<PAGE>



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                      ANNUAL REPORT PURSUANT TO SECTION 13
                 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998

                          COMMISSION FILE NO.: 0-24215

                               PBOC HOLDINGS, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>

         DELAWARE                                               33-0220233
<S>                                                       <C>
(State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                         Identification Number)

</TABLE>

            5900 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA, 90036 
          (Address of principal executive offices, including zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (323) 938-6300

   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NOT APPLICABLE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    COMMON STOCK (PAR VALUE $0.01 PER SHARE)
                                (Title of Class)



     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 if disclosure of delinquent filers pursuant to 
Item 405 of Regulation S-K is not contained herein, and will not be 
contained, to the best of Registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-K or any amendment to this Form 10-K. [ ]

     As of March 9, 1999, the aggregate value of the 19,846,166 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
602,539 shares held by all directors and executive officers of the Registrant as
a group, was approximately $189.8 million. This figure is based on the last
known trade price of $9.5625 per share of the Registrant's Common Stock on March
9, 1999.

Number of shares of Common Stock outstanding as of March 9, 1999:    20,448,705

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 1999 Annual Meeting of
Stockholders are incorporated into Part III.

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

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                               PBOC HOLDINGS, INC.
                                TABLE OF CONTENTS

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<CAPTION>

                                                                                  PAGE
                                                                                ------
<S>           <C>                                                                  <C>

                                           PART I
ITEM 1.       BUSINESS .........................................................     3
                  General ......................................................     3
                  Lending Activities ...........................................     6
                  Investment Activities ........................................    11
                  Sources of Funds .............................................    12
                  Competition ..................................................    14
                  Asset Quality ................................................    14
                  Subsidiaries .................................................    16
                  Regulation ...................................................    17
                  Regulation of Savings and Loan Holding Companies .............    17
                  Regulation of Federal Savings Banks ..........................    18
                  Taxation .....................................................    22
                  Description of Capital Stock .................................    24
                  Common Stock .................................................    25
                  Preferred Stock ..............................................    25
                  Restrictions on Acquisition of the Company ...................    26
ITEM 2.      PROPERTIES ........................................................    29
ITEM 3.      LEGAL PROCEEDINGS .................................................    31
                  The Goodwill Litigation ......................................    31
                  The Shareholder Rights Agreement .............................    33
ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............    37

                                     PART II
ITEM 5.      MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS .............................................    38
ITEM 6.      SELECTED FINANCIAL DATA ...........................................    39
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS .......................................    42
                  General ......................................................    42
                  Financial Condition ..........................................    42
                  Results of Operations ........................................    54
                  Average Balances, Net Income, Yields Earned and Rates Paid ...    56
                  Rate / Volume Analysis .......................................    57
                  Asset and Liability Management ...............................    61
                  Liquidity and Capital Resources ..............................    65
                  Asset Quality ................................................    66
                  Year 2000 ....................................................    67
                  Recent Accounting Pronouncements .............................    68
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .........    69
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......................    70
ITEM 9.      CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
               DISCLOSURE ......................................................    107

                                    PART III
ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ................    108
ITEM 11.     EXECUTIVE COMPENSATION ............................................    108
ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT ......................................................    108
ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....................    108

                                     PART IV
ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
               FORM 8-K ........................................................    108
</TABLE>


                                       2

<PAGE>

     WHEN USED IN THIS FORM 10-K OR FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), IN THE COMPANY'S PRESS RELEASES OR
OTHER PUBLIC OR STOCKHOLDER COMMUNICATIONS, OR IN ORAL STATEMENTS MADE WITH AN
APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS OR PHRASES "WOULD BE",
"WILL ALLOW", "INTENDS TO", "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL
CONTINUE", "IS ANTICIPATED", "ESTIMATE", "PROJECT", OR SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE LITIGATION REFORM ACT OF 1995.

     THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY
SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND TO
ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT AND
OTHER RISK OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY
FACTORS, COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     The Company is a Delaware corporation which was organized in 1987 to
acquire the People's Bank of California from the Federal Savings and Loan
Insurance Corporation ("FSLIC") in connection with its conversion from mutual to
stock form. (Unless the context otherwise requires, references herein to the
Company include the Bank and its other subsidiaries.) The Company owns 100% of
the Common Stock of the Bank, which is its primary investment. The Bank is a
federally chartered savings bank which was originally organized in 1887 under
California law and conducts business from its executive offices located in Los
Angeles, California and 20 full-service branch offices located primarily in Los
Angeles County as well as Orange and Ventura Counties in Southern California. In
addition, the Company currently operates 43 automated teller machines ("ATMs"),
20 of which are in stand-alone facilities, Southern California. At December 31,
1998, the Company had total assets of $3.3 billion, net loans receivable of $2.1
billion, total deposits of $1.5 billion and total stockholders' equity of $180.6
million.

     In May 1998, the Company along with (i) the Trustees of the Estate of
Bernice Pauahi Bishop, also known as Kamehameha Schools Bernice Pauahi Bishop
Estate (the "Bishop Estate"), a charitable educational trust established under
Hawaii law, (ii) BIL Securities (Offshore) Limited ("BIL Securities"), a wholly
owned subsidiary of Brierley Investments Limited, a New Zealand corporation, and
(iii) Arbur, Inc. ("Arbur"), a Delaware corporation (collectively, the "Material
Stockholders") consummated a public offering of the Company's Common Stock (the
"Offering"). In the Offering, the Company issued 10,196,667 shares of Common
Stock at $13.75 per share and received net proceeds of $129.6 million.
Additionally, the Material Stockholders sold 4,370,000 shares of Common Stock at
$13.75 per share and received $56,183,950 in return. Upon consummation of the
Offering, the Bishop Estate, BIL Securities and Arbur owned 21.76%, 8.74% and
2.91%, respectively, of the Common Stock outstanding. Such continuing ownership
of the Common Stock, coupled with provisions which are contained in a 1998
Stockholders' Agreement which permit the Material Stockholders to nominate up to
three of the seven directors of the Company so long as they are Material
Stockholders, will permit the Material Stockholders to continue to influence the
election of directors, and thereby the policies of the Company and its
subsidiaries. See "The Stockholders' Agreement" in the Company's Proxy Statement
dated March 22, 1999, which is incorporated by reference into ITEM 10. hereof.

     THE GOODWILL LITIGATION. In connection with the Company's acquisition of
the Bank in April 1987, the Bank was permitted to include in its regulatory
capital and recognize as supervisory goodwill $217.5 million of cash assistance
provided to the Bank by the FSLIC (the "Capital Credit"), as well as $79.7
million of goodwill which was recorded by the Bank under generally accepted
accounting principles ("GAAP"). In August 1989, Congress enacted the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") which
provided, among other things, that savings institutions such as the Bank were no
longer permitted to include goodwill in their regulatory capital (subject to a
gradual phaseout which expired on December 31, 1994). Consequently, the Bank was
required to write-off its goodwill (subject to the phaseout), which resulted in
the Bank failing to comply with its minimum regulatory capital requirements
during 1990 and 1991. The balance of the Bank's GAAP goodwill was written off as
unrealizable in 1992. The Company, the Bank and certain current and former
stockholders of the Company have sued the U.S. Government with respect to the
required write-off of its Capital Credit and supervisory goodwill in a lawsuit
entitled SOUTHERN 

                                       3

<PAGE>

CALIFORNIA FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL. V. UNITED STATES, No.
93-52-C, which seeks damages for breach of contract and for deprivation of
property without just compensation and without due process of the law. In
connection with the Offering, the Company, the Bank and each of the Material
Stockholders individually entered into a Shareholder Rights Agreement whereby
each Material Stockholder received one Contingent Goodwill Participation Right
("Right") for each share of Common Stock held by the Material Stockholder. Each
Right entitles such Material Stockholder to receive 0.0009645% of the Litigation
Recovery (as defined herein), or 95% of the Litigation Recovery by all Material
Stockholders on an aggregate basis. As defined herein, the Litigation Recovery
is the amount, if any, recovered by the Company and/or the Bank as a result of a
settlement or judgment with respect to such litigation, net of certain expenses,
income taxes and other payments. The remaining 5% of such Litigation Recovery,
if any, will be retained by the Company and/or the Bank. See "The Goodwill
Litigation" and "The Shareholder Rights Agreement" in ITEM 3. hereof.

     1992 AND 1995 RECAPITALIZATIONS. In July and August 1992, the Company
issued $48.0 million of senior notes and, after payment of the transaction fees
and expenses, contributed $43.5 million of the net proceeds from such sale to
the Bank (the "1992 recapitalization"). As a result of the 1992
recapitalization, the Bank was able to satisfy its minimum regulatory capital
requirements. Notwithstanding the 1992 recapitalization, due to the required
write-off of the Bank's Capital Credit and supervisory goodwill, the Bank's
capital was not sufficient to absorb the significant credit losses which the
Bank continued to recognize. Such credit losses were due in large part to the
continued deterioration in the Southern California economy which had begun with
the national recession at the start of the decade and the decline in market
values of real estate resulting in part from the Northridge earthquake of 1994.
As a result, the Bank experienced dramatically increased levels of
non-performing assets and troubled debt restructurings and, therefore, a loss of
interest income, increased operating expenses and substantially higher
provisions for losses. As a result of the foregoing, during 1994, the Bank again
fell out of compliance with its regulatory capital requirements. In June 1995,
the senior notes issued in the 1992 recapitalization were contributed to the
capital of the Bank and the Material Stockholders invested $10.0 million in new
senior notes and $48.5 million in preferred stock of the Company, substantially
all of the proceeds of which were also contributed to the Bank in order to
satisfy the Bank's minimum regulatory capital requirements (the "1995
recapitalization"). In connection with the consummation of the Offering, the
senior notes of the Company were prepaid, and the various outstanding series of
preferred stock of the Company were exchanged for Common Stock. See "The
Stockholders' Agreement" in the Company's Proxy Statement, dated March 22, 1999,
which is incorporated by reference into ITEM 10. hereof.

     NEW MANAGEMENT AND BUSINESS STRATEGY. In connection with the 1995
recapitalization, the Bank replaced its former senior managers with a new
management team with considerable experience in commercial banking and problem
asset resolution. The new management team includes Rudolf P. Guenzel, President
and Chief Executive Officer, J. Michael Holmes, Executive Vice President and
Chief Financial Officer and William W. Flader, Executive Vice President, all of
whom worked together at BancFlorida Financial Corp. ("BancFlorida"), and each of
whom has more than 20 years experience in the banking industry.

     The Company under its new management has changed the name of the Company
from SoCal Holdings, Inc. to PBOC Holdings, Inc. and the name of the Bank from
Southern California Federal Savings and Loan Association to People's Bank of
California, in each case to reflect the new emphasis placed on providing
customers with full banking services. In its efforts to rehabilitate the Bank,
the new management team adopted a business strategy designed to reduce problem
assets, increase net interest income, reduce operating expenses and cost of
funds and maximize profitability while limiting interest rate and credit risk.
Since the 1995 recapitalization, management's attention has been focused on the
foregoing initiatives. As the Company has improved its problem assets and with
the Company's return to profitability in 1996 and 1997, the Bank has been
increasingly redirecting its emphasis to its core lending functions. New
management's business strategy is based on the following key elements:

     -    REDUCE NON-PERFORMING ASSETS. The Bank has organized its loan review
          function through the implementation of an internal asset review
          system. The Bank created an internal asset review committee and
          established loan review and special assets departments in order to
          focus on the early identification of potential problem assets and the
          administration, rehabilitation or liquidation of the Bank's
          non-performing assets. As a result of the foregoing and improved
          economic conditions in California, non-performing assets and troubled
          debt restructurings have declined from $78.7 million or 4.6% of total
          assets at December 31, 1994 to $14.8 million 

                                       4

<PAGE>


          or 0.4% of total assets at December 31, 1998. Decreases in the Bank's
          non-performing assets have resulted in reductions in provisions for
          losses, which have contributed to the Company's improved operating
          results.

     -    IMPROVE OPERATING EFFICIENCY. Since the change in the Company's
          management, the Bank has emphasized improving the Bank's operating
          efficiency. New management centralized the Bank's underwriting
          functions which, in the opinion of management, has allowed the Bank to
          underwrite and approve loans faster and more efficiently. The Bank has
          also significantly reduced its operating expenses through the
          consolidation of certain of its operations and, to a lesser extent,
          staff reductions. The ratio of the Company's operating expenses to
          average total assets has steadily decreased, from 2.14% during the
          year ended December 31, 1994 to 1.55% and 1.67% (1.12% excluding
          one-time IPO-related expenses) during the years ended December 31,
          1997 and 1998, respectively. Despite the Bank's recent cost-cutting
          efforts, management believes that it has significant operating
          leverage and, therefore, continued incremental growth will not cause
          the Company's ratio of operating expenses to average total assets to
          increase by a corresponding amount.

     -    REDUCE FUNDING COSTS. The Bank has reduced its overall cost of funds
          by promoting retail deposit growth (particularly transaction
          accounts), allowing its out-of-market, institutional jumbo
          certificates of deposit to run off as they mature and replacing higher
          cost, short-term Federal Home Loan Bank ("FHLB") advances with lower
          cost, intermediate-term reverse repurchase agreements and FHLB
          advances. Prior to 1995, the Bank relied to a large extent on
          wholesale sources of funds, such as out-of-market, institutional jumbo
          certificates of deposits and FHLB advances, which resulted in a high
          cost of funds and reduced margins. As a result of the foregoing
          changes, the Bank's transactional accounts (passbook, NOW and money
          market accounts) have increased from $183.2 million or 13.2% of total
          deposits at December 31, 1994 to $433.0 million or 28.1% of total
          deposits at December 31, 1998. Over such period, the Bank eliminated
          out-of-market, institutional jumbo certificates of deposit totaling
          $122.2 million.

     -    REVISE INVESTMENT POLICY. Since June 1995, the Bank has been replacing
          relatively illiquid securities with more liquid U.S. Government agency
          obligations and U.S. Government agency mortgage-backed securities. The
          securities disposed of included collateralized mortgage obligations
          and other mortgage derivative products, which did not qualify as
          collateral with respect to borrowings or other obligations of the
          Bank, while the U.S. Government agency obligations and U.S. Government
          agency mortgage-backed securities increase the credit quality of the
          Bank's assets, require less capital under risk-based regulatory
          capital requirements and may be used to collateralize borrowings or
          other obligations of the Bank. In 1998, the Bank invested in
          investment-grade corporate trust preferred securities, primarily
          adjustable rate, as a means of mitigating the prepayment and call risk
          of mortgage-backed securities and to manage interest-rate risk. At
          December 31, 1998, the Bank held $590.8 million of mortgage-backed
          securities, $501.1 million of which were secured by loans with
          adjustable rates, $37.0 million of U.S. Government and agency
          obligations and $325.0 million of corporate trust preferred
          securities. The adjustable-rate nature of the loans underlying the
          Bank's mortgage-backed securities has assisted the Bank in managing
          its interest rate risk exposure.

     -    REVISE INTEREST RATE RISK POLICY. Management's strategy is to match
          asset and liability balances within maturity categories to limit the
          Bank's exposure to earnings variations as well as variations in the
          value of assets and liabilities as interest rates change over time.
          The Bank under prior management hedged its interest rate exposure
          externally through the use of various interest rate contracts, such as
          interest rate swaps, corridors, caps and floors. The Bank's current
          strategy is to hedge internally through the use of core transaction
          deposit accounts, FHLB advances and reverse repurchase agreements,
          together with an emphasis on investing in shorter-term or
          adjustable-rate assets. At December 31, 1998, the Company had $1.7
          billion in assets maturing or repricing within one year and $1.4
          billion in liabilities maturing or repricing within one year. As of
          such date, the Company's one-year interest rate sensitivity gap as a
          percent of total assets amounted to 8.05%.

     -    EXPAND COMMERCIAL BUSINESS AND CONSUMER LENDING. Since June 1995, the
          Bank has hired over 20 individuals with significant expertise in
          commercial and consumer lending. The increase in staffing has enabled
          the Bank to increase its commercial business and consumer loan
          originations. During the years ended December 31, 1998 and 1997, the
          Bank originated in the aggregate $94.0 million and $32.6 million of
          commercial business and consumer loans (including loans secured by
          deposits), which amounted to 15.5% and 20.3% of total loan

                                       5

<PAGE>

          originations, respectively. Management intends to continue to place
          increased emphasis on building these portfolios. Commercial business
          and consumer loans generally have shorter terms and higher interest
          rates than single-family residential loans but are generally
          considered to have a higher level of credit risk.

     -    INCREASE INTEREST-EARNING ASSETS. The Bank has and will continue to
          pursue a policy of utilizing its existing infrastructure to grow its
          loan and securities portfolios as well as its retail franchise. During
          1997, the Bank established People's Preferred Capital Corporation
          ("PPCCP"), an operating subsidiary of the Bank and a real estate
          investment trust ("REIT") for federal income tax purposes under the
          Internal Revenue Code of 1986, as amended (the "Code"), to acquire,
          hold and manage primarily mortgage assets. In connection therewith,
          the Bank has leveraged the $35.7 million of net proceeds raised in a
          public offering of preferred stock of PPCCP through wholesale
          purchases of an aggregate of $408.8 million of adjustable-rate
          single-family residential loans, which were funded by short- to
          intermediate-term FHLB advances. Because these loans were purchased
          during the initial teaser rate period, the initial weighted average
          interest rate and yield were significantly less than the fully indexed
          rate and yield. As these loans adjust to their fully indexed rate and
          yield during the balance of 1998 and early 1999, it is anticipated
          that the weighted average interest rate and weighted average yield of
          such loans will significantly increase. Such loan purchases
          significantly increased the size of the Bank's residential mortgage
          portfolio.

          Similarly, in 1998, the Company leveraged the $129.6 million of net
          proceeds raised from the Offering, primarily through $876.9 million
          wholesale purchases of primarily single-family residential loans which
          were funded by increases in deposits, intermediate-term reverse
          repurchase agreements and FHLB advances, consistent with management's
          asset and liability management strategies. As the Bank is able to grow
          its deposit accounts and increase its loan originations, management's
          strategy is to replace, over time, such wholesale borrowings with core
          deposits and replace its wholesale loan purchases with internally
          originated loans.

     -    EXPAND THE BANK'S FRANCHISE. Management of the Company is attempting
          to enhance the Bank's branch franchise by opening new offices in
          strategic markets and pursuing branch acquisitions within its market
          area when appropriate. As of December 31, 1998, the Bank operated out
          of 20 full-service branch offices located primarily in Los Angeles
          County as well as Orange and Ventura counties in Southern California.
          In addition, the Company currently operates 43 ATMs, 20 of which are
          in stand-alone facilities in various locations throughout Southern
          California. The Company may also consider whole bank acquisition
          opportunities.

     REGULATION. The Bank, as a federally chartered savings bank, is subject to
comprehensive regulation and examination by the Office of Thrift Supervision
("OTS"), as its chartering authority and primary regulator, and by the Federal
Deposit Insurance Corporation ("FDIC"), which administers the Savings
Association Insurance Fund ("SAIF"), which insures the Bank's deposits to the
maximum extent permitted by law. The Bank is a member of the FHLB of San
Francisco, which is one of the 12 regional banks which comprise the FHLB System.
The Bank is further subject to regulations of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") governing reserves required to
be maintained against deposits and certain other matters. See "Regulation."

LENDING ACTIVITIES

     GENERAL. The Company is focused on increasing the Bank's lending
activities. With the reduction in the Company's non-performing assets and the
Company's return to profitability in 1996, the Bank is again actively
originating and purchasing loans. Total loan originations and purchases have
increased from $61.7 million during the year ended December 31, 1996 to $666.4
million during the year ended December 31, 1997 and to $1.5 billion during the
year ended December 31, 1998.

     At December 31, 1998, the Bank's total loans receivable amounted to $2.1
billion, which represented 64% of the Company's $3.3 billion in total assets at
that date. The Bank has traditionally concentrated its lending activities on
conventional first mortgage loans secured by single-family residential
properties and, to a lesser extent, multi-family residential properties. At
December 31, 1998, such loans constituted $1.5 billion and $366.6 million, or
69.6 % and 17.1%, respectively, of the total loan portfolio. Substantially all
of the Bank's loan portfolio consists of conventional loans, which are loans
that are neither insured by the Federal Housing Administration nor partially
guaranteed by the 

                                       6

<PAGE>

Department of Veterans Affairs. The Bank has also historically originated to a
much lesser extent commercial real estate loans, which amounted to $206.4
million or 9.6% of the total loan portfolio at December 31, 1998. At December
31, 1998, commercial business and consumer loans (including loans secured by
deposits) amounted to $62.7 million and $57.4 million, respectively.

     The Bank has general authority to originate and purchase loans secured by
real estate located throughout the United States. Notwithstanding this
nationwide lending authority, the Bank's primary market area for originations is
Los Angeles County and, to a lesser extent, Orange and Ventura Counties in
Southern California. The Bank intends from time to time to purchase additional
loans to supplement its loan origination activity, which may include loans
secured by properties outside of the Bank's primary market area in California as
well as in other states.

     ORIGINATION, PURCHASE AND SALE OF LOANS. The lending activities of the Bank
are subject to the written, non-discriminatory underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations are obtained by a variety of sources, including
referrals from real estate brokers, existing customers, walk-in customers and
advertising. In its present marketing efforts, the Bank emphasizes its community
ties, customized personal service, competitive rates, and an efficient
underwriting and approval process. With an orientation under new management to
make the branch office network more responsive to customers needs, loan
applications now are taken at all of the Bank's branch offices. The Bank's
centralized underwriting department supervises the obtaining of credit reports,
appraisals and other documentation involved with a loan. Property valuations are
performed by the Bank's staff as well as by independent outside appraisers
approved by the Bank's Board of Directors. The Bank requires title, hazard and,
to the extent applicable, flood insurance on all security property.

     Mortgage loan applications are initially processed by loan officers who
have approval authority up to designated limits. Senior officers of the Bank who
serve on the Credit Committee acting together have additional approval
authority. All loans in excess of such designated limits are referred to the
Bank's Credit Committee, comprised of the Bank's Senior Credit Officer, the
Senior Lending Officer, the Chief Financial Officer and the Executive Vice
President of Retail Banking, which has approval authority for all loans in
excess of $1.0 million and up to $5.0 million. Any loans exceeding $5.0 million
must be approved by the Board of Directors of the Bank.

     The Bank's commercial loan officers have approval authority up to
designated limits. The commercial loan officers do all of the underwriting
associated with an application and prepare the credit authorization for
submission to the Senior Commercial Lending Officer for verification. Loans in
excess of $100,000 are referred directly to the Senior Commercial Lending
Officer who has authority to approve loans up to $500,000. The Bank's Senior
Lending Officer or Senior Credit Officer can approve loans up to $1.0 million.
Loans in excess of such amounts fall under the jurisdiction of the Credit
Committee or the Board of Directors, based on the loan amounts set forth above.

     Applications for consumer loans, as well as the Bank's smaller "business
express" loans, which range between $5,000 and $50,000, are taken in the Bank's
branches and submitted to the Vice President, Manager of the Bank's Business
Center, who has authority to approve consumer loans up to $300,000. Other
consumer loan officers have approval authority up to lesser designated amounts.

     In order to improve the Bank's balance sheet as well as due to asset and
liability management considerations, during the year ended December 31, 1997,
the Bank sold $85.2 million of single-family residential mortgage loans tied to
the FHLB 11th District Cost of Funds ("COFI") and reinvested $59.0 million of
such proceeds in one year adjustable-rate single-family residential mortgage
loans. Management used the balance of the sale proceeds to purchase $4.8 million
and $5.0 million of multi-family residential loans and a land loan,
respectively. In addition, during the last quarter of 1997, management leveraged
the capital raised in the PPCCP offering by purchasing in two transactions an
aggregate of $408.8 million of adjustable-rate single-family residential
mortgage loans. The Bank intends to focus on loan originations, but may continue
to selectively purchase residential mortgage loans that meet its underwriting
criteria from time to time in order to supplement its loan originations.

     In 1998, the Bank leveraged the capital raised from the Offering primarily
through purchases of single-family residential loans totaling $821.7 million.
Such loans were generally underwritten in accordance with the Bank's
underwriting guidelines for direct originations, and were a mix of adjustable
and fixed-rate loans.

                                       7

<PAGE>

     A savings institution generally may not make loans to any one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. At December 31, 1998, the Bank's regulatory limit
on loans-to-one borrower was $29.3 million and its five largest loans or groups
of loans-to-one borrower, including related entities, aggregated $15.0 million,
$13.1 million, $7.8 million $7.3 million and $5.0 million. All of these five
largest loans or loan concentrations were secured by commercial real estate and
multi-family residential properties, except that the $15 million loan is secured
by marketable securities and the $7.8 million loan is unsecured. All of these
loans or loan concentrations were performing in accordance with their terms at
December 31, 1998.

     SINGLE-FAMILY RESIDENTIAL REAL ESTATE LOANS. The Bank has historically
concentrated its lending activities on the origination of loans secured by first
mortgage liens on existing single-family residences. At December 31, 1998, $1.49
billion or 68% of the Bank's gross loan portfolio consisted of such loans. The
single-family residential loans originated by the Bank are generally made on
terms, conditions and documentation except for non-conforming loan size which
would permit the sale of loans to the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") and other
institutional investors in the secondary market.

     Although the Bank has historically originated its single-family residential
loans internally, in an effort to enhance its ability to originate greater
volumes of loans without increasing its staff, during 1997, the Bank entered
into agreements with various mortgage brokers with respect to the origination of
single-family residential loans. Under the terms of such agreements, the
mortgage brokers originate loans on behalf of the Bank using the Bank's loan
documents. Such loans (which generally conform except for the size of the loans
with FHLMC and FNMA resale requirements) are originated and underwritten in
accordance with the Bank's underwriting policies. Currently, the Bank originates
approximately 50% of its single-family residential loans pursuant to such
mortgage broker relationships. The Bank currently utilizes approximately 51
mortgage brokers and management believes that its single-family loan
originations are of high quality based on its scoring results (average FICO
score as of December 31, 1998 over 700). Substantially all of the single-family
residential loans originated by the Bank (either internally or through mortgage
brokers) are secured by properties located within the Bank's market area.

     Although the Bank had not been an active purchaser of single-family
residential loans, during 1997, the Bank established PPCCP as a REIT and
leveraged the capital generated from two transactions through wholesale
purchases of an aggregate of $408.8 million of adjustable-rate (based upon a
weekly average yield on U.S. Treasury securities adjusted to a constant
comparable maturity of one year) single-family residential loans, which were
funded by short- to intermediate-term FHLB advances. Such purchases
significantly increased the size of the Bank's residential mortgage portfolio.
Similarly, in 1998, the Bank leveraged the proceeds raised from the Offering
through wholesale purchases of $821.7 of single-family residential loans. As the
Bank is able to increase its loan originations, management intends to, over
time, replace its wholesale loan purchases with loans which have been originated
internally.

     The Bank currently offers fixed-rate single-family residential loans with
terms of 15 or 30 years. Such loans are amortized on a monthly basis with
principal and interest due each month. In addition to these traditional
products, the Bank offers a fixed bi-weekly pay option, which results in 26
payments per year, thereby permitting a customer to pay off the loan faster than
would otherwise be the case. At December 31, 1998, the Bank had $1.2 billion or
77% of fixed rate single-family residential loans in its single-family
residential portfolio.

     Since the 1980's, the Bank has also offered a variety of adjustable rate
single-family residential mortgage loans. Such loans generally have up to 30
year terms. Presently, the Bank offers a "5/1 Product," in which the loan is
fixed at origination for a five year period, after which the interest rate
adjusts every year in accordance with a designated index (the weekly average
yield on U.S. Treasury securities adjusted to a constant comparable maturity of
one year, as made available by the Federal Reserve Board). Such loans currently
have a 2% cap on the amount of any increase or decrease in the interest rate per
year, and a 6% limit on the amount by which the interest rate can increase or
decrease over the life of the loan. In addition, the Bank's adjustable rate
loans are currently not convertible into fixed rate loans and do not contain
prepayment penalties. Approximately 23% of the single-family residential loans
in the Bank's single-family residential loan portfolio at December 31, 1998 had
adjustable interest rates.

                                       8

<PAGE>

     Under prior management, the Bank's adjustable rate loans were tied to COFI,
which does not adjust as rapidly to changes in interest rates as the U.S.
Treasury constant comparable maturity index now utilized by the Bank. The Bank
has discontinued the use of COFI-based loans. At December 31, 1998, 51% of the
Bank's adjustable rate single-family loans were tied to COFI.

     Adjustable rate mortgage loans decrease but do not eliminate the risks
associated with changes in interest rates. Because periodic and lifetime caps
limit the interest rate adjustments, the value of adjustable rate mortgage loans
also fluctuates inversely with changes in interest rates. In addition, as
interest rates increase, the required payments by the borrower increase, thus
increasing the potential for default.

     The Bank previously offered a variety of adjustable rate programs, which
provided for interest rates which adjusted periodically based on COFI. However,
to protect borrowers from unlimited interest rate and payment increases, the
majority of these adjustable rate loans have a maximum interest rate change
("interest rate cap") from the initial reduced interest rate period and/or over
the life of the loan. In certain loan programs, these protections for borrowers
can result in monthly payments which are greater or less than the amount
required to amortize the loan by its maturity at the interest rate in effect in
any particular month. In the event that the monthly payment is not sufficient to
pay the interest accruing during the month, the deficiency is added to the
loan's principal balance ("negative amortization"). In the event that a loan
incurs significant negative amortization, there is an increased risk that the
market value of the underlying collateral on the loan may be insufficient to
fully satisfy the outstanding principal and interest. While the outstanding
balance of the loan may increase because of negative amortization, the risk of
default may be decreased as borrowers have a lower debt service burden or a debt
service requirement that increases more slowly than fully amortizing loans. In
the event that the monthly payment exceeds the amount necessary to pay the
interest accruing during the month, the excess is applied to reduce the loan's
principal balance, which would result in an earlier payoff of the loan. At
December 31, 1998, the Bank had approximately $84.1 million of single-family
residential loans with negative amortization features.

     The Bank is permitted under applicable law to lend up to 100% of the
appraised value of the real property securing a residential loan (referred to as
the loan-to-value ratio). However, if the amount of a residential loan
originated or refinanced exceeds 90% of the appraised value, the Bank is
required by federal regulations to obtain private mortgage insurance on the
portion of the principal amount that exceeds 80% of the appraised value of the
security property. Pursuant to underwriting guidelines adopted by the Board of
Directors, the Bank will generally lend up to 90% of the appraised value of the
property securing a single-family residential loan. However, the Bank generally
obtains private mortgage insurance on the principal amount that exceeds 80% of
the appraised value of the security property. For properties with an appraised
value in excess of $400,000, the Bank will generally not lend in excess of 80%.
At December 31, 1998, $19.0 million or 12.1% of the Bank's single-family
residential loans had loan-to-value ratios in excess of 80% and did not have
private mortgage insurance. In addition, as of such date, the Bank's
single-family residential loans had a weighted average loan-to-value ratio of
67.1%.

     In 1997, the Bank sold the servicing rights both with respect to
substantially all of its residential mortgage loans as well as the residential
mortgage loans which the Bank was servicing for others to Temple Inland Mortgage
Corporation (the "Residential Servicing Agent"), a wholly owned subsidiary of
Guaranty Federal Bank, F.S.B., which is wholly owned by Temple-Inland Inc., an
unrelated third party. The sale of loan servicing was predicated upon new
management's determination that it was costly and inefficient for the Bank to
service a varied collection of loan products which it no longer offered. The
Bank recognized a gain on sale of $3.2 million during the year with respect to
the Bank's loans serviced for others and an additional $5.3 million, related to
the Bank's mortgage loans, which was deferred and is being recognized over the
period of the lives of the loans.

     In connection with the Bank's sale of servicing, the Bank entered into a
servicing agreement with the Residential Servicing Agent (the "Residential
Servicing Agreement"), pursuant to which the Residential Servicing Agent will
service substantially all of such residential mortgage loans. The Bank
terminated the Forward Production Servicing Purchase and Sale Agreement with the
Residential Servicing Agent in early 1998, and the Bank began servicing all of
the residential mortgage loans it originated after February 20, 1998.

                                       9

<PAGE>

     MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. At December 31, 1998, the
Bank had an aggregate of $366.6 million and $206.4 million invested in
multi-family and commercial real estate loans, respectively, or 17% and 9% of
the gross loan portfolio, respectively. The Bank has generally targeted higher
quality, smaller commercial real estate loans with principal balances of up to
$1.0 million. In originating such loans, the Bank relies on relationships it has
developed with brokers, correspondents and mortgage brokers.

     The Bank's multi-family loans are secured by multi-family properties of
five units or more, while the Bank's commercial real estate loans are secured by
industrial, warehouse and self-storage properties, office buildings, office and
industrial condominiums, retail space and strip shopping centers, mixed-use
commercial properties, mobile home parks, nursing homes, hotels and motels.
Substantially all of these properties are located in California. The Bank will
presently originate these loans for terms of up to 10 years based upon a 20 to
25 year loan amortization period and up to 15 years for loans amortized over a
period of 15 years or less. The Bank will originate these loans on both a
fixed-rate or adjustable-rate basis, with the later based on the one year U.S.
Treasury index of constant comparable maturities. Adjustable rate loans may have
an established ceiling and floor, and the maximum loan-to-value for these loan
products is 75%. As part of the criteria for underwriting commercial real estate
loans, the Bank generally requires a debt coverage ratio (the ratio of net cash
from operations before payment of debt service to debt service) of 1.20 or more.
It is also the Bank's general policy to seek additional protection to mitigate
any weaknesses identified in the underwriting process. Additional coverage may
be provided through secondary collateral and personal guarantees from the
principals of the borrowers.

     Commercial real estate lending entails different and significant risks when
compared to single-family residential lending because such loans typically
involve large loan balances to single borrowers and because the payment
experience on such loans is typically dependent on the successful operation of
the project or the borrower's business. These risks can also be significantly
affected by supply and demand conditions in the local market for apartments,
offices, warehouses or other commercial space. The Bank attempts to minimize its
risk exposure by limiting the extent of its commercial real estate lending
generally. In addition, the Bank imposes stringent loan-to-value ratios,
requires conservative debt coverage ratios, and continually monitors the
operation and physical condition of the collateral.

     Originations of multi-family and commercial real estate loans increased 
from an aggregate of $14.8 million during the year ended December 31, 1996 to 
$40.0 million during the year ended December 31, 1997 and to $124.1 million 
during the year ended December 31, 1998. The Bank began making purchases of 
multi-family and commercial real estate loans during the year ended December 
31, 1997. Such loan purchases aggregated $17.7 million in 1997 and $23.5 
million in 1998.

     COMMERCIAL BUSINESS AND CONSUMER LOANS. The Bank is placing increased
emphasis on the development of a commercial business and consumer-lending
program within the areas serviced by its branches. Toward that end, the Bank
during 1998 hired over 20 individuals with significant expertise in commercial
and consumer credit administration and lending. Except for loans secured by
deposits, the Bank did not engage in this type of lending activity prior to
1996. During the years ended December 31, 1998 and 1997, the Bank originated
$94.0 million and $32.6 million, respectively, of commercial business and
consumer loans, which amounted to 15.5% and 20.3% of total originations during
such respective periods.

     The Bank is making and intends to make commercial business loans including
working capital lines of credit, inventory and accounts receivable loans,
equipment financing (including equipment leases), term loans and loans
guaranteed by the Small Business Administration ("SBA"). Depending on the
collateral pledged to secure the extension of credit, maximum loan-to-value
ratios are 75% or less. Loan terms may vary from one to 7 years. The interest
rates on such loans are generally variable and are indexed to the WALL STREET
JOURNAL Prime Rate, plus a margin.

     The Bank intends to grow its SBA lending business, on which loans are
guaranteed up to certain levels by the SBA. The SBA-guaranteed loans bear
adjustable rates tied to the lowest published New York prime rate, adjusted
monthly, plus a margin, which depends on the term of the loan. The loans
generally have amortization schedules of seven to 25 years, depending on the
purpose of the loan. Each loan is reviewed by the SBA and, depending on the size
of the loan and the proposed use of proceeds, the SBA establishes what
percentage of the loan it will guarantee. The guarantee cannot exceed 80% of the
loan or $750,000, whichever is less. The guarantee applies not only to the

                                       10


<PAGE>

principal, but also covers accrued interest, foreclosure costs, legal fees and
other expenses. The plans to obtain preferred lender status, which will permit
it to underwrite and close such loans much more promptly. At December 31, 1998,
approximately $12.0 million of the Bank's $62.7 million in commercial business
loans were comprised of SBA loans.

     The Bank is authorized to make loans for a wide variety of personal or
consumer purposes but had not engaged in any lending other than loans secured by
deposits for most of the 1990s. The Bank began originating home equity loans and
lines of credit and automobile loans in August 1996 in order to provide a wide
range of products and services to its customers. The Bank also offers overdraft
protection and unsecured lines of credit. At December 31, 1998, home equity
loans and lines amounted to $5.6 million. On owner-occupied homes, these loans
and lines are originated by the Bank for up to 80% of the first $350,000 of
appraised value plus up to 50% of the remainder, less the amount of any prior
liens on the property. For non-owner occupied properties, the Bank will lend up
to 75% of the first $250,000 of appraised value plus 50% of the remainder, less
the amount of existing liens on the property. Home equity loans and lines of
credit have a maximum term of 25 years and carry variable interest rates. The
Bank will secure each of these types of loans with a mortgage on the property
(generally a second mortgage).

     The Bank also originates loans secured by new and used automobiles,
primarily through an indirect lending program with automobile dealers. The
maximum term for the Bank's automobile loans is 84 months for a new luxury car
loan and 72 months with respect to a used luxury car loan. For all other models,
the maximum term is 72 months for new vehicles and 60 months for used vehicles.
The Bank will lend up to 100% of the purchase price on new car loans with a
purchase price of $25,000 or more, and up to 80% for new and used vehicles (up
to five years). On used vehicles, the Bank will finance up to 80% of the lower
of the total purchase price or 100% of the National Automobile Dealers'
Association Wholesale Blue Book Value. The Bank requires all borrowers to
maintain automobile insurance with the Bank named as loss payee. At December 31,
1998, the Bank had $41.9 million of indirect automobile loans and $2.2 million
of direct automobile loans in portfolio.

     Commercial business and consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more credit risk
than mortgage loans because of the type and nature of the collateral. In
addition, consumer lending collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be adversely
affected by job loss, divorce, illness and personal bankruptcy. The Bank
believes that the generally higher yields earned on commercial business and
consumer loans compensate for the increased credit risk associated with such
loans and the Bank intends to continue to offer such loans in order to provide a
full range of services to its customers.

INVESTMENT ACTIVITIES

     The Bank's securities portfolio is managed by the Executive Vice President
and Chief Financial Officer in accordance with a comprehensive written
Investment Policy which addresses strategies, types and levels of allowable
investments and which is reviewed and approved annually by the Board of
Directors of the Bank. The management of the securities portfolio is set in
accordance with strategies developed by the Bank's Asset/Liability Management
Committee.

     The Bank's Investment Policy authorizes the Bank to invest in U.S. Treasury
obligations (with a maturity of up to five years), U.S. agency obligations (with
a maturity of up to five years), U.S. Government agency mortgage-backed
securities (limited to no more than 50% of the Bank's total assets), bankers'
acceptances (with a maturity of 180 days or less), FHLB overnight deposits,
investment-grade corporate trust preferred obligations, investment-grade
commercial paper (with a maturity of up to nine months), federal funds (with a
maturity of one month or less), certificates of deposit in other financial
institutions (with a maturity of one year or less), repurchase agreements (with
a maturity of six months or less), reverse repurchase agreements (with a
maturity of two years or less) and certain collateralized mortgage obligations
(with a weighted average life of less than ten years).

     At December 31, 1998, the Bank's securities portfolio consisted of $590.8
million of mortgage-backed securities, $584.5 million of which were classified
as available-for-sale and $6.3 million of which were classified as
held-to-maturity, $37 million of U.S. Government agency obligations, $325
million of investment-grade trust preferred securities and $58.5 million of SBA
certificates. Of the Bank's total investment in mortgage-backed securities at

                                       11

<PAGE>

December 31, 1998, $95.5 million consisted of Government National Mortgage
Association ("GNMA") certificates, $262.2 million consisted of FNMA
certificates, $153.9 million consisted of non-agency certificates and $79.2
million consisted of FHLMC certificates. Of the $590.8 million of
mortgage-backed securities at December 31, 1998, $90 million consisted of
fixed-rate securities and $501.1 million consisted of adjustable-rate
securities. Of the Bank's $37 million of U.S. Government and federal agency
obligations at December 31, 1998, none were scheduled to mature within one
through five years thereof, $37 million were scheduled to mature after five
through ten years thereof and none were scheduled to mature after ten years. Of
the Bank's $974.2 million of mortgage-backed and other securities
available-for-sale as well as held-to-maturity at December 31, 1998, none were
scheduled to mature within one year thereof, $59.6 million were scheduled to
mature after one through five years thereof, $192.6 million were scheduled to
mature after five through ten years thereof and $722.0 million were scheduled to
mature after ten years.

     Under new management, the Bank has significantly increased its purchases of
primarily adjustable-rate mortgage-backed securities with interest rate
adjustments tied to the U.S. Treasury index of constant comparable maturity. The
Bank's aggregate securities portfolio, net of repayments and prepayments and
sales, increased by $67.6 million or 13.2% between 1996 and 1997 and increased
by $430.4 million or 74.1% during 1998. At December 31, 1998, such portfolio
amounted to $1.0 billion.

     Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) represent a participation interest in
a pool of single-family or multi-family mortgages, the principal and interest
payments on which are passed from the mortgage originators, through
intermediaries (generally U.S. Government agencies and government sponsored
enterprises) that pool and repackage the participation interests in the form of
securities, to investors such as the Bank. Such U.S. Government agencies and
government sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the GNMA.

     The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 Federal Home Loan Banks and federally insured savings
institutions. The FHLMC issues participation certificates backed principally by
conventional mortgage loans. The FHLMC guarantees the timely payment of interest
and the ultimate return of principal within one year. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for conventional mortgage loans. The FNMA guarantees the timely
payment of principal and interest on FNMA securities. FHLMC and FNMA securities
are not backed by the full faith and credit of the United States, but because
the FHLMC and the FNMA are U.S. Government-sponsored enterprises, these
securities are considered to be among the highest quality investments with
minimal credit risks. The GNMA is a government agency which is intended to help
finance government-assisted housing programs. GNMA securities are backed by
FHA-insured and VA-guaranteed loans, and the timely payment of principal and
interest on GNMA securities are guaranteed by the GNMA and backed by the full
faith and credit of the U.S. Government. Because the FHLMC, the FNMA and the
GNMA were established to provide support for low- and middle-income housing,
there are limits to the maximum size of loans that qualify for these programs.
For example, the FNMA and the FHLMC currently limit their loans secured by a
single-family, owner-occupied residence to $240,000. To accommodate larger-sized
loans, and loans that, for other reasons, do not conform to the agency programs,
a number of private institutions have established their own home-loan
origination and securitization programs.

     Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
characteristics of the underlying pool of mortgage, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security thus approximates
the life of the underlying mortgages.

SOURCES OF FUNDS

     SENIOR DEBT OF THE COMPANY. In June 1995, the Company issued $10.0 million
aggregate principal amount of unsecured senior notes in conjunction with the
1995 recapitalization. The senior notes contain an initial pay rate and accrual
rate of 7% and 10.75%, respectively, and the accrual rate increased to 11.15% on
June 30, 1996. The difference between the pay rate and accrual rate is deferred
and compounded annually at the accrual rate commencing on June 30, 

                                       12

<PAGE>

1996. Interest of approximately $1.8 million, calculated at the pay rate of 7%,
was paid on September 30, 1997 for the period from issuance of the senior notes
to that date. Beginning with the quarter ended December 31, 1997, interest at
the pay rate was payable quarterly. The Company repaid the outstanding balance,
plus accrued interest, in connection with the Offering.

     THE BANK'S SOURCES OF FUNDS GENERALLY. The Bank will consider various
sources of funds to fund its investing and lending activities and evaluates the
available sources of funds in order to reduce the Bank's overall funding costs,
subject to the Bank's asset and liability management policies. Deposits, reverse
repurchase agreements, advances from the FHLB of San Francisco, and sales,
maturities and principal repayments on loans and securities have been the major
sources of funds for use in the Bank's lending and investing activities, and for
other general business purposes. Management of the Bank closely monitors rates
and terms of competing sources of funds on a daily basis and utilizes the source
which it believes to be the most cost effective, consistent with the Bank's
asset and liability management policies. Products are priced each week through
the Bank's Asset Liability Management Committee.

     DEPOSITS. The Bank attempts to price its deposits in order to promote
deposit growth and offers a wide array of deposit products in order to satisfy
its customers' needs. The Bank's current deposit products include passbook
accounts, negotiable order of withdrawal ("NOW") accounts, money market deposit
accounts, fixed rate, fixed-maturity retail certificates of deposit ranging in
terms from 90 days to five years, individual retirement accounts, and non-retail
certificates of deposit consisting of jumbo (generally greater than $100,000)
certificates and public deposits.

     The Bank's retail deposits are generally obtained from residents in its
primary market area. The principal methods currently used by the Bank to attract
deposit accounts include offering a wide variety of products and services and
competitive interest rates. The Bank utilizes traditional marketing methods to
attract new customers and savings deposits, including various forms of
advertising. Although the Bank has in the past utilized the services of deposit
brokers to attract out-of-market, institutional certificates of deposit, the
Bank has allowed such brokered deposits to run off as they mature and is not
accepting any new brokered deposits.

     The Bank currently operates a total of 43 ATMs, of which 20 are in
stand-alone facilities. The Bank recently began to operate 20 of such ATMs
within a chain of health clubs located in Southern California. The Bank also has
an option to install and operate up to an additional three ATMs within such
chain of health clubs. As of June 30, 1998, after giving effect to the
consolidation activity in California, the Bank ranked seventh in terms of thrift
deposit market share in Los Angeles, Orange and Ventura Counties.

     BORROWINGS. The Bank obtains both fixed and variable rate long- and
short-term advances from the FHLB of San Francisco upon the security of certain
of its residential first mortgage loans and other assets, provided certain
standards related to creditworthiness of the Bank have been met. FHLB of San
Francisco advances are available for general business purposes to expand lending
and investing activities. Borrowings have generally been used to fund the
purchase of mortgage-backed and investment securities or lending activities and
have been collateralized with a pledge of loans, securities in the Bank's
portfolio or any mortgage-backed or investment securities purchased.

     Advances from the FHLB of San Francisco are made pursuant to several
different credit programs, each of which has its own interest rate and range of
maturities. At December 31, 1998, the Bank had total FHLB of San Francisco
advances of $1.2 billion at a weighted average interest rate of 5.38%, $14
million of which matures in 1999, $185 million of which matures in 2000, $25
million of which matures in 2001, $139 million of which matures in 2002, $525 of
which matures in 2003 and the remaining $310 million of which matures in 2008.
FHLB advances increased by $726 million during 1998, as the Bank leveraged the
capital raised in the Company's Offering. The Bank used such FHLB advances to
fund the wholesale purchase of $464.5 million of adjustable-rate single-family
residential mortgage loans and $357.2 million of fixed rate single-family
residential mortgage loans.

     Since 1996, the Bank has increasingly relied on obtaining funds from the
sale of securities to investment dealers under reverse repurchase agreements. At
December 31, 1998, reverse repurchase agreements amounted to $364 million, as
compared to $340.8 million and $192.4 million at December 31, 1997 and 1996,
respectively. As of December 31, 1998, the weighted average remaining term to
maturity of the Bank's reverse repurchase agreements was 3.73 years compared to
2.71 years at December 31, 1997, and such reverse repurchase agreements had a
weighted average interest 

                                       13

<PAGE>

rate of 5.61% compared to 5.76% and 5.49% at December 31, 1997 and 1996,
respectively. In a reverse repurchase agreement transaction, the Bank will
generally sell a mortgage-backed security agreeing to repurchase either the same
or a substantially identical security on a specified later date (which range in
maturity from overnight to ten years) at a price greater than the original sales
price. The difference in the sale price and purchase price is the cost of the
use of the proceeds. The mortgage-backed securities underlying the agreements
are delivered to the dealers who arrange the transactions. For agreements in
which the Bank has agreed to repurchase substantially identical securities, the
dealers may sell, loan or otherwise dispose of the Bank's securities in the
normal course of their operations. However, such dealers or third party
custodians safe-keep the securities which are to be specifically repurchased by
the Bank. Reverse repurchase agreements represent a competitive cost short-term
funding source for the Bank. Nevertheless, the Bank is subject to the risk that
the lender may default at maturity and not return the collateral. The amount at
risk is the value of the collateral which exceeds the balance of the borrowing.
In order to minimize this potential risk, the Bank only deals with large,
established U.S. investment brokerage firms when entering into these
transactions. Reverse repurchase transactions are accounted for as financing
arrangements rather than sales of securities, and the obligation to repurchase
such securities is reflected as a liability in the Company's Consolidated
Financial Statements.

COMPETITION

     The Bank experiences significant competition in both attracting and
retaining deposits and in originating real estate and consumer loans.

     The Bank competes with other thrift institutions, commercial banks,
insurance companies, credit unions, thrift and loan associations, money market
mutual funds and brokerage firms in attracting and retaining deposits.
Competition for deposits from large commercial banks is particularly strong.
Many of the nation's thrift institutions and many large commercial banks have a
significant number of branch offices in the areas in which the Bank operates.

     In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic factors such as interest rates, interest rate
caps, rate adjustment provisions, loan maturities, loan-to-value ("LTV") ratios,
loan fees, and the amount of time it takes to process a loan from receipt of the
loan application to date of funding. The Bank's future performance is dependent
on its ability to originate a sufficient volume of loans in its local market
areas. There can be no assurance that the Bank will be able to effect such
actions on satisfactory terms.

ASSET QUALITY

     GENERAL. During 1995 and 1996, the Bank's new management reorganized the
Bank's loan review function through the implementation of an internal asset
review system. The Bank created an internal asset review committee and
established loan review and special assets departments and revised its loan
underwriting, credit, collection and monitoring procedures. New management
initiated a policy to take title to non-performing assets as promptly as
practicable and improve the properties' physical condition where appropriate so
that marketing efforts may be commenced. In the case of commercial properties,
management takes steps to enhance net operating income with respect to its
properties in order to command a better sales price. The Bank's future results
of operations will be significantly affected by its ability to continue to
maintain its reduced level of non-performing assets without incurring additional
material losses.

     LOAN DELINQUENCIES. When a borrower fails to make a required payment on a
loan, the Bank attempts to cure the deficiency by contacting the borrower and
seeking payment. Contacts are generally made following the grace period after a
payment is due, which is generally ten days on commercial loans and 15 days on
residential loans. At such time, a late payment fee is assessed. In most cases,
deficiencies are cured promptly. If a delinquency extends past the applicable
grace period, the loan file and payment history are reviewed and continued
efforts are made to collect the loan. In the event that no contact with the
borrower is made, or no payment is received by the end of the grace period, a
Notice of Intent to Foreclose ("Notice") is sent. Depending upon the scheduled
payment date, this Notice is sent no later than 30 days after the due date for
residential loans and no later than 15 days after the due date for commercial

                                       14

<PAGE>

loans.

     Under the Bank's management team, the accounts are monitored on a weekly
basis by the servicing department. With respect to commercial loans, a trial
balance is updated weekly, and those accounts that are identified as being past
the due date are assigned to staff to begin the collection process. With respect
to commercial loans, delinquent reports and a listing of those accounts for
which a Notice has been issued are sent to senior management and the Special
Assets Department to provide advance information as to potential problems which
may fall under their Department in the coming quarter. Generally when an account
becomes 90 days delinquent, the Bank institutes foreclosure or other
proceedings, as necessary, to minimize any potential loss.

     NON-PERFORMING ASSETS. With respect to residential mortgage loans, as
described under "--Single-family Residential Real Estate Loans," the Residential
Servicing Agent or other servicers services a substantial amount of the Bank's
loan portfolio. The Bank began servicing all of the residential mortgage loans
it originated after February 20, 1998. The Bank began servicing all of the
residential mortgage loans it originated after February 20, 1998. The
Residential Servicing Agreement requires the Residential Servicing Agent to
foreclose upon or otherwise comparably convert the ownership of properties
securing such residential mortgage loans as come into and continue in default
and as to which no satisfactory agreements can be made for collection of
delinquent payments. When residential mortgage loans handled by the Residential
Servicing Agent go into non-accrual status, the Bank may request that they be
transferred back to the Bank. All loans serviced by the Residential Servicing
Agent which become real estate owned are automatically transferred to the Bank.

     All commercial loans held in the Bank's portfolio are reviewed on a regular
basis to determine any potential problems. Monthly committee meetings are held
to identify problem assets and to set forth a strategy for the mitigation of
loss and the resolution of the problem. Loans are placed on non-accrual status
if management has substantive doubts about payment in full of both principal and
interest, or if principal and interest is contractually in default for a period
of 90 days or more. The Bank provides an allowance for the loss of previously
accrued but uncollected interest on all non-accrual loans. Typically, after a
collection problem has necessitated the issuance of a Notice, the Special Assets
Department will review and recommend the selection and an appointment of a
receiver. The Bank's current policy is to have a receiver appointed at the
expiration of the Notice, which is 10 days after issuance, unless some type of
formal, written agreement with the borrower has been arranged.

     The receiver has specific criteria to fulfill with respect to the
management of the property on behalf of the Bank. The first responsibility is to
gain control of the cash generated from the property. The receiver is
responsible for all collection activity. In addition, the receiver is required
to prepare forward forecasting with respect to occupancy and potential rent
collections. Approximately 30 to 60 days after a receiver is appointed, the Bank
will order a third party appraisal report. The information pertaining to the
property operations will be supplied to the appraiser by the receiver. The
in-house appraisal department reviews the third party appraisal report for
accuracy and reasonableness of assumptions.

     The receiver and the Bank work together in preparing a budget for potential
repairs and maintenance, as well as capital expenditure items needed at the
property. It is the policy of the Bank to instruct the receiver to utilize all
net operating income available to restore the property or units of current
vacancy to "lease ready" condition.

     A review of the collateral value is performed to determine if sufficient
equity exists to repay the indebtedness in the event of a foreclosure and
subsequent sale of the property. The valuation is prepared by the account
officer assigned to review the credit facility. The valuation is performed under
two scenarios. First, a review of the current market conditions of similar
properties within the collateral property's market is completed to ascertain
comparable rent and sale data. Second, a discounted cash flow analysis is
prepared, utilizing current investor return requirements and capitalization
rates. Once a value for the property has been estimated based upon its ability
to generate cash flow, expenses associated with the sale of the property, such
as broker commissions and closing costs are deducted from the estimated value. A
comparison of this amount is made to the loan balance to determine whether a
specific allowance or a write-off is appropriate.

     During this on-going process, the Bank and the receiver will identify and
catalogue any potential purchasers 

                                       15

<PAGE>

who call and express an interest in the property prior to the Bank taking title.
Once title is transferred, the Bank will then begin the process of contacting
those entities that previously expressed an interest to confirm that interest
and proceed with the qualification stage.

     REAL ESTATE OWNED. Real estate acquired through foreclosure is carried at
the estimated fair value less estimated selling expenses at the date of
transfer. A loan charge-off is recorded for any writedown in the loan's carrying
value to fair value at the date of transfer. Real estate loss provisions are
recorded if the properties' estimated fair value subsequently declines below the
value determined at the recording date. In determining the fair value at
acquisition, costs relating to development and improvement of property are
considered. Costs relating to holding real estate acquired through foreclosure,
net of rental income, are charged against earnings as incurred.

     In preparing a real estate owned property to be marketed for sale, certain
repairs are undertaken and other repair items are left as negotiating points
pertaining to the sale contract. The Bank may offer to adjust the sale price for
such minor repair items, or may offer to deliver the property in a repaired
state. As part of the disposition strategy, the Bank may offer financing at
current market terms to qualified buyers of the real estate owned. Generally,
the Bank requires that the purchaser/borrowing entity provide a minimum of 20%
cash toward the purchase of the property. Terms offered are similar to terms
being offered on other new originations and at comparable rates. The Special
Assets Department makes great efforts to ensure that the underwriting for a loan
to facilitate is comparable to other new loan production, and that the
transactions are done at arms-length and reflect fair market.

     TROUBLED DEBT RESTRUCTURING. A loan constitutes a troubled debt
restructuring ("TDR") if the Bank, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that it
would not otherwise consider. Among other things, a TDR involves the
modification of terms of the loan, including a reduction of the interest rate,
an extension of the maturity date at a stated interest rate lower than the
current market for new loans with similar risk, a reduction of the face amount
of the loan or a reduction of accrued interest. The Bank provides an allowance
for the loss of previously accrued but uncollected interest on these, as well as
non-accrual loans. Currently, the Bank's TDR's consist of loans collateralized
by single- and multi-family residential properties. The majority of these
restructurings were entered into during the early 1990's when economic
conditions in California were severely depressed or in conjunction with damage
to the collateral properties caused by the Northridge earthquake. Management's
decision to provide such restructurings was based upon both an internal
assessment of the situation and a consensus of other lenders in California who
believed that this resolution would be the most effective mitigating measure.
Management considers all loans formerly treated as TDRs to be impaired loans in
the year of restructuring. Generally, such loans, as well as those previously
placed on non-accrual status, are returned to accrual status when the borrower
has had a period of repayment performance for twelve consecutive months.

     Under the Bank's new management, the Bank has aggressively focused on
problem asset rehabilitation, and has undertaken a number of initiatives in this
area. The Bank has established an Internal Asset Review Committee, which is
comprised of the Chief Executive Officer, the Chief Financial Officer, the
Senior Lending Officer, the Senior Credit Officer, and the Vice President and
Loan Review Officer. The Committee meets at least monthly and monitors the
Bank's assets to ensure proper classification. All multi-family and commercial
assets in excess of $500,000, regardless of performance, are reviewed at least
once each year. Assets that are classified as special mention are reviewed every
six months and those assets classified as substandard are reviewed every three
months and, if collateral dependent, a market value analysis is performed on the
property to determine whether valuation allowances are required. Loans that are
non-performing, subject to workout or forbearance or classified substandard are
monitored and managed through the Senior Credit Officer. Assets that are
foreclosed and become real estate owned continue to be managed by the Senior
Credit Officer through resolution.

SUBSIDIARIES

     The Bank is permitted to invest up to 2% of its assets in the capital stock
of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
primarily for community development purposes. In addition, the Bank is permitted
to make an unlimited investment in one or more operating subsidiaries, which are
permitted to engage only in activities that the Bank may undertake directly.
PPCCP is such an operating subsidiary of the Bank. As of December 31, 1998, the
Bank maintained one operating subsidiary, 

                                       16

<PAGE>

four direct service corporations and one indirect service corporation subsidiary
consisting of SoCal Mortgage Corporation ("SMC"), Direct Investment Company of
Southern California ("DIC"), SCP Investments, Inc. ("SCP"), Continental
Development of California, Inc. ("CDC") and SCS Insurance Services, Inc.
("SCS"). At December 31, 1998, the Bank's investment in its five service
corporation subsidiaries amounted to $39.6 million in the aggregate.

     PPCCP was established as an operating subsidiary of the Bank in 1997 to
acquire, hold and manage primarily mortgage assets and to operate in a manner so
as to quality as a REIT for federal income tax purposes under the Code,
commencing with its taxable year ending December 31, 1997. In October 1997,
PPCCP commenced its operations upon consummation of a public offering of
1,426,000 shares of its 9.75% Noncumulative Exchangeable Preferred Stock, Series
A (the "Series A Preferred Shares"), at a liquidation preference of $25.00 per
share. The Series A Preferred Shares are traded on the Nasdaq National Market
under the symbol "PPCCP."

     SMC is an inactive corporation which was formed in 1987 to originate
mortgage loans. However, SMC has never conducted any business since it was
organized. DIC was formed in 1987 to acquire, develop, construct and sell real
estate developments and is currently inactive. DIC owns 100% of the capital
stock of SCP which was formed in 1989 to invest in various real estate
development projects. In 1998 SCP sold the Bank's last remaining real estate
development project consisting of 62 acres of vacant land located in Corona,
California.

     CDC was formed in 1969 for the purpose of acquiring, developing,
constructing and selling real estate developments. CDC does not currently hold
any real estate and CDC's sole operation consists of acting as trustee under the
Bank's deeds of trust with respect to its mortgage lending.

     SCS was formed in 1984 in order to sell, through the Bank's branch offices,
annuities and various other investments as well as other insurance products to
the Bank's account holders and members of the general public. During the years
ended December 31, 1998, 1997 and 1996, SCS recognized net earnings of $434,000,
$362,000 and $336,000, respectively.

REGULATION

     The Bank is a federally chartered and insured stock savings bank subject to
extensive regulation and supervision by the OTS, as the primary federal
regulator of savings associations, and the FDIC, as the administrator of the
SAIF.

     The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings associations and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description of
these provisions or their effects on the Company or the Bank, is qualified in
its entirety by reference to the particular statutory or regulatory provisions
or proposals.

REGULATION OF SAVINGS AND LOAN  HOLDING COMPANIES

     The Company is a registered savings and loan holding company. The Home
Owners' Loan Act, as amended ("HOLA"), and OTS regulations generally prohibit a
savings and loan holding company, without prior OTS approval, from acquiring,
directly or indirectly, the ownership or control of any other savings
association or savings and loan holding company, or all, or substantially all,
of the assets or more than 5% of the voting shares thereof. These provisions
also prohibit, among other things, any director or officer of a savings and loan
holding company, or any individual who owns or controls more than 25% of the
voting shares of such holding company, from acquiring control of any savings
association not a subsidiary of such savings and loan holding company, unless
the acquisition is approved by the OTS.

     HOLDING COMPANY ACTIVITIES. The Company currently operates as a unitary
savings and loan holding company. Generally, there are limited restrictions on
the activities of a unitary savings and loan holding company and its non-savings
association subsidiaries. If the Company ceases to be a unitary savings and loan
holding company, the activities of the Company and its non-savings association
subsidiaries would thereafter be subject to substantial restrictions.

                                       17

<PAGE>

     The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least 30 days' advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock, or else such dividend will be invalid.

     AFFILIATE RESTRICTIONS. Transactions between a savings association and its
"affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act. Affiliates of a savings
association include, among other entities, the savings association's holding
company and companies that are under common control with the savings
association.

     In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount equal
to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.

     In addition, under the OTS regulations, a savings association may not make
a loan or extension of credit to an affiliate unless the affiliate is engaged
only in activities permissible for bank holding companies; a savings association
may not purchase or invest in securities of an affiliate other than shares of a
subsidiary; a savings association and its subsidiaries may not purchase a
low-quality asset from an affiliate; and covered transactions and certain other
transactions between a savings association or its subsidiaries and an affiliate
must be on terms and conditions that are consistent with safe and sound banking
practices. With certain exceptions, each loan or extension of credit by a
savings association to an affiliate must be secured by collateral with a market
value ranging from 100% to 130% (depending on the type of collateral) of the
amount of the loan or extension of credit.

     The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to treat
such subsidiaries as affiliates. The regulation also requires savings
associations to make and retain records that reflect affiliate transactions in
reasonable detail, and provides that certain classes of savings associations may
be required to give the OTS prior notice of transactions with affiliates.

REGULATION OF FEDERAL SAVINGS BANKS

     As a federally insured savings bank, lending activities and other
investments of the Bank must comply with various statutory and regulatory
requirements. The Bank is regularly examined by the OTS and must file periodic
reports concerning its activities and financial condition.

     Although the OTS is the Bank's primary regulator, the FDIC has "backup
enforcement authority" over the Bank. The Bank's eligible deposit accounts are
insured by the FDIC under the SAIF, up to applicable limits.

     FEDERAL HOME LOAN BANKS. The Bank is a member of the FHLB System. Among
other benefits, FHLB membership provides the Bank with a central credit
facility. The Bank is required to own capital stock in an FHLB in an amount
equal at least 1% of its aggregate unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each calendar
year or 5% of its advances from the FHLB, whichever is greater.

     LIQUID ASSETS. Under OTS regulations, for each calendar month, a savings
bank is required to maintain an average daily balance of liquid assets
(including cash, certain time deposits and savings accounts, bankers'
acceptances, certain government obligations and certain other investments) not
less than a specified percentage of the average daily balance of its net
withdrawable deposit accounts and borrowings payable in one year or less. This
liquidity requirement, 

                                       18

<PAGE>

which is currently at 4.0%, may be changed from time to time by the OTS to any
amount between 4.0% to 10.0%, depending upon certain factors. The Bank maintains
liquid assets in compliance with these regulations.

     REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require savings
banks to satisfy minimum capital standards: risk-based capital requirements, a
leverage requirement and a tangible capital requirement. Savings banks must meet
each of these standards in order to be deemed in compliance with OTS capital
requirements. In addition, the OTS may require a savings association to maintain
capital above the minimum capital levels.

     All savings banks are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal to
8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items). In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings bank is required to maintain
core capital equal to a minimum of 3% of adjusted total assets. (In addition,
under the prompt corrective action provisions of the OTS regulations, all but
the most highly-rated institutions must maintain a minimum leverage ratio of 4%
in order to be adequately capitalized.) A savings bank is also required to
maintain tangible capital in an amount at least equal to 1.5% of its adjusted
total assets.

     These capital requirements are viewed as minimum standards by the OTS, 
and most institutions are expected to maintain capital levels well above the 
minimum. In addition, the OTS regulations provide that minimum capital levels 
higher than those provided in the regulations may be established by the OTS 
for individual savings associations, upon a determination that the savings 
association's capital is or may become inadequate in view of its 
circumstances. The OTS regulations provide that higher individual minimum 
regulatory capital requirements may be appropriate in circumstances where, 
among others: (1) a savings association has a high degree of exposure to 
interest rate risk, prepayment risk, credit risk, concentration of credit 
risk, certain risks arising from nontraditional activities, or similar risks 
or a high proportion of off-balance sheet risk; (2) a savings association is 
growing, either internally or through acquisitions, at such a rate that 
supervisory problems are presented that are not dealt with adequately by OTS 
regulations; and (3) a savings association may be adversely affected by 
activities or condition of its holding company, affiliates, subsidiaries or 
other persons or savings associations with which it has significant business 
relationships. The Bank is not subject to any such individual minimum 
regulatory capital requirement.

     The Bank's Tier-1 risk-based capital ratio was 11.48%, its leverage capital
ratio was 6.30% and its total risk-based capital ratio was 12.36% at December
31, 1998.


     CERTAIN CONSEQUENCES OF FAILURE TO COMPLY WITH REGULATORY CAPITAL
REQUIREMENTS. A savings bank's failure to maintain capital at or above the
minimum capital requirements may be deemed an unsafe and unsound practice and
may subject the savings bank to enforcement actions and other proceedings. Any
savings bank not in compliance with all of its capital requirements is required
to submit a capital plan that addresses the bank's need for additional capital
and meets certain additional requirements. While the capital plan is being
reviewed by the OTS, the savings bank must certify, among other things, that it
will not, without the approval of its appropriate OTS Regional Director, grow
beyond net interest credited or make capital distributions. If a savings bank's
capital plan is not approved, the bank will become subject to additional growth
and other restrictions. In addition, the OTS, through a capital directive or
otherwise, may restrict the ability of a savings bank not in compliance with the
capital requirements to pay dividends and compensation, and may require such a
bank to take one or more of certain corrective actions, including, without
limitation: (i) increasing its capital to specified levels, (ii) reducing the
rate of interest that may be paid on savings accounts, (iii) limiting receipt of
deposits to those made to existing accounts, (iv) ceasing issuance of new
accounts of any or all classes or categories except in exchange for existing
accounts, (v) ceasing or limiting the purchase of loans or the making of other
specified investments, and (vi) limiting operational expenditures to specified
levels.

     The HOLA permits savings banks not in compliance with the OTS capital
standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings bank still may be subject to
enforcement actions for other violations of law or unsafe or unsound practices
or conditions.

     PROMPT CORRECTIVE ACTION. The prompt corrective action regulation of the
OTS, promulgated under the Federal 

                                       19

<PAGE>

Deposit Insurance Corporation Improvement Act of 1991, requires certain
mandatory actions and authorizes certain other discretionary actions to be taken
by the OTS against a savings bank that falls within certain undercapitalized
capital categories specified in the regulation. The regulation establishes five
categories of capital classification: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Under the regulation, the ratio of total capital
to risk-weighted assets, core capital to risk-weighted assets and the leverage
ratio are used to determine an institution's capital classification. At December
31, 1998, the Bank met the capital requirements of a "well capitalized"
institution under applicable OTS regulations.

     ENFORCEMENT POWERS. The OTS and, under certain circumstances, the FDIC,
have substantial enforcement authority with respect to savings associations,
including authority to bring various enforcement actions against a savings
association and any of its "institution-affiliated parties" (a term defined to
include, among other persons, directors, officers, employees, controlling
stockholders, agents and stockholders who participate in the conduct of the
affairs of the institution). This enforcement authority includes, without
limitation: (i) the ability to terminate a savings association's deposit
insurance, (ii) institute cease-and-desist proceedings, (iii) bring suspension,
removal, prohibition and criminal proceedings against institution-affiliated
parties, and (iv) assess substantial civil money penalties. As part of a
cease-and-desist order, the agencies may require a savings association or an
institution-affiliated party to take affirmative action to correct conditions
resulting from that party's actions, including to make restitution or provide
reimbursement, indemnification or guarantee against loss restrict the growth of
the institution and rescind agreements and contracts.

     CAPITAL DISTRIBUTION REGULATION. In addition to the prompt corrective
action restriction on paying dividends, OTS regulations limit certain "capital
distributions" by OTS-regulated savings associations. Capital distributions
currently are defined to include, in part, dividends and payments for stock
repurchases and cash-out mergers.

     Under the current regulation, an association that meets its fully phased-in
capital requirements both before and after a proposed distribution and has not
been notified by the OTS that it is in need of more than normal supervision (a
"Tier 1 association") may, after prior notice to but without the approval of the
OTS, make capital distributions during a calendar year up to the higher of: (i)
100% of its net income to date during the calendar year plus 50% of its surplus
capital ratio at the beginning of the calendar year, or (ii) 75% of its net
income over the most recent four-quarter period. A Tier 1 association may make
capital distributions in excess of the above amount if it gives notice to the
OTS and the OTS does not object to the distribution. A savings association that
meets its regulatory capital requirements both before and after a proposed
distribution but does not meet its fully phased-in capital requirement (a "Tier
2 association") is authorized, after prior notice to the OTS but without OTS
approval, to make capital distributions in an amount up to 75% of its net income
over the most recent four-quarter period, taking into account all prior
distributions during the same period. Any distribution in excess of this amount
must be approved in advance by the OTS. A savings association that does not meet
its current regulatory capital requirements (a "Tier 3 association") cannot make
any capital distribution without prior approval from the OTS, unless the capital
distribution is consistent with the terms of a capital plan approved by the OTS.

     At December 31, 1998, the Bank qualified as a Tier 1 association for
purposes of the capital distribution rule. The OTS may prohibit a proposed
capital distribution that would otherwise be permitted if the OTS determines
that the distribution would constitute an unsafe or unsound practice. The
requirements of the capital distribution regulation supersede less stringent
capital distribution restrictions in earlier agreements or conditions.


     In January 1999, the OTS amended its capital distribution regulation to
bring such regulations into greater conformity with the other bank regulatory
agencies. Under the regulation, certain savings associations would not be
required to file notice with the OTS. Specifically, savings associations that
are well capitalized following a capital distribution would not be subject to
any requirement for notice or application unless the total amount of all capital
distributions, including any proposed capital distribution, for the applicable
calendar year would exceed an amount equal to the savings association's net
income for that year to date plus the savings association's retained net income
for the preceding two years. However, because the Bank is a subsidiary of a
savings and loan holding company, the Bank is required to give the OTS at least
30 days notice prior to any capital distribution.

     QUALIFIED THRIFT LENDER TEST. In general, savings associations are required
to maintain at least 65% of their portfolio assets in certain qualified thrift
investments (which consist primarily of loans and other investments related 

                                       20

<PAGE>

to residential real estate and certain other assets). A savings association that
fails the qualified thrift lender test is subject to substantial restrictions on
activities and to other significant penalties. A savings association may qualify
as a qualified thrift lender not only by maintaining 65% of portfolio assets in
qualified thrift investments (the "QTL test") but also, in the alternative, by
qualifying under the Internal Revenue Code as a "domestic building and loan
association." The Bank is a domestic building and loan association as defined in
the Code.

     FDIC ASSESSMENTS. The deposits of the Bank are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the OTS an opportunity to take such
action.

     Under FDIC regulations, institutions are assigned to one of three capital
groups for insurance premium purposes -- "well capitalized," "adequately
capitalized" and undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
above. These three groups are then divided into subgroups which are based on
supervisory evaluations by the institution's primary federal regulator,
resulting in nine assessment classifications. Effective January 1, 1997,
assessment rates for both SAIF-insured institutions and BIF-insured institutions
ranged from 0% of insured deposits for well-capitalized institutions with minor
supervisory concerns to .27% of insured deposits for undercapitalized
institutions with substantial supervisory concerns. In addition, an additional
assessment of 6.4 basis points and 1.3 basis points is added to the regular
SAIF-assessment and the regular BIF-assessment, respectively, until December 31,
1999 in order to cover Financing Corporation debt service payments.

     Both the SAIF and the BIF are required by law to attain and thereafter
maintain a reserve ratio of 1.25% of insured deposits. The BIF has achieved the
required reserve ratio, and as a result, the FDIC reduced the average deposit
insurance premium paid by BIF-insured banks to a level substantially below the
average premium previously paid by savings institutions. Banking legislation was
enacted on September 30, 1996 to eliminate the premium differential between
SAIF-insured institutions and BIF-insured institutions. The legislation provided
that all insured depository institutions with SAIF-assessable deposits as of
March 31, 1995 pay a special one-time assessment to recapitalize the SAIF.
Pursuant to this legislation, the FDIC promulgated a rule that established the
special assessment necessary to recapitalize the SAIF at 65.7 basis points of
SAIF-assessable deposits held by affected institutions as of March 31, 1995.
However, as a result of the Bank's financial condition, the Bank made
application to the FDIC for an exemption from this one-time special assessment,
which exemption was approved on October 5, 1996. As a result, the Bank was
exempt from paying the special one-time assessment and instead, paid subsequent
assessments at the assessment rate schedule in effect as of June 30, 1995.
However, upon consummation of the Offering, the Bank used $4.5 million of the
proceeds from the Offering to pay the FDIC the special assessment which the Bank
had previously received permission from the OTS to defer.

     The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it 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, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. There are no pending proceedings to terminate the deposit insurance of
the Bank.

     COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings institutions
have a responsibility under the CRA, and related regulations of the OTS to help
meet the credit needs of their communities, including low-and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of CRA could, at a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Fair Lending Laws could result in
enforcement 

                                       21

<PAGE>

actions by the OTS, as well as other federal regulatory agencies and the
Department of Justice.

     NEW SAFETY AND SOUNDNESS GUIDELINES. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial, as well as compensation matters for insured
financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions.

     CHANGE OF CONTROL. Subject to certain limited exceptions, no company can
acquire control of a savings association without the prior approval of the OTS,
and no individual may acquire control of a savings association if the OTS
objects. Any company that acquires control of a savings association becomes a
savings and loan holding company subject to extensive registration, examination
and regulation by the OTS. Conclusive control exists, among other ways, when an
acquiring party acquires more than 25% of any class of voting stock of a savings
association or savings and loan holding company, or controls in any manner the
election of a majority of the directors of the company. In addition, a
rebuttable presumption of control exists if, among other things, a person
acquires more than 10% of any class of a savings association or savings and loan
holding company's voting stock (or 25% of any class of stock) and, in either
case, any of certain additional control factors exist.

     Under recent legislation, companies subject to the Bank Holding Company Act
of 1956, as amended, that acquire or own savings associations are no longer
defined as savings and loan holding companies under the HOLA and, therefore, are
not generally subject to supervision and regulation by the OTS. OTS approval is
no longer required for a bank holding company to acquire control of a savings
association, although the OTS has a consultative role with the FRB in
examination, enforcement and acquisition matters.

TAXATION

     FEDERAL TAXATION. The Company is subject to those rules of federal income
taxation generally applicable to corporations under the Code. The following
discussion of federal taxation is intended only to summarize certain pertinent
federal income tax matters and is not a comprehensive description of the tax
rules applicable to the Company and the Bank.

     The Company reports its earnings on a consolidated basis with the Bank and
is subject to federal income taxation in the same general manner as other
corporations with some exceptions discussed below. The Bank has entered into an
agreement with the Company whereby the Bank computes and pays taxes based upon
the Bank's tax position assuming that a separate tax return was filed. However,
while the senior notes issued by the Company in connection with the 1995
recapitalization remains outstanding, Company's payment to the Bank is limited
to the amount of consolidated taxes. The Company prepaid the $10.0 million of
senior notes (plus accrued interest) in connection with the Offering.

     METHOD OF ACCOUNTING. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns.

     BAD DEBT RESERVES. The Small Business Job Protection Act of 1996 (the "1996
Act") eliminated the use of the reserve method of accounting for bad debt
reserves by savings institutions, effective for taxable years beginning after
1995 and provided for recapture of a portion of the reserves existing at the
close of the last taxable year beginning before January 1, 1996 for institutions
such as the Bank. Prior to the 1996 Act, the Bank was permitted to establish a
reserve for bad debts and to make annual additions to the reserve. These
additions could, within specified formula limits, be deducted in arriving at the
Bank's taxable income. For the tax year 1995, the Bank had a bad debt deduction
of $73 million.

     As a further result of the 1996 Act, the Bank must use the specific
chargeoff method in computing its bad debt deduction beginning with its 1996
Federal tax return. Under this method, deductions may be claimed only and to the
extent that loans become wholly or partially worthless.

                                       22

<PAGE>

     MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. NOLses can offset no more
than 90% of AMTI. Certain payments of alternative minimum tax may be used as
credits against regular tax liabilities in future years. As of December 31,
1998, the Bank had an alternative minimum tax credit carryforward of
approximately $1.4 million.

     NET OPERATING LOSS CARRYFORWARDS. The Code allows net operating losses
("NOLs") for tax years beginning before August 5, 1997 to be carried back and
deducted from taxable income for the three preceding taxable years and carried
forward and deducted from taxable income for the fifteen succeeding years
taxable years. For taxable years beginning after August 5, 1997, NOLs can be
carried back and deducted from taxable income for the two preceding taxable
years and carried forward and deducted from taxable income for the twenty
succeeding taxable years. The Company has federal and state tax NOLs of
approximately $166.4 million at December 31, 1998.

     IMPACT OF OWNERSHIP CHANGE ON USE OF NET OPERATING LOSS CARRYFORWARDS.
Section 382 of the Code imposes a limitation on the use of NOLs if there has
been an "ownership change." In general, an ownership change occurs if
immediately after any "owner shift involving a 5% stockholder" the percentage of
the stock of the corporation owned by one or more 5% stockholders has increased
by more than 50 percentage points over the lowest percentage of stock of the
corporation owned by such stockholders at any time during the testing period. An
"owner shift involving a 5% stockholder" is defined as any change in the stock
ownership of the corporation that affects the percentage of stock in the
corporation owned by any person who is a 5% stockholder before or after the
change. A 5% stockholder is any person (or group) holding 5% or more of the
corporation's stock at any time during the test period. It does not matter
whether that stockholder is a 5% stockholder before the change or after. As a
general rule, the ownership of owners of less than 5% is aggregated and treated
as the ownership percentage of a single 5% stockholder. The testing period for
an ownership change is the three-year period ending on the day of the owner
shift.

     Under Section 382 of the Code, if an ownership change of a corporation with
NOLs occurs, the amount of the taxable income for a post-change year that may be
offset by the NOLs arising before the ownership change is limited by an amount
known as the Section 382 limitation. The annual Section 382 limitation for any
post-change year is an amount equal to the value of the corporation multiplied
by the long-term tax-exempt rate that applies with respect to the ownership
change. The annual Section 382 limitation may be increased, however, in a
succeeding year by the amount of the limitation for the previous year that was
not used.

     The 1992 recapitalization resulted in the 1992 Ownership Change. The 1992
Ownership Change resulted in an annual Section 382 limitation on the Company's
ability to utilize its NOLs in any one year of approximately $7.7 million. That
annual limitation has increased due to unused limitations from previous years,
and amounts to approximately $42.3 million as of the beginning of 1999. There
are $42.3 million of pre-change losses carried over to 1999 that are subject to
this limitation (the "1992 limited NOLs").

     The Offering resulted in the 1998 Ownership Change. The actual annual
Section 382 limitation from the 1998 Ownership Change equals the sum of (i) the
fair market value of the stock of the Company immediately before the Offering
and (ii) the fair market value of the Company's and the Bank's goodwill claim
with respect to the Goodwill Litigation, multiplied by the applicable long-term
tax-exempt rate. The annual Section 382 limitation from the 1998 Ownership
Change is estimated to be approximately $21.3 million. The assumed annual
Section 382 limitation resulting from the 1998 Ownership Change is based on the
sum of the (i) fair market value of the stock of the Company immediately before
the Offering (valued at an initial public offering price of $13.75 per share)
and (ii) the unamortized balance of the Company's and the Bank's goodwill with
respect to the Goodwill Litigation as of December 31, 1989 (which amounted to
$261.3 million as of such date and which in no way reflects all of the claims
which may be asserted by the Plaintiffs in the Goodwill Litigation or any of the
theories as to damages which may be asserted in connection with the Goodwill
Litigation), multiplied by 5.05%, the applicable federal long-term tax-exempt
rate for ownership changes occurring in May 1998 (used for illustration purposes
only). The actual annual Section 382 limitation from the 1998 Ownership Change
at the time of the Offering may differ from the $21.3 million estimated as a
result of an increase or decrease in the actual fair market value of the
Company's and the Bank's goodwill claim with respect to the Goodwill Litigation
from the assumed unamortized balance of $261.3 million at December 31, 1989. All
$147.3 million 

                                       23

<PAGE>

of the NOLs carried over to 1998 (including the $42.3 million that are 1992
limited NOLs), plus $6.5 million of NOLs for 1998 that are attributable to the
period before the 1998 Ownership Change, are subject to this limitation.
Furthermore, the Section 382 limitation from the 1998 Ownership Change would be
significantly lower than estimated if the Rights were considered other than as
stock in the Company. Consequently, the 1992 Ownership Change in combination
with the 1998 Ownership Change could result in the Company being unable to fully
utilize its NOLs in future years. Such inability of the Company to utilize such
tax benefits could have a material adverse effect on the net income and
prospects of the Company.

     If the Section 382 limitation for the 1998 Ownership Change is greater than
the Section 382 limitation for the 1992 Ownership Change for 1998 or any year
thereafter, the amount of taxable income in that year will first be offset by
1992 limited NOLs up to the amount of the Section 382 limitation for the 1992
Ownership Change. Any remaining taxable income will be offset by 1998 limited
NOLs that are not also 1992 limited NOLs by an amount equal to the Section 382
limitation for the 1998 Ownership Change for that year minus the amount of 1992
limited NOLs already used to offset taxable income in that year.

     TREATMENT OF RIGHTS. KPMG LLP has issued an opinion to the Company and the
Bank to the effect that, for federal income tax purposes, the Rights evidenced
by the terms of the Shareholder Rights Agreement should be treated as stock of
the Company for purposes of Sections 382(e), 311(a) and 305(a) of the Code.
Thus, the Company should recognize no gain or loss on the distribution of the
Rights to the Material Stockholders with respect to their ownership of Company
Common Stock. In addition, the Bank should not recognize gain or loss on the
Company's distribution of the Rights to the Material Stockholders. Finally, the
amount of value taken into account for purposes of determining the annual
Section 382 limitation should include the value of the Rights. Despite the
Company's receipt of the foregoing opinion from KPMG LLP, such opinion is not
binding on the IRS and no assurance can be made that the IRS will treat the
Shareholder Rights Agreement as stock of the Company for federal income tax
purposes. If the Shareholder Rights Agreement is treated other than as stock in
the Company (i.e., debt of the Company), the value of the Shareholder Rights
Agreement would reduce the value of the Company's stock, and, correspondingly,
the amount of the Section 382 Limitation with respect to the 1998 Ownership
Change. Such a reduction in the amount of the Section 382 Limitation would
significantly impair the ability of the Bank to use its NOLs existing at the
time of the 1998 Ownership Change. Whether the Shareholder Rights Agreement will
be treated as equity for federal income tax purposes depends on the totality of
the facts and circumstances, including the intent of the parties to the
Shareholder Rights Agreement, the extent to which the Shareholder Rights
Agreement will obligate the Company to pay the Material Stockholders a portion
of the Litigation Recovery and the position that the Shareholder Rights
Agreement will give the Material Stockholders in relation to the Company's
creditors and stockholders existing on and after the execution of the
Shareholder Rights Agreement.

     STATE TAXATION. The California franchise tax rate applicable to the Bank
equals the franchise tax rate applicable to corporations generally plus an "in
lieu" rate approximately equal to personal property taxes and business license
taxes paid by such corporation (but generally not paid by banks or financial
corporations such as the Bank); however, the total rate cannot exceed 10.84%.
Under California regulations, bad debt deductions are available in computing
California franchise taxes using a three or six year weighted average loss
experience method. The Bank had no state tax NOLs at December 31, 1998.

DESCRIPTION OF CAPITAL STOCK

     The Company is authorized to issue 100,000,000 shares of capital stock, of
which 75,000,000 are shares of Common Stock, par value $.01 per share, and
25,000,000 are shares of preferred stock, par value $.01 per share. Upon
consummation of the Offering, no shares of preferred stock were outstanding.
Prior to consummation of the Offering and the exchange of preferred stock for
Common Stock, there were outstanding 85,000 shares of Series C Preferred Stock,
68,000 shares of Series D Preferred Stock and 332,000 shares of Series E
Preferred Stock, all of which were owned by the Material Stockholders. In
connection with the Offering, the Outstanding Preferred Stock was exchanged for
shares of Common Stock. An aggregate of 21,876,205 shares of Common Stock was
outstanding following consummation of the Offering, which gives effect to the
conversion of the Outstanding Preferred Stock into Common Stock. See "The
Stockholders' Agreement" in the Company's Proxy Statement dated March 22, 1999
which is incorporated by reference into ITEM 10. herein. On September 2, 1998
PBOC Holdings, Inc. announced an initial stock repurchase program of up 

                                       24

<PAGE>

to 1 million shares, or approximately five percent, of the Company's outstanding
Common Stock, to be effected from time to time in open-market or
privately-negotiated transactions. Through December 31, 1998, the Company
repurchased 835,000 shares pursuant to this program for a total purchase price
of $8.3 million. After repurchases of 835,000 shares of Common Stock of an
aggregate of 21,041,205 shares of Common Stock was outstanding. Each share of
Common Stock has the same relative rights as, and is identical in all respects
with, each other share of Common Stock. The Common Stock is not subject to call
for redemption.

COMMON STOCK

     DIVIDENDS. The Company can pay dividends if, as and when declared by its
Board of Directors, subject to compliance with limitations which are imposed by
law. See "ITEM 1. BUSINESS--Regulation Of Federal Savings Banks--Capital
Distribution Regulation." The holders of Common Stock of the Company are
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefor.
If the Company issues preferred stock in the future, the holders thereof may
have a priority over the holders of the Common Stock with respect to dividends.

     VOTING RIGHTS. The holders of Common Stock of the Company possess exclusive
voting rights in the Company. They elect the Company's Board of Directors and
act on such other matters as are required to be presented to them under Delaware
law or the Company's Certificate of Incorporation or as are otherwise presented
to them by the Board of Directors. As of the consummation of the Offering, each
holder of Common Stock will be entitled to one vote per share and each holder of
Common Stock does not have any right to cumulate votes in the election of
directors. Although there are no present plans to do so, if the Company issues
preferred stock in the future, holders of the preferred stock may also possess
voting rights. For information with respect to a possible issuance of preferred
stock under certain limited circumstances pursuant to the Shareholder Rights
Agreement, see "The Shareholder Rights Agreement."

     LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as the sole holder of the Bank's capital stock, would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon), all assets of the Bank available for distribution. In the event of any
liquidation, dissolution or winding up of the Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of the Company available for
distribution. If preferred stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of liquidation or
dissolution. See "The Shareholder Rights Agreement."

     PREEMPTIVE RIGHTS. Holders of the Common Stock of the Company generally are
not entitled to preemptive rights with respect to any shares which may be issued
in the future.

PREFERRED STOCK

     Prior to consummation of the Offering and the exchange of preferred stock
for Common Stock, there were outstanding 85,000 shares of Series C Preferred
Stock, 68,000 shares of Series D Preferred Stock and 332,000 shares of Series E
Preferred Stock, all of which were owned by the Selling Stockholders. In
connection with the Offering, the Outstanding Preferred Stock was exchanged for
shares of Common Stock. See "The Stockholders' Agreement" in the Company's Proxy
Statement dated March 22, 1999, which is incorporated by reference into ITEM 10.
hereof. Consequently, following consummation of the Offering, the Company had no
shares of preferred stock issued or outstanding.

     The Board of Directors of the Company is authorized to issue preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and
restrictions thereof. The preferred stock may be issued in distinctly designated
series, may be convertible into Common Stock and may rank prior to the Common
Stock as to dividend rights, liquidation preferences, or both.

     The authorized but unissued shares of preferred stock (as well as the
authorized but unissued and unreserved shares of Common Stock) are available for
issuance in future mergers or acquisitions, in a future public offering or
private placement or for other general corporate purposes. Except as otherwise
required to approve the transaction in 

                                       25

<PAGE>

which the additional authorized shares of preferred stock would be issued,
stockholder approval generally would not be required for the issuance of these
shares. Depending on the circumstances, however, stockholder approval may be
required pursuant to the requirements for listing the Common Stock on the Nasdaq
Stock Market or any exchange on which the Common Stock may then be listed, if
any.

RESTRICTIONS ON ACQUISITION OF THE COMPANY

     RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS. A
number of provisions of the Company's Amended and Restated Certificate of
Incorporation ("Certificate of Incorporation"), and Bylaws ("Bylaws"), which
became effective upon consummation of the Offering, deal with matters of
corporate governance and certain rights of stockholders. The following
discussion is a general summary of certain provisions of the Company's
Certificate of Incorporation and Bylaws which might be deemed to have a
potential "anti-takeover" effect. Reference should be made in each case to such
Certificate of Incorporation and Bylaws. Notwithstanding the foregoing, under
certain circumstances, the Company may be subject to Section 2115 of the
California Corporation Code (as a foreign corporation) which may have the effect
of superseding certain provisions of the Company's Certificate of Incorporation
and Bylaws as interpreted by Delaware law, particularly those provisions
providing for a staggered board of directors and eliminating cumulative voting.
However, management believes that such provisions of the California Corporation
Code do not apply to the Company because its securities is listed on the Nasdaq
National Market and there are at least 800 shareholders and, as such, the
Company is exempt from the provisions of Section 2115.

     BOARD OF DIRECTORS. Article VI of the Certificate of Incorporation and
Article IV of the Bylaws of the Company contain provisions relating to the Board
of Directors and provides, among other things, that the Board of Directors shall
be divided into three classes as nearly equal in number as possible with the
term of office of one class expiring each year. Cumulative voting in the
election of directors is prohibited by Article VI of the Certificate of
Incorporation. Directors may be removed only with cause at a duly constituted
meeting of stockholders called expressly for that purpose. Any vacancy occurring
in the Board of Directors for any reason (including an increase in the number of
authorized directors) may be filled by the concurring vote of a majority of the
Directors then in office, though less than a quorum of the Board, and a director
appointed to fill a vacancy shall serve for the remainder of the term to which
the director has been elected, and until his successor has been elected and
qualified.

     The Bylaws govern nominations for election to the Board, and provide that
nominations for election to the Board of Directors may be made at a meeting of
stockholders by or at the direction of the Board of Directors or by any
stockholder eligible to vote at an annual meeting of stockholders who has
complied with specified notice requirements. Written notice of a stockholder
nomination must be delivered to, or mailed to and received at, the Company's
principal executive offices no later than (i) ninety days prior to the
anniversary date of the mailing of proxy materials by the Company in connection
with the immediately preceding annual meeting, provided, however, that, with
respect to the 1999 annual meeting, which is expected to be held on the fourth
Monday of April 1999, nominations by the stockholder must be so delivered or
received no later than the close of business on the fourth Monday of January
1999, notwithstanding a determination by the Company to schedule such annual
meeting at a date later than the fourth Monday of April 1999 and (ii) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholders; (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC; and (e) the consent of each nominee to
serve as a director of the Company if so elected.

     LIMITATION OF LIABILITY. Article VIII of the Company's Certificate of
Incorporation provides that the personal liability of the directors and officers
of the Company for monetary damages shall be eliminated to the fullest extent
permitted by the DGCL as it exists on the effective date of the Certificate of
Incorporation or as such law may be 

                                       26

<PAGE>

thereafter in effect. Section 102(b)(7) of the DGCL currently provides that
directors (but not officers) of corporations that have adopted such a provision
will not be so liable, except (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) for the payment of certain unlawful dividends and the making of
certain stock purchases or redemptions, or (iv) for any transaction from which
the director derived an improper personal benefit.

     INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. Article IX of
the Company's Certificate of Incorporation provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director, officer, employee or agent of the Company or
any predecessor of the Company, or is or was serving at the request of the
Company or any predecessor of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding to the fullest extent authorized
by Section 145 of the DGCL, provided that the Company shall not be liable for
any amounts which may be due in connection with a settlement of any action, suit
or proceeding effected without its prior written consent or any action, suit or
proceeding initiated by any person seeking indemnification thereunder without
its prior written consent.

     The Company's Certificate of Incorporation also provides that reasonable
expenses (including attorneys' fees) incurred by a director, officer, employee
or agent of the Company in defending any civil, criminal, administrative or
investigative action, suit or proceeding described above shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
as authorized by the Board of Directors upon receipt of an undertaking by or on
behalf of such person to repay such amount if it shall ultimately be determined
that the person is not entitled to be indemnified by the Company.

     SPECIAL MEETINGS OF STOCKHOLDERS AND STOCKHOLDER PROPOSALS. The Company's
Bylaws provide that special meetings of the Company's stockholders, for any
purpose or purposes, may only be called by the affirmative vote of a majority of
the Board of Directors then in office.

     The Company's Bylaws provide that only such business as shall have been
properly brought before an annual meeting of stockholders shall be conducted at
the annual meeting. In order to be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors or (b) otherwise
properly brought before the meeting by a stockholder who has given timely notice
thereof in writing to the Company. For stockholder proposals to be included in
the Company's proxy materials, the stockholder must comply with all the timing
and informational requirements of Rule 14a-8 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). With respect to stockholder proposals to
be considered at the annual meeting of stockholders but not included in the
Company's proxy materials, the stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 90 days prior to the anniversary date of the mailing of proxy materials by
the Company in connection with the immediately preceding annual meeting;
provided, however, that with respect to the 1999 annual meeting, which is
expected to be held on the fourth Monday of April 1999, such written notice must
be received by the Company not later than the close of business on the fourth
Monday of January 1999, notwithstanding a determination by the Company to
schedule such annual meeting at a date later than the fourth Monday of April
1999. A stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the annual meeting, (b) the name and
address, as they appear on the Company's books, of the stockholder proposing
such business, (c) the class and number of shares of the Company which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. The presiding officer of an annual meeting shall
determine and declare to the meeting whether the business was properly brought
before the meeting in accordance with the provisions of the Bylaws and any such
business not properly brought before the meeting shall not be transacted.

     AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Article X of the
Company's Certificate of Incorporation generally provides that any amendment of
the Certificate of Incorporation must be first approved by a majority of the
Board of Directors and, to the extent required by law, then by the holders of a
majority of the shares of 

                                       27

<PAGE>

the Company entitled to vote in an election of directors, except that the
approval of 75% of the shares of the Company entitled to vote in an election of
directors is required for any amendment to Articles VI (directors), VII
(meetings of stockholders and bylaws), VIII (limitation on liability of
directors and officers), IX (indemnification) and X (amendment), unless any such
proposed amendment is approved by a vote of 80% of the Board of Directors then
in office.

     The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the total shares entitled
to vote in an election of directors, except that the affirmative vote of at
least 75% of the total shares entitled to vote in an election of directors shall
be required to amend, adopt, alter, change or repeal any provision inconsistent
with certain specified provisions of the Bylaws, unless any such proposed
amendment is approved by a vote of 80% of the Board of Directors then in office.

     OTHER RESTRICTIONS ON ACQUISITION OF THE COMPANY. Several provisions of the
DGCL could affect the acquisition of Common Stock or control of the Company.
Section 203 of the DGCL generally provides that a Delaware corporation shall not
engage in any "business combination" with an "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder unless (1) prior to such date the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; or (2)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for this purpose, shares owned by persons who are directors
and also officers and shares owned by employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
the shares held subject to the plan will be tendered in a tender offer or
exchange offer; or (3) on or subsequent to such date, the business combination
is approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
three-year prohibition on business combinations with an interested stockholder
does not apply under certain circumstances, including business combinations with
a corporation which does not have a class of voting stock that is (i) listed on
a national securities exchange, (ii) authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or (iii) held
of record by more than 2,000 stockholders, unless in each case this result was
directly or indirectly caused by the interested stockholder.

     An "interested stockholder" generally means any person that (i) is the
owner of 15% of more of the outstanding voting stock of the corporation or (ii)
is an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder; and the affiliates
and associates of such a person. The term "business combination" is broadly
defined to include a wide variety of transactions, including mergers,
consolidations, sales of 10% or more of a corporation's assets and various other
transactions which may benefit an interested stockholder.

     The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control" of a
savings association without the prior approval of the OTS. Any company that
acquires such control becomes a savings and loan holding company subject to
registration, examination and regulation by the OTS. See "ITEM 1.
BUSINESS--Regulation Of Savings And Loan Holding Companies."

                                       28
<PAGE>

ITEM 2.  PROPERTIES

The following table sets forth certain information with respect to the Company's
offices at December 31, 1998.
<TABLE>
<CAPTION>

                                                                        Net Book Value of
                                                Lease/Owned                Property at          Total Deposits at
            Office Location                Lease Expiration Date        December 31, 1998       December 31, 1998
            ---------------                ---------------------        -----------------       -----------------
                                                                     (Dollars in thousands)
<S>                                        <C>                       <C>                         <C>
EXECUTIVE OFFICE (AND BRANCH):

LOS ANGELES                                        Leased            $     1,988                 $        8,522
         5900 Wilshire Blvd.                      04/2006
         15th and 16th Floors               Option: 1 - 5 years
         Los Angeles, CA 90036

BRANCH OFFICES:

BEVERLY HILLS                                      Leased                    166                        135,921
         9100 Wilshire Blvd.                      03/2000
         Beverly Hills, CA 90212            Option: 2 - 10 years

ORANGE                                             Leased                    145                        100,714
         216 E Chapman Avenue                     01/2001
         Orange, CA 92866-1506              Option: 2 - 5 years

PACIFIC PALISADES                                  Leased                    222                         71,671
         15305 Sunset Blvd.                       12/2006
         Pacific Palisades, CA 90272        Option: 1 - 10 years

MONTEBELLO                                         Leased                    219                        103,812
         1300 W Beverly Blvd.                     08/2003
         Montebello, CA 90640               Option: 1 - 10 years

GARDEN GROVE                                       Owned                     169                         84,469
         12112 Valley View
         Garden Grove, CA 92845

SIMI VALLEY                                        Leased                    165                        102,863
         1445 Los Angeles Ave.                    07/1999
         Simi Valley, CA 93065             Option: 2 - 30 months
                                          followed by 3 - 5 years

 SYLMAR                                            Leased                    172                         51,264
         13831 Foothill Blvd.                     09/2002
         Sylmar, CA 91342                   Option: 2 - 10 years

BUENA PARK                                         Leased                    150                         28,172
         5470 Beach Blvd.                         12/2004
         Buena Park, CA 90621               Option: 3 - 5 years

NORTH HOLLYWOOD                                    Leased                    126                         92,422
         12848 Victory Blvd.                      05/2000
         North Hollywood, CA 91606
</TABLE>

                                       29

<PAGE>

<TABLE>
<CAPTION>
                                                                        Net Book Value of
                                                Lease/Owned                Property at          Total Deposits at
            Office Location                Lease Expiration Date        December 31, 1998       December 31, 1998
            ---------------                ---------------------        -----------------       -----------------
                                                                       (Dollars in thousands)
<S>                                         <C>                        <C>                       <C>
BEVERLY/SERRANO                                    Leased                    196                  43,698
         4500 W. Beverly Blvd.                    01/2006
         Los Angeles, CA 90004              Option: 2 - 5 years

TARZANA                                            Leased                    226                  83,369
         19500 Ventura Blvd.                      10/2002
         Tarzana, CA 91356

BURBANK                                            Leased                    426                 168,798
         240 North San Fernando Road              09/2000
         Burbank, CA 91502                  Option: 2 - 5 years

SANTA CLARITA                                       Owned                    170                  68,843
         26425 Sierra Highway
         Santa Clarita, CA 91321

VENTURA                                            Leased                    129                  67,513
         996 South Seaward Ave.                   10/2001
         Ventura, CA 93001                  Option: 1 - 3 years

CALABASAS                                          Leased                    188                  71,387
         23642 Calabasas Road, Bldg 2             03/2007
         Calabasas, CA 91302

IRVINE                                             Leased                    253                  66,280
         15475 Jeffrey Road                       10/2005
         Irvine, CA 92620-4102

FAIRFAX                                            Leased                    144                  82,918
         145 South Fairfax Avenue                 01/2003
         Los Angeles, CA 90036              Option: 1 - 5 years

WESTMINSTER                                        Leased                    220                  17,745
         15555 Brookhurst Street                  09/2000
         Westminster, CA 92683              Option: 2 - 5 years

SAN PEDRO                                          Owned                     813                  91,781
         28110 South Western Avenue
         San Pedro, CA 90732                                                                 
                                                                    ------------              ----------
                                                                    $      6,287              $1,542,162
                                                                    ------------              ----------
                                                                    ------------              ----------
</TABLE>



     In addition to the foregoing branch of office locations, the Bank currently
operates 43 ATMs, of which 20 are within a chain of health clubs located in
Southern California. The Bank also has an option to install and operate an
additional three ATMs within such chain of health clubs.

     The Company in 1997 also obtained regulatory approval to install remote
automated loan machines, which can take an application for a loan of up to
$10,000, underwrite the loan and extend funds to applicants which have been

                                       30

<PAGE>

approved. The Company believes it is the first institution to receive approval
to operate these units at remote locations, nine of which have been placed in
operation.


ITEM 3.  LEGAL PROCEEDINGS

     Except with respect to the Goodwill Litigation and the Ancillary
Litigation, each of which is defined and discussed below, neither the Company
nor the Bank is involved in any legal proceedings which are material to the
Company. The Bank is involved in routine legal proceedings from time to time
which arise in the normal course of its business.

THE GOODWILL LITIGATION

     GENERAL. On January 28, 1993, the Company, the Bank and certain current and
former stockholders of the Company (collectively, the "Plaintiffs") filed a
complaint against the United States in the United States Court of Federal Claims
("Court of Claims") seeking damages for breach of contract and for deprivation
of property without just compensation and without due process of law. The
allegations in the complaint arose out of the abrogation of certain contractual
promises made to the Company, to certain of its current and former common
stockholders and to the Bank, by the Federal Home Loan Bank Board (the
predecessor to the OTS) and the FSLIC (the federal fund which previously insured
the deposits of savings institutions) in exchange for the Company's agreement to
acquire and to operate the Bank which was then a failed thrift institution. One
of the current stockholders of the Company (Arbur) is also a plaintiff in the
case, which is entitled SOUTHERN CALIFORNIA FEDERAL SAVINGS AND LOAN
ASSOCIATION, ET AL. V. UNITED STATES, No. 93-52C (the "Goodwill Litigation").
The Plaintiffs' claims arose from changes, mandated by FIRREA, with respect to
the rules for computing the Bank's regulatory capital. As discussed below, the
Goodwill Litigation was stayed pending the resolution on appeal of several cases
which present issues similar to those presented by the Goodwill Litigation.

     In connection with the Company's acquisition of the Bank in April 1987, the
Bank was permitted to include in its regulatory capital and recognize as
supervisory goodwill $217.5 million of cash assistance provided to the Bank by
the FSLIC (the "Capital Credit"), as well as $79.7 million of goodwill which was
recorded by the Bank under GAAP. In August 1989, Congress enacted FIRREA which
provided, among other things, that savings institutions such as the Bank were no
longer permitted to include goodwill in their regulatory capital (subject to a
gradual phaseout which expired on December 31, 1994). Consequently, the Bank was
required to write-off its goodwill subject to a regulatory phase-out, which
resulted in the Bank failing to comply with its minimum regulatory capital
requirements during 1990 and 1991. The balance of the Bank's GAAP goodwill was
written off as unrealizable in 1992.

     The Plaintiffs allege that the enactment of FIRREA constituted a breach by
the United States of its contractual commitment regarding the treatment of the
Capital Credit and supervisory goodwill and an unlawful taking of the Bank's
property rights in the Capital Credit and supervisory goodwill. The Plaintiffs
seek damages and restitution of all benefits conferred on the United States by
the alleged contract. As discussed below, no conclusive determination has been
made as to the type or amount of damages sought.

     RELATED CASES. On July 1, 1996, the United States Supreme Court issued its
opinion for UNITED STATES V. WINSTAR CORPORATION, No. 95-865, which affirmed the
decisions of the United States Court of Appeals for the Fourth Circuit and the
United States Court of Federal Claims in various consolidated cases (the
"Winstar Cases") granting summary judgment to the plaintiff thrift institutions
on the liability portion of their breach of contract claims against the United
States. The Supreme Court held that the U.S. Government breached certain express
contracts when Congress enacted FIRREA, and the Supreme Court remanded the
proceedings for a determination of the appropriate measure and amount of
damages, which have not been finally litigated.

     The United States Court of Federal Claims issued a Case Management Order
("CMO") in all of the Winstar Cases, including the Goodwill Litigation. The CMO
sets forth procedures for all of the plaintiffs and the defendant, the United
States, to follow relating to the exchange of documents, filing of partial
summary judgment motions with respect to liability only, discovery on damages
issues and the timing of all of the Winstar Cases being set for trial. Pursuant
to the CMO, the Plaintiffs filed a motion for partial summary judgment as to the
Government's liability to the Plaintiffs for breach of contract. The
Government's response thereto appears to concede that there was a contract
allowing the 

                                       31

<PAGE>

Bank to apply the Capital Credit to regulatory capital and that, by enacting
FIRREA, the Government acted inconsistently with that contract. The Government
still maintains that it does not have liability with respect to the Bank's $79.7
million of GAAP goodwill. Furthermore, the Government contends that only the
Bank and not the Company nor the other Plaintiffs have standing to pursue breach
of contract claims.

     In February 1998, the Government sent the Bank a letter inviting the Bank
to commence negotiations to settle the Capital Credit claim portion of the
Goodwill Litigation. In March 1998, the Chief Judge issued an order in all of
the Winstar Cases ordering the Government and the committee representing all of
the plaintiffs, each through a designated representative, to negotiate to
develop a settlement framework or structure to settle these cases. Assuming a
settlement is not reached and based upon the status of the proceedings in the
Winstar Cases and the CMO, the Goodwill Litigation is not expected to be set for
trial for at least two years. The amount of damages the Plaintiffs have suffered
as a result of the Government's breach of contract has not yet been determined.
In addition, although the decision of the Supreme Court in the Winstar Cases has
been rendered, there can be no assurance that the court will not reach a
different conclusion in the Goodwill Litigation. To date, there have been no
material substantive settlement discussions to resolve the Goodwill Litigation
by and among the Company, the Bank and the Government and no trial date has been
set.

     THIRD PARTY LAWSUIT RELATED TO THE GOODWILL LITIGATION. In August 1997,
Ariadne Financial Services Pty. Ltd. and Memvale Pty Ltd. (collectively,
"Ariadne") filed a request with the Court of Claims in the Goodwill Litigation
for leave to file a motion to intervene as a plaintiff in the Goodwill
Litigation. The motion to intervene is based on Ariadne's claim as a former
stockholder of the Company that intervention is necessary to protect their
interests and alleged right to participate in any recovery against the
Government in the Goodwill Litigation. The court has not yet ruled on Ariadne's
motion. Ariadne had previously filed its own action in the Court of Claims in
April 1996 against the Government which has been dismissed (and which dismissal
has been upheld on appeal) based on the statute of limitations. In February
1998, Ariadne petitioned the Circuit Court of Appeals for a rehearing, and in
March 1998, Ariadne's petition was denied.

     In May 1997, Ariadne filed a lawsuit against the Company, the Bank, the
Company's former stockholders and Arbur seeking damages and a constructive trust
based upon causes of action for breach of contract; anticipatory breach of
contract; breach of fiduciary duty; fraud; negligent misrepresentation, and
mistake of fact. Ariadne was a preferred stockholder in the Company and the Bank
which subordinated its interest as part of the 1992 recapitalization of the
Company to the new investors, the Material Stockholders, and then consented to
the redemption of all of its stock for approximately $50,000 as part of the 1995
recapitalization. Ariadne alleges that there was an oral and/or implied in fact
contract between Ariadne and the defendants that Ariadne would have a right to a
portion of any monetary damages awarded to the Company and the other individual
defendants (but not the Bank) in the Goodwill Litigation, notwithstanding that
Ariadne was not a named plaintiff in the action. Ariadne further alleges that
when it agreed to have its stock redeemed, it was misled as to its right
relating to participation in any recovery from the Goodwill Litigation and the
value of its stock and investment in the Company and the Bank as a result of
such Goodwill Litigation. In August, 1998, Ariadne named the Bishop Estate and
BIL Securities and certain affiliated of BIL Securities as defendents in this
lawsuit. The Company and the Bank intend to defend this action vigorously. For
purposes of the Shareholder Rights Agreement, discussed below, the Ariadne
lawsuit against the Company and the Bank, among others, is considered to be
"Ancillary Litigation."

     DAMAGES. Although the Company and the Bank have conducted preliminary
reviews of the damages allegedly suffered by the Company and the Bank, no
conclusive determination has been made regarding the amount or type of such
damages. Moreover, the Company and the Bank believe that there are no generally
recognized precedents on how to assess damages in cases such as the Goodwill
Litigation. In addition, the Government may argue that some or all of the
damages proffered by the Plaintiffs are too speculative to permit a recovery.
Therefore, even if the Plaintiffs prevail in establishing the liability of the
United States, there can be no assurances as to the amount, if any, and type of
damages that they may recover. Without limiting the generality of the foregoing,
there can be no assurance that the Plaintiffs will obtain any cash recovery in
the Goodwill Litigation. Furthermore, assuming that there is a cash recovery, it
is impossible to predict the amount of the Litigation Recovery (as defined
below) because the fees, costs and taxes associated with the Litigation Recovery
cannot be estimated. To the extent that the Plaintiffs must engage in protracted
litigation, such fees and costs may increase significantly.

                                       32

<PAGE>

THE SHAREHOLDER RIGHTS AGREEMENT

     GENERAL. The Company, the Bank and each of the Material Stockholders (i.e.,
the Bishop Estate, BIL Securities and Arbur) have entered into an agreement (the
"Shareholder Rights Agreement"), the effective date of which was the
commencement of the Offering, whereby each Material Stockholder received one
Contingent Goodwill Participation Right (each a "Right" and collectively, the
"Rights") for each share of Common Stock held by the Material Stockholder as of
the date of the Shareholder Rights Agreement.

     Each Right entitles the Material Stockholders to receive 0.0009645% of the
Litigation Recovery, if any (as defined below) and all of the Rights to be owned
by the Material Stockholders will entitle the Material Stockholders to receive
in the aggregate 95% of the Litigation Recovery (such portion of the Litigation
Recovery, the "Recovery Payment"). The remaining 5.0% of the Litigation Recovery
will be retained by the Company and/or the Bank in consideration for the time
and effort incurred previously and hereafter by the Company, the Bank and
management of the Company and the Bank with respect to prosecuting the Goodwill
Litigation.

     None of the Material Stockholders have paid any cash or other consideration
to the Company and/or the Bank in connection with their entering into the
Shareholder Rights Agreement. Any successor to the Company and/or the Bank shall
assume the rights and obligations of the Company and/or the Bank with respect to
the Shareholder Rights Agreement. In addition, to the extent that the Company
enters into a definitive agreement providing for the acquisition, merger or
consolidation of the Company or the Bank in which the Company or the Bank is not
the surviving entity, the Company (or any successor thereto) is required to
create a statutory business trust under Delaware law (the "Litigation Trust")
with five trustees (the "Litigation Trustees") designated by the Material
Stockholders. The Litigation Trustees shall have the same authority, identical
to and succeeding that of the Litigation Committee of the Board of Directors,
which has the responsibility to make all decisions on behalf of the Company and
the Bank with respect to the Goodwill Litigation and any Ancillary Litigation.

     LITIGATION RECOVERY. The Litigation Recovery will equal the cash p ayment
(or any cash resulting from the liquidation of Non-Cash Proceeds (as defined
below)) (the "Cash Payment"), if any, actually received by the Company and/or
the Bank in the aggregate pursuant to a final, nonappealable judgment in or
final settlement of the Goodwill Litigation (including any post-judgment
interest actually received by the Company and/or the Bank with respect to any
Cash Payment) after deduction of (i) (A) the aggregate fees and expenses
incurred after the date of the Shareholder Rights Agreement by the Company and
the Bank in prosecuting the Goodwill Litigation and obtaining the Cash Payment
(including any costs and expenses incurred with respect to the monetization of
any marketable assets received and/or liquidation of Non-Cash Proceeds), and/or
(B) the aggregate liabilities, fees and expenses incurred after the date of the
Shareholder Rights Agreement by the Company and the Bank in any Ancillary
Litigation, and/or (C) the amount reimbursed to any Litigation Trustee; (ii) any
income tax liability of the Company and/or the Bank, computed on a PRO FORMA
basis, as a result of the Company's and/or the Bank's receipt of the Cash
Payment (net of any income tax benefit to the Company and/or the Bank from
making the Recovery Payment to the Material Stockholders, and disregarding for
purposes of this clause (ii) the effect of any NOLs or other tax attributes held
by the Company and the Bank or any of their respective subsidiaries or
affiliated entities); (iii) any portion of the Litigation Recovery (calculated
for purposes of this clause (iii) before the deduction of the amounts calculated
pursuant to clauses (i) and (ii) above and clause (iv) below) which is
determined to be owing to one or more of the Plaintiffs (other than the Company
and the Bank) or to any other third parties; and (iv) any portion of the
Litigation Recovery (calculated for purposes of this clause (iv) before the
deduction of the amounts calculated pursuant to clauses (i), (ii) and
(iii))which Doreen J. Blauschild is entitled to receive as a result of her
employment agreement with the Bank, dated as of April 11, 1995 (which entitles
Ms. Blauschild to 0.25% of the amount by which any net recovery (i.e., gross
amount less attorneys' fees incurred by the Bank) by and payable to the Bank
relating to the Goodwill Litigation, whether by judgment or settlement, exceeds
$150.0 million).

     THE RECOVERY PAYMENT. Within five days of receipt by the Company and/or the
Bank of any Litigation Recovery, or the liquidation by the Company and/or the
Bank of any non-cash proceeds (which does not include nonmarketable assets or
assets which are unable to be sold or liquidated ("Non-Cash Proceeds")) received
in connection with the Litigation Recovery, the Company shall deliver to each
Material Stockholder a written notice (the "Payment 

                                       33

<PAGE>

Notice") (i) specifying that a Litigation Recovery has been paid, (ii)
describing the amount of cash proceeds received, (iii) describing the type and
amount of any Non-Cash Proceeds received, the amounts received by the Company
and/or the Bank upon liquidation of such Non--Cash Proceeds and the financial
and other documentation supporting such liquidation value, and (iv) specifying
the date and method by which the Company will redeem the Rights by payment of
the Recovery Payment. To the extent the Company and/or the Bank receives all or
a portion of the Litigation Recovery in the form of Non-Cash Proceeds, the
Company and the Bank shall liquidate the Non-Cash Proceeds. The Company shall
provide to each Material Stockholder financial and other documentation
reasonably suffi-cient to support the liquidation value of such Non-Cash
Proceeds. In no event shall the Bank be required to distribute to the Company or
the Company be required to distribute any amounts to the Material Stockholder in
connection with any liquidation of Non-Cash Proceeds which exceed the amounts
received by the Company and/or the Bank upon liquidation of such Non-Cash
Proceeds.

     To the extent all or any portion of the Litigation Recovery is received by
the Bank, the Bank shall distribute such Litigation Recovery to the Company
("Bank Distribution"). To the extent any Litigation Recovery is paid to the Bank
in installments, the distribution to the Company shall be made in similar
installments. Any cash proceeds received in connection with the Litigation
Recovery is required by the Shareholder Rights Agreement to be so distributed
within five days of their receipt, independently of the need for liquidation by
the Bank of any Non-Cash Proceeds. The liquidation value of any such Non-Cash
Proceeds received in connection with the Litigation Recovery shall be
distributed within five days of their liquidation, independently of the
distribution of any cash proceeds.

     The Shareholder Rights Agreement provides that no later than five days
following the date of the Payment Notice, the Company shall redeem all of the
outstanding Rights of each Material Stockholder by payment of the Recovery
Payment. To the extent the Litigation Recovery is paid to the Company and/or the
Bank in installments, the redemption of the Rights and the distribution of the
Recovery Payment shall be paid in similar installments. Notwithstanding the
foregoing, however, the Company may not redeem any portion of the Rights less
than one-year from the date of an "ownership change" of the Company and/or the
Bank within the meaning of Section 382(g) of the Code, unless the Company
obtains an opinion from an independent accounting firm which states that the
redemption should not materially affect the Company's and/or the Bank's
limitation under Section 382 of the Code with respect to such ownership change.

     The Material Stockholders shall be entitled to receive any actual interest
earned by the Company and/ or the Bank which is attributable to its investment
of the Recovery Payment for the period of time between the date on which the
Company and/or the Bank receives any Litigation Recovery in connection with the
Goodwill Litigation and the date on which the Company either redeems the Rights
or issues Recovery Payment Preferred (as defined below).

     CONVERSION OF RIGHTS TO PREFERRED STOCK. In the event that applicable laws,
rules, regulations, directives or the terms of any judgment or settlement limit
or prevent the Bank from distributing the Bank Distribution and/or the Company
from redeeming the Rights and distributing all or a portion of the Recovery
Payment, the Bank shall only distribute such portion of the Bank Distribution
and the Company shall only redeem those Rights (on a pro rata basis) and
distribute such portion of the Recovery Payment (on a pro rata basis), to the
extent not otherwise restricted. While the Bank has a continuing obligation to
distribute the balance of any Bank Distribution which it has been precluded from
paying as soon as permissible, and the Company has a continuing obligation to
redeem the balance of the Rights and distribute the balance of any Recovery
Payment which it has been precluded from paying as soon as permissible, in no
event, however, will the Company's redemption of the Rights result in an
aggregate distribution of an amount greater than the Recovery Payment.

     To the extent the Company is prohibited from distributing the Recovery
Payment, or any portion thereof, or cannot do so because the Bank is prohibited
from making the Bank Distribution to the Company, the Company shall, upon the
written request of any Material Stockholder, issue to such Material Stockholder
preferred stock of the Company with an aggregate liquidation preference equal in
value to the Recovery Payment or portion thereof which the Company shall have
been prohibited from distributing or unable to distribute (the "Recovery Payment
Preferred"). The terms of the Recovery Payment Preferred as discussed herein
shall be set forth in Certificate of Designations and Preferences filed as a
supplement to the Company's Amended and Restated Certificate of Incorporation.
The Company shall issue the Recovery Payment Preferred upon surrender to the
Company of such Material Stockholder's Rights.

                                       34

<PAGE>

     The stated value of each share of Recovery Payment Preferred shall be
$1,000. The holders of the Recovery Payment Preferred shall be entitled to
receive, when, as and if declared by the Board of Directors and out of the
assets of the Company which are by law available for the payment of dividends,
cumulative preferential cash dividends payable quarterly on the last day of each
calendar quarter commencing with the first full quarter following issuance
thereof at a fixed rate per share of 9 3/4%. Each quarterly dividend shall be
fully cumulative and dividends shall accrue, whether or not earned, declared or
the Company shall have funds or assets available for the payment of dividends.

     So long as any Recovery Payment Preferred remains outstanding: (i) no
dividend shall be declared or paid upon or set apart for payment, and no
distribution shall be ordered or made in respect of the Company's Common Stock,
or (ii) any other class of stock or series thereof; and (b) no shares of Common
Stock and no shares of any other class of stock or series thereof shall be
redeemed or purchased by the Company; and (c) no moneys, funds or other assets
shall be paid to or made available for a sinking fund for the redemption or
purchase of any shares of: (i) Common Stock; or (ii) any other class of stock or
series thereof; unless, in each instance, full dividends on all outstanding
shares of Recovery Payment Preferred: (i) for all past dividend periods shall
have been paid; and (ii) for the then current calendar quarter shall have been
paid or declared and set aside for payment.

     In the event of any dissolution, liquidation or winding up of the affairs
of the Company, after payment or provision for payment of the debts and other
liabilities of the Company, the holders of the Recovery Payment Preferred shall
be entitled to receive, out of the net assets of the Company available for
distribution to its stockholders and before any distribution shall be made to
the holders of Common Stock or to the holders of any other class of stock or
series thereof, an amount equal to $1,000 per share, plus an amount equal to all
dividends accrued and unpaid on each share of Recovery Payment Preferred to but
excluding the date fixed for distribution, and no more. If upon such voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, the net assets of the Company shall be insufficient to permit payment
in full of the amounts required to be paid to the holders of the Recovery
Payment Preferred, then a pro rata portion of the full amount required to be
paid upon such dissolution, liquidation or winding up shall be paid to the
holders of Recovery Payment Preferred.

     The Company shall have the right, at its option and by resolution of its
Board of Directors, to redeem at any time and from time to time the Recovery
Payment Preferred Stock, in whole or in part, upon payment in cash in respect to
each share of Recovery Payment Preferred redeemed at $1,000 per share, plus an
amount equal to all dividends accrued and unpaid thereon to but excluding the
date fixed for redemption. If less than all of the outstanding shares of
Recovery Payment Preferred shall be redeemed, the particular shares to be
redeemed shall be allocated by the Company among the respective holders of
Recovery Payment Preferred, pro rata, by lot or by a substantially equivalent
method selected by the Board of Directors of the Company. Under such
circumstances, new certificates shall be issued evidencing unredeemed shares to
the extent applicable.

     The holders of the Recovery Payment Preferred shall have no voting power
except as described in the Shareholder Rights Agreement. If at any time the
equivalent of six or more full quarterly dividends (whether or not consecutive)
payable on any shares of Recovery Payment Preferred shall be in default, the
number of directors constituting the Board of Directors of the Company shall be
increased by two, and the holders of all Recovery Payment Preferred shall have
the exclusive right, voting together as one class, to elect two directors to
fill such newly-created directorships. This right shall remain vested until all
dividends in default on all outstanding Recovery Payment Preferred have been
paid, or declared and set apart for payment, at which time: (i) the right shall
terminate (subject to revesting in the case of any subsequent default of the
kind described above); (ii) the term of the directors then in office elected by
the holders of the outstanding Recovery Payment Preferred as a class shall
terminate; and (iii) the number of directors constituting the Board of Directors
of the Company shall be reduced by two.

     No sinking fund or funds shall be established for the retirement or
redemption of the Recovery Payment Preferred. In addition, shares of the
Recovery Payment Preferred shall not be convertible into Common Stock or any
other class of capital stock of the Company. The Common Stock of the Company and
any other preferred stock, whether now or hereafter issued, shall be deemed to
rank junior to the Recovery Payment Preferred with respect to the payment of
dividends or the distribution of assets upon redemption, liquidation or
dissolution or winding up of the Company.

                                       35

<PAGE>

     MANAGEMENT OF THE GOODWILL LITIGATION AND ANY ANCILLARY LITIGATION. The
Shareholder Rights Agreement provides that the Company shall prosecute the
Goodwill Litigation vigorously following the distribution of Rights with a view
to resolution of the Goodwill Litigation as promptly as practicable. In
furtherance of this prosecution of the Goodwill Litigation, the Board of
Directors of the Company has designated a special litigation committee of the
Board of Directors (the "Litigation Committee") comprised of three directors
which includes the Chief Executive Officer of the Company, one Director
designated by the Bishop Estate, and one Director who shall be designated
jointly by BIL Securities and Arbur. The Litigation Committee shall have the
exclusive right to oversee and to direct the prosecution of the Litigation and
any Ancillary Litigation. The Litigation Committee shall be authorized to make
final decisions relating to any dismissal, settlement, or termination of the
Goodwill Litigation and any Ancillary Litigation and to decline to pursue any
appeal or to settle the Litigation and any Ancillary Litigation prior to any
Recovery Payment. In the event that any or all of the Material Stockholders
should lose their representation on the Board of Directors before the conclusion
of the Goodwill Litigation or any Ancillary Litigation and the distribution of
the Recovery Payment, the relevant Material Stockholder(s) shall retain the
right to designate member(s) of the Litigation Committee, which designees may
include persons not members of the Board of Directors of the Company. If any
such designee should not be simultaneously a member of the Board of Directors,
the Litigation Committee shall thereupon become an advisory committee of the
Company. The Litigation Committee's authority shall thenceforward consist of
making recommendations to the Board of Directors relating to the prosecution of,
and any dismissal, settlement or termination of the Goodwill Litigation and any
Ancillary Litigation, in whole or in part. The Litigation Committee shall
present such recommendations in writing to the Board of Directors of the Company
and the Board of Directors may not dismiss, settle or terminate the Goodwill
Litigation and any Ancillary Litigation, in whole or in part, without first
receiving the favorable recommendation to that effect from the Litigation
Committee. The adoption of any such recommendation to settle or otherwise
terminate the Goodwill Litigation by the Board of Directors shall require an
affirmative vote of six of the seven members of the Board of Directors of the
Company. The Company, as the sole shareholder of the Bank, is also required to
cause the Bank to take no action which is inconsistent with any action taken at
the direction of the Litigation Committee.

     As discussed above, to the extent that the Company enters into a definitive
agreement providing for the acquisition, merger or consolidation of the Company
in which the Company is not the surviving entity (an "Acquisition Transaction"),
the Company or its successor is required to create the Litigation Trust. The
Litigation Trust shall have five Trustees designated by the Material
Stockholders, as follows: The Bishop Estate shall designate three Trustees; BIL
Securities alone shall designate one Trustee; and BIL Securities together with
Arbur shall jointly designate one Trustee. Effective upon consummation of the
Acquisition Transaction, the Company or its successor shall be contractually
obligated to assume all duties and obligations of the Company and the Bank with
respect to the Litigation Recovery and the redemption of the Rights under the
Shareholder Rights Agreement.

     Upon consummation of the Acquisition Transaction, the Litigation Trustees
shall assume authority, identical to and succeeding to that of the Litigation
Committee, to make all decisions on behalf of the Company and its successors
with respect to the prosecution of the Goodwill Litigation and in any Ancillary
Litigation. Without prejudice to any rights of the Material Stockholders, the
Litigation Trustees shall have the authority to bring suit on behalf of the
Material Stockholders to enforce any provision of the Shareholder Rights
Agreement for the benefit of the Material Stockholders. The Litigation Trustees
may seek reimbursement by the Bank and/or the Company for any expenses, costs or
fees reasonably incurred for their own administration and for management of the
Goodwill Litigation and any Ancillary Litigation, which reimbursement by the
Bank and/or the Company shall be deducted from the Litigation Recovery.

     REIMBURSEMENT OF FEES AND EXPENSES AND INDEMNIFICATION. Under the terms of
the Shareholder Rights Agreement, the amount of the Recovery Payment which is to
be paid to the Material Stockholders in connection with a Litigation Recovery is
to be reduced by, among other things, the fees and expenses incurred in
connection with the Goodwill Litigation and any Ancillary Litigation. While such
agreement does not legally require reimbursement of such expenses in the event
there is no Litigation Recovery, the Material Stockholders have advised the
Board of Directors of their willingness to reimburse the Company and/or the Bank
for such fees and expenses upon periodic request by the Company and/or the Bank.
No assurance can be made that the Material Stockholders will in fact reimburse
the Company and the Bank for any fees and expenses incurred with respect to the
Goodwill Litigation and any Ancillary Litigation and the Material Stockholders
are not obligated to do so.

                                       36

<PAGE>

     The Shareholder Rights Agreement provides that the Material Stockholders
shall indemnify the Company and/or the Bank for 95% of the liability incurred in
any claim by a party now pending (such as Ariadne) or hereafter brought, seeking
in whole or in part any amounts paid or to be paid as part of the Litigation
Recovery, and 100% of the liability incurred in any claim by a party, other than
the Company or the Bank, challenging the validity or binding effect of the
Shareholders Rights Agreement. In both instances, such agreement to indemnify
includes any amounts paid in any judgment or settlement of such claims or any
portion of the Litigation Recovery which is determined to be owing to parties
other than a Material Stockholder, the Company and the Bank. The litigation with
respect to either or both of the foregoing types of claims is referred to herein
as the "Ancillary Litigation." In no event will the Material Stockholders be
liable, with respect to any and all claims or indemnities for Ancillary
Litigation, for an amount in excess of the actual monies recovered or awarded in
the Goodwill Litigation and paid over to the Material Stockholders as part of
the Recovery Payment. To the extent any liability, fees and expenses are
incurred subsequent to the distribution of the Recovery Payment to the Material
Stockholders, each Material Stock-holder is required to bear responsibility and
shall reimburse the Company and/or the Bank for a share of such indemnification
in the same proportion as its pro rata share of the Rights outstanding. The
obligations and duties of the Material Stockholder to indemnify the Company and
the Bank under the Shareholder Rights Agreement shall survive and continue as
obligations of the Material Stockholders irrespective of whether the Material
Stockholders assign any or all of the Rights to third parties.

     RIGHTS OF THE MATERIAL STOCKHOLDERS. The Material Stockholders will not
have any rights to receive any payment pursuant to the Shareholder Rights
Agreement except in each case to the extent of the Recovery payment, if any and
except as described in the Shareholder Rights Agreement. The Rights (i) will be
junior to all debt obligations of the Company and the Bank existing at the time
of the redemption except as to an obligation that is expressly made junior to
the Rights, (ii) do not have a right to vote, and (iii) will be a senior claim
in relation to the right of the holders of any stock of Company, including the
Company Common Stock or other preferred stock, whether now existing or herafter
created, as to dividends or as to the distribution of assets upon redemption,
liquidation, dissolution, or winding up with respect to a Recovery Payment
attributable to any Litigation Recovery (although the Material Stockholders will
continue to have such other rights on liquidation attributable to their status
as holders of Common Stock).

     TAX CONSEQUENCES. KPMG LLP has issued an opinion to the Company and the
Bank to the effect that, for federal income tax purposes, the Rights evidenced
by the terms of the Shareholder Rights Agreement should be treated as stock of
the Company for purposes of Sections 382(e), 311(a) and 305(a) of the Code.
Thus, the Company should recognize no gain or loss on the distribution of the
Rights to the Material Stockholders with respect to their ownership of Company
Common Stock. In addition, the Bank should not recognize gain or loss on the
Company's distribution of the Rights to the Material Stockholders. Furthermore,
the Material Stockholders should not be required to include the amount of the
Rights in income. Finally, the amount of value taken into account for purposes
of determining the annual Section 382 limitation in connection with the 1998
Ownership Change should include the value of the Rights.

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

Not applicable.

                                       37

<PAGE>

                                     PART II

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

     The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "PBOC" since the Company's initial public offering in May,
1998. At March 9, 1999 the Company had approximately 27 stockholders of record
(not including the number of persons or entities holding stock in nominee or
street name through various brokerage firms) and 20,448,705 outstanding
(excluding treasury stock) shares of Common Stock. The following table sets
forth for the quarters indicated the range of high and low bid information per
share of Common Stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
      1998                                           HIGH               LOW
      ----                                           ----               ---
<S>                                              <C>                 <C>
                First Quarter ................   $    --             $  --
                Second Quarter ...............      14 1/2            13 5/8
                Third Quarter ................      13 13/16           9
                Fourth Quarter ...............      10 3/4             8
                Year .........................      14 1/2             8

</TABLE>



     The Company has never paid a cash dividend on the Common Stock and does not
expect to pay a cash dividend on its Common Stock for the foreseeable future.
Rather, the Company intends to retain earnings and increase capital in
furtherance of its overall business objectives. The Company will periodically
review its dividend policy in view of the operating performance of the Company,
and may declare dividends in the future if such payments are deemed appropriate
and in compliance with applicable law and regulations. Cash and stock dividends
are subject to determination and declaration by the Board of Directors, which
will take into account the Company's consolidated earnings, financial condition,
liquidity and capital requirements, applicable governmental regulations and
policies, and other factors deemed relevant by the Board of Directors.

                                       38

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

          SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY

                  (Dollars in thousands, except per share data)

     The following selected historical consolidated financial and other data for
the five years ended December 31, 1998 is derived in part from the audited
consolidated financial statements of the Company. The selected historical
consolidated financial and other data set forth below should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of the Company, including the related notes,
included elsewhere herein.

<TABLE>
<CAPTION>
                                                                                   At December 31,
                                                    --------------------------------------------------------------------------
                                                         1998          1997          1996            1995             1994
                                                    ------------  -------------  -------------   -------------   -------------

<S>                                                   <C>            <C>             <C>             <C>             <C>
SELECTED FINANCIAL CONDITION DATA:

  Total assets ....................................   $3,335,027     $2,213,054      $1,747,918      $1,579,760      $1,722,256
  Cash and cash equivalents .......................       22,401         14,113          14,720           7,258          10,507
  Federal funds sold ..............................       24,000          7,004           7,200          11,800           --
  Securities purchased under agreements
           to resell ..............................      --               --              --             35,000           --
                               
  Securities available-for-sale ...................    1,004,937        571,160         502,301         241,645           7,677
  Loans held for sale .............................      --               --              --              --             28,946
  Mortgage-backed securities
           held-to-maturity .......................        6,282          9,671          10,971           --            304,620
  Loans receivable, net ...........................    2,148,857      1,533,212       1,141,707       1,228,152       1,306,057
  Real estate held for investment and
           sale, net ..............................        2,723         15,191          22,561          16,288          17,514
  Deposits ........................................    1,542,162      1,266,615       1,371,243       1,473,318       1,384,218
  
  Securities sold under agreements to
                    repurchase ....................      364,000        340,788         192,433           --              --
  FHLB advances ...................................    1,198,000        472,000          80,000          31,746         310,000
  Senior debt (1) .................................      --              11,113          11,398          10,000          38,199
  Minority interest (2) ...........................       33,250         33,250           --              --             23,324
  Stockholders' equity (3) ........................      180,606         79,602          64,822          56,613         (52,463)

</TABLE>


                                       39

<PAGE>

<TABLE>
<CAPTION>

                                                                                   At December 31,
                                                    --------------------------------------------------------------------
                                                      1998         1997          1996            1995             1994
                                                    --------     --------      ---------       --------         -------- 
                                                                    (Dollars in thousands, except per share data)
SELECTED OPERATING DATA:
<S>                                                 <C>          <C>            <C>            <C>             <C>     
  Interest, fees and dividend income ............   $180,873     $130,979       $122,896       $122,926        $116,262
  Interest expense ..............................    140,358       97,205         90,791         97,977          97,100
                                                    --------     --------      ---------       --------         -------- 
  Net interest income ...........................     40,515       33,774         32,105         24,949          19,162
  Provision for loan losses .....................      2,000        2,046          2,884          8,823          24,443
                                                    --------     --------      ---------       --------         -------- 
  Net interest income after provision for           
   loan losses ..................................     38,515       31,728         29,221         16,126          (5,281)
  Gain on sale of mortgage-backed                   
   securities, net ..............................      1,682        1,275          3,638            641             485
  Gain (loss) on loan and servicing sales, net...        613        3,413            (53)          (166)          2,712
  Income (loss) from other real estate              
   operations, net ..............................      1,479       (1,805)         1,946         (2,067)         (5,398)
  Other noninterest income ......................      2,662        2,234          2,593          2,095           2,328
  Operating expenses ............................     46,962       29,543         27,816         30,751          40,923
                                                    --------     --------      ---------       --------         -------- 
  Earnings (loss) before income taxes               
   (benefit) and minority interest ..............     (2,011)       7,302          9,529        (14,122)         (46,077)
  Income taxes benefit ..........................    (16,390)      (4,499)        (3,015)        (2,644)          11,356
  Minority interest .............................      3,476          859           --             --               --
                                                    --------     --------      ---------       --------         -------- 
  Net earnings (loss) ...........................   $ 10,903     $ 10,942      $  12,544       $(11,478)        $(57,433)
  Net earnings (loss) available to common           
   Stockholders .................................   $  8,743     $  3,602      $   5,989       $(14,863)        $(57,433)
  Earnings per share, basic and diluted (4) .....   $   0.59     $   1.14      $    1.90       $  (3.41)      $    (9.45)
                                                    
KEY OPERATING RATIOS: (5)                           
  Return on average assets ......................       0.39%        0.57%          0.72%         (0.65)%          (3.00)%
  Return on average assets, excluding               
   one-time IPO-related expenses (6) ............       0.72         0.57           0.72            --              --
  Return on average equity ......................       7.79        15.37          22.00         (38.21)         (251.75)
  Return on average equity, excluding               
   one-time IPO-related expenses (6) ............      14.37        15.37          22.00            --              --
  Equity to assets ..............................       4.98         3.72           3.29           1.70            (1.19)
  Dividend payout ratio .........................        --           --             --             --              --
  Interest-earning assets to interest-bearing       
   liabilities ..................................        104          101            100            100               98
  Interest rate spread (7) ......................       1.28         1.80           1.91           1.46             1.16
  Net interest margin (7) .......................       1.49         1.84           1.92           1.45             1.04
  Operating expenses to average assets ..........       1.67         1.55           1.60           1.74             2.14
  Operating expenses to average assets,             
   excluding one-time IPO-related expenses (6) ..       1.12         1.55           1.60            --               --
  Efficiency ratio (8) ..........................     100.02        72.17          64.52          89.72            93.58
  Efficiency ratio, excluding one-time IPO-         
   related expenses (6) (8) .....................      66.82        72.17          64.52            --               --

</TABLE>



                                                               (Continued)

                                       40

<PAGE>

<TABLE>
<CAPTION>

                                                                                    At December 31,
                                                        ----------------------------------------------------------------
                                                         1998         1997          1996          1995            1994
                                                        -------      -------       -------       -------         -------
                                                                        (Dollars in thousands, except per share data)
<S>                                                      <C>          <C>           <C>           <C>            <C>
ASSET QUALITY DATA:                                   
  Total non-performing assets and troubled debt       
   restructurings (9) ................................  $14,806      $33,123       $46,218       $52,640         $78,737
                                                      
  Non-performing loans as a percent of loans,         
   net ...............................................     0.40%        0.65%         1.60%         2.90%           2.10%
                                                      
  Non-performing assets as a percent of total         
   assets (9) ........................................     0.34         1.05          2.21          2.94            2.20
                                                      
  Non-performing assets and troubled debt             
   restructurings as a percent of total assets (9) ...     0.44         1.50          2.64          3.33            4.57
                                                      
  Allowance for loan losses as a percent of           
   loans, net ........................................     0.88         1.16          2.04          2.57            2.28
                                                      
  Allowance for loan losses as a percent of           
   non-performing loans (9) ..........................   222.13       179.97        127.65         88.71          108.53
                                                      
  Allowance for loan losses as a percent of           
   non-performing loans and troubled debt             
   restructurings (9) ................................   156.39        89.84         90.30         75.67           43.66
                                                      
  Net charge-offs to average loans , net .............     0.05         0.63          0.95          0.55            0.95
                                                      
BANK REGULATORY CAPITAL RATIOS (10):                  
  Tier 1 leverage ....................................     6.30%        5.43%         4.57%         4.18%           1.08%
  Tier 1 risk-based ..................................    11.48        10.74          9.15          7.56            2.01
  Total risk-based ...................................    12.36        11.99         10.38          8.43            2.76

</TABLE>



     (1)  The senior debt was repaid in connection with the Offering.

     (2)  Minority interest consists of the interest in PPCCP held by persons
          other than the Bank. See "ITEM 1. BUSINESS--Subsidiaries."

     (3)  At December 31, 1998, 1997 and 1996, stockholders' equity is net of
          $13.6 million, $2.0 million and $6.1 million of unrealized losses on
          securities available-for-sale, respectively.

     (4)  Based on a weighted average number of shares of Common Stock of
          14,793,644, 3,152,064, 3,152,064, 4,361,280 and 6,075,008 for 1998,
          1997, 1996, 1995 and 1994, respectively.

     (5)  With the exception of end of period ratios, all ratios are based on
          average daily balances during the respective periods.

     (6)  One-time IPO-related expenses paid in 1998 were comprised of: (1)
          $11.1 million ($6.5 million net of applicable income tax benefits) for
          employment agreement benefits due to certain executive officers of the
          Company and (2) $4.5 million ($2.7 million net of applicable income
          tax benefits) for a special FDIC assessment which the Bank had
          deferred from paying in prior years.

     (7)  Interest rate spread represents the difference between the weighted
          average yield on interest-earning assets and the weighted average cost
          of interest-bearing liabilities; net interest margin represents net
          interest income as a percentage of average interest-earning assets.

     (8)  Efficiency ratio represents operating expenses as a percent of the
          aggregate of net interest income and non-interest income.

     (9)  Non-performing assets consist of nonaccrual loans and real estate
          owned. Nonaccrual loans are loans that the Company has removed from
          accrual status because the loans are 90 or more days delinquent as to
          principal and/or interest or, in management's opinion, full
          collectibility of the loans is in doubt. Real estate owned consists of
          real estate acquired in settlement of loans. A loan is considered a
          troubled debt restructuring if, as a result of the borrower's
          financial condition, the Company has agreed to modify the loan by
          accepting below market terms either by granting an interest rate
          concession or by deferring principal or interest payments. As used in
          this table, the term "troubled debt restructurings" means a
          restructured loan on accrual status. Troubled debt restructurings on
          nonaccrual status are reported in the nonaccrual loan category. See
          "ITEM 1. BUSINESS--Asset Quality."

     (10) For information on the Bank's regulatory capital requirements. See
          "ITEM 1. BUSINESS--Regulation Of Federal Savings Banks--Regulatory
          Capital Requirements."


                                       41

<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" incorporated hereof.

GENERAL

     The Company conducts its business primarily through the Bank, which is a
community oriented savings bank which emphasizes customer service and
convenience. The Company has operated profitably during 1996 and 1997 and 1998,
after giving effect for $15.6 million of one time expenses ($9.2 million net of
applicable tax benefits) paid in connection with the Offering. Without the
effect of such one-time payments, the Company would have reported net earnings
of $20.1 million for the year ended December 31, 1998, an 84% increase over the
results for the prior year. The Bank is currently well capitalized under the
applicable regulatory requirements.

     As part of its overall business strategy, the Bank has sought to develop a
wide variety of products and services which meet the needs of its retail and
commercial customers. On the asset side of the Bank's balance sheet, management
has increased its emphasis on commercial business and consumer lending which
complements the Bank's existing residential and commercial real estate lending
operations. In addition, the Bank has increased its investment in corporate
trust preferred obligations and U.S. Government agency mortgage-backed
securities with the intention of enhancing net interest income while limiting
credit and interest rate risk. On the liability side of the Bank's balance
sheet, the Bank is focused on accessing cost-efficient funding sources,
including retail deposits, FHLB advances ,and securities sold under agreements
to repurchase.

     The Bank's business strategy focuses on achieving attractive returns
consistent with the Company's risk management objectives. The Bank has sought to
implement this strategy by (i) reducing non-performing assets; (ii) improving
operating efficiency by maintaining a low level of operating expenses relative
to interest-earning assets; (iii) reducing funding costs through the utilization
of retail deposits and other borrowings; (iv) revising the Bank's investment
policy and, in connection therewith, replacing illiquid mortgage-related
securities with U.S. Government agency obligations and U.S. Government agency
mortgage-backed securities; (v) managing the Bank's interest rate risk through
on-balance sheet hedging; (vi) developing new business relationships through an
increased emphasis on commercial lending and diversifying the Bank's retail
products and services, including an increase in consumer loan originations;
(vii) increasing the Bank's securities portfolio as a means of enhancing net
interest income while minimizing the Bank's credit and interest rate risk
exposure; and (viii) expanding the Bank's franchise through new branch openings
and pursuing acquisition opportunities when appropriate.

FINANCIAL CONDITION

     GENERAL. Total assets increased by $1.1 billion or 50.7% to $3.3 billion
during the year ended December 31, 1998 and increased by $465.1 million or 26.6%
during the year ended December 31, 1997. The increase in total assets during
1998 primarily reflected an increase in the Bank's loans receivable, net, as
well as investments in U.S. Government agency debt securities, corporate trust
preferred securities and mortgage-backed securities. During 1998, the Bank took
advantage of the leverage opportunities presented as a result of the capital
raised from the PBOC Offering, originating $607.6 million of loans and
purchasing $876.9 million of loans, which were funded by intermediate-term FHLB
advances. Total investments increased by $430.4 million during 1998 and were the
primary reason for the increase in total assets in 1997. These assets were
funded primarily through the use of short- and intermediate-term borrowings,
consisting of reverse repurchase agreements and FHLB advances. The shift in the
composition of the Bank's asset and liability mix since 1996 reflects the new
management's operational philosophy, discussed above.

     CASH, CASH EQUIVALENTS AND OTHER SHORT-TERM INVESTMENTS. Cash, cash
equivalents and other short-term investments (consisting of cash,
interest-bearing deposits in other banks, federal funds sold and securities
purchased under agreements to resell) amounted to $46.4 million and $21.1
million at December 31, 1998 and 1997, respectively. 

                                       42

<PAGE>

The Bank manages its cash, cash equivalents and other short-term investments
based upon the Bank's operating, investing and financing activities. The Bank
generally attempts to invest its excess liquidity into higher yielding assets
such as loans or securities. At December 31, 1998, the Bank's regulatory
liquidity exceeded the minimum OTS requirements. See "Liquidity And Capital
Resources."

     SECURITIES. At December 31, 1998, the Bank's securities portfolio (both
held-to-maturity and available-for-sale) amounted to $1.0 billion or 30.3% of
the Company's total assets, as compared to $580.8 million or 26.2% at December
31, 1997. At December 31, 1998 and 1997, $590.8 million and $428.1 million, or
58.4% and 73.7% of the Bank's securities portfolio, consisted of mortgage-backed
securities, $325.0 million and $0 million, or 32.1% and 0% of such portfolio,
consisted of investment-grade trust preferred obligations, and $37.0 million and
$139.7 million, or 3.6% and 24.0% of such portfolio, consisted of U.S.
Government agency securities, respectively. Although mortgage-backed securities
often carry lower yields than traditional mortgage loans, such securities
generally increase the credit quality of the Bank's assets because they have
underlying insurance or guarantees, require less capital under risk-based
regulatory capital requirements than non-insured or non-guaranteed mortgage
loans, are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Bank. At December 31, 1998,
$6.3 million of the Bank's securities portfolio was classified as
held-to-maturity and reported at historical cost and $1.0 billion of such
portfolio was classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and instead reported as a
separate component of stockholders' equity. Historically, the Bank has
classified substantially all of its securities purchases as available-for-sale
except for certain mortgage-backed securities which are qualifying for purposes
of the Community Reinvestment Act of 1978, as amended ("CRA"). At December 31,
1998, the Bank's securities classified as available-for-sale had in the
aggregate $13.6 million of unrealized losses.

     The following table sets forth information regarding the carrying and
market value of the Bank's securities at the dates indicated.
<TABLE>
<CAPTION>

                                                                                  At December 31,
                                                  --------------------------------------------------------------------------------
                                                            1998                        1997                        1996
                                                  -------------------------    ------------------------    -----------------------
                                                   Carrying        Market       Carrying       Market      Carrying        Market
                                                    Value          Value         Value         Value        Value          Value
                                                  ----------     ----------    ----------     ---------    ---------     ---------
                                                                                (Dollars in thousands)
<S>                                               <C>            <C>           <C>            <C>          <C>           <C>
Available-for-sale (at market):                  
U.S. Government and federal agency               
 obligations ...................................  $   36,977     $   36,977    $  139,719     $ 139,719    $  38,714     $  38,714
Investment-grade trust preferred obligations ..      324,965        324,965        --            --            --            --
Mortgage-backed securities ....................      584,515        584,515       418,450       418,450      463,587       463,587
         SBA certificates .....................       58,480         58,480        12,991        12,991        --           --
                                                  ----------     ----------    ----------     ---------    ---------     ---------
                                                  $1,004,937     $1,004,937    $  571,160     $ 571,160    $ 502,301     $ 502,301
                                                  ----------     ----------    ----------     ---------    ---------     ---------
                                                  ----------     ----------    ----------     ---------    ---------     ---------
Held-to-maturity:                                
         Mortgage-backed securities ...........   $    6,282     $    6,372    $    9,671     $   9,743    $  10,971     $  10,899
                                                  ----------     ----------    ----------     ---------    ---------     ---------
                                                  ----------     ----------    ----------     ---------    ---------     ---------

</TABLE>


                                       43

<PAGE>

     The following table sets forth the activity in the Bank's aggregate
securities portfolio (both securities classified available-for-sale and
held-to-maturity) during the periods indicated.

<TABLE>
<CAPTION>

                                                                                              Year Ended December 31,
                                                                                    --------------------------------------------
                                                                                       1998             1997            1996
                                                                                    -----------      ----------      -----------
                                                                                               (Dollars in thousands)
<S>                                                                                 <C>              <C>             <C>
Securities at beginning of period ...............................................   $   580,831      $  513,272      $   241,645
Purchases .......................................................................     1,134,026         408,729          487,719
Sales ...........................................................................      (513,159)       (234,339)        (158,448)
Repayments and prepayments ......................................................      (178,842)       (110,941)         (53,207)
Decrease (increase) in unrealized losses on available-for-sale securities(1) ....       (11,637)          4,110           (4,437)
                                                                                    -----------      ----------      -----------
Securities at end of period(2)(3) ...............................................   $ 1,011,219      $  580,831      $   513,272
                                                                                    -----------      ----------      -----------
                                                                                    -----------      ----------      -----------

</TABLE>





     (1)  At December 31, 1998, the cumulative unrealized losses on securities
          classified as available-for-sale amounted to $13.6 million, which
          reduces stockholders' equity.

     (2)  At December 31, 1998, the book value and market value of the Bank's
          securities (including held-to-maturity and available-for-sale
          securities) amounted to $1,011.2 million and $1,011.3 million,
          respectively.


     (3)  At December 31, 1998, $501.1 million or 49.5% of the Bank's securities
          portfolio consisted of adjustable-rate securities, compared to $222.4
          million or 43.3% and $115.8 million or 47.9% at December 31, 1997 and
          1996, respectively.

     LOANS RECEIVABLE. Net loans receivable increased by $615.6 million, or
40.2%, during the year ended December 31, 1998 and increased by $391.5 million,
or 34.3%, during the year ended December 31, 1997. The significant increase
during 1998 was directly attributable to management's strategy of leveraging the
capital generated from the Offering. The Bank purchased $821.7 million of
single-family residential mortgage loans in 1998 on a ervicing retained basis.
At December 31, 1998, $412.0 million in principal balance of such purchases were
secured by properties located outside of the state of California. The Bank also
increased its loan originations to $607.6 million in 1998 compared to $160.7
million in 1997.

                                       44


<PAGE>


LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Bank's loans at the dates indicated.
<TABLE>
<CAPTION>

                                                                            December 31,
                                              ---------------------------------------------------------------------------
                                                        1998                         1997                   1996
                                              ----------------------   ------------------------   -----------------------
                                                          Percent of                 Percent of                Percent of
                                                Amount       Total       Amount         Total       Amount        Total  
                                              ----------  ----------   -----------   ----------   ----------   ----------
                                                                      (Dollars in thousands)
<S>                                           <C>            <C>       <C>              <C>       <C>             <C>
Mortgage loans:                            
  Single-family residential ...............   $1,494,756      68%      $   953,701       62%      $  595,915        51%  
  Multi-family residential ................      366,625      17           426,254       27          453,064        39   
  Commercial ..............................      206,402       9           135,407        9          110,931        10   
  Land and other ..........................          880      --             5,896       --            1,639        --   
                                              ----------     ---       -----------      ---       ----------       ---   
    Total mortgage loans ..................    2,068,663      94         1,521,258       98        1,161,549       100   
                                              ----------     ---       -----------      ---       ----------       ---   
Other loans:                               
  Commercial business .....................       62,665       3            22,484        1            3,523        --  
  Consumer ................................       53,826       3             8,485        1              988        --  
  Secured by deposits .....................        3,537      --             2,287       --            2,132        --  
                                              ----------     ---       -----------      ---       ----------       ---   
    Total loans receivable ................    2,188,691     100%        1,554,514      100%       1,168,192       100%  
                                              ----------     ---       -----------      ---       ----------       ---   
                                                             ---                        ---                        ---  
Less:                                      
  Undistributed loan proceeds .............       17,152                     6,206                       473             
  Unamortized net loan discounts             
    and deferred origination fees .........          814                    (6,859)                    2,732             
  Deferred gain on servicing sold .........        2,971                     4,131                     --                
  Allowance for loan losses ...............       18,897                    17,824                    23,280             
                                              ----------                ----------                ----------             
  Loans receivable, net ...................   $2,148,857                $1,533,212                $1,141,707             
                                              ----------                ----------                ----------             
                                              ----------                ----------                ---------- 
</TABLE>



<TABLE>
<CAPTION>

                                                              December 31,
                                         ------------------------------------------------------
                                                   1995                         1994
                                         --------------------------  --------------------------
                                                        Percent of                   Percent of
                                           Amount         Total         Amount         Total
                                         -----------  -------------  -------------  -----------
                                                  (Dollars in thousands)
                                       
<S>                                        <C>              <C>           <C>            <C>
Mortgage loans:                          
  Single-family residential ............   $  658,412        52%        $  721,801       54%
  Multi-family residential .............      479,100        38            480,547       36
  Commercial ...........................      120,109        10            129,768       10
  Land and other .......................        3,176        --              7,546       --
                                           ----------       ---         ----------      --- 
    Total mortgage loans ...............    1,260,797       100          1,339,662      100
                                           ----------       ---         ----------      --- 
Other loans:                             
  Commercial business ..................       --            --              --          --
  Consumer .............................       --            --              --          --
  Secured by deposits ..................        1,976        --                908       --
                                           ----------       ---         ----------      --- 
    Total loans receivable .............    1,262,773       100%         1,340,570      100%
                                           ----------       ---         ----------      --- 
                                                            ---                         --- 
Less:                                    
  Undistributed loan proceeds ..........          28                         1,376
  Unamortized net loan discounts 
    and deferred origination fees ......       3,021                         3,336
  Deferred gain on servicing sold ......       --                            --
  Allowance for  loan losses ...........      31,572                        29,801
                                           ----------                   ---------- 
  Loans receivable, net ................   $1,228,152                   $1,306,057
                                           ----------                   ---------- 
                                           ----------                   ---------- 

</TABLE>



                                       45




<PAGE>


     CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth scheduled contractual amortization of the Bank's total loan portfolio
at December 31, 1998, as well as the dollar amount of such loans which are
scheduled to mature after one year which have fixed or adjustable interest
rates. Demand loans, loans having no schedule of repayments and no stated
maturity and overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>

                                                                 Principal Repayments Contractually Due or Repricing
                                                                           in Year(s) Ended December 31,
                                                  ---------------------------------------------------------------------------------
                                     Total at  
                                   December 31,                                         2002-       2004-      2010-
                                       1998         1999        2000        2001        2003        2009        2015     Thereafter
                                   ------------   ---------   ---------   ---------   ---------   ---------   ---------  ----------
                                                                    (Dollars in thousands)

<S>                                <C>          <C>         <C>         <C>         <C>         <C>         <C>          <C>
Mortgage loans:
  Single-family residential ....    $1,494,756   $  23,223   $  36,775   $  39,178   $  87,115   $ 307,170   $ 352,285   $ 649,010
  Multi-family residential .....       366,625      19,282       6,717      11,194      23,249     107,732      81,303     117,148
  Commercial ...................       206,402      38,638       7,525       3,242      22,813     125,207       4,566       4,411
  Land .........................           880         147          30          10         693        --          --          --
Other loans:                       
  Commercial ...................        62,665      28,434      17,778       2,746       4,306       5,783       1,347       2,271
  Consumer .....................        53,826      11,771       8,255       8,316      18,989       2,962         809       2,724
  Secured by deposits ..........         3,537       3,537        --          --          --          --          --          --
                                   
                                    ----------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
    Total (1) ..................    $2,188,691   $ 125,032   $  77,080   $  64,686   $ 157,165   $ 548,854   $ 440,310   $ 775,564
                                    ----------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
                                    ----------   ---------   ---------   ---------   ---------   ---------   ---------   ---------

</TABLE>




     (1)  Of the $2.06 billion of loan principal repayments contractually due
          after December 31, 1999, $1.24 billion have fixed rates of interest
          and $817 million have adjustable rates of interest.

          Scheduled contractual principal repayments do not reflect the actual
     maturities of loans. The average maturity of loans is substantially less
     than their average contractual terms because of prepayments and, in the
     case of conventional mortgage loans, due-on-sale clauses, which generally
     give the Bank the right to declare a loan immediately due and payable in
     the event, among other things, that the borrower sells the real property
     subject to the mortgage and the loan is not repaid. The average life of
     mortgage loans tends to increase when the current mortgage loan rates are
     substantially higher than rates on existing mortgage loans and, conversely,
     decrease when rates on existing mortgages are substantially lower than
     current mortgage loan rates (due to refinancings of adjustable rate and
     fixed rate loans at lower rates).


                                       46


<PAGE>

The following table shows the activity in the Bank's loan portfolio during the
periods indicated.
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                     ---------------------------------------------------
                                                                         1998                1997                1996
                                                                     ----------          ----------           ----------
                                                                                    (Dollars in thousands)
<S>                                                                  <C>                 <C>                  <C>       
Gross loans held at beginning of period ..........................   $1,554,514          $1,168,192           $1,262,773
Originations of loans:
  Mortgage loans:
     Single-family residential ...................................      389,475              88,077               37,129
     Multi-family residential ....................................        7,847              15,806                7,823
     Commercial ..................................................      116,242              24,232                6,945
     Land ........................................................       --                  --                   --
Other loans:
     Commercial ..................................................       57,492              20,869                4,303
     Consumer ....................................................       32,969               8,050                1,069
     Secured by deposits .........................................        3,537               3,664                4,389
                                                                     ----------          ----------           ----------
                       Total originations ........................      607,562             160,698               61,658
                                                                     ----------          ----------           ----------
Purchases of loans:
     Single-family residential ...................................      821,716             482,943              --
     Multi-family residential ....................................       13,302               4,834              --
     Commercial real estate ......................................       10,201              12,899              --
     Land ........................................................       --                   5,000              --
     Commercial ..................................................        9,200              --                  --
     Consumer ....................................................       22,479                   5              --
                                                                     ----------          ----------           ----------
     Total purchases .............................................      876,898             505,681              --
                                                                     ----------          ----------           ----------
                       Total originations and purchases ..........    1,484,460             666,379              61,658
                                                                     ----------          ----------           ----------
Loans sold:
     Single-family residential ...................................      (37,051)            (85,241)             --
     Commercial real estate ......................................         (357)             --                  --
     Commercial ..................................................       (5,000)             --                  --
     Consumer ....................................................          (13)             --                  --
                                                                     ----------          ----------           ----------
                       Total sold ................................      (42,421)            (85,241)             --
                                                                     ----------          ----------           ----------
Repayments .......................................................     (797,614)           (163,467)           (113,721)
Transfers to real estate owned ...................................      (10,248)            (31,349)            (42,518)
                                                                     ----------          ----------           ----------
Net activity in loans ............................................      634,177             386,322             (94,581)
                                                                     ----------          ----------           ----------
Gross loans held at end of period ................................   $2,188,691          $1,554,514          $1,168,192
                                                                     ----------          ----------           ----------
                                                                     ----------          ----------           ----------
</TABLE>


                                       47

<PAGE>

     NON-PERFORMING LOANS AND TROUBLED DEBT RESTRUCTURINGS. The Bank's new
management has successfully taken steps to reduce the level of the Bank's
non-performing assets, which has resulted in a substantial decline in
non-performing loans and troubled debt restructurings (troubled debt
restructurings consist of loans with respect to which the Bank has agreed to
grant an interest rate concession or defer principal or interest payments), from
an aggregate of $25.8 million at December 31, 1996 to an aggregate of $12.1
million at December 31, 1998.

     The following table sets forth information with respect to non-performing
assets identified by the Bank, including non-accrual loans, real estate owned
and TDRs at the dates indicated.
<TABLE>
<CAPTION>

                                                                    At December 31,
                                                 -------------------------------------------------------------------
                                                    1998          1997         1996           1995          1994
                                                 ---------      ---------     --------      ---------     ----------
                                                              (Dollars in thousands)
<S>                                               <C>            <C>           <C>           <C>           <C>
Non-performing loans, net:
Mortgage loans:
    Single-family residential.................    $   3,959      $   8,435     $  7,947      $  10,467     $   14,780
    Multi-family residential..................          428            405        9,198         16,840(1)       --
    Commercial................................        3,613          1,064        1,093          8,173          8,446
    Land......................................          --             --           --             112          4,232
Non-mortgage loans:
    Commercial................................          99           --           --              --             --
    Consumer..................................         408           --           --              --             --
                                                  ---------      ---------     --------      ---------     ----------
    Total non-performing loans, net                  8,507           9,904        18,238        35,592          27,458
                                                  ---------      ---------     --------      ---------     ----------
Real estate owned, net:
    Single-family residential.................       2,723             678         3,268         6,387           5,322
    Multi-family residential..................       --              6,482         8,310           901           3,999
    Commercial................................       --              5,921         8,614         3,506           1,095
    Land......................................       --                202           244           121              69
                                                  ---------      ---------     --------      ---------     ----------
Total real estate owned, net..................       2,723          13,283        20,436        10,915          10,485
                                                  ---------      ---------     --------      ---------     ----------
Total non-performing assets...................      11,230          23,187        38,674        46,507          37,943
Troubled debt restructurings..................       3,576           9,936         7,544         6,133          40,794(1)
                                                  ---------      ---------     --------      ---------     ----------
Total non-performing assets and troubled debt
 restructurings...............................    $ 14,806         $ 33,123    $  46,218     $  52,640     $   78,737
                                                  ---------      ---------     --------      ---------     ----------
                                                  ---------      ---------     --------      ---------     ----------
Non-performing loans to total loans, net......       0.40%            0.65%        1.60%         2.90%          2.10%
Non-performing loans to total assets..........        0.26             0.45         1.04          2.25           1.59
Non-performing assets to total assets.........        0.34             1.05         2.21          2.94           2.20
Total non-performing assets and troubled debt
    restructurings to total assets............        0.44             1.50         2.64          3.33           4.57

</TABLE>

         -----------

     (1)  Reflects to a large extent problems associated with the 1994
          Northridge earthquake.

                                       48

<PAGE>

     The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated.

<TABLE>
<CAPTION>

                                                                           At December 31,
                                                   ------------------------------------------------------------------------------
                                                       1998              1997          1996            1995            1994
                                                   ------------    ------------   ------------      -----------   ---------------
                                                                       (Dollars in thousands)
<S>                                                <C>             <C>              <C>              <C>             <C>
Allowance at beginning of period ............      $ 17,824         $ 23,280         $ 31,572         $ 29,801         $ 20,426
                                                   --------         --------         --------         --------         --------
Provision for loan losses ...................         2,000            2,046            2,884            8,823           22,330
                                                   --------         --------         --------         --------         --------
Charge-offs:                                                                                                       
    Mortgage loans:                                                                                                
    Single-family residential ...............          (616)          (1,967)          (2,213)          (3,416)          (5,428)
    Multi-family residential ................          (261)          (5,599)          (5,039)          (1,854)          (1,787)
    Commercial ..............................          --                (42)          (3,371)            (860)          (5,813)
    Land ....................................          --               --             (1,478)            (956)            --
    Non-mortgage loans:                                                                                            
    Commercial ..............................           (16)            --               --               --               --
    Consumer ................................          (119)            --               --               --               --
                                                   --------         --------         --------         --------         --------
             Total charge-offs ..............        (1,012)          (7,608)         (12,101)          (7,086)         (13,028)
                                                   --------         --------         --------         --------         --------
Recoveries:                                                                                                        
    Mortgage loans:                                                                                                
    Single-family residential ...............            85              106               16               34               73
    Multi-family residential ................          --               --                 22             --               --
    Commercial ..............................          --               --                  2             --               --
    Land ....................................          --               --                885             --               --
                                                   --------         --------         --------         --------         --------
             Total recoveries ...............            85              106              925               34               73
                                                   --------         --------         --------         --------         --------
Net charge-offs .............................          (927)          (7,502)         (11,176)          (7,052)         (12,955)
                                                   --------         --------         --------         --------         --------
Allowance at end of period ..................      $ 18,897         $ 17,824         $ 23,280         $ 31,572         $ 29,801
                                                   --------         --------         --------         --------         --------
                                                   --------         --------         --------         --------         --------
Allowance for loan losses to total                                                                                 
    nonperforming loans at end of period ....        222.13%          179.97%          127.65%           88.71%          108.53%
Allowance for loan losses to total                                                                                 
    nonperforming loans and troubled debt                                                                          
    restructurings at end of period .........        156.39%           89.84%           90.30%           75.67%           43.66%
Allowance for loan losses to total loans, net                                                                      
    at end of period ........................          0.88%            1.16%            2.04%            2.57%            2.28%

</TABLE>



     As shown in the table above, loan charge-offs (net of recoveries) amounted
to $927,000, $7.5 million and $11.2 million, during the years ended December 31,
1998, 1997 and 1996, respectively. The net charge-offs recognized by the Bank
during the years ended December 31, 1998, 1997 and 1996 primarily reflected the
transfer of loans (particularly multi-family residential loans) to real estate
owned, as shown in the preceding non-performing assets table. Such multi-family
loans had specific valuation allowances which had been established through
increased provisions for loan losses in prior periods. At the time of transfer
of the loans to real estate owned, such specific valuation allowances were
charged off. As a result of the transfer of such loans to real estate owned, the
Bank's non-performing loans have 

                                       49

<PAGE>


declined significantly since 1995, which has contributed to the decrease in the
Bank's provision for loan losses. Management believes that its allowance for
loan losses at December 31, 1998 is adequate. Nevertheless, there can be no
assurances that additions to such allowance will not be necessary in future
periods, particularly if the growth in the Bank's commercial and consumer
lending continues.


     The following table sets forth information concerning the allocation of the
Bank's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>

                                                                     Year Ended December 31,
                            -------------------------------------------------------------------------------------------------------
                                   1998                 1997                  1996                   1995               1994
                            -------------------   -------------------   ------------------    ------------------   -----------------
                                       Percent               Percent              Percent               Percent             Percent
                                      to Total              to Total             to Total              to Total            to Total
                            Amount    Allowance   Amount    Allowance   Amount   Allowance    Amount   Allowance   Amount  Allowance
                            -------   ---------   -------   ---------   -------  ---------    -------  ---------  -------  --------
                                                             (Dollars in thousands)
<S>                         <C>         <C>       <C>         <C>       <C>         <C>       <C>        <C>      <C>        <C> 
Residential real estate...  $ 5,637      29.8%    $ 5,014      28.1%    $ 4,051      17.4%    $ 5,109     16.2%   $ 7,809     26.2%
Multi-family                                                                                                      
 residential .............    7,239      38.3       8,964      50.3      15,753      67.7      18,509     58.6     11,396     38.2
Commercial real                                                                                                   
 estate ..................    3,887      20.6       3,062      17.2       3,267      14.0       7,850     24.9      6,964     23.4
Land .....................       44       0.2         305       1.7          94       0.4         104      0.3      3,120     10.5
Other loans ..............    2,090      11.1         479       2.7         115       0.5        --        --         512      1.7
                            -------     -----     -------     -----     -------     -----     -------    -----    -------    ----- 
   Total ................   $18,897     100.0%    $17,824     100.0%    $23,280     100.0%    $31,572    100.0%   $29,801    100.0%
                            -------     -----     -------     -----     -------     -----     -------    -----    -------    ----- 
                            -------     -----     -------     -----     -------     -----     -------    -----    -------    ----- 
                                                                                           
</TABLE>


     REAL ESTATE HELD FOR INVESTMENT AND SALE. Net real estate held for
investment and sale consists of real estate acquired through foreclosure (i.e.,
real estate owned) and real estate held for investment. Real estate owned is
included in total non-performing assets.

     At December 31, 1998, the Company's real estate held for investment and
sale was $2.7 million as compared to $15.2 million in December 31, 1997.

     DEPOSITS. Total deposits increased by $275.5 million or 21.8% during the
year ended December 31, 1998. The Bank's aggregate certificates of deposit
increased from $932.8 million, or 73.6% of total deposits, at December 31, 1997
to $1.1 billion, or 71.9% of total deposits, at December 31, 1998. Of the total
increase in certificates of deposit, certificates of deposit $100,000 and over
increased from $138.2 million, or 10.9% of total deposits, to $316.3 million, or
20.5% of total deposits, from December 31, 1997 to December 31, 1998. The
increase in deposits was primarily due to the acquisition of two branch offices
and their related deposits and expanded business customer deposit base. The Bank
has offered a wide array of deposit products through its branch system in order
to foster retail deposit growth. Transaction accounts (consisting of passbook,
NOW and money market accounts) increased from $333.8 million, or 26.4% of total
deposits, at December 31, 1997 to $433.0 million, or 28.1% of total deposits, at
December 31, 1998 

                                       50

<PAGE>

     The following table presents the average balance of each deposit type and
the average rate paid on each deposit type of the Bank for the periods
indicated.
<TABLE>
<CAPTION>

                                                                            Year Ended December 31,
                                    -----------------------------------------------------------------------------------------------
                                                 1998                          1997                                1996
                                    -----------------------------  ----------------------------------  ----------------------------
                                                      Weighted                        Weighted                       Weighted
                                     Average          Average        Average          Average           Average      Average
                                     Balance         Rate Paid       Balance         Rate Paid          Balance      Rate Paid
                                    -----------------------------------------------------------------------------------------------
                                                                            (Dollars in thousands)
<S>                                 <C>               <C>           <C>               <C>           <C>               <C>
NOW accounts ....................   $   120,664       1.75%         $    83,248       1.96%         $    58,511       0.77%
Money market accounts ...........        96,447       4.71               21,938       2.94               29,665       2.52
Passbook accounts ...............       158,396       3.88              235,162       4.34              264,677       4.64
                                    -----------                     -----------                     -----------       
Total transaction accounts ......       375,507                         340,348                         352,853
Term certificates of deposit ....     1,010,209       5.71              966,863       5.66            1,069,484       5.76
                                    -----------                     -----------                     -----------
         Total deposits .........   $ 1,385,716       5.09%         $ 1,307,211       5.14%         $ 1,422,337       5.28%
                                    -----------       ----          -----------       ----          -----------       ---- 
                                    -----------       ----          -----------       ----          -----------       ---- 
</TABLE>




     The following table sets forth the activity in the Bank's deposits during
the periods indicated.
<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                    --------------------------------------------------
                                                                        1998                1997                1996
                                                                    ----------          ----------          ----------
                                                                                   (Dollars in thousands)
<S>                                                                 <C>                 <C>                 <C>
Beginning balance ...............................................   $1,266,615          $1,371,243          $1,473,318
Net increase (decrease) before interest .........................      221,269            (157,599)           (160,804)
Interest credited ...............................................       54,278              52,971              58,729
                                                                    ----------          ----------          ----------
Net increase (decrease) in deposits .............................      275,547            (104,628)           (102,075)
                                                                    ----------          ----------          ----------
Ending balance ..................................................   $1,542,162          $1,266,615          $1,371,243
                                                                    ----------          ----------          ----------
                                                                    ----------          ----------          ----------

</TABLE>


                                       51

<PAGE>

     The following table sets forth by various interest rate categories the term
certificates of deposit with the Bank at the dates indicated.
<TABLE>
<CAPTION>

                                                         At December 31,
                                        ------------------------------------------------------------
                                              1998                 1997                 1996
                                        ---------------         ------------          -------------- 
                                                          (Dollars in thousands)
<S>                                     <C>                  <C>                  <C>
0.00% to 2.99% ......................   $       4,536           $    4,071       $           4,299
3.00 to 3.99 ........................           5,085                2,993                   3,833
4.00 to 4.99 ........................         107,373                5,700                  46,771
5.00 to 6.99 ........................         961,204              918,842                 909,895
7.00 to 8.99 ........................          30,961                1,219                  36,244
                                        ---------------         ------------          -------------- 
 Total ..............................   $   1,109,159(1)        $  932,825(1)         $  1,001,042(1)
                                        ---------------         ------------          -------------- 
                                        ---------------         ------------          -------------- 

</TABLE>

-----------

     (1)  At December 31, 1998, 1997 and 1996, certificates of deposit in
          amounts greater than or equal to $100,000 amounted to $316.3 million,
          $138.2 million and $158.7 million, respectively.


     The following table sets forth the amount and remaining maturities of the
Bank's term certificates of deposit at December 31, 1998.

<TABLE>
<CAPTION>

                                           Over 
                                         Six Months             Over One          Over Two
                       Six Months         Through            Year Through       Years Through       Over Three
                        and Less          One Year             Two Years         Three Years           Years
                       ----------        -----------         ------------       -------------      -------------
                                                          (Dollars in thousands)
<S>                    <C>               <C>                 <C>                 <C>                 <C> 
0.00% to 1.99% .....   $      200        $     --           $     --             $      --           $      --
2.00 to 2.99 .......        3,339                779                 219                --                  --
3.00 to 3.99 .......        5,085              --                 --                    --                  --
4.00 to 4.99 .......       42,807             56,905               7,334                 326                --
5.00 to 6.99 .......      550,865            255,868             129,750              10,233              14,488
7.00 to 8.99 .......       30,590                 69                 302                --                  --
                       ----------        -----------         -----------         -----------       -------------
         Total .....   $  632,886        $   313,621         $   137,605         $    10,559       $      14,488
                       ----------        -----------         -----------         -----------       -------------
                       ----------        -----------         -----------         -----------       -------------
                   
</TABLE>


                                       52


<PAGE>

     The following table presents the maturity of term certificates of deposit
in amounts greater than $100,000 at December 31, 1998.

<TABLE>
<CAPTION>

                                                         At December 31, 1998
                                                        ----------------------
                                                        (Dollars in thousands)
<S>                                                          <C>
3 months or less .........................................   $     76,714
Over 3 months through 6 months ...........................        106,257
Over 6 months through 12 months ..........................         92,364
Over 12 months ...........................................         40,943
                                                             ------------
         Total ...........................................   $    316,278
                                                             ------------
                                                             ------------

</TABLE>




     BORROWINGS. The Company used $11.4 of Offering proceeds, to repurchase
senior notes held by a Selling Stockholder in 1998.

     The following table sets forth certain information regarding the borrowings
of the Bank at or for the dates indicated.

<TABLE>
<CAPTION>

                                                                                At or For the Year Ended December 31,
                                                                            --------------------------------------------
                                                                                1998            1997             1996
                                                                            -----------      ---------        ----------
                                                                                        (Dollars in thousands)
FHLB OF SAN FRANCISCO ADVANCES:
<S>                                                                         <C>              <C>              <C>       
   Average balance outstanding ..........................................   $   902,083      $ 148,681        $   53,666
   Maximum amount outstanding at any month-end during the period ........     1,249,000        472,000            80,000
   Balance outstanding at end of period .................................     1,198,000        472,000            80,000
   Weighted average interest rate during the period .....................          5.54%          5.91%             5.49%
   Weighted average interest rate at end of period ......................          5.38%          5.87%             5.91%
   Weighted average remaining term to maturity at end of period (in
    years) ..............................................................          5.01           1.61              0.95
SECURITIES SOLD UNDER AGREEMENTS TO PURCHASE:
   Average balance outstanding ..........................................   $   385,451      $ 357,396        $  179,002
   Maximum amount outstanding at any month-end during the period ........       658,409        415,676           219,229
   Balance outstanding at end of period .................................       364,000        340,788           192,433
   Weighted average interest rate during the period .....................          5.66%          5.49%             6.09%
   Weighted average interest rate at end of period ......................          5.61%          5.76%             5.49%
   Weighted average remaining term to maturity at end of period (in
    years) ..............................................................          3.73           2.71              0.63

</TABLE>


     Other than deposits, the Bank's primary sources of funds consist of reverse
repurchase agreements and advances from the FHLB of San Francisco. At December
31, 1998, reverse repurchase agreements amounted to $364.0 million, compared to
$340.8 million at December 31, 1997. The Bank has been utilizing reverse
repurchase agreements as part of its overall asset growth and leverage strategy
and, in connection therewith, during 1998, the Bank increased the weighted
average remaining term to maturity of such instruments. As of December 31, 1998,
the weighted average 

                                       53

<PAGE>

remaining term to maturity of the Bank's reverse repurchase agreements increased
to 3.73 years, compared to 2.71 years at December 31, 1997, and such reverse
repurchase agreements had a weighted average interest rate of 5.61% at December
31, 1998 as compared to 5.76% at December 31, 1997. See "Sources Of
Funds--Borrowings."

     Advances from the FHLB of San Francisco amounted to $1.2 billion and $472.0
million at December 31, 1998 and 1997, respectively. The significant increase in
FHLB advances during 1998 is directly attributable to management's strategy of
leveraging the capital raised in the Offering. Fixed-rate FHLB advances of
intermediate-term maturities were used to fund the wholesale purchase of loans
and securities and loan originations. Of the Bank's FHLB advances outstanding as
of December 31, 1998, $14 million is scheduled to mature during 1999 and the
remaining $1,184 million matures between years of 2000 and 2008. As of December
31, 1998, the weighted average remaining term to maturity of the Bank's FHLB
advances amounted to 5.01 years, compared to 1.61 at December 31, 1997,
respectively, and had a weighted average interest rate of 5.38% at December 31,
1998, compared to 5.87% at December 31, 1997. At December 31, 1998, the Bank had
a collateralized available line of credit of approximately $1.7 billion with the
FHLB of San Francisco.

     STOCKHOLDERS' EQUITY. Stockholders' equity increased from $79.6 million at
December 31, 1997 to $180.6 million at December 31, 1998. The $101.0 million or
126.9% increase in stockholders' equity during the year ended December 31, 1998
was mainly due to the Offering. The net proceeds to the Company from the sale of
the shares of common stock offered by the Company was $129.6 million after
deducting the underwriting discounts and commissions and offering expenses paid
by the Company.

RESULTS OF OPERATIONS

     GENERAL. The Company's results of operations depend substantially on its
net interest income, which is the difference between interest income on
interest-earning assets, which consist primarily of loans receivable,
mortgage-backed and investment securities and various other short-term
investments, and interest expense on interest-bearing liabilities, which consist
primarily of deposits and borrowings. The Company's results of operations are
also significantly affected by the Bank's provisions for loan losses resulting
from the Bank's assessment of the adequacy of its allowance for loan losses; the
level of its other income, including loan service and related fees, net gains on
sales of securities, loans and loan servicing, and net earnings and losses from
real estate operations; the level of its operating expenses, such as personnel
and benefits expense, occupancy and other office related expense and FDIC
insurance premiums; and income taxes and benefits.

     The Company reported net earnings before preferred dividends of $10.9
million, $10.9 million and $12.5 million during the years ended December 31,
1998, 1997 and 1996, respectively. The 1998 results were impacted by a one-time
expense of $11.1 million ($6.5 million net of applicable tax benefits) for
employment agreement benefits due to certain senior executives officers of the
Company in connection with the Offering. The Company also paid a one-time
special FDIC assessment, which it had deferred from paying in prior years, of
$4.5 million ($2.7 million net of applicable tax benefits). Without the effect
of such one-time payments, the Company would have reported net earnings of $20.1
million for the year ended December 31, 1998. Net earnings decreased by $39,000
or 0.36% for the year ended December 31, 1998, compared to the same period in
the prior year, due to one-time expenses, which was partially offset by a $6.8
million or 21.3% increase in net interest income after provision for loan losses
and a $11.9 million increase in income tax benefit recognized during the year.

     Net earnings decreased by $1.6 million during the year ended December 31,
1997 compared to the prior year, due to a $3.0 million decrease in total other
income and a $1.7 million increase in total operating expenses, which was
partially offset by a $2.5 million or 8.6% increase in net interest income after
provision for loan losses and a $1.5 million increase in income tax benefit
recognized during the year.

     NET INTEREST INCOME. Net interest income is determined by the Company's
interest rate spread (i.e., the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities)
and the relative amounts of interest-earning assets and interest-bearing
liabilities.

     Net interest income totaled $40.5 million, $33.8 million and $32.1 million
during the years ended December 31, 

                                       54

<PAGE>

1998, 1997 and 1996, respectively. Net interest income increased by $6.7 million
or 20% for the year ended December 31, 1998, compared to the prior year, due to
a $888.5 million or 48.4% increase in the average balance of interest-earning
assets (consisting primarily of a $614.7 million increase in the average balance
of loans receivable and a $218.0 million increase in the average balance of
other interest earning assets), which was partially offset by a decrease in the
interest rate spread of 52 basis points. Net interest income increased by $1.7
million or 5.2% during the year ended December 31, 1997 compared to the year
ended December 31, 1996 due a $167.2 million increase in the average balance of
total interest earning assets.

     The Company's net interest margin for the year ended December 31, 1998 was
1.49% as compared to 1.84% for the year ended December 31, 1997. This decrease
in net interest margin compared to the 1997 reflects the decrease in yields on
earning assets, primarily due to accelerated premium amortization on the
purchased adjustable-rate single-family residential portfolio. Such premium
amortization amounted to $6.3 million in 1998.

                                       55

<PAGE>


AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

     The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin. Information is based on average daily balances during the
indicated periods.

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                              -------------------------------------------------------------------
                                                             1998                              1997              
                                              ----------------------------------  -------------------------------
                                                Average                Average    Average               Average  
                                                Balance    Interest   Yield/Cost  Balance    Interest  Yield/Cost
                                                -------    --------   ----------  -------    --------  ----------
                                                                                    (Dollars in thousands)
<S>                                           <C>          <C>          <C>     <C>          <C>         <C>     
Interest-earning assets:
  Loans receivable (1) ....................   $1,814,855   $ 125,851    6.93%   $1,200,137   $ 89,938     7.49%  
  Mortgage-backed securities (2) ..........      557,038      32,439    5.82       501,261     32,672     6.52   
  Other interest-earning assets (3) .......      353,926      22,583    6.38       135,949      8,369     6.16   
                                              ----------   ---------            ----------   --------            
    Total interest-earning assets .........    2,725,819     180,873    6.64     1,837,347    130,979     7.13   
Noninterest-earning assets ................       84,039   ---------                74,487   --------            
                                              ----------                        ----------                       
      Total assets ........................   $2,809,858                        $1,911,834                       
                                              ----------                        ----------                       
                                              ----------                        ----------                       
Interest-bearing liabilities:                                                                                    
  Deposits:                                                                                                      
    Transaction accounts (4) ..............   $  366,910      12,786    3.48%   $  340,348     12,476     3.67%  
    Term certificates of deposit ..........    1,010,307      57,141    5.66       966,863     54,771     5.66   
                                              ----------   ---------            ----------   --------            
      Total deposits ......................    1,377,217      69,927    5.08     1,307,211     67,247     5.14   
  Senior debt .............................        4,467         445    9.96        11,404      1,271    11.15   
  Other borrowings ........................    1,236,120      69,772    5.64       506,077     28,420     5.62   
  Hedging costs ...........................         --           214                  --          267            
                                              ----------   ---------            ----------   --------            
      Total interest-bearing liabilities ..    2,617,804     140,358    5.36%    1,824,692     97,205     5.33%  
Noninterest-bearing liabilities ...........       52,160   ---------                15,957   --------            
                                              ----------                        ----------                       
      Total liabilities ...................    2,669,964                         1,840,649                       
Stockholders' equity ......................      139,894                            71,185                       
                                              ----------                        ----------                       
      Total liabilities and stockholders'                                                                              
        equity ............................   $2,809,858                        $1,911,834                       
                                              ----------                        ----------                       
                                              ----------                        ----------                       
Net interest-earning assets                   $  108,015                        $   12,655                       
                                              ----------                        ----------                       
                                              ----------                        ----------                       
Net interest income/interest rate spread ..                $  40,515    1.28%                $ 33,774    1.80%   
                                                           ---------    ----                 --------    -----   
                                                           ---------    ----                 --------    -----   
Net interest margin .......................                             1.49%                            1.84%   
                                                                        ----                             ----    
                                                                        ----                             ----    
Ratio of average interest-earning                                                                                
  assets to average interest-bearing                                                                             
  liabilities .............................                             1.04%                            1.01%   
                                                                        ----                             ----    
                                                                        ----                             ----    
</TABLE>

<TABLE>

<CAPTION>

                                                    Year Ended December 31,
                                               ---------------------------------
                                                              1996
                                               ---------------------------------
                                                 Average               Average
                                                 Balance    Interest  Yield/Cost
                                                 -------    --------  ----------
<S>                                           <C>          <C>         <C>
Interest-earning assets:                     
  Loans receivable (1) ....................   $1,176,944   $ 89,020     7.56%  
  Mortgage-backed securities (2) ..........      387,603     26,136     6.74   
  Other interest-earning assets (3) .......      105,583      7,740     7.33   
                                              ----------   --------    
    Total interest-earning assets .........    1,670,130    122,896     7.36   
Noninterest-earning assets ................       65,179   --------    
                                              ----------                       
      Total assets ........................   $1,735,309                       
                                              ----------                       
Interest-bearing liabilities:                 ----------                       
  Deposits:                                                                    
    Transaction accounts (4) ..............   $  352,853     12,737     3.61%  
    Term certificates of deposit ..........    1,069,484     62,399     5.83   
                                              ----------   --------    
      Total deposits ......................    1,422,337     75,136            
  Senior debt .............................       10,294      1,160    11.27   
  Other borrowings ........................      232,668     14,108     6.06   
  Hedging costs ...........................         --          387            
                                              ----------   --------    
      Total interest-bearing liabilities ..    1,665,299     90,791     5.45%  
Noninterest-bearing liabilities ...........       12,998   --------            
                                              ----------                       
      Total liabilities ...................    1,678,297                       
Stockholders' equity ......................       57,012                       
                                              ----------                       
      Total liabilities and stockholders'           
        equity ............................   $1,735,309                       
                                              ----------                       
                                              ----------                       
Net interest-earning assets                   $    4,831                       
                                              ----------                       
                                              ----------                       
Net interest income/interest rate spread ..                $ 32,105     1.91%  
                                                           --------    -----   
                                                           --------    -----   
Net interest margin .......................                             1.92%  
                                                                       -----
                                                                       -----
Ratio of average interest-earning                                              
  assets to average interest-bearing                                            
  liabilities .............................                             1.00%  
                                                                        ----   
                                                                        ----   
                                                                               
</TABLE>





(1) The average balance of loans receivable includes nonperforming loans,
    interest on which is recognized on a cash basis.

(2) Includes mortgage-backed securities classified as held-to-maturity and
    available-for-sale.

(3) Includes short-term investments, securities purchased under agreements to
    resell, investment securities and FHLB stock.

(4) Includes passbook NOW and money market accounts.


                                       56


<PAGE>



RATE/VOLUME ANALYSIS

     The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in rate (changes in rate
multiplied by prior volume); (ii) effects on interest income attributable to
changes in volume (changes in volume multiplied by prior rate); and (iii)
changes in rate/volume (change in rate multiplied by change in volume).



<TABLE>
<CAPTION>

                                                 Year Ended December 31, 1998                  Year Ended December 31, 1997
                                           Compared to Year Ended December 31, 1997      Compared to Year Ended December 31, 1996
                                        --------------------------------------------     ----------------------------------------
                                           Increase (decrease) due to                     Increase (decrease) due to
                                        -------------------------------                  -----------------------------
                                                                           Total Net                                     Total Net
                                                                Rate/      Increase                          Rate/       Increase
                                           Rate      Volume     Volume    (Decrease)     Rate     Volume     Volume      (Decrease)
                                           ----      ------     ------    ----------     ----     ------     --------    --------
<S>                                     <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
Interest-earning assets:                            
  Loans receivable ...................  $ (6,715)   $ 46,067   $ (3,439)   $ 35,913   $   (820)   $  1,754   $    (16)   $    918
  Mortgage-backed securities .........    (3,481)      3,636       (388)       (233)      (872)      7,664       (256)      6,536
  Other interest-earning assets ......       733      10,743      2,738      14,214     (1,240)      2,226       (357)        629
                                        --------    --------   --------    --------   --------    --------   --------    --------
Total net change in income on                       
  interest-earning assets ............    (9,463)     60,446     (1,089)     49,894     (2,932)     11,644       (629)      8,083
                                        --------    --------   --------    --------   --------    --------   --------    --------
Interest-bearing liabilities:                       
  Deposits:                                         
    Transaction accounts .............      (616)        974        (48)        310        197        (451)        (7)       (261)
    Term certificates of deposit .....       (87)      2,461         (4)      2,370     (1,815)     (5,987)       174      (7,628)
                                        --------    --------   --------    --------   --------    --------   --------    --------
      Total deposits .................      (703)      3,435        (52)      2,680     (1,618)     (6,438)       167      (7,889)
  Senior debt ........................      (135)       (773)        82        (826)       (13)        125         (1)        111
  Other borrowings ...................       145      40,997        210      41,352     (1,042)     16,578     (1,224)     14,312
  Hedging costs ......................      --          --          (53)        (53)      --          --         (120)       (120)
                                        --------    --------   --------    --------   --------    --------   --------    --------
 Total net change in expense on                     
   interest-bearing liabilities ......      (693)     43,659        187      43,153     (2,673)     10,265     (1,178)      6,414
                                        --------    --------   --------    --------   --------    --------   --------    --------
 Change in net interest income .......  $ (8,770)   $ 16,787   $ (1,276)   $  6,741   $   (259)   $  1,379   $    549    $  1,669
                                        --------    --------   --------    --------   --------    --------   --------    --------
                                        --------    --------   --------    --------   --------    --------   --------    --------
</TABLE>


                                       57


<PAGE>


               INTEREST INCOME. Total interest income increased by $49.9 million
          or 38.1% during the year ended December 31, 1998 and increased by $8.1
          million or 6.6% during the year ended December 31, 1997. This increase
          was partially offset by accelerated premium amortization on the
          purchased adjustable-rate single-family residential loan portfolio.
          Such premium amortization amounted to $6.3 million for 1998. Interest
          income on loans receivable, the largest component of interest-earning
          assets, increased by $35.9 million or 39.9% during the year ended
          December 31, 1998 and increased by $918,000 or 1.0% during the year
          ended December 31, 1997. This increase was primarily due to loan
          growth and investment of funds as a result of leverage of capital
          raised in the Company's Offering. Loan purchases were funded by FHLB
          advances with a weighted average rate of 5.38%. The decline in
          interest income on loans receivable during 1996 was attributable to
          management's focus on non-performing assets, as well as a change in
          the Bank's orientation with respect to lending. See "ITEM 1.
          BUSINESS--Lending Activities--Origination, Purchase and Sale of
          Loans."

               Interest income on mortgage-backed securities decreased by
          $233,000 or 0.7% during the year ended December 31, 1998 and increased
          by $6.5 million or 25.0% during the year ended December 31, 1997. This
          decrease in 1998 was mainly due to sales and accelerated premium
          amortizations due to prepayments.

               Interest income on other interest-earning assets (which consist
          of U.S. Government agency securities, FHLB stock, securities purchased
          under agreements to resell and other short-term investments) increased
          by $14.2 million or 169.8% during the year ended December 31, 1998 and
          increased by $629,000 or 8.1% during the year ended December 31, 1997.
          The increase in such interest income during the year ended December
          31, 1998 was primarily due to a $218.0 million increase in the average
          balance of such investments, and an increase in the weighted average
          yield earned on such investments of 22 basis points. The increase in
          such interest income during 1996 was due primarily to an increase in
          the weighted average yield earned on such investments of 121 basis
          points. See "Investment Activities."

               INTEREST EXPENSE. Total interest expense increased by $43.2
          million or 44.4% during the year ended December 31, 1998 and increased
          by $6.4 million or 7.1% during the year ended December 31, 1997. The
          increase during 1998 is the result of a $793.1 million or 43.5%
          increase in the average balance of interest-bearing liabilities,
          reflecting the growth in the balance sheet. Interest expense on
          deposits, the largest component of the Bank's interest-bearing
          liabilities, increased by $2.7 million or 4.0% during the year ended
          December 31, 1998 and decreased by $7.9 million or 10.5% during the
          year ended December 31, 1997. The increase in interest expense on
          deposits during the year ended December 31, 1998 was primarily due to
          a $70.0 million increase in the average balance. See "Sources Of
          Funds--Deposits."

               Interest expense on borrowings consists of senior notes and other
          borrowings, which is comprised of reverse repurchase agreements and
          FHLB advances. Interest expense on senior notes amounted to $445,000,
          $1.3 million and $1.2 million during the years ended December 31,
          1998, 1997 and 1996, respectively. The senior notes outstanding during
          the periods were purchased by the Material Stockholders during the
          1995 recapitalization of the Bank. The Bishop Estate purchased $10.0
          million of aggregate principal amount of senior notes in connection
          with the 1995 recapitalization. In 1998, upon completion of the
          Offering, the Company repurchased such senior note.

               Interest expense on other borrowings increased by $41.4 million
          or 145.5% during the year ended December 31, 1998 and increased by
          $14.3 million or 101.4% during the year ended December 31, 1997.
          Interest expense on advances from the FHLB increased by $38.8 million
          or 442.0% during 1998 and $5.6 million or 174.0% during 1997. The
          Bank's new management has utilized FHLB advances when the rates and
          other terms on such borrowings are favorable as compared to its other
          funding sources. See "Sources Of Funds--Borrowings."

               Interest expense on securities sold under agreements to
          repurchaseincreased by $2.5 million or 12.9% during the year ended
          December 31, 1998 and increased by $8.7 million or 80.1% during the
          year ended December 31, 1997. See "Sources Of Funds--Borrowings."

               The Bank's interest expense during the years ended December 31,
          1998, 1997 and 1996 included the costs of hedging the Bank's interest
          rate exposure. Such hedging costs amounted to $214,000, $267,000 and
          $387,000 during such respective periods. The Bank in the past has
          utilized interest rate swaps, corridors, caps and floors in order to
          manage its interest rate risk. However, since the change in
          management, the Bank has not entered into any such interest


                                       58

<PAGE>



          rate contracts and has allowed its remaining contracts to expire as
          they mature. The Bank has instead focused on internal hedging through
          balance sheet restructuring. At December 31, 1998, the Bank had no
          remaining interest rate swap contracts and eight remaining interest
          rate corridors with an aggregate contract amount of $52 million.

               PROVISION FOR LOAN LOSSES. The Bank established provisions for
          loan losses of $2.0 million, $2.0 million and $2.9 million during the
          years ended December 31, 1998, 1997 and 1996, respectively. New
          management has aggressively charged off non-performing loans and taken
          possession of and sold a significant amount of the assets which
          collateralized such loans. As a consequence of such actions, the
          Bank's non-performing assets have been reduced over the periods
          presented and the Bank's provision for loan losses have been reduced
          to more normalized levels.

               The allowance for loan losses is established through provisions
          based on management's evaluation of the risks inherent in the
          Company's loan portfolio and the local real estate economy. The
          allowance is maintained at amounts management considers adequate to
          cover losses which are deemed probable and calculable. The allowance
          is based upon a number of factors, including asset classifications,
          collateral values, management's assessment of the credit risk inherent
          in the portfolio, historical loan loss experience and the Company's
          underwriting policies.

               Management believes that its allowance for loan losses at
          December 31, 1998 is adequate. Nevertheless, there can be no assurance
          that additions to such allowance will not be necessary in future
          periods, particularly if the growth in the Bank's commercial and
          consumer lending continues. In addition, as a result of continuing
          uncertainties in certain real estate markets, increases in the
          valuation allowance may be required in future periods. Furthermore,
          various regulatory agencies, as an integral part of their examination
          process, periodically review the Company's valuation allowance. These
          agencies may require increases to the allowance, based on their
          judgments of the information available to them at the time of the
          examination.

               OTHER INCOME. Total other income increased by $1.3 million or
          25.8% during the year ended December 31, 1998 and decreased by $3.0
          million during the year ended December 31, 1997. Loan service and loan
          related fees amounted to $111,000, $481,000 and $1.4 million during
          the years ended December 31, 1998, 1997 and 1996, respectively. The
          decline in such fees during these periods primarily reflected the sale
          of residential loan servicing during 1997 and the reduction in loan
          balances outstanding in the loan servicing portfolio due to normal
          repayments and prepayments. See "ITEM 1. BUSINESS--Lending
          Activities--Single-Family Residential Real Estate Loans."

               The Bank recognized net gains on sales of mortgage-backed and
          other securities of $1.7 million, $1.3 million and $3.6 million during
          the years ended December 31, 1998, 1997 and 1996, respectively. During
          such respective periods, the Bank sold $281.2 million, $234.3 million
          and $158.4 million of mortgage-backed securities.

               Net gains (losses) on the sale of loans and loan servicing
          amounted to $613,000, $3.4 million and $(53,000) during the years
          ended December 31, 1998, 1997 and 1996, respectively. The Bank sold
          $42.4 million, $92.9 million and $0 of loans during the years ended
          December 31, 1998, 1997 and 1996, respectively, and no loan servicing
          during the year ended December 31, 1998. In connection with the sale
          of loan servicing during 1997, the Bank recognized a gain of $3.2
          million during the year and an additional $5.3 million was deferred
          and is being recognized over a period of the lives of the loans. See
          "ITEM 1. BUSINESS--Lending Activities--Single-Family Residential Real
          Estate Loans."

               Income (loss) from real estate operations amounted to $1.5
          million, $(1.8) million and $1.9 million during the years ended
          December 31, 1998, 1997 and 1996, respectively. Income (loss) from
          real estate operations consists of (i) losses from real estate
          operations (rental income less operating expenses), (ii) gains on
          sales of real estate owned and real estate held for investment, and
          (iii) provisions for losses on real estate owned and real estate held
          for investment. During the years ended December 31, 1998, 1997 and
          1996, losses from real estate operations amounted to $(701,000), $(1.3
          million) and $(634,000), respectively. Gains on sales of real estate
          owned and real estate held for investment amounted to $2.2 million,
          $2.2 million and $3.3 million for the years ended December 31, 1998,
          1997 and 1996, respectively and provisions for losses on real estate
          owned and real estate held for investment amounted to $0, $2.8 million
          and $766,000, for the respective periods. The improving economy in
          Southern California since 1996 has assisted in new management's
          efforts to dispose of the Bank's real estate holdings and has
          facilitated sales in 1997 and 1998.

               Miscellaneous other income (consisting primarily of fees on
          deposit accounts) amounted to $2.6 million, $1.8


                                       59

<PAGE>


          million and $1.2 million during the years ended December 31, 1998, 
          1997 and 1996, respectively.

               OPERATING EXPENSES. Total operating expenses increased by $17.4
          million or 59.0% during the year ended December 31, 1998 and increased
          by $1.7 million or 6.2% during the year ended December 31, 1997. The
          increase in operating expenses during 1998 is primarily attributable
          to one-time payments of $15.6 million ($9.2 million net of applicable
          tax benefits) which were incurred in connection with the Company's
          Offering. During the years ended December 31, 1998, 1997 and 1996,
          total operating expenses as a percentage of average total assets
          amounted to 1.67%, 1.55% and 1.60%, respectively, and the Company's
          efficiency ratio amounted to 100.02%, 72.17% and 64.52%, respectively.

               The principal category of the Company's operating expenses is
          personnel and benefits expense of the Bank, which amounted to $23.8
          million, $11.8 million and $10.8 million during the years ended
          December 31, 1998, 1997 and 1996, respectively. The increase in 1998
          was primarily a result of a one-time $11.1 million payment of benefits
          to certain senior executives in connection with the Company's 
          Offering.

               Occupancy expense amounted to $8.4 million, $7.1 million and $6.4
          million during the years ended December 31, 1998, 1997 and 1996,
          respectively. The increase in such expense during the year ended
          December 31, 1998 was primarily due to the lease of data processing
          equipment and expenses associated with security personnel. The general
          decline in occupancy expense during the prior period occurred
          notwithstanding the Bank opening a branch office in Buena Park,
          California in November 1995 and a branch office facility in Los
          Angeles, California in April 1996. Management expects occupancy
          expense to continue to increase over the next year as the Bank has
          begun to operate 20 new ATMs within a chain of health clubs located in
          Southern California. The Bank also has an option to install and
          operate up to an additional three ATMs within such chain of health
          clubs. In 1997, the Company also obtained regulatory approval to
          install remote automated loan machines, which can take an application
          for a loan of up to $10,000, underwrite the loan and extend funds to
          applicants which have been approved. The Company believes it is the
          first institution to receive approval to operate such units at remote
          locations, nine of which were placed in operation in late 1997. The
          new ATMs and automated loan machines are also expected to contribute
          to an increase in occupancy expense in future periods.

               FDIC insurance premiums totaled $7.3 million, $4.9 million and
          $4.4 million during the years ended December 31, 1998, 1997 and 1996,
          respectively. This increase is mainly due to one-time special FDIC
          assessment, which the Company deferred paying in prior years, of $4.5
          million. As a result of paying the one-time special assessment, the
          Bank lowered its assessment rate from 35.28 basis points in 1997
          through June 30, 1998 and to 9.1 basis points since June 30, 1998,
          including the debt service paid to the Financing Corporation. FDIC
          insurance premiums are a function of the size of the Bank's deposit
          base.

               Professional services expense amounted to $1,294,000, $528,000
          and $771,000 during the years ended December 31, 1998, 1997 and 1996,
          respectively. This increase was mainly due to an increase in other
          consulting expenses. The significant expense recognized during 1996
          reflected legal expenses associated with problem asset resolution.

               Office related expenses have remained relatively stable over the
          periods presented and amounted to $4.4 million, $3.9 million and $4.0
          million during the years ended December 31, 1998, 1997 and 1996,
          respectively.

               Miscellaneous other expense (consisting primarily of regulatory
          assessments) amounted to $1.7 million, $1.3 million and $1.5 million
          during the years ended December 31, 1998, 1997 and 1996, respectively.

               INCOME TAXES. During the years ended December 31, 1998, 1997 and
          1996, the Company recognized $16.4 million, $4.5 million and $3.0
          million in income tax benefits primarily as a result of offsetting
          available NOLs carryforwards against taxable income. At December 31,
          1998, the Company had $166.3 million of federal and state NOLs
          carryforwards which expire between 2001 and 2013.

               The Company had Federal and California alternative minimum tax
          credit carryforwards at December 31, 1998 and 1997 of approximately
          $1,374,058 and $58,150, respectively. These carryforwards are
          available to reduce future


                                       60

<PAGE>


          regular federal income taxes and California franchise taxes, if any,
          over an indefinite period.

               In 1992, issuance of preferred stock resulted in a change in
          control as defined under Section 382 of the Code. As a result, any
          usage of NOLs carryforwards created in 1992 and prior years is limited
          to approximately $7.7 million per year. The total NOLs carryforwards
          created in 1992 and prior years are approximately $42.3 million. Any
          unused limitation is available in subsequent years until expiration.
          The amount of the unused limitation carryover available from the 1992
          change in control in 1999 and thereafter is approximately $42.3
          million.

               During May 1998, the Offering resulted in a second change in
          control as defined under Code Section 382. As a result, any usage of
          NOLs carryforwards created prior to May 1998 (but post 1992) is
          limited to approximately $21.3 million per year. The total NOLs
          carryforwards created prior to May 1998 (but post 1992) is
          approximately $111.5 million. Any unused limitation is available in
          subsequent years until expiration. The amount of the unused limitation
          carryover available from the May 1998 change in control in 1999 is
          approximately $22.5 million.

          ASSET AND LIABILITY MANAGEMENT

               Asset and liability management is concerned with the timing and
          magnitude of the repricing of assets and liabilities. It is the
          objective of the Company to attempt to control risks associated with
          interest rate movements. In general, management's strategy is to match
          asset and liability balances within maturity categories to limit the
          Bank's exposure to earnings variations and variations in the value of
          assets and liabilities as interest rates change over time. The
          Company's asset and liability management strategy is formulated and
          monitored by the Bank's Asset/Liability Management Committee, which is
          comprised of senior officers of the Bank, in accordance with policies
          approved by the Board of Directors of the Bank. The Asset/Liability
          Management Committee meets weekly to review, among other things, the
          sensitivity of the Bank's assets and liabilities to interest rate
          changes, the book and market values of assets and liabilities,
          unrealized gains and losses, including those attributable to hedging
          transactions, purchase and sale activity, and maturities of
          investments and borrowings. The Asset/Liability Management Committee
          also approves and establishes pricing and funding decisions with
          respect to overall asset and liability composition and reports
          regularly to the full Board of Directors.

               One of the primary goals of the Bank's Asset/Liability Management
          Committee is to effectively increase the duration of the Bank's
          liabilities and/or effectively contract the duration of the Bank's
          assets so that the respective durations are matched as closely as
          possible. This duration adjustment can be accomplished either
          internally by restructuring the Bank's balance sheet, or externally by
          adjusting the duration of the Bank's assets and/or liabilities through
          the use of interest rate contracts, such as interest rate swaps,
          corridors, caps and floors. Although the Bank has in the past hedged
          its interest rate exposure externally through the use of various
          interest rate contracts, the Bank's current strategy is to hedge
          internally through the use of core transaction deposit accounts, which
          are not as rate sensitive as other deposit instruments, FHLB advances
          and reverse repurchase agreements, together with an emphasis on
          investing in and/or purchasing shorter-term or adjustable rate assets
          which are more responsive to changes in interest rates, such as
          adjustable rate U.S. Government agency mortgage-backed securities,
          short-term U.S. Government agency securities and commercial business
          and consumer loans.

               Internal hedging through balance sheet restructuring generally
          involves either the attraction of longer-term or less rate sensitive
          funds (i.e., core transaction deposit accounts which are not as rate
          sensitive as other deposit instruments or FHLB advances) or the
          investment in certain types of shorter-term or adjustable rate assets
          such as adjustable-rate mortgage-backed securities, shorter-term U.S.
          Government agency securities and commercial business and consumer
          loans. On the asset side of the balance sheet, since the change in the
          Bank's management, the Bank has not originated any additional
          adjustable-rate mortgage products tied to COFI, which tends to react
          more slowly to changes in interest rates, and has emphasized loan
          products tied to a U.S. Treasury based index (which reacts much more
          quickly to changes in interest rates). During the year ended December
          31, 1997, the Bank sold $85.2 million of such COFI-based residential
          mortgage loans and used most of the sale proceeds to purchase $59.0
          million of one-year adjustable-rate loans tied to the U.S. Treasury
          index of comparable maturity. See "ITEM 1. BUSINESS--Lending
          Activities--Origination, Purchase and Sale of Loans."

               The Bank has also significantly increased aggregate purchases of
          short-term or adjustable-rate mortgage-backed


                                       61

<PAGE>


          securities in recent periods. Purchases of such securities were $105.7
          million, $186.0 million and $216.8 million during the years ended
          December 31, 1998, 1997 and 1996, respectively. In 1998 the Bank also
          purchased investment grade corporate trust preferred obligations of
          $378.4 million. At December 31, 1998, $501.1 million or 49.5% of the
          Bank's mortgage-backed securities were adjustable-rate instruments.
          See "ITEM 1. BUSINESS--Investment Activities."

               During the years ended December 31, 1998, 1997 and 1996, the Bank
          originated in the aggregate $94.0 million, $32.6 million and $9.8
          million, respectively, of commercial business and consumer loans which
          amounted to15.5%, 20.3% and 15.8% of total loan originations,
          respectively. The Bank intends to increase its origination of
          commercial business and consumer loans which have adjustable rates of
          interest and shorter terms. "See ITEM 1. BUSINESS--Lending
          Activities--Commercial Business and Consumer Loans."

               On the liability side of the balance sheet, management has
          decreased the Bank's reliance on shorter-term brokered deposits, which
          carry high interest rates and are a volatile funding source, in favor
          of short- and intermediate-term FHLB advances and reverse repurchase
          agreements and retail certificates of deposit. As a result,
          out-of-market, institutional jumbo certificates of deposit have
          declined from $103.4 million at December 31, 1997 to $322,000 at
          December 31, 1998 and FHLB advances and reverse repurchase agreements
          have increased from $812.8 million in the aggregate at December 31,
          1997 to $1.6 billion in the aggregate at December 31, 1998.

               External hedging involves the use of interest rate swaps,
          collars, corridors, caps and floors. The notional amount of interest
          rate contracts represents the underlying amount on which periodic cash
          flows are calculated and exchanged between counterparties. However,
          this notional amount does not represent the principal amount of loans
          or securities which would effectively be hedged by that interest rate
          contract. In selecting the type and amount of interest rate contract
          to utilize, the Bank compares the duration of a particular contract,
          or its change in value for a 100 basis point movement in interest
          rates, to that of the loans or securities to be hedged. An interest
          rate contract with the appropriate offsetting duration may have a
          notional amount much greater than the face amount of the securities
          being hedged.

               At December 31, 1998, the Bank was a party to no interest rate
          swap agreements. The net expense (income) relating to the Bank's
          interest rate swap agreements was $0, $2,000 and $35,000 during the
          years ended December 31, 1998, 1997 and 1996, respectively.

               At December 31, 1998, the Bank was also a party to eight interest
          rate corridor agreements, which agreements expire from 1999 through
          2001 and cover an aggregate contract amount of approximately $52.0
          million. An interest rate corridor consists of an agreement whereby
          the issuer agrees to pay the purchaser, in exchange for the payment of
          a premium, the prevailing rate of interest in the event interest rates
          rise above a specified rate on a specified interest rate index and do
          not exceed a specified upper rate on the same index. The Bank entered
          into interest rate corridors as a means to artificially raise the
          interest rate cap on certain loans. As of December 31, 1998, the
          interest rate corridors have an average strike price of 6.58% and an
          average limit rate of 8.21% (the Bank's interest rate corridors are
          based on either three month London Inter-Bank Offered Rate ("LIBOR")
          or COFI). The aggregate net expense relating to the Bank's interest
          rate corridors and floors was $214,000, $265,000 and $352,000 during
          the years ended December 31, 1998, 1997, and 1996, respectively. See
          "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" Note (17)--Notes
          to Consolidated Financial Statements.

               The Asset/Liability Management Committee's methods for evaluating
          interest rate risk include an analysis of the Bank's interest rate
          sensitivity "gap," which is defined as the difference between
          interest-earning assets and interest-bearing liabilities maturing or
          repricing within a given time period. A gap is considered positive
          when the amount of interest-rate sensitive assets exceeds the amount
          of interest-rate sensitive liabilities. A gap is considered negative
          when the amount of interest-rate sensitive liabilities exceeds
          interest-rate sensitive assets. During a period of falling interest
          rates, a negative gap would tend to result in an increase in net
          interest income, while a positive gap would tend to affect net
          interest income adversely. Because different types of assets and
          liabilities with the same or similar maturities may react differently
          to changes in overall market rates or conditions, changes in interest
          rates may affect net interest income positively or negatively even if
          an institution were perfectly matched in each maturity category.


                                       62

<PAGE>


               The following table summarizes the anticipated maturities or
          repricing of the Company's interest-earning assets and
          interest-bearing liabilities as of December 31, 1998, based on the
          information and assumptions set forth in the notes below.


<TABLE>
<CAPTION>

                                                 Three to      More Than         More Than
                              Within Three        Twelve       One Year to       Three Years      Over Five
                                 Months           Months       Three Years      to Five Years       Years           Total
                              ------------       --------      -----------      -------------     ---------         -----
                                                                       (Dollars in thousands)
<S>                            <C>               <C>              <C>              <C>              <C>             <C>       

Interest-earning assets(1):
  Loans receivable(2):
  Single-family
   residential loans:
    Fixed .................    $   30,406        $  173,248       $  307,555       $  200,353       $  350,917      $1,062,479
    Adjustable ............       203,734           174,660           35,253           14,670             --           428,317
  Multi-family residential:
    Fixed .................         8,537             4,367           10,765            8,954           13,554          46,177
    Adjustable ............       312,054             7,965             --               --               --           320,019
  Commercial, industrial
   and land:
    Fixed .................        73,908             8,648             --               --               --            82,556
    Adjustable ............         3,652            13,369           28,072           22,938           53,083         121,114
  Other loans (3)..........        61,475            12,017           19,851           20,805            5,375         119,523
Mortgage-backed and
 other securities (4) .....        79,200            92,526           13,186           59,794          349,657         594,363
Other interest-earning
 assets (5) ...............       402,198              --               --               --            115,419         517,617
                               ----------        ----------       ----------       ----------       ----------      ----------
    Total .................     1,175,164           486,800          414,682          327,514          888,005       3,292,165
                               ----------        ----------       ----------       ----------       ----------      ----------

Interest-bearing liabilities:
  Deposits:
    NOW accounts ..........       166,807              --               --               --               --           166,807
    Passbook accounts .....       139,800              --               --               --               --           139,800
    Money market 
     accounts .............       126,396              --               --               --               --           126,396
    Term certificates
     of deposit ...........       173,862           772,645          148,164           14,400               88       1,109,159
  Other borrowings ........        14,000              --            339,000          849,000          360,000       1,562,000
                               ----------        ----------       ----------       ----------       ----------      ----------
    Total .................       620,865           772,645          487,164          863,400          360,088       3,104,162
                               ----------        ----------       ----------       ----------       ----------      ----------

Excess (deficiency) of
 interest-earning assets
 over interest-bearing
 liabilities ..............    $  554,299        $ (285,845)      $  (72,482)      $ (535,886)      $  527,917      $  188,003
                               ----------        ----------       ----------       ----------       ----------      ----------
                               ----------        ----------       ----------       ----------       ----------      ----------
Excess (deficiency) of
 interest-earning
 assets over
 interest-bearing
 liabilities as a percent
 of total assets ..........         16.62%           (8.57%)          (2.17%)         (16.07%)           15.83%           5.64%
                               ----------        ----------       ----------       ----------       ----------      ----------
                               ----------        ----------       ----------       ----------       ----------      ----------

Cumulative excess
 (deficiency) of
 interest-earning
 assets over interest-
 bearing liabilities ......    $  554,299        $  268,454       $  195,972       $ (339,914)      $  188,003
                               ----------        ----------       ----------       ----------       ----------   
                               ----------        ----------       ----------       ----------       ----------   

Cumulative excess
 (deficiency) of
 interest-earning
 assets over
 interest-bearing
 liabilities as a
 percent of
 total assets ...........         16.62%             8.05%            5.88%         (10.19%)            5.64%
                               ----------        ----------       ----------       ----------       ----------  
                               ----------        ----------       ----------       ----------       ----------  
</TABLE>

          (1)  Adjustable-rate loans are included in the period in which
               interest rates are next scheduled to adjust rather than in


                                       63


<PAGE>


               the period in which they are due, and fixed-rate loans are
               included in the periods in which they are scheduled to be repaid,
               based on scheduled amortization, in each case as adjusted to take
               into account estimated prepayments based on assumptions used by
               the OTS in assessing the interest rate sensitivity of savings
               associations in the Company's region.

          (2)  Balances have been reduced for non-performing loans, which
               amounted to $8.5 million at December 31, 1998.

          (3)  Comprised of commercial and consumer loans and loans secured by
               deposits.

          (4)  Does not include an unrealized loss on securities available for
               sale of $13.6 million.

          (5)  Comprised of short-term investments, securities purchased under
               agreements to resell, investment securities and FHLB stock.

               Although interest rate sensitivity gap is a useful measurement
          and contributes toward effective asset and liability management, it is
          difficult to predict the effect of changing interest rates based
          solely on that measure. As a result, the Asset/Liability Management
          Committee also regularly reviews interest rate risk by forecasting the
          impact of alternative interest rate environments on net interest
          income and net portfolio value ("NPV"), which is defined as the net
          present value of an institution's existing assets, liabilities and
          off-balance sheet instruments, and evaluating such impacts against the
          maximum potential changes in net interest income and NPV that is
          authorized by the Board of Directors of the Bank.

               The following table sets forth as of December 31, 1998 the Bank's
          estimated net interest income over a two year period and NPV based on
          the indicated changes in interest rates.

<TABLE>
<CAPTION>

                         Change (In Basis Points)        Net Interest Income         
                         In Interest Rates(1)               (Next Two Years)        NPV
                         ------------------------        --------------------   ------------
                                                        (DOLLARS IN THOUSANDS)

<S>                             <C>                        <C>                  <C>     
                                +400                       $ 90,349             $ 55,093
                                +300                        101,645               99,069
                                +200                        110,825              142,021
                                +100                        116,975              181,865
                                   0                        112,047              189,532
                                -100                        101,590              157,288
                                -200                         87,290              103,248
                                -300                         72,967               52,682
                                -400                         55,160                  797
</TABLE>

          -----------

          (1)  Assumes an instantaneous uniform change in interest rates at all
               maturities.

               Management of the Bank believes that the assumptions used by it
          to evaluate the vulnerability of the Bank's operations to changes in
          interest rates approximate actual experience and considers them
          reasonable; however, the interest rate sensitivity of the Bank's
          assets and liabilities and the estimated effects of changes in
          interest rates on the Bank's net interest income and NPV could vary
          substantially if different assumptions were used or actual experience
          differs from the historical experience on which they are based. See
          "ITEM 1. BUSINESS--Regulation Of Federal Savings Banks--Regulatory
          Capital Requirements" for a discussion of a proposed OTS regulation
          which would subject an institution with a greater than "normal" level
          of interest rate exposure to a deduction of an IRR component in
          calculating its total capital for risk-based capital purposes. Based
          on the OTS model, at December 31, 1998, the Bank would not have been
          required to deduct an IRR component in calculating total risk-based
          capital had the IRR component of the capital regulations been in
          effect.


                                       64


<PAGE>


          LIQUIDITY AND CAPITAL RESOURCES

               LIQUIDITY. As the Bank is the primary operating vehicle for the
          Company, liquidity management is generally handled by the Company's
          management. Liquidity refers to a company's ability to generate
          sufficient cash to meet the funding needs of current loan demand,
          savings deposit withdrawals, principal and interest payments with
          respect to outstanding borrowings and pay operating expenses. It is
          management's policy to maintain greater liquidity than required by the
          OTS in order to be in a position to fund loan originations, to meet
          withdrawals from deposit accounts, to make principal and interest
          payments with respect to outstanding borrowings and to make
          investments that take advantage of interest rate spreads. The Bank
          monitors its liquidity in accordance with guidelines established by
          the Bank and applicable regulatory requirements. The Bank's need for
          liquidity is affected by loan demand, net changes in deposit levels
          and the scheduled maturities of its borrowings. The Bank can minimize
          the cash required during the times of heavy loan demand by modifying
          its credit policies or reducing its marketing effort. Liquidity demand
          caused by net reductions in deposits are usually caused by factors
          over which the Bank has limited control. The Bank derives its
          liquidity from both its assets and liabilities. Liquidity is derived
          from assets by receipt of interest and principal payments and
          prepayments, by the ability to sell assets at market prices and by
          utilizing unpledged assets as collateral for borrowings. Liquidity is
          derived from liabilities by maintaining a variety of funding sources,
          including deposits, advances from the FHLB of San Francisco and other
          short and long-term borrowings.

               CAPITAL RESOURCES. Federally insured savings institutions such as
          the Bank are required to maintain minimum levels of regulatory
          capital. See "ITEM 1. BUSINESS--Regulation Of Federal Savings
          Banks--Regulatory Capital Requirements."

               The Bank's liquidity management is both a daily and long-term
          function of funds management. Liquid assets are generally invested in
          short-term investments such as securities purchased under agreements
          to resell, federal funds sold and certificates of deposit in other
          financial institutions. If the Bank requires funds beyond its ability
          to generate them internally, various forms of both short and long-term
          borrowings provide an additional source of funds. At December 31,
          1998, the Bank had $1.7 billion in borrowing capacity under a
          collateralized line of credit with the FHLB of San Francisco. Although
          the Bank has in the past utilized brokered deposits as a source of
          liquidity, the Bank does not currently rely upon brokered deposits as
          a source of liquidity, and does not anticipate a change in this
          practice in the foreseeable future. During 1998, the Bank began
          extending the maturities of both its FHLB advances and reverse
          repurchase agreements.

               At December 31, 1998, the Bank had outstanding commitments
          (including unused lines of credit of $17.6 million) to originate
          and/or purchase mortgage and non-mortgage loans of $46.4 million.
          Certificates of deposit which are scheduled to mature within one year
          totaled $946.5 million at December 31, 1998, and borrowings that are
          scheduled to mature within the same period amounted to $14.0 million.
          The Bank anticipates that it will have sufficient funds available to
          meet its current loan commitments.

               Beginning September 30, 1997, the Company began making interest
          payments on its senior debt, which were funded through dividends from
          the Bank. The Company made an initial payment of $1.8 million
          (reflecting accruals since the senior debt was issued in 1995) at
          September 30, 1997 and quarterly interest payments in the amount of
          $192,000 beginning with the December 31, 1997 quarter. The Company
          used $11.4 million of Offering proceeds to prepay $10.0 million of
          senior notes (plus accrued interest through May 15, 1998).


                                       65


<PAGE>


               The following table reflects the Bank's actual levels of
          regulatory capital and applicable regulatory capital requirements at
          December 31, 1998.

<TABLE>
<CAPTION>

                                                 Required                 Actual                  Excess
                                            ------------------     --------------------     ------------------
                                            Percent     Amount     Percent     Amount       Percent     Amount
                                            -------     ------     -------     ------       -------     ------
                                                                  (Dollars in thousands)
<S>                                          <C>      <C>          <C>       <C>             <C>      <C> 
Tangible capital..........................   1.50%    $ 49,983       6.30%   $210,073        4.80%    $160,090
                                           
Tier 1 leverage capital (1)...............   3.00      133,288       6.30     210,073        2.30       76,785
                                           
Tier 1 risk-based capital (2)(3)..........   4.00       73,189      11.48     210,073        8.36      136,884
                                           
Risk-based capital (2)(3).................   8.00      146,378      12.36     226,216        3.48       79,838


</TABLE>

          -----------

          (1)  Does not reflect amendments which were proposed by the OTS in
               April 1991, which would increase this requirement to between 4%
               and 5%.

          (2)  Does not reflect the interest-rate risk component to the
               risk-based capital requirement, the effective date of which has
               been postponed.

          (3)  Tangible and Tier 1 leverage (or core) capital are computed as a
               percentage of adjusted total assets of $3.3 billion. Risk-based
               capital is computed as a percentage of adjusted risk-weighted
               assets of $1.8 billion.

          ASSET QUALITY

               The interest income that would have been recorded during the
          years ended December 31, 1998, 1997 and 1996 if the Bank's non-accrual
          loans at the end of such periods had been current in accordance with
          their terms during such periods was $950,000, $644,000, and $1.4
          million, respectively.

               As a result of the focus given by new management to rehabilitate
          or liquidate the Bank's problem assets, nonperforming assets and TDRs
          have declined from $33.1 million or 1.5% of total assets at December
          31, 1997 to $14.8 million or 0.4% of total assets at December 31,
          1998.

               Management's actions to acquire non-performing assets, make
          necessary improvements and list such properties for resale, coupled
          with improved real estate market conditions in California, contributed
          to significant declines in each of the major real estate owned
          property categories in 1998. In particular, during 1998, the Company
          sold all multi-family, commercial and land properties owned, and 88.9%
          of residential properties owned during the year. As a consequence of
          such actions, at December 31, 1998, an aggregate of $0.4 million of
          multi-family residential loans were on a non-accrual status (compared
          to $0.4 million at December 31, 1997) and $0 was in real estate owned
          (compared to $6.5 million at December 31, 1997).

               Of the Bank's $8.5 million of non-performing loans at December
          31, 1998, the largest loan was secured by a retail shopping center,
          with a carrying value of $2.7 million. This loan has been classified
          as collateral dependent, and as of December 31, 1998 was carried at
          fair value. The Bank's $2.7 million of real estate owned at December
          31, 1998 was comprised of ten residential properties.

               The decline in real estate owned in 1997 was due to a significant
          extent to the Bank financing purchases of such real estate owned
          through loans to facilitate (which loans generally carry more
          favorable terms to the borrower than what is otherwise obtainable in
          the market). To the extent that new management has financed the
          disposition of real estate owned, such loans have been made consistent
          with market terms and conditions and cash downpayments to qualify the
          transaction as a sale under applicable accounting guidelines. During
          1998 and 1997, the Bank extended an aggregate of $6.1 million and
          $16.1 million to finance the disposition of real estate owned,
          respectively, which constituted 22.8% and 40.8% of total sales of real
          estate owned during such years, respectively.


                                       66


<PAGE>


               With the downturn in the California economy experienced during
          the early 1990s and the problems associated with the Northridge
          earthquake in 1994, prior management entered into a significant number
          of TDRs. Since the change in the Bank's management in 1995, the Bank
          enters into TDRs only on a limited basis.

               ALLOWANCE FOR LOAN LOSSES. It is management's policy to maintain
          an allowance for estimated loan losses based on a number of factors,
          including economic trends, industry experience, estimated collateral
          values, past loss experience, the Bank's underwriting practices, and
          management's ongoing assessment of the credit risk inherent in its
          portfolio. Provisions for loan losses are provided on both a specific
          and general basis. Specific and general valuation allowances are
          increased by provisions charged to expense and decreased by
          charge-offs of loans, net of recoveries. Specific allowances are
          provided for impaired loans for which the expected loss is measurable.
          General valuation allowances are provided based on a formula which
          incorporates a number of factors, including economic trends, industry
          experience, estimated collateral values, past loss experience, the
          Bank's underwriting practices, and management's ongoing assessment of
          the credit risk inherent in the portfolio. The Bank periodically
          reviews the assumptions and formula by which additions are made to the
          specific and general valuation allowances for losses in an effort to
          refine such allowances in light of the current status of the factors
          described above.

               Although management believes that it uses the best information
          available to make such determinations, future adjustments to the
          allowance may be necessary, and net earnings could be significantly
          affected, if circumstances differ substantially from the assumptions
          used in making the initial determinations. The Bank's Internal Asset
          Review Committee undertakes a quarterly evaluation of the adequacy of
          the allowance for loan losses as well as the allowance with respect to
          real estate owned. The Committee will provide allowances to absorb
          losses that are both probable and reasonably quantifiable as well as
          for those that are not specifically identified but can be reasonably
          estimated.

               The OTS, in conjunction with the Office of the Comptroller of the
          Currency, the FDIC and the Federal Reserve Board, has issued an
          Interagency Policy Statement on the Allowance for Loan and Lease
          Losses ("Policy Statement"), which includes guidance (i) on the
          responsibilities of management for the assessment and establishment of
          an adequate allowance and (ii) for the agencies' examiners to use in
          evaluating the adequacy of such allowance and the policies utilized to
          determine such allowance. The Policy Statement also sets forth
          quantitative measures for the allowance with respect to assets
          classified substandard and doubtful and with respect to the remaining
          portion of an institution's loan portfolio. Specifically, the Policy
          Statement sets forth the following quantitative measures which
          examiners may use to determine the reasonableness of an allowance: (i)
          50% of the portfolio that is classified doubtful, (ii) 15% of the
          portfolio that is classified substandard and (iii) for the portions of
          the portfolio that have not been classified (including loans
          designated special mention), estimated credit losses over the upcoming
          twelve months based on facts and circumstances available on the
          evaluation date. While the Policy Statement sets forth this
          quantitative measure, such guidance is not intended as a "floor" or
          "ceiling."

          YEAR 2000

               During 1997, the Bank finalized its plan to address issues
          related to the year 2000 ("Y2K") problem. The Y2K issue is primarily a
          result of computer software recognizing a two-digit date field rather
          than the full four digits, which identify the appropriate year.
          Date-sensitive computer programs, hardware or equipment controlled by
          microprocessor chips may not appropriately deal with the year "00".

               The Bank's objective was to manage the process by determining the
          scope of the problem and to focus its efforts and attention on solving
          it. The Bank's plan followed the Federal Financial Institution's
          Examination Council ("FFIEC") guideline that manages the process in
          five phases: 1) Awareness 2) Assessment 3) Renovation 4) Validation
          and 5) Implementation. To help manage the process the Bank developed a
          detailed project plan that identifies various milestones and
          deadlines. The Bank also established budgets for manpower resources
          and financial expenditures.

               The Bank utilizes Fiserv CBS, a third party vendor, to process
          substantially all of its data processing functions. Also, a
          significant portion of the single-family residential loan portfolio is
          serviced by other institutions. The Bank has contacted its critical
          vendors and has received confirmation that they will be Year 2000
          compliant. The Bank is working with Fiserv CBS and other critical
          vendors to ensure that their operational and financial systems will
          not be adversely


                                       67


<PAGE>


          affected by the Y2K problem.

               The Bank has analyzed its loan and deposit customers that may
          present some exposure to Y2K compliance. Non-compliant commercial loan
          customers may be at risk of default and large depositors may cause
          liquidity problems if the funds are withdrawn. In an effort to educate
          borrowers and to gather information for the risk assessments,
          questionnaires were sent to the commercial loan customers. The initial
          assessment of commercial loan and deposit customers indicates that
          there would be minimal impact on the Bank's statement of operations.
          The Bank will continue to monitor and evaluate the risks on a
          quarterly basis.

               The Bank is also in the process of reviewing its loan servicers
          and investment securities issuers to determine the liquidity and
          credit risks associated with their failure to remit payments in a
          timely manner due to Y2K problems. The Bank has also implemented a
          customer awareness program to keep customers informed of the progress
          of the Y2K project. The Bank's quarterly customer newsletter contains
          Y2K articles and statement stuffers are also utilized to keep the
          customers aware of the Bank's efforts. Customers with questions are
          encouraged to call the Y2K office.

               The Bank is currently in the validation or testing phase of the
          Year 2000 compliance plan. The Bank developed an extensive test plan
          that contains test requirements and criteria, manpower assignments and
          target dates. A dedicated local area network specifically for Y2K
          testing was established to communicate with the Fiserv CBS test
          system. Detailed test scripts designed to test date-related functions
          are processed on the system for the FFIEC's recommended critical test
          dates. The results are reviewed to ensure the system is functioning
          properly. Testing with Fiserv CBS will continue through May 1999. The
          Bank is also in the process of testing with other critical vendors
          such as the Federal Reserve Bank.

               The Bank's costs associated with the Y2K project include: 1) an
          additional assessment from Fiserv CBS for the test system 2) lease
          expense for the test local area network equipment 3) various hard
          costs for the upgrading of the operating network for the corporate
          office and retail branch system and 4) replacing hardware in branches.
          Excluding the "soft" costs of Bank management and personnel time, the
          Bank estimates that the total Y2K project costs will not exceed
          $775,000. Approximately $500,000 of the costs is attributable to a
          planned 1999 purchase of new hardware for the branches that will be
          amortized over a five-year period. As of December 31, 1998, the Bank
          estimates that it has incurred approximately $130,000 in total costs
          in connection with its Year 2000 project plan.

               The Bank is currently developing a contingency plan that will be
          completed and tested by May 31, 1999 to address a plan of action in
          the unlikely event that the Bank or its vendors and/or business
          partners are not ready for Year 2000. If Fiserv CBS experiences some
          unforeseen Y2K problem after the turn of the century, the contingency
          plan will include off-line, manual postings of transactions to ledger
          cards or a database. Even though operating in this manner would
          severely tax resources, the Bank will be able to continue business
          while Fiserv CBS corrects the problem. The contingency plan will
          address any required Bank service provider changes or need to
          outsource to Y2K compliant entities.

               The Bank's Y2K efforts are being closely monitored by the Office
          of Thrift Supervision, its primary regulator, which conducts periodic
          Y2K examinations of the Bank's Y2K project progress.

               The Bank's plans to complete Y2K compliance are based on
          management's and the Board's best estimates. There can be no guarantee
          that these estimates will be achieved, and the ending results could be
          significantly different due to unforeseen circumstances.

          RECENT ACCOUNTING PRONOUNCEMENTS

               In June 1998, the FASB issued Statement of the Financial
          Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
          Instruments and Hedging Activities." SFAS 133 amends SFAS No. 52
          "Foreign Currency Translation" to permit special accounting for a
          hedge of a foreign currency forecasted transaction with a derivative.
          It supersedes SFAS No. 80, "Accounting for Future Contracts", SFAS No.
          105, "Disclosure of Information about Financial Instruments with
          Off-Balance-Sheet Risk and Financial Instruments with Concentrations
          of Credit Risk", and SFAS No. 119, "Disclosure about Derivative
          Financial Instruments". It amends SFAS No.107, "Disclosure about Fair
          Value of


                                       68


<PAGE>


          Financial Instruments, to include in Statement 107 disclosure
          provisions about concentrations of credit risk from Statement 105.
          SFAS 133 established accounting and reporting standards for derivative
          instruments, including certain derivative instruments embedded in
          other contracts, (collectively referred to as derivatives) and for
          hedging activities. It requires that an entity recognizes all
          derivatives as either assets or liabilities in the statement of
          financial position and measure those instruments at fair value. If
          certain conditions are met , a derivative may be specifically
          designated as (a) a hedge of the exposure to changes in the fair value
          of a recognized asset or liability or an unrecognized firm commitment,
          (b) a hedge of the exposure to variable cash flows of a forecasted
          transaction, or (c) a hedge of the foreign currency exposure of a net
          investment in a foreign operation, an unrecognized firm commitment, an
          available-for-sale security, or a foreign-currency-denominated
          forecasted transaction. This Statement is effective for all fiscal
          quarters of fiscal years beginning after June 15, 1999. Management
          believes that the adoption of SFAS 133 will not have a material impact
          on the Company's disclosures.


          ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS--Asset and Liability Management."


                                       69


<PAGE>


          ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               PBOC HOLDINGS, INC.
                        CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                                                                                                                         PAGE
                                                                                                                         ----

<S>                                                                                                                       <C>
          INDEPENDENT AUDITORS' REPORT................................................................................... 71

          CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION--DECEMBER 31, 1998 AND 1997..................................... 72

          CONSOLIDATED STATEMENTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996............................ 73

          CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE EARNINGS (LOSS)--YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996... 74

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.................. 75

          CONSOLIDATED STATEMENTS OF CASH FLOWS--YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996............................ 76

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................................................... 79

</TABLE>


                                       70

<PAGE>



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
PBOC Holdings, Inc.:

We have audited the accompanying consolidated statements of financial condition
of PBOC Holdings, Inc. and subsidiaries (the "Company") as of December 31, 1998
and 1997 and the related consolidated statements of operations, other
comprehensive earnings (loss), changes in stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1998. 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 PBOC Holdings, Inc.
and subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.



                                                     KPMG LLP



Los Angeles, California
January 25, 1999


                                       71


<PAGE>
                               PBOC HOLDINGS, INC.
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           DECEMBER 31, 1998 AND 1997
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                 1998             1997
                                                                             -----------      -----------
<S>                                                                          <C>              <C>        
                                   ASSETS

Cash and cash equivalents ..............................................     $    22,401      $    14,113
Federal funds sold .....................................................          24,000            7,004
Securities  available-for-sale,  at estimated  market values
  (notes 3, 12 and 17) .................................................       1,004,937          571,160
Mortgage-backed securities held-to-maturity, market values
  $6,372 and $9,743 at, December 31, 1998 and 1997
  (notes 5 and 12) .....................................................           6,282            9,671
Loans receivable, net (notes 6, 7 and 12) ..............................       2,148,857        1,533,212
Real estate held for investment and sale, net (note 8) .................           2,723           15,191
Premises and equipment, net (note 9) ...................................           7,212            6,676
Federal Home Loan Bank stock, at cost (note 12) ........................          63,150           23,634
Accrued interest receivable ............................................          17,607           13,216
Other assets ...........................................................          37,858           19,177
                                                                             -----------      -----------
      Total assets .....................................................     $ 3,335,027      $ 2,213,054
                                                                             -----------      -----------
                                                                             -----------      -----------

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (note 10) .....................................................     $ 1,542,162      $ 1,266,615
Securities sold under agreements to repurchase (note 11) ...............         364,000          340,788
Advances from Federal Home Loan Bank (note 12) .........................       1,198,000          472,000
Senior debt (note 13) ..................................................            --             11,113
Accrued expenses and other liabilities .................................          17,009            9,686
                                                                             -----------      -----------
      Total liabilities ................................................       3,121,171        2,100,202
                                                                             -----------      -----------
Commitments and contingencies (notes 6, 9 and 19)
Minority interest (note 1) .............................................          33,250           33,250

Stockholders' equity (notes 1, 15 and 21):
  Preferred stock, $.01 par value. Authorized 25,000,000 shares; none
    issued and outstanding at December 31, 1998:
  Preferred stock, $.01 par value. Authorized 1,000,000 shares at
    December  31, 1997:
    Preferred stock Series C, voting issued and outstanding
      85,000 shares; liquidation value $8,500 ..........................            --                  1
    Preferred stock Series D, voting issued and outstanding
      68,000 shares; liquidation value $6,800 ..........................            --                  1
    Preferred stock Series E, nonvoting issued and outstanding
      332,000 shares; liquidation value $33,200 ........................            --                  3
  Common stock, par value $.01 per share. Authorized
      75,000,000 and 500,000 shares; issued 21,876,205 and
      98,502 shares; and outstanding 21,041,205 and 98,502 shares ......             219                1
  Additional paid-in capital ...........................................         259,207          129,814
  Accumulated other comprehensive income ...............................         (14,025)          (2,267)
  Accumulated deficit ..................................................         (56,487)         (47,951)
  Treasury stock, at cost (835,000 and no shares at December 31, 1998
      and 1997, respectively) ..........................................          (8,308)            --
                                                                             -----------      -----------
        Total stockholders' equity .....................................         180,606           79,602
                                                                             -----------      -----------
        Total liabilities and stockholders' equity .....................     $ 3,335,027      $ 2,213,054
                                                                             -----------      -----------
                                                                             -----------      -----------
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       72
<PAGE>


                               PBOC HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                        1998            1997            1996
                                                                    -----------      -----------      ---------
<S>                                                                 <C>              <C>              <C>      
Interest, fees and dividend income:
  Short term investments ......................................     $     1,797      $     1,038      $   1,195
  Securities purchased under agreements to resell .............             519            2,328          3,257
  Investment securities available-for-sale ....................          17,746            3,980          2,374
  Mortgage-backed securities ..................................          32,439           32,672         26,136
  Loans receivable ............................................         125,851           89,938         89,020
  Federal Home Loan Bank stock ................................           2,521            1,023            914
                                                                    -----------      -----------      ---------
      Total interest, fees and dividend income ................         180,873          130,979        122,896
                                                                    -----------      -----------      ---------
Interest expense:
  Deposits (note 10) ..........................................          69,927           67,247         75,136
  Advances from the Federal Home Loan Bank ....................          47,613            8,785          3,207
  Securities sold under agreements to repurchase ..............          22,159           19,635         10,901
  Senior debt .................................................             445            1,271          1,160
  Hedging costs, net (note 17) ................................             214              267            387
                                                                    -----------      -----------      ---------
      Total interest expense ..................................         140,358           97,205         90,791
                                                                    -----------      -----------      ---------
Net interest income ...........................................          40,515           33,774         32,105
Provision for loan losses (note 7) ............................           2,000            2,046          2,884
                                                                    -----------      -----------      ---------
  Net interest income after provision for loan losses .........          38,515           31,728         29,221
                                                                    -----------      -----------      ---------
Other income:
  Loan service and loan related fees ..........................             111              481          1,378
  Gain on sale of mortgage-backed securities, net .............           1,682            1,275          3,638
  Gain (loss) on loan and loan servicing sales, net (note 4) ..             613            3,413            (53)
  Income (loss) from real estate operations, net (note 8) .....           1,479           (1,805)         1,946
  Other income ................................................           2,551            1,753          1,215
                                                                    -----------      -----------      ---------
      Total other income ......................................           6,436            5,117          8,124
                                                                    -----------      -----------      ---------
Operating expenses:
  Personnel and benefits ......................................          23,814           11,787         10,763
  Occupancy ...................................................           8,371            7,109          6,389
  FDIC insurance ..............................................           7,316            4,899          4,415
  Professional services .......................................           1,294              528            771
  Office related expenses .....................................           4,393            3,913          3,992
  Other .......................................................           1,774            1,307          1,486
                                                                    -----------      -----------      ---------
      Total operating expenses ................................          46,962           29,543         27,816
                                                                    -----------      -----------      ---------
Earnings (loss) before income tax benefit and minority interest          (2,011)           7,302          9,529
Income tax benefit (note 14) ..................................         (16,390)          (4,499)        (3,015)
                                                                    -----------      -----------      ---------
Earnings before minority interest .............................          14,379           11,801         12,544
Minority interest .............................................           3,476              859           --
                                                                    -----------      -----------      ---------
      Net earnings ............................................          10,903           10,942         12,544
Preferred dividends ...........................................          (2,160)          (7,340)        (6,555)
                                                                    -----------      -----------      ---------
      Net earnings available to common stockholders ...........     $     8,743      $     3,602      $   5,989
                                                                    -----------      -----------      ---------
                                                                    -----------      -----------      ---------
Earnings per share, basic and diluted .........................          $ 0.59      $      1.14      $    1.90
                                                                    -----------      -----------      ---------
                                                                    -----------      -----------      ---------
Weighted average shares outstanding ...........................      14,793,644        3,152,064      3,152,064
                                                                    -----------      -----------      ---------
                                                                    -----------      -----------      ---------
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       73

<PAGE>


                               PBOC HOLDINGS, INC.
         CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE EARNINGS (LOSS)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                         December 31,
                                                             ----------------------------------
                                                                 1998        1997         1996
                                                             ---------    ---------   ---------

<S>                                                          <C>         <C>          <C>      
Net earnings .............................................   $  10,903   $  10,942    $  12,544
Other comprehensive earnings (loss):
  Unrealized (loss) gain on securities available-for-sale      (13,319)      2,835       (8,075)

  Reclassification of realized  gains included in earnings       1,682       1,275        3,638

  Minimum pension liability, net of  tax .................        (121)       (293)        --

                                                             ---------    ---------   ---------
  Other comprehensive earnings (loss) ....................     (11,758)       3,817       4,437
                                                             ---------    ---------   ---------

Comprehensive earnings (loss) ............................   $    (855)  $   14,759   $   8,107
                                                             ---------    ---------   ---------
                                                             ---------    ---------   ---------

</TABLE>

          See accompanying notes to consolidated financial statements.


                                       74


<PAGE>


                               PBOC HOLDINGS, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                (Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>

                                                             Common Stock
                                          Preferred    -------------------------
                                            Stock          Number    Amount
                                        -----------    -----------   -----------
<S>                                     <C>             <C>           <C>       
BALANCE, DECEMBER 31, 1995 ..........   $         5         98,502    $        1
  Net earnings ......................          --             --             -- 
  Change in unrealized losses on     
    securities.......................          --             --             -- 
  Capital contributions, net ........          --             --             -- 
                                        -----------    -----------   -----------
BALANCE, DECEMBER 31, 1996 ..........             5         98,502             1
  Net earnings ......................          --             --             -- 
  Change in unrealized losses on     
    securities.......................          --             --             -- 
  Capital contributions, net ........          --             --             -- 
  Change in minimum pension liability          --             --             -- 
                                        -----------    -----------   -----------
BALANCE, DECEMBER 31, 1997 ..........             5         98,502             1
 Net earnings .......................          --             --             -- 
 Change in unrealized losses on 
    securities.......................          --             --             -- 
 Conversion of preferred stock to 
    common...........................            (5)     8,527,473           -- 
  Split of  common stock 32 for 1 ...                      (98,502)          -- 
  Split of common stock 32 for 1 ....                    3,152,065           -- 
  Issuance of common stock in initial
     public offering ................          --       10,196,667           218
  Preferred dividend paid ...........          --             --             -- 
  Change in minimum pension liability          --             --             -- 
  Purchases of treasury stock .......          --         (835,000)          -- 
                                        -----------    -----------   -----------
BALANCE, DECEMBER 31, 1998 ..........   $      --       21,041,205          $219
                                        -----------    -----------   -----------
                                        -----------    -----------   -----------
</TABLE>


<TABLE>
<CAPTION>

                                                      Other
                                                   Accumulated
                                      Additional  Comprehensive
                                         Paid In     Income    Accumulated  Treasury
                                         Capital                Deficit       Stock        Total
                                       ---------   ----------  -----------  ---------  ----------

<S>                                     <C>        <C>         <C>         <C>         <C>      
BALANCE, DECEMBER 31, 1995 ..........   $129,691   $ (1,647)   $(71,437)   $   --      $  56,613
  Net earnings ......................       --         --        12,544        --         12,544
  Change in unrealized losses on 
    securities.......................       --       (4,437)       --          --         (4,437)
  Capital contributions, net ........        102       --          --          --            102
                                        --------   --------    --------    --------    ---------
BALANCE, DECEMBER 31, 1996 ..........    129,793     (6,084)    (58,893)       --         64,822
  Net earnings ......................       --         --        10,942        --         10,942
  Change in unrealized losses on 
    securities.......................       --        4,110        --          --          4,110
  Capital contributions, net ........         21       --          --          --             21
  Change in minimum pension liability       --         (293)       --          --           (293)
                                        --------   --------    --------    --------    ---------
BALANCE, DECEMBER 31, 1997 ..........    129,814     (2,267)    (47,951)       --         79,602
 Net earnings .......................       --         --        10,903        --         10,903
 Change in unrealized losses on 
    securities.......................       --      (11,637)       --          --        (11,637)
 Conversion of preferred stock to 
    common...........................       --         --          --          --             (5)
  Split of  common stock 32 for 1 ...       --         --          --          --           --
  Split of common stock 32 for 1 ....       --         --          --          --           --
  Issuance of common stock in initial
     public offering ................    129,393       --          --          --        129,611
  Preferred dividend paid ...........       --         --       (19,439)       --        (19,439)
  Change in minimum pension liability       --         (121)       --          --           (121)
  Purchases of treasury stock .......       --         --          --        (8,308)      (8,308)
                                        --------   --------    --------    --------    ---------
BALANCE, DECEMBER 31, 1998 ..........   $259,207   $(14,025)   $(56,487)   $ (8,308)   $ 180,606
                                        --------   --------    --------    --------    ---------
                                        --------   --------    --------    --------    ---------
</TABLE>




See accompanying notes to the consolidated financial statements.



                                       75
<PAGE>


                               PBOC HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                         1998          1997          1996
                                                                                     --------      --------      --------

<S>                                                                                  <C>           <C>           <C>     
Cash flows from operating activities:
    Net earnings ...............................................................     $ 10,903      $ 10,942      $ 12,544
    Adjustments to reconcile net earnings to net cash provided
             by (used in) operating activities:
             Depreciation and amortization .....................................        1,221         1,234         1,837
             Provisions for loan and real estate losses ........................        2,000         4,800         3,650
             Decrease  in valuation allowance on net deferred tax asset ........       15,569         8,159         8,106
             (Amortization) write-down for discontinued lease operations .......           55          (265)         (150)
             Increase (decrease) in net deferred tax asset .....................        1,024        (3,434)       (5,069)
             Amortization and accretion of premiums, discounts and
               deferred fees ...................................................       12,110         2,270           515
             Amortization of purchase accounting intangible assets,
               premiums and discounts, net .....................................          180           (90)         (185)
             (Gain) on sale of mortgage-backed securities ......................       (1,682)       (1,275)       (3,638)
             (Gain) loss on sale of loans and loan servicing ...................         (613)       (3,413)           53
             (Gain) on real estate sales .......................................       (2,180)       (2,214)       (3,346)
             Federal Home Loan Bank stock dividend .............................       (1,640)         (952)         (853)
             Increase in accrued interest receivable ...........................       (4,391)       (1,605)       (2,173)
             Increase (decrease) in accrued interest payable ...................        5,974        (1,000)        5,539
             Decrease in other assets ..........................................      (35,260)       (8,697)      (10,317)
             Interest deferred on Senior Debt ..................................         --            --           1,165
             Increase (decrease) in accrued expenses ...........................        1,349       (17,364)       15,419
             Amortization of Goodwill ..........................................           67          --            --
                                                                                     --------      --------      --------
                  Net cash provided by (used in) operating activities ..........        4,686       (12,904)       23,097
                                                                                     --------      --------      --------
</TABLE>


                                   (Continued)



                                       76
<PAGE>


                               PBOC HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                     1998           1997           1996
                                                                              -----------      ---------      ---------

<S>                                                                           <C>              <C>            <C>      
Cash flows from investing activities:
         Increase in securities purchased under agreements to resell ....     $      --        $    --        $  35,000
         Proceeds from sales of investment and mortgage-backed securities
                  available-for-sale ....................................         514,841        235,612        162,087
         Proceeds from sale of loans and servicing rights ...............          43,034         93,081           --
         Investment and mortgage-backed security principal repayments
                  and maturities ........................................         173,830        108,022         52,380
         Loan originations, net of repayments ...........................         207,243         17,607         41,610
         Purchases of investments and mortgage-backed securities
                  available-for-sale ....................................      (1,134,026)      (408,780)      (476,748)
         Purchase of mortgage-backed securities held-to-maturity ........            --             --          (10,971)
         Purchases of loans .............................................        (878,508)      (515,053)          --
         Costs capitalized on real estate ...............................            (174)        (1,424)        (2,228)
         Proceeds from sale of real estate ..............................          18,923         23,458         40,217
         Additions to premises and equipment ............................          (1,937)        (1,833)        (1,081)
         Sales of premises and equipment ................................            --             --              785
         Purchase of FHLB stock .........................................         (37,876)        (8,475)          --
         Redemption of FHLB stock .......................................            --            1,173           --
                                                                              -----------      ---------      ---------
              Net cash used in investing activities .....................      (1,094,650)      (456,612)      (158,949)
                                                                              -----------      ---------      ---------
</TABLE>

                                   (Continued)



                                       77
<PAGE>


                               PBOC HOLDINGS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                        1998             1997           1996
                                                                                 -----------      -----------      ---------
<S>                                                                              <C>              <C>              <C>    

Cash flows from financing activities:
         Proceeds from subsidiary preferred stock offering .................     $      --        $    33,250      $    --
         Proceeds from capital infusion, net ...............................         129,611               21           --
         Cash contributions to additional paid-in capital ..................            --               --              102
         Repayment on senior debt ..........................................         (11,370)            (285)          --
         Preferred dividend paid ...........................................         (19,439)            --             --
         Redemption of preferred stock .....................................              (5)            --             --
         Purchases of  treasury stock ......................................          (8,308)            --             --
         Net increase (decrease) in deposits ...............................         275,547         (104,628)      (102,075)
         Net increase in securities sold under agreements to repurchase ....          23,212          148,355        192,433
         Proceeds from  FHLB advances ......................................       4,360,900        1,137,684        113,900
         Repayment of FHLB advances ........................................      (3,634,900)        (745,684)       (65,646)
                                                                                 -----------      -----------      ---------

             Net cash provided by financing activities .....................       1,115,248          468,713        138,714
                                                                                 -----------      -----------      ---------

Net increase (decrease) in cash and cash equivalents .......................          25,284             (803)         2,862

Cash and cash equivalents at beginning of year .............................          21,117           21,920         19,058
                                                                                 -----------      -----------      ---------
Cash and cash equivalents at end of year ...................................     $    46,401      $    21,117      $  21,920
                                                                                 -----------      -----------      ---------
                                                                                 -----------      -----------      ---------

Supplemental disclosures of cash flow information:
    Cash paid during the year for:
                  Interest .................................................     $   134,632      $    96,667      $  83,691
                  Income taxes .............................................            --                200            247
                                                                                 -----------      -----------      ---------
                                                                                 -----------      -----------      ---------

Supplemental schedule of non cash investing and financing activities:
         Foreclosed real estate ............................................     $    10,248      $    31,349      $  42,518
         Loans originated in connection with sale of foreclosed real estate            6,147           16,145         12,608
         Transfer of loans held for investment to loans held for sale ......          42,421           85,241
                                                                                 -----------      -----------      ---------
                                                                                 -----------      -----------      ---------
</TABLE>


See accompanying notes to consolidated financial statements.



                                       78
<PAGE>


                              PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(1)       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          GENERAL

               On May 15, 1998, the Company completed an Offering of its Common
          Stock. An aggregate of 14.6 million shares of Common Stock were sold
          to the public at an Offering price of $13.75 per share, of which 10.2
          million shares were issued and sold by the Company and 4.4 million
          shares were sold by the existing stockholders of the Company.

               The following is a description of significant accounting and
          reporting policies which the Company follows in preparing and
          presenting its consolidated financial statements.

          BASIS OF ACCOUNTING

               The consolidated financial statements are prepared in accordance
          with generally accepted accounting principles which conform to general
          practice within the banking industry. The preparation of these
          consolidated financial statements requires management to make
          estimates and assumptions that affect the reported amounts of assets
          and liabilities, and disclosures of contingent assets and liabilities
          at the date of the financial statements and the reported amounts of
          revenues and expenses during the reported periods. Actual results
          could differ from these estimates.

          PRINCIPLES OF CONSOLIDATION

               The consolidated financial statements include the accounts of the
          Company and its subsidiaries, all of which are wholly owned, except
          for PPCCP in which the Bank owns all of the common stock. All
          significant intercompany accounts and transactions have been
          eliminated in consolidation.

          FEES ON LOANS AND MORTGAGE-BACKED AND INVESTMENT SECURITIES

               The Company defers origination and related fees on loans and
          certain direct loan origination costs. These deferred fees, net of any
          deferred costs, are amortized as an adjustment to the yield on the
          loans over their lives using the interest method.

               The Company may purchase whole loans at a premium or discount
          which is amortized over the life of the loans as an adjustment to
          yield using the interest method. The premium or discount amortization
          percentage is determined by adjusting the yield for estimated
          prepayments when prepayments are probable and the timing and amount of
          prepayments can be reasonably estimated based on market consensus
          prepayment rates. Calculation of the yield is done on the aggregate
          method where there are a large number of similar loans, otherwise, a
          loan by loan approach is used. The yield on adjustable rate loans is
          calculated based upon the fully adjusted rate in effect when the loan
          or security is originated or purchased. Initial estimates of
          prepayment rates are evaluated periodically against actual prepayment
          experience and current market consensus prepayment forecasts and if
          significantly different from the original estimate, the yield is
          recalculated.

               The Company purchases mortgage-backed and investment securities
          at a premium or discount which is amortized over the life of the
          security as an adjustment to the yield using the interest method. The
          premium or discount percentage is determined by adjusting the
          securities' yield for estimated prepayments when prepayments are
          probable and the timing and amount of prepayments can be reasonably
          estimated based on market consensus prepayment rates.



                                       79
<PAGE>


                              PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          COMMITMENT FEES

               Commitment fees received in connection with the origination or
          purchase of loans are deferred and recognized over the life of the
          resulting loans using the interest method as an adjustment of yield.
          If the commitment, or a portion thereof, expires unexercised, deferred
          commitment fees are recognized in income upon expiration of the
          commitment. There were no expired commitment fees recognized during
          the years ended December 31, 1998, 1997 and 1996. Direct costs, if
          any, to originate a commitment are expensed as incurred.

               Commitment fees paid to an investor in connection with the sale
          of loans are expensed and reduce the net sales proceeds at the time of
          sale.

          INVESTMENT SECURITIES AND LOANS

               Management determines the appropriate classification of its
          securities (mortgage-backed and investment securities) and loans at
          the time of purchase or origination.

               SECURITIES AVAILABLE-FOR-SALE -- Securities to be held for
          indefinite periods of time and not intended to be held-to-maturity are
          classified as available-for-sale. Assets included in this category are
          those assets that management intends to use as part of its
          asset/liability management strategy and that may be sold in response
          to changes in interest rates, resultant prepayment risk and other
          factors related to interest rate and resultant prepayment risk
          changes. Securities available-for-sale are recorded at fair value.
          Both unrealized gains and losses on securities available-for-sale are
          included in other comprehensive income in the consolidated statements
          of financial condition until these gains or losses are realized. Gains
          or losses on sales of securities available-for-sale are based on the
          specific-valuation method. If a security has a decline in fair value
          that is other than temporary, then the security will be written down
          to its fair value by recording a loss in the consolidated statements
          of operations. Premiums and discounts are accreted or amortized using
          the interest method over the estimated life of the securities.

               SECURITIES HELD-TO-MATURITY -- Securities that management has the
          intent and the Bank has the ability at the time of purchase or
          origination to hold until maturity are classified as securities
          held-to-maturity. Securities in this category are carried at amortized
          cost adjusted for accretion of discounts and amortization of premiums
          using the interest method over the estimated life of the securities.
          If a security has a decline in fair value below its amortized cost
          that is other than temporary, then the security will be written down
          to its new cost basis by recording a loss in the consolidated
          statements of operations.

               FHLB STOCK -- This asset is owned due to regulatory requirements
          and is carried at cost. This stock is pledged as collateral to secure
          FHLB advances.

          IMPAIRED LOANS

               A loan is impaired when it is "probable" that a creditor will be
          unable to collect all amounts due (i.e., both principal and interest)
          according to the contractual terms of the loan agreement. The
          measurement of impairment may be based on (1) the present value of the
          expected future cash flows of the impaired loan discounted at the
          loan's original effective interest rate, (2) the observable market
          price of the impaired loan or (3) the fair value of the collateral of
          a collateral-dependent loan. The amount by which the recorded
          investment of the loan exceeds the measure of the impaired loan is
          recognized by recording a valuation allowance.

               Interest income on impaired loans is recognized on a cash basis
          if it is determined that collection of principal is probable. Loans
          that are 90 days or more past due, or when full collection of
          principal and interest is not probable, are placed on nonaccrual
          status and interest income that has been earned but not collected is
          reversed. Loans are returned to accrual status when the borrower has
          had a period of sustained repayment performance. Management considers
          all loans formally treated as troubled debt restructurings to be
          impaired loans



                                       80
<PAGE>


                              PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          in the year of restructuring.

          ALLOWANCE FOR LOAN LOSSES

               Valuation allowances for losses on loans and real estate are
          provided on both a specific and general basis. Specific and general
          valuation allowances are increased by provisions charged to expense
          and decreased by charge-offs of loans net of recoveries. Specific
          allowances are provided for impaired loans for which the expected loss
          is measurable. General valuation allowances are provided based on a
          formula which incorporates a number of factors, including economic
          trends, industry experience, estimated collateral values, past loss
          experience, the Bank's underwriting practices, and management's
          ongoing assessment of the credit risk inherent in the asset portfolio.
          The Bank periodically reviews the assumptions and formula by which
          additions are made to the specific and general valuation allowances
          for losses in an effort to refine such allowance in light of the
          current status of the factors described above.

               While management uses the best information available to make the
          periodic evaluations of specific and general valuation allowances,
          adjustments to both allowances may be necessary if actual future
          economic conditions differ substantially from the assumptions used in
          making such periodic evaluations. Regulatory examiners may require the
          Company to recognize additions to the allowance based upon their
          judgments about information available to them at the time of their
          examination.

          REAL ESTATE HELD FOR INVESTMENT AND FOR SALE

               Real estate held for investment consists of investments which
          were acquired for development and sale. Real estate held-for-sale
          consists of property acquired in settlement of loans. Real estate held
          for investment and for sale is carried at lower of cost or market
          value, net of anticipated selling costs. Market value is determined
          based on recent appraisals or discounted cash flow calculations. Gains
          or losses on sales of real estate, net of selling and other costs, are
          recognized at the time of sale.

               Real estate acquired in settlement of loans is recorded at the
          date of acquisition at fair value, less estimated disposition costs.
          The excess of the loan balance over fair value of the asset acquired,
          if any, is charged to the allowance for loan losses upon foreclosure.
          Subsequent to foreclosure, additional decreases in the carrying value
          of foreclosed properties are recognized through a provision charged to
          operations. An allowance for losses equal to the excess of the book
          value over the fair value of the property, less estimated selling
          costs is maintained. The allowance for losses is increased or
          decreased for subsequent changes in estimated fair market value. Costs
          of developing and improving such property to facilitate sale are
          capitalized. Expenses related to holding such real estate, net of
          rental and other income, are charged against operations as incurred.

          GAINS ON THE SALE OF LOANS AND LOAN SERVICING

               Gains or losses on sales of loans are recognized at the time of
          sale and are determined by the difference between the net sales
          proceeds and the allocated basis of the loans sold. The Company
          adopted effective January 1, 1997, Statement of Financial Accounting
          Standards No. 125, "Accounting for Transfers and Servicing of
          Financial Assets and Extinguishments of Liabilities," (SFAS 125). In
          accordance with SFAS 125, the Company capitalizes mortgage servicing
          rights (MSRs) acquired through either the purchase or origination of
          mortgage loans for sale or securitization with servicing rights
          retained. The total costs of the mortgage loans designated for sale is
          allocated to the MSRs and the mortgage loans without the MSRs based on
          their relative fair values. The MSRs are included in other assets and
          as a component of gain on sale of loans. The MSRs are amortized in
          proportion to and over the estimated period of net servicing income.
          Such amortization is reflected as a component of loan servicing fees.

               The MSRs are periodically reviewed for impairment based on their
          fair value. The fair value of the MSRs for the purpose of impairment,
          is measured using a discounted cash flow analysis based on the
          Company's estimated net servicing income, market prepayments rates and
          market-adjusted discount rates. Impairment is



                                       81
<PAGE>


                              PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          measured on a disaggregated basis based on predominant risk
          characteristics of the underlying mortgage loans. The risk
          characteristics used by the Company for the purpose of capitalization
          and impairment evaluation include loan type, interest rate tranches,
          loan term and collateral type. Impairment losses are recognized
          through a valuation allowance, with any associated provision recorded
          as a component of loan servicing fees.

               Gains or losses on sales of servicing assets for which the
          Company owns the underlying loans are deferred and amortized over the
          estimated loan lives using the interest method.

          DEPRECIATION AND AMORTIZATION

               Depreciation is computed using the straight-line method over the
          estimated useful lives of the assets, which ranges from 3 to 25 years.
          Leasehold improvements are amortized using the straight-line method
          over the lives of the assets or term of the lease, whichever is
          shorter. Maintenance and repairs are expensed as incurred.

          TAXES ON INCOME

               The Company uses the asset and liability method for measurement
          and recognition of income taxes. The statements of financial condition
          amounts of net deferred tax assets or liabilities are recognized on
          the temporary differences between the basis of assets and liabilities
          as measured by tax laws and their financial statement basis, plus
          available tax operating loss carryforwards and tax credit
          carryforwards, reduced by a valuation allowance for that portion of
          tax assets not considered more likely than not to be realized.
          Deferred income tax benefit is recognized for the change in net
          deferred tax assets or liabilities, plus the valuation allowance
          change. Current income tax (benefit) is the amount of total taxes
          currently payable (receivable).

          DERIVATIVE AND HEDGING ACTIVITIES

               The Company uses interest rate swap (swaps), interest rate cap
          (caps), interest rate floor (floors), and interest rate corridor
          (corridors) contracts in the management of its interest rate risk. The
          objective of these financial instruments is to more closely match the
          estimated repricing duration and/or repricing characteristics of
          specifically identified interest-sensitive assets and liabilities to
          reduce interest rate exposure. Such contracts are used to reduce
          interest rate risk and are not used for speculative purposes, and
          therefore are not marked-to-market. The net interest income or
          expense, net of amortization of premiums, discounts and fees, from
          these contracts is recognized currently on an accrual basis over their
          term in interest expense in "hedging costs, net" in the consolidated
          statements of operations.

               Premiums paid for and discounts associated with, and costs and
          fees of interest rate swap, cap, floor and corridor contracts are
          amortized or accredited into interest expense on a straight-line basis
          over the life of the contracts.

          CASH AND CASH EQUIVALENTS

               For the purposes of the consolidated statements of cash flows,
          the Company considers all highly liquid debt instruments (investments)
          purchased with an original maturity of three months or less to be cash
          equivalents. This currently includes cash and amounts due from banks,
          Federal funds sold, and term certificates of deposit.

          RECENT ACCOUNTING PRONOUNCEMENTS

               In June 1998, the FASB issued Statement of the Financial
          Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
          Instruments and Hedging Activities." SFAS 133 amends SFAS No. 52
          "Foreign Currency Translation" to permit special accounting for a
          hedge of a foreign currency forecasted transaction with a derivative.
          It supersedes SFAS No. 80, "Accounting for Future Contracts", SFAS No.
          105, "Disclosure of Information about Financial Instruments with
          Off-Balance-Sheet Risk and Financial Instruments with



                                       82
<PAGE>

                              PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996

          Concentrations of Credit Risk", and SFAS No. 119, "Disclosure about
          Derivative Financial Instruments". It amends SFAS No.107, "Disclosure
          about Fair Value of Financial Instruments, to include in Statement 107
          disclosure provisions about concentrations of credit risk from
          Statement 105. SFAS 133 established accounting and reporting standards
          for derivative instruments, including certain derivative instruments
          embedded in other contracts, (collectively referred to as derivatives)
          and for hedging activities. It requires that an entity recognizes all
          derivatives as either assets or liabilities in the statement of
          financial position and measure those instruments at fair value. If
          certain conditions are met , a derivative may be specifically
          designated as (a) a hedge of the exposure to changes in the fair value
          of a recognized asset or liability or an unrecognized firm commitment,
          (b) a hedge of the exposure to variable cash flows of a forecasted
          transaction, or (c) a hedge of the foreign currency exposure of a net
          investment in a foreign operation, an unrecognized firm commitment, an
          available-for-sale security, or a foreign-currency-denominated
          forecasted transaction. This Statement is effective for all fiscal
          quarters of fiscal years beginning after June 15, 1999. Management
          believes that the adoption of SFAS 133 will not have a material impact
          on the Company's disclosures.

          INITIAL PUBLIC OFFERING

               On May 15, 1998, the Company completed its Offering of its Common
          Stock. An aggregate of 12,666,667 shares of Common Stock were sold to
          the public at an Offering price of $13.75 per share, of which
          8,866,667 shares were issued and sold by the Company and 3,800,000
          shares were sold by the existing stockholders of the Company. In
          connection with the underwriting agreement executed by the Company
          with the underwriters of the Offering, the Company granted the
          underwriters an option to purchase up to an additional 1,900,000
          shares of Common Stock, on the same terms and conditions as in the
          Offering, solely to cover over-allotments, if any. Such over-allotment
          option was exercised in full, and on May 21, 1998, the Company and the
          original stockholders sold an additional 1,330,000 shares and 570,000
          shares, respectively. The Company did not receive any proceeds from
          the sale of shares by the existing stockholders.

          RECLASSIFICATION

               Certain amounts in prior years' financial statements have been
          reclassified to conform to the current financial statement
          presentation.

(2)       SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

               The Bank purchases securities under agreements to resell at a
          later date at set prices, generally collateralized by AA or higher
          rated mortgage-backed securities. The average outstanding balance was
          approximately $10,175,000 and $41,225,000 during each of the years
          ended December 31, 1998 and 1997, respectively. The maximum
          outstanding balance at any month-end was $90,000,000 and $25,000,000
          during 1998 and 1997, respectively. The weighted average interest rate
          on such agreements was approximately 5.61%, 5.65% and 5.53% during the
          years ended December 31, 1998, 1997 and 1996, respectively. The
          securities pledged are held by a third-party institution.



                                       83
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(3)       SECURITIES AVAILABLE-FOR-SALE

               The Bank holds certain securities available-for-sale. The
          amortized cost, unrealized gains and losses, and estimated fair value
          of securities available-for-sale at December 31, 1998 and 1997 were as
          follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                  Amortized   Unrealized Unrealized    Estimated
                                                                      Cost      Gains     Losses      Fair Value
                                                                  ---------   ---------- ----------   -----------
                                                                                      1998
                                                                  -----------------------------------------------
<S>                                                               <C>            <C>     <C>           <C>       

Debt securities issued by government agencies:
    Due after five years to ten years .......................     $   37,000     $--     $    (23)     $   36,977
Corporate trust preferred ...................................        334,814      --       (9,849)        324,965
Mortgage-backed securities ..................................        588,081      35       (3,601)        584,515
SBA certificates ............................................         58,653      33         (206)         58,480
                                                                  ---------   ---------- ----------   -----------
      Total securities available-for-sale ...................     $1,018,548     $68     $(13,679)     $1,004,937
                                                                  ---------   ---------- ----------   ----------- 
                                                                  ---------   ---------- ----------   ----------- 
</TABLE>


<TABLE>
<CAPTION>

                                                     Amortized   Unrealized  Unrealized   Estimated
                                                        Cost        Gains      Losses    Fair Value
                                                     ---------   ----------  ----------  -----------
                                                                         1997
                                                     -----------------------------------------------
<S>                                                    <C>          <C>      <C>          <C>      
Debt securities issued by government agencies:
    Due after one year through five years.........     $ 55,250     $156     $   (73)     $  55,333
    Due after five years to ten years ............       74,254      244        (205)        74,293
    Due after ten years ..........................       10,000       93        --           10,093
Mortgage-backed securities .......................      420,621      377      (2,548)       418,450
SBA certificates .................................       13,009      --          (18)        12,991
                                                     ---------   ----------  ----------  -----------
      Total securities available-for-sale.........     $573,134     $870     $(2,844)     $ 571,160
                                                     ---------   ----------  ----------  -----------
                                                     ---------   ----------  ----------  -----------
</TABLE>


               Proceeds from sales of investments and mortgage-backed securities
          available-for-sale were approximately $514,841,000, $235,612,000 and
          $162,087,000 in each of the years ended December 31, 1998, 1997 and
          1996, respectively, and resulted in gross realized gains of
          approximately $1,847,000, $1,714,000 and $3,860,000, respectively, and
          gross realized losses of approximately $165,000, $439,000 and $222,000
          in the years ended December 31, 1998, 1997 and 1996, respectively.

               At December 31, 1998 and 1997, the amortized cost and estimated
          fair value of mortgage-backed securities available-for-sale pledged to
          secure borrowings and swap agreements are as follows:

<TABLE>
<CAPTION>

                                                            1998                      1997
                                                   -----------------------   -----------------------
                                                   Amortized    Estimated    Amortized    Estimated
                                                      Cost      Fair Value     Cost       Fair Value
                                                   ---------    ----------   ---------    ----------
                                                               (Dollars in thousands)
<S>                                                <C>          <C>          <C>          <C>     
Pledged against:
Securities sold under agreements to repurchase     $397,488     $395,720     $366,827     $365,822
Advances from Federal Home Loan Bank .........      178,797      177,434       47,542       46,779
Swap and corridor agreements .................          142          139        1,970        1,943
Treasury tax and loan account ................          804          820        4,577        4,546
                                                   --------     --------     --------     --------
                                                   $577,231     $574,113     $420,916     $419,090
                                                   --------     --------     --------     --------
                                                   --------     --------     --------     --------
</TABLE>



                                       84
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(4)       LOANS HELD-FOR-SALE
 
               Proceeds from sales of loans held-for-sale were approximately
          $43,034,000 and $93,081,000 in each of the years ended December 31,
          1998 and 1997, respectively. The sales resulted in gross realized
          gains of approximately $613,000 and $165,000 and no gross realized
          losses in each of the years ended December 31, 1998 and 1997,
          respectively. Gains from sales of servicing rights, including flow
          through and bulk sales of servicing, were $0 and $3,248,000 for the
          years ended December 31, 1998 and 1997, respectively. There were no
          loan or servicing rights sales in 1996. In 1997 the Company deferred
          gains totaling $5,291,000 on the sales of servicing rights for loans
          owned by the Bank. The unamortized balance of the deferred gain was
          $2,970,570 and $4,131,000 at December 31, 1998 and 1997, respectively.

               In the years ended December 31, 1998, 1997 and 1996, write-offs
          of servicing assets totaled approximately $0, $0 and $18,000,
          respectively, and are included in gain (loss) on loan and loan
          servicing sales in the accompanying consolidated statements of
          operations.

(5)       MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY

               The amortized cost, unrealized gains and losses, and estimated
          fair value of mortgage-backed securities at December 31, 1998 and 1997
          are as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                Amortized           Unrealized         Unrealized          Estimated
                                  Cost                Gains              Losses           Fair Value
                            -------------        -------------     --------------     --------------
<S>                            <C>                  <C>               <C>                <C>      
1998...............            $    6,282           $       90        $    --            $   6,372
                            -------------        -------------     --------------     --------------
                            -------------        -------------     --------------     --------------
1997...............            $    9,671           $       72        $    --            $   9,743
                            -------------        -------------     --------------     --------------
                            -------------        -------------     --------------     --------------
</TABLE>


               Substantially all mortgage-backed securities are collateralized
          by single-family residence secured loans. There were no sales of
          mortgage-backed securities held-to-maturity in 1998 and 1997.



                                       85
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996


(6)       LOANS RECEIVABLE

               A summary of loans receivable at December 31, 1998 and 1997 is as
          follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                     1998            1997
                                                                               ----------     -----------
<S>                                                                            <C>            <C>        

Real estate loans 
  Single-family residential:
    Fixed rate ...........................................................     $1,150,414     $   212,552
    Variable rate ........................................................        344,342         741,149
  Multifamily, primarily variable rate ...................................        366,625         426,254
  Commercial and industrial, primarily variable rate .....................        206,402         135,407
  Land, primarily fixed rate .............................................            880           5,896
                                                                               ----------     -----------
      Real estate loans ..................................................      2,068,663       1,521,258
Commercial loans .........................................................         62,665          22,484
Consumer loans ...........................................................         53,826           8,485
Secured by deposits ......................................................          3,537           2,287
                                                                               ----------     -----------
      All loans ..........................................................      2,188,691       1,554,514
Less:
   Undistributed loan proceeds ...........................................         17,152           6,206
   Unamortized net loan (premiums)/discounts and deferred origination fees            814          (6,859)
   Deferred gain on servicing sold .......................................          2,971           4,131
   Allowance for loan losses (note 7) ....................................         18,897          17,824
                                                                               ----------     -----------
                                                                               $2,148,857     $ 1,533,212
                                                                               ----------     -----------
                                                                               ----------     -----------
</TABLE>


               Nonaccrual loans were $8,507,000, $9,904,000 and $18,238,000 at
          December 31, 1998, 1997 and 1996, respectively. If loans which were on
          nonaccrual at December 31, 1998, 1997 and 1996 had performed in
          accordance with their terms for the year or since origination, if
          shorter, interest income from these loans would have been $950,000,
          $644,000 and $1,405,000, respectively. Interest collected on these
          loans for these years was $364,000, $67,000 and $846,000,
          respectively.

               The Company's variable rate loans are indexed primarily to the
          COFI and U.S. Treasury one-year CMT.

               Substantially all real estate collateralized loans are secured by
          first trust deeds. The Bank's loan portfolio is concentrated primarily
          in the state of California. The commercial real estate secured
          portfolio is diversified with no significant industry concentrations
          of credit risk. Single-family residence, multifamily, and commercial
          real estate secured loans are diversified geographically across the
          state and by size.

               At December 31, 1998, the Company had loan applications pending
          to originate loans of approximately $28,832,000. Other than pending
          loan applications at year-end, the Bank had no outstanding commitments
          to originate or purchase loans.


                                       86
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(7)       ALLOWANCE FOR LOAN LOSSES AND PROVISION FOR LOAN LOSSES

               An analysis of the activity in the allowance for loan losses for
          each of the years ended December 31, 1998, 1997 and 1996 is as follows
          (dollars in thousands):

<TABLE>
<CAPTION>

                                             1998          1997          1996
                                         --------      --------      --------
<S>                                      <C>           <C>           <C>     
Balance at beginning of year .......     $ 17,824      $ 23,280      $ 31,572
Provision for loan losses ..........        2,000         2,046         2,884
Recoveries credited to the allowance           85           106           925
                                         --------      --------      --------
                                           19,909        25,432        35,381
Losses charged to the allowance ....       (1,012)       (7,608)      (12,101)
                                         --------      --------      --------
Balance at end of year .............     $ 18,897      $ 17,824      $ 23,280
                                         --------      --------      --------
                                         --------      --------      --------
</TABLE>


               The Bank's gross impaired loans were $10,165,000 and $11,361,000
          as of December 31, 1998 and 1997, respectively. The average impaired
          loans for the years then ended were $9,615,000 and $20,600,000,
          respectively. Gross impaired loans with a valuation allowance totaled
          $7,188,000 and gross impaired loans without a valuation allowance
          totaled $2,978,000 at December 31, 1998. Interest income recognized
          related to these loans was $552,000 and $67,000 for 1998 and 1997,
          respectively.

               The valuation allowance related to impaired loans was $1,597,000
          and $1,772,000 at December 31, 1998 and 1997, respectively, and is
          included in the schedule of the allowance for loan losses described
          above.

               Troubled debt restructurings totaled $4,515,000 and $11,000,000
          as of December 31, 1998 and 1997, respectively. The Bank has no
          commitments to lend additional funds to borrowers whose loans were
          classified as troubled debt restructurings at December 31, 1998.

(8)       REAL ESTATE HELD FOR INVESTMENT AND FOR SALE

          Real estate at December 31, 1998 and 1997, consisted of the following
          (dollars in thousands):

<TABLE>
<CAPTION>

                                                          1998         1997
                                                       -------     --------

<S>                                                    <C>         <C>     
Acquired for sale or development .................     $  --       $  8,054
         Less allowance for losses ...............        --         (6,146)
                                                       -------     --------
             Acquired for sale or development.....        --          1,908
                                                       -------     --------
Acquired in settlement of loans:
         Single-family residential ...............       2,723          750
         Multifamily .............................        --          6,481
         Commercial and industrial ...............        --          7,268
         Land ....................................        --            202
                                                       -------     --------
                                                         2,723       14,701
Less allowance for losses ........................        --         (1,418)
                                                       -------     --------
             Acquired in settlement of loans......       2,723       13,283
                                                       -------     --------
                                                       $ 2,723     $ 15,191
                                                       -------     --------
                                                       -------     --------
</TABLE>



                                       87
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               A summary of the components of the income from real estate
          operations in each of the years ended December 31, 1998, 1997 and 1996
          is as follows (dollars in thousands):


<TABLE>
<CAPTION>


                                                1998         1997         1996
                                             -------      -------      -------
<S>                                          <C>          <C>          <C>    
Gross income from real estate operations     $ 1,147      $ 3,372      $ 4,761
Operating expenses .....................       1,848        4,637        5,395
                                             -------      -------      -------
      Loss from operations .............        (701)      (1,265)        (634)
Gain on real estate sales ..............       2,180        2,214        3,346
                                             -------      -------      -------
      Gain from real estate operations .       1,479          949        2,712
Provisions for losses ..................        --         (2,754)        (766)
                                             -------      -------      -------
      Total income (loss) from real     
        estate operations...............     $ 1,479      $(1,805)     $ 1,946
                                             -------      -------      -------
                                             -------      -------      -------
</TABLE>


               An analysis of the activity in the allowance for losses for real
          estate acquired and direct real estate investments for each of the
          years ended December 31, 1998, 1997 and 1996, respectively, is as
          follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                         Direct
                                          Real Estate  Real Estate
                                           Acquired    Investments    Total
                                          -----------  -----------  ---------
<S>                                         <C>          <C>          <C>    
Balance, December 31, 1995  ...........     $ 1,460      $ 6,526      $ 7,986

Provision for losses ..................         396          370          766

Charge-offs ...........................      (1,784)        (380)      (2,164)
                                            -------      -------      -------

Balance, December 31, 1996  ...........          72        6,516        6,588

Provision for losses ..................       2,754         --          2,754

Charge-offs ...........................      (1,408)        (370)      (1,778)
                                            -------      -------      -------

Balance, December 31, 1997  ...........       1,418        6,146        7,564

Charge-offs ...........................      (1,418)      (6,146)      (7,564)
                                            -------      -------      -------
Balance, December 31, 1998  ...........     $  --        $  --        $  --
                                            -------      -------      -------
                                            -------      -------      -------
</TABLE>



                                       88
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(9)       PREMISES AND EQUIPMENT

               Premises and equipment at December 31, 1998 and 1997, consisted
          of the following (dollars in thousands):

<TABLE>
<CAPTION>

                                                       1998          1997
                                                   --------      --------

<S>                                                <C>           <C>     
Land .........................................     $    521      $    521
Buildings ....................................          967           837
Furniture, fixtures and equipment ............       13,969        12,434
Leasehold improvements .......................        6,308         5,525
                                                   --------      --------
                                                     21,765        19,317
Less accumulated depreciation and amortization      (14,553)      (12,641)
                                                   --------      --------
                                                   $  7,212      $  6,676
                                                   --------      --------
                                                   --------      --------
</TABLE>


               The Bank is committed to operating leases on certain premises.
          Certain of these leases require the Bank to pay property taxes and
          insurance. Some are subject to annual inflation adjustments, and have
          renewal options of various periods at various rates. Lease expense on
          all property totaled approximately $2,610,000, $2,197,000 and
          $2,144,000, net of sublease income of approximately $166,000, $353,000
          and $452,000, in each of the years ended December 31, 1998, 1997 and
          1996, respectively.

          Approximate minimum lease commitments before consideration of the
          charge for unused lease property referred to above under noncancelable
          operating leases at December 31, 1998 are as follows (dollars in
          thousands):

<TABLE>
<CAPTION>

   Year                   Gross     Sublease      Net
--------------------   ----------   ----------   ------
<S>                    <C>        <C>         <C>
   1999.............  $ 2,594     $  152       $2,442
   2000.............    2,293        152        2,141
   2001.............    1,453         89        1,364
   2002.............      958         --          958
   2003.............      543         --          543
Thereafter..........    2,433         --        2,433
                      ----------  ---------  ----------
                      $10,274     $  393       $9,881
                      ----------  ---------  ----------
                      ----------  ---------  ----------
</TABLE>



                                       89
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(10)      DEPOSITS

               Deposits at December 31, 1998 and 1997 consisted of the following
          (dollars in thousands):

<TABLE>
<CAPTION>

                                                             1998                      1997
                                                    -------------------------  -------------------------
                                                                  Weighted                   Weighted
                                                      Amount    Average Rate    Amount     Average Rate
                                                    ---------  --------------  --------   --------------
<S>                                                 <C>                <C>    <C>                <C>  
Transaction accounts:
  NOW accounts ................................     $  166,807         1.26%  $   98,550         2.38%
  Passbook accounts ...........................        139,800         3.60      182,690         4.16
  Money market accounts .......................        126,396         4.20       52,550         5.07
                                                     ----------               ----------
      Transaction accounts ....................        433,003         2.88      333,790         3.78
                                                     ----------               ----------
Term certificates:
    3-month ...................................          6,951         3.83        5,135         4.20
    6-month ...................................         60,323         4.86       58,055         5.18
    12-month ..................................        594,717         5.46      476,251         5.73
    18-month ..................................         44,502         5.43      146,605         5.75
    24-month ..................................         57,988         6.28       73,226         5.71
    36-month ..................................         11,079         5.71       12,126         6.04
    48-month ..................................          1,176         5.93        1,099         5.95
    60-month ..................................         16,145         5.88       20,149         5.77
    Public funds ..............................             --           --        2,006         5.79
    $100,000 and over .........................        316,278         5.54      138,173         5.90
                                                     ----------               ----------
      Term certificates........................      1,109,159         5.49      932,825         5.72
                                                     ----------               ----------

                                                    $1,542,162         4.76%  $1,266,615         5.21%
                                                     ----------        -----  ----------         -----
                                                     ----------        -----  ----------         -----
</TABLE>


               Term certificates of deposit outstanding by scheduled maturity
          date at December 31, 1998 are as follows (dollars in thousands):

<TABLE>
<CAPTION>


                                                                                                   Weighted
                                                                                     Amount      Average Rate
                                                                                  ------------   ------------
<S>                                                                               <C>                <C>  
Due within 3 months .........................................................     $  271,083         5.64%
Due within 3 to 6 months ....................................................        361,803         5.65
Due within 6 to 9 months ....................................................        112,299         5.45
Due within 9 to 12 months ...................................................        201,322         5.13
Due within 12 to 24 months ..................................................        137,605         5.30
Due within 24 to 36 months ..................................................         10,559         5.70
Due after 36 months .........................................................         14,488         5.87
                                                                                  ------------   ------------
                  Total .....................................................     $1,109,159         5.49%
                                                                                  ------------   ------------
                                                                                  ------------   ------------
</TABLE>



                                       90
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               The components of deposit interest expense in each of the years
          ended December 31, 1998, 1997 and 1996 are as follows (dollars in
          thousands):

<TABLE>
<CAPTION>

                                                  1998          1997          1996
                                              --------      --------      --------
<S>                                           <C>           <C>           <C>     
NOW accounts ............................     $  2,107      $  1,635      $    449
Passbook and money market accounts ......       10,679        10,841        12,288
Term certificates -- under $100,000 .....       45,217        44,852        52,556
Term certificates -- $100,000 and over ..       12,132        10,124        10,030
                                              --------      --------      --------
                                                70,135        67,452        75,323
Interest forfeitures on early withdrawals         (208)         (205)         (187)
                                              --------      --------      --------
                                              $ 69,927      $ 67,247      $ 75,136
                                              --------      --------      --------
                                              --------      --------      --------
</TABLE>


(11)      SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

               The Bank enters into sales of agency and AA-rated mortgage-backed
          securities under agreements to repurchase (reverse repurchase
          agreements) which obligate the Bank to repurchase the identical
          securities as those which were sold. Such transactions are treated as
          a financing, with the obligations to repurchase securities sold
          reflected as a liability and the carrying amount of securities
          collateralizing the liability included in mortgage-backed securities
          in the consolidated statements of financial condition. There were
          $364,000,000 and $340,788,000 outstanding reverse repurchase
          agreements at December 31, 1998 and 1997, respectively.

               The maximum repurchase liability balances outstanding at any
          month-end during the years ended December 31, 1998 and 1997 were
          approximately $658,409,000 and $415,676,000, respectively. The average
          balances outstanding during each of the years ended December 31, 1998
          and 1997 were approximately $385,452,000 and $357,396,000,
          respectively.

               The securities sold under agreements to repurchase identical
          securities are held in safekeeping by broker/dealers. It is
          management's policy to enter into repurchase agreements only with
          broker/dealers who are regarded as primary dealers in these securities
          and meet satisfactory standards of capitalization and
          creditworthiness.

               The scheduled maturities and weighted average interest rates of
          securities sold under agreements to repurchase at December 31, 1998
          and 1997 are as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                 1998                    1997
                         ----------------------   -----------------------
                                     Weighted                  Weighted
                           Amount  Average Rate   Amount     Average Rate
                         --------  ------------   ------    -------------
<S>                       <C>             <C>    <C>              <C> 
YEAR OF MATURITY:
1998................     $     --           --%  $ 76,788         5.79%
2000................      129,000         5.71    129,000         5.71
2002................      135,000         5.79    135,000         5.79
2003................       50,000         5.34         --           --
2008................       50,000         5.10         --           --
                         --------                --------              
                         $364,000         5.61%  $340,788         5.76%
                         --------      --------  --------     ---------
                         --------      --------  --------     ---------
</TABLE>



                                       91
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(12)      ADVANCES FROM THE FHLB

               Advances from the FHLB at December 31, 1998 and 1997 are
          collateralized by mortgage-backed agency securities and mortgage loans
          with a current principal balance of approximately $1.9 billion and
          $913.9 million, respectively, and by the required investment in the
          stock of the FHLB with a carrying value at December 31, 1998 and 1997
          of approximately $63,150,000 and $23,634,000, respectively.

               At December 31, 1998, the Bank had an available total
          collateralized line of credit of approximately $1.7 billion with the
          FHLB. Based on current securities and loans pledged, the Company had
          $71.7 million of unused line of credit as of December 31, 1998 with
          the FHLB.

               The scheduled maturities and weighted average interest rates of
          advances at December 31, 1998 and 1997 are as follows (dollars in
          thousands):

<TABLE>
<CAPTION>

                                    1998                   1997
                          -------------------------  ---------------------
                                         Weighted              Weighted
YEAR OF MATURITY              Amount   Average Rate   Amount Average Rate
----------------------    -------------------------  ---------------------
<S>                          <C>             <C>    <C>              <C> 
1998.................     $       --           --%  $357,000         5.97%
1999.................         14,000         4.77         --           --
2000.................        185,000         5.69         --           --
2001.................         25,000         5.68         --           --
2002.................        139,000         5.44    115,000         5.58
2003.................        525,000         5.17         --           --
2008.................        310,000         5.53         --           --
                          ----------                ----------
                          $1,198,000         5.38%  $472,000         5.87%
                          ----------   ----------   ----------  ----------
                          ----------   ----------   ----------  ----------
</TABLE>


(13)      SENIOR DEBT

               On June 1, 1995, the Company issued $10,000,000 par of unsecured
          Senior Notes (the "Notes") in conjunction with a reorganization of the
          Company. The Notes contained an initial pay rate and accrual rate of
          7% and 10.75%, respectively, and the accrual rate increased to 11.15%
          on June 30, 1997. The difference between the pay rate and accrual rate
          was deferred and compounded annually at the accrual rate commencing on
          June 30, 1996. Included in the balance of the senior note was
          $1,113,000 of accrued interest, as of December 31, 1997. Interest of
          approximately $1.8 million, calculated at the pay rate of 7%, was paid
          September 30, 1997 for the period from issuance of the Notes to that
          date. Quarterly interest of approximately $192,000, at the pay rate,
          was paid on December 31, 1997.

               The Company used $11.4 million of public offering proceeds to
          prepay the $10.0 million of senior notes (plus accrued interest
          through May 15, 1998).

(14)      INCOME TAXES

               The Company, including the Bank and its subsidiaries (except for
          PPCCP), file a federal consolidated tax return. The Company entered
          into a tax sharing agreement with the Bank, whereby the Bank computes
          and pays taxes based upon the Bank's tax position assuming that a
          separate tax return was filed. While the senior debt was outstanding
          at the Company, the payment by the Bank was limited to the amount of
          the consolidated tax liability.

               PPCCP has elected to be treated as a REIT for Federal income tax
          purposes and intends to comply with the provisions of the Code, as
          amended. Accordingly, PPCCP is not subject to Federal income tax to
          the 


                                       92
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          extent it distributes its income to shareholders (other than Bank) and
          as long as certain asset, income and stock ownership tests are met in
          accordance with the Code. As PPCCP qualifies as a REIT for Federal
          income tax purposes, no provision for income taxes is included for the
          earnings of PPCCP that were distributed to outside stockholders.

               The income tax (benefit) for the years ended December 31, 1998,
          1997, and 1996 consist of the following (dollars in thousands):

<TABLE>
<CAPTION>

                                          1998                1997         1996
                                      --------             -------      -------
<S>                                   <C>                  <C>          <C>    
Current:
    Federal .....................     $   --               $   154      $    16
    State .......................            8                  62            6
                                      --------             -------      -------
           Total current ........            8                 216           22
                                      --------             -------      -------
Deferred:
    Federal .....................      (16,398)             (4,715)      (3,037)
                                      --------             -------      -------

          Total tax benefit .....     $(16,390)            $(4,499)     $(3,015)

                                      --------             -------      -------
                                      --------             -------      -------
</TABLE>



               Deferred tax assets are initially recognized for NOLs and tax
          credit carryforwards and differences between the financial statement
          carrying amount and the tax bases of assets and liabilities which will
          result in future deductible amounts. A valuation allowance is then
          established to reduce that deferred tax asset to the level at which
          "it is more likely than not" that the tax benefits will be realized. A
          taxpayer's ability to realize the tax benefits of deductible temporary
          differences and operating loss or credit carryforwards depends on
          having sufficient taxable income of an appropriate character within
          the carryback and carryforward periods. Sources of taxable income that
          may allow for the realization of tax benefits include (i) taxable
          income in the current year or prior years that is available through
          carryback, (ii) future taxable income that will result from the
          reversal of existing taxable temporary differences, and (iii) future
          taxable income generated by future operations. Based on the Company's
          projected taxable earnings, management believes it is more likely than
          not that the Company will realize the benefit of the existing net
          deferred tax asset at December 31, 1998.


                                       93
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               Below is a reconciliation of the expected federal income taxes
          (benefit) to the consolidated effective income taxes (benefit) for the
          noted periods:

<TABLE>
<CAPTION>

                                                      1998         1997         1996
                                                   ---------    --------      --------
                                                            (Dollars in thousands)
<S>                                                <C>           <C>          <C>    
Statutory federal income tax rate ............           35%          35%          35%
                                                   ---------    --------      --------
                                                   ---------    --------      --------
Expected federal income taxes
  (benefit) ..................................     $   (783)     $ 2,556      $ 3,335
Increases (reductions) in income
  taxes resulting from:
State franchise tax, net of federal
  benefit ....................................            4           40            4
Change in the valuation allowance ............      (15,569)      (7,006)      (6,253)
    PPCCP nontaxable earnings ................          (79)        (301)        --
    Other ....................................           37          212         (101)
                                                   --------      -------      -------
                                                   $(16,390)     $ (4,499)    $(3,015)
                                                   --------      -------      -------
                                                   --------      -------      -------
</TABLE>


               The Company had the following total Federal and State deferred
          tax assets and liabilities computed at the Federal statutory income
          tax rate and the California statutory franchise tax rate for the noted
          periods:


<TABLE>
<CAPTION>

                                                                                                        1998          1997
                                                                                                    --------      --------
                                                                                                    (Dollars in thousands)
<S>                                                                                                 <C>           <C>     
Deferred Tax Assets:
  Provision for losses on loans and real estate ...............................................     $ 12,718      $ 14,875
  Tax gains on sales of loans, net of deferred gains ..........................................        1,989         2,206
  Recognition of interest on nonperforming loans for tax ......................................        6,354         5,747
  Accrued  interest on deposits recognized for book but
      deferred for tax ........................................................................        1,187         1,424
  REMIC Income ................................................................................        6,576         5,384
  Miscellaneous temporary deductible differences ..............................................        1,139           969
  Available NOLs carryforwards ................................................................       57,612        51,253
  AMT tax credit carryforwards ................................................................        1,432         1,432
                                                                                                    --------      --------
         Total deferred tax assets ............................................................       89,007        83,290

Deferred tax liabilities:
  Stock dividends from FHLB ...................................................................       (4,429)       (3,273)
  Real estate partnership tax losses ..........................................................         --            (259)
  Miscellaneous temporary taxable differences .................................................       (5,585)       (1,511)
  Federal tax effect of state temporary differences ...........................................       (3,714)       (3,797)
                                                                                                    --------      --------
         Total deferred tax liabilities .......................................................      (13,728)       (8,840)
                                                                                                    --------      --------

Deferred tax assets, net of deferred tax liabilities ..........................................       75,279        74,450

Less deferred tax asset valuation allowance ...................................................      (48,674)      (64,243)
                                                                                                    --------      --------

         Net deferred tax assets ..............................................................     $ 26,605      $ 10,207
                                                                                                    --------      --------
                                                                                                    --------      --------
</TABLE>



                                       94
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996

               The Federal and State tax NOLs carryforwards expire as follows
          (dollars in thousands):

<TABLE>
<CAPTION>

               Year                                                     Total
           ------------                                               ----------
           <S>                                                        <C>
                  2001...............................................  $ 17,845
                  2002...............................................         2
                  2003...............................................    24,444
                  2004...............................................        26
                                                                       ---------
                  Pre-1992 originated net operating losses...........    42,317
                  2003...............................................       828
                  2008...............................................     5,917
                  2009...............................................    14,706
                  2010...............................................    78,436
                  2011...............................................     5,061
                  2013...............................................     6,556
                                                                       ---------
                  Pre-May, 1998 originated net operating losses......   111,504
                  2003...............................................     1,410
                  2013...............................................    11,162
                                                                       ---------
                  Post-May, 1998 originated net operating losses.....    12,572
                                                                       ---------
                      Total..........................................  $166,393
                                                                       ---------
                                                                       ---------
</TABLE>


               The above total includes $1.4 million of state NOLs carryforwards
          which expire in 2003.

               The Company had Federal and California AMT credit carryforwards
          of approximately $1,374,000 and $58,000, respectively. These
          carryforwards are available to reduce future regular federal income
          taxes and California franchise taxes, if any, over an indefinite
          period.

               In 1992, issuance of preferred stock resulted in a change in
          control as defined under Section 382 of the Code. As a result, any
          usage of NOLs carryforwards created in 1992 and prior years is limited
          to approximately $7.7 million per year. The total NOLs carryforwards
          created in 1992 and prior years is approximately $42.3 million. Any
          unused limitation is available in subsequent years until expiration.
          The amount of the unused limitation carryover available from the 1992
          change in control in 1999 and thereafter is approximately $42.3
          million.

               During May of 1998, the Offering resulted in a second change in
          control as defined under Section 382 of the Code. As a result, any
          usage of NOLs carryforwards created prior to May, 1998 (but post 1992)
          is limited to approximately $21.3 million per year. The total NOLs
          carryforwards created prior to May, 1998 (but post 1992) is
          approximately $111.5 million. Any unused limitation is available in
          subsequent years until expiration. The amount of the unused limitation
          carryover available from the May, 1998 change in control in 1999 is
          approximately $22.5 million

               The Company is subject to examination by Federal and State taxing
          authorities for tax returns filed in previous periods. The results and
          effects of these examinations on individual assets and liabilities may
          require adjustment to the tax assets and liabilities based on the
          results of their examinations. Management does not anticipate that the
          examinations will result in any material adverse effect on its
          financial condition or results of operations.

(15)      STOCKHOLDER'S EQUITY AND EARNINGS PER SHARE

               At December 31, 1997, the Company adopted SFAS No. 128, "Earnings
          Per Share" (SFAS 128). Under SFAS 128 basic earnings per share
          excludes dilution and is computed by dividing income available to
          common stockholders by the weighted average number of common shares
          outstanding for the period. Diluted earnings per 



                                       95
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          share reflects the potential dilution that could occur if securities
          or other contracts to issue common stock were exercised or converted
          into common stock or resulted from issuance of common stock that then
          shared in earnings.

               The weighted average number of common shares outstanding used to
          compute basic and diluted earnings per share in 1998, 1997 and 1996
          were 14,793,644, 3,152,064 and 3,152,064, respectively.

               Prior to consummation of the Offering and the exchange of
          preferred stock for Common Stock, there were outstanding 85,000 shares
          of Series C Preferred Stock, 68,000 shares of Series D Preferred Stock
          and 332,000 shares of Series E Preferred Stock, all of which were
          owned by the Material Stockholders. In connection with the Offering,
          the Outstanding Preferred Stock was exchanged for shares of Common
          Stock. An aggregate of 3,152,064 shares of Common Stock was
          outstanding following consummation of the Offering, which gives effect
          to the conversion of the Outstanding Preferred Stock into Common Stock
          and the 32:1 stock split. Dividends are payable if and when the Board
          of Directors of the Company declare such dividends out of the assets
          of the Company, which by law are available. No dividends have been
          declared or paid on Common Stock. In 1998, the Company paid a $19.4
          million preferred stock dividend in connection with the Offering.

(16)      OTHER CAPITAL TRANSACTIONS

               On September 2, 1998, the Company announced an initial stock
          repurchase program of up to 1 million shares, or approximately five
          percent, of the Company's outstanding Common Stock, to be effected
          from time to time in open-market or privately-negotiated transactions.
          The repurchased shares are held as treasury stock and may be used for
          general corporate purposes. Through December 31, 1998, the Company
          repurchased 835,000 shares pursuant to this program for a total
          purchase price of $8.3 million. On January 4, 1999, the Company's
          Board of Directors authorized an additional repurchase of up to 1
          million shares, or approximately five percent, of the Company's
          outstanding Common Stock. The additional repurchased shares will also
          be held as treasury stock and used for general corporate purposes.

(17)      DERIVATIVES AND HEDGING ACTIVITIES

               Hedging costs, net, for each of the years ended December 31,
          1998, 1997 and 1996 consists of the following (dollars in thousands):

<TABLE>
<CAPTION>

                                                             1998     1997     1996
                                                             ----     ----     ----
<S>                                                          <C>      <C>      <C> 
Interest paid on swaps, net of interest received .......     $--      $  2     $ 35
Amortization of cost of caps, floors and corridors, net
  of interest received .................................      214      265      352
                                                             ----     ----     ----
                                                             $214     $267     $387
                                                             ----     ----     ----
                                                             ----     ----     ----
</TABLE>


               Interest rate swaps are contracts where the parties agree to
          exchange fixed rate for floating rate interest payments, or to
          exchange floating rate interest payments upon two different rate
          indices (basis swap), for a specified period of time on a specified
          (notional) amount. The notional amount is used only to calculate the
          amount of interest payments to be exchanged and does not represent
          credit risk. The notional amount and weighted average pay and receive
          rates are shown below in accordance with their contractual dates. The
          variable repricing indexes associated with the contracts are
          three-month LIBOR, one-month LIBOR and COFI which were 5.07%, 5.06%
          and 4.69%, respectively, at December 31, 1998.

               Swap contracts were entered into to limit the interest rate risk
          related to the relative repricing characteristics of the Bank's
          interest-bearing deposits. The floating rate on swap contracts
          re-prices at intervals of one to three months based on the current
          index in effect at that time. If all contracts were repriced at the
          current index in effect at each year-end, the weighted average rate
          paid and received would be 5.65% and 5.69%, respectively, at December
          31, 1998.


                                       96
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               The notional amount of the swap amortizes monthly based upon the
          performance of a specific index. The swap is used to reduce interest
          rate risk associated with fixed rate term liabilities. The performance
          of the swap is based upon interest rates in general. The above table
          does not include anticipated amortization relating to the swap.
          Excluding this transaction, the Bank does not have any other positions
          in complex derivative transactions.

               Mortgage-backed securities with book values of approximately $0
          and $1,970,000 and market values of approximately $0 and $1,943,000 at
          December 31, 1998 and 1997, respectively, are pledged as collateral
          for certain swap agreements.

               The Bank has only limited involvement in derivative financial
          instruments and does not use them for trading purposes. The
          instruments are used to manage interest rate risk. The Bank has
          entered into corridor contracts to artificially raise the interest
          rate cap on certain loans. The corridor contracts provide for the
          payment of interest on the outstanding principal contract amount.
          Under such contracts, the Bank receives interest if an interest rate
          that varies according to a specified index exceeds a pre-set level
          (the strike rate) up to an upper limit (the limit) beyond which
          additional interest is not received if the rate increases. The index
          on the Bank's corridors is COFI or three-month LIBOR. A summary of
          corridor contracts and average interest rate ranges at December 31,
          1998 is as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                               Contract              Average              Average
           Year of Maturity                     Amount            Strike Price          Limit Rate
----------------------------------------   ------------------   ------------------   ------------------
<S>                                           <C>                    <C>                  <C>  
1999 ...............................          $ 20,000               6.64%                8.24%
2000 ...............................            12,000               6.38                 8.13
2001 ...............................            20,000               6.64                 8.24
                                           ------------------
                                              $ 52,000               6.58%                8.21%
                                           ------------------   ------------------   -------------------
                                           ------------------   ------------------   -------------------
</TABLE>



(18)      BENEFIT PLANS

               The Bank has had a noncontributory defined benefit pension plan
          covering substantially all of its employees (the "Plan") hired before
          1990. The benefits are based on years of service and the employee's
          highest compensation during the last five consecutive years of
          employment prior to 1991. The Plan was frozen effective December 31,
          1990, and consequently, employees will no longer earn additional
          defined benefits for future services; however, future service may be
          counted toward vesting of benefits accumulated based on past service.
          The Bank's funding policy has been to contribute annually the minimum
          amount that can be deducted for Federal income tax purposes.



                                       97
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               The following table sets forth the funded status of the Plan and
          amounts recognized in the Bank's consolidated statements of financial
          condition at December 31, 1998 and 1997 (dollars in thousands):

<TABLE>
<CAPTION>

                                                                             1998          1997
                                                                          -------       -------
<S>                                                                       <C>           <C>    
CHANGE IN BENEFIT OBLIGATION:
Projected benefit obligation, beginning of year .....................     $ 5,727       $ 5,058
         Interest cost ..............................................         397           372
         Benefits paid ..............................................        (106)          (97)
         Actuarial loss .............................................         230           394
                                                                          -------       -------
         Projected benefit obligation, end of year ..................       6,248         5,727
                                                                          -------       -------

CHANGE IN PLAN ASSETS:
         Plan assets, beginning of year .............................       5,083         4,492
         Actual return on plan assets ...............................         715           663
         Employer contribution ......................................          25            24
         Benefits paid ..............................................        (106)          (97)
                                                                          -------       -------
         Plan assets, end of year ...................................       5,717         5,082
                                                                          -------       -------

         Projected benefit obligation (in excess of) plan assets ....        (531)         (645)
         Unrecognized (gain)/loss ...................................       1,157         1,221
                                                                          -------       -------
         Net amount recognized ......................................         626           576
                                                                          -------       -------

AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF:
         Accrued benefit liability ..................................        (531)         (645)
         Accumulated comprehensive income ...........................       1,157         1,221
                                                                          -------       -------
         Net amount recognized ......................................         626           576
                                                                          -------       -------

COMPONENTS OF NET PERIODIC BENEFIT COST:
         Interest cost on projected benefit obligation ..............         396           372
         Expected return on Plan assets .............................        (456)         (404)
         Amortization of unrecognized (gain)/loss ...................          35             3
                                                                          -------       -------
         Pension income .............................................     $   (25)      $    (2)
                                                                          -------       -------
                                                                          -------       -------

THE ASSUMPTIONS USED IN THE ACCOUNTING WERE:
         Discount rate ..............................................        6.75%         7.00%
         Expected long-term rate of return on assets ................        9.00%         9.00%
</TABLE>



               Pension income was approximately $25,000, $2,000 and $9,000 for
          the year's ended December 31,1998, 1997 and 1996, respectively. The
          Company adopted a 401(k) plan, effective January 1, 1991. The 401(k)
          plan covers employees with one year or more of service, and allows
          participants to contribute a portion of their covered compensation,
          which amount is 100% vested at the time of contribution. The Bank
          shall contribute an amount equal to 50% of the participant's
          contribution up to 6% of the participant's covered compensation, which
          amount vests over a period of five years. The Bank may elect to make
          additional contributions on a discretionary basis. The contributions
          as directed by the participants are invested by the 401(k) plan's
          trustee in one or more of five investment alternatives in trust for
          the benefit of the participants. The Bank incurred approximately
          $76,000, $144,000 and $155,000 of expense related to the 401(k) plan,
          with no discretionary contributions in each of the years ended
          December 31, 1998, 1997 and 1996, respectively.



                                       98
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(19)      COMMITMENTS AND CONTINGENCIES

               The Company is involved in litigation arising in the normal
          course of business. Based on information from internal and external
          legal counsel, and review of the facts and circumstances of such
          litigation, management is of the opinion that the ultimate resolution
          of all pending litigation proceedings will not have an adverse
          material effect on the Company. See Note 24 for a discussion of
          litigation related to the Company's goodwill litigation.

(20)      FAIR VALUE OF ASSETS AND LIABILITIES

               SFAS No. 107, "Disclosures about Fair Value of Financial
          Instruments," requires disclosure of fair value information about
          financial instruments, whether or not recognized in the statements of
          financial condition, for which it is practicable to estimate that
          value. In cases where quoted market prices are not available, fair
          values are based on estimates using present value or other valuation
          techniques. Those techniques are significantly affected by the
          assumptions used, including the discount rate and estimates of future
          cash flows. In that regard, the derived fair value estimates cannot be
          substantiated by comparison to independent market and, in many cases,
          could not be realized in immediate settlement of the instrument. SFAS
          No. 107 excludes certain financial instruments and all non- financial
          instruments from its disclosure requirements. Accordingly, the
          aggregate fair value amounts presented do not represent the underlying
          value of the Company.

               The carrying amounts and fair values of the Bank's financial
          instruments consisted of the following at December 31, 1998 and 1997
          (dollars in thousands):

<TABLE>
<CAPTION>

                                                                             1998                           1997
                                                                   --------------------------     --------------------------
                                                                    Carrying          Fair        Carrying            Fair
                                                                     Amount          Value          Amount           Value
                                                                   ----------     -----------     ----------     -----------
                                                                                                                         8664
<S>                                                                <C>            <C>              <C>            <C>        
Financial assets:
         Cash and cash equivalents ...........................     $   46,401     $    46,401      $   21,117     $    21,117
         Securities available-for-sale .......................      1,004,937       1,004,937         571,160         571,160
         Mortgage-backed securities  
           held-to-maturity...................................          6,282           6,372           9,671           9,743
         Loans receivable ....................................      2,148,857       2,160,238       1,533,212       1,516,827
         FHLB stock ..........................................         63,150          63,150          23,634          23,634

Financial liabilities:
         Deposits ............................................      1,542,162       1,539,645       1,266,615       1,264,143
         Securities sold under agreements to repurchase ......        364,000         373,402         340,788         340,788
         Advances from the FHLB ..............................      1,198,000       1,219,404         472,000         473,523
         Senior debt .........................................             --              --          11,113          11,113
Financial instruments:
         Interest rate swaps .................................             --              --              --              (7)
         Interest rate corridors .............................            266            (236)            481             138
</TABLE>



          The following methods and assumptions were used to estimate the fair
          value of each type of financial instrument:

               -    Cash and Cash Equivalents - The carrying amount approximates
                    the fair value for cash and short-term investments.

               -    Securities Available-for-Sale - Fair value is based on
                    quoted market prices or dealer quotes.

               -    Mortgage-Backed Securities - Fair value is based on quoted
                    market prices or dealer quotes.



                                       99
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               -    Loans Receivable - For residential real estate loans, fair
                    value is estimated by discounting projected future cash
                    flows at the current market interest rates for
                    mortgage-backed securities collateralized by loans of
                    similar coupon, duration and credit risk, adjusted for
                    differences in market interest rates between loans and
                    securities. The fair value of multifamily and commercial
                    real estate loans is estimated by discounting the future
                    cash flows using the current interest rates at which loans
                    with similar terms would be made on property and to
                    borrowers with similar credit and other characteristics and
                    with similar remaining terms to maturity. Impaired loans are
                    valued based upon the fair value of underlying collateral,
                    if collateral dependent or alternatively, the present value
                    of expected cash flows using the loan's original implicit
                    loan interest rate.

               -    FHLB Stock - The carrying amount of FHLB Stock approximates
                    its fair value.

               -    Deposit - The fair values of NOW accounts, passbook accounts
                    and money market accounts withdrawable on demand without
                    penalty are, by definition, equal to the amount withdrawable
                    on demand at the reporting date, which is their carrying
                    amount. The fair value of term certificates of deposit, all
                    of which are fixed maturity bearing a fixed rate of
                    interest, is estimated by discounting future projected cash
                    flows at interest rates approximating interest rates
                    currently offered by the Bank for similar types of
                    certificates of deposit for similar remaining terms to
                    maturity.

               -    Securities Sold under Agreements to Repurchase - The fair
                    value is estimated by discounting projected future cash
                    flows at the current interest rates available to the Bank
                    for Securities Sold Under Agreements to Repurchase with
                    similar terms for similar remaining terms to maturity.

               -    Senior Debt - The carrying amount of senior debt
                    approximates its fair value.

               -    Advances from the FHLB - The fair value is estimated by
                    discounting projected future cash flows at the current
                    advance interest rates available to the Bank for FHLB
                    advances with similar terms for similar remaining terms to
                    maturity.

               -    Interest Rate Swaps, Caps and Corridors - The fair value of
                    interest rate swaps is based upon dealer quotes or are
                    estimated by discounting projected future cash flows at the
                    current market interest rates for interest rate swaps of
                    similar terms and counter party credit risk for the same
                    remaining terms to maturity. The fair values of interest
                    rate caps and corridors are also based upon dealer quotes or
                    estimated using option pricing models utilizing current
                    market consensus assumptions for interest rate caps and
                    corridors of similar terms and strike or floor prices for
                    the same remaining term to maturity.

(21)      REGULATORY CAPITAL REQUIREMENTS

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

               Quantitative measures established by regulation to ensure capital
          adequacy require the Bank to maintain minimum amounts and ratios (set
          forth in the table below) of total and tangible capital (as defined in
          the regulations) to adjusted tangible assets (as defined) and Tier 1
          capital (as defined in the regulations) to



                                      100
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


          risk-weighted assets (as defined), and of Tier 1 leverage capital (as
          defined) to adjusted tangible assets (as defined). Management
          believes, as of December 31, 1998, that the Bank met all capital
          adequacy requirements to which it is subject.

               As of December 31, 1998, the most recent notification from the
          OTS categorized the Bank as well capitalized under the regulatory
          framework for prompt corrective action. To be categorized as well
          capitalized, the Bank must maintain a minimum total risk-based ratio
          of 10%, Tier 1 risk-based ratio of 6% and Tier 1 leverage ratio of 5%.
          There are no conditions or events since that notification that
          management believes have changed the institution's category.

               While all insured institutions are required by OTS regulations to
          meet these minimum regulatory capital requirements, the Bank has
          regulatory Assistance Agreements which were entered into with the
          FSLIC as part of the Company's purchase of the Bank in 1987, and which
          provides for an additional $121.8 million of regulatory capital at
          December 31, 1998. Until the passage of FIRREA, the Bank met all
          capital requirements by including the additional Assistance Agreement
          capital amount in regulatory capital.

               The position of the OTS was and continues to be that under
          FIRREA, Assistance Agreements which provide additional regulatory
          capital, and/or capital forbearances are no longer in effect as of
          December 7, 1989. The OTS notified the Bank in 1990 that the
          additional Assistance Agreement capital amounts cannot be included in
          meeting the FIRREA capital requirements, and as a result thereof the
          OTS believed the Bank did not meet minimum FIRREA capital
          requirements. Management disagreed, and still disagrees, with the OTS,
          and attempted to preserve all of its rights and remedies under the
          Assistance Agreements. At December 31, 1998, the Bank met all minimum
          FIRREA regulatory capital requirements without inclusion of the
          additional Assistance Agreement capital amounts.

               To preserve its rights under the Assistance Agreement, in 1993
          the Company and the Bank commenced a lawsuit against the United States
          Government for breach of contract and deprivation of property without
          just compensation or due process of law. The lawsuit seeks unspecified
          monetary compensation for damages sustained in meeting FIRREA mandated
          capital requirements and for the fair value of property taken, but
          does not seek reinstatement of the Assistance Agreement capital
          forbearance. While the outcome of the lawsuit cannot be determined at
          this time, it is management's opinion, based on the advice of external
          legal counsel, that the Bank's position has substantial legal merit.

               The ability of the Company to pay dividends will depend primarily
          upon the receipt of dividends from the Bank. The Bank's ability to pay
          these dividends is dependent upon its earnings from operations and the
          adequacy of its regulatory capital. As a well capitalized institution,
          the maximum dividend allowable under statute is the higher of (i) 100%
          of the Bank's net income to date during the calendar year plus the
          amount that would reduce by one-half its capital surplus ratio at the
          beginning of the year or (ii) 75% of the previous four quarters of net
          earnings less dividends paid in such quarters. The OTS director must
          be notified of the proposed distribution.



                                      101
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               At December 31, 1998, and 1997, the Bank's regulatory capital
          calculations, computed by management both with and without inclusion
          of the additional capital provided for in the Bank's Assistance
          Agreements were as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                       Regulatory Capital/Standard as of December 31, 1998
                                                     ---------------------------------------------------------
WITHOUT ADDITIONAL ASSISTANCE                       Tangible          Tier 1       Tier 1 Risk-    Total Risk-
AGREEMENT CAPITAL                                    Capital        Leverage           Based       Based Capital
----------------------------------------------     ---------       ---------       ---------       ---------
<S>                                                <C>             <C>             <C>             <C>      
Stockholders' equity/GAAP capital ............     $ 179,357       $ 179,357       $ 179,357       $ 179,357
Adjustment for unrealized losses on securities
  available-for-sale .........................        13,609          13,609          13,609          13,609
Deduction for disallowed deferred tax assets .       (15,024)        (15,024)        (15,024)        (15,024)
Deduction for intangible assets ..............        (1,119)         (1,119)         (1,119)         (1,119)
Minority interest in subsidiary ..............        33,250          33,250          33,250          33,250
                                                   ---------       ---------       ---------       ---------

                  Total Tier 1 capital .......       210,073         210,073         210,073         210,073
Includable allowance for loan losses .........          --              --              --            16,143
                                                   ---------       ---------       ---------       ---------
                  Total capital ..............       210,073         210,073         210,073         226,216
Minimum capital requirement ..................        49,983         133,288          73,189         146,378
                                                   ---------       ---------       ---------       ---------

                  Regulatory capital excess ..     $ 160,090       $  76,785       $ 136,884       $  79,838
                                                   ---------       ---------       ---------       ---------
                                                   ---------       ---------       ---------       ---------

Capital ratios:
         Regulatory as reported ..............          6.30%           6.30%          11.48%          12.36%
         Minimum capital ratio ...............          1.50            4.00            4.00            8.00
                                                   ---------       ---------       ---------       ---------

                  Regulatory capital excess ..          4.80%           2.30%           7.48%           4.36%
                                                   ---------       ---------       ---------       ---------
                                                   ---------       ---------       ---------       ---------

WITH ADDITIONAL ASSISTANCE
AGREEMENT CAPITAL
----------------------------------------------
Regulatory capital as adjusted ...............     $ 331,873       $ 331,873       $ 331,873       $ 348,017
Minimum capital requirement (per above) ......        49,983         133,288          73,189         146,378
                                                   ---------       ---------       ---------       ---------

Regulatory capital excess ....................     $ 281,890       $ 198,585       $ 258,684       $ 201,639
                                                   ---------       ---------       ---------       ---------
                                                   ---------       ---------       ---------       ---------
</TABLE>



                                      102
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                    Regulatory Capital/Standard as of December 31, 1997
                                                ------------------------------------------------------------
WITHOUT ADDITIONAL ASSISTANCE                      Tangible        Tier 1     Tier 1 Risk-    Total Risk-
AGREEMENT CAPITAL                                  Capital        Leverage        Based      Based Capital
--------------------------------------------    -------------   ------------  ------------   ---------------
                                                                    (Dollars in thousands)
<S>                                              <C>             <C>             <C>             <C>      
Stockholders' equity/GAAP capital ..........     $  90,571       $  90,571       $  90,571       $  90,571
Adjustment for unrealized losses on
  securities available-for-sale ............         1,974           1,974           1,974           1,974
Deduction for direct real estate investments        (1,908)         (1,908)         (1,908)         (1,908)
Deduction for intangible assets ............          (529)           (529)           (529)           (529)
Minority interest in subsidiary ............        30,033          30,033          30,033          30,033
                                                 ---------       ---------       ---------       ---------

      Total Tier 1 capital .................       120,141         120,141         120,141         120,141

Includable allowance for loan losses .......          --              --              --            13,988
                                                 ---------       ---------       ---------       ---------
      Total capital ........................       120,141         120,141         120,141         134,129
Minimum capital requirement ................        33,188          88,501          44,738          89,475
                                                 ---------       ---------       ---------       ---------

      Regulatory capital excess ............     $  86,953       $  31,640       $  75,403       $  44,654
                                                 ---------       ---------       ---------       ---------
                                                 ---------       ---------       ---------       ---------

Capital ratios:
  Regulatory as reported ...................          5.43%           5.43%          10.74%          11.99%
  Minimum capital ratio ....................          1.50            4.00            4.00            8.00
                                                 ---------       ---------       ---------       ---------

      Regulatory capital excess.............          3.93%           1.43%           6.74%           3.99%
                                                 ---------       ---------       ---------       ---------
                                                 ---------       ---------       ---------       ---------


WITH ADDITIONAL ASSISTANCE
AGREEMENT CAPITAL
--------------------------------------------
Regulatory capital as adjusted .............     $ 244,841       $ 244,841       $ 244,841       $ 258,829
Minimum capital requirement (per above) ....        33,188          88,501          44,738          89,475
                                                 ---------       ---------       ---------       ---------

Regulatory capital excess ..................     $ 211,653       $ 156,340       $ 200,103       $ 169,354
                                                 ---------       ---------       ---------       ---------
                                                 ---------       ---------       ---------       ---------
</TABLE>



                                      103
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996




(22)      CONDENSED FINANCIAL INFORMATION OF PBOC HOLDINGS, INC.:

               The condensed unconsolidated balance sheets of the Company at
          December 31, 1998 and 1997, were as follows:

<TABLE>
<CAPTION>

                                                                                         1998        1997
                                                                                     --------     -------
                                                                                    (Dollars in thousands)
<S>                                                                                  <C>          <C>    
                                       ASSETS
Cash ...........................................................................     $  1,804     $   155
Investment in subsidiary .......................................................      179,357      90,571
                                                                                     --------     -------
         Total assets ..........................................................     $181,161     $90,726
                                                                                     --------     -------
                                                                                     --------     -------

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
         Accrued expenses and other liabilities ................................     $    555     $    11
         Senior debt, net ......................................................         --        11,113
                                                                                     --------     -------
                  Total liabilities ............................................          555      11,124
Total stockholders' equity .....................................................      180,606      79,602
                                                                                     --------     -------

                  Total liabilities and stockholders' equity ...................     $181,161     $90,726
                                                                                     --------     -------
                                                                                     --------     -------
</TABLE>


               The condensed unconsolidated statements of operations of the
          Company for the years ended December 31, 1998, 1997 and 1996, are as
          follows:

<TABLE>
<CAPTION>

                                                                                        1998         1997         1996
                                                                                    --------      -------     --------
                                                                                            (Dollars in thousands)
<S>                                                                                 <C>           <C>         <C>   
Income:
         Cash dividends from subsidiary ........................................    $    200      $ 2,100     $   --
         Interest income .......................................................         259         --           --
         Other income ..........................................................         (64)        --           --
         Service fee income ....................................................        --           --          1,118
                                                                                    --------      -------     --------
                                                                                         395        2,100        1,118

Expense:
         Interest on senior debt ...............................................         445        1,272        1,160
         General and administrative expenses ...................................         284           30        1,012
                                                                                    --------      -------     --------
                                                                                         729        1,302        2,172

Earnings (loss) before undistributed earnings of subsidiary ....................        (334)         798       (1,054)
Equity in undistributed earnings of subsidiary .................................      11,237       10,144       13,598
                                                                                    --------      -------     --------


                  Net earnings .................................................    $ 10,903      $10,942     $ 12,544
                                                                                    --------      -------     --------
                                                                                    --------      -------     --------
</TABLE>


               The Company relies upon the Bank for dividends to support its
          operations. Absent these dividends, the Company must rely upon its
          stockholders to support its activities. The ability of the Bank to pay
          dividends is dependent upon its ability to maintain minimum capital
          requirements and profitability.


                                      104
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


               The condensed unconsolidated statements of cash flows of the
          Company for the years ended December 31, 1998, 1997 and 1996 are as
          follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                       1998          1997          1996
                                                                                  ---------      --------      --------
<S>                                                                               <C>            <C>           <C>     
Cash flows from operations activities:
   Net earnings .............................................................     $  10,903      $ 10,942      $ 12,544
   Adjustment to reconcile net loss to net cash used in operating activities:
            Increase in accrued expenses ....................................           544           (33)         (175)
            Decrease in accrued interest payable ............................           257          (393)         --
            Interest deferred and added to senior debt ......................          --            --           1,165
            Equity in undistributed (income) of subsidiary ..................       (11,237)      (10,144)      (13,598)
                                                                                  ---------      --------      --------
                Net cash provided by (used) in operating activities .........           467           372           (64)
                                                                                  ---------      --------      --------
Cash flows from financing activities:
   Proceeds from Offering ...................................................       129,611          --            --
   Payment of other borrowings ..............................................       (11,370)         --            --
   Capital investment in subsidiary .........................................       (89,307)         --            --
   Purchases of treasury stock ..............................................        (8,308)         --            --
   Retirement of preferred stock ............................................            (5)         --            --
   Dividends paid ...........................................................       (19,439)         --            --
   Cash contributions to additional paid-in capital .........................          --              21           102
   Payment on senior debt ...................................................          --            (285)         --
                                                                                  ---------      --------      --------
                Net cash provided by (used in) financing activities .........         1,182          (264)          102
                                                                                  ---------      --------      --------
Net decrease (increase) in cash and cash equivalents ........................         1,649           108            38
Cash and cash equivalents at beginning of period ............................           155            47             9
                                                                                  ---------      --------      --------
Cash and cash equivalents at end of period ..................................     $   1,804      $    155      $     47
                                                                                  ---------      --------      --------
                                                                                  ---------      --------      --------
</TABLE>



                                      105
<PAGE>


                               PBOC HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996


(23)      QUARTERLY RESULTS OF OPERATIONS

               The following table presents results of operations by quarter for
          1998 and 1997:

<TABLE>
<CAPTION>

                                                               Quarters Ended
                                               --------------------------------------------------
                                                March 31     June 30    September 30  December 31
                                               ---------    --------   -------------  -----------
                                                     (In thousands, except per share data)
<S>                                            <C>           <C>           <C>         <C>     
1998
Total interest income ....................     $ 38,944      $ 37,149      $51,979     $ 52,801
Total interest expense ...................       28,771        30,787       40,647       40,153
                                               --------      --------      -------     --------
         Net interest income .............       10,173         6,362       11,332       12,648
Provision for loan losses ................          450           450          450          650
                                               --------      --------      -------     --------
Net interest income after provision for
  loan losses.............................        9,723         5,912       10,882       11,998
Gain on sale of mortgage-backed securities          323          --            937          422
Other income .............................          535         2,411          851          957
Operating expenses .......................        7,680        23,240        6,999        9,043
                                               --------      --------      -------     --------
Earnings (loss) before income taxes
  (benefit) ..............................        2,901       (14,917)       5,671        4,334
Income tax (benefit) .....................         --          (9,390)        --         (7,000)
Minority interest ........................          869           869          869          869
                                               --------      --------      -------     --------
         Net earnings  (loss) ............     $  2,032      $ (6,446)     $ 4,852     $ 10,465
                                               --------      --------      -------     --------
                                               --------      --------      -------     --------
Net earnings (loss) per common share,
         basic and diluted ...............     $   0.18      $  (0.57)     $  0.22     $   0.50
                                               --------      --------      -------     --------
                                               --------      --------      -------     --------
1997
Total interest income ....................     $ 30,701      $ 30,717      $32,342     $ 37,219
Total interest expense ...................       22,372        22,823       24,124       27,886
                                               --------      --------      -------     --------
         Net interest income .............        8,329         7,894        8,218        9,333
Provision for loan losses ................          422           233          450          941
                                               --------      --------      -------     --------
Net interest income after provision for
  loan losses.............................        7,907         7,661        7,768        8,392
Gain on sale of mortgage-backed securities           40            82          469          684
Other income .............................        4,297           425          289       (1,169)
Operating expenses .......................        7,156         6,970        7,252        8,165
                                               --------      --------      -------     --------
Earnings before income taxes .............        5,088         1,198        1,274         (258)
Income tax benefit .......................         --            --           --         (4,499)
                                               --------      --------      -------     --------
Minority interest ........................         --            --           --            859
         Net earnings ....................     $  5,088      $  1,198      $ 1,274     $  3,382
                                               --------      --------      -------     --------
                                               --------      --------      -------     --------
Net earnings  (loss) per common share
         basic and diluted ...............     $   1.15      $  (0.57)     $ (0.06)    $   0.61
                                               --------      --------      -------     --------
                                               --------      --------      -------     --------
</TABLE>


(24)      GOODWILL LITIGATION AND SHAREHOLDER RIGHTS AGREEMENT

               As discussed in Note (21) above, the Company and the Bank have
          filed a lawsuit against the United States Government with regard to
          supervisory and accounting goodwill which were eliminated by FIRREA.
          To date, there have been no material settlement discussions to resolve
          the litigation and no trial date has been set. While the outcome of
          the lawsuit cannot be determined at this time, management believes
          that, based on the advice of outside legal counsel, that the Bank's
          position has substantial merit.



                                      106
<PAGE>

               In May, 1997, a former preferred stockholder of the Company and
          the Bank filed a lawsuit against the Company, the Bank and certain
          other parties seeking to participate in any recovery against the
          government in the goodwill litigation. The Company intends to defend
          this action vigorously.

               The Company completed an Offering in May, 1998. In connection
          with this Offering, the Company, the Bank and each of the Material
          Stockholders (i.e., the Bishop Estate, BIL Securities and Arbur)
          entered into a Shareholder Rights Agreement (the "Agreement") which
          entitles the Material Stockholders to 95% of any recovery against the
          government in the goodwill litigation. The remaining 5% will be
          retained by the Company and/or the Bank. As defined in the Agreement,
          the litigation recovery to be distributed will equal cash payments
          received by the Company and/or Bank in the litigation, after deduction
          of legal and other expenses incurred in the litigation and any income
          tax liability of the Company or Bank incurred as a result of the
          recovery.

               The Agreement provides that the Material Stockholders' claim to
          95% of any litigation recovery by the Company or Bank is documented in
          the form of goodwill participation rights. To the extent the Company
          is prohibited from distributing a recovery payment, or any portion
          thereof, or cannot do so because the Bank is prohibited from making a
          distribution to the Company, the Company shall, upon the written
          request of any Material Stockholder, issue to such Material
          Stockholder preferred stock of the Company with an aggregate
          liquidation preference equal in value to the recovery payment or
          portion thereof which the Company shall have been prohibited from
          distributing (the "Recovery Payment Preferred"). The Company shall
          issue the Recovery Payment Preferred upon surrender to the Company of
          such Material Stockholder's rights. The stated value of each share of
          Recovery Payment Preferred shall be $1,000. The holders of the
          Recovery Payment Preferred shall be entitled to receive cumulative
          preferential cash dividends payable quarterly at a fixed rate per
          share of 9 3/4% per annum.

               As long as any Recovery Payment Preferred remains outstanding, no
          dividend shall be declared or paid on the Company's Common Stock and
          no shares of Common Stock shall be redeemed or purchased by the
          Company unless all cumulative dividends on all outstanding shares of
          Recovery Payment Preferred have been paid. In the event of any
          dissolution, liquidation or winding up of the affairs of the Company,
          after payment or provision for payment of the debts and other
          liabilities of the Company, the holders of the Recovery Payment
          Preferred shall be entitled to receive, out of the net assets of the
          Company available for distribution to its stockholders and before any
          distribution shall be made to the holders of Common Stock, an amount
          equal to $1,000 per share, plus an amount equal to all dividends
          accrued and unpaid on each share of Recovery Payment Preferred.

               The Company shall have the right, at its option, to redeem at any
          time the Recovery Payment Preferred Stock, in whole or in part, upon
          payment in cash with respect to each share of Recovery Payment
          Preferred redeemed at $1,000 per share, plus an amount equal to all
          dividends accrued and unpaid thereon to the date fixed for redemption.

               The Agreement also established a Litigation Committee of the
          Company's Board of Directors which will oversee the goodwill
          litigation and related litigation with the former preferred
          stockholder and make final decisions relating to any dismissal,
          settlement or termination of the litigation. The Agreement further
          provides that the Material Stockholders shall indemnify the Company
          and/or the Bank for 95% of the liability incurred by the Company or
          Bank in the claim by the former preferred stockholder or other parties
          which challenges the validity of the Agreement.



ITEM 9.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

         None



                                      107
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information relating to Directors and Executive Officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 26, 1999
from pages 3 to 5, 7 and 14. Such Proxy Statement was filed with the SEC on
March 22, 1999 ("Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

     The information relating to Directors and Executive Compensation is
incorporated herein by reference to the Registrant's Proxy Statement from pages
5 to 7, 8 to 14 and 17.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement from pages 15 to 16.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement from
page 18.

                                     PART IV

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

     (a)  Document filed as part of this Report.

     (1)  The Consolidated Financial Statements are contained herein as listed
          on the "Index" on page 70 hereof.

     (2)  All schedules for which provision is made in the applicable accounting
          regulation of the SEC are omitted because they are not applicable or
          the required information is included in the Consolidated Financial
          Statements or notes thereto.

     (3)  (a) The following exhibits are filed as part of this Form 10-K, and
          this list includes the Exhibit Index.



                                      108
<PAGE>

--------------------------------------------------------------------------------
NO.                 DESCRIPTION


3.1        Amended and Restated Certificate of Incorporation of PBOC Holdings,
           Inc.
3.2        Bylaws of PBOC Holdings, Inc.
4          Stock Certificate of PBOC Holdings, Inc. (1)
10.1       Employment Agreement between PBOC Holdings, Inc.,
           People's Bank of California and Rudolf P. Guenzel
10.2       Employment Agreement between PBOC Holdings, Inc.,
           People's Bank of California and J. Michael Holmes
10.3       Employment Agreement between PBOC Holdings, Inc.,
           People's Bank of California and William W. Flader
10.4       Employment Agreement between the People's Bank of California and 
           Doreen J. Blauschild (1)
10.5       Deferred Compensation Plan
10.6       Grantor Trust
10.7       Shareholder Rights Agreement
10.8       Stockholders' Agreement
21         Subsidiaries of the Registrant - Reference is made to "ITEM 1. 
           BUSINESS" for the Required
           information
27         Financial Data Schedule




---------------
(1) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-48397) filed by the Registrant with the SEC on March 20,
1998, as amended.

(3)(b)  Reports filed on Form 8-K.

                  None.



                                      109
<PAGE>


                                   SIGNATURES

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



                                    By: /s/RUDOLF P. GUENZEL
                                        --------------------------
                                         Rudolf P. Guenzel
                                         President and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


<TABLE>
<S>                                                               <C>

  /S/RUDOLF P. GUENZEL                                            March 15, 1999
---------------------------------------------------
Rudolf P. Guenzel,
President and Chief Executive Officer and  Director
  (Principal Executive Officer)


  /S/J. MICHAEL HOLMES                                            March 15, 1999
---------------------------------------------------
J. Michael Holmes
Executive Vice President and Chief
  Financial Officer (Principal Financial
  and Accounting Officer) and Director


  /S/MURRAY KALIS                                                 March 15, 1999
---------------------------------------------------
Murray Kalis
Director


  /S/GERARD JERVIS                                                March 15, 1999
---------------------------------------------------
Gerard Jervis
Director


  /S/ROBERT W. MACDONALD                                          March 15, 1999
---------------------------------------------------
Robert W. MacDonald
Director


  /S/JOHN F. DAVIS                                                March 15, 1999
---------------------------------------------------
John F. Davis
Director
</TABLE>

                                       110