<PAGE>
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                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549

   
                                  FORM 10-KSB/A

                                (Amendment No. 2)
    
<TABLE>
<C>          <S>
(Mark One)
    /X/      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
             1934
             For the fiscal year ended December 31, 1996
 
                                             OR
 
    / /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
             ACT OF 1934 [NO FEE REQUIRED]
             For the transition period from ........................ to
             ........................
</TABLE>
 
                          COMMISSION FILE NO. 0-13551
   
                                WESTERN BANCORP
                 (Name of small business issuer in its charter)
    

                 CALIFORNIA                                     95-3863296
       (State or other jurisdiction of                        I.R.S. Employer
       incorporation or organization)                       Identification No.)
 
    30000 TOWN CENTER DRIVE LAGUNA NIGUEL                          92677
  (Address of principal executive offices)                      (Zip Code)

 
                    Issuer's telephone number (714) 495-3300
 
        SECURITIES REGISTERED UNDER SECTION 12(b) OF EXCHANGE ACT: NONE
 
           SECURITIES REGISTERED UNDER SECTION 12(g) OF EXCHANGE ACT:
 
                           Common Stock, no par value

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

                                (Title of Class)
 
    Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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  _____
   
    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form and no disclosure will 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-KSB/A or any
amendment to this Form 10-KSB/A. [    ]
    
 
    The issuer's net revenues for its most recent fiscal year was $13,872,000
   
    The aggregate market value of the voting stock held by non-affiliates of the
issuer as of June 26, 1997 was $136,078,704
    
   
    Number of registrant's shares of Common Stock outstanding as of June 26,
1997 was 7,069,762
    
 

    Documents incorporated by reference: None

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
   
Item 7 is hereby amended and restated as follows:

"ITEM 7. FINANCIAL STATEMENTS.
    

                          INDEPENDENT AUDITORS' REPORT
 
To the Shareholders and Directors of
Monarch Bancorp:
 
    We have audited the accompanying consolidated balance sheets of Monarch
Bancorp and Subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
    We conducted our audit 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 audit provides a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Monarch Bancorp and
Subsidiaries as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
 
                                          KPMG PEAT MARWICK LLP
 
February 24, 1997
Los Angeles, California
 
                                       1
<PAGE>
   
                          INDEPENDENT AUDITORS' REPORT

To the Shareholders and Directors of
Monarch Bancorp



We have audited the accompanying consolidated balance sheets of Monarch 
Bancorp and Subsidiaries as of December 31, 1995, and December 31, 1994, and 
the related consolidated statements of operations, changes in shareholders' 
equity, and cash flows for the years then ended. These financial statements 
are the responsibility of the Company's management. Our responsibility is to 
express an opinion on these 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 financial statements referred to above present fairly, in 
all material respects, the financial position of Monarch Bancorp and 
Subsidiaries as of December 31, 1995, and December 31, 1994, and the results 
of its operations and its cash flows for the years then ended, in conformity 
with generally accepted accounting principles.


                                               DAYTON & ASSOCIATES






February 29, 1996
Laguna Hills, California
    
                                       2
<PAGE>
   
                                MONARCH BANCORP
 
                          CONSOLIDATED BALANCE SHEETS
 
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,  DECEMBER 31,
                                                                                           1996          1995
                                                                                       ------------  -------------
<S>                                                                                    <C>           <C>
                                                      ASSETS
  Cash and due from banks............................................................   $   37,385     $   4,747
  Federal funds sold.................................................................        4,217         2,938
                                                                                       ------------  -------------
    Total cash and cash equivalents..................................................       41,602         7,685
  Interest bearing deposits with other banks.........................................       --               198
  Securities held to maturity (fair value of $7,245 and $6,693)......................        7,270         6,661
  Securities available for sale (amortized cost of $157,265 and $21,864).............      157,454        22,004
  Loans:
    Real estate mortgage.............................................................      128,026        11,675
    Real estate construction.........................................................       24,666         2,033
    Commercial.......................................................................      101,177        16,758
    Installment and other............................................................        7,186         2,184
                                                                                       ------------  -------------
      Gross loans....................................................................      261,055        32,650
    Less:  Deferred loan fees........................................................         (939)         (130)
           Allowance for loan losses.................................................       (5,393)         (854)
                                                                                       ------------  -------------
      Net loans......................................................................      254,723        31,666
  Premises and equipment.............................................................        5,780           610
  Other real estate owned............................................................        3,889           150
  Deferred tax assets, net...........................................................        3,983           440
  Taxes receivable...................................................................        3,553        --
  Goodwill...........................................................................       29,342        --
  Other assets.......................................................................        4,765           687
                                                                                       ------------  -------------
      Total assets...................................................................   $  512,361     $  70,101
                                                                                       ------------  -------------
                                                                                       ------------  -------------
 
                                       LIABILITIES AND SHAREHOLDERS' EQUITY
  Deposits:
    Noninterest bearing..............................................................   $  150,694     $  19,931
    Interest bearing demand..........................................................      202,335        22,527
    Savings..........................................................................       19,457         4,633
    Time certificates of deposit of $100,000 or more.................................       39,334         3,502
    Time certificates of deposit less than $100,000..................................       31,164         8,149
                                                                                       ------------  -------------
      Total deposits.................................................................      442,984        58,742
  Notes payable......................................................................       11,000           132
  Accrued interest payable and other liabilities.....................................        4,249           230
                                                                                       ------------  -------------
    Total liabilities................................................................      458,233        59,104
                                                                                       ------------  -------------
  Shareholders' equity:
    Preferred stock, no par value, 5 million shares authorized, none issued
    Common stock, no par value, 100 million shares authorized 34,373,021 and
      8,228,436 issued and outstanding in 1996 and 1995..............................       58,709        16,500
    Accumulated deficit..............................................................       (4,716)       (5,454)
    Unrealized gain on investment securities available for sale, net of taxes........          135            83
    Deferred charge related to KSOP..................................................       --              (132)
                                                                                       ------------  -------------
      Total shareholders' equity.....................................................       54,128        10,997
                                                                                       ------------  -------------
      Total liabilities and shareholders' equity.....................................   $  512,361     $  70,101
                                                                                       ------------  -------------
                                                                                       ------------  -------------
</TABLE>
 
          See accompanying notes to consolidated financial statements
    
                                       3
<PAGE>
   
                                MONARCH BANCORP
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                                           1996           1995
                                                                                       -------------  ------------
                                                                                       (IN THOUSANDS, EXCEPT SHARE
                                                                                                  DATA)
<S>                                                                                    <C>            <C>
INTEREST INCOME
  Interest and fees on loans.........................................................  $       8,207  $      3,054
  Interest on interest bearing deposits in other banks...............................              3            43
  Securities available for sale......................................................          3,167           589
  Securities held to maturity........................................................            516           429
  Federal funds sold.................................................................            604           376
                                                                                       -------------  ------------
    Total interest income............................................................         12,497         4,491
Interest expense:
  Deposits...........................................................................          3,761         1,147
  Notes payable......................................................................            191             1
                                                                                       -------------  ------------
    Total interest expense...........................................................          3,952         1,148
                                                                                       -------------  ------------
Net interest income..................................................................          8,545         3,343
Provision for loan losses............................................................            228           425
                                                                                       -------------  ------------
Net interest income after provision for loan losses..................................          8,317         2,918
Non-interest income
  Service charges and fees on loans and deposits.....................................            903           545
  Rental income......................................................................             34            66
  Data processing income.............................................................            100            70
  Gains on sales of securities available for sale....................................            267       --
  Legal settlement and other.........................................................             71           252
                                                                                       -------------  ------------
    Total non-interest income........................................................          1,375           933
Non-interest expense.................................................................
  Salaries and benefits..............................................................          4,323         1,657
  Occupancy..........................................................................          1,031           622
  Advertising and business development...............................................            152           116
  Other real estate owned............................................................           (151)           62
  Professional services..............................................................          1,469           398
  Telephone, stationery and supplies.................................................            380           186
  Goodwill amortization..............................................................            499       --
  Data processing....................................................................            186       --
  Other..............................................................................            713           623
                                                                                       -------------  ------------
    Total non-interest expense.......................................................          8,602         3,664
                                                                                       -------------  ------------
Income before income taxes...........................................................          1,090           187
Income taxes.........................................................................            352          (496)
                                                                                       -------------  ------------
    Net income.......................................................................  $         738  $        683
                                                                                       -------------  ------------
                                                                                       -------------  ------------
Per share information................................................................
  Weighted-average number of common and common equivalent shares outstanding.........     14,974,918     5,071,000
  Net income per share...............................................................  $         .05  $        .13
</TABLE>
 
          See accompanying notes to consolidated financial statements
    
                                       4
<PAGE>
   
                                MONARCH BANCORP
 
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                            NET UNREALIZED
                                                                             APPRECIATION
                                                                            (DEPRECIATION)    DEFERRED
                                              COMMON STOCK                  ON SECURITIES      CHARGE
                                            ----------------  ACCUMULATED   AVAILABLE FOR    RELATED TO   SHAREHOLDERS'
                                            SHARES   AMOUNT     DEFICIT          SALE           KSOP         EQUITY
                                            -------  -------  -----------   --------------   ----------   ------------
<S>                                         <C>      <C>      <C>           <C>              <C>          <C>
Balance December 31, 1994.................      794  $ 7,368    $(6,137)        $(356)         $(173)       $   702
  Repayment on KSOP debt..................    --       --        --            --                 41             41
  Net change in unrealized appreciation on
    investment securities available for
    sale..................................    --       --        --               439          --               439
  Issuance of common stock................    7,434    9,132     --            --              --             9,132
  Net income..............................    --       --           683        --              --               683
                                            -------  -------  -----------      ------        ----------   ------------
Balance December 31, 1995.................    8,228   16,500     (5,454)           83           (132)        10,997
  Repayment on KSOP debt..................    --       --        --            --                132            132
  Net change in unrealized appreciation on
    investment securities available for
    sale..................................    --       --        --                52          --                52
  Issuance of common stock................   26,147   42,213     --            --              --            42,213
  Repurchase of shares....................       (2)      (4)    --            --              --                (4)
  Net income..............................    --       --           738        --              --               738
                                            -------  -------  -----------      ------        ----------   ------------
Balance December 31, 1996.................   34,373  $58,709    $(4,716)        $ 135          $--          $54,128
                                            -------  -------  -----------      ------        ----------   ------------
                                            -------  -------  -----------      ------        ----------   ------------
</TABLE>
 
          See accompanying notes to consolidated financial statements
    
                                       5
<PAGE>
   
                                MONARCH BANCORP
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                                              1996         1995
                                                                                           -----------  ----------
                                                                                               (IN THOUSANDS)
<S>                                                                                        <C>          <C>
Cash flow from operating activities
  Net income.............................................................................  $       738  $      683
  Adjustments to reconcile net income to net cash provided by (used in) operating
    activities:
    Provision for loan losses............................................................          228         425
    Deferred income taxes................................................................           56        (495)
    Provision for losses on other real estate owned......................................          243          30
    Depreciation.........................................................................          294         165
    Amortization of bond discounts, net..................................................          (97)        (53)
    Deferred loan fees...................................................................          (79)        (80)
    Termination of KSOP..................................................................          132      --
    Goodwill amortization................................................................          499      --
    Net increase (decrease) in accrued interest payable and other liabilities............           87        (172)
    Net (increase) decrease in accrued interest receivable and other assets..............         (973)        482
                                                                                           -----------  ----------
      Net cash provided (used) by operating activities...................................        1,128         985
Cash flow from investing activities:
  Net decrease in interest-bearing deposits at other banks...............................          198       1,184
  Securities held to maturity:
    Proceeds from maturities.............................................................        5,267       3,394
    Purchases............................................................................       (4,880)     (5,704)
  Securities available for sale:
    Proceeds from maturities.............................................................       10,242       1,351
    Gains on sales.......................................................................          267      --
    Sales................................................................................       24,766      --
    Purchases............................................................................      (36,126)    (12,000)
  Net (increase) decrease in loans.......................................................      (25,473)
  Additions to other real estate owned...................................................         (284)     --
  Sales of other real estate owned.......................................................        2,058         617
  Additions to premises and equipment....................................................         (365)       (125)
  Increase in assets and liabilities due to the acquisition of Western Bank:
    Securities available for sale........................................................     (134,394)     --
    Securities held to maturity..........................................................         (988)     --
    Loans................................................................................     (198,418)     --
    Deferred taxes.......................................................................       (3,663)     --
    Other assets.........................................................................      (11,729)     --
    Premises and equipment...............................................................       (5,099)     --
    Deposits.............................................................................      353,111      --
    Other liabilities....................................................................        3,932      --
    Goodwill.............................................................................      (29,841)     --
                                                                                           -----------  ----------
      Net cash used by investing activities..............................................      (51,419)    (13,131)
</TABLE>
 
          See accompanying notes to consolidated financial statements
    
                                       6
<PAGE>
   
                                MONARCH BANCORP
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 

<TABLE>
<CAPTION>
                                                                                                1996       1995
                                                                                              ---------  ---------
                                                                                                 (IN THOUSANDS)
<S>                                                                                           <C>        <C>
Cash flow from financing activities:
  Net increase in deposits..................................................................  $  31,131  $      99
  Issuance of debt..........................................................................     11,000     --
  Repayment of debt.........................................................................       (132)       (53)
  Purchase of treasury shares...............................................................         (4)    --
  Net proceeds from issuance of common stock, net of issuance costs.........................     42,213      9,132
                                                                                              ---------  ---------
    Net cash provided by financing activities...............................................     84,208      9,178
Net increase in cash and cash equivalents...................................................     33,917     (2,968)
Cash and cash equivalents at the beginning of the year......................................      7,685     10,653
                                                                                              ---------  ---------
    Cash and cash equivalents at the end of year............................................  $  41,602  $   7,685
                                                                                              ---------  ---------
                                                                                              ---------  ---------
Supplemental disclosure of cash flow information
  Property acquired through foreclosure.....................................................  $     825  $     272
                                                                                              ---------  ---------
                                                                                              ---------  ---------
  Loans to facilitate sales of other real estate owned......................................  $     343  $     800
                                                                                              ---------  ---------
                                                                                              ---------  ---------
  Cash paid for
    Interest................................................................................  $   4,061  $   1,217
                                                                                              ---------  ---------
                                                                                              ---------  ---------
    Taxes...................................................................................  $     282  $  --
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>

 
          See accompanying notes to consolidated financial statements
    
                                       7
<PAGE>
   
                                MONARCH BANCORP
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1--ACCOUNTING POLICIES
 
BASIS OF PRESENTATION
 
    The accounting and reporting policies of Monarch Bancorp (the "Company") and
its wholly-owned subsidiaries, Monarch Bank ("Monarch") and Western Bank
("Western"), (collectively "the Banks"), are in accordance with generally
accepted accounting principles and conform to general practices within the
banking industry. Western was acquired by the Company on September 30, 1996. The
acquisition was accounted for as a purchase. Accordingly, results of operations
include Western only from the date of acquisition.
 
    The consolidated financial statements include the Company, Monarch, Western
and M. B. Mortgage Company, an inactive subsidiary of Monarch. All significant
inter-company balances and transactions have been eliminated.
 
NATURE OF OPERATION
 
    The Company conducts business only through its bank subsidiaries. Monarch, a
full service bank with two banking offices, and Western, a full service bank
with five banking offices, are state-chartered banks subject to the laws of the
State of California and the regulations of the Federal Deposit Insurance
Corporation. The Company is a regulated bank holding company under the Bank
Holding Company Act of 1956, and is also subject to regulation and supervision
by the Federal Reserve Board. The areas served by the Banks are the southern
area of Orange County and the western area of Los Angeles.
 
ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates subject to change include the allowance for loan losses, the carrying
value of other real estate owned, and the deferred tax asset.
 
CASH AND CASH EQUIVALENTS
 

    For purposes of reporting cash flows, cash and cash equivalents include the
balance sheet captions "Cash and due from banks" and "Federal funds sold."

 
SECURITIES
 
    Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and carried at amortized cost.
Investments that are purchased and held principally for the purpose of selling
them in the near term are classified as "trading" and carried at fair value,
with unrealized gains and losses included in earnings. Investments not
classified as either "held to maturity" or "trading" are classified as
"available for sale" and carried at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity. When a debt security is transferred into the "held to maturity" category
from the "available for sale" category, the unrealized gain or loss at the
transfer date continues to be reported as a separate component of shareholders'
equity and is amortized over the remaining life of the related security as a
yield adjustment. If a decline in fair value below amortized cost basis of an
investment is judged by management to be other
    
                                       8
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
than temporary, the cost basis of the investment is written down to fair value
and the amount of the writedown is included in earnings.
 
    Premiums and discounts on investment and mortgage-backed securities are
recognized in the statements of income using a method that approximates the
level-yield method over the lives of the securities. Gains and losses on
securities are recognized when realized with the cost basis of investments sold
determined on a specific identification basis.
 
LOANS
 
    Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest income is ordinarily discontinued
when a loan becomes 90 days past due as to principal or interest; however,
management may elect to continue the accrual when the estimated net realizable
value of collateral is sufficient to cover the principal balance and the accrued
interest. When the loan is determined to be uncollectible, interest accrued in
prior years and the principal are charged to the allowance for loan losses.
 
LOAN ORIGINATION FEES AND COSTS
 
    Loan origination fees and certain direct loan origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
 
ALLOWANCE FOR LOAN LOSSES
 
    The allowance for loan losses is maintained at a level believed by
management to be adequate to meet reasonably foreseeable loan losses on the
basis of many factors including the risk characteristics of the portfolio,
underlying collateral, current and anticipated economic conditions that may
affect the borrower's ability to pay, specific problem loans and trends in loan
delinquencies and charge-offs. Losses on loans are provided for under the
allowance method of accounting. The allowance is increased by provisions charged
to income and reduced by loan charge-offs, net of recoveries. Loans, including
impaired loans, are charged off in whole or in part when, in management's
opinion, collectibility is not probable.
 
    While management uses available information to establish the allowance for
loan losses, future additions to the allowance may be necessary if economic
developments differ substantially from the assumptions used in making the
evaluation. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banks' allowances for loan
losses. Such agencies may require the Banks to recognize additions to the
allowance based on judgments different from those of management.
 
    Impaired loans are commercial, commercial real estate, and individually
significant mortgage and consumer loans for which it is probable that the
Company will not be able to collect all amounts due according to contractual
terms of the loan agreement. The definition of "impaired loans" is not the same
as the definition of "nonaccrual loans," although the two categories overlap.
Nonaccrual loans include impaired loans and are those on which the accrual of
interest is discontinued when collectibility of principal or interest is
uncertain or payments of principal or interest have become contractually past
due 90 days. The Company may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the loan
impaired, if (i) it is probable that the Company will collect all amounts due in
accordance with the contractual terms of the loan or (ii) the loan is not a
    
                                       9
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
commercial, commercial real estate or an individually significant mortgage or
consumer loan. Factors considered by management in determining impairment
include payment status and collateral value. The amount of impairment for these
types of impaired loans is determined by the difference between the present
value of the expected cash flows related to the loan, using the original
contractual interest rate, and its recorded value, or, as a practical expedient
in the case of collateralized loans, the difference between the fair value of
the collateral and the recorded amount of the loans. When foreclosure is
probable, impairment is measured based on the fair value of the collateral.
Mortgage and consumer loans which are not individually significant are measured
for impairment collectively. Loans that experience insignificant payment delays
and insignificant shortfalls in payment amounts generally are not classified as
impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
 
OTHER REAL ESTATE OWNED
 
    Other real estate owned ("OREO") is comprised of real estate acquired
through foreclosure. These assets are recorded at the lower of the carrying
value of the receivable or the fair value less selling costs of the related real
estate. The excess carrying value, if any, over the fair value of the asset
received is charged to the allowance for loan losses at the time of acquisition.
Any subsequent decline in the fair value of OREO is recognized as a charge to
operations and in a corresponding increase to the valuation allowance. Gains and
losses from sales and net operating expense of OREO are also charged to
operations and are included in OREO expense in the accompanying consolidated
statements of operations.
 
PREMISES AND EQUIPMENT
 
    Premises and equipment are stated at cost, less accumulated depreciation and
amortization which are charged to expense on a straight-line basis over the
estimated useful lives of the assets or the terms of the leases if shorter.
 
GOODWILL
 
    Goodwill is amortized to expense using the straight-line method over fifteen
years. On an ongoing basis, management reviews the valuation and amortization of
goodwill. During this review, management estimates the value of the Company's
goodwill, taking into consideration any events and circumstances that might have
diminished its value.
 
INCOME TAXES
 
    The Company and its subsidiaries file a consolidated Federal income tax
return.
 
    The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax
    
                                       10
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
 
NET INCOME PER SHARE
 
    Net income per share of common stock is based on the weighted-average number
of shares of common and common equivalent shares outstanding during the year.
 
EFFECT OF NEW ACCOUNTING STANDARDS
 
    ACCOUNTING FOR STOCK-BASED COMPENSATION
 
    On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, which
establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement encourages all entities to adopt a
new method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the date it
is granted. Companies are, however, allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting are required to
disclose in a footnote to the financial statements pro forma net income and
earnings per share, as if this statement had been adopted. The Company elected
to continue accounting for stock options under the intrinsic value method and
has provided the pro forma disclosure.
 
    ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
     EXTINGUISHMENTS OF LIABILITIES
 
    In June 1996, the FASB issued the Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Management of the Company does not expect
that adoption of SFAS 125 will have a material impact on the Company's financial
condition and results of operations.
 
RECLASSIFICATIONS
 
    Certain reclassifications have been made to the prior period financial
statements to conform to the 1996 presentation. Such reclassifications had no
effect on net income or shareholders' equity as previously reported.
 
NOTE 2--ACQUISITIONS
 
    WESTERN BANK
 
    On September 30, 1996 the Company completed the acquisition of Western in
which Western became a wholly owned subsidiary of the Company.
    
                                       11
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACQUISITIONS (CONTINUED)
    The Company paid $17.25 per share, or approximately $61.1 million, for the
3,543,156 outstanding shares of Western, and an additional $5.5 million related
to the outstanding stock options of Western. The net consideration for the
acquisition of Western was thus approximately $66.6 million. The acquisition was
accounted for under the purchase method of accounting which resulted in
approximately $30 million of goodwill being recorded.
 
    The Company funded the purchase price with the issuance of approximately
$42.2 million of common stock, net of approximately $1 million in issuance
costs, in the 1996 Private Placement, and from the proceeds of a three year loan
of $26.5 million from The Northern Trust Company (the "Lender"). A $15.5 million
dividend was declared by Western concurrently with the completion of the
acquisition and paid to the Company, which was used to reduce the $26.5 million
note to $11 million.
 
    The following table presents unaudited pro forma results of operations of
the Company for the years ended December 31, 1996 and 1995 as if the acquisition
of Western had been effective at the beginning of each year presented. The
unaudited pro forma combined summary of operations is intended for informational
purposes only and is not necessarily indicative of the future operating results
of the Company or of the operating results of the Company that would have
occurred had the Western acquisition been in effect for the years presented.
 
               UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                                            1996          1995
                                                                                        ------------  ------------
<S>                                                                                     <C>           <C>
Interest income.......................................................................  $     33,847  $     31,349
Interest expense......................................................................        11,041         8,433
                                                                                        ------------  ------------
    NET INTEREST INCOME...............................................................        22,806        22,916
Provision for loan losses.............................................................         1,031         1,135
                                                                                        ------------  ------------
    NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...............................        21,775        21,781
Non interest income...................................................................         2,499         4,438
Non interest expense..................................................................        21,217        21,039
                                                                                        ------------  ------------
    INCOME BEFORE TAXES...............................................................         3,057         5,180
Income tax expense....................................................................         1,791         2,446
                                                                                        ------------  ------------
    NET INCOME (LOSS).................................................................  $      1,266  $      2,734
                                                                                        ------------  ------------
                                                                                        ------------  ------------
    NET INCOME PER SHARE..............................................................  $       0.04  $       0.08
                                                                                        ------------  ------------
                                                                                        ------------  ------------
Weighted average shares outstanding...................................................    34,374,800    34,374,800
</TABLE>
 
    The unaudited pro forma combined net income per share were calculated based
on the pro forma combined net income and the average common shares that would
have been outstanding during the years presented (including shares issued under
the September 30, 1996 private placement).
    
                                       12
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--ACQUISITIONS (CONTINUED)
    CALIFORNIA COMMERCIAL BANKSHARES
 
    On December 19, 1996, the Company entered into an agreement to acquire
California Commercial Bankshares ("CCB"), the holding company for National Bank
of Southern California, in a business combination intended to be accounted for
as a pooling-of-interests. The terms of the merger provide that each common
share of CCB be exchanged for 8.5 shares of the Company (1 share if a proposed 1
for 8.5 reverse stock split is effected). The merger is subject to both
shareholder and regulatory approval. At December 31, 1996, CCB had total assets,
deposits, debt, stockholders' equity, and number of common shares outstanding of
$351 million, $319 million, $2.4 million, $25 million, and 2,984 thousand,
respectively; these amounts are unaudited. For the year ended December 31, 1996,
CCB reported net income and net income per share of approximately $3.8 million
and $1.26, respectively; these amounts are unaudited.
 
NOTE 3--RESTRICTIONS ON CASH AND DUE FROM BANKS
 
    The Company is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The total average amount
of those reserve balances for the year ended December 31, 1996 was approximately
$9.0 million.
    
                                       13
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4--SECURITIES
 
    SECURITIES
 
    Investment securities at December 31 were as follows:
 
<TABLE>
<CAPTION>
                                                                                   GROSS         GROSS
                                                                   AMORTIZED    UNREALIZED    UNREALIZED   ESTIMATED
                                                                      COST         GAINS        LOSSES     FAIR VALUE
                                                                   ----------  -------------  -----------  ----------
                                                                                     (IN THOUSANDS)
<S>                                                                <C>         <C>            <C>          <C>
1996
Securities Held to Maturity:
  US Government Securities.......................................  $    1,147    $      13     $      --   $    1,160
  US Agency Securities...........................................       4,202            2            (1)       4,203
  Mortgage-backed Securities.....................................       1,921           --           (39)       1,882
                                                                   ----------        -----         -----   ----------
                                                                   $    7,270    $      15     $     (40)  $    7,245
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
Securities Available for Sale:
  US Government Securities.......................................  $  132,287    $       9     $    (104)  $  132,192
  US Agency Securities...........................................       7,709           --            --        7,709
  Mortgage-backed Securities.....................................       5,534           20            --        5,554
  US Government Mutual Fund......................................       4,468           --            --        4,468
  Other securities...............................................       7,267          264            --        7,531
                                                                   ----------        -----         -----   ----------
                                                                   $  157,265    $     293     $    (104)  $  157,454
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
1995
Securities Held to Maturity:
  US Government Securities.......................................  $      485    $      16     $      --   $      501
  US Agency Securities...........................................       4,500            5            (4)       4,501
  Mortgage-backed Securities.....................................       1,676           25           (10)       1,691
                                                                   ----------        -----         -----   ----------
                                                                   $    6,661    $      46     $     (14)  $    6,693
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
Securities Available for Sale:
  US Government Securities.......................................  $    4,868    $       5     $      (2)  $    4,871
  US Agency Securities...........................................       5,536           45            (3)       5,578
  Mortgage-backed Securities.....................................       2,116           20            (5)       2,131
  US Government Mutual Fund......................................       9,240           --            --        9,240
  Other securities...............................................         104           80            --          184
                                                                   ----------        -----         -----   ----------
                                                                   $   21,864    $     150     $     (10)  $   22,004
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
</TABLE>
 
    The amortized cost and estimated fair value of securities at December 31,
1996, by contractual maturity, are shown below. Mortgage-backed securities
included in the held to maturity and available for sale portfolios which are not
due at a single maturity date are allocated over several maturity groupings
based on anticipated maturities of the underlying assets. Expected maturities
may differ from contractual
    
                                       14
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4--SECURITIES (CONTINUED)
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
 
<TABLE>
<CAPTION>
                                                                        AMORTIZED   ESTIMATED
                                                                           COST     FAIR VALUE
                                                                        ----------  ----------
                                                                            (IN THOUSANDS)
<S>                                                                     <C>         <C>
HELD TO MATURITY
   Due in one year or less............................................  $      462  $      462
   Due after one year through five years..............................       5,528       5,519
   Due after five years through ten years.............................         290         298
   Due after ten years................................................         990         966
                                                                        ----------  ----------
                                                                        $    7,270  $    7,245
                                                                        ----------  ----------
                                                                        ----------  ----------
AVAILABLE FOR SALE
   Due in one year or less............................................  $   56,790  $   57,052
   Due after one year through five years..............................      93,183      93,081
   Due after five years through ten years.............................       1,570       1,557
   Due after ten years................................................       5,722       5,764
                                                                        ----------  ----------
                                                                        $  157,265  $  157,454
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    Gross gains and losses on sale of available for sale securities were $267
thousand and $0, respectively, for 1996. There were no sales of securities in
1995.
 
    At December 31, 1996 investment securities available for sale with a
carrying amount of approximately $26 million were pledged as collateral to
secure public deposits.
 
    Securities held to maturity at December 31, 1996 include approximately
$1,243 thousand in Federal Home Loan Bank stock, $212 thousand in Federal
Reserve Bank stock and $1 thousand in Federal National Mortgage Association
stock. The stock is recorded at cost based on the purchase price.
 
    The Banks may hold derivative securities as part of their investment
portfolios. Three Collateralized Mortgage Obligations (CMO's) were in the held
to maturity portfolio at Monarch as of December 31, 1996. These FNMA and FHLMC
securities are carried at book value of approximately $1.92 million and had a
current market value of approximately $1.88 million as of December 31, 1996. The
weighted average yield of these investments was 7.02% and the weighted average
life was 1.69 years as of December 31, 1996. All three CMO's have been tested no
less than annually using the FFIEC "High Risk Security Test," and each of the
securities have passed the tests. This stress test is used by bank regulators to
assess the relative risks of investments in CMOs. A security that passes this
test is not considered to be "high-risk"; a security that fails the test may be
subject to additional regulatory scrutiny and under the most severe case, the
bank could be asked to sell the security.
 
    Western holds $3 million in FNMA Multi Step securities with a weighted
average yield of 6.38% as of December 31, 1996. The securities do not have a
call date or repricing date in the remainder of 1997 and all will mature in
October 1998.
    
                                       15
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- LOANS
 
    LOANS
 
    Most of the loans made by the Banks are to customers located in Orange
County and the western part of Los Angeles, California. Mortgage and
construction loans are collateralized by real estate trust deeds. The Banks
generally require security in the form of assets, including real estate, on
commercial and installment loans. The ability of the Banks' customers to honor
their loan agreements is dependent upon the general economy of the Banks' market
areas. The distribution of the Company's loan portfolio is as follows:
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                         ---------------------
                                                                            1996       1995
                                                                         ----------  ---------
                                                                            (IN THOUSANDS)
<S>                                                                      <C>         <C>
    Real estate construction..........................................  $   24,666  $   2,033
    Real estate mortgage..............................................     128,026     11,675
    Commercial........................................................     101,177     16,758
    Installment.......................................................       7,186      2,184
                                                                         ----------  ---------
       GROSS LOANS....................................................     261,055     32,650
    Less:
       Deferred loan fees.............................................        (939)      (130)
       Allowance for loan losses......................................      (5,393)      (854)
                                                                         ----------  ---------
       NET LOANS.......................................................  $  254,723  $  31,666
                                                                         ----------  ---------
                                                                         ----------  ---------
</TABLE>
 
    The amount of fixed-rate and variable rate loans and the maturities for each
classification of loans as of December 31, 1996, is as follows:
 
<TABLE>
<CAPTION>
                                                             ONE YEAR
                                                  ONE YEAR   THROUGH 5   OVER 5
                                                  OR LESS      YEARS      YEARS      TOTAL
                                                 ----------  ---------  ---------  ----------
                                                                (IN THOUSANDS)
<S>                                              <C>         <C>        <C>        <C>
    Real estate construction...................  $   22,832  $     559  $   1,275  $   24,666
    Real estate mortgage.......................      37,702     56,373     33,951     128,026
    Commercial.................................      45,507     31,426     24,244     101,177
    Installment................................       3,790      2,898        498       7,186
                                                 ----------  ---------  ---------  ----------
                                                 $  109,831  $  91,256  $  59,968  $  261,055
                                                 ----------  ---------  ---------  ----------
                                                 ----------  ---------  ---------  ----------
    Loans maturing after one year with:
      Fixed interest rates.....................              $  26,253  $  21,319
      Variable interest rate...................                 65,003     38,649
                                                             ---------  ---------
                                                             $  91,256  $  59,968
                                                             ---------  ---------
                                                             ---------  ---------
</TABLE>
    
                                       16
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- LOANS (CONTINUED)
    ALLOWANCE FOR LOAN LOSSES
 
    Changes in the allowance for loan losses for the two years ended December
31, 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER
                                                                                     31,
                                                                             --------------------
                                                                               1996       1995
                                                                             ---------  ---------
                                                                                (IN THOUSANDS)
<S>                                                                          <C>        <C>
Allowance for loan losses:
Balance at the beginning of the period.....................................  $     854  $   1,137
                                                                             ---------  ---------
  Loans charged off:
    Real estate mortgage...................................................        427        278
    Commercial.............................................................        396        401
    Installment............................................................         45         38
                                                                             ---------  ---------
      Total loans charged off..............................................        868        717
                                                                             ---------  ---------
  Recoveries on loans charged off
    Real estate mortgage...................................................     --              5
    Commercial.............................................................         18          3
    Installment............................................................     --              1
                                                                             ---------  ---------
      Total recoveries on loans charged off................................         18          9
                                                                             ---------  ---------
      Net loans charged off................................................        850        708
Provision charged to operating expense.....................................        228        425
Other additions due to:
  Acquisition of Western...................................................      5,041     --
  Loan portfolio purchases.................................................        120     --
                                                                             ---------  ---------
Balance at the end of the period...........................................  $   5,393  $     854
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    A summary of loans on which the accrual of interest has been discontinued as
of December 31 for the years indicated follows:
 
<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER
                                                                                       31,
                                                                               --------------------
                                                                                 1996       1995
                                                                               ---------  ---------
                                                                                  (IN THOUSANDS)
<S>                                                                            <C>        <C>
Nonaccrual loans:
  Real Estate Construction...................................................  $     164  $     172
  Real Estate Mortgage.......................................................      8,323        160
  Commercial.................................................................        755         12
  Installment................................................................         73          1
                                                                               ---------  ---------
    Total....................................................................  $   9,315  $     345
                                                                               ---------  ---------
                                                                               ---------  ---------
</TABLE>
 
    If interest on nonaccrual loans had been recognized at the original interest
rates, interest income would have increased approximately $279 thousand and $17
thousand for the years ended December 31, 1996 and 1995, respectively.
    
                                       17
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5 -- LOANS (CONTINUED)
    If the measurement of an impaired loan is less than the recorded amount of
the loan, impairment is recognized through a valuation allowance with a
corresponding charge to the provision for loan losses. At December 31, 1996 and
1995, impaired loans identified in accordance with SFAS No. 114 and the related
specific loan loss allowances were as follows:
<TABLE>
<CAPTION>
                                                                          1996
                                                        -----------------------------------------
                                                         RECORDED     ALLOWANCE FOR       NET
                                                        INVESTMENT     LOAN LOSSES    INVESTMENT
                                                        -----------  ---------------  -----------
                                                                     (IN THOUSANDS)
<S>                                                     <C>          <C>              <C>
    With specific allowances...........................   $   2,799      $     541      $   2,258
    Without specific allowances........................       6,775         --              6,775
                                                        -----------         -----     -----------
      Total impaired loans.............................   $   9,574      $     541      $   9,033
                                                        -----------         -----     -----------
                                                        -----------         -----     -----------
 
<CAPTION>
 
                                                                          1995
                                                        -----------------------------------------
                                                         RECORDED     ALLOWANCE FOR       NET
                                                        INVESTMENT     LOAN LOSSES    INVESTMENT
                                                        -----------  ---------------  -----------
                                                                     (IN THOUSANDS)
<S>                                                     <C>          <C>              <C>
    With specific allowances...........................   $   1,041      $     134      $     907
    Without specific allowances........................          11         --                 11
                                                        -----------         -----     -----------
      Total impaired loans.............................   $   1,052      $     134      $     918
                                                        -----------         -----     -----------
                                                        -----------         -----     -----------
</TABLE>
 
    The average recorded investment in impaired loans for the years ended
December 31, 1996 and 1995 was approximately $2,511 thousand and $1,298
thousand, respectively. Interest income on impaired loans of approximately $33
thousand and $97 thousand was recognized for cash payments in 1996 and 1995,
respectively.
 
NOTE 6 -- PROPERTY AND EQUIPMENT
 
    The components of premises and equipment at December 31, were as follows:
 
<TABLE>
<CAPTION>
                                                                               1996       1995
                                                                             ---------  ---------
                                                                                (IN THOUSANDS)
<S>                                                                          <C>        <C>
   Land and building.......................................................  $   3,892  $  --
   Furniture, fixtures and equipment.......................................      2,230      1,111
   Leasehold improvements..................................................        415         17
                                                                             ---------  ---------
                                                                                 6,537      1,128
   Less accumulated depreciation and amortization..........................        757        518
                                                                             ---------  ---------
                                                                             $   5,780  $     610
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
    
                                       18
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 7 -- DEPOSITS
 
    At December 31, 1996, the scheduled contractual maturities of certificates
of deposits are as follows (In thousands):
 
<TABLE>
<S>                                                                  <C>
    1997...........................................................  $  63,637
    1998...........................................................      2,506
    1999...........................................................      2,119
    2000...........................................................      1,864
    2001 and thereafter............................................        372
                                                                     ---------
                                                                     $  70,498
                                                                     ---------
                                                                     ---------
</TABLE>
 
NOTE 8 -- NOTES PAYABLE
 
    On September 30, 1996, the Company borrowed $26.5 million from the Northern
Trust Company of Chicago under a three year revolving loan agreement.
Concurrently with the acquisition of Western, the Company reduced the loan by
$15.5 million as a result of a dividend in the same amount from Western. The
balance at December 31, 1996 was $11 million, and the interest rate was 6.75%.
The highest amount outstanding during 1996 was $26.5 million; the average
balance outstanding during the year was $2.75 million; and the average rate paid
was 6.95% for the year. The revolving loan agreement expires on September 25,
1999. The loan agreement contains covenants which impose certain restrictions on
activities of the Company and its financial position. Such covenants include
minimum net worth ratios, maximum debt ratios, a minimum return on average
assets, and minimum and maximum credit quality ratios. As of December 31, 1996,
the Company, and where applicable, its subsidiaries, were in compliance with
each of such covenants.
 
NOTE 9 -- SHAREHOLDERS' EQUITY
 
    EQUITY TRANSACTIONS
 
    During 1995, the Company completed two capital raising transactions. Under a
private placement which closed in March, 1995, the Company issued approximately
4,547 thousand shares of common stock for net proceeds of approximately
$5,668,000. In September, 1995, pursuant to a shareholders' rights and public
offering, the Company issued approximately 2,887,000 shares of common stock for
net proceeds of approximately $3,464,000. Pursuant to the September, 1995 equity
transaction, the Company issued to parties related to Belle Plaine Financial,
LLC, 411,421 warrants to acquire common stock at $1.62 per share. The warrants
expire on September 30, 2005.
 
    As part of the September 30, 1996 Western acquisition, the Company sold
approximately 26,147,000 shares of common stock in a private placement for net
proceeds of approximately $42,213,000. Pursuant to this equity transaction, the
Company issued to parties related to Belle Plaine Financial, LLC, 784,391
warrants to acquire common stock at $1.98 per share. The warrants expire on
September 30, 2006.
 
    RESTRICTIONS ON PAYMENTS OF DIVIDENDS
 
    As of December 31, 1996, the Company was not eligible to pay dividends
because of the accumulated deficit.
    
                                       19
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 9 -- SHAREHOLDERS' EQUITY (CONTINUED)
    The Banks are subject to certain restrictions under regulations governing
state banks which limit their ability to transfer funds to the Company through
inter-company loans, advances, or cash dividends. As of December 31, 1996,
Monarch may not pay dividends without the prior approval of the FDIC and State
Superintendent of Banks.
 
NOTE 10 -- INCOME TAXES
 
    The components of the consolidated income tax expense (benefit) for the
years ended December 31, 1996 and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                                  1996       1995
                                                                                ---------  ---------
                                                                                   (IN THOUSANDS)
<S>                                                                             <C>        <C>
    Current expense:
      Federal.................................................................  $     232  $  --
      State...................................................................        182          1
                                                                                ---------  ---------
                                                                                      414          1
    Deferred expense (benefit):
      Federal.................................................................        (64)       (90)
      State...................................................................          2       (407)
                                                                                ---------  ---------
                                                                                      (62)      (497)
                                                                                ---------  ---------
    Total income taxes........................................................  $     352  $    (496)
                                                                                ---------  ---------
                                                                                ---------  ---------
</TABLE>
 
    The provision for income taxes differs from that which would result from
applying the U.S. statutory rate of 34% as follows:
 
<TABLE>
<CAPTION>
                                                                                 1996       1995
                                                                               ---------  ---------
                                                                                  (IN THOUSANDS)
<S>                                                                            <C>        <C>
    Federal income tax expense at statutory rate.............................  $     371  $      64
    Increase (reduction) in taxes resulting from:
      State income taxes, net of federal benefits............................        121         11
      Amortization of goodwill...............................................        170     --
      Valuation allowance....................................................       (374)      (591)
      Other, net.............................................................         64         20
                                                                               ---------  ---------
    Total income taxes.......................................................  $     352  $    (496)
                                                                               ---------  ---------
                                                                               ---------  ---------
</TABLE>
    
                                       20
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- INCOME TAXES (CONTINUED)
    The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1996 and 1995
are presented below. December 31,1995 information does not reflect deferred tax
assets of Western which was acquired on September 30,1996.
 
<TABLE>
<CAPTION>
                                                                                1996       1995
                                                                              ---------  ---------
                                                                                 (IN THOUSANDS)
<S>                                                                           <C>        <C>
Deferred tax assets:
  Loans, principally due to allowance for losses............................  $   1,431  $     202
  Other real estate owned...................................................        605         13
  Interest on nonaccrual loans..............................................        128     --
  Net operating loss carryovers.............................................        392        615
  Purchase accounting adjustments...........................................      1,022     --
  Loss on mortgage division.................................................        163     --
  Depreciation..............................................................        293     --
  Other.....................................................................        307         83
                                                                              ---------  ---------
Deferred tax assets.........................................................      4,341        913
  Valuation allowance.......................................................     --           (374)
                                                                              ---------  ---------
Deferred tax assets.........................................................      4,341        539
Deferred tax liabilities:
  Securities................................................................        (23)    --
  FHLB stock dividends......................................................       (131)    --
  Other.....................................................................       (153)       (99)
                                                                              ---------  ---------
Deferred tax liabilities....................................................       (307)       (99)
                                                                              ---------  ---------
Net deferred tax asset......................................................      4,034        440
Tax on unrealized gains on investment securities............................        (51)    --
                                                                              ---------  ---------
Net deferred tax assets.....................................................  $   3,983  $     440
                                                                              ---------  ---------
                                                                              ---------  ---------
</TABLE>
 
    Realization of the net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income and
the utilization of tax planning strategies. At December 31, 1995, the Company
established a valuation allowance on deferred tax assets which management
believed was more likely than not would not be realized. With the acquisition of
Western, and the current period earnings of Monarch, management now believes the
future income of the Company is sufficient to conclude that it is more likely
than not that all deferred tax assets will be realized. As a result, no
valuation allowance is recorded at December 31, 1996 and the valuation allowance
existing at December 31, 1995 was recognized in 1996 earnings.
 
    On December 31, 1996 the Company had $2,694,348 and $1,079,823 of federal
and California net operating loss carryovers, respectively, and $333,480 in tax
credit carryforwards. During 1995, the Company entered into a recapitalization
plan which resulted in a change in ownership for purposes of Internal Revenue
Code ("IRC") Section 382. IRC section 382 imposes restrictions on the
utilizations of certain tax loss and credit carryforwards which resulted in
$1,741,155 and $126,628 of the federal and California net operating loss
carryovers and $333,486 of tax credit carryovers no longer being available for
utilization.
 
    Management believes that the remaining $953,193 and $953,195 of the federal
and California net operating losses will be realized. The net operating loss
carryovers have various expiration dates through
    
                                       21
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- INCOME TAXES (CONTINUED)
the year 2010. In 1996, the 1995 deferred tax assets, which are unrealizable
pursuant to IRC Section 382, have been reclassified to eliminate those deferred
tax assets and their corresponding valuation allowance.
 
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
 
    The Company and the Banks conduct operations from leased facilities under
operating leases which expire on various dates through 2001 and which contain
certain renewal options.
 
    Future minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year as of
December 31, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                                                    AMOUNT
                                                                                ---------------
                                                                                (IN THOUSANDS)
<S>                                                                             <C>
Year ended December 31:
  1997........................................................................     $     711
  1998........................................................................           711
  1999........................................................................           711
  2000........................................................................           601
  2001........................................................................           544
  Thereafter..................................................................           932
                                                                                      ------
                                                                                   $   4,210
                                                                                      ------
                                                                                      ------
</TABLE>
 
    Rental expense was $400,000 in 1996, and $267,000 in 1995. Rental expense
for 1996 includes that for Western since the date of its acquisition.
 
    Sublease rental income for the years ended December 31, 1996 and 1995
totaled approximately $54,000 and $66,000, respectively. The lease and sublease
related to $34,000 of the sublease income expired without renewal in June 1996.
Of the remaining amount, $5,000 relates to a sublease on a month to month basis
and $15,000 relates to a sublease that expires in October, 1999.
 
    The Company and the Banks are parties to litigation and claims arising in
the normal course of business. Management, after consultation with legal
counsel, believes that the liability, if any, arising from such litigation and
claims will not be material to the consolidated financial statements.
 
NOTE 12--RELATED PARTY TRANSACTIONS
 
    The Banks had loans outstanding to principal officers and directors and
their affiliated companies which were made substantially on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers and do not involve more than the
normal risks of collectibility.
    
                                       22
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 12--RELATED PARTY TRANSACTIONS (CONTINUED)
 
    An analysis of the activity with respect to such loans to related parties is
as follows for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                                               1996       1995
                                                                             ---------  ---------
                                                                                (IN THOUSANDS)
<S>                                                                          <C>        <C>
    Balance, January 1.....................................................  $     248  $     141
    Additions due to acquisitions..........................................        184     --
    New loans..............................................................        791        176
    Repayments.............................................................       (413)       (69)
                                                                             ---------  ---------
    Balance, December 31...................................................  $     810  $     248
                                                                             ---------  ---------
                                                                             ---------  ---------
</TABLE>
 
    The 1996 balance does not include $136,000 in overdraft arrangements on
deposit account, consumer credit cards and lines of credit. New loans in 1996
include an existing loan for $470,000 which became a related party loan when the
person joined the Company as an officer in 1996.
 
    Monarch's health and life insurance programs have been contracted based on
competitive bids through Rice Brown Financial. The principal of Rice Brown
Financial is an insurance broker and a director of the Company and Monarch.
 
    On January 1, 1996 the Company engaged one of its directors as a financial
advisor. The engagement agreement provides for a monthly fee of $3,000 plus
expenses beginning January 1, 1996. The agreement may be terminated by either
the Company or the director upon 30 days written notice.
 
    Belle Plaine Partners, Inc. and Belle Plaine Financial, L.L.C. are entities
related to a director of the Company. Belle Plaine Partners, Inc. serves as
financial advisor to the Company under an engagement letter dated May, 1995. In
that capacity, Belle Plaine Partners, Inc. was paid fees of approximately $1.4
million for evaluating and identifying potential acquisitions including the
acquisition of Western which closed September 30, 1996. It is also anticipated
that Belle Plaine Partners, Inc. will be paid fees of approximately $1.35
million in connection with the acquisition of California Commercial Bankshares
("CCB") by the Company. Belle Plaine Financial, LLC was engaged by the Company
to raise capital to consummate the acquisition of Western. Belle Plaine
Financial, LLC was paid $863 thousand for its services and was reimbursed for
expenses incurred in the course of that engagement. The agreement may be
terminated by either party upon 30 days written notice.
 
NOTE 13--BENEFITS PLANS
 
    On May 16, 1995, the Board of Directors approved the 1995 Directors Deferred
Compensation Plan which was approved by shareholders on July 17, 1995. The plan
is effective for fees earned on and after July 1, 1995. No compensation has been
awarded under the plan.
 
    During 1992 the Company adopted an employee stock ownership and salary
deferral plan ("KSOP"). In 1992, the KSOP obtained a $250,000 loan from another
financial institution, which was guaranteed by the Company, and between 1992 and
1993 acquired approximately 50,000 shares of the Company's common stock.
Repayments on the loan are made by employee salary deductions and from possible
matching contributions by the Company. The loan had a term of five years and an
interest rate of 8%. The Company's contributions to the KSOP totaled
approximately $46,000 in 1995. No contributions were made in 1996. In September
of 1996 the Company terminated the KSOP plan and recorded a related expense of
    
                                       23
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 13--BENEFITS PLANS (CONTINUED)
approximately $189,000 for repayment of the loan and other termination expenses.
The loan was classified in other liabilities as of December 31, 1996 and was
paid off in January of 1997.
 
    Western has a 401(k) plan which is intended to qualify under section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees from the first day of the month following the date
of hire. Employees may elect to make both pre-tax and after-tax contributions.
The 401(k) Plan also provides for discretionary Company matching contributions.
The Company contributions to the 401 (k) Plan, plus any earnings they generate,
are fully and immediately vested. The 401(k) Plan will be made available to
Monarch employees. No contributions were made by the Company in 1996.
 
NOTE 14--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
 
    The Company and its banking subsidiaries are parties to financial
instruments with off-balance-sheet risk in its normal course of business in
meeting the financial needs of their customers. These financial instruments
consist primarily of commitments to extend credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
 
    The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The same
credit policies are used in making commitments and conditional obligations as
those used for on-balance-sheet instruments.
 
    At December 31, the Company had the following commitments to extend credit:
 
<TABLE>
<CAPTION>
                                                                          1996       1995
                                                                        ---------  ---------
                                                                           (IN THOUSANDS)
<S>                                                                     <C>        <C>
    Loan commitments..................................................  $  52,925  $   6,557
    Standby letters of credit.........................................      7,336         10
                                                                        ---------  ---------
                                                                        $  60,261  $   6,567
                                                                        ---------  ---------
                                                                        ---------  ---------
</TABLE>
 
    In addition to the amounts above, approximately $1,768 thousand in consumer
credit card and overdraft commitments were outstanding as of December 31, 1996
and 1995. Loan commitment arrangements represent commercial lines of credit with
variable interest rates determined at the time funds are drawn by adding an
interest spread to an agreed upon index. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract; they generally have fixed expiration
dates or other termination clauses and may require a fee. The total commitment
amount generally represents future cash requirements. However, many commitments
expire without being used. Standby letters of credit are conditional commitments
issued by the Banks to guarantee performance of a customer to a third party.
Those guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
    
                                       24
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
 
    Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
 
    The following methods and assumptions were used to estimate the fair value
of significant financial instruments:
 
FINANCIAL ASSETS
 
    The carrying amounts of cash and due from banks, federal funds sold, and
interest bearing deposits are considered to approximate fair value. The fair
value of investment securities is generally based on quoted market prices. The
fair value of loans is estimated using a combination of techniques, including
discounting estimated future cash flows and quoted market prices of similar
instruments, where available, taking into consideration the varying degrees of
credit risk.
 
FINANCIAL LIABILITIES
 
    The carrying amounts of deposit liabilities payable on demand is considered
to approximate fair value. For fixed maturity deposits, fair value is estimated
by discounting estimated future cash flows using currently offered rates for
deposits of similar remaining maturities. The fair value of notes payable is
based on rates currently available to the Company for debt with similar terms
and remaining maturities.
 
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
 
    The fair value of commitments to extend credit and standby letters of credit
is estimated using the fees currently charged to enter into similar agreements.
The fair value of these financial instruments is not material.
    
                                       25
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    The estimated fair value of financial instruments at December 31, 1996 and
1995 is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                    CARRYING VALUE  FAIR VALUE
                                                                    --------------  ----------
                                                                          (IN THOUSANDS)
<S>                                                                 <C>             <C>
DECEMBER 31, 1996
Financial Assets:
Cash and due from banks...........................................   $     37,385   $   37,385
Federal Funds Sold................................................          4,217        4,217
Investment Securities.............................................        164,724      164,699
Loans.............................................................        254,723      254,184
 
Financial Liabilities:
Deposits..........................................................   $    442,984   $  443,190
Notes payable.....................................................         11,000       11,000
 
DECEMBER 31, 1995
Financial Assets:
Cash and due from banks...........................................   $      4,747   $    4,747
Federal Funds Sold................................................          2,938        2,938
Investment Securities.............................................         28,863       28,895
Loans.............................................................         31,666       31,531
 
Financial Liabilities:
Deposits..........................................................         58,742       58,740
</TABLE>
 
NOTE 16--REGULATORY MATTERS
 
EXAMINATIONS OF MONARCH
 
    Following the conclusion of a joint, second quarter 1994 FDIC and California
State Banking Department (Superintendent) examination of Monarch, Monarch
stipulated to the issuance of a Section 8(b) Order and a California Financial
Code Section 1913 Order (the "Orders") which became effective on December 23,
1994 and December 14, 1994, respectively. The Orders were similar in content and
required Monarch to perform several actions within certain time frames.
 
    The California State Banking Department completed an examination of Monarch
in 1995 and informed Monarch that it had been rated satisfactory and the State
removed its 1913 Order on December 29, 1995.
 
    The FDIC removed their Order on March 6, 1996 when Monarch signed a
Memorandum of Understanding ("MOU"). On July 3, 1996, the MOU was terminated by
the FDIC.
 
RISK-BASED CAPITAL STANDARDS
 
    The Company and the Banks are 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 Company's financial statements. Under capital
adequacy guidelines and the
    
                                       26
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 16--REGULATORY MATTERS (CONTINUED)
regulatory framework for prompt corrective action, specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items, as calculated under regulatory accounting practices,
must be met. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. The banking regulators have advised the Company and the Banks
that they are considered well capitalized at December 31, 1996.
 
    Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum ratios based on average
and risk weighted assets as set forth below. Actual capital ratios for the
Company and the Banks as of December 31, 1996 are also shown in the table:
 
<TABLE>
<CAPTION>
                                  ADEQUATELY      WELL                              COMPANY
                                  CAPITALIZED  CAPITALIZED   MONARCH    WESTERN   CONSOLIDATED
                                  -----------  -----------  ---------  ---------  ------------
<S>                               <C>          <C>          <C>        <C>        <C>
Detailed computations of
  Tier 1 leverage capital
    ratio.......................       4.00%*        5.00%*     8.07%      6.05%        5.07%
  Tier 1 risk-based capital
    ratio.......................       4.00%*        6.00%*    13.64%     10.93%        9.05%
  Total risk-based capital......       8.00%*       10.00%*    14.89%     12.19%       10.30%
</TABLE>

*  Greater than or equal to stated percentage.

NOTE 17--CONDENSED (PARENT COMPANY ONLY) FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                         ---------------------
                                                                            1996       1995
                                                                         ----------  ---------
<S>                                                                      <C>         <C>
CONDENSED BALANCE SHEETS
  Assets:
    Cash and due from banks............................................  $    4,696  $     194
    Investments in bank subsidiaries...................................      60,344      5,749
    Securities available for sale......................................         262      5,186
    Other assets.......................................................         673     --
                                                                         ----------  ---------
      Total Assets.....................................................  $   65,975  $  11,129
                                                                         ----------  ---------
                                                                         ----------  ---------
  Liabilities:
    Notes payable......................................................  $   11,000  $     132
    Other liabilities..................................................         847     --
                                                                         ----------  ---------
                                                                             11,847        132
  Shareholders' equity.................................................      54,128     10,997
                                                                         ----------  ---------
      Total Liabilities and shareholders' equity.......................  $   65,975  $  11,129
                                                                         ----------  ---------
                                                                         ----------  ---------
</TABLE>
    
                                       27
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17--CONDENSED (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                         ----------------------
                                                                            1996        1995
                                                                         ----------  ---------
CONDENSED STATEMENT OF OPERATIONS
<S>                                                                      <C>         <C>
  Interest income......................................................  $      223  $     107
  Management fees......................................................          58     --
                                                                         ----------  ---------
    Total income.......................................................         281        107
  Interest expense.....................................................         191          1
  Other expense........................................................       1,167         69
                                                                         ----------  ---------
    Total expense......................................................       1,358         70
                                                                         ----------  ---------
      Income (loss) before taxes and equity in undistributed subsidiary
        earnings.......................................................      (1,077)        37
  Income tax expense (benefit).........................................        (431)    --
                                                                         ----------  ---------
  Income (loss) before equity in undistributed earnings of bank
    subsidiaries.......................................................        (646)        37
  Equity in undistributed income (loss) of bank subsidiaries...........       1,384        646
                                                                         ----------  ---------
    Net income.........................................................  $      738  $     683
                                                                         ----------  ---------
                                                                         ----------  ---------
CONDENSED STATEMENTS OF CASH FLOWS
  Net income (loss)....................................................  $      738  $     683
  Change in other assets...............................................        (673)    --
  Change in other liabilities..........................................         847     --
  Equity in undistributed subsidiary (earnings) losses.................      (1,384)      (646)
                                                                         ----------  ---------
    Cash flows from operating activities...............................        (472)        37
  Acquisition of Western Bank, including acquisition costs.............     (53,154)    --
  Net change in securities available for sale..........................       4,924     --
  Other investing activities...........................................         127     (8,944)
                                                                         ----------  ---------
    Cash flows from investing activities...............................     (48,103)    (8,944)
  Net proceeds from issuance of common stock net of issuance costs.....      42,213      9,668
  Issuance of debt.....................................................      11,000     --
  Other financing activities...........................................        (136)      (589)
                                                                         ----------  ---------
    Cash flows from financing activities...............................      53,077      9,079
  Net increase (decrease) in cash......................................       4,502        172
  Cash beginning of year...............................................         194         22
                                                                         ----------  ---------
  Cash end of year.....................................................  $    4,696  $     194
                                                                         ----------  ---------
                                                                         ----------  ---------
</TABLE>
 
NOTE 18--STOCK OPTION PLAN AND WARRANTS
 
    In 1993, the Company adopted a stock option plan (the "Plan") pursuant to
which the Company's Board of Directors may grant stock options to officers,
directors and key employees. The Plan authorizes grants of options to purchase
up to 3,437,482 shares of authorized but unissued common stock. Stock options
are granted with an exercise price greater than or equal to the stock's fair
market value at the date of grant. Qualified stock options have 5-year terms and
vest over a three year period from the date of grant. Non-qualified stock
options have 10-year terms and vest over a three year period from the date of
grant
    
                                       28
<PAGE>
   
                                MONARCH BANCORP
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 18--STOCK OPTION PLAN AND WARRANTS (CONTINUED)
    At December 31, 1996, there were 2,189,899 additional shares available for
grant under the Plan. The per share weighted-average fair value of stock options
granted during 1996 was $0.64 using the Black Scholes option-pricing model with
the following weighted-average assumptions: (i) no dividends are expected to be
paid; (ii) risk-free interest rate of 5.20% to 6.27%; (iii) an expected life of
2 1/2 to 5 years; and (iv) an estimated volatility of 40%. There were no options
granted in 1995.
 
    The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS 123, the
Company's net income and earnings per share, net of tax effect, would have been
reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                                         1996
                                                                                       ---------
<S>                     <C>                                                            <C>
   Net income            As reported.................................................  $     738
                         Pro forma...................................................        656
 
   Earnings per share    As reported.................................................  $    0.05
                         Pro forma...................................................       0.04
</TABLE>
 
    The pro forma earnings per share for December 31, 1996 was based on 14,879
thousand of weighted average common shares. The pro forma amounts shown above
may not be representative of the effects on reported net income for future
periods.
 
    Stock option activity during the periods indicated is as follows:
 
<TABLE>
<CAPTION>
                                                                 NUMBER OF   WEIGHTED-AVERAGE
                                                                   SHARES     EXERCISE PRICE
                                                                 ----------  -----------------
<S>                                                              <C>         <C>
Balance at December 31, 1994...................................     109,016      $    4.25
  Granted......................................................      --
  Exercised....................................................      --
  Canceled.....................................................    (109,016)          4.25
  Expired......................................................      --
                                                                 ----------
 
Balance at December 31, 1995...................................      --
  Granted......................................................   1,262,022           1.65
  Exercised....................................................      --
  Forfeited....................................................     (14,439)          1.62
  Expired......................................................      --
                                                                 ----------
 
Balance at December 31, 1996...................................   1,247,583      $    1.65
                                                                 ----------
                                                                 ----------
</TABLE>
 
    At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was between $1.62 and $1.65
and 8 1/2 years, respectively.
 
    At December 31, 1996 and 1995, the number of options exercisable was 127,583
and 0, respectively, and the weighted average exercise price of those options
exercisable at December 31, 1996 was $1.62.
 
    At December 31, 1996 and 1995, there were also exercisable warrants
outstanding of 1,195,812 and 411,421, respectively, and the weighted average
exercise price of those warrants exercisable was $1.86 and $1.62, respectively.
Of the warrants outstanding on December 31, 1996, 411,421 expire on September
30, 2000 and 784,391 expire on September 30, 2001."
    
                                       29
<PAGE>
   
                                   SIGNATURES
 
    In accordance with 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.


                                WESTERN BANCORP

                                By:            /s/ HUGH S. SMITH, JR.
                                     -----------------------------------------
                                                 Hugh S. Smith, Jr.
                                        CHAIRMAN AND CHIEF EXECUTIVE OFFICER

                                Date: June 30, 1997
    

 
                                       30