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                                 UNITED STATES
 
                       SECURITIES AND EXCHANGE COMMISSION
 
                             WASHINGTON, D.C. 20549
 
                                  FORM 10-KSB
 
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<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
             ........................
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                          COMMISSION FILE NO. 0-13551
 
                                MONARCH BANCORP
 
                 (Name of small business issuer in its charter)
 
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                 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)
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                    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 or any
amendment to this Form 10-KSB. [    ]
 
    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 March 14, 1996 was $85,379,840
 
    Number of registrant's shares of Common Stock outstanding as of March 14,
1997 was 34,373,021
 
    Documents incorporated by reference: The proxy statement for the Annual
Meeting of Shareholders of the registrant to be held on May [22], 1997. Certain
information therein is incorporated by reference in Part III hereof.
 
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                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
    Monarch Bancorp (the "Company") was organized on May 20, 1983 as a
California Corporation for the purpose of becoming a bank holding company and to
acquire all the outstanding capital stock of Monarch Bank ("Monarch"), a
California state-chartered bank. The Company commenced operations on June 18,
1984. It is registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended ("BHC Act"), and is subject to the supervision and
regulation of the Board of Governors of the Federal Reserve System ("the
Board"). On September 30, 1996, the Company acquired Western Bank ("Western").
Because Monarch and Western (collectively "the Banks") comprise substantially
all of the business of the Company, references to the "Company" mean the Company
and the Banks together, unless the context otherwise requires.
 
    The Company's principal business is to serve as a holding company for the
Banks and other possible banking or banking-related subsidiaries the Company may
acquire in the future. Since inception, the Company has not been active except
through its subsidiaries, and the Company has no industry segments other than
banking.
 
    On March 31, 1995, the Company completed a private placement offering for
approximately $6,139,000 and issued 4,547,111 new shares of common stock.
Proceeds from the Offering were used to pay approximately $470,000 in Offering
expenses; $3,550,000 to increase the Company's investment in Monarch; and
$53,500 to retire Company debt; and approximately $2,065,000 in cash was being
held by the Company for future operating needs or investment. The increase in
Monarch's capital met or exceeded Monarch's regulatory commitments to the
Federal Deposit Insurance Corporation ("the FDIC") and Superintendent (as
defined herein) to increase the Bank's ratio for Tier 1 capital to total assets
to equal or exceed 7.0%.
 
    In addition to the completion of the private placement offering in the first
quarter of 1995, the Company completed in the third quarter of 1995 a rights and
public offering for the sale of up to 3,177,296 shares of its common stock
pursuant to the terms of a prospectus dated July 14, 1995. In connection with
such offering, a total of approximately 2,887,000 shares of common stock of the
Company were sold. The Company increased its capital by an additional $3,464,000
in net proceeds in the rights and public offering, and the Company increased its
leverage capital ratio as of September 30, 1995 to approximately 15.4%.
 
    As part of the September 30, 1996 Western acquisition, the Company sold
approximately 26,147,000 shares of common stock in a private placement (the
"1996 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.
 
    As of December 31, 1996, the Company had total consolidated assets of
approximately $512 million, total consolidated net loans of approximately $255
million, total goodwill of approximately $29 million, total consolidated
deposits of approximately $443 million, and total consolidated shareholders'
equity of approximately $54 million.
 
ACQUISITION OF WESTERN BANK
 
    On September 30, 1996 the Company acquired all of the issued and outstanding
shares of Western, a state chartered bank located in west Los Angeles. Western
has five offices, including its head office in Westwood.
 
    Western is operated as a wholly-owned subsidiary of the Company. The Company
paid $17.25 per share, or approximately $61.1 million in cash, for the 3,543,156
issued and outstanding shares of Western,
 
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and an additional $5.5 million representing the difference between $17.25 and
the exercise price of the 425,724 outstanding stock options of Western. The
aggregate net consideration for the acquisition of Western was approximately
$66.6 million. The acquisition was accounted for under the purchase method of
accounting.
 
    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. For further information on the Western acquisition, see
note 2 of notes to consolidated financial statements.
 
PROPOSED ACQUISITION OF CALIFORNIA COMMERCIAL BANKSHARES
 
    On December 19, 1996, the Company executed an Agreement and Plan of Merger
(the "Merger") with California Commercial Bankshares ("CCB") in which CCB will
merge with and into the Company, and National Bank of Southern California
("NBSC"), the wholly-owned subsidiary of CCB, will become a wholly-owned
subsidiary of the Company. This Agreement provides for the shareholders of CCB
to receive shares of the Company having a year-end adjusted book value equal to
1.6 times the year-end adjusted book value of CCB. The adjustments to book value
included certain expenses related to the merger. Based on this formula, it has
been determined that holders of CCB common stock will receive 8.5 shares (1
share assuming the Reverse Stock Split (as defined herein) is effected) of
Company common stock for each share of CCB common stock. The Agreement is
subject to several conditions, including approval of the shareholders of the
Company and CCB, which is intended to be sought at the annual shareholders
meetings for both the Company and CCB in May 1997, and regulatory approvals.
 
PROPOSED AMENDMENTS TO THE AMENDED ARTICLES OF INCORPORATION
 
    At the Annual Meeting of the Company to be held in May 1997, the Company
intends to seek approval of its shareholders to amend the Company's Amended
Articles of Incorporation in order to: (i) change the Company's name to Western
Bancorp and (ii) effect a one for 8.5 reverse stock split (the "Reverse Stock
Split") immediately prior to the consummation of the Merger.
 
MANAGEMENT CHANGES
 
    In conjunction with the acquisition of Western, the Company has restructured
its management team. Hugh S. Smith, Jr., former Chairman and CEO of Western, has
become Chairman and CEO of the Company. Matthew P. Wagner, formerly an Executive
Vice President of First Bank System in Minneapolis, Minnesota, was recruited to
become President and CEO of Western and became President of the Company in
February, 1997. Arnold C. Hahn, formerly a Senior Vice President of First Bank
System in Minneapolis, Minnesota, was recruited to become an Executive Vice
President and CFO of the Company and its subsidiary banks.
 
REGULATORY ORDERS
 
    Following the conclusion of a FDIC examination of Monarch in 1994, for the
purpose of cooperating with the FDIC and without admitting or denying any
allegations, Monarch entered into a Section 8(b) Order (the "8(b) Order") with
the FDIC. The 8(b) Order became effective on December 23, 1994, and it required
Monarch to perform several actions within certain time frames. In addition, as a
result of a 1994 examination by the California State Banking Department, Monarch
agreed to a final order under California Financial Code Section 1913 (the "1913
Order," and collectively with the 8(b) Order, the "Orders") with the Department
that became effective December 14, 1994. The 1913 Order provided that
 
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Monarch take certain actions. Monarch also was notified in late 1994 that the
FDIC had determined that the Bank fell within the undercapitalized capital
category under Section 38 of the FDIC Act.
 
    Management and the Board of Directors made every possible effort in 1995 to
insure full compliance with two such Orders including specific activities to
increase capital, rewriting or drafting new policies and procedures, a major
emphasis on improving credit administration, and prompt reporting of its
progress in taking the corrective actions outlined in the Orders. The State
Banking Department, following a November 1995 examination of Monarch, confirmed
that Monarch was in substantial compliance with its Section 1913 Order and
removed that Order in December 1995. The FDIC also completed an inspection and
off-site review of Monarch in November 1995. Based on its review process, the
FDIC terminated its Section 8(b) Order in March 1996 while requesting Monarch to
agree to an informal Memorandum of Understanding which the Board of Directors
signed in March 1996. In signing the Memorandum, Monarch undertook to further
the corrective actions outlined in the Section 8(b) Order.
 
    On April 24, 1996 Monarch became a member of the Federal Reserve Bank of San
Francisco. As a member bank, Monarch's primary federal regulator is now the
Federal Reserve Bank rather than the FDIC, although Monarch's deposits continue
to be insured by the FDIC. On July 3, 1996, as a result of both Federal Reserve
Bank membership and significant improvement in the financial condition and
operations of Monarch, the Memorandum of Understanding was terminated by the
FDIC. There are no remaining regulatory restrictions on the Company or Monarch
nor are there any regulatory restrictions on Western at December 31, 1996.
 
BACKGROUND
 
    The Company's primary market areas are the western part of Los Angeles,
served by Western, and south Orange County, California, served by Monarch. The
principal business of the Banks is to accept time and demand deposits, originate
commercial loans, consumer loans and real estate loans, and make other
investments. The Banks offer a broad range of banking products and services,
including many types of business and personal savings and checking accounts and
other consumer banking services. The Banks originate several types of loans,
including secured and unsecured commercial and consumer loans, commercial and
residential real estate mortgage loans, and commercial and residential
construction loans. The Banks' loans are primarily short-term and adjustable
rate. Special services or requests beyond the lending limits of the Banks are
arranged through correspondent banks. The Banks currently offer access to ATM
networks through other major banks. Monarch issues MasterCard and VISA credit
cards through a correspondent bank and is also a merchant depository for
cardholder drafts under Visa and Master Card credit cards. Similar to other
state-chartered banks of their size, the Banks can provide investment and
international banking services through its major correspondent banks.
 
    Monarch was incorporated as a California corporation in October 1979, and
commenced operation as a California state-chartered bank on April 21, 1980.
Monarch is insured under the Federal Deposit Insurance Act up to applicable
limits thereof, and effective in April 1996, Monarch became a member of the
Federal Reserve System. Monarch's head office is located at 30000 Town Center
Drive, Laguna Niguel, California 92677. Monarch opened a new branch in Laguna
Beach in June of 1996. On September 30, 1996, the Company acquired Western, a
state chartered bank with five branches in the western part of Los Angeles.
Western's head office is at 1251 Westwood Boulevard, Los Angeles, California
90024. Western is not a member of the Federal Reserve System, but its deposits
are insured under the Federal Deposit Insurance Act up to applicable limits
thereof.
 
    Since 1987, the Company's Strategic Plan has emphasized serving the banking
needs of individuals, professionals, and small to medium-sized businesses in the
local market areas served by the Banks and in the contiguous communities. The
Banks maintain courier services which operate throughout mid- and
southern-Orange County and the western part of Los Angeles, serving
professionals and small businesses, and this has greatly expanded the service
areas of the Banks without the need for additional physical
 
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facilities. The Banks' major lending emphasis has been directed at short term
owner-occupied luxury home construction projects, commercial lending to
professionals and personal loans to individuals, with the objective of building
a balanced community loan and investment portfolio mix. The Banks rely on a
foundation of locally generated deposits and management believes the Banks have
a relatively low cost of funds due to a high percentage of low cost and
non-interest bearing deposits.
 
    The primary goal for the Company is to continue to increase profitability
by, among other things, expanding prudently on the foundation provided by the
additional equity capital received in March 1995, September 1995 and September
1996, the acquisition of Western in September 1996, the earnings improvement
program that is ongoing and the improvements made in credit administration and
loan quality that began in 1995.
 
    As part of its efforts to achieve long-term stable profitability and to
respond to a changing economic environment in Southern California, western Los
Angeles and south Orange County, the Company and the Banks are investigating all
possible options to augment its traditional focus by broadening its customer
services. The Company and the Banks believe that its strong capital base will
permit an acceleration of efforts at a greater diversification of both the
Banks' loan portfolios and deposit bases and new sources of fee income. Areas of
possible future diversification include additional days and expanded hours of
operation, new types of lending, brokerage, annuity and mutual funds products,
as well as the acquisition of additional financial institutions or branches of
other financial institutions in cities and areas adjoining the Company's current
market areas. The pending acquisition of California Commercial Bankshares is a
natural result of this strategy.
 
    The Company believes that small institutions are available at attractive
prices and that branches of other financial institutions may be available at
substantially below their investment cost. Although the Company continues to
have preliminary discussions with a number of financial institutions regarding
possible acquisitions, other than the previously discussed acquisition of CCB,
no agreements or understandings have been reached at this time. The Company has
been contacted by other financial institutions with regard to their interest in
selling various branches of their companies. Acquisitions of this nature can
take from 60 to 90 days or longer for the approval and purchase of assets and
branches, and 6 to 12 months or longer for the negotiation, approval and
purchase of an entire financial institution.
 
SUPERVISION AND REGULATION
 
    MONARCH BANCORP
 
    Upon the reorganization of Monarch as a wholly-owned subsidiary, the Company
became a bank holding company within the meaning of the BHC Act and is subject
to the supervision and regulation of the Federal Reserve Bank of San Francisco.
The Company functions primarily as the sole stockholder of Monarch, Western and
its non-bank subsidiary, and establishes general policies and activities of the
operating subsidiaries.
 
    The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, which include, but are not limited
to, the filing of annual, quarterly and other reports with the Securities and
Exchange Commission.
 
    The Company, as a bank holding company, is subject to regulation under the
BHC Act, and is registered with and subject to the supervision of the Board of
Governors of the Federal Reserve System (the "Board"). The Company is required
to obtain the prior approval of the Board before it may acquire all or
substantially all of the assets of any bank, or ownership or control of voting
shares of any bank if, after giving effect to such acquisition, the Company
would own or control, directly or indirectly, more than 5% of such bank. The BHC
Act prohibits the Company from acquiring any voting shares of, interest in, or
all or substantially all of the assets of a bank located outside the State of
California unless the laws of such state specifically authorize such
acquisition.
 
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    Under the BHC Act, the Company may not engage in any business other than
managing or controlling banks or furnishing services to its subsidiaries. The
Company is also prohibited, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company unless the company is engaged in such activities. The Board's approval
must be obtained before the shares of any such company can be acquired and, in
certain cases, before any approved company can open new offices. In making such
determinations, the Board considers whether the performance of such activities
by the Company would offer advantages to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices.
Further, the Board is empowered to differentiate between activities commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern.
 
    Although the entire scope of permitted activities is uncertain and cannot be
predicted, the major non-banking activities that have been permitted to bank
holding companies with certain limitations are: making, acquiring or servicing
loans that would be made by a mortgage, finance, credit card or factoring
company; operating an industrial loan company; leasing real and personal
property; acting as an insurance agent, broker, or principal with respect to
insurance that is directly related to the extension of credit by the bank
holding company or any of its subsidiaries and limited to repayment of the
credit in the event of death, disability or involuntary unemployment; issuing
and selling money orders, savings bonds and travelers checks; performing certain
trust company services; performing appraisals of real estate and personal
property; providing investment and financial advice; providing data processing
services; providing courier services; providing management consulting advice to
non-affiliated depository institutions; arranging commercial real estate equity
financing; providing certain securities brokerage services; underwriting and
dealing in government obligations and money market instruments; providing
foreign exchange advisory and transactional services; acting as a futures
commission merchant; providing investment advice on financial futures and
options on futures; providing consumer financial counseling; providing tax
planning and preparation services; providing check guaranty services; engaging
in collection agency activities; and operating a credit bureau.
 
    The Company's primary sources of income are the receipt of dividends and
management fees from its subsidiaries, and interest income on its investments.
Monarch's and Western's ability to make such payments to the Company are subject
to certain statutory and regulatory restrictions.
 
    The Company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
Monarch or Western may not condition an extension of credit on a customer's
obtaining other services provided by it, the Company or any other subsidiary or
on a promise by the customer not to obtain other services from a competitor.
 
    As a bank holding company, the Company is required to file reports with the
Board and to provide such additional information as the Board may require. The
Board also has the authority to examine the Company and each of its subsidiaries
with the cost thereof to be borne by the Company.
 
    In addition, banking subsidiaries of bank holding companies are subject to
certain restrictions imposed by federal law in dealings with their holding
companies and other affiliates. Subject to certain exceptions set forth in the
Federal Reserve Act, a bank can make a loan or extend credit to an affiliate,
purchase or invest in the securities of an affiliate, purchase assets from an
affiliate, accept securities of an affiliate as collateral security for a loan
or extension of credit to any person or company or issue a guarantee, acceptance
or letter of credit on behalf of an affiliate only if the aggregate amount of
the above transactions of such subsidiary does not exceed 10% of such
subsidiary's capital stock and surplus on a per affiliate basis or 20% of such
subsidiary's capital stock and surplus on an aggregate affiliate basis. Such
transactions must be on terms and conditions that are consistent with safe and
sound banking practices. A bank and its subsidiaries generally may not purchase
a low-quality asset, as that term is defined in the
 
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Federal Reserve Act, from an affiliate. Such restrictions also prevent a holding
company and its other affiliates from borrowing from a banking subsidiary of the
holding company unless the loans are secured by collateral.
 
    The BHC Act also prohibits a bank holding company or any of its subsidiaries
from acquiring voting shares or substantially all the assets of any bank located
in a state other than the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted unless such acquisition
is expressly authorized by statutes of the state in which the bank to be
acquired is located. Legislation recently adopted in California permits
out-of-state bank holding companies to acquire California banks. See "Effect of
Governmental Policies and Recent Legislation" later in this section.
 
    The BHC Act and regulations of the Board also impose certain constraints on
the redemption or purchase by a bank holding company of its own shares of stock.
 
    The Board has cease and desist powers to cover parent bank holding companies
and non-banking subsidiaries where action of a parent bank holding company or
its non-financial institutions represent an unsafe or unsound practice or
violation of law. The Board has the authority to regulate debt obligations
(other than commercial paper) issued by bank holding companies by imposing
interest ceilings and reserve requirements on such debt obligations.
 
    The ability of the Company to pay dividends to its shareholders is subject
to the restrictions set forth in the California General Corporation Law (the
"Corporation Law"). The Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. The Corporation Law further
provides that, in the event that sufficient retained earnings are not available
for the proposed distribution, a corporation may nevertheless make a
distribution to its shareholders if it meets two conditions, which generally are
as follows: (i) the corporation's assets equal at least 1 1/4 times its
liabilities; and (ii) the corporation's current assets equal at least its
current liabilities or, if the average of the corporation's earnings before
taxes on income and before interest expense for the two preceding fiscal years
was less than the average of the corporation's interest expense for such fiscal
years, then the corporation's current assets equal at least 1 1/4 times its
current liabilities.
 
    MONARCH BANK AND WESTERN BANK
 
    Banks are extensively regulated under both federal and state law. Monarch
and Western as California state-chartered banks are subject to primary
supervision, periodic examination and regulation by the Federal Reserve Bank
("FRB") and the FDIC.
 
    Monarch and Western are insured by the FDIC, which currently insures
deposits of each member bank to a maximum of $100,000 per depositor. For this
protection, Monarch and Western, as is the case with all insured banks, pay a
semi-annual statutory assessment and are subject to the rules and regulations of
the FDIC. Monarch is a member of the Federal Reserve System and is subject to
certain regulations of the Board. Western is not a member of the Federal Reserve
System, but is nevertheless subject to certain regulations of the Board.
 
    Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of Monarch and Western.
State and federal statutes and regulations relate to many aspects of Monarch's
and Western's operations, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends and locations of branch offices. Further, Monarch and Western are
required to maintain certain levels of capital.
 
    There are statutory and regulatory limitations on the amount of dividends
which may be paid to the Company by Monarch and Western. California law
restricts the amount available for cash dividends by state-chartered banks to
the lesser of retained earnings or the bank's net income for its last three
fiscal years (less any distributions to shareholders made during such period).
In the event a bank has no retained
 
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earnings or net income for its last three fiscal years, cash dividends may be
paid in an amount not exceeding the net income for such bank's last preceding
fiscal year only after obtaining the prior approval of the Superintendent.
 
    The FDIC in the case of Western, and the Board and the FDIC in the case of
Monarch, also have authority to prohibit Western or Monarch, as appropriate,
from engaging in what, in the Board's and/or the FDIC's opinion, constitutes an
unsafe or unsound practice in conducting its business. It is possible, depending
upon the financial condition of the bank in question and other factors, that the
Board and/or the FDIC could assert that the payment of dividends or other
payments might, under some circumstances, be such an unsafe or unsound practice.
 
    Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, its affiliates, the purchase of or investments in stock or other
securities thereof, the taking of such securities as collateral for loans and
the purchase of assets of such affiliates. Such restrictions prevent affiliates
from borrowing from Monarch and/or Western unless the loans are secured by
marketable obligations of designated amounts. Further, such secured loans and
investments by Monarch and/or Western in any other affiliate is limited to 10
percent of such subsidiary bank's capital and surplus (as defined by federal
regulations) and such secured loans and investments are limited, in the
aggregate, to 20% of such subsidiary bank's capital and surplus (as defined by
federal regulations). California law also imposes certain restrictions with
respect to transactions involving other controlling persons of Monarch and
Western. Additional restrictions on transactions with affiliates may be imposed
on Monarch and/or Western under the prompt corrective action provisions of the
FDIC Improvement Act ("FDICIA").
 
    POTENTIAL ACTIONS
 
    Commercial banking organizations, such as Monarch and Western, may be
subject to potential enforcement actions by the Board, the FDIC and the
Superintendent for unsafe or unsound practices in conducting their businesses or
for violations of any law, rule, regulation or any condition imposed in writing
by the agency or any written agreement with the agency. Enforcement actions may
include the imposition of a conservator or receiver, the issuance of a
cease-and-desist order that can be judicially enforced, the termination of
insurance of deposits, the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the imposition of restrictions and sanctions under the prompt
corrective action provisions of FDICIA.
 
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
 
    Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by a bank on its deposits and its
other borrowings and the interest rate received by a bank on loans extended to
its customers and securities held in a bank's portfolio comprise the major
portion of a bank's earnings. These rates are highly sensitive to many factors
that are beyond the control of a bank. Accordingly, the earnings and growth of a
bank are subject to the influence of local, domestic and foreign economic
conditions, including recession, unemployment and inflation.
 
    The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Board. The Board implements national monetary policies (with objectives such as
curbing inflation and combating recession) by its open-market operations in
United States Government securities, by adjusting the required level of reserves
for financial intermediaries subject to its reserve requirements and by varying
the discount rates applicable to borrowings by depository institutions. The
actions of the Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
 
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    From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
intermediaries. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
intermediaries are frequently made in Congress, in the California legislature
and before various bank regulatory and other professional agencies. The
likelihood of any major changes and the impact such changes might have on the
Company are impossible to predict. Certain of the potentially significant
changes which have been enacted and proposals which have been made recently are
discussed below.
 
    FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
 
    On December 19, 1991, FDICIA was enacted into law. Set forth below is a
brief discussion of certain portions of this law and implementing regulations
that have been adopted or proposed by the Board, the Comptroller of the Currency
("Comptroller"), the Office of Thrift Supervision ("OTS") and the FDIC
(collectively, the "federal banking agencies").
 
    STANDARDS FOR SAFETY AND SOUNDNESS
 
    FDICIA requires the federal banking agencies to prescribe, by regulation,
standards for all insured depository institutions and depository institution
holding companies relating to internal controls, loan documentation, credit
underwriting, interest rate exposure and asset growth. Standards must also be
prescribed for classified loans, earnings and the ratio of market value to book
value for publicly traded shares. The FDICIA also requires the federal banking
agencies to issue uniform regulations prescribing standards for real estate
lending that are to consider such factors as the risk to the deposit insurance
fund, the need for safe and sound operation of insured depository institutions
and the availability of credit. Further, FDICIA requires the federal banking
agencies to establish standards prohibiting compensation, fees and benefit
arrangements that are excessive or could lead to financial loss.
 
    PROMPT CORRECTIVE REGULATORY ACTION
 
    FDICIA requires each federal banking agency to take prompt corrective action
to resolve the problems of insured depository institutions that fall below one
or more prescribed minimum capital ratios. The purpose of this law is to resolve
the problems of insured depository institutions at the least possible long-term
cost to the appropriate deposit insurance fund.
 
    The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized (significantly exceeding the required minimum capital requirements),
adequately capitalized (meeting the required capital requirements),
undercapitalized (failing to meet any one of the capital requirements),
significantly undercapitalized (significantly below any one capital requirement)
and critically undercapitalized (failing to meet all capital requirements).
 
    In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA.
Under the regulations, an insured depository institution will be deemed to be:
 
    - "well capitalized" if it (i) has total risk-based capital of 10 percent or
      greater, Tier 1 risk-based capital of 6 percent or greater and a leverage
      capital ratio of 5 percent or greater and (ii) is not subject to an order,
      written agreement, capital directive or prompt corrective action directive
      to meet and maintain a specific capital level for any capital measure;
 
    - "adequately capitalized" if it has total risk-based capital of 8 percent
      or greater, Tier 1 risk-based capital of 4 percent or greater and a
      leverage capital ratio of 4 percent or greater (or a leverage capital
      ratio of 3 percent or greater if the institution is rated composite 1
      under the applicable regulatory rating system in its most recent report of
      examination);
 
                                       8
<PAGE>
    - "undercapitalized" if it has total risk-based capital that is less than 8
      percent, Tier 1 risk-based capital that is less than 4 percent or a
      leverage capital ratio that is less than 4 percent (or a leverage capital
      ratio that is less than 3 percent if the institution is rated composite 1
      under the applicable regulatory rating system in its most recent report of
      examination);
 
    - "significantly undercapitalized" if it has total risk-based capital that
      is less than 6 percent, Tier 1 risk-based capital that is less than 3
      percent or a leverage capital ratio that is less than 3 percent; and
 
    - "critically undercapitalized" if it has a ratio of tangible equity to
      total assets that is equal to or less than 2 percent.
 
    An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized, may be reclassified to
the next lower capital category if the appropriate federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and federal banking agencies are given less flexibility in
deciding how to address the problems associated with such category.
 
    The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions, and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
 
    An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers, subject to certain grandfather provisions for those elected prior to
enactment of FDICIA; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal banking
agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required
 
                                       9
<PAGE>
to force a sale of voting shares or merger, impose restrictions on affiliate
transactions and impose restrictions on rates paid on deposits unless it
determines that such actions would not further the purpose of the prompt
corrective action provisions. In addition, without the prior written approval of
the appropriate federal banking agency, a significantly undercapitalized
institution may not pay any bonus to its senior executive officers or provide
compensation to any of them at a rate that exceeds such officer's average rate
of base compensation during the 12 calendar months preceding the month in which
the institution became undercapitalized.
 
    Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
 
    The FDIC has adopted risk-based minimum capital guidelines intended to
provide a measure of capital that reflects the degree of risk associated with a
banking organization's operations for both transactions reported on the balance
sheet as assets and transactions, such as letters of credit and recourse
arrangements, which are recorded as off-balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off-balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0 percent for assets with low credit risk, such as
certain U.S. Treasury securities, to 100 percent for assets with relatively high
credit risk, such as business loans.
 
    In addition to the risk-based guidelines, the FDIC requires banks to
maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage ratio. For a bank rated in the highest of the five categories used by
the FDIC to rate banks, the minimum leverage ratio of Tier 1 capital to total
assets is 3 percent. For all banks not rated in the highest category, the
minimum leverage ratio must be at least 100 to 200 basis points above the 3
percent minimum, or 4 percent to 5 percent. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the FDIC has the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
 
    In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates on
the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed would
be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency.
 
    In January 1995, the federal banking agencies issued a final rule relating
to capital standards and the risks arising from the concentration of credit and
nontraditional activities. Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional banking activities and
who fail to adequately manage these risks, will be required to set aside capital
in excess of the regulatory minimums. The federal banking agencies have not
imposed any quantitative assessment for determining
 
                                       10
<PAGE>
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
 
    In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss allowances to classified
assets. The benchmark set forth by such policy statement is the sum of (a)
assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15
percent of assets classified substandard; and (d) estimated credit losses on
other assets over the upcoming 12 months.
 
    OTHER ITEMS
 
    FDICIA also, among other things, (i) limits the percentage of interest paid
on brokered deposits and limits the unrestricted use of such deposits to only
those institutions that are well capitalized; (ii) requires the FDIC to charge
insurance premiums based on the risk profile of each institution; (iii)
eliminates "pass through" deposit insurance for certain employee benefit
accounts unless the depository institution is well capitalized or, under certain
circumstances, adequately capitalized; (iv) prohibits insured state chartered
banks from engaging as principal in any type of activity that is not permissible
for a national bank unless the FDIC permits such activity and the bank meets all
of its regulatory capital requirements; (v) directs the appropriate federal
banking agency to determine the amount of readily marketable purchased mortgage
servicing rights that may be included in calculating such institution's
tangible, core and risk-based capital; and (vi) provides that, subject to
certain limitations, any federal savings association may acquire or be acquired
by any insured depository institution.
 
    In addition, the FDIC has issued final and proposed regulations implementing
provisions of FDICIA relating to powers of insured state banks. Final
regulations issued in October 1992 prohibit insured state banks from making
equity investments of a type, or in an amount, that are not permissible for
national banks. In general, equity investments include equity securities,
partnership interests and equity interests in real estate. Under the final
regulations, non-permissible investments were to be divested by no later than
December 19, 1996. The Banks have no such non-permissible investments.
 
    Regulations issued in December 1993 prohibit insured state banks from
engaging as principal in any activity not permissible for a national bank,
without FDIC approval. The proposal also provides that subsidiaries of insured
state banks may not engage as principal in any activity that is not permissible
for a subsidiary of a national bank, without FDIC approval.
 
    CAPITAL ADEQUACY GUIDELINES
 
    The FDIC has issued guidelines to implement the risk-based capital
requirements. The guidelines are intended to establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, takes off-balance
sheet items into account in assessing capital adequacy and minimizes
disincentives to holding liquid, low-risk assets. Under these guidelines, assets
and credit equivalent amounts of off-balance sheet items, such as letters of
credit and outstanding loan commitments, are assigned to one of several risk
categories, which range from 0 percent for risk-free assets, such as cash and
certain U.S. Government securities, to 100 percent for relatively high-risk
assets, such as loans and investments in fixed assets, premises and other real
estate owned. The aggregated dollar amount of each category is then multiplied
by the risk-weight associated with that category. The resulting weighted values
from each of the risk categories are then added together to determine the total
risk-weighted assets.
 
    A banking organization's qualifying total capital consists of two
components: Tier 1 capital (core capital) and Tier 2 capital (supplementary
capital). Tier 1 capital consists primarily of common stock, related surplus and
retained earnings, qualifying non-cumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries.
Intangibles, such as goodwill, are generally deducted from Tier 1 capital;
however, purchased mortgage servicing rights and purchase credit card
 
                                       11
<PAGE>
relationships may be included, subject to certain limitations. At least 50
percent of the banking organization's total regulatory capital must consist of
Tier 1 capital.
 
    Tier 2 capital may consist of (i) the allowance for possible loan and lease
losses in an amount up to 1.25 percent of risk-weighted assets; (ii) perpetual
preferred stock, cumulative perpetual preferred stock and long-term preferred
stock and related surplus; (iii) hybrid capital instruments (instruments with
characteristics of both debt and equity), perpetual debt and mandatory
convertible debt securities; and (iv) eligible term subordinated debt and
intermediate-term preferred stock with an original maturity of five years or
more, including related surplus, in an amount up to 50 percent of Tier 1
capital. The inclusion of the foregoing elements of Tier 2 capital are subject
to certain requirements and limitations of the federal banking agencies.
 
    The FDIC has also adopted a minimum leverage capital ratio of Tier 1 capital
to average total assets of 3 percent for the highest rated banks. This leverage
capital ratio is only a minimum. Institutions experiencing or anticipating
significant growth or those with other than minimum risk profiles are expected
to maintain capital well above the minimum level. Furthermore, higher leverage
capital ratios are required to be considered well capitalized or adequately
capitalized under the prompt corrective action provisions of FDICIA.
 
    The Regulatory Capital Guidelines as well as the actual capitalization for
Monarch, Western and the Company as of December 31, 1996 follow:
 
<TABLE>
<CAPTION>
                                                      ADEQUATELY      WELL                              COMPANY
                                                      CAPITALIZED  CAPITALIZED   MONARCH    WESTERN   CONSOLIDATED
                                                      -----------  -----------  ---------  ---------  ------------
<S>                                                   <C>          <C>          <C>        <C>        <C>
Detailed computations of
  Tier 1 leverage capital ratio.....................      34.00%        35.00%      8.07%      6.05%        5.07%
  Tier 1 risk-based capital ratio...................      34.00%        36.00%     13.64%     10.93%        9.05%
  Total risk-based capital..........................      38.00%       310.00%     14.89%     12.19%       10.30%
</TABLE>
 
    SAFETY AND SOUNDNESS STANDARDS
 
    In February 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA. The
guidelines set forth operational and managerial standards relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. Guidelines for asset quality and earnings standards will be
adopted in the future. The guidelines establish the safety and soundness
standards that the agencies will use to identify and address problems at insured
depository institutions before capital becomes impaired. If an institution fails
to comply with a safety and soundness standard, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan or to implement an accepted plan may result in
enforcement action.
 
    In December 1992, the federal banking agency issued final regulations
prescribing uniform guidelines for real estate lending. The regulations require
insured depository institutions to adopt written policies establishing
standards, consistent with such guidelines, for extensions of credit secured by
real estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory limits
prescribed by the regulations.
 
    Appraisals for "real estate related financial transactions" must be
conducted by either state-certified or state-licensed appraisers for
transactions in excess of certain amounts. State-certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A
state-licensed appraiser is required for all other appraisals. However,
appraisals performed in connection with "federally related transactions" must
now comply with the federal banking agencies'
 
                                       12
<PAGE>
appraisal standards. Federally related transactions include the sale, lease,
purchase, investment in, or exchange of, real property or interests in real
property, the financing of real property, and the use of real property or
interests in real property as security for a loan or investment, including
mortgage backed securities.
 
    PREMIUMS FOR DEPOSIT INSURANCE
 
    Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90 percent of the fair market value of assets of institutions
acquired by the FDIC as receiver from the Federal Financing Bank; and from
depository institutions that are members of the BIF. Any borrowings not repaid
by asset sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.
 
    The FDIC implemented a final risk-based assessment system, as required by
FDICIA, effective January 1, 1994, under which an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," or 1.25
percent, the total amount raised from BIF members by the risk-based assessment
system may not be less than the amount that would be raised if the assessment
rate for all BIF members were .023 percent of deposits. The FDIC, effective
September 15, 1995, lowered assessments from their rates of $.23 to $.31 per
$100 of insured deposits to rates of $.04 to $.31, depending on the condition of
the bank, as a result of the recapitalization of the BIF. On November 15, 1995,
the FDIC voted to drop its premiums for well capitalized banks to zero effective
January 1, 1996. Other banks will be charged risk-based premiums of up to $.27
per $100 of deposits.
 
    Governor Pete Wilson recently signed Assembly Bill 3351 (the "Banking
Consolidation Bill"), authored by Assemblyman Ted Weggeland and sponsored by the
California State Banking Department (the "Department"), effective July 1, 1997,
which creates the California Department of Financial Institutions ("DFI") to be
headed by a Commissioner of Financial Institutions out of the existing
Department which regulates state chartered commercial banks and trust companies
in California.
 
    The Banking Consolidation Bill, among other provisions, also (i) transfers
regulatory jurisdiction over state chartered savings and loan associations from
the Department of Savings and Loans ("DSL") to the newly created DFI and
abolishes the DSL; (ii) transfers regulatory jurisdiction over state chartered
industrial loan companies and credit unions from the Department of Corporations
to the newly-created DFI; and (iii) establishes within the DFI separate
divisions for credit unions, commercial banks, industrial loan companies and
savings and loans. As the Banking Consolidation Bill has only recently been
enacted, it is impossible to predict with any degree of certainty what impact it
will have on the banking industry in general and the Banks in particular.
 
    Congress has recently passed, and President Clinton has signed into law,
provisions to strengthen the Savings Association Insurance Fund (the "SAIF") and
to repay outstanding bonds that were issued to recapitalize the SAIF's successor
as a result of payments made due to the insolvency of savings and loan
associations and other federally insured savings institutions in the late 1980's
and early 1990's. The new law required savings and loan associations to bear the
cost of recapitalizing the SAIF and, after January 1, 1997, banks must
contribute towards paying off the financing bonds, including interest. In 2000,
the banking industry will assume the bulk of the payments. The new law also aims
to merge the Bank Insurance Fund and SAIF by 1999 but not until the bank and
savings and loan charters are combined. The Treasury Department has until March
31, 1997 to deliver to Congress comments and recommendations on combining the
charters. Additionally, the new law provides "regulatory relief" for the banking
industry by
 
                                       13
<PAGE>
eliminating approximately 30 laws and regulations. The costs and benefits of the
new law to the Banks can not currently be accurately predicted.
 
    INTERSTATE BANKING AND BRANCHING
 
    On September 29, 1994, the President signed into law the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
Under the Interstate Act, beginning one year after the date of enactment, a bank
holding company that is adequately capitalized and managed may obtain regulatory
approval to acquire an existing bank located in another state without regard to
state law. A bank holding company would not be permitted to make such an
acquisition if, upon consummation, it would control (a) more than 10% of the
total amount of deposits of insured depository institutions in the United States
or (b) 30% or more of the deposits in the state in which the bank is located. A
state may limit the percentage of total deposits that may be held in that state
by any one bank or bank holding company if application of such limitation does
not discriminate against out-of-state banks. An out-of-state bank holding
company may not acquire a state bank in existence for less than a minimum length
of time that may be prescribed by state law except that a state may not impose
more than a five year existence requirement.
 
    The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirement and conditions as for a merger
transaction. Effective October 2, 1995, California adopted legislation which
"opts California into" the Interstate Act. However, the California Legislation
restricts out-of-state banks from purchasing branches or starting a de novo
branch to enter the California banking market. Such banks may proceed only by
way of purchases of whole banks.
 
    The Interstate Act is likely to increase competition in the Banks' market
areas especially from larger financial institutions and their holding companies.
It is difficult to assess the impact such increased competition will likely have
on the Banks' operations.
 
    On September 28, 1995, Governor Wilson signed Assembly Bill 1482, the
Caldera, Weggeland, and Killea California Interstate Banking and Branching Act
of 1995 (the "1995 Act"). The 1995 Act, which was filed with the Secretary of
State as Chapter 480 of the California Statutes of 1995, became operative on
October 2, 1995.
 
    The 1995 Acts opts in early for interstate branching, allowing out-of-state
banks to enter California by merging or purchasing a California bank or
industrial loan company which is at least five years old. Also, the 1995 Act
repeals the California Interstate (National) Banking Act of 1986, which
regulated the acquisition of California banks by out-of-state bank holding
companies. In addition, the 1995 Act permits California state banks, with the
approval of the Superintendent of Banks, to establish agency relationships with
FDIC-insured banks and savings associations. Finally, the 1995 Act provides for
regulatory relief, including (i) authorization for the Superintendent to exempt
banks from the requirement of obtaining approval before establishing or
relocating a branch office or place of business, (ii) repeal of the requirement
of directors' oaths (California Financial Code Section 682), and (iii) repeal of
the aggregate limit on real estate loans (California Financial Code Section
1230).
 
                                       14
<PAGE>
    COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
 
    The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting the
credit needs of their local community, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
 
    In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institutions' actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements. In March 1994, the Federal Interagency Tax Force on
Fair Lending issued a policy statement on discrimination in lending. The policy
statement describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.
 
    HAZARDOUS WASTE CLEAN-UP COSTS
 
    Management is aware of recent legislation and cases relating to hazardous
waste clean-up costs and potential liability. Based on a general survey of the
loan portfolios of both Monarch and Western, conversations with local
authorities and appraisers, and the type of lending currently and historically
done by Monarch and Western (Monarch and Western have generally not made the
types of loans generally associated with hazardous waste contamination
problems), Management is not aware of any potential liability for hazardous
waste contamination.
 
    OTHER REGULATIONS AND POLICIES
 
    Various requirements and restrictions under the laws of the United States
and the State of California affect the operations of the Banks. Federal
regulations include requirements to maintain non-interest bearing reserves
against deposits, limitations on the nature and amount of loans which may be
made, and restrictions on payment of dividends. The Superintendent approves the
number and locations of the branch offices of a bank. California law exempts
banks from the usury laws.
 
MARKET AREA
 
    Western's market area is the western side of Los Angeles with one office in
the San Fernando Valley. These communities are generally very affluent with an
excellent base of small to medium sized businesses and law firms which provide
services to the entertainment industry. This market area includes new
construction lending, retail banking opportunities and commercial banking for
small businesses, professionals and some light industry.
 
    Monarch's main market area, Laguna Niguel, is located in southern Orange
County. It is a typical Southern California "bedroom" community with over 50,000
residents. Monarch also provides services to similar neighboring communities
including Mission Viejo, Dana Point, San Juan Capistrano, Laguna Beach, San
Clemente, Laguna Hills, and Aliso Viejo. There is no one dominant business
segment and a majority of the residents work outside of the immediate service
areas. This market area includes both retail banking opportunities and
commercial banking for small businesses, professionals and some light industry.
 
    The Company's market areas in the past five years have felt the full impact
of the recession that continued in some areas of California through 1996. The
impact of the recession has been felt through the progressive loss of jobs as
defense contractors cut back and restructure; in declines in construction
activity;
 
                                       15
<PAGE>
cutbacks in the aerospace industry and in the closing of more than the normal
number of small businesses. Real estate values have substantially declined with
some properties dropping by 20% to 30% depending on location and price range and
in correlation to increases in unemployment statistics. Most recent economic
reports in 1996, however, point to decreases in unemployment and some increases
in both sales volume and prices of real estate.
 
BUSINESS CONCENTRATIONS
 
    As of December 31, 1996, Monarch had approximately $80 million in assets and
$73 million in deposits, and Western had approximately $431 million in assets
and $375 million in deposits. No individual or single group of related accounts
is considered material in relation to Monarch's, Western's or the Company's
totals, or in relation to its overall business.
 
COMPETITION
 
    The banking business in California generally, and in Monarch's and Western's
primary service areas specifically, is highly competitive with respect to both
loans and deposits, and is dominated by a relatively small number of major banks
with many offices and operations over a wide geographic area. Among the
advantages such major banks have over Monarch and Western are their ability to
finance and engage in wide-ranging advertising campaigns and to allocate their
investment assets to regions of higher yield and demand. Such banks offer
certain services such as trust services and international banking which are not
offered directly by Monarch or Western (but which can be offered indirectly by
Monarch and Western through correspondent institutions). In addition, by virtue
of their greater total capitalization, such banks have substantially higher
lending limits than Monarch and Western. (Legal lending limits to an individual
customer are based upon a percentage of a bank's total capital accounts.) Other
entities, both governmental and in private industry, seeking to raise capital
through the issuance and sale of debt or equity securities also provide
competition for Monarch and Western in the acquisition of deposits. Banks also
compete with money market funds and other money market instruments which are not
subject to interest rate ceilings.
 
    In order to compete with other competitors in their primary service areas,
Monarch and Western attempt to use to the fullest extent possible the
flexibility which the Company's independent status permits. This includes an
emphasis on specialized services, local promotional activity, and personal
contacts by their respective officers, directors and employees. In particular,
each of the Banks offers highly personalized banking services.
 
EMPLOYEES
 
    As of January 31, 1997, Monarch had 48 full time equivalent employees,
Western had 109 full time equivalent employees and the Company had 3 full time
equivalent employees.
 
M. B. MORTGAGE COMPANY, INC.
 
    M.B. Mortgage Company, Inc. was incorporated under California law on
November 8, 1983, and is wholly-owned by Monarch Bank. The company is inactive.
 
STATISTICAL DISCLOSURE
 
    The following tables and data set forth statistical information relating to
the Company and its subsidiaries. This statistical data should be read in
conjunction with MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (ITEM 6) and the CONSOLIDATED FINANCIAL STATEMENTS (ITEM
7) included elsewhere herein. Data provided includes the accounts and results of
Western as of dates, and for periods, subsequent to the September 30, 1996
acquisition only.
 
                                       16
<PAGE>
    The following summary should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein.
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                      -----------------------------------------------------------
                                                        1996(1)        1995        1994        1993       1992
                                                      ------------  ----------  ----------  ----------  ---------
<S>                                                   <C>           <C>         <C>         <C>         <C>
                                                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONDENSED STATEMENT OF OPERATIONS DATA:
  Interest income...................................  $     12,497  $    4,491  $    3,938  $    4,348  $   5,028
  Interest expense..................................         3,952       1,148         947       1,148      1,632
                                                      ------------  ----------  ----------  ----------  ---------
  Net interest income...............................         8,545       3,343       2,991       3,200      3,396
  Provision for loan losses.........................           228         425         995       1,280         67
  Non-interest income (other than gains or losses on
    securities transactions)........................         1,108         933         696         920        999
  Gains (losses) on securities transactions.........           267      --             (47)         40     --
  Non-interest expense other than OREO expense......         8,753       3,602       4,251       4,134      4,037
  OREO expense (income).............................          (151)         62         243          86         82
                                                      ------------  ----------  ----------  ----------  ---------
    Income (loss) before taxes......................         1,090         187      (1,849)     (1,340)       209
  Income tax expense (benefit)......................           352        (496)          2           2         34
                                                      ------------  ----------  ----------  ----------  ---------
    Net income (loss)...............................  $        738  $      683  $   (1,851) $   (1,342) $     175
                                                      ------------  ----------  ----------  ----------  ---------
                                                      ------------  ----------  ----------  ----------  ---------
PER SHARE DATA:
  Net income (loss) per share.......................  $       0.05  $     0.13  $    (2.33) $    (1.71) $    0.25
  Cash dividends declared...........................       --           --          --          --         --
  Book value per share..............................  $       1.57  $     1.34  $     0.88  $     3.68  $    5.27
  Shares used to compute net income (loss) per
    share...........................................    14,974,918   5,071,000     794,300     786,000    712,000
                                                      ------------  ----------  ----------  ----------  ---------
                                                      ------------  ----------  ----------  ----------  ---------
BALANCE SHEET DATA:
  Assets............................................  $    512,361  $   70,101  $   59,974  $   67,119  $  68,499
  Loans.............................................       261,055      32,650      31,040      35,369     46,233
  Securities........................................       164,724      28,665      16,138      18,198      7,284
  Interest-earning assets...........................       429,996      64,451      54,452      62,303     56,102
  Goodwill..........................................        29,342      --          --          --         --
  Deposits..........................................       442,984      58,742      58,643      63,715     63,963
  Notes payable and other borrowings................        11,000         132         173         211        250
  Shareholders' equity..............................        54,128      10,997         702       2,923      3,888
                                                      ------------  ----------  ----------  ----------  ---------
                                                      ------------  ----------  ----------  ----------  ---------
ASSET QUALITY:
  Nonaccrual loans..................................  $      9,315  $      345  $      431  $    2,847  $     737
  OREO..............................................         3,889         150         617       1,293        699
                                                      ------------  ----------  ----------  ----------  ---------
    Total nonaccrual loans and OREO.................  $     13,204  $      495  $    1,048  $    4,140  $   1,436
                                                      ------------  ----------  ----------  ----------  ---------
                                                      ------------  ----------  ----------  ----------  ---------
PERFORMANCE RATIOS:
  Return on average assets..........................         0.40%       1.08%      (2.92%)     (1.96%)     0.28%
  Return on average shareholders' equity............         3.37%       9.91%     (74.55%)    (33.22%)     4.41%
  Net interest spread...............................         4.43%       4.98%       5.02%       4.83%      5.05%
  Net interest margin...............................         5.43%       5.84%       5.34%       5.20%      5.87%
  Average shareholders' equity to average assets....        11.85%      10.92%       3.92%       5.90%      6.24%
ASSET QUALITY RATIOS:
  Nonaccrual loans to gross loans...................         3.57%       1.06%       1.39%       8.05%      1.59%
  Nonaccrual loans and OREO to total assets.........         2.58%       0.71%       1.75%       6.17%      2.10%
  Allowance for loan losses to total loans..........         2.07%       2.62%       3.66%       2.99%      1.24%
  Allowance for loan losses to nonaccrual loans.....           58%        248%        264%         37%        78%
  Net charge-offs to average loans..................         0.99%       2.46%       2.82%       1.96%      0.47%
</TABLE>
 
------------------------
(1) Includes the accounts and operating results of Western since the September
    30, 1996 acquisition date.
 
                                       17
<PAGE>
    INTEREST RATES AND INTEREST RATE DIFFERENTIALS
 
    The Company's consolidated earnings depend primarily upon the difference
between the income the Banks receive from their loan portfolios and investment
securities, and their cost of funds, including principally interest paid on
savings and time deposits. Interest rates charged on the Banks' loans are
influenced principally by the demand for such loans, the supply of money for
lending purposes, and competitive factors. These factors are, in turn, affected
by general economic conditions and other factors beyond the Banks' control, such
as federal economic and tax policies, the general supply of money in the
economy, governmental budgetary actions, and the actions of the Board.
 
    The following table provides information on net interest income for the past
three fiscal years, setting forth average balances of interest-earnings assets
and interest-bearing liabilities, the income earned and expense recorded thereon
and the resulting average yield-cost ratios (dollars in thousands):
<TABLE>
<CAPTION>
                                                            INTEREST RATES AND INTEREST RATE DIFFERENTIALS
                                                                        (DOLLARS IN THOUSANDS)
                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                             ----------------------------------------------------------------------------
                                                             1996
                                             ------------------------------------                   1995
                                              AVERAGE                              --------------------------------------
                                              BALANCE     INCOME/      AVERAGE       AVERAGE      INCOME/      AVERAGE
                                                (1)       EXPENSE    YIELD/ COST   BALANCE (1)    EXPENSE    YIELD/ COST
                                             ---------  -----------  ------------  -----------  -----------  ------------
<S>                                          <C>        <C>          <C>           <C>          <C>          <C>
INTEREST-EARNING ASSETS:
  Interest-bearing deposits with banks.....  $      53   $       3         5.66%    $   1,016    $      43         4.23%
  Securities held to maturity..............      8,011         516         6.44%        6,538          429         6.56%
  Securities available for sale............     51,588       3,167         6.14%       14,227          589         4.14%
  Federal funds sold.......................     11,659         604         5.18%        6,676          376         5.63%
  Loans (net)(2)...........................     86,190       8,207         9.52%       28,808        3,054        10.60%
                                             ---------  -----------                -----------  -----------
    INTEREST EARNING ASSETS................    157,501      12,497         7.93%       57,265        4,491         7.84%
                                                        -----------         ---                 -----------       -----
NON INTEREST-EARNING ASSETS:
  Cash and due from banks..................     11,616                                  3,725
  Premises and equipment (net).............      1,894                                    630
  Other real estate owned..................      1,366                                    490
  Goodwill.................................      7,419                                 --
  Other assets.............................      4,910                                    970
                                             ---------                             -----------
    TOTAL ASSETS...........................  $ 184,706                              $  63,080
                                             ---------                             -----------
                                             ---------                             -----------
INTEREST-BEARING LIABILITIES:
  Interest-bearing demand deposits.........  $  71,920   $   2,068         2.88%    $  25,106    $     533         2.12%
  Savings deposits.........................      8,469         194         2.29%        5,312          110         2.07%
  Time deposits............................     29,863       1,499         5.02%        9,655          504         5.22%
  Federal funds purchased..................          5      --            --           --           --            --
  Other borrowings.........................      2,750         191         6.95%            9            1        11.11%
                                             ---------  -----------                -----------  -----------
    INTEREST BEARING LIABILITIES...........  $ 113,007       3,952         3.50%       40,082        1,148         2.86%
                                                        -----------         ---                 -----------       -----
NON INTEREST-BEARING LIABILITIES AND
  EQUITY:
  Non-interest bearing demand..............     47,724                                 15,545
  Non-interest bearing liabilities.........      2,089                                    564
  Shareholders' equity.....................     21,886                                  6,889
                                             ---------                             -----------
    TOTAL LIABILITIES & SHAREHOLDERS'
      EQUITY...............................  $ 184,706                              $  63,080
                                             ---------                             -----------
                                             ---------                             -----------
  Net interest income......................              $   8,545                               $   3,343
                                                        -----------                             -----------
                                                        -----------                             -----------
  Net interest margin on interest-bearing
    assets(3)..............................                                5.43%                                   5.84%
                                                                            ---                                   -----
                                                                            ---                                   -----
  Net interest spread......................                                4.43%                                   4.98%
                                                                            ---                                   -----
                                                                            ---                                   -----
 
<CAPTION>
 
                                                              1994
                                             --------------------------------------
                                               AVERAGE      INCOME/      AVERAGE
                                             BALANCE (1)    EXPENSE    YIELD/ COST
                                             -----------  -----------  ------------
<S>                                          <C>          <C>          <C>
INTEREST-EARNING ASSETS:
  Interest-bearing deposits with banks.....   $   2,712    $     111         4.09%
  Securities held to maturity..............       5,508          258         4.68%
  Securities available for sale............      11,537          536         4.65%
  Federal funds sold.......................       3,817          155         4.06%
  Loans (net)(2)...........................      32,397        2,878         8.88%
                                             -----------  -----------
    INTEREST EARNING ASSETS................      55,971        3,938         7.04%
                                                          -----------         ---
NON INTEREST-EARNING ASSETS:
  Cash and due from banks..................       3,993
  Premises and equipment (net).............         730
  Other real estate owned..................       1,313
  Goodwill.................................      --
  Other assets.............................       1,302
                                             -----------
    TOTAL ASSETS...........................   $  63,309
                                             -----------
                                             -----------
INTEREST-BEARING LIABILITIES:
  Interest-bearing demand deposits.........   $  32,590    $     568         1.74%
  Savings deposits.........................       7,369          153         2.08%
  Time deposits............................       6,872          224         3.26%
  Federal funds purchased..................      --           --            --
  Other borrowings.........................          54            2         3.70%
                                             -----------  -----------
    INTEREST BEARING LIABILITIES...........      46,885          947         2.02%
                                                          -----------         ---
NON INTEREST-BEARING LIABILITIES AND
  EQUITY:
  Non-interest bearing demand..............      13,558
  Non-interest bearing liabilities.........         383
  Shareholders' equity.....................       2,483
                                             -----------
    TOTAL LIABILITIES & SHAREHOLDERS'
      EQUITY...............................   $  63,309
                                             -----------
                                             -----------
  Net interest income......................                $   2,991
                                                          -----------
                                                          -----------
  Net interest margin on interest-bearing
    assets(3)..............................                                  5.34%
                                                                              ---
                                                                              ---
  Net interest spread......................                                  5.02%
                                                                              ---
                                                                              ---
</TABLE>
 
------------------------------
(1) Average balances are primarily computed on daily balances during the period.
    When such balances are not available, averages are computed on a monthly
    basis. Average balances include the effect of discounts and premiums on
    loans, investment securities, deposits and borrowings acquired in
    acquisitions, as well as deferred loan fees.
 
(2) Non accrual loans are included in the average balances for the periods;
    however, interest on such loans has been excluded in computing the average
    yields for the periods.
 
(3) The net interest margin on interest-bearing assets for a period is net
    interest income divided by average interest-earning assets.
 
                                       18
<PAGE>
    The following table sets forth changes in interest income and interest
expense, and the amount of change attributable to variances in volume, rates and
the combination of volume and rates. The Company has no tax-exempt assets.
<TABLE>
<CAPTION>
                                                                 INTEREST RATES AND INTEREST RATE DIFFERENTIALS
                                                                                 (IN THOUSANDS)
                                                   --------------------------------------------------------------------------
                                                              YEAR ENDED DECEMBER 31,               YEAR ENDED DECEMBER 31,
                                                               1996 COMPARED TO 1995                 1995 COMPARED TO 1994
                                                   ----------------------------------------------  --------------------------
                                                                                                                  CHANGE DUE
                                                                          CHANGE DUE TO                               TO
                                                      TOTAL     ---------------------------------      TOTAL      -----------
                                                    INCREASE                           VOLUME &      INCREASE
                                                   (DECREASE)    VOLUME      RATE        RATE       (DECREASE)      VOLUME
                                                   -----------  ---------  ---------  -----------  -------------  -----------
<S>                                                <C>          <C>        <C>        <C>          <C>            <C>
INTEREST INCOME:
Interest and fees on loans.......................   $   5,153   $   6,083  $    (311)  $    (619)    $     176     $    (319)
Interest bearing deposits with banks.............         (40)        (41)        15         (14)          (68)          (69)
Securities held to maturity......................          87          97         (8)         (2)          171            48
Securities available for sale....................       2,578       1,547        284         747            53           125
Federal funds sold...............................         228         281        (30)        (23)          221           116
                                                   -----------  ---------  ---------  -----------       ------    -----------
      Total interest income......................       8,006       7,967        (47)         86           553           (99)
 
INTEREST EXPENSE:
Interest bearing demand deposits.................       1,535         994        189         352           (35)         (131)
Savings deposits.................................          84          65         12           7           (43)          (43)
Time deposits....................................         995       1,055        (19)        (41)          280            91
Federal funds purchased..........................      --          --         --          --            --            --
Other borrowings.................................         190         305          0        (115)           (1)           (2)
                                                   -----------  ---------  ---------  -----------       ------    -----------
    Total interest expense.......................       2,804       2,419        182         203           201           (85)
                                                   -----------  ---------  ---------  -----------       ------    -----------
      Net interest income........................   $   5,202   $   5,548  $    (229)  $    (117)    $     352     $     (15)
                                                   -----------  ---------  ---------  -----------       ------    -----------
                                                   -----------  ---------  ---------  -----------       ------    -----------
 
<CAPTION>
 
                                                               VOLUME &
                                                     RATE        RATE
                                                   ---------  -----------
<S>                                                <C>        <C>
INTEREST INCOME:
Interest and fees on loans.......................  $     556   $     (61)
Interest bearing deposits with banks.............          4          (3)
Securities held to maturity......................        103          20
Securities available for sale....................        (58)        (14)
Federal funds sold...............................         60          45
                                                   ---------       -----
      Total interest income......................        665         (13)
INTEREST EXPENSE:
Interest bearing demand deposits.................        125         (29)
Savings deposits.................................          0      --
Time deposits....................................        135          54
Federal funds purchased..........................     --          --
Other borrowings.................................          4          (3)
                                                   ---------       -----
    Total interest expense.......................        264          22
                                                   ---------       -----
      Net interest income........................  $     401   $     (35)
                                                   ---------       -----
                                                   ---------       -----
</TABLE>
 
SECURITIES
 
    The fair value of securities available for sale at the dates indicated are
summarized in the table below:
 
<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                               ----------------------------------
                                                                                  1996        1995        1994
                                                                               ----------  ----------  ----------
<S>                                                                            <C>         <C>         <C>
                                                                                         (IN THOUSANDS)
US Government Securities.....................................................  $  132,192  $    4,871  $   --
US Agency Securities.........................................................       7,709       5,578         997
Mortgage-backed Securities...................................................       5,554       2,131       5,593
US Government Mutual Fund....................................................       4,468       9,240       5,191
Other securities.............................................................       7,531         184      --
                                                                               ----------  ----------  ----------
                                                                               $  157,454  $   22,004  $   11,781
                                                                               ----------  ----------  ----------
                                                                               ----------  ----------  ----------
</TABLE>
 
    The US Government Mutual Fund represents shares held in the Monarch Fund, a
mutual fund wholly comprised of US Government obligations. The Monarch Fund is
not a related entity to Monarch Bancorp or any of its subsidiaries.
 
    The acquisition of Western added $141 million to securities available for
sale at December 31, 1996. The increase of $10 million from December 31, 1994 to
December 31, 1995 primarily resulted from the proceeds of the two common stock
offerings in 1995.
 
                                       19
<PAGE>
    The following table shows the maturities of debt securities available for
sale at December 31, 1996 (Dollars in thousands):
<TABLE>
<CAPTION>
                                                                                            1 YEAR                   5 YEARS
                                            TOTAL              1 YEAR OR LESS            THRU 5 YEARS             THRU 10 YEARS
                                    ---------------------  -----------------------  -----------------------  -----------------------
                                     AMOUNT      YIELD       AMOUNT       YIELD       AMOUNT       YIELD       AMOUNT       YIELD
                                    ---------  ----------  -----------  ----------  -----------  ----------  -----------  ----------
<S>                                 <C>        <C>         <C>          <C>         <C>          <C>         <C>          <C>
US Government Securities..........  $ 132,190       5.80%   $  44,051        5.60%   $  87,615        5.90%   $  --           --
US Agency Securities..............      7,709       6.52%       1,000        6.78%       5,466        6.39%         573        7.03%
Mortgage-backed Securities........      5,554       6.61%      --           --          --           --             984        6.42%
Other securities..................      6,028       5.74%       6,028        5.74%      --           --          --           --
                                    ---------              -----------              -----------              -----------
    Total.........................  $ 151,481       5.86%   $  51,079        5.64%   $  93,081        5.93%   $   1,557        6.64%
                                    ---------              -----------              -----------              -----------
                                    ---------              -----------              -----------              -----------
    Amortized Cost................  $ 151,453               $  50,977                $  93,184                $   1,570
                                    ---------              -----------              -----------              -----------
                                    ---------              -----------              -----------              -----------
 
<CAPTION>
 
                                         OVER 10 YEARS
                                    -----------------------
                                      AMOUNT       YIELD
                                    -----------  ----------
<S>                                 <C>          <C>
US Government Securities..........   $     524        5.40%
US Agency Securities..............         670        6.80%
Mortgage-backed Securities........       4,570        6.65%
Other securities..................      --           --
                                    -----------
    Total.........................   $   5,764        6.55%
                                    -----------
                                    -----------
    Amortized Cost................   $   5,722
                                    -----------
                                    -----------
</TABLE>
 
    The carrying amounts of the debt securities held to maturity at the dates
indicated are summarized in the table below:
 
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                       -------------------------------
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
                                                                                               (IN THOUSANDS)
US Government Securities.............................................................  $   1,147  $     485  $   2,849
US Agency Securities.................................................................      4,202      4,500      1,508
Mortgage-backed Securities...........................................................      1,921      1,676     --
                                                                                       ---------  ---------  ---------
                                                                                       $   7,270  $   6,661  $   4,357
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
    The following table shows the maturities of debt securities held to maturity
at December 31, 1996 (Dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                                 5 YEARS
                                                                                              1 YEAR             THRU 10
                                             TOTAL               1 YEAR OR LESS            THRU 5 YEARS           YEARS
                                    -----------------------  -----------------------  -----------------------  -----------
                                      AMOUNT       YIELD       AMOUNT       YIELD       AMOUNT       YIELD       AMOUNT
                                    -----------  ----------  -----------  ----------  -----------  ----------  -----------
<S>                                 <C>          <C>         <C>          <C>         <C>          <C>         <C>
US Government Securities..........   $   1,147        5.78%   $     250        6.98%   $     607        5.54%   $     290
US Agency Securities..............       3,989        6.31%      --           --           3,989        6.31%      --
Mortgage-backed Securities........       1,921        7.02%      --           --             931        6.30%      --
                                    -----------                   -----               -----------                   -----
    Total.........................   $   7,057        6.42%   $     250        6.98%   $   5,527        6.23%   $     290
                                    -----------                   -----               -----------                   -----
                                    -----------                   -----               -----------                   -----
    Fair Value....................   $   7,034                $     250                $   5,519                $     298
                                    -----------                   -----               -----------                   -----
                                    -----------                   -----               -----------                   -----
 
<CAPTION>
 
                                                     OVER 10 YEARS
                                                -----------------------
                                      YIELD       AMOUNT       YIELD
                                    ----------  -----------  ----------
<S>                                 <C>         <C>          <C>
US Government Securities..........       5.26%   $  --           --
US Agency Securities..............      --          --           --
Mortgage-backed Securities........      --             990        7.69%
                                                     -----
    Total.........................       5.26%   $     990        7.69%
                                                     -----
                                                     -----
    Fair Value....................               $     967
                                                     -----
                                                     -----
</TABLE>
 
    At December 31, 1996, the Company did not have investments in securities
issued by any one non-federal issuer which exceeded 10% of shareholders' equity.
 
    As part of its investment portfolios, the Banks may hold derivative
securities. Three Collateralized Mortgage Obligations (CMO's) were held in the
held to maturity portfolio at Monarch as of December 31, 1996. These FNMA and
FHLMC securities have a carrying value of $1.921 million and a current market
value of $1.883 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 relative CMO's
investment risks. A security that passes 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.
 
                                       20
<PAGE>
LOAN PORTFOLIO
 
    The following table sets forth the amount of loans outstanding at the end of
the following periods, according to type of loan. The Company's lending
activities are predominantly in Southern California. The Company has no
agricultural or foreign loans.
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                            ------------------------------------------------------
                                                               1996       1995       1994       1993       1992
                                                            ----------  ---------  ---------  ---------  ---------
<S>                                                         <C>         <C>        <C>        <C>        <C>
                                                                                (IN THOUSANDS)
Real estate construction..................................  $   24,666  $   2,033  $   4,032  $   5,061  $  12,097
Real estate mortgage......................................     128,026     11,675     12,226     12,138     13,765
Commercial................................................     101,177     16,758     12,089     14,036     15,033
Installment...............................................       7,186      2,184      2,693      4,134      5,338
                                                            ----------  ---------  ---------  ---------  ---------
    GROSS LOANS...........................................     261,055     32,650     31,040     35,369     46,233
Less:
  Deferred loan fees......................................        (939)      (130)       (52)      (118)      (195)
  Allowance for loan losses...............................      (5,393)      (854)    (1,137)    (1,056)      (575)
                                                            ----------  ---------  ---------  ---------  ---------
      NET LOANS...........................................  $  254,723  $  31,666  $  29,851  $  34,195  $  45,463
                                                            ----------  ---------  ---------  ---------  ---------
                                                            ----------  ---------  ---------  ---------  ---------
</TABLE>
 
    The acquisition of Western added $216 million to gross loans, $785 thousand
to deferred loan fees and $4.3 million to the allowance for loan losses at
December 31, 1996.
 
    With certain exceptions, a bank is permitted under California law to make
loans to a single borrower in aggregate amounts up to 25 percent of the sum of
shareholders' equity (excluding goodwill and effect of adjustments for FAS 115),
allowance for loan losses, capital reserves, if any, and debentures, if any, for
secured loans (as defined for regulatory purposes), and up to 15 percent of such
sum for the aggregate of unsecured loans (as defined). As of December 31, 1996
these lending limits for the Company were approximately $7.5 million for secured
loans, and approximately $4.5 million for unsecured loans. The Company sells
participations in loans where necessary to stay within lending limits or to
otherwise limit the Company's exposure in particular credits. Where deemed
appropriate to better utilize available funds, the Company may purchase
participations in loans.
 
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
 
    The loan maturities shown in the table below are based on contractual
maturities. As is customary in the banking industry, loans that meet sound
underwriting criteria can be renewed by mutual agreement between the Company and
the borrower. Because the Company is unable to estimate the extent to which its
borrowers will renew their loans, the table below is based on contractual
maturities at December 31, 1996:
 
<TABLE>
<CAPTION>
                                                                                 ONE YEAR
                                                                      ONE YEAR   THROUGH 5    OVER
                                                                      OR LESS      YEARS     5 YEARS     TOTAL
                                                                     ----------  ---------  ---------  ----------
<S>                                                                  <C>         <C>        <C>        <C>
                                                                                    (IN THOUSANDS)
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 rates..........................................                 65,003     38,649
                                                                                 ---------  ---------
                                                                                 $  91,256  $  59,968
                                                                                 ---------  ---------
                                                                                 ---------  ---------
</TABLE>
 
                                       21
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
 
    The following table shows the Company's nonaccrual, past due and
restructured loans.
 
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                   -------------------------------------------------------
                                                                     1996       1995       1994       1993      1992 (1)
                                                                   ---------  ---------  ---------  ---------  -----------
<S>                                                                <C>        <C>        <C>        <C>        <C>
                                                                                   (DOLLARS IN THOUSANDS)
Nonaccrual loans:
  Real Estate Construction.......................................  $     164  $     172  $  --      $   1,650
  Real Estate Mortgage...........................................      8,323        160        162        991
  Commercial.....................................................        755         12        223        206
  Installment....................................................         73          1         46     --
                                                                   ---------  ---------  ---------  ---------  -----------
      Total......................................................  $   9,315  $     345  $     431  $   2,847   $     737
                                                                   ---------  ---------  ---------  ---------  -----------
                                                                   ---------  ---------  ---------  ---------  -----------
Total nonaccrual loans as a percentage of total loans............      3.57%      1.06%      1.39%      8.05%       1.59%
Allowance for loan losses to nonaccrual loans....................        58%       248%       264%        37%         78%
Loans past due 90 days or more on accrual status:
  Real Estate Mortgage...........................................  $  --      $  --      $     199  $     124
  Commercial.....................................................     --         --            163        375
  Installment....................................................     --         --         --              6
                                                                   ---------  ---------  ---------  ---------  -----------
      Total......................................................  $  --      $  --      $     362  $     505   $     132
RESTRUCTURED LOANS:
  On accrual status..............................................  $  --      $  --      $  --      $  --       $  --
  On nonaccrual status...........................................      3,870        168     --         --          --
                                                                   ---------  ---------  ---------  ---------  -----------
      Total......................................................  $   3,870  $     168  $  --      $  --       $  --
                                                                   ---------  ---------  ---------  ---------  -----------
                                                                   ---------  ---------  ---------  ---------  -----------
</TABLE>
 
------------------------
 
(1) Detailed information is not available
 
    The large increase in nonaccrual loans occurred at Western due to three
large real estate mortgage loans totaling $7.6 million that were added to the
nonaccrual list in the fourth quarter of 1996. These three loans were all
internally classified by Management prior to being put on nonaccrual. All three
of the loans are secured by first trust deeds on real estate properties.
Although Western's percentage of the allowance for loan losses to nonaccrual
loans decreased from 135 percent at December 31, 1995 to 47 percent at December
31, 1996, Western's percentage of the allowance for loan losses to internally
classified loans at December 31, 1996 was comparable to December 31, 1995.
Monarch's nonaccrual loans decreased by $178 thousand from December 31, 1995 to
December 31, 1996. The table below summarizes the changes in nonaccrual loans
for the years ended December 31, 1996 and 1995.
 
                                       22
<PAGE>
                          CHANGES IN NONACCRUAL LOANS
<TABLE>
<CAPTION>
                                                                                                  YEARS ENDED DECEMBER
                                                                                                          31,
                                                                                                  --------------------
                                                                                                    1996       1995
                                                                                                  ---------  ---------
<S>                                                                                               <C>        <C>
                                                                                                     (IN THOUSANDS)
NONACCRUAL LOANS
Balance, beginning of the year..................................................................  $     345  $     431
Acquisition of Western..........................................................................      2,487
Loans placed on nonaccrual......................................................................      8,476        919
Charge-offs.....................................................................................       (456)      (625)
Loans returned to accrual status................................................................       (363)       (25)
Repayments (including interest applied to principal)............................................       (349)       (83)
Transfers to OREO...............................................................................       (825)      (272)
                                                                                                  ---------  ---------
Balance, end of year............................................................................  $   9,315  $     345
                                                                                                  ---------  ---------
                                                                                                  ---------  ---------
 
<CAPTION>
 
                                                                                                  YEARS ENDED DECEMBER
                                                                                                          31,
                                                                                                  --------------------
                                                                                                    1996       1995
                                                                                                  ---------  ---------
<S>                                                                                               <C>        <C>
                                                                                                     (IN THOUSANDS)
INTEREST ON NONACCRUAL LOANS
Interest that would have been collected on nonaccrual loans.....................................  $     279  $      17
                                                                                                  ---------  ---------
                                                                                                  ---------  ---------
Interest collected on nonaccrual loans..........................................................  $       1  $      24
                                                                                                  ---------  ---------
                                                                                                  ---------  ---------
</TABLE>
 
    There are no commitments to lend additional funds to borrowers listed as
nonaccrual or past due 90 days or more.
 
    The Company's policy concerning non-performing loans is to cease accruing
interest, and to charge off all accrued and unpaid interest on loans which are
past due as to principal and/or interest for at least 90 days, or at such
earlier time as management determines timely collection of the interest to be in
doubt; except that in certain circumstances accrued interest is not charged off
on adequately secured loans which are deemed by management to be fully
collectible. Additionally, loans which are 90 days or more past due may continue
accruing interest if they are both well secured and in the process of being
collected.
 
    The Company has not been active in areas that involve hazardous waste, and
based on portfolio reviews by the Company and during credit reviews during
regulatory examinations, no loans have been identified that would appear to be
of concern because of hazardous material.
 
POTENTIAL PROBLEM LOANS
 
    Except as noted above, as of March 15, 1997 management is not aware of any
borrowers who are experiencing severe financial difficulties, or in the normal
course of business, represent any identified loss potential. The Banks monitor
all loans and complete a monthly internal watch list, which is inclusive of both
loans past due and/or borrowers that have been identified as having special
difficulties.
 
LOAN CONCENTRATIONS
 
    The Banks' loan portfolios are diverse, and there are no specific
concentrations to any one borrower or group of borrowers that are engaged in
similar activities which would cause them to be similarly impacted by economic
or other considerations.
 
                                       23
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE AND ALLOWANCE FOR LOAN LOSSES
 
    The following table summarizes loan balances, loans charged off, the
provision for loan losses charged to expense, the allowance, and loan
recoveries.
 
<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                            ------------------------------------------------------
                                                               1996       1995       1994       1993       1992
                                                            ----------  ---------  ---------  ---------  ---------
<S>                                                         <C>         <C>        <C>        <C>        <C>
                                                                            (DOLLARS IN THOUSANDS)
Allowance for loan losses:
Balance at the beginning of the year......................  $      854  $   1,137  $   1,056  $     575  $     715
                                                            ----------  ---------  ---------  ---------  ---------
  Loans charged off:
    Real estate mortgage..................................         427        278        796         60         90
    Real estate construction..............................      --         --         --             75         70
    Commercial............................................         396        401        167        599         46
    Installment...........................................          45         38         29         81         33
                                                            ----------  ---------  ---------  ---------  ---------
        Total loans charged-off...........................         868        717        992        815        239
                                                            ----------  ---------  ---------  ---------  ---------
Recoveries on loans charged-off:
  Real estate mortgage....................................      --              5         40          8     --
  Commercial..............................................          18          3         33          5         14
  Installment.............................................      --              1          5          3         18
                                                            ----------  ---------  ---------  ---------  ---------
    Total recoveries on loans charged-off.................          18          9         78         16         32
                                                            ----------  ---------  ---------  ---------  ---------
    Net loans charged off.................................         850        708        914        799        207
Provision charged to operating expense....................         228        425        995      1,280         67
Addition to allowance due to:
    Acquisition of Western................................       5,041     --         --         --         --
    Loan portfolio purchases..............................         120     --         --         --         --
                                                            ----------  ---------  ---------  ---------  ---------
Balance at the end of the year............................  $    5,393  $     854  $   1,137  $   1,056  $     575
                                                            ----------  ---------  ---------  ---------  ---------
                                                            ----------  ---------  ---------  ---------  ---------
Loans:
  Average loans outstanding during year...................  $   86,190  $  28,808  $  32,397  $  40,774  $  44,452
  Total loans at end of year..............................  $  261,055  $  32,650  $  31,040  $  35,370  $  46,233
Ratios:
  Net loans charged off to average loans..................       0.99%      2.46%      2.82%      1.96%      0.47%
  Allowance as a percent of end of year loans.............       2.07%      2.62%      3.66%      2.99%      1.24%
</TABLE>
 
    The Banks' local markets were very severely affected by the recession in
1993 and 1994 and, in several instances borrowers who had never reported
financial difficulties or were past due declared bankruptcy.
 
    Although the allowance as a percent of end of year loans has declined since
1994, loans charged off to average loans has also decreased significantly. Loans
charged off in 1996 primarily were Western charge-offs in the fourth quarter of
1996. These charge-offs represent Western loans that had specific valuation
allowance allocated at September 30, 1996 but were charged off by management of
the Company subsequent to the acquisition of Western.
 
    From 1994 to 1995 for Monarch and from 1996 for Western, the level of
classified loans as a result of Regulatory examinations dropped significantly.
There was no Regulatory examination at Monarch in 1996.
 
                                       24
<PAGE>
    The following table reflects management's allocation of the allowance for
loan losses by loan category and the ratio of loans in each category to total
loans at December 31 for each of the last five years:
<TABLE>
<CAPTION>
                                                                                ALLOWANCE AS OF DECEMBER 31,
                                                                    -----------------------------------------------------
                                                                      1996       1995       1994       1993       1992
                                                                    ---------  ---------  ---------  ---------  ---------
<S>                                                                 <C>        <C>        <C>        <C>        <C>
                                                                                   (DOLLARS IN THOUSANDS)
Real estate construction..........................................  $     371  $      25  $      50  $      63  $     151
Real estate mortgage..............................................      2,708        145        257        678        102
Commercial........................................................      1,694        587        635        175        225
Installment.......................................................         82         27         34         52         66
Not Allocated.....................................................        538         70        161         88         31
                                                                    ---------  ---------  ---------  ---------  ---------
      Total allowance for loan losses.............................  $   5,393  $     854  $   1,137  $   1,056  $     575
                                                                    ---------  ---------  ---------  ---------  ---------
                                                                    ---------  ---------  ---------  ---------  ---------
 
<CAPTION>
 
                                                                               PERCENT OF LOANS TO TOTAL LOANS
                                                                    -----------------------------------------------------
                                                                      1996       1995       1994       1993       1992
                                                                    ---------  ---------  ---------  ---------  ---------
<S>                                                                 <C>        <C>        <C>        <C>        <C>
Real estate construction..........................................         9%         6%        13%        14%        25%
Real estate mortgage..............................................        49%        36%        39%        34%        30%
Commercial........................................................        39%        51%        39%        40%        33%
Installment.......................................................         3%         7%         9%        12%        12%
                                                                    ---------  ---------  ---------  ---------  ---------
      Total Loans.................................................       100%       100%       100%       100%       100%
                                                                    ---------  ---------  ---------  ---------  ---------
                                                                    ---------  ---------  ---------  ---------  ---------
</TABLE>
 
    The allowance allocated to the loan categories shown above is based on
previous loan loss experience, the level of nonaccrual loans, management's
review of classified loans and evaluation of the current loan portfolio, and
anticipated economic conditions. While the allowance is allocated to specific
loans and to portfolio segments, the allowance is general in nature and is
available for the portfolio in its entirety.
 
    At December 31, 1996 the Company had identified impaired loans with a
recorded investment of $9,574 thousand. An allowance of $541 thousand,
representing the difference between the value of collateral supporting the loans
and their outstanding balance is included in the allowance for loan losses. The
Company's policy is to record cash receipts received on nonaccrual loans first
as reductions to principal and then to interest income. For further information
see note 5 of notes to consolidated financial statements.
 
    Monarch has established a monitoring system for its loans in order to
identify impaired loans and potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the allowance for loan losses in a
timely manner. The monitoring system and allowance methodology have evolved over
a period of years and, while management has disagreed on occasion with certain
regulatory examination classifications, such classifications have been
incorporated into the determination of the allowance for loan losses. Although
the same basic monitoring system and allowance methodology have been in place
since the beginning of 1994, it was reviewed and enhanced in late 1994 and early
1995 to be responsive to the regulatory orders issued in December 1994 and other
regulatory suggestions from time to time. This monitoring system and allowance
methodology include a loan-by-loan analysis for all classified loans as well as
loss factors for the balance of the portfolio that are based on migration
analysis relative to the unclassified portfolio. This analysis includes such
factors as historical loss experience, current portfolio delinquency and trends,
recent regulatory information, and other inherent risk factors such as economic
conditions, and risk levels of classified loans and particular loan categories.
 
    Western also has established a monitoring system for its loans in order to
identify impaired loans, and potential problem loans and to permit periodic
evaluation of impairment and the adequacy of the allowance for loan losses. The
system, established in early 1996, includes a loan-by-loan analysis for all
classified loans as well as loss factors for the balance of the unclassified
portfolio. Western also takes into consideration all of the factors described
for Monarch.
 
                                       25
<PAGE>
    Based on the foregoing discussion and all of the factors analyzed by
management in determining the adequacy of the allowance for loan losses,
management believes that the allowance is adequate at December 31, 1996.
 
    Beginning in 1997, both Monarch and Western will engage an independent
credit review function by an outside party.
 
OTHER REAL ESTATE OWNED
 
    Other real estate owned ("OREO") represent properties acquired by
foreclosure or by a deed in lieu of foreclosure, and is recorded at the lower of
the unpaid balance of the loan or the fair value of the property at the date of
acquisition. Any valuation reductions required at the date of acquisition are
charged to the allowance for loan losses. Subsequent to acquisition, other real
estate owned is carried at the lower of recorded cost or net realizable value.
Subsequent operating expenses or income, reduction in estimated values, and
gains or losses on disposition of such properties are recognized in current
operations.
 
    The Company's OREO totaled $3.9 million at December 31, 1996 ($3.7 million
from the acquisition of Western), compared with $0.2 million at December 31,
1995 and $0.6 million at December 31 ,1994. The 1995 and 1994 amounts are those
of Monarch which was prior to the acquisition of Western.
 
BORROWED FUNDS
 
    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, 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. 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 percent for the year. The interest rate at year end was 6.75
percent. The revolving loan agreement expires on September 30, 1999 and there
were no amounts borrowed against this loan agreement in 1995 or 1994.
 
    During 1996 and 1995 there were amounts outstanding from a loan that the
Company obtained in 1992 to fund the Company's ESOP. The balance outstanding at
December 31, 1996 and December, 31 1995 was $99,000 and $132,000 respectively.
The maximum balance outstanding was $132,000 and $173,000 in 1996 and 1995,
respectively. The average balance outstanding was $111,000 and $152,000 in each
year. The average annual rate was 8 percent for each year. The loan was
reclassified as other liabilities at the end of 1996 and was repaid in January,
1997.
 
LIQUIDITY AND INTEREST RATE RISK
 
    On a stand-alone basis, the Company's sources of liquidity include dividends
from the Banks and outside borrowings. The amount of dividends that the Banks
can pay to the Company is restricted by regulatory guidelines. For further
information on dividend restrictions, see "Business--Supervision and
Regulation."
 
    Major sources of liquidity for the Company and the Banks include deposits,
maturities and sales of securities, and loan repayments. Deposits are a volatile
source of funds because of changing conditions in the interest rate markets and
competition. The ability to sell securities without significant loss is subject
to changing market conditions. Loan repayments are dependent on the financial
wherewithal of the Company's borrowers. For further information on deposits,
securities, and loans, see "Statistical Disclosure-- Securities," "--Loan
Portfolio," "--Maturities and Sensitivities of Loans to Changes in Interest
Rates," "--Deposits and Liability Management," and notes to consolidated
financial statements.
 
    During 1996, the Company consistently maintained high cash liquidity
consisting of cash and cash equivalents, securities available for sale, and
Federal Funds Sold divided by total deposits ("Cash Liquidity"). At December 31,
1996, Cash Liquidity was 44.9 percent versus 50.5 percent at December 31, 1995.
This high liquidity was a product of low demand for loans and very high
underwriting standards established during the latter part of a major recession.
The Company was also hesitant to commit liquid funds to mid- to long-term
investments during a period when the yield curve was reasonably flat, and in
 
                                       26
<PAGE>
anticipation of increased funding needs as the loan portfolio grows. Management
believes that current levels and sources of liquidity are sufficient to meet the
Company's and the Banks' commitments. For further information on commitments,
see notes 11 and 14 of notes to consolidated financial statements.
 
    On August 2, 1995, the banking agencies published a proposed policy
statement concerning a supervisory framework for measuring and assessing banks'
interest rate risk exposure. The proposal required nonexempt banks to report
data in several new schedules that were to be added to the FDIC Call Report
effective March 31, 1996. However, the agencies decided that any new FDIC Call
Report interest rate risk schedules would not be implemented as of the March 31,
1996 report date. The plans for the implementation of guidelines for interest
rate risk are expected to include requirements to increase capital levels if a
bank appears to be exposed to higher than average interest rate risk. The
Company believes that its current position will qualify for "exempt" status and
has consistently limited the levels of longer-term interest rate risk through
the use of floating rates and/or shorter-term loans and investments.
 
    The following table for the Company breaks down rate sensitive earning
assets ("RSA") and rate sensitive liabilities ("RSL") at December 31, 1996 based
on the earliest possible repricing dates for variable rate instruments, or for
fixed rate assets and liabilities, on scheduled maturities. The table uses data
from FDIC Call Reports and is similar to the reporting assumptions used during
bank examinations. In the past few years, various models and rate sensitive
studies have focused on the interest rate risk characteristics of
interest-bearing transactional accounts. Based on historical reviews and
documentation, it appears that these accounts do not have the same degree of
short-term interest rate sensitivity associated with loans that are tied to any
immediate change in prime rate or to short-term investments such as Federal
Funds Sold. The following table makes certain assumptions as to the interest
rate sensitivity of savings accounts that have had limited rate fluctuation
during the past three years, as to money market accounts which are based on a
tiered rate structure depending on the account deposit level, and as to NOW
accounts that have had very little price fluctuation in the past three years:
 
<TABLE>
<CAPTION>
                                                1 DAY     2-90 DAYS   91-365 DAYS  1-5 YEARS    5+ YEARS     TOTAL
                                              ---------  -----------  -----------  ----------  ----------  ----------
<S>                                           <C>        <C>          <C>          <C>         <C>         <C>
                                                                      (DOLLARS IN THOUSANDS)
Federal Funds Sold..........................  $   4,217   $  --        $  --       $   --      $   --      $    4,217
Securities:
  Fixed rate................................      1,000      17,272       40,296       93,103       2,046     153,717
  Floating rate.............................      8,212       1,896          637       --             262      11,007
Loans:
  Fixed rate................................      1,487       8,572        9,030       26,051      22,447      67,587
  Floating rate.............................     21,855      28,081       46,498       60,233      27,609     184,276
  Nonaccrual................................      4,463       3,644          658          177         373       9,315
                                              ---------  -----------  -----------  ----------  ----------  ----------
      Total RSA.............................     41,234      59,465       97,119      179,564      52,737     430,119
Demand deposits.............................     --          16,595       73,818       60,281      --         150,694
Savings.....................................     --          --            9,728        9,729      --          19,457
Interest-bearing demand deposits............     --          --           76,590       76,588      --         153,178
NOW accounts................................     --          --           24,578       24,579      --          49,157
Time Certificates of Deposit over
 $100,000...................................      1,518      23,704       11,557        2,443         112      39,334
Time Certificates of Deposit less than
 $100,000...................................        408      16,124       10,326        4,240          66      31,164
Notes payable...............................     11,000      --           --           --          --          11,000
                                              ---------  -----------  -----------  ----------  ----------  ----------
      Total RSL.............................     12,926      56,423      206,597      177,860         178     453,984
                                              ---------  -----------  -----------  ----------  ----------  ----------
Net RSA-RSL.................................  $  28,308   $   3,042    $(109,478)  $    1,704  $   52,559  $  (23,865)
                                              ---------  -----------  -----------  ----------  ----------  ----------
                                              ---------  -----------  -----------  ----------  ----------  ----------
Cumulative RSA-RSL..........................              $  31,350    $ (78,128)  $  (76,424) $  (23,865)
                                                         -----------  -----------  ----------  ----------
                                                         -----------  -----------  ----------  ----------
Cumulative as a % of Total Assets...........       5.5%        6.1%       (15.2%)      (14.9%)      (4.7%)      (4.7%)
                                              ---------  -----------  -----------  ----------  ----------  ----------
                                              ---------  -----------  -----------  ----------  ----------  ----------
</TABLE>
 
                                       27
<PAGE>
    In a rising interest rate environment, when rate sensitive assets exceed
rate sensitive liabilities, assets reprice to higher interest rates faster than
liabilities reprice, resulting in a net interest margin that tends to rise. When
rate sensitive liabilities exceed rate sensitive assets, net interest margin
will tend to fall. The opposite occurs in a decreasing interest rate
environment. As a rule, the Company works to keep the cumulative difference
between RSA and RSL as balanced as possible over a one year cycle. In 1995,
banks as a group needed to progressively increase deposit rates which had been
held low in 1994 due to the lack of competition for deposits at a time when
banks were still operating with low or lower than normal loan demand. Starting
in mid-1995 and continuing into 1996, banks as a group have become much more
aggressive in pricing time deposits, but have yet to make a major jump in
interest-bearing transactional accounts. These pricing decisions appear to be
consistent with recent patterns whereby transactional and savings accounts do
not mirror the repricing patterns on the asset side.
 
DEPOSITS AND LIABILITY MANAGEMENT
 
    The Company provides a range of deposit types to meet the needs of the local
communities. Time deposits, which are normally sensitive to competitive rate
changes, are generally used to expand or contract the overall liability position
needed to meet the various management ratios established for liquidity, capital,
loans to deposits, and other funding measurements. As a policy, the Company does
not accept or solicit brokered deposits.
 
    The following table shows the average amount of interest bearing and
non-interest bearing deposits and rates as of December 31, 1996, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                                          1996 AVERAGE             1995 AVERAGE            1994 AVERAGE
                                                     -----------------------  ----------------------  ----------------------
                                                      BALANCE       RATE       BALANCE      RATE       BALANCE      RATE
                                                     ----------  -----------  ---------  -----------  ---------  -----------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                  <C>         <C>          <C>        <C>          <C>        <C>
Non-interest bearing deposits......................  $   47,724       0.00%   $  15,545       0.00%   $  13,558       0.00%
Interest bearing demand deposits...................      71,920       2.88%      25,106       2.12%      32,590       1.74%
Savings deposits...................................       8,469       2.29%       5,312       2.07%       7,369       2.08%
Time deposits......................................      29,863       5.02%       9,655       5.22%       6,872       3.26%
                                                     ----------               ---------               ---------
  Total(1).........................................  $  157,976       2.38%   $  55,618       2.06%   $  60,389       1.56%
                                                     ----------        ---    ---------        ---    ---------        ---
                                                     ----------        ---    ---------        ---    ---------        ---
</TABLE>
 
------------------------
 
(1) Includes non-interest bearing deposits for both amount and rates. Rates
    represent weighted averages.
 
    The following table shows the maturity schedule of time certificates of
deposit of $100,000 or more as of December 31, 1996. All dollar amounts are in
thousands:
 
<TABLE>
<S>                                                                  <C>
3 months or less...................................................  $  25,222
Over 3 months through 6 months.....................................      7,931
Over 6 months through 12 months....................................      3,626
Over 1 year........................................................      2,555
                                                                     ---------
  Total............................................................  $  39,334
                                                                     ---------
                                                                     ---------
</TABLE>
 
                                       28
<PAGE>
RETURN ON EQUITY AND ASSETS
 
    The following table presents the key ratios for the Company based on average
assets, average equity, and net income for the years 1996 and 1995:
<TABLE>
<CAPTION>
                                                                              1996         1995
                                                                           -----------  -----------
<S>                                                                        <C>          <C>
Return on average assets.................................................       0.40%        1.08%
Return on average equity.................................................       3.37%        9.91%
Equity to assets.........................................................      11.85%       10.92%
 
<CAPTION>
 
Tangible ratios:(1)                                                           1996
                                                                           -----------
<S>                                                                        <C>          <C>
Return on average tangible assets........................................       0.70%
Return on average equity.................................................       5.65%
Tangible equity to tangible assets.......................................       5.13%
</TABLE>
 
------------------------
 
(1) Goodwill amortization is added back to net income.
 
ITEM 2. PROPERTIES
 
    Monarch's main office is located in a shopping/business center at 30000 Town
Center Drive, Laguna Niguel, California. The leased building is free standing,
and has approximately 8,500 square feet of space. The land and building were
leased on August 1, 1981 for a twenty (20) year term with three 10-year options.
After the first five (5) years of the lease, the lease was subject to annual
cost of living increases; the annual rent, as of December 1996, was
approximately $10,300 per month triple net. The facility is equipped with a
vault and safe-deposit boxes, eight (8) teller stations, two (2) automatic
teller machines, four (4) drive-up teller stations, a night depository, and
includes parking adjacent to the Bank.
 
    The Laguna Beach facility is 4,960 square feet and it is located at 401
Glenneyre Street, Laguna Beach, California. The facility includes both a branch
and the administrative and operations functions for Monarch. It has a five year
lease which expires on March of 2001. There are two five year renewal options.
 
    Western has five locations:
 
    - The main office of Western is located at 1251 Westwood Boulevard in Los
      Angeles. The land was originally leased in September, 1973 for a thirty
      year term. The lease will expire in August of 2003. Total square footage
      of the land is 11,975 square feet.
 
    - Western's Century City Branch leases two suites at 1888 Century Park East
      in Los Angeles. This ten year lease is for a total of 5,044 square feet
      and terminates in April, 2005.
 
    - The Beverly Hills Branch is located at 9444 Wilshire Boulevard. The
      original lease term was for ten years and expires in December 2002. Total
      square feet leased is 7,735. Notice has been given to terminate this lease
      by the end of 1997. There is no penalty to this termination.
 
    - The Encino branch is located at 15910 Ventura Boulevard. The lease was
      originally for ten years and expires in October 2003. The total square
      feet leased is 7,547.
 
    - The Santa Monica branch of Western is owned and is located at 1401
      Wilshire Boulevard in Santa Monica. The land is 21,250 square feet and the
      building is 13,727 square feet. Book value of the land and building is
      $2.294 million at December 31, 1996.
 
    - Management believes that existing properties and facilities are adequate
      for the conduct of the Company's and the Banks' business.
 
                                       29
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
 
    In the ordinary course of business, the Company is subject to claims,
counter actions, and other litigation. No single action or similar group of
claims exceeds 10 percent of liquid assets (Cash and Federal Funds Sold).
 
    Based on facts known to the Company, the Board of Directors and management
do not believe that to the best of their knowledge the Company has any material
known legal liability or potential liability. However, no assurance can be given
that future litigation involving the Company will not result or that liability
may not be incurred.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted for a vote of security holders during the fourth
quarter of 1996.
 
                                    PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
  MATTERS
 
    Trading in the Company's Common Stock, occurring solely "over the counter,"
heretofore has not been extensive. The Company is aware of one securities dealer
who has consistently handled transactions in its common stock, Brookstreet
Securities Corporation, 2361 Campus Drive, Irvine, California which continues to
be the only active broker who has made a market in the Company's stock. Various
other firms have handled single transactions but have not actively been
available to assist in trade activities.
 
    The number of holders as of March 14, 1997 is approximately 750.
 
    The following table summarizes those trades of Company Common Stock of which
management is aware, setting forth the approximate high and low sales prices for
each quarterly period since December 1994:
 
<TABLE>
<CAPTION>
                                                                                   APPROXIMATE SALES
                                                                                         PRICES
                                 QUARTER ENDED                                    --------------------
                               (LAST TRADING DAY)                                   HIGH        LOW
--------------------------------------------------------------------------------  ---------  ---------
<S>                                                                               <C>        <C>
March 31, 1995..................................................................       1.50       1.20
June 30, 1995...................................................................          *          *
September 30, 1995..............................................................       1.35       1.20
December 31, 1995...............................................................       1.35       1.20
March 31, 1996..................................................................       1.30       1.05
June 30, 1996...................................................................       2.00       1.00
September 30, 1996..............................................................       1.75       1.00
December 31, 1996...............................................................       3.50       1.63
</TABLE>
 
------------------------
 
*   None reported
 
    Prices represent quotations by dealers making a market in the Common Stock
and reflect inter-dealer prices, without adjustments for mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions. Trading is
limited and may not be a reliable indicator of market value. The Company
completed a private placement of common stock on March 30, 1995 and a
shareholders' rights offering in September 1995 and during 1995 issued a total
of 7,434,000 new shares at $1.35 per share. The private placement completed in
September, 1996 was at $1.65 per share.
 
                                       30
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
OVERVIEW
 
    Monarch Bancorp (the "Company") is the holding company for Monarch Bank
("Monarch") formed in 1983 and Western Bank ("Western") which was acquired by
the Company on September 30, 1996. The acquisition of Western was treated as a
purchase for accounting purposes and thus all financial information presented
only includes Western for the three months ended December 31, 1996 or as of
December 31, 1996. Western and Monarch are collectively referred to as the
"Banks." The following paragraphs discuss various material events or activities
that occurred in 1996 and 1995:
 
    CAPITAL ACTIVITIES
 
    On March 31, 1995, the Company completed a private placement offering for
approximately $6,139,000 and issued 4,547,111 new shares of common stock.
Proceeds from the Offering were used to pay approximately $470,000 in Offering
expenses; $3,550,000 to increase the Company's investment in Monarch; and
$53,500 to retire Company debt; and approximately $2,065,000 in cash was
retained by the Company for future operating needs or investments. The capital
increase for Monarch was sufficient to comply fully with the terms of its
regulatory Orders to increase its leverage capital ratio to 7.0% or more. The
Company made a further $250,000 capital contribution to Monarch in June 1995,
and Monarch has consistently met and exceeded all capital requirements since
March 30, 1995, including the target ratios established in the Orders which are
higher than the normal statutory ratios required to be classified as "well
capitalized".
 
    In addition to the completion of the private placement offering in the first
quarter of 1995, the Company also completed in the third quarter of 1995 a
rights and public offering for the sale of up to 3,177,296 shares of Company
Common Stock pursuant to the terms of a Prospectus dated July 14, 1995. In
connection with such offering, a total of 2,886,898 shares of Company Common
Stock were sold. The Company increased its capital by an additional $3,464,000
in net proceeds from the rights and public offering.
 
    The increased capital allowed the Company and Monarch to meet regulatory
commitments to increase capital, provided an additional source of funds that
could be used to fund earning assets, and to allow for possible future growth
opportunities.
 
    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. For further information on the Western acquisition, see
note 2 of notes to consolidated financial statements.
 
    LIQUIDITY
 
    During 1996, the Banks consistently maintained very high cash liquidity
(Cash and cash equivalents and securities available for sale divided by total
deposits) of approximately 45% or greater. This high liquidity was a product of
low demand for loans and very high underwriting standards established during the
latter part of a major recession. The Bank was also hesitant to commit liquid
funds to mid- to long-term investments during a period when the yield curve was
reasonably flat, and in anticipation of increased funding needs as the loan
portfolio grows.
 
    EARNINGS IMPROVEMENT PROGRAM
 
    In addition to income generated from the capital funds, in 1995 the Company,
as a natural extension of its activities to raise capital and improve earnings,
engaged the services of a consultant to provide
 
                                       31
<PAGE>
assistance in reviewing all aspects of Monarch's operations. The goal of this
review was to identify strengths and weaknesses of Monarch's operations and to
implement an earnings improvement program to increase profitability. As part of
the acquisition of Western, additional work was begun to also improve the
earnings at Western. A majority of the recommendations from this review were
implemented during the third quarter of 1995 at Monarch and during the fourth
quarter of 1996 at Western. Measurable results were seen in October 1995 for
Monarch and beginning in October 1996 for Western.
 
    It is Management's belief and expectation that a majority of the earnings
improvement program has been implemented at Monarch and that a majority of the
planned expense savings or increases in income at Western will be realized by
the middle of 1997. Major areas of expense reduction came from reductions in
staff and employee benefit costs, improved utilization of account analysis
earnings credits, decreases in insurance costs (based on new capital and
improved earnings and not reduced coverage), and reductions in other operating
expense areas. Increases in fee income are expected to come from account
analysis on business accounts and a general increase in the Banks' schedule of
charges.
 
    When the acquisition of California Commercial Bancshares closes in the
second quarter of 1997, there will be additional opportunities for
centralization and cost reductions. Plans are already in place to begin
realizing these benefits soon after the transaction closes.
 
INVESTMENT PORTFOLIO
 
    Debt and equity securities have been classified in accordance with
management's intent. The carrying amounts of securities and their approximate
fair values at December 31, 1996 and 1995 were as follows:
 
<TABLE>
<CAPTION>
                                                                                   GROSS         GROSS
                                                                   AMORTIZED    UNREALIZED    UNREALIZED   ESTIMATED
                                                                      COST         GAINS        LOSSES     FAIR VALUE
                                                                   ----------  -------------  -----------  ----------
                                                                                     (IN THOUSANDS)
<S>                                                                <C>         <C>            <C>          <C>
DECEMBER 31, 1996
Securities Held to Maturity......................................  $    7,270    $      15     $     (40)  $    7,245
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
Securities Available for Sale....................................  $  157,265    $     293     $    (104)  $  157,454
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
DECEMBER 31, 1995
Securities Held to Maturity......................................  $    6,661    $      46     $     (14)  $    6,693
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
Securities Available for Sale....................................  $   21,864    $     150     $     (10)  $   22,004
                                                                   ----------        -----         -----   ----------
                                                                   ----------        -----         -----   ----------
</TABLE>
 
    The increase from 1995 to 1996 of approximately $135 million in securities
available for sale is due to the acquisition of Western which had $141 million
of such securities at December 31, 1996. This increase was offset by a $6
million reduction in such securities at Monarch from December 31, 1995 to
December 31, 1996. The reduction was primarily caused by an increase in loan
demand as the loan to deposit ratio increased from 54% at December 31, 1995 to
60% at December 31, 1996.
 
    As part of its investment portfolios, the Banks may hold derivative
securities. 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 $1.921 million and had a current market
value of $1.883 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 relative CMO's
investment risks. A security that passes 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.
 
                                       32
<PAGE>
    The Banks do not have securities Trading Accounts and do not intend to trade
securities.
 
    The Banks' Investment Committees make every effort to keep informed about
both the perceived and real risks of derivative securities, and has set general
limits on the types of derivatives the Banks can purchase at the most basic
levels which include step-up notes and CMO's.
 
    Neither the Company nor the Banks are involved in any off balance sheet
hedging type activities.
 
LOANS
 
    The following table sets forth the amount of loans outstanding at December
31, 1996 and 1995:
 
<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>
 
    Of the $228 million increase in gross loans from December 31, 1995 to
December 31, 1996, approximately $204 million resulted from the acquisition of
Western on September 30, 1996. The approximate $13 million increase in gross
loans at Monarch primarily resulted from a $7 million increase in real estate
mortgage loans. The $7 million increase resulted from a $5 million purchase of a
pool of commercial real estate loans and a general increase in demand for this
type of loan in 1996. All other loan categories also increased in 1996 due to a
general increase in loan demand at Monarch.
 
    Deferred loan fees and the allowance for loans losses increased primarily as
a result of the acquisition of Western. Monarch's allowance for loan losses
increased primarily due to the provision for loan losses being increased to
cover increased loan outstandings and the allowance allocated to the purchases
of the pool of commercial real estate mortgages.
 
    Monarch's local market was very severely affected by the recession in 1993
and 1994 and its continuation into 1995. During 1996 the economy started a slow
recovery which was evidenced by the large decrease in net charge-offs for 1996.
 
                                       33
<PAGE>
CREDIT RISK
 
    NET CHARGE-OFFS:  The following table illustrates the net results of loan
charge-offs for the year ended December 31, 1996:
 
<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                       --------------------------------------------
                                                                                     1996
                                                                       ---------------------------------
                                                                        COMBINED     WESTERN    MONARCH     1995
                                                                       -----------  ---------  ---------  ---------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                    <C>          <C>        <C>        <C>
Real estate mortgage.................................................   $     427   $     427  $  --      $     273
Real estate construction.............................................      --          --         --         --
Commercial...........................................................         378         386         (8)       398
Installment..........................................................          45      --             45         37
                                                                       -----------  ---------  ---------  ---------
    Total............................................................   $     850   $     813  $      37  $     708
                                                                       -----------  ---------  ---------  ---------
                                                                       -----------  ---------  ---------  ---------
Average loans........................................................   $  86,190   $  50,450  $  35,740  $  28,808
                                                                       -----------  ---------  ---------  ---------
                                                                       -----------  ---------  ---------  ---------
Net charge-offs to average loans.....................................        0.99%       1.61%      0.10%      2.46%
</TABLE>
 
    The Western net charge-offs during the fourth quarter of 1996 resulted
primarily from Western loans that were identified as problem loans and reserved
for at September 30, 1996 but were not charged-off by management of the Company
until the fourth quarter of 1996. The Western allowance for loan losses at
December 31, 1996 was equal to 1.98% of loans outstanding. Although annualized
net charge-offs to average loans outstanding would be approximately 1.61% based
on fourth quarter numbers, the actual Western percentage of net charge-offs to
average loans outstanding during 1996 was 0.36%.
 
DEPOSITS
 
    The following table summarizes deposits at December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31, 1996
                                                             ---------------------------------
                                                              COMBINED    WESTERN     MONARCH   DECEMBER 31, 1995
                                                             ----------  ----------  ---------  -----------------
                                                                                (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>        <C>
Non-interest bearing.......................................  $  150,694  $  129,132  $  21,562      $  19,931
Interest bearing demand....................................     202,335     176,314     26,021         22,527
Savings....................................................      19,457      14,596      4,861          4,633
Time certificates of deposit over $100,000.................      39,334      33,366      5,968          3,502
Time certificates of deposit under $100,000................      31,164      21,309      9,855          8,149
                                                             ----------  ----------  ---------        -------
Total deposits.............................................  $  442,984  $  374,717  $  68,267      $  58,742
                                                             ----------  ----------  ---------        -------
                                                             ----------  ----------  ---------        -------
</TABLE>
 
    The increase in deposits from December 31, 1995 to December 31, 1996 of
approximately $384 million is primarily a result of the acquisition of Western
by the Company on September 30, 1996. Monarch's deposits increased from $59
million to $68 million which was largely attributable to the opening of the
Laguna Beach branch in the fourth quarter of 1996.
 
CASH FLOW--PARENT COMPANY ONLY
 
    The Company as of December 31, 1996 had approximately $4.7 million in cash
liquidity.
 
ECONOMY AND INFLATION
 
    The majority of the published economic forecasts for 1997 suggest that the
opposing forces affecting interest rates and the economy will moderately favor
lower interest rates with the greatest drop coming in
 
                                       34
<PAGE>
the short end of the yield curve. Inflation currently appears to be well within
the target ranges used by the Federal Reserve Board. Unless conditions
significantly change as a result of the November 1996 election, it appears that
the economy will continue to show modest growth for 1997.
 
RESULTS OF OPERATIONS
 
    INTEREST INCOME increased for the year 1996 versus 1995 by $8.0 million with
average earning assets increasing by approximately $89 million due to the
acquisition of Western. Without the acquisition of Western, interest income
increased approximately $925 thousand, due almost completely to an increase in
average earning assets of $11.3 million as the yield on interest earning assets
increased by 6 basis points.
 
    Average loans at Monarch increased from $28.8 million to $35.7 million,
while the yield on loans decreased from 10.60% to 9.62%. The entire increase in
loans was in the real estate mortgage category, thus reducing the overall yield
on loans.
 
    The investment portfolio at Monarch benefited from progressive repricing on
floating rate investments and from generally higher yields as new securities
were purchased to replace repayments and maturities. The average yield on the
investment portfolio in 1995 was 4.90% versus 6.30% in 1996.
 
    Since Western is only included in the Company's results for the last quarter
of 1996, the acquisition of Western increased average earning assets by only $89
million in 1996 (Western's average earning assets for the fourth quarter were
approximately $356 million). Yields on Western's earning assets are comparable
to the yields at Monarch with only a 2 basis point difference. The yield on
loans at Western was 9.45%, or 17 basis points below the loan yield of 9.62% at
Monarch. Western's yield on investment securities was 5.88%, versus 6.30% for
Monarch. Western has approximately 4.6% more of its earning assets in loans than
Monarch.
 
    INTEREST EXPENSE increased by $2.8 million while the average total for all
interest-bearing deposits increased by approximately $70 million. Without the
acquisition of Western, interest-bearing deposits increased from $40.1 million
to $49.4 million, or 23% while the weighted average rate paid on these deposits
increased from 2.86% to 3.33%. The increase in the rate paid on deposits was
mostly in the category of NOW and money market accounts as Monarch competes for
deposits in the Laguna Niguel and Laguna Beach areas.
 
    Since Western is only included in the Company's results for the last quarter
of 1996, the acquisition of Western only increased average interest-bearing
deposits by approximately $66 million, although Western's average for the fourth
quarter was approximately $264 million. The average rate paid on
interest-bearing deposits was 3.43% at Western versus 3.33% for Monarch. Western
pays higher rates on interest-bearing demand deposits of 3.06% versus 2.59% for
Monarch, a higher rate on savings deposits: 2.57% versus 2.08% for Monarch, but
a lower rate on certificates of deposit of 4.86% versus 5.17% for Monarch. Both
Banks have a comparable ratio of non-interest bearing deposits to
interest-bearing deposits of approximately 43%.
 
    As part of the acquisition of Western, the Company borrowed a net $11
million on a revolving line of credit. This debt added an average of $2.7
million of other borrowings and $191 thousand of interest expense for the year.
 
PROVISION FOR LOAN LOSSES
 
    The provision for loan losses charged to operations reflects management's
judgment of the adequacy of the allowance for loan losses and is determined
through periodic analysis of the loan portfolio. This analysis includes a
detailed review of the classification and categorization of problem and
potential problem loans and loans to be charged off; an assessment of the
overall quality and collectibility of the portfolio; and consideration of the
loan loss experience, trends in problem loans and concentrations of
 
                                       35
<PAGE>
credit risk, as well as current and expected future economic conditions
(particularly in Southern California).
 
    MONARCH'S provision for loan losses for the year ended December 31, 1996 was
$195,000 compared to $425,000 for the year ended December 31, 1995. This
decrease was due to improved economic conditions in Monarch's area of business
and a significant decrease in the percentage of net charge-offs to average loans
outstanding. This percentage decreased to .10% in 1996 compared to 2.5% in 1995.
The 1996 provision did take into consideration the increase in loans outstanding
at the end of the year compared to 1995. The percentage of the allowance for
loan losses to outstanding loans at December 31, 1996 was 2.5% compared to 2.6%
at December 31, 1995.
 
    WESTERN recorded a provision for loan losses of $33,000 in the fourth
quarter of 1996 and recorded a provision for the year ended December 31, 1996 of
$836,000 compared to a provision of $710,000 for the year ended December 31,
1995. This increase in the provision was consistent with a similar increase in
charge-offs for 1996 as compared to 1995 and Management's overall assessment of
the adequacy of the allowance for loan losses. The percentage of the allowance
for loan losses to outstanding loans at December 31, 1996 and 1995 was 1.98% and
1.93%, respectively.
 
    Based on the foregoing discussion and all of the factors analyzed by
Management in determining the adequacy of the allowance, Management believes
that the Bank's allowance for loan losses is adequate at December 31, 1996.
 
    For additional information on the loan portfolio, the allowance for loan
losses and nonaccrual, past due and restructured loans, see "Loan Portfolio"
under "Item 1--Business."
 
    NON-INTEREST INCOME increased in 1996 compared to 1995 by $442 thousand or
47%. However, without the acquisition of Western in the fourth quarter of 1996,
non-interest income declined $163 thousand, or 17%.
 
    MONARCH BEFORE WESTERN ACQUISITION:  In 1995, non-interest income included
income received related to the settlement of a $171 thousand claim against
Monarch's blanket bond carrier for a loss sustained in 1994 and approximately
$50 thousand from legal and other recoveries from losses sustained in 1994.
Without this non-recurring income in 1995, non-interest income at Monarch would
have increased by $58 thousand or 8%. Service charges on deposits increased by
$55 thousand or 26%. This growth is comparable to the 24% growth in average
deposits at Monarch. Since Monarch's lease, and therefore sublease, on a
property terminated in June, rental income declined by 50% from $66 thousand to
$34 thousand. Data processing income increased $30 thousand, or 43%, from $70
thousand to $100 thousand as Monarch began performing additional back office
functions for another bank and the ACH origination and payment processing for
local homeowners associations and other organizations continues to grow.
 
    THE ACQUISITION OF WESTERN added $605 thousand of non-interest income in
1996 (all in the fourth quarter). Of the $605 thousand in non-interest income
added by Western, $267 thousand, or 44%, is a gain on the sale of various
securities which did not meet the asset/liability management strategy of the
Company. All non-interest income amounts at Western are consistent with prior
results and are at expected levels.
 
                                       36
<PAGE>
    The table below details the various non-interest income categories:
 
<TABLE>
<CAPTION>
                                                                                             1996
                                                                              -----------------------------------
                                                                                TOTAL      WESTERN      MONARCH      1995
                                                                              ---------  -----------  -----------  ---------
                                                                                              (IN THOUSANDS)
<S>                                                                           <C>        <C>          <C>          <C>
Service charges on deposits.................................................  $     358   $      90    $     268   $     213
Deposit overdraft charges...................................................        365          99          266         293
Rental income...............................................................         34      --               34          66
Data processing income......................................................        100      --              100          70
Loan servicing and late fees................................................         89          68           21          19
Service charges commissions and other fees..................................         91          58           33          20
Gains (losses) on securities................................................        267         267       --          --
Legal settlement and their income...........................................         71          23           48         252
                                                                              ---------       -----        -----   ---------
    TOTAL NON INTEREST INCOME...............................................  $   1,375   $     605    $     770   $     933
                                                                              ---------       -----        -----   ---------
                                                                              ---------       -----        -----   ---------
</TABLE>
 
    NON-INTEREST EXPENSE increased by $4.9 million, or 135% from 1995 to 1996.
Of this increase, however, $3.8 million relates to the acquisition of Western
Bank. Without this acquisition, expenses increased $1.1 million, or 33%.
 
    MONARCH BEFORE THE WESTERN ACQUISITION:  Monarch expenses (including
expenses of the Company) increased by $1.13 million, or 31% from 1995 to 1996.
$1.06 million of this expense increase relates to acquisition activities and
restructuring charges in the fourth quarter: $550 thousand of the increase in
salary and benefits are due directly to the buy out of the former CEO's
employment contract and the termination of the employee ESOP. Salary and
benefits expense was also reduced by $143 thousand from the capitalization of
expenses related to the Western acquisition. $300 thousand of the increase in
professional services are directly related to due diligence and other
acquisition related activities. In addition, $210 thousand was spent on
professional services for consolidation of operations and staff functions
related to both the acquisition of Western and ongoing profit improvement
programs.
 
    Salary and benefits increased from $1.7 million in 1995 to $2.3 million in
1996, or 39%. Adjusting for the $550 thousand and $143 thousand amounts
mentioned above, salary and benefits increased $234 thousand, or 14%. This
increase relates to a general increase in business (39% growth in loans and 24%
growth in average deposits), the opening of a new branch in Laguna Beach in June
of 1996, beginning back office processing for another bank, and reductions due
to profit improvement work. Average full-time employee's ("FTE's") were 39 in
1995 and were up to 49 at the end of 1996. Of the 49 FTE's at the end of the
year, five are no longer with Monarch at this time.
 
    Furniture, fixtures and equipment expense increased by $56 thousand or 20%,
and telephone, stationery and supplies increased by $51 thousand or 27% from
1995 to 1996. This expense growth relates to the increase in business at
Monarch, the new Laguna Beach branch and the increase in back office services
provided to other banks.
 
    Of the $560 thousand increase in professional services at Monarch from 1995
to 1996, $510 thousand relates to acquisition activity and the profit
improvement work discussed above. Without these expenses, professional services
at Monarch increased $50 thousand, or 13% from 1995 to 1996. This expense
increase is due to a general increase in activity at the holding company.
 
    Net OREO expense declined from $62 thousand for 1995 to $7 thousand for 1996
which was a result of decreased OREO activity. Miscellaneous employee expense
decreased from $170 thousand for 1995 to $98 thousand for 1996, or a 42%
decrease. This reduction was mostly due to the reduction of various award
programs at Monarch.
 
                                       37
<PAGE>
    Other expense increased 21% from $273 thousand to $329 thousand from 1995 to
1996. Most of this increase is a result of recruiting expense as the management
team at the Company was strengthened.
 
    WESTERN BANK added approximately $3.8 million of expenses to the Company for
the year during the fourth quarter. Of this $3.8 million, $499 thousand is the
amortization of goodwill associated with the acquisition of Western by Monarch
Bancorp. Without this amortization, Western added approximately $3.3 million of
expenses to the Company. This amount of additional expense was at the expected
level and is lower than the expense levels Western had prior to the acquisition.
 
    The table below details the various non-interest expense categories:
 
<TABLE>
<CAPTION>
                                                                                                                 1995
                                                                                                               ---------
                                                                                         1996
                                                                          -----------------------------------
                                                                                                    COMPANY
                                                                            TOTAL      WESTERN     & MONARCH
                                                                          ---------  -----------  -----------
                                                                                          (IN THOUSANDS)
<S>                                                                       <C>        <C>          <C>          <C>
Salary and benefits.....................................................  $   4,323   $   2,025    $   2,298   $   1,657
Occupancy...............................................................        542         217          325         345
Furniture, fixtures and equipment.......................................        489         156          333         277
Advertising & business development......................................        152          27          125         116
Data processing.........................................................        186         186       --          --
Professional services...................................................      1,469         511          958         398
OREO....................................................................       (151)       (158)           7          62
FDIC & state assessments................................................         86           1           85         180
Miscellaneous employee expense..........................................        137          39           98         170
Telephone, stationery & supplies........................................        380         143          237         186
Goodwill amortization...................................................        499         499       --          --
Other expense...........................................................        490         161          329         273
                                                                          ---------  -----------  -----------  ---------
    TOTAL NON-INTEREST EXPENSE..........................................  $   8,602   $   3,807    $   4,795   $   3,664
                                                                          ---------  -----------  -----------  ---------
                                                                          ---------  -----------  -----------  ---------
One time items:
Employment contract buyout..............................................  $     360   $  --        $     360   $  --
Due diligence/merger related expenses...................................        300      --              300      --
Profit improvement consulting...........................................        210      --              210      --
KSOP termination........................................................        190      --              190      --
                                                                          ---------  -----------  -----------  ---------
    TOTAL ONE TIME ITEMS................................................  $   1,060   $  --        $   1,060   $  --
                                                                          ---------  -----------  -----------  ---------
                                                                          ---------  -----------  -----------  ---------
</TABLE>
 
PROVISION FOR INCOME TAXES
 
    The provision for income taxes represents an effective tax rate of 32% of
income before taxes in 1996, compared to an effective tax benefit rate of 264%
in 1995. The difference from the expected rate of 34% in 1995 is the result of
the adjustment to the deferred tax asset valuation allowance. The difference
from the expected rate of 34% in 1996 relates to state taxes and the
non-deductibility of goodwill for tax purposes which is primarily offset by a
deferred tax asset valuation allowance adjustment. At December 31, 1996, the
Company had a deferred tax asset of approximately $4.0 million. Management has
determined that the deferred tax asset is more likely than not to be realized
based on current and expected taxable income. For further information on income
taxes, see note 10 to consolidated financial statements.
 
                                       38
<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, 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
 
                                       39
<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
 
                                       40
<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
 
                                       41
<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
 
                                       42
<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
 
                                       43
<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.....................................................  $     685  $     150
                                                                                              ---------  ---------
                                                                                              ---------  ---------
  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
 
                                       44
<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
 
                                       45
<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
 
                                       46
<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
 
                                       47
<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.
 
                                       48
<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).
 
                                       49
<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.
 
                                       50
<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
 
                                       51
<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.
 
                                       52
<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 rates......................                 65,003     38,649
                                                             ---------  ---------
                                                             $  91,256  $  59,968
                                                             ---------  ---------
                                                             ---------  ---------
</TABLE>
 
                                       53
<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.
 
                                       54
<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>
 
                                       55
<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.
 
                                       56
<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>
 
                                       57
<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
 
                                       58
<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.
 
                                       59
<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
 
                                       60
<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.
 
                                       61
<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.
 
                                       62
<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
 
                                       63
<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.......................      34.00%        35.00%      8.07%      6.05%        5.07%
  Tier 1 risk-based capital
    ratio.......................      34.00%        36.00%     13.64%     10.93%        9.05%
  Total risk-based capital......      38.00%       310.00%     14.89%     12.19%       10.30%
</TABLE>
 
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>
 
                                       64
<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
 
                                       65
<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.
 
                                       66
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.
 
    The Board of Directors of Monarch Bancorp appointed KPMG Peat Marwick LLP as
its auditors on September 18, 1996 and replaced Dayton & Associates, which is
now Vavrinek, Trine, Day & Co.
 
    Dayton & Associates' report dated February 7, 1996, except for Note 16 as to
which the date is March 31, 1996 and Note 17 as to which the date is April 25,
1996, on the Company's financial statements for the year ended December 31, 1995
did not include an adverse opinion or disclaimer opinion nor was it qualified as
to audit scope or accounting principles.
 
    During the Company's fiscal years ended December 31, 1994 and December 31,
1995, and subsequent interim period, there were no disagreements with Dayton &
Associates on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which if not resolved to
Dayton & Associates' satisfaction, would have caused them to make reference to
the subject matter of the disagreement in connection with their Report.
 
    During the Company's fiscal years ended December 31, 1994 and December 31,
1995, and subsequent interim period:
 
        (a) Dayton & Associates has not advised the Company that there do not
    exist the internal controls necessary for the Company to develop reliable
    financial statements;
 
        (b) Dayton & Associates has not advised the Company that information had
    come to their attention that has led them to no longer be able to rely on
    management's representations, or that has made Dayton & Associates unwilling
    to be associated with the financial statements prepared by management;
 
        (c) Dayton & Associates has not advised the Company that they needed to
    expand significantly the scope of their audit, or that information has come
    to their attention during such time period that if further investigated may
    (i) materially impact the fairness or reliability of either the previously
    issued audit report or the underlying financial statements, or the financial
    statements to be issued covering the fiscal period subsequent to the date of
    the most recent financial statements covered by an audit report or (ii)
    cause Dayton & Associates to be unwilling to rely on management's
    representations or be associated with the Company's financial statements;
    and
 
        (d) Dayton & Associates has not advised the Company that information has
    come to their attention of the type described in subparagraph (c) above, the
    issue not being resolved to their satisfaction prior to its dismissal.
 
    The Company has not, during its fiscal years ending December 31, 1994 and
December 31, 1995, and the subsequent interim periods, consulted with KPMG Peat
Marwick LLP regarding the application of accounting principles to a specifc
transaction or the type of audit opinion that might be rendered on the Company's
financial statements.
 
                                    PART III
 
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.
 
    Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Directors and
Nominees," "--Committees of the Board of Directors," "--Executive Officers" and
"--Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Joint Proxy Statement--Prospectus of the Company and California Commercial
Bankshares to be delivered to the Company's shareholders in connection with its
1997 Annual Meeting of Shareholders (the "Proxy Statement").
 
                                       67
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
 
    Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Executive
Compensation" in the Proxy Statement.
 
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY
         OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
 
    Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Security
Ownership of Certain Beneficial Owners and Monarch Management" in the Proxy
Statement.
 
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
    Information in response to this item is incorporated by reference to the
sections entitled "The Annual Meeting of Monarch Shareholders--Certain
Relationships and Related Transactions" in the Proxy Statement.
 
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
 
<TABLE>
<CAPTION>
EXHIBITS NUMBER
---------------
<C>              <S>
         2.1     Plan of Reorganization and Merger Agreement. (Exhibit A of Registration Statement No. 2-84426
                   incorporated by reference)
         2.2     Amended and Restated Agreement and Plan of Merger, dated as of December 19, 1996, by and between
                   Monarch Bancorp and California Commercial Bankshares
         2.3     Agreement and Plan of Merger, dated as of March 15, 1997, by and between Monarch Bank and National
                   Bank of Southern California
         3.1     Articles of Incorporation of the Holding Company (Exhibit 3.11 of Registration Statement No. 2-84426
                   incorporated by reference)
         3.2     Bylaws of the Holding Company (Exhibit 3.2 of Registration Statement No. 2-84426 incorporated by
                   reference)
         3.3     Amended Articles of Incorporation approved in the July 1988 Shareholders Meeting (Exhibit 3.3 of
                   12/31/89 Annual Report on Form 10-K incorporated by reference)
         3.4     Amended Bylaws approved on October 19, 1988 (Exhibit 3.4 of 12/31/89 Annual Report on Form 10-K
                   incorporated by reference)
         3.5     Amended Bylaws approved on February 29, 1996 (Exhibit 3.5 of 12/31/95 Annual Report of Form 10KSB
                   incorporated by reference)
         4.0     Form of Indenture (Exhibit 4.1 of Registration Statement No. 2-85442 incorporated by reference)
         4.1     Warrant Agreement for warrants issued in June 1988 at the close of the California Offering. (Exhibit
                   4.1 of 12/31/89 Annual Report on Form 10-K incorporated by reference)
         4.2     Convertible subordinated note issued in September 1988. (Exhibit 4.2 of 12/31/89 Annual Report on
                   Form 10-K incorporated by reference)
         4.6     Stock Option Agreement, dated December 19, 1996, between CCB and Monarch
         4.7     Warrant Certificate No. 1, dated November 5, 1996, in favor of John M. Eggemeyer
         4.8     Warrant Certificate No. 2, dated November 5, 1996, in favor of William J. Ruh
         4.9     Warrant Certificate No. 3, dated November 5, 1996, in favor of John W. Rose
        4.10     Warrant Certificate No. 4, dated November 5, 1996, in favor of Mark G. Merlo
</TABLE>
 
                                       68
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS NUMBER
---------------
<C>              <S>
        4.11     Warrant Certificate No. 1, dated November 5, 1996, in favor of Castle Creek Capital Partners Fund-I
        4.12     Warrant Certificate No. 2, dated November 5, 1996, in favor of John M. Eggemeyer, III
        4.13     Warrant Certificate No. 3, dated November 5, 1996, in favor of William Ruh
        4.14     Warrant Certificate No. 4, dated November 5, 1996, in favor of Dan Davis
        4.15     Warrant Certificate No. 5, dated November 5, 1996, in favor of Mark Merlo
        4.16     Warrant Certificate No. 6, dated November 5, 1996, in favor of William Moody
        4.17     Warrant Certificate No. 7, dated November 5, 1996, in favor of HCM Castle Creek, Inc.
        4.18     Warrant Certificate No. 8, dated November 5, 1996, in favor of Castle Creek Financial Investors,
                   Inc.
        4.19     Warrant Certificate No. 9, dated November 5, 1996, in favor of Whitecap Capital, L.L.C.
        4.20     Warrant Certificate No. 10, dated November 5, 1996, in favor of Cook-Castle Creek, Inc.
        4.21     Warrant Certificate No. 11, dated November 5, 1996, in favor of Castle Creek Investors, L.L.C.
         9.1     Shareholder Agreement, dated as of December 19, 1996, by and between Farrell G. Hinkle and Monarch
                   Bancorp
         9.2     Shareholder Agreement, dated as of December 19, 1996, by and between Phillip L. Bush and Monarch
                   Bancorp
         9.3     Shareholder Agreement, dated as of December 19, 1996, by and between Michael Gertner and Monarch
                   Bancorp
         9.4     Shareholder Agreement, dated as of December 19, 1996, by and between James W. Hamilton and Monarch
                   Bancorp
         9.5     Shareholder Agreement, dated as of December 19, 1996, by and between William H. Jacoby and Monarch
                   Bancorp
         9.6     Shareholder Agreement, dated as of December 19, 1996, by and between Robert L. McKay and Monarch
                   Bancorp
         9.7     Shareholder Agreement, dated as of December 19, 1996, by and between Mark H. Stuenkel and Monarch
                   Bancorp
        10.0     Monarch Bancorp 1983 Stock Option Plan; Form Incentive Stock Option Agreement and Form Nonstatutory
                   Stock Option Agreement (Exhibit 10.2 of Registration Statement No. 2-85442 incorporated by
                   reference)
        10.1     Headquarters Office Lease (Exhibit 10.3 of Registration Statement No. 2-85442 incorporated by
                   reference)
        10.2     27751 La Paz Lease (Exhibit 3.5 of 12/31/84 Annual Report on Form 10-K incorporated by reference)
        10.3     30100 Town Center Drive Lease (Exhibit 3.6 of 12/31/84 (Annual Report on Form 10-K incorporated by
                   reference)
        10.4     Lease agreement for Bank assets sold and leased back from Parker North American in 1988. (Exhibit
                   10.4 of 12/31/89 Annual Report on Form 10-K incorporated by reference)
        10.5     Amended Stock Option Plan as approved in the July 1988 Shareholders' Meeting. (Exhibit 10.5 of
                   12/31/89 Annual Report on Form 10-K incorporated by reference)
        10.6     Stock Option Plan as approved in June 1993 Shareholders' Meeting (Exhibit 10.6 of original filing of
                   12.31/93 Annual Report on Form 10-KSB incorporated by reference)
</TABLE>
 
                                       69
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS NUMBER
---------------
<C>              <S>
        10.8     General Release of Claims and Agreement, dated February 1, 1997, among E. Lynn Caswell, Monarch and
                   Monarch Bank
        10.9     1993 Stock Option Plan as Amended May 15, 1996
       10.10     Form of Stock Option Agreement
        11.0     Computation of Per Earnings Common Stock and Common Share Equivalents (See Consolidated Statements
                   of Income contained in ITEM 7 of this Annual Report on Form 10-KSB incorporated by reference)
        16.0     Letter of Dayton & Associates on change in Certifying Accountant
        21.0     Subsidiaries of Monarch Bancorp
        27.0     Financial Data Schedule
        28.1     February 15, 1988 California Offering Circular (Exhibit 28.1 of 12/31/87 Form 10-K incorporated by
                   reference)
        28.2     Written Consent Statement for Proposed Amendment to the Articles of Incorporation to Increase the
                   Number of Authorized Shares (Original filing 1/12/96)
        28.3     Prospectus for rights and public offering of up to 3,177,296 shares of common stock (Original filing
                   7/19/95)
</TABLE>
 
(b) REPORTS ON FORM 8-K
 
    On October 4, 1996, the Company filed a Form 8-K discussing a change in
control of the company, the acquisition of Western Bank, a change in the
Company's certifying accounts and the resignation of directors.
 
    On December 2, 1996, the Company filed a Form 8-K containing the pro forma
combined financial statements with Western Bank.
 
    On December 20, 1996, the Company filed a Form 8-K announcing the merger
agreement reached with California Commercial Bankshares.
 
    On February 28, 1997, the Company filed a Form 8-K announcing its
Fourth-Quarter Earnings and the number of shares of common stock to be exchanged
in connection with the merger with California Commercial Bankshares.
 
                                       70
<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.
 
                                MONARCH BANCORP
 
                                By:            /s/ HUGH S. SMITH, JR.
                                     -----------------------------------------
                                                 Hugh S. Smith, Jr.
                                        CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                Date: March 19, 1997
 
    In accordance with the Securities Exchange Act, this report has been signed
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
 
          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
 
      /s/ ARNOLD C. HAHN        Executive Vice President
------------------------------    and Chief Financial         March 19, 1997
        Arnold C. Hahn            Officer
 
      /s/ RICE E. BROWN
------------------------------  Director                      March 19, 1997
        Rice E. Brown
 
    /s/ JOSEPH J. DIGANGE
------------------------------  Director                      March 19, 1997
      Joseph J. Digange
 
       /s/ JOHN W. ROSE
------------------------------  Director                      March 19, 1997
         John W. Rose
 
    /s/ MATTHEW P. WAGNER
------------------------------  Director                      March 19, 1997
      Matthew P. Wagner
 
      /s/ DALE E. WALTER
------------------------------  Director                      March 19, 1997
        Dale E. Walter
 
    /s/ JOHN M. EGGEMEYER
------------------------------  Director                      March 19, 1997
      John M. Eggemeyer
 
                                       71