended December 31, 2002.

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Loan originations were comprised of the following:

The increase in loan production for both the three and six months ended December 31, 2003, compared to the same periods in the previous year, was primarily a result of an increase in one-to-four family loan purchases. Presently, the Company expects to continue its focus on one-to-four family, multifamily and commercial real estate lending during the remainder of fiscal 2004.

MBS held-to-maturity totaled $156.3 million at December 31, 2003, compared to $90.0 million at June 30, 2003. There were $28.2 million in amortization and payoffs and $94.5 million of MBS held-to-maturity purchases made during the six months ended December 31, 2003. MBS available-for-sale amounted to $98.9 million at December 31, 2003, compared to $73.7 million at June 30, 2003. Approximately $49.6 million of MBS available-for-sale purchases were partially offset by $23.8 million in amortization and payoffs during the six months ended December 31, 2003.

TRANSACTIONS WITH RELATED PARTIES

It is the policy of the Bank to offer loans to executive officers and directors on their principal residence and to offer to extend a line of credit for overdraft protection on a checking account held at the Bank. The Bank’s policy provides that all loans to executive officers and directors shall be made in the

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ordinary course of business, shall be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with all other employees, and shall not involve more than the normal risk of collectibility or present other unfavorable features.

CAPITAL RESOURCES AND LIQUIDITY

The Company obtains advances from the FHLB as needed, as an alternative to retail deposit funds. The net increase in FHLB advances were $106.0 million and $94.5 million, respectively, for the three and six months ended December 31, 2003. Deposits increased by $16.7 million and $30.1 million, respectively, for the three and six months ended December 31, 2003. In addition, while the majority of the Bank’s deposits are retail in nature, the Bank has accepted $65.0 million in time deposits from the State of California. The Bank considers these funds to be wholesale deposits and an alternative borrowing source rather than a customer relationship and their levels are determined by management’s decision as to the most economic funding sources.

In addition to FHLB advances and proceeds from increases in customer deposits, other sources of liquidity for the Company include principal repayments on loans and MBS, proceeds from sales of loans held-for-sale and other cash flows generated from operations. In the future the Company may include repurchase agreements and brokered deposits as additional sources of liquity. Principal repayments on loans were $144.8 million and $105.3 million for the three months ended December 31, 2003 and 2002, respectively. Principal payments on loans were $311.6 million and $185.8 million for the six months ended December 31, 2003 and 2002, respectively. With continued downward pressure on interest rates, loans were paid off more rapidly than in the previous reporting period.

Proceeds from loan sales amounted to $4.3 million for the quarter ended December 31, 2003, compared to $43.2 million for the quarter ended December 31, 2002. Proceeds from loan sales amounted to $26.4 million for the six months ended December 31, 2003, compared to $61.9 million for the six months ended December 31, 2002. At December 31, 2003, the Company had mortgage servicing assets related to loans sold, servicing retained, with a carrying value of $1.1 million. Loans serviced for others were $254.2 million at December 31, 2003, compared to $287.1 million at June 30, 2003.

The Financial Regulatory Relief and Economic Efficiency Act of 2000 repealed the statutory liquidity requirement for savings associations, citing the requirement as unnecessary. In light of this action, the OTS repealed its liquidity regulations, with the following exception. Savings associations must continue to maintain sufficient liquidity to ensure safe and sound operation; the appropriate level of liquidity will vary depending on the activities in which the savings association engages. The Bank believes that its level of liquidity is consistent with its safe and sound operation.

Sources of capital and liquidity for the Company on a stand-alone basis include distributions from the Bank. Dividends and other capital distributions from the Bank are subject to regulatory restrictions.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The Company enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management to meet required capital needs. These obligations require the Company to make cash payments over time. The following table summarizes the Company’s contractual obligations as of December 31, 2003:

The following table summarizes the Company’s contractual commitments with off-balance sheet risk as of December 31, 2003: